Académique Documents
Professionnel Documents
Culture Documents
152542; 155472
142936
L-23145
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147402
86293
L-68097
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142435
164846
131673
160039
156819
155214
147993
158089
140923
155173
154975
159617
151438
112661
119609-10; 119623-25
124293
L-6055
121413; 121479;
128604
164317
131723
100152
141735
125221
119002
143513
136374
150976
108576
51765
150976
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137592
156819
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161886
100866
111448
129459
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93695
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153413
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152392
L-35603
153193
149252
160039
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171659
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109491
149454
161886
L-45911
160273
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113103
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L-69494
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L-18287
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L-37281
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105.
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Everett vs ABC
JG Summt Holdingsvs CA
Fleischer vs Botica Nolasco
Cyanamid Phil vs CA
CIR vs Lincold Phil Lie Insurance Co
NATUS vs Sec of Labor
Veraguth vs Isable Sugar Co
Gokongwei vs SEC
Gonzales vs PNB
RN Symaco Trading Corp vs Santos
Chua vs CA
Hornilla vs Salunat
Gochan vs Young
Lim vs Lim-Yu
Evangelista vs Santos
President of PDIC vs Reyes
Comissioner of Internal revenue vs CA
25241
124293
L-23241
108067
119176
L-39889
L-37064
L-45911
L-33320
142474
150793
AC 5804
131889
138343
L-1721
154973
108576
July 8, 2004
July 8, 2004
DECISION
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YNARES-SANTIAGO, J.:
Before the Court are consolidated petitions for review of the
decisions of the Court of Appeals in the complaints for forcible entry
and replevin filed by Monfort Hermanos Agricultural Development
Corporation (Corporation) and Ramon H. Monfort against the
children, nephews, and nieces of its original incorporators
(collectively known as "the group of Antonio Monfort III").
The petition in G.R. No. 152542, assails the October 5, 2001 Decision 1
of the Special Tenth Division of the Court of Appeals in CA-G.R. SP
No. 53652, which ruled that Ma. Antonia M. Salvatierra has no legal
capacity to represent the Corporation in the forcible entry case
docketed as Civil Case No. 534-C, before the Municipal Trial Court of
Cadiz City. On the other hand, the petition in G.R. No. 155472, seeks
to set aside the June 7, 2002 Decision2 rendered by the Special
Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No.
49251, where it refused to address, on jurisdictional considerations,
the issue of Ma. Antonia M. Salvatierra's capacity to file a complaint
for replevin on behalf of the Corporation in Civil Case No. 506-C
before the Regional Trial Court of Cadiz City, Branch 60.
Monfort Hermanos Agricultural Development Corporation, a
domestic private corporation, is the registered owner of a farm,
fishpond and sugar cane plantation known as Haciendas San
Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in
Cadiz City.3 It also owns one unit of motor vehicle and two units of
tractors.4 The same allowed Ramon H. Monfort, its Executive Vice
President, to breed and maintain fighting cocks in his personal
capacity at Hacienda San Antonio.5
In 1997, the group of Antonio Monfort III, through force and
intimidation, allegedly took possession of the 4 Haciendas, the
produce thereon and the motor vehicle and tractors, as well as the
fighting cocks of Ramon H. Monfort.
In G.R. No. 155472:
On April 10, 1997, the Corporation, represented by its President, Ma.
Antonia M. Salvatierra, and Ramon H. Monfort, in his personal
capacity, filed against the group of Antonio Monfort III, a complaint 6
for delivery of motor vehicle, tractors and 378 fighting cocks, with
prayer for injunction and damages, docketed as Civil Case No. 506C, before the Regional Trial Court of Negros Occidental, Branch 60.
The group of Antonio Monfort III filed a motion to dismiss contending,
inter alia, that Ma. Antonia M. Salvatierra has no capacity to sue on
behalf of the Corporation because the March 31, 1997 Board
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Unfazed, the Corporation filed a petition for review with this Court,
docketed as G.R. No. 152542 which was consolidated with G.R. No.
155472 per Resolution dated January 21, 2004.17
The focal issue in these consolidated petitions is whether or not Ma.
Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation.
The group of Antonio Monfort III claims that the March 31, 1997
Board Resolution authorizing Ma. Antonia M. Salvatierra and/or
Ramon H. Monfort to represent the Corporation is void because the
purported Members of the Board who passed the same were not
validly elected officers of the Corporation.
A corporation has no power except those expressly conferred on it
by the Corporation Code and those that are implied or incidental to
its existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents.
Thus, it has been observed that the power of a corporation to sue
and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the
corporation, like the signing of documents, can be performed only
by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors.18
Corollary thereto, corporations are required under Section 26 of the
Corporation Code to submit to the SEC within thirty (30) days after
the election the names, nationalities and residences of the elected
directors, trustees and officers of the Corporation. In order to keep
stockholders and the public transacting business with domestic
corporations properly informed of their organizational operational
status, the SEC issued the following rules:
xxx
xxx
xxx
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In G.R. No. 155472, the petition is GRANTED and the June 7, 2002
Decision rendered by the Special Former Thirteenth Division of the
Court of Appeals in CA-G.R. SP No. 49251, dismissing the petition filed
by the group of Antonio Monfort III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822
before the Municipal Trial Court of Cadiz City is DISMISSED. In Civil
Case No. 506-C with the Regional Trial Court of Negros Occidental,
Branch 60, the action for delivery of personal property filed by
Monfort Hermanos Agricultural Development Corporation is likewise
DISMISSED. With respect to the action filed by Ramon H. Monfort for
the delivery of 387 fighting cocks, the Regional Trial Court of Negros
Occidental, Branch 60, is ordered to effect the corresponding
substitution of parties.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ.,
concur.
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corporation readily indicated that four out of the six signatories in the
board resolution do not appear in the general information sheet. This
only showed there is now a doubt whether the four directors
appearing in the resolution were duly elected as directors of the
corporation.
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claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO
appealed. The Court of Appeals affirmed the decision of the trial
court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and
NASUDECO filed the petition for review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs
liability to AEEC.
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March 27, 1960: Idonah Slade Perkins died in New York City
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FACTS:
Idonah Slade Perkins, an American citizen who died in New York
City, left among others, two stock certificates issued by Benguet
Consolidated, a corporation domiciled in the Philippines. As ancillary
administrator of Perkins estate in the Philippines, Tayag now wants to
take possession of these stock certificates but County Trust Company
of New York, the domiciliary administrator, refused to part with them.
Thus, the probate court of the Philippines was forced to issue an
order declaring the stock certificates as lost and ordering Benguet
Consolidated to issue new stock certificates representing Perkins
shares. Benguet Consolidated appealed the order, arguing that the
stock certificates are not lost as they are in existence and currently in
the possession of County Trust Company of New York.
ISSUE: Whether or not the order of the lower court is proper
HELD:
The appeal lacks merit.
Tayag, as ancillary administrator, has the power to gain control and
possession of all assets of the decedent within the jurisdiction of the
Philippines
It is to be noted that the scope of the power of the ancillary
administrator was, in an earlier case, set forth by Justice Malcolm.
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On April 24, 1996, the SEC rendered its Order, reversing the PSE's
decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the
Commissioner's authority and jurisdiction under Section 3
of the Revised Securities Act, in conjunction with Section 3,
6(j) and 6(m) of Presidential Decree No. 902-A, the
decision of the Board of Governors of the Philippine Stock
Exchange denying the listing of shares of Puerto Azul
Land, Inc., is hereby set aside, and the PSE is hereby
ordered to immediately cause the listing of the PALI shares
in the Exchange, without prejudice to its authority to
require PALI to disclose such other material information it
deems necessary for the protection of the investigating
public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29,
1996, which was, however denied by the Commission in its May 9,
1996 Order which states:
WHEREFORE, premises considered, the Commission finds
no compelling reason to reconsider its order dated April
24, 1996, and in the light of recent developments on the
adverse claim against the PALI properties, PSE should
require PALI to submit full disclosure of material facts and
information to protect the investing public. In this regard,
PALI is hereby ordered to amend its registration
statements filed with the Commission to incorporate the
full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on
May 17, 1996 a Petition for Review (with Application for Writ of
Preliminary Injunction and Temporary Restraining Order), assailing the
above mentioned orders of the SEC, submitting the following as
errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE
ABUSE OF DISCRETION IN ISSUING THE ASSAILED
ORDERS WITHOUT POWER, JURISDICTION, OR
AUTHORITY; 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;
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of the late President Ferdinand E. Marcos and his family who claim
the properties of the private respondent to be part of the Marcos
estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and
suit for reconveyance to the state has been filed in the
Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC
to Rebecco Panlilio, and to the private respondent PALI, in only a
short span of time, are not yet explained to the Court, but it is clear
that such circumstances give rise to serious doubt as to the integrity
of PALI as a stock issuer. The petitioner was in the right when it
refused application of PALI, for a contrary ruling was not to the best
interest of the general public. The purpose of the Revised Securities
Act, after all, is to give adequate and effective protection to the
investing public against fraudulent representations, or false promises,
and the imposition of worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its
avowed protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the "truth in
securities" Act, was designed not only to provide investors
with adequate information upon which to base their
decisions to buy and sell securities, but also to protect
legitimate business seeking to obtain capital through
honest presentation against competition from crooked
promoters and to prevent fraud in the sale of securities.
(Tenth Annual Report, U.S. Securities & Exchange
Commission, p. 14).
As has been pointed out, the effects of such an act are
chiefly (1) prevention of excesses and fraudulent
transactions, merely by requirement of that their details be
revealed; (2) placing the market during the early stages of
the offering of a security a body of information, which
operating indirectly through investment services and
expert investors, will tend to produce a more accurate
appraisal of a security, . . . Thus, 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, 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. (Idem).
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Also, as the primary market for securities, the PSE has established its
name and goodwill, 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. It was reasonable for the PSE,
therefore, to exercise its judgment in the manner it deems
appropriate for its business identity, as long as no rights are trampled
upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of
government absolutism is a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute
and can no longer be assailed is of no moment. At this juncture,
there is the claim that the properties were owned by TDC and MSDC
and were transferred in violation of sequestration orders, to Rebecco
Panlilio and later on to PALI, besides the claim of the Marcoses that
such properties belong to the Marcos estate, and were held only in
trust by Rebecco Panlilio. It is also alleged by the petitioner that
these properties belong to naval and forest reserves, and therefore
beyond private dominion. If any of these claims is established to be
true, the certificates of title over the subject properties now held by
PALI map be disregarded, 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. The
inscription in the registry, to be effective, must be made in good
faith. 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.
In any case, for the purpose of determining whether PSE acted
correctly in refusing the application of PALI, the true ownership of the
properties of PALI need not be determined as an absolute fact.
What is material is that the uncertainty of the properties' ownership
and alienability exists, and this puts to question the qualification of
PALI's public offering. In sum, 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, since
this is a matter addressed to the sound discretion of the PSE, a
corporation entity, whose business judgments are respected in the
absence of bad faith.
The question as to what policy is, or should be relied upon in
approving the registration and sale of securities in the SEC is not for
the Court to determine, but is left to the sound discretion of the
Securities and Exchange Commission. In mandating the SEC to
administer the Revised Securities Act, and in performing its other
functions under pertinent laws, the Revised Securities Act, under
Section 3 thereof, 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. The second paragraph of
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PALI then wrote a letter to the SEC asking the latter to review PSEs
decision. The SEC reversed PSEs decisions and ordered the latter to
cause the listing of PALI shares in the Exchange.
ISSUE: Whether or not it is within the power of the SEC to reverse
actions done by the PSE.
HELD: Yes. The SEC has both jurisdiction and authority to look into the
decision of PSE pursuant to the Revised Securities Act and for the
purpose of ensuring fair administration of the exchange. PSE, as a
corporation itself and as a stock exchange is subject to SECs
jurisdiction, regulation, and control. In order to insure fair dealing of
securities and a fair administration of exchanges in the PSE, the SEC
has the authority to look into the rulings issued by the PSE. The SEC is
the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in
the stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that
the SEC may only reverse decisions issued by the PSE if such are
tainted with bad faith. In this case, there was no showing that PSE
acted with bad faith when it denied the application of PALI. Based
on the multiple adverse claims against the assets of PALI, PSE
deemed that granting PALIs application will only be contrary to the
best interest of the general public. It was reasonable for the PSE to
exercise its judgment in the manner it deems appropriate for its
business identity, as long as no rights are trampled upon, and public
welfare is safeguarded.
DECISION
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CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the Commission on Audits
("COA") Resolution dated 3 January 2000 and the Decision dated 30
January 2001 denying the Motion for Reconsideration. The COA
denied petitioner Ranulfo C. Felicianos request for COA to cease all
audit services, and to stop charging auditing fees, to Leyte
Metropolitan Water District ("LMWD"). The COA also denied
petitioners request for COA to refund all auditing fees previously
paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the
accounts of LMWD. Subsequently, LMWD received a letter from COA
dated 19 July 1999 requesting payment of auditing fees. As General
Manager of LMWD, petitioner sent a reply dated 12 October 1999
informing COAs Regional Director that the water district could not
pay the auditing fees. Petitioner cited as basis for his action Sections
6 and 20 of Presidential Decree 198 ("PD 198")2, as well as Section 18
of Republic Act No. 6758 ("RA 6758"). The Regional Director referred
petitioners reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional
Director asking for refund of all auditing fees LMWD previously paid
to COA.
On 16 March 2000, petitioner received COA Chairman Celso D.
Gangans Resolution dated 3 January 2000 denying his requests.
Petitioner filed a motion for reconsideration on 31 March 2000, which
COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to
the petition were resolutions of the Visayas Association of Water
Districts (VAWD) and the Philippine Association of Water Districts
(PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit
jurisdiction over local water districts in Davao City Water District v.
Civil Service Commission and Commission on Audit,3 as follows:
The above-quoted provision [referring to Section 3(b) PD 198]
definitely sets to naught petitioners contention that they are
private corporations. It is clear therefrom that the power to
appoint the members who will comprise the members of the
Board of Directors belong to the local executives of the local
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has ruled that LWDs are not created under the Corporation Code,
thus:
From the foregoing pronouncement, it is clear that what has
been excluded from the coverage of the CSC are those
corporations created pursuant to the Corporation Code.
Significantly, petitioners are not created under the said code,
but on the contrary, they were created pursuant to a special
law and are governed primarily by its provision.13 (Emphasis
supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter.
Since under the Constitution only government-owned or controlled
corporations may have special charters, LWDs can validly exist only if
they are government-owned or controlled. To claim that LWDs are
private corporations with a special charter is to admit that their
existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and
power from the Corporation Code, LWDs derive their legal existence
and power from PD 198. Sections 6 and 25 of PD 19814 provide:
Section 6. Formation of District. This Act is the source of
authorization and power to form and maintain a district. For
purposes of this Act, a district shall be considered as a quasipublic corporation performing public service and supplying
public wants. As such, a district shall exercise the powers, rights
and privileges given to private corporations under existing laws,
in addition to the powers granted in, and subject to such
restrictions imposed, under this Act.
(a) The name of the local water district, which shall include the
name of the city, municipality, or province, or region thereof,
served by said system, followed by the words "Water District".
(b) A description of the boundary of the district. In the case of a
city or municipality, such boundary may include all lands within
the city or municipality. A district may include one or more
municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks
and/or sewerage facilities managed, operated by or under the
control of such city, municipality or province to such district
upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is
formed, which shall include those purposes outlined in Section 5
above.
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(e) The names of the initial directors of the district with the date
of expiration of term of office for each.
(f) A statement that the district may only be dissolved on the
grounds and under the conditions set forth in Section 44 of this
Title.
(g) A statement acknowledging the powers, rights and
obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the
local legislative body has the power to dissolve, alter or affect
the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any
combination thereof, desire to form a single district, a similar
resolution shall be adopted in each city, municipality and
province.
xxx
Sec. 25. Authorization. The district may exercise all the
powers which are expressly granted by this Title or which are
necessarily implied from or incidental to the powers and
purposes herein stated. For the purpose of carrying out the
objectives of this Act, a district is hereby granted the power of
eminent domain, the exercise thereof shall, however, be
subject to review by the Administration. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which
expressly confers on LWDs corporate powers. Section 6 of PD 198
provides that LWDs "shall exercise the powers, rights and privileges
given to private corporations under existing laws." Without PD 198,
LWDs would have no corporate powers. Thus, PD 198 constitutes the
special enabling charter of LWDs. The ineluctable conclusion is that
LWDs are government-owned and controlled corporations with a
special charter.
The phrase "government-owned and controlled corporations with
original charters" means GOCCs created under special laws and not
under the general incorporation law. There is no difference between
the term "original charters" and "special charters." The Court clarified
this in National Service Corporation v. NLRC15 by citing the
deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original
proposed amendment to now read as follows: "including
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While Section 8 of PD 198 states that "[N]o public official shall serve
as director" of an LWD, it only means that the appointees to the
board of directors of LWDs shall come from the private sector. Once
such private sector representatives assume office as directors, they
become public officials governed by the civil service law and antigraft laws. Otherwise, Section 8 of PD 198 would contravene Section
2(1), Article IX-B of the Constitution declaring that the civil service
includes "government-owned or controlled corporations with original
charters."
If LWDs are neither GOCCs with original charters nor GOCCs without
original charters, then they would fall under the term "agencies or
instrumentalities" of the government and thus still subject to COAs
audit jurisdiction. However, the stark and undeniable fact is that the
government owns LWDs. Section 4527 of PD 198 recognizes
government ownership of LWDs when Section 45 states that the
board of directors may dissolve an LWD only on the condition that
"another public entity has acquired the assets of the district and has
assumed all obligations and liabilities attached thereto." The
implication is clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the
government owns or controls LWDs. Instead, petitioner advances the
theory that the "Water Districts owner is the District itself." 28 Assuming
for the sake of argument that an LWD is "self-owned,"29 as petitioner
describes an LWD, the government in any event controls all LWDs.
First, government officials appoint all LWD directors to a fixed term of
office. Second, any per diem of LWD directors in excess of P50 is
subject to the approval of the Local Water Utilities Administration,
and directors can receive no other compensation for their services
to the LWD.30 Third, the Local Water Utilities Administration can
require LWDs to merge or consolidate their facilities or operations.31
This element of government control subjects LWDs to COAs audit
jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became
private entities through the transfer of ownership of water facilities
from local government units to their respective water districts as
mandated by PD 198. Petitioner is grasping at straws. Privatization
involves the transfer of government assets to a private entity.
Petitioner concedes that the owner of the assets transferred under
Section 6 (c) of PD 198 is no other than the LWD itself.32 The transfer of
assets mandated by PD 198 is a transfer of the water systems facilities
"managed, operated by or under the control of such city,
municipality or province to such (water) district."33 In short, the
transfer is from one government entity to another government entity.
PD 198 is bereft of any indication that the transfer is to privatize the
operation and control of water systems.
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Footnotes
1
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Supra note 3.
Rollo, p. 7.
Ibid., p. 29.
11
Republic Act. No. 6938. See also Republic Act No. 6939 or the
Cooperative Development Authority Law.
12
13
Supra note 3.
14
As amended by PD 1479.
15
16
Supra note 3.
17
19
20
Emphasis supplied.
21
As amended by PD 1479.
22
24
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REGALADO, J.:
The present petition for certiorari seeks the reversal of the decision of
the National Labor Relations Commission (NLRC) in, NLRC-NCR Case
No. 00-07-02500-87, dated January 16, 1986, 1 which dismissed the
appeal of the Development Bank of the Philippines (DBP) from the
decision of the labor arbiter ordering it to pay the unpaid wages,
13th month pay, incentive pay and separation pay of herein private
respondents.
Philippine Smelters Corporation (PSC), a corporation registered under
Philippine law, obtained a loan in 1983 from the Development Bank
of the Philippines, a government-owned financial institution created
and operated in accordance with Executive Order No. 81, to finance
its iron smelting and steel manufacturing business. To secure said
loan, PSC mortgaged to DBP real properties with all the buildings and
improvements thereon and chattels, with its President, Jose T.
Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority
stockholder of PSC, with stockholdings in the amount of
P31,000,000.00 of the total P60,226,000.00 subscribed and paid up
capital stock. Subsequently, it took over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to
P75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired
the mortgaged real estate and chattels of PSC in the auction sales
held on February 25, 1987 and March 4, 1987.
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Page 76 of 1509
Republic Act No. 6715, which took effect on March 21, 1989,
amended Article 110 of the Labor Code to read as follows:
Art. 110. Worker preference in case of bankruptcy. In
the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards
their unpaid wages and other monetary claims, any
provision of law to the contrary notwithstanding. Such
unpaid wages and monetary claims shall be paid in full
before the claims of the Government and other creditors
may be paid.
As a consequence, Section 1 0, Rule VIII, Book III of the
Implementing Rules and Regulations of the Labor Code was likewise
amended, to wit:
Sec. 10. Payment of wages and other monetary claims in
case of bankruptcy. In case of bankruptcy or
liquidation of the employer's business, the unpaid wages
and other monetary claims of the employees shall be
given first preference and shall be paid in full before the
claims of government and other creditors may be paid.
Despite said amendments, however, the same interpretation of
Article 110 as applied in the aforesaid case of Development Bank of
the Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et al., supra, was
adopted by this Court in the recent case of Development Bank of the
Philippines vs. National Labor Relations Commission, et. al., 7 For
facility of reference, especially the rationalization for the conclusions
reached therein, we reproduce the salient portions of the decision in
this later case.
Notably, the terms "declaration" of bankruptcy or
"judicial" liquidation have been eliminated. Does this
means then that liquidation proceedings have been done
away with?
We opine m the negative, upon the following
considerations:
1. Because of its impact on the entire system of credit,
Article 110 of the Labor Code cannot be viewed in
isolation but must be read in relation to the Civil Code
scheme on classification and preference of credits.
Article 110 of the Labor Code, in determining
the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in
relation to the provisions of the Civil Code
concerning the classification, concurrence and
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Separate Opinions
Separate Opinions
SARMIENTO, J., dissenting:
As I held in DBP v. NLRC 1 and more recently, in Bolinao v. Padolina, 2
that on account of the amendment introduced by Republic Act No.
6715, workers now enjoy "absolute preference" in the payment of
labor claims, above and beyond taxes due from the Government,
and credits belonging to private persons. As I said therein, Republic
Act No. 6715 was enacted, precisely, to work more favorable terms
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AQUINO, C.J.:
This case is about the liability of a marketing distributor under its sales
agreements with the owner of the products. The petitioner presented
its evidence before Judges Castro Bartolome and Benipayo.
Respondents presented their evidence before Judge Tamayo who
decided the case.
A review of the record shows that Judge Tamayo acted under a
misapprehension of facts and his findings are contradicted by the
evidence. The Appellate Court adopted the findings of Judge
Tamayo. This is a case where this Court is not bound by the factual
findings of the Appellate Court. (See Director of Lands vs. Zartiga, L46068-69, September 30, 1982, 117 SCRA 346, 355).
Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc.
as exclusive distributor of its household products, Brite and Nuvan in
Panay and Negros, as shown in the sales agreement dated March
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14, 1970 (32-33 RA). Under that agreement Keller sold on credit its
products to COB Group Marketing.
As security for COB Group Marketing's credit purchases up to the
amount of P35,000, one Asuncion Manahan mortgaged her land to
Keller. Manahan assumed solidarily with COB Group Marketing the
faithful performance of all the terms and conditions of the sales
agreement (Exh. D).
In July, 1970 the parties executed a second sales agreement
whereby COB Group Marketing's territory was extended to Northern
and Southern Luzon. As security for the credit purchases up to
P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr.
and his father Tomas, Sr. (now deceased) executed a mortgage on
their land in Nueva Ecija. Like Manahan, the Lorenzos were solidarily
liable with COB Group Marketing for its obligations under the sales
agreement (Exh. E).
The credit purchases of COB Group Marketing, which started on
October 15, 1969, limited up to January 22, 1971. On May 8, the
board of directors of COB Group Marketing were apprised by Jose E.
Bax the firm's president and general manager, that the firm owed
Keller about P179,000. Bax was authorized to negotiate with Keller for
the settlement of his firm's liability (Exh. 1, minutes of the meeting).
On the same day, May 8, Bax and R. Oefeli of Keller signed the
conditions for the settlement of COB Group Marketing's liability,
Exhibit J, reproduced as follows:
This formalizes our conditions for the settlement of C.O.B.'s
account with Edward Keller Ltd.
1. Increase of mortgaged collaterals to the full market
value (estimated by Edak at P90,000.00).
2. Turn-over of receivables (estimated outstandings
P70,000.00 to P80,000.00).
3. Turn-over of 4 (four) trucks for outright sale to Edak, to
be credited against C.0.B.'s account.
4. Remaining 8 (eight) trucks to be assigned to Edak,
C.O.B will continue operation with these 8 trucks. They win
be returned to COB after settlement of full account.
5. C.O.B has to put up securities totalling P200,000.00.
P100,000.00 has to be liquidated within one year. The
remaining P100,000.00 has to be settled within the second
year.
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The lower courts harped on Keller's alleged failure to thresh out with
representatives of COB Group Marketing their "diverse statements of
credits and payments". This contention has no factual basis. In Exhibit
J, quoted above, it is stated by Bax and Keller's Oefeli that
"discussion (was) held on May 8, 1971."
That means that there was a conference on the COB Group
Marketing's liability. Bax in that discussion did not present his
reconciliation statements to show overpayment. His Exhibits 7 and 8
were an afterthought. He presented them long after the case was
filed. The petitioner regards them as "fabricated" (p. 28, Appellant's
Brief).
Bax admitted that Keller sent his company monthly statements of
accounts (20-21 tsn, September 2, 1976) but he could not produce
any formal protest against the supposed inaccuracy of the said
statements (22). He lamely explained that he would have to dig up
his company's records for the formal protest (23-24). He did not make
any written demand for reconciliation of accounts (27-28).
As to the liability of the stockholders, it is settled that a stockholder is
personally liable for the financial obligations of a corporation to the
extent of his unpaid subscription (Vda. de Salvatierra vs. Garlitos 103
Phil. 757, 763; 18 CJs 1311-2).
While the evidence shows that the amount due from COB Group
Marketing is P184,509.60 as of July 31, 1971 or P186,354.70 as of
August 31, 1971 (Exh. JJ), the amount prayed for in Keller's complaint
is P182,994.60 as of July 31, 1971 (18-19 Record on Appeal). This latter
amount should be the one awarded to Keller because a judgment
entered against a party in default cannot exceed the amount
prayed for (Sec. 5, Rule 18, Rules of Court).
WHEREFORE, the decisions of the trial court and the Appellate Court
are reversed and set aside.
COB Group marketing, Inc. is ordered to pay Edward A. Keller & Co.,
Ltd. the sum of P182,994.60 with 12% interest per annum from August
1, 1971 up to the date of payment plus P20,000 as attorney's fees.
Asuncion Manahan and Tomas C. Lorenzo, Jr. are ordered to pay
solidarity with COB Group Marketing the sums of P35,000 and
P25,000, respectively.
The following respondents are solidarity liable with COB Group
Marketing up to the amounts of their unpaid subscription to be
applied to the company's liability herein: Jose E. Bax P36,000;
Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio
C. Ordonez, P12,000; Trinidad C. Ordonez, P3,000; Magno C.
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Issue:
Ruling:
The lower courts not only allowed Bax to nullify his admissions as
to the liability of COB Group Marketing but they also
erroneously rendered judgment in its favor in the amount of its
supposed overpayment in the sum of P100, 596.72, in spite of
the fact that COB Group Marketing was declared in default
and did not file any counterclaim for the supposed
overpayment.
The decisions of the trial court and the Appellate Court are
reversed and set aside.
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September 4, 2001
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General Credit Corp. vs. Alsons Dev. & Investment (513 SCRA 225
[2007])
G.R. No. 154975
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Just like the first, the last three (3) arguments set forth in the petition
will not carry the day for the petitioner. In relation therewith, the
Court notes that these arguments and the issues behind them were
not raised before the trial court. This appellate maneuver cannot be
allowed. For, well-settled is the rule that issues or grounds not raised
below cannot be resolved on review in higher courts.14 Springing
surprises on the opposing party is antithetical to the sporting idea of
fair play, justice and due process; hence, the proscription against a
party shifting from one theory at the trial court to a new and different
theory in the appellate level. On the same rationale, points of law,
theories, issues not brought to the attention of the lower court or, in
fine, not interposed during the trial cannot be raised for the first time
on appeal.15
There are, to be sure, exceptions to the rule respecting what may be
raised for the first time on appeal. Lack of jurisdiction over when the
issues raised present a matter of public policy16 comes immediately
to mind. None of the well-recognized exceptions obtain in this case,
however.
Lest it be overlooked vis--vis the same last three arguments thus
pressed, both the trial court and the CA, based on the evidence
adduced, adjudged the petitioner and respondent EQUITY jointly
and severally liable to pay what respondent ALSONS is entitled to
under the "bearer" promissory note. The judgment argues against the
notion of the note being simulated or altered or that respondent
ALSONS has no standing to sue on the note, not being the payee of
the "bearer" note. For, the declaration of liability not only
presupposes the duly established authenticity and due execution of
the promissory note over which ALSONS, as the holder in due course
thereof, has interest, but also the untenability of the petitioners
counterclaim for attorneys fees and exemplary damages against
ALSONS. At bottom, the petitioner predicated such counter-claim on
the postulate that respondent ALSONS had no cause of action, the
supposed promissory note being, according to the petitioner, either
a simulated or an altered document.
In net effect, the definitive conclusion of the appellate court
affirmatory of that of the trial court was that the bearer promissory
note (Exh. "K") was a genuine and authentic instrument payable to
the holder thereof. This factual determination, as a matter of long
and sound appellate practice, deserves great weight and shall not
be disturbed on appeal, save for the most compelling reasons,17
such as when that determination is clearly without evidentiary
support or when grave abuse of discretion has been committed.18
This is as it should be since the Court, in petitions for review of CA
decisions under Rule 45 of the Rules of Court, usually limits its inquiry
only to questions of law. Stated otherwise, it is not the function of the
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Court to analyze and weigh all over again the evidence or premises
supportive of the factual holdings of lower courts.19
As nothing in the record indicates any of the exceptions adverted to
above, the factual conclusion of the CA that the P2 Million
promissory note in question was authentic and was issued at the first
instance to respondent ALSONS and the Alcantara family for the
amount stated on its face, must be affirmed. It should be stressed in
this regard that even the issuing entity, i.e., respondent EQUITY, never
challenged the genuineness and due execution of the note.
This brings us to the remaining but core issue tendered in this case
and aptly raised by the petitioner, to wit: whether there is absolutely
no basis for piercing GCCs veil of corporate identity.
A corporation is an artificial being vested by law with a personality
distinct and separate from those of the persons composing it 20 as
well as from that of any other entity to which it may be related.21 The
first consequence of the doctrine of legal entity of the separate
personality of the corporation is that a corporation may not be
made to answer for acts and liabilities of its stockholders or those of
legal entities to which it may be connected or vice versa.22
The notion of separate personality, however, may be disregarded
under the doctrine "piercing the veil of corporate fiction" as in
fact the court will often look at the corporation as a mere collection
of individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the
corporation unifying the group. Another formulation of this doctrine is
that when two (2) business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or one and the same.23
Whether the separate personality of the corporation should be
pierced hinges on obtaining facts, appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate
veil when it is misused or when necessary in the interest of justice.24
After all, the concept of corporate entity was not meant to promote
unfair objectives.
Authorities are agreed on at least three (3) basic areas where
piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be related, is
allowed.25 These are: 1) defeat of public convenience,26 as when the
corporate fiction is used as vehicle for the evasion of an existing
obligation;27 2) fraud cases or when the corporate entity is used to
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RENATO C. CORONA
Asscociate Justice
ADOLFO S. AZCUNA
Associate Justice
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CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby
certified that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Facts:
4 years later, the Alcantara family assigned its rights and interests
over the bearer note to ALSONS which became the holder thereof.
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Held:
The bank acceded to her request but Estelita failed to fulfill her
promise.
Consequently, the real estate mortgage was foreclosed and after
compliance with the requirements of the law the mortgaged
property was sold at public auction. On January 31, 1989, a
certificate of sale was issued to respondent Eugenio D. Trinidad as
the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon
City RTC a complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale issued over the
property against Pacific Bank and Eugenio D. Trinidad. The
complaint, which was docketed as Civil Case No. Q-89-4152,
alleged, among others, that the promissory notes, trust receipt, and
export bills were all ultra vires acts of Teresita as they were executed
without the requisite board resolution of the Board of Directors of
BEC. The Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporation's sole obligation, it
having a personality distinct and separate from spouses Lipat. It was
likewise pointed out that Teresita's authority to secure a loan from
Pacific Bank was specifically limited to Mrs. Lipat's sole use and
benefit and that the real estate mortgage was executed to secure
the Lipats' and BET's P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in
common that petitioners Lipat cannot evade payments of the value
of the promissory notes, trust receipt, and export bills with their
property because they and the BEC are one and the same, the
latter being a family corporation. Respondent Trinidad further
claimed that he was a buyer in good faith and for value and that
petitioners are estopped from denying BEC's existence after holding
themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained
in the record, the complaint filed in this case must be, as is
hereby, dismissed. Plaintiffs however has five (5) months and
seventeen (17) days reckoned from the finality of this decision
within which to exercise their right of redemption. The writ of
injunction issued is automatically dissolved if no redemption is
effected within that period.
The counterclaims and cross-claim are likewise dismissed for
lack of legal and factual basis.
No costs.
IT IS SO ORDERED.7
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The trial court ruled that there was convincing and conclusive
evidence proving that BEC was a family corporation of the Lipats. As
such, it was a mere extension of petitioners' personality and business
and a mere alter ego or business conduit of the Lipats established for
their own benefit. Hence, to allow petitioners to invoke the theory of
separate corporate personality would sanction its use as a shield to
further an end subversive of justice.8 Thus, the trial court pierced the
veil of corporate fiction and held that Bela's Export Corporation and
petitioners (Lipats) are one and the same. Pacific Bank had
transacted business with both BET and BEC on the supposition that
both are one and the same. Hence, the Lipats were estopped from
disclaiming any obligations on the theory of separate personality of
corporations, which is contrary to principles of reason and good
faith.
The Lipats timely appealed the RTC decision to the Court of Appeals
in CA-G.R. CV No. 41536. Said appeal, however, was dismissed by
the appellate court for lack of merit. The Court of Appeals found
that there was ample evidence on record to support the application
of the doctrine of piercing the veil of corporate fiction. In affirming
the findings of the RTC, the appellate court noted that Mrs. Lipat had
full control over the activities of the corporation and used the same
to further her business interests.9 In fact, she had benefited from the
loans obtained by the corporation to finance her business. It also
found unnecessary a board resolution authorizing Teresita Lipat to
secure loans from Pacific Bank on behalf of BEC because the
corporation's by-laws allowed such conduct even without a board
resolution. Finally, the Court of Appeals ruled that the mortgage
property was not only liable for the original loan of P583,854.00 but
likewise for the value of the promissory notes, trust receipt, and
export bills as the mortgage contract equally applies to additional or
new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from
Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by
the appellate court in its Resolution of February 23, 2000.10
Hence, this petition, with petitioners submitting that the court a quo
erred
1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION APPLIES IN THIS CASE.
2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD
LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE
AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF
PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF
BELA'S EXPORT CORPORATION.
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secured under the name of BEC on the pretext that it was signed for
the benefit and under the name of BET. We are thus constrained to
rule that the Court of Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged
property should not be made liable for the subsequent credit lines
and loans incurred by BEC because, first, it was not covered by the
mortgage contract of BET which only covered the loan of
P583,854.00 and which allegedly had already been paid; and,
second, it was secured by Teresita Lipat without any authorization or
board resolution of BEC.
We find petitioners' contention untenable. As found by the Court of
Appeals, the mortgaged property is not limited to answer for the
loan of P583,854.00. Thus:
Finally, the extent to which the Lipats' property can be held
liable under the real estate mortgage is not limited to
P583,854.00. It can be held liable for the value of the promissory
notes, trust receipt and export bills as well. For the mortgage
was executed not only for the purpose of securing the Bela's
Export Trading's original loan of P583,854.00, but also for "other
additional or new loans, discounting lines, overdrafts and credit
accommodations, of whatever amount, which the Mortgagor
and/or Debtor may subsequently obtain from the mortgagee
as well as any renewal or extension by the Mortgagor and/or
Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other
obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly principal or
secondary, as appears in the accounts, books and records of
the mortgagee.25
As a general rule, findings of fact of the Court of Appeals are final
and conclusive, and cannot be reviewed on appeal by the
Supreme Court, provided they are borne out by the record or based
on substantial evidence.26 As noted earlier, BEC merely succeeded
BET as petitioners' alter ego; hence, petitioners' mortgaged property
must be held liable for the subsequent loans and credit lines of BEC.
Further, petitioners' contention that the original loan had already
been paid, hence, the mortgaged property should not be made
liable to the loans of BEC, is unsupported by any substantial
evidence other than Estelita Lipat's self-serving testimony. Two
disputable presumptions under the rules on evidence weigh against
petitioners, namely: (a) that a person takes ordinary care of his
concerns;27 and (b) that things have happened according to the
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ordinary course of nature and the ordinary habits of life.28 Here, if the
original loan had indeed been paid, then logically, petitioners would
have asked from Pacific Bank for the required documents
evidencing receipt and payment of the loans and, as owners of the
mortgaged property, would have immediately asked for the
cancellation of the mortgage in the ordinary course of things.
However, the records are bereft of any evidence contradicting or
overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not
bind the loans and credit lines obtained by BEC as they were
secured without any proper authorization or board resolution. They
also blame the bank for its laxity and complacency in not requiring a
board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board
resolution since per admissions by both petitioner Estelita Lipat and
Alice Burgos, petitioners' rebuttal witness, no business or stockholder's
meetings were conducted nor were there election of officers held
since its incorporation. In fact, not a single board resolution was
passed by the corporate board29 and it was Estelita Lipat and/or
Teresita Lipat who decided business matters.30
Secondly, the principle of estoppel precludes petitioners from
denying the validity of the transactions entered into by Teresita Lipat
with Pacific Bank, who in good faith, relied on the authority of the
former as manager to act on behalf of petitioner Estelita Lipat and
both BET and BEC. While the power and responsibility to decide
whether the corporation should enter into a contract that will bind
the corporation is lodged in its board of directors, subject to the
articles of incorporation, by-laws, or relevant provisions of law, yet,
just as a natural person may authorize another to do certain acts for
and on his behalf, the board of directors may validly delegate some
of its functions and powers to officers, committees, or agents. The
authority of such individuals to bind the corporation is generally
derived from law, corporate by-laws, or authorization from the
board, either expressly or impliedly by habit, custom, or
acquiescence in the general course of business.31 Apparent
authority, is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers.32
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In this case, Teresita Lipat had dealt with Pacific Bank on the
mortgage contract by virtue of a special power of attorney
executed by Estelita Lipat. Recall that Teresita Lipat acted as the
manager of both BEC and BET and had been deciding business
matters in the absence of Estelita Lipat. Further, the export bills
secured by BEC were for the benefit of "Mystical Fashion" owned by
Estelita Lipat.33 Hence, Pacific Bank cannot be faulted for relying on
the same authority granted to Teresita Lipat by Estelita Lipat by virtue
of a special power of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, it holds him out to
the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's
authority.34
We find no necessity to extensively deal with the liability of Alfredo
Lipat for the subsequent credit lines of BEC. Suffice it to state that
Alfredo Lipat never disputed the validity of the real estate mortgage
of the original loan; hence, he cannot now dispute the subsequent
loans obtained using the same mortgage contract since it is, by its
very terms, a continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the
Court of Appeals for not taking cognizance of the issue on attorney's
fees on the ground that it was raised for the first time on appeal. We
find the conclusion of the Court of Appeals to be in accord with
settled jurisprudence. Basic is the rule that matters not raised in the
complaint cannot be raised for the first time on appeal.35 A close
perusal of the complaint yields no allegations disputing the attorney's
fees imposed under the real estate mortgage and petitioners
cannot now allege that they have impliedly disputed the same
when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of
Appeals in rendering the decision and resolution herein assailed by
petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21,
1999 and the Resolution dated February 23, 2000 of the Court of
Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against
petitioners.
SO ORDERED.
Bellosillo, Austria-Martinez and Callejo, Sr., JJ ., concur.
Lipat vs. Pacific Banking Corporation Case Digest
Lipat vs. Pacific Banking Corporation
Corporation Law/alfred0
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Facts: The spouses Alfredo Lipat and Estelita Burgos Lipat, owned
"Bela's Export Trading" (BET), a single proprietorship with principal
office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was
engaged in the manufacture of garments for domestic and foreign
consumption. The Lipats also owned the "Mystical Fashions" in the
United States, which sells goods imported from the Philippines
through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to
manage BET in the Philippines while she was managing "Mystical
Fashions" in the United States. In order to facilitate the convenient
operation of BET, Estelita Lipat executed on 14 December 1978, a
special power of attorney appointing Teresita Lipat as her attorneyin-fact to obtain loans and other credit accommodations from
Pacific Banking Corporation (Pacific Bank). She likewise authorized
Teresita to execute mortgage contracts on properties owned or coowned by her as security for the obligations to be extended by
Pacific Bank including any extension or renewal thereof.
transactions were all secured by the real estate mortgage over the
Lipats' property. The promissory notes, export bills, and trust receipt
eventually became due and demandable. Unfortunately, BEC
defaulted in its payments. After receipt of Pacific Bank's demand
letters, Estelita Lipat went to the office of the bank's liquidator and
asked for additional time to enable her to personally settle BEC's
obligations. The bank acceded to her request but Estelita failed to
fulfill her promise. Consequently, the real estate mortgage was
foreclosed and after compliance with the requirements of the law
the mortgaged property was sold at public auction.
Issue: Whether BEC and BET are separate business entities, and thus
the Lipt spouses can isolate themselves behind the corporate
personality of BEC.
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Held: When the corporation is the mere alter ego or business conduit
of a person, the separate personality of the corporation may be
disregarded. This is commonly referred to as the "instrumentality rule"
or the alter ego doctrine, which the courts have applied in
disregarding the separate juridical personality of corporations. As
held in one case, where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate
entity of the 'instrumentality' may be disregarded. The control
necessary to invoke the rule is not majority or even complete stock
control but such domination of finances, policies and practices that
the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. The
evidence on record shows BET and BEC are not separate business
entities. (1) Estelita and Alfredo Lipat are the owners and majority
shareholders of BET and BEC, respectively; (2) both firms were
managed by their daughter, Teresita; 19 (3) both firms were
engaged in the garment business, supplying products to "Mystical
Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held
office in the same building owned by the Lipats; (5) BEC is a family
corporation with the Lipats as its majority stockholders; (6) the
business operations of the BEC were so merged with those of Mrs.
Lipat such that they were practically indistinguishable; (7) the
corporate funds were held by Estelita Lipat and the corporation itself
had no visible assets; (8) the board of directors of BEC was
composed of the Burgos and Lipat family members; (9) Estelita had
full control over the activities of and decided business matters of the
corporation; and that (10) Estelita Lipat had benefited from the loans
secured from Pacific Bank to finance her business abroad and from
the export bills secured by BEC for the account of "Mystical Fashion."
It could not have been coincidental that BET and BEC are so
intertwined with each other in terms of ownership, business purpose,
and management. Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded the former. The
spouses' attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific
Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy. BEC is a mere
continuation and successor of BET, and the Lipat spouses cannot
evade their obligations in the mortgage contract secured under the
name of BEC on the pretext that it was signed for the benefit and
under the name of BET.
Corporation Law/alfred0
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Sta. Monica Industrial & Dev. Corp. vs. DAR Regional Director for
Region III (555 SCRA 97 [2008])
STA. MONICA INDUSTRIAL
AND DEVELOPMENT
CORPORATION,
Petitioner,
Present:
YNARES-SANTIAGO, J.,
- versus -
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
THE DEPARTMENT OF
REYES, and
Promulgated:
x--------------------------------------------------x
DECISION
Corporation Law/alfred0
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Corporation Law/alfred0
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The Facts
Corporation Law/alfred0
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Corporation Law/alfred0
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CA Disposition
the
instant
SO ORDERED.16[16]
Corporation Law/alfred0
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Corporation Law/alfred0
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Corporation Law/alfred0
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Issue
Our Ruling
Corporation Law/alfred0
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xxxx
In other words, transfer of ownership over tenanted
rice and/or corn lands after October 21, 1972 is allowed
only in favor of the actual tenant-tillers thereon. Hence,
the sale executed by Philbanking on January 11, 1985 in
favor of petitioner was in violation of the aforequoted
provision of P.D. 27 and its implementing guidelines, and
must thus be declared null and void.29[29] (Underscoring
supplied)
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Sta. Monica. They are all officers of the corporation.31[31] There are
only two non-related incorporators who own less than one percent
of the outstanding capital stock of Sta. Monica and who are not
officers of the corporation.
Third, Trinidad and her counsel failed to notify the DAR of the
prior sale to Sta. Monica during the administrative proceedings.
Worse, Trinidad feigned ignorance of the sale by filing a motion for
bill of particulars seeking specifics from De Guzman of her alleged
landholdings which are subject of his petition with the DAR.
It is the duty of Atty. Gutierrez to inform the DAR, at the very first
opportunity, of the sale to Sta. Monica. He was utterly remiss of this
duty. Instead of informing the DAR, Trinidad and her counsel
engaged in wild goose chase and stonewalling, feigning ignorance
when they ought to have informed the DAR of the sale to Sta.
Corporation Law/alfred0
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Fifth, the ultimate factor that betrays Trinidad and Sta. Monica is
the continued payment of lease rentals by De Guzman. Records
show that De Guzman paid and continued to pay lease rentals to
Trinidad even after she sold the land to Sta. Monica. The
receipt33[33] dated May 30, 2002 discloses that De Guzman paid 40
cavans of palay to Clodinaldo dela Cruz, the authorized
representative of Trinidad, as lease rentals for the agricultural land.
Corporation Law/alfred0
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Final Note
farmers are still tied to their bondage. It is more ironic when the
problem is taken in its historical context, the CARP law being the fifth
land reform law passed since President Quezon.
To Our mind, part of the problem lies with the CARP law itself. As
crafted, the law has its own loopholes. It provides for a long list of
exclusions. Some landowners used these exclusions to go around the
law. There is now a growing trend of land conversion in the
countryside suspiciously to evade coverage under the CARP law. Of
course, the solution to this problem lies with Congress. It is high time
We sounded the call for a more realistic, rational comprehensive
agrarian reform law.
Sta. Monica Industrial & Dev. Corp. vs. DAR Regional Director for
Region III (555 SCRA 97 [2008])
Corporation Law/alfred0
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Corporation Law/alfred0
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transfer in July 22, 1981. The sale to Sta. Monica in 1986 is void for
being contrary to law. Trinidad
remained the owner of the agricultural land.
Second, buyer Sta. Monica is owned and controlled by Trinidad and
her family. Records show
that Trinidad, her husband and two sons own more than 98% of the
outstanding capital stock of Sta.
Monica. They are all officers of the corporation. There are only two
non-related incorporators who own
less than one percent of the outstanding capital stock of Sta.
Monica and who are not officers of the
corporation.
To be sure, Trinidad and her family exercise absolute control of the
corporate affairs of Sta.
Monica. As owners of 98% of the outstanding capital stock, they are
the beneficial owners of all the
assets of the company, including the agricultural land sold by
Trinidad to Sta. Monica.
Third, Trinidad and her counsel failed to notify the DAR of the prior
sale to Sta. Monica during
the administrative proceedings. Worse, Trinidad feigned ignorance
of the sale by filing a motion for bill
of particulars seeking specifics from De Guzman of her alleged
landholdings which are subject of his
petition with the DAR.
It is highly unusual and unbelievable for her not to know, or at least
be aware, of the sale to Sta.
Monica. She herself signed the deed of sale as seller. She is also a
stockholder and officer of Sta.
Monica. More importantly, she cannot feign ignorance of De
Guzmans claim because he was her
agricultural tenant since the 1970s. She knows, or at least ought to
know, that the subject matter of the
petition with the DAR was her own landholding, which she sold to
Sta. Monica in direct violation of
Corporation Law/alfred0
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MATURIT
Y DATE
DAT
E
AMOUNT
MATURITY VALUE
25/9/80
28/11/80
121/4
USD306,043.4
8
USD 312,708.43
28/11/80
121/4
USD751,883.8
8
USD 768,258.24
MMP
084
25/09/8
0
Corporation Law/alfred0
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-------------USD1080,966.67
=============
=
CINTAS LARGAS
VALUE
DATE
MATURITY
DATE
DATE AMOUNT
15/9/80
1 DAY
CALL
107/8
USD 46,131.26
25/9/80
1 DAY
CALL
111/4
USD500,000.00
MATURITY
VALUE
121/4
USD420,831.45
USD
425,843.44
PESO 10,930,000.00
7.89 (EXCHANGE
RATE)
1.20 (120 PCT)
----------------1,662,357.00
==========
On June 17, 1983, the respondent filed a complaint against the CLL,
Wilfrido Martinez, Lacson, Gonzales, and petitioner Ruben Martinez,
with the RTC of Kaloocan City for the collection of the principal
amount of US$340,000, with a plea for a writ of preliminary
attachment. Two alternative causes of action against the
defendants were alleged therein, viz:
FIRST ALTERNATIVE CAUSE OF ACTION
2.1 The allegations contained in the foregoing paragraphs are
repleaded herein by reference.
2.2 The remittance by plaintiff of the sum of US$340,000.00 as
previously explained in the foregoing paragraphs was made
upon the express instructions of defendants GONZALES and
WILFRIDO C. MARTINEZ acting for and in behalf of the
defendant CINTAS, defendants GONZALES and WILFRIDO C.
MARTINEZ being the duly authorized representatives of
defendant CINTAS to transact any and all of its business with
plaintiff.
2.3 The remittance of US$340,000.00 was made under an
agreement for plaintiff to advance the said amount and for
defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS to
repay plaintiff all such monies so advanced to said defendants
or to their order.
2.4 In making said remittance, plaintiff acted as the agent of
the foregoing defendants in meeting the latters liability to the
recipient/s of the amount so remitted.
2.5 The remittance of US$340,000.00 which remains unsettled to
date is a just, binding and lawful obligation of the defendants
GONZALES, WILFRIDO C. MARTINEZ and CINTAS.
2.6 Defendant CINTAS is a reinvoicing or paper company with
nominee shareholders in Hongkong. The real and beneficial
shareholders of the foregoing defendants are the defendants
LACSON and WILFRIDO C. MARTINEZ.
2.7 Defendant CINTAS is being used by the foregoing
defendants as an alter ego or business conduit for their sole
benefit and/or to defeat public convenience.
2.8 Defendant CINTAS, being a mere alter ego or business
conduit for the foregoing defendants, has no corporate
personality distinct and separate from that of its beneficial
shareholders and, likewise, has no substantial assets in its own
name.
Corporation Law/alfred0
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Corporation Law/alfred0
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II
RESPONDENT COURT OF APPEALS ERRED IN NOT GRANTING THE
COUNTER-CLAIM OF PETITIONER RUBEN MARTINEZ CONSIDERING
THE EVIDENCE ON RECORD THAT PROVES THE SAME.38
The paramount issue posed for resolution is whether or not the
petitioner is obliged to reimburse to the respondent the principal
amount of US$340,000.
The petitioner asserts that the trial and appellate courts erred when
they held him liable for the reimbursement of US$340,000 to the
respondent. He contends that he is not in actuality a stockholder of
Mar Tierra Corporation, nor a stockholder of the CLL. He was not
involved in any way in the operations of the said corporations. He
added that while he may have signed the signature cards of MMP
Nos. 063 and 084 in blank, he never had any involvement in the
management and disposition of the said accounts, nor of any
deposits in or withdrawals from either or both accounts. He was not
aware of any transactions between the respondent, Wilfrido
Martinez, and Gonzales, with reference to the remittance of the
US$340,000 to FCD SA 18402-7; nor did he oblige himself to pay the
said amount to the respondent. According to the petitioner, there is
no evidence that he had benefited from any of the following: (a)
the remittance by the respondent of the US$340,000 to Account No.
FCD SA 18402-7 owned by Mar Tierra Corporation; (b) the money
market placements in MMP Nos. 063 and 084, or, (c) from any
deposits in or withdrawals from the said account and money market
placements.
On the other hand, the appellate court found the petitioner and his
co-defendants, jointly and severally, liable to the respondent for the
payment of the US$340,000 based on the following findings of the
trial court:
The Court finds that defendant Cintas Largas (Ltd.) with
capitalization of $10,000.00 divided into 1,000 shares at HK$10
per share, is a mere paper company with nominee
shareholders in Hongkong, namely: Overseas Nominees Ltd.
and Shares Nominees Ltd., with defendants Wilfrido and Miguel
J. Lacson as the sole directors (Exh. A). Since the said
shareholders are mere nominee companies, it would appear
that the said defendants Wilfrido and Miguel J. Lacson who are
the sole directors are the real and beneficial shareholders
(t.s.n., 9-1-87, p. 5). Further, defendant Cintas Largas Ltd. has no
real office in Hongkong as it is merely being accommodated
by Price Waterhouse, a large accounting office in Hongkong
(t.s.n., 9-1-87, pp. 7-8).
Corporation Law/alfred0
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the CLL.41 The Court is not a trier of facts. Hence, the factual findings
of the trial court, as affirmed by the appellate court, are generally
conclusive upon this Court.42 However, the rule is subject to the
following exceptions: (a) where the conclusion is a finding grounded
entirely on speculation, surmise and conjectures; (b) where the
information made is manifestly mistaken; (c) where there is grave
abuse of discretion; (d) where the judgment is based on a
misapplication of facts, and the findings of facts of the trial court
and the appellate court are contradicted by the evidence on
record; and (e) when certain material facts and circumstances had
been overlooked by the trial court which, if taken into account,
would alter the result of the case.
We have reviewed the records and find that some substantial
factual findings of the trial court and the appellate court and,
consequently, their conclusions based on the said findings, are not
supported by the evidence on record.
The general rule is that a corporation is clothed with a personality
separate and distinct from the persons composing it. Such
corporation may not be held liable for the obligation of the persons
composing it; and neither can its stockholders be held liable for such
obligation.43 A corporation has a separate personality distinct from its
stockholders and from other corporation to which it may be
connected.44 This separate and distinct personality of a corporation
is a fiction created by law for convenience and to prevent
injustice.45
Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit sparingly, the disregard of its
independent being and the piercing of the corporate veil.46 Thus,
the veil of separate corporate personality may be lifted when such
personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime; or used as a shield to confuse the
legitimate issues; or when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation;47 or when the corporation is used
as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or for the protection of the creditors.48 In
such cases where valid grounds exist for piercing the veil of
corporate entity, the corporation will be considered as a mere
association of persons.49 The liability will directly attach to them.50
However, mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of a corporation is
not by itself a sufficient ground to disregard the separate corporate
personality. The substantial identity of the incorporators of two or
Corporation Law/alfred0
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more corporations does not warrantly imply that there was fraud so
as to justify the piercing of the writ of corporate fiction.51 To disregard
the said separate juridical personality of a corporation, the
wrongdoing must be proven clearly and convincingly.52
The test in determining the application of the instrumentality or alter
ego doctrine is as follows:
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the
corporate veil." In applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendants
relationship to that operation.53
In this case, the respondent failed to adduce the quantum of
evidence necessary to prove any valid ground for the piercing of
the veil of corporate entity of Mar Tierra Corporation, or of RJL for
that matter, and render the petitioner liable for the respondents
claim, jointly and severally, with Wilfrido Martinez and Lacson. The
mere fact that the majority stockholder of Mar Tierra Corporation is
the RJL, and that the petitioner, along with Jose and Luis Martinez,
owned about 42% of the capital stock of RJL, do not constitute
sufficient evidence that the latter corporation, and/or the petitioner
and his brothers, had complete domination of Mar Tierra
Corporation. It does not automatically follow that the said
corporation was used by the petitioner for the purpose of
committing fraud or wrong, or to perpetrate an injustice on the
respondent. There is no evidence on record that the petitioner had
any involvement in the purchases of molasses by Wilfrido Martinez,
Gonzales and Lacson, and the subsequent sale thereof to the CLL,
through Mar Tierra Corporation. On the contrary, the evidence on
record shows that the CLL purchased molasses from Mar Tierra
Corporation and paid for the same through the credit facility
granted by the respondent to the CLL. The CLL, thereafter, made
remittances to Mar Tierra Corporation from its deposit account and
Corporation Law/alfred0
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MMP Nos. 063 and 084 with the respondent. The close business
relationship of the two corporations does not warrant a finding that
Mar Tierra Corporation was but a conduit of the CLL.
Likewise, the respondent failed to adduce preponderant evidence
to prove that the Mar Tierra Corporation and the RJL were so
organized and controlled, its affairs so conducted as to make the
latter corporation merely an instrumentality, agency, conduit or
adjunct of the former or of Wilfrido Martinez, Gonzales, and Lacson
for that matter, or that such corporations were organized to defraud
their creditors, including the respondent. The mere fact, therefore,
that the businesses of two or more corporations are interrelated is not
a justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.54
Also, the mere fact that part of the proceeds of the sale of molasses
made by Mar Tierra Corporation to the CLL may have been used by
the latter as deposits in its deposit account with the respondent or in
the money market placements in MMP Nos. 063 and 084, or that the
funds of Mar Tierra Corporation and the CLL with the respondent
were mingled, and their disposition controlled by Wilfrido Martinez,
does not constitute preponderant evidence that the petitioner,
Wilfrido Martinez and Lacson used the Mar Tierra Corporation and
the RJL to defraud the respondent. The respondent treated the CLL
and Mar Tierra Corporation as separate entities and considered
them as one and the same entity only when Wilfrido C. Martinez
and/or Blamar Gonzales failed to pay the US$340,000 remitted by
the respondent to FCD SA 18402-7. This being the case, there is no
factual and legal basis to hold the petitioner liable to the respondent
for the said amount.
Contrary to the ruling of the trial court and the appellate court, the
auditors of the CLL and the Mar Tierra Corporation, in their report, did
not find the petitioner liable for the respondents claim in their report.
The auditors, in fact, found the CLL alone liable for the said
amount.55 Even a cursory reading of the report will show that the
name of the petitioner was not mentioned therein.
The respondent failed to adduce evidence that the petitioner had
any involvement in the transactions between the CLL, through
Wilfrido Martinez and Gonzales, and the respondent, with reference
to the remittance of the US$340,000 to FCD SA 18402-7. In fact, the
said transaction was so confidential that Gonzales even suggested
to the respondent that the name of Wilfrido Martinez or Mar Tierra
Corporation be not made of record, and to authorize only Wilfrido
Martinez to sign the telex instruction:
OCT. 10, 1980
Corporation Law/alfred0
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Corporation Law/alfred0
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Confirmation/Correspondence to
be mailed to:
___ Office
___ Residence
___ Others:
________________
_________________________
_
Other Instructions:
_______________________________________________
_____________________________________________________________
____
_____________________________________________________________
____
Specimen of signature:
1. Sgd.
(Ruben
Martinez)
3. Sgd.
(Wilfrido
Martinez)
SIGNATURE
NAME
SIGNATURE
NAME
2. Sgd.
(Ruben
Martinez)
4. Sgd.
(Miguel J.
Lacson)
SIGNATURE
NAME
SIGNATURE
NAME62
respondent over the said placements. Neither did the petitioner bind
himself to pay to the respondent the US$340,000 which was
borrowed by the CLL and/or Wilfrido Martinez, and later remitted to
FCD SA 18402-7.
The respondent has no one but itself to blame for its failure to deduct
the US$340,000 from the foreign currency and deposit accounts and
money market placements of the CLL. The evidence on record
shows that the respondent was supposed to deduct the said amount
from the money market placements of the CLL in MMP Nos. 063 and
084, but failed to do so. The respondent remitted the amount from its
own funds and, by its negligence, merely posted the amount in the
account of the CLL. Worse, the respondent allowed the CLL and
Wilfrido Martinez to withdraw the entirety of the deposits in the said
accounts, without first deducting the US$340,000. By the time the
respondent realized its mistakes, the funds in the said accounts had
already been withdrawn solely by the CLL and/or Wilfrido Martinez.
This was the testimony of Michael Sung, the witness for the
respondent.
Q: Do you know whether this US$340,000 was really transferred
to Foreign Currency Deposit Account No. 18402-7 of the
Philippine Banking Corporation in Manila?
A: Yes.
Q: Pursuant to the procedure for fund transfer as contained in
Exhs. B, C, D and E, after having made such remittance of
US$340,000.00, what was plaintiff supposed to do, if any, in
order to get reimbursement for such transfer?
A: Plaintiff was supposed to deduct the US$340,000.00 remitted
to the foreign currency deposit account from the Cintas Largas
funds or from Money Market Placement Account Nos. 063 and
084 as well as the Cintas Largas, Ltd. deposit account.
Q: Do you know if plaintiff was able to obtain reimbursement of
the US$340,000 remitted to the Philippine Banking Corporation
in Manila?
A: No, because instead of deducting the remittance of
US$340,000 from the funds in the money market placement
accounts and/or the Cintas Largas Deposit Account, we
posted the US$340,000 remittance as an account receivable of
Cintas Largas, Ltd. since at that time the money market
placement deposits have not yet matured. Subsequently, we
failed to charge the deposit and MMP accounts when they
matured and Cintas Largas, Ltd. and/or Wilfrido C. Martinez
had already withdrawn the bulk of the funds contained in
Money Market Placement Account No. 063 and the Cintas
Corporation Law/alfred0
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Funds In
Funds Out
Remarks
28/11/80 6,664.95
Interests earned
29/12/80 4,779.66
"
"
21/01/81 4,024.83
"
"
21/01/81
119,478.51
13/02/81 2,321.99
"
Interests earned
100,015.00
17/02/81 55.07
Corporation Law/alfred0
suigeneris
Transfer to Cintas
Largas A/C
Receivable.
Interests earned
18/03/81 1,317.27
"
Purchase
HK$632,041.33
@5.29 &
transferred to its
statement A/C
"
100,000.00
"
Purchase
Page 162 of 1509
HK$525,000.00
@5.25 cheque
made payable
to Grand Solid
Enterprises Co.,
Ltd.
"
5,713.74
_____________
US$443,975.85
============
_____________
US$443,975.85
============
Transfer to A/C
Receivable
(MMP-063)
65
MMP 084
Statement of Accounts (Deposit)
Value
Date
Funds In
Funds Out
Remarks
28/11/80 16,374.36
Interests earned
01/12/80 488.16
"
"
04/12/80 1,089.06
"
"
"
US$250,000.00
09/12/80 1,290.56
"
Interests earned
200,000.00
18/12/80 1,545.42
"
Corporation Law/alfred0
suigeneris
Transfer to A/C
of Cintas Largas
Transfer to Cintas
Largas A/R.
Interests earned
200,000.00
T/T to Chase
Manhattan NY
Page 163 of 1509
for
Credit A/C Allied
Capital F/O
Frank Chan B/O
Grand Solid.
02/03/81 4,608.27
"
Interests earned
20,470.74
09/03/81 321.91
"
Interests earned
60,000.00
20/03/81 213.40
"
Transfer to A/C
of Grand Solid
Transfer to A/C
of Trinisia Ltd.
Interests earned
45,286.26
T/T to Nitto
Trading & Josho
Ind. Co., Ltd.,
Japan.
"
2,028.02
Transfer to A/C
Receivable
(MMP-084)
"
_____________
US$777,815.02
============
30.00
Cable Charges
_____________
US$777,815.02
============
66
CINTAS LARGAS
Statement of Accounts (Deposit)
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Value
Date
Funds In
Funds Out
Remarks
31/10/80 5,011.99
Interests earned
17/11/80 8,067.70
"
"
350,000.00
09/11/80 3,062.23
"
350,000.00
300,000.00
02/04/81
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Purchase
HK$1,535,100.00
@5.117, Cheque
made payable
to Grand Solid
Interests earned
81,415.00
02/03/81 2,445.49
"
Purchase
HK$1,789,200.00
@5.112, Cheque
made payable
to Grand Solid.
Interests earned
21/01/81 1,299.80
"
Transfer to A/C
of Grand Solid
Interests earned
26/11/80 3,264.34
"
"
Remittance from
C. Itoh & Co., NY
Interests earned
129,529.26
Transfer to
Grand Solids
A/C Receivable
143,000.00
Transfer from
CLs Statement
A/C
10/04/81 456.81
Interests earned
"
50,000.00
Purchase
HK$267,150.00
@5.343, Cheque
made payable
to Grand Solid.
13/04/81
US$ 40.89
Interests earned
21/04/81 311.66
"
"
US$ 50,000.00
28/04/81 132.04
"
"
Purchase
HK$268,850.00
@5.377, cheque
made payable
to Grand Solid.
Interests earned
40,000.00
52,692.00
"
Purchase
HK$214,480.00
@5.362, cheque
made payable
to Grand Solid.
Remittance from
Dai Ichi Kangyo
Bank NY. REF.
KOMEIMARU
19/05/81 178,465.18
Transfer from
CLs A/C
Receivable
22/05/81 46,472.00
Remittance from
C. Itoh & Co., NY
Re. Pacific
Geory.
26/05/81 28.40
Interests earned
04/06/81 1,242.80
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"
"
"
50,000.00
11/06/81 2,252.36
"
Purchase
HK$275,750.00
@5.515, Cheque
made payable
to Grand Solid
Interests earned
66,400.00
T/T to Security
Pacific Natl
Bank LA for A/C
of Twentieth
Century Fox Intl
Corp.
"
15.00
Cable Charge
"
31.65
Purchase
HK$175.00 @5.53
for payment of
Business
Registration Fee.
25/06/81 1,192.24
Interests earned
"
60,000.00
Purchase
HK$331,500.00
@5.525, cheque
made payable
to Grand Solid.
"
22,656.88
T/T to Daiwa
Bank, Los
Angeles for A/C
of OAC
Equipment Corp.
"
45,800.00
"
15.00
Cable Charge
03/07/81 165.47
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Interests earned
"
11,870.00
T/T to Bank of
Tokyo, Kobe
Branch for A/C
of Furuno
Electric Co. Ref.:
Mar Tierra
Takashiro Maru,
Eatelite Nav.
and Radar.
"
15.00
Cable Charge
06/07/81 17.60
Interests earned
07/07/81 14.83
"
"
"
16,000.00
"
15.00
Cable Charge
Interests earned
US$ 1,250.00
17/09/81 11.91
"
08/01/82 70,360.00
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Reimbursement
of expenses paid
to Price
Waterhouse &
Co.
Interests earned
237.43
Purchase
HK$1,421.50 for
cheque
payment to
Price
Waterhouse &
Co.
Remittance from
C. Itoh & Co., NY
Page 168 of 1509
19/01/82 268.74
Interests earned
"
3,064.81
Transfer to CLs
Margin A/C
"
50,000.00
Purchase
HK$295,100.00,
cheque made
payable to
Grand Solid.
"
5,952.38
TOTAL :
_____________
US$1,756,387.32
______________
US$1,732,103.25
24,284.07
______________
______________
US$1,756,387.32
US$1,756,387.32
============== ==============
Transfer to A/C
of Trinisia Ltd.
Outstanding
deposits
67
Clearly from the foregoing, the withdrawals from the deposit and
foreign currency accounts and MMP Nos. 063 and 084 of the CLL,
after the respondent remitted the US$340,000, were for the account
of the CLL and/or Wilfrido Martinez, and not of the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
Decision of the Court of Appeals is REVERSED AND SET ASIDE. The
complaint of the respondent against the petitioner in Civil Case No.
C-10811 is DISMISSED. No costs.
SO ORDERED.
Puno, Austria-Martinez**, Tinga, and Chico-Nazario***, JJ., concur.
Secosa vs. Heirs of Erwin Suarez Francisco (433 SCRA 273 [2004])
[G.R. No. 160039. June 29, 2004]
RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD
WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs.
HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.
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DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking
the reversal of the decision34[1] of the Court of Appeals dated
February 27, 2003 in CA-G.R. CV No. 61868, which affirmed in toto
the June 19, 1998 decision35[2] of Branch 20 of the Regional Trial
Court of Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an
eighteen year old third year physical therapy student of the Manila
Central University, was riding a motorcycle along Radial 10 Avenue,
near the Veteran Shipyard Gate in the City of Manila. At the same
time, petitioner, Raymundo Odani Secosa, was driving an Isuzu
cargo truck with plate number PCU-253 on the same road. The truck
was owned by petitioner, Dassad Warehousing and Port Services,
Inc.
Traveling behind the motorcycle driven by Francisco was a sand
and gravel truck, which in turn was being tailed by the Isuzu truck
driven by Secosa. The three vehicles were traversing the southbound
lane at a fairly high speed. When Secosa overtook the sand and
gravel truck, he bumped the motorcycle causing Francisco to fall.
The rear wheels of the Isuzu truck then ran over Francisco, which
resulted in his instantaneous death. Fearing for his life, petitioner
Secosa left his truck and fled the scene of the collision.36[3]
Respondents, the parents of Erwin Francisco, thus filed an action for
damages against Raymond Odani Secosa, Dassad Warehousing
and Port Services, Inc. and Dassads president, El Buenasucenso Sy.
The complaint was docketed as Civil Case No. 96-79554 of the RTC
of Manila, Branch 20.
On June 19, 1998, after a full-blown trial, the court a quo rendered a
decision in favor of herein respondents, the dispositive portion of
which states:
WHEREFORE, premised on the foregoing, judgment is hereby
rendered in favor of the plaintiffs ordering the defendants to pay
plaintiffs jointly and severally:
1.
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2.
3.
4.
5.
6.
SO ORDERED.
Petitioners appealed the decision to the Court of Appeals, which
affirmed the appealed decision in toto.37[4]
Hence the present petition, based on the following arguments:
I.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE
DECISION OF THE TRIAL COURT THAT PETITIONER DASSAD DID NOT
EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN
ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND
RELATED JURISPRUDENCE ON THE MATTER.
II.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE
DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL
BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND
SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED
JURISPRUDENCE ON THE MATTER.
III.
THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF
APPEALS AWARDING P500,000.00 AS MORAL DAMAGES IS
MANIFESTLY ABSURD, MISTAKEN AND UNJUST.38[5]
The petition is partly impressed with merit.
On the issue of whether petitioner Dassad Warehousing and Port
Services, Inc. exercised the diligence of a good father of a family in
the selection and supervision of its employees, we find the assailed
decision to be in full accord with pertinent provisions of law and
established jurisprudence.
Article 2176 of the Civil Code provides:
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Coming now to the case at bar, while there is no rule which requires
that testimonial evidence, to hold sway, must be corroborated by
documentary evidence, inasmuch as the witnesses testimonies dwelt
on mere generalities, we cannot consider the same as sufficiently
persuasive proof that there was observance of due diligence in the
selection and supervision of employees. Petitioners attempt to prove
its deligentissimi patris familias in the selection and supervision of
employees through oral evidence must fail as it was unable to
buttress the same with any other evidence, object or documentary,
which might obviate the apparent biased nature of the
testimony.43[10]
Our view that the evidence for petitioner MMTC falls short of the
required evidentiary quantum as would convincingly and
undoubtedly prove its observance of the diligence of a good father
of a family has its precursor in the underlying rationale pronounced in
the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees
Transportation Co., et al.,44[11] set amidst an almost identical
factual setting, where we held that:
The failure of the defendant company to produce in court any
record or other documentary proof tending to establish that it had
exercised all the diligence of a good father of a family in the
selection and supervision of its drivers and buses, notwithstanding the
calls therefor by both the trial court and the opposing counsel,
argues strongly against its pretensions.
We are fully aware that there is no hard-and-fast rule on the
quantum of evidence needed to prove due observance of all the
diligence of a good father of a family as would constitute a valid
defense to the legal presumption of negligence on the part of an
employer or master whose employee has by his negligence, caused
damage to another. x x x (R)educing the testimony of Albert to its
proper proportion, we do not have enough trustworthy evidence left
to go by. We are of the considered opinion, therefore, that the
believable evidence on the degree of care and diligence that has
been exercised in the selection and supervision of Roberto Leon y
Salazar, is not legally sufficient to overcome the presumption of
negligence against the defendant company.
The above-quoted ruling was reiterated in a recent case again
involving the Metro Manila Transit Corporation,45[12] thus:
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xxx
xxx
Although testimonies were offered that in the case of Pedro Musa all
these precautions were followed, the records of his interview, of the
results of his examinations, and of his service were not presented. . .
[T]here is no record that Musa attended such training programs and
passed the said examinations before he was employed. No proof
was presented that Musa did not have any record of traffic
violations. Nor were records of daily inspections, allegedly
conducted by supervisors, ever presented. . . The failure of MMTC to
present such documentary proof puts in doubt the credibility of its
witnesses.
Jurisprudentially, therefore, the employer must not merely present
testimonial evidence to prove that he observed the diligence of a
good father of a family in the selection and supervision of his
employee, but he must also support such testimonial evidence with
concrete or documentary evidence. The reason for this is to obviate
the biased nature of the employers testimony or that of his
witnesses.47[14]
Applying the foregoing doctrines to the present case, we hold that
petitioner Dassad Warehousing and Port Services, Inc. failed to
conclusively prove that it had exercised the requisite diligence of a
good father of a family in the selection and supervision of its
employees.
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xxx
xxx
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Issues:
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Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise
the required diligence of a good father of a family in the selection
and supervision of its employees. Hence, it cannot be held solidary
liable with the negligence of its employee.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed
to conclusively prove that it had exercised the requisite diligence of
a good father of a family in the selection and supervision of its
employees. Dassad Warehousing and Port Services, Inc. failed to
support the testimony of its lone witness, Edilberto Duerme, with
documentary evidence which would have strengthened its claim of
due diligence in the selection and supervision of its employees. Such
an omission is fatal on account of which, Dassad can be rightfully
held solidarily liable with its co-petitioner Secosa for the damages
suffered by the heirs of Francisco.
The records of the case does not point toward the presence of any
grounds enumerated above that will justify the piercing of the veil of
corporate entity such as to hold Sy, the president of Dassad
Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was
registered in the name of Dassad and not in the name of Sy. Secosa
is an employee of Dassad and not of Sy. These facts showed Sys
exclusion from liability for damages arising from the death of
Francisco.
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Number of Shares
Amount
Raul E. Gala
6,640
66,400.00
Ofelia E. Gala
6,640
66,400.00
Guia G. Domingo
6,640
66,400.00
Virgilio Galeon
40
40.00
Julian Jader
40
40.00
TOTAL
20,000
P200,000.009
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On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice
to Margo. 10
Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor
de Villa on March 2, 1983. That same day, de Villa transferred said
shares to Margo. 11 A few months later, on August 28, 1983, Alicia
Gala transferred 854.3 of her shares to Ofelia Gala, 500 to Guia
Domingo and 500 to Raul Gala. 12
Years later, on February 8, 1988, Manuel Gala transferred all of his
remaining holdings in Ellice, amounting to 2,164 shares, to Raul Gala.
13
Number of Shares
Amount
Margo
24,312.5
2,431,250.00
Alicia Gala
21,480.2
2,148,020.00
Raul Gala
2,704.5
270,450.00
Ofelia Gala
980.8
98,080.00
Gina Domingo
516
51,600.00
Rita Benson
200.00
Virgilio Galeon
100.00
Julian Jader
100.00
Adnan Alonto
100.00
Elias Cresencio
100.00
TOTAL
50,000
P5,000,000.00
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Petitioners filed a petition for review with the Court of Appeals which
dismissed the petition for review and affirmed the decision of the SEC
En Banc. 24
Hence, this petition, raising the following issues:
I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS
ILLEGAL AND CONTRARY TO PUBLIC POLICY THE PURPOSES AND
MANNER IN WHICH RESPONDENT CORPORATIONS WERE ORGANIZED
WHICH WERE, E.G. TO (1) "PREVENT THE GALA ESTATE FROM BEING
BROUGHT UNDER THE COVERAGE (SIC)" OF THE COMPREHENSIVE
AGRARIAN REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR
"ESTATE PLANNING."
II
WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY
RESOLVING THE CASE WITHIN TWO (2) DAYS FROM RECEIPT OF
RESPONDENTS COMMENT; AND (2) IN NOT MAKING A
DETERMINATION OF THE ISSUES OF FACTS AND INSTEAD RITUALLY
CITING THE FACTUAL FINDINGS OF THE COMMISSION A QUO WITHOUT
DISCUSSION AND ANALYSIS;
III
WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE
ORGANIZATION OF RESPONDENT CORPORATIONS WAS NOT ILLEGAL
FOR DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME.
IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE
VEILS OF CORPORATE FICTION OF RESPONDENTS CORPORATIONS
ELLICE AND MARGO. 25
In essence, petitioners want this Court to disregard the separate
juridical personalities of Ellice and Margo for the purpose of treating
all property purportedly owned by said corporations as property
solely owned by the Gala spouses.
The petitioners first contention in support of this theory is that the
purposes for which Ellice and Margo were organized should be
declared as illegal and contrary to public policy. They claim that the
respondents never pursued exemption from land reform coverage in
good faith and instead merely used the corporations as tools to
circumvent land reform laws and to avoid estate taxes. Specifically,
they point out that respondents have not shown that the transfers of
the land in favor of Ellice were executed in compliance with the
requirements of Section 13 of R.A. 3844.26 Furthermore, they alleged
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Thus, even if Ellice and Margo were organized for the purpose of
exempting the properties of the Gala spouses from the coverage of
land reform legislation and avoiding estate taxes, we cannot
disregard their separate juridical personalities.
Next, petitioners make much of the fact that the Court of Appeals
promulgated its assailed Decision a mere two days from the time the
respondents filed their Comment. They alleged that the appellate
court could not have made a deliberate study of the factual
questions in the case, considering the sheer volume of evidence
available. 35 In support of this allegation, they point out that the
Court of Appeals merely adopted the factual findings of the SEC En
Banc verbatim, without deliberation and analysis. 36
In People v. Mercado, 37 we ruled that the speed with which a lower
court disposes of a case cannot thus be attributed to the injudicious
performance of its function. Indeed, magistrates are not supposed to
study a case only after all the pertinent pleadings have been filed. It
is a mark of diligence and devotion to duty that jurists study a case
long before the deadline set for the promulgation of their decision
has arrived. The two-day period between the filing of petitioners
Comment and the promulgation of the decision was sufficient time
to consider their arguments and to incorporate these in the decision.
As long as the lower court does not sacrifice the orderly
administration of justice in favor of a speedy but reckless disposition
of a case, it cannot be taken to task for rendering its decision with
due dispatch. The Court of Appeals in this intra-corporate
controversy committed no reversible error and, consequently, its
decision should be affirmed. 38 Verily, if such swift disposition of a
case is considered a non-issue in cases where the life or liberty of a
person is at stake, then we see no reason why the same principle
cannot apply when only private rights are involved.
Furthermore, well-settled is the rule that the factual findings of the
Court of Appeals are conclusive on the parties and are not
reviewable by the Supreme Court. They carry even more weight
when the Court of Appeals affirms the factual findings of a lower
fact-finding body.39 Likewise, the findings of fact of administrative
bodies, such as the SEC, will not be interfered with by the courts in
the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not supported
by substantial evidence. 40
However, in the interest of equity, this Court has reviewed the factual
findings of the SEC En Banc, which were affirmed in toto by the Court
of Appeals, and has found no cogent reason to disturb the same.
Indeed, we are convinced that the arguments raised by the
petitioners are nothing but unwarranted conclusions of law.
Specifically, they insist that the Gala spouses never meant to part
Corporation Law/alfred0
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with the ownership of the shares which are in the names of their
children and encargados, and that all transfers of property to these
individuals are supposedly void for being absolutely simulated for
lack of consideration.41 However, as correctly held by the SEC En
Banc, the transfers were only relatively simulated, inasmuch as the
evident intention of the Gala spouses was to donate portions of their
property to their children and encargados. 42
In an attempt to bolster their theory that the organization of the
respondent corporations was illegal, the petitioners aver that the
legitime pertaining to petitioners Rita G. Benson and Guia G.
Domingo from the estate of their father had been subject to
unwarranted reductions as a result thereof. In sum, they claim that
stockholdings in Ellice which the late Manuel Gala had assigned to
them were insufficient to cover their legitimes, since Benson was only
given two shares while Domingo received only sixteen shares out of
a total number of 35,000 issued shares. 43
Moreover, the reliefs sought by petitioners should have been raised
in a proceeding for settlement of estate, rather than in the present
intra-corporate controversy. If they are genuinely interested in
securing that part of their late fathers property which has been
reserved for them in their capacity as compulsory heirs, then they
should simply exercise their actio ad supplendam legitimam, or their
right of completion of legitime.44 Such relief must be sought during
the distribution and partition stage of a case for the settlement of the
estate of Manuel Gala, filed before a court which has taken
jurisdiction over the settlement of said estate. 45
Finally, the petitioners pray that the veil of corporate fiction that
shroud both Ellice and Margo be pierced, consistent with their earlier
allegation that both corporations were formed for purposes contrary
to law and public policy. In sum, they submit that the respondent
corporations are mere business conduits of the deceased Manuel
Gala and thus may be disregarded to prevent injustice, the distortion
or hiding of the truth or the "letting in" of a just defense. 46
However, to warrant resort to the extraordinary remedy of piercing
the veil of corporate fiction, there must be proof that the corporation
is being used as a cloak or cover for fraud or illegality, or to work
injustice, 47 and the petitioners have failed to prove that Ellice and
Margo were being used thus. They have not presented any
evidence to show how the separate juridical entities of Ellice and
Margo were used by the respondents to commit fraudulent, illegal or
unjust acts. Hence, this contention, too, must fail.
On June 5, 2003, the petitioners filed a Reply, where, aside from
reiterating the contentions raised in their Petition, they averred that
there is no proof that either capital gains taxes or documentary
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stamp taxes were paid in the series of transfers of Ellice and Margo
shares. Thus, they invoke Sections 176 and 201 of the National
Internal Revenue Code, which would bar the presentation or
admission into evidence of any document that purports to transfer
any benefit derived from certificates of stock if the requisite
documentary stamps have not been affixed thereto and cancelled.
Curiously, the petitioners never raised this issue before the SEC
Hearing Officer, the SEC En Banc or the Court of Appeals. Thus, we
are precluded from passing upon the same for, as a rule, no
question will be entertained on appeal unless it has been raised in
the court below, for points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and
ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first time at that late stage. Basic
considerations of due process impel this rule.48 Furthermore, even if
these allegations were proven to be true, such facts would not
render the underlying transactions void, for these instruments would
not be the sole means, much less the best means, by which the
existence of these transactions could be proved. For this purpose,
the books and records of a corporation, which include the stock and
transfer book, are generally admissible in evidence in favor of or
against the corporation and its members. They can be used to prove
corporate acts, a corporations financial status and other matters,
including ones status as a stockholder. Most importantly, these
books and records are, ordinarily, the best evidence of corporate
acts and proceedings.49 Thus, reference to these should have been
made before the SEC Hearing Officer, for this Court will not entertain
this belated questioning of the evidence now.
It is always sad to see families torn apart by money matters and
property disputes.1wphi1 The concept of a close corporation
organized for the purpose of running a family business or managing
family property has formed the backbone of Philippine commerce
and industry. Through this device, Filipino families have been able to
turn their humble, hard-earned life savings into going concerns
capable of providing them and their families with a modicum of
material comfort and financial security as a reward for years of hard
work. A family corporation should serve as a rallying point for family
unity and prosperity, not as a flashpoint for familial strife. It is hoped
that people reacquaint themselves with the concepts of mutual aid
and security that are the original driving forces behind the formation
of family corporations and use these tenets in order to facilitate
more civil, if not more amicable, settlements of family corporate
disputes.
WHEREFORE, in view of the foregoing, the petition is DENIED. The
Decision dated November 8, 2002 and the Resolution dated
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from the coverage of land reform laws, and (2) the two corporations
were meant to be used as mere tools for the avoidance of estate
taxes.
Issue:
Whether the separate juridical personalities of Ellice and Margo
could be disregard on the grounds that they were meant to be tools
to avoid land reform laws and estate taxes.
Held:
NO, a perusal of the Articles of Incorporation of Ellice and Margo
shows no sign of the allegedly illegal purposes that petitioners are
complaining of. And even assuming that the petitioners allegations
were true, the legality of the purposes for which the two
corporations were formed should be first threshed out in an
administrative case before the Securities and Exchange Commission.
(Doctrine of Primary Jurisdiction). Moreover, on the contention that
Ellice and Margo were meant to be tools for the avoidance of
estate taxes, the court said th
at the legal
right of a taxpayer to reduce the amount of what otherwise could
be his taxes or altogether avoid them, by means which the law
permits,
cannot be doubted. (citing: Liddel& Co., Inc c. CIR)
Note: Simplified, this case is about a feud between family members
who organized two corporation. Petitioners are Alicia Gala (mother),
Guia Domingo (sister), and Rita Benson (Sister), Respondents are Raul
Gala (brother), Ellice Inc., and Margo Inc. (the family corporations).
Gala v. Ellice
GR. No. 156819, December 11, 2003
Justice Ynares-Santiago
Facts: The spouses Manuel and Alicia Gala, their children Guia
Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their
encargados Virgilio Galeon and Julian Jader formed and organized
the Ellice Agro-Industrial Corporation. The total subscribed capital
stock of the corporation was apportioned as follows:
Name
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Number of Shares
Amount
Page 192 of 1509
Manuel R. Gala
Alicia E. Gala
11, 700
23,200
Guia G. Domingo
2,320,000.00
16
Ofelia E. Gala 40
Raul E. Gala
1,170,000.00
1,600.00
4,000.00
40
4,000.00
Rita G. Benson 2
200.00
Virgilio Galeon 1
100.00
Julian Jader
TOTAL
1
35,000
100.00
P3,500,000.00
Number of Shares
Amount
Raul E. Gala
6,640
66,400.00
66,400.00
6,640
Virgilio Galeon 40
Julian Jader
TOTAL
66,400.00
40.00
40
20,000
40.00
P200,000.00
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Number of Shares
Margo
24,312.5
2,431,250.00
Alicia Gala
21,480.2
2,148,020.00
Raul Gala
2,704.5
Ofelia Gala
Amount
270,450.00
980.8
98,080.00
51,600.00
Virgilio Galeon 1
200.00
100.00
Julian Jader
100.00
Adnan Alonto
100.00
Elias Cresencio 1
100.00
TOTAL
P5,000,000.00
50,000
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court.16 Such is the situation in the present case; thus, the doors to a
review are open.17
The very same reason that behooved the CA to review the factual
findings of the NLRC impels this Court to take its own look at the
findings of fact. Normally, the Supreme Court is not a trier of facts.18
However, since the findings of fact in the present case are
conflicting,19 it waded through the records to find out if there was
enough basis for the appellate courts reversal of the NLRC Decision.
Number of Creditable Years of Service for Retirement Benefits
Petitioners do not dispute the fact that the late Pedro M. Latag is
entitled to retirement benefits. Rather, the bone of contention is the
number of years that he should be credited with in computing those
benefits. On the one hand, we have the findings of the labor
arbiter,20 which the CA affirmed. According to those findings, the 23
years of employment of Pedro with La Mallorca Taxi must be added
to his 14 years with R & E Transport, Inc., for a total of 37 years. On the
other, we also have the findings of the NLRC21 that Pedro must be
credited only with his service to R & E Transport, Inc., because the
evidence shows that the aforementioned companies are two
different entities.
After a careful and painstaking review of the evidence on record,
we support the NLRCs findings. The labor arbiters conclusion -- that
La Mallorca Taxi and R & E Transport, Inc., are one and the same
entity -- is negated by the documentary evidence presented by
petitioners. Their evidence22 sufficiently shows the following facts: 1) R
& E Transport, Inc., was established only in 1978; 2) Honorio Enriquez,
its president, was not a stockholder of La Mallorca Taxi; and 3) none
of the stockholders of the latter company hold stocks in the former.
In the face of such evidence, which the NLRC appreciated in its
Decision, it seems that mere surmises and self-serving assertions of
Respondent Avelina Latag formed the bases for the labor arbiters
conclusions as follows:
"While [Pedro M. Latag] claims that he worked as taxi driver since
March 1961 since the days of the La Mallorca Taxi, which was later
renamed R & E Transport, Inc., [petitioners] limit the employment
period to 14 years.
"Resolving this matter, we note [respondents] ID (Annex "A", [Latag]
position paper), which appears to bear the signature of Miguel
Enriquez on the front portion and the date February 27, 1961 when [x
x x Latag] started with the company. We also note an SSS document
(Annex C) which shows that the date of initial coverage of Pedro
Latag, with SSS No. 03-0772155, is February 1961.
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xxx
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The rules implementing the New Retirement Law similarly provide the
above-mentioned formula for computing the one-half month
salary.31 Since Pedro was paid according to the "boundary" system,
he is not entitled to the 13th month32 and the service incentive pay;33
hence, his retirement pay should be computed on the sole basis of
his salary.
It is accepted that taxi drivers do not receive fixed wages, but retain
only those sums in excess of the "boundary" or fee they pay to the
owners or operators of their vehicles.34 Thus, the basis for computing
their benefits should be the average daily income. In this case, the
CA found that Pedro was earning an average of five hundred pesos
(P500) per day. We thus compute his retirement pay as follows: P500
x 15 days x 14 years of service equals P105,000. Compared with this
amount, the P38,850 he received, which represented just over one
third of what was legally due him, was unconscionable.
Second Issue:
Was There Forum Shopping?
Also assailed are the twin appeals that two different lawyers filed for
respondent before the CA. Petitioners argue that instead of
accepting her explanation, the appellate court should have
dismissed the appeals outright for violating the rule on forum
shopping.
Forum shopping is the institution of two or more actions or
proceedings grounded on the same cause, on the supposition that
one or the other court would render a favorable disposition.35 Such
act is present when there is an identity of parties, rights or causes of
action, and reliefs sought in two or more pending cases.36 It is usually
resorted to by a party against whom an adverse judgment or order
has been issued in one forum, in an attempt to seek and possibly to
get a favorable opinion in another forum, other than by an appeal
or a special civil action for certiorari.37
We find, as the CA38 did, that respondent has adequately explained
why she had filed two appeals before the appellate court. In the
August 5, 2002 Affidavit39 that she attached as Annex "A" to her
Compliance to Show Cause Order with Comment on petitioners
Motion for Reconsideration,40 she averred that she had sought the
services of another counsel to file her Petition for certiorari before the
CA. She did so after her original counsel had asked for an extension
of time to file the Petition because of time constraints and a
tremendous workload, only to discover later that the original counsel
had filed a similar Petition.
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Footnotes
1
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Rollo, p. 46.
10
Id., p. 823.
11
Id., p. 824.
Gonzales v. NLRC, 355 SCRA 195, 204, March 26, 2001; Aklan
Electric Cooperative Incorporated v. NLRC, 380 Phil. 225, 237,
January 25, 2000; San Jose v. NLRC, 355 Phil. 759, August 17,
1998; Manila Electric Company v. NLRC, 331 Phil. 838, 846,
October 24, 1996.
16
17
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18
Dico Jr. v. Court of Appeals, 365 Phil. 184, 193, April 14, 1999.
NLRC Decision dated September 28, 2001, pp. 7-8; rollo, pp.
121-122.
21
Labor Arbiters Decision dated January 10, 2000, pp. 3-4; rollo,
p. 52-53.
23
25
Supra.
26
27
Periquet v. NLRC, 186 SCRA 724, 731, June 22, 1990, per Cruz,
J.
28
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30
xxx
xxx
xxx
x x x"
xxx
xxx
xxx
x x x"
Jardin v. NLRC, 383 Phil. 187, 196, February 23, 2000; Martinez
v. NLRC, 339 Phil. 176, 182, May 29, 1997; National Labor Union
v. Dinglasan, 98 Phil. 649, 652, March 3, 1956.
34
37
Cabarrus Jr. v. Bernas, 344 Phil. 802, 808, September 24, 1997.
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38
39
40
xxx
xxx
xxx
x x x"
NLRC Decision dated September 28, 2001, pp. 6-7; rollo, pp.
120-121.
45
46
Philippine Airlines v. NLRC, 331 Phil. 937, 961, October 28, 1996.
48
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computing those benefits. The findings of the NLRC that Pedro must
be credited only with his service to R & E Transport, Inc., because the
evidence shows that the aforementioned companies are two
different entities. After a careful and painstaking review of the
evidence on record, the court supports the NLRC's findings.
The rules implementing the New Retirement Law similarly provide the
above-mentioned formula for computing the one-half month salary.
Since Pedro was paid according to the "boundary" system, he is not
entitled to the 13th month 32 and the service incentive pay; hence,
his retirement pay should be computed on the sole basis of his
salary.
It is accepted that taxi drivers do not receive fixed wages, but retain
only those sums in excess of the "boundary" or fee they pay to the
owners or operators of their vehicles. Thus, the basis for computing
their benefits should be the average daily income. In this case, the
CA found that Pedro was earning an average of five hundred pesos
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(P500) per day. We thus compute his retirement pay as follows: P500
x 15 days x 14 years of service equals P105,000.
G.R. No. 147993
xxx
xxx
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(d) All other benefits that the employer and employee may
agree upon that should be included in the computation of the
employees retirement pay.
The foregoing rules are clear that the whole 5 days of SIL are
included in the computation of a retiring employees pay.
Third. It is a well-entrenched doctrine that the Supreme Court does
not pass upon questions of fact in an appeal by certiorari under Rule
45.12 It is not our function to assess and evaluate the evidence all
over again13 where the findings of the quasi-judicial agency and the
appellate court on the matter coincide.
The consistent rulings of the labor arbiter, the NLRC and the
appellate court should be respected and petitioners veil of
corporate fiction should likewise be pierced. These are based on the
following uncontroverted facts: (1) respondent worked with ESIA and
petitioner ESSI; (2) his employment with both security agencies was
continuous and uninterrupted; (3) both agencies were owned by the
Enriquez family and (4) petitioner ESSI maintained its office in the
same place where ESIA previously held office.14
The attempt to make the security agencies appear as two separate
entities, when in reality they were but one, was a devise to defeat
the law and should not be permitted. Although respect for
corporate personality is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as
when it is used as a means to perpetrate a social injustice or as a
vehicle to evade obligations. Petitioner was thus correctly ordered to
pay respondents retirement under RA 7641, computed from January
1979 up to the time he applied for retirement in July 1997.
WHEREFORE, the petition is hereby DENIED. Theassailed decision and
resolution of the Court of Appeals are AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.
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Petitioners,
Present:
QUISUMBING,
Chairperson,
J.,
CARPIO,
- versus -
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
MAURA
Promulgated:
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
For review on certiorari is the Decision59[1] dated April 30, 2003
of the Court of Appeals in CA-G.R. CV No. 56082, which had affirmed
the Decision60[2] dated July 8, 1996 of the Regional Trial Court (RTC)
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may be, into the next delivery, out of keeping goodwill with
respondents.
From January 13 to February 3, 1993, respondents had
delivered to San Juan a total of 101,3[50]63[5] eggs, detailed as
follows:64[6]
Date Set SR Number No. of eggs delivered Date hatched/Pickup date
1/13/1993
3, 1993
SR 108
1/20/1993
10, 1993
SR 109
1/22/1993
12, 1993
SR 110
1/28/1993
18, 1993
SR 111
1/30/1993
20, 1993
SR 112
2/3/1993 SR 113
TOTAL
101,350 eggs
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The RTC
disregarded
the
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and
evade
corporations
subsidiary
liability
for
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of the chicks and by-products was more than sufficient to cover their
unpaid obligations, petitioners still chose to withhold the delivery.
The crux of the controversy, in our considered view, is simple
enough. Was petitioners retention of the chicks and by-products on
account of respondents failure to pay the corresponding service
fees unjustified? While the trial and appellate courts had the same
decisions on the matter, suffice it to say that a modification is proper.
Worth stressing, petitioners act of withholding the chicks and byproducts is entirely different from petitioners unjustifiable acts of
threatening respondents. The retention had legal basis; the threats
had none.
To begin with, petitioners obligation to deliver the chicks and
by-products corresponds to three dates: the date of hatching, the
delivery/pick-up date and the date of respondents payment. On
several setting reports, respondents made delays on their payments,
but petitioners tolerated such delay. When respondents accounts
accumulated because of their successive failure to pay on several
setting reports, petitioners opted to demand the full settlement of
respondents accounts as a condition precedent to the delivery.
However, respondents were unable to fully settle their accounts.
Respondents offer to partially satisfy their accounts is not
enough to extinguish their obligation. Under Article 124885[27] of the
Civil Code, the creditor cannot be compelled to accept partial
payments from the debtor, unless there is an express stipulation to
that effect. More so, respondents cannot substitute or apply as their
payment the value of the chicks and by-products they expect to
derive because it is necessary that all the debts be for the same
kind, generally of a monetary character. Needless to say, there was
no valid application of payment in this case.
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amount
be ascertained,
P394,820.16
P 14,031.94
[P394,820.16 + P14,031.94] =
P408,852.10
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b.
c.
attorneys
fees
of
P100,000.00,
P10,000.00,
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d.
No pronouncement as to costs.
SO ORDERED.
On May 29, 1987, upon motion of FGT and herein petitioners, the
same court issued another Order directing the NBI to release and
return the said machines to them.
However, Columbia Pictures Inc., Orion Pictures Corp., Paramount
Pictures Corp., Universal City Studios Inc., The Walt Disney Company
and Warner Bros. filed with this Court a petition for certiorari6 assailing
the Order of the lower court.
On June 18, 1987, this Court issued a temporary restraining order
enjoining the RTC from enforcing its assailed order. The machines
and equipment were left in the custody of the NBI until the petition
for certiorari shall have been resolved with finality.
On July 13, 1990, respondent bank filed with the RTC, Branch 110,
Pasig City,7 a complaint for collection of a sum of money8 against
TVI, FGT and petitioners. Only petitioners filed their joint answer to the
complaint.
In their joint answer, petitioners specifically denied the allegations in
the complaint, raising the defense that the loan is purely a corporate
indebtedness of TVI.
On April 29, 1991, the trial court rendered a Decision, holding that:
"As by these considerations, the Court finds that TVI was the mere
alter ego or business conduit of Yotoko and Mendoza, and
additionally considering 1) that Mendoza disclaimed knowledge of
the whereabouts of the TVI mortgaged property at the time
plaintiffs petition for extrajudicial foreclosure was being effected,
and 2) that Mendoza and Yotoko transferred the mortgaged
property to FGT without first securing plaintiffs consent despite their
awareness that under the chattel mortgage, such consent was
necessary, the doctrine of corporate entity must be pierced and the
two must be held personally liable for TVIs obligation to plaintiff for
said doctrine cannot be used to defeat public convenience, justify
wrong, protect fraud or avoid a legal obligation."
The dispositive portion of the trial courts Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants TECHNICA VIDEO, INC., Mendoza and Yotoko,
ordering them,
1) to pay plaintiff the sum of P500,000.00 plus interests, charges and
penalties as agreed upon in the promissory note of September 11,
1985, until the same is fully paid;
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2) to pay plaintiff the sum equivalent to ten (10%) of the total unpaid
obligation as and for attorneys fees, and
3) to pay the costs.
SO ORDERED."
Upon appeal by herein petitioners, the Court of Appeals rendered its
Decision dated September 21, 1998, affirming in toto the Decision of
the trial court. Petitioners motion for reconsideration was denied in
its Resolution dated December 3, 1999.
Hence, the instant petition.
The basic issue for our resolution is whether herein petitioners are
personally liable for TVIs indebtedness of P500,000.00 with
respondent bank.
Both the trial court and the Appellate Court found that the
petitioners transferred the Beta video machines from TVI to FGT
without the consent of respondent bank. Also, upon inquiry of the
sheriff, petitioner Mendoza declined knowledge of the whereabouts
of the mortgaged video machines. Moreover, the fact that the NBI
seized the video machines from FGT glaringly shows that petitioners
transferred the same from TVI. More importantly, a comparison of the
list of video machines in the Chattel Mortgage Contract and the list
of video machines seized by the NBI from FGT shows that they have
the same serial numbers.
The courts below also found that TVI is petitioners mere alter ego or
business conduit. They control the affairs of TVI. Among its
stockholders or directors, they were the only ones who became
incorporators of FGT. They transferred the assets of TVI to FGT.
The general rule is that obligations incurred by a corporation, acting
through its directors, officers or employees, are its sole liabilities.
However, the veil with which the law covers and isolates the
corporation from its directors, officers or employees will be lifted
when the corporation is used by any of them as a cloak or cover for
fraud or illegality or injustice.9 Here, the fraud was committed by
petitioners to the prejudice of respondent bank. It bears emphasis
that as reported by the sheriff, TVI is no longer doing business at its
given address and its whereabouts cannot be established as yet.
Both the trial court and the Court of Appeals thus concluded that
petitioners succeeded to hide the chattels, preventing the sheriff to
foreclose the mortgage. Obviously, they acted in bad faith to
defraud respondent bank.
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DECISION
PANGANIBAN, J.:
May defendants in civil cases implead in their counterclaims persons
who were not parties to the original complaints? This is the main
question to be answered in this controversy.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
seeking to nullify the May 22, 20022 and the September 3, 2002
Orders3 of the Regional Trial Court (RTC) of Quezon City (Branch 80)
in Civil Case No. Q-00-41103. The decretal portion of the first assailed
Order reads:
"WHEREFORE, in the light of the foregoing as earlier stated, the
plaintiff's motion to dismiss claims is granted. Accordingly, the
defendants' claims against Mr. Lim and Mr. Mariano captioned
as their counterclaims are dismissed."4
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law raised by the claim and by the counterclaim largely the same?
2) Would res judicata bar a subsequent suit on defendant's claim,
absent the compulsory counterclaim rule? 3) Will substantially the
same evidence support or refute plaintiff's claim as well as
defendant's counterclaim? 4) Is there any logical relation between
the claim and the counterclaim? A positive answer to all four
questions would indicate that the counterclaim is compulsory.
Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU
Insurance Corporation,15 the "compelling test of compulsoriness"
characterizes a counterclaim as compulsory if there should exist a
"logical relationship" between the main claim and the counterclaim.
There exists such a relationship when conducting separate trials of
the respective claims of the parties would entail substantial
duplication of time and effort by the parties and the court; when the
multiple claims involve the same factual and legal issues; or when
the claims are offshoots of the same basic controversy between the
parties.
We shall now examine the nature of petitioners' counterclaims
against respondents with the use of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons
responsible for making the bad faith decisions for, and causing
plaintiff to file this baseless suit and to procure an unwarranted
writ of attachment, notwithstanding their knowledge that
plaintiff has no right to bring it or to secure the writ. In taking
such bad faith actions, Gregory T. Lim was motivated by his
personal interests as one of the owners of plaintiff while
Anthony A. Mariano was motivated by his sense of personal
loyalty to Gregory T. Lim, for which reason he disregarded the
fact that plaintiff is without any valid cause.
"Consequently, both Gregory T. Lim and Anthony A. Mariano
are the plaintiff's co-joint tortfeasors in the commission of the
acts complained of in this answer and in the compulsory
counterclaims pleaded below. As such they should be held
jointly and solidarily liable as plaintiff's co-defendants to those
compulsory counterclaims pursuant to the Supreme Court's
decision in Sapugay v. Mobil.
xxx
xxx
xxx
than P5 million for each of them and for which plaintiff Gregory
T. Lim and Anthony A. Mariano should be held jointly and
solidarily liable.
"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's
actions have damaged the reputations of the defendants and
they should be held jointly and solidarily liable to them for moral
damages of P100 million each.
"In order to serve as an example for the public good and to
deter similar baseless, bad faith litigation, the plaintiff, Gregory
T. Lim and Anthony A. Mariano should be held jointly and
solidarily liable to the defendants for exemplary damages of
P100 million each." 16
The above allegations show that petitioners' counterclaims for
damages were the result of respondents' (Lim and Mariano) act of
filing the Complaint and securing the Writ of Attachment in bad
faith. Tiu Po v. Bautista17 involved the issue of whether the
counterclaim that sought moral, actual and exemplary damages
and attorney's fees against respondents on account of their
"malicious and unfounded" complaint was compulsory. In that case,
we held as follows:
"Petitioners' counterclaim for damages fulfills the necessary
requisites of a compulsory counterclaim. They are damages
claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be
pleaded in the same action; otherwise, petitioners would be
precluded by the judgment from invoking the same in an
independent action. The pronouncement in Papa vs. Banaag
(17 SCRA 1081) (1966) is in point:
"Compensatory, moral and exemplary damages, allegedly
suffered by the creditor in consequence of the debtor's action,
are also compulsory counterclaim barred by the dismissal of
the debtor's action. They cannot be claimed in a subsequent
action by the creditor against the debtor."
"Aside from the fact that petitioners' counterclaim for damages
cannot be the subject of an independent action, it is the same
evidence that sustains petitioners' counterclaim that will refute
private respondent's own claim for damages. This is an
additional factor that characterizes petitioners' counterclaim as
compulsory."18
Moreover, using the "compelling test of compulsoriness," we find that,
clearly, the recovery of petitioners' counterclaims is contingent upon
the case filed by respondents; thus, conducting separate trials
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"Joint tort feasors are jointly and severally liable for the tort
which they commit. The persons injured may sue all of them or
any number less than all. Each is liable for the whole damages
caused by all, and all together are jointly liable for the whole
damage. It is no defense for one sued alone, that the others
who participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in
the tort was insignificant as compared to that of the others. x x
x
"Joint tort feasors are not liable pro rata. The damages can not
be apportioned among them, except among themselves. They
cannot insist upon an apportionment, for the purpose of each
paying an aliquot part. They are jointly and severally liable for
the whole amount. x x x
"A payment in full for the damage done, by one of the joint tort
feasors, of course satisfies any claim which might exist against
the others. There can be but satisfaction. The release of one of
the joint tort feasors by agreement generally operates to
discharge all. x x x
"Of course the court during trial may find that some of the
alleged tort feasors are liable and that others are not liable. The
courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the
whole liability; in a "solidary" or "joint and several" obligation, the
relationship between the active and the passive subjects is so close
that each of them must comply with or demand the fulfillment of the
whole obligation.31 The fact that the liability sought against the CCC
is for specific performance and tort, while that sought against the
individual respondents is based solely on tort does not negate the
solidary nature of their liability for tortuous acts alleged in the
counterclaims. Article 1211 of the Civil Code is explicit on this point:
"Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same
periods and conditions."
The solidary character of respondents' alleged liability is precisely
why credence cannot be given to petitioners' assertion. According
to such assertion, Respondent CCC cannot move to dismiss the
counterclaims on grounds that pertain solely to its individual codebtors.32 In cases filed by the creditor, a solidary debtor may invoke
defenses arising from the nature of the obligation, from
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circumstances personal to it, or even from those personal to its codebtors. Article 1222 of the Civil Code provides:
"A solidary debtor may, in actions filed by the creditor, avail
itself of all defenses which are derived from the nature of the
obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to
the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible." (Emphasis
supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a
motion to dismiss the counterclaim on grounds that pertain only to its
individual co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows
that Respondent CCC filed it on behalf of Co-respondents Lim and
Mariano; it did not pray that the counterclaim against it be
dismissed. Be that as it may, Respondent CCC cannot be declared
in default. Jurisprudence teaches that if the issues raised in the
compulsory counterclaim are so intertwined with the allegations in
the complaint, such issues are deemed automatically joined.33
Counterclaims that are only for damages and attorney's fees and
that arise from the filing of the complaint shall be considered as
special defenses and need not be answered.34
CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents
Lim and Mariano Not Allowed
While Respondent CCC can move to dismiss the counterclaims
against it by raising grounds that pertain to individual defendants Lim
and Mariano, it cannot file the same Motion on their behalf for the
simple reason that it lacks the requisite authority to do so. A
corporation has a legal personality entirely separate and distinct
from that of its officers and cannot act for and on their behalf,
without being so authorized. Thus, unless expressly adopted by Lim
and Mariano, the Motion to Dismiss the compulsory counterclaim
filed by Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim
and Anthony A. Mariano are compulsory.
2. The counterclaims may properly implead Respondents
Gregory T. Lim and Anthony A. Mariano, even if both were not
parties in the original Complaint.
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FACTS:
1. Petition for review.
2. 1998, LETTER OF INTENT EXECUTED BY BOTH PARTIES
a. LAFARGE, in behalf of Luzon Continental Land
Corporation (LCLC), agreed to purchase the cement
business of respondent Continental Cement Corporation.
b. Parties entered into a Sale and Purchase Agreement
(SPA).
c. LAFARGE aware of CONTINENTAL pending case with the
Supreme Court (Asset Privatization Trust (APT) v. Court of
Appeals and Continental Cement Corporation)
i.
In anticipation of the liability SC might
adjudge against CONTINENTAL, the parties, under Clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a portion of
the contract price in the amount of P117,020,846.84 -- the equivalent
of US$2,799,140. This amount was to be deposited in an interestbearing account in the First National City Bank of New York
(Citibank) for payment to APT, the petitioner in Asset Privatization
Trust V. CA/Continental.
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ii.
LAFARGE refused to apply the sum to
the payment to APT, despite decision in APT vs CONTINENTAL, in
favor of CONTINENTAL and the repeated instructions of
CONTINENTAL.
1. Fearful that nonpayment to APT would result in the foreclosure, not
just of its properties covered by the SPA with Lafarge but of several
other properties as well, CONTINENTAL filed Complaint with
Application
for
Preliminary
Attachment
against
LAFARGE. Docketed as Civil Case No. Q-00-41103,
a.
b.
Trial
ISSUE:
WON RTC gravely erred in refusing to rule that CONTINENTAL has no
personality to move to dismiss petitioners compulsory counterclaims
on Respondents Lim and Marianos behalf.
HELD:
Petition GRANTED and the assailed Orders REVERSED. The court of
origin is hereby ORDERED to take cognizance of the counterclaims
pleaded in petitioners Answer with Compulsory Counterclaims and
to cause the service of summons on Respondents Gregory T. Lim and
Anthony A. Mariano. No costs.
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LIMITATIONS:
1.
2.
or
refute
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iii.
Will substantially the same evidence
plaintiffs claim as well as defendants
Page 250 of 1509
counterclaim?
iv. Is there any logical relation between the
claim and the counterclaim?
1. YES TO ALL four questions = COMPULSORY
e. LIM AND MARIANO were the persons responsible for
making the bad faith decisions:
i. Caused plaintiff to file this baseless suit
and to procure an unwarranted writ of attachment, notwithstanding
their knowledge that plaintiff has no right to bring it or to secure the
writ.
ii.
LIM AND MARIANO ARE LAFARGES
TORTFEASOR (commits a tort; tort- infringement of right leading to
legal liability)
1.
They should be held jointly and solidarily liable as plaintiffs codefendants to those compulsory counterclaims pursuant to the
Supreme Courts decision in Sapugay v. Mobil.
iii.
Allegations show that LAFARGEs
counterclaims for damages were the result of LIM AND MARIANOs
act of filing the Complaint and securing the Writ of Attachment in
bad faith.
f. CASE AT HAND: LAFARGEs counterclaim for damages
fulfills the necessary requisites of a compulsory
counterclaim.
i.
4.
Agreement.
1.
2. The spouses exerted all efforts to secure a bond, but the bonding
companies required a copy of the Dealership Agreement, which
respondent continued to withhold from them.
3. Later, SAPUGAY discovered that MOBIL had intended all along to
award the dealership to Island Air Product Corporation.
iii.
SAPUGAY
impleaded
in
the
counterclaim Mobil Philippines and its manager -- Ricardo P.
Cardenas -- both jointly and severally liable.
iv. MOBIL and Cardenas failed to respond
to their Answer to the Counterclaim, SAPUGAY filed a Motion to
Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendants Counterclaim.
v. ISSUES: WON Cardenas, who was not a
party to the original action, might nevertheless be impleaded in the
counterclaim.
1. COUNTERCLAIM is defined as any claim for money or other relief
which a defending party may have against an opposing party.
2. GENERAL RULE: DEFENDANT CANNOT BRING INTO ACTION ANY
CLAIMS AGAINST PERSONS UNDER THIS EXCEPTION: when the
presence of parties other than those to the original action is required
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1. COURT DISAGREES.
a.
1.
RULE
IN
RESPONDING
TO
iv.
Counterclaims that are only for
damages and attorneys fees and that arise from the filing of the
complaint shall be considered as special defenses and need not be
answered.
Sicam vs. Jorge, 529 SCRA 443 , G.R. No. 159617, August 08, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
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of Appeals dated March 31, 2003, and its Resolution2 dated August
8, 2003, in CA G.R. CV No. 56633.
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of
the Southern Police District, Paraaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the
office, two (2) male unidentified persons entered into the said office
with guns drawn. Suspects(sic) (1) went straight inside and poked his
gun toward Romeo Sicam and thereby tied him with an electric wire
while suspects (sic) (2) poked his gun toward Divina Mata and
Isabelita Rodriguez and ordered them to lay (sic) face flat on the
floor. Suspects asked forcibly the case and assorted pawned
jewelries items mentioned above.
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Petitioner Sicam filed his Answer contending that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987
and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made
liable for an event that is fortuitous.
After trial on the merits, the RTC rendered its Decision6 dated
January 12, 1993, dismissing respondents complaint as well as
petitioners counterclaim. The RTC held that petitioner Sicam could
not be made personally liable for a claim arising out of a corporate
transaction; that in the Amended Complaint of respondents, they
asserted that "plaintiff pawned assorted jewelries in defendants'
pawnshop"; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the
debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held
liable for the loss of the pawned jewelry since it had not been
rebutted by respondents that the loss of the pledged pieces of
jewelry in the possession of the corporation was occasioned by
armed robbery; that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case of Austria v. Court of
Appeals;7 and that the parties transaction was that of a pledgor
and pledgee and under Art. 1174 of the Civil Code, the pawnshop
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Hence, the instant petition for review with the following assignment
of errors:
Anent the first assigned error, petitioners point out that the CAs
finding that petitioner Sicam is personally liable for the loss of the
pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants brief."10
(2) The issue resolved against petitioner Sicam was not among those
raised and litigated in the trial court; and
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(3) By reason of the above infirmities, it was error for the CA to have
pierced the corporate veil since a corporation has a personality
distinct and separate from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on
their negligence is likewise an unedited reproduction of respondents
brief which had the following defects:
justify the adoption of the arguments put forth by one of the parties,
as long as these are legally tenable and supported by law and the
facts on records.11
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Thus, the general rule that a judicial admission is conclusive upon the
party making it and does not require proof, admits of two
exceptions, to wit: (1) when it is shown that such admission was
made through palpable mistake, and (2) when it is shown that no
such admission was in fact made. The latter exception allows one to
contradict an admission by denying that he made such an
admission.17
x x x that the party can also show that he made no "such admission",
i.e., not in the sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply
states that the admission may be contradicted by showing that "no
admission was made," the rule would not really be providing for a
contradiction of the admission but just a denial.18 (Emphasis
supplied).
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Petitioner Sicam had alleged in his Answer filed with the trial court
that he was not the real party-in-interest because since April 20,
1987, the pawnshop business initiated by him was incorporated and
known as Agencia de R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as far as he was concerned, the
basic issue was whether he is the real party in interest against whom
the complaint should be directed.20 In fact, he subsequently moved
for the dismissal of the complaint as to him but was not favorably
acted upon by the trial court. Moreover, the issue was squarely
passed upon, although erroneously, by the trial court in its Decision in
this manner:
The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous
event and they are not negligent at all.
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The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it.24 And, in order for a fortuitous event to
exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss. 25
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when
he started the pawnshop business in 1983, he thought of opening a
vault with the nearby bank for the purpose of safekeeping the
valuables but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop. The
very measures which petitioners had allegedly adopted show that to
them the possibility of robbery was not only foreseeable, but actually
foreseen and anticipated. Petitioner Sicams testimony, in effect,
contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein
petitioners. In Co v. Court of Appeals,27 the Court held:
Just like in Co, petitioners merely presented the police report of the
Paraaque Police Station on the robbery committed based on the
report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at
fault.
Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29
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Court:
Q. Then how come that the robbers were able to enter the premises
when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the
fact that there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00
o'clock in the afternoon and it happened on a Saturday and
everything was quiet in the area BF Homes Paraaque they
pretended to pawn an article in the pawnshop, so one of my
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Q. It is clear now that at the time of the robbery the vault was open
the reason why the robbers were able to get all the items pawned to
you inside the vault.
A. Yes sir.32
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The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he
is placed and the importance of the act which he is to perform.34
Thus, the cases of Austria v. Court of Appeals,35 Hernandez v.
Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by
petitioners in their pleadings, where the victims of robbery were
exonerated from liability, find no application to the present case.
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In contrast, the robbery in this case took place in 1987 when robbery
was already prevalent and petitioners in fact had already foreseen it
as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing their
pawnshop as earlier discussed.
hinder one from boarding the LRT coach as Cruz did considering that
whether she rode a jeep or bus, the risk of theft would have also
been present; that because of her relatively low position and pay,
she was not expected to have her own vehicle or to ride a taxicab;
she did not have a government assigned vehicle; that placing the
cellphone in a bag away from covetous eyes and holding on to that
bag as she did is ordinarily sufficient care of a cellphone while
traveling on board the LRT; that the records did not show any
specific act of negligence on her part and negligence can never be
presumed.
SO ORDERED.
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Sicam sent respondent Lulu a letter informing her of the loss of her
jewelry due to the robbery incident in the pawnshop. Respondent
Lulu expressed disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the
pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it
could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for
withdrawal on but petitioner Sicam failed to return the jewelry.
Respondent Lulu is seeking indemnification for the loss of pawned
jewelry and payment of damages. Petitioner is interposing the
defense of caso fortuito on the robber committed against the
pawnshop.
Issue:
WON Sicam is liable for the loss of the pawned articles in their
possession? YES
Held:
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee
the same.
Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein
petitioners.
A review of the records clearly shows that petitioners failed to
exercise reasonable care and caution that an ordinarily prudent
person would have used in the same situation. Petitioners were guilty
of negligence in the operation of their pawnshop business. No
sufficient precaution and vigilance were adopted by petitioners to
protect the pawnshop from unlawful intrusion. There was no clear
showing that there was any security guard at all.
Sicams admission that the vault was open at the time of robbery is
clearly a proof of petitioners failure to observe the care, precaution
and vigilance that the circumstances justly demanded. Petitioner
Sicam testified that once the pawnshop was open, the combination
was already off. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart
away the pawned articles.
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In contrast, the robbery in this case took place in 1987 when robbery
was already prevalent and petitioners in fact had already foreseen it
as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing their
pawnshop as earlier discussed.
Jardine Davies, Inc. vs. JRB Realty, Inc. (463 SCRA 555 [2005])
DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 54201 affirming in toto that of the
Regional Trial Court (RTC) in Civil Case No. 90-237 for specific
performance; and the Resolution dated January 11, 2002 denying
the motion for reconsideration thereof.
The facts are as follows:
In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building,
named Blanco Center, on its parcel of land located at 119 Alfaro St.,
Salcedo Village, Makati City. An air conditioning system was needed
for the Blanco Law Firm housed at the second floor of the building.
On March 13, 1980, the respondents Executive Vice-President, Jose
R. Blanco, accepted the contract quotation of Mr. A.G. Morrison,
President of Aircon and Refrigeration Industries, Inc. (Aircon), for two
(2) sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air
conditioning equipment with a net total selling price of P99,586.00.2
Thereafter, two (2) brand new packaged air conditioners of 10 tons
capacity each to deliver 30,000 kcal or 120,000 BTUH 3 were installed
by Aircon. When the units with rotary compressors were installed,
they could not deliver the desired cooling temperature. Despite
several adjustments and corrective measures, the respondent
conceded that Fedders Air Conditioning USAs technology for rotary
compressors for big capacity conditioners like those installed at the
Blanco Center had not yet been perfected. The parties thereby
agreed to replace the units with reciprocating/semi-hermetic
compressors instead. In a Letter dated March 26, 1981,4 Aircon
stated that it would be replacing the units currently installed with
new ones using rotary compressors, at the earliest possible time.
Regrettably, however, it could not specify a date when delivery
could be effected.
TempControl Systems, Inc. (a subsidiary of Aircon until 1987)
undertook the maintenance of the units, inclusive of parts and
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corporate
fiction which applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend
crime.15 The rationale behind piercing a corporations identity is to
remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain
proscribed activities.16
While it is true that Aircon is a subsidiary of the petitioner, it does not
necessarily follow that Aircons corporate legal existence can just be
disregarded. In Velarde v. Lopez, Inc., 17 the Court categorically held
that a subsidiary has an independent and separate juridical
personality, distinct from that of its parent company; hence, any
claim or suit against the latter does not bind the former, and vice
versa. In applying the doctrine, the following requisites must be
established: (1) control, not merely majority or complete stock
control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest acts in contravention of
plaintiffs legal rights; and (3) the aforesaid control and breach of
duty must proximately cause the injury or unjust loss complained of.18
The records bear out that Aircon is a subsidiary of the petitioner only
because the latter acquired Aircons majority of capital stock. It,
however, does not exercise complete control over Aircon; nowhere
can it be gathered that the petitioner manages the business affairs
of Aircon. Indeed, no management agreement exists between the
petitioner and Aircon, and the latter is an entirely different entity
from the petitioner.19
Jardine Davies, Inc., incorporated as early as June 28, 1946,20 is
primarily a financial and trading company. Its Articles of
Incorporation states among many others that the purposes for which
the said corporation was formed, are as follows:
(a) To carry on the business of merchants, commission merchants,
brokers, factors, manufacturers, and agents;
(b) Upon complying with the requirements of law applicable thereto,
to act as agents of companies and underwriters doing and
engaging in any and all kinds of insurance business.21
On the other hand, Aircon, incorporated on December 27, 1952,22 is
a manufacturing firm. Its Articles of Incorporation states that its
purpose is mainly To carry on the business of manufacturers of commercial and
household appliances and accessories of any form, particularly to
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redrying plant and warehouse. It appears from the records that FISI,
while having its own corporate identity, was a mere instrumentality of
FTC, tasked to provide protection and security in the company
premises. The records show that the two corporations had identical
stockholders and the same business address. FISI also had no other
clients except FTC and other companies belonging to the Lucio Tan
group of companies. Moreover, the early payslips of petitioners show
that their salaries were initially paid by FTC.9 To enforce their rightful
benefits under the laws on Labor Standards, petitioners formed a
union which was later certified as bargaining agent of all the security
guards. On February 1, 1991, the stockholders of FISI sold all their
participations in the corporation to a new set of stockholders which
renamed the corporation Magnum Integrated Services, Inc. On
October 15, 1991, FTC, without any reason, preterminated its
contract of security services with MISI and contracted two other
agencies to provide security services for its premises. This resulted in
the displacement of petitioners. As MISI had no other clients, it failed
to give new assignments to petitioners. Petitioners have remained
unemployed since then. All these facts indicate a concerted effort
on the part of respondents to remove petitioners from the company
and thus abate the growth of the union and block its actions to
enforce their demands in accordance with the Labor Standards
laws. The Court held in Insular Life Assurance Co., Ltd., Employees
Association-NATU vs. Insular Life Assurance Co., Ltd.:10
"The test of whether an employer has interfered with and
coerced employees within the meaning of section (a) (1) is
whether the employer has engaged in conduct which it may
reasonably be said tends to interfere with the free exercise of
employees' rights under section 3 of the Act, and it is not
necessary that there be direct evidence that any employee
was in fact intimidated or coerced by statements of threats of
the employer if there is a reasonable inference that anti-union
conduct of the employer does have an adverse effect on selforganization and collective bargaining."11
We are not persuaded by the argument of respondent FTC denying
the presence of an employer-employee relationship. We find that
the Labor Arbiter correctly applied the doctrine of piercing the
corporate veil to hold all respondents liable for unfair labor practice
and illegal termination of petitioners' employment. It is a
fundamental principle in corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it is connected. However, when the concept
of separate legal entity is used to defeat public convenience, justify
wrong, protect fraud or defend crime, the law will regard the
corporation as an association of persons, or in case of two
corporations, merge them into one. The separate juridical personality
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The main issue raised is whether or not the PCGGs takeover of OWNI
is legal.
The Courts Ruling
The petition must fail.
Petitioner PCGG explained that prior to September 17, 1990, OWNI
was a dormant and inactive corporation. There was no functioning
board which made possible the Finance Managers embezzlement
of company funds. And in the exercise of their powers pursuant to
Executive Order Nos. 1, 2, 14 and 14-A, PCGG sequestered a
majority of shares of stocks of OWNI. PCGG was only consistent with
its mission of preventing dissipation of assets of sequestered
corporations or businesses when it took over control of OWNI.
In Presidential Commission on Good Government v. Cojuanco, Jr.,12
the Court ruled that who should vote the sequestered shares requires
the determination of the ill-gotten character of those shares and
consequently the rightful ownership thereof. The issue was still
pending in the main case in the Sandiganbayan. This is only an
incident of the main case and is limited to the stockholders meeting
held on September 17, 1990. This is without prejudice to the final
disposition of the merits of the main suit. The ownership of the shares
is still under litigation. It is not known whether the shares are part of
the ill-gotten wealth of former President Marcos and his "cronies."
In Bataan Shipyard & Engineering Co., Inc. v. PCGG,13 we declared
the scope and extent of the powers that the PCGG may exercise
with regard to the property of businesses sequestered:
"x x x the PCGG cannot exercise acts of dominion over
property sequestered, frozen or provisionally taken over. As
already earlier stressed with no little insistence, the act of
sequestration, freezing or provisional takeover of property does
not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner.
Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the
sequestration rules where, unlike cases of receivership, for
example, no court exercises effective supervision or can upon
due application and hearing, grant authority for the
performance of acts of dominion."
Petitioners contend that the Sandiganbayan should not have
nullified the writs of sequestration because there was no need to file
a separate action against OWNI, Polygon, Aerocom and Silangan
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since they had been included in the list of the ill-gotten wealth of
defendants Jose L. Africa+ and Manuel H. Nieto, Jr. in Civil Case No.
0009. Petitioners cited Republic v. Sandiganbayan (First Division),14 in
which the Court held:
"1) Section 26, Article XVIII of the Constitution does not, by its
terms or any fair interpretation thereof, require that
corporations or business enterprises alleged to be repositories of
"ill-gotten wealth," as the term is used in said provision, be
actually and formally impleaded in the actions for the recovery
thereof, in order to maintain in effect existing sequestrations
thereof;
"2) complaints for the recovery of ill-gotten wealth which
merely identify and/or allege said corporations or enterprises to
be the instruments, repositories or the fruits of ill-gotten wealth,
without more, come within the meaning of the phrase
"corresponding judicial action or proceeding" contemplated
by the constitutional provision referred to; the more so, that
normally, said corporations, as distinguished from their
stockholders or members, are not generally suable for the
latters illegal or criminal actuations in the acquisition of the
assets invested by them in the former;
"3) even assuming the impleading of said corporations to be
necessary and proper so that judgment may comprehensively
and effectively be rendered in the actions, amendment of the
complaints to implead them as defendants may, under existing
rules of procedure, be done at any time during the pendency
of the actions thereby initiated, and even during the pendency
of an appeal to the Supreme Court--a procedure that, in any
case, is not inconsistent with or proscribed by the constitutional
time limits to the filing of the corresponding complaints "for"-i.e., with regard or in relation to, in respect of, or in connection
with, or concerning--orders of sequestration, freezing, or
provisional takeover."
In this case, the PCGGs complaint15 for "Reconveyance, Reversion,
Accounting, Restitution and Damages" against Jose L. Africa, +
Manuel H. Nieto, Jr., the Marcos Spouses, Ferdinand Marcos, Jr.,
Roberto S. Benedicto, + Juan Ponce Enrile, Potenciano Ilusorio+ was
filed on July 22, 1987. In the complaint, Polygon, Silangan, Aerocom
and OWNI were included in the list of property as part of the
defendants ill-gotten wealth.
We find the writ of sequestration issued against OWNI not valid
because the suit in Civil Case No. 0009 against Manuel H. Nieto and
Jose L. Africa+ as shareholders in OWNI is not a suit against OWNI. This
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ISSUE:
HELD:
PRESIDENTIAL
COMMISSION
ON
GOOD
GOVERNMENT
VS.
SANDIGANBAYAN
G.R. Nos. 119609-10
RULING
PCGGs takeover of OWNI is not legal. It was previously ruled by the
Court that the PCGG cannot exercise acts of dominion over
property sequestered, frozen or provisionally taken over.. the act of
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declaring them as the preferred bidder and they shall have a period
of ninety (90) days from the receipt of the APT's notice within which
to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. fail to exercise their "Option to Top the Highest Bid"
within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with
appropriate care these rules, the official bid forms, including any
addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with
respect to any and all conditions concerning the PHILSECO Shares
which may, in any manner, affect the bidder's proposal. Failure on
the part of the bidder to so examine and inform itself shall be its sole
risk and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit
Holdings, Inc.2 submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has
up to thirty (30) days to act on APT's recommendation based on the
result of this bidding. Should the COP approve the highest bid, APT
shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT
within which to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five (5%) percent
thereof.
As petitioner was declared the highest bidder, the COP approved
the sale on December 3, 1993 "subject to the right of Kawasaki
Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid
by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting
the offer of PHI to top its bid on the grounds that: (a) the
KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS],
Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b)
only KAWASAKI could exercise the right to top; (c) giving the same
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The facts in this case do not indicate any such grave abuse of
discretion on the part of public respondents when they awarded the
CISS contract to Respondent SGS. In the "Invitation to Prequalify and
Bid" (Annex "C," supra), the CISS Committee made an express
reservation of the right of the Government to "reject any or all bids or
any part thereof or waive any defects contained thereon and
accept an offer most advantageous to the Government." It is a wellsettled rule that where such reservation is made in an Invitation to
Bid, the highest or lowest bidder, as the case may be, is not entitled
to an award as a matter of right (C & C Commercial Corp. v. Menor,
L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any
Bid may be rejected or, in the exercise of sound discretion, the
award may be made to another than the lowest bidder (A.C.
Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases
supplied)1awphi1.nt
Like the condition in the Bureau Veritas case, the right to top was a
condition imposed by the government in the bidding rules which
was made known to all parties. It was a condition imposed on all
bidders equally, based on the APTs exercise of its discretion in
deciding on how best to privatize the governments shares in
PHILSECO. It was not a whimsical or arbitrary condition plucked from
the ether and inserted in the bidding rules but a condition which the
APT approved as the best way the government could comply with its
contractual obligations to KAWASAKI under the JVA and its
mandate of getting the most advantageous deal for the
government. The right to top had its history in the mutual right of first
refusal in the JVA and was reached by agreement of the
government and KAWASAKI.
Further, there is no "executive interference" in the functions of this
Court by the mere filing of a memorandum by Secretary of Finance
Jose Isidro Camacho. The memorandum was merely "noted" to
acknowledge its filing. It had no further legal significance. Notably
too, the assailed Resolution dated September 24, 2003 was decided
unanimously by the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that
of the Supreme Court20 and the Court en banc is not an appellate
court to which decisions or resolutions of a Division may be
appealed.21
For all the foregoing reasons, we find no basis to elevate this case to
the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for
Reconsideration. First, that a fair resolution of the case should be
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losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by [PHILYARDS] of a
consortium is legitimate in a free enterprise system. The appellate
court is thus correct in holding the petitioner estopped from
questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking
funding from parties who were losing bidders. This is a purely
commercial decision over which the State should not interfere
absent any legal infirmity. It is emphasized that the case at bar
involves the disposition of shares in a corporation which the
government sought to privatize. As such, the persons with whom
PHILYARDS desired to enter into business with in order to raise funds
to purchase the shares are basically its business. This is in contrast to a
case involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or
financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have
the ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is
a landholding company, KAWASAKI could exercise its right of first
refusal only up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by corporations with more
than 40% foreign-owned equity. It further argues that since
KAWASAKI already held at least 40% equity in PHILSECO, the right of
first refusal was inutile and as such, could not subsequently be
converted into the right to top. 37 Petitioner also asserts that, at
present, PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.38
PHILYARDS admits that it may have previously held land but had
already divested such landholdings.39 It contends, however, that
even if PHILSECO owned land, this would not affect the right of first
refusal but only the exercise thereof. If the land is retained, the right
of first refusal, being a property right, could be assigned to a
qualified party. In the alternative, the land could be divested before
the exercise of the right of first refusal. In the case at bar,
respondents assert that since the right of first refusal was validly
converted into a right to top, which was exercised not by KAWASAKI,
but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares
are owned by Filipinos), then there is no violation of the
Constitution.40 At first, it would seem that questions of fact beyond
cognizance by this Court were involved in the issue. However, the
records show that PHILYARDS admits it had owned land up until the
time of the bidding.41 Hence, the only issue is whether KAWASAKI
had a valid right of first refusal over PHILSECO shares under the JVA
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considering that PHILSECO owned land until the time of the bidding
and KAWASAKI already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the
JVA between KAWASAKI and NIDC. First of all, the right of first refusal
is a property right of PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to purchase the
shares of their co-shareholder before they are offered to a third
party. The agreement of co-shareholders to mutually grant this right
to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still
owns land, the right of first refusal can be validly assigned to a
qualified Filipino entity in order to maintain the 60%-40% ratio. This
transfer, by itself, does not amount to a violation of the Anti-Dummy
Laws, absent proof of any fraudulent intent. The transfer could be
made either to a nominee or such other party which the holder of
the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the
foreign stockholders ownership of the shares which is adversely
affected but the capacity of the corporation to own land that is, the
corporation becomes disqualified to own land. This finds support
under the basic corporate law principle that the corporation and its
stockholders are separate juridical entities. In this vein, the right of first
refusal over shares pertains to the shareholders whereas the
capacity to own land pertains to the corporation. Hence, the fact
that PHILSECO owns land cannot deprive stockholders of their right
of first refusal. No law disqualifies a person from purchasing shares in
a landholding corporation even if the latter will exceed the allowed
foreign equity, what the law disqualifies is the corporation from
owning land. This is the clear import of the following provisions in the
Constitution:
Section 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more
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than twenty-five years, and under such terms and conditions as may
be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the
grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands
shall be transferred or conveyed except to individuals, corporations,
or associations qualified to acquire or hold lands of the public
domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in
itself (Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]).
The right of first refusal granted to KAWASAKI, a Japanese
corporation, is similarly void. Hence, the right to top, sourced from
the right of first refusal, is also void."43 Contrary to the contention of
petitioner, the case of Lui She did not that say "an option to buy land
is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid.
So is an option giving an alien the right to buy real property on
condition that he is granted Philippine citizenship. As this Court said
in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the
use of lands for residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary rights such
as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy,
a piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it (jus disponendi)
rights the sum total of which make up ownership. It is just as if today
the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which
ownership is made up are consolidated in an alien. And yet this is just
exactly what the parties in this case did within this pace of one year,
with the result that Justina Santos'[s] ownership of her property was
reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as
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xxx
xxx
xxx
xxx
xxx
FACTS:
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William H. Quasha
o
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PCIBank replaced the check with two of its own Manager's Checks
(MCs). Alleged members of a syndicate later deposited the two MCs
with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial
court impleading Pacific Banking Corporation (PBC) and Godofredo
Rivera, as third party defendants. But the court dismissed the
complaint against PBC for lack of cause of action. The course
likewise dismissed the third-party complaint against Godofredo
Rivera because he could not be served with summons as the NBI
declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI
Bank), jointly and severally, to pay the plaintiff the amount
of P4,746,114.41 representing the face value of plaintiff's
Citibank Check No. SN-04867, with interest thereon at the
legal rate starting January 20, 1983, the date when the
original complaint was filed until the amount is fully paid,
plus costs;
"2. On defendant Citibank's cross-claim: ordering the
cross-defendant IBAA (now PCI Bank) to reimburse
defendant Citibank for whatever amount the latter has
paid or may pay to the plaintiff in accordance with next
preceding paragraph;
"3. The counterclaims asserted by the defendants against
the plaintiff, as well as that asserted by the crossdefendant against the cross-claimant are dismissed, for
lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and
PCIBank, elevated their respective petitions for review on certiorari to
the Courts of Appeals. On March 27, 1995, the appellate court issued
its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the
appealed decision with modifications.
The court hereby renderes judgment:
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Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the
said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in
the amount of P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and payable to the
Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt
No. A-1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines
on its upper corner between, which were written the words "payable
to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated
February 28, 1980, the BIR, Region 4-B, demanded for the said tax
payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax
Receipts were considered "fake and spurious". This anomaly was
confirmed by the NBI upon the initiative of the BIR. The findings
forced Ford to pay the BIR a new, while an action was filed against
Citibank and PCIBank for the recovery of the amount of Citibank
Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case,
made its findings on the modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff
FORD as its General Ledger Accountant. As such, he prepared
the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn10597] for payment to the BIR. Instead, however, fo delivering
the same of the payee, he passed on the check to a coconspirator named Remberto Castro who was a pro-manager
of the San Andres Branch of PCIB.* In connivance with one
Winston Dulay, Castro himself subsequently opened a
Checking Account in the name of a fictitious person
denominated as 'Reynaldo reyes' in the Meralco Branch of
PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account,
Castro deposited a worthless Bank of America Check in exactly
the same amount as the first FORD check (Exh. "A",
P5,851,706.37) while this worthless check was coursed through
PCIB's main office enroute to the Central Bank for clearing,
replaced this worthless check with FORD's Exhibit 'A' and
accordingly tampered the accompanying documents to
cover the replacement. As a result, Exhibit 'A' was cleared by
defendant CITIBANK, and the fictitious deposit account of
'Reynaldo Reyes' was credited at the PCIB Meralco Branch with
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the total amount of the FORD check Exhibit 'A'. The same
method was again utilized by the syndicate in profiting from
Exh. 'B' [Citibank Check No. SN-16508] which was subsequently
pilfered by Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various
checks distributing the sahres of the other participating
conspirators namely (1) CRISANTO BERNABE, the mastermind
who formulated the method for the embezzlement; (2)
RODOLFO R. DE LEON a customs broker who negotiated the
initial contact between Bernabe, FORD's Godofredo Rivera
and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted
de Leon in the initial arrangements; (4) GODOFREDO RIVERA,
FORD's accountant who passed on the first check (Exhibit "A")
to Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San
Andres who performed the switching of checks in the clearing
process and opened the fictitious Reynaldo Reyes account at
the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant
Manager at its Meralco Branch, who assisted Castro in
switching the checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes' bank account; (7)
ALEXIS MARINDO, Rivera's Assistant at FORD, who gave the
second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the fake and spurious revenue
tax receipts to make it appear that the BIR had received
FORD's tax payments.
Several other persons and entities were utilized by the
syndicate as conduits in the disbursements of the proceeds of
the two checks, but like the aforementioned participants in the
conspiracy, have not been impleaded in the present case. The
manner by which the said funds were distributed among them
are traceable from the record of checks drawn against the
original "Reynaldo Reyes" account and indubitably identify the
parties who illegally benefited therefrom and readily indicate in
what amounts they did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch 57,
held drawee-bank, Citibank, liable for the value of the two checks
while adsolving PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing
defendant CITIBANK to reimburse plaintiff FORD the total
amount of P12,163,298.10 prayed for in its complaint, with 6%
interest thereon from date of first written demand until full
payment, plus P300,000.00 attorney's fees and expenses
litigation, and to pay the defendant, PCIB (on its counterclaim
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Check No. SN-04867 was duly authorized, showed lack of care and
prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect
the payment of taxpayers in behalf of the BIR. As an agent of BIR,
PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent. As aptly
stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with
IBAA [now PCIBank], which claimed to be a
depository/collecting bank of BIR, it has the responsibility to
make sure that the check in question is deposited in Payee's
account only.
xxx
xxx
xxx
bank. The latter may recover from the holder the money paid on the
check.26
Having established that the collecting bank's negligence is the
proximate cause of the loss, we conclude that PCIBank is liable in
the amount corresponding to the proceeds of Citibank Check No.
SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no
official act in the ordinary course of business that would attribute to it
the case of the embezzlement of Citibank Check Numbers SN-10597
and 16508, because PCIBank did not actually receive nor hold the
two Ford checks at all. The trial court held, thus:
"Neither is there any proof that defendant PCIBank contributed
any official or conscious participation in the process of the
embezzlement. This Court is convinced that the switching
operation (involving the checks while in transit for "clearing")
were the clandestine or hidden actuations performed by the
members of the syndicate in their own personl, covert and
private capacity and done without the knowledge of the
defendant PCIBank"27
In this case, there was no evidence presented confirming the
conscious particiapation of PCIBank in the embezzlement. As a
general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents
within the course and scope of their employment.28 A bank will be
held liable for the negligence of its officers or agents when acting
within the course and scope of their employment. It may be liable
for the tortuous acts of its officers even as regards that species of tort
of which malice is an essential element. In this case, we find a
situation where the PCIBank appears also to be the victim of the
scheme hatched by a syndicate in which its own management
employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto
Castro, received Citibank Check Numbers SN-10597 and 16508. He
passed the checks to a co-conspirator, an Assistant Manager of
PCIBank's Meralco Branch, who helped Castro open a Checking
account of a fictitious person named "Reynaldo Reyes." Castro
deposited a worthless Bank of America Check in exactly the same
amount of Ford checks. The syndicate tampered with the checks
and succeeded in replacing the worthless checks and the eventual
encashment of Citibank Check Nos. SN 10597 and 16508. The
PCIBank Ptro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities in their
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official capacity or authority but for their personal and private gain
or benefit.
A bank holding out its officers and agents as worthy of confidence
will not be permitted to profit by the frauds these officers or agents
were enabled to perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank therefrom.
For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and
apparent scope of his employment or authority.29 And if an officer or
employee of a bank, in his official capacity, receives money to
satisfy an evidence of indebetedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central
Bank Circular No. 580, Series of 1977 provides that any theft affecting
items in transit for clearing, shall be for the account of sending bank,
which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's
shoulders alone.
The evidence on record shows that Citibank as drawee bank was
likewise negligent in the performance of its duties. Citibank failed to
establish that its payment of Ford's checjs were made in due course
and legally in order. In its defense, Citibank claims the genuineness
and due execution of said checks, considering that Citibank (1) has
no knowledge of any informity in the issuance of the checks in
question (2) coupled by the fact that said checks were sufficiently
funded and (3) the endorsement of the Payee or lack thereof was
guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to
Ford an absolute and contractual duty to pay the proceeds of the
subject check only to the payee thereof, the CIR. Citing Section 6232
of the Negotiable Instruments Law, Ford argues that by accepting
the instrument, the acceptro which is Citibank engages that it will
pay according to the tenor of its acceptance, and that it will pay
only to the payee, (the CIR), considering the fact that here the
check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for
the damages incurred by Ford on Citibank Checks Numbers SN
10597 and 16508, because of the contractual relationship existing
between the two. Citibank, as the drawee bank breached its
contractual obligation with Ford and such degree of culpability
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prior to December 19, 1977 but the relief was sought only in 1983, or
seven years thereafter.
The statute of limitations begins to run when the bank gives the
depositor notice of the payment, which is ordinarily when the check
is returned to the alleged drawer as a voucher with a statement of
his account,39 and an action upon a check is ordinarily governed by
the statutory period applicable to instruments in writing.40
Our laws on the matter provide that the action upon a written
contract must be brought within ten year from the time the right of
action accrues.41 hence, the reckoning time for the prescriptive
period begins when the instrument was issued and the
corresponding check was returned by the bank to its depositor
(normally a month thereafter). Applying the same rule, the cause of
action for the recovery of the proceeds of Citibank Check No. SN
04867 would normally be a month after December 19, 1977, when
Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action
was filed on January 20, 1984, barely six years had lapsed. Thus, we
conclude that Ford's cause of action to recover the amount of
Citibank Check No. SN 04867 was seasonably filed within the period
provided by law.
Finally, we also find thet Ford is not completely blameless in its failure
to detect the fraud. Failure on the part of the depositor to examine
its passbook, statements of account, and cancelled checks and to
give notice within a reasonable time (or as required by statute) of
any discrepancy which it may in the exercise of due care and
diligence find therein, serves to mitigate the banks' liability by
reducing the award of interest from twelve percent (12%) to six
percent (6%) per annum. As provided in Article 1172 of the Civil
Code of the Philippines, respondibility arising from negligence in the
performance of every kind of obligation is also demandable, but
such liability may be regulated by the courts, according to the
circumstances. In quasi-delicts, the contributory negligence of the
plaintiff shall reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank, know
formerly as Insular Bank of Asia and America, id declared solely
responsible for the loss of the proceeds of Citibank Check No SN
04867 in the amount P4,746,114.41, which shall be paid together with
six percent (6%) interest thereon to Ford Philippines Inc. from the date
when the original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of Appeals in CAG.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are
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adjudged liable for and must share the loss, (concerning the
proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to
pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest
thereon, from the date the complaint was filed until full payment of
said amount.1wphi1.nt
Costs against Philippine Commercial International Bank and Citibank
N.A.
SO ORDERED.
Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.
PCIB V. CA
350 SCRA 446
FACTS:
Ford Philippines filed actions to recover from the drawee bank
Citibank and
collecting bank PCIB the value of several checks payable
to the Commissioner of Internal Revenue which were
embezzled allegedly by an
organized syndicate. What prompted this action was the drawi
ng of a
check by Ford, which it deposited to PCIB as payment and wa
s debited from their Citibank account. It later on found out that the
payment wasnt
received by the Commissioner. Meanwhile, according to the N
BI report, one of the checks issued by petitioner was withdrawn from
PCIB for alleged mistake in the amount to be paid. This was
replaced with managers check
by PCIB, which were allegedly stolen by the syndicate and de
posited in their own account.
The trial court decided in favor of Ford.
ISSUE:
Has Ford the right to recover the value of the checks intended as
payment to CIR?
HELD:
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The checks were drawn against the drawee bank but the title of the
person negotiating the same was allegedly defective because the
instrument was
obtained by fraud and unlawful means, and the proceeds of t
he checks were not remitted to the payee. It was established that
instead paying the
Commissioner, the checks were diverted and encashed for the
eventual distribution among members of the syndicate.
Pursuant to this, it is vital to show that the negotiation is made
by the perpetrator in breach of faith amounting to fraud. The
person negotiating the checks must have gone beyond the
authority given by his principal. If the principal could prove that
there was no negligence in the performance
of his duties, he may set up the personal defense to escape li
ability and recover from other parties who, through their own
negligence, allowed the commission of the crime.
It should be resolved if Ford is guilty of the imputed contributor
y negligence that would defeat its claim for reimbursement, bearing
in mind that its employees were among the members of the
syndicate. It appears
although the employees of Ford initiated the transactions attribu
table to
the organized syndicate, their actions were not the proximate c
ause of
encashing the checks payable to CIR. The degree of Fords n
egligence couldnt be characterized as the
proximate cause of the injury to parties. The mere fact that th
e forgery was committed by a drawer-payors confidential
employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper
upon the bank, doesnt entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.
Note: not only PCIB but also Citibank is responsible for negligen
ce. Citibank was negligent in the performance of its duties as a
drawee
bank. It failed to establish its payments of Fords checks were
made in due course and legally in order.
FACTS:
October 19, 1977: Ford drew and issued its Citibank Check of
P4,746,114.41, in favor of the Commissioner of Internal Revenue
(CIR) as payment of percentage or manufacturer's sales taxes
for the third quarter of 1977
o
trial court: Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the Ford
As far as the BIR is concernced, the said two BIR Revenue Tax
Receipts were considered "fake and spurious".
o
forced Ford to pay the BIR anew, while an action was filed
against Citibank and PCIBank for recovery
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ISSUE: W/N Ford can hold both PCIB and Citibank liable
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Given these circumstances, the mere fact that the forgery was
committed by a drawer-payor's confidential employee or
agent, who by virtue of his position had unusual facilities for
perpertrating the fraud and imposing the forged paper upon
the bank, does not entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.
o
PCIBank did not actually receive nor hold the 2 Ford checks at
all. Neither is there any proof that defendant PCIBank
contributed any official or conscious participation in the
process of the embezzlement.
o
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hold them equally liable for the loss of the proceeds of the
checks issued by Ford in favor of the CIR
The statute of limitations begins to run when the bank gives the
depositor notice of the payment, which is ordinarily when the
check is returned to the alleged drawer as a voucher with a
statement of his account, and an action upon a check is
ordinarily governed by the statutory period applicable to
instruments in writing.
o
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G. R. No. 164317
February 6, 2006
Maturity
Date
1845 12-05-80
1853 12-08-80
03-06-81
P198,150.67
1824 11-28-80
02-26-81
P707,879.71
1798 11-21-80
02-19-81
P835,526.25
1808 11-21-80
02-19-81
P370,332.52
2042 01-30-81
04-30-81
P469,669.29
High Fired
Refractory Nozzle
Bricks
1801 11-21-80
1857 12-09-80
03-09-81 P197,843.61
1895 12-17-80
03-17-81
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Principal
P67,652.04
Description of
Goods
Spectrophotometer
1911 12-22-80
03-20-81
P91,497.85
50 pcs. Ingot
moulds
2041 01-30-81
04-30-81
P91,456.97
50 pcs. Ingot
moulds
2099 02-10-81
05-11-81
P66,162.26
2100 02-10-81
05-12-81
P210,748.00
Under the receipts, petitioner agreed to hold the goods in trust for
the said bank, with authority to sell but not by way of conditional
sale, pledge or otherwise; and in case such goods were sold, to turn
over the proceeds thereof as soon as received, to apply against the
relative acceptances and payment of other indebtedness to
respondent bank. In case the goods remained unsold within the
specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said "goods, manufactured
products or proceeds thereof, whether in the form of money or bills,
receivables, or accounts separate and capable of identification"
were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods
to respondent bank, or to return their value amounting to
P6,940,280.66 despite demands. Thus, the bank filed a criminal
complaint for estafa6 against petitioner in the Office of the City
Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found
probable cause estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115,
otherwise known as the Trust Receipts Law. Thirteen (13) Informations
were filed against the petitioner before the Regional Trial Court (RTC)
of Manila. The cases were docketed as Criminal Cases No. 86-42169
to 86-42181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then
Minister of Justice. The appeal was dismissed in a Resolution 7 dated
March 17, 1987, and petitioner moved for its reconsideration. On
December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against
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PBMI and the signatory to the trust receipts, is criminally liable for
violation of P.D. No. 115; (b) the issue raised by the petitioner, on
whether he violated P.D. No. 115 by his actuations, had already
been resolved and laid to rest in Allied Bank Corporation v.
Ordoez;22 and (c) petitioner was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary
investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION
ON THE GROUND THAT THE CERTIFICATION OF NON-FORUM
SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE
IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a
mere technicality. He claims that the rules of procedure should be
used to promote, not frustrate, substantial justice. He insists that the
Rules of Court should be construed liberally especially when, as in
this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result
in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view,
and asserts that indubitably, the certificate of non-forum shopping
incorporated in the petition before the CA is defective because it
failed to disclose essential facts about pending actions concerning
similar issues and parties. It asserts that petitioners failure to comply
with the Rules of Court is fatal to his petition. The OSG cited Section 2,
Rule 42, as well as the ruling of this Court in Melo v. Court of
Appeals.24
We agree with the ruling of the CA that the certification of nonforum shopping petitioner incorporated in his petition before the
appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action
or proceeding in the Supreme Court, the Court of Appeals or
different divisions thereof, or any tribunal or agency.
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It is finally certified that if the affiant should learn that a similar action
or proceeding has been filed or is pending before the Supreme
Court, the Court of Appeals, or different divisions thereof, of any
other tribunal or agency, it hereby undertakes to notify this
Honorable Court within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules
of Court, the petition should be accompanied by a sworn
certification of non-forum shopping, as provided in the third
paragraph of Section 3, Rule 46 of said Rules. The latter provision
reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with
requirements. The petition shall contain the full names and actual
addresses of all the petitioners and respondents, a concise
statement of the matters involved, the factual background of the
case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn
certification that he has not theretofore commenced any other
action involving the same issues in the Supreme Court, the Court of
Appeals or different divisions thereof, or any other tribunal or
agency; if there is such other action or proceeding, he must state
the status of the same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof within five (5)
days therefrom. xxx
Compliance with the certification against forum shopping is
separate from and independent of the avoidance of forum
shopping itself. The requirement is mandatory. The failure of the
petitioner to comply with the foregoing requirement shall be
sufficient ground for the dismissal of the petition without prejudice,
unless otherwise provided.26
Indubitably, the first paragraph of petitioners certification is
incomplete and unintelligible. Petitioner failed to certify that he "had
not heretofore commenced any other action involving the same
issues in the Supreme Court, the Court of Appeals or the different
divisions thereof or any other tribunal or agency" as required by
paragraph 4, Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioners contention that the certification is
designed to promote and facilitate the orderly administration of
justice, and therefore, should not be interpreted with absolute
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the goods for their total value against loss from fire, theft, pilferage or
other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as
property of the entruster; (5) return the goods, documents or
instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the
goods, documents or instruments released under a trust receipt to
the entrustee to the extent of the amount owing to the entruster or
as appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the trust receipt;
provided, such are not contrary to the provisions of the document.41
In the case at bar, the transaction between petitioner and
respondent bank falls under the trust receipt transactions envisaged
in P.D. No. 115. Respondent bank imported the goods and entrusted
the same to PBMI under the trust receipts signed by petitioner, as
entrustee, with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods
in trust for the said BANK as its property with liberty to sell the same
within ____days from the date of the execution of this Trust Receipt
and for the Banks account, but without authority to make any other
disposition whatsoever of the said goods or any part thereof (or the
proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against
loss from fire, theft, pilferage or other casualties as directed by the
BANK, the sum insured to be payable in case of loss to the BANK,
with the understanding that the BANK is, not to be chargeable with
the storage premium or insurance or any other expenses incurred on
said goods.
In case of sale, I/we further agree to turn over the proceeds thereof
as soon as received to the BANK, to apply against the relative
acceptances (as described above) and for the payment of any
other indebtedness of mine/ours to the BANK. In case of non-sale
within the period specified herein, I/we agree to return the goods
under this Trust Receipt to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables,
or accounts separate and capable of identification as property of
the BANK.42
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February 6, 2006
Lessons Applicable: Corp. Officers or employees, through whose act,
default or omission the corp. commits a crime, are themselves
individually guilty of the crime (Corporate Law)
FACTS:
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April 22, 2004: CA dismissed the petition for lack of merit and on
procedural grounds
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The failure of person to turn over the proceeds of the sale of the
goods covered by the trust receipt to the entruster or to return said
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The facts of the case, as culled from the records, are as follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly
known as NS Electronics (Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is wholly owned by
respondent Technology Electronics Assembly and Management
Pacific Corporation (TPC). On the other hand, petitioner Manila
Electric Company (Meralco) is a utility company supplying electricity
in the Metro Manila area.
Petitioner and NS Electronics (Philippines), Inc., the predecessor-ininterest of respondent TEC, were parties to two separate contracts
denominated as Agreements for the Sale of Electric Energy under
the following account numbers: 09341-1322-163 and 09341-1812-13.4
Under the aforesaid agreements, petitioner undertook to supply
TEC's building known as Dyna Craft International Manila (DCIM)
located at Electronics Avenue, Food Terminal Complex, Taguig,
Metro Manila, with electric power. Another contract was entered
into for the supply of electric power to TEC's NS Building under
Account No. 19389-0900-10.
In September 1986, TEC, under its former name National SemiConductors (Phils.) entered into a Contract of Lease5 with
respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the
former's DCIM building for a period of five years or until September
1991. Ultra was, however, ejected from the premises on February 12,
1988 by virtue of a court order, for repeated violation of the terms
and conditions of the lease contract.
On September 28, 1987, a team of petitioner's inspectors conducted
a surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The
two meters covered by account numbers 09341-1322-16 and 093411812-13, were found to be allegedly tampered with and did not
register the actual power consumption in the building. The results of
the inspection were reflected in the Service Inspection Reports7
prepared by the team.
In a letter dated November 25, 1987, petitioner informed TEC of the
results of the inspection and demanded from the latter the payment
of P7,040,401.01 representing its unregistered consumption from
February 10, 1986 until September 28, 1987, as a result of the alleged
tampering of the meters.8 TEC received the letters on January 7,
1988. Since Ultra was in possession of the subject building during the
covered period, TEC's Managing Director, Mr. Bobby Tan, referred
the demand letter to Ultra9 which, in turn, informed TEC that its
Executive Vice-President had met with petitioner's representative.
Ultra further intimated that assuming that there was tampering of the
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the Office of the City Mayor, alleging that Acebedo had violated
the conditions set forth in its business permit and requesting the
cancellation and/or revocation of such permit.
Acting on such complaint, then City Mayor Camilo P. Cabili
designated City Legal Officer Leo T. Cahanap to conduct an
investigation on the matter. On July 12, 1989, respondent City Legal
Officer submitted a report to the City Mayor finding the herein
petitioner guilty of violating all the conditions of its business permit
and recommending the disqualification of petitioner from operating
its business in Iligan City. The report further advised that no new
permit shall be granted to petitioner for the year 1989 and should
only be given time to wind up its affairs.
On July 19, 1989, the City Mayor sent petitioner a Notice of
Resolution and Cancellation of Business Permit effective as of said
date and giving petitioner three (3) months to wind up its affairs.
On October 17, 1989, petitioner brought a petition for certiorari,
prohibition and mandamus with prayer for restraining
order/preliminary injunction against the respondents, City Mayor,
City Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan
City Chapter (SOPI), docketed as Civil Case No. 1497 before the
Regional Trial Court of Iligan City, Branch I. Petitioner alleged that (1)
it was denied due process because it was not given an opportunity
to present its evidence during the investigation conducted by the
City Legal Officer; (2) it was denied equal protection of the laws as
the limitations imposed on its business permit were not imposed on
similar businesses in Iligan City; (3) the City Mayor had no authority to
impose the special conditions on its business permit; and (4) the City
Legal Officer had no authority to conduct the investigation as the
matter falls within the exclusive jurisdiction of the Professional
Regulation Commission and the Board of Optometry.
Respondent SOPI interposed a Motion to Dismiss the Petition on the
ground of non-exhaustion of administrative remedies but on
November 24, 1989, Presiding Judge Mamindiara P. Mangotara
deferred resolution of such Motion to Dismiss until after trial of the
case on the merits. However, the prayer for a writ of preliminary
injunction was granted. Thereafter, respondent SOPI filed its
answer.1wphi1.nt
On May 30, 1990, the trial court dismissed the petition for failure to
exhaust administrative remedies, and dissolved the writ of preliminary
injunction it earlier issued. Petitioner's motion for reconsideration met
the same fate. It was denied by an Order dated June 28, 1990.
On October 3, 1990, instead of taking an appeal, petitioner filed a
petition for certiorari, prohibition and mandamus with the Court of
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xxx
xxx
xxx
xxx
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However, the present inquiry does not stop there, as the Solicitor
General believes. The power or authority of the City Mayor to impose
conditions or restrictions in the business permit is indisputable. What
petitioner assails are the conditions imposed in its particular case
which, it complains, amount to a confiscation of the business in
which petitioner is engaged.
Distinction must be made between the grant of a license or permit
to do business and the issuance of a license to engage in the
practice of a particular profession. The first is usually granted by the
local authorities and the second is issued by the Board or
Commission tasked to regulate the particular profession. A business
permit authorizes the person, natural or otherwise, to engage in
business or some form of commercial activity. A professional license,
on the other hand, is the grant of authority to a natural person to
engage in the practice or exercise of his or her profession.
In the case at bar, what is sought by petitioner from respondent City
Mayor is a permit to engage in the business of running an optical
shop. It does not purport to seek a license to engage in the practice
of optometry as a corporate body or entity, although it does have in
its employ, persons who are duly licensed to practice optometry by
the Board of Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo
International Corporation, G.R. No. 117097, 9 promulgated by this
Court on March 21, 1997, is in point. The factual antecedents of that
case are similar to those of the case under consideration and the
issue ultimately resolved therein is exactly the same issue posed for
resolution by this Court en banc.
In the said case, the Acebedo International Corporation filed with
the Office of the Municipal Mayor an application for a business
permit for the operation of a branch of Acebedo Optical in Candon,
Ilocos Sur. The application was opposed by the Samahan ng
Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo
is a juridical entity not qualified to practice optometry. A committee
was created by the Office of the Mayor to study private
respondent's application. Upon recommendation of the said
committee, Acebedo's application for a business permit was denied.
Acebedo filed a petition with the Regional Trial Court but the same
was dismissed. On appeal, however, the Court of Appeals reversed
the trial court's disposition, prompting the Samahan ng Optometrists
to elevate the matter to this Court.
The First Division of this Court, then composed of Honorable Justice
Teodoro Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan,
with Honorable Justice Regino Hermosisima, Jr. as ponente, denied
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prevail over the finding and ruling by the Court of Appeals from
which they (respondents) did not appeal.
Anent the second assigned error, petitioner maintains that its
business permit issued by the City Mayor is not a contract entered
into by Iligan City in the exercise of its proprietary functions, such that
although petitioner agreed to such conditions, it cannot be held in
estoppel since ultra vires acts cannot be given effect.
Respondents, on the other hand, agree with the ruling of the Court
of Appeals that the business permit in question is in the nature of a
contract between Iligan City and the herein petitioner, the terms
and conditions of which are binding upon agreement, and that
petitioner is estopped from questioning the same. Moreover, in the
Resolution denying petitioner's motion for reconsideration, the Court
of Appeals held that the contract between the petitioner and the
City of Iligan was entered into by the latter in the performance of its
proprietary functions.
This Court holds otherwise. It had occasion to rule that a license or
permit is not in the nature of a contract but a special privilege.
. . . a license or a permit is not a contract between the
sovereignty and the licensee or permitee, and is not a property
in the constitutional sense, as to which the constitutional
proscription against impairment of the obligation of contracts
may extend. A license is rather in the nature of a special
privilege, of a permission or authority to do what is within its
terms. It is not in any way vested, permanent or absolute. 25
It is therefore decisively clear that estoppel cannot apply in this case.
The fact that petitioner acquiesced in the special conditions
imposed by the City Mayor in subject business permit does not
preclude it from challenging the said imposition, which is ultra vires or
beyond the ambit of authority of respondent City Mayor. Ultra vires
acts or acts which are clearly beyond the scope of one's authority
are null and void and cannot be given any effect. The doctrine of
estoppel cannot operate to give effect to an act which is otherwise
null and void or ultra vires.
The Court of Appeals erred in adjudging subject business permit as
having been issued by responded City Mayor in the performance of
proprietary functions of Iligan City. As hereinabove elaborated upon,
the issuance of business licenses and permits by a municipality or city
is essentially regulatory in nature. The authority, which devolved
upon local government units to issue or grant such licenses or
permits, is essentially in the exercise of the police power of the State
within the contemplation of the general welfare clause of the Local
Government Code.
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Footnotes
Annex A to Memorandum of Respondent City Mayor and City
Legal Officer of Iligan, Rollo, p. 231-232.
1
69 SCRA 564.
10
Ibid, p. 306.
12
Ibid.
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13
State ex rel. McKittrick vs. Gate City Optical Co., 339 Mo 427,
97 SW 2d 89).
17
18
Dickson vs. Flynn, 246 App Div 341, 286 NYS 225.
State ex rel. Brother vs. Beck Jewelry Enterprises, Inc., 220 Ind.
276, 41 NE 2d 622, 141 ALR 876) (61 Am Jur 187); Kindy
Opticians, Inc. vs. State Board of Examiners in Optometry, 1939,
291 Mich 152, 289 NW 112, 113; New Jersey State Bd. of
Optometrists vs. S.S. Kresge Co., 113 NJL 287, 174 A 353).
19
20
Dvorine vs. Castelberg Jewelry Corp., 170 Md. 661, 185 A 562.
21
25
Separate Opinions
KAPUNAN, J., separate and concurring opinion;
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xxx
xxx
Footnotes
1
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State ex. rel. Fatzer v. Zale Jewelry Co., (1956) 179 Kan 628, 298
P2d 283.
4
State ex. rel. Beck v. Goldman Jewelry Co., 142 Kan 881, 51
P2d 995, 102 ALR 334.
5
Rowe v. Burt's Inc. (1939, App) 17 Ohio Ops 1, 30 Oio L Abs 203,
31 NE2d 725.
7
11
12
Silver v. Lansburgh & Bro, (1940) (App DC, 111 F(2d) 518).
13
14
15
Id., at 585.
17
Rep. Act No. 7160 (1991), Sec. 16. General Welfare. Every
local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers
necessary, appropriate or incidental for its efficient and
effective governance, and those which are essential to the
promotion of the general welfare. Within their respective
territorial jurisdictions, local government units shall ensure and
support, among other things, the preservation and enrichment
of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the
18
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21
22
Rollo, p. 55.
23
Id., at 77.
24
Id., at 78.
26
Ibid. In the US, Professional Corporations differ from nonprofessional corporations in that Professional Corporation law
requires each stockholder of a professional corporation to be a
licensed member of the profession for which the corporation is
organized to practice.
28
29
Id., at 170-172.
32
Id., at 169.
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33
35
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Facts: Petitioner applied with the Office of the City Mayor of Iligan for
a business permit. After consideration of petitioner's application and
the opposition interposed thereto by local optometrists, respondent
City Mayor issued Business Permit No. 5342 subject to the following
conditions: (1) Since it is a corporation, Acebedo cannot put up an
optical clinic but only a commercial store; (2) It cannot examine
and/or prescribe reading and similar optical glasses for patients,
because these are functions of optical clinics; (3) It cannot sell
reading and similar eyeglasses without a prescription having first
been made by an independent optometrist or independent optical
clinic. Acebedo can only sell directly to the public, without need of
a prescription, Ray-Ban and similar eyeglasses; (4) It cannot advertise
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optical lenses and eyeglasses, but can advertise Ray-Ban and similar
glasses and frames; (5) It is allowed to grind lenses but only upon the
prescription
of
an
independent
optometrist.
On December 5, 1988, private respondent Samahan ng Optometrist
Sa Pilipinas (SOPI lodged a complaint against the petitioner alleging
that Acebedo had violated the conditions set forth in its business
permit and requesting the cancellation and/or revocation of such
permit. On July 19, 1989, the City Mayor sent petitioner a Notice of
Resolution and Cancellation of Business Permit effective as of said
date and giving petitioner three (3) months to wind up its affairs.
Issue: Whether the City Mayor has the authority to impose special
conditions, as a valid exercise of police power, in the grant of
business permits
June 8, 2005
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Court may take cognizance of the same, still, it must fail. Section 26
of Republic Act No. 6848 (1990) provides:
Section 26. Powers of the Board. The Board of Directors shall have the
broadest powers to manage the Islamic Bank, x x x The Board shall
adopt policy guidelines necessary to carry out effectively the
provisions of this Charter as well as internal rules and regulations
necessary for the conduct of its Islamic banking business and all
matters related to personnel organization, office functions and salary
administration. (Italics ours)
On the other hand, Item No. 2 of Executive Order No. 26 (1992)
entitled "Prescribing Procedure and Sanctions to Ensure Speedy
Disposition of Administrative Cases" directs, "all administrative
agencies" to "adopt and include in their respective Rules of
Procedure" provisions designed to abbreviate administrative
proceedings.
The above two (2) provisions relied upon by petitioner does not
require the Islamic Bank [AIIBP] to promulgate rules of procedure
before administrative discipline may be imposed upon its
employees. The internal rules of procedures ordained to be adopted
by the Board refers to that necessary for the conduct of its Islamic
banking business and all matters related to "personnel organization,
office functions and salary administration." On the contrary, Section
26 of RA 6848 gives the Board of Directors of the Islamic Bank the
"broadest powers to manage the Islamic Bank." This grant of broad
powers would be an idle ceremony if it would be powerless to
discipline its employees.
The second assignment of error must likewise fail. The issue is raised
for the first time via this petition for certiorari. Petitioner submitted
himself to the jurisdiction of the CSC. Although he could have raised
the alleged lack of jurisdiction in his Motion for Reconsideration of
Resolution No. 94-4483 of the CSC, he did not do so. By filing the
Motion for Reconsideration, he is estopped from denying the CSCs
jurisdiction over him, as it is settled rule that a party who asks for an
affirmative relief cannot later on impugn the action of the tribunal as
without jurisdiction after an adverse result was meted to him.
Although jurisdiction over the subject matter of a case may be
objected to at any stage of the proceedings even on appeal, this
particular rule, however, means that jurisdictional issues in a case
can be raised only during the proceedings in said case and during
the appeal of said case (Aragon v. Court of Appeals, 270 SCRA 603).
The case at bar is a petition [for] certiorari and not an appeal.
But even on the merits the argument must falter. Item No. 1 of CSC
Resolution No. 93-2387 dated 29 June 1993, provides:
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discovered that TCT No. N-130671 is fake and the property described
therein non-existent.
...
This notwithstanding, respondent cannot escape liability. As
adverted to earlier, his failure to perform his official duties resulted to
the prejudice and substantial damage to the ISLAMIC BANK for
which he should be held liable for the administrative offense of
CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE.49
From the foregoing, we find that the CSC and the court a quo
committed no grave abuse of discretion when they sustained
Sawadjaans dismissal from service. Grave abuse of discretion
implies such capricious and whimsical exercise of judgment as
equivalent to lack of jurisdiction, or, in other words, where the power
is exercised in an arbitrary or despotic manner by reason of passion
or personal hostility, and it must be so patent and gross as to amount
to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined or to act at all in contemplation of law.50 The records
show that the respondents did none of these; they acted in
accordance with the law.
WHEREFORE, the petition is DISMISSED. The Decision of the Court of
Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No.
95-2754 of the Civil Service Commission, and its Resolution of 15
December 1999 are hereby affirmed. Costs against the petitioner.
SO ORDERED.
Davide, Jr., C.J., Panganiban, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, CarpioMorales, Callejo, Sr., Azcuna, Tinga, and Garcia, JJ., concur.
Puno, J., on official leave.
What is the effect of non-filing of the articles of incorporation within
the required period?
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PUNO, J.:
This petition for certiorari seeks to annul and set aside the decision of
the Regional Trial Court, Branch 58, Angeles City which ordered the
Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga
to dismiss Civil Case No. 1214 for lack of jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner
Reynaldo M. Lozano filed Civil Case No. 1214 for damages against
respondent Antonio Anda before the Municipal Circuit Trial Court
(MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged
that he was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent
Anda was the president of the Samahang Angeles-Mabalacat
Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in
August 1995, upon the request of the Sangguniang Bayan of
Mabalacat, Pampanga, petitioner and private respondent agreed
to consolidate their respective associations and form the Unified
Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc.
(UMAJODA); petitioner and private respondent also agreed to elect
one set of officers who shall be given the sole authority to collect the
daily dues from the members of the consolidated association;
elections were held on October 29, 1995 and both petitioner and
private respondent ran for president; petitioner won; private
respondent protested and, alleging fraud, refused to recognize the
results of the election; private respondent also refused to abide by
their agreement and continued collecting the dues from the
members of his association despite several demands to desist.
Petitioner was thus constrained to file the complaint to restrain
private respondent from collecting the dues and to order him to pay
damages in the amount of P25,000.00 and attorney's fees of P500.00.
1
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Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of
China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of
P176,467.50.2
On 4 October 1989, petitioner wrote the Federation, through the
private respondent a demand letter requesting for the amount of
P265,894.33.3 On 30 October 1989, the Federation, through the
Project Gintong Alay, paid the amount of P31,603.00.4
On 27 December 1989, Henri Kahn issued a personal check in the
amount of P50,000 as partial payment for the outstanding balance
of the Federation.5 Thereafter, no further payments were made
despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial
Court of Manila. Petitioner sued Henri Kahn in his personal capacity
and as President of the Federation and impleaded the Federation as
an alternative defendant. Petitioner sought to hold Henri Kahn liable
for the unpaid balance for the tickets purchased by the Federation
on the ground that Henri Kahn allegedly guaranteed the said
obligation.6
Henri Kahn filed his answer with counterclaim. While not denying the
allegation that the Federation owed the amount P207,524.20,
representing the unpaid balance for the plane tickets, he averred
that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president of the
Federation. He maintained that he did not guarantee payment but
merely acted as an agent of the Federation which has a separate
and distinct juridical personality.7
On the other hand, the Federation failed to file its answer, hence,
was declared in default by the trial court.8
In due course, the trial court rendered judgment and ruled in favor
of the petitioner and declared Henri Kahn personally liable for the
unpaid obligation of the Federation. In arriving at the said ruling, the
trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions
had it been duly established that defendant Federation is a
corporation. The trouble, however, is that neither the plaintiff nor the
defendant Henri Kahn has adduced any evidence proving the
corporate existence of the defendant Federation. In paragraph 2 of
its complaint, plaintiff asserted that "Defendant Philippine Football
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xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports
associations clearly indicate that these entities may acquire a
juridical personality. The power to purchase, sell, lease and
encumber property are acts which may only be done by persons,
whether natural or artificial, with juridical capacity. However, while
we agree with the appellate court that national sports associations
may be accorded corporate status, such does not automatically
take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of a
special law or a general enabling act. We cannot agree with the
view of the appellate court and the private respondent that the
Philippine Football Federation came into existence upon the
passage of these laws. Nowhere can it be found in R.A. 3135 or P.D.
604 any provision creating the Philippine Football Federation. These
laws merely recognized the existence of national sports associations
and provided the manner by which these entities may acquire
juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. A National Association shall be organized for each individual sports
in the Philippines in the manner hereinafter provided to constitute
the Philippine Amateur Athletic Federation. Applications for
recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the
constitution and by-laws and a list of the members of the proposed
association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is
satisfied that said association will promote the purposes of this Act
and particularly section three thereof. No application shall be held
pending for more than three months after the filing thereof without
any action having been taken thereon by the executive committee.
Should the application be rejected, the reasons for such rejection
shall be clearly stated in a written communication to the applicant.
Failure to specify the reasons for the rejection shall not affect the
application which shall be considered as unacted upon: Provided,
however, That until the executive committee herein provided shall
have been formed, applications for recognition shall be passed
upon by the duly elected members of the present executive
committee of the Philippine Amateur Athletic Federation. The said
executive committee shall be dissolved upon the organization of the
executive committee herein provided: Provided, further, That the
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lease of the property, renewable for another ten (10) years, expressly
granting FIRESTONE the first option to purchase the leased premises
in the event that it decided "to dispose and sell these properties
including the lot . . . . "5
The contracts of lease conspicuously contain an identically worded
provision requiring FIRESTONE to construct buildings and other
improvements within the leased premises worth several hundred
thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988
when FIRESTONE, cognizant of the impending expiration of their
lease agreement with NDC, informed the latter through several
letters and telephone calls that it was renewing its lease over the
property. While its letter of 17 March 1988 was answered by Antonio
A. Henson, General Manager of NDC, who promised immediate
action on the matter, the rest of its communications remained
unacknowledged.7 FIRESTONE's predicament worsened when rumors
of NDC's supposed plans to dispose of the subject property in favor
of petitioner Polytechnic University of the Philippines (PUP) came to
its knowledge. Forthwith, FIRESTONE served notice on NDC
conveying its desire to purchase the property in the exercise of its
contractual right of first refusal.
Apprehensive that its interest in the property would be disregarded,
FIRESTONE instituted an action for specific performance to compel
NDC to sell the leased property in its favor. FIRESTONE averred that it
was pre-empting the impending sale of the NDC compound to
petitioner PUP in violation of its leasehold rights over the 2.60hectare8 property and the warehouses thereon which would expire
in 1999. FIRESTONE likewise prayed for the issuance of a writ of
preliminary injunction to enjoin NDC from disposing of the property
pending the settlement of the controversy.9
In support of its complaint, FIRESTONE adduced in evidence a letter
of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C.
Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order
submitted to then President Corazon C. Aquino transferring the
whole NDC compound, including the leased property, in favor of
petitioner PUP. Attached to the letter was a draft of the proposed
memorandum order as well as a summary of existing leases on the
subject property. The survey listed FIRESTONE as lessee of a portion of
the property, placed at 29,00010 square meters, whose contract with
NDC was set to expire on 31 December 198911 renewable for another
ten (10) years at the option of the lessee. The report expressly
recognized FIRESTONE's right of first refusal to purchase the leased
property "should the lessor decide to sell the same."12
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WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are
DENIED. Inasmuch as the first contract of lease fixed the area of the
leased premises at 2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground survey of the leased premises
be immediately conducted by a duly licensed, registered surveyor
at the expense of private respondent FIRESTONE CERAMICS, INC.,
within two (2) months from finality of the judgment in this case.
Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have
six (6) months from receipt of the approved survey within which to
exercise its right to purchase the leased property at P1,500.00 per
square meter, and petitioner Polytechnic University of the Philippines
is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in
the exercise of its right of first refusal upon payment of the purchase
price thereof.
SO ORDERED.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part due to prior close relations.
Bellosilo, J.:
Facts:
Petitioner National Development Corp., a government owned and
controlled corporation, had in its disposal a 10 hectares property.
Sometime in May 1965, private respondent Firestone Corporation
manifested its desire to lease a portion of it for ceramic
manufacturing business. On August 24, 1965, both parties entered
into a contract of lease for a term of 10 years renewable for another
10 years. Prior to the expiration of the aforementioned contract,
Firestone wrote NDC requesting for an extension of their lease
agreement. It was renewed with an express grant to Firestone of the
first option to purchase the leased premise in the event that it was
decided "to dispose and sell the properties including the lot..."
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Issue:
1. Whether or not there is a valid sale between NDC and PUP.
Ruling
A contract of sale, as defined in the Civil Code, is a contract where
one of the parties obligates himself to transfer the ownership of and
to deliver a determinate thing to the other or others who shall pay
therefore a sum certain in money or its equivalent. It is therefore a
general requisite for the existence of a valid and enforceable
contract of sale that it be mutually obligatory, i.e., there should be a
concurrence of the promise of the vendor to sell a determinate thing
and the promise of the vendee to receive and pay for the property
so delivered and transferred. The Civil Code provision is, in effect, a
"catch-all" provision which effectively brings within its grasp a whole
gamut of transfers whereby ownership of a thing is ceded for a
consideration.
All three (3) essential elements of a valid sale, without which there
can be no sale, were attendant in the "disposition" and "transfer" of
the property from NDC to PUP - consent of the parties, determinate
subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of
Memorandum Order No. 214 which explicitly states the
acquiescence of the parties to the sale of the property. Furthermore,
the cancellation of NDC's liabilities in favor of the National
Government constituted the "consideration" for the sale.
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February 9, 2000
On August 21, 1998, public respondent issued the first assailed Order 5
denying petitioner's motion to dismiss. It further scheduled a
clarificatory hearing on the criminal aspect of the complaint and a
preliminary conference on its administrative aspect on September 2,
1998. Petitioner received the order on August 26, 1998 and she filed
a motion for reconsideration6 the next day.
On October 28, 1998, public respondent issued the second assailed
Order7 denying petitioner's motion for reconsideration. Hence, this
recourse.
We dismiss the petition.
Petitioner contends that the Ombudsman has no jurisdiction over the
subject matter of the controversy since the PNRC is allegedly a
private voluntary organization. The following circumstances, she
insists, are indicative of the private character of the organization: (1)
the PNRC does not receive any budgetary support from the
government, and that all money given to it by the latter and its
instrumentalities become private funds of the organization; (2) funds
for the payment of personnel's salaries and other emoluments come
from yearly fund campaigns, private contributions and rentals from
its properties; and (3) it is not audited by the Commission on Audit.
Petitioner states that the PNRC falls under the International
Federation of Red Cross, a Switzerland-based organization, and that
the power to discipline employees accused of misconduct,
malfeasance, or immorality belongs to the PNRC Secretary General
by virtue of Section "G", Article IX of its by-laws.8 She threatens that
"to classify the PNRC as a government-owned or controlled
corporation would create a dangerous precedent as it would lose its
neutrality, independence and impartiality . . . .9
Practically the same issue was addressed in Camporedondo v.
National Labor Relations Commission, et. al.,10 where an almost
identical set of facts obtained. Petitioner therein was the
administrator of the Surigao del Norte chapter of the PNRC. An audit
conducted by a field auditor revealed a shortage in the chapter
funds in the sum of P109,000.00. When required to restitute the
amount of P135,927.78, petitioner therein instead applied for early
retirement, which was denied by the Secretary General of the PNRC.
Subsequently, the petitioner filed a complaint for illegal dismissal and
damages against PNRC before the National Labor Relations
Commission. In turn, PNRC moved to dismiss the complaint on the
ground of lack of jurisdiction, averring that PNRC was a government
corporation whose employees are embraced by civil service
regulation. The labor arbiter dismissed the complaint, and the
Commission sustained his order. The petitioner assailed the dismissal
of his complaint via a petition for certiorari, contending that the
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1,000
P1,000.00
"B"
4,000
P1,000.00
Only holders of Class A shares have the right to vote and the
right to be elected as directors or as corporate officers.3
(Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7,
1983. While the amendment granted the right to vote and to be
elected as directors or corporate officers only to holders of Class "A"
shares, holders of Class "B" stocks were granted the same rights and
privileges as holders of Class "A" stocks with respect to the payment
of dividends.
On September 9, 1992, Article VII was again amended to provide as
follows:
SEVENTH: That the authorized capital stock of the corporation is
THIRTY TWO MILLION PESOS (P32,000,000.00) divided as follows:
CLASS NO. OF SHARES PAR VALUE
"A"
1,000
P1,000.00
"B"
31,000
1,000.00
and officers of the corporation. They denied that the exclusivity was
intended only as a privilege granted to founders shares, as no such
proviso is found in the Articles of Incorporation. The respondents
further claimed that the exclusivity of the right granted to Class "A"
holders cannot be defeated or impaired by any subsequent
legislative enactment, e.g. the New Corporation Code, as the
Articles of Incorporation is an intra-corporate contract between the
corporation and its members; between the corporation and its
stockholders; and among the stockholders. They submit that to allow
Class "B" shareholders to vote and be elected as directors would
constitute a violation of MCPIs franchise or charter as granted by
the State.
At the pre-trial, the trial court ruled that a partial judgment could be
rendered on the first cause of action and required the parties to
submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment, the
dispositive portion of which reads:
WHEREFORE, viewed in the light of the foregoing, the election
held on February 9, 2001 is VALID as the holders of CLASS "B"
shares are not entitled to vote and be voted for and this case
based on the First Cause of Action is DISMISSED.
SO ORDERED.6
In finding for the respondents, the trial court ruled that corporations
had the power to classify their shares of stocks, such as "voting and
non-voting" shares, conformably with Section 67 of the Corporation
Code of the Philippines. It pointed out that Article VII of both the
original and amended Articles of Incorporation clearly provided that
only Class "A" shareholders could vote and be voted for to the
exclusion of Class "B" shareholders, the exception being in instances
provided by law, such as those enumerated in Section 6, paragraph
6 of the Corporation Code. The RTC found merit in the respondents
theory that the Articles of Incorporation, which defines the rights and
limitations of all its shareholders, is a contract between MCPI and its
shareholders. It is thus the law between the parties and should be
strictly enforced as to them. It brushed aside the petitioners claim
that the Class "A" shareholders were in estoppel, as the election of
Class "B" shareholders to the corporate board may be deemed as a
mere act of benevolence on the part of the officers. Finally, the
court brushed aside the "founders shares" theory of the petitioners
for lack of factual basis.
Hence, this petition submitting the sole legal issue of whether or not
the Court a quo, in rendering the Partial Judgment dated November
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On Leave.
**
Id. at 128-129.
Id. at 83-84.
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Id. at 71-72.
Id. at 377.
Rollo, p. 47.
Rollo, p. 23.
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MARTINEZ, J.:
Petitioner Commissioner of Internal Revenue (CIR) seeks the reversal
of the decision of the Court of Appeals (CA) 1 which affirmed the
ruling of the Court of Tax Appeals (CTA) 2 that private respondent A.
Soriano Corporation's (hereinafter ANSCOR) redemption and
exchange of the stocks of its foreign stockholders cannot be
considered as "essentially equivalent to a distribution of taxable
dividends" under, Section 83(b) of the 1939 Internal Revenue Act. 3
The undisputed facts are as follows:
Sometime in the 1930s, Don Andres Soriano, a citizen and resident of
the United States, formed the corporation "A. Soriano Y Cia",
predecessor of ANSCOR, with a P1,000,000.00 capitalization divided
into 10,000 common shares at a par value of P100/share. ANSCOR is
wholly owned and controlled by the family of Don Andres, who are
all non-resident aliens. 4 In 1937, Don Andres subscribed to 4,963
shares of the 5,000 shares originally issued. 5
On September 12, 1945, ANSCOR's authorized capital stock was
increased to P2,500,000.00 divided into 25,000 common shares with
the same par value of the additional 15,000 shares, only 10,000 was
issued which were all subscribed by Don Andres, after the other
stockholders waived in favor of the former their pre-emptive rights to
subscribe to the new issues. 6 This increased his subscription to 14,963
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46
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DECISION
MARTINEZ, J.:
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General Rule
Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of
the U.S. Revenue Code of 1928. 60 It laid down the general rule
known as the proportionate test 61 wherein stock dividends once
issued form part of the capital and, thus, subject to income
tax. 62 Specifically, the general rule states that:
A stock dividend representing the transfer of surplus to capital
account shall not be subject to tax.
Having been derived from a foreign law, resort to the jurisprudence
of its origin may shed light. Under the US Revenue Code, this
provision originally referred to stock dividends only, without any
exception. Stock dividends, strictly speaking, represent capital and
do not constitute income to its recipient. 63 So that the mere issuance
thereof is not yet subject to income tax 64 as they are nothing but an
enrichment through increase in value of capital
investment. 65 As capital, the stock dividends postpone the
realization of profits because the fund represented by the new
stock has been transferred from surplus to capital and no longer
available for actual distribution. 66 Income in tax law is an amount
of money coming to a person within a specified time, whether as
payment for services, interest, or profit from investment. 67 It means
cash or its equivalent. 68 It is gain derived and severed from
capital, 69 from labor or from both combined 70 so that to tax a
stock dividend would be to tax a capital increase rather than the
income. 71 In a loose sense, stock dividends issued by the
corporation, are considered unrealized gain, and cannot be
subjected to income tax until that gain has been realized. Before the
realization, stock dividends are nothing but a representation of an
interest in the corporate properties. 72 As capital, it is not yet subject
to income tax. It should be noted that capital and income are
different. Capital is wealth or fund; whereas income is profit or gain
or the flow of wealth. 73 The determining factor for the imposition of
income tax is whether any gain or profit was derived from a
transaction. 74
The Exception
However, if a corporation cancels or redeems stock issued as
a dividend at such time and in such manner as to make
the distribution and cancellation or redemption, in whole or in part,
essentially equivalent to the distribution of a taxable dividend, the
amount so distributed in redemption or cancellation of the stock
shall be considered as taxable income to the extent it represents a
distribution of earnings or profits accumulated after March first,
nineteen hundred and thirteen. (Emphasis supplied).
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under Section 83(b). The use of the words such manner and
essentially equivalent negative any idea that a weighted formula
can resolve a crucial issue Should the distribution be treated as
taxable dividend. 84 On this aspect, American courts developed
certain recognized criteria, which includes the following: 85
1) the presence or absence of real business purpose,
2) the amount of earnings and profits available for the declaration of
a regular dividends and the corporations past record with respect
to the declaration of dividends,
3) the effect of the distribution, as compared with the declaration of
regular dividend,
4) the lapse of time between issuance and redemption, 86
5) the presence of a substantial surplus 87 and a generous supply of
cash which invites suspicion as does a meager policy in relation both
to current earnings and accumulated surplus,88
REDEMPTION AND CANCELLATION
For the exempting clause of Section, 83(b) to apply, it is
indispensable that: (a) there is redemption or cancellation; (b) the
transaction involves stock dividends and (c) the time and manner
of the transaction makes it essentially equivalent to a distribution of
taxable dividends. Of these, the most important is the third.
Redemption is repurchase, a reacquisition of stock by a corporation
which issued the stock 89 in exchange for property, whether or not
the acquired stock is cancelled, retired or held in the
treasury. 90 Essentially, the corporation gets back some of its stock,
distributes cash or property to the shareholder in payment for the
stock, and continues in business as before. The redemption of stock
dividends previously issued is used as a veil for the constructive
distribution of cash dividends. In the instant case, there is no dispute
that ANSCOR redeemed shares of stocks from a stockholder (Don
Andres) twice (28,000 and 80,000 common shares). But where did
the shares redeemed come from? If its source is the original capital
subscriptions upon establishment of the corporation or from initial
capital investment in an existing enterprise, its redemption to the
concurrent value of acquisition may not invite the application of
Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere
return of capital. On the contrary, if the redeemed shares are from
stock dividend declarations other than as initial capital investment,
the proceeds of the redemption is additional wealth, for it is not
merely a return of capital but a gain thereon.
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It is not the stock dividends but the proceeds of its redemption that
may be deemed as taxable dividends. Here, it is undisputed that at
the time of the last redemption, the original common shares owned
by the estate were only 25,247.5 91 This means that from the total of
108,000 shares redeemed from the estate, the balance of 82,752.5
(108,000 less 25,247.5) must have come from stock dividends.
Besides, in the absence of evidence to the contrary, the Tax Code
presumes that every distribution of corporate property, in whole or in
part, is made out of corporate profits 92 such as stock dividends. The
capital cannot be distributed in the form of redemption of stock
dividends without violating the trust fund doctrine wherein the
capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of the corporate
creditors. 93 Once capital, it is always capital. 94 That doctrine was
intended for the protection of corporate creditors. 95
With respect to the third requisite, ANSCOR redeemed stock
dividends issued just 2 to 3 years earlier. The time alone that lapsed
from the issuance to the redemption is not a sufficient indicator to
determine taxability. It is a must to consider the factual
circumstances as to the manner of both the issuance and the
redemption. The time element is a factor to show a device to
evade tax and the scheme of cancelling or redeeming the same
shares is a method usually adopted to accomplish the end
sought. 96 Was this transaction used as a continuing plan, device
or artifice to evade payment of tax? It is necessary to determine
the net effect of the transaction between the shareholder-income
taxpayer and the acquiring (redeeming) corporation. 97 The net
effect test is not evidence or testimony to be considered; it is rather
an inference to be drawn or a conclusion to be reached.98 It is also
important to know whether the issuance of stock dividends was
dictated by legitimate business reasons, the presence of which
might negate a tax evasion plan. 99
The issuance of stock dividends and its subsequent redemption must
be separate, distinct, and not related, for the redemption to be
considered a legitimate tax scheme. 100 Redemption cannot be
used as a cloak to distribute corporate earnings. 101 Otherwise, the
apparent intention to avoid tax becomes doubtful as the intention
to evade becomes manifest. It has been ruled that:
[A]n operation with no business or corporate purpose is a mere
devise which put on the form of a corporate reorganization as a
disguise for concealing its real character, and the sole object and
accomplishment of which was the consummation of a
preconceived plan, not to reorganize a business or any part of a
business, but to transfer a parcel of corporate shares to a
stockholder. 102
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business purpose for the redemption. Otherwise, to rule that the said
proceeds are exempt from income tax when the redemption is
supported by legitimate business reasons would defeat the very
purpose of imposing tax on income. Such argument would open the
door for income earners not to pay tax so long as the person from
whom the income was derived has legitimate business reasons. In
other words, the payment of tax under the exempting clause of
Section 83(b) would be made to depend not on the income of the
taxpayer, but on the business purposes of a third party (the
corporation herein) from whom the income was earned. This is
absurd, illogical and impractical considering that the Bureau of
Internal Revenue (BIR) would be pestered with instances in
determining the legitimacy of business reasons that every income
earner may interposed. It is not administratively feasible and cannot
therefore be allowed.
The ruling in the American cases cited and relied upon by ANSCOR
that the redeemed shares are the equivalent of dividend only if the
shares were not issued for genuine business purposes, 111 or the
redeemed shares have been issued by a corporation bona
fide 112 bears no relevance in determining the non-taxability of the
proceeds of redemption ANSCOR, relying heavily and applying said
cases, argued that so long as the redemption is supported by valid
corporate purposes the proceeds are not subject to tax. 113 The
adoption by the courts below 114 of such argument is misleading if
not misplaced. A review of the cited American cases shows that the
presence or absence of genuine business purposes may be
material with respect to the issuance or declaration of stock
dividends but not on its subsequent redemption. The issuance and
the redemption of stocks are two different transactions. Although the
existence of legitimate corporate purposes may justify a
corporations acquisition of its own shares under Section 41 of the
Corporation Code, 115 such purposes cannot excuse the stockholder
from the effects of taxation arising from the redemption. If the
issuance of stock dividends is part of a tax evasion plan and thus,
without legitimate business reasons, the redemption becomes
suspicious which exempting clause. The substance of the whole
transaction, not its form, usually controls the tax consequences.116
The two purposes invoked by ANSCOR, under the facts of this case
are no excuse for its tax liability. First, the alleged filipinization plan
cannot be considered legitimate as it was not implemented until the
BIR started making assessments on the proceeds of the redemption.
Such corporate plan was not stated in nor supported by any Board
Resolution but a mere afterthought interposed by the counsel of
ANSCOR. Being a separate entity, the corporation can act only
through its Board of Directors. 117 The Board Resolutions authorizing
the redemptions state only one purpose reduction of foreign
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profits. 126 Preferred stocks are those which entitle the shareholder to
some priority on dividends and asset distribution. 127
Both shares are part of the corporations capital stock. Both
stockholders are no different from ordinary investors who take on the
same investment risks. Preferred and common shareholders
participate in the same venture, willing to share in the profits and
losses of the enterprise. 128 Moreover, under the doctrine of equality
of shares all stocks issued by the corporation are presumed equal
with the same privileges and liabilities, provided that the Articles of
Incorporation is silent on such differences. 129
In this case, the exchange of shares, without more, produces no
realized income to the subscriber. There is only a modification of the
subscribers rights and privileges which is not a flow of wealth for
tax purposes. The issue of taxable dividend may arise only once a
subscriber disposes of his entire interest and not when there is still
maintenance of proprietary interest. 130
WHEREFORE, premises considered, the decision of the Court of
Appeals is MODIFIED in that ANSCORs redemption of 82,752.5 stock
dividends is herein considered as essentially equivalent to a
distribution of taxable dividends for which it is LIABLE for the
withholding tax-at-source. The decision is AFFIRMED in all other
respects.
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.
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31 For the 1968 and the 1969 deficiency withholding tax, private
respondent was assessed P3,428,613.90 and P2,950,000.00,
respectively or for a total of P6,378,613.50. Certain documents from
the records shows that the 1969 assessments were reduced. (Folder I,
CTA records in case no. 3710, p. 289; Rollo, pp. 71-72, 106.)
32 Rollo, pp. 72, 107.
33 P.D. 23 dated October 16, 1972 is entitled Proclaiming a Tax
Amnesty Subject to Certain Exceptions.
34 Rollo, p. 72.
35 Rollo, p. 24.
36 CTA Decision, p. 41; Rollo, p. 101.
37 CA Decision, p. 18; Rollo, p. 121.
38 The original provision was retained in R.A. 8424 except that the
reference to the year was deleted.
39 Petitioners Reply, pp. 2, 10.
40 Board of Directors Resolutions dated June 15, 1968 and October
30, 1969 (BIR Records, Folder III, PP. 12-13; 7-8).
41 Comment, pp. 13-14; Rejoinder, pp. 4-5.
42 Gloninger v. Commissioner, 339 F2d 211; Blotch v. U.S. 261 F. Supp.
597, 386 F2d 839; John P. Elton v. Commissioner, 47 B.T.A. 111.
43 Philippine Refining Company v. CA, 326 Phil. 680, (1996);
Commissioner of Internal Revenue v. CA 312 Phil., 337; Commissioner
of Internal Revenue v. Philippine American Life Insurance Co., 244
SCRA 446 (1995); CIR v. Administratix of the Estate of Echarri, 67 Phil.
502.
44 Binalay v. Manalo, 195 SCRA 374, 380 citing Sese v. IAC, 152 SCRA
585.
45 See Manila Bay Club Corp. v. CA , 62 SCAD 435; 315 Phil. 807
(1995); Pilar Development Corporation v. IAC, 146 SCRA 215 (1986).
46 Promulgated November 24, 1972.
47 Tan v. Del Rosario, 55 SCAD 831 (1994).
48 Phil. Guaranty Co., Inc. v. C.I.R., 15 SCRA 1 (1965).
49 Bank of America v. CA, 53 SCAD 406, 413 (1994).
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In 1968, ASC through its Board issued a resolution for the redemption
of shares from Sorianos estate purportedly for the planned
Filipinization of ASC. Eventually, 108,000 shares were redeemed
from the Soriano Estate. In 1973, a tax audit was conducted.
Eventually, the Commissioner of Internal Revenue (CIR) issued an
assessment against ASC for deficiency withholding tax-at-source. The
CIR explained that when the redemption was made, the estate
profited (because ASC would have to pay the estate to redeem),
and so ASC would have withheld tax payments from the Soriano
Estate yet it remitted no such withheld tax to the government.
ASC averred that it is not duty bound to withhold tax from the estate
because it redeemed the said shares for purposes of Filipinization
of ASC and also to reduce its remittance abroad.
ISSUE: Whether or not ASCs arguments are tenable.
HELD: No. The reason behind the redemption is not material. The
proceeds from a redemption is taxable and ASC is duty bound to
withhold the tax at source. The Soriano Estate definitely profited from
the redemption and such profit is taxable, and again, ASC had the
duty to withhold the tax. There was a total of 108,000 shares
redeemed from the estate. 25,247.5 of that was original issue from
the capital of ASC. The rest (82,752.5) of the shares are deemed to
have been from stock dividend shares. Sale of stock dividends is
taxable. It is also to be noted that in the absence of evidence to the
contrary, the Tax Code presumes that every distribution of corporate
property, in whole or in part, is made out of corporate profits such as
stock dividends.
It cannot be argued that all the 108,000 shares were distributed from
the capital of ASC and that the latter is merely redeeming them as
such. The capital cannot be distributed in the form of redemption of
stock dividends without violating the trust fund doctrine wherein
the capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of the corporate
creditors. Once capital, it is always capital. That doctrine was
intended for the protection of corporate creditors.
latter. Dividends are thus payable only when there are profits earned
by the corporation and as a general rule, even if there are existing
profits, the board of directors has the discretion to determine
whether or not dividends are to be declared. 15 Shareholders, both
common and preferred, are considered risk takers who invest capital
in the business and who can look only to what is left after corporate
debts and liabilities are fully paid. 16
Redeemable shares, on the other hand, are shares usually preferred,
which by their terms are redeemable at a fixed date, or at the
option of either issuing corporation, or the stockholder, or both at a
certain redemption price. 17 A redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation. 18 The present
Code allows redemption of shares even if there are no unrestricted
retained earnings on the books of the corporation. This is a new
provision which in effect qualifies the general rule that the
corporation cannot purchase its own shares except out of current
retained earnings. 19 However, while redeemable shares may be
redeemed regardless of the existence of unrestricted retained
earnings, this is subject to the condition that the corporation has,
after such redemption, assets in its books to cover debts and
liabilities inclusive of capital stock. Redemption, therefore, may not
be made where the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its debts as
they mature. 20
We come now to the merits of the case. The petitioner argues that it
cannot be compelled to redeem the preferred shares issued to the
private respondent. We agree. Respondent judge, in ruling that
petitioner must redeem the shares in question, stated that:
On the question of the redemption by the defendant of
said preferred shares of stock, the very wordings of the
terms and conditions in said stock certificates clearly
allows the same. 21
What respondent judge failed to recognize was that while the
stock certificate does allow redemption, the option to do so
was clearly vested in the petitioner bank. The redemption
therefore is clearly the type known as "optional". Thus, except
as otherwise provided in the stock certificate, the redemption
rests entirely with the corporation and the stockholder is without
right to either compel or refuse the redemption of its stock. 22
Furthermore, the terms and conditions set forth therein use the
word "may". It is a settled doctrine in statutory construction that
the word "may" denotes discretion, and cannot be construed
as having a mandatory effect. We fail to see how respondent
judge can ignore what, in his words, are the "very wordings of
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SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Padilla, J., concurs in the result.
Footnotes
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The Court finds that petitioners substantially complied with the rules
against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the
same issues and arguments as those in G.R. No. 131315 which the
First Division has long denied with finality. The First Division found the
petition before it inadequate in failing to raise any reversible error on
the part of the Court of Appeals. We reach a similar conclusion as
regards the present petition.
The crucial issue in this case is whether it is the companys stock and
transfer book, or its 1952 Articles of Incorporation, which determines
stockholders shareholdings, and provides the basis for computing
the quorum.
We agree with the Court of Appeals.
The articles of incorporation has been described as one that defines
the charter of the corporation and the contractual relationships
between the State and the corporation, the stockholders and the
State, and between the corporation and its stockholders.27 When
PMMSI was incorporated, the prevailing law was Act No. 1459,
otherwise known as "The Corporation Law." Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen, a majority
of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes by filing with the
Securities and Exchange Commission articles of incorporation
duly executed and acknowledged before a notary public,
setting forth:
....
(7) If it be a stock corporation, the amount of its capital stock,
in lawful money of the Philippines, and the number of shares
into which it is divided, and if such stock be in whole or in part
without par value then such fact shall be stated; Provided,
however, That as to stock without par value the articles of
incorporation need only state the number of shares into which
said capital stock is divided.
(8) If it be a stock corporation, the amount of capital stock or
number of shares of no-par stock actually subscribed, the
amount or number of shares of no-par stock subscribed by
each and the sum paid by each on his subscription. . . .28
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SUBSCRIBED
AMOUNT
SUBSCRIBED
No. of Shares
Par Value
120 Founders
P 2,400.00
Juan H. Acayan
120 "
2, 400.00
Martin P.
Sagarbarria
100 "
2, 000.00
Mauricio G.
Gallaga
50 "
1, 000.00
Luis Renteria
50 "
1, 000.00
Faustina M. de
Onrubia
140 "
2, 800.00
Mrs. Ramon
Araneta
40 "
800.00
Crispulo J.
Onrubia
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Carlos M.
Onrubia
SUBSCRIBER
80 "
1,600.00
700
P 14,000.00
SUBSCRIBED
No. of Shares
AMOUNT
SUBSCRIBED
Par Value
Crispulo J.
Onrubia
12 Common
P 1,200.00
12 "
1,200.00
Martin P.
Sagarbarria
8"
800.00
Mauricio G.
Gallaga
8"
800.00
Luis Renteria
8"
800.00
12 "
1,200.00
Mrs. Ramon
Araneta
8"
800.00
Carlos M.
Onrubia
8"
800.00
76
P7,600.0030
Juan H. Acayan
Faustina M. de
Onrubia
Thus, quorum is based on the totality of the shares which have been
subscribed and issued, whether it be founders shares or common
shares.37 In the instant case, two figures are being pitted against
each other those contained in the articles of incorporation, and
those listed in the stock and transfer book.
To base the computation of quorum solely on the obviously
deficient, if not inaccurate stock and transfer book, and completely
disregarding the issued and outstanding shares as indicated in the
articles of incorporation would work injustice to the owners and/or
successors in interest of the said shares. This case is one instance
where resort to documents other than the stock and transfer books is
necessary. The stock and transfer book of PMMSI cannot be used as
the sole basis for determining the quorum as it does not reflect the
totality of shares which have been subscribed, more so when the
articles of incorporation show a significantly larger amount of shares
issued and outstanding as compared to that listed in the stock and
transfer book. As aptly stated by the SEC in its Order dated 15 July
1996:38
It is to be explained, that if at the onset of incorporation a
corporation has 771 shares subscribed, the Stock and Transfer
Book should likewise reflect 771 shares. Any sale, disposition or
even reacquisition of the company of its own shares, in which it
becomes treasury shares, would not affect the total number of
shares in the Stock and Transfer Book. All that will change are
the entries as to the owners of the shares but not as to the
amount of shares already subscribed.
This is precisely the reason why the Stock and Transfer Book was
not given probative value. Did the shares, which were not
recorded in the Stock and Transfer Book, but were recorded in
the Articles of Iincorporation just vanish into thin air? . . . .39
As shown above, at the time the corporation was set-up, there were
already seven hundred seventy-six (776) issued and outstanding
shares as reflected in the articles of incorporation. No proof was
adduced as to any transaction effected on these shares from the
time PMMSI was incorporated up to the time the instant petition was
filed, except for the thirty-three (33) shares which were recorded in
the stock and transfer book in 1978, and the additional one hundred
thirty-two (132) in 1982. But obviously, the shares so ordered recorded
in the stock and transfer book are among the shares reflected in the
articles of incorporation as the shares subscribed to by the
incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote
by the corporation merely because the corporate officers failed to
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Facts:
Petitioners seek to nullify the Court of Appeals Decision in CA
G.R. SP No. 414731 promulgated on 18 August 1997, affirming the
SEC Order dated 20 June 1996, and the Resolution2 of the Court of
Appeals dated 31 October 1997 which denied petitioners motion
for reconsideration.
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was
incorporated, with seven hundred (700) founders shares and
seventy-six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation
Onrubia et. al, who were in control of PMMSI registered the
companys stock and transfer book for the first time in 1978,
recording thirty-three (33) common shares as the only issued and
outstanding shares of PMMSI.
In 1979, a special stockholders meeting was called and held on
the basis of what was considered as a quorum of twenty-seven (27)
common shares, representing more than two-thirds (2/3) of the
common shares issued and outstanding.
In 1982, Juan Acayan, one of the heirs of the incorporators filed
a petition for the registration of their property rights was filed before
the SEC over 120 founders shares and 12 common shares owned by
their father
SEC Hearing Officer: heirs of Acayan were entitled to the
claimed shares and called for a special stockholders meeting to
elect a new set of officers.
SEC en banc: affirmed the decision
As a result, the shares of Acayan were recorded in the stock and
transfer book.
On May 6, 1992, a special stockholders meeting was held to
elect a new set of directors
Onrubia et al filed a petition with SEC questioning the validity of
said meeting alleging that the quorum for the said meeting should
not be based on the 165 issued and outstanding shares as per the
stock and transfer book, but on the initial subscribed capital stock of
seven hundred seventy-six (776) shares, as reflected in the 1952
Articles of Incorporation
Petition was dismissed
SC en banc: shares of the deceased incorporators should be
duly represented by their respective administrators or heirs
concerned. Called for a stockholders meeting on the basis of the
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1.
2.
1.
2.
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Ruling:
Articles of Incorporation
Defines the charter of the corporation and the contractual
relationships between the State and the corporation, the
stockholders and the State, and between the corporation and its
stockholders.
Contents are binding, not only on the corporation, but also on its
shareholders.
Stock and transfer book
Book which records the names and addresses of all stockholders
arranged alphabetically, the installments paid and unpaid on all
stock for which subscription has been made, and the date of
payment thereof; a statement of every alienation, sale or transfer of
stock made, the date thereof and by and to whom made; and such
other entries as may be prescribed by law
necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate
method of establishing the various corporate acts and transactions
and of showing the ownership of stock and like matters
Not public record, and thus is not exclusive evidence of the
matters and things which ordinarily are or should be written therein
In this case, the articles of incorporation indicate that at the time
of incorporation, the incorporators were bona fide stockholders of
700 founders shares and 76 common shares. Hence, at that time,
the corporation had 776 issued and outstanding shares.
According to Sec. 52 of the Corp Code, a quorum shall consist
of the stockholders representing a majority of the outstanding
capital stock. As such, quorum is based on the totality of the shares
which have been subscribed and issued, whether it be founders
shares or common shares
To base the computation of quorum solely on the obviously
deficient, if not inaccurate stock and transfer book, and completely
disregarding the issued and outstanding shares as indicated in the
articles of incorporation would work injustice to the owners and/or
successors in interest of the said shares.
The stock and transfer book of PMMSI cannot be used as the
sole basis for determining the quorum as it does not reflect the
totality of shares which have been subscribed, more so when the
articles of incorporation show a significantly larger amount of shares
issued and outstanding as compared to that listed in the stock and
transfer book.
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Ang Mga Kaanib sa Iglesia ng Dios vs. Iglesia ng Dios Kay Kristo
Hesus (372 SCRA 171 [2001])
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for the protection of the corporations involved but more so for the
protection of the public.17
Section 18 of the Corporation Code provides:
Corporate Name. No corporate name may be allowed by
the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected
by law or is patently deceptive, confusing or is contrary to
existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate
of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on
Corporate Names states:
(d) If the proposed name contains a word similar to a word
already used as part of the firm name or style of a registered
company, the proposed name must contain two other words
different from the name of the company already registered;
Parties organizing a corporation must choose a name at their peril;
and the use of a name similar to one adopted by another
corporation, whether a business or a nonprofit organization, if
misleading or likely to injure in the exercise of its corporate functions,
regardless of intent, may be prevented by the corporation having a
prior right, by a suit for injunction against the new corporation to
prevent the use of the name.18
Petitioner claims that it complied with the aforecited SEC guideline
by adding not only two but eight words to their registered name, to
wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which,
petitioner argues, effectively distinguished it from respondent
corporation.
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas,
Inc." in petitioner's name are, as correctly observed by the SEC,
merely descriptive of and also referring to the members, or kaanib,
of respondent who are likewise residing in the Philippines. These
words can hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in distinguishing petitioner
from respondent. This is especially so, since both petitioner and
respondent corporations are using the same acronym H.S.K.;19 not
to mention the fact that both are espousing religious beliefs and
operating in the same place. Parenthetically, it is well to mention
that the acronym H.S.K. used by petitioner stands for "Haligi at
Saligan ng Katotohanan."20
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Then, too, the records reveal that in holding out their corporate
name to the public, petitioner highlights the dominant words
"IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG
KATOTOHANAN," which is strikingly similar to respondent's corporate
name, thus making it even more evident that the additional words
"Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely
descriptive of and pertaining to the members of respondent
corporation.21
Significantly, the only difference between the corporate names of
petitioner and respondent are the words SALIGAN and SUHAY. These
words are synonymous both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills Corporation v.
Universal Textile Mills, Inc.,22 where the Court ruled that the corporate
names Universal Mills Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of "reasonable care
and observation" confusion may arise.
Furthermore, the wholesale appropriation by petitioner of
respondent's corporate name cannot find justification under the
generic word rule. We agree with the Court of Appeals' conclusion
that a contrary ruling would encourage other corporations to adopt
verbatim and register an existing and protected corporate name, to
the detriment of the public.
The fact that there are other non-stock religious societies or
corporations using the names Church of the Living God, Inc., Church
of God Jesus Christ the Son of God the Head, Church of God in
Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by petitioner of the
essential and distinguishing feature of respondent's registered and
protected corporate name.23
We need not belabor the fourth issue raised by petitioner. Certainly,
ordering petitioner to change its corporate name is not a violation of
its constitutionally guaranteed right to religious freedom. In so doing,
the SEC merely compelled petitioner to abide by one of the SEC
guidelines in the approval of partnership and corporate names,
namely its undertaking to manifest its willingness to change its
corporate name in the event another person, firm, or entity has
acquired a prior right to the use of the said firm name or one
deceptively or confusingly similar to it.
WHEREFORE, in view of all the foregoing, the instant petition for
review is DENIED. The appealed decision of the Court of Appeals is
AFFIRMED in toto.
SO ORDERED.
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Living God, Inc., Church of God Jesus Christ the Son of God the
Head, Church of God in Christ & By the Holy Spirit, and other similar
names, is of no consequence. It does not authorize the use by
petitioner of the essential and distinguishing feature of respondent's
registered and protected corporate name. Ordering petitioner to
change its corporate name is not a violation of its constitutionally
guaranteed right to religious freedom. In so doing, the SEC merely
compelled petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its
undertaking to manifest its willingness to change its corporate name
in the event another person, firm, or entity has acquired a prior right
to the use of the said firm name or one deceptively or confusingly
similar to it. The instant petition for review is DENIED. The appealed
decision of the Court of Appeals is AFFIRMED in toto.
Hyatt Elevators vs. Goldstar Elevators, Phils. (473 SCRA 705 [2005]
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The Issue
In its Memorandum, petitioner submits this sole issue for our
consideration:
"Whether or not the Court of Appeals, in reversing the ruling of the
Regional Trial Court, erred as a matter of law and jurisprudence, as
well as committed grave abuse of discretion, in holding that in the
light of the peculiar facts of this case, venue was improper[.]" 7
This Courts Ruling
The Petition has no merit.
Sole Issue:
Venue
The resolution of this case rests upon a proper understanding of
Section 2 of Rule 4 of the 1997 Revised Rules of Court:
"Sec. 2. Venue of personal actions. All other actions may be
commenced and tried where the plaintiff or any of the principal
plaintiff resides, or where the defendant or any of the principal
defendant resides, or in the case of a non-resident defendant where
he may be found, at the election of the plaintiff."
Since both parties to this case are corporations, there is a need to
clarify the meaning of "residence." The law recognizes two types of
persons: (1) natural and (2) juridical. Corporations come under the
latter in accordance with Article 44(3) of the Civil Code.8
Residence is the permanent home -- the place to which, whenever
absent for business or pleasure, one intends to return.9 Residence is
vital when dealing with venue.10 A corporation, however, has no
residence in the same sense in which this term is applied to a natural
person. This is precisely the reason why the Court in Young Auto
Supply Company v. Court of Appeals11 ruled that "for practical
purposes, a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the articles of
incorporation."12 Even before this ruling, it has already been
established that the residence of a corporation is the place where its
principal office is established.13
This Court has also definitively ruled that for purposes of venue, the
term "residence" is synonymous with "domicile."14 Correspondingly,
the Civil Code provides:
"Art. 51. When the law creating or recognizing them, or any other
provision does not fix the domicile of juridical persons, the same shall
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RENATO C. CORONA
Associate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in
the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice
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injunction. BGC argues that there is nothing more to enjoin and that
there are no longer any rights left for adjudication.
We disagree.
BGC may have lost interest in this case due to the demolition of its
premises, but its co-plaintiff, MSBF, has not. The issue for resolution has
a direct effect on MSBFs usufructuary rights. There is yet the central
question of the exact location of the seven-hectare area granted by
Proclamation No. 1670 to MSBF. This issue is squarely raised in this
petition. There is a need to settle this issue to forestall future disputes
and to put this 20-year litigation to rest.
On the Location of the Seven-Hectare Area Granted by
Proclamation No. 1670 to MSBF as Usufructuary
Rule 45 of the 1997 Rules of Civil Procedure limits the jurisdiction of
this Court to the review of errors of law.7 Absent any of the
established grounds for exception,8 this Court will not disturb findings
of fact of lower courts. Though the matter raised in this petition is
factual, it deserves resolution because the findings of the trial court
and the appellate court conflict on several points.
The entire area bounded by Agham Road to the east, EDSA to the
west, Quezon Avenue to the south and by a creek to the north
measures approximately 16 hectares. Proclamation No. 1670 gave
MSBF a usufruct over only a seven-hectare area. The BGCs leased
portion is located along EDSA.
A usufruct may be constituted for a specified term and under such
conditions as the parties may deem convenient subject to the legal
provisions on usufruct.9 A usufructuary may lease the object held in
usufruct.10 Thus, the NHA may not evict BGC if the 4,590 square meter
portion MSBF leased to BGC is within the seven-hectare area held in
usufruct by MSBF. The owner of the property must respect the lease
entered into by the usufructuary so long as the usufruct exists.11
However, the NHA has the right to evict BGC if BGC occupied a
portion outside of the seven-hectare area covered by MSBFs
usufructuary rights.
MSBFs survey shows that BGCs stall is within the seven-hectare area.
On the other hand, NHAs survey shows otherwise. The entire
controversy revolves on the question of whose land survey should
prevail.
MSBFs survey plots the location of the seven-hectare portion by
starting its measurement from Quezon Avenue going northward
along EDSA up until the creek, which serves as the northern
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BGC,21 which was constructed by Malto, does not tally with the
boundaries BGC and MSBF indicated in their complaint.
Article 565 of the Civil Code states:
ART. 565. The rights and obligations of the usufructuary shall be those
provided in the title constituting the usufruct; in default of such title,
or in case it is deficient, the provisions contained in the two following
Chapters shall be observed.
In the present case, Proclamation No. 1670 is the title constituting the
usufruct. Proclamation No. 1670 categorically states that the sevenhectare area shall be determined "by future survey under the
administration of the Foundation subject to private rights if there be
any." The appellate court and the trial court agree that MSBF has the
latitude to determine the location of its seven-hectare usufruct
portion within the 16-hectare area. The appellate court and the trial
court disagree, however, whether MSBF seasonably exercised this
right.
It is clear that MSBF conducted at least two surveys. Although both
surveys covered a total of 16 hectares, the second survey
specifically indicated a seven-hectare area shaded in yellow. MSBF
made the first survey in 1984 and the second in 1986, way before the
present controversy started. MSBF conducted the two surveys before
the lease to BGC. The trial court ruled that MSBF did not act
seasonably in exercising its right to conduct the survey. Confronted
with evidence that MSBF did in fact conduct two surveys, the trial
court dismissed the two surveys as self-serving. This is clearly an error
on the part of the trial court. Proclamation No. 1670 authorized MSBF
to determine the location of the seven-hectare area. This authority,
coupled with the fact that Proclamation No. 1670 did not state the
location of the seven-hectare area, leaves no room for doubt that
Proclamation No. 1670 left it to MSBF to choose the location of the
seven-hectare area under its usufruct.
More evidence supports MSBFs stand on the location of the sevenhectare area. The main structures of MSBF are found in the area
indicated by MSBFs survey. These structures are the main office, the
three green houses, the warehouse and the composting area. On
the other hand, the NHAs delineation of the seven-hectare area
would cover only the four hardening bays and the display area. It is
easy to distinguish between these two groups of structures. The first
group covers buildings and facilities that MSBF needs for its
operations. MSBF built these structures before the present
controversy started. The second group covers facilities less essential
to MSBFs existence. This distinction is decisive as to which survey
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should prevail. It is clear that the MSBF intended to use the yellowshaded area primarily because it erected its main structures there.
Inobaya testified that his main consideration in using Agham Road
as the starting point for his survey was the presence of a gate there.
The location of the gate is not a sufficient basis to determine the
starting point. MSBFs right as a usufructuary as granted by
Proclamation No. 1670 should rest on something more substantial
than where MSBF chose to place a gate.
To prefer the NHAs survey to MSBFs survey will strip MSBF of most of
its main facilities. Only the main building of MSBF will remain with
MSBF since the main building is near the corner of EDSA and Quezon
Avenue. The rest of MSBFs main facilities will be outside the sevenhectare area.
On the other hand, this Court cannot countenance MSBFs act of
exceeding the seven-hectare portion granted to it by Proclamation
No. 1670. A usufruct is not simply about rights and privileges. A
usufructuary has the duty to protect the owners interests. One such
duty is found in Article 601 of the Civil Code which states:
ART. 601. The usufructuary shall be obliged to notify the owner of any
act of a third person, of which he may have knowledge, that may
be prejudicial to the rights of ownership, and he shall be liable should
he not do so, for damages, as if they had been caused through his
own fault.
A usufruct gives a right to enjoy the property of another with the
obligation of preserving its form and substance, unless the title
constituting it or the law otherwise provides.22 This controversy would
not have arisen had MSBF respected the limit of the beneficial use
given to it. MSBFs encroachment of its benefactors property gave
birth to the confusion that attended this case. To put this matter
entirely to rest, it is not enough to remind the NHA to respect MSBFs
choice of the location of its seven-hectare area. MSBF, for its part,
must vacate the area that is not part of its usufruct. MSBFs rights
begin and end within the seven-hectare portion of its usufruct. This
Court agrees with the trial court that MSBF has abused the privilege
given it under Proclamation No. 1670. The direct corollary of
enforcing MSBFs rights within the seven-hectare area is the negation
of any of MSBFs acts beyond it.
The seven-hectare portion of MSBF is no longer easily determinable
considering the varied structures erected within and surrounding the
area. Both parties advance different reasons why their own surveys
should be preferred. At this point, the determination of the sevenhectare portion cannot be made to rely on a choice between the
NHAs and MSBFs survey. There is a need for a new survey, one
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conducted jointly by the NHA and MSBF, to remove all doubts on the
exact location of the seven-hectare area and thus avoid future
controversies. This new survey should consider existing structures of
MSBF. It should as much as possible include all of the facilities of MSBF
within the seven-hectare portion without sacrificing contiguity.
A final point. Article 605 of the Civil Code states:
ART. 605. Usufruct cannot be constituted in favor of a town,
corporation, or association for more than fifty years. If it has been
constituted, and before the expiration of such period the town is
abandoned, or the corporation or association is dissolved, the
usufruct shall be extinguished by reason thereof. (Emphasis added)
The law clearly limits any usufruct constituted in favor of a
corporation or association to 50 years. A usufruct is meant only as a
lifetime grant. Unlike a natural person, a corporation or associations
lifetime may be extended indefinitely. The usufruct would then be
perpetual. This is especially invidious in cases where the usufruct
given to a corporation or association covers public land.
Proclamation No. 1670 was issued 19 September 1977, or 28 years
ago. Hence, under Article 605, the usufruct in favor of MSBF has 22
years left.
MO 127 released approximately 50 hectares of the NHA property as
reserved site for the National Government Center. However, MO 127
does not affect MSBFs seven-hectare area since under
Proclamation No. 1670, MSBFs seven-hectare area was already
"exclude[d] from the operation of Proclamation No. 481, dated
October 24, 1968, which established the National Government
Center Site."
WHEREFORE, the Decision of the Court of Appeals dated 30 March
2001 and its Resolution dated 25 June 2001 in CA-G.R. CV No. 48382
are SET ASIDE. This case is REMANDED to Branch 87 of the Regional
Trial Court of Quezon City, which shall order a joint survey by the
National Housing Authority and Manila Seedling Bank Foundation,
Inc. to determine the metes and bounds of the seven-hectare
portion of Manila Seedling Bank Foundation, Inc. under Proclamation
No. 1670. The seven-hectare portion shall be contiguous and shall
include as much as possible all existing major improvements of
Manila Seedling Bank Foundation, Inc. The parties shall submit the
joint survey to the Regional Trial Court for its approval within sixty days
from the date ordering the joint survey.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and
Azcuna, JJ., concur.
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KAPUNAN, J.:
Through a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, petitioner China Banking Corporation seeks
the reversal of the decision of the Court of Appeals dated 15 August
1994 nullifying the Securities and Exchange Commission's order and
resolution dated 4 June 1993 and 7 December 1993, respectively, for
lack of jurisdiction. Similarly impugned is the Court of Appeals'
resolution dated 4 September 1994 which denied petitioner's motion
for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a
stockholder of private respondent Valley Golf & Country Club, Inc.
(VGCCI, for brevity), pledged his Stock Certificate No. 1219 to
petitioner China Banking Corporation (CBC, for brevity). 1
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SO ORDERED. 18
VGCCI sought reconsideration of the abovecited order. However,
the SEC denied the same in its resolution dated 7 December 1993. 19
The sudden turn of events sent VGCCI to seek redress from the Court
of Appeals. On 15 August 1994, the Court of Appeals rendered its
decision nullifying and setting aside the orders of the SEC and its
hearing officer on ground of lack of jurisdiction over the subject
matter and, consequently, dismissed petitioner's original complaint.
The Court of Appeals declared that the controversy between CBC
and VGCCI is not intra-corporate. It ruled as follows:
In order that the respondent Commission can take
cognizance of a case, the controversy must pertain to
any of the following relationships: (a) between the
corporation, partnership or association and the public; (b)
between the corporation, partnership or association and
its stockholders, partners, members, or officers; (c)
between the corporation, partnership or association and
the state in so far as its franchise, permit or license to
operate is concerned, and (d) among the stockholders,
partners or associates themselves (Union Glass and
Container Corporation vs. SEC, November 28, 1983, 126
SCRA 31). The establishment of any of the relationship
mentioned will not necessarily always confer jurisdiction
over the dispute on the Securities and Exchange
Commission to the exclusion of the regular courts. The
statement made in Philex Mining Corp. vs. Reyes, 118
SCRA 602, that the rule admits of no exceptions or
distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case
would be to consider not only the status or relationship of
the parties but also the nature of the question that is the
subject of their controversy (Viray vs. Court of Appeals,
November 9, 1990, 191 SCRA 308, 322-323).
Indeed, the controversy between petitioner and
respondent bank which involves ownership of the stock
that used to belong to Calapatia, Jr. is not within the
competence of respondent Commission to decide. It is
not any of those mentioned in the aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order
dated December 7, 1993 of respondent Securities and
Exchange Commission (Annexes Y and BB, petition) and
of its hearing officer dated January 3, 1992 and April 14,
1992 (Annexes S and W, petition) are all nullified and set
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ROMERO, J.:
Petitioner Enrique Salafranca started working with the private
respondent Philamlife Village Homeowners Association on May 1,
1981 as administrative officer for a period of six months. From this
date until December 31, 1983, petitioner was reappointed to his
position three more times. 1 As administrative officer, petitioner was
generally responsible for the management of the village's day to
day activities. 2 After petitioner's term of employment expired on
December 31, 1983, he still continued to work in the same capacity,
albeit, without the benefit of a renewed contract.
Sometime in 1987, private respondent decided to amend its by-laws.
Included therein was a provision regarding officers, specifically, the
position of administrative officer under which said officer shall hold
office at the pleasure of the Board of Directors. In view of this
development, private respondent, on July 3, 1987, informed the
petitioner that his term of office shall be coterminus with the Board of
Directors which appointed him to his position. Furthermore, until he
submits a medical certificate showing his state of health, his
employment shall be on a month-to-month basis. 3 Oddly,
notwithstanding the failure of herein petitioner to submit his medical
certificate, he continued working until his termination in December
1992. 4 Claiming that his services had been unlawfully and
unceremoniously dispensed with, petitioner filed a complaint for
illegal dismissal with money claims and for damages. 5
After the submission by the parties of their respective position papers
and other pleadings, the Labor Arbiter rendered a decision 6
ordering private respondent to pay the petitioner the amount of
P257,833.33 representing his backwages, separation pay and 13th
month pay. In justifying the award, the Labor Arbiter elucidated:
Respondents' contention that complainant's term of
employment was co-terminus with the term of Office of
the Board of Directors, is wanting in merit. Records show
that complainant had been hired in 1981 while the
Amendment of the respondents' By-Laws making the
position of an Administrative Officer co-terminus with the
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4 Id., p. 30.
5 Id., pp. 35-36.
6 Id., pp. 137-144.
7 Rollo, pp. 174-186.
8 Id., p. 10.
9 Comment, Rollo, pp. 254-255.
10 Id., p. 255.
11 Philippine School of Business Administration (PSBA)Manila v. NLRC, 261 SCRA 189 (1996).
12 San Miguel Jeepney Service v. NLRC, 265 SCRA 38
(1996).
13 Manuel v. N.C. Construction Supply, 282 SCRA 326
(1997); Shoppers Gain Supermart v. NLRC, 259 SCRA 411
(1996).
14 Art. 282. Termination by employer. An employer may
terminate an employment for any of the following causes:
(a) Serious misconduct or willful disobedience by the
employee of the lawful orders of his employer or
representative in connection with his work;
(b) Gross and habitual neglect by the employee of his
duties;
(c) Fraud or willful breach by the employee of the trust
reposed in him by his employer or duly authorized
representative;
(d) Commission of a crime or offense by the employee
against the person of his employer or any immediate
member of his family or his duly authorized representative;
and
(e) Other causes analogous to the foregoing.
Art. 283. Closure of establishment and reduction of
personnel. The employer may also terminate the
employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of
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ROMERO, J.:
Subject of the instant petition for certiorari under Rule 65 of the Rules
of Court is the resolution 1 of public respondent National Labor
Relations Commission 2 rendered on August 4, 1995, affirming in toto
the December 7, 1994 decision 3 of Labor Arbiter Pablo C. Espiritu
declaring petitioner PMI Colleges liable to pay private respondent
Alejandro Galvan P405,000.00 in unpaid wages and P40,532.00 as
attorney's fees.
A chronicle of the pertinent events on record leading to the filing of
the instant petition is as follows:
On July 7, 1991, petitioner, an educational institution offering courses
on basic seaman's training and other marine-related courses, hired
private respondent as contractual instructor with an agreement that
the latter shall be paid at an hourly rate of P30.00 to P50.00,
depending on the description of load subjects and on the schedule
for teaching the same. Pursuant to this engagement, private
respondent then organized classes in marine engineering.
Initially, private respondent and other instructors were compensated
for services rendered during the first three periods of the
abovementioned contract. However, for reasons unknown to private
respondent, he stopped receiving payment for the succeeding
rendition of services. This claim of non-payment was embodied in a
letter dated March 3, 1992, written by petitioner's Acting Director,
Casimiro A. Aguinaldo, addressed to its President, Atty. Santiago
Pastor, calling attention to and appealing for the early approval and
release of the salaries of its instructors including that of private
respondent. It appeared further in said letter that the salary of
private respondent corresponding to the shipyard and plant visits
and the ongoing on-the-job training of Class 41 on board MV "Sweet
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Glory" of Sweet Lines, Inc. was not yet included. This request of the
Acting Director apparently went unheeded. Repeated demands
having likewise failed, private respondent was soon constrained to
file a complaint 4 before the National Capital Region Arbitration
Branch on September 14, 1993 seeking payment for salaries earned
from the following: (1) basic seaman course Classes 41 and 42 for the
period covering October 1991 to September 1992; (2) shipyard and
plant visits and on-the-job training of Classes 41 and 42 for the period
covering October 1991 to September 1992 on board M/V "Sweet
Glory" vessel; and (3) as Acting Director of Seaman Training Course
for 3-1/2 months.
In support of the abovementioned claims, private respondent
submitted documentary evidence which were annexed to his
complaint, such as the detailed load and schedule of classes with
number of class hours and rate per hour (Annex "A"); PMI Colleges
Basic Seaman Training Course (Annex "B"); the aforementioned
letter-request for payment of salaries by the Acting Director of PMI
Colleges (Annex "C"); unpaid load of private respondent (Annex "D");
and vouchers prepared by the accounting department of petitioner
but whose amounts indicated therein were actually never paid to
private respondent (Exhibit "E").
Private respondent's claims, as expected, were resisted by petitioner.
It alleged that classes in the courses offered which complainant
claimed to have remained unpaid were not held or conducted in
the school premises of PMI Colleges. Only private respondent, it was
argued, knew whether classes were indeed conducted. In the same
vein, petitioner maintained that it exercised no appropriate and
proper supervision of the said classes which activities allegedly
violated certain rules and regulations of the Department of
Education, Culture and Sports (DECS). Furthermore, the claims,
according to petitioner, were all exaggerated and that, at any rate,
private respondent abandoned his work at the time he should have
commenced the same.
In reply, private respondent belied petitioner's allegations
contending, among others, that he conducted lectures within the
premises of petitioner's rented space located at 5th Floor,
Manufacturers Bldg., Sta. Cruz, Manila; that his students duly enrolled
with the Registrar's Office of petitioner; that shipyard and plant visits
were conducted at Fort San Felipe, Cavite Naval Base; that
petitioner was fully aware of said shipyard and plant visits because it
even wrote a letter for that purpose; and that basic seaman courses
41 and 42 were sanctioned by the DECS as shown by the records of
the Registrar's Office.
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From the adverse decision of the trial court, herein respondents went
on appeal to the CA in CA-G.R. CV No. 73827.
In its decision6 of 19 January 2004, the CA, taking exceptions to the
findings of the trial court that the creation of the positions of Assistant
Vice President for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman was merely
for accommodation purposes, granted the respondents appeal,
reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz, et
al., thus:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the
challenged decision is REVERSED and SET ASIDE, and a new one
entered DISMISSING Civil Case No. 28,552-2001 with no
pronouncement as to costs.
SO ORDERED.
Intrigued, and quite understandably, by the fact that, in its decision,
the CA, before proceeding to address the merits of the appeal,
prefaced its disposition with the statement reading "[T]he appeal is
bereft of merit,"7 thereby contradicting the very fallo of its own
decision and the discussions made in the body thereof, respondents
filed with the appellate court a Motion For Nunc Pro Tunc Order,8
thereunder praying that the phrase "[T]he appeal is bereft of merit,"
be corrected to read "[T]he appeal is impressed with merit." In its
resolution9 of 23 April 2004, the CA granted the respondents motion
and accordingly effected the desired correction.
Hence, petitioners present recourse.
Petitioners assigned four (4) errors allegedly committed by the CA.
For clarity, we shall formulate the issues as follows:
1. Whether the CA erred in holding that Filports Board of
Directors acted within its powers in creating the executive
committee and the positions of AVPs for Corporate Planning,
Operations, Finance and Administration, and those of the
Special Assistants to the President and the Board Chairman,
each with corresponding remuneration, and in increasing the
salaries of the positions of Board Chairman, Vice-President,
Treasurer and Assistant General Manager; and
2. Whether the CA erred in finding that no evidence exists to
prove that (a) the positions of AVP for Corporate Planning,
Special Assistant to the President and Special Assistant to the
Board Chairman were created merely for accommodation,
and (b) the salaries/emoluments corresponding to said
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and the resulting losses on account thereof are not the only matters
to be proven; it is likewise necessary to show that the directors
and/or officers acted in bad faith and with malice in doing the
assailed acts. Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty through
some motive or interest or ill-will partaking of the nature of fraud.18
We have searched the records and nowhere do we find a "dishonest
purpose" or "some moral obliquity," or "conscious doing of a wrong"
on the part of the respondents that "partakes of the nature of fraud."
We thus extend concurrence to the following findings of the CA,
affirmatory of those of the trial court:
xxx As a matter of fact, it was during the term of appellee Cruz, as
president and director, that the executive committee was created.
What is more, it was appellee himself who moved for the creation of
the positions of assistant vice presidents for operations, for finance,
and for administration. He should not be heard to complain
thereafter for similar corporate acts.
The increase in the salaries of the board chairman, president,
treasurer, and assistant general manager are indeed reasonable
enough in view of the responsibilities assigned to them, and the
special knowledge required, to be able to effectively discharge their
respective functions and duties.
Surely, factual findings of trial courts, especially when affirmed by the
CA, are binding and conclusive on this Court.
There is, however, a factual matter over which the CA and the trial
court parted ways. We refer to the accommodation angle.
The trial court was with petitioner Cruz in saying that the creation of
the positions of the three (3) AVPs for Corporate Planning, Special
Assistant to the President and Special Assistant to the Board
Chairman, each with a salary of P13,050.00 a month, was merely for
accommodation purposes considering that Filport is not a big
corporation requiring multiple executive positions. Hence, the trial
courts order for said officers to return the amounts they received as
compensation.
On the other hand, the CA took issue with the trial court and ruled
that Cruzs accommodation theory is not based on facts and
without any evidentiary substantiation.
We concur with the line of the appellate court. For truly, aside from
Cruzs bare and self-serving testimony, no other evidence was
presented to show the fact of "accommodation." By itself, the
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party while Filport is the real party-in-interest. For sure, in the prayer
portion of petitioners petition before the SEC, the reliefs prayed
were asked to be made in favor of Filport.
Besides, the requisites before a derivative suit can be filed by a
stockholder are present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time
of the act or transaction complained of, the number of his
shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has
made a demand on the board of directors for the appropriate
relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation,
the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the
suit.24
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he
sought without success to have its board of directors remedy what
he perceived as wrong when he wrote a letter requesting the board
to do the necessary action in his complaint; and (3) the alleged
wrong was in truth a wrong against the stockholders of the
corporation generally, and not against Cruz or Minterbro, in
particular. In the end, it is Filport, not Cruz which directly stands to
benefit from the suit. And while it is true that the complaining
stockholder must show to the satisfaction of the court that he has
exhausted all the means within his reach to attain within the
corporation itself the redress for his grievances, or actions in
conformity to his wishes, nonetheless, where the corporation is under
the complete control of the principal defendants, as here, there is
no necessity of making a demand upon the directors. The reason is
obvious: a demand upon the board to institute an action and
prosecute the same effectively would have been useless and an
exercise in futility. In fine, we rule and so hold that the petition filed
with the SEC at the instance of Cruz, which ultimately found its way
to the RTC of Davao City as Civil Case No. 28,552-2001, is a derivative
suit of which Cruz has the necessary legal standing to institute.
WHEREFORE, the petition is DENIED and the challenged decision of
the CA is AFFIRMED in all respects.
No pronouncement as to costs.
SO ORDERED.
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CANCIO C. GARCIA
Associate Justice
RTC: BOD have the power to create positions not in the by-laws
and can increase salaries. But Edgar C. Trinidad under the third
and fourth causes of action to restore to the corporation the
total amount of salaries he received as assistant vice president
for corporate planning; and likewise ordering Fortunato V. de
Castro and Arsenio Lopez Chua under the fourth cause of
action to restore to the corporation the salaries they each
received as special assistants respectively to the president and
board chairman. In case of insolvency of any or all of them, the
members of the board who created their positions are
subsidiarily liable.
ISSUES:
1. W/N there was mismanagement - NO
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HELD: CA Affirmed
1. NO
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decision
as
the
Court
of
Appeals
granted
the
ISSUE:
Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a
derivative suit?
HELD:
YES.
mismanagement
of
the
affairs
of
Filport
by
its
a)
of the act or transaction complained of, the number of his shares not
being material;
b)
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c)
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SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956];
Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First
Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil.
167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United
States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its
exceptions. Thus, in several cases, we ruled that the party is not
bound by the actions of his counsel in case the gross negligence of
the counsel resulted in the client's deprivation of his property without
due process of law. In the case of Legarda v. Court of Appeals (195
SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and
Escasa (12 SCRA 471 [1964]), this Court ruled as follows:
Procedural technicality should not be made a
bar to the vindication of a legitimate
grievance. When such technicality deserts from
being an aid to Justice, the courts are justified
in excepting from its operation a particular
case. Where there was something fishy and
suspicious about the actuations of the former
counsel of petitioners in the case at bar, in that
he did not give any significance at all to the
processes of the court, which has proven
prejudicial to the rights of said clients, under a
lame and flimsy explanation that the court's
processes just escaped his attention, it is held
that said lawyer deprived his clients of their day
in court, thus entitling said clients to petition for
relief from judgment despite the lapse of the
reglementary period for filing said period for
filing said petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this
Court, in holding that the counsel's blunder in procedure is
an exception to the rule that the client is bound by the
mistakes of counsel, made the following disquisition:
Petitioners contend, through their new counsel,
that the judgment rendered against them by
the respondent court was null and void,
because they were therein deprived of their
day in court and divested of their property
without due process of law, through the gross
ignorance, mistake and negligence of their
previous counsel. They acknowledge that,
while as a rule, clients are bound by the
mistake of their counsel, the rule should not be
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AF Realty & Dev., Inc. vs. Dieselman Freight Services Co. (373 SCRA
385 [2002])
xxx
xxx
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Upon the other hand, the validity of the sale of the subject lot to
respondent Midas is unquestionable. As aptly noted by the Court of
Appeals,24 the sale was authorized by a board resolution of
respondent Dieselman dated May 27, 1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and
exemplary damages in favor of petitioner AF Realty and against
respondent Cruz, Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner Zenaida
Ranullo, board member and vice-president of petitioner AF Realty
who accepted the offer to sell the property, admitted in her
testimony25that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the transaction;
and that respondent Cruz, Jr. has no such written authority. In fact,
despite demand, such written authority was not presented to her.26
This notwithstanding, petitioner Ranullo tendered a partial payment
for the unauthorized transaction. Clearly, respondent Cruz, Jr. should
not be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED with MODIFICATION in the sense that
the award of damages and attorney's fees is deleted. Respondent
Dieselman is ordered to return to petitioner AF Realty its partial
payment of P300,000.00. Costs against petitioners.
SO ORDERED.
Melo, Vitug, Panganiban, and Carpio, JJ., concur.
Commercial Law Corporation Law Power of the Board Ultra
Vires Acts of Corporate Officers Agency
In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight
Services, Co. (DFS) authorized Cristeta Polintan to sell a 2,094 sq. m.
parcel of land owned by DFS. Polintan in turn authorized Felicisima
Noble to sell the same lot. Noble then offered AF Realty &
Development, Co., represented by Zenaida Ranullo, the land at the
rate of P2,500.00 per sq. m. AF Realty accepted the offer and issued
a P300,000 check as downpayment.
However, it appeared that DFS did not authorize Cruz, Jr. to sell the
said land. Nevertheless, Manuel Cruz, Sr. (father) and president of
DFS, accepted the check but modified the offer. He increased the
selling price to P4,000.00 per sq. m. AF Realty, in its response, did not
exactly agree nor disagree with the counter-offer but only said it is
willing to pay the balance (but was not clear at what rate).
Eventually, DFS sold the property to someone else.
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PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization
from he board of directors, validly sell a parcel of land owned by the
corporation?. May the veil of corporate fiction be pierced on the
mere ground that almost all of the shares of stock of the corporation
are owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in
resolving the Petition for Review on Certiorari before us, assailing the
March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV No.
46801 which, in turn, modified the July 18, 1994 Decision of the
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Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging
that "[i]n an utter display of malice and bad faith, respondents
attempted and succeeded in impressing on the trial court and [the]
Court of Appeals that Gruenberg did not represent herself as
authorized by Respondent Motorich despite the receipt issued by
the former specifically indicating that she was signing on behalf of
Motorich Sales Corporation. Respondent Motorich likewise acted in
bad faith when it claimed it did not authorize Respondent
Gruenberg and that the contract [was] not binding, [insofar] as it
[was] concerned, despite receipt and enjoyment of the proceeds of
Gruenberg's act." 48 Assuming that Respondent Motorich was not a
party to the alleged fraud, petitioner maintains that Respondent
Gruenberg should be held liable because she "acted fraudulently
and in bad faith [in] representing herself as duly authorized by
[R]espondent [C]orporation." 49
As already stated, we sustain the findings of both the trial and the
appellate courts that the foregoing allegations lack factual bases.
Hence, an award of damages or attorney's fees cannot be justified.
The amount paid as "earnest money" was not proven to have
redounded to the benefit of Respondent Motorich. Petitioner claims
that said amount was deposited to the account of Respondent
Motorich, because "it was deposited with the account of Aren
Commercial c/o Motorich Sales Corporation." 50 Respondent
Gruenberg, however, disputes the allegations of petitioner. She
testified as follows:
Q You voluntarily accepted the P100,000.00, as
a matter of fact, that was encashed, the check
was encashed.
A Yes. sir, the check was paid in my name and I
deposit[ed] it.
Q In your account?
A Yes, sir. 51
In any event, Gruenberg offered to return the amount to
petitioner ". . . since the sale did not push through." 52
Moreover, we note that Andres Co is not a neophyte in the world of
corporate business. He has been the president of Petitioner
Corporation for more than ten years and has also served as chief
executive of two other corporate entities. 53 Co cannot feign
ignorance of the scope of the authority of a corporate treasurer
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who do not need any authorization from the corporate board; that
in this case, the corporate veil may be properly pierced.
ISSUE: Whether or not San Juan is correct.
HELD: No. Motorich is right in invoking that it is not bound by the acts
of Nenita because her act in entering into a contract with San Juan
was not authorized by the board of directors of Motorich. Nenita is
however ordered to return the P100k.
There is no merit in the contention that the corporate veil should be
pierced even though it is true that Nenita and her husband own 98%
of the capital stocks of Motorich. The corporate veil can only be
pierced if the corporate fiction is merely used by the incorporators to
shield themselves against liability for fraud, illegality or inequity
committed on third persons. It is incumbent upon San Juan to prove
that Nenita or her husband is merely using Motorich to defraud San
Juan. In this case however, San Juan utterly failed to establish that
Motorich was formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud,
illegality or inequity at the expense of third persons like San Juan.
No. 41320, as well as its Resolution2 dated January 13, 1999, denying
the motion for reconsideration.
The facts are as follows.
Petitioner Philippine Association of Stock Transfer and Registry
Agencies, Inc. is an association of stock transfer agents principally
engaged in the registration of stock transfers in the stock-andtransfer book of corporations.
On May 10, 1996, petitioners Board of Directors unanimously
approved a resolution allowing its members to increase the transfer
processing fee they charge their clients from P45 per certificate to
P75 per certificate, effective July 1, 1996; and eventually to P100 per
certificate, effective October 1, 1996. The resolution also authorized
the imposition of a processing fee for the cancellation of stock
certificates at P20 per certificate effective July 1, 1996. According to
petitioner, the rates had to be increased since it had been over five
years since the old rates were fixed and an increase of its fees was
needed to sustain the financial viability of the association and
upgrade facilities and services.
After a dialogue with petitioner, public respondent Securities and
Exchange Commission (SEC) allowed petitioner to impose the P75
per certificate transfer fee and P20 per certificate cancellation fee
effective July 1, 1996. But, approval of the additional increase of the
transfer fees to P100 per certificate effective October 1, 1996, was
withheld until after a public hearing. The SEC issued a letterauthorization to this effect on June 20, 1996.
Thereafter, on June 24, 1996, the Philippine Association of Securities
Brokers and Dealers, Inc. registered its objection to the measure
advanced by petitioner and requested the SEC to defer its
implementation. On June 27, 1996, the SEC advised petitioner to
hold in abeyance the implementation of the increases until the
matter was cleared with all the parties concerned. The SEC stated
that it was reconsidering its earlier approval in light of the opposition
and required petitioner to file comment. Petitioner nonetheless
proceeded with the implementation of the increased fees.
The SEC wrote petitioner on July 1, 1996, reiterating the directive of
June 27, 1996. On July 2, 1996, following a complaint from the
Philippine Stock Exchange, the SEC again sent petitioner a second
letter strongly urging petitioner to desist from implementing the new
rates in the interest of all participants in the security market.
Petitioner replied on July 3, 1996 that it had no intention of defying
the orders but stated that it could no longer hold in abeyance the
implementation of the new fees because its members had already
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to worry about. Petitioner also contends that even if its board did
attend with counsel or present evidence, its evidence would not
have been considered anyway because the Order of July 11, 1996
had allegedly been prepared as early as July 8, 1996. In support of
this suspicion, petitioner points out that the date "July 8, 1996" was
replaced with the date "July 11, 1996" before it was signed by
Chairman Perfecto R. Yasay, Jr., who did not attend the meeting.
Petitioner adds that the SEC cannot restrict petitioners members
from increasing the transfer and processing fees they charge their
clients because there is no specific law, rule or regulation authorizing
it. Section 40 of the then Revised Securities Act, according to
petitioner, only lays down the general powers of the SEC to regulate
and supervise the corporate activities of organizations related to or
connected with the securities market like petitioner. It could not be
interpreted to justify the SECs unjustified interference with
petitioners decision to increase its transfer fees and impose
processing fees, especially since the decision involved a
management prerogative and was intended to protect the viability
of petitioners members.8
For its part, the Office of the Solicitor General (OSG) counters that
petitioners allegations of denial of due process are baseless. The
OSG cites that petitioner was given ample opportunity to present its
case at the July 11, 1996 hearing and was adequately heard
through the series of letters it sent to the SEC to explain its refusal to
obey the latters directives. Also, there is no evidence to support its
allegation that the July 11, 1996 Order was prepared in advance or
that it was issued without considering the evidence for the parties.
As regards the SECs power over petitioners stock transfer fees, the
OSG argues that the power to determine said fees was necessarily
implied in the SECs general power under Section 40 of The Revised
Securities Act to regulate and supervise the operations of transfer
agents such as petitioners member-corporations. The OSG adds
that petitioners discretion to increase its fees was not purely a
management prerogative and was properly the subject of
regulation considering that it significantly affects the market for
securities.9
We find the instant petition bereft of merit. The Court notes that
before its repeal, Section 47 of The Revised Securities Act clearly
gave the SEC the power to enjoin the acts or practices of securitiesrelated organizations even without first conducting a hearing if,
upon proper investigation or verification, the SEC is of the opinion
that there exists the possibility that the act or practice may cause
grave or irreparable injury to the investing public, if left unrestrained.
Section 47 clearly provided,
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DANTE O. TINGA
Associate Justice
Footnotes
Rollo, pp. 110-121-A. Penned by Associate Justice Bernardo Ll.
Salas, with Associate Justices Eloy R. Bello, Jr. and Candido V.
Rivera concurring.
1
Id. at 130.
Id. at 52.
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Id. at 58.
Id. at 18.
Id. at 162-165.
xxxx
SEC. 3. The Commission shall have absolute jurisdiction,
supervision and control over all corporations, partnerships
or associations, who are the grantees of primary franchise
and/or a license or permit issued by the government to
operate in the Philippines;
SEC. 46. Administrative sanctions.If, after proper notice and
hearing, the Commission finds that there is a violation of this
Act, its rules, or its orders or that any registrant has, in a
registration statement and its supporting papers and other
reports required by law or rules to be filed with the Commission,
made any untrue statement of a material fact, or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or
11
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Section 49, Rule 39 of the Revised Rules of Court lays down the dual
aspects of res judicata in actions in personam, to wit:
Effect of judgment. The effect of a judgment or final
order rendered by a court or judge of the Philippines,
having jurisdiction to pronounce the judgment or order,
may be as follows:
xxx xxx xxx
(b) In other cases the judgment or order is, with respect to
the matter directly adjudged or as to any other matter
that could have been raised in relation thereto,
conclusive between the parties and their successors in
interest by title subsequent to the commencement of the
action or special proceeding, litigating for the same thing
and under the same title and in the same capacity;
(c) In any other litigation between the same parties or
their successors in interest, that only is deemed to have
been adjudged in a former judgment which appears
upon its face to have been so adjudged, or which was
actually and necessarily included therein or necessary
thereto.
Section 49(b) enunciates the first concept of res judicata known as
"bar by prior judgment," whereas, Section 49(c) is referred to as
"conclusiveness of judgment."
There is "bar by former judgment" when, between the first case
where the judgment was rendered, and the second case where
such judgment is invoked, there is identity of parties, subject matter
and cause of action. When the three identities are present, the
judgment on the merits rendered in the first constitutes an absolute
bar to the subsequent action. But where between the first case
wherein judgment is rendered and the second case wherein such
judgment is invoked, there is only identity of parties but there is no
identity of cause of action, the judgment is conclusive in the second
case, only as to those matters actually and directly controverted
and determined, and not as to matters merely involved therein. This
is what is termed "conclusiveness of judgment." 27
Neither of these concepts of res judicata find relevant application in
the case at bench. While there may be identity of subject matter
(IDP property) in both cases, there is no identity of parties. The
principal parties in G.R. No. 107751 were mortgagee Leticia P. Ligon,
as petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP,
as represented by the 1971 Board of Trustees or the Tamano Group,
was only made an ancillary party in G.R. No. 107751 as intervenor. 28
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particular issue was not the principal thrust of Ligon. To rule otherwise
would be to cause grave and irreparable injustice to IDP which
never gave its consent to the sale, thru a legitimate Board of
Trustees.
In any case, while it is true that the principle of res judicata is a
fundamental component of our judicial system, it should be
disregarded if its rigid application would involve the sacrifice of
justice to technicality. 34
The main question though in this petition is: Did the Court of Appeals
commit reversible error in setting aside that portion of the SEC's
Decision in SEC Case No. 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.
There can be no question as to the authority of the SEC to pass upon
the issue as to who among the different contending groups is the
legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by
virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A:
Sec. 3. The Commission shall have absolute jurisdiction,
supervision and control over all corporations, partnership
or associations, who are the grantees of primary
franchises and/or a license or permit issued by the
government to operate in the Philippines . . . .
xxx xxx xxx
Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
xxx xxx xxx
c) Controversies in the selection or appointment of
directors, trustees, officers, or managers of such
corporations, partnerships or associations. . . . .
If the SEC can declare who is the legitimate IDP Board, then by
parity of reasoning, it can also declare who is not the legitimate
IDP Board. This is precisely what the SEC did in SEC Case No.
4012 when it adjudged the election of the Carpizo Group to
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All told, the disputed Deed of Absolute Sale executed by the fake
Carpizo Board and private respondent INC was intrinsically void ab
initio.
Private respondent INC nevertheless questions the authority of the
SEC to nullify the sale for being made outside of its jurisdiction, the
same not being an intra-corporate dispute.
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, owner of the subject property. No end
of substantial justice will be served if we reverse the SEC's conclusion
on the matter, and remand the case to the regular courts for further
litigation over an issue which is already determinable based on what
we have in the records.
It is unfortunate that private respondent INC opposed the motion for
intervention filed by the 1971 Board of Trustees in Civil Case. No. Q90-6937, a case for Specific Performance with Damages between
INC and the Carpizo Group on the subject Deed of Absolute Sale.
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. But INC, wanting to acquire the property
at all costs and threatened by the participation of the legitimate IDP
Board in the civil suit, argued for the denial of the motion averring,
inter alia, that the issue sought to be litigated by the movant is intracorporate in nature and outside the jurisdiction of the regional trial
court. 40 As a result, the motion for intervention was denied. When
the Decision in SEC Case No. 4012 came out nullifying the sale, INC
came forward, this time, quibbling over the issue that it is the regional
trial court, and not the SEC, which has jurisdiction to rule on the
validity of the sale. INC is here trifling with the courts. We cannot put
a premium on this clever legal maneuverings of private respondent
which, if countenanced, would result in a failure of justice.
Furthermore, the Court observes that the INC bought the questioned
property from the Carpizo Group without even seeing the owner's
duplicate copy of the titles covering the property. This is very strange
considering that the subject lot is a large piece of real property in
Quezon City worth millions, and that under the Torrens System of
Registration, the minimum requirement for one to be a good faith
buyer for value is that the vendee at least sees the owner's duplicate
copy of the title and relies upon the same. 41 The private respondent,
presumably knowledgeable on the aforesaid workings of the Torrens
System, did not take heed of this and nevertheless went through with
the sale with undue haste. The unexplained eagerness of INC to buy
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Trustees, the sale it entered into with INC is likewise void. Without a
valid consent of a contracting party, there can be no valid contract.
In this case, the IDP, never gave its consent, through a legitimate
Board of Trustees, to the disputed Deed of Absolute Sale executed in
favor of INC. Therefore, this is a case not only of vitiated consent, but
one where consent on the part of one of the supposed contracting
parties is totally wanting. Ineluctably, the subject sale is void and
produces no effect whatsoever.
Further, the Carpizo group failed to comply with Section 40 of the
Corporation Code, which provides that: " ... a corporation may, by a
majority vote of its board of directors or trustees, sell, lease,
exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets... when authorized by the
vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock; or in case of non-stock corporation, by
the vote of at least two-thirds (2/3) of the members, in a
stockholders' or members' meeting duly called for the purpose...."
The subject lot constitutes the only property of IDP. Hence, its sale to
a third-party is a sale or disposition of all the corporate property and
assets of IDP. For the sale to be valid, the majority vote of the
legitimate Board of Trustees, concurred in by the vote of at least 2/3
of the bona fide members of the corporation should have been
obtained. These twin requirements were not met in the case at bar.
ANCILLARY ISSUE: W/N The Ligon ruling constitutes res judicata.
RULING: NO.
Section 49(b), Rule 39 enunciates the first concept of res judicata
known as "bar by prior judgment," whereas, Section 49(c), Rule 39 is
referred to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case
where the judgment was rendered, and the second case where
such judgment is invoked, there is identity of parties, subject matter
and cause of action. When the three identities are present, the
judgment on the merits rendered in the first constitutes an absolute
bar to the subsequent action. But where between the first case
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In the meantime, the SEC, on 5 July 1993, finally came out with a
Decision in SEC Case 4012, Declaring the by-laws submitted by the
IDP-Caprizo group as unauthorized, and hence, null and void;
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
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Kristo and the Islamic Directorate of the Philippines, Inc. null and
void; declaring the election of the Board of Directors 23 of the
corporation from 1986 to 1991 as null and void; and Declaring the
acceptance of the respondents, except Farouk Carpizo and Musnib
Buat, as members of the IDP null and void. The INC filed a Motion for
Intervention, dated 7 September 1993, in SEC Case 4012, but the
same was denied on account of the fact that the decision of the
case had become final and executory, no appeal having been
taken therefrom. INC elevated SEC Case 4012 to the Court of
Appeals by way of a special civil action for certiorari (CA-GR SP
33295). On 28 October 1994, the appeallate court promulgated a
Decision granting INC's petition. The portion of the SEC Decision in
SEC Case 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. Thus,
the IDP-Tamano Group brought the petition for review, dated 21
December 1994, to the Supreme Court. While the petition was
pending, however, the Supreme Court rendered judgment in GR
107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision,
dated 1 June 1995, denied the Ligon petition and affirmed the 28
October 1992 Decision of the Court of Appeals in CA-GR SP-27973
which sustained the Order of Judge Reyes compelling mortgagee
Ligon to surrender the owner's duplicate copies of TCTs RT-26521
(170567) and RT-26520 (176616) to the Register of Deeds of Quezon
City so that the Deed of Absolute Sale in INC's favor may be properly
registered.
Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit
between the Carpizo Group and the Abbas Group, 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. Nothing thus becomes more settled than
that the IDP-Carpizo Group with whom INC contracted is a fake
Board. Premises considered, all acts carried out by the Carpizo
Board, particularly the sale of the Tandang Sora property, allegedly
in the name of the IDP, have to be struck down for having been
done without the consent of the IDP thru a legitimate Board of
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Trustees. Article 1318 of the New Civil Code lays down the essential
requisites of contracts, and where all these elements must be present
to constitute a valid contract. For, where even one is absent, the
contract is void. Specifically, consent is essential for the existence of
a contract, and where it is wanting, the contract is non-existent.
Herein, the IDP, owner of the subject parcels of land, never gave its
consent, thru a legitimate Board of Trustees, to the disputed Deed of
Absolute Sale executed in favor of INC. This is, therefore, a case not
only of vitiated consent, but one where consent on the part of one
of the supposed contracting parties is totally wanting. Ineluctably,
the subject sale is void and produces no effect whatsoever. The
Carpizo Group-INC sale is further deemed null and void ab initio
because of the Carpizo Group's failure to comply with Section 40 of
the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation. The Tandang Sora
property, it appears from the records, constitutes the only property of
the IDP. Hence, its sale to a third-party is a sale or disposition of all
the corporate property and assets of IDP falling squarely within the
contemplation of the foregoing section. For the sale to be valid, the
majority vote of the legitimate Board of Trustees, concurred in by the
vote of at least 2/3 of the bona fide members of the corporation
should have been obtained. These twin requirements were no met
as the Carpizo Group which voted to sell the Tandang Sora property
was a fake Board of Trustees, 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,
from all indications, not bona fide members of the IDP as they were
made to appear to be. Apparently, there are only 15 official
members of the IDP including the 8 members of the Board of
Trustees. All told, the disputed Deed of Absolute Sale executed by
the fake Carpizo Board and INC was intrinsically void ab initio.
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had not taken over the company which has a separate and distinct
corporate personality and existence.
On August 4, 1988, the trial court issued an order advising the private
respondents to take the appropriate steps to serve the summons to
ALFA.
On August 16, 1988, the private respondents filed a Manifestation
and Motion for the Declaration of Proper Service of Summons which
the trial court granted on August 17, 1988.
On September 12, 1988, the petitioners filed a motion for
reconsideration submitting that Rule 14, section 13 of the Revised
Rules of Court is not applicable since they were no longer officers of
ALFA and that the private respondents should have availed of
another mode of service under Rule 14, Section 16 of the said Rules,
i.e., through publication to effect proper service upon ALFA.
In their Comment to the Motion for Reconsideration dated
September 27, 1988, the private respondents argued that the voting
trust agreement dated March 11, 1981 did not divest the petitioners
of their positions as president and executive vice-president of ALFA
so that service of summons upon ALFA through the petitioners as
corporate officers was proper.
On January 2, 1989, the trial court upheld the validity of the service
of summons on ALFA through the petitioners, thus, denying the
latter's motion for reconsideration and requiring ALFA to filed its
answer through the petitioners as its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed
by the petitioners reiterating their stand that by virtue of the voting
trust agreement they ceased to be officers and directors of ALFA,
hence, they could no longer receive summons or any court
processes for or on behalf of ALFA. In support of their second motion
for reconsideration, the petitioners attached thereto a copy of the
voting trust agreement between all the stockholders of ALFA (the
petitioners included), on the one hand, and the DBP, on the other
hand, whereby the management and control of ALFA became
vested upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its
previous Order dated January 2, 1989 and declared that service
upon the petitioners who were no longer corporate officers of ALFA
cannot be considered as proper service of summons on ALFA.
On May 15, 1989, the private respondents moved for a
reconsideration of the above Order which was affirmed by the court
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in its Order dated August 14, 1989 denying the private respondent's
motion for reconsideration.
On September 18, 1989, a petition for certiorari was belatedly
submitted by the private respondent before the public respondent
which, nonetheless, resolved to give due course thereto on
September 21, 1989.
On October 17, 1989, the trial court, not having been notified of the
pending petition for certiorari with public respondent issued an Order
declaring as final the Order dated April 25, 1989. The private
respondents in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would
not be constrained to dismiss the same for failure to prosecute.
Subsequently, on October 25, 1989 the private respondents filed a
motion for reconsideration on which the trial court took no further
action.
On March 19, 1990, after the petitioners filed their answer to the
private respondents' petition for certiorari, the public respondent
rendered its decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the orders of
respondent judge dated April 25, 1989 and August 14,
1989 are hereby SET ASIDE and respondent corporation is
ordered to file its answer within the reglementary period.
(CA Decision, p. 8; Rollo, p. 24)
On April 11, 1990, the petitioners moved for a reconsideration of the
decision of the public respondent which resolved to deny the same
on May 10, 1990. Hence, the petitioners filed this certiorari petition
imputing grave abuse of discretion amounting to lack of jurisdiction
on the part of the public respondent in reversing the questioned
Orders dated April 25, 1989 and August 14, 1989 of the court a quo,
thus, holding that there was proper service of summons on ALFA
through the petitioners.
In the meantime, the public respondent inadvertently made an
entry of judgment on July 16, 1990 erroneously applying the rule that
the period during which a motion for reconsideration has been
pending must be deducted from the 15-day period to appeal.
However, in its Resolution dated January 3, 1991, the public
respondent set aside the aforestated entry of judgment after further
considering that the rule it relied on applies to appeals from
decisions of the Regional Trial Courts to the Court of Appeals, not to
appeals from its decision to us pursuant to our ruling in the case of
Refractories Corporation of the Philippines v. Intermediate Appellate
Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250)
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the phrase "in his own right" provided under the old Corporation
Code.
With the omission of the phrase "in his own right" the election of
trustees and other persons who in fact are not beneficial owners of
the shares registered in their names on the books of the corporation
becomes formally legalized (see Campos and Lopez-Campos,
supra, p. 296) Hence, this is a clear indication that in order to be
eligible as a director, what is material is the legal title to, not
beneficial ownership of, the stock as appearing on the books of the
corporation (2 Fletcher, Cyclopedia of the Law of Private
Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269 Ill.
351, 109 N.E. 1051).
The facts of this case show that the petitioners, by virtue of the voting
trust agreement executed in 1981 disposed of all their shares through
assignment and delivery in favor of the DBP, as trustee.
Consequently, the petitioners ceased to own at least one share
standing in their names on the books of ALFA as required under
Section 23 of the new Corporation Code. They also ceased to have
anything to do with the management of the enterprise. The
petitioners ceased to be directors. Hence, the transfer of the
petitioners' shares to the DBP created vacancies in their respective
positions as directors of ALFA. The transfer of shares from the
stockholder of ALFA to the DBP is the essence of the subject voting
trust agreement as evident from the following stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE
the certificate of the shares of the stocks owned by them
respectively and shall do all things necessary for the
transfer of their respective shares to the TRUSTEE on the
books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust
certificate for the number of shares transferred, which
shall be transferrable in the same manner and with the
same effect as certificates of stock subject to the
provisions of this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all
meetings of ALFA, annual or special, upon any resolution,
matter or business that may be submitted to any such
meeting, and shall possess in that respect the same
powers as owners of the equitable as well as the legal title
to the stock;
4. The TRUSTEE may cause to be transferred to any person
one share of stock for the purpose of qualifying such
person as director of ALFA, and cause a certificate of
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the legal title to the stocks covered by the said voting trust
agreement ipso facto reverted to the petitioners as beneficial
owners pursuant to the 6th paragraph of section 59 of the new
Corporation Code which reads:
Unless expressly renewed, all rights granted in a voting
trust agreement shall automatically expire at the end of
the agreed period, and the voting trust certificate as well
as the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the
transferors.
On the contrary, it is manifestly clear from the terms of the voting
trust agreement between ALFA and the DBP that the duration of the
agreement is contingent upon the fulfillment of certain obligations of
ALFA with the DBP. This is shown by the following portions of the
agreement.
WHEREAS, the TRUSTEE is one of the creditors of ALFA, and
its credit is secured by a first mortgage on the
manufacturing plant of said company;
WHEREAS, ALFA is also indebted to other creditors for
various financial accomodations and because of the
burden of these obligations is encountering very serious
difficulties in continuing with its operations.
WHEREAS, in consideration of additional accommodations
from the TRUSTEE, ALFA had offered and the TRUSTEE has
accepted participation in the management and control
of the company and to assure the aforesaid participation
by the TRUSTEE, the TRUSTORS have agreed to execute a
voting trust covering their shareholding in ALFA in favor of
the TRUSTEE;
AND WHEREAS, DBP is willing to accept the trust for the
purpose aforementioned.
NOW, THEREFORE, it is hereby agreed as follows:
xxx xxx xxx
6. This Agreement shall last for a period of Five (5) years,
and is renewable for as long as the obligations of ALFA
with DBP, or any portion thereof, remains outstanding; (CA
Rollo, pp. 137-138)
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can only be bound by such acts which are within the scope of the
officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210
[1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED.
The appealed decision dated March 19, 1990 and the Court of
Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders
dated April 25, 1989 and October 17, 1989 issued by the Regional
Trial Court of Makati, Branch 58 are REINSTATED.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.
G.R. No. 93695 February 4, 1992
Lessons Applicable: Voting Trust Agreements (Corporate Law)
FACTS:
July 12, 1988: trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP
July 22, 1988: DBP claimed that it was not authorized to receive
summons on behalf of ALFA
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April 25, 1989: trial court reversed itself by setting aside its
previous Order dated January 2, 1989 and declared that
service upon the petitioners who were no longer corporate
officers of ALFA cannot be considered as proper service of
summons on ALFA
October 17, 1989: trial court (NOT notified of the petition for
certiorari) declared final its decision on April 25, 1989
ISSUE: W/N the voting trust agreement is valid despite being contrary
to the general principle that a corporation can only be bound by
such acts which are within the scope of its officers' or agents'
authority
HELD:
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voting trust
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Raniel vs. Jochico (517 SCRA 221 [2007]); See SEC Opinion No.21,
s.2003, addressed to Atty. Juan de Ocampo
G.R. No. 153413
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March 1, 2007
It does not present any argument which convinces the Court that
the SEC and the CA made any misappreciation of the facts and the
applicable laws such that their decisions should be overturned.
A corporation exercises its powers through its board of directors
and/or its duly authorized officers and agents, except in instances
where the Corporation Code requires stockholders approval for
certain specific acts.11
Based on Section 23 of the Corporation Code which provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided
in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property
of such corporations controlled and held by the board of directors or
trustees x x x.
a corporations board of directors is understood to be that body
which (1) exercises all powers provided for under the Corporation
Code; (2) conducts all business of the corporation; and (3) controls
and holds all property of the corporation. Its members have been
characterized as trustees or directors clothed with a fiduciary
character. 12 Moreover, the directors may appoint officers and
agents and as incident to this power of appointment, they may
discharge those appointed.13
In this case, petitioner Raniel was removed as a corporate officer
through the resolution of Nephro's Board of Directors adopted in a
special meeting on February 2, 1998. As correctly ruled by the SEC,
petitioners' removal was a valid exercise of the powers of Nephro's
Board of Directors, viz.:
In the instant complaint, do respondents have sufficient grounds to
cause the removal of Raniel from her positions as Corporate
Secretary, Treasurer and Administrator of the Dialysis Clinic? Based
on the facts proven during the hearing of this case, the answer is in
the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an
indefinite leave, immediately effective yet without prior notice,
reveals a disregard of the critical responsibilities pertaining to the
sensitive positions she held in the corporation. Prior to her hasty
departure, Raniel did not make a proper turn-over of her duties and
had to be expressly requested to hand over documents and
records, including keys to the office and the cabinets (Exh. 15).
xxxx
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PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES
TAN, JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO,
SABINO PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN
HIGH SCHOOL, Petitioners,
vs.
PAUL SYCIP and MERRITTO LIM, Respondents.
DECISION
PANGANIBAN, CJ.:
For stock corporations, the "quorum" referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting
stocks. For nonstock corporations, only those who are actual, living
members with voting rights shall be counted in determining the
existence of a quorum during members meetings. Dead members
shall not be counted.
The Case
The present Petition for Review on Certiorari [1] under Rule 45 of the
Rules of Court seeks the reversal of the January 23 2 and May 7, 2002,
3 Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202.
The first assailed Resolution dismissed the appeal filed by petitioners
with the CA. Allegedly, without the proper authorization of the other
petitioners, the Verification and Certification of Non-Forum Shopping
were signed by only one of them -- Atty. Sabino Padilla Jr. The
second Resolution denied reconsideration.
The Facts
Petitioner Grace Christian High School (GCHS) is a nonstock, nonprofit educational corporation with fifteen (15) regular members,
who also constitute the board of trustees. [4] During the annual
members meeting held on April 6, 1998, there were only eleven (11)
[5] living member-trustees, as four (4) had already died. Out of the
eleven, seven (7) 6 attended the meeting through their respective
proxies. The meeting was convened and chaired by Atty. Sabino
Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued
that there was no quorum. 7 In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to
replace the four deceased member-trustees.
When the controversy reached the Securities and Exchange
Commission (SEC), petitioners maintained that the deceased
member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all
their rights (including the right to vote) and interests in the
corporation.
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The March 3, 1986 SEC Opinion 42 cited by the hearing officer uses
the phrase "majority vote of the members"; likewise Section 48 of the
Corporation Code refers to 50 percent of 94 (the number of
registered members of the association mentioned therein) plus one.
The best evidence of who are the present members of the
corporation is the "membership book"; in the case of stock
corporations, it is the stock and transfer book. 43
Section 25 of the Code specifically provides that a majority of the
directors or trustees, as fixed in the articles of incorporation, shall
constitute a quorum for the transaction of corporate business (unless
the articles of incorporation or the bylaws provide for a greater
majority). If the intention of the lawmakers was to base the quorum in
the meetings of stockholders or members on their absolute number
as fixed in the articles of incorporation, it would have expressly
specified so. Otherwise, the only logical conclusion is that the
legislature did not have that intention.
Effect of the Death
of a Member or Shareholder
Having thus determined that the quorum in a members meeting is
to be reckoned as the actual number of members of the
corporation, the next question to resolve is what happens in the
event of the death of one of them.
In stock corporations, shareholders may generally transfer their
shares. Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal
title to the stock and entitled to vote it. Until a settlement and division
of the estate is effected, the stocks of the decedent are held by the
administrator or executor. 44
On the other hand, membership in and all rights arising from a
nonstock corporation are personal and non-transferable, unless the
articles of incorporation or the bylaws of the corporation provide
otherwise. 45 In other words, the determination of whether or not
"dead members" are entitled to exercise their voting rights (through
their executor or administrator), depends on those articles of
incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member. 46
Section 91 of the Corporation Code further provides that termination
extinguishes all the rights of a member of the corporation, unless
otherwise provided in the articles of incorporation or the bylaws.
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Footnotes
1
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See Decision dated June 21, 2000, SEC Case No. 08-98-6065,
p. 2; rollo, p. 40.
7
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See SEC Order dated July 6, 2001, Annex "D" of Petition; rollo,
pp. 46-51.
13
15
17
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22
23
See Corporation Code, Secs. 6, 16, 24, 28-30, 32, 34, 38, 40,
42-44, 46, 48, 77, 118-120.
24
25
27
29
31
Id.
32
Id.
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33
90 ALR 316.
38
39
40
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43
45
Excluding Atty. Antonio C. Pacis (proxy for Anita So), who left
the meeting in protest of the alleged lack of quorum.
47
49
FACTS:
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SEC: meeting void due to lack of quorum (NOT living but based
on AIC)
o
ISSUE: W/N dead members should still be counted in the quorum NO based on by-laws
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on June 25, 1999. Upon his motion, KAL was given a period of 10
days within which to submit a copy of the said resolution. The trial
court granted the motion. Atty. Aguinaldo subsequently filed other
similar motions, which the trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit3 of even date,
executed by its general manager Suk Kyoo Kim, alleging that the
board of directors conducted a special teleconference on June 25,
1999, which he and Atty. Aguinaldo attended. It was also averred
that in that same teleconference, the board of directors approved a
resolution authorizing Atty. Aguinaldo to execute the certificate of
non-forum shopping and to file the complaint. Suk Kyoo Kim also
alleged, however, that the corporation had no written copy of the
aforesaid resolution.
On April 12, 2000, the trial court issued an Order4 denying the motion
to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk
Kyoo Kim that the KAL Board of Directors indeed conducted a
teleconference on June 25, 1999, during which it approved a
resolution as quoted in the submitted affidavit.
ETI filed a motion for the reconsideration of the Order, contending
that it was inappropriate for the court to take judicial notice of the
said teleconference without any prior hearing. The trial court denied
the motion in its Order5 dated August 8, 2000.
ETI then filed a petition for certiorari and mandamus, assailing the
orders of the RTC. In its comment on the petition, KAL appended a
certificate signed by Atty. Aguinaldo dated January 10, 2000,
worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected
and appointed Corporate Secretary and Resident Agent of
KOREAN AIRLINES, a foreign corporation duly organized and
existing under and by virtue of the laws of the Republic of
Korea and also duly registered and authorized to do business in
the Philippines, with office address at Ground Floor, LPL Plaza
Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY
CERTIFY that during a special meeting of the Board of Directors
of the Corporation held on June 25, 1999 at which a quorum
was present, the said Board unanimously passed, voted upon
and approved the following resolution which is now in full force
and effect, to wit:
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(Sgd.)
ATTY. HENRY D. ADASA
Notary Public
Until December 31, 2000
PTR #889583/MLA 1/3/20006
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(Sgd.)
MARIO A. AGUINALDO
Affiant
CITY OF MANILA
SUBSCRIBED AND SWORN TO before me this 30th day of August,
1999, affiant exhibiting to me his Community Tax Certificate No.
00671047 issued on January 7, 1999 at Manila, Philippines.
Doc. No. 1005;
Page No. 198;
Book No. XXI
Series of 1999.
(Sgd.)
ATTY. HENRY D. ADASA
Notary Public
Until December 31, 2000
PTR No. 320501 Mla.
1/4/9913
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Footnotes
Penned by Associate Justice Elvi John S. Asuncion, with
Associate Justices Romeo A. Brawner (now Presiding Justice)
and Juan Q. Enriquez, Jr., concurring; Rollo, pp. 27-30.
1
Rollo, p. 109.
Id. at 47-50.
Rollo, p. 108.
Id. at 18.
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11
13
16
17
19
Ibid.
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23
Ibid.
Rollo, p. 68.
26
Id. at 86.
27
Id. at 87.
28
29
Id. at 93.
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30
Rollo, p. 108.
EXPERTRAVEL & TOURS, INC. (ETI) vs. CA and KOREAN AIRLINES (KAL)
Facts:
ETI filed a motion to dismiss the complaint on the ground that Atty.
Aguinaldo has no authority to execute the said verification and
certificate of non-forum shopping and to file the complaint.
Thus, ETI filed a petition for certiorari and mandamus, assailing the
orders of the RTC. It contended that it was inappropriate for the RTC
to take judicial notice of the said teleconference without any prior
hearing. It also alleged that the teleconference and the resolution
adverted to by KAL was a mere fabrication.
The CA, on the other hand, dismissed the petition of ETI. Hence, ETI
filed a petition for review on certiorari.
In the said petition, ETI pointed out that there are no rulings on the
matter of teleconferencing as a means of conducting meetings of
board of directors for purposes of passing a resolution; until and after
teleconferencing is recognized as a legitimate means of gathering a
quorum of board of directors, such cannot be taken judicial notice
of by the court. It asserts that safeguards must first be set up to
prevent any mischief on the public or to protect the general public
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Issue:
Ruling:
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The Court ruled that that Atty. Aguinaldo has no authority to execute
the verification and certificate of non-forum shopping as required by
Section 5, Rule 7 of the Rules of Court. While it posited that the courts
may take judicial notice that business transactions may be made by
individuals through teleconferencing,it was more inclined to believe
that the alleged teleconference among and between KALs BOD
and Atty. Aguinaldo never took place, and that the resolution
allegedly approved by the KAL's BOD during the said
teleconference was a mere concoction purposefully foisted on the
RTC, the CA and this Court, to avert the dismissal of its complaint
against the ETI due to the circumstances attendant in the case (i.e.
no records of board resolutions approved during teleconferences
were kept).Hence, it granted the petition of ETI and reversed the
decision of the CA. It also ordered the RTC to dismiss KALs complaint
for collection of sum of money, without prejudice against ETI.
FACTS:
Korean Airlines (KAL) is a corporation established and registered in
the Republic of South Korea and licensed to do business in the
Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law
firm.
The petitioner on the other hand, maintains that the RTC cannot take
judicial notice of the said teleconference without prior hearing, nor
any motion therefore. Finally, KAL submitted on March 6, 2000 an
Affidavit of even date, executed by its general manager Suk Kyoo
Kim, alleging that the board of directors conducted a special
teleconference on June 25, 1999, which he and Atty. Aguinaldo
attended. It was also averred that in that same teleconference, the
board of directors approved a resolution authorizing Atty. Aguinaldo
to execute the certificate of non-forum shopping and to file the
complaint. Suk Kyoo Kim also alleged, however, that the corporation
had no written copy of the aforesaid resolution.
But, the petitioner pointed out that there are no rulings on the matter
of teleconferencing as a means of conducting meetings of board of
directors for purposes of passing a resolution; until and after
teleconferencing is recognized as a legitimate means of gathering a
quorum of board of directors, such cannot be taken judicial notice
of by the court. The RTC and CA dismiss the petition, hence this
appeal.
HELD:
No. In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing
can bring people together under one roof even though they are
separated by hundreds of miles.
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Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents Board
of Directors, the Court is not convinced that one was conducted;
even if there had been one, the Court is not inclined to believe that
a board resolution was duly passed specifically authorizing Atty.
Aguinaldo to file the complaint and execute the required
certification against forum shopping.
Petition Granted.
Expertravel & Tours Inc. vs. Court of Appeals, etc. G.R. No. 152392, 26
May 2005
Facts:
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ETI filed a motion to dismiss the complaint on the ground that Atty.
Aguinaldo was not authorized to execute the above-mentioned
verification and non-forum shopping as required by Section 5, Rule 7
of the Rules of Court. KAL, thereafter, opposed the motion
contending that Atty. Aguinaldo was its resident agent and was
registered as such with the Securities and Exchange Commission
(SEC). It was also alleged that Atty. Aguinaldo also served as the
company's corporate secretary.
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Issue:
Is the petitioner correct in assailing that until and after
teleconferencing is recognized as a legitimate means of conducting
meetings, gathering quorum of board of directors, such cannot be
taken judicial notice of by the court.
Held:
The petition is meritorious.
The Court agrees with the RTC that persons in the Philippines may
have a teleconference with a group of persons in South Korea
relating to business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents Board
of Directors, the Court is not convinced that one was conducted;
even if there had been one, the Court is not inclined to believe that
a board resolution was duly passed specifically authorizing Atty.
Aguinaldo to file the complaint and execute the required
certification against forum shopping.
The Court is, thus, more inclined to believe that the alleged
teleconference on June 25, 1999 never took place, and that the
resolution allegedly approved by the respondents Board of Directors
during the said teleconference was a mere concoction purposefully
foisted on the RTC, the CA and this Court, to avert the dismissal of its
complaint against the petitioner.
Petition granted.
PARAS, J.:
This is a petition for review of the decision of the Court of Appeals *
dated June 20, 1972, affirming the decision of the then Court of First
Instance of Manila, Branch XV, in Civil Case No. 4439, dismissing a
complaint by herein petitioner against herein private respondent to
recover a sum of money received by the latter from the corporation,
while he was serving as member of the Board of Directors of the
Exchange.
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As gathered from the records, the antecedent facts of this case are
as follows:
Petitioner Central Cooperative Exchange, Inc. is the National
Federation of Farmers' Cooperative Marked Association (FACOMA)
in the Philippines. Its single major stockholder is a government entity,
the Agricultural Credit and Cooperative Financing Administration
(ACCFA) now Agricultural Credit Administration (ACA), as
reorganized under the Land Reform Code. Respondent Nicolas T.
Enciso was then member of the Board of Governors of ACCFA and
concurrently a member of petitioner's Board of Directors from August
1, 1958 to January, 1960.
The ACCFA took over the management of the affairs of CCE by
virtue of a resolution of the latter's board of directors and ACCFA
removed the general manager of CCE and on January 22, 1960,
designated Eugenio V. Mendoza, one of ACCFA's staff officers, as
Officer-in-Charge of petitioner corporation (Petition; Rollo, pp. 2-3).
In various meetings, the Board of Directors of the CCE unanimously
adopted the following Resolutions:
(1) May 28, 1958 Res. No. 41, granting a kilometrage
allowance of P35.00 to every CCE director who uses his
own car in attending Board Meeting (Exh. L, p. 79);
(2) July 8, 1958 Res. No. 52, appropriating the amount of
P10,000.00 as discretionary fund of the Board of Directors
of the CCE (Exh. G, p. 107-G);
(3) July 10, 1958 Res. No. 49, granting a commutable
allowance of P200.00 per month to each CCE director,
starting July 1, 1958, in lieu of the regular waiting time per
them and transportation expenses in Manila while
attending regular and special Board Meetings and
committee meetings (Exh. I, p. 115);
(4) July 24, 1958 Res. No. 57, amending Resolution No.
49 (FY 1958) and granting to each Director a monthly
commutable allowance of P200.00 in lieu of waiting time
per them and commutable transportation allowance of
P20.00 for attending meetings in Manila (Exh- H, p. 124);
(5) June 11, 1959 Res. No. 39, increasing the monthly
commutable allowance of each CCE Director from
P300.00 to P500.00 per month but cancelling the
authorized per diems and transportation expenses for
FACOMA visitations (Exh. F, p. 75); and
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Footnotes
* CA, Sixth Division, penned by Justice Andres Reyes, with
the concurrence of Justices Salvador V. Esguerra and Luis
B. Reyes.
December 6, 2006
DECISION
AUSTRIA-MARTINEZ, J.:
There were originally 66 complainants in the case before the Labor
Arbiter for underpayment, overtime pay, premium pay for rest day
and holiday, service incentive leave pay, damages, attorney's fees,
and 13th month pay. The complainants claimed that they were
regular rank and file employees of the Pamplona Plantation Co., Inc.
(petitioner) with different hiring periods, work designations, and
salary rates. Petitioner, however, denied this, alleging that some of
the complainants are seasonal employees, some are contractors,
others were hired under the pakyaw system, while the rest were hired
by the Pamplona Plantation Leisure Corporation, which has a
separate and distinct entity from it.
In a Decision dated September 30, 1998, the Labor Arbiter (LA) held
petitioner and its manager, Jose Luis Bondoc, liable for
underpayment as complainants were regular employees of
petitioner. They were also held guilty of illegal dismissal with regard to
complainants Joselito Tinghil and Pedro Emperado.
On appeal to the National Labor Relations Commission (NLRC), the
LA's Decision was reversed and another one was entered dismissing
all the complaints per Decision dated June 30, 2000. It was the
NLRC's finding that the complaint should have been directed
against the Pamplona Plantation Leisure Corporation since
complainants' individual affidavits contained the allegations that
their tasks pertained to their work "in the golf course."
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The Court of Appeals (CA),1 in turn, vacated and set aside the
NLRC's dismissal in its Decision dated November 26, 2001, and
reinstated the LA's Decision with the modification that the award of
wage differentials was limited to the following twenty-two (22)
persons, namely: Rolando Baloron, Samuel Garcia, Darwin Garnica,
Simeon Panangganan, Pablo Pao, Felix Torres, Manuel Garcia,
Paquito Napao, Celso Rufa, Joselito Tinghil, Elpidia Toroy, Ernesto
Torres, Laureano Lopez, Joseph Barba, Hermenigildo Caolas,
Salome Regala, Guillermo Torres, Narcisa Torres, Nelson Torres, Loreto
Ybanay, Luis Guan, and Christopher Ybanay (respondents), while the
finding of illegal dismissal with regard to Pedro Emparado and the
award of attorney's fees were deleted.
Hence, the present petition for review under Rule 45 of the Rules of
Court based on the following grounds:
I
THE COURT OF APPEALS HAS DECIDED IN A WAY NOT IN
ACCORD WITH LAW AND ESTABLISHED JURISPRUDENCE,
CONTRARY TO THE ADMISSION OF PARTIES AND WITH GRAVE
ABUSE OF DISCRETION IN THE APPRECIATION OF FACTS:
1. In holding petitioner liable for the wage differentials of
22 respondents who themselves admit and allege in their
own Affidavits that their employees was another entity
Pamplona Plantation Leisure Corporation, and not herein
Petitioner Company.
2. In affirming that respondent Joselito Tinghil was illegally
dismissed by Petitioner, when in fact, Joselito Tinghil, as
narrated by him in his own Affidavit, was working with
Pamplona Plantation Leisure Corporation, and not herein
Petitioner.
3. In even finding that Joselito Tinghil was illegally
dismissed in the first place, when there is no evidence to
support his allegation.
II
THE DECISION OF THE COURT OF APPEALS HOLDING
PETITIONER'S MANAGER PERSONALLY LIABLE FOR CORPORATE
ACTS IS NOT IN ACCORD WITH LAW.2
At the outset, it should be stated that under Rule 45 of the Rules of
Court, only questions of law may be raised, the reason being that this
Court is not a trier of facts, and it is not for this Court to reexamine
and reevaluate the evidence on record.3 Considering, however,
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that the CA and the Labor Arbiter came up with an opinion different
from that of the NLRC, the Court is now constrained to review the
evidence on record.4
Petitioner contests the CA's conclusion that the 22 respondents were
its employees. Petitioner insists that based on their affidavits,
respondents admitted that they were employees of the Pamplona
Plantation Leisure Corporation, hence, their complaint for illegal
dismissal should have been directed against it.
The Court disagrees. Petitioner is estopped from denying that
respondents worked for it. In the first place, it never raised this
defense in the proceedings before the Labor Arbiter. Notably, the
defense it raised pertained to the nature of respondents'
employment, i.e., whether they are seasonal employees,
contractors, or worked under the pakyaw system. Thus, in its Position
Paper, petitioner alleged that some of the respondents are coconut
filers and copra hookers or sakadors; some are seasonal employees
who worked as scoopers or lugiteros; some are contractors; and
some worked under the pakyaw system.5 In support of these
allegations, petitioner even presented the company's payroll,6 which
will allegedly prove its allegations.
By setting forth these defenses, petitioner, in effect, admitted that
respondents worked for it, albeit in different capacities. Such
allegations are negative pregnants denials pregnant with the
admission of the substantial facts in the pleading responded to
which are not squarely denied,7 and amounts to an
acknowledgement that respondents were indeed employed by
petitioner.
On this score, the Court adopts the findings in Pamplona Plantation
Company, Inc. v. Tinghil,8 which involves the same petitioner in this
case and some of its workers. In that case, petitioner contended that
the case should have been dismissed because of the respondents'
failure to implead the Pamplona Plantation Leisure Corporation, Inc.
as an indispensable party, since as admitted in their respective
affidavits, it was their true and real employer. The Court, however,
rejected petitioner's contention and concluded that by piercing the
veil of corporate fiction, the two corporations the Pamplona
Plantation Corporation, Inc. and the Pamplona Plantation Leisure
Corporation are one and the same. Thus, the Court ruled:
An examination of the facts reveals that, for both the coconut
plantation and the golf course, there is only one management
which the laborers deal with regarding their work. A portion of
the plantation (also called Hacienda Pamplona) had actually
been converted into a golf course and other recreational
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this burden, the Court sustains the finding of illegal dismissal vis--vis
respondent Joselito Tinghil.
Lastly, petitioner believes that its manager, Jose Luis Bondoc, should
not have been held solidarily liable with the company for the wage
differentials awarded to respondents. Petitioner argues that Bondoc
is merely an employee of the company and not a corporate
director or officer who can be held personally liable therefor.
The rule is that officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their
authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members
may be disregarded if it is used as a means to perpetuate fraud or
an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues.15
Moreover, a corporate officer is not personally liable for the money
claims of discharged corporate employees unless he acted with
evident malice and bad faith in terminating their employment.16
Under Section 25 of the Corporation Code, three officers are
specifically provided for which a corporation must have: president,
secretary, and treasurer. The law, however, does not limit corporate
officers to these three. Section 25 gives corporations the widest
latitude to provide for such other offices, as they may deem
necessary. The by-laws may and usually do provide for such other
officers, e.g., vice-president, cashier, auditor, and general
manager.17
In this case, there is no basis from which it may be deduced that
Bondoc, as manager of petitioner, is also a corporate officer such
that he may be held liable for the money claims awarded in favor of
respondents. Even assuming that he is a corporate officer, still, there
is no showing that he acted with evident malice and bad faith.
Bondoc may have signed and approved the payrolls; nevertheless, it
does not follow that he had a direct hand in determining the
amount of respondents' corresponding salaries and other benefits.
Bondoc, therefore, should not have been held liable together with
petitioner.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated November 26, 2001 is hereby MODIFIED in that Jose
Luis Bondoc is absolved of any personal liability as regards the
money claims awarded to respondents. In all other respects, the
Decision is AFFIRMED.
SO ORDERED.
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The rule is that officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their
authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members
may be disregarded if it is used as a means to perpetuate fraud or
an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues.
Moreover, assuming Bondoc is a corporate officer, a corporate
officer is not personally liable for the money claims of discharged
corporate employees unless he acted with evident malice and bad
faith in terminating their employment.
Kwok vs. Philippine Carpet Mfg. Corp. (457 SCRA 465 [2005])
and sick leave credits during the entire length of his service with the
respondent corporation, i.e., from November 16, 1965 to October 31,
1996, in the total amount of P7,080,546.00 plus interest.3 However, the
respondent corporation refused to accede to the petitioners
demands, claiming that the latter was not entitled thereto.4
The petitioner filed a complaint against the respondent corporation
for the payment of his accumulated vacation and sick leave credits
before the NLRC. He claimed that Lim made a verbal promise to
give him unlimited sick leave and vacation leave benefits and its
cash conversion upon his retirement or resignation without the need
for any application therefor. In addition, Lim also promised to grant
him other benefits, such as golf and country club membership; the
privilege to charge the respondent corporations account; 6% profitsharing in the net income of the respondent corporation (while Lim
got 4%); and other corporate perquisites. According to the
petitioner, all of these promises were complied with, except for the
grant of the cash equivalent of his accumulated vacation and sick
leave credits upon his retirement.5
The respondent corporation denied all these, claiming that upon the
petitioners retirement, he received the amount of P6,902,387.19
representing all the benefits due him. Despite this, the petitioner
again demanded P7,080,546.00, which demand was without factual
and legal basis. The respondent corporation asserted that the
chairman of its board of directors and its president/vice-president
had unlimited discretion in the use of their time, and had never been
required to file applications for vacation and sick leaves; as such, the
said officers were not entitled to vacation and sick leave benefits.
The respondent corporation, likewise, pointed out that even if the
petitioner was entitled to the said additional benefits, his claim had
already prescribed. It further averred that it had no policy to grant
vacation and sick leave credits to the petitioner.6
In his Affidavit7 dated May 19, 1998, Lim denied making any such
verbal promise to his son-in-law on the grant of unlimited vacation
and sick leave credits and the cash conversion thereof. Lim averred
that the petitioner had received vacation and sick leave benefits
from 1994 to 1996. Moreover, assuming that he did make such
promise to the petitioner, the same had not been confirmed or
approved via resolution of the respondent corporations board of
directors.
It was further pointed out that as per the Memorandum dated
November 6, 1981, only regular employees and managerial and
confidential employees falling under Category I were entitled to
vacation and sick leave credits. The petitioner, whose position did
not fall under Category I, was, thus, not entitled to the benefits under
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WITNESS
Category One employees are from the rank and of Senior VicePresident and Assistant General Manager and below, up to the level
of department managers.
ATTY. PIMENTEL
How about the complainant, Mr. Kwok, does he falling (sic) to the
category one?
WITNESS
As far as I can remember, he is (sic) not belong to category one
employee.
ATTY. PIMENTEL
Therefore, he is not entitled to the lump sum benefit?
WITNESS
Yes, Maam.
ATTY. PIMENTEL
And would you know, Mr. Witness, why he is (sic) not given the
conversion of the vacation leave benefits at the time category one
employees sectors (sic) are given?
WITNESS
Because he has, as far as I can remember, he has unlimited
vacation leave."
This was corroborated by petitioner himself when he testified in this
wise:
ATTY. PIMENTEL
Mr. Witness, you occupied the position of Executive Vice-President
and General Manager. You agree with me that this position or this
office of Executive Vice-President and General Manager are not
covered by this policy.
WITNESS (Donald Kwok)
Yes, it is not covered by this policy.
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ATTY. PIMENTEL
So this policy applies to persons below you and your father-in-law?
WITNESS
Yes, right.
ATTY. PIMENTEL
And this policy does not apply to you?
WITNESS
As far as Im concerned, it does not apply for (sic) me.
In all respects, therefore, petitioner, by virtue of his position as
Executive Vice-President, is not covered by the November 6, 1981
Memorandum granting PCMC employees the conversion of their
unused vacation and sick leaves into cash.27
We have reviewed the records and found no evidence to controvert
the following findings of the CA and its ratiocinations on its resolution
of the petitioners submissions:
Second, even assuming that petitioner is included among the
"regular employees" of PCMC referred to in said memorandum, there
is no evidence that he complied with the cut-off dates for the filing
of the cash conversion of vacation and sick leaves. This being so, we
find merit in respondents argument that petitioners money claims
have already been barred by the three-year prescriptive period
under Article 291 of the Labor Code, as amended.
Third, and this is of primordial importance, there is no proof that
petitioner has filed vacation and sick leaves with PCMCs personnel
department. Without a record of petitioners absences, there is no
way to determine the actual number of leave credits he is entitled
to. The P7,080,546.00 figure arrived at by petitioner supposedly
representing the cash equivalent of his earned sick and vacation
leaves is thus totally baseless.
And, fourth, even assuming that PCMC President Patricio Lim did
promise petitioner the cash conversion of his leaves, we agree with
respondent that this cannot bind the company in the absence of
any Board resolution to that effect. We must stress that the personal
act of the company president cannot bind the corporation. As
explicitly stated by the Supreme Court in Peoples Aircargo and
Warehousing Co., Inc. v. Court of Appeals:
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"The general rule is that, in the absence of authority from the board
of directors, no person, not even its officers, can validly bind a
corporation. A corporation is a juridical person, separate and distinct
from its stockholders and members, having xxx powers, attributes
and properties expressly authorized by law or incident to its
existence.
Jose Silva, Jr. and Emmanuel Ocampo filed a complaint with the SEC
against Roberto Roxas, TTTDC President, and Eduardo Santos, Rovels
President, docketed as SEC Case No. 1322. In their complaint, Silva
and Ocampo alleged that there was no meeting of the TTTDCs
Board of Directors on December 29, 1975; that they did not authorize
the transfer of TTTDCs shares of stock to Rovels; that they never
signed the alleged minutes of the meeting; and that the signatures
of the other two (2) Directors, Victoriano Leviste and Bienvenido
Cruz, Jr., as well as that of TTTDCs Secretary Francisco Carreon, Jr.,
were obtained through fraud and misrepresentation. They also
alleged that the TTTDC Board Resolution dated December 29, 1975
was repealed by the March 1, 1976 Resolution. They thus prayed that
the transfer of TTTDCs shares of stock to Rovels pursuant to
Resolution dated December 29, 1975 be annulled.
On March 17, 1979, SEC Hearing Officer Eugenio E. Reyes issued a
Decision8 in favor of Silva and Ocampo, the dispositive portion of
which reads:
"Considering that the (December 29, 1975) board resolution which
authorizes the corporation to pay its creditors with its unissued shares
of stock x x x had been expressly revoked or repealed on March 1,
1976 as earlier pointed out, Commission Resolution No. 260 (granting
Santos application for exemption from registration of the unissued
shares), when issued on May 7, 1976 x x x had lost its legal basis.
Consequently, the corresponding issuance of shares was without
authority of the board of directors."
xxx
xxx
xxx
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the SEC en banc. The Decision of this Court became final and
executory on September 2, 1983.11
Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo, Victoriano
Leviste, Francisco Carreon, Jr., and Expedito Leviste, Sr., another
stockholder of TTTDC, (the SILVA GROUP, now respondents), filed with
the SEC a petition against Eduardo Santos, Sylvia S. Veloso, Josefina
Carballo, Augusto del Rosario, Reynaldo Alcantara and Lauro
Sandoval (the SANTOS GROUP), docketed as SEC Case No. 3806.
(The SANTOS GROUP were nominees of Rovels who, by virtue of the
shares of stock issued pursuant to the December 29, 1975 Resolution,
proceeded to act as directors and officers of TTTDC). In their petition,
the SILVA GROUP prayed that they be declared the true and lawful
stockholders and incumbent directors and officers of TTTDC.
On July 6, 1993, SEC Hearing Officer Alberto P. Atas rendered a
Decision12 in favor of the SILVA GROUP, thus:
"WHEREFORE, judgment is hereby rendered in favor of the petitioners
(SILVA GROUP) and against the respondents (SANTOS GROUP), as
follows:
a. Declaring petitioners as the lawful stockholders, directors and
officers of Tagaytay Taal Tourist Development Corporation;
b. Declaring respondents, to be not stockholders of Tagaytay Taal
Tourist Development Corporation;
c. Declaring respondents to be not directors or officers of Tagaytay
Taal Tourist Development Corporation;
d. The writ of preliminary injunction issued on November 6, 1990 is
hereby made permanent; and
e. Ordering the Records Division of this Commission to purge the
records of Tagaytay Taal Tourist Development Corporation of all
papers and documents filed by respondents purportedly in behalf of
Tagaytay Taal Tourist Development Corporation." (emphasis and
words in parentheses added)
The above Decision became final and executory on September 1,
199413 as no appeal was interposed by either the SILVA GROUP or
the SANTOS GROUP.
However, Rovels, to whom the TTTDC shares of stock (worth
P108,000.00) were transferred, claimed that it became aware of the
July 6, 1993 SEC Decision only in June of 1995. So on September 6,
1995, it filed a petition with the SEC,14 docketed as SEC Case No. 0995-5135, praying that it be declared the majority stockholder of
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xxx
xxx
xxx
xxx
"9. x x x the relation between the Silva faction and the Santos faction
became adversarial. The Silva faction attempted to form an alleged
new board of directors and repealed the Board Resolution dated
December 29, 1975 Resolution regarding the debt to equity swap.
Thus, it resolved:
RESOLVED, as it is hereby resolved, that the Resolution of December
29, 1975 authorizing the payment of creditors with unissued shares of
the corporation be as it is hereby repealed: Resolved further that the
matter as well as the amount of the creditors claims be given
adequate study and consideration by the Board. x x x
"10. That what is clear from the above Resolution of March 1, 1976 is
the admission that indeed TTTDC owes certain amount of money
from its creditors. The creditors became stockholders of record as a
result of shares of stock issued in implementation of the debt to
equity conversion. Corresponding shares of stock were issued and
signed by then president of the corporation Roberto Roxas and then
corporate secretary Francisco N. Carreon, Jr.
"Copy of said Certificate of Stocks are hereto attached and marked
as Annexes D to P and made an integral part hereof.
xxx
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xxx
xxx
Page 783 of 1509
xxx
xxx
xxx
xxx
xxx
xxx
"PRAYER
"WHEREFORE, premises considered, petitioner prays that this
Honorable Commission render judgment in favor of petitioner and
against respondents (SILVA GROUP):
xxx
xxx
xxx
xxx
x x x33
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Finally, this Court sustains the Appellate Courts finding that the filing
of Rovels petition in the instant SEC Case No. 09-95-5135 is barred by
estoppel, prescription and laches. There is no merit to Rovels claim
that it was only in June of 199541 when it became aware of the
repeal of the December 29, 1975 TTTDC Resolution and of the
consequent nullification of the transfer of its shares of stock.
It is undisputed that Eduardo Santos was present in the March 1, 1976
TTTDC Board meeting wherein the December 29, 1975 Resolution was
repealed. We hold that Eduardo Santos, being the President of
Rovels, is considered as its (Rovels) agent. As such, his knowledge of
the repeal of the December 29, 1975 Resolution, under the theory of
imputed knowledge, is ascribed to his principal (Rovels).
It was only on September 6, 1995, or almost twenty (20) years from
the time Eduardo Santos learned of the March 1, 1976 Resolution,
that Rovels filed its petition in SEC Case No. 09-95-5135. Within that
long period of time, Rovels did nothing to contest the March 1, 1976
TTTDC Resolution to protect its rights, if any. Obviously, such inaction
constitutes estoppel, prescription and laches. As stated by Rovels
itself, Article 1149 of the New Civil Code limits the filing of actions,
whose periods are not fixed therein or in any other laws, to only five
(5) years. In addition, the principle of laches or "stale demands"
provides that the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier, or the negligence
or omission to assert a right within a reasonable time, warrants a
presumption that the party entitled to assert it either has abandoned
it or declined to assert it.42
In sum, this Court finds that the Court of Appeals did not commit any
reversible error in its challenged Decision.
WHEREFORE, the petition is DENIED. The assailed Decision of the
Court of Appeals dated June 5, 1998 and its Resolution dated
December 21, 1998 in CA-G.R. SP. No. 43260, are AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio Morales, JJ.,
concur.
Footnotes
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Penned by then Court of Appeals Justice Consuelo YnaresSantiago, now Justice of this Court, and concurred in by
Justices Bernardo Ll. Salas, retired, and Candido V. Rivera;
Rollo, pp. 9-18.
2
Rollo, at 170.
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the door knob torn and one of the locks broken, sought the
assistance of the Makati Police; that during the on-site investigation
by the police, Jovito failed to cooperate and even concealed
information pertinent to the incident.
In their Counter-Affidavit,4 private respondents, while agreeing that
the registered owner of Penthouse Unit 43-C is Lakeridge
Development Corporation, denied that petitioner and the other
persons named in the Complaint-Affidavit own and control the
majority shares and that Erlinda is the chairperson and president of
Lakeridge. To buttress this allegation, they submitted copies of the
updated General Information Sheet5 filed with the Securities and
Exchange Commission (SEC), Secretarys Certification6 dated
November 8, 1999, and SEC Certificate of Corporate
Filing/Information7 dated November 3, 1999, all showing the
stockholders, the officers, and the members of the board of directors
of Lakeridge. They also alleged that the authority given by Erlinda to
Marietta was without force and effect, being ultra vires, in the
absence of any board resolution to support it. They also noted that
the letter of authority,8 while dated October 7, 1999, was received
by the management of the Pacific Plaza only on November 3, 1999,
which was after the November 2, 1999 incident described in the
Complaint-Affidavit. They also submitted a copy of Lakeridges
letter9 dated October 20, 1999 to the Pacific Plaza Condominium
Association, Inc., received by the latter on October 29, 1999, stating
that Lakeridge had not authorized any lease or sale of Penthouse
Unit 43-C. They also averred that Marietta was not authorized by the
board of directors of Lakeridge to institute the criminal case and that
Erlindas residence was not at the Pacific Plaza but in Antipolo, Rizal.
More importantly, they alleged that there could not be robbery and
qualified trespass to dwelling because, as officers of Lakeridge, they
had the right to enter Penthouse Unit 43-C.
In his separate Counter-Affidavit10 dated January 17, 2000, Jovito
explained that the November 2, 1999 incident cited by Marietta in
her Complaint-Affidavit where she claimed that Penthouse Unit 43-C
was forced open by breaking the door and locks was really an act
of maintenance of the property upon written request made by Sylvia
as one of the legitimate unit owners per the records of Pacific Plaza.
He claimed that he was merely dragged to the family feud of the
Ilusorios.
In a Resolution11 dated February 1, 2000, Prosecutor II Edgardo G.
Hirang of the Office of the City Prosecutor of Makati City dismissed
the charges against private respondents for lack of probable cause.
He found that, according to the records of Pacific Plaza, Sylvia, who
was alleged to have ordered the opening of the door and the
replacement of the locks of Penthouse Unit 43-C on November 3,
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MINITA V. CHICO-NAZARIO
Associate Justice
Page 795 of 1509
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
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MR. FOZ. The declaration that certain positions are policydetermining, primarily confidential or highly technical has been
the source of practices which amount to the spoils system.
FR. BERNAS. The Supreme Court has always said that, but if the
law of the administrative agency says that a position is primarily
confidential when in fact it is not, we can always challenge that
in court. It is not enough that the law calls it primarily
confidential to make it such; it is the nature of the duties which
makes a position primarily confidential.
MR. FOZ. The effect of a declaration that a position is policydetermining, primarily confidential or highly technical - as an
exception - is to take it away from the usual rules and provisions
of the Civil Service Law and to place it in a class by itself so that
it can avail itself of certain privileges not available to the
ordinary run of government employees and officers.
FR. BERNAS. As I have already said, this classification does not
do away with the requirement of merit and fitness. All it says is
that there are certain positions which should not be
determined by competitive examination.
For instance, I have just mentioned a position in the Atomic
Energy Commission. Shall we require a physicist to undergo a
competitive examination before appointment? Or a
confidential secretary or any position in policy-determining
administrative bodies, for that matter? There are other ways of
determining merit and fitness than competitive examination.
This is not a denial of the requirement of merit and fitness.33
(Emphasis supplied)
This explicit intent of the framers was recognized in Civil Service
Commission v. Salas,34 and Philippine Amusement and Gaming
Corporation v. Rilloraza,35 which leave no doubt that the question of
whether the position of Corporate Secretary of GSIS is confidential in
nature may be determined by the Court.
The position of corporate secretary in a government owned
and controlled corporation, currently classified as a permanent
career position, is primarily confidential in nature.
First, there is a need to examine how the term "primarily
confidential in nature" is described in jurisprudence. According
to Salas,36
Prior to the passage of the x x x Civil Service Act of 1959 (R.A.
No. 2260), there were two recognized instances when a
position may be considered primarily confidential: Firstly, when
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Not only do the tasks listed point to sensitive and confidential acts
that the corporate secretary must perform, they also include "such
other functions as the Board may direct and/or require," a clear
indication of a closely intimate relationship that exists between the
secretary and the board. In such a highly acquainted relation, great
trust and confidence between appointer and appointee is required.
The loss of such trust or confidence could easily result in the board's
termination of the secretary's services and ending of his term. This is
understandably justified, as the board could not be expected to
function freely with a suspicious officer in its midst. It is for these same
reasons that jurisprudence, as earlier cited, has consistently
characterized personal or private secretaries, and board secretaries,
as positions of a primarily confidential nature.75
The CA did not err in declaring that the position of Corporate
Secretary of GSIS is primarily confidential in nature and does not
belong to the career service.
The Court is aware that this decision has repercussions on the tenure
of other corporate secretaries in various GOCCs. The officers likely
assumed their positions on permanent career status, expecting
protection for their tenure and appointments, but are now reclassified as primarily confidential appointees. Such concern is
unfounded, however, since the statutes themselves do not classify
the position of corporate secretary as permanent and career in
nature. Moreover, there is no absolute guarantee that it will not be
classified as confidential when a dispute arises. As earlier stated, the
Court, by legal tradition, has the power to make a final
determination as to which positions in government are primarily
confidential or otherwise. In the light of the instant controversy, the
Court's view is that the greater public interest is served if the position
of a corporate secretary is classified as primarily confidential in
nature.
Moreover, it is a basic tenet in the country's constitutional system that
"public office is a public trust,"76 and that there is no vested right in
public office, nor an absolute right to hold office.77 No proprietary
title attaches to a public office, as public service is not a property
right.78 Excepting constitutional offices which provide for special
immunity as regards salary and tenure, no one can be said to have
any vested right in an office.79 The rule is that offices in government,
except those created by the constitution, may be abolished,
altered, or created anytime by statute.80 And any issues on the
classification for a position in government may be brought to and
determined by the courts.81
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WE CONCUR:
REYNATO S. PUNO
Chief Justice
LEONARDO A.
QUISUMBING
Associate Justice
CONSUELO YNARESSANTIAGO
Associate Justice
ANGELINA SANDOVALGUTIERREZ
Associate Justice
ANTONIO T. CARPIO
Associate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO
MORALES
Associate Justice
ADOLFO S. AZCUNA
Associate Justice
DANTE O. TINGA
Associate Justice
MINITA V. CHICONAZARIO
Associate Justice
PRESBITERO J. VELASCO,
JR.
Associate Justice
(No Part)
ANTONIO EDUARDO B.
NACHURA
Associate Justice
RUBEN T. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby
certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the
opinion of the Court.
REYNATO S. PUNO
Chief Justice
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operation" to raise funds for E.T. Henry, who admittedly was in need
of financial assistance. The Court finds that there was no sufficient
evidence to show that such is the case. Lourdes M. de Leon is the
treasurer of the corporation and is authorized to sign checks for the
corporation. At the time of the issuance of the checks, there were
sufficient funds in the bank to cover payment of the amount of P2
million pesos.
It is, however, our view that there is basis to rule that the act of issuing
the checks was well within the ambit of a valid corporate act, for it
was for securing a loan to finance the activities of the corporation,
hence, not an ultra vires act.
"An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law"16 The term
"ultra vires" is "distinguished from an illegal act for the former is merely
voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated." 17
The next question to determine is whether Lourdes M. de Leon and
Antonio de las Alas were personally liable for the checks issued as
corporate officers and authorized signatories of the check.
"Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when:
"1. He assents (a) to a patently unlawful act of the corporation,
or (b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
"2. He consents to the issuance of watered down stocks or who,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;
"3. He agrees to hold himself personally and solidarily liable with
the corporation; or
"4. He is made, by a specific provision of law, to personally
answer for his corporate action."18
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as
treasurer and Chairman of Hi-Cement were authorized to issue the
checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of
E.T. Henry for the rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were strictly endorsed
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DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous
care of the deposits of its clients, who have the right to expect high
standards of integrity and performance from it.
Among its obligations in furtherance thereof is knowing the
signatures of its clients. Depositors are not estopped from questioning
wrongful withdrawals, even if they have failed to question those
errors in the statements sent by the bank to them for verification.
The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of
Court, assailing the March 23, 2001 Decision 2 and the August 17, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The
decretal portion of the assailed Decision reads as follows:
"WHEREFORE, upon the premises, the decision appealed from is
AFFIRMED with the modification that defendant bank [Bank of
the Philippine Islands (BPI)] is held liable only for one-half of the
value of the forged checks in the amount of P547,115.00 after
deductions subject to REIMBURSEMENT from third party
defendant Yabut who is likewise ORDERED to pay the other half
to plaintiff corporation [Casa Montessori Internationale
(CASA)]."4
The assailed Resolution denied all the parties Motions for
Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
"On November 8, 1982, plaintiff CASA Montessori International 5
opened Current Account No. 0291-0081-01 with defendant
BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of
its authorized signatories.
"In 1991, after conducting an investigation, plaintiff discovered
that nine (9) of its checks had been encashed by a certain
Sonny D. Santos since 1990 in the total amount of P782,000.00,
on the following dates and amounts:
Check No.
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Date
Amount
1. 839700
2. 839459
Nov. 2, 1990
3. 839609
4. 839549
April 7, 1990
5. 839569
6. 729149
7. 729129
8. 839684
Dec. 1, 1990
140,000.00
9. 729034
Mar. 2, 1990
98,985.00
Total --
110,500.00
90,700.00
P 782,600.006
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The failure of CASA to produce the original checks neither gives rise
to the presumption of suppression of evidence61 nor creates an
unfavorable inference against it.62 Such failure merely authorizes the
introduction of secondary evidence63 in the form of microfilm copies.
Of no consequence is the fact that CASA did not present the
signature card containing the signatures with which those on the
checks were compared.64 Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in
evidence, other documents that bear the drawers authentic
signature may be resorted to.65 Besides, that card was in the
possession of BPI -- the adverse party.
We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive
comparison that would establish forgery;66 and that a comparison
based on a mere reproduction of the document under controversy
cannot produce reliable results.67 We have also said, however, that a
judge cannot merely rely on a handwriting experts testimony,68 but
should also exercise independent judgment in evaluating the
authenticity of a signature under scrutiny.69 In the present case, both
the RTC and the CA conducted independent examinations of the
evidence presented and arrived at reasonable and similar
conclusions. Not only did they admit secondary evidence; they also
appositely considered testimonial and other documentary evidence
in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have
discussed earlier, the first of these has been met.70 The result of
examining a questioned handwriting, even with the aid of experts
and scientific instruments, may be inconclusive;71 but it is a non
sequitur to say that such result is not clear, positive and convincing.
The preponderance of evidence required in this case has been
satisfied.72
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the
drawee -- erred in making payments by virtue thereof. The forged
signatures are wholly inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the negotiable instruments -cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have repeatedly emphasized that, since the banking business is
impressed with public interest, of paramount importance thereto is
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can easily conceal any devious scheme from a client unwary of the
accounting processes involved by manipulating the cash balances
on record -- especially when bank transactions are numerous, large
and frequent. CASA could only be blamed, if at all, for its
unintelligent choice in the selection and appointment of an auditor - a fault that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it.136 Its
mere existence "is not sufficient without proof that it, and no other
cause,"137 has given rise to damages.138 In addition, this fault is
common to, if not prevalent among, small and medium-sized
business entities, thus leading the Professional Regulation Commission
(PRC), through the Board of Accountancy (BOA), to require today
not only accreditation for the practice of public accountancy,139 but
also the registration of firms in the practice thereof. In fact, among
the attachments now required upon registration are the code of
good governance140 and a sworn statement on adequate and
effective training.141
The missing checks were certainly reported by the bookkeeper142 to
the accountant143 -- her immediate supervisor -- and by the latter to
the auditor. However, both the accountant and the auditor, for
reasons known only to them, assured the bookkeeper that there
were no irregularities.
The bookkeeper144 who had exclusive custody of the checkbooks145
did not have to go directly to CASAs president or to BPI. Although
she rightfully reported the matter, neither an investigation was
conducted nor a resolution of it was arrived at, precisely because
the person at the top of the helm was the culprit. The vouchers,
invoices and check stubs in support of all check disbursements could
be concealed or fabricated -- even in collusion -- and management
would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through
no fault of CASA. If auditors may be held liable for breach of
contract and negligence,146 with all the more reason may they be
charged with the perpetration of fraud upon an unsuspecting client.
CASA had the discretion to pursue BPI alone under the NIL, by
reason of expediency or munificence or both. Money paid under a
mistake may rightfully be recovered,147 and under such terms as the
injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
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On official leave.
**
Working Chairman.
GR No. 149454 rollo, pp. 20-40; GR No. 149507 rollo, pp. 3-20.
Id., pp. 44-52 & 22-30. Penned by Justice Portia AlioHormachuelos, with the concurrence of Justices Fermin A.
Martin Jr. (Second Division chairman) and Mercedes GozoDadole (member).
2
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11
14
15
Associated Bank v. CA, 322 Phil. 677, 695, January 31, 1996.
16
18
19
20
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Francisco v. CA, 377 Phil. 368, 378, November 29, 1999. See
also Almeda v. CA, 336 Phil. 621, 629, March 13, 1997; Fuentes v.
CA, 335 Phil. 1163, 1169, February 26, 1997; and People v.
Magallano, 334 Phil. 276, 282, January 16, 1997.
25
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36
38
39
People v. Silvano, 381 SCRA 607, 616, April 29, 2002, per
Mendoza, J. See People v. Domantay, 366 Phil. 459, 474, May
11, 1999; People v. Maqueda, 312 Phil. 646, 675-676, March 22,
1995; People v. Marti, 193 SCRA 57, 67, January 18, 1991.
41
People v. Vallejo, 382 SCRA 192, 216, May 9, 2002, per curiam;
citing People v. Andan, supra. See also People v. Ordoo,
supra; People v. Barlis, 231 SCRA 426, 441, March 24, 1994; and
People v. Layuso, 175 SCRA 47, 53, July 5, 1989.
44
45
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Metropolitan Bank & Trust Co. v. CA, 194 SCRA 169, 176,
February 18, 1991. See MWSS v. CA, 227 Phil. 18, 26, July 14,
1986.
48
49
50
51
52
53
54
Id., p. 29.
55
56
Ibid.
57
58
59
Regalado, supra.
60
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65
Chiang Yia Min v. CA, 355 SCRA 608, 622-623, March 28, 2001.
66
Heirs of Gregorio v. CA, 360 Phil. 753, 763, December 29, 1998.
67
Ibid.
68
Id., p. 764.
69
Ibid.
70
71
72
Westmont Bank v. Ong, 375 SCRA 212, 221, January 30, 2002;
citing Citytrust Banking Corp. v. IAC, 232 SCRA 559, 564, May 27,
1994.
76
78
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80
86 Association
87
Id., p. 57.
88
Id., p. 24.
90
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93
96
97
98
99
Kalalo v. Luz, 145 Phil. 152, 161, July 31, 1970, per Zaldivar, J.
103
Associated Bank v. CA, 322 Phil. 677, 697, January 31, 1996,
per Romero, J.; citing The Great Eastern Life Insurance Co. v.
Hongkong & Shanghai Banking Corp., supra, and Banco de
Oro Savings and Mortgage Bank v. Equitable Banking Corp.,
157 SCRA 188, 198, January 20, 1988.
104
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109
110
114
115
116
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117
118
Id., p. 206.
120
121
122
123
124
127
128
Santos, supra, p. 6.
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133
134
139
27 of PD 692.
142
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143
145
146
148
Rubio v. CA, 141 SCRA 488, 515-516, March 12, 1986; citing
R&B Surety & Insurance Co., Inc. v. IAC, 214 Phil. 649, 657, June
22, 1984.
150
Filinvest Credit Corp. v. Mendez, 152 SCRA 593, 601, July 31,
1987.
151
152
153
154
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LBC Express, Inc. v. CA, 236 SCRA 602, 607, September 21,
1994. See Layda v. CA, 90 Phil. 724, 730, January 29, 1952.
160
161
163
165
De Leon v. CA, 165 SCRA 166, 176, August 31, 1988; Sweet
Lines, Inc. v. CA, 206 Phil. 663, 669, April 28, 1983; Octot v.
Ybaez, 197 Phil. 76, 82, January 18, 1982; and Ventanilla v.
Centeno, 110 Phil. 811, 816, January 28, 1961, citing Article 2233
of the Civil Code.
167
169
Estopa v. Piansay Jr., 109 Phil. 640, 642, September 30, 1960.
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Article 2208 (2) of the Civil Code. See Rivera v. Litam & Co.,
Inc., 114 Phil. 1009, 1022, April 25, 1962; and Luneta Motor Co. v.
Baguio Bus Co., Inc., 108 Phil. 892, 898, June 30, 1960.
172
177
178
179
182
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DIGEST
Facts: CASA Montessori International opened an account with BPI,
with CASAs President as one of its authorized signatories. It
discovered that 9 of its checks had been encashed by a certain
Sonny D. Santos whose name turned out to be fictitious, and was
used by a certain Yabut, CASAs external auditor. He voluntarily
admitted that he forged the signature and encashed the checks.
RTC granted the Complaint for Collection with Damages against BPI
ordering to reinstate the amount in the account, with interest. CA
took account of CASAs contributory negligence and apportioned
the loss between CASA and BPI, and ordred Yabut to reimburse
both.
BPI contends that the monthly statements it issues to its clients
contain a notice worded as follows: If no error is reported in 10 days,
account will be correct and as such, it should be considered a
waiver.
Issue:Whether or not waiver or estoppel results from failure to report
the error in the bank statement
Held: Such notice cannot be considered a waiver, even if CASA
failed to report the error. Neither is it estopped from questioning the
mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting
parlance -- that requests client-depositors to affirm the accuracy of
items recorded by the banks. Its purpose is to obtain from the
depositors a direct corroboration of the correctness of their account
balances with their respective banks.
Every right has subjects -- active and passive. While the active
subject is entitled to demand its enforcement, the passive one is
duty-bound to suffer such enforcement. On the one hand, BPI could
not have been an active subject, because it could not have
demanded from CASA a response to its notice. CASA, on the other
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hand, could not have been a passive subject, either, because it had
no obligation to respond. It could -- as it did -- choose not to
respond.
Estoppel precludes individuals from denying or asserting, by their
own deed or representation, anything contrary to that established as
the truth, in legal contemplation. Our rules on evidence even make
a juris et de jure presumption that whenever one has, by ones own
act or omission, intentionally and deliberately led another to believe
a particular thing to be true and to act upon that belief, one cannot
-- in any litigation arising from such act or omission -- be permitted to
falsify that supposed truth.
In the instant case, CASA never made any deed or representation
that misled BPI. The formers omission, if any, may only be deemed
an innocent mistake oblivious to the procedures and consequences
of periodic audits. Since its conduct was due to such ignorance
founded upon an innocent mistake, estoppel will not arise. A person
who has no knowledge of or consent to a transaction may not be
estopped by it. "Estoppel cannot be sustained by mere argument or
doubtful inference x x x." CASA is not barred from questioning BPIs
error even after the lapse of the period given in the notice.
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with
prayer for issuance of writ of preliminary injunction, arose out of two
cases filed by petitioner with the Securities and Exchange
Commission, as follows:
SEC CASE NO 1375
On October 22, 1976, petitioner, as stockholder of respondent San
Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity of amended
by-laws, cancellation of certificate of filing of amended by- laws,
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. The petition,
entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano,
Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde,
Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was
docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18,
1976, individual respondents amended by bylaws of the corporation,
basing their authority to do so on a resolution of the stockholders
adopted on March 13, 1961, when the outstanding capital stock of
respondent corporation was only P70,139.740.00, divided into
5,513,974 common shares at P10.00 per share and 150,000 preferred
shares at P100.00 per share. At the time of the amendment, the
outstanding and paid up shares totalled 30,127,047 with a total par
value of P301,270,430.00. It was contended that according to
section 22 of the Corporation Law and Article VIII of the by-laws of
the corporation, the power to amend, modify, 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, which 2/3
should have been computed on the basis of the capitalization at the
time of the amendment. Since the amendment was based on the
1961 authorization, petitioner contended that the Board acted
without authority and in usurpation of the power of the stockholders.
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easy and direct access to SMC's business and trade secrets and
plans;
(2) that the amended by law were adopted to preserve and protect
respondent SMC from the clear and present danger that business
competitors, if allowed to become directors, will illegally and unfairly
utilize their direct access to its business secrets and plans for their
own private gain to the irreparable prejudice of respondent SMC,
and, ultimately, its stockholders. Further, it is asserted that
membership of a competitor in the Board of Directors is a blatant
disregard of no less that the Constitution and pertinent laws against
combinations in restraint of trade;
(3) that by laws are valid and binding since a corporation has the
inherent right and duty to preserve and protect itself by excluding
competitors and antogonistic parties, under the law of selfpreservation, and it should be allowed a wide latitude in the
selection of means to preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases Nos.
1375 and 1423 was due to petitioner's own acts or omissions, since he
failed to have the petition to suspend, pendente lite the amended
by-laws calendared for hearing. It was emphasized that it was only
on April 29, 1977 that petitioner calendared the aforesaid petition for
suspension (preliminary injunction) for hearing on May 3, 1977. The
instant petition being dated May 4, 1977, it is apparent that
respondent Commission was not given a chance to act "with
deliberate dispatch", and
(5) that, even assuming that the petition was meritorious was, it has
become moot and academic because respondent Commission has
acted on the pending incidents, complained of. It was, therefore,
prayed that the petition be dismissed.
On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his
comment, alleging that the petition has become moot and
academic for the reason, among others that the acts of private
respondent sought to be enjoined have reference to the annual
meeting of the stockholders of respondent San Miguel Corporation,
which was held on may 10, 1977; that in said meeting, in compliance
with the order of respondent Commission, petitioner was allowed to
run and be voted for as director; and that in the same meeting, Item
6 of the Agenda was discussed, voted upon, ratified and confirmed.
Further it was averred that the questions and issues raised by
petitioner are pending in the Securities and Exchange Commission
which has acquired jurisdiction over the case, and no hearing on the
merits has been had; hence the elevation of these issues before the
Supreme Court is premature.
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which shall be held as security for their action, on the ground that
section 21 of the Corporation Law expressly gives the power to the
corporation to provide in its by-laws for the qualifications of directors
and is "highly prudent and in conformity with good practice. "
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR
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." 15 To this extent, therefore, the stockholder may be considered
to have "parted with his personal right or privilege to regulate the
disposition of his property which he has invested in the capital stock
of the corporation, and surrendered it to the will of the majority of his
fellow incorporators. ... It cannot therefore be justly said that the
contract, express or implied, between the corporation and the
stockholders is infringed ... by any act of the former which is
authorized by a majority ... ." 16
Pursuant to section 18 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 If the amendment changes,
diminishes or restricts the rights of the existing shareholders then the
disenting minority has only one right, viz.: "to object thereto in writing
and demand payment for his share." Under section 22 of the same
law, the owners of the majority of the subscribed capital stock may
amend or repeal any by-law or adopt new by-laws. It cannot be
said, therefore, that petitioner has a vested right to be elected
director, 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,
alteration and modification. 17
It being settled that the corporation has the power to provide for the
qualifications of its directors, the next question that must be
considered is whether the disqualification of a competitor from
being elected to the Board of Directors is a reasonable exercise of
corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION
AND ITS SHAREHOLDERS
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any
doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As
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21
it was said:
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inspection. 56 Thus, it was held that "the right given by statute is not
absolute and may be refused when the information is not sought in
good faith or is used to the detriment of the corporation." 57 But the
"impropriety of purpose such as will defeat enforcement must be set
up the corporation defensively if the Court is to take cognizance of it
as a qualification. In other words, the specific provisions take from
the stockholder the burden of showing propriety of purpose and
place upon the corporation the burden of showing impropriety of
purpose or motive. 58 It appears to be 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, and to
inspection to obtain such information, 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." 59
While the right of a stockholder to examine the books and records of
a corporation for a lawful purpose is a matter of law, the right of
such stockholder to examine the books and records of a whollyowned subsidiary of the corporation in which he is a stockholder is a
different thing.
Some state courts recognize the right under certain conditions, while
others do not. Thus, it has been held that where a corporation owns
approximately no property except the shares of stock of subsidiary
corporations which are merely agents or instrumentalities of the
holding company, the legal fiction of distinct corporate entities may
be disregarded and the books, papers and documents of all the
corporations may be required to be produced for examination, 60
and that a writ of mandamus, may be granted, as the records of the
subsidiary were, to all incontents and purposes, the records of the
parent even though subsidiary was not named as a party. 61
mandamus was likewise held proper to inspect both the subsidiary's
and the parent corporation's books upon proof of sufficient control
or dominion by the parent showing the relation of principal or agent
or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was
refused where the subsidiary corporation is a separate and distinct
corporation domiciled and with its books and records in another
jurisdiction, and is not legally subject to the control of the parent
company, although it owned a vast majority of the stock of the
subsidiary. 63 Likewise, inspection of the books of an allied
corporation by stockholder of the parent company which owns all
the stock of the subsidiary has been refused on the ground that the
stockholder was not within the class of "persons having an interest." 64
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In the Nash case, 65 The Supreme Court of New York held that the
contractual right of former stockholders to inspect books and
records of the corporation included the right to inspect corporation's
subsidiaries' books and records which were in corporation's
possession and control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held entitled
to inspect the records of a controlled subsidiary corporation which
used the same offices and had Identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents"
before respondent SEC, petitioner contended that respondent
corporation "had been attempting to suppress information for the
stockholders" and that petitioner, "as stockholder of respondent
corporation, is entitled to copies of some documents which for some
reason or another, respondent corporation is very reluctant in
revealing to the petitioner notwithstanding the fact that no harm
would be caused thereby to the corporation." 67 There is no question
that stockholders are entitled to inspect the books and records of a
corporation in order to investigate the conduct of the management,
determine the financial condition of the corporation, and generally
take an account of the stewardship of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly
owned by respondent San Miguel Corporation and, therefore, under
its control, it would be more in accord with equity, good faith and
fair dealing to construe the statutory right of petitioner as stockholder
to inspect the books and records of the corporation as extending to
books and records of such wholly subsidiary which are in respondent
corporation's possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in
allowing the stockholders of respondent corporation to ratify the
investment of corporate funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that
respondent corporation invested corporate funds in SMI without prior
authority of the stockholders, thus violating section 17-1/2 of the
Corporation Law, and alleges that respondent SEC should have
investigated the charge, being a statutory offense, instead of
allowing ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment to the
stockholders for ratification is a sound corporate practice and should
not be thwarted but encouraged.
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Separate Opinions
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thereon and the statements of the six Justices who have signed the
main opinion on the legality thereof have no binding effect, much
less doctrinal value.
The dismissal of the petition insofar as the question of the validity of
the disputed by-laws amendment is concerned is not by an
judgment with the required eight votes but simply by force of Rule
56, section II of the Rules of Court, the pertinent portion of which
provides that "where the court en banc is equally divided in opinion,
or the necessary majority cannot be had, the case shall be reheard,
and if on re-hearing no decision is reached, the action shall be
dismissed if originally commenced in the court ...." The end result is
that the Court has thereby dismissed the petition which prayed that
the Court bypass the commission and directly resolved the issue and
therefore the respondent commission may now proceed, as
announced in its Order No. 450, Series of 1977, to hear the case
before it and receive all relevant evidence bearing on the issue as
hereinabove indicated, and resolve the "unresolved and genuine
issues of fact" (as per Order No. 451, Series of 1977) and the issues of
legality of the disputed by-laws amendment.
Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.
Guerrero, J., concurred.
TEEHANKEE, CONCEPCION JR.,
FERNANDEZ and GUERRERO, JJ., concurring:
This supplemental opinion is issued with reference to the advance
separate opinion of Mr. Justice Barredo issued by him as to "certain
misimpressions as to the import of the decision in this case" which
might be produced by our joint separate opinion of April 11, 1979
and "urgent(ly) to clarify (his) position in respect to the rights of the
parties resulting from the dismissal of the petition herein and the
outline of the procedure by which the disqualification of petitioner
Gokongwei can be made effective."
1. Mr. Justice Barredo's advances separate opinion "that as between
the parties herein, the issue of the validity of the challenged by-laws
is already settled" had, of course, no binding effect. The judgment of
the Court is found on pages 59-61 of the decision of April 11, 1979,
penned by Mr. Justice Antonio, wherein on the question of the
validity of the amended by-laws the Court's inconclusive voting is set
forth as follows:
Chief Justice Fred Ruiz Castro reserved his vote on the
validity of the amended by-laws, pending hearing by this
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b) The contention of Mr. Justice Barredo that the result of the dismiss
of the case was that "petitioner Gokongwei may not hereafter act
on the assumption that he can revive the issue of the validity
whether in the Securities and Exchange Commission, in this Court or
in any other forum, unless he proceeds on the basis of a factual
milieu different from the setting of this case Not even the Securities
and Exchange Commission may pass on such question anymore at
the instance of herein petitioner or anyone acting in his stead or on
his behalf, " appears to us to be untenable.
The Court through the decision of April 11, 1979, by the unanimous
votes of the twelve participating Justices headed by the Chief
Justice, ruled that petitioner Gokongwei was entitled to a "new and
proper hearing" by the SMC board of directors on the matter of his
disqualification under the questioned by-laws and that the board's
"decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and
ultimately to this Court (and) unless disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."
The entire Court, therefore, recognized that petitioner had not been
given procedural due process by the SMC board on the matter of his
disqualification and that he was entitled to a "new and proper
hearing". It stands to reason that in such hearing, petitioner could
raise not only questions of fact but questions of law, particularly
questions of law affecting the investing public and their right to
representation on the board as provided by law not to mention
that as borne out by the fact that no restriction whatsoever appears
in the court's decision, it was never contemplated that petitioner was
to be limited to questions of fact and could not raise the
fundamental questions of law bearing on the invalidity of the
questioned amended by-laws at such hearing before the SMC
board. Furthermore, it was expressly provided unanimously in the
Court's decision that the SMC board's decision on the disqualification
of petitioner ("assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him" as
qualified in Mr. Justice Barredo's own separate opinion, at page 2)
shall be appealable to respondent Securities and Exchange
Commission "deliberating and acting en banc and "untimately to this
Court." Again, the Court's judgment as set forth in its decision of April
11, 1979 contains nothing that would warrant the opinion now
expressed that respondent Securities and Exchange Commission
may not pass anymore on the question of the invalidity of the
amended by-laws. Certainly, it cannot be contended that the Court
in dismissing the petition for lack of necessary votes actually bypassed the Securities and Exchange Commission and directly ruled
itself on the invalidity of the questioned by-laws when it itself could
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at a new and proper hearing before the SMC board and in the
Securities and Exchange Commission and in due course before this
Court (but with the clear understanding that since both
corporations, the Robina and SMC are engaged in agriculture as
submitted by the Sorianos' counsel in their said memorandum, the
issue could be raised likewise against SMC and its other shareholders,
directors, if not against SMC itself. As expressly stated in the Chief
Justices reservation of his vote, the matter of the question of the
applicability of the said section 13(5) to petitioner would be heard
by this Court at the appropriate time after the proceedings below
(and necessarily the question of the validity of the amended by-laws
would be taken up anew and the Court would at that time be able
to reach a final and conclusive vote).
Mr. Justice De Castro's personal interpretation of the decision of April
11, 1979 that petitioner may be allowed to run for election despite
adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an
injunction against the enforcement of the decision disqualifying him"
is patently contradictory of his vote on the matter as expressly given
in the judgment in the Court's decision of April 11, 1979 (at page 59)
that petitioner could run and if elected, sit as director of the
respondent SMC and could be disqualified only after a "new and
proper hearing by the board of directors of said corporation, whose
decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and
ultimately to this Court. Unless-disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."
Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur.
BARREDO, J., concurring:
I reserved the filing of a separate opinion in order to state my own
reasons for voting in favor of the validity of the amended by-laws in
question. Regrettably, I have not yet finished preparing the same. In
view, however, of the joint separate opinion of Justices Teehankee,
Concepcion Jr., Fernandez and Guerrero, the full text of which has
just come to my attention, and which I am afraid might produce
certain misimpressions as to the import of the decision in this case, I
consider it urgent to clarify my position in respect to the rights of the
parties resulting from the dismissal of the petition herein and the
outlining of the procedure by which the disqualification of petitioner
Gokongwei can be made effective, hence this advance separate
opinion.
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again to Us, raising the same question he has raised in the present
petition, unless the principle of the "law of the case" is applied.
Clarifying therefore, my position, I am of the opinion that with the
validity of the by-laws in question standing unimpaired it is now for
petitioner to show that he does not come within the disqualification
as therein provided, both to the Board and later to the Securities and
Exchange Commission, it being a foregone conclusion that, unless
petitioner disposes of his stockholdings in the so-called competitive
corporations, San Miguel Corporation would apply the by-laws
against him, His right, therefore, to run depends on what, on election
day, May 8, 1979, the ruling of the Board and/or the Securities and
Exchange Commission on his qualification to run would be, certainly,
not the final ruling of this Court in the event recourse thereto is made
by the party feeling aggrieved, as intimated in the "Joint Separate
Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and
Guerrero, that only after petitioner's "disqualification" has ultimately
been passed upon by this Court should petitioner, not be allowed to
run. Petitioner may be allowed to run, despite an adverse decision of
both the Board and the Securities and Exchange Commission, only if
he comes to this Court and obtain an injunction against the
enforcement of the decision disqualifying him. Without such
injunction being required, all that petitioner has to do is to take his
time in coming to this Court, and in so doing, he would in the
meantime, be allowed to run, and if he wins, to sit. This would,
however, be contrary to the doctrine that gives binding, if not
conclusive, effect of findings of facts of administrative bodies
exercising quasi-judicial functions upon appellate courts, which
should, accordingly, be enforced until reversed by this Tribunal.
Fernando and Makasiar, JJ., concurs.
Antonio and Santos, JJ., concur
DE CASTRO, J.: concurring:
As stated in the decision penned by Justice Antonio, I voted to
uphold the validity of the amendment to the by-laws in question.
What induced me to this view is the practical consideration easily
perceived in the following illustration: If a person becomes a
stockholder of a corporation and gets himself elected as a director,
and while he is such a director, he forms his own corporation
competitive or antagonistic to the corporation of which he is a
director, and becomes Chairman of the Board and President of his
own corporation, he may be removed from his position as director,
admittedly one of trust case, a person already controlling, and also
the Chairman of the Board and President of, a corporation, may be
barred from becoming a member of the board of directors of a
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Separate Opinions
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# Separate Opinions
TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.,
concurring:
I
As correctly stated in the main opinion of Mr. Justice Antonio, the
Court is unanimous in its judgment granting the petitioner as
stockholder of respondent San Miguel Corporation the right to
inspect, examine and secure copies of the records of San Miguel
International, inc. (SMI), a wholly owned foreign subsidiary
corporation of respondent San Miguel Corporation. Respondent
commissions en banc Order No. 449, Series of 19 7 7, denying
petitioner's right of inspection for "not being a stockholder of San
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Antonio, to wit: Until and after petitioner has been given a "new and
proper hearing by the board of directors of said corporation, whose
decision shall be appealable Lo the respondent Securities and
Exchange Commission deliverating and acting en banc and
ultimately to this Court" and until ' disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner," In other words, until and after petitioner
shall have been given due process and proper hearing by the
respondent board of directors as to the question of his qualification
or disqualification under the questioned amended by-laws
(assuming that the respondent Securities and Exchange C
commission ultimately upholds the validity of said by laws), and such
disqualification shall have been sustained by respondent Securities
and Exchange Commission and ultimately by final judgment of this
Court, petitioner is deemed eligible for all legal purposes and effects
to be nominated and voted and if elected to sit as a member of the
hoard of directors of respondent San Miguel Corporation.
In view of the Court's unanimous judgment on this point the portion
of respondent commission's Order No. 450, Series of 977 which
imposed "the condition that he [petitioner] cannot sit as board
member if elected until after the Commission shall have finally
decided the validity of the disputed by-law provision" has been
likewise accordingly set aside.
III
By way of recapitulation, so that the Court's decision and judgment
may be clear and not subject to ambiguity, we state the following.
1. With the votes of the six Justices concurring unqualifiedly in the
main opinion added to our four votes, plus the Chief Justice's vote
and that of Mr. Justice Fernando, the Court has by twelve (12) votes
unanimously rendered judgment granting petitioner's right to
examine and secure copies of the books and records of San Miguel
International, Inc. as a foreign subsidiary of respondent corporation
and respondent commission's Order No. 449, Series of 1977, to the
contrary is set aside:
2. With the same twelve (12) votes, the Court has also unanimously
rendered judgment declaring that until and after petitioner shall
have been given due process and proper hearing by the
respondent board of directors as to the question of his
disqualification under the questioned amended by- laws (assuming
that the respondent Securities and Exchange Commission ultimately
upholds the validity of said by laws), and such disqualification shall
have been sustained by respondent Securities and Exchange
Commission and ultimately by final judgment of this Court petitioner
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provisions of Rule 56, section 11, since this special civil action
originally commenced in this Court, the action was simply dismissed
with the result that no law of the case was laid down insofar as the
issue of the validity or invalidity of the questioned by-laws is
concerned, and the relief sought herein by petitioner that this Court
by-pass the SEC which has yet to hear and determine the same issue
pending before it below and that this Court itself directly resolve the
said issue stands denied.
b) The contention of Mr. Justice Barredo that the result of the dismiss
of the case was that "petitioner Gokongwei may not hereafter act
on the assumption that he can revive the issue of the validity
whether in the Securities and Exchange Commission, in this Court or
in any other forum, unless he proceeds on the basis of a factual
milieu different from the setting of this case Not even the Securities
and Exchange Commission may pass on such question anymore at
the instance of herein petitioner or anyone acting in his stead or on
his behalf, " appears to us to be untenable.
The Court through the decision of April 11, 1979, by the unanimous
votes of the twelve participating Justices headed by the Chief
Justice, ruled that petitioner Gokongwei was entitled to a "new and
proper hearing" by the SMC board of directors on the matter of his
disqualification under the questioned by-laws and that the board's
"decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and
ultimately to this Court (and) unless disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."
The entire Court, therefore, recognized that petitioner had not been
given procedural due process by the SMC board on the matter of his
disqualification and that he was entitled to a "new and proper
hearing". It stands to reason that in such hearing, petitioner could
raise not only questions of fact but questions of law, particularly
questions of law affecting the investing public and their right to
representation on the board as provided by law not to mention
that as borne out by the fact that no restriction whatsoever appears
in the court's decision, it was never contemplated that petitioner was
to be limited to questions of fact and could not raise the
fundamental questions of law bearing on the invalidity of the
questioned amended by-laws at such hearing before the SMC
board. Furthermore, it was expressly provided unanimously in the
Court's decision that the SMC board's decision on the disqualification
of petitioner ("assuming the board of directors of San Miguel
Corporation should, after the proper hearing, disqualify him" as
qualified in Mr. Justice Barredo's own separate opinion, at page 2)
shall be appealable to respondent Securities and Exchange
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The motion was opposed by Soriano, et. al. The Corporation, Soriano,
et. al. filed their answer, and their opposition to the petition,
respectively. Meanwhile, on 10 December 1976, while the petition
was yet to be heard, the corporation issued a notice of special
stockholders' meeting for the purpose of "ratification and
confirmation of the amendment to the By-laws", setting such
meeting for 10 February 1977. This prompted Gokongwei to ask the
SEC for a summary judgment insofar as the first cause of action is
concerned, for the alleged reason that by calling a special
stockholders' meeting for the aforesaid purpose, Soriano, et. al.
admitted the invalidity of the amendments of 18 September 1976.
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The motion for summary judgment was opposed by Soriano, et. al.
Pending action on the motion, Gokongwei filed an "Urgent Motion
for the Issuance of a Temporary Restraining Order", praying that
pending the determination of Gokongwei's application for the
issuance of a preliminary injunction and or Gokongwei's motion for
summary judgment, a temporary restraining order be issued,
restraining Soriano, et. al. from holding the special stockholders'
meeting as scheduled. This motion was duly opposed by Soriano, et.
al. On 10 February 1977, Cremation issued an order denying the
motion for issuance of temporary restraining order. After receipt of
the order of denial, Soriano, et. al. conducted the special
stockholders' meeting wherein the amendments to the by-laws were
ratified. On 14 February 1977, Gokongwei filed a consolidated
motion for contempt and for nullification of the special stockholders'
meeting. 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.
Issue:
1. Whether the corporation has the power to provide for the
(additional) qualifications of its directors.
2. Whether the disqualification of a competitor from being
elected to the Board of Directors is a reasonable exercise of
corporate authority.
3. Whether the SEC gravely abused its discretion in denying
Gokongwei's request for an examination of the records of San
Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation.
4. 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.
Held:
the Decision1 dated January 31, 2003 and Resolution dated October
2, 2003 of the Court of Appeals in CA-G.R. CV No. 71506.
The facts are:
Cebu Country Club, Inc. (CCCI), petitioner, is a domestic
corporation operating as a non-profit and non-stock private
membership club, having its principal place of business in Banilad,
Cebu City. Petitioners herein are members of its Board of Directors.
Sometime in 1987, San Miguel Corporation, a special company
proprietary member of CCCI, designated respondent Ricardo F.
Elizagaque, its Senior Vice President and Operations Manager for the
Visayas and Mindanao, as a special non-proprietary member. The
designation was thereafter approved by the CCCIs Board of
Directors.
In 1996, respondent filed with CCCI an application for proprietary
membership. The application was indorsed by CCCIs two (2)
proprietary members, namely: Edmundo T. Misa and Silvano Ludo.
As the price of a proprietary share was around the P5 million range,
Benito Unchuan, then president of CCCI, offered to sell respondent a
share for only P3.5 million. Respondent, however, purchased the
share of a certain Dr. Butalid for only P3 million. Consequently, on
September 6, 1996, CCCI issued Proprietary Ownership Certificate
No. 1446 to respondent.
During the meetings dated April 4, 1997 and May 30, 1997 of the
CCCI Board of Directors, action on respondents application for
proprietary membership was deferred. In another Board meeting
held on July 30, 1997, respondents application was voted upon.
Subsequently, or on August 1, 1997, respondent received a letter
from Julius Z. Neri, CCCIs corporate secretary, informing him that the
Board disapproved his application for proprietary membership.
On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote
CCCI a letter of reconsideration. As CCCI did not answer,
respondent, on October 7, 1997, wrote another letter of
reconsideration. Still, CCCI kept silent. On November 5, 1997,
respondent again sent CCCI a letter inquiring whether any member
of the Board objected to his application. Again, CCCI did not reply.
Consequently, on December 23, 1998, respondent filed with the
Regional Trial Court (RTC), Branch 71, Pasig City a complaint for
damages against petitioners, docketed as Civil Case No. 67190.
After trial, the RTC rendered its Decision dated February 14, 2001 in
favor of respondent, thus:
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Lastly, petitioners argument that they could not be held jointly and
severally liable for damages because only one (1) voted for the
disapproval of respondents application lacks merit.
Section 31 of the Corporation Code provides:
SEC. 31. Liability of directors, trustees or officers. Directors or
trustees who willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be
liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and
other persons. (Emphasis ours)
WHEREFORE, we DENY the petition. The challenged Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 71506 are
AFFIRMED with modification in the sense that (a) the award of moral
damages is reduced from P2,000,000.00 to P50,000.00; (b) the award
of exemplary damages is reduced from P1,000,000.00 to P25,000.00;
and (c) the award of attorneys fees and litigation expenses is
reduced from P500,000.00 and P50,000.00 to P50,000.00 and
P25,000.00, respectively.
Costs against petitioners.
SO ORDERED.
Puno, C.J., Chairperson, Corona, Azcuna, Leonardo-de Castro, JJ.,
concur.
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On March 21, 1987, a Petition for Impeachment was filed with the
national federation ULGWP by the defeated candidates in the
aforementioned election.
On June 16, 1987, the federation conducted an audit of the local
union funds. The investigation did not yield any unfavorable result
and the local union officers were cleared of the charges of anomaly
in the custody, handling and disposition of the union
funds.1wphi1.nt
The 14 defeated candidates filed a Petition for
Impeachment/Expulsion of the local union officers with the DOLE
NCR on November 5, 1987, docketed as NCR-OD-M-11-780-87.
However, the same was dismissed on March 2, 1988, by Med-Arbiter
Renato Parungo for failure to substantiate the charges and to
present evidence in support of the allegations.
On April 17, 1988, the local union held a general membership
meeting at the Caruncho Complex in Pasig. Several union members
failed to attend the meeting, prompting the Executive Board to
create a committee tasked to investigate the non-attendance of
several union members in the said assembly, pursuant to Sections 4
and 5, Article V of the Constitution and By-Laws of the union, which
read:
Seksyon 4. Ang mga kinukusang hindi pagdalo o hindi
paglahok sa lahat ng hakbangin ng unyon ng sinumang kasapi
o pinuno ay maaaring maging sanhi ng pagtitiwalag o
pagpapataw ng multa ng hindi hihigit sa P50.00 sa bawat araw
na nagkulang.
Seksyon 5. Ang sinumang dadalo na aalis ng hindi pa
natatapos ang pulong ay ituturing na pagliban at
maparusahan itong alinsunod sa Article V, Seksyong 4 ng
Saligang Batas na ito. Sino mang kasapi o pisyales na mahuli
and dating sa takdang oras ng di lalampas sa isang oras ay
magmumulta ng P25.00 at babawasin sa sahod sa
pamamagitan ng salary deduction at higit sa isang oras ng
pagdating ng huli ay ituturing na pagliban.3
On June 27, 1988, the local union wrote respondent company a
letter requesting it to deduct the union fines from the wages/salaries
of those union members who failed to attend the general
membership meeting. A portion of the said letter stated:
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thereto may likewise be valid, this does not erode the fundamental
requirement of due process. The reason behind the enforcement of
union security clauses which is the sanctity and inviolability of
contracts14 cannot override one's right to due process.
In the case of Cario vs. National Labor Relations Commission,15 this
Court pronounced that while the company, under a maintenance
of membership provision of the collective bargaining agreement, is
bound to dismiss any employee expelled by the union for disloyalty
upon its written request, this undertaking should not be done hastily
and summarily. The company acts in bad faith in dismissing a worker
without giving him the benefit of a hearing.
The power to dismiss is a normal prerogative of the employer.
However, this is not without limitation. The employer is bound to
exercise caution in terminating the services of his employees
especially so when it is made upon the request of a labor union
pursuant to the Collective Bargaining Agreement, . . . Dismissals
must not be arbitrary and capricious. Due process must be
observed in dismissing an employee because it affects not only
his position but also his means of livelihood. Employers should
respect and protect the rights of their employees, which
include the right to labor.
In the case under scrutiny, petitioner union officers were expelled by
the federation for allegedly committing acts of disloyalty and/or
inimical to the interest of ULGWP and in violation of its Constitution
and By-laws. Upon demand of the federation, the company
terminated the petitioners without conducting a separate and
independent investigation. Respondent company did not inquire
into the cause of the expulsion and whether or not the federation
had sufficient grounds to effect the same. Relying merely upon the
federation's allegations, respondent company terminated petitioners
from employment when a separate inquiry could have revealed if
the federation had acted arbitrarily and capriciously in expelling the
union officers. Respondent company's allegation that petitioners
were accorded due process is belied by the termination letters
received by the petitioners which state that the dismissal shall be
immediately effective.
As held in the aforecited case of Cario, "the right of an employee
to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the
company or his own union is not wiped away by a union security
clause or a union shop clause in a collective bargaining agreement.
An employee is entitled to be protected not only from a company
which disregards his rights but also from his own union the leadership
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still be held liable if it was remiss in its duty to accord the would-be
dismissed employees their right to be heard on the matter.
Anent petitioners contention that the federation was not a principal
party to the collective bargaining agreement between the
company and the union, suffice it to say that the matter was already
ruled upon in the Interpleader case filed by respondent company.
Med-Arbiter Anastacio Bactin thus ruled:
After a careful examination of the facts and evidences
presented by the parties, this Officer hereby renders its decision
as follows:
1.) It appears on record that in Collective Bargaining
Agreement (CBA) which took effect on July 1, 1986, the
contracting parties are M. Greenfield, Inc. (B) and Malayang
Samahan ng Mga Manggagawa sa M. Greenfield, Inc. (B)
(MSMG)/United Lumber and General Workers of the Philippines
(ULGWP). However, MSMG was not yet registered labor
organization at the time of the signing of the CBA. Hence, the
union referred to in the CBA is the ULGWP.18
Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest
as follows:
It is undisputed that ULGWP is the certified sole and exclusive
collective bargaining agent of all the regular rank-and-file
workers of the company, M. Greenfield, Inc. (pages 31-32 of
the records).
It has been established also that the company and ULGWP
signed a 3-year collective bargaining agreement effective July
1, 1986 up to June 30, 1989.19
Although the issue of whether or not the federation had reasonable
grounds to expel the petitioner union officers is properly within the
original and exclusive jurisdiction of the Bureau of Labor Relations,
being an intra-union conflict, this Court deems it justifiable that such
issue be nonetheless ruled upon, as the Labor Arbiter did, for to
remand the same to the Bureau of Labor Relations would be to
intolerably delay the case.
The Labor Arbiter found that petitioner union officers were justifiably
expelled from the federation for committing acts of disloyalty when it
"undertook to disaffiliate from the federation by charging ULGWP
with failure to provide any legal, educational or organizational
support to the local. . . . and declared autonomy, wherein they
prohibit the federation from interfering in any internal and external
affairs of the local union."20
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In Ruben Serrano vs. NLRC and Isetann Department Store (G.R. No.
117040, January 27, 2000), the Court ruled that an employee who is
dismissed, whether or not for just or authorized cause but without
prior notice of his termination, is entitled to full backwages from the
time he was terminated until the decision in his case becomes final,
when the dismissal was for cause; and in case the dismissal was
without just or valid cause, the backwages shall be computed from
the time of his dismissal until his actual reinstatement. In the case at
bar, where the requirement of notice and hearing was not complied
with, the aforecited doctrine laid down in the Serrano case applies.
WHEREFORE, the Petition is GRANTED; the decision of the National
Labor Relations Commission in Case No. NCR-00-09-04199-89 is
REVERSED and SET ASIDE; and the respondent company is hereby
ordered to immediately reinstate the petitioners to their respective
positions. Should reinstatement be not feasible, respondent
company shall pay separation pay of one month salary for every
year of service. Since petitioners were terminated without the
requisite written notice at least 30 days prior to their termination,
following the recent ruling in the case of Ruben Serrano vs. National
Labor Relations Commission and Isetann Department Store, the
respondent company is hereby ordered to pay full backwages to
petitioner-employees while the Federation is also ordered to pay full
backwages to petitioner-union officers who were dismissed upon its
instigation. Since the dismissal of petitioners was without cause,
backwages shall be computed from the time the herein petitioner
employees and union officers were dismissed until their actual
reinstatement. Should reinstatement be not feasible, their
backwages shall be computed from the time petitioners were
terminated until the finality of this decision. Costs against the
respondent company.1wphi1.nt
SO ORDERED.
Gonzaga-Reyes, J., concur.
Melo. J., in the result.
Vitug, J., I reiterate my separate opinion in Seranno vs. NLRC (G.R.
No. 114070, 27 Jan. 2000).
Panganiban, J., I reiterate my Separate Opinion in Seranno vs. NLRC.
G.R. No. 117040 Jan 27, 2000.
FACTS:
Petitioner MSMS, (local union) is an affiliate of ULGWP (federation). A
local union election was held under the action of the federation. The
defeated candidates filed a petition for impeachment. The local
union held a general membership meeting. Several union members
failed to attend the meeting. The local union requested the
company to deduct the union fines from the wage of those union
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2
3. Whether or not petitioners can be deemed to have abandoned
their work.
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HELD:
1. Yes. The charges against respondent company proceeds from
onemain issue
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A: Yes. That petitioner did file a motion within the period is supported
by the following:
1. The motion for reduction was stamped with the received
rubber stamp marker of the NLRC and indicated the date of
filing as 6.7.96.
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Growth Link, Inc. (hereafter, Growth Link), which is the petitionerappellee in CA-G.R. SP No. 26898, for its part, comes before us with a
separate Petition in challenge of the same Decision which we are
asked to completely reverse, Growth Link praying 7 instead for the
affirmance in toto of the trial court decision. Growth Link's Petition is
docketed as G.R. No. 116000.
In a Resolution 8 dated September 28, 1994, we granted the Motion
for Consolidation filed by Growth Link and forthwith ordered the
consolidation of G.R. Nos. 113103 and 116000.
We proceed from the following premises:
The facts of the case as summarized by the trial court are
as follows:
1. [Growth Link] is a duly registered domestic corporation
while . . . NPC is a duly organized government corporate
entity while the individual [petitioners] are officers and/or
members of the NPC Board of Directors, except that
[petitioners] Conrado Del Rosario and Crispin T. Ubaldo
are no longer connected with . . . NPC;
(ON THE FIRST CAUSE OF ACTION):
2. That on October 23, 1984, [Growth Link] was duly
awarded Purchase Order (PO) No. 086653 to suply (sic)
NPC, subject to certain terms therein expressed, two (2)
pieces Pielstick Piston Skirt specified under Code No.
02.005.0171.00, Plate No. 6.02.005.04 at the total price of
P230,000.00;
3. That subject Piston Skirts were actually delivered to and
received by the NPC Manila (RWSS) Warehouwe (sic) on
January 16, 1985, subjected to actual visual inspection
and were found conforming to technical specifications
per PO, hence were accepted and approved for
payment;
4. That said Piston Skirts were later shipped by NPC to the
end-user, the General Santos Diesel Plant (GSDP), which
acknowledged delivery thereof as of January 29, 1985;
5. That under date 24 May 1985, four (4) months from
delivery, the following findings/observations were
allegedly reported found in said Piston Skirts, namely: (a)
damage[d]/used O-rings; (b) scratches on mid-span; (c)
scratches on top and bottom portion of skirts; (d) carbon
residue/deposit on top grove of piston skirts;
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First. Growth Link insists that the decision of the trial court should be
deemed final and executory insofar as NPC's officers and members
of the Board of Directors are concerned, because they did not
appeal the trial court's decision. Growth Link specifically cites the
Notice of Appeal filed by the NPC to be personal only to the NPC.
This submission, however, is, in the first place, belied by the caption
of the Notice of Appeal in question, which states, "NATIONAL POWER
CORPORATION, ET AL., Respondents." This same caption can be
found in NPC's Motion for Reconsideration. Significantly, Growth Link's
Opposition to the Motion for Reconsideration made reference to the
NPC officers and members of the Board of Directors, in its arguments.
At any rate, technicalities that defeat substantial justice are, by this
court's policy, an unpreferred basis to deprive parties of their
statutory right to appeal a decision that is fatally flawed in certain
respects.
In the second place, the finding of solidary liability among the NPC
and its officers and members of the Board of Directors, is patently
baseless. The decision of the trial court contains no such allegation,
finding or conclusion regarding particular acts committed by said
officers and members of the Board of Directors that show them to
have been individually guilty of unmistakable malice, bad faith, or illmotive in their personal dealings with Growth Link. In fact, it was only
in the dispositive portion of the decision of the court a quo that
solidary liability as such was first mentioned.
NPC's officers and members of the Board of Directors were sued
merely as nominal parties in their official capacities as such. They
were impleaded by Growth Link not in their personal capacities as
individuals but in their official capacities as officers and members of
the Board of Directors through whom the NPC conducts business
and undertakes its operations pursuant to its avowed corporate
purposes. Therefore, as a bonafide government corporation, NPC
should alone be liable for its corporate acts as duly authorized by its
officers and directors. 18
This is so, because a corporation "is invested by law with a
separate personality, separate and distinct from that of
the persons composing it as well as from any other legal
entity to which it may be related." (Tan Boon Bee & Co.,
Inc. v. Jarencio, 163 SCRA 205 [1988] citing Yutivo and
Sons Hardware Company v. Court of Tax Appeals, 1 SCRA
160 [1961]; Emilio Cano Enterprises, Inc. v. Court of
Industrial Relations, 13 SCRA 290 [1965]). A corporation is
an artificial person and can transact its business only
through its officers and agents. Necessarily, somebody has
to act for it. The separate personality of the corporation
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Assuming arguendo that the NPC did not deny the claims for
unrealized commissions as alleged by Growth Link in its mandamus
petition with damages, and that consequently these claims have
been transmuted into judicial admissions, these admissions cannot
still prevail over the rules and regulations governing the bidding for
NPC contracts, which necessarily and inherently include the
reservation by the NPC of its right to reject any or all bids. By its own
assertion, Growth Link has been a regular bidder for NPC contracts. It
cannot deny, much less pretend ignorance of, the reserved
discretion of the NPC to accept or reject any bid. Neither could
Growth Link have forgotten the well-settled rule that this discretion is
of such wide latitude that the courts will not generally interfere with
the exercise thereof by the government, unless it is apparent that it is
used as a shield to a fraudulent award 22 or an unfairness or injustice
is clearly shown. 23
We thus quote, with approval, the following postulations of the
Solicitor General, in behalf of the NPC:
Clearly, it is not NAPOCOR's ministerial duty to make an
automatic award to [Growth Link] even if it was the lowest
bidder. As aforesaid, NAPOCOR reserved the "right to
reject the bid of any bidder." Thus, [Growth Link] has no
cause of action . . . . . . Mandamus will not lie to compel
the acceptance of the bid of an unsuccessful bidder
(Borromeo vs. City of Manila, et al., 62 Phil. 512 [1935]).
By participating in the public bidding, after NAPOCOR
was ordered to cease from cancelling [Growth Link's]
accreditation and to allow the latter to participate in any
bidding, [Growth Link] submitted itself to the conditions
laid down by NAPOCOR, among which is the reservation
of its right to reject any and all bids to be made therein. . .
.
Furthermore, Sec. 393 of the National Accounting and
Auditing Manual provides:
Sec. 393. Reservation of rights to reject any or all bids.
The contract will be awarded to the contractor whose
proposal appears to be the most advantageous to the
Government, but the right shall be reserved to reject any
or all bids, to waive any informality in the bids received,
and to accept or reject any items of any bid unless such
bid is qualified by specific limitations; also to disregard the
bid of any failing bidder, known as such to the agency
head or director, or any bid which is obviously
unbalanced or below what the work can be done for. The
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October 3, 2000
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xxx
xxx
P8,800,000.00
Page 1002 of 1509
RL/74/597/88
P3,400,000.00
TOTAL
P12,200,000.00
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In this case, the Petition does state that it was served on the
respective counsels of Sta. Ines and Cuenca "by registered mail in
lieu of personal service due to limitations in time and distance." 14 This
explanation sufficiently shows that personal service was not
practicable. In any event, we find no adequate reason to reject the
contention of petitioner and thereby deprive it of the opportunity to
fully argue its cause.
First Issue: Original Obligation Extinguished by Novation
An obligation may be extinguished by novation, pursuant to Article
1292 of the Civil Code, which reads as follows:
"ART. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other."
Novation of a contract is never presumed. It has been held that "[i]n
the absence of an express agreement, novation takes place only
when the old and the new obligations are incompatible on every
point."15 Indeed, the following requisites must be established: (1)
there is a previous valid obligation; (2) the parties concerned agree
to a new contract; (3) the old contract is extinguished; and (4) there
is a valid new contract.16
Petitioner contends that there was no absolute incompatibility
between the old and the new obligations, and that the latter did not
extinguish the earlier one. It further argues that the 1989 Agreement
did not change the original loan in respect to the parties involved or
the obligations incurred. It adds that the terms of the 1989 Contract
were "not more onerous."17 Since the original credit accomodation
was not extinguished, it concludes that Cuenca is still liable under
the Indemnity Agreement.
We reject these contentions. Clearly, the requisites of novation are
present in this case. The 1989 Loan Agreement extinguished the
obligation18 obtained under the 1980 credit accomodation. This is
evident from its explicit provision to "liquidate" the principal and the
interest of the earlier indebtedness, as the following shows:
"1.02. Purpose. The First Loan shall be applied to liquidate the
principal portion of the Borrowers present total outstanding
Indebtedness to the Lender (the "Indebtedness") while the Second
Loan shall be applied to liquidate the past due interest and penalty
portion of the Indebtedness."19 (Italics supplied.)
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have been secured by a fairly obtained surety. For its defeat in this
litigation, the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement extinguished by
novation the obligation under the 1980 P8 million credit
accommodation. Hence, the Indemnity Agreement, which had
been an accessory to the 1980 credit accommodation, was also
extinguished. Furthermore, we reject petitioners submission that
respondent waived his right to be notified of, or to give consent to,
any modification or extension of the 1980 credit accommodation.
In this light, we find no more need to resolve the issue of whether the
loan obtained before the expiry date of the credit accommodation
has been paid.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
Footnotes
Written by Justice Jorge S. Imperial (Division chairman), with
the concurrence of Justices Hector L. Hofilea and Omar U.
Amin (members).
1
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10
11
12
13
14
15
Lim Tay v. CA, 293 SCRA 364, August 5, 1998, per Panganiban,
J.
Cruz v. CA, 293 SCRA 239, July 27, 1998; citing Vitug,
Compendium of Civil Law and Jurisprudence, 1993 ed., p. 528.
16
17
As will be shown later, only one loan was obtained before the
expiry date of the 1980 credit accommodation.
18
19
Rollo, p. 125.
22
23
24
Ibid.
25
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27
28
29
30
32
Garcia v. CA, 258 SCRA 446, 456, July 5, 1996, per Melo, J.
33
34
35
36
In Atok Finance Corp. v. CA, 222 SCRA 232, 245, May 18,
1993, per Feliciano, J., the Court explained the nature of a
continuing surety in this wise:
37
A.C. Ransom Labor Union vs. NLRC (142 SCRA 269 [1986])
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MELENCIO-HERRERA, J.:
The facts relevant to this case may be related as follows:
1. Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for
short) was established in 1933 by Maximo C. Hernandez, Sr. It was a
"family" corporation, the stockholders of which were/are members of
the Hernandez family. It has a compound in Las Pinas Rizal, where it
has been engaged in the manufacture mainly of ink and articles
associated with ink.
2. On June 6, 1961, employees of RANSOM, most of them being
members of petitioner Labor UNION, went on strike and established a
picket line which, however, was lifted on June 21st with most of the
strikers returning and being allowed to resume their work by RANSOM
Twenty-two (22) strikers were refused reinstatement by the Company.
3. During 1969, the same Hernandez family organized another
corporation, Rosario Industrial Corporation (ROSARIO, for short)
which also engaged, in the RANSOM Compound, in the business of
manufacture of ink and products associated with ink.
4. The strike became the subject of Cases Nos. 2848 ULP and 2880
ULP of the Court of Industrial Relations which, on December 19,
1972, ordered RANSOM "its officers and agents to reinstate the 22
strikers with back wages from July 25, 1969.
5. On April 2, 1973, RANSOM filed an application for clearance to
close or cease operations effective May 1, 1973, which was granted
by the Ministry of Labor and Employment in its Order of June 7, 1973,
without prejudice to the right of employees to seek redress of
grievance, if any. Although it has stopped operations, RANSOM has
continued its personality as a corporation. For practical purposes,
reinstatement of the 22 strikers has been precluded. As a matter of
fact, reinstatement is not an issue in this case.
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ROSARIO, in 1969 at the time the unfair labor practice case was
pending before the CIR by the
same persons who were the officers and stockholders of RANSOM,
engaged in the same line of
business as RANSOM, producing the same line of products,
occupying the same compound,
using the same machineries, buildings, laboratory, bodega and sales
and accounts departments
used by RANSOM, and which is still in existence. Both corporations
were closed corporations
owned and managed by members of the same family. Its
organization proved to be a
convenient instrument to avoid payment of backwages and the
reinstatement of the 22 workers.
This is another instance where the fiction of separate and distinct
corporate entities should be
disregarded.
It is very obvious that the second corporation seeks the protective
shield of a corporate
fiction whose veil in the present case could, and should, be pierced
as it was deliberately and
maliciously designed to evade its financial obligation to its
employees.... When a notion of legal
entity is used to. defeat public convenience, justify wrong, protect
fraud, or defend crime, the
law will regard the corporation as an association or persons, or, in
the case of two corporations,
will merge them into one.
As to the officers and agents
The inclusion of the officers and agents was but proper since a
corporation, as an
artificial being, can act only through them.
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closing the company shows malice and bad faith, which justifies their
solidary liability with MAC. The appellate court also found that the
circumstances of the present case do not warrant a reduction of the
appeal bond. Thus:
IN VIEW WHEREOF, the petitions are DISMISSED. The decision of Labor
Arbiter Isabel Panganiban-Ortiguerra dated June 17, 1994, and the
Resolution dated January 5, 1995, issued by the National Labor
Relations Commission are hereby AFFIRMED. As a consequence of
dismissal, the temporary restraining order issued on March 2, 1995, by
the Third Division of the Supreme Court is LIFTED. Costs against
petitioners.
SO ORDERED.12 (Emphasis in the original)
The appellate court denied respondents' separate motions for
reconsideration.13
In a resolution dated 20 June 2001, this Court's First Division denied
the petition for Carag's failure to show sufficiently that the appellate
court committed any reversible error to warrant the exercise of our
discretionary appellate jurisdiction. Carag filed a motion for
reconsideration of our resolution denying his petition. In a resolution
dated 13 August 2001, this Court's First Division denied Carag's
reconsideration with finality.
Despite our 13 August 2001 resolution, Carag filed a second motion
for reconsideration with an omnibus motion for leave to file a second
motion for reconsideration. This Court's First Division referred the
motion to the Court En Banc. In a resolution dated 25 June 2002, the
Court En Banc resolved to grant the omnibus motion for leave to file
a second motion for reconsideration, reinstated the petition, and
required respondents to comment on the petition. On 25 November
2003, the Court En Banc resolved to suspend the rules to allow the
second motion for reconsideration. This Court's First Division referred
the petition to the Court En Banc on 14 July 2004, and the Court En
Banc accepted the referral on 15 March 2005.
The Issues
Carag questions the appellate court's decision of 29 February 2000
by raising the following issues before this Court:
1. Has petitioner Carag's right to due process been blatantly
violated by holding him personally liable for over P50 million of
the corporation's liability, merely as board chairman and solely
on the basis of the motion to implead him in midstream of the
proceedings as additional respondent, without affording him
the right to present evidence and in violation of the accepted
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REYNATO S. PUNO
Chief Justice
LEONARDO A. QUISUMBING
Associate Justice
CONSUELO YNARESSANTIAGO
Asscociate Justice
ANGELINA SANDOVALGUTIERREZ
Associate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO
MORALES
Asscociate Justice
ADOLFO S. AZCUNA
Asscociate Justice
DANTE O. TINGA
Associate Justice
MINITA V. CHICO-NAZARIO
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
Footnotes
1
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Id. at 169-175.
Id. at 201-204.
Id. at 149-150.
Id. at 153-155.
Id. at 169-175.
Id. at 193-194.
10
Id. at 203.
11
12
Rollo, p. 86.
13
Id. at 89-90.
14
Id. at 15.
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xxxx
c) In case of two (2) successive unjustified nonappearances by the respondent during his turn to present
evidence, despite due notice, the case shall be
considered submitted for decision on the basis of the
evidence so far presented.
Promulgated on 31 August 1990 and took effect on 9
October 1990.
20
21
22
23
Rollo, p. 173.
25
Id.
26
Id.
27
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29
30
31
solidarily liable for the illegal dismissal and illegal closure of business.
According to the Labor
Union of MAC, the Corporation suddenly closed its business without
following the notice as laid
down in the Labor Law of the Philippines. The Labor Arbiter decided
in favor of the Labor Union
and held that Antonio Carag being the owner of the corporation be
solidarily liable for the
payment of separation pay and backwages of the rank and file
employees. Antonio Carag
questioned the decision of the Labor Arbiter and alleged that the
Corporation and its officers
have separate and distinct personality and the latter cannot be held
liable solidarily in cases of
payment of damages.
Issue:
Whether or not Antonio Carag be held solidarily liable for the
payment of the illegally
dismissed employees.
Held:
The Supreme Court held that the rule is that a director is not
personally liable for the
debts of the corporation, which has a separate legal personality of
its own. Section 31 of the
Corporation Code lays down the exceptions to the rule, as follows:
Liability of directors, trustees or officers. - Directors or trustees
who wilfully and knowingly vote for or assent to patently unlawful
acts of
the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or
trustees
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Cebu; (h) YKS is solely to blame for the failure to take complete
delivery of 10,000 bags for it did not send its boat or truck to PWCC's
plant; and (i) YKS has, therefore, no cause of action.
In its Counterclaim, PWCC asks for moral damages in the amount of
not less than P10,000.00, exemplary damages in the sum of
P500,000.00 and attorney's fees in the sum of P10,000.00.
On 24 July 1974, YKS filed its Answer to the Counterclaim. 21
Issues having been joined, the trial court conducted a pre-trial. 22 On
that occasion, the parties admitted that according to the By-Laws of
PWCC, the Chairman of the Board, who is also the President of the
corporation, "has the power to execute and sign, for and in behalf of
the corporation, all contracts or agreements which the corporation
enters into," subject to the qualification that "all the president's
actuations, prior to and after he had signed and executed said
contracts, shall be given to the board of directors of defendant
Corporation." Furthermore, it was likewise stated for the record "that
the corporation is a semi-subsidiary of the government because of
the NIDC participation in the same, and that all contracts of the
corporation should meet the approval of the NIDC and/or the PNB
Board because of an exposure and financial involvement of around
P10 million therein. 23
During the trial, PWCC presented evidence to prove that Exhibit "A" is
not binding upon it because Mr. Maglana was not authorized to
make the offer and sign the contract in behalf of the corporation.
Per its By-Laws (Exhibit "8"), only the Board of Directors has the power
. . . (7) To enter into (sic) agreement or contract of any kind with any
person in the name and for and in behalf of the corporation through
its President, subject only to the declared objects and purpose of the
corporation and the existing provisions of law. 24 Among the powers
of the President is "to operate and conduct the business of the
corporation according to his own judgment and discretion,
whenever the same is not expressly limited by such orders, directives
or resolutions." 25 Per standard practice of the corporation, contracts
should first pass through the marketing and intelligence unit before
they are finalized. Because of its interest in the PWCC, the NIDC,
through its comptroller, goes over contracts involving funds of and
white cement produced by the PWCC. Finally, among the duties of
its legal counsel is to review proposed contracts before they are
submitted to the Board. While the president. may be tasked with the
preparation of a contract, it must first pass through the legal counsel
and the comptroller of the corporation. 26
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The third ground must likewise fail. Exhibit "A" being unenforceable,
the option to renew it would have no leg to stand on. The river
cannot rise higher than its source. In any event, the option granted
in. this case is without any consideration Article 1324 of the Civil
Code expressly provides that:
When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration,
as something paid or promised.
while Article 1749 of the same Code provides:
A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
Accordingly, even if it were accepted, it can not validly bind the
private respondent. 58
The fourth ground is, however, meritorious.
Section 8, Rule 8 of the Rules of Court provides:
Sec. 8. How to contest genuineness of such documents
When an action or defense is founded upon a written
instrument, copied in or attached in the corresponding
pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to
be the facts; but this provision does not apply when the
adverse party does not appear, to be a party to the
instrument or when compliance with an order for an
inspection of the original instrument is refused.
It is clear that the petitioner is not a party to any of the documents
attached to the private respondent's Answer. Thus, the above
quoted rule is not applicable. 59 While the respondent Court, erred in
holding otherwise, the challenged decision must, nevertheless, stand
in view of the above disquisitions on the first to the third grounds of
the petition.
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HELD: No. The Board may enter into contracts through the president.
The president may only enter into contracts upon authority of the
Board. Hence, any agreement signed by the president is subject to
approval by the Board. Unlike a general manager (like the case of
Francisco vs GSIS), the president has no apparent authority to enter
into binding contracts with third persons. Further, if indeed the bylaws of Prime White did provide Maglana with apparent authority,
this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner,
by which the corporation holds out an officer or agent as having
power to act or, in other words, the apparent authority with which it
clothes him to act in general or (2) acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof,
whether within or without the scope of his ordinary powers. These are
not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding
because Yao Ka Sins failure to respond constitutes an acceptance,
per stated in the letter itself which was not contested by Henry Yao
during trial.
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Surigao del Norte, PNB and DBP as highest bidders, bidded for
P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-AA-" PNB/DBP).
For the foreclosed real properties together with all the buildings,
major machineries & equipment and other improvements of
MMIC located at Antipolo, Rizal, likewise held on August 31,
1984, were sold to PNB and DBP as highest bidders in the sum of
P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over
the foreclosed real properties, buildings, &
machineries/equipment of MMIC located at Sipalay, Negros
Occidental were sold to PNB and DBP, as highest bidders, in the
amount of P2,383,534,000.00 and P543,040.000.00 respectively
(Exhs. "8" to "8-BB", "9" to "90-GGGGGG"-PNB/DBP).
Finally, at the public auction sale conducted on September 18,
1984 on the foreclosed personal properties of MMIC, the same
were sold to PNB and DBP as the highest bidder in the sum of
P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).
PNB and DBP thereafter thru a Deed of Transfer dated August
31, 1984, purposely, in order to ensure the continued operation
of the Nickel refinery plant and to prevent the deterioration of
the assets foreclosed, assigned and transferred to Nonoc
Mining and Industrial Corporation all their rights, interest and
participation over the foreclosed properties of MMIC located
at Nonoc Island, Surigao del Norte for an initial consideration of
P14,361,000,000.00 (Exh. "13"-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB
and DBP assigned and transferred in favor of Maricalum Mining
Corp. all its rights, interest and participation over the foreclosed
properties of MMIC at Sipalay, Negros Occidental for an initial
consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation
No. 50 as amended, again assigned, 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, earlier assigned to Nonoc Mining and Industrial
Corporation, Maricalum Mining Corporation and Island
Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983,
Marinduque Mining purchased and caused to be delivered
construction materials and other merchandise from Remington
Industrial Sales Corporation (Remington) worth P921,755.95. The
purchases remained unpaid as of August 1, 1984 when Remington
filed a complaint for a sum of money and damages against
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On April 10, 1990, the Regional Trial Court (RTC) rendered a decision
in favor of Remington, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendants Marinduque Mining &
Industrial Corporation, Philippine National Bank, Development
Bank of the Philippines, Nonoc Mining and Industrial
Corporation, Maricalum Mining Corporation, Island Cement
Corporation and Asset Privatization Trust to pay, jointly and
severally, the sum of P920,755.95, representing the principal
obligation, including the stipulated interest as of June 22, 1984,
plus ten percent (10%) surcharge per annum by way of
penalty, until the amount is fully paid; the sum equivalent to
10% of the amount due as and for attorney's fees; and to pay
the costs.8
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island
Cement and APT, the Court of Appeals, in its Decision dated
October 6, 1995, affirmed the decision of the RTC. Petitioner filed a
Motion for Reconsideration, which was denied in the Resolution
dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause
of action against it or PNB, nor against their transferees, Nonoc
Mining, Island Cement, Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the
transfer of the properties was made in fraud of creditors. The
presence of fraud, according to Remington, warrants the piercing of
the corporate veil such that Marinduque Mining and its transferees
could be considered as one and the same corporation. The
transferees, therefore, are also liable for the value of Marinduque
Mining's purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court
of Appeals in its decision,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. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an
association of persons or in case of two corporations, merge
them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496,
citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed.,
pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142
Fed., 247, 255 per Sanborn, J.). x x x.
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xxx
xxx
xxx
xxx
xxx
In its decision upholding the order of the lower court, the Court
ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims,
mortgages and liens that constitute an encumbrance on
specific immovable property, and among them are:
"(2) For the unpaid price of real property sold, upon the
immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
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, they shall be satisfied pro-rata, after the payment of
the taxes and assessments upon the immovable property or
real rights."
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.
xxx
xxx
xxx
the former were fully satisfied out of the proceeds of the sale of
the real property subject of the preference, and could even
exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines, however,
only taxes enjoy a similar absolute preference. All the remaining
thirteen classes of preferred creditors under Article 2242 enjoy
no priority among themselves, but must be paid pro rata, i.e., in
proportion to the amount of the respective credits. Thus, Article
2249 provides:
"If there are two or more credits with respect to the same
specific real property or real rights, they shall be satisfied pro
rata, after the payment of the taxes and assessments upon the
immovable property or real rights."
But in order to make this prorating fully effective, the preferred
creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of
them as have credits outstanding) must necessarily be
convened, and the import of their claims ascertained. 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, such as insolvency, the settlement of decedent's
estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
FACTS:
For the calendar year 1986, BPI Leasing Corporation, Inc. (BLC)
paid the Commissioner of Internal Revenue (CIR) a
P27,783,725.42.
tax" under Section 205 but are, instead, subject to "gross receipts
tax" under Section 260 (now Section 122) of the
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The CTA dismissed the petition and denied BLCs claim of refund
and held that RR 19-86, may only be applied
rental income was all received prior to 1986, it follows that this was
derived from lease transactions prior to
Court of Appeals. BLC submits that the Court of Appeals and the
CTA erred in not ruling that RR 19-86 may be
ISSUES:
RULE:
in fact, is invoking RR 19-86 as the very basis of its claim for refund.
If it were invalid, then petitioner all
2ND ISSUE The Court now resolves whether its application should
be prospective or retroactive. Statutes,
operate
tax refund.
SO ORDERED.
G.R. No.148004
Court of Appeals (CA) on June 30, 2000, and its resolution, dated
March 5, 2001 in CA-G.R. SP No. 55834 entitled "George I. Lagos v.
Hon. Reinato G. Quilala, Presiding Judge of RTC, Br. 57, Makati, Hon.
Elizabeth Tayo Chua, Asst. City Prosecutor, Makati City, and Vincent
E. Omictin."
In its assailed decision, the CA declared the existence of a
prejudicial question and ordered the suspension of the criminal
proceedings initiated by petitioner Vincent E. Omictin on behalf of
Saag Phils., Inc. against private respondent George I. Lagos, in view
of a pending case before the Securities and Exchange Commission
(SEC) filed by the latter against the former, Saag Pte. (S) Ltd.,
Nicholas Ng, Janifer Yeo and Alex Y. Tan.
The facts are as follows:
Petitioner Vincent E. Omictin, Operations Manager Ad Interim of
Saag Phils., Inc., filed a complaint for two counts of estafa with the
Office of the City Prosecutor of Makati against private respondent
George I. Lagos. He alleged that private respondent, despite
repeated demands, refused to return the two company vehicles
entrusted to him when he was still the president of Saag Phils., Inc..
On February 26, 1999, public prosecutor Alex G. Bagaoisan
recommended the indictment of private respondent, and on the
same day, respondent was charged with the crime of estafa under
Article 315, par. 1(b) of the Revised Penal Code before the Regional
Trial Court (RTC), Branch 57 of Makati City. The case was docketed
as Criminal Case No. 99-633, entitled "People of the Philippines v.
George I. Lagos."
On June 4, 1999, private respondent filed a motion to recuse praying
that Presiding Judge Reinato G. Quilala inhibit himself from hearing
the case based on the following grounds:
a) In an order, dated May 28, 1999, the presiding judge
summarily denied respondents motion: 1) to defer issuance of
the warrant of arrest; and 2) to order reinvestigation.
b) Immediately before the issuance of the above-mentioned
order, the presiding judge and Atty. Alex Y. Tan, SAAG
Philippines, Inc.s Ad Interim President, were seen together. 2
On June 24, 1999, private respondent filed a motion to suspend
proceedings on the basis of a prejudicial question because of a
pending petition with the Securities and Exchange Commission (SEC)
involving the same parties.
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RENATO C. CORONA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby
certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1
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Rollo, p. 42.
Id. at 51.
Id. at 55.
Id. at 59.
Id. at 48.
12
Rollo, p. 50.
14
16
Section 9 of the Interim Rules of Procedure Governing IntraCorporate Controversies states: "All cases filed under these
Rules shall be tried by judges designated by the Supreme court
to hear and decide cases transferred from the Securities and
Exchange Commission to the Regional Trial Courts and filed
directly with said courts pursuant to Republic Act No. 8799,
otherwise known as the Securities and Regulation Code."
19
DECISION
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adjacent property to allow the buyer to full access and full use
of the property.5
Roxas indicated his acceptance of the offer on page 2 of the deed.
Less than a month later or on July 1, 1991, Roxas, as President of
RECCI, as vendor, and Dy, as President of WHI, as vendee, executed
a contract to sell in which RECCI bound and obliged itself to sell to
Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.6 On
September 5, 1991, a Deed of Absolute Sale7 in favor of WHI was
issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086
was sold for P5,000,000, receipt of which was acknowledged by
Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to
give Vendee the beneficial use of and a right of way from
Sumulong Highway to the property herein conveyed consists of
25 square meters wide to be used as the latter's egress from
and ingress to and an additional 25 square meters in the corner
of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the right of way is
insufficient for the Vendee's use (ex entry of a 45-foot
container) the Vendor agrees to sell additional square meters
from its current adjacent property to allow the Vendee full
access and full use of the property.
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On June 17, 1992, the WHI filed a complaint against the RECCI with
the Regional Trial Court of Makati, for specific performance and
damages, and alleged, inter alia, the following in its complaint:
5. The "current adjacent property" referred to in the
aforequoted paragraph of the Deed of Absolute Sale pertains
to the property covered by Transfer Certificate of Title No. N78085 of the Registry of Deeds of Antipolo, Rizal, registered in
the name of herein defendant Roxas Electric.
6. Defendant Roxas Electric in patent violation of the express
and valid terms of the Deed of Absolute Sale unjustifiably
refused to deliver to Woodchild Holdings the stipulated
beneficial use and right of way consisting of 25 square meters
and 55 square meters to the prejudice of the plaintiff.
7. Similarly, in as much as the 25 square meters and 55 square
meters alloted to Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering area of its 45-foot
container van, Woodchild Holdings manifested its intention
pursuant to para. 5 of the Deed of Sale to purchase additional
square meters from Roxas Electric to allow it full access and use
of the purchased property, however, Roxas Electric refused
and failed to merit Woodchild Holdings' request contrary to
defendant Roxas Electric's obligation under the Deed of
Absolute Sale (Annex "A").
8. Moreover, defendant, likewise, failed to eject all existing
squatters and occupants of the premises within the stipulated
time frame and as a consequence thereof, plaintiff's planned
construction has been considerably delayed for seven (7)
months due to the squatters who continue to trespass and
obstruct the subject property, thereby Woodchild Holdings
incurred substantial losses amounting to P3,560,000.00
occasioned by the increased cost of construction materials
and labor.
9. Owing further to Roxas Electric's deliberate refusal to comply
with its obligation under Annex "A," Woodchild Holdings
suffered unrealized income of P300,000.00 a month or
P2,100,000.00 supposed income from rentals of the subject
property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings made a final
demand to Roxas Electric to comply with its obligations and
warranties under the Deed of Absolute Sale but
notwithstanding such demand, defendant Roxas Electric
refused and failed and continue to refuse and fail to heed
plaintiff's demand for compliance.
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absolute sale executed by Roxas for and in its behalf. As such, the
respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 with an area of 500 square meters at the price of
P1,000 per square meter, based on its evidence and Articles 649 and
651 of the New Civil Code.
For its part, the respondent posits that Roxas was not so authorized
under the May 17, 1991 Resolution of its Board of Directors to impose
a burden or to grant a right of way in favor of the petitioner on Lot
No. 491-A-3-B-1, much less convey a portion thereof to the petitioner.
Hence, the respondent was not bound by such provisions contained
in the deed of absolute sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of the said
property since there was no agreement in the deed of absolute sale
on the price thereof as well as the specific portion and area to be
purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of
Appeals,21 we held that:
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members
and may not be sold by the stockholders or members without
express authorization from the corporation's board of directors.
Section 23 of BP 68, otherwise known as the Corporation Code
of the Philippines, provides:
"SEC. 23. The Board of Directors or Trustees. Unless
otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of
directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one
(1) year and until their successors are elected and
qualified."
Indubitably, a corporation may act only through its board of
directors or, when authorized either by its by-laws or by its
board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the
relation between the corporation and its officers or agents,
subject to the articles of incorporation, by-laws, or relevant
provisions of law. 22
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Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article
1910 of the New Civil Code, acts done by such officers beyond the
scope of their authority cannot bind the corporation unless it has
ratified such acts expressly or tacitly, or is estopped from denying
them:
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the
scope of authority are unenforceable against the corporation
unless ratified by the corporation.23
In BA Finance Corporation v. Court of Appeals,24 we also ruled that
persons dealing with an assumed agency, whether the assumed
agency be a general or special one, are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish
it.
In this case, the respondent denied authorizing its then president
Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085, and to create a lien or burden thereon. The petitioner
was thus burdened to prove that the respondent so authorized
Roxas to sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the
Board of Directors of the respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the corporation, thru
the President, sell to any interested buyer, its 7,213-sq.-meter
property at the Sumulong Highway, Antipolo, Rizal, covered by
Transfer Certificate of Title No. N-78086, at a price and on terms
and conditions which he deems most reasonable and
advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of
the corporation, be, as he is hereby authorized to execute, sign
and deliver the pertinent sales documents and receive the
proceeds of sale for and on behalf of the company.25
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does not have such authority; second, the principal may so clothe
the agent with the indicia of authority as to lead a reasonably
prudent person to believe that he actually has such authority.32
There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct of
the principal must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by a third
person as claimant and such must have produced a change of
position to its detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the
agent.33
For the principle of apparent authority to apply, the petitioner was
burdened to prove the following: (a) the acts of the respondent
justifying belief in the agency by the petitioner; (b) knowledge
thereof by the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with ordinary care and
prudence.34 In this case, there is no evidence on record of specific
acts made by the respondent35 showing or indicating that it had full
knowledge of any representations made by Roxas to the petitioner
that the respondent had authorized him to grant to the respondent
an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, or to create a burden or lien thereon, or that the respondent
allowed him to do so.
The petitioner's contention that by receiving and retaining the
P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent
effectively and impliedly ratified the grant of a right of way on the
adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an
option to sell a portion thereof, is barren of merit. It bears stressing
that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and
the latter had taken possession of the property. As such, the
respondent had the right to retain the P5,000,000, the purchase price
of the property it had sold to the petitioner. For an act of the
principal to be considered as an implied ratification of an
unauthorized act of an agent, such act must be inconsistent with
any other hypothesis than that he approved and intended to adopt
what had been done in his name.36 Ratification is based on waiver
the intentional relinquishment of a known right. Ratification cannot
be inferred from acts that a principal has a right to do independently
of the unauthorized act of the agent. Moreover, if a writing is
required to grant an authority to do a particular act, ratification of
that act must also be in writing.37 Since the respondent had not
ratified the unauthorized acts of Roxas, the same are
unenforceable.38 Hence, by the respondent's retention of the
amount, it cannot thereby be implied that it had ratified the
unauthorized acts of its agent, Roberto Roxas.
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Footnotes
Penned by Associate Justice Salome A. Montoya, with
Associate Justices Conrado M. Vasquez, Jr. and Teodoro P.
Regino, concurring.
1
Ibid.
Id. at 193-194.
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10
11
12
13
14
15
16
Id. at 4-5.
17
Id. at 24-25.
18
Id. at 247.
19
Id. at 482.
20
21
22
Id. at 644-645.
25
Records, p. 213.
(14) To ratify or recognize obligations contracted before
the agency;
(15) Any other act of strict dominion.
27
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mortgage was null and void for lack of authority from the
corporation.
Petitioner is now before this Court with the following assignment of
errors:
1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT DECLARED THAT THE
CORPORATION DID NOT RATIFY THE ACT OF ITS PRESIDENT IN
OBTAINING LOANS FROM PETITIONER DESPITE ITS ADMISSION THAT IT
RECEIVED THE MONEY OF THE PETITIONER.
2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT TOTALLY DISREGARDED THE
ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND
APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL.
3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE REAL ESTATE
MORTGAGE AND THE AWARD OF ATTORNEYS FEES, 10% LIQUIDATED
DAMAGES AND THE COSTS OF SUIT.
4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE AWARD OF
INTEREST BY WAY OF DAMAGES IN FAVOR OF PETITIONER.8
The issues to be resolved are the following:
1) whether the loans were personal liabilities of de Villa or debts of
respondent corporation and
2) whether the mortgage on respondent corporations property was
null and void for having been executed without its authority.
We begin with a brief study of some well-settled legal doctrines
relevant to the disposition of this case.
Personal or Corporate Liability?
A corporation is a juridical person, separate and distinct from its
stockholders. Being a juridical entity, a corporation may act through
its board of directors, as provided in Section 23 of the Corporation
Code of the Philippines:9
Sec. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees
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argue for the liability of respondent heirs. The trial court correctly
dismissed the case against the latter. Petitioners remedy now is to
file a money claim in the settlement proceedings of de Villas estate,
if not too late, as indicated in
Rule 8629 of the Rules of Court.
WHEREFORE, the petition is hereby DENIED. The October 18, 2001
decision of the Court of Appeals in CA-G.R. CV No. 61755 is
AFFIRMED.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
(on official business)
ANGELINA SANDOVAL-GUTIERREZ
ADOLFO S. AZCUNA
Associate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above
decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
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ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
* On official business.
1
Id., p. 35.
Id., p. 34.
Id., p. 15.
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Aguenza v. Metropolitan Bank & Trust Co., 337 Phil. 448 (1997),
citing Art. 1878 (7), Civil Code of the Philippines.
16
17
Rollo, p. 16.
18
19
Rollo, p. 54.
20
Id., p. 42.
This is why the instant case is different from de Asis & Co., Inc.
v. Court of Appeals (G.R. No. L-61549, 27 May 1985, 136 SCRA
599) which petitioner insists is squarely in point. In de Asis, there
was no promissory note to evidence the loan but the creditor
knew all along that the debtor was the corporation and not its
president. In fact, she deposited the amount of the loan
directly in the account of the corporation.
21
22
Rollo, p. 175.
23
25
26
27
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DECISION
TINGA, J.:
National Power Corporation (NPC) filed the instant Petition for
Review1 dated July 19, 2001, assailing the Decision 2 of the Court of
Appeals dated May 28, 2001 which affirmed with modification the
Order3 and Writ of Execution4 respectively dated May 22, 2000 and
June 9, 2000 issued by the Regional Trial Court. In its assailed
Decision, the appellate court declared respondent First United
Constructors Corporation (FUCC) entitled to just compensation for
blasting works it undertook in relation to a contract for the
construction of power facilities it entered into with petitioner. The
Court of Appeals, however, deleted the award for attorney's fees
having found no basis therefor.
The facts culled from the Decision of the Court of Appeals are
undisputed:
On April 14, 1992, NPC and FUCC entered into a contract for
the construction of power facilities (civil works) Schedule 1
1x20 MW Bacon-Manito II Modular Geothermal Power Plant
(Cawayan area) and Schedule 1A 1x20 MW Bacon-Manito II
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P
52,081,421.00
1A Botong
area
P
56,412,545.30
P
108,493,966.30
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xxx xxx
STAGE 2
7.1 The parties shall submit for arbitration to settle: (a)
the price of blasting, (b) both parties' claims for
damages, delays, interests, and (c) all other
unresolved claims of both parties, including the
exact volume of blasted rocks;
7.2 The arbitration shall be through a three-member
commission to be appointed by the Honorable
Court. Each party shall nominate one member. The
Chairman of the Arbitration Board shall be [a] person
mutually acceptable to both parties, preferably from
the academe;
7.3 The parties shall likewise agree upon the terms
under which the arbitrable issues shall be referred to
the Arbitration Board. The terms of reference shall
form part of the Compromise Agreement and shall
be submitted by the parties to the Honorable Court
within a period of seven (7) days from the signing of
the Compromise Agreement;
7.4 The Arbitration Board shall have a non-extendible
period of three (3) months within which to complete
the arbitration process and submit its Decision to the
Honorable Court;
7.5 The parties agree that the Decision of the
Arbitration Board shall be final and executory;
7.6 By virtue of this Compromise Agreement, except
as herein provided, the parties shall mutually waive,
forgo and dismiss all of their other claims and/or
counterclaim in this case. Plaintiff and defendant
warrant that after approval by the Court of this
Compromise Agreement neither party shall file
Criminal or Administrative cases or suits against each
other or its Board or member of its officials on
grounds arising from the case.
The Compromise Agreement was subsequently approved by
the Court on May 24, 1995.
The case was subsequently referred by the parties to the
arbitration board pursuant to their Compromise Agreement. On
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Footnotes
1
Id. at 88-92.
Id. at 93.
Id. at 59-67.
Id. at 71-72.
Rollo, p. 83.
10
11
12
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14
Id. at 310-320.
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PANGANIBAN, J.:
Contracts entered into by a corporate president without express
prior board approval bind the corporation, when such officer's
apparent authority is estabished and when these contracts are
ratified by the corporation.
The Case
This principle is stressed by the Court in rejecting the Petition for
Review of the February 28, 1994 Decision and the October 28, 1994
Resolution of the Court of Appeals in CA-GR CV No. 30670.
In a collection case 1 filed by Stefani Sao against People's Aircargo
and Warehousing Co., Inc., the Regional Trial Court (RTC) of Pasay
City, Branch 110, rendered a Decision 2 dated October 26, 1990, the
dispositive portion of which reads: 3
WHEREFORE, in light of all the foregoing, Judgment is
hereby rendered, ordering [petitioner] to pay [private
respondent] the amount of sixty thousand (P60,000.00)
pesos representing payment of [private respondents]
services in preparing the manual of operations and in the
conduct of a seminar for [petitioner]. The Counterclaim is
hereby dismissed.
Aggrieved by what he considered a minuscule award of P60,000,
private respondent appealed to the Court of Appeals 4 (CA) which,
in its Decision promulgated February 28, 1994, granted his prayer for
P400,000, as follows: 5
WHEREFORE, PREMISES CONSIDERED, the appealed
judgment is hereby MODIFIED in that [petitioner] is
ordered to pay [private respondent] the amount of four
hundred thousand pesos (P400,000.00) representing
payment of [private respondent's] services in preparing
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19
The Issues
Instead of alleging reversible errors, petitioner imputes "grave abuse
of discretion" to the Court of Appeals, viz.: 20
I. . . . [I]n ruling that the subject letter-agreement for
services was binding on the corporation simply because it
was entered into by its president[;]
II. . . . [I]n ruling that the subject letter-agreement for
services was binding on the corporation notwithstanding
the lack of any board authority since it was the purported
"practice" to allow the president to enter into contracts of
said nature (citing one previous instance of a similar
contract)[;] and
III. . . . [I]n ruling that the subject letter-agreement for
services was a valid contract and not merely simulated.
The Court will overlook the lapse of petitioner in alleging grave abuse
of discretion as its ground for seeking reversal of the assailed
Decision. Although the Rules of Court specify "reversible errors" as
grounds for a petition for review under Rule 45, the Court will lay
aside for the nonce this procedural lapse and consider the
allegations of "grave abuse" as statements of reversible errors of law.
Petitioner does not contest its liability; it merely disputes the amount
of such accountability. Hence, the resolution of this petition rests on
the sole issue of the enforceability and validity of the Second
Contract, more specifically: (1) whether the president of the
petitioner-corporation had apparent authority to bind petitioner to
the Second Contract; and (2) whether the said contract was valid
and not merely simulated.
The Court's Ruling
The petition is not meritorious.
First Issue:
Apparent Authority of a Corporate President
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Accordingly, the appellate court ruled in this case that the authority
to act for and to bind a corporation may be presumed from acts of
recognition in other instances, wherein the power was in fact
exercised without any objection from its board or shareholders.
Petitioner had previously allowed its president to enter into the First
Contract with private respondent without a board resolution
expressly authorizing him; thus, it had clothed its president with
apparent authority to execute the subject contract.
Petitioner rebuts, arguing that a single isolated agreement prior to
the subject contract does not constitute corporate practice, which
Webster defines as "frequent or custmary action." It cites Board of
Liquidators v. Kalaw, 26 in which the practice of NACOCO allowing its
general manager to negotiate and execute contract in its copra
trading activities for and on its behalf, without prior board approval,
was inferred from sixty contract not one, as in present case
previously entered into by the corporation without such board
resolution.
Petitioner's argument is not persuasive. Apparent authority is derived
not merely from practice. Its existence may be ascertained through
(1) the general manner in which the corporation holds out an officer
or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the
scope of his ordinary powers. 27 It requires presentation of evidence
of similar act(s) executed either in its favor or in favor of other parties.
28 It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporale officer with the power to
bind the corporation.
In the case at bar, petitioner, through its president Antonio Punsalan
Jr., entered into the First Contract without first securing board
approval. Despite such lack of board approval, petitioner did not
object to or repudiate said contract, thus "clothing" its president with
the power to bind the corporation. The grant of apparent authority
to Punsalan is evident in the testimony of Yong senior vice
president, treasurer and major stockholder of petitioner. Testifying on
the First Contract, he said: 29
A: Mr. [Punsalan] told me that he prefer[s] Mr.
Sao because Mr. Sao is very influential with
the Collector of Customs[s]. Because the
Collector of Custom[s] will be the one to
approve our project study and I objected to
that, sir. And I said it [was an exorbitant] price.
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connected with [petitioner], indicate that the letteragreement was signed by Punsalan when he was no
longer connected with [petitioner] or, as claimed by
[petitioner], that Punsalan signed it without [petitioner's]
authority and must have been done "in collusion with
plaintiff in order to unlawfully get some money from
[petitioner]?
4) If, as [private respondent] claims, the letter was
returned by Punsalan after affixing thereon his conformity,
how come . . . when Punsalan allegedly visited [private
respondent] in his office at the Bureau of Customs, in June
1987, Punsalan "brought" (again?) the letter (with the
pencil [notation] at the left bottom portion allegedly
already written)?
5) How come . . . [private respondent] did not even keep
a copy of the alleged service contract allegedly
attached to the letter-agreement?
6) Was not the letter-agreement a mere draft, it bearing
the corrections made by Punsalan of his name (the letter
"n" is inserted before the last letter "o" in Antonio) and of
the spelling of his family name (Punsalan, not Punzalan)?
7) Why was not Punsalan impleaded in the case?
The issue of whether the contract is simulated or real is factual in
nature, and the Court eschews factual examinanon in a petition for
review under Rule 45 of the Rules of Court. 35 This rule, however,
admits of exceptions, one of which is a conflict between the factual
findings of the lower and of the appellate courts 36 as in the case at
bar.
After judicious deliberation, the Court agrees with the appellate
court that the alleged "badges of fraud" mentioned earlier have not
affected in any manner the perfection thereof. First, the lack of
payment (whether down, partial or full payment), even after
completion of private respondent's obligations, imports only a defect
in the performance of the contract on the part of petitioner.
Second, the delay in the filing of action was not fatal to private
respondent's cause. Despite the lapse of one year after private
respondent completed his services or eight months after the alleged
last demand for payment in June 1987, the action was still filed within
the allowable period, considering that an action based on a written
contract prescribes only after ten years from the time the right of
action accrues. 37 Third, a misspelling in the contract does not
establish vitiation of consent, cause or object of the contract. Fourth,
a confirmation letter is not an essential element of a contract,
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Peoples Aircargo and Warehousing Co., Inc. vs. CA [297 SCRA 170
(Oct 7 1998)]
Power of Board of Directors to Bind Corporation
Facts: Peoples Aircargo is a domestic corporation organized to
operate a customs bonded warehouse. To obtain a license for the
corporation from the Bureau of Customs, Punsalan, its President,
solicited a proposal from Sano for the preparation of a feasibility
study. Sano submitted a letter proposal to Punsalan of the terms and
conditions of the contract, amounting to P350,000.00. Punsalan sent
a letter to Sano confirming to their agreement. Accordingly, Sano
prepared the feasibility study. Sano was paid in full.
Thereafter, a 2nd contract was entered into for consultancy
services. Hence, the Bureau of Customs issued a license to Peoples
Aircargo. Sano was not paid for this 2nd contract. Hence, he filed a
collection case against the corporation. Meanwhile, Punsalan sold
his shares in Peoples Aircargo andresigned as president.
Peoples Aircargo denied that there were consultancy services
rendered by Sano. It alleged that the 2nd contract entered into
between him and Punsalan was without authority.
RTC adjudged in favor of Sano. CA affirmed. Hence, this petition.
Issue: Whether or not the Punsalan had apparent authority to bind
Peoples Aircargo to the 2nd contract.
Held: Yes. The general rule is that, in the absence of authority from
the BoD, no person, not even its officers, can validly bind a
corporation. A corporation is a juridical person, separate and
distinct from its stockholders and members, having powers, attributes
and properties expressly authrized by law or incident to its
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Resolution dated August 19, 1996 denying the petitioners motion for
reconsideration.
The case stemmed from the following facts:
Sometime in 1977, petitioner Elias Q. Tan, then President of the copetitioner Lapulapu Foundation, Inc., obtained four loans from the
respondent Allied Banking Corporation covered by four promissory
notes in the amounts of P100,000 each. The details of the promissory
notes are as follows:
P/N No.
Date of P/N
P123,377.76
P122,322.21
P120,455.542
May 5, 1978
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For his part, petitioner Tan admitted that he contracted the loans
from the respondent Bank in his personal capacity. The parties,
however, agreed that the loans were to be paid from the proceeds
of petitioner Tans shares of common stocks in the Lapulapu
Industries Corporation, a real estate firm. The loans were covered by
promissory notes which were automatically renewable ("rolled-over")
every year at an amount including unpaid interests, until such time
as petitioner Tan was able to pay the same from the proceeds of his
aforesaid shares.
According to petitioner Tan, the respondent Banks employee
required him to affix two signatures on every promissory note,
assuring him that the loan documents would be filled out in
accordance with their agreement. However, after he signed and
delivered the loan documents to the respondent Bank, these were
filled out in a manner not in accord with their agreement, such that
the petitioner Foundation was included as party thereto. Further,
prior to its filing of the complaint, the respondent Bank made no
demand on him.
After due trial, the court a quo rendered judgment the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing evidences [sic], arguments and
considerations, this court hereby finds the preponderance of
evidence in favor of the plaintiff and hereby renders judgment as
follows:
"1. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc. [the petitioners herein] to pay jointly and
solidarily to the plaintiff Allied Banking Corporation [the
respondent herein] the amount of P493,566.61 as principal
obligation for the four promissory notes, including all other
charges included in the same, with interest at 14% per annum,
computed from January 24, 1979, until the same are fully paid,
plus 2% service charges and 1% monthly penalty charges.
"2. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc., to pay jointly and solidarily, attorneys fees in
the equivalent amount of 25% of the total amount due from
the defendants on the promissory notes, including all charges;
"3. Requiring the defendants Elias Q. Tan and Lapulapu
Foundation, Inc., to pay jointly and solidarily litigation expenses
of P1,000.00 plus costs of the suit."3
On appeal, the CA affirmed with modification the judgment of the
court a quo by deleting the award of attorneys fees in favor of the
respondent Bank for being without basis.
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The appellate court disbelieved petitioner Tans claim that the loans
were his personal loans as the promissory notes evidencing them
showed upon their faces that these were obligations of the
petitioner Foundation, as contracted by petitioner Tan himself in his
"official and personal character." Applying the parol evidence rule,
the CA likewise rejected petitioner Tans assertion that there was an
unwritten agreement between him and the respondent Bank that he
would pay the loans from the proceeds of his shares of stocks in the
Lapulapu Industries Corp.
Further, the CA found that demand had been made by the
respondent Bank on the petitioners prior to the filing of the complaint
a quo. It noted that the two letters of demand dated January 3,
19794 and January 30, 19795 asking settlement of the obligation were
sent by the respondent Bank. These were received by the petitioners
as shown by the registry return cards6 presented during trial in the
court a quo.
Finally, like the court a quo, the CA applied the doctrine of piercing
the veil of corporate entity in holding the petitioners jointly and
solidarily liable. The evidence showed that petitioner Tan had
represented himself as the President of the petitioner Foundation,
opened savings and current accounts in its behalf, and signed the
loan documents for and in behalf of the latter. The CA, likewise,
found that the petitioner Foundation had allowed petitioner Tan to
act as though he had the authority to contract the loans in its
behalf. On the other hand, petitioner Tan could not escape liability
as he had used the petitioner Foundation for his benefit.
Aggrieved, the petitioners now come to the Court alleging that:
I. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
LOANS SUBJECT MATTER OF THE INSTANT PETITION ARE ALREADY
DUE AND DEMANDABLE DESPITE ABSENCE OF PRIOR DEMAND.
II. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE
PAROL EVIDENCE RULE AND THE DOCTRINE OF PIERCING THE
VEIL OF CORPORATE ENTITY AS BASIS FOR ADJUDGING JOINT
AND SOLIDARY LIABILITY ON THE PART OF PETITIONERS ELIAS Q.
TAN AND LAPULAPU FOUNDATION, INC.7
The petitioners assail the appellate courts finding that the loans had
become due and demandable in view of the two demand letters
sent to them by the respondent Bank. The petitioners insist that there
was no prior demand as they vigorously deny receiving those letters.
According to petitioner Tan, the signatures on the registry return
cards were not his.
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hand, while admitting that the loans were his personal obligation,
petitioner Tan avers that he had an unwritten agreement with the
respondent Bank that these loans would be renewed on a year-toyear basis and paid from the proceeds of his shares of stock in the
Lapulapu Industries Corp.
These contentions are untenable.
The Court particularly finds as incredulous petitioner Tans allegation
that he was made to sign blank loan documents and that the
phrase "IN MY OFFICIAL/PERSONAL CAPACITY" was superimposed by
the respondent Banks employee despite petitioner Tans
protestation. The Court is hard pressed to believe that a businessman
of petitioner Tans stature could have been so careless as to sign
blank loan documents.
In contrast, as found by the CA, the promissory notes11 clearly
showed upon their faces that they are the obligation of the
petitioner Foundation, as contracted by petitioner Tan "in his official
and personal capacity."12 Moreover, the application for credit
accommodation,13 the signature cards of the two accounts in the
name of petitioner Foundation,14 as well as New Current Account
Record,15 all accompanying the promissory notes, were signed by
petitioner Tan for and in the name of the petitioner Foundation.16
These documentary evidence unequivocally and categorically
establish that the loans were solidarily contracted by the petitioner
Foundation and petitioner Tan.
As a corollary, the parol evidence rule likewise constrains this Court
to reject petitioner Tans claim regarding the purported unwritten
agreement between him and the respondent Bank on the payment
of the obligation. Section 9, Rule 130 of the of the Revised Rules of
Court provides that "[w]hen the terms of an agreement have been
reduced to writing, it is to be considered as containing all the terms
agreed upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than the
contents of the written agreement."17
In this case, the promissory notes are the law between the petitioners
and the respondent Bank. These promissory notes contained
maturity dates as follows: February 5, 1978, March 28, 1978, April 11,
1978 and May 5, 1978, respectively. That these notes were to be paid
on these dates is clear and explicit. Nowhere was it stated therein
that they would be renewed on a year-to-year basis or "rolled-over"
annually until paid from the proceeds of petitioner Tans shares in the
Lapulapu Industries Corp. Accordingly, this purported unwritten
agreement could not be made to vary or contradict the terms and
conditions in the promissory notes.
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In fine, there is no cogent reason to deviate from the CAs ruling that
the petitioners are jointly and solidarily liable for the loans contracted
with the respondent Bank.
WHEREFORE, premises considered, the petition is DENIED and the
Decision dated June 26, 1996 and Resolution dated August 19, 1996
of the Court of Appeals in CA-G.R. CV No. 37162 are AFFIRMED in
toto.
SO ORDERED.
Puno, (Chairman) Quisumbing, Austria-Martinez, and Tinga, JJ.,
concur.
Footnotes
Penned by Associate Justice Delilah Vidallon-Magtolis with
Associate Justices Quirino D. Abad Santos and Artemio G.
Tuquero concurring.
1
Rollo, p. 24.
Id. at 25.
Exhibit "R."
Exhibit "S."
Rollo, p. 14.
Id. at 30.
10
11
12
Rollo, p. 26.
13
Exhibit "D."
14
15
Exhibit "C."
16
Ibid.
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17
For his part, Tan admitted that he contracted the loans from the
Bank in his personal capacity. The parties, however, agreed that
the loans were to be paid from the proceeds of Tans shares of
common stocks in the Lapulapu Industries Corporation, a real
estate firm. The loans were covered by promissory notes which
were automatically renewable (rolled-over) every year at an
amount including unpaid interests, until such time as petitioner Tan
was able to pay the same from the proceeds of his aforesaid
shares.
Issue: May the Foundation correctly raise as a defense that it did
not authorize Tan to obtain the loans involved and therefore it
may not be held solidarily liable for them?
Held: NO. The Court agrees with the CA that the petitioners
cannot hide behind the corporate veil under the following
circumstances:
The evidence shows that Tan has been representing himself as the
President of Lapulapu Foundation, Inc. He opened a savings
account and a current account in the names of the corporation,
and signed the application form as well as the necessary
specimen signature cards twice, for himself and for the
foundation. He submitted a notarized Secretarys Certificate from
the corporation, attesting that he has been authorized, inter alia,
to sign for and in behalf of the Lapulapu Foundation any and all
checks, drafts or other orders with respect to the bank; to transact
business with the Bank, negotiate loans, agreements, obligations,
promissory notes and other commercial documents; and to
initially obtain a loan for P100, 000.00 from any bank. Under these
circumstances, the Foundation is liable for the transactions
entered into by Tan on its behalf.
Per its Secretarys Certificate, the Foundation had given Tan
ostensible and apparent authority to inter alia deal with the Bank.
Accordingly, the petitioner Foundation is estopped from
questioning Tans authority to obtain the subject loans from the
Bank. It is a familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the corporation
will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agents authority.
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After due trial, the court rendered judgment (1) requiring Tan and
the Foundation to pay jointly and solidarily to the Bank the amount
of P493,566.61 as principal obligation for the four promissory notes,
including all other charges included in the same, with interest at 14%
per annum, computed from 24 January 1979, until the same are fully
paid, plus 2% service charges and 1% monthly penalty charges; (2)
requiring Tan and the Foundation to pay jointly and solidarily,
attorneys fees in the equivalent amount of 25% of the total amount
due from them on the promissory notes, including all charges; and
(3) requiring Tan and the Foundation to pay jointly and solidarily
litigation expenses of P1,000.00 plus costs of the suit. On appeal, the
CA affirmed with modification the judgment of the court a quo by
deleting the award of attorneys fees in favor of the Bank for being
without basis. Tan and the foundation filed the petition for review on
certiorari.
Issue:
1. Whether Tan and the foundation should be held jointly and
solidarily liable.
2. Whether the foundation gave Tan an apparent authority to
deal with the Bank.
Held:
1. The appellate court did not err in holding Tan and the foundation
jointly and solidarily liable as it applied the doctrine of piercing the
veil of corporate entity. Tan and the foundation cannot hide behind
the corporate veil under the following circumstances: "The evidence
shows that Tan has been representing himself as the President of
Lapulapu Foundation, Inc. He opened a savings account and a
current account in the names of the corporation, and signed the
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xxx
xxx
Turning now to the plaintiff's separate appeal (Case G.R. No. L18155): Her prayer for an award of actual or compensatory
damages for P83,333.33 is predicated on her alleged unrealized
profits due to her inability to sell the compound for the price of
P750,000.00 offered by one Vicente Alunan, which sale was
allegedly blocked because the System consolidated the title to the
property in its name. Plaintiff reckons the amount of P83,333.33 by
placing the actual value of the property at P666,666.67, a figure
arrived at by assuming that the System's loan of P400,000.00
constitutes 60% of the actual value of the security. The court a quo
correctly refused to award such actual or compensatory damages
because it could not determine with reasonable certainty the
difference between the offered price and the actual value of the
property, for lack of competent evidence. Without proof we cannot
assume, or take judicial notice, as suggested by the plaintiff, that the
practice of lending institutions in the country is to give out as loan
60% of the actual value of the collateral. Nor should we lose sight of
the fact that the price offered by Alunan was payable in installments
covering five years, so that it may not actually represent true market
values.
Nor was there error in the appealed decision in denying moral
damages, not only on account of the plaintiff's failure to take the
witness stand and testify to her social humiliation, wounded feelings,
anxiety, etc., as the decision holds, but primarily because a breach
of contract like that of defendant, not being malicious or fraudulent,
does not warrant the award of moral damages under Article 2220 of
the Civil Code (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores
vs. Miranda, L-12163, 4 March 1959).
There is no basis for awarding exemplary damages either, because
this species of damages is only allowed in addition to moral,
temperate, liquidated, or compensatory damages, none of which
have been allowed in this case, for reasons herein before discussed
(Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I., L-7817, Res. July 30,
1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27, 1953, 49
O.G. No. 2, 515).
As to attorneys' fees, we agree with the trial court's stand that in view
of the absence of gross and evident bad faith in defendant's refusal
to satisfy the plaintiff's claim, and there being none of the other
grounds enumerated in Article 2208 of the Civil Code, such absence
precludes a recovery. The award of attorneys' fees is essentially
discretionary in the trial court, and no abuse of discretion has been
shown.
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saying that the System has approved the request in redeeming the
property is incorrect due to clerical problems.
Issue: WON the System is liable for the acts of its employees
regarding the telegram?
Held: Yes. There was nothing in the telegram that hinted at any
anomaly, or gave ground to suspect its veracity, and the plaintiff,
therefore, can not be blamed for relying upon it. There is no denying
that the telegram was within Andals apparent authority. Hence,
even if it were the board secretary who sent the telegram, the
corporation could not evade the binding effect produced by the
telegram. Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment, and in
relation to matters within the scope of his authority, is notice to the
corporation, whether he communicates such knowledge or not. Yet,
notwithstanding this notice, the defendant System pocketed the
amount, and kept silent about the telegram not being in
accordance with the true facts, as it now alleges. This silence, taken
together with the unconditional acceptance of three other
subsequent remittances from plaintiff, constitutes in itself a binding
ratification of the original agreement.
Nyco Sales Corp. vs. BA Finance Corp. (200 SCRA 637 [1991])
PARAS, J.:p
In this petition for review on certiorari, petitioner challenges the April
22, 1985 decision * and the July 16, 1985 resolution * of the then
Intermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA
Finance Corporation v. Nyco Sales Corporation, et al." which
affirmed with modification the July 20, 1983 decision ** of the
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amount of P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-52).
Nyco, however, moved to set aside the order of default, to have its
answer admitted and to be able to implead Sanshell. The prayer
was granted through an order dated June 23, 1980, wherein the
decision of the court was set aside only as regards Nyco. Trial ensued
once more until the court reached a second decision which states:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the
following:
1) P60,000.00 as principal obligation, plus interest thereon
at the rate of 14% per annum from February 1, 1979 until
fully paid;
2) The amount of P100,000.00 as and for attorney's fees;
and
3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato
Fernandez, the decision of May 16, 1980 stands.
The cross-claim of defendant Nyco Sales Corporation
against codefendants Santiago B. Fernandez and Renato
B. Fernandez is hereby denied, as there is no showing that
Nyco's Answer with cross-claim dated May 29, 1980 was
ever received by said Fernandez brothers, even as it is
noted that the latter have not been declared in default
with respect to said cross-claim, nor were evidence
adduced in connection therewith.
As to the would-be litigant Sanshell Construction and
Development Corporation, defendant Nyco Sales
Corporation did not properly implead said corporation
which should have been by way of a third-party
complaint instead of a mere cross-claim. The same
observations are noted as regard this cross-claim against
Sanshell as those made with respect to the Fernandez
brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but
modified the lower court's decision by ordering that the interest
should run from February 19, 1979 until paid and not from February 1,
1979. Nyco's subsequent motion for reconsideration was denied
(Ibid., pp. 33, 62). Hence, the present recourse.
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Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989).
Nyco remained silent in the course of the transaction and spoke out
only later to escape liability. This cannot be countenanced. Nyco is
estopped from denying Rufino Yao's authority as far as the latter's
transactions with BA Finance are concerned.
PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado,
JJ., concur.
FACTS:
NYCO Sales Corp extended a credit accommodation to the
Fernandez Brothers. The brothers, acting in behalf of Sanshell Corp,
discounted a BPI check for P60,000 with NYCO, which then indorsed
the said check to BA Finance accompanied by a Deed of
Assignment. BA Finance, in turn, released the funds,which were used
by the brothers. The BPI check was dishonored. The brothers issued a
substitute check,which was also dishonored. Now BA Finance goes
after NYCO, which disclaims liability.
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ISSUE:
W/N NYCO, as the assignor, is liable for breach of warranties.
HELD:
YES. The assignor (NYCO) warrants both the existence and
legality of the credit, as well as the solvency of the debtor. If there is
a breach of any of the2 warranties, the assignor is liable to the
assignee. That being the case, NYCO cannot evade liability. So long
as the credit remains unpaid, the assignor remains liable
notwithstanding failure to give notice of dishonor that is because the
liability of NYCO stems form the assignment, not on the checks
alone.
BPI Family Savings Bank vs. First Metro Investment Corp. (429 SCRA
30 [2004])
BPI Family Bank* (BPI FB) San Francisco del Monte Branch
(Quezon City). Ong made the deposit upon request of his
friend, Ador de Asis, a close acquaintance of Jaime Sebastian,
then Branch Manager of BPI FB San Francisco del Monte
Branch. Sebastians aim was to increase the deposit level in his
Branch.
BPI FB, through Sebastian, guaranteed the payment of
P14,667,687.01 representing 17% per annum interest of P100
million deposited by FMIC. The latter, in turn, assured BPI FB that
it will maintain its deposit of P100 million for a period of one year
on condition that the interest of 17% per annum is paid in
advance.
This agreement between the parties was reached through their
communications in writing.
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01
upon clearance of the latters check deposit.
However, on August 29, 1989, on the basis of an Authority to
Debit signed by Ong and Ma. Theresa David, Senior Manager
of FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre
Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to
Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC,
on September 12, 1989, issued BPI FB check no. 129077 for
P86,057,646.72 payable to itself and drawn on its deposit with
BPI FB SFDM branch. But upon presentation for payment on
September 13, 1989, BPI FB dishonored the check as it was
"drawn against insufficient funds" (DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch
146, Makati City Civil Case No. 89-5280 against BPI FB. FMIC
likewise caused the filing by the Office of the State Prosecutors
of an Information for estafa against Ong, de Asis, Sebastian
and four others. However, the Information was dismissed on the
basis of a demurrer to evidence filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil
Case No. 89-5280, the dispositive portion of which reads:
"Premises considered, judgment is rendered in favor of
plaintiff, ordering defendant to pay:
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who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority.5 We reiterated this
doctrine in Prudential Bank vs. Court of Appeals, 6 thus:
"A bank holding out its officers and agent as worthy of
confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may
accrue to the bank therefrom. Accordingly, a banking
corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent
acting within the general scope of his authority even though
the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person for
his own ultimate benefit."
In Francisco vs. Government Service Insurance System,7 we ruled:
"Corporate transactions would speedily come to a standstill
were every person dealing with a corporation held duty-bound
to disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has
observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that
See Section 58, Republic Act No. 7653 "The New Central Bank
Act."
4
Francisco vs. GSIS G.R. No. L-18287, March 30, 1963, 117 Phil
587, 593.
5
Supra.
Robleza vs. Court of Appeals, G.R. No. 80364, June 28, 1989,
174 SCRA 354.
9
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Lim Sio Bio vs. Court of Appeals, G.R. No. 100867, April 7, 1993,
221 SCRA 307.
10
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True it is, that the Alabama Supreme Court has stated in one case.8
that a corporation empowered by statute to renew its corporate
existence may do so even after the expiration of its corporate life,
provided renewal is taken advantage of within the extended
statutory period for purposes of liquidation. That ruling, however, is
inherently weak as persuasive authority for the situation at bar for at
least two reasons: First. That case was a suit for mandamus to
compel a former corporate officer to turn over books and records
that came into his possession and control by virtue of his office. It
was there held that such officer was obliged to surrender his books
and records even if the corporation had already expired. The
holding on the continued existence of the corporation was a mere
dictum. Second. Alabama's law is different. Corporations in that
state were authorized not only to extend but also to renew their
corporate existence.That very case defined the word "renew" as
follows; "To make new again; to restore to freshness; to make new
spiritually; to regenerate; to begin again; to recommence; to
resume; to restore to existence, to revive; to re-establish; to recreate;
to replace; to grant or obtain an extension of Webster's New
International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co., 110
N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9
On this point, we again draw from Fletcher: "There is a broad
distinction between the extension of a charter and the grant of a
new one. To renew a charter is to revive a charter which has expired,
or, in other words, "to give a new existence to one which has been
forfeited, or which has lost its vitality by lapse of time". To "extend" a
charter is "to increase the time for the existence of one which would
otherwise reach its limit at an earlier period".10 Nowhere in our statute
Section 18, Corporation Law, as amended by Republic Act 3531
do we find the word "renew" in reference to the authority given to
corporations to protract their lives. Our law limits itself to extension of
corporate existence. And, as so understood, extension may be
made only before the term provided in the corporate charter
expires.
Alhambra draws attention to another case11 which declares that
until the end of the extended period for liquidation, a dissolved
corporation "does not become an extinguished entity". But this
statement was obviously lifted out of context. That case dissected
the question whether or not suits can be commenced by or against
a corporation within its liquidation period. Which was answered in
the affirmative. For, the corporation still exists for the settlement of its
affairs.
People, ex rel. vs. Green, 12 also invoked by Alhambra, is as
unavailing. There, although the corporation amended its articles to
extend its existence at a time when it had no legal authority yet, it
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be wound up; and that the old corporate name cannot be retained
fully in its exact form.17 What is important though is that the word
Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities and Exchange
Commission of November 18, 1963, and its order of September 8,
1964, both here under review, are hereby affirmed.
Costs against petitioner Alhambra Cigar & Cigarette Manufacturing
Company, Inc. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro,
Angeles and Fernando, JJ., concur.
Footnotes
1Rule
2Emphasis
319
supplied.
C.J.S., p. 1487.
4Id.,
Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559560, citing cases. Emphasis supplied.
6Home
7Citing
8Rayburn
p. 1059.
10Fletcher,
Caltex (Phils.), Inc. vs. PNOC Shipping and Transport Corp. (498
SCRA 400 [2006])
Before the Court is a petition for review1 assailing the 31 May 2001
Decision2 and 9 November 2001 Resolution3 of the Court of Appeals
in CA-G.R. CV No. 46097. The Court of Appeals reversed the 1 June
1994 Decision4 of the Regional Trial Court of Manila, Branch 51 ("trial
court"), and dismissed the complaint filed by Caltex (Philippines), Inc.
("Caltex") against PNOC Shipping and Transport Corporation (PSTC).
The Antecedent Facts
On 6 July 1979, PSTC and Luzon Stevedoring Corporation
("LUSTEVECO") entered into an Agreement of Assumption of
Obligations ("Agreement"). The Agreement provides that PSTC shall
assume all the obligations of LUSTEVECO with respect to the claims
enumerated in Annexes "A" and "B" ("Annexes") of the Agreement.
The Agreement also provides that PSTC shall control the conduct of
any litigation pending or which may be filed with respect to the
claims in the Annexes. The Agreement further provides that
LUSTEVECO shall deliver to PSTC all papers and records of the claims
in the Annexes. Finally, the Agreement provides that LUSTEVECO
appoints and constitutes PSTC as its attorney-in-fact to demand and
receive any claim out of the countersuits and counterclaims arising
from the claims in the Annexes.
Among the actions enumerated in the Annexes is Caltex (Phils.), Inc.
v. Luzon Stevedoring Corporation docketed as AC-G.R. CV No.
62613 which at that time was pending before the then Intermediate
Appellate Court (IAC). The case was an appeal from the Decision by
the then Court of First Instance of Manila (CFI) directing LUSTEVECO
to pay Caltex P103,659.44 with legal interest from the filing of the
action until full payment. In its 12 November 1985 Decision,5 the IAC
affirmed with modification the Decision of the CFI. The dispositive
portion of the Decision reads:
WHEREFORE, the decision appealed from is hereby MODIFIED and
judgment is rendered ordering the defendant [LUSTEVECO] to pay
plaintiff [Caltex]:
(a) P126,771.22 under the first cause of action, with legal interest until
fully paid;
(b) P103,659.44 under the second cause of action with legal interest
until fully paid;
(c) 10% of the sums due as and for attorneys fees;
(d) costs of the suit.
SO ORDERED.6
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personality to sue PSTC. The Court of Appeals held that noncompliance with the Agreement could only be questioned by the
signatories to the contract, namely, LUSTEVECO and PSTC. The Court
of Appeals stated that LUSTEVECO and PSTC are the only parties
who can file an action to enforce the Agreement. The Court of
Appeals considered fatal the omission of LUSTEVECO, the real party
in interest, as a party defendant in the case. The Court of Appeals
further ruled that Caltex is not a beneficiary of a stipulation pour
autrui because there is no stipulation in the Agreement which clearly
and deliberately favors Caltex.
The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed Decision dated
June 1, 1994, rendered by the Regional Trial Court of Manila, Branch
51, is hereby REVERSED and SET ASIDE and a new one entered
DISMISSING the complaint filed by appellee [Caltex], against
appellant [PSTC], for want of cause of action.
SO ORDERED.8
Caltex filed a motion for reconsideration of the 31 May 2001
Decision. In a Resolution promulgated on 9 November 2001, the
Court of Appeals denied the motion for lack of merit.
Hence, this petition before this Court.
The Issues
The issues in this case are:
1. Whether PSTC is bound by the Agreement when it assumed all
the obligations of LUSTEVECO; and
2. Whether Caltex is a real party in interest to file an action to
recover from PSTC the judgment debt against LUSTEVECO.
The Ruling of this Court
The petition is meritorious.
Caltex May Recover from PSTC Under the Terms of the Agreement
Caltex may recover the judgment debt from PSTC not because of a
stipulation in Caltexs favor but because the Agreement provides
that PSTC shall assume all the obligations of LUSTEVECO.
In this case, LUSTEVECO transferred, conveyed and assigned to PSTC
all of LUSTEVECOs business, properties and assets pertaining to its
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tanker and bulk business "together with all the obligations relating to
the said business, properties and assets." The Agreement,
reproduced here in full, provides:
AGREEMENT OF ASSUMPTION
OF OBLIGATIONS
KNOW ALL MEN BY THESE PRESENTS:
This Agreement of Assumption of Obligations made and executed
this 6th day of July 1979, in the City of Manila, by and between:
LUZON STEVEDORING CORPORATION, a corporation duly organized
and existing under and by virtue of Philippine Laws, with offices at
Tacoma and Second Streets, Port Area, Manila, represented by
GERONIMO Z. VELASCO, in his capacity as Chairman of the Board,
hereinafter referred to as ASSIGNOR,
- and PNOC SHIPPING AND TRANSPORT CORPORATION, a corporation duly
organized and existing under and by virtue of Philippine Laws, with
offices at Makati Avenue, Makati, Metro Manila, represented by
MARIO V. TIAOQUI, in his capacity as Vice-President, hereinafter
referred to as ASSIGNEE,
WITNESSETH : T h a t WHEREAS, on April 1, 1979, ASSIGNOR, for valuable consideration,
executed an Agreement of Transfer with ASSIGNEE whereby
ASSIGNOR transferred, conveyed and assigned unto ASSIGNEE all of
ASSIGNORs business, properties and assets appertaining to its tanker
and bulk all (sic) departments, together with all the obligations
relating to said business, properties and assets;
WHEREAS, relative to the conduct, operation and management of
the business, properties and assets transferred, conveyed and
assigned by ASSIGNOR to ASSIGNEE certain actions and claims
particularly described in Annex "A" consisting of four (4) pages and
Annex "B", consisting of one (1) page, attached hereto and made
integral parts hereof, have been filed, either with ASSIGNOR or with
appropriate courts and administrative tribunals.
WHEREAS, under the terms and conditions hereinafter mentioned,
ASSIGNEE agree[s] to assume the obligations incident and relative to
the actions and claims enumerated and described in Annexes "A"
and "B" hereof.
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ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES, DANTE O. TINGA
Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1
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Id. at 20-21.
Id. at 46.
Id. at 50-52.
11
12
14
G.R. No. 101900, 23 June 1992, 210 SCRA 277. See also PepsiCola Distributors of the Phil., Inc. v. NLRC, 317 Phil. 461 (1995)
and Corral v. National Labor Relations Commission, G.R. No.
96795, 12 July 1996, 258 SCRA 704.
15
16
17
April 8, 2003
April 8, 2003
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y.
TIU, JOHN YU, LOURDES C. TIU, and INTRALAND RESOURCES
DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG,
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simply pay the said transfer taxes and, after the new TCT was issued
in FLADC's name, they could then be given the corresponding shares
of stocks. On the 151 square-meter property, the Tius never executed
a deed of assignment in favor of FLADC. The Tius initially claimed that
they could not as yet surrender the TCT because it was "still being
reconstituted" by the Lichaucos from whom the Tius bought it. The
Ongs later on discovered that FLADC had in reality owned the
property all along, even before their Pre-Subscription Agreement
was executed in 1994. This meant that the 151 square-meter property
was at that time already the corporate property of FLADC for which
the Tius were not entitled to the issuance of new shares of stock.
The controversy finally came to a head when this case was
commenced4 by the Tius on February 27, 1996 at the Securities and
Exchange Commission (SEC), seeking confirmation of their rescission
of the Pre-Subscription Agreement. After hearing, the SEC, through
then Hearing Officer Rolando G. Andaya, Jr., issued a decision on
May 19, 1997 confirming the rescission sought by the Tius, as follows:
WHEREFORE, judgment is hereby rendered confirming the
rescission of the Pre-Subscription Agreement, and consequently
ordering:
(a) The cancellation of the 1,000,000 shares subscription of the
individual defendants in FLADC;
(b) FLADC to pay the amount of P170,000,000.00 to the
individual defendants representing the return of their
contribution for 1,000,000 shares of FLADC;
(c) The plaintiffs to submit with (sic) the Securities and Exchange
Commission amended articles of incorporation of FLADC to
conform with this decision;
(d) The defendants to surrender to the plaintiffs TCT Nos. 132493,
132494, 134066 (formerly 15587), 135325 and 134204 and any
other title or deed in the name of FLADC, failing in which said
titles are declared void;
(e) The Register of Deeds to issue new certificates of titles in
favor of the plaintiffs and to cancel the annotation of the PreSubscription Agreement dated 15 August 1994 on TCT No.
134066 (formerly 15587);
(f) The individual defendants, individually and collectively, their
agents and representatives, to desist from exercising or
performing any and all acts pertaining to stockholder, director
or officer of FLADC or in any manner intervene in the
management and affairs of FLADC;
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1. the P20 million loan extended by the Ongs to the Tius shall
earn interest at twelve percent (12%) per annum to be
computed from the time of judicial demand which is from April
23, 1996;
2. the P70 million advanced by the Ongs to the FLADC shall
earn interest at ten percent (10%) per annum to be computed
from the date of the FLADC Board Resolution which is June 19,
1996; and
3. the Tius shall be credited with 49,800 shares in FLADC for their
property contribution, specifically, the 151 sq. m. parcel of land.
This Court affirmed the fact that both the Ongs and the Tius violated
their respective obligations under the Pre-Subscription Agreement.
The Ongs prevented the Tius from assuming the positions of VicePresident and Treasurer of the corporation. On the other hand, the
Decision established that the Tius failed to turn over FLADC funds to
the Ongs and that the Tius diverted rentals due to FLADC to their
MATTERCO account. Consequently, it held that rescission was not
possible since both parties were in pari delicto. However, this Court
agreed with the Court of Appeals that the remedy of specific
performance, as espoused by the Ongs, was not practical and
sound either and would only lead to further "squabbles and
numerous litigations" between the parties.
On March 15, 2002, the Tius filed before this Court a Motion for
Issuance of a Writ of Execution on the grounds that: (a) the SEC
order had become executory as early as September 11, 1998
pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any
further delay would be injurious to the rights of the Tius since the case
had been pending for more than six years; and (c) the SEC no longer
had quasi-judicial jurisdiction under RA 8799 (Securities Regulation
Code). The Ongs filed their opposition, contending that the Decision
dated February 1, 2002 was not yet final and executory; that no
good reason existed to issue a warrant of execution; and that,
pursuant to Section 5.2 of RA 8799, the SEC retained jurisdiction over
pending cases involving intra-corporate disputes already submitted
for final resolution upon the effectivity of the said law.
Aside from their opposition to the Tius' Motion for Issuance of Writ of
Execution, the Ongs filed their own "Motion for Reconsideration;
Alternatively, Motion for Modification (of the February 1, 2002
Decision)" on March 15, 2002, raising two main points: (a) that
specific performance and not rescission was the proper remedy
under the premises; and (b) that, assuming rescission to be proper,
the subject decision of this Court should be modified to entitle
movants to their proportionate share in the mall.
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On their first point (specific performance and not rescission was the
proper remedy), movants Ong argue that their alleged breach of
the Pre-Subscription Agreement was, at most, casual which did not
justify the rescission of the contract. They stress that providing
appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President
and Treasurer, respectively, had no bearing on their obligations
under the Pre-Subscription Agreement since the said obligation (to
provide executive offices) pertained to FLADC itself. Such obligation
arose from the relations between the said officers and the
corporation and not any of the individual parties such as the Ongs.
Likewise, the alleged failure of the Ongs to credit shares of stock in
favor of the Tius for their property contributions also pertained to the
corporation and not to the Ongs. Just the same, it could not be
done in view of the Tius' refusal to pay the necessary transfer taxes
which in turn resulted in the inability to secure SEC approval for the
property contributions and the issuance of a new TCT in the name of
FLADC.
Besides, according to the Ongs, the principal objective of both
parties in entering into the Pre-Subscription Agreement in 1994 was to
raise the P190 million desperately needed for the payment of
FLADC's loan to PNB. Hence, in this light, the alleged failure to
provide office space for the two corporate officers was no more
than an inconsequential infringement. For rescission to be justified,
the law requires that the breach of contract should be so "substantial
or fundamental" as to defeat the primary objective of the parties in
making the agreement. At any rate, the Ongs claim that it was the
Tius who were guilty of fundamental violations in failing to remit funds
due to FLADC and diverting the same to their MATTERCO account.
The Ongs also allege that, in view of the findings of the Court that
both parties were guilty of violating the Pre-Subscription Agreement,
neither of them could resort to rescission under the principle of pari
delicto. In addition, since the cash and other contributions now
sought to be returned already belong to FLADC, an innocent third
party, said remedy may no longer be availed of under the law.
On their second point (assuming rescission to be proper, the Ongs
should be given their proportionate share of the mall), movants Ong
vehemently take exception to the second item in the dispositive
portion of the questioned Decision insofar as it decreed that
whatever remains of the assets of FLADC and the management
thereof (after liquidation) shall be transferred to the Tius. They point
out that the mall itself, which would have been foreclosed by PNB if
not for their timely investment of P190 million in 1994 and which is
now worth about P1 billion mainly because of their efforts, should be
included in any partition and distribution. They (the Ongs) should not
merely be given interest on their capital investments. The said portion
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may, however, the Tius are nevertheless not the proper parties to
raise this point because they were not parties to the subscription
contract between FLADC and the Ongs. Thus, they are not in a
position to claim that the shareholders agreement between them
and the Ongs was what induced FLADC and the Ongs to enter into
the subscription contract. It is the Ongs alone who can say that.
Though FLADC was represented by the Tius in the subscription
contract, FLADC had a separate juridical personality from the Tius.
The case before us does not warrant piercing the veil of corporate
fiction since there is no proof that the corporation is being used "as a
cloak or cover for fraud or illegality, or to work injustice."18
The Tius also argue that, since the Ongs represent FLADC as its
management, breach by the Ongs is breach by FLADC. This must
also fail because such an argument disregards the separate juridical
personality of FLADC.
The Tius allege that they were prevented from participating in the
management of the corporation. There is evidence that the Ongs
did prevent the rightfully elected Treasurer, Cely Tiu, from exercising
her function as such. The records show that the President, Wilson
Ong, supervised the collection and receipt of rentals in the
Masagana Citimall;19 that he ordered the same to be deposited in
the bank;20 and that he held on to the cash and properties of the
corporation.21 Section 25 of the Corporation Code prohibits the
President from acting concurrently as Treasurer of the corporation.
The rationale behind the provision is to ensure the effective
monitoring of each officer's separate functions.
However, although the Tius were adversely affected by the Ongs'
unwillingness to let them assume their positions, rescission due to
breach of contract is definitely the wrong remedy for their personal
grievances. The Corporation Code, SEC rules and even the Rules of
Court provide for appropriate and adequate intra-corporate
remedies, other than rescission, in situations like this. Rescission is
certainly not one of them, specially if the party asking for it has no
legal personality to do so and the requirements of the law therefor
have not been met. A contrary doctrine will tread on extremely
dangerous ground because it will allow just any stockholder, for just
about any real or imagined offense, to demand rescission of his
subscription and call for the distribution of some part of the
corporate assets to him without complying with the requirements of
the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the
ultimate and extraordinary remedy of rescission of the subject
agreement based on a less than substantial breach of subscription
contract. Not only are they not parties to the subscription contract
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between the Ongs and FLADC; they also have other available and
effective remedies under the law.
All this notwithstanding, granting but not conceding that the Tius
possess the legal standing to sue for rescission based on breach of
contract, said action will nevertheless still not prosper since rescission
will violate the Trust Fund Doctrine and the procedures for the valid
distribution of assets and property under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923
case of Philippine Trust Co. vs. Rivera,22 provides that subscriptions to
the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.23 This
doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code,
which allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to reduce
the authorized capital stock,24 (2) purchase of redeemable shares by
the corporation, regardless of the existence of unrestricted retained
earnings,25 and (3) dissolution and eventual liquidation of the
corporation. Furthermore, the doctrine is articulated in Section 41 on
the power of a corporation to acquire its own shares26 and in Section
122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are complied
with.27
The distribution of corporate assets and property cannot be made to
depend on the whims and caprices of the stockholders, officers or
directors of the corporation, or even, for that matter, on the earnest
desire of the court a quo "to prevent further squabbles and future
litigations" unless the indispensable conditions and procedures for
the protection of corporate creditors are followed. Otherwise, the
"corporate peace" laudably hoped for by the court will remain
nothing but a dream because this time, it will be the creditors' turn to
engage in "squabbles and litigations" should the court order an
unlawful distribution in blatant disregard of the Trust Fund Doctrine.
In the instant case, the rescission of the Pre-Subscription Agreement
will effectively result in the unauthorized distribution of the capital
assets and property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when distribution
of capital assets and property of the corporation is allowed.
Contrary to the Tius' allegation, rescission will, in the final analysis,
result in the premature liquidation of the corporation without the
benefit of prior dissolution in accordance with Sections 117, 118, 119
and 120 of the Corporation Code.28 The Tius maintain that rescinding
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Footnotes
Ong Yong, et.al vs. Tiu, et al., G.R. No. 144476; Tiu, et.al. vs.
Ong Yong, et.al., G.R. No. 144629.
1
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Estrada vs. Sto. Domingo, 28 SCRA 890 [1969]; Cruz vs. Tuazon
& Co., Inc., 76 SCRA 543 [1977]; Llanter vs. Court of Appeals,
105 SCRA 609 [1981]; Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc., 86 SCRA 305 [1978].
12
13
14
Id at 221.
15
18
19
20
21
22
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Id; Garcia vs. Lim Chu Sing, 59 Phil. 562 [1934]; Boman
Environmental Dev't. Corp. vs. Court of Appeals, 167 SCRA 540
[1988].
23
25
26
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April 8, 2003
Lessons Applicable: Pre-incorporation Subscription (Corporate Law)
FACTS:
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the principal objective of both parties in entering into the PreSubscription Agreement in 1994 was to raise the P190 million
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The Ongs' shortcomings were far from serious and certainly less
than substantial; they were in fact remediable and correctable
under the law. It would be totally against all rules of justice,
fairness and equity to deprive the Ongs of their interests on
petty and tenuous grounds.
Order (TRO) enjoining the payment of the proffered value of NAIA IPT
III.
The antecedent facts from Agan serve as a backdrop for both
petitions:
Some time in 1993, six business leaders consisting of John
Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George
Ty and Alfonso Yuchengco met with then President Fidel V.
Ramos to explore the possibility of investing in the construction
and operation of a new international airport terminal. To signify
their commitment to pursue the project, they formed [AEDC]
which was registered with the Securities and Exchange
Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to
the Government through the DOTC/MIAA for the development
of [NAIA IPT III] under a build-operate-and-transfer arrangement
pursuant to RA 6957 as amended by RA 7718 (BOT Law).
On December 2, 1994, the DOTC issued Dept. Order No. 94-832
constituting the Prequalification Bids and Awards Committee
(PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia
endorsed the proposal of AEDC to the National Economic and
Development Authority (NEDA). A revised proposal, however,
was forwarded by the DOTC to NEDA on December 13, 1995.
On January 5, 1996, the NEDA Investment Coordinating Council
(NEDA ICC) Technical Board favorably endorsed the project
to the ICC Cabinet Committee which approved the same,
subject to certain conditions, on January 19, 1996. On February
13, 1996, the NEDA passed Board Resolution No. 2 which
approved the NAIA IPT III Project.9
On February 26, 1996, respondent DOTC and AEDC signed a
memorandum of understanding (MOU) stipulating the following:
1. The DOTC, on its own behalf and in representation of the
[Government of the Philippines (GOP)], hereby represents that
the [NAIA IPT III] project is consistent with the development
program of the DOTC and the GOP, and the Government is
unequivocally committed to pursue, implement and complete
the same on or before the year 1998.
2. The DOTC will undertake the [NAIA IPT III] Project under [RA
6957] as amended by [RA 7718] and its IRR. Having officially
secured ICC approval of the unsolicited proposal of AEDC, the
DOTC commits to pursue the project under Rules 10 and 11 of
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xxx 10
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xxx
On July 9, 1997, the DOTC issued the notice of award for the
project to PIATCO.
On July 12, 1997, the Government, through then DOTC
Secretary Arturo T. Enrile, and PIATCO, through its President,
Henry T. Go, signed the "Concession Agreement for the BuildOperate-and-Transfer Arrangement of the [NAIA IPT III]" (1997
Concession Agreement).
xxx
xxx
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xxx 11
causing any payment of just compensation to PIATCO for NAIA IPT III
arguing that the latter was not the owner of such structure.23
Meanwhile, in a letter to respondent DOTC dated March 14, 2005,
AEDC offered to immediately operate the NAIA IPT III project.24 DOTC
did not respond. In another letter dated September 1, 2005, AEDC
demanded the immediate implementation of the February 26, 1996
MOU. Again, DOTC did not reply. It was only after AEDC wrote a third
letter on September 8, 2005 that the government, through the Office
of the Solicitor General, responded in a letter dated September 21,
2005 stating:
We have carefully searched Philippine law, in vain, for the basis
of what you claim is AEDC's "vested and perfected legal right
to operate NAIA IPT III." xxx
We have also searched carefully the [MOU]. We see nothing in
its language to believe that there is any existing obligation on
the part of Government to recognize in AEDC the right to
operate the terminal.25
Thus, on October 20, 2005, AEDC filed G.R. No. 169914.
Meanwhile, in another venue of conflict (the Pasay City RTC
expropriation court), the events leading to G.R. No. 174166 were
unfolding.
In an order dated October 27, 2005, the expropriation court granted
the petition (for intervention) of Baterina.26 The Republic's motion for
reconsideration was denied in an omnibus order dated December
13, 2005.27
Gingoyon was promulgated on December 19, 2005 by this Court,
prompting Baterina to file a motion for intervention with motion for
reconsideration in intervention on January 6, 2006.28 This was denied
in a resolution dated February 1, 2006.29 The decision in Gingoyon
became final and executory on March 17, 2006.30
On March 22, 2006, Baterina filed in the expropriation court a motion
to declare in default and/or motion for summary judgment and
prayed therein that the court (1) declare PIATCO and the Republic
in default insofar as the petition for prohibition in intervention was
concerned and (2) render a partial summary judgment on the issues
of [a] whether the State, through the Bases Conversion Development
Authority (BCDA), was the owner of NAIA IPT III and [b] whether NAIA
IPT III was a proper object of expropriation.31
On March 27, 2006, the expropriation court motu proprio issued an
order directing MIAA to immediately release to PIATCO the proffered
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xxx
xxx
xxx
xxx
xxx
xxx
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xxx
xxx
xxx
into account. It acquired this vested right from the time PIATCO was
disqualified to bid during the swiss challenge.
Respondents argue, and the majority agreed, that there are only
two clear legal rights recognized in favor of the original proponent
under Section 4-A of the BOT Law and Section 10.1 of its IRR: (1) the
right to match the lower price proposal within 30 days and (2) the
right to the award of the project if the original proponent is able to
match the lower price proposal.
I disagree. This view fails to consider a situation wherein there is no
other qualified bidder like in the case of AEDC. Legally, the situation
is as if no competitive bid was ever submitted. We have stated that
for mandamus to issue, it is not necessary that the right and/or duty
are absolutely expressed; they must, however, be clear.88 Here, it is
obvious that the original proponent is entitled to the award in the
event that there is no other qualified bidder during the swiss
challenge. The law need not expressly state the obvious.
The parties do not dispute that the government already accepted
the unsolicited proposal of AEDC, subject only to the swiss challenge.
Section 10.1, par. (c) of the IRR states that "if the original project
proponent matches the submitted lowest price within the specified
period, [it] shall immediately be awarded the project." As a matter of
fact, there was no need for AEDC to match any lower bid for the
simple reason that there was no qualified bidder during the swiss
challenge. It therefore became the ministerial duty of respondents to
award the NAIA IPT III project to it.
Respondents DOTC et al. contend that the BOT implementing rules
have provisions on "recommendation to award" 89 and "decision to
award"90 thereby belying any duty on their part to automatically
award the project to AEDC.91 I disagree with this interpretation of the
BOT Law. It is outrageous to even suggest that a proponent's fate
can be made to hang in the balance even after the conclusion of
the swiss challenge process. At this point, it has either matched the
lower price proposal or there never was any other proposal or
challenger. Yet DOTC et al. insist that the right can still be effectively
negated at the discretion of the approving authorities. This is
oppressive to the proponent and one good way to drive away
investors from our shores, what with the uncertainty of the process
and status of their rights.
AEDC having satisfied all the requisites therefor, the writ of
mandamus shall issue. Respondents should award the NAIA IPT III
project to AEDC and formalize the NEDA-approved draft concession
agreement offered for public bidding during the swiss challenge and
turn over possession of the facilities to AEDC.92
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facility without any fault on its part, it can and should operate said
facility.
Thus, after the concession agreement is finalized, AEDC may lawfully
proceed with the operation of NAIA IPT III. Our ruling in Gingoyon:
xxx
xxx
xxx
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xxx
xxx
xxx
xxx
xxx
xxx
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ownership rights126 over what it builds. Its rights are of course limited
by the provisions of the BOT law and other relevant laws.
The correctness or propriety of the expropriation of NAIA IPT III was
assumed in Gingoyon. It was not even an issue there because the
question squarely confronted was which law (Rule 67 of the Rules of
Court or RA 8974) should govern the valuation of the subject matter
of the expropriation proceedings. To resolve this, the Court, precisely,
had to first accept the propriety of the expropriation:
The Government has chosen to resort to expropriation, a
remedy available under the law, which has the added benefit
of an integrated process for the determination of just
compensation and the payment thereof to PIATCO. We
appreciate that the case at bar is a highly unusual case,
whereby the Government seeks to expropriate a building
complex constructed on land which the State already owns.
There is an inherent illogic in the resort to eminent domain on
property already owned by the State. At first blush, since the
State already owns the property on which [NAIA IPT III] stands,
the proper remedy should be akin to an action for ejectment.
However, the reason for the resort by the Government to
expropriation proceedings is understandable in this case. The
2004 [Agan] Resolution, in requiring the payment of just
compensation prior to the takeover by the Government of
[NAIA IPT III], effectively precluded it from acquiring possession
or ownership of the [NAIA IPT III] through the unilateral exercise
of its rights as the owner of the ground on which the facilities
stood. Thus, as things stood after the 2004 [Agan] Resolution,
the right of the Government to take over the [NAIA IPT III]
terminal was preconditioned by lawful order on the payment of
just compensation to PIATCO as builder of the structures.
The determination of just compensation could very well be
agreed upon by the parties without judicial intervention, and it
appears that steps towards that direction had been engaged
in. Still, ultimately, the Government resorted to its inherent
power of eminent domain through expropriation proceedings.
Is eminent domain appropriate in the first place, with due
regard not only to the law on expropriation but also to the
Court's 2004 Resolution in Agan?
The right of eminent domain extends to personal and real
property, and the [NAIA IPT III] structures, adhered as they are
to the soil, are considered as real property. The public purpose
for the expropriation is also beyond dispute. It should also be
noted that Section 1 of Rule 67 (on Expropriation) recognizes
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RENATO C. CORONA
Associate Justice
Footnotes
Penned by Associate Justice Renato C. Dacudao (retired)
and concurred in by Associate Justices Rosmari D. Carandang
and Estela M. Perlas-Bernabe of the Eighth Division of the CA;
rollo (G.R. No. 174166), pp. 60-61.
1
10
11
12
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13
xxx
xxx
xxx
xxx
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17
Id., p. 678.
19
21
Id., p. 21.
22
23
Id., p. 7.
24
25
Id., p. 364.
26
27
28
29
30
31
32
33
Id.
34
Id.
35
Id., p. 25.
36
Id., p. 26.
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37
Id.
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41
Id., p. 29.
The order and writ of execution both dated March 27, 2006
and order dated June 15, 2006; id., p. 301.
43
44
45
46
Id.
47
48
Id.
49
Id.
52
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53
54
56
59
60
61
Id., p. 389.
62
64
66
67
Id.
68
Id.
69
70
71
72
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73
74
75
77
Id.
78
80
81
82
Id.
83
87
88
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91
92
93
94
Id., p. 36.
95
Id., p. 43.
96
Id.
98
xxx
xxx
100
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103
104
105
106
Id.
107
Id., p. 63.
Integrated Bar of the Philippines v. Zamora, 392 Phil. 618, 632633 (2000).
109
110
Id.
111
Id.
xxx
xxx
xxx
2. As legislators and taxpayers, the Respondents-inintervention have a legal interest in the matter of litigation
insofar as they stand to be benefited or injured by the
impending payment of just compensation by the
government to defendants-in-intervention PIATCO and
FRAPORT AG Frankfurt Airport Services.
3. As legislators and taxpayers, the Respondents-inintervention have an interest in the instant case, because
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115
116
117
120
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123
124
125
These rights are: the jus utendi or the right to receive from the
thing what it produces; the jus abutendi or the right to consume
the thing by its use; the jus disponendi or the power of the
owner to alienate, encumber, transform and even destroy the
thing owned; the jus vindicandi or the right to exclude from the
possession of the thing owned any other person to whom the
owner has not transmitted such thing; the jus possidendi or the
right to possess and jus fruendi or the right to the fruits. (AustriaMagat v. Court of Appeals, G.R. No. 106755, 1 February 2002,
375 SCRA 556, 566; Distilleria Washington, Inc. v. La Tondea
Distillers, Inc., G.R. No. 120961, 2 October 1997, 280 SCRA 116,
125)
126
127
129
Id.
132
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133
Id. at 614.
134
Id.
135
136
Id. at 235.
137
138
Id. p. 262.
139
140
Id.
142
Id.
143
144
145
Id. p. 57.
146
147
148
151
Id.
152
Id.
Price and Sulu Dev. Co. vs. Martin (58 Phil. 707 [1933])
HULL, J.:
Plaintiffs brought suit in the Court of First Instance of Manila praying
that a mortgage executed by the Sulu Development Company on
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Company failed to comply with the terms and conditions of the socalled cultivation agreement, and Martin prayed in his special crosscomplaint and counter-claim that the Defendant Agusan Coconut
Company be required to make such further cash advances to "carry
out the full scale development of the tract of land in the cultivation
agreement and as contemplated therein."
The trial court, on timely objection, refused to receive the parol
evidence as to the cultivation agreement, and after trial and a
lengthy opinion, held that the mortgage in question was valid and
refused to order its cancellation.
From that decision plaintiff appeal and make the following
assignments of error:
The trial court erred:
1. In refusing appellants the right to introduce evidence as to
the "cultivation agreement" extensively referred to by the
parties herein.
2. In refusing to reopen the case on motion filed in due form
and manner by the plaintiffs and appellants herein, on the
ground of newly discovered evidence, such motion having
been filed the rendition of the judgment herein.
3. In finding that the plaintiff, W.S. Price, did not appear here as
a plaintiff to depend his own right but for the purpose of giving
aid to the defendant, Harry Martin.
4. In ruling that although the 97 shares voted by Mrs. Nanon L.
Worcester at the meetings in question thru her proxy belonged
to Harry Martin and were only held in trust by her late husband,
Dean C. Worcester, yet such trusteeship was for the benefit of
the Agusan Coconut Company, and that such company is the
actual cestui que trust thereunder, in violation of the express
terms of the trust agreement.
5. In holding that Mrs. Nanon L. Worcester could legally vote
the said 97 shares she actually voted at the meeting in
question, notwithstanding the facts as found by said court, that
said shares belonged to H. Martin and were merely held in trust
by her deceased husband.
6. In finding that the 97 shares of stock in question had been
adjudicated to Mrs. Nanon L. Worcester by the commissioners
on claims against the estate of her deceased husband; that
such adjudication had been approved by the Court of First
Instance of the City of Manila, and that the said Nanon L.
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GANCAYCO, J.:
The issue squarely presented by the petitioners is whether or not the
Presidential Commission on Good Government (PCGG) may vote
the sequestered shares of stock of San Miguel Corporation (SMC)
and elect its members of the board of directors.
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In G.R. No. 91925 the facts alleged are undisputed. Petitioners are
stockholders of record of SMC as follows
Stockholders
No. of Shares
5,750
Rafael G. Abello
5,750
NO. OF SHARES
5,381,543
3,587,695
3,587,695
3,587,695
2,690,771
2,690,771
169,174
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167,867
167,777
145,475
169,071
167,907
168,963
145,475
168,920
167,891
145,475
132,250
99,587
102,823
145,822
147,040
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104,885
132,250
159,106
168,965
167,679
132,250
166,395
169,203
167,761
120,480
132,250
159,536
169,237
169,216
167,614
167,897
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169,227
169,095
167,787
167,777
13,225
TOTAL
27,211,770
==============
No. of Votes
135,115,521
135,312,254
132,309,520
132,308,355
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132,301,569
132,284,365
132,284,364
132,284,364
132,182,000
132,173,943
132,164,470
132,147,319
132,146,107
132,141,775
132,110,402
2,279,729
2,279,719
2,278,863
1,596
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875
650
23
Stockholder
Votes
Originally
Credited
Add:
408,176,550
divided by 3
(136,058,850)
Resulting
Votes
1. Mr. Eduardo M.
Cojuangco, Jr.
2,280,618
136,058,850
138,339,468
2. Mr. Manuel M.
Cojuangco
2,279,719
136,058,850
138,338,569
2,278,863
136,058,850
138,337,713
Stockholder
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Votes
Originally
Credited
Less:
408,176,550
divided by
Resulting
Votes
Page 1322 of 1509
15
(27,211,770)
4. Mr. Eduardo De Los
Angeles
135,115,521 27,211,770
107,903,751
5. Mr. Feliciano
Belmonte, Jr.
132,312,254 27,211,770
105,100,484
105,097,750
132,308,355 27,211,770
105,096,585
132,301,569 27,211,770
105,089,799
132,284,365 27,211,770
105,072,595
132,284,364 27,211,770
105,072,594
132,284,364 27,211,770
105,072,594
132,182,000 27,211,770
104,970,230
132,173,943 27,211,770
104,962,173
132,164,470 27,211,770
104,952,700
132,147,319 27,211,770
104,935,549
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104,934,337
104,930,005
132,110,402 27,211,770
104,898,632
2,279,729
1,596
875
650
23
dismissing it for lack of cause of action on the ground that the PCGG
has the right to vote sequestered shares.
Hence, this petition for certiorari, the main thrust of which is that the
right to vote sequestered shares of stock is vested in the actual
shareholders not in the PCGG.
Respondents were required to comment on the petition while
petitioners were required to comment on the motion to dismiss filed
by respondent SMC. The required comments and consolidated reply
thereto have all now been submitted.
In G.R. No. 93005, the facts alleged are substantially similar in nature.
Petitioners are stockholders of SMC as follows
STOCKHOLDER
NO. OF SHARES
23,000
MANUEL M. COJUANGCO
23,000
On April 17, 1990, the annual meeting of the SMC shareholders was
held. Among the matters taken up was the election of the fifteen
(15) members of the board of directors of SMC for the ensuing year.
Petitioners were among the twenty (20) nominees to the board,
namely
1. Mr. Andres Soriano III
2. Mr. Francisco C. Eizmendi, Jr.
3. Mr. Eduardo J. Soriano
4. Mr. Antonio J. Roxas
5. Mr. Benigno P. Toda, Jr.
6. Mr. Eduardo De Los Angeles
7. Mr. Feliciano Belmonte, Jr.
8. Mr. Renato Valencia
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NO. OF SHARES
638,144
636,416
588,280
583,280
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529,000
529,000
481,916
419,536
411,288
398,336
21,526,164
14,350,772
14,350,772
14,350,772
10,763,080
10,763,080
671,464
671,104
676,696
676,808
676,948
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676,908
676,860
671,040
676,376
676,280
675,856
675,848
675,680
671,624
671,584
671,560
671,148
671,104
670,452
665,576
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581,900
581,900
581,900
529,000
529,000
52,900
TOTAL
108,846,948
==============
No. of Votes
549,648,661
2. Francisco C. Eizmendi,Jr.
549,105,318
3. Eduardo J. Soriano
548,864,733
4. Antonio J. Roxas
548,809,271
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548,751,713
522,678,527
7. Feliciano Belmonte
517,170,373
8. Renato Valencia
517,048,521
9. Domingo Lee
517,014,895
516,361,120
516,197,450
516,118,723
516,105,147
516,047,825
515,990,250
73,404
40,404
34,950
30,955
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Uncast votes
3,150,231
Invalid votes
381,865
TOTAL
7,956,960,120
================
The rule in this jurisdiction is, therefore, clear. The PCGG cannot
perform acts of strict ownership of sequestered property. It is a mere
conservator. It may not vote the shares in a corporation and elect
the members of the board of directors. The only conceivable
exception is in a case of a takeover of a business belonging to the
government or whose capitalization comes from public funds, but
which landed in private hands as in BASECO.
The constitutional right against deprivation of life, liberty and
property without due process of law is so well-known and too
precious so that the hand of the PCGG must be stayed in its
indiscriminate takeover of and voting of shares allegedly ill-gotten in
these cases. It is only after appropriate judicial proceedings when a
clear determination is made that said shares are truly ill-gotten when
such a takeover and exercise of acts of strict ownership by the
PCGG are justified.
It is true that in G.R. No. 91925 the term of office of the term of office
of the assailed members of the board of directors, private
respondents therein, for 1989-1990 had expired. To this extent said
petition may be considered moot and academic. However, the
issue of whether public respondent Sandiganbayan committed a
grave abuse of discretion in rendering the resolution dated
November 16, 1989, which affects all subsequent shareholders'
meetings and elections of the members of the board of directors of
SMC, is a justiciable controversy that must be resolved.
As to G.R. No. 93005 the term of office of private respondents as
members of the SMC board of directors will expire on or after
another election is held in April 1991.
Thus, the issue raised in G.R. No. 93005 relating to the election of the
members of the board for 1990-1991 pursuant to sequestered shares
of stock is a justiciable issue which should be determined once and
for all.
In the light of the foregoing discussion, the Court finds and so holds
that the PCGG has no right to vote the sequestered shares of
petitioners including the sequestered corporate shares. Only their
owners, duly authorized representatives or proxies may vote the said
shares. Consequently, the election of private respondents Adolfo
Azcuna, Edison Coseteng and Patricio Pineda as members of the
board of directors of SMC for 1990-1991 should be set aside.
However, petitioners cannot be declared duly elected members of
the board of directors thereby. An election for the purpose should
be held where the questioned shares may be voted by their owners
and/or their proxies. Such election may be held at the next
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Separate Opinions
PADILLA, J., dissenting:
In all cases (en banc and division) involving San Miguel Corporation
(SMC), I take no part because of personal equity interest in said
corporation. I am taking no part in this case for the same reason
even if the real party-respondents in the case are the PCGG and its
nominees to the SMC board of directors, and SMC itself appears to
be only a nominal party in the case.
At the same time, I will be less than candid if I did not state on this
occasion that in earlier decisions of this Court, I have expressed my
views on sequestration and its implicitness. I refer particularly to my
concurring opinion in BASECO vs. PCGG, 150 SCRA 252 (cited on
page 14 of the present ponencia of Mr. Justice Gancayco) and to
my dissenting opinion in Eduardo M. Cojuangco, Jr. vs. Republic of
the Philippines, et. al., G.R. No. 93278, 4 March 1991.
Footnotes
1 Certification dated April 20, 1990 issued Mr. Jose Y. Feria,
Corporate Secretary of SMC; attached as Annex A to Petition.
2 150 SCRA 181 (1987).
3 Ibid., pages 236 to 240; Emphasis supplied.
4 Ibid., page 252.
5 Ibid., pages 252 to 253.
6 Ibid., pages 254 to 258.
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Sr. Since all the shares that belonged to Alice are still in his name, no
final determination can be had without his estate being impleaded
in the suit. His estate is thus an indispensable party with respect to the
cause of action dealing with the registration of the shares in the
names of the heirs of Alice.
Petitioners further claim that the Estate of John Young Sr. was not
properly represented. They claim that "when the estate is under
administration, suits for the recovery or protection of the property or
rights of the deceased may be brought only by the administrator or
executor as approved by the court."14 The rules relative to this matter
do not, however, make any such categorical and confining
statement.
Section 3 of Rule 3 of the Rules of Court, which is cited by petitioners
in support of their position, reads:
"Sec. 3. Representatives as parties. - Where the action is
allowed to be prosecuted or defended by a representative or
someone acting in a fiduciary capacity, the beneficiary shall
be included in the title of the case and shall be deemed to be
the real party in interest. A representative may be a trustee of
an express trust, a guardian, an executor or administrator, or a
party authorized by law or these Rules. An agent acting in his
own name and for the benefit of an undisclosed principal may
sue or be sued without joining the principal except when the
contract involves things belonging to the principal."
Section 2 of Rule 87 of the same Rules, which also deals with
administrators, states:
"Sec. 2. Executor or administrator may bring or defend actions
which survive. -For the recovery or protection of the property or
rights of the deceased, an executor or administrator may bring
or defend, in the right of the deceased, actions for causes
which survive."
The above-quoted rules, while permitting an executor or
administrator to represent or to bring suits on behalf of the
deceased, do not prohibit the heirs from representing the deceased.
These rules are easily applicable to cases in which an administrator
has already been appointed. But no rule categorically addresses the
situation in which special proceedings for the settlement of an estate
have already been instituted, yet no administrator has been
appointed. In such instances, the heirs cannot be expected to wait
for the appointment of an administrator; then wait further to see if
the administrator appointed would care enough to file a suit to
protect the rights and the interests of the deceased; and in the
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Footnote
1 Penned by Justice Antonio M. Martinez (Division chairman), with the concurrence of Justices
Pacita Canizares-Nye and Romeo J. Callejo Sr.
2 CA Decision, p. 13; rollo, p. 43.
3 Atty. Enrique L. Flores Jr.
4 CA Decision, pp. 2-6; rollo, pp. 32-36.
5 The case was deemed submitted for resolution on November 12, 1999, upon receipt by this Court
of respondents' Memorandum filed by Attys. Jose R. Ebro Jr. and Emesto T. Morales. Petitioners had
previously filed their Memorandum, signed by Atty. Victor Basilio N. de Leon of Antonio R. Bautista &
Partners, on October 27, 1999.
6 Petitioners' Memorandum, p. 5; rollo, p. 114.
7 Otherwise known as "The Securities Regulation Code," it became effective on August 8, 2000.
8 Lim Tay v. Court of Appeals, 293 SCRA 634, August 5, 1998, citing Javelosa v. Court of Appeals,
265 SCRA 493, December 10, 1996.
9 Tolentino, Civil Code, Vol. IV, 1991 ed. p. 631.
10 Ruiz v. Court of Appeals, 79 SCRA 525, October 21, 1977; Castillo v. Heirs of Vicente Madrigal,
198 SCRA 556, June 27, 1991.
11 Art. 1410, Civil Code.
12 Respondents' Memorandum, p. 29; rollo, p. 170.
13 Pascual v. Del Saz Orozco, 19 Phil. 82, March 17, 1911, per Trent, J.; cited in Bitong v. Court of
Appeals, 292 SCRA 503, July 13, 1998.
14 Petitioners' Memorandum, p. 13; rollo, p. 122.
15 Rule 1, Section 6, Rules of Court.
16 Pascual v. Pascual, 73 Phil. 561 (1942); Velasquez v. George, 125 SCRA 456, October 27, 1983;
Borromeo v. Borromeo et at., 98 Phil. 432 (1956).
17 Section 14, Rule 13, Rules of Court.
18 Alberto v. CA, GR No.119088, June 30, 2000; Viewmaster Construction Cory. v. CA, GR No.
136283, February 29, 2000; Villanueva v. CA, 281 SCRA 298, November 5, 1997.
19 Yutivo Sons Hardware Co. v. Court of Tax Appeals, 1 SCRA 160, January 28, 1961; Umali v. Court
of Appeals, 189 SCRA 529, September 13, 1990.
20 See Pascual v. CA, GR No. 138542, August 25, 2000.
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21 "In Re: Transfer of Cases from the Securities and Exchange Commission to the Regular Courts
pursuant to RA 8799."
action; (2) the the Youngs were not the real parties-in-interest and
had no capacity to sue; and (3) the Youngs' causes of action were
barred by the Statute of Limitations. The motion was opposed by the
Youngs. On 29 March 1994, the Gochans filed a Motion for
cancellation of Notice of Lis Pendens. The Youngs opposed the said
motion. On 9 December 1994, the SEC, through its Hearing Officer,
granted the motion to dismiss and ordered the cancellation of the
notice of lis pendens annotated upon the titles of the corporate
lands; holding that the Youngs never been stockholders of record of
FGSRC to confer them with the legal capacity to bring and maintain
their action, and thus, the case cannot be considered as an intracorporate controversy within the jurisdiction of the SEC; and that on
the allegation that the Youngs brought the action as a derivative suit
on their own behalf and on behalf of Gochan Realty, rhe failure to
comply with the jurisdictional requirement on derivative action
necessarily result in the dismissal of the complaint. The Youngs filed a
Petition for Review with the Court of Appeals. On 28 February 1996,
the Court of Appeals ruled that the SEC had no jurisdiction over the
case as far as the heirs of Alice Gochan were concerned, because
they were not yet stockholders of the corporation. On the other
hand, it upheld the capacity of Cecilia Gochan Uy and her spouse
Miguel Uy. It also held that the Intestate Estate of John Young Sr. was
an indispensable party. The appellate court further ruled that the
cancellation of the notice of lis pendens on the titles of the
corporate real estate was not justified. Moreover, it declared that
the Youngs' Motion for Reconsideration before the SEC was not pro
forma; thus, its filing tolled the appeal period. The Gochans moved
for reconsideration but were denied in a Resolution dated 18
December 1997. The Gochans filed the Petition for Review on
Certiorari.
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November 3, 1926
OSTRAND, J.:
This is an appeal from a decision of the Court of First Instance of
Manila, sustaining a demurrer to the complaint. The plaintiffs
declined to amend and judgment was rendered dismissing the case.
The complaint in question reads as follows:
The above named plaintiffs, by Thomas Cary Welch, their
attorney, complain of the above-named defendants and for
cause of action against them allege:
1st. That at al times in this complaint mentioned the plaintiffs
Harrie S. Everett, Ellis H. Teal and George W. Robinson were and
now are residents of the City of Manila, Philippine Islands. That
the plaintiff Carl G. Clifford was formerly a resident of said City
of Manila and now is the resident of the City of Washington,
District of Columbia.
2nd. That at all times in this complaint mentioned the
defendant the Asia Banking Corporation hereinafter called "the
Bank", was and now is a foreign banking corporation duly
licensed to transact banking business in the Philippine Islands,
having, its principal office and place of business at Manila
aforesaid and that said Asia Banking Corporation never has
been empowered by law or licensed to do any business other
than commercial banking in the Philippine Islands. That the
defendants Nicholas E. Mullen, Alfred F. Kelly, John W. Mears,
and Charles D. Macintosh were residents of said City of Manila
and were officers, agents and employees of the said Asia
Banking Corporation, the said Mullen being the General
Manager thereof in said City; That: the defendant Eric Barclay is
a now a resident of Los Angeles, California, and the defendant
Mcintosh is also residing in the United States, his exact residence
being unknown.
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9th. That it was further represented by the Bank and the said
Mullen that in order to protect the mutual interests of the Bank
and the Company it was necessary to carry into effect the said
proposed voting trust without the knowledge of the creditors
above named and thereby place the Bank in an
advantageous position with regard to them. That relying upon
the previous friendly relations between the bank and the
Company and between the individual defendants and these
plaintiffs and relying upon the promise and representations of
the defendants, these plaintiffs were induced to sign and did
sign and deliver to the Bank simultaneously a so-called "Voting
Trust Agreement," executed by the plaintiff stockholders and a
Memorandum of Agreement executed by the Company, both
dated and executed and delivered the 29th day of December,
1922, the two forming one document and a copy of which is
hereto attached and marked Exhibit A.
10th. That by reason of the facts above set forth and of their
reliance upon the good faith and good-will of the defendants
these plaintiffs were induced to sign the "Memorandum of
Agreement," and "Voting Trust Agreement," Exhibit A,
understanding from the defendant that the same were
intended for the protection of all parties thereto from outside
creditors, but that they were not intended to be enforced
according to the letter thereof, and that they did not contain
the true agreement between the Bank and the Company
which was to finance the Company without interference from
the above named creditors, to hold the voting trust as a
protection to the bank as against the said creditors and for its
own advances, and the further agreement that in case in the
Bank did not operate under the said voting trust because of the
disapproval by its New York headquarters of such action, or for
any other cause, the said trust would be cancelled and the
stock in and control of the Company returned to its true
owners.
11th. That shortly subsequent to the execution and delivery of
the voting trust and memorandum of agreement hereinabove
described, in violation of the obligations and duties imposed by
law upon the trustee and in pursuance of a scheme to defraud
these plaintiffs hereinbelow more fully set forth, the said voting
trustee, the defendant Mullen, caused and procured, by virtue
of the powers delegated in the said voting trust, the
displacement and removal from the Board of Directors of the
Company of each and every person who was at the time of
the execution of the said voting trust a stockholder in the
Company and the substitution in their places as such directors,
of the above named persons defendant, or of other persons at
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(7) To make by-laws, not inconsistent with any existing law, for
the fixing or changing of the number of its officers and directors
within the limits prescribed by law, and for the transferring of its
stock, the administration of its corporate affairs, etc.
xxx
xxx
xxx
FACTS:
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Nolasco's defense:
o
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14,575,210.00
Add: Discrepancies:
Professional fees/yr.
17018
per investigation
261,877.00
110,399.37
Total Adjustment
152,477.00
14,727,687.00
14,727,687.00
2,385,231.50 3,237,495.00
5,161,788.00
BALANCE
75,709.00
1,389,639.00 44,108.00
Compromise penalties
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3,774,867.50 119,817.003
= P 47,052,535.00 / P21,275,544.00
= 2.21: 1
========
The significance of this ratio is to serve as a primary test of a
company's solvency to meet current obligations from current
assets as a going concern or a measure of adequacy of
working capital.
xxx
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Page 1382 of 1509
xxx
xxx
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favor of the taxing power.14 Taxation is the rule and exemption is the
exception.15 The burden of proof rests upon the party claiming
exemption to prove that it is, in fact, covered by the exemption so
claimed,16 a burden which petitioner here has failed to discharge.
Another point raised by the petitioner in objecting to the assessment,
is that increase of working capital by a corporation justifies
accumulating income. Petitioner asserts that respondent court erred
in concluding that Cyanamid need not infuse additional working
capital reserve because it had considerable liquid funds based on
the 2.21:1 ratio of current assets to current liabilities. Petitioner relies
on the so-called "Bardahl" formula, which allowed retention, as
working capital reserve, sufficient amounts of liquid assets to carry
the company through one operating cycle. The "Bardahl" 17 formula
was developed to measure corporate liquidity. The formula requires
an examination of whether the taxpayer has sufficient liquid assets to
pay all of its current liabilities and any extraordinary expenses
reasonably anticipated, plus enough to operate the business during
one operating cycle. Operating cycle is the period of time it takes to
convert cash into raw materials, raw materials into inventory, and
inventory into sales, including the time it takes to collect payment for
the
sales.18
Using this formula, petitioner contends, Cyanamid needed at least
P33,763,624.00 pesos as working capital. As of 1981, its liquid asset
was only P25,776,991.00. Thus, petitioner asserts that Cyanamid had
a working capital deficit of P7,986,633.00.19 Therefore, the
P9,540,926.00 accumulated income as of 1981 may be validly
accumulated to increase the petitioner's working capital for the
succeeding year.
We note, however, that the companies where the "Bardahl" formula
was applied, had operating cycles much shorter than that of
petitioner. In Atlas Tool Co., Inc, vs. CIR,20 the company's operating
cycle was only 3.33 months or 27.75% of the year. In Cataphote
Corp. of Mississippi vs. United States,21 the corporation's operating
cycle was only 56.87 days, or 15.58% of the year. In the case of
Cyanamid, the operating cycle was 288.35 days, or 78.55% of a year,
reflecting that petitioner will need sufficient liquid funds, of at least
three quarters of the year, to cover the operating costs of the
business. There are variations in the application of the "Bardahl"
formula, such as average operating cycle or peak operating cycle.
In times when there is no recurrence of a business cycle, the working
capital needs cannot be predicted with accuracy. As stressed by
American authorities, although the "Bardahl" formula is wellestablished and routinely applied by the courts, it is not a precise
rule. It is used only for administrative convenience.22 Petitioner's
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be used within a reasonable time after the close of the taxable year.
In the instant case, petitioner did not establish, by clear and
convincing evidence, that such accumulation of profit was for the
immediate needs of the business.
In Manila Wine Merchants, Inc. vs. Commissioner of Internal
Revenue,29 we ruled:
To determine the "reasonable needs" of the business in order to
justify an accumulation of earnings, the Courts of the United
States have invented the so-called "Immediacy Test" which
construed the words "reasonable needs of the business" to
mean the immediate needs of the business, and it was
generally held that if the corporation did not prove an
immediate need for the accumulation of the earnings and
profits, the accumulation was not for the reasonable needs of
the business, and the penalty tax would apply. (Mertens. Law of
Federal Income Taxation, Vol. 7, Chapter 39, p, 103).30
In the present case, the Tax Court opted to determine the working
capital sufficiency by using the ratio between current assets to
current liabilities. The working capital needs of a business depend
upon nature of the business, its credit policies, the amount of
inventories, the rate of the turnover, the amount of accounts
receivable, the collection rate, the availability of credit to the
business, and similar factors. Petitioner, by adhering to the "Bardahl"
formula, failed to impress the tax court with the required definiteness
envisioned by the statute. We agree with the tax court that the
burden of proof to establish that the profits accumulated were not
beyond the reasonable needs of the company, remained on the
taxpayer. This Court will not set aside lightly the conclusion reached
by the Court of Tax Appeals which, by the very nature of its function,
is dedicated exclusively to the consideration of tax problems and
has necessarily developed an expertise on the subject, unless there
has been an abuse or improvident exercise of authority.31 Unless
rebutted, all presumptions generally are indulged in favor of the
correctness of the CIR's assessment against the taxpayer. With
petitioner's failure to prove the CIR incorrect, clearly and
conclusively, this Court is constrained to uphold the correctness of
tax court's ruling as affirmed by the Court of Appeals.
WHEREFORE, the instant petition is DENIED, and the decision of the
Court of Appeals, sustaining that of the Court of Tax Appeals, is
hereby AFFIRMED. Costs against petitioner.1wphi1.nt
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
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Facts:
Petitioner is a corporation organized under Philippine laws and is a
wholly owned subsidiary of American Cyanamid Co. based in
Maine, USA. It is engaged in the manufacture of pharmaceutical
products and chemicals, a wholesaler of imported finished goods
and an imported/indentor. In 1985 the CIR assessed on petitioner a
deficiency income tax of P119,817) for the year 1981. Cyanamid
protested the assessments particularly the 25% surtax for undue
accumulation of earnings. It claimed that said profits were retained
to increase petitioners working capital and it would be used for
reasonable business needs of the company. The CIR refused to allow
the cancellation of the assessments, petitioner appealed to the CTA.
It claimed that there was not legal basis for the assessment because
1) it accumulated its earnings and profits for reasonable business
requirements to meet working capital needs and retirement of
indebtedness 2) it is a wholly owned subsidiary of American
Cyanamid Company, a foreign corporation, and its shares are listed
and traded in the NY Stock Exchange. The CTA denied the petition
stating that the law permits corporations to set aside a portion of its
retained earnings for specified purposes under Sec. 43 of the
Corporation Code but that petitioners purpose did not fall within
such purposes. It found that there was no need to set aside such
retained earnings as working capital as it had considerable liquid
funds. Those corporations exempted from the accumulated earnings
tax are found under Sec. 25 of the NIRC, and that the petitioner is
not among those exempted. The CA affirmed the CTAs decision.
Held:
In order to determine whether profits are accumulated for the
reasonable needs of the business to avoid the surtax upon the
shareholders, it must be shown that the controlling intention of the
taxpayer is manifested at the time of the accumulation, not
intentions subsequently, which are mere afterthoughts. The
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P1,360,054,000.00
Documentary stamp
tax due thereon
(P1,360,054,000.00
divided by P200.00
multiplied by P0.35)
P 2,380,094.50
Less: Payment
P 1,915,495.75
Deficiency
Add: Compromise
Penalty
P 464,598.75
300.00
----------------------P 464,898.75
Page 1391 of 1509
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Footnote
1
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Rollo, p. 47.
CA Rollo, p. 218.
Rollo, p. 19.
SEC. 50. The policy shall be in printed form which may contain
blank spaces; and any word, phrase, clause, mark, sign,
symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces
provided therein.
6
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ISSUE: W/N the "automatic increase clause" should not be taxed with
the main policy
HELD: NO. CA set aside
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the amount fixed in the policy is the figure written on its face
and whatever increases will take effect in the future by reason
of the "automatic increase clause" embodied in the policy
without the need of another contract
Issue:
Whether or not the automatic increase of the sum assured on the
policy is taxable.
Held:
YES.
CIR claims that the "automatic increase clause" in the subject
insurance policy is separate and distinct from the main agreement
and involves another transaction; and that, while no new policy was
issued, the original policy was essentially re-issued when the
additional obligation was assumed upon the effectivity of this
"automatic increase clause" in 1984; hence, a deficiency assessment
based on the additional insurance not covered in the main policy is
in order. The SC agreed with this contention.
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Logically, we believe that the amount fixed in the policy is the figure
written on its face and whatever increases will take effect in the
future by reason of the "automatic increase clause" embodied in the
policy without the need of another contract.
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MAKASIAR, J.:
This is a petition for review on certiorari of the order dated December
6, 1974 of respondent Secretary of Labor, the dispositive portion of
which reads as follows:
WHEREFORE, the Commission's Decision in so far as that
portion of the decision of the Arbitrator dated September
6, 1974, granting clearance to terminate the services of
complainant Norberto Luna and dismissing the unfair
labor practice are concerned, is hereby affirmed;
whereas, that portion awarding separation pay in
accordance with the Termination Pay Law is hereby
modified, and in lieu thereof said complainant should be
granted the sum of TEN THOUSAND PESOS P10,000.00 by
way of financial assistance. (pp. 67-68, rec.)
It appears that on April 2, 1974, petitioner filed with the National
Labor Relations Commission a complaint against respondent Bank,
charging it with unfair labor practice committed against its president
Mr. Norberto Luna, for harassment, unjust suspension from his
employment as Manager of respondent's San Juan branch and as
member of the Board of Trustees of the RB Provident Fund, as well as
his unlawful dismissal as Administrator and Secretary of the said fund,
all due to his militant espousal and defense of workers' rights (p. 16,
rec.).
On April 15, 1974, a supplemental complaint was filed by the same
petitioner with the allegation that after filing of the original
complaint, the respondent Bank followed up its harassment of Mr.
Luna by terminating his employment as Branch Manager and as
trustee, administrator and secretary of the RB Provident Fund
purportedly due to his libelous remarks against the bank
management (pp. 18-19, rec.). Such termination was effected
through a letter dated April 5, 1974 of the Bank President, Mr. Pablo
Roman to the said Mr. Luna, citing as basis thereof (1) grave
misconduct for making derogatory and libelous remarks against the
bank management as a whole and against the assistant vicepresident in particular, and (2) insubordination for refusal to obey the
lawful order of his superior, the Chairman of the RB Provident Fund
(pp. 206-207, NLRC rec.). The termination was to take effect upon
receipt by the bank of the necessary clearance from the Secretary
of Labor pursuant to Section 11, PD 21, and Section 25 of the Rules
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and Regulations of the NLRC dated October 18, 1972 (pp. 180-181,
NLRC rec.).
On May 20, 1974, respondent bank filed its answer, denying the
allegations in both the original as well as the supplemental
complaint and contending that Mr. Luna's suspension and
subsequent dismissal from his various positions were for cause and
had nothing to do with his alleged espousal and defense of workers'
rights (pp. 20-21, rec.).
On October 6, 1974, a decision (pp. 58-65, rec.) was rendered by
Flavio P. Aguas, NLRC Arbitrator, with the conclusion that Luna
actually made the derogatory remarks against the officers of the
bank. The said decision has the following pronouncements:
In the interest of justice and equity, however, complaint's
dismissal should be considered as without sufficient just
cause.
Conformably to the foregoing, let clearance to terminate
the services of Norberto Luna be granted to Republic
Bank which is hereby ordered to pay the complainant
separation pay in accordance with the Termination Pay
Law.
The charges of unfair labor practice against the employer
is hereby dismissed.
From this decision, petitioner appealed to the National Labor
Relations Commission, which affirmed en toto the said decision on
October 17, 1974 (p. 39, rec.).
On October 29, 1974, petitioner appealed to respondent Secretary
of Labor (pp. 40-48, rec.), and on December 6, 1974, the latter issued
an order the dispositive portion of which has been quoted above,
affirming the decision insofar as it granted clearance for the
termination of employment of Mr. Norberto Luna and dismissing the
unfair labor practice charge, and modifying the portion granting him
separation pay, and in lieu thereof, ordering the payment to him of
P10,000.00 as financial assistance. The said order of the Secretary of
Labor is the subject of the present petition.
The antecedent facts of this case are as follows:
The Republic Bank Provident Fund was established pursuant to the
collective bargaining agreement between the employees and
respondent bank, and became operational in 1970 for the benefit of
the officers and employees of the Republic Bank. Membership
therein was open to an fun-time officers and employees of the bank
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In the case of Bonifacio de Leon vs. NLRC, et al. (G.R. No. L-52056,
October 30, 1980), WE held:
While a managerial employee may be dismissed merely
on the ground of loss of confidence, the matter of
determining whether the cause for dismissing an
employee is justified on grounds of loss of confidence
cannot be kept entirely to the employer. Impartial
tribunals do not rely only on the statement made by the
employer that there is loss of confidence unless duly
proved or sufficiently substantiated. ... .
After having served the company for more than 22 years,
dismissal would be too severe a penalty for petitioner who
was not even afforded an opportunity to be heard. He
was just a victim of the whims and malicious maneuver of
private respondents.
That the respondent bank tried to maneuver Luna's ouster is evident
from the way the investigation was conducted by its Committee on
Personnel. As shown in the above narration of events, the testimonies
of witnesses who were not even under oath were taken without
notice to Luna and without giving him a chance to cross-examine
them. And corporate actions through the Board of Directors, such as
filing of charges, suspension and termination, were taken against
Luna just as soon as, and on the very same dates the reports are
made. Were it not for the filing of this complaint with the NLRC Luna
could have been booted out of office without due process.
In the case of Central Textile Mills, Inc. vs. NLRC, et al. (L-50150, 90
SCRA 9 [1979]). Chief Justice Enrique M. Fernando, speaking for the
Court, ruled:
The weakness of the petition, to repeat, is thus
indisputable Petitioner, however, would try to impart a
substance of plausibility by alleging that even on the
assumption that no theft was committed, still there was
loss of confidence, sufficient to cause his dismissal. In the
Philippine Air Lines decisions referred to, the accusation
that theft was committed by the employee was likewise
not borne out by the evidence. To justify a dismissal,
management relied on the allegation that there was
breach of trust, a ground analogous to loss of confidence.
The Court of Industrial Relations did not agree. Neither did
this Court, Reinstatement was ordered. So it must be in this
case. Such a vague, an-encompassing pretext as loss of
confidence, if given the seal of approval by this Court,
could easily be utilized to reduce to a barren form of
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October 4, 1932
MALCOLM, J.:
The parties to this action are Eugenio Veraguth, a director and
stockholder of the Isabela Sugar Company, Inc., who is the
petitioner, and the Isabela Sugar Company, Inc., Gil Montilla, acting
president of the company, and Agustin B. Montilla, secretary of the
company, who are the respondents. The petitioner prays: (a) That
the respondents be required within five days from receipt of notice
of this petition to show cause why they refuse to notify the petitioner,
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Separate Opinions
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Ruling:
We rule that the petitioner has not made out a case for relief
by mandamus. Petition denied with costs.
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VASQUEZ, J.:
Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First
Instance of Manila a special civil action for mandamus against the
herein respondent praying that the latter be ordered to allow him to
look into the books and records of the respondent bank in order to
satisfy himself as to the truth of the published reports that the
respondent has guaranteed the obligation of Southern Negros
Development Corporation in the purchase of a US$ 23 million sugarmill to be financed by Japanese suppliers and financiers; that the
respondent is financing the construction of the P 21 million CebuMactan Bridge to be constructed by V.C. Ponce, Inc., and the
construction of Passi Sugar Mill at Iloilo by the Honiron Philippines,
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the respondent bank for acts done by the latter when the petitioner
was a total stranger to the same. He could have been impelled by a
laudable sense of civic consciousness, but it could not be said that
his purpose is germane to his interest as a stockholder.
We also find merit in the contention of the respondent bank that the
inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300, as
amended.) Sections 15, 16 and 30 of the said charter provide
respectively as follows:
Sec. 15. Inspection by Department of Supervision and
Examination of the Central Bank. The National Bank
shall be subject to inspection by the Department of
Supervision and Examination of the Central Bank'
Sec. 16. Confidential information. The Superintendent of
Banks and the Auditor General, or other officers
designated by law to inspect or investigate the condition
of the National Bank, shall not reveal to any person other
than the President of the Philippines, the Secretary of
Finance, and the Board of Directors the details of the
inspection or investigation, nor shall they give any
information relative to the funds in its custody, its current
accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a
Court of competent jurisdiction,'
Sec. 30. Penalties for violation of the provisions of this
Act. Any director, officer, employee, or agent of the
Bank, who violates or permits the violation of any of the
provisions of this Act, or any person aiding or abetting the
violations of any of the provisions of this Act, shall be
punished by a fine not to exceed ten thousand pesos or
by imprisonment of not more than five years, or both such
fine and imprisonment.
The Philippine National Bank is not an ordinary corporation. Having a
charter of its own, it is not governed, as a rule, by the Corporation
Code of the Philippines. Section 4 of the said Code provides:
SEC. 4. Corporations created by special laws or charters.
Corporations created by special laws or charters shall
be governed primarily by the provisions of the special law
or charter creating them or applicable to them.
supplemented by the provisions of this Code, insofar as
they are applicable.
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Issue:
1. Whether Gonzales' can ask for an examination of the books
and records of PNB, in light of his ownership of one share in the
bank.
2. Whether the inspection sought to be exercised by Gonzales
would be violative of the provisions of PNB's charter.
Held:
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R.N. Symaco Trading Corp. vs. Santos (467 SCRA 312 [2005])
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sublessees of his stall in the fish market, had been evicted based on
the MTC decision in Civil Case No. 057-90.
During the hearing of the MFBAIs plea for injunction, Santos testified
and declared that he was a member of the said corporation. A
market was constructed on the leased property, where he leased
Stall No. 39, but Symaco Corporation had him evicted. When the
contract of lease between Mariano Guison and MFBAI expired, he
asked the corporate secretary, Brigida Bautista, why it was not
renewed, and he was told that nothing could be done about it. He
also inquired from other officers, to no avail. He admitted that he
was not aware of any meeting of the MFBAI Board of Directors
regarding the renewal of the contract of lease. He thus decided to
file the complaint in behalf of MFBAI.
Restituto Santos testified that Lino Buhain even issued a certification
that his son, Luisito T. Santos, was member of MFBAI.13
In opposition to the motion for a writ of preliminary injunction, the
petitioners presented Linda Sioson, MFBAI treasurer since 1979 to
1990. She testified that although Santos had been a member of the
MFBAI, he was able to pay his membership fee and monthly dues
only from August 1983 to February 1984, and a part of March 1984,
and never offered to pay his dues despite reminders.14
Lino Buhain testified that the MFBAI failed to pay its rentals over the
subject property for four years because of a dispute (between his
group and that of Marcos Valle, Jr.) as to who were its legitimate
members and officers; its members likewise failed to pay their
membership dues. Nonetheless, the MFBAI was able to build a fish
market on the property and leased the stalls therein to its members.
On July 9, 1985, a Deed of Assignment over its leasehold rights under
its contract of lease was executed by Mariano Guison to the MFBAI,
represented by its president, Luzviminda Francisco. On April 9, 1990,
the corporation received a letter from the Heirs of Mariano Guison
informing it that the contract of lease would not be renewed.
Petitioner Norma Symaco testified that the defendant corporation
was established in 1986 to engage in the business of leasing stalls.
She further stated that MFBAI could not renew its contract of lease
with Mariano Guison because it had failed to pay rentals over the
property for six years, since its members were not paying their
monthly dues. The corporate secretary, Brigida Bautista, tried to
collect the dues from the members, to no avail. Moreover, there was
an internal struggle between two factions of its members. She
clarified that Symaco Corporation leased a portion of the property
from the petitioner Estate only after it decided not to renew the
lease contract with the MFBAI upon its expiry, and that the said
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time of its inception up to this moment, MFBAI has only thirty-five (35)
legitimate members and the clear majority of which is eighteen (18)
members. Besides, the presumption of the validity and regularity in
the adoption of the said By-Laws lies in favor of the respondents. The
petitioners failed to disprove said presumption.28
The SEC Hearing Officer concluded that from its inception, the MFBAI
had not accepted any new member and, therefore, it had only 35
legitimate members, including Virgilio Sarmiento.29 The Hearing
Officer also ruled that:
Consistent with our rulings, the Members of the Board of Directors
appearing in the Articles of Incorporation of MFBAI shall hold office
until their successors are elected and qualified. As regards the
officers of MFBAI, respondents Lino Buhain and Brigida Bautista shall
act as President and Secretary of MFBAI, respectively, since they
were duly recognized by the majority of the said members of the
Board of Directors appearing in the Articles of Incorporation as
shown by the Certification accompanying MFBAIs By-Laws and the
Minutes of the Meeting held on August 18, 1983, the date when the
By-Laws of MFBAI was adopted by the majority of its members.
Respondent Erlinda Sioson shall act as Treasurer, being the
designated Treasurer whose name appears in the Articles of
Incorporation. These three (3) officers shall, likewise, hold their
respective offices until their successors are elected and qualified.30
This ruling was affirmed by the SEC on appeal.
For its part, the CA affirmed the rulings of the Hearing Officer and the
SEC on appeal, as follows:
The thirty (30) alleged members were not original members of the
association. They showed up later on, i.e., long after the
incorporation, and they failed to comply with the requirements laid
down in the by-laws aforementioned. They were never accepted as
members even informally by the association. Their acceptance as
members could not be done by the president alone, let alone by
Marcos Valle whose position as president has been successfully
assailed here. There was no quorum in the said meeting held on
August 13, 1983 because those thirty (30) persons who attended
were non-members; and whatever was agreed upon in said
meeting was null and void.31
In its Amended Decision, the appellate court relied on the statement
in the RTC decision, that the petitioners (defendants therein)
adduced evidence that Santos was an MFBAI member. This reliance
is misplaced. The CA failed to consider the RTC decision in its entirety
and the ratio decidendi of the ruling. As gleaned from the said
decision, the RTC ruled in favor of the petitioners (defendants
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therein), and relied on the decisions of the Hearing Officer, the SEC
on appeal and the CA; the trial court did not rely on the parties
evidence aliunde.32 In fine, the RTC correctly considered the
decisions of the Hearing Officer, the SEC and the CA on appeal as
conclusive and binding on it, prescinding from the parties evidence
aliunde. Indeed, the testimonial and documentary evidence of the
petitioners and the respondent cannot prevail over the decisions of
the Hearing Officer, the SEC and the CA. The respondent was
proscribed from attacking the said decision either directly or
collaterally in the RTC.
It may not be amiss to observe that the erroneous amended
decision of the CA was precipitated in part by the petitioners, when
they adduced testimonial and documentary evidence that Santos
was a member of the respondent, but that he failed to pay his
monthly dues from March 1984. The evidence on record showing
that Santos paid the membership fee and his monthly dues up to
March 1984 and was certified as a member by Lino Buhain is not
sufficient to qualify him as such member under the By-laws of
respondent MFBAI.
The Court also agrees with the petitioners contention that as
respondent Santos was not a legitimate MFBAI member, he had no
standing to file a derivative suit for and in its behalf. One of the
requisites of a derivative suit is that the party bringing the suit should
be a stockholder/member at the time of the action or transaction
complained of.33 The right to sue derivatively is an attribute of
corporate ownership which, to be exercised, requires that the injury
alleged be indirect as far as the stockholders/members are
concerned, and direct only insofar as the corporation is concerned.
The whole purpose of the law authorizing a derivative suit is to allow
the stockholder/member to enforce rights which are derivative
(secondary) in nature.34 A derivative action is a suit by a
shareholder/member to enforce a corporate cause of action.35
The Court notes that several MFBAI members, like Brigida Baustista,
Jose Cruz, Constantino Lopez, Eduardo del Rosario, Rogelio Vicente,
Araceli Banaag and Rosalinda Reyes, intervened as plaintiffs.
However, they failed to file their Brief in the CA, which impelled the
appellate court to dismiss their appeal. The resolution of the court,
likewise, became final and executory.
The Court also agrees with the petitioners contention that the CA
erred in ordering that all the original members of the MFBAI should
be impleaded as parties in respondent Santos complaint. Contrary
to the CA ruling, all the MFBAI members are not indispensable parties
in a derivative suit. It is enough that a member or a minority of such
members file a derivative suit for and in behalf of the corporation.
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DECISION
QUISUMBING, J.:
Petitioner assails the Decision,1 dated June 14, 2001, of the Court of
Appeals in CA-G.R. SP No. 57070, affirming the Order, dated
October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch
19. The RTC reversed the Order, dated April 26, 1999, of the
Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also
challenged by herein petitioner is the CA Resolution,2 dated
November 20, 2001, denying his Motion for Reconsideration.
The facts, as culled from the records, are as follows:
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Hence, Hao filed a petition for certiorari docketed as SCA No. 9994846,7 entitled Lydia C. Hao, in her own behalf and for the benefit
of Siena Realty Corporation v. Francis Chua, and the Honorable
Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial
Court of Manila, before the Regional Trial Court (RTC) of Manila,
Branch 19.
The RTC gave due course to the petition and on October 5, 1999,
the RTC in an order reversed the MeTC Order. The dispositive portion
reads:
WHEREFORE, the petition is GRANTED. The respondent Court is
ordered to allow the intervention of the private prosecutors in
behalf of petitioner Lydia C. Hao in the prosecution of the civil
aspect of Crim. Case No. 285721, before Br. 22 [MeTC], Manila,
allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively
participate in the proceedings.
SO ORDERED.8
Chua moved for reconsideration which was denied.
Dissatisfied, Chua filed before the Court of Appeals a petition for
certiorari. The petition alleged that the lower court acted with grave
abuse of discretion in: (1) refusing to consider material facts; (2)
allowing Siena Realty Corporation to be impleaded as co-petitioner
in SCA No. 99-94846 although it was not a party to the criminal
complaint in Criminal Case No. 285721; and (3) effectively amending
the information against the accused in violation of his constitutional
rights.
On June 14, 2001, the appellate court promulgated its assailed
Decision denying the petition, thus:
WHEREFORE, premises considered, the petition is hereby DENIED
DUE COURSE and DISMISSED. The Order, dated October 5, 1999
as well as the Order, dated December 3, 1999, are hereby
AFFIRMED in toto.
SO ORDERED.9
Petitioner had argued before the Court of Appeals that respondent
had no authority whatsoever to bring a suit in behalf of the
Corporation since there was no Board Resolution authorizing her to
file the suit.
For her part, respondent Hao claimed that the suit was brought
under the concept of a derivative suit. Respondent maintained that
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when the directors or trustees refused to file a suit even when there
was a demand from stockholders, a derivative suit was allowed.
The Court of Appeals held that the action was indeed a derivative
suit, for it alleged that petitioner falsified documents pertaining to
projects of the corporation and made it appear that the petitioner
was a stockholder and a director of the corporation. According to
the appellate court, the corporation was a necessary party to the
petition filed with the RTC and even if private respondent filed the
criminal case, her act should not divest the Corporation of its right to
be a party and present its own claim for damages.
Petitioner moved for reconsideration but it was denied in a
Resolution dated November 20, 2001.
Hence, this petition alleging that the Court of Appeals committed
reversible errors:
I. IN RULING THAT LYDIA HAO'S FILING OF CRIMINAL CASE NO.
285721 WAS IN THE NATURE OF A DERIVATIVE SUIT
II. IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA
REALTY WAS A PROPER PETITIONER IN SCA NO. [99-94846]
III. IN UPHOLDING JUDGE DAGUNA'S DECISION ALLOWING
LYDIA HAO'S COUNSEL TO CONTINUE AS PRIVATE PROSECUTORS
IN CRIMINAL CASE NO. 285721
IV. IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE
THAT JUDGE DAGUNA ACTED IN GRAVE ABUSE OF DISCRETION
IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR
BEING A SHAM PLEADING.10
The pertinent issues in this petition are the following: (1) Is the criminal
complaint in the nature of a derivative suit? (2) Is Siena Realty
Corporation a proper petitioner in SCA No. 99-94846? and (3) Should
private prosecutors be allowed to actively participate in the trial of
Criminal Case No. 285721.
On the first issue, petitioner claims that the Court of Appeals erred
when (1) it sustained the lower court in giving due course to
respondent's petition in SCA No. 99-94846 despite the fact that the
Corporation was not the private complainant in Criminal Case No.
285721, and (2) when it ruled that Criminal Case No. 285721 was in
the nature of a derivative suit.
Petitioner avers that a derivative suit is by nature peculiar only to
intra-corporate proceedings and cannot be made part of a criminal
action. He cites the case of Western Institute of Technology, Inc. v.
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Salas,11 where the court said that an appeal on the civil aspect of a
criminal case cannot be treated as a derivative suit. Petitioner
asserts that in this case, the civil aspect of a criminal case cannot be
treated as a derivative suit, considering that Siena Realty
Corporation was not the private complainant.
Petitioner misapprehends our ruling in Western Institute. In that case,
we said:
Here, however, the case is not a derivative suit but is merely an
appeal on the civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and falsification of
public document. Among the basic requirements for a
derivative suit to prosper is that the minority shareholder who is
suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all
other shareholders similarly situated who wish to join. . . .This was
not complied with by the petitioners either in their complaint
before the court a quo nor in the instant petition which, in part,
merely states that "this is a petition for review on certiorari on
pure questions of law to set aside a portion of the RTC decision
in Criminal Cases Nos. 37097 and 37098" since the trial court's
judgment of acquittal failed to impose civil liability against the
private respondents. By no amount of equity considerations, if
at all deserved, can a mere appeal on the civil aspect of a
criminal case be treated as a derivative suit.12
Moreover, in Western Institute, we said that a mere appeal in the civil
aspect cannot be treated as a derivative suit because the appeal
lacked the basic requirement that it must be alleged in the
complaint that the shareholder is suing on a derivative cause of
action for and in behalf of the corporation and other shareholders
who wish to join.
Under Section 3613 of the Corporation Code, read in relation to
Section 23,14 where a corporation is an injured party, its power to sue
is lodged with its board of directors or trustees.15 An individual
stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest.16
A derivative action is a suit by a shareholder to enforce a corporate
cause of action. The corporation is a necessary party to the suit. And
the relief which is granted is a judgment against a third person in
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Private respondent did not waive the civil action, nor did she reserve
the right to institute it separately, nor institute the civil action for
damages arising from the offense charged. Thus, we find that the
private prosecutors can intervene in the trial of the criminal action.
Petitioner avers, however, that respondent's testimony in the inferior
court did not establish nor prove any damages personally sustained
by her as a result of petitioner's alleged acts of falsification. Petitioner
adds that since no personal damages were proven therein, then the
participation of her counsel as private prosecutors, who were
supposed to pursue the civil aspect of a criminal case, is not
necessary and is without basis.
When the civil action is instituted with the criminal action, evidence
should be taken of the damages claimed and the court should
determine who are the persons entitled to such indemnity. The civil
liability arising from the crime may be determined in the criminal
proceedings if the offended party does not waive to have it
adjudged or does not reserve the right to institute a separate civil
action against the defendant. Accordingly, if there is no waiver or
reservation of civil liability, evidence should be allowed to establish
the extent of injuries suffered.32
In the case before us, there was neither a waiver nor a reservation
made; nor did the offended party institute a separate civil action. It
follows that evidence should be allowed in the criminal proceedings
to establish the civil liability arising from the offense committed, and
the private offended party has the right to intervene through the
private prosecutors.
WHEREFORE, the instant petition is DENIED. The Decision, dated June
14, 2001, and the Resolution, dated November 20, 2001, of the Court
of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated
October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch
19, are AFFIRMED. Accordingly, the private prosecutors are hereby
allowed to intervene in behalf of private respondent Lydia Hao in the
prosecution of the civil aspect of Criminal Case No. 285721 before
Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs
against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.
Footnotes
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Id. at 45.
...
2. Causing it to appear that persons have participated in
any act or proceeding when they did not in fact so
participate;
...
5
CA Rollo, p. 59.
CA Rollo, p. 23.
Rollo, p. 43.
10
Id. at 18.
11
12
Id. at 225-226.
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...
Tam Wing Tak v. Makasiar, G.R. No. 122452, 29 January 2001,
350 SCRA 475, 485, citing Premium Marble Resources, Inc. v.
Court of Appeals, G.R. No. 96551, 4 November 1996, 264 SCRA
11, 17.
15
17
18
19
22
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26
27
Id. at 903-904.
28
30
31
Chua vs. CA and Hao G.R. No. 150793 November 19, 2004
Facts: PR Lydia Hao, treasurer of Siena Realty Corporation, filed a
complaint-affidavit against petitioner for committing acts of
falsification by falsifying the Minutes of the Annual Stockholders
meeting of the Board of Directors by causing it to appear in said
Minutes that LYDIA HAO CHUA was present and has participated in
said proceedings, when in truth and in fact, as the said accused fully
well knew that said Lydia Hao was never present during the meeting.
Petitioner alleges that respondent Lydia Hao has no the authority to
bring a suit in behalf of the Corporation since there was no Board
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Resolution authorizing her to file the suit. For her part, respondent
Hao claimed that the suit was brought under the concept of a
derivative suit.
Issue: (1) Is the criminal complaint in the nature of a derivative suit?
(2) Is Siena Realty Corporation a proper petitioner in SCA No. 9994846?
Held: Under Section 36 of the Corporation Code, read in relation to
Section 23, where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees. An individual
stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest.
A derivative action is a suit by a shareholder to enforce a corporate
cause of action. The corporation is a necessary party to the suit. And
the relief which is granted is a judgment against a third person in
favor of the corporation. Similarly, if a corporation has a defense to
an action against it and is not asserting it, a stockholder may
intervene and defend on behalf of the corporation.
In the Criminal Case, the complaint was instituted by respondent
against petitioner for falsifying corporate documents whose subject
concerns corporate projects of Siena Realty Corporation. Clearly,
SRC is an offended party. Hence, SRC has a cause of action. And
the civil case for the corporate cause of action is deemed instituted
in the criminal action.
However, the board of directors of the corporation in this case did
not institute the action against petitioner. Private respondent was the
one who instituted the action. Private respondent asserts that she
filed a derivative suit in behalf of the corporation. This assertion is
inaccurate. Not every suit filed in behalf of the corporation is a
derivative suit. For a derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the corporation must
allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders
similarly situated who may wish to join him in the suit. It is a condition
sine qua non that the corporation be impleaded as a party because
not only is the corporation an indispensable party, but it is also the
present rule that it must be served with process. The judgment must
be made binding upon the corporation in order that the corporation
may get the benefit of the suit and may not bring subsequent suit
against the same defendants for the same cause of action. In other
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Illustrative Case:
Chua vs. Court of Appeals, G.R. No. 125837, October 6, 2004.
Facts:
On August 20, 1985, private respondents Andres Paguio, Pablo
Canale, Ruel Pangan, Aurelio Paguio, Rolando Trinidad, Romeo
Tapang and Carlos Maliwat filed a petition with the SSC for SSS
coverage and contributions against petitioner Reynaldo Chua,
owner of Prime Mover Construction Development, claiming that they
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July 1, 2003
0695.4 On the other hand, SEC Case No. 05-97-5657 was handled by
another partner of the firm, Atty. Agustin V. Agustin. Respondent
claims that it was complainant Atty. Ricafort who instigated,
orchestrated and indiscriminately filed the said cases against
members of the PPSTA and its Board.
Respondent pointed out that his relationship to Aurelio S. Salunat was
immaterial; and that when he entered into the retainer contract with
the PPSTA Board, he did so, not in his individual capacity, but in
representation of the ASSA Law Firm. He denied that he ensured the
victory of the PPSTA Board in the case he was handling. He merely
assured the Board that the truth will come out and that the case
before the Ombudsman will be dismissed for lack of jurisdiction,
considering that respondents therein are not public officials, but
private employees. Anent the SEC case, respondent alleged that
the same was being handled by the law firm of Atty. Eduardo de
Mesa, and not ASSA.
By way of Special and Affirmative Defenses, respondent averred that
complainant Atty. Ricafort was himself guilty of gross violation of his
oath of office amounting to gross misconduct, malpractice and
unethical conduct for filing trumped-up charges against him and
Atty. De Mesa. Thus, he prayed that the complaint against him be
dismissed and, instead, complainant Ricafort be disciplined or
disbarred.
The complainant was docketed as CBD Case No. 97-531 and
referred to the IBP Commission on Bar Discipline. After investigation,
Commissioner Lydia A. Navarro recommended that respondent be
suspended from the practice of law for six (6) months. The Board of
Governors thereafter adopted Resolution No. XV-3003-230 dated
June 29, 2002, approving the report and recommendation of the
Investigating Commissioner.
Respondent filed with this Court a Motion for Reconsideration of the
above Resolution of the IBP Board of Governors.
The pertinent rule of the Code of Professional Responsibility provides:
RULE 15.03. A lawyer shall not represent conflicting interests
except by written consent of all concerned given after a full
disclosure of the facts.
There is conflict of interest when a lawyer represents inconsistent
interests of two or more opposing parties. The test is "whether or not
in behalf of one client, it is the lawyers duty to fight for an issue or
claim, but it is his duty to oppose it for the other client. In brief, if he
argues for one client, this argument will be opposed by him when he
argues for the other client."5 This rule covers not only cases in which
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Footnotes
1
Record, Vol. 1, p. 1.
Rollo, p. 58.
Id., p. 79.
12
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Facts: Hornilla filed a complaint against Atty. Salunat with the IBP
Commission on Bar Discipline for unethical practice regarding
conflict of interests. Said counsel is a member of the ASSA Law Office
and acted as the lawyer for the Philippine Public School Teachers
Association.
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In the case at bar, the records show that SEC Case No. 05-97-5657,
entitled Philippine Public School Teachers Assn., Inc., et al. v. 19921995 Board of Directors of the Philippine Public School Teachers Assn.
(PPSTA), et al., was filed by the PPSTA against its own Board of
Directors. Respondent admits that the ASSA Law Firm, of which he is
the Managing Partner, was the retained counsel of PPSTA. Yet, he
appeared as counsel of record for the respondent Board of Directors
in the said case. Clearly, respondent was guilty of conflict of interest
when he represented the parties against whom his other client, the
PPSTA, filed suit.
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Footnote
1
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13
xxx
xxx
xxx
xxx
xxx
16
Section 5, PD 902-A.
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18
19
20
See Ang Ping v. CA, 310 SCRA 343, July 15, 1999; Santiago v.
CA, 278 SCRA 98, August 21, 1997.
21
The fact that defendant was sojourning in Pasay t the time he was
served with summons does not make him a resident of that place for
purposes of venue. Residence is "the permanent home, the place to
which, whenever absent for business or pleasure, one intends to
return, ..." (67 C.J., pp. 123-124.) A man can have but one domicile
at a time (Alcantara vs. Secretary of Interior, 61 Phil., 459), and
residence is anonymous with domicile under section 1 of Rule 5
(Moran's Comments, supra, p. 104).
In view of the foregoing, we hold that the objection to the venue
was correctly sustained by the lower court.
As to the second question, the complaint shows that the action is for
damages resulting from mismanagement of the affairs and assets of
the corporation by its principal officer, it being alleged that
defendant's maladministration has brought about the ruin of the
corporation and the consequent loss of value of its stocks. The injury
complained of is thus primarily to the corporation, so that the suit for
the damages claimed should be by the corporation rather than by
the stockholders (3 Fletcher, Cyclopedia of Corporation pp. 977980). The stockholders may not directly claim those damages for
themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of section
16 of the Corporation Law, which provides:
No shall corporation shall make or declare any stock or bond
dividend or any dividend whatsoever from the profits arising
from its business, or divide or distribute its capital stock or
property other than actual profits among its members or
stockholders until after the payment of its debts and the
termination of its existence by limitation or lawful dissolution.
But while it is to the corporation that the action should pertain in
cases of this nature, however, if the officers of the corporation, who
are the ones called upon to protect their rights, refuse to sue, or
where a demand upon them to file the necessary suit would be futile
because they are the very ones to be sued or because they hold the
controlling interest in the corporation, then in that case any one of
the stockholders is allowed to bring suit (3 Fletcher's Cyclopedia of
Corporations, pp. 977-980). But in that case it is the corporation itself
and not the plaintiff stockholder that is the real property in interest, so
that such damages as may be recovered shall pertain to the
corporation (Pascual vs. Del Saz Orosco, 19 Phil. 82, 85). In other
words, it is a derivative suit brought by a stockholder as the nominal
party plaintiff for the benefit of the corporation, which is the real
property in interest (13 Fletcher, Cyclopedia of Corporations, p. 295).
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Ruling:
In derivative suits, the injury complained of must be one
which is against the corporation, thus the action properly belongs to
the corporation rather than the stockholders. The suit is brought by
the individual stockholder as the nominal party plaintiff for the
benefit of the corporation which is the real party in interest.
In the case at bar, however, plaintiff stockholders brought the action
not for the benefit of the corporation but for their own benefit since
they ask that the defendant make good losses occasioned by his
mismanagement and to pay them the value of their respective
participation in the corporate assets on the basis of their respective
holdings.
Petition dismissed for venue being improperly laid.
Class notes: In effect what the stockholders petitioning for, in this
case, was a distribution of corporate assets before liquidation which
is not allowed. Their remedy is to amend the complaint and bring it
to the proper venue.
Derivative suits may be brought by: (a) a minority stockholder, (b) a
corporate officer, (c) a treasurer, (d) a director, or (e) a majority
stockholder when requirement of 2/3 affirmative vote is necessary.
ISSUE:
Whether or not the Articles of Co-partnership shall be considered as
a conclusive evidence of respondents status as a limited partner?
HELD:
NO. The Court held that despite the genuineness of the Articles
of
The complaint does not give plaintiffs residence, but, for purposes of
venue, alleges that defendant resides at 2112 Dewey Boulevard,
corner Libertad Street, Pasay, province of Rizal. Having been served
with summons at that place, defendant filed a motion for the
dismissal of the complaint on the ground of improper venue and also
on the ground that the complaint did not state a cause of action in
favor of plaintiffs.
In support of the objection to the venue, defendant states that he is
a resident of Iloilo City and not of Pasay, defendant also presented
further affidavit to the effect that while he has a house in Pasay,
where members of his family who are studying in Manila live and
where he himself is sojourning for the purpose of attending to his
interests in Manila, yet he has his permanent residence in the City of
Iloilo where he is registered as a voter for election purposes and has
been paying his residence certificate.
Held: The facts in this case show that the objection to the venue is
well-founded. Where the plaintiff is a nonresident and the contract
upon which suit is brought was made in the Philippine Islands it may
safely be asserted that the convenience of the defendant would be
best served by a trial in the province where he resides. The fact that
defendant was sojourning in Pasay at the time he was served with
summons does not make him a resident of that place for purposes of
venue. Residence is the permanent home, the place to which,
whenever absent for business or pleasure, one intends to return.
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4.5
FOLLOWING THE JANUARY 31, 2002 DECISION OF THE RESPONDENT
APPELLATE COURT WHICH DIRECTED THE PAYMENT OF ALLEGED
ACCRUED DIVIDENDS AND/OR INTEREST COMMENCING ON
OCTOBER 15, 1981 WHERE THE PREVAILING EXCHANGE RATE WAS
P8.067 TO A DOLLAR, THE OVERPAYMENT TO THE SINGAPOREAN
EQUITY HOLDERS SHALL AMOUNT TO P182,893,303.55. 12
Anent the first issue, the Liquidator interprets the affirmation by the
Court of Appeals of the 12 May 1998 Order of Judge Reyes as
amounting to an unlawful grant of undeclared dividends. He argues
that the only fruits that can arise from an equity investment are
dividends declared from unrestricted retained earnings by the Board
of Directors in accordance with the Corporation Code. Absent a
declaration in this case, the interest awarded has no legal basis.
As for the second and third issues, the Liquidator argues that no
actual damages can arise from the closure of the bank. The ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals13 is not applicable
because that case clearly refers to an award of interest in the
concept of actual and compensatory damages in case of breach
of an obligation. The failure of PaBC to return the Singaporeans
equity investment because of its closure is not a breach of an
obligation the closure being akin to a force majeure. If indeed
PaBC is liable to the Singaporeans for actual and compensatory
damages, accrual thereof should be reckoned from the date of
demand pursuant to Article 1169 of the Civil Code. Instead of
running from 15 October 1981 when the Singaporeans bought their
shares in PaBC, the 6% interest rate should be reckoned from 26 June
1992, the date the Singaporeans filed their claim in the liquidation
court.
The Liquidator likewise asserts that there is already an overpayment
of accrued dividends or interests. The liquidation courts Order of 12
May 1998 awarded an interest of 12% per annum to be computed
from 15 October 1981 (the date of actual remittance of the
investment) until full payment. Pursuant to that Order, the PNB
released P116,339,343.60. On appeal, however, the Court of Appeals
modified the decision and awarded an interest of 6% per annum
from 15 October 1981 up to PaBCs closure, as well as an interest of
12% per annum from 11 October 1992, when the 11 September 1992
Order became final and executory, until 17 April 1998, when the
equity investment of US$2,531,632.18 was fully paid. With the
prevailing exchange rate of P8.067 to a dollar on 15 October 1981,
the total peso equivalent of the Singaporeans claim is only
P30,230,338.29 P20,422,676.80 of which represents the principal
equity investment of US$2,531,632.18 and P9,807,661.49, as alleged
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of the Rules of Civil Procedure especially since it was filed within the
reglementary period for filing an appeal. Sections 1 and 2 of Rule 45
of the 1997 Rules of Civil Procedure provide:
SECTION 1. Filing of petition with Supreme Court. A party desiring to
appeal by certiorari from a judgment or final order or resolution of
the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall
raise only questions of law which must be distinctly set forth.
SEC. 2. Time for filing; extension. The petition shall be filed within
fifteen (15) days from notice of the judgment or final order or
resolution appealed from, or of the denial of the petitioners motion
for new trial or reconsideration filed in due time after notice of the
judgment. On motion duly filed and served, with full payment of the
docket and other lawful fees and the deposit for costs before the
expiration of the reglementary period, the Supreme Court may for
justifiable reasons grant an extension of thirty (30) days only within
which to file the petition.
The records show that the Liquidator received on 30 August 2002 a
copy of the resolution of the Court of Appeals denying his motion for
reconsideration. He had fifteen days, or until 14 September 2002, to
file a petition for review on certiorari. Since 14 September 2002 fell on
a Saturday, he could file his petition on the next working day, which
was 16 September 2002.16 Indeed, the Liquidator filed the instant
petition and paid the necessary docket and legal fees on 16
September 2002.
Before delving into the merits of the case, it bears stressing that we
are constrained to make our judgment according to the confines set
by the 11 September 1992 Order of the liquidation court.
According to the principle of the law of the case, "whatever is once
irrevocably established as the controlling legal rule or decision
between the same parties in the same case continues to be the law
of the case."17 To this the Court must adhere, whether the legal
principles laid down were "correct on general principles or not," or
"whether the question is right or wrong."18
As a result, upon the finality of the 11 September 1992 Order, the
following issues were laid to rest: (1) the Singaporeans are deemed
preferred creditors; and (2) they are entitled to the payment of their
total investment amounting to US$2,531,632.18.
The determination of interests or dividends was, however, deferred
pending a report to be submitted by the Liquidator. It was only in the
12 May 1998 Order of the liquidation court that an interest was
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Footnotes
1
Rollo, 463.
Id.
Id., 104.
Id., 126-138.
Id., 139.
Id., 140-171.
10
Rollo, 82-83.
11
Id., 86-92.
12
Rollo, 24-25.
13
14
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19
Rollo, 135.
21
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