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Facts:
1. The Benguet Consolidated Mining Co. (BCMC) was organized in June, 1903, as
a sociedad anonima in conformity with the provisions of Spanish law; while
the Balatoc Mining Co. (BMC) was organized in December 1925, as a
corporation, in conformity with the provisions of the Corporation Law (Act No.
1459). Both entities were organized for the purpose of engaging in the mining
of gold in the Philippine Islands, and their respective properties are located
only a few miles apart in the subprovince of Benguet. The capital stock of the
Balatoc Mining Co. consists of one million shares of the par value of one peso
(P1) each.
2. BMC entered into an agreement with BCMC wherein the latter would
construct facilities for the mining operations of the former in exchange for
600,000 shares of BMC to be offset from the balance of the worth of facilities
constructed by BCMC and the balance thereof was paid in cash.
3. Petitioners, as shareholders of BMC, contests the contract entered into by the
two companies, and seeks to annul the same, as Act No. 1459, the
Corporation Law, provides that it shall be unlawful for any member of a
corporation engaged in agriculture or mining and for any corporation
organized for any purpose except irrigation to be in any wise interested in
any other corporation engaged in agriculture or in mining.
Issue:
1. Whether or not the aforementioned law applies to BCMC which is a Sociedad
Anonima formed under the old Spanish laws and not under the current
Corporation Law
Ruling:
The Supreme Court Stated that the petitioners had no legal standing to
question the validity of the contract between the two companies. The provision of
law cited by the petitioners have been amended by the legislature as to put only a
limit on the percentage of shares that can be held by a mining or agricultural
company of another mining and agricultural company only up to fifteen percent as a
means to regulate the grant of mining rights. The argument of petitioners make it
seem as though only BCMC is at fault upon entering the contract when in fact it was
BMC who initiated the negotiations between the two parties as it was unable to
perform its corporate duties on its own due to its own inability. The plaintiffs would
then have the court apply the second paragraph of Article 1305 of the Civil Code
which declares that an innocent party to an illegal contract may recover anything
he may have given, while he is not bound to fulfill any promise he may have made.
But, supposing that the first hurdle can be safely vaulted, the general remedy
supplied in Article 1305 of the Civil Code cant be invoked where an adequate
special remedy is supplied in a special law. The court no longer delved into the issue
whether a Sociedad Anonima is a corporation as defined in the Corporation Law.
Classification of Corporations
PHILIPPINE STOCK EXCHANGE, INC. V. THE HONORABLE COURT OF
APPEALS, ET AL.
G.R. No. 125469
Facts:
1. The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a Permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached.
2. Upon deliberation of the application of PALI, the Board of Governors of PSE
received a letter by the Heirs of the Former President Ferdinand Marcos
stating that they claim ownership of the some of the real properties of stated
by PALI as part of their assets. Due to the controversy involving the assailed
properties that it even involves investigation by the Philippine Commission on
Good Governance (PCGG), the application of PALI for its shared to be listed
was denied.
3. PALI then sent a letter to the SEC invoking the exercise of the Commissioners
supervisory and regulatory powers over stock exchanges under Section 6(j) of
P.D. No. 902-A. The SEC then rendered a decision reversing the decision of
the PSE to deny the application of PALI of its shares to be listed which the
Court of Appeals upheld.
4. PSE now contests the decision of the SEC on reversing its denial of PALIs
application. Stating that although the SEC does have supervisory and
regulatory powers but such powers are limited as compared to its authority
over ordinary corporations.
Issue:
Whether or not the SECs exercise of its supervisory and regulatory powers
over PSE in reversing the latters denial of PALIs application
Ruling:
The Supreme Court stated that although the SEC does have supervisory and
regulatory powers over the PSE, the said rule precludes the reversal of the decision
of the PSE to deny PALIs listing application, absent a showing of bad faith on the
part of the PSE. Under the listing rules of the PSE, to which PALI had previously
agreed to comply, the PSE retains the discretion to accept or reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuers listing
application if the PSE determines that the listing shall not serve the interests of the
investing public. Furthermore, the PSE is a corporation which is authorized by its
corporate franchise to engage in its proposed and duly approved business. One of
the PSEs main concerns, as such, is still the generation of profit for its stockholders.
Moreover, the PSE has all the rights pertaining to corporations, including the right to
sue and be sued, to hold property in its own name, to enter (or not to enter) into
contracts with third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact under
an assumed corporate name, and with a distinct legal personality. In organizing
itself as a collective body, it waives no constitutional immunities and perquisites
appropriate to such a body. As to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy
and of management are left to the honest decision of the officers and directors of a
corporation, and the courts are without authority to substitute their judgment for
the judgment of the board of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are not reviewable by the
courts.
Credit Corporation (GCC). CCC-QC did not comply with the court decision
which led to petitioner filing for an action for a writ of execution, the sheriff
then attached the property of GCC for the execution of the judgment in favor
of petitioner. GCC contends that it cannot be held liable as to the judgment
against CCC-QC as both are corporations that are separate and distinct from
each other.
Issue:
Whether or not GCC can be held liable for the execution of the judgment
against CCC-QC
Ruling:
The Court will not hesitate to use its supervisory and adjudicative powers
where the corporate fiction is used as an unfair device to achieve an inequitable
result, defraud creditors, evade contracts and obligations, or to shield it from the
effects of a court decision. The corporate fiction has to be disregarded when
necessary in the interest of justice. It is obvious that the use by CCC-QC of the
same name of Commercial Credit Corporation was intended to publicly identify it
as a component of the CCC group of companies engaged in one and the same
business, i.e., investment and financing. CCC had dominant control of the
business operations of CCC-QC. The exclusive management contract insured
that CCC-QC would be managed and controlled by CCC and would not deviate
from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the
resident manager of CCC-QC. The change of name of CCC to GCC does not
affect its liability as its personality is still the same.
Piercing the Veil of Corporate Fiction
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. V. COURT OF
APPEALS, ET AL.
G.R. No. 129459
September 29, 1998
Facts:
1. Petitioners allegedly entered into an agreement with defendants Motorich
Sales Corporation (Motorich) to purchase a parcel of land. Motorich then
refused to transfer the title of said parcel of land to petitioner, stating through
its Treasuer, Nenita Gruenberg, that the agreement between petitioner and
Motorich was not approved by its board and therefore not valid. The land was
later sold by Motorich to ACL Development Company, both corporations were
impleaded to compel the transfer of the title to petitioner.
2. Motorich averred that petitioner only transacted with Nenita Gruenberg who
is the Corporate treasurer and that the sale of property was not agreed upon
and signed by the Chairman of the board Reynaldo Gruenberg therefore it is
not a valid action of the corporation. Petitioner on the other hand contends
that the veil of corporate fiction must be pierced in order to hold Motorich
liable for the actions of Nenita arguing that the Spouses Gruenber owns
1169, as amended by B.P. Blg. 42, which is the one that gives life to the corporation
and provides for it duties, powers and limitations. Therefore, the corporation cannot
do any act which is contrary to its charter. As for the other issues of nationality and
franchise requirements, the court stated that the nationality requirement has been
belatedly complied with and that there is no need to discuss the franchise
requirement as the agreement itself between PCSO and PGMC is invalid.
2. Sometime after Mead resigned as general manager and left the country to
accept a position of engineer at the Canton and Shanghai Railway Company.
During his time in China, the other 4 incorporators conducted a meeting
wherein they discussed the current situation of the company and decided to
sell all of the interest in the company to McCullough as the company was not
already unstable financially.
3. Mead then filed an action against the 4 namely, Green, Hartigan, Hilbert, and
McCullough, claiming unpaid wages as general manager of the company, his
share in the profits, and the nullification of the sale of the company interest
to McCullough as it was not made by all the directors of the board as he was
not part of the meeting and deliberations. Mead claims that what is required
in their articles of incorporation that all members of the board should
unanimously decide in matters concerning the alienation of company assets.
Issue:
Whether or not the act of the 4 other board members of selling all company
interests to McCullough is valid
Ruling:
A perusal of the articles of incorporation shows that what is given to the
directors are general and ordinary powers and that what is needed in a vote for
matters discussed in stockholders meetings is a majority vote of the stockholders.
There were only five stockholders in this corporation at any time, four of whom were
the directors who made the sale, and the other the plaintiff, who was absent in
China when the said sale took place. The sale was, therefore, made by the
unanimous consent of four-fifths of all the stockholders. Under the articles of
incorporation, the stockholders and directors had general ordinary powers. There is
nothing in said articles which expressly prohibits the sale or transfer of the
corporate property to one of the stockholders of said corporation. The powers and
purposes of a corporation and the powers of its directors are granted and limited by
its articles of incorporation, thus as there is no provision in the articles of
incorporation of said company that supports the claim of Mead, the sale to
McCullough is valid.