Académique Documents
Professionnel Documents
Culture Documents
1.
ARTIFICIAL PERSON
FILIPINAS BROADCASTING vs. AGO MEDICAL CENTER
in the name of the corporation itself. But that did not happen herein,
because Arc Cuisine, Inc. was not even joined in the action either as
an original party or as an intervenor.
The Cuencas and Tayactac were clearly not vested with any direct
interest in the personal properties coming under the levy on
attachment by virtue alone of their being stockholders in Arc Cuisine,
Inc. Their stockholdings represented only their proportionate or
aliquot interest in the properties of the corporation, but did not vest
in them any legal right or title to any specific properties of the
corporation. Without doubt, Arc Cuisine, Inc. remained the owner as
a distinct legal person.
Given the separate and distinct legal personality of Arc Cuisine, Inc.,
the Cuencas and Tayactac lacked the legal personality to claim the
damages sustained from the levy of the formers properties.
According to Asset Privatization Trust v. CA, even when the
foreclosure on the assets of the corporation was wrongful and done
in bad faith the stockholders had no standing to recover for
themselves moral damages; otherwise, they would be appropriating
and distributing part of the corporations assets prior to the
dissolution of the corporation and the liquidation of its debts and
liabilities. Moreover, in Evangelista v. Santos, the Court, resolving
WON the minority stockholders had the right to bring an action for
damages against the principal officers of the corporation for their
own benefit, said:
x x x 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. 977-980). 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 x x x
It is true, too, that the Cuencas and Tayactac could bring in behalf of
Arc Cuisine, Inc. a proper action to recover damages resulting from
the attachment. Such action would be one directly brought in the
name of the corporation. Yet, that was not true here, for, instead, the
Cuencas and Tayactac presented the claim in their own names.
The second prong is the "fraud" test. This test requires that the
parent corporations conduct in using the subsidiary corporation be
unjust, fraudulent or wrongful. It examines the relationship of the
56
plaintiff to the corporation. It recognizes that piercing is appropriate
only if the parent corporation uses the subsidiary in a way that harms
57
the plaintiff creditor. As such, it requires a showing of "an element
of injustice or fundamental unfairness."
The third prong is the "harm" test. This test requires the plaintiff to
show that the defendants control, exerted in a fraudulent, illegal or
otherwise unfair manner toward it, caused the harm suffered. A
causal connection between the fraudulent conduct committed
through the instrumentality of the subsidiary and the injury suffered
or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendants exercise of control and
improper use of the corporate form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements: control of the
corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or
damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing
the corporate veil.
Where two banks foreclosed mortgages on certain properties of a
mining company and resumed business operations thereof by
organizing a different company to which the banks transferred the
foreclosed assets, the banks are not liable to a contractor which was
engaged by the re-organized mining company even though the latter
is wholly-owned by the two banks and they have interlocking
directors, officers and stockholders. While ownership by one
corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by
themselves and without more, however, these circumstances are
insufficient to establish an alter ego relationship or connection
between the two banks and the new mining company on the other
hand, that will justify the puncturing of the latters corporate cover.
Mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality.
Likewise, the existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate
fiction in the absence of fraud or other public policy considerations.
3|N B S
3.4 LIDDELL & CO., INC. vs. THE COLLECTOR OF INTERNAL REVENUE
It is of course accepted that the mere fact that one or more
corporations are owned and controlled by a single stockholder is not
of itself sufficient ground for disregarding separate corporate
entities. Authorities support the rule that it is lawful to obtain a
corporation charter, even with a single substantial stockholder, to
engage in a specific activity, and such activity may co-exist with other
private activities of the stockholder. If the corporation is a
substantial one, conducted lawfully and without fraud on another,
its separate identity is to be respected. Accordingly, the mere fact
that Liddell & Co. and Liddell Motors, Inc. are corporations owned
and controlled by Frank Liddell directly or indirectly is not by itself
sufficient to justify the disregard of the separate corporate identity of
one from the other. There is, however, in this instant case, a peculiar
consequence of the organization and activities of Liddell Motors, Inc.
As opined in the case of Gregory v. Helvering, "the legal right of a
taxpayer to decrease the amount of what otherwise would be his
taxes, or altogether avoid them by means which the law permits,
cannot be doubted." But, as held in another case, "where a
corporation is a dummy, is unreal or a sham and serves no business
purpose and is intended only as a blind, the corporate form may be
ignored for the law cannot countenance a form that is bald and a
mischievous fiction." Consistently with this view, the United States
Supreme Court held that "a taxpayer may gain advantage of doing
business thru a corporation if he pleases, but the revenue officers in
proper cases, may disregard the separate corporate entity where it
serves but as a shield for tax evasion and treat the person who
actually may take the benefits of the transactions as the person
accordingly taxable."
4|N B S
SECTION 6
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG vs. SOCIAL
SECURITY SYSTEM, and HON. PACIFICO DE CASTRO
We uphold the lower court's finding that the Purchase Agreement is,
indeed, a debt instrument. Its terms and conditions unmistakably
show that the parties intended the repurchase of the preferred
shares on the respective scheduled dates to be an absolute
obligation which does not depend upon the financial ability of
petitioner corporation. This absolute obligation on the part of
petitioner corporation is made manifest by the fact that a surety was
required to see to it that the obligation is fulfilled in the event of the
principal debtor's inability to do so. The unconditional undertaking of
petitioner corporation to redeem the preferred shares at the
specified dates constitutes a debt which is defined "as an obligation
to pay money at some fixed future time, or at a time which becomes
definite and fixed by acts of either party and which they expressly or
impliedly, agree to perform in the contract.
A stockholder sinks or swims with the corporation and there is no
obligation to return the value of his shares by means of repurchase
if the corporation incurs losses and financial reverses, much less
guarantee such repurchase through a surety.
SECTION 8
REPUBLIC PLANTERS BANK vs.HON. ENRIQUE A. AGANA, SR., as
Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay
City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION
and ADALIA F. ROBES
A preferred share of stock, on one hand, is one which entitles the
holder thereof to certain preferences over the holders of common
stock. The preferences are designed to induce persons to subscribe
for shares of a corporation. Preferred shares take a multiplicity of
forms. The most common forms may be classified into two: (1)
preferred shares as to assets; and (2) preferred shares as to
dividends. The former is a share which gives the holder thereof
preference in the distribution of the assets of the corporation in case
of liquidation; the latter is a share the holder of which is entitled to
receive dividends on said share to the extent agreed upon before any
dividends at all are paid to the holders of common stock. There is no
guaranty, however, that the share will receive any dividends. Under
the old Corporation Law in force at the time the contract between the
petitioner and the private respondents was entered into, it was
provided that "no corporation shall make or declare any dividend
except from the surplus profits arising from its business, 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."
Similarly, the present Corporation Code provides that the board of
directors of a stock corporation may declare dividends only out of
unrestricted retained earnings. xxx the declaration of dividends is
dependent upon the availability of surplus profit or unrestricted
retained earnings, as the case may be. Preferences granted to
preferred stockholders, moreover, do not give them a lien upon the
property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate to the
latter. Dividends are thus payable only when there are profits earned
by the corporation and as a general rule, even if there are existing
SECTION 9
COMMISSIONER OF INTERNAL REVENUE vs. JOHN L. MANNING,
W.D. McDONALD, E.E. SIMMONS and THE COURT OF TAX APPEALS
xxx after a careful study of the trust agreement, that the said shares
5|N B S
SECTION 13
ONG YONG, et al. v. TIU, et al.
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.
xxx the subject matter of the contract was the
1,000,000 unissued shares of FLADC stock allocated to the Ongs.
Since these were unissued shares, the parties' Pre-Subscription
Agreement was in fact a subscription contract as defined under
Section 60, Title VII of the Corporation Code:
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed
a subscription within the meaning of this Title, notwithstanding
the fact that theparties refer to it as a purchase or some other
contract.
A subscription contract necessarily involves the corporation as one of
the contracting parties since the subject matter of the transaction is
property owned by the corporation its shares of stock. Thus, the
subscription contract (denominated by the parties as a PreSubscription Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the law, one
between the Ongs and FLADC, not between the Ongs and the Tius.
SECTION 14
MSCI-NACUSIP LOCAL CHAPTER vs. NATIONAL WAGES AND
PRODUCTIVITY COMMISSION and MONOMER SUGAR CENTRAL, INC.
The submission of the Board that the value of the assets of Asturias
Sugar Central, Inc. transferred to MSCI on March 28, 1990, as well as
the loans or advances made by MTII to MSCI should have been taken
into consideration in computing the paid-up capital of MSCI is
unmeritorious, at best, and betrays the Board's sheer lack of grasp of
a basic concept in Corporation Law, at worst. Not all funds or assets
received by the corporation can be considered paid-up capital, for
this term has a technical signification in Corporation Law. Such must
6|N B S
SECTION 15
WILSON P. GAMBOA vs. FINANCE SECRETARY MARGARITO B. TEVES,
et al.
In short, the term capital in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors.
To construe broadly the term capital as the total outstanding capital
stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the
State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility.
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term "capital" in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also
have the right to vote in the election of directors, then the term
"capital" shall include such preferred shares because the right to
participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In
short, the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of
directors.
Both the Voting Control Test and the Beneficial Ownership Test
must be applied to determine whether a corporation is a Philippine
national.
xxxThe 1987 Constitution reserves the ownership and operation of
public utilities exclusively to (1) Filipino citizens, or (2) corporations or
associations at least 60 percent of whose capital is owned by
Filipino citizens. Hence, in the case of individuals, only Filipino citizens
can validly own and operate a public utility. In the case of
corporations or associations, at least 60 percent of their capital
must be owned by Filipino citizens. In other words, under Section 11,
Article XII of the 1987 Constitution, to own and operate a public
utility a corporations capital must at least be 60 percent owned
by Philippine nationals.
In support of this State policy, the Supreme Court, in the case of Heirs
of Gamboa v. Teves, G.R. No.176579 dated 28 June 2011 and in a
resolution dated Oct. 9, 2012, interpreted the term capital for the
first time. In this case, the Supreme Court ruled that capital under
the 1987 Constitution and the Foreign Investments Act of 1991 refers
to shares with voting rights, as well as full beneficial ownership, and
not to the total outstanding capital stock. Simply put, the 60-40
ownership requirement in favor of the Filipino citizens must apply
separately to each class of shares, whether common, preferred nonvoting, preferred voting or any other class of shares.
In arriving at this judgment, the Supreme Court reasoned that the
foreign ownership limitation also applies to non-voting preferred
stocks, that, although denied the voting rights in the election of
directors, are nevertheless entitled to vote on certain fundamental
corporate acts like amendment of the articles of incorporation;
adoption and amendment of by-laws; sale, lease, exchange,
mortgage, pledge or other disposition of all or substantially all of
the corporate property; incurring, creating or increasing bonded
indebtedness; increase or decrease of capital stock; merger or
consolidation of the corporation with another corporation or other
corporations; investment of corporate funds in another corporation
or business; and dissolution of the corporation.
SECTION 17
SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA
CHAPTER, EDUARDO MA. GUIRNALDA, DANTE G. PACQUING and
OCTAVIO DE PERALTA vs. ACEBEDO INTERNATIONAL CORPORATION
and CA
A corporation created and organized for the purpose of conducting
the business of selling optical lenses or eyeglasses is not engaged in
the practice of optometry because the determination of the proper
lenses to sell to private respondent's clients entails the employment of
optometrists who have been precisely trained for that purpose.
Private respondent's business, rather, is the buying and importing of
eyeglasses and lenses and other similar or allied instruments from
suppliers thereof and selling the same to consumers.
For petitioners' argument to hold water, there need be clear showing
that RA 1998 prohibits a corporation from hiring optometrists, for
only then would it be undeniably evident that the intention of the
legislature is to preclude the formation of the so-called optometry
corporations because such is tantamount to the practice of the
profession of optometry which is legally exercisable only by natural
persons and professional partnerships. We have carefully reviewed
SECTION 20
C. ARNOLD HALL and BRADLEY P. HALL vs. EDMUNDO S. PICCIO,
Judge of the CFI of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA
CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber
and Commercial Co., Inc.
All the parties are informed that the SEC has not, so far, issued the
corresponding certificate of incorporation. All of them know, or
sought to know, that the personality of a corporation begins to exist
only from the moment such certificate is issued not before (sec.
11, Corporation Law). The complaining associates have not
represented to the others that they were incorporated any more than
the latter had made similar representations to them. And as nobody
was led to believe anything to his prejudice and damage, the principle
of estoppel does not apply. Obviously this is not an instance requiring
the enforcement of contracts with the corporation through the rule of
estoppel.
X the Far Eastern Lumber and Commercial Co., is a de facto
corporation, thus, section 19 of the Corporation Law applies, and
therefore the court had no jurisdiction. Section 19 (20) reads as
follows:. . . The due incorporation of any corporations claiming in
good faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any private
suit to which the corporation may be a party, but such inquiry may be
had at the suit of the Insular Government on information of the
Attorney-General.xxx
Under (Corporation Law, sec. 11), it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and
Industry which calls a corporation into being. The immunity if
collateral attack is granted to corporations "claiming in good faith to
be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an evident
attempt to comply with the law the claim to be a corporation
"under this act" could not be made "in good faith." (Fisher on the
Philippine Law of Stock Corporations, p. 75. See also Humphreys vs.
Drew, 59 Fla., 295; 52 So., 362.)
There can be no claim of attempt in good faith to incorporate if no
Certificate of Incorporation is issued by the SEC. All incorporators
know or ought to know that the personality of a corporation begins to
exists only from the time the certificate is issued.
Second, this is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation, for the
purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
8|N B S
SECTION 21
ALBERT vs. UNIVERSITY PUBLISHING CO., INC.
As far as this case is concerned, therefore, University Publishing Co.,
Inc. must be deemed as unregistered, since by defendant-appellee's
choice the record shows it to be so. Defendant-appellee apparently
sought to delay the execution by remaining unregistered per the
certification of the Securities and Exchange Commission. It was only
when execution was to be carried out, anyway, against it and/or its
president and almost 19 years after the approval of the law
authorizing reconstitution that it reconstituted its records to show
its registration, thereby once more attempting to delay the payment
of plaintiff's claim, long since adjudged meritorious. Deciding,
therefore, as this Court must, this particular case on its record as
submitted by the parties, defendant-appellee's proffered evidence of
its corporate existence cannot at this stage be considered to alter the
decision reached herein.
When the President of a non-existent principal entered into a contract
and failed to pay its obligation, he shall be the one liable to the
aggrieved party. A person acting as a representative of a non-existent
principal is the real party to the contract sued upon, being the one
who reaped the benefits resulting from it.
SECTION 23
MANAGEMENT
TRADERS ROYAL BANK Vs. CA, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTAL BANK of the PHILIPPINES
Petitioner cannot put up the excuse of piercing the veil of corporate
entity , as this is merely an equitable remedy and may be awarded
only in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where
a corporation is a mere alter ego or business conduit of a person.
The corporate separateness between Filriters and Philfinance
remains despite the petitioners insistence on the contrary. For
one, other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the
other, there is nothing else which could lead the court under the
circumstances to disregard their corporate personalities.
The fact that Philfinance owns majority shares in Filriters is not by
itself a ground to disregard the independent corporate status of
Filriters.
In the case at bar, there is sufficient showing that the petitioner was
not defrauded at all when it acquired the subject certificate of
indebtedness from Philfinance.
Petitioner knew that Philfinance is not the registered owner of
CBCI. The fact that a non - owner was disposing of the registered
CBCI owned by another entity was a good reason for petitioner to
verify or inquire as to the title of Philfinance to dispose of the CBCI.
Moreover, CBCI No D891 is governed by CB Circular No 769 series of
1980 known as the Rules and Regulations Governing Central Bank
Certificates of Indebtedness , Section 3 Article V of which provides
that :
SECTION 3 . Assignment of Registered Certificates . Assignment of registered certificates shall not be valid unless
made at the office where the same have been issued and
registered or at the Securities Servicing Department, Central
Bank of the Philippines , and by the registered owner thereof in
person or by his representative, duly authorized in writing. For
this purpose, the transferee may be designated as the
representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of
Central Bank Circular 769, and its requirements. An entity which
deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the
corporation liable. This is only fair, as everyone must, in the exercise
of his rights and in the performance of his duties, act with
justice, give everyone his due , and observe honesty and good
faith .
RATIFICATION
J. ANTONIO AGUENZA vs. METROPOLITAN BANK & TRUST CO.,
VITALIADO P. ARRIETA, LILIA PEREZ, PATRICIO PEREZ and IAC
The principal reason for CAs reversal of the trial court's absolution of
petitioner is its finding that the loan made by private respondent
Arrieta and Lilia Perez were admitted by Intertrade to be its own
obligation. After a careful scrutiny of the records, however, we find
and we so rule that there is neither factual nor legal basis for such a
finding by respondent CA.
xxx As correctly found by the trial court, the alleged admission made
in the answer by the counsel for Intertrade was "without any enabling
act or attendant ratification of corporate act," as would authorize or
even ratify such admission. In the absence of such ratification or
authority, such admission does not bind the corporation.
xxx the respondent CA likewise adjudged Intertrade liable because of
the two letters emanating from the office of Mr. Arrieta which the CA
considered "as indicating the corporate liability of the corporation."
These documents and admissions cannot have the effect of a
ratification of an unauthorized act. As we elucidated in the case of
Vicente v. Geraldez, "ratification can never be made on the part of
the corporation by the same persons who wrongfully assume the
power to make the contract, but the ratification must be by the
officer as governing body having authority to make such contract."
In other words, the unauthorized act of respondent Arrieta can only
be ratified by the action of the BOD and/or petitioner Aguenza
jointly with private respondent Arrieta.
We must emphasize that Intertrade has a distinct personality
separate from its members. The corporation transacts its business
only through its officers or agents. Whatever authority these
officers or agents may have is derived from the BOD or other
governing body unless conferred by the charter of the corporation.
As round by the trial court, the records of this case is bereft of any
evidence that Intertrade through its BOD, conferred upon Arrieta and
Lilia Perez the authority to contract a loan with Metrobank and
execute the promissory note as a security therefor. Neither a board
resolution nor a stockholder's resolution was presented by
Metrobank to show that Arrieta and Lilia Perez were empowered by
Intertrade to execute the promissory note.
10 | N B S
The respondents may argue that the actuation of Arrieta and Liliah
Perez was in accordance with the ordinary course of business usages
and practices of Intertrade. However, this contention is devoid of
merit because the prevailing practice in Intertrade was to explicitly
authorize an officer to contract loans in behalf of the corporation.
This is evidenced by the fact that previous to the controversy, the
Intertrade BOD, through a board resolution, jointly empowered and
authorized petitioner and respondent Arrieta to negotiate, apply for,
and open credit lines with Metrobank's. The participation of these
two was mandated to be joint and not separate and individual.
OFFICERS
PAMDICO (MANILA) INC. vs. ALTO ELECTRONICS CORPORATION
xxx even on the basis of the power supposedly given to the general
manager to have active and immediate charge and control of the
business of the company, the acceptance of a purchase order for
merchandise in which the defendant was dealing in the ordinary
course of its business was within his authority. The proviso the he
shall be under the general control and supervision of the president
and BOD does not change the situation at all, because the said
proviso does not mean that before the general manager may act in
every individual instance involving the usual, ordinary business of
defendant, he must first obtain the consent and approval of these
officers of the corporation.
In any event WON defendants general manager had authority to
enter into the questioned transaction, it is an undisputed fact that the
checks issued by plaintiff were drawn in favor of defendant Alto
Electronics Corporation. It received the benefits of the transaction
and thereby ratified the acts of its general manager.
SAN MIGUEL BREWERY, INC. vs. LIFETIME ENTERPRISE, INC. & THE
HOUSE OF INSURANCE, INC.
xxx the lack of express power or authority in the general manager to
enter into the contracts in question is not the decisive factor that is
determinative of the binding effect of such contracts upon appellant
corporation. For, under the theory of implied authority, an officer or
agent of a private corporation, entrusted with the general
management and control of its business and affairs, implied or
apparent authority to so acts or make any contracts in its behalf
falling within the scope of the ordinary and usual business of the
company, and limitations and restrictions placed upon his express or
implied authority, of which persons dealing with him have neither
actual nor constructive notice, will not serve to restrict such powers
11 | N B S
a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintals term had been created
long before his resignation.
The powers of the corporations BOD emanate from its stockholders
SECTION 29
VALLE VERDE COUNTRY CLUB, INC., et al. vs. VICTOR AFRICA
When an incumbent member of the board of directors continues to
serve in a holdover capacity, it implies that the office has a fixed term,
which has expired, and the incumbent is holding the succeeding term.
A vacancy resulting from the resignation of an officer in a hold-over
capacity, by the terms of Section 29 of the Corporation Code, must be
filled by the stockholders in a regular or special meeting called for the
purpose
The holdover period is not part of the term of office of a member of
the BOD
Based on the above discussion, when Section 239 of the Corporation
Code declares that "the BODshall hold office for one (1) year until
their successors are elected and qualified," we construe the provision
to mean that the term of the members of the BOD shall be only for
one year; their term expires one year after election to the office. The
holdover period that time from the lapse of one year from a
members election to the Board and until his successors election
and qualification is not part of the directors original term of
office, nor is it a new term; the holdover period, however,
constitutes part of his tenure. Corollary, when an incumbent
member of the BOD continues to serve in a holdover capacity, it
implies that the office has a fixed term, which has expired, and the
incumbent is holding the succeeding term.
With the expiration of Makalintals term of office, a vacancy resulted
which, by the terms of Section 2911 of the Corporation Code, must be
filled by the stockholders of VVCC in a regular or special meeting
called for the purpose. To assume as VVCC does that the vacancy
is caused by Makalintals resignation in 1998, not by the expiration of
his term in 1997, is both illogical and unreasonable. His resignation as
the existing officers and electing their replacements even if such call
was made upon the request of shareholders. Needless to say, the
MSCOC is neither empowered by law nor the MSC by-laws to call a
meeting and the subsequent ratification made by the stockholders
did not cure the substantive infirmity, the defect having set in at the
time the void act was done. The defect goes into the very authority
of the persons who made the call for the meeting. It is apt to recall
that illegal acts of a corporation which contemplate the doing of an
act which is contrary to law, morals or public order, or contravenes
some rules of public policy or public duty, are, like similar transactions
between individuals, void. They cannot serve as basis for a court
action, nor acquire validity by performance, ratification or estoppel.
The same principle can apply in the present case. The void election of
17 December 1997 cannot be ratified by the subsequent Annual
Stockholders Meeting.
Consequently, such Special Stockholders Meeting called by the
Oversight Committee cannot have any legal effect. The removal of
the Bernas Group, as well as the election of the Cinco Group, effected
by the assembly in that improperly called meeting is void, and since
the Cinco Group has no legal right to sit in the board, their
subsequent acts of expelling Bernas from the club and the selling of
his shares at the public auction, are likewise invalid.
xxx the directors were permitted to resign so that they could sell their
stock to the corporation. xxx it is very apparent that the directors did
not act in good faith or that they were grossly ignorant of their duties.
xxx the rule is well stated in Ruling Case Law, vol. 7, p. 473, section
454 where it is said:
General Duty to Exercise Reasonable Care. The directors of a
corporation are bound to care for its property and manage its
affairs in good faith, and for a violation of these duties resulting
in waste of its assets or injury to the property they are liable to
account the same as other trustees. Are there can be no doubt
that if they do acts clearly beyond their power, whereby loss
ensues to the corporation, or dispose of its property or pay away
its money without authority, they will be required to make good
the loss out of their private estates. This is the rule where the
disposition made of money or property of the corporation is one
either not within the lawful power of the corporation, or, if
within the authority of the particular officer or officers.
And section 458 which says:
Want of Knowledge, Skill, or Competency. It has been said
that directors are not liable for losses resulting to the
corporation from want of knowledge on their part; or for
mistake of judgment, provided they were honest, and provided
they are fairly within the scope of the powers and discretion
confided to the managing body. But the acceptance of the office
of a director of a corporation implies a competent knowledge of
the duties assumed, and directors cannot excuse imprudence on
the ground of their ignorance or inexperience; and if they
commit an error of judgment through mere recklessness or want
of ordinary prudence or skill, they may be held liable for the
consequences. Like a mandatory, to whom he has been likened,
a director is bound not only to exercise proper care and
diligence, but ordinary skill and judgment. As he is bound to
exercise ordinary skill and judgment, he cannot set up that he
did not possess them.
Creditors of a corporation have the right to assume that so long as
there are outstanding debts and liabilities, the board of directors will
not use the assets of the corporation to purchase its own stock, and
that it will not declare dividends to stockholders when the
corporation is insolvent.
that would have worked, were it not done by creditors who were
duty-bound, as directors, not to take clever advantage of other
creditors.
To be sure, there was undue advantage. The payment scheme
devised by the Consortium continued the efficacy of the primary lien,
this time in its favor, to the detriment of the other creditors. When
one considers its knowledge that VISCO's assets might not be enough
to meet its obligations to several creditors, the intention to defraud
the other creditors is even more striking. Fraud is present when the
debtor knows that its actions would cause injury.
The assignment in favor of the Consortium was a rescissible contract
for having been undertaken in fraud of creditors.
SECTION 32
PRIME WHITE CEMENT CORPORATION vs. HONORABLE
INTERMEDIATE CA and ALEJANDRO TE
Under the Corporation Law, all corporate powers shall be exercised
by the BOD, except as otherwise provided by law. Although it
cannot completely abdicate its power and responsibility to act for the
juridical entity, the Board may expressly delegate specific powers to
its President or any of its officers. In the absence of such express
delegation, a contract entered into by its President, on behalf of the
corporation, may still bind the corporation if the board should ratify
the same expressly or impliedly. Implied ratification may take various
forms like silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. Furthermore, even in the absence of express or
15 | N B S
were fully aware of its provisions. The contract was therefore not valid
and this Court cannot allow him to reap the fruits of his disloyalty.
SECTION 33
DEVELOPMENT BANK OF THE PHILIPPINES vs. HONORABLE COURT
OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION
xxx we do not find any fraud on the part of Marinduque Mining and
its transferees to warrant the piercing of the corporate veil.
xxx PNB and DBP did not only have a right, but the duty under [the]
law, to foreclose upon the subject properties. The banks had no
choice but to obey the statutory command.
xxx The appellate court, however, did not point to any fact evidencing
bad faith on the part of the Marinduque Mining and its transferees.
Indeed, it skirted the issue entirely by holding that the question of
actual fraudulent intent on the part of the interlocking directors of
DBP and Marinduque Mining was irrelevant because:
x x x where the corporations have directors and officers in
common, there may be circumstances under which their interest
as officers in one company may disqualify them in equity from
representing both corporations in transactions between the two.
Thus, where one corporation was 'insolvent and indebted to
another, it has been held that the directors of the creditor
corporation were disqualified, by reason of self-interest, from
acting as directors of the debtor corporation in the
authorization of a mortgage or deed of trust to the former to
secure such indebtedness x x x". In the same manner that "x x x
when the corporation is insolvent, its directors who are its
creditors cannot secure to themselves any advantage or
preference over other creditors. They cannot thus take
advantage of their fiduciary relation and deal directly with
themselves, to the injury of others in equal right. If they do,
equity will set aside the transaction at the suit of creditors of
the corporation or their representatives, without reference to
the question of any actual fraudulent intent on the part of the
directors, for the right of the creditors does not depend upon
fraud in fact, but upon the violation of the fiduciary relation to
the directors." x x x
We also concede that "x x x directors of insolvent corporation,
who are creditors of the company, cannot secure to themselves
any preference or advantage over other creditors in the payment
of their claims. It is not good morals or good law. The governing
body of officers thereof are charged with the duty of conducting
its affairs strictly in the interest of its existing creditors, and it
would be a breach of such trust for them to undertake to give
any one of its members any advantage over any other creditors
in securing the payment of his debts in preference to all others.
When validity of these mortgages, to secure debts upon which
the directors were indorsers, was questioned by other creditors
of the corporation, they should have been classed as
instruments rendered void by the legal principle which prevents
directors of an insolvent corporation from giving themselves a
preference over outside creditors. x x x"
SECTION 34
STRATEGIC ALLIANCE DEVT. CORP. vs. RADSTOCK SEC. LTD. and
PHIL. NATIONAL CONSTRUCTION CORP. (ASIAVEST MERCHANT
BANKERS BERHAD
In this jurisdiction, the members of the BOD have a three-fold duty:
duty of OBEDIENCE, duty of DILIGENCE, and duty of
LOYALTY. Accordingly, the members of the BOD (1) shall direct the
affairs of the corporation only in accordance with the purposes for
which it was organized; (2) shall not willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or act in bad
faith or with gross negligence in directing the affairs of the
corporation; and (3) shall not acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees.
In the present case, the PNCC Board BLATANTLY VIOLATED ITS DUTY
OF DILIGENCE as it MISERABLY FAILED TO ACT IN GOOD FAITH IN
HANDLING THE AFFAIRS OF PNCC.
The act of the PNCC Board in issuing Board Resolution No.
BD-092-2000 expressly admitting liability for the Marubeni loans
demonstrates the PNCC Boards gross and willful disregard of the
requisite care and diligence in managing the affairs of PNCC,
amounting to bad faith and resulting in grave and irreparable injury to
PNCC and its stockholders. This reckless and treacherous move on the
part of the PNCC Board clearly constitutes a serious breach of its
fiduciary duty to PNCC and its stockholders, rendering the members
of the PNCC Board liable under Section 31 of the Corporation Code,
which 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.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect of
any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.
2.
3.
4.
The Nell Doctrine states the general rule that the transfer of all the
assets of a corporation to another shall not render the latter liable
to the liabilities of the transferor. If any of the above-cited
exceptions are present, then the transferee corporation shall
assume the liabilities of the transferor.
Fraud is not an essential consideration in a business-enterprise
transfer
The exception of the Nell doctrine, which finds its legal basis under
Section 40, provides that the transferee corporation assumes the
debts and liabilities of the transferor corporation because it is
merely a continuation of the latter's business. A cursory reading of
the exception shows that it does not require the existence of fraud
against the creditors before it takes full force and effect. Indeed,
under the Nell Doctrine, the transferee corporation may inherit the
liabilities of the transferor despite the lack of fraud due to the
continuity of the latter's business.
Applicability of the business-enterprise transfer in the present case
xxx the business-enterprise transfer rule applies when two requisites
concur: (a) the transferor corporation sells all or substantially all of its
assets to another entity; and (b) the transferee corporation continues
the business of the transferor corporation. Both requisites are
present in this case.
Section 40 must apply.
While the Corporation Code allows the transfer of all or
substantially all of the assets of a corporation, the transfer should
not prejudice the creditors of the assignor corporation. Under the
business-enterprise transfer, the petitioners have consequently
inherited the liabilities of MADCI because they acquired all the assets
of the latter corporation. The continuity of MADCI's land
developments is now in the hands of the petitioners, with all its
assets and liabilities. There is absolutely no certainty that Yu can still
claim its refund from MADCI with the latter losing all its assets. To
allow an assignor to transfer all its business, properties and assets
without the consent of its creditors will place the assignor's assets
beyond the reach of its creditors. Thus, the only way for Yu to recover
his money would be to assert his claim against the petitioners as
transferees of the assets.
SECTION 42
RAMON DE LA RAMA vs. MA-AO SUGAR CENTRAL CO., INC., J.
AMADO ARANETA
The legal provision invoked by the plaintiffs, as appellants, Sec. 17-
of the Corporation Law, provides: No corporation organized under
this act shall invest its funds in any other corporation or business, or
for any purpose other than the main purpose for which it was
organized, unless its BOD has been so authorized in a resolution by
17 | N B S
xxx
SECTION 45
LUNETA MOTOR COMPANY vs. A.D. SANTOS, INC., ET AL.
xxx under Section 13 (5) of the Corporation Law, a corporation
created thereunder may purchase, hold, etc., and otherwise deal in
such real and personal property is the purpose for which the
corporation was formed may permit, and the transaction of its
lawful business may reasonably and necessarily require. The issue
here is precisely whether the purpose for which petitioner was
organized and the transaction of its lawful business reasonably and
necessarily require the purchase and holding by it of a certificate of
public convenience like the one in question and thus give it additional
authority to operate thereunder as a common carrier by land.
We find nothing in the legal provision and the provisions of
petitioner's articles of incorporation relied upon that could justify
petitioner's contention in this case. To the contrary, they are precisely
the best evidence that it has no authority at all to engage in the
business of land transportation and operate a taxicab service. That it
may operate and otherwise deal in automobiles and automobile
accessories; that it may engage in the transportation of persons by
water does not mean that it may engage in the business of land
transportation an entirely different line of business. If it could not
thus engage in the line of business, it follows that it may not acquire
an certificate of public convenience to operate a taxicab service, such
as the one in question, because such acquisition would be without
purpose and would have no necessary connection with petitioner's
legitimate business.
SECTION 46
18 | N B S
SECTION 47
GOKONGWEI, JR. vs. SEC, et al.
Under section 21 of the Corporation Law, a corporation may prescribe
in its by-laws the qualifications, duties and compensation of directors,
officers and employees. A provision in the by-laws of the corporation
that no person shall qualify or be eligible for nomination for
elections to the board of directors if he is engaged in any business
which competes with that of the Corporation is valid, as long as due
process is observed.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE
CORPORATION AND ITS SHAREHOLDERS
As agents entrusted with the management of the corporation for
the collective benefit of the stockholders, "they occupy a fiduciary
relation, and in this sense the relation is one of trust."
If the by-law is to be held reasonable in disqualifying a stockholder in
a competing company from being a director, the same reasoning
would apply to disqualify the wife and immediate member of the
family of such stockholder, on account of the supposed interest of the
wife in her husband's affairs, and his suppose influence over her. It is
perhaps true that such stockholders ought not to be condemned as
selfish and dangerous to the best interest of the corporation until
tried and tested. So it is also true that we cannot condemn as selfish
and dangerous and unreasonable the action of the board in passing
the by-law. The strife over the matter of control in this corporation as
in many others is perhaps carried on not altogether in the spirit of
brotherly love and affection. The only test that we can apply is as to
whether or not the action of the Board is authorized and sanctioned
by law.
AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A
STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR
19 | N B S
virtue of and for as long as they hold a particular office. But in the
case of petitioner, there is no reason at all for its representative to be
given a seat in the board. Nor does petitioner claim a right to such
seat by virtue of an office held. In fact it was not given such seat in
the beginning. It was only in 1975 that a proposed amendment to the
by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the
contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither
can it attain validity through acquiescence because, if it is contrary to
law, it is beyond the power of the members of the association to
waive its invalidity. For that matter the members of the association
may have formally adopted the provision in question, but their action
would be of no avail because no provision of the by-laws can be
adopted if it is contrary to law.
SECTION 63
MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS,
RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS
CESAR AZURA and EDGARDO D. PABALAN vs.COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY &
DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA.
CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D.
MORALES
In the absence of any provision to the contrary, the corporate
secretary is the custodian of corporate records. The transferor, even
though he may be the controlling stockholder cannot take the law into
his hands and cause himself the recording of the transfers of the
qualifying shares to his nominee-directors in the stock and transfer
book of the corporation.
xxx Petitioners cannot use the flimsy excuse that it would have been a
vain attempt to force the incumbent corporate secretary to register
the aforestated assignments in the stock and transfer book because
the latter belonged to the opposite faction. It is the corporate
secretary's duty and obligation to register valid transfers of stocks
and if said corporate officer refuses to comply, the transferorstockholder may rightfully bring suit to compel performance. In
other words, there are remedies within the law that petitioners
could have availed of, instead of taking the law in their own hands,
as the cliche goes.
xxx Section 74 of the Corporation Code, as follows (Rollo, p. 45):
kept in the principal office of the corporation but would likewise open
the flood gates of confusion in the corporation as to who has the
proper custody of the stock and transfer book and who are the real
stockholders of records of a certain corporation as any holder of the
stock and transfer book, though not the corporate secretary, at
pleasure would make entries therein.
All corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an
exemption. Such corporations cannot have rules and practices other
than those established by law.
SECTION 64
HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE, as
stockholders for an in behalf and for the benefit of the corporation,
Paraaque Rice Mill, Inc. and the other stockholders who may
desire to join, vs. TEODORICO B. SANTOS, ESTANISLAO MAYUGA,
APOLONIO PASCUAL, and BASILISA RODRIGUEZ
The board of directors of a corporation is a creation of the
stockholders and controls and directs the affairs of the corporation by
allegation of the stockholers. But the board of directors, or the
majority thereof, in drawing to themselves the power of the
corporation, occupies a position of trusteeship in relation to the
minority of the stock in the sense that the board should exercise good
faith, care and diligence in the administration of the affairs of the
corporation and should protect not only the interest of the majority
but also those of the minority of the stock. Where a majority of the
board of directors wastes or dissipates the funds of the corporation
or fraudulently disposes of its properties, or performs ultra vires
acts, the court, in the exercise of its equity jurisdiction, and upon
showing that intracorporate remedy is unavailing, will entertain a
suit filed by the minority members of the board of directors, for and
in behalf of the corporation, to prevent waste and dissipation and
the commission of illegal acts and otherwise redress the injuries of
the minority stockholders against the wrongdoing of the majority.
The action in such a case is said to be brought derivatively in behalf
of the corporation to protect the rights of the minority stockholers
thereof (7 R. C. L., pars. 293 and 294, and authority therein cited; 13
Fletcher, Cyc. of Corp., pars. 593, et seq., an authorities therein cite).
It is well settled in this jurisdiction that where corporate directors
are guilty of a breach of trust not of mere error of judgment or
abuse of discretion and intracorporate remedy is futile or useless,
a stockholder may institute a suit in behalf of himself and other
stockholders and for the benefit of the corporation, to bring about a
redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholers. xxx
The action having been properly brought and by the lower court
entertained it was within its power, upon proper showing, to appoint
a receiver of the corporation pendente lite (secs. 173, 174, et seq.
Code of Civil Procedure). The appointment of a receiver upon
application of the minority stockholers is power to be exercised with
great caution. But this does not mean that right of the minority
stockholers may be entirely disregarded, and where the necessity has
arisen, the appointment of a receiver for a corporation is a matter
resting largely in the sound discretion of the trial court. xxx
(2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
The stockholder filing a derivative suit should have exerted all
reasonable efforts to exhaust all remedies available under the articles
of incorporation, by-laws, laws or rules governing the corporation to
obtain the relief he desires and to allege such fact with particularity in
the complaint. The allegation that the suing stockholder talked to the
other stockholder regarding the dispute hardly constitutes all
reasonable efforts to exhaust all remedies available . The complaint
should also allege the fact that there was no appraisal right available
under for the acts complained of and that the suit was not a nuisance
or harassment suit. The fact that the corporation involved is a family
corporation should not in any way exempt the suing stockholder from
the requirements and formalities for filing a derivative suit.
SECTION 67
ERNESTO M. APODACA, vs. NLRC, JOSE M. MIRASOL and INTRANS
PHILS., INC.
xxx the NLRC has no jurisdiction to determine such intra-corporate
dispute between the stockholder and the corporation as in the
matter of unpaid subscriptions. This controversy is within the
exclusive jurisdiction of the Securities and Exchange Commission.
xxx assuming arguendo that the NLRC may exercise jurisdiction over
the said subject matter under the circumstances of this case, the
unpaid subscriptions are not due and payable until a call is made by
the corporation for payment. Private respondents have not
presented a resolution of the board of directors of respondent
corporation calling for the payment of the unpaid subscriptions. It
does not even appear that a notice of such call has been sent to
petitioner by the respondent corporation.
xxx, assuming further that there was a call for payment of the unpaid
subscription, the NLRC cannot validly set it off against the wages and
24 | N B S
SECTION 74
RAMON A. GONZALES vs. THE PHILIPPINE NATIONAL BANK
xxx The former Corporation Law (Act No. 1459, as amended) has been
replaced by Batas Pambansa Blg. 68, otherwise known as the
"Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51 of
Act No. 1459 has been retained, but with some modifications. The
second and third paragraphs of Section 74 of Batas Pambansa Blg. 68
provide that with respect to the right of inspection granted to a
stockholder are the following the records must be kept at the
principal office of the corporation; the inspection must be made on
business days; the stockholder may demand a copy of the excerpts
of the records or minutes; and the refusal to allow such inspection
shall subject the erring officer or agent of the corporation to civil
and criminal liabilities. However, while seemingly enlarging the right
of inspection, the new Code has prescribed limitations to the same. It
is now expressly required as a condition for such examination that
the one requesting it must not have been guilty of using improperly
any information through a prior examination, and that the person
asking for such examination must be "acting in good faith and for a
legitimate purpose in making his demand."
Although the petitioner has claimed that he has justifiable motives in
seeking the inspection of the books of the respondent bank, he has
not set forth the reasons and the purposes for which he desires such
inspection, except to satisfy himself as to the truth of published
reports regarding certain transactions entered into by the respondent
bank and to inquire into their validity. The circumstances under which
he acquired one share of stock in the respondent bank purposely to
exercise the right of inspection do not argue in favor of his good faith
and proper motivation. Admittedly he sought to be a stockholder in
order to pry into transactions entered into by the respondent bank
even before he became a stockholder. His obvious purpose was to
arm himself with materials which he can use against 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.
27 | N B S