Académique Documents
Professionnel Documents
Culture Documents
BITANGA
FACTS: On October 28, 1997, Dolores Potenciano, Max Joseph Potenciano, Mercedelin
Potenciano, Delfin Yorro, and Maya Industries, Inc., entered into a Sale and Purchase
Agreement, whereby they sold to BMB Property Holdings, Inc., represented by its President,
Benjamin Bitanga, their 21,071,114 shares of stock in BLTB. The said shares represented 47.98%
of the total outstanding capital stock of BLTB. The purchase price for the shares of stock was
P72,076,425.00. A downpayment was made while the balance was payable on November 26,
1997. The contracting parties stipulated that the downpayment was conditioned upon receipt by
the buyer of certain documents upon signing of the Agreement, namely, the Secretary's Certificate
stating that the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in
BLTB and the execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-
in-Fact; the Special Power of Attorney executed by each of the sellers in favor of Dolores A.
Potenciano for purposes of the Agreement; the undated written resignation letters of the Directors
of BLTB, except Henry John A. Potenciano, Michael A. Potericiano and Candido A. Potenciano; a
revocable proxy to vote the subject shares made by the sellers in favor of the buyer; a
Declaration of Trust made by the sellers in favor of the buyer acknowledging that the
subject shares shall be held in trust by the sellers for the buyer pending their transfer to
the latter's name; and the duly executed capital gains tax return forms covering the sale,
indicating no taxable gain on the same. Furthermore, the buyer guaranteed that it shall take over
the management and operations of BLTB but shall immediately surrender the same to the sellers
in case it fails to pay the balance of the purchase price on November 26, 1997. On November 21,
1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and Monina Grace Lim were
elected as directors of the corporation Subsequently, on November 28, 1997, another
stockholders' meeting was held, wherein Laureano A. Siy and Renato L. Leveriza were elected as
directors. At the same meeting, the Board of Directors of BLTB elected James Olayvar, Eduardo
Azucena, Evelio Custodia, and Gemma Santos as officers. During a meeting of the Board of
Directors on April 14, 1998, the newly elected directors of BLTB scheduled the annual
stockholders' meeting on May 19, 1998, to be held at the principal office of BLTB in San Pablo,
Laguna. Before the scheduled meeting, Michael Potenciano wrote Benjamin Bitanga, requesting
for a postponement of the stockholders' meeting due to the absence of a thirty-day advance
notice. However, no response from Bitanga on whether or not the request for postponement was
favorably acted upon. On the scheduled date of the meeting, inasmuch as there was no notice of
postponement prior to that, a total of 286 stockholders, representing 87% of the shares of stock of
BLTB, arrived and attended the meeting. The majority of the stockholders present rejected the
postponement and voted to proceed with the meeting. The Potenciano group was re-elected to the
Board of Directors, and a new set of officers was thereafter elected. On May 21, 1998, the Bitanga
group filed with the SEC a Complaint for Damages and Injunction. Their prayer for the issuance of
a temporary restraining order was, however, denied at the ex-parte summary hearing conducted
by SEC Chairman Perfecto Yasay, Jr. Likewise, the Potenciano group filed on May 25, 1998, a
Complaint for Injunction and Damages with Preliminary Injunction and Temporary Restraining
Order with the SEC. The SEC Chairman Perfecto Yasay, Jr. issued a temporary restraining order
enjoining the Bitanga group from acting as officers and directors of BLTB. On June 8, 1998, the
Bitanga group filed another complaint with application for a writ of preliminary injunction and
prayer for temporary restraining order, seeking to annul the May 19, 1998 stockholders' meeting. A
joint hearing was conducted. On June 17, 1998, the SEC Hearing Panel granted the Bitanga
group's application for a writ of preliminary injunction upon the posting of a bond in the amount of
P20,000,000.00. It declared that the May 19, 1998 stockholders' meeting was void on the grounds
that, first, Michael Potenciano had himself asked for its postponement due to improper notice; and,
second, there was no quorum, since BMB Holdings, Inc., represented by the Bitanga group, which
then owned 50.26% of BLTB's shares having purchased the same from the Potenciano group, was
not present at the said meeting. The Hearing Panel further held that the Bitanga Board remains
the legitimate Board in a hold-over capacity. The Potenciano group filed a petition for certiorari with
the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to restrain the
implementation of the Hearing Panel's assailed Order. On July 21, 1998, the SEC En Banc set
aside the June 17, 1998 Order of the Hearing Panel and issued the writ of preliminary injunction
prayed for. The Bitanga group immediately filed a petition for certiorari with the Court of Appeals
on July 22, 1998, followed by a Supplemental Petition on August 10, 1998. Meanwhile, on July 29,
1998, the SEC En Banc issued a writ of preliminary injunction against the Bitanga group, after the
Potencianos posted the required bond of P20,000,000.00. On November 23, 1998, the CA
rendered the now assailed Decision, reversing the assailed Orders of the SEC En Banc and
reinstating the Order of the Hearing Panel ordered dated June 17, 1998. The CA denied the
Motions for Reconsideration in a Resolution dated March 25, 1999. Hence, this petition for review.
ISSUE: Whether or not the stockholders' meeting on May 19, 1998 was void since BMB Holdings,
Inc., represented by the Bitanga group was not present at the said meeting.
RULING: Until registration is accomplished, the transfer, though valid between the parties, cannot
be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in this
case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for,
and to inform the corporation of any change in share ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of a stockholder. Until challenged in a
proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can
be properly counted to determine whether a stockholders' resolution was approved, despite the
claim of the alleged transferee. On the other hand, a person who has purchased stock, and who
desires to be recognized as a stockholder for the purpose of voting, must secure such a standing
by having the transfer recorded on the corporate books. Until the transfer is registered, the
transferee is not a stockholder but an outsider.
WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The
Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its
resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21,
1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED.
NORA A. BITONG
vs.
COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. &
MS. PUBLISHING CO., LETTY J. MAGSANOC
G.R. No. 123553 July 13, 1998
FACTS:
Petitioner Alleged before the SEC that she had been the Treasurer and a Member of the
Board of Directors of Mr.&Ms. from the time it was incorporated on 29 October 1976 to 11 April
1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding
shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol,
President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of
the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and
agreements entered into by Mr.&Ms. with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia D. Apostol, Mr.&Ms. made several cash
advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings
PDI paid no interest whatsoever. Despite the fact that the advances made by Mr.&Ms. to PDI were
booked as advances to an affiliate, there existed no board or stockholders' resolution, contract nor
any other document which could legally authorize the creation of and support to an affiliate.
Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders,
directors and officers in both Mr.&Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D.
Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at
P50,000.00 each or a total of P150,000.00.
ISSUE:
Whether or not the petitioner is the holder of the proper certificates of share of stock.
RULING:
NO.
The certificate of stock itself once issued is a continuing affirmation or representation that
the stock described therein is valid and genuine and is at least prima facie evidence that it was
legally issued in the absence of evidence to the contrary. However, this presumption may be
rebutted. 13 Similarly, books and records of a corporation which include even the stock and transfer
book are generally admissible in evidence in favor of or against the corporation and its members
to prove the corporate acts, its financial status and other matters including one's status as a
stockholder. They are ordinarily the best evidence of corporate acts and proceedings.
However, the books and records of a corporation are not conclusive even against the
corporation but are prima facie evidence only. Parol evidence may be admitted to supply
omissions in the records, explain ambiguities, or show what transpired where no records were
kept, or in some cases where such records were contradicted. The effect of entries in the books of
the corporation which purport to be regular records of the proceedings of its board of directors or
stockholders can be destroyed by testimony of a more conclusive character than mere suspicion
that there was an irregularity in the manner in which the books were kept.
Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July
1983 was issued in her name, private respondents argue that this certificate was signed by
respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by
petitioner who had possession of the Certificate Book and the Stock and Transfer Book.
The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals
Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of
Assignment, wherein he assigned his shares, as well as those of 8 other shareholders under his
control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its
directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter,
Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they
acknowledged their indebtedness to the Bank in the amount of P4,000,000.00, and stipulated that
said debt will be paid out of the proceeds of the sale of their real property described in the
Agreement. At a meeting of the Board of Directors of the Bank on 15 November 1993, the
Villanueva spouses assured the Board that their debt would be paid on or before December 31 of
that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including
those under their control. In such an event, should the proceeds of the sale of said shares fail to
satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient
therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date,
the Board sent them a letter demanding: (1) the surrender of all the stock certificates issued to
them; and (2) the delivery of sufficient collateral to secure the balance of their debt amounting to
P3,346,898.54.
The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted
into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the
conversion of their shares. On 15 January 1994, the stockholders of the Bank met to elect the new
directors and set of officers for the year 1994. The Villanuevas were not notified of said meeting. In
a letter dated 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses,
questioned the legality of the said stockholders' meeting and the validity of all the proceedings
therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas
were no longer entitled to notice of the said meeting since they had relinquished their rights as
stockholders in favor of the Bank. Consequently, the Villanueva spouses filed with the Securities
and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and
election of directors and officers on 15 January 1994, with damages and prayer for preliminary
injunction (SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino Villanueva,
Andres Gonzales, Aurora Lacerna, CelsoLaygo, Edgardo Reyes, Alejandro Tonogan, and Elena
Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely:
Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista.
On 6 April 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was
denied by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance
thereof.
However, a motion for reconsideration was granted on 16 December 1994, upon finding that since
the Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were
still stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC.
Accordingly, a writ of preliminary injunction was issued enjoining Bautista, et. al. from acting as
directors and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash the
writ of preliminary injunction, challenging the propriety of the said writ considering that they had
not yet received a copy of the order granting the application for the writ of preliminary injunction.
With the impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an
Omnibus Motion praying that the said meeting and election of officers scheduled on 14 January
1995 be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the
meantime, to act as such. 1 day before the scheduled stockholders meeting, the SEC Hearing
Officer granted the Omnibus Motion by issuing a temporary restraining order preventing Bautista,
et al. from holding the stockholders meeting and electing the board of directors and officers of the
Bank. A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its
directors and officers before the SEC en banc. On 7 June 1995, the SEC en banc denied the
petition for certiorari. A subsequent motion for reconsideration was likewise denied by the SEC en
banc in a Resolution dated 29 September 1995. A petition for review was filed before the Court of
Appeals (CA-GR SP 38861), assailing the Order dated 7 June 1995 and the Resolution dated 29
September 1995 of the SEC en banc in SEC EB 440. The appellate court upheld the ruling of the
SEC. Bautista, et al.'s motion for reconsideration was likewise denied by the Court of Appeals in
an Order dated 29 March 1996. The bank, Bautista, et al. filed the instant petition for review.
Issue: Whether there was valid transfer of the shares to the Bank.
Held: For a valid transfer of stocks, there must be strict compliance with the mode of transfer
prescribed by law. The requirements are: (a) There must be delivery of the stock certificate: (b)
The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance with any of these requisites has not
been clearly and sufficiently shown. Still, while the assignment may be valid and binding on the
bank, et al. and the Villanuevas, it does not necessarily make the transfer effective. Consequently,
the bank et al., as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be
voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned.
Parenthetically, the Villanuevas cannot, as yet, be deprived of their rights as stockholders, until
and unless the issue of ownership and transfer of the shares in question is resolved with finality.
Torres vs CA
Facts:
Herein petitioner, PIRC, is registered with the SEC on September 20, 1979. As a group
known as the Marcelo group, were its incorporators, original stockholders, and directors. The
Asistio group claimed that the Marcelo group acquired shares in PIRC as mere trustees for the
Asistio group. The Marcelo group allegedly executed a waiver of pre-emptive right, blank deeds of
assignment, and blank deeds of transfer; endorsed in blank their respective stock certificates over
all of the outstanding capital stock registered in their names; and completed the blank deeds in
2002 to effect transfers to the Asistio group.
On August 6, 2002, the Company Registration and Monitoring Department (CRMD) of the
SEC issued a certification stating that verification made on the available records of PIRC showed
failure to register its stock and transfer book (STB). The Asistio group registered PIRCs STB.
Upon learning of this, PIRCs assistant corporate secretary requested the SEC for a certification of
the registration in 1979 of PIRCs STB. It presents the 1979-registered STB bearing the SEC
stamp and the signature of the officer in charge of book registration. Subsequently the Asistio
group filed in the RTC a complaint against the Marcelo group. The Asistio group prayed that the
Marcelo group be enjoined from acting as directors of PIRC, from physically holding office at
PIRCs office, and from taking custody of PIRCs corporate records. On October 30, 2002, the
CRMD of the SEC issued a letter recalling the certification it had Page 215 of 960 CORP LAW
issued on August 6, 2002 and canceling the 2002-registered STB. The Asistio group appealed to
the SEC Board of Commissioners. They claimed that the issue of which of the two STBs is valid is
intra-corporate in nature; hence, the RTC, not the SEC, has jurisdiction.
Issue: Whether the SEC has the jurisdiction to recall and cancel a stock and transfer book which it
issued in 2002?
Ruling:
Yes. The powers and functions of the SEC under the Securities Regulation Code (Republic
Act No. 8799), it can be said that the SECs regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporations concerns. This
authority more vividly springs from the fact that a corporation owes its existence to the concession
of its corporate franchise from the state. Going to the particular facts of the instant case, the
Supreme Court find that the SEC has the primary competence and means to determine and verify
whether the subject 1979 STB presented by the incumbent assistant corporate secretary was
indeed authentic, and duly registered by the SEC as early as September 1979. As the
administrative agency responsible for the registration and monitoring of STBs, it is the body
cognizant of the STB registration procedures, and in possession of the pertinent files, records and
specimen signatures of authorized officers relating to the registration of STBs. The evaluation of
whether a STB was authorized by the SEC primarily requires an examination of the STB itself and
the SEC files. This function necessarily belongs to the SEC as part of its regulatory jurisdiction.
The Supreme Court further ruled that as the regulatory body, it is the SECs duty to ensure that
there is only one set of STB for each corporation. The determination of whether or not the 1979-
registered STB is valid and of whether to cancel and revoke the August 6, 2002 certification and
the registration of the 2002 STB on the ground that there already is an existing STB is impliedly
and necessarily within the regulatory jurisdiction of the SEC.
Lanuza vs. CA
Facts:
Petitioners seek to nullify the Court of Appeals Decision in CAG.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
stockholdings reflected in the articles of incorporation for the purpose of electing a new set of
officers for the corporation
Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA,
raising the following issues:
1. whether the basis the outstanding capital stock and accordingly also for determining the
quorum at stockholders meetings it should be the 1978 stock and transfer book or if it should be
the 1952 articles of incorporation
(They contended that the basis is the stock and transfer book, not articles of incorporation in
computing the quorum)
2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of
Jose Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al
CA decision:
1. For purposes of transacting business, the quorum should be based on the outstanding capital
stock as found in the articles of incorporation
2. To require a separate judicial declaration to recognize the shares of the original incorporators
would entail unnecessary delay and expense. Besides. the incorporators have already proved
their stockholdings through the provisions of the articles of incorporation.
Appeal was made by Lanuza et al before the SC
Lanuza et al contention:
a. 1992 stockholders meeting was valid and legal
b. Reliance on the 1952 articles of incorporation for determining the quorum negates
the existence and validity of the stock and transfer book Onrubia et al prepared
c. Onrubia et al must show and prove entitlement to the founders and common shares
in a separate and independent action/proceeding in order to avail of the benefits secured by
the heirs of Acayan
Onrubia et als contention, based on the Memorandum: petition should be dismissed on the
ground of res judicata
Another appeal was made
Lanuza et als contention: instant petition is separate and distinct from G.R. No. 131315,
there being no identity of parties, and more importantly, the parties in the two petitions have their
own distinct rights and interests in relation to the subject matter in litigation
Onrubia et als manifestation and motion: moved for the dismissal of the case
Issue: What should be the basis of quorum for a stockholders meetingthe outstanding capital
stock as indicated in the articles of incorporation or that contained in the companys stock and
transfer book?
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.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely
because the corporate officers failed to keep its records accurately. A corporations records are not
the only evidence of the ownership of stock in a corporation.
It is no less than the articles of incorporation that declare the incorporators to have in their
name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of
the corporation does not exist and accordingly to allow great injustice to be caused to the
incorporators and their heirs
ISSUE: Whether or not the stock certificates were not validly transferred to Martin and Tan that
renders the dissolution valid.
RULING: YES. When the certificate of stock have been endorsed in blank for purposes of showing
the nominee relations, the eventual delivery and registration of the shares in violation of the trust
relationship and after their having been stolen , would be void, even when such transfer have been
registered in the stock and transfer book. Likewise, the approval by the beneficial owners of the
shares is necessary for the validity and effectivity of the transfer of the stock certificates. Finally,
the lack of consideration for the transfer would make such transfer void and inexistent.
FACTS:
March 21, 1958: Pacific Farms Inc. (Pacific) purchased as highest bidder from a bank
auction 1,000 shares of stock of Insular Farms for P285,126.99 and BOD of Insular as
reorganized, then caused its assets, including its leasehold rights over a public land in Bolinao,
Pangasinan, to be sold to Insular for P10,000.00 and paid for the other assets of Insular
Farms.
October 9, 1958: Edward J. Nell Co. (Edward) in Civil Case No. 58579 of the Municipal
Court of Manila against Insular Farms, Inc. (Insular) a judgment for the sum of P1,853.80
unpaid balance for a pump sold with interest plus P125 attorney's fees and P84.00 as costs.
August 14, 1959: A writ of execution, issued after the judgment had become final returned
unsatisfied, stating that Insular Farms had no leviable property.
November 13, 1959: Edward filed the present action against Pacific upon the theory that
Pacific is the alter ego of Insular Farms
CA affirmed Municipal Court: dismissed the complaint
ISSUE: W/N Pacific Farms is an alter ego of Insular Farms
FACTS: Hotel Mabuhay leased the premises belonging to Syjuco. However, due to non-payment
of rentals, a case for ejectment was filed and Hotel Mabuhay offered to amicably settle by
surrendering the premises and to sell its assets and property to any interested party, to which
Syjuco acceded.
HELD: The absorption of the employees of Hotel Mabuhay may not be imposed on Sundowner,
who has no liability whatsoever to the employees of Hotel Mabuhay and its responsibility if at all, is
only to consider them for re-employment in the operation of the business in the same premises.
There can be no implied acceptance of the employees of Hotel Mabuhay by petitioner as it is
expressly provided in the agreement that petitioner has no commitment or duty to absorb them.
The rule is that unless expressly assumed. labor contracts such as employment contracts and
CBAs are not enforceable against a transferee of an enterprise, labor contracts being IN
PERSONAM, thus, binding only between the parties. A labor contract merely creates an action in
personam and does not create an real right which should be respected by third parties. This
conclusion draws its force from the right of an employer to select his employees and to decide
when to engage them as protected under our Constitution and the same can only be restricted by
law through the exercise of police power.
As a general rule, there is no law requiring a bona fide purchaser of assets of an on-going concern
to absorb in its employ the employees of the latter. However, although the purchaser is not legally
bound to absorb in its employ the employees of the seller, the parties are liable to the employees if
the transaction between is clothed with bad faith.
ISSUE:
Whether APT is liable for the claims of petitioners against their former employer.
HELD: NO. Workers' claims for unpaid wages and monetary benefits cannot be paid outside of a
bankruptcy or judicial liquidation proceedings against the employer. It is settled that the application
of Article 110 of the Labor Code 1 is contingent upon the institution of those proceedings, during
which allcreditors are convened, their claims ascertained and inventoried, and their preferences
determined. Assured thereby is an orderly determination of the preference given to creditors'
claims; andpreserved in harmony is the legal scheme of classification, concurrence and
preference of credits inthe Civil Code, the Insolvency Law, and the Labor Code. Responsibility for
the liabilities of a mortgagor towards its employees cannot be transferred via an auctionsale to a
purchaser who is also the mortgagee-creditor of the foreclosed assets and chattels. Clearly,
themortgagee-creditor has no employer-employee relations with the mortgagors workers. The
mortgageconstitutes a lien on the determinate properties of the employer-debtor, because it is a
specially preferredcredit to which the workers monetary claims is deemed subordinate.
Article 110.
Workers preference in case of bankruptcy.In the event of bankruptcy or liquidation of the
employersbusiness, his workers shall enjoy first preference as regards their unpaid wages and
other monetary claims shall be paid in full before the claims of the Government and other creditors
may be paid.
MANLIMOS VS NLRC
Facts:The petitioners were among the regular employees of the Super Mahogany Plywood
Corporation hired as patchers, taper-graders, and receivers dryers. On 1 September 1991, a new
owner&management group headed Alfredo Roxas acquired complete ownership of the
corporation. The petitioners were advised of such change of ownership; however, the petitioners
continued to work for the new owner and wereconsidered terminated, with their conformity. Each
of them then executed on 17December 1991 a Release and Waiver which they acknowledged
before Atty. NolascoDiscipulo, Hearing Officer of the Butuan City District Office of the Department
of Labor and Employment (DOLE).
The new owner caused the publication of a notice for the hiring of workers, indicating
therein who of the separated employees could be accepted on probationary basis. The petitioners
then filed their applications for employment.
For their alleged absence without leave, PerlaCumpay and Virginia Etic were considered,
as of 4May 1992, to have abandoned their work. The rest were dismissed on 13 June 1992
because they allegedly committed acts prejudicial to the interest of the new management which
consisted of their including unrepaired veneers in their reported productions on output as well as
untapped corestockor whole sheets in their supposed taped veneers/corestock. Two cases were
filed by the dismissed employees for non-payment of wages, underpayment of wages, incentive
leave pay, non-payment of holiday pay, overtime pay, 13th month pay, separation pay,
reinstatement with backwages, illegal termination and damages. The petitioners maintained that
they remained regular employees regardless of the change of management in September 1991
and their execution of the Release and Waiver. They argue that being a corporation, the private
respondents juridical personality was unaffected even if ownership of its shares of stock changed
hands and quit claims executed by laborers are frowned upon for being contrary topublic policy.
On the other hand, the private respondent contended that the petitioners were deemed
legally terminated from their previous employment as evidenced by the execution of the Release
and Waiverand the filing of their applications for employment with the new owner; that the new
owner was well within its legal right or prerogative in considering as terminated the petitioners
probationary/temporary appointment.
LA ruled in favor of the petitioner. It is the thesis of the Labor Arbiter that the transfer of
ownership partook of a cessation of business operation not due to business reverses under
Article283 of the Labor Code and pursuant to the doctrine laid down in Mobil Employees
Association vs. National Labor Relations Commission. The Labor Arbiter ruled that the first and
third requisites were present in this case, she explicitly held that each of the petitioners signed
freely and voluntarily the Release and Waiver and that the termination and payment of separation
pay by the previous owner of the corporation were done in good faith. The Labor Arbiter, however,
ruled that there was no cessation of operations which would lead to the dismissal of the
employees.
NLRC reversed the judgment of the Labor Arbiter. It found that the change of ownership in
this case was made in good faith since there was no evidence on record that the former owners
conspired with the new owners to insulate the former management of any liability to its workers.
Citing Central Azucarera del Danao, .sale or disposition of a business enterprise which has
been motivated by good faith is an element of exemption from liability.Thus, an innocent
transferee of a business has no liability to the employees of the transferor to continue employing
them. Nor is the transferee liable for past unfair labor practices of the previous owner, except,
when the liability is assumed by the new employer under the contract of sale or when liability
arises because the new owners participated in thwarting or defeating the rights of the employees.
Ruling: The change in ownership of the management was done bona 5de and the petitioners did
not for any moment before the 5ling of their complaints raise any doubt on the motive for the
change. "In the contrary upon being informed thereof and of their eventual terminationfrom
employment they freely and voluntarily accepted their separationpay and other benefits and
individually executed the Release or Waiver which they acknowledged before no less than a
hearing officer of the DOLE.
Where such transfer of ownership is in good faith, the transferee is under no legal duty to
absorb the transferors employees as there is no law compelling such absorption.
Since the petitioners were effectively separated from work due to a bona fide change of
ownership and they were accordingly paid their separation pay, which they freely and voluntarily
accepted, the private respondent corporation was under no obligation to employ them; it may,
however, give them preference in the hiring. The hiring of employees on a probationary basis is an
exclusive management prerogative. The employer has the right or privilege to choose who will be
hired and who will be denied employment.
It is settled that while probationary employees do not enjoy permanent status, they are
accorded the constitutional protection of security of tenure. They may only be terminated for just
cause or when they fail to qualify as regular employees in accordance with reasonable standards
made known to them by the employer at the time of their engagement. This constitutional
protection, however, ends upon the expiration of the period provided for in their probationary
contract of employment. Thereafter, the parties are free to renew the contract or not.
A different conclusion would have to be reached with respect to PerlaCumpay and Virginia,
Etic who were dismissed for having allegedly abandoned their work. In this case, the private
respondent not only failed to prove such intent, it as well violated the due process rule in dismissal
of employees. These requirements not having been met with respect to Cumpay and Etic, their
dismissal was, consequently, illegal.
Position Partly Granted. Only petitioners PerlaCumpay and Virginia, Etic were entitled to
reinstatement and Backwages.