1. Guy v Guy, G.R. No.
184068, 19 April 2016 RULINGS:
FACTS:
GCI is a family-owned corporation of the Guy family duly
organized and existing under Philippine laws. Petitioner
Simny G. Guy (Simny) is a stockholder of record and
member of the board of directors of the corporation.
Respondents are also GCI stockholders of record who were
allegedly elected as new directors by virtue of the assailed
stockholders' meeting held on 7 September 2004.[5]
On 10 September 2004, Paulino Delfin Pe and Benjamin Lim
(stockholders of record of GCI) informed petitioner that they
had received a notice dated 31 August 2004 calling for the
holding of a special stockholders' meeting on 7 September
2004 at the Manila Diamond HOTEL.
On 22 September 2004, or fifteen (15) days after the
stockholders' meeting, petitioner received the
aforementioned notice.[8]
On 30 September 2004, petitioner, for himself and on behalf
of GCI and Grace Guy Cheu (Cheu), filed a Complaint against
respondents before the RTC of Manila for the "Nullification of
Stockholders' Meeting and Election of Directors, Nullification
of Acts and Resolutions, Injunction and Damages with Prayer
for Temporary Restraining Order and/or Writ of Preliminary
Injunction."[10]
Petitoner assailed the election held on 7 September 2004 on
the following grounds:
(1) there was no previous notice to petitioner and Cheu;
(2) the meeting was not called by the proper person; and
(3) the notices were not issued by the person who had the
legal authority to do so
The Petition is denied.
1. Notice of the stockholders' meeting was properly
sent in compliance with law and the by-laws of the
corporation.
It should be emphasized here that the period of mailing, that
is, at least five (5) days prior mailing of notice of
meeting as provided in the Bylaws of GOODLAND
is reasonable enough for the petitioner Simny Guy to
receive the notice of meeting prior to the holding of the
subject stockholders' meeting considering the relative
distance of the Post Office (Meralco Post Office, Pasig
City) where the said notice of meeting was
mailed vis-a-vis the place of residence of petitioner
Simny Guy located at Greenmcadows, Quezon City.[
Therefore, petitioner is considered to have received notice
of the special stockholders' meeting after said notice was
properly mailed by respondents.
2. As correctly pointed out by defendants [respondents], the
applicable provisions of the by-laws of Goodland are Article
II, Sec. 2 which provides that the "special meeting of the
stockholders may be called xxx by order of the President
and must be called upon the written request of stockholders
registered as the owners of one-third (1/3) of the total
outstanding stock and Article IV, Section 3 which provides
that "the Vice President, if qualified, shall exercise all of the
functions and perform all the duties of the President, in the
absence or disability, for any cause, of the latter."
Based on the evidence on record and considering the above
quoted provisions of Goodland's By-laws, we rule in favor of
defendants [respondents]. The evidence conclusively
show that defendant Gilbert [respondent Guy] is the
owner of more than one-third (1/3) of the outstanding
stock of Goodland. In fact, it is around 79.99%. Thus,
pursuant to Art. II, Sec. 2 of the By-laws of Goodland,
defendant Gilbert [respondent Guy] may validly call
such special stockholders' meeting.
Under Section 3, Article IV of the By-laws of Goodland,
respondent Gilbert G. Guy as Vice-President of the
corporation is qualified to act as president. From the above
exposition, it is undisputed that xxx the special
stockholders' meeting was xxx prepared and called
by the proper person. The notice of meeting and the
calling thereof by the Vice-President acting as President
complied with the provisions in the by-laws of the
corporation and the Corporation Code.
Cheu was not a stockholder of record of GCI and was
therefore not entitled to any notice of meeting.
SECTION 63. Certificate of Slock and Transfer of Shares
No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in
the books of the corporation so as to show the names
of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates
and the number of shares transferred.
Based on the foregoing, the RTC and the CA found that Cheu
was not a stockholder of record of GCI. Hence, she was not
entitled to be notified of the subject special stockholders'
meeting.
Clearly then, the evidence presented by Cheu to prove that
she was a stockholder of record - valid, existing and
uncancelled Goodland Stock Certificate37 Nos. 49, 50, 58
and 59 in the names of Paulino Delfin Pe and Benjamin C.
Lim - does not satisfy the requirements imposed by the
Corporation Code and the by-laws of GCI.
2. Ricafort v. Hon. Dicdican, G.R. No. 202647-50, 9
March 2016
FACTS:
The NADECOR is a domestic company, it is the holder of a
Mining Production Sharing Agreement (MPSA), MPSA 009-92-
XI, with the Department of Environment and Natural
Resources.
Pursuant to Section 1, Article I of NADECOR's Amended By-
Laws,[7] its regular annual stockholders' meeting (ASM) was
held on August 15, 2011 to elect its Board of Directors for
Fiscal Year (FY) 2011-2012. In his Affidavit dated November
21, 2011, Gatmaitan, NADECOR Corporate Secretary,
attested to the presence of a quorum representing 94.81%
of NADECOR's outstanding shares of stock, and the election
of new set of its Board of Directors, namely, Calalang, Jose
G. Ricafort (JG Ricafort), Jose P. De Jesus (De Jesus), Romulo,
Ayala, Victor P. Lazatin (Lazatin), Ethelwoldo E. Fernandez
(Fernandez), Nitorreda and Engle.
But on October 20, 2011, more than two months after the
ASM, Corazon H. Ricafort (Corazon), wife of JG Ricafort,
along with their children, Jose Manuel H. Ricafort (Jose
Manuel), Marie Grace H. Ricafort (Marie Grace) (petitioners),
and Maria Teresa Flora R. Santos (Maria Teresa) (plaintiffs),
claiming to be stockholders of record, filed a complaint
before the RTC to declare null and void "the 15 August 2011
[ASM] of NADECOfRJ, including all proceedings taken
thereat, all the consequences thereof, and all acts carried
out pursuant thereto,"[10] against NADECOR itself, the newly-
elected members of its Board of Directors, and Gatmaitan
(defendants). The plaintiffs alleged, among others, that
"they had no knowledge or prior notice of, and were thus
unable to attend, participate in, and vote at, the said
[ASM]"[11] since they received the notice of the ASM only on
August 16, 2011, or one day late, in violation of the three-
day notice provided in NADECOR's By-Laws; that due to lack
of notice, they failed to attend the said ASM and to exercise
their right as stocldiolders to participate in the management
and control of NADECOR. They further noted that the notice
announced a time and venue different from those set forth
in the By-Laws
Rulings:
The Court finds no merit in the petitions.
SEC Case No. 11-164 is time-barred
because it involves an election
contest and therefore is subject
to the 15-day prescription period.
Under Sections 1 to 3 of Rule 6 of the Interim Rules, SEC
Case No. 11-164 should have been dismissed for having
been filed beyond the 15-day prescriptive period allowed for
an election protest. In substance, the main issues therein
are on all fours with Yujuico wherein the Court expressly
ruled that where one of the reliefs sought in the complaint is
to nullify the election of the Board of Directors at the ASM,
the complaint involves an election contest. Both cases put in
issue the validity of the ASM and, expressly in Yujuico and
indirectly below, the election of the members of the Board of
Directors. The ostensible difference is that in SEC Case No.
11-164 the petitioners invoked lack of notice of the August
15, 2011 ASM, while in Yujuico the ground invoked was
improper venue.
The petitioners have no cause of
action because they were duly
represented at the August 15, 2011
ASM by their proxy, JG Ricafort.
On the other hand, the Irrevocable Proxy expressly
authorized JG Ricafort to participate and vote "upon any and
all matters to be taken up at [the stockholders'] meeting,
according to the number ofshare(s) of stock of the Company
of which the [petitioners] are the lawful record and
beneficial owners, and which they would be entitled to vote
if personally present."[145] Moreover, the CA noted that under
the SPA, JG Ricafort was even authorized to appoint a "proxy
to vote upon the shares of stock owned by the Shareholders
or standing in its name in the books of the [NADECOR], at
any meeting of the shareholders of [NADECOR], whether
regular or special."[146] Thus, not only did the SPA
acknowledge JG Ricafort's proxy authority from the
petitioners, it even expanded his authority to include
naming another person as proxy of the petitioners.
Equally significantly, the petitioners do not deny that they
each executed a Nominee Agreement[148] dated June 4, 2007
wherein they acknowledged that JG Ricafort is the true and
beneficial owner of the shares of stock in their name
Thus, JG Ricafort being the real and beneficial owner of the
petitioners' shares, lack of notice to them is inconsequential
because he attended and represented them at the August
15, 2011 ASM. It defies reason, too, that he could not have
informed his wife and children, who live in the same house
with him, of the scheduled ASM.
The petitioners were given due notice
of the August 15, 2011 ASM.
It must be noted that under Article I, Section 3 of
NADECOR's Amended By-Laws, what is required is the
mailing out of notices by registered mail at least three days
before the ASM
3. Mervic Realty Inc v. China Banking Corporation,
G.R. No. 193748, 3 Feb 2016
Facts:
On October 16, 2006, Mervic Realty, Inc. and Viccy Realty,
Inc. (the petitioners) jointly filed a petition for the
declaration of state of suspension of payments with a
proposed rehabilitation plan[4] (rehabilitation petition) before
the Regional Trial Court of Malabon City, Branch 74
(rehabilitation court) for approval.[5] The rehabilitation
petition was filed under A.M. No. 00-8-10-SC dated
November 21, 2000, or the 2000 Interim Rules of
Procedure on Corporate Rehabilitation (the Interim
Rules).[6]
The petitioners alleged that they are duly organized
domestic real estate corporations with principal place of
business in Malabon City. They disclosed that their common
president is Mario Siochi and that a majority of their
stockholders and officers are members of the Siochi family.
[7]
The petitioners averred that they were financially stable
until they were hit by the Asian financial crisis in 1997. As a
result of the financial crisis, they foresaw the impossibility of
meeting their obligations when they fall due.[8]
The petitioners thus prayed that the rehabilitation court
issue a stay order to suspend the enforcement of claims
against them.[9] They alleged that as of September 30, 2006,
their combined total obligations inclusive of interests,
penalties, and other charges had reached P193,156,559.00.
[10]
Finding the petition sufficient in form and substance, the
rehabilitation court issued a stay order that suspended the
enforcement of all claims against the petitioners.[11] The
rehabilitation court likewise appointed a rehabilitation
receiver.[12]
The respondent China Banking Corporation (China Bank), a
creditor of the petitioners, opposed the rehabilitation
petition.[13] It alleged that it had acquired title to and
initiated extrajudicial foreclosure proceedings over some of
Mervic Realty, Inc.'s real properties.[14] It argued that the
petitioners are separate entities and should have filed
separate petitions even if the majority of their common
stockholders and officers belong to the Siochi family; that
the assets of one corporation cannot be considered the
assets of the other; that their financial conditions are not the
same; that they have different creditors; that their
obligations vary; and that the feasibility of rehabilitation for
one corporation may not necessarily be true for the other.[15]
China Bank also questioned the venue of the rehabilitation
petition.[16] Under Section 2, Rule 3 of the Interim Rules,
petitions for corporate rehabilitation shall be filed with the
Regional Trial Court having jurisdiction over the territory
where the debtor's principal office is located. According to
China Bank, the Articles of Incorporation (AOI) of the
petitioners show that their principal place of business is
located in Quezon City, not in Malabon City.
Issue: We clarify at the outset that the Court will not delve
into the feasibility of the petitioners' rehabilitation. The
viability of the rehabilitation plan is not at issue here.
Whether the petitioners, as they claim, can still be
financially revived is an issue separate from the procedural
aspects of the case.
The main issue is whether the petitioners, which are
close family corporations, can jointly file the petition
for rehabilitation under the Interim Rules.
If the answer is yes, then we determine whether they have
chosen the correct venue. If the answer is no, then the Court
can resolve the petition without ruling on the
petitioners' factual claims that they have amended their
AOIs, have moved their principal place of business from
Quezon City to Malabon City, and have thus filed the
rehabilitation petition in the proper venue.
Ruling:
We deny the petition for lack of merit.
The rules in effect at the time the rehabilitation petition was
filed were the Interim Rules. The Interim Rules took effect
on December 15, 2000, and did not allow the joint or
consolidated filing of rehabilitation petitions.
In the present case, the dispute's concern is not only
whether the petitioners could jointly file the rehabilitation
petition (which the Court disallowed in Asiatrust), but also
whether the rehabilitation petition was filed in the proper
venue.
Notwithstanding our ruling in Asiatrust, the petitioners beg
the Court to liberally apply the Interim Rules. As mentioned,
they also invoke the 2008 Rules which allow a group of
companies to file a joint rehabilitation petition.[46] In short,
the petitioners ask the Court to apply a rule that did not
exist when they filed the rehabilitation petition.
We find no legal basis to retroactively apply the 2008 Rules.
The 2008 Rules took effect on January 16, 2009.[47] By the
time the Court decided Asiatrust in 2011, the 2008 Rules
were already in effect but the Court saw no valid reason to
retroactively apply these.
More significantly, Rule 9, Section 2 of the 2008 Rules allows
the retroactive application of the 2008 Rules to pending
rehabilitation proceedings only when these have not yet
undergone the initial hearing stage at the time of the
effectivity of the 2008 Rules
In the present case, the rehabilitation court conducted
the initial hearing on January 22, 2007,[48] and approved the
rehabilitation plan on April 15, 2008 - long before the
effectivity of the 2008 Rules on January 16, 2009. Clearly,
the 2008 Rules cannot be retroactively applied to the
rehabilitation petition filed by the petitioners.
Even if we liberally and retroactively apply the 2008 Rules,
the issue of venue remains. To resolve whether Malabon City
should be the proper venue, we have to determine if the
petitioners have indeed validly amended their AOIs.
We observe that the rehabilitation court did not rule on the
issue of venue although China Bank raised this jurisdictional
defect at the outset. The Court of Appeals, on the other
hand, found Quezon City as the petitioners' principal place
of business. Also, while the petitioners attached copies of
their certified amended AOIs and GIS, China Bank disputed
the authenticity and completeness of these documents.
Suffice it to say that at this late stage of the case, the Court
cannot and will not resolve the question of whether the
petitioners have amended their AOIs. Such an exercise
would require us to examine the authenticity and
completeness of the documents submitted to prove or
contradict the supposed amendments. We stress that this is
a fact-finding task that the Court does not usually
undertake, particularly in a Rule 45 petition where only
questions of law may be raised.[49]
WHEREFORE, premises considered, we DENY the petition
and AFFIRM the June 10, 2010 decision and the September
14, 2010 resolution of the Court of Appeals in CA-G.R. SP No.
103557.
4. POTC, PHILCOMSAT v Sandiganbayan, G.R. No.
174462, 10 Feb 2016 (separate corp personality)
Facts:
POTC is a private corporation, which is a main stockholder of
PHILCOMSAT, a government-owned and controlled
corporation, which was established in 1966 and was granted
a legislative telecommunications franchise by virtue of
Republic Act No. 5514, as amended by Republic Act No.
7949, to establish and operate international satellite
communication in the Philippines.
On 22 July 1987, the Office of the Solicitor General (OSG), on
behalf of the Republic of the Philippines, filed a Complaint
for Reconveyance, Reversion, Accounting and Restitution,
and Damages, docketed as Civil Case No. 0009, against Jose
L. Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R.
Marcos, Ferdinand R. Marcos, Jr., Roberto S. Benedicto, Juan
Ponce Enrile, and Potenciano Ilusorio
As alleged in the Complaint, through clever schemes, the
wealth that should go to the coffers of the government,
which should be deemed acquired for the benefit of the
Republic, went to the defendants in their own individual
accountssome, however, through conduits or corporations.
The property supposedly acquired illegally was specifically
set out in a list appended to the Complaint as Annex A. For
instance, Jose L. Africa, one of the defendants, allegedly
channelled the ill-gotten wealth in shares of stock in twenty
(20) corporations, to wit: POTC and PHILCOMSAT included
Rulings:
Failure to implead POTC and PHILCOMSAT is a violation of
the fundamental principle that a corporation has a legal
personality distinct and separate from its stockholders;
[24]
that, the filing of a complaint against a stockholder is
not ipso facto a complaint against the corporation. Our
pronouncement in Aerocom is apt:
There is no existing sequestration to talk about in this case,
as the writ issued against Aerocom, to repeat, is invalid for
reasons hereinbefore stated. Ergo, the suit in Civil Case
No. 0009 against Mr. Nieto and Mr. Africa as
shareholders in Aerocom is not and cannot ipso
facto be a suit against the unimpleaded Aerocom
itself without violating the fundamental principle that
a corporation has a legal personality distinct and
separate from its stockholders. Such is the ruling laid
down in PCGG v. Interco reiterated anew in a case of more
recent vintage - Republic v. Sandiganbayan, Sipalay Trading
Corp. and Allied Banking Corp. where this Court, speaking
through Mr. Justice Ricardo J. Francisco, hewed to the lone
dissent of Mr. Justice Teodoro R. Padilla in the very same
Republic v. Sandiganbayan case herein invoked by the
PCGG, to wit:
xxxx. (Emphasis supplied, citations omitted)
The basic tenets of fairPLAY and principles of justice
dictate that a corporation, as a legal entity distinct and
separate from its stockholders, must be impleaded as
defendants, giving it the opportunity to be heard. The failure
to properly implead POTC and PHILCOMSAT not only violates
the latters' legal personality, but is repugnant on POTC's and
PHILCOMSAT's right to due process. "[F]ailure to implead
these corporations as defendants and merely annexing a list
of such corporations to the complaints is a violation of their
right to due process for it would in effect be disregarding
their distinct and separate personality without a
hearing."[25] As already settled, a suit against individual
stockholders is not a suit against the corporation.
Proceeding from the foregoing, as POTC and PHILCOMSAT
were not impleaded, there is no longer any existing
sequestration on POTC and PHILCOMSAT. [26] The
sequestration order over POTC and PHILCOMSAT was
automatically lifted six (6) months after the ratification of
the 1987 Constitution on 2 February 1987 for failure to
implead POTC and PHILCOMSAT in Civil Case No. 0009
before the Sandiganbayan or before any court for that
matter.[27] To recite Section 26, Article XVIII of the
Constitution, if no judicial action has been filed within six (6)
months after the ratification of the 1987 Constitution, the
writ of sequestration shall automatically be lifted. Note must
be made of the fact that we do not here touch our previous
holding that Civil Case No. 0009 was filed within the 6-
month period. We now say that such notwithstanding, and
as shown by the facts on record, the POTC and PHILCOMSAT
were not impleaded in the Civil Case.
5. Teng v SEC, GR No. 184332, 17 Feb 2016
Facts:
Ting Ping already requested Teng to enter the transfer of
the subject shares in TCL's Stock and Transfer Book; in
2001, the Court, in G.R. No. 129777, resolved Ting Ping's
rights as a valid transferee and shareholder; in 2006, the
SEC ordered partial execution of the judgment; and in 2008,
the CA affirmed the SEC's order of execution.
This case has its origin in G.R. No. 129777[4] entitled TCL
Sales Corporation and Anna Teng v. Hon. Court of Appeals
and Ting Ping Lay. Herein respondent Ting Ping purchased
480 shares of TCL Sales Corporation (TCL) from Peter Chiu
(Chiu) on February 2, 1979; 1,400 shares on September 22,
1985 from his brother Teng Ching Lay (Teng Ching), who was
also the president and operations manager of TCL; and
1,440 shares from Ismaelita Maluto (Maluto) on September
2, 1989.[5]
Upon Teng Ching's death in 1989, his son Henry Teng
(Henry) took over the management of TCL. To protect his
shareholdings with TCL, Ting Ping on August 31, 1989
requested TCL's Corporate Secretary, herein petitioner Teng,
to enter the transfer in the Stock and Transfer Book of TCL
for the proper recording of his acquisition. Lie also
demanded the issuance of new certificates of stock in his
favor. TCL and Teng, however, refused despite repeated
demands. Because of their refusal, Ting Ping filed a petition
for mandamus with the SEC against TCL and Teng, docketed
as SEC Case No. 3900. In its Decision[7] dated July 20, 1994,
the SEC granted Ting Ping's petition.
Teng argues, among others, that the CA erred when it held
that the surrender of Maluto's stock certificates is not
necessary before their registration in the corporate books
and before the issuance of new stock certificates. She
contends that prior to registration of stocks in the corporate
books, it is mandatory that the stock certificates are first
surrendered because a corporation will be liable to a bona
fide holder of the old certificate if, without demanding the
said certificate, it issues a new one.
Issue: The core question before the Court is whether the
surrender of the certificates of stock is a requisite before
registration of the transfer may be made in the corporate
books and for the issuance of new certificates in its stead.
Note at this juncture that the present dispute involves the
execution of the Court's decision in G.R. No. 129777 but only
with regard to Chiu's and Maluto's respective shares. The
subject of the orders of execution issued by the SEC
pertained only to these shares and the Court's decision will
revolve only on these shares.
Rulings:
A certificate of stock is a written instrument signed by the
proper officer of a corporation stating or acknowledging that
the person named in the document is the owner of a
designated number of shares of its stock. It is prima
facie evidence that the holder is a shareholder of a
corporation.[34] A certificate, however, is merely a tangible
evidence of ownership of shares of stock.[35] It is not a stock
in the corporation and merely expresses the contract
between the corporation and the stockholder.[36] The shares
of stock evidenced by said certificates, meanwhile, are
regarded as property and the owner of such shares may, as
a general rule, dispose of them as he sees fit, unless the
corporation has been dissolved, or unless the right to do so
is properly restricted, or the owner's privilege of disposing of
his shares has been hampered by his own action.
Sec. 63. Certificate of stock and transfer of shares. -
The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be
transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in
the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of
shares transferred.
Under the provision, certain minimum requisites must be
complied with for there to be a valid transfer of stocks, to
wit: (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. [40]
It is the delivery of the certificate, coupled with the
endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares
from the original owner to the transferee
It is thus clear that Teng's position - that Ting Ping must first
surrender Chiu's and Maluto's respective certificates of stock
before the transfer to Ting Ping may be registered in the
books of the corporation -does not have legal basis. The
delivery or surrender adverted to by Teng, i.e., from Ting
Ping to TCL, is not a requisite before the conveyance may be
recorded in its books. To compel Ting Ping to deliver to the
corporation the certificates as a condition for the
registration of the transfer would amount to a restriction on
the right of Ting Ping to have the stocks transferred to his
name, which is not sanctioned by law. The only limitation
imposed by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be transferred.
In Bitong v. CA,[62] the Court outlined the procedure
for the issuance of new certificates of stock in the
name of a transferee:
First, the certificates must be signed by the president or
vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation, x x
x Second, delivery of the certificate is an essential element
of its issuance, x x x Third, the par value, as to par value
shares, or the full subscription as to no par value shares,
must first be fully paid. Fourth, the original certificate
must be surrendered where the person requesting
the issuance of a certificate is a transferee from a
stockholder.
The surrender of the original certificate of stock is necessary
before the issuance of a new one so that the old certificate
may be cancelled. A corporation is not bound and cannot be
required to issue a new certificate unless the original
certificate is produced and surrendered.[64] Surrender and
cancellation of the old certificates serve to protect not only
the corporation but the legitimate shareholder and the
public as well, as it ensures that there is only one document
covering a particular share of stock.
In the case at bench, Ting Ping manifested from the start his
intention to surrender the subject certificates of stock to
facilitate the registration of the transfer and for the issuance
of new certificates in his name.
6. Viva Shipping Lines Inc v. Keppel Philippines
Mining Inc, GR No. 177382, 17 Feb 2016

FACTS:
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping
Lines) filed a Petition for Corporate Rehabilitation before the
Regional Trial Court of Lucena City.[2] The Regional Trial Court
initially denied the Petition for failure to comply with the
requirements in Rule 4, Sections 2 and 3 of the Interim Rules
of Procedure on Corporate Rehabilitation.[3] On October 17,
2005, Viva Shipping Lines filed an Amended Petition.In its
Company Rehabilitation Plan, Viva Shipping Lines
enumerated possible sources of funding such as the sale of
old vessels and commercial lots of its sister company, Sto.
Domingo Shipping Lines.[15] It also proposed the conversion
of the Ocean Palace Mall into aHOTEL , the acquisition of
two (2) new vessels for shipping operations, and the "re-
operation"[16] of an oil mill in Buenavista, Quezon
RULINGS:
The first rule breached by petitioner is the failure to implead
all the indispensable parties. Petitioner did not even
interpose reasons why it should be excused from
compliance with the rule to "state the full names of the
parties to the case, without impleading the court... as ...
respondents." Petitioner did exactly the opposite. It failed to
state the full names of its creditors as respondents. Instead,
it impleaded the Presiding Judge of the originating court.
Professor Stephanie V. Gomez of the University of the
Philippines College of Law suggests specific
characteristics of an economically feasible
rehabilitation plan:
a. The debtor has assets that can generate more cash if
used in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain
daily operations.
c. The debtor has a definite source of financing for the
proper and full implementation of a Rehabilitation Plan that
is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow
that the distressed corporation will obtain from rehabilitating
its assets and operations. A corporation's assets may be
more than its current liabilities, but some assets may be in
the form of land or capital equipment, such as machinery or
vessels. Rehabilitation sees to it that these assets generate
more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the
characteristics of a rehabilitation plan that is
infeasible:
(a) the absence of a sound and workable business plan;

(b) baseless and unexplained assumptions, targets and

The Rules of Court requires petitioner to implead
goals;
respondents as a matter of due process. Under the
Constitution, "[n]o person shall be deprived of life, liberty or (c) speculative capital infusion or complete lack thereof for
property without due process of the law."An appeal to a the execution of the business plan;
corporate rehabilitation case may deprive creditor-
stakeholders of property. Due process dictates that these (d) cash flow cannot sustain daily operations; and
creditors be impleaded to give n them an opportunity to
protect the property owed to them. (e) negative net worth and the assets are near full
depreciation or fully depreciated
In addition to the tests of economic feasibility, Professor
Stephanie V. Gomez also suggests that the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on
rehabilitation that provides for better present value
recovery for its creditors.[149]
Present value recovery acknowledges that, in order to pave
way for rehabilitation, the creditor will not be paid by the
debtor when the credit falls due. The court may order a
suspension of payments to set a rehabilitation plan in
motion; in the meantime, the creditor remains unpaid. By
the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past
has a different value in the future.[150] It is unfair if the
creditor merely receives the face value of the debt. Present
value of the credit takes into account the interest that the
amount of money would have earned if the creditor were
paid on time.[151]
Trial courts must ensure that the projected cash flow from a
business' rehabilitation plan allows for the closest present
value recovery for its creditors. If the projected cash flow is
realistic and allows the corporation to meet all its
obligations, then courts should favor rehabilitation over
liquidation. However, if the projected cash flow is unrealistic,
then courts should consider converting the proceedings into
that for liquidation to protect the creditors.
The Regional Trial Court correctly dismissed petitioner's
rehabilitation plan. It found that petitioner's assets are non-
performing.[152] Petitioner admitted this in its Amended
Petition when it stated that its vessels were no longer
serviceable.[153] In Wonder Book Corporation v. Philippine
Bank of Communications,[154] a rehabilitation plan is
infeasible if the assets are nearly fully or fully depreciated.
This reduces the probability that rehabilitation may restore
and reinstate petitioner to its former position of successful
operation and solvency.
Petitioner's rehabilitation plan should have shown that
petitioner has enough serviceable assets to be able to
continue its business. Yet, the plan showed that the source
of funding would be to sell petitioner's old vessels. Disposing
of the assets constituting petitioner's main business cannot
result in rehabilitation. A business primarily engaged as
a shipping line cannot operate without its ships. On the
other hand, the plan to purchase new vessels sacrifices the
corporation's cash flow. This is contrary to the goal of
corporate rehabilitation, which is to allow present value
recovery for creditors. The plan to buy new vessels after
selling the two vessels it currently owns is neither sound nor
workable as a business plan.
The other part of the rehabilitation plan entails selling
properties of petitioner's sister company. As pointed out by
the Regional Trial Court, this plan requires conformity from
the sister company. Even if the two companies have the
same directorship and ownership, they are still two separate
juridical entities. In BPI Family Savings Bank v. St. Michael
Medical Center,[155] this court refused to include in the
financial and liquidity assessment the financial statements
of another corporation that the petitioning-corporation plans
to merge with.
As pointed out by respondents, petitioner's rehabilitation
plan is almost impossible to implement. Even an ordinary
individual with no business acumen can discern the
groundlessness of petitioner's rehabilitation plan. Petitioner
should have presented a more realistic and practicable
rehabilitation plan within the time periods allotted after
initiatory hearing, or otherwise, should have opted for
liquidation.
Finally, petitioner argues that after Judge Mendoza's
withdrawal as rehabilitation receiver, the Regional Trial
Court should have appointed a new rehabilitation receiver to
evaluate the rehabilitation plan. We rule otherwise. It is not
solely the responsibility of the rehabilitation receiver to
determine the validity of the rehabilitation plan. The Interim
Rules of Procedure on Corporate Rehabilitation allows the
trial court to disapprove a rehabilitation plan and terminate
proceedings or, should the instances warrant, to allow
modifications to a rehabilitation plan.
The Regional Trial Court rendered a decision in accordance
with facts and law. Thus, we deny the plea for liberalization
of procedural rules. To grant the plea would cause more
economic hardship and injustice to all those concerned.
WHEREFORE, the Petition is DENIED. The Court of Appeals
Resolutions dated January 7, 2007 and March 30, 2007 in
CA-G.R. SP No. 96974 are AFFIRMED.
7. Narra Nickel Mining and Development Corp. v.
Redmont Consolidated Mines Corp., G.R. No.
195580, 28 January 2015
Facts: Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of
Palawan. After inquiring with the Department
of Environment and Natural Resources (DENR), it learned
that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications
of petitioners Narra, Tesoro and McArthur.
RULINGS:
Concluding from the above-stated facts, it is quite safe
to say that petitioners McArthur, Tesoro and Narra are not
Filipino since MBMI, a 100% Canadian corporation, owns
60% or more of their equity interests. Such conclusion is
derived from grandfathering petitioners corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding
to the picture, MBMIs Summary of Significant Accounting
Policies statement regarding the joint venture
agreements that it entered into with the Olympic and
Alpha groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the layered corporations
boils down to MBMI, Olympic or corporations under the
Alpha group wherein MBMI has joint venture agreements
with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the
capital structure or the underlying relationships between
and among the corporations, petitioners are NOT Filipino
nationals and must be considered foreign since 60% or more
of their capital stocks or equity interests are owned by
MBMI.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission
dated October 19, 2012 would want us to declare the instant
petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to
DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-
owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares
supposedly cured the defect of their previous
nationality. They claimed that their current FTAA contract
with the State should stand since even wholly-owned
foreign corporations can enter into an FTAA with the
State.57 Petitioners stress that there should no longer be
any issue left as regards their qualification to enter into
FTAA contracts since they are qualified to engage in mining
activities in the Philippines. Thus, whether the grandfather
rule or the control test is used, the nationalities
of petitioners cannot be doubted since it would pass both
tests.
The sale of the MBMI shareholdings to DMCI does not have
any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered
by us since it is being tackled in G.R. No. 202877 pending
before this Court. Thus, the question of whether petitioners,
allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into
FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of
determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the
exploration, development and utilization of the natural
resources of the Philippines. When in the mind of the Court
there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the
"grandfather rule."
8. PNB v Aznar, GR No. 171805, 30 May 2011
(corporate juridical personality)
Facts:
In 1958, RISCO ceased operation due to business
reverses. In plaintiffs' desire to rehabilitate RISCO, they
contributed a total amount of P212,720.00 which was
used in the purchase of the three (3) parcels of land.
After the purchase of the above lots, titles were issued in
the name of RISCO. The amount contributed by plaintiffs
constituted as liens and encumbrances on the
aforementioned properties as annotated in the titles of
said lots. Such annotation was made pursuant to the
Minutes of the Special Meeting of the Board of Directors
of RISCO
Thereafter, various subsequent annotations were made
on the same titles, including the Notice of Attachment
and Writ of Execution both dated August 3, 1962 in favor
of herein defendant PNB.
This prompted plaintiffs-appellees to file the instant
complaint seeking the quieting of their supposed title to the
subject properties, declaratory relief, cancellation of TCT and
reconveyance with temporary restraining order and
preliminary injunction. Plaintiffs alleged that the subsequent
annotations on the titles are subject to the prior annotation
of their liens and encumbrances. Plaintiffs further contended
that the subsequent writs and processes annotated on the
titles are all null and void for want of valid service upon
RISCO and on them, as stockholders. They argued that the
Final Deed of Sale and TCT No. 119848 are null and void as
these were issued only after 28 years and that any right
which PNB may have over the properties had long become
stale.
Defendant PNB on the other hand countered that plaintiffs
have no right of action for quieting of title since the order of
the court directing the issuance of titles to PNB had already
become final and executory and their validity cannot be
attacked except in a direct proceeding for their annulment.
Defendant further asserted that plaintiffs, as mere
stockholders of RISCO do not have any legal or equitable
right over the properties of the corporation. PNB posited
that even if plaintiff's monetary lien had not expired, their
only recourse was to require the reimbursement or refund of
their contribution.
Rulings:
Indeed, we find that Aznar, et al., have no right to ask for
the quieting of title of the properties at issue because they
have no legal and/or equitable rights over the properties
that are derived from the previous registered owner which is
RISCO, the pertinent provision of the law is Section 2 of the
Corporation Code (Batas Pambansa Blg. 68), which states
that "[a] corporation is an artificial being created by
operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by
law or incident to its existence."
As a consequence thereof, a corporation has a personality
separate and distinct from those of its stockholders and
other corporations to which it may be connected.[24] Thus,
we had previously ruled in Magsaysay-Labrador v. Court of
Appeals[25] that the interest of the stockholders over the
properties of the corporation is merely inchoate and
therefore does not entitle them to intervene in litigation
involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is
indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate,
or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment
of the corporate debts and obligations.
Verily, Aznar, et al., who are stockholders of RISCO, cannot
claim ownership over the properties at issue in this case on
the strength of the Minutes which, at most, is merely
evidence of a loan agreement between them and the
company. There is no indication or even a suggestion that
the ownership of said properties were transferred to them
which would require no less that the said properties be
registered under their names. For this reason, the complaint
should be dismissed since Aznar, et al., have no cause to
seek a quieting of title over the subject properties.
At most, what Aznar, et al., had was merely a right to be
repaid the amount loaned to RISCO. Unfortunately, the right
to seek repayment or reimbursement of their contributions
used to purchase the subject properties is already barred by
prescription.
9. Commissioner of Customs v. Oilink International
Corporation, G.R. No. 161759, 2 July 2014
(corporate juridical personality)
Facts:
On September 15, 1966, Union Refinery Corporation (URC)
was established under the Corporation Code of the
Philippines. In the course of its business undertakings,
particularly in the period from 1991 to 1994, URC imported
oil products into the country.
On January 11, 1996, Oilink was incorporated for the
primary purpose of manufacturing, importing, exporting,
buying, selling or dealing in oil and gas, and their
refinements and by-products at wholesale and retail
of petroleum. URC and Oilink had interlocking directors
when Oilink started its business.
In applying for and in expediting the transfer of the
operators name for the Customs Bonded Warehouse then
operated by URC, Esther Magleo, the Vice-President and
General Manager of URC, sent a letter dated January 15,
1996 to manifest that URC and Oilink had the same Board of
Directors and that Oilink was 100% owned by URC.
On March 4, 1998, Oscar Brillo, the District Collector of the
Port of Manila, formally demanded that URC pay the taxes
and duties on its oil imports that had arrived between
January 6, 1991 and November 7, 1995 at the Port of
Lucanin in Mariveles, Bataan
On July 2, 1999, Commissioner Tan made a final demand for
the total liability of P138,060,200.49 upon URC and Oilink.
Also on July 8, 1999, Oilink formally protested the
assessment on the ground that it was not the party liable for
the assessed deficiency taxes.

Rulings: There was no ground to pierce the veil of
corporate existence
A corporation, upon coming into existence, is invested by
law with a personality separate and distinct from those of
the persons composing it as well as from any other legal
entity to which it may be related. For this reason, a
stockholder is generally not made to answer for the acts
or liabilities of the corporation, and vice versa. The separate
and distinct personality of the corporation is, however, a
mere fiction established by law for convenience and to
promote the ends of justice. It may not be used or invoked
for ends that subvert the policy and purpose behind
its establishment, or intended by law to which the
corporation owes its being. This is true particularly when the
fiction is used to defeat public convenience, to justify wrong,
to protect fraud, to defend crime, to confuse legitimate legal
or judicial issues, to perpetrate deception or otherwise
to circumvent the law. This is likewise true where the
corporate entity is being used as an alter ego, adjunct, or
business conduit for the sole benefit of the stockholders or
of another corporate entity. In such instances, the veil
of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.9
In Philippine National Bank v. Ritratto Group, Inc.,10
the Court has outlined the following circumstances
that are useful in the determination of whether a
subsidiary is a mere instrumentality of the parent-
corporation, viz:
1. Control, not mere majority or complete control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetrate the violation of a
statutory or other positive legal duty, or dishonest and,
unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.
In applying the instrumentality or alter ego doctrine, the
courts are concerned with reality, not form, and with how
the corporation operated and the individual defendant's
relationship to the operation. 11 Consequently, the absence
of any one of the foregoing elements disauthorizes the
piercing of the corporate veil.
Indeed, the doctrine of piercing the corporate veil
has no application here because the Commissioner of
Customs did not establish that Oilink had been set up
to avoid the payment of taxes or duties, or for
purposes that would defeat public convenience,
justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate
deception or otherwise circumvent the law. It is also
noteworthy that from the outset the Commissioner of
Customs sought to collect the deficiency taxes and
duties from URC, and that it was only on July 2, 1999 when
the Commissioner of Customs sent the demand letter to
both URC and Oilink. That was revealing, because the failure
of the Commissioner of Customs to pursue the
remedies against Oilink from the outset manifested that its
belated pursuit of Oilink was only an afterthought.
10.Ico v. Systems Technology Institute Inc v.
Fernandez, G.R. No. 185100, 9 July 2014
(corporate juridical personality)
Facts:
Respondent Systems Technology Institute, Inc. (STI) is an
educational institution duly incorporated, organized, and
existing under Philippine laws. Respondents Monico V. Jacob
(Jacob) and Peter K. Fernandez (Fernandez) are STI officers,
the former being the President and Chief Executive Officer
(CEO) and the latter Senior Vice-President.
Sometime in July 2003, or during petitioners stint as COO
and School Administrator of STI-Makati, a Plan of Merger9
was executed between STI and STI College Makati (Inc.),
whereby the latter would be absorbed by STI. The merger
was approved by the Securities and Exchange Commission
on November 12, 2003. STI College Makati (Inc.) thus
ceased to exist, and STI-Makati was placed under STIs
Education Management Division
Rulings:
Finally, since the position of STI-Makati COO was never
abolished, it follows that petitioner should be reinstated to
the very same position, and there to receive exactly what
Fernandez gets by way of salaries, benefits, privileges
and emoluments, without diminution in amount and extent.
Petitioner, multi-awarded, deserving and loyal, is entitled to
what Fernandez receives, and is deemed merely to take
over the office from him; moreover, the position of Chief
Operations Officer is not merely an ordinary managerial
position, as it is a senior managerial office. In turn,
Fernandez or anyone who currently occupies the position
of STIMakati COO must vacate the office and hand over
the same to petitioner.
A corporation, as a juridical entity, may act only through its
directors, officers and employees. Obligations incurred as a
result of the directors and officers acts as corporate
agents, are not their personal liability but the
direct responsibility of the corporation they represent. As a
rule, they are only solidarily liable with the corporation for
the illegal termination of services of employees if they acted
with malice or bad faith.
To hold a director or officer personally liable for corporate
obligations, two requisites must concur: (1) it must be
alleged in the complaint that the director or officer assented
to patently unlawful acts of the corporation or that
the officer was guilty of gross negligence or bad faith; and
(2) there must be proof that the officer acted in bad faith
Respondent Systems Technology Institute, Inc., is ordered
to REINSTATE petitioner Girly G. Ico to the position of STI-
Makati College Chief Operating Officer and pay her the exact
salary, benefits, privileges, and emoluments which
respondent Peter K. Fernandez is receiving, but not less
than what petitioner was receiving at the time of her illegal
constructive dismissal on May 18, 2004
11.Palm Avenue Holding Co. Inc v. Sandiganbayan,
G.R. No. 173082, 6 August 2014 (corporate
juridical personality)
The sequestration order issued against the Palm Companies
is therefore deemed automatically lifted due to the failure of
the Republic to commence the proper judicial action or to
implead them therein within the period under the
Constitution. However, the lifting of the writ of
sequestration will not necessarily be fatal to the main case
since the same does not ipso facto mean that the
sequestered properties are, in fact, not ill-gotten. The effect
of the lifting of the sequestration will merely be the
termination of the governments role as conservator. In
other words, the PCGG may no longer exercise
administrative or housekeeping powers, and its nominees
may no longer vote the sequestered shares to enable them
to sit in the corporate board of the subject company.
Similarly, the Republic in the case at bar failed to file a
proper bill of particulars which would completely clarify and
amplify the charges against the Palm Companies. For said
failure to comply with the graft court's order to file the
required bill of particulars that would completely and fully
inform the Palm Companies of the charges against them, the
amended complaint impleading said companies necessarily
failed to state a cause of action, warranting the dismissal of
the case as to them. By the dismissal of the case as against
the Palm Companies, there is ipso facto no more writ of
sequestration to speak of.
12.Olongapo City v. Subic Water and Sewerage Co.,
Inc., G.R. No. 171626, 6 August 2014
Facts:
Pursuant to PD 198, petitioner Olongapo City (petitioner)
passed Resolution No. 161, which transferred all its existing
water facilities and assets under the Olongapo City Public
Utilities Department Waterworks Division, to the jurisdiction
and ownership of the Olongapo City Water District
(OCWD).10
PD 198, as amended,11 allows local water districts (LWDs)
which have acquired an existing water system of a local
government unit (LGU) to enter into a contract to pay the
concerned LGU. In lieu of the LGUs share in the acquired
water utility plant, it shall be paid by the LWD an amount
not exceeding three percent (3%) of the LWDs
gross receipts from water sales in any year.12
On October 24, 1990, petitioner filed a complaint for sum
of money and damages against OCWD. Among others,
petitioner alleged that OCWD failed to pay its electricity bills
to petitioner and remit its payment under the contract to
pay, pursuant to OCWDs acquisition of petitioners water
system.
On November 24, 1996, Subic Water was granted the
franchise to operate and to carry on the business of
providing water and sewerage services in the Subic Bay
Free Port Zone, as well as in Olongapo City.18 Hence, Subic
Water took over OCWDs water operations in Olongapo City.
To finally settle their money claims against each other,
petitioner and OCWD entered into a compromise
agreement20 on June 4, 1997. In this agreement, petitioner
and OCWD offset their respective claims and counterclaims.
OCWD also undertook to pay to petitioner its net obligation
amounting to P135,909,467.09, to be amortized for a
period of not exceeding twenty-five (25) years at twenty-
four percent (24%) per annum.
Rulings:
An officers actions can only bind the corporation if
he had been authorized to do so.
An examination of the compromise agreement reveals that
it was not accompanied by any document showing a grant
of authority to Mr. Noli Aldip to sign on behalf of Subic Water.
Subic Water is a corporation. A corporation, as a juridical
entity, primarily acts through its board of directors, which
exercises its corporate powers. In this capacity, the general
rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a
corporation.62 Section 23 of the Corporation Code provides:
Section 23. The board of directors or trustees.
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their
successors are elected and qualified
Mr. Noli Aldip signed the compromise agreement purely in
his own capacity. Moreover, the compromise agreement did
not expressly provide that Subic Water consented to
become OCWDs co-maker. As worded, the compromise
agreement merely provided that both parties [also] request
Subic Water, Philippines, which took over the operations of
Olongapo City Water District be made as co-maker [for
the obligations above-cited]. This request was never
forwarded to Subic Waters board of directors. Even if due
notification had been made (which does not appear in the
records), Subic Waters board does not appear to have given
any approval to such request. No document such as the
minutes of Subic Waters board of directors meeting or
a secretarys certificate, purporting to be an authorization to
Mr. Aldip to conform to the compromise agreement, was
ever presented. In effect, Mr. Aldips act of signing the
compromise agreement was outside of his authority to
undertake.
Since Mr. Aldip was never authorized and there was no
showing that Subic Waters articles of incorporation or by-
laws granted him such authority, then the compromise
agreement he signed cannot bind Subic Water. Subic Water
cannot likewise be made a surety or even a guarantor for
OCWDs obligations. OCWDs debts under the compromise
agreement are its own corporate obligations to petitioner.
OCWD and Subic Water are two separate and
different entities.
Petitioner practically suggests that since Subic Water took
over OCWDs water operations in Olongapo City, it also
acquired OCWDs juridical personality, making the two
entities one and the same. This is an interpretation that we
cannot make or adopt under the facts and the evidence of
this case. Subic Water clearly demonstrated that it was a
separate corporate entity from OCWD.
OCWD is just a ten percent (10%) shareholder of Subic
Water. As a mere shareholder, OCWDs juridical personality
cannot be equated nor confused with that of Subic Water. It
is basic in corporation law that a corporation is a juridical
entity vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from
the people comprising it.
Under this corporate reality, Subic Water cannot be held
liable for OCWDs corporate obligations in the same manner
that OCWD cannot be held liable for the obligations
incurred by Subic Water as a separate entity. The corporate
veil should not and cannot be pierced unless it is clearly
established that the separate and distinct personality of the
corporation was used to justify a wrong, protect fraud,
or perpetrate a deception. 66
In Concept Builders, Inc. v. NLRC, 67 the Court
enumerated the possible probative factors of identity
which could justify the application of the doctrine of
piercing the corporate veil. These are:
(1) Stock ownership by one or common ownership of
both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records;
and
( 4) Methods of conducting the business. 68
The burden of proving the presence of any of these
probative factors lies with the one alleging it. Unfortunately,
petitioner simply claimed that Subic Water took over
OCWD's water operations in Olongapo City. Apart from this
allegation, petitioner failed to demonstrate any link to justify
the construction that Subic Water and OCWD are one and
the same.
Under this evidentiary situation, our duty is to respect
the separate and distinct personalities of these two juridical
entities. We thus deny the present petition. The writ of
execution issued by RTC Olongapo, Br. 75, in favor of
Olongapo City, is hereby confirmed to be null and void.
Accordingly, respondent Subic Water cannot be made liable
under this writ.
25. Banc of Commerce v. Radio Philippines Network
Inc., G.R. No. 195615, 21 April 2014 (merger and
consolidation)
Facts: In late 2001 the Traders Royal Bank (TRB) proposed
to sell to petitioner Bank of Commerce (Bancommerce) for
P10.4 billion its banking business consisting of specified
assets and liabilities. Bancommerce agreed subject to prior
Bangko Sentral ng Pilipinas (BSPs) approval of their
Purchase and Assumption (P & A) Agreement. On November
8, 2001 the BSP approved that agreement subject to the
condition that Bancommerce and TRB would set up an
escrow fund of P50 million with another bank to cover TRB
liabilities for contingent claims that may subsequently be
adjudged against it, which liabilities were excluded from the
purchase.
Following the above approval, on November 9, 2001
Bancommerce entered into a P & A Agreement with TRB and
acquired its specified assets and liabilities, excluding
liabilities arising from judicial actions which were to be
covered by the BSP-mandated escrow of P50 million.
Rulings:
Merger and De Facto Merger
Merger is a re-organization of two or more corporations that
results in their consolidating into a single corporation, which
is one of the constituent corporations, one disappearing or
dissolving and the other surviving. To put it another way,
merger is the absorption of one or more corporations by
another existing corporation, which retains its identity and
takes over the rights, privileges, franchises, properties,
claims, liabilities and obligations of the absorbed
corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is
or are terminated
The Corporation Code requires the following steps for
merger or consolidation:
(1) The board of each corporation draws up a plan of merger
or consolidation. Such plan must include any amendment, if
necessary, to the articles of incorporation of the surviving
corporation, or in case of consolidation, all the statements
required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each
corporation for approval. A meeting must be called and at
least two (2) weeks notice must be sent to all stockholders
or members, personally or by registered mail. A summary of
the plan must be attached to the notice. Vote of two-thirds
of the members or of stockholders representing two-thirds
of the outstanding capital stock will be needed. Appraisal
rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the
articles of merger o[r] consolidation, by the corporate
officers of each constituent corporation. These take the
place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the
surviving corporation.
(4) Submission of said articles of merger or consolidation to
the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all
corporations concerned at least two weeks before.
(6) Issuance of certificate of merger or consolidation
Indubitably, it is clear that no merger took place between
Bancommerce and TRB as the requirements and procedures
for a merger were absent. A merger does not become
effective upon the mere agreement of the constituent
corporations.[15] All the requirements specified in the law
must be complied with in order for merger to take effect.
Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the
Securities and Exchange Commission (SEC) of a certificate
of merger.
Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities. What
happened is that TRB sold and Bancommerce purchased
identified recorded assets of TRB in consideration of
Bancommerces assumption of identified recorded liabilities
of TRB including booked contingent accounts. There is no
law that prohibits this kind of transaction especially when it
is done openly and with appropriate government approval.
Indeed, the dissenting opinions of Justices Jose Catral
Mendoza and Marvic Mario Victor F. Leonen are of the same
opinion. In strict sense, no merger or consolidation took
place as the records do not show any plan or articles of
merger or consolidation. More importantly, the SEC did not
issue any certificate of merger or consolidation.
a de facto merger can be pursued by one
corporation acquiring all or substantially all of the
properties of another corporation in exchange of
shares of stock of the acquiring corporation. The
acquiring corporation would end up with the business
enterprise of the target corporation; whereas, the target
corporation would end up with basically its only remaining
assets being the shares of stock of the acquiring
corporation. (Emphasis supplied)
No de facto merger took place in the present case simply
because the TRB owners did not get in exchange for the
banks assets and liabilities an equivalent value in
Bancommerce shares of stock. Bancommerce and TRB
agreed with BSP approval to exclude from the sale the TRBs
contingent judicial liabilities, including those owing to
RPN, et al.
The enforcement, therefore, of the decision in the main case
should not include the assets and properties that
Bancommerce acquired from TRB. These have ceased to be
assets and properties of TRB under the terms of the BSP-
approved P & A Agreement between them. They are not TRB
assets and properties in the possession of Bancommerce. To
make them so would be an unwarranted departure from the
CAs Decision in CA-G.R. SP 91258.
24. Alabang Development Corporation v. Alabang
Hills Village Association, G.R. No. 187456, 2 June
2014 (dissolution and liquidation)
Facts:
The case traces its roots to the Complaint for Injunction
and Damages filed [with the Regional Trial Court (RTC) of
Muntinlupa City] on October 19, 2006 by [herein petitioner,
Alabang Development Corporation] ADC against [herein
respondents, Alabang Hills Village Association, Inc.] AHVAI
and Rafael Tinio (Tinio), President of AHVAI. The Complaint
alleged that [petitioner] is the developer of Alabang
Hills Village and still owns certain parcels of land therein
that are yet to be sold, as well as those considered open
spaces that have not yet been donated to [the] local
government of Muntinlupa City or the
Homeowner's Association. Sometime in September [2006],
ADC learned that AHVAI started the construction of a multi-
purpose hall and a swimming pool on one of the parcels of
land still owned by ADC without the latter's consent and
approval, and that despite demand, AHVAI failed to desist
from constructing the said improvements. ADC thus prayed
that an injunction be issued enjoining defendants from
constructing the multi-purpose hall
and the swimming pool at the Alabang Hills Village.
In its Answer With Compulsory Counterclaim, AHVAI
denied ADC's asseverations and claimed that the latter has
no legal capacity to sue since its existence as a registered
corporate entity was revoked by the Securities and
Exchange Commission (SEC) on May 26, 2003; that ADC has
no cause of action because by law it is no longer the
absolute owner but is merely holding the property in
question in trust for the benefit of AHVAI as beneficial owner
thereof; and that the subject lot is part of the open space
required by law to be provided in the subdivision.
As counterclaim, it prayed that an order be issued divesting
ADC of the title of the property and declaring AHVAI as
owner thereof; and that ADC be made liable for moral and
exemplary damages as well as attorney's fees.
Rulings:
With respect to the second assigned error, Section 122 of
the Corporation Code provides as follows:
SEC. 122. Corporate liquidation. Every corporation
whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for
other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business
for which it was established.
At any time during said three (3) years, said corporation
is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors,
and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others
in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustees,
and the beneficial interest in the stockholders, members,
creditors or other persons in interest.
Upon winding up of the corporate affairs, any asset
distributable to any creditor or stockholder or member who
is unknown or cannot be found shall be escheated to the
city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise
allowed by this Code, no corporation shall distribute any of
its assets or property except upon lawful dissolution and
after payment of all its debts and liabilities.
It is to be noted that the time during which the corporation,
through its own officers, may conduct the liquidation of its
assets and sue and be sued as a corporation is limited to
three years from the time the period of dissolution
commences; but there is no time limit within which the
trustees must complete a liquidation placed in their hands.
It is provided only (Corp. Law, Sec. 78 [now Sec. 122]) that
the conveyance to the trustees must be made within the
three-year period. It may be found impossible to complete
the work of liquidation within the three-year period or to
reduce disputed claims to judgment. The authorities are to
the effect that suits by or against a corporation abate when
it ceased to be an entity capable of suing or being sued (7
R.C.L., Corps., par. 750); but trustees to whom the
corporate assets have been conveyed pursuant to the
authority of Sec. 78 [now Sec. 122] may sue and be sued as
such in all matters connected with the liquidation.
In the absence of trustees, this Court ruled, thus:
Still in the absence of a board of directors or trustees,
those having any pecuniary interest in the assets, including
not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper
representations with the Securities and
Exchange Commission, which has primary and sufficiently
broad jurisdiction in matters of this nature, for working out a
final settlement of the corporate concerns.8
In the instant case, there is no dispute that petitioner's
corporate registration was revoked on May 26, 2003. Based
on the above-quoted provision of law, it had three years, or
until May 26, 2006, to prosecute or defend any suit by or
against it. The subject complaint, however, was filed only on
October 19, 2006, more than three years after such
revocation.
It is likewise not disputed that the subject complaint was
filed by petitioner corporation and not by its directors or
trustees. In fact, it is even averred, albeit wrongly, in the
first paragraph of the Complaint9 that [p]laintiff is a duly
organized and existing corporation under the laws of
the Philippines, with capacity to sue and be sued
In the present case, petitioner filed its complaint not only
after its corporate existence was terminated but also
beyond the three-year period allowed by Section 122 of the
Corporation Code. Thus, it is clear that at the time of the
filing of the subject complaint petitioner lacks the capacity
to sue as a corporation. To allow petitioner to initiate the
subject complaint and pursue it until final judgment, on the
ground that such complaint was filed for the sole purpose of
liquidating its assets, would be to circumvent the provisions
of Section 122 of the Corporation Code.