QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO whether the NLRC committed a grave abuse of discretion in
SAAVEDRA, VICENTE SECAPURI, DANIEL AUSTRIA, ET
AL., petitioners, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, BACANI SECURITY AND ALLIED
SERVICES CO., INC., AND BACANI SECURITY AND
PROTECTIVE AGENCY AND/OR ALICIA
BACANI, respondents.
Ponente: Mendoza, J.
Doctrines:
Corporation Law: The doctrine of piercing the veil of corporate
entity is used whenever a court finds that the corporate fiction
is being used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or to confuse legitimate issues,
or that a corporation is the mere alter ego or business conduit
of a person or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another
corporation.
FACTS: Robledo ET. Al. filed a Petition for Review of the
Decision of NLRC, setting aside the decision of the Labor Arbiter,
which held private respondents jointly and severally liable to the
petitioners for overtime and legal holiday pay.
Petitioners were former employees of Bacani Security and
Protective Agency (BPSA). They were employed as security
guards at different times during the period 1969 to December
1989 when BPSA ceased to operate. BPSA was a single
proprietorship owned, managed, and operated by the late Felipe
Bacani. On December 31, 1989, Felipe Bacani retired the
business name and BSPA ceased to operate effective on that
day. On Jan. 15, 1990 Felipe Bacani died. An intestate
proceeding was instituted for the settlement of his estate before
Pasig-RTC. Earlier, on Oct. 26, 1989, respondent Bacani Security
and Allied Services Co., Inc. (BASEC) had been organized and
registered as a corporation with SEC. The following were the
incorporators with their respective shareholdings:
ALICIA BACANI — 25,250 shares
LYDIA BACANI — 25,250 shares
AMADO P. ELEDA — 25,250 shares
VICTORIA B. AURIGUE — 25,250 shares
FELIPE BACANI — 20,000 shares
On July 5, 1990, the petitioners filed a complaint with the DOLE
for underpayment of wages and nonpayment of overtime pay
and other accrued benefits, and for the return of their cash
bond, which they posted, with BPSA. Made respondents were
BSPA and BASEC. On March 1, 1992, the Labor Arbiter rendered
a decision upholding the right of petitioners, finding the
complainants entitled to their money claims to be paid by all the
respondents’ solidarily. On appeal, the NLRC reversed the
decision declaring that the Labor Arbiter is without jurisdiction
and instead suggested that petitioners file their claims with
Pasig-RTC where an intestate proceeding of Bacani’s estate was
pending. Petitioners moved for reconsideration but their motion
was denied for lack of merit. The case was elevated to the SC
and was treated as a special civil action of certiorari to determine
reversing the Labor Arbiter’s decision.
ISSUE: Whether Bacani Security and Allied Services, Inc.
(BASEC) can be held liable for claims of petitioners against
Bacani Security and Protective Agency (BSPA).
RULING: No. Petitioners contend that public respondent,
NLRC, erred in setting aside the Labor Arbiter’s judgment on the
ground that BASEC is the same entity as BSPA the latter being
owned and controlled by one and the same family, the Bacani
family. For this reason they urge that corporate fiction should
be disregarded and BASEC should be held liable for the
obligations of the defunct BSPA. As correctly found by the NLRC,
BASEC is an entity separate and distinct from that of BSPA. BSPA
is a single proprietorship owned and operated by Felipe Bacani.
Hence, its debts and obligations were the personal obligations
of its owner. Petitioner’s claims, which are based on these debts
and personal obligations, did not survive the death of Felipe
Bacani on Jan. 15, 1990 and should have been filed instead in
the intestate proceedings involving his estate.
The rule is settled that unless expressly assumed labor contracts
are not enforceable against the transferee of an enterprise. The
reason for this is that labor contracts are in
personam. Consequently, it has been held that claims for
backwages earned from the former employer cannot be filed
against the new owners of an enterprise. 3Nor is the new
operator of a business liable for claims for retirement pay of
employees.
It is apparent, therefore, that the doctrine of piercing the
corporate veil has no application to this case where the purpose
is not to hold the individual stockholders liable for the obligations
of the corporation but, on the contrary, to hold the corporation
liable for the obligations of a stockholder or stockholders.
Piercing the veil of corporate entity means looking through the
corporate form to the individual stockholders composing it. Here
there is no reason to pierce the veil of corporate entity because
there is no question that petitioners' claims, assuming them to
be valid, are the personal liability of the late Felipe Bacani. It is
immaterial that he was also a stockholder of BASEC.
Indeed, the doctrine is stood on its head when what is sought
is to make a corporation liable for the obligations of a
stockholder. But there are several reasons why BASEC is not
liable for the personal obligations of Felipe Bacani. For one,
BASEC came into existence before BSPA was retired as a
business concern. BASEC was incorporated on October 26, 1989
and its license to operate was released on May 28, 1990, while
BSPA ceased to operate on December 31, 1989. Before, BSPA
was retired, BASEC already existed. It is, therefore, not true that
BASEC is a mere continuity of BSPA.
Hutchison Ports Philippines Limited vs Subic Bay
Metropolitan Authority
Commercial Law – Corporation Law – Foreign Corporation –
License Requirement
1|P a g e
In 1996, Hutchison Ports Philippines Limited (HPPL)won a
public bidding made by the Subic Bay Metropolitan Authority
(SBMA). The project was to develop and operate a modern
marine container terminal within the Subic Bay Freeport Zone.
The SBMA Board of Directors already declared HPPL as the
winner but later on, the Office of the President reversed the
decision of the Board and ordered a rebidding. In the rebidding
however, HPPL was no longer among the qualified bidders.
Eventually, HPPL filed a petition for injunction to enjoin SBMA
from conducting the rebidding.
ISSUE: Whether or not Hutchison has the right to file an
injunction case against SBMA.
HELD: No. The declaration made by the SBMA Board declaring
HPPL as the winning bidder was neither final nor unassailable.
Under LOI No. 620, all projects undertaken by the SBMA are
subject to the approval of the Office of the President. Hence,
the Board of SBMA is under the control and supervision of the
President of the Philippines. Therefore, the declaration made by
the Board did not vest any right in favor of HPPL.
Further, HPPL cannot sue in the Philippines. It is a foreign
corporation registered under the laws of the British Virgin
Islands. It did not register here in the Philippines.
HPPL cannot invoke that it was suing only on an isolated
transaction. The conduct of bidding is not an isolated
transaction. It is “doing business” here in the Philippines. The
Supreme Court emphasized that as a general rule, “doing” or
“engaging in” or “transacting” business in the Philippines is a
case to case basis. It has often been held that a single act or
transaction may be considered as “doing business” when a
corporation performs acts for which it was created or exercises
some of the functions for which it was organized. The amount
or volume of the business is of no moment, for even a singular
act cannot be merely incidental or casual if it indicates the
foreign corporation’s intention to do business.
Participating in the bidding process constitutes “doing business”
because it shows the foreign corporation’s intention to engage
in business here. The bidding for the concession contract is but
an exercise of the corporation’s reason for creation or existence.
Therefore, HPPL has done business here without license. It
cannot now sue in the Philippines without license because its
participation in the bidding is not merely an isolated transaction.
The primary purpose of the license requirement is to compel a
foreign corporation desiring to do business within the Philippines
to submit itself to the jurisdiction of the courts of the state and
to enable the government to exercise jurisdiction over them for
the regulation of their activities in this country.
JOSE PENEYRA and MILAGROS
CALDERON, petitioners, vs. HON. INTERMEDIATE
APPELLATE COURT and HONORABLE GODOFREDO
RILLORAZA, respondents.
FACTS
the Board of Trustees of the Corregidor College Inc. awarded
the management and operation of its canteen at a monthly
rental of P80.00 to petitioners herein who are stockholders of
the said College
upon instructions of Eulogio Dizon , Chairman of the Board of
Trustees, the rental payments of petitioners were refused, and
partial demolition of the canteen was effected.
petitioners filed in the CFI an action against Eulogio R. Dizon for
damages with preliminary injunction
petitioners filed a motion for leave to amend the complaint so
as to include Corregidor College, Inc. as additional defendant.
Dizon opposed the motion since petitioners had already
presented their evidence
the trial court denied petitioners' motion, ruling that the
proposed amendment would substantially alter petitioners'
cause of action
petitioners filed their motion for reconsideration of the order
denying the admission of their amended complaint
Two days later, Eulogio Dizon died
the trial court dismissed petitioners' complaint on the ground
that the action for damages did not survive the death of Eulogio
Dizon.
On appeal, the IAC dismissed the petition holding that the SEC
has jurisdiction over the case, the same being an intracorporate
dispute, that the amendment to include Corregidor College, Inc.
cannot be allowed and that the action for damages against
Eulogio Dizon was extinguished by his death
ISSUES:
1) whether or not the jurisdiction over Civil Case No. 774-G
pertain to the Securities and Exchange Commission?
2) whether or not the amend complaint to include Corregidor
College, Inc. as additional defendant can be permitted?
3) whether or not the action for damages against Euologio
Dizon was extinguished by his death?
HELD:
1) NO
While it is true that petitioners are stockholders of Corregidor
College, Inc., the. complaint did not stem directly from such
relationship, but rather from the award to petitioners of the
management and operation of its canteen at a monthly rental of
P80.00.
The management of a canteen, even if awarded to a
stockholder, is outside or merely incidental to the central
operations of an educational institution. Petitioners thus
convincingly argue that "the controversy is not one where
petitioners are bringing the action as stockholders but rather as
operators of the canteen under an agreement with said Board
the cause of action here is for damages arising from a violation
of a contract of management operation of the College canteen
by defendant Dizon. Certainly, the present controversy cannot
qualify as an intra-controversy, its root being a contractual
breach separate and distinct from the corporate relationship
between petitioners and Corregidor College, Inc., which, it must
be noted, was not even named as a defendant in the original
complaint
1) NO
2|P a g e
the amendment to include Corregidor College Inc. as additional
defendant cannot be permitted inasmuch as the motion to
amend was made only after petitioners had already rested their
case on February 20, 1981
We note the fact that it was only after a lapse of two (2) years
and seven (7) months or on September 2, 1983 that petitioners
filed their motion to amend their complaint. To permit such
amendment would obviously delay the proceedings of the trial
court. Needless to say, at that point in the proceedings,
substantial issues have already been joined
the inclusion of Corregidor College as additional party is a
substantial amendment which can be permitted only by leave of
court. Section 3, of Rule 10 of the Rules of Court states that,
"(A)fter the case is set for hearing, substantial amendments may
be made only upon leave of court. But such leave may be
refused if it appears to the court that the motion was made with
intent to delay the action or that the cause of action or defense
is substantially altered." The proposed inclusion of Corregidor
College would necessarily alter petitioners' cause of action in
that while petitioners alleged in their complaint
3) NO
an action for the recovery of damages for injury to personal
property is not extinguished by the death of the defendant. This
is because such action may still be brought against the executor
or administrator of the estate of the defendant.
Since the demolition of petitioners' canteen is a ground for the
recovery of damages arising from injury to personal property,
then, as provided in Section 1 of Rule 87 of the Rules of Court,
the deceased defendant should now be substituted by the
executor, administrator or legal representative of his estate as
party-defendant
WHEREFORE, the dismissal of Civil Case No. 774-G of the then
Court of First Instance of Nueva Ecija, Branch XXXI, Guimba, is
hereby set aside. The successor Regional Trial Court is ordered
to reinstate Civil Case No. 774-G, to cause the deceased
defendant Eulogio Dizon to be substituted by the executor,
administrator or legal representative of his estate as party-
defendant and thereafter to proceed with the trial of the case
with dispatch
SAPPARI K. SAWADJAAN V. CA (G.R. NO. 141735)
Facts:
Petitioner Sawadjaan was an appraiser/investigator in the
Philippine Amanah Bank (PAB) when on the basis of his report,
a credit line was granted to Compressed Air Machineries and
Equipment Corporation (CAMEC) by virtue of the two parcels of
land it offered as collaterals. Meanwhile, Congress passed a law
which created Al-Amanah Investment Bank of the Philippines
(AIIBP) and repealed the law creating PAB, transferring all its
assets, liabilities and capital accounts to AIIBP. Later, AIIBP
discovered that the collaterals were spurious, thus conducted an
investigation and found petitioner Sawadjaan at fault. Petitioner
appealed before the SC which ruled against him. Petitioner
moved for a new trial claiming he recently discovered that AIIBP
had not yet adopted its corporate by-laws and since it failed to
file within 60 days from the passage of its law, it had forfeited
its franchise or charter and thus has no legal standing to initiate
an administrative case. The motion was denied.
Issue:
Whether or not the failure of AIIBP to file its by-laws within the
period prescribed results to a nullity of all actions and
proceedings it has initiated.
Ruling: NO.
The AIIBP was created by Rep. Act No. 6848. It has a main
office where it conducts business, has shareholders, corporate
officers, a board of directors, assets, and personnel. It is, in fact,
here represented by the Office of the Government Corporate
Counsel, “the principal law office of government-owned
corporations, one of which is respondent bank.” At the very
least, by its failure to submit its by-laws on time, the AIIBP may
be considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any
private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within
the prescribed period does not ipso facto lose its powers as
such. The SEC Rules on Suspension/Revocation of the Certificate
of Registration of Corporations, details the procedures and
remedies that may be availed of before an order of revocation
can be issued. There is no showing that such a procedure has
been initiated in this case.
Prime white cement case
In July 1969, Zosimo Falcon and Justo Trazo entered into an
agreement with Alejandro Te whereby it was agreed that from
1970 to 1976, Te shall be the sole dealer of 20,000 bags Prime
White cement in Mindanao. Falcon was the president of Prime
White Cement Corporation (PWCC) and Trazo was a board
member thereof. Te was likewise a board member of PWCC. It
was agreed that the selling price for a bag of cement shall be
P9.70.
Before the bags of cement can be delivered, Te already made
known to the public that he is the sole dealer of cements in
Mindanao. Various hardwares then approached him to be his
sub-dealers, hence, Te entered into various contracts with them.
But then apparently, Falcon and Trazo were not authorized by
the Board of PWCC to enter into such contract. Nevertheless,
the Board wished to retain the contract but they wanted some
amendment which includes the increase of the selling price per
bag to P13.30 and the decrease of the total amount of cement
bags from 20k to 8k only plus the contract shall only be effective
for a period of three months and not 6 years.
Te refused the counter-offer. PWCC then awarded the contract
to someone else.
Te then sued PWCC for damages. PWCC filed a counterclaim
and in said counterclaim, it is claiming for moral damages the
basis of which is the claim that Te’s filing of a civil case against
PWCC destroyed the company’s goodwill. The lower court ruled
in favor Te.
ISSUE: Whether or not the ruling of the lower court is correct.
HELD: No. Te is what can be called as a self-dealing director –
he deals business with the same corporation in which he is a
3|P a g e
director. There is nothing wrong per se with that. However, Sec.
32 provides that:
SEC. 32. Dealings of directors, trustees or officers with the
corporation. —- A contract of the corporation with one or more
of its directors or trustees or officers is voidable, at the option
of such corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in the board
meeting in which the contract was approved was not necessary
to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary
for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in the case of an officer, the contract with the officer
has been previously authorized by the Board of Directors.
In this particular case, the Supreme Court focused on the fact
that the contract between PWCC and Te through Falcon and
Trazo was not reasonable. Hence, PWCC has all the rights to
void the contract and look for someone else, which it did. The
contract is unreasonable because of the very low selling price.
The Price at that time was at least P13.00 per bag and the
original contract only stipulates P9.70. Also, the original contract
was for 6 years and there’s no clause in the contract which
protects PWCC from inflation. As a director, Te in this
transaction should protect the corporation’s interest more than
his personal interest. His failure to do so is disloyalty to the
corporation.
Anent the issue of moral damages, there is no question that
PWCC’s goodwill and reputation had been prejudiced due to the
filing of this case. However, there can be no award for moral
damages under Article 2217 of the Civil Code in favor of a
corporation.
NOTE: In a later case, Coastal Pacific Trading, Inc. vs Southern
Rolling Mills Co., Inc. (July 28, 2006), it was ruled that a
corporation may be entitled to moral damages provided that its
good reputation was debased resulting in its humiliation in the
business realm.
DIGITAL MICROWAVE CORPORATION, petitioner,
vs.
COURT OF APPEALS and ASIAN HIGH TECHNOLOGY
CORPORATION,respondents.
G.R. No. 128550 March 16, 2000
FACTS:
Private respondent Asian High Technology Corp. filed a
complaint against petitioner Digital Microwave Corp. for a sum
of money and damages before the RTC. Petitioner moved for
the dismissal of the complaint. The trial court denied the motion
and subsequent motion for reconsideration.
Petitioner then initiated a special civil action for certiorari before
the CA, alleging grave abuse of discretion on the part of the trial
court. However, the CA dismissed the petition for failure to
comply with Revised Circular No. 28-91, as amended by
Administrative Circular No. 04-94 requiring the petition be
accompanied by a sworn certification against forum shopping,
signed by petitioner himself but the Petitioner's certification was
signed by counsel.
Petitioner moved for a reconsideration of the dismissal and
submitted a sworn certification against forum shopping duly
signed by one of its senior officers. The CA denied the motion
since absent any compelling reason for petitioner's failure to
comply, at first instance, with the rules, the Court cannot
therefore, accept its subsequent compliance.
Hence, this petition before the Court seeking reversal of the
ruling of CA.
ISSUE:
Whether or not a corporation must comply with the requirement
under Revised Circular No. 28-91 that the certification against
forum shopping be accomplished by petitioner himself.
HELD:
YES, a corporation must comply with the Revised
Circular. The reason the certification against forum shopping is
required to be accomplished by petitioner himself is because
only the petitioner himself has actual knowledge of whether or
not he has initiated similar actions or proceedings in different
courts or agencies. His counsel may be unaware of such fact.
The petitioner’s contention that a corporation cannot possibly
hope to comply with the requirement laid down by Revised
Circular No. 28-91 because it is a juridical entity and not a
natural person is not tenable. Corporations have directors and
officers to represent it in its transactions with others as in this
case for the certification against forum shopping. It could easily
have been made by a duly authorized director or officer of the
corporation.
The petitioner only complied by having the certification signed
by one of its officers after its petition before the Court of Appeals
had been dismissed. The petitioner has not adequately
explained its initial failure to have the certification signed by one
of its officers. Neither has it shown any compelling reason for us
to disregard strict compliance with the rules. As stated
in Spouses Ortiz, "Utter disregard of the rules cannot justly be
rationalized by harking on the policy of liberal construction."
ONG CASE
FACTS:
1994: construction of the Masagana Citimall in Pasay City was
threatened with stoppage, when its owner, the First Landlink
Asia Development Corporation (FLADC), owned by the Tius,
became heavily indebted to the Philippine National Bank (PNB)
for P190M
To save the 2 lots where the mall was being built
from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong,
Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong
Alonzo (the Ongs), to invest in FLADC.
4|P a g e
Pre-Subscription Agreement: Ongs and the Tius agreed to
maintain equal shareholdings in FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in addition to
their already existing subscription of 450,200 shares
Tius: nominate the Vice-President and the Treasurer plus 5
directors
Ongs nominate the President, the Secretary and 6 directors
(including the chairman) to the board of directors of FLADC and
right to manage and operate the mall.
Tius: contribute to FLADC a 4-storey building P20M (for 200K
shares)and 2 parcels of land P30M (for 300K shares) and P49.8M
(for 49,800 shares)
Ongs: paid P190M to settle the mortgage indebtedness of
FLADC to PNB (P100M in cash for their subscription to 1M
shares)
February 23, 1996: Tius rescinded the Pre-Subscription
Agreement
February 27, 1996: Tius filed at the Securities and Exchange
Commission (SEC) seeking confirmation of their rescission of the
Pre-Subscription Agreement
SEC: confirmed recission of Tius
Ongs filed reconsideration that their P70M was not a premium
on capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not
have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was
best to separate the two groups by rescinding the Pre-
Subscription Agreement, returning the original investment of the
Ongs and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the
remedy
HELD: YES. Ongs granted.
did not justify the rescission of the contract
providing appropriate offices for David S. Tiu and Cely Y. Tiu as
Vice-President and Treasurer, respectively, had no bearing on
their obligations under the Pre-Subscription Agreement since
the obligation pertained to FLADC itself
failure of the Ongs to credit shares of stock in favor of the Tius
for their property contributions also pertained to the corporation
and not to the Ongs
the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190 million
law requires that the breach of contract should be so
"substantial or fundamental" as to defeat the primary objective
of the parties in making the agreement
since the cash and other contributions now sought to be
returned already belong to FLADC, an innocent third party, said
remedy may no longer be availed of under the law.
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed
a subscription within the meaning of this Title, notwithstanding
the fact that the parties refer to it as a purchase or some other
contract
allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to
reduce the authorized capital stock,24 (2) purchase of
redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings,25 and (3)
dissolution and eventual liquidation of the corporation.
They want this Court to make a corporate decision for FLADC.
The Ongs' shortcomings were far from serious and certainly less
than substantial; they were in fact remediable and correctable
under the law. It would be totally against all rules of justice,
fairness and equity to deprive the Ongs of their interests on
petty and tenuous grounds.
Rural Bank of Salinas, Inc. v. CA
210 SCRA 510
FACTS:
Clemente G. Guerrero, President of the Rural Bank of Salinas,
Inc., executed a Special Power of Attorney in favor of his wife,
Melania to sell or otherwise dispose of and/or mortgage 473
shares of stock of the Bank registered in his name (represented
by the Bank's stock certificates nos. 26, 49 and 65), to execute
the proper documents therefor, and to receive and sign receipts
for the dispositions. Melania, as Attorney-in-Fact, executed a
Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares),
Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares). Melania Guerrero presented to Rural Bank of Salinas
the 2 Deeds of Assignment for registration with a request for
the transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock certificates
in the name of Clemente, and the issuance of new stock
certificates in the name of the new owners thereof., Rural Bank
denied such request. Melania filed with the SEC an action for
mandamus against Rural Bank of Salinas, its President and
Corporate Secretary.
The Bank in their Answer with counterclaim alleged that upon
the death of Clemente, his 473 shares of stock became the
property of his estate, and his property and that of his widow
should first be settled and liquidated in accordance with law
before any distribution can be effected so that petitioners may
not be a party to any scheme to evade payment of estate or
inheritance tax and in order to avoid liability to any third persons
or creditors of the late Clemente.
Maripol Guerrero filed a motion for intervention (legally adopted
daughter of the late Clemente and Melanie) stating that a
Petition for the administration of the estate of Clemente had
been filed but her motion was denied. She then filed before
the CFI of Rizal, against Melanie for the annulment of the Deeds
of Assignment for being fictitious, void or simulated. The Bank
then filed a motion to dissmiss/suspend hearing pending
resolution of the case for annulment. However, SEC denied such
motion.
SEC rendered a Decision granting the writ of Mandamus and
directing petitioners to cancel stock certificates of the Bank, and
to issue new certificates in the names of private respondents,
except Melania Guerrero. Appealed to the CA but CA affirmed
the decision of SEC.
5|P a g e
ISSUES:
1. WON SEC has the power to adjudicate the case. -Yes
2. WON corporatons may by its board, its by-laws, or the act
of its officers create restrictions in stock transfers.No.
3. WON the Bank being a corporation may refuse to transfer
and register stocks. No.
HELD: 1. Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intracorporate
controversy has been defined as one which arises between a
stockholder and the corporation. There is no distinction,
qualification, nor any exception whatsoever (Rivera vs.
Florendo, 144 SCRA 643 [1986]). The case at bar involves
shares of stock, their registration, cancellation and issuances
thereof by petitioner Rural Bank of Salinas. It is therefore within
the power of respondent SEC to adjudicate.
2. A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers, because:.
. Restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create
such impediment. By-laws are intended merely for the
protection of the corporation, and prescribe regulation, not
restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a sale
is based. . . . (Tomson on Corporation Sec. 4137, cited in
Fleisher vs. Nolasco, Supra).
The only limitation imposed by Section 63 of the Corporation
Code is when the corporation holds any unpaid claim against the
shares intended to be transferred, which is absent here.
3. The right of a transferee/assignee to have stocks transferred
to his name is an inherent right flowing from his ownership of
the stocks. Respondent SEC correctly ruled in favor of the
registering of the shares of stock in question in private
respondent's names. Such ruling finds support under Section 63
of the Corporation Code, to wit:
Sec. 63. . . . 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 . . .
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in
purely ministerial capacity, and does not try to decide the
question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and
if it refuses to make such transaction without good cause, it may
be compelled to do so by mandamus. (See. 5518, 12 Fletcher
394)
Naguiat v. CA
Facts:
Queao applied with Naguiat for a loan in the amount of
P200,000.00, which Naguiat granted. On 11 August 1980,
Naguiat indorsed to Queao Associated Bank Check No. 090990
dated 11 August 1980 for the amount of P95,000.00, which was
earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No.
065314, to the order of Queao, also dated 11 August 1980 and
for the amount of P95,000.00. The proceeds of these checks
were to constitute the loan granted by Naguiat to Queao.
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties. On the same day, the
mortgage deed was notarized, and Queao issued to Naguiat a
promissory note for the amount of P200,000.00, with interest at
12% per annum, payable on 11 September 1980. Queao also
issued a Security Bank and Trust Company check, postdated 11
September 1980, for the amount of P200,000.00 and payable to
the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check
was dishonored for insufficiency of funds. On the following day,
12 September 1980, Queao requested Security Bank to stop
payment of her postdated check, but the bank rejected the
request pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.
On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter,
Queao and Ruebenfeldt met with Naguiat. At the meeting,
Queao told Naguiat that she did not receive the proceeds of the
loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiats agent.
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981.Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC,
seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.
On 8 March 1991, the RTC rendered judgment, declaring the
Deed of Real Estate Mortgage null and void, and ordering
Naguiat to return to Queao the owners duplicates of her titles
to the mortgaged lots. Naguiat appealed the decision before the
Court of Appeals, making no less than eleven assignments of
error. CA promulgated the decision now assailed before us that
affirmed in toto the RTC decision.
Issues:
I. Whether or not Queao had actually received the loan proceeds
which were supposed to be covered by the two checks Naguiat
had issued or indorsed
II. Whether or not there is the admissibility of various
representations and pronouncements of Ruebenfeldt, invoking
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the rule on the non-binding effect of the admissions of third
persons.
Held:
The Court held that the presumption of truthfulness engendered
by notarized documents is rebuttable, yielding as it does to clear
and convincing evidence to the contrary, as in this case.
apparent authority as his agent, and holds him out to the public
as such, cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest
belief that he is what he appears to be. CA is correct in invoking
the said rule on agency by estoppel.

On the other hand, absolutely no evidence was submitted by More fundamentally, whatever was the true relationship
Naguiat that the checks she issued or endorsed were actually between Naguiat and Ruebenfeldt is irrelevant in the face of the
encashed or deposited. The mere issuance of the checks did not fact that the checks issued or indorsed to Queao were never
result in the perfection of the contract of loan. For the Civil Code encashed or deposited to her account of Naguiat.
provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment
only when they have been cashed. It is only after the checks
have produced the effect of payment that the contract of loan
may be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract.

A loan contract is a real contract, not consensual, and, as such,

is perfected only upon the delivery of the object of the contract.
The objects of the contract are the loan proceeds which Queao
would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned
checks and the pertinent bank records. Since Naguiat presented
no such proof, it follows that the checks were not encashed or
credited to Queaos account.

On the second issue, CA rejected the argument, holding that

since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the
rule.

The existence of an agency relationship between Naguiat and

Ruebenfeldt is supported by ample evidence. Naguiat instructed
Ruebenfeldt to withhold from Queao the checks she issued or
indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaos friend, Marilou Farralese, and it was in
connection with that transaction that Queao came to know
Naguiat. It was also Ruebenfeldt who accompanied Queao in
her meeting with Naguiat and on that occasion, on her own and
without Queao asking for it, Reubenfeldt actually drew a check
for the sum of P220,000.00 payable to Naguiat, to cover for
Queaos alleged liability to Naguiat under the loan agreement.

The Court of Appeals recognized the existence of an agency by

estoppel citing Article 1873 of the Civil Code. Apparently, it
considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but
Naguiat did nothing to correct Queaos impression. In that
situation, the rule is clear. One who clothes another with

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