1. HALLEY VS.
PRINTWELL Also, under the trust fund doctrine, a corporation has no
Issues and Rulings:
1. Whether petitioner can invoke corporate personality
which is separate and distinct from those of its
stockholders, directors, or officers to avoid liability.
No. Although a corporation has a personality separate and
distinct from those of its stockholders, directors, or
officers, such separate and distinct personality is merely a
fiction created by law for the sake of convenience and to
promote the ends of justice. The corporate personality may
be disregarded, and the individuals composing the
corporation will be treated as individuals, if the corporate
entity is being used as a cloak or cover for fraud or
illegality; as a justification for a wrong; as an alter ego, an
adjunct, or a business conduit for the sole benefit of the
stockholders. As a general rule, a corporation is looked
upon as a legal entity, unless and until sufficient reason to
the contrary appears. Thus, the courts always presume
good faith, and for that reason accord prime importance to
the separate personality of the corporation, disregarding
the corporate personality only after the wrongdoing is first
clearly and convincingly established.
2. Whether unpaid creditor may satisfy its claim from
unpaid subscriptions.
Yes. Unpaid creditor may satisfy its claim from unpaid
subscriptions; stockholders must prove full payment of
their subscriptions.
Under the trust fund doctrine: a rule that the property of a
corporation is a trust fund for the payment of creditors,
but such property can be called a trust fund only by way of
analogy or metaphor. As between the corporation itself
and its creditors it is a simple debtor, and as between its
creditors and stockholders its assets are in equity a fund
for the payment of its debts.
It is established doctrine that subscriptions to the capital
of a corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the
payment of its debts.
The trust fund doctrine is not limited to reaching the
stockholders unpaid subscriptions. The scope of the
doctrine when the corporation is insolvent encompasses
not only the capital stock, but also other property and
assets generally regarded in equity as a trust fund for the
payment of corporate debts. All assets and property
belonging to the corporation held in trust for the benefit of
creditors that were distributed or in the possession of the
stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in
satisfaction of its claim.
legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole
or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors. The creditor is
allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the
corporation for the satisfaction of its debt. To make out a
prima facie case in a suit against stockholders of an
insolvent corporation to compel them to contribute to the
payment of its debts by making good unpaid balances upon
their subscriptions, it is only necessary to establish that the
stockholders have not in good faith paid the par value of
the stocks of the corporation.
3. Whether the liability of stockholders for corporate
debts is up to the extent of their unpaid subscription.
Yes. The prevailing rule is that a stockholder is personally
liable for the financial obligations of the corporation to the
extent of his unpaid subscription. Interest is also
imposable on the unpaid obligation. Absent any
stipulation, interest is fixed at 12% per annum from the
date the amended complaint.
2. OFFICE OF THE PRESIDENT and
PRESIDENTIAL ANTI-GRAFT COMMISSION vs.
CALIXTO R. CATAQUIZ
Issues/Rulings
Whether respondent has executive prerogative, he can
execute any policy, program or project, without the
approval by the Board.
The Commission finds that the act of respondent Cataquiz
in condoning penalties and reducing the fines imposed by
the Public Hearing Committee (PHC) of the LLDA has no
basis in law. The premise of the respondent citing Section
26 (b) giving him the executive prerogative and Section 4
(a) justifying the condonation and reduction is misplaced.
Section 26 (b) does not vest the respondent the executive
prerogative. Said provision gives him the authority to
execute and administer the policies, plans, programs and
projects approved by the Board. There is no showing that
the condonation of penalties and reduction of fines has
been approved by the Board. Section 26 (b) is clear in its
terms that before respondent executes any policy, program
or project, the same has to be approved by the Board.
Thus, there is no executive prerogative to speak of.
Section 4 (d) refers to additional power and function of the
Authority and not to the respondent. Of equal importance
is that Section 4 (d) does not confer him the authority to
condone penalties nor reduce fines. Said provision is
referring to Orders requiring the discontinuance of
pollution. When the law is clear it needs no further
interpretation.
The contention of respondent Cataquiz that there is
nothing in Section 25-A that states that the approval of the
Board is necessary has no leg to stand on. Same provision
gives the Board the implied power to do such other acts
and perform such other functions as may be necessary to
carry out the provisions of this Charter.
In relation to this is Section 31 of RA 4850 that gives the
Board the authority to create such other divisions and
positions as may be deemed necessary for the efficient,
economic and effective conduct of the activity of the
Authority.
3. TAN VS. SYCIP
ISSUE: Whether dead members should still be counted in
the determination of the quorum for members’ meeting.
RULING:
NO. The quorum in a members meeting is to be reckoned
as the actual number of members of the corporation. In
stock corporations, shareholders may generally transfer
their shares. Thus, on the death of a shareholder, the
executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote
it. Until a settlement and division of the estate is effected,
the stocks of the decedent are held by the administrator or
executor.
On the other hand, membership in and all rights arising
from a nonstock corporation are personal and non-
transferable, unless the articles of incorporation or the
bylaws of the corporation provide otherwise. In other
words, the determination of whether or not dead members
are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of
incorporation or bylaws.
Under the By-Laws of GCHS, membership in the
corporation shall, among others, be terminated by the
death of the member. Section 91 of the Corporation Code
further provides that termination extinguishes all the
rights of a member of the corporation, unless otherwise
provided in the articles of incorporation or the bylaws.
Applying Section 91 to the present case, the dead members
who are dropped from the membership roster in the
manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the
annual members meeting. With 11 remaining members,
the quorum in the present case should be 6. Therefore,
there being a quorum, the annual members meeting,
conducted with six members present, was valid.
4. PIONEER INSURANCE VS. CA
ISSUE: Whether failure to incorporate automatically
resulted to de facto partnership.
Ruling: No. Persons who attempt but fail to form a
corporation and who carry on business under the
corporate name occupy the position of partners inter se.
Such a relation does not necessarily exist however for
ordinarily persons cannot be made to assume the relation
of partners as between themselves when their purpose is
that no partnership shall exist
Applying therefore the principles of law earlier cited to the
facts of the case, necessarily, no de facto partnership was
created among the parties which would entitle the
petitioner to a reimbursement of the supposed losses of the
proposed corporation. Also, the record shows that the
petitioner was acting on his own and not in behalf of his
other would-be incorporators in transacting the sale of the
airplanes and spare parts.
5. RURAL BANK OF LIPA CITY VS. CA
Was there a valid transfer of stocks?
For a valid transfer of stocks, there must be strict
compliance with the mode of transfer prescribed by law.
The requirements are:
(a) There must be delivery of the stock certificate;
(b) The certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to
make the transfer; and
(c) To be valid against third parties, the transfer must be
recorded in the books of the corporation.
As it is, compliance with any of these requisites has not
been clearly and sufficiently shown.
It may be argued that despite non-compliance with the
requisite endorsement and delivery, the assignment was
valid between the parties, meaning the private respondents
as assignors and the petitioners as assignees. While the
assignment may be valid and binding on the petitioners
and private respondents, it does not necessarily make the
transfer effective. Consequently, the petitioners, as mere
assignees, cannot enjoy the status of a stockholder, cannot
vote nor be voted for, and will not be entitled to dividends,
insofar as the assigned shares are concerned.
Parenthetically, the private respondents cannot, as yet, be
deprived of their rights as stockholders, until and unless
the issue of ownership and transfer of the shares in
question is resolved with finality.
There being no showing that any of the requisites
mandated by law was complied with there is no valid
transfer.
6. FILIPINAS BROADCASTING NETWORK VS.
AGO MEDICAL AND EDUCATIONAL CENTER
ISSUE: Whether AMEC is entitled to moral damages.
Yes. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or
moral shock. To justify the award of moral damages, "a
corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral
damages".
Since Article 2219(7) of the Civil Code does not qualify
whether the plaintiff is a natural or juridical person, a
juridical person such as a corporation can validly complain
for libel or any other form of defamation and claim for
moral damages.
7. INTER-ASIA INVESTMENT INDUSTRIES VS.
CA
ISSUE: Whether the letter of the president of the Inter-
Asia is valid and binding and not ultra vires.
RULING: Yes. The letter of the president of the Inter- Asia
is valid and binding and not ultra vires. An officer of a
corporation who is authorized to purchase the stock of
another corporation has the implied power to perform all
other obligations arising therefrom, such as payment of the
shares of stock. By allowing its president to sign the
Agreement on its behalf, petitioner clothed him with
apparent capacity to perform all acts which are expressly,
impliedly and inherently stated therein.
8. ANG MGA KAANIB SA IGLESIA VS IGLESIA NG
DIYOS
ISSUE: Whether the names are identical.
RULING: YES. The additional words "Ang Mga Kaanib"
and "Sa Bansang Pilipinas, Inc." in petitioner's name are,
as correctly observed by the SEC, merely descriptive of and
also referring to the members, or kaanib, of respondent
who are likewise residing in the Philippines. These words
can hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in distinguishing
petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the
same acronym - H.S.K.; not to mention the fact that both
are espousing religious beliefs and operating in the same
place. Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner stands for "Haligi at
Saligan ng Katotohanan."
The only difference between the corporate names of
petitioner and respondent are the words SALIGAN and
SUHAY, which words are synonymous — both mean
ground, foundation or support.
9. REPUBLIC OF THE PHILIPPINES v.
SANDIGANBAYAN et al .
ISSUE: Whether the PCGG can vote the sequestered ETPI
Class "A" shares in the stockholders meeting for the
election of the board of directors.
RULING: The PCGG cannot vote sequestered shares to
elect the ETPI Board of Directors or to amend the Articles
of Incorporation for the purpose of increasing the
authorized capital stock unless there is a prima facie
evidence showing that said shares are ill-gotten and there
is an imminent danger of dissipation.
The issue of whether PCGG may vote the sequestered
shares in SMC necessitates a determination of at least two
factual matters:
a.) whether there is prima facie evidence showing that the
said shares are ill-gotten and thus belong to the state; and
b.) whether there is an immediate danger of dissipation
thus necessitating their continued sequestration and
voting by the PCGG while the main issue pends with the
Sandiganbayan.
The two-tiered test, however, does not apply in cases
involving funds of “public character.” In such cases, the
government is granted the authority to vote said shares,
namely:
(1) Where government shares are taken over by private
persons or entities who/which registered them in their
own names, and
(2) Where the capitalization or shares that were acquired
with public funds somehow landed in private hands. In
short, when sequestered shares registered in the names of
private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is
applied.
However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to
have been
(1) originally government shares, or
(2) purchased with public funds or those affected with
public interest, then the two-tiered test does not apply.
The rule in the jurisdiction is, therefore, clear. The PCGG
cannot perform acts of strict ownership of sequestered
property. It is a mere conservator. It may not vote the
shares in a corporation and elect members of the board of
directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or
whose capitalization comes from public funds, but which
landed in private hands as in BASECO. In short, the
Sandiganbayan held that the public character exception
does not apply, in which case it should have proceeded to
apply the two-tiered test. This it failed to do. The questions
thus remain if there is prima facie evidence showing that
the subject shares are ill- gotten and if there is imminent
danger of dissipation. The Court is not, however, a trier of
facts, hence, it is not in a position to rule on the
correctness of the PCGG’s contention. Consequently, the
issue must be remanded to the Sandiganbayan for
resolution.
10. Ong Yong, et al. vs. Tiu, et al.
Issue:
1. Whether the pre-Subscription Agreement executed by
the Ongs is actually a subscription contract.
2. Whether the rescission of Pre-Subscription Agreement
would result in unauthorized liquidation.
Ruling:
1. Yes, a contract between Ongs and FLADC.
The subject matter of the contract was the 1,000,000
unissued shares of FLADC stock allocated to the Ongs.
Since these were unissued shares, the parties' Pre-
Subscription Agreement was in fact a subscription contract
as defined under Section 60, Title VII of the Corporation
Code. A subscription contract necessarily involves the
corporation as one of the contracting parties since the
subject matter of the transaction is property owned by the
corporation — its shares of stock. Thus, the subscription
contract (denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the
law, one between the Ongs and FLADC, not between the
Ongs and the Tius. Otherwise stated, the Tius did not
contract in their personal capacities with the Ongs since
they were not selling any of their own shares to them. It
was FLADC that did.
2. The rescission of the Pre-Subscription Agreement will
effectively result in the unauthorized distribution of the
capital assets and property of the corporation, thereby
violating the Trust Fund Doctrine and the Corporation
Code, since rescission of a subscription agreement is not
one of the instances when distribution of capital assets and
property of the corporation is allowed. Rescission will, in
the final analysis, result in the premature liquidation of the
corporation without the benefit of prior dissolution in
accordance with Sections 117, 118, 119 and 120 of the
Corporation Code.
11.) VALLEY GOLF & COUNTRY CLUB,
INC.,- versus - ROSA O. VDA. DE CARAM,
Issue: May a non-stock corporation seize and
dispose of the membership share of a fully-paid
member on account of its unpaid debts to the
corporation when it is authorized to do so under
the corporate by-laws but not by the Articles of
Incorporation?
As to lien in the shares for unpaid claims by the
corporation:
SEC. 91. Termination of membership.Membership shall be
terminated in the manner and for the causes provided in
the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights
of a member in the corporation or in its property, unless
otherwise provided in the articles of incorporation or the
by-laws.
Even though the AOI did not provide for any
provision regarding liens on the shares the by-
laws providing for the same will suffice.
Issue: Given that the cause for termination of
membership in a non-stock corporation may be
established through the by-laws alone and need
not be set forth in the articles of incorporation, is
there any cause to invalidate the lien and the
subsequent sale of the Golf Share by Valley Golf?
In order that the action of a corporation in expelling a
member for cause may be valid, it is essential, in the
absence of a waiver, that there shall be a hearing
or trial of the charge against him, with reasonable
notice to him and a fair opportunity to be heard in
his defense. (Fletcher Cyc. Corp., supra) If the method of
trial is not regulated by the by-laws of the association, it
should at least permit substantial justice. The hearing
must be conducted fairly and openly and the body of
persons before whom it is heard or who are to decide the
case must be unprejudiced. (SEC opinion dated September
29, 1987, Bacalaran-Sucat Drivers Association)
12.) Gamboa v Teves
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital
is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for
a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities
by the general public. The participation of foreign
investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of
such corporation or association must be citizens of the
Philippines.
Issue: whether the term capital in Section 11, Article XII of
the Constitution refers to the total common shares only or
to the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a
public utility.
The forty percent (40%) foreign equity limitation in public
utilities prescribed by the Constitution refers to ownership
of shares of stock entitled to vote, i.e., common shares,
considering that it is through voting that control is being
exercised.
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section
11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares
also have the right to vote in the election of
directors, then the term capital shall include such
preferred shares because the right to participate
in the control or management of the corporation is
exercised through the right to vote in the election
of directors. In short, the term capital in Section 11,
Article XII of the Constitution refers only to shares of stock
that can vote in the election of directors.
13.) AGILENT TECHNOLOGIES SINGAPORE
(PTE) LTD., vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION,
TEOH KIANG HONG, TEOH KIANG SENG,
ANTHONY CHOO, JOANNE KATE M. DELA CRUZ,
JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA,
Do Foreign corporation not licensed to do
business in the Philippines have a legal capacity to
sue?
A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a
foreign corporation is transacting or doing
business in the country.
An unlicensed foreign corporation doing business in
the Philippines may bring suit in Philippine courts
against a Philippine citizen or entity who had
contracted with and benefited from said
corporation. Such a suit is premised on the doctrine
of estoppel. A party is estopped from challenging the
personality of a corporation after having acknowledged the
same by entering into a contract with it. This doctrine
of estoppel to deny corporate existence and capacity
applies to foreign as well as domestic corporations.The
application of this principle prevents a person contracting
with a foreign corporation from later taking advantage of
its noncompliance with the statutes chiefly in cases where
such person has received the benefits of the contract.[46]
The principles regarding the right of a foreign
corporation to bring suit in Philippine courts may thus be
condensed in four statements: (1) if a foreign
corporation does business in the Philippines
without a license, it cannot sue before the
Philippine courts;(2) if a foreign corporation
is not doing business in the Philippines, it needs
no license to sue before Philippine courts on an
isolated transaction or on a cause of action
entirely independent of any business
transaction.[48]; (3) if a foreign corporation does
business in the Philippines without a license, a
Philippine citizen or entity which has contracted
with said corporation may be estopped from
challenging the foreign corporations corporate
personality in a suit brought before Philippine
courts;[49] and (4) if a foreign corporation does
business in the Philippines with the required
license, it can sue before Philippine courts on any
transaction.
In Menntholatum,[52] this Court discoursed on the two
general tests to determine whether or not a foreign
corporation can be considered as doing business in
the Philippines. The first of these is the substance test,
thus:[53]
The true test [for doing business], however, seems to be
whether the foreign corporation is continuing the body of
the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it
over to another.
The second test is the continuity test, expressed
thus:[54]
The term [doing business] implies a continuity of
commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and
in the progressive prosecution of, the purpose and object of
its organization.
The phrase doing business shall include soliciting orders,
service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods
totaling one hundred eighty (180) days or more;
participating in the management, supervision or control of
any domestic business, firm, entity, or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the
business organization.
Section 1 of the Implementing Rules and Regulations
of the FIA (as amended by Republic Act No. 8179) provides
that the following shall not be deemed doing business:
(1) Mere investment as a shareholder by a
foreign entity in domestic corporations duly
registered to do business, and/or the exercise
of rights as such investor;
 (2) Having a nominee director or officer to
represent its interest in such corporation;
(3) Appointing a representative or distributor
domiciled in the Philippines which transacts
business in the representatives or distributors
own name and account;
(4) The publication of a general advertisement
through any print or broadcast media;
(5) Maintaining a stock of goods in
the Philippines solely for the purpose of
having the same processed by another entity
in the Philippines;
(6) Consignment by a foreign entity of
equipment with a local company to be used in
the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing
isolated contract of sale which are not on a
continuing basis, such as installing in the
Philippines machinery it has manufactured or
exported to the Philippines, servicing the
same, training domestic workers to operate it,
and similar incidental services.
14.) METROPOLITAN BANK and TRUST
COMPANY, v. CENTRO DEVELOPMENT
CORPORATION, CHONGKING KEHYENG,
MANUEL CO KEHYENG and QUIRINO KEHYENG
Doctrine: The act of appointing a new trustee of
the MTI was a regular business transaction. The
appointment necessitated only a decision of at
least a majority of the directors present at the
meeting in which there was a quorum, pursuant to
Section 25 of the Corporation Code.
FACTS:
On 20 March 1990, in a special meeting of the board of
directors of respondent Centro Development Corporation
(Centro), its president Go Eng Uy was authorized to
mortgage its properties and assets to secure the medium-
term loan of P 84 million
On 21 March 1990, respondent Centro, represented by Go
Eng Uy, executed a Mortgage Trust Indenture (MTI) with
the Bank of the Philippines Islands (BPI)
Thereafter, respondent alleged that there was a new
mortgage constituted by virtue of stockholders’ Resolution
No. 005, s. 1994
Petitioner contends that the stockholders’ Resolution No.
005, s. 1994 did not constitute a new mortgage in favor of
petitioner. Instead, the stockholders merely amended the
existing MTI by appointing petitioner as the new trustee
for the MTI, which was already existing and held by BPI.
Thus, there was no need to secure a 2/3 vote from the
stockholders. Petitioner posits that the authority to
mortgage the properties was granted in 1990, upon the
execution of the first MTI between respondent Centro and
BPI.
Petitioner also maintains that the CA erred in interpreting
the phrase "at which meeting a quorum was present"
contained in the Secretary’s Certificate dated 18 August
1994. The bank points out that the phrase indicates that at
least a quorum was present, rather than that only a
quorum was present. Thus, the Secretary’s Certificate did
not in any way limit the number of those actually present.
ISSUE/S:
WON MTI constituted a new mortgage?
HELD:
NO. Reading carefully the Secretary’s Certificate, it is clear
that the main purpose of the directors’ Resolution was to
appoint petitioner as the new trustee of the previously
executed and amended MTI. It need not comply with Sec
40 of the CC as to the required no. of votes and call for a
special/regular meeting. Being a regular business
transaction, it only requires majority vote of the board.
15.) SOLIDBANK CORPORATION (now known as
FIRST METRO INVESTMENT CORPORATION) v.
ERNESTO U. GAMIER, ELENA R.
CONDEVILLAMAR, JANICE L. ARRIOLA and
OPHELIA C. DE GUZMAN,
Issue: Whether Metrobank is solidarily liable with
solidbank for the claims of the latter’s dismissed
employees.
Metrobank cannot be held solidarily liable with
Solidbank for the claims of the latters dismissed
employees. There is no showing that Metrobank is
the successor-in-interest of Solidbank. Based on
petitioners documentary evidence, Solidbank was merged
with FMIC, with Solidbank as the surviving corporation,
and was later renamed as FMIC. While indeed Solidbanks
banking operations had been integrated with Metrobank,
there is no showing that FMIC has ceased business
operations. FMIC as successor-in-interest of Solidbank
remains solely liable for the sums herein adjudged against
Solidbank.
Neither should individual petitioners Vistan and
Mendoza be held solidarily liable for the claims adjudged
against petitioner Solidbank. Article 212 (e) does not state
that corporate officers are personally liable for the unpaid
salaries or separation pay of employees
corporation. The liability of corporate officers
corporate debts remains governed by Section 31 of
the Corporation Code.
It is basic that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal
entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the
separate corporate personality. In labor cases, in
particular, the Court has held corporate directors and
officers solidarily liable with the corporation for the
termination of employment of corporate employees done
with malice or in bad faith. Bad faith is
presumed.[63] Bad faith does not simply connote bad
judgment or negligence -- it imports a dishonest purpose
or some moral obliquity and conscious doing of wrong. It
means a breach of a known duty through some motive or
interest or ill-will that partakes of the nature of fraud.
Respondents have not satisfactorily proven that
Vistan and Mendoza acted with malice, ill-will or bad faith.
Hence, said individual petitioners are not liable for the
separation pay of herein respondents-union members.
16.) Cocofed v Republic
Conversion of shares (sequestered shares)
The conversion of the SMC common shares to SMC Series
1 preferred shares and its eventual redemption is legally
allowable as long as the approval of the PCGG is obtained
for the amendment of the Articles of Incorporation of
SMC, to allow the creation of the proposed preferred share
with its various features. As long as the PCGG approval is
obtained, the exercise of the redemption feature of the
SMC in accordance with the Amended Articles of
Incorporation would not constitute a "sale" of the
sequestered asset that is prohibited.
The conversion of common shares into preferred shares,
pursued through the amendment of the AOI, is a legitimate
exercise of corporate powers under the CC, and does not
amount to the corporation using its funds to effect
of the conversion, but would amount merely to reconfiguration of
for said common shares into preferred shares.
17.) Yngson v PNB
Whether PNB, as a secured creditor, can foreclose
on the mortgaged properties of a corporation
under liquidation without the knowledge and
prior approval of the liquidator or the SEC.
In Rizal Commercial Banking Corporation v.
Intermediate Appellate Court, we held that if
rehabilitation is no longer feasible and the assets of the
corporation are finally liquidated, secured creditors
shall enjoy preference over unsecured creditors,
subject only to the provisions of the Civil Code on
concurrence and preference of credits. Creditors
of secured obligations may pursue their security
never interest or lien, or they may choose to abandon
the preference and prove their credits as ordinary
claims.
Moreover, Section 2248 of the Civil Code provides: “Those
credits which enjoy preference in relation to specific real
property or real rights, exclude all others to the extent of
the value of the immovable or real right to which the
preference refers.” In this case, Planters Bank, as a
secured creditor, enjoys preference over a specific
mortgaged property and has a right to foreclose the
mortgage under Section 2248 of the Civil Code. The
creditor-mortgagee has the right to foreclose the
mortgage over a specific real property whether or not the
debtor-mortgagor is under insolvency or liquidation
proceedings. The right to foreclose such mortgage is
merely suspended upon the appointment of a
management committee or rehabilitation receiver or
upon the issuance of a stay order by the trial court.
However, the creditor-mortgagee may exercise his right
to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay
order.
In this case, PNB elected to maintain its rights under the
security or lien; hence, its right to foreclose the mortgaged
properties should be respected.
18.) ong yong v Tiu
Whether the Tius could legally rescind the pre
subscription contract.
No. It will violate the Trust Fund Doctrine and the
procedures for the valid distribution of assets and
property under the Corporation Code.
 The Trust Fund Doctrine provides that subscriptions
to the capital stock of a corporation constitute a fund to
which the creditors have a right to look for the satisfaction
of their claims. This doctrine is the underlying principle in
the procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows the
distribution of corporate capital only in three instances: (1)
amendment of the Articles of Incorporation to reduce the
authorized capital stock, (2) purchase of redeemable
shares by the corporation, regardless of the existence of
unrestricted retained earnings, and (3) dissolution and
eventual liquidation of the corporation. Furthermore, the
doctrine is articulated in Section 41 on the power of a
corporation to acquire its own shares[26] and in Section 122
on the prohibition against the distribution of corporate
assets and property unless the stringent requirements
therefor are complied with.[27]
The distribution of corporate assets and property
cannot be made to depend on the whims and caprices of
the stockholders, officers or directors of the corporation, or
even, for that matter, on the earnest desire of the court a
quo to prevent further squabbles and future litigations
unless the indispensable conditions and procedures for the
protection of corporate creditors are followed. Otherwise,
the corporate peace laudably hoped for by the court will
remain nothing but a dream because this time, it will be
the creditors turn to engage in squabbles and litigations
should the court order an unlawful distribution in blatant
disregard of the Trust Fund Doctrine.
In the instant case, the rescission of the Pre-
Subscription Agreement will effectively result in
the unauthorized distribution of the capital assets
and property of the corporation, thereby violating
the Trust Fund Doctrine and the Corporation
Code, since rescission of a subscription agreement
is not one of the instances when distribution of
capital assets and property of the corporation is
allowed.
A judicial order to decrease capital stock without the
assent of FLADCs directors and stockholders is a violation
of the business judgment rule which states that:
Contracts intra vires entered into by the board of
directors are binding upon the corporation and courts will
not interfere unless such contracts are so unconscionable
and oppressive as to amount to wanton destruction to the
rights of the minority, as when plaintiffs aver that the
defendants (members of the board), have concluded a
transaction among themselves as will result in serious
injury to the plaintiffs stockholders.
Courts and other tribunals wont override the business
judgment of the board mainly because, courts are not in
the business of business, and the laissez faire rule or the
free enterprise system prevailing in our social and
economic set-up dictates that it is better for the State and
its organs to leave business to the businessmen; especially
so, when courts are ill-equipped to make business
decisions. More importantly, the social contract in the
corporate family to decide the course of the corporate
business has been vested in the board and not with courts.
19.) Heirs of Durano v sps Uy
Whether petitioners could justifiably invoke the
doctrine of separate corporate personality to
evade liability.
The Court of Appeals applied the well-recognized
principle of piercing the corporate veil, i.e., the law will
regard the act of the corporation as the act of its individual
stockholders when it is shown that the corporation was
used merely as an alter ego by those persons in the
commission of fraud or other illegal acts.
The test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock
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
perpetuate the violation of a statutory or
other positive legal duty, or dishonest and
unjust acts in contravention of plaintiffs legal
rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents piercing
the corporate veil. In applying the instrumentality or alter
ego doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the
individual defendants relationship to that operation.
The question of whether a corporation is a mere alter
ego is purely one of fact. The Court sees no reason to
reverse the finding of the Court of Appeals. The facts
show that shortly after the purported sale by
Cepco to Durano & Co., the latter sold the property
to petitioner Ramon Durano III, who immediately
procured the registration of the property in his
name. Obviously, Durano & Co. was used by
petitioners merely as an instrumentality to
appropriate the disputed property for themselves.
20.) Gloria Gomez v PNOC DEVELOPMENT AND
MANAGEMENT CORPORATION (PDMC)
(formerly known as FILOIL DEVELOPMENT AND
MANAGEMENT CORPORATION)
Issue: whether or not petitioner Gomez was, in
her capacity as administrator of respondent
PDMC, an ordinary employee whose complaint for
illegal dismissal and non-payment of wages and
benefits is within the jurisdiction of the NLRC.
Ordinary company employees are generally employed not
by action of the directors and stockholders but by that of
the managing officer of the corporation who also
determines the compensation to be paid such employees.
Corporate officers, on the other hand, are elected or
appointed by the directors or stockholders, and are those
who are given that character either by the Corporation
Code or by the corporations by-laws.
Here, it was the PDMC president who appointed
petitioner Gomez administrator, not its board of directors
or the stockholders. The president alone also determined
her compensation package. Moreover, the administrator
was not among the corporate officers mentioned in the
PDMC by-laws. The corporate officers proper were the
chairman, president, executive vice-president, vice-
president, general manager, treasurer, and secretary.
(Doctrine of estoppel applies)
That petitioner Gomez served concurrently as corporate
secretary for a time is immaterial. A corporation is not
prohibited from hiring a corporate officer to perform
services under circumstances which will make him an
employee. Indeed, it is possible for one to have a dual role
of officer and employee. In Elleccion Vda. De Lecciones v.
National Labor Relations Commission, the Court upheld
NLRC jurisdiction over a complaint filed by one who
served both as corporate secretary and administrator,
finding that the money claims were made as an employee
and not as a corporate officer.
21.) G.R. No. L-23893 October 29, 1968
VILLA REY TRANSIT, INC., plaintiff-appellant,
vs.
EUSEBIO E. FERRER, PANGASINAN
TRANSPORTATION CO., INC. and PUBLIC
SERVICE COMMISSION,defendants.
EUSEBIO E. FERRER and PANGASINAN
TRANSPORTATION CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO.,
INC., third-party plaintiff-appellant,
vs.
JOSE M. VILLARAMA, third-party defendant-appellee.
1. Villarama supplied the organization expenses and the
assets of the Corporation, where he himself made use of
the money of the Corporation and deposited them to his
private accounts. The Corporation furthermore paid his
personal accounts. Villarama himself admitted that HE
MINGLED THE CORPORATE FUNDS WITH HIS OWN
MONEY. These circumstances are strong persuasive
evidence showing that Villarama has been too much
involved in the affairs of the Corporation to altogether
negative the claim that he was only a part-time general
manager.
2. They show beyond doubt that the Corporation is his
alter ego. The interference of Villarama in the complex
affairs of the corporation, and particularly its finances, are
much too inconsistent with the ends and purposes of the
Corporation law, which, precisely, seeks to separate
personal responsibilities from corporate undertakings.
The doctrine that a corporation is a legal entity distinct
and separate from the members and stockholders who
compose it is recognized and respected in all cases which
are within reason and the law.29 When the fiction is urged
as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of
a monopoly or generally the perpetration of knavery or
crime,30 the veil with which the law covers and isolates the
corporation from the members or stockholders who
compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the
opinion, and so hold, that the preponderance of
evidence have shown that the Villa Rey Transit,
Inc. is an alter ego of Jose M. Villarama, and that
the restrictive clause in the contract entered into
by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is
that a seller or promisor may not make use of a corporate
entity as a means of evading the obligation of his
covenant.31 Where the Corporation is substantially
the alter ego of the covenantor to the restrictive
agreement, it can be enjoined from competing with the
covenantee.
Upon the foregoing considerations, Our conclusion is that
the stipulation prohibiting Villarama for a period of 10
years to "apply" for TPU service along the lines covered by
the certificates of public convenience sold by him to
Pantranco is valid and reasonable. Having arrived at this
conclusion, and considering that the preponderance of the
evidence have shown that Villa Rey Transit, Inc. is itself
the alter ego of Villarama, We hold, as prayed for in
Pantranco's third party complaint, that the said
Corporation should, until the expiration of the 1-year
period abovementioned, be enjoined from operating the
line subject of the prohibition.
22.) UNLAD RESOURCES DEVELOPMENT
CORPORATION, UNLAD RURAL BANK OF
NOVELETA, INC., UNLAD COMMODITIES, INC.,
HELENA Z. BENITEZ, and CONRADO L. BENITEZ
II,
 Petitioners,
- versus -
RENATO P. DRAGON, TARCISIUS R.
RODRIGUEZ, VICENTE D. CASAS, ROMULO M.
VIRATA, FLAVIANO PERDITO, TEOTIMO
BENITEZ, ELENA BENITEZ, and ROLANDO
SUAREZ,
Still, the petitioners insist that the trial court had no
jurisdiction over the complaint because the issues involved
are intra-corporate in nature.
This argument miserably fails to persuade. The law in
force at the time of the filing of the case was Presidential
Decree (P.D.) 902-A, Section 5(b) of which vested the
Securities and Exchange Commission with original and
exclusive jurisdiction to hear and decide cases involving
controversies arising out of intra-corporate
relations.[8]Interpreting this statutorily conferred
jurisdiction on the SEC, this Court had occasion to state:
Nowhere in said decree do we find even so much as an
[intimation] that absolute jurisdiction and control is vested
in the Securities and Exchange Commission in all matters
affecting corporations. To uphold the respondents
arguments would remove without legal imprimatur from
the regular courts all conflicts over matters involving or
affecting corporations, regardless of the nature of the
transactions which give rise to such disputes. The courts
would then be divested of jurisdiction not by reason of the
nature of the dispute submitted to them for adjudication,
but solely for the reason that the dispute involves a
corporation. This cannot be done.[9]
It is well to remember that the respondents had actually
filed with the SEC a case against the petitioners which,
however, was dismissed for lack of jurisdiction due to the
pendency of the case before the RTC.[10] The SECs Order
dismissing the respondents complaint is instructive:
From the foregoing allegations, it is apparent that the
present action involves two separate causes of action which
are interrelated, and the resolution of which hinges on the
very document sought to be rescinded. The assertion that
the defendants failed to comply with their contractual
undertaking and the claim for rescission of the contract by
the plaintiffs has, in effect, put in issue the very status of
the herein defendants as stockholders of the Rural Bank.
The issue as to whether or not the defendants are
stockholders of the Rural Bank is a pivotal issue to be
determined on the basis of the Memorandum of
Agreement. It is a prejudicial question and a logical
antecedent to confer jurisdiction to this Commission.
It is to be noted, however, that determination of the
contractual undertaking of the parties under a contract lies
with the Regional Trial Courts and not with this
Commission. x x x[11]
Be that as it may, this point has been rendered moot by
Republic Act (R.A.) No. 8799, also known as the Securities
Regulation Code. This law, which took effect in 2000, has
transferred jurisdiction over such disputes to the RTC.
Specifically, R.A. 8799 provides:
Sec. 5. Powers and Functions of the Commission
xxxx
5.2. The Commissions jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches
that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.
Section 5 of P.D. No. 902-A reads, thus:
Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a) Devices and schemes employed by or any acts
of the board of directors, business associates, its officers or
partnership, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholder, partners, members of
associations or organizations registered with the
Commission;
b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders,
members, or associates; between any or all of them and the
corporation, partnership or association of which they are
stockholders, members or associates, respectively; and
between such corporation, partnership or association and
the state insofar as it concerns their individual franchise or
right to exist as such entity;
c) Controversies in the election or appointment
of directors, trustees, officers or managers of such
corporations, partnerships or associations.
Consequently, whether the cause of action stems from a
contractual dispute or one that involves intra-corporate
matters, the RTC already has jurisdiction over this case. In
this light, the question of whether the doctrine of estoppel
by laches applies, as enunciated by this Court in Tijam v.
Sibonghanoy, no longer finds relevance.
23.) PHILIPPINE FISHERIES G.R. No. 169836
DEVELOPMENT AUTHORITY,
The Court rules that the Authority is not a GOCC but an
instrumentality of the national government which is
generally exempt from payment of real property
tax. However, said exemption does not apply to the
portions of the IFPC which the Authority leased to private
entities. With respect to these properties, the Authority is
liable to pay real property tax. Nonetheless, the IFPC,
being a property of public dominion cannot be sold at
public auction to satisfy the tax delinquency.
In Manila International Airport Authority (MIAA) v.
Court of Appeals,[9] the Court
made a distinction between a GOCC and an
instrumentality. Thus:
Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned
or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers
to any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and
owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-
one (51) percent of its capital stock: x x x (Emphasis
supplied)
A government-owned or controlled corporation must
be organized as a stock or non-stock
corporation. MIAA is not organized as a stock or non-
stock corporation. MIAA is not a stock corporation because
it has no capital stock divided into shares. MIAA has
no stockholders or voting shares.
xxxx
Section 3 of the Corporation Code defines a stock
corporation as one whose capital stock is divided into
shares and x x x authorized to distribute to the holders of
such shares dividends x x x. MIAA has capital but it is
not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not
a stock corporation.
MIAA is also not a non-stock corporation because
it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as one
where no part of its income is distributable as
dividends to its members, trustees or officers. A
non-stock corporation must have members. Even if we
assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-
stock corporations are organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers. MIAA
is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation,
MIAA does not qualify as a government-owned or
controlled corporation.[10] (Emphasis supplied)
Thus, for an entity to be considered as a GOCC, it must
either be organized as a stock or non-stock
corporation. Two requisites must concur before one may
be classified as a stock corporation, namely: (1) that it has
capital stock divided into shares, and (2) that it is
authorized to distribute dividends and allotments of
surplus and profits to its stockholders. If only one requisite
is present, it cannot be properly classified as a stock
corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income
to said members.[11]
On the basis of the parameters set in the MIAA case, the
Authority should be classified as an instrumentality of the
national government. As such, it is generally exempt from
payment of real property tax, except those portions which
have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries
Development Authority was cited as among the
instrumentalities of the national government. Thus
Some of the national government
instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng
Pilipinas, Philippine Rice Research Institute, Laguna Lake
Development Authority, Fisheries Development
Authority, Bases Conversion Development Authority,
Philippine Ports Authority, Cagayan de Oro Port Authority,
San Fernando Port Authority, Cebu Port Authority, and
Philippine National Railways.
Indeed, the Authority is not a GOCC but an instrumentality
of the government. The Authority has a capital stock but it
is not divided into shares of stocks.[12] Also, it has no
stockholders or voting shares. Hence, it is not a stock
corporation. Neither it is a non-stock corporation because
it has no members.
The Authority is actually a national government
instrumentality which is defined as an agency of the
national government, not integrated within the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying
operational autonomy, usually through a charter. [13] When
the law vests in a government instrumentality corporate
powers, the instrumentality does not become a
corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only
governmental but also corporate powers.
Thus, the Authority which is tasked with the special public
function to carry out the governments policy to promote
the development of the countrys fishing industry and
improve the efficiency in handling, preserving, marketing,
and distribution of fish and other aquatic
products, exercises the governmental powers of eminent
domain,[14] and the power to levy fees and charges.[15] At
the same time, the Authority exercises the general
corporate powers conferred by laws upon private and
government-owned or controlled corporations.[16]
 24.) HERNANI N. FABIA, petitioner, vs. COURT
OF APPEALS, DEPARTMENT OF JUSTICE,
OFFICE OF THE CITY PROSECUTOR OF MANILA,
RTC-Br. 22, MANILA and THE MARITIME
TRAINING CENTER OF THE PHILIPPINES
(MTCP), respondents.
The criminal case for estafa currently pending before the
RTC can then independently and simultaneously proceed
with a civil/intra-corporate case to be filed with the
Regional Trial Court vested with special jurisdiction
pursuant to The Securities Regulation Code (RA
8799). With RA 8799 signed into law on 19 July 2000,
which effectively amended Sec. 5 of PD 902-A, jurisdiction
over intra-corporate disputes is now vested in the Regional
Trial Courts designated by this Court pursuant to A.M. No.
00-11-03-SC promulgated on 21 November
2000.However, while Sec. 5 of PD No. 902-A was amended
by Sec. 5.2 of RA 8799, there is no repeal of Sec. 6 thereof
declaring that prosecution under the Decree, or any Act,
law, rules and regulations enforced and administered by
the SEC shall be without prejudice to any liability for
violation of any provision of The Revised Penal Code.
Moreover, as pointed out by the Department of Justice,
Sec. 54 on Administrative Sanctions found in RA 8799
itself provides that the imposition of the sanctions shall be
without prejudice to the filing of criminal charges against
the individuals responsible for the violation.
From the foregoing, it could be concluded that the
fraudulent devices, schemes or representations which,
originally, the Prosecution and Enforcement Department
of the SEC would exclusively investigate and prosecute, are
those in violation of any law or rules and regulations
administered and enforced by the SEC and shall be
without prejudice to any liability for violation of any
provision of The Revised Penal Code. Hence, if the
fraudulent act is punished under The Revised Penal Code,
like estafa under Art. 315, the responsible person may be
criminally prosecuted before the regular courts in addition
to proceedings before the branches of the RTC designated
by this Court to try and decide intra-corporate
controversies.
Therefore, since the alleged fraudulent acts committed by
petitioner pertaining to the non-liquidation of his cash
advances amounting to P1,291,376.61 constitute the
offense of estafa under Art. 315 of The Revised Penal Code,
the criminal case may be prosecuted independently and
simultaneously with the corporate/civil case that may be
filed for violation of Sec. 5 of PD 902-A, as amended by RA
8799.
In light of the amendment brought about by RA 8799, the
doctrine of primary jurisdiction no longer precludes the
simultaneous filing of the criminal case with the
corporate/civil case.
In cases involving specialized disputes, the practice has
been to refer the same to an administrative agency of
special competence in observance of the doctrine of
primary jurisdiction.The Court has ratiocinated that it
cannot or will not determine a controversy involving a
question which is within the jurisdiction of the
administrative tribunal prior to the resolution of that
question by the administrative tribunal, where the
question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of
ruling is essential to comply with the premises of the
regulatory statute administered.[9] The objective of the
doctrine of primary jurisdiction is to guide a court in
determining whether it should refrain from exercising its
jurisdiction until after an administrative agency has
determined some question or some aspect of some
question arising in the proceeding before the court. [10] It
applies where claim is originally cognizable in the courts
and comes into play whenever enforcement of the claim
requires the resolution of issues which, under a regulatory
scheme, has been placed within the special competence of
an administrative body; in such case, the judicial process is
suspended pending referral of such issues to the
administrative body for its view.[11]
However, as correctly observed by respondent MTCP, the
rationale behind the prior referral of intra-corporate
controversies to the SEC before the public prosecutor
could act on them for purposes of criminal prosecution
loses significance since the newly enacted law recognizes
that the specially designated RTC branches now have the
legal competence to decide intra-corporate disputes.
25.) PACIFIC WIDE REALTY AND
DEVELOPMENT CORPORATION,
Petitioner,
- versus -
PUERTO AZUL LAND, INC.,
Respondent.
Successful rehabilitation of a distressed corporation will
benefit its debtors, creditors, employees, and the economy
in general. The court may approve a rehabilitation plan
even over the opposition of creditors holding a majority of
the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor is feasible and the opposition
of the creditors is manifestly unreasonable.[40] The
rehabilitation plan, once approved, is binding upon the
debtor and all persons who may be affected by it, including
the creditors, whether or not such persons have
participated in the proceedings or have opposed the plan
or whether or not their claims have been scheduled. [41]
The governing law concerning rehabilitation and
suspension of actions for claims against corporations is
Presidential Decree (P.D.) No. 902-A, as amended (P.D.
No. 902-A). Section 6(c) of P.D. No. 902-A mandates that,
upon appointment of a management committee,
rehabilitation receiver, board, or body, all actions for
claims against corporations, partnerships or associations
under management or receivership pending before any
court, tribunal, board, or body shall be suspended. Stated
differently, all actions for claims against a corporation
pending before any court, tribunal or board
shall ipso jure be suspended in whatever stage such actions
may be found.[42]
The justification for the suspension of actions or claims
pending rehabilitation proceedings is to enable the
management committee or rehabilitation receiver to
effectively exercise its/his powers free from any judicial or
extrajudicial interference that might unduly hinder or
prevent the "rescue" of the debtor company. To allow such
other action to continue would only add to the burden of
the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in
defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation. [43]
In G.R. No. 178768, the rehabilitation court, in its Orders
dated March 31, 2005 and August 16, 2005, removed TCT
No. 133164 from the coverage of the stay order. The
property covered by TCT No. 133164 is owned by TUI. TCT
No. 133164 was mortgaged to PWRDC by TUI as an
accommodation mortgagor of PALI by virtue of the
Mortgage Trust Indenture (MTI) dated February 1995.
Accordingly, the rehabilitation court committed no
reversible error when it removed TCT No. 133164 from the
coverage of the stay order. The Interim Rules of Procedure
on Corporate Rehabilitation is silent on the enforcement of
claims specifically against the properties of
accommodation mortgagors. It only covers the suspension,
during the pendency of the rehabilitation, of the
enforcement of all claims against the debtor, its guarantors
and sureties not solidarily liable with the mortgagor.
Furthermore, the newly adopted Rules of Procedure on
Corporate Rehabilitation has a specific provision for this
special arrangement among a debtor, its creditor and its
accommodation mortgagor. Section 7(b), Rule 3 of the said
Rules explicitly allows the foreclosure by a creditor of a
property not belonging to a debtor under corporate
rehabilitation, as it provides:
SEC. 7. Stay Order. x x x (b) staying enforcement of all
claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the
debtor, its guarantors and persons not solidarily liable with
the debtor; provided, that the stay order shall not cover
claims against letters of credit and similar security
arrangements issued by a third party to secure the
payment of the debtors obligations; provided, further, that
the stay order shall not cover foreclosure by a creditor of
property not belonging to a debtor under corporate
rehabilitation; provided, however, that where the owner of
such property sought to be foreclosed is also a guarantor or
one who is not solidarily liable, said owner shall be entitled
to the benefit of excussion as such guarantor[.]
26.) VALLE VERDE COUNTRY CLUB, INC.,
ERNESTO VILLALUNA, RAY GAMBOA, AMADO
M. SANTIAGO, JR., FORTUNATO DEE, AUGUSTO
SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS
III, ERIC ROXAS, in their capacities as members
of the Board of Directors of Valle Verde Country
Club, Inc., and JOSE RAMIREZ,
Petitioners,
- versus -
VICTOR AFRICA,
Respondent.
The word term has acquired a definite meaning in
jurisprudence. In several cases, we have
defined term as the time during which the officer
may claim to hold the office as of right, and fixes the
interval after which the several incumbents shall succeed
one another.[7] The term of office is not affected by
the holdover.[8] The term is fixed by statute and it does
not change simply because the office may have become
vacant, nor because the incumbent holds over in office
beyond the end of the term due to the fact that a successor
has not been elected and has failed to qualify.
Term is distinguished from tenure in that an
officers tenure represents the term during which
the incumbent actually holds office. The tenure may
be shorter (or, in case of holdover, longer) than the term
for reasons within or beyond the power of the incumbent.
Based on the above discussion, when Section 23 [9] of the
Corporation Code declares that the board of directorsshall
hold office for one (1) year until their successors are
elected and qualified, we construe the provision to mean
that the term of the members of the board of
directors shall be only for one year; their term
expires one year after election to the office. The holdover
period that time from the lapse of one year from a
members election to the Board and until his successors
election and qualification is not part of the directors
original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Corollary,
when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies
that the office has a fixed term, which has
expired, and the incumbent is holding the succeeding
term.[10]
It also bears noting that the vacancy referred to in Section
29 contemplates a vacancy occurring within the
directors term of office. When a vacancy is created by
the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29 declares
that it shall be the corporations stockholders who shall
possess the authority to fill in a vacancy caused by the
expiration of a members term.
As correctly pointed out by the RTC, when remaining
members of the VVCC Board elected Ramirez to replace
Makalintal, there was no more unexpired term to speak of,
as Makalintals one-year term had already
expired. Pursuant to law, the authority to fill in the vacancy
caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of
directors.
27.) HI-YIELD REALTY, INCORPORATED,
Petitioner,
- versus -
HON. COURT OF APPEALS, HON. CESAR O.
UNTALAN, in his capacity as PRESIDING JUDGE
OF RTC-MAKATI, BRANCH 142, HONORIO
TORRES & SONS, INC., and ROBERTO H.
TORRES,
Respondents.
Simply, the resolution of the issues posed by petitioner
rests on a determination of the nature of the petition filed
by respondents in the RTC. Both the RTC and Court of
Appeals ruled that the action is in the form of a derivative
suit although captioned as a petition for annulment of real
estate mortgage and foreclosure sale.
A derivative action is a suit by a shareholder to enforce a
corporate cause of action.[16] Under the Corporation Code,
where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees. But an
individual stockholder may be permitted to institute a
derivative suit on behalf of the corporation in order to
protect or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or are the ones to be sued,
or hold control of the corporation. In such actions, the
corporation is the real party-in-interest while the suing
stockholder, on behalf of the corporation, is only a nominal
party.[17]
In the case of Filipinas Port Services, Inc. v. Go,[18] we
enumerated the foregoing requisites before a stockholder
can file a derivative suit:
a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of
his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to
heed his plea; and
c) the cause of action actually devolves on the corporation,
the wrongdoing or harm having been, or being caused to
the corporation and not to the particular stockholder
bringing the suit.[19]
Even then, not every suit filed on behalf of the corporation
is a derivative suit. For a derivative suit to prosper, the
minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing
on a derivative cause of action on behalf of the corporation
and all other stockholders similarly situated who may wish
to join him in the suit.[20] The Court finds that Roberto had
satisfied this requirement in paragraph five (5) of his
petition which reads:
5. Individual petitioner, being a minority stockholder, is
instituting the instant proceeding by way of a derivative
suit to redress wrongs done to petitioner corporation and
vindicate corporate rights due to the mismanagement and
abuses committed against it by its officers and controlling
stockholders, especially by respondent Leonora H. Torres
(Leonora, for brevity) who, without authority from the
Board of Directors, arrogated upon herself the power to
bind petitioner corporation from incurring loan
obligations and later allow company properties to be
foreclosed as hereinafter set forth;[21]
Further, while it is true that the complaining stockholder
must satisfactorily show that he has exhausted all means to
redress his grievances within the corporation; such remedy
is no longer necessary where the corporation itself is under
the complete control of the person against whom the suit is
being filed. The reason is obvious: a demand upon the
board to institute an action and prosecute the same
effectively would have been useless and an exercise in
futility.[22]
Here, Roberto alleged in his petition that earnest efforts
were made to reach a compromise among family
members/stockholders before he filed the case. He also
maintained that Leonora Torres held 55% of the
outstanding shares while Ma. Theresa, Glenn and
Stephanie excluded him from the affairs of the
corporation. Even more glaring was the fact that from June
10, 1992, when the first mortgage deed was executed
until July 23, 2002, when the properties mortgaged were
foreclosed, the Board of Directors of HTSI did nothing to
rectify the alleged unauthorized transactions of
Leonora. Clearly, Roberto could not expect relief from the
board.
Derivative suits are governed by a special set of rules under
A.M. No. 01-2-04-SC[23] otherwise known as the Interim
Rules of Procedure Governing Intra-Corporate
Controversies under Republic Act No. 8799.[24] Section
1,[25] Rule 1 thereof expressly lists derivative suits among
the cases covered by it.
As regards the venue of derivative suits, Section 5, Rule 1
of A.M. No. 01-2-04-SC states:
SEC. 5. Venue. - All actions covered by these Rules shall
be commenced and tried in the Regional Trial Court which
has jurisdiction over the principal office of the corporation,
partnership, or association concerned. Where the principal
office of the corporation, partnership or association is
registered in the Securities and Exchange Commission as
Metro Manila, the action must be filed in the city or
municipality where the head office is located.
Thus, the Court of Appeals did not commit grave abuse of
discretion when it found that respondents correctly filed
the derivative suit before the Makati RTC where HTSI had
its principal office.
28.) JOSELITO MUSNI PUNO
(as heir of the late Carlos Puno),
Petitioner,
- versus -
PUNO ENTERPRISES, INC., represented by
JESUSA PUNO,
Respondent.
Upon the death of a shareholder, the heirs do not
automatically become stockholders of the corporation and
acquire the rights and privileges of the deceased as
shareholder of the corporation. The stocks must be
distributed first to the heirs in estate proceedings, and the
transfer of the stocks must be recorded in the books of the
corporation. Section 63 of the Corporation Code provides
that no transfer shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation.[16] During such interim period, the heirs stand
as the equitable owners of the stocks, the executor or
administrator duly appointed by the court being vested
with the legal title to the stock.[17]Until a settlement and
division of the estate is effected, the stocks of the decedent
are held by the administrator or executor.[18] Consequently,
during such time, it is the administrator or executor who is
entitled to exercise the rights of the deceased as
stockholder.
Thus, even if petitioner presents sufficient evidence in this
case to establish that he is the son of Carlos L. Puno, he
would still not be allowed to inspect respondents books
and be entitled to receive dividends from respondent,
absent any showing in its transfer book that some of the
shares owned by Carlos L. Puno were transferred to him.
This would only be possible if petitioner has been
recognized as an heir and has participated in the
settlement of the estate of the deceased
Corollary to this is the doctrine that a determination of
whether a person, claiming proprietary rights over the
estate of a deceased person, is an heir of the deceased must
be ventilated in a special proceeding instituted precisely
for the purpose of settling the estate of the latter. The
status of an illegitimate child who claims to be an heir to a
decedents estate cannot be adjudicated in an ordinary civil
action, as in a case for the recovery of property.[19] The
doctrine applies to the instant case, which is one for
specific performance to direct respondent corporation to
allow petitioner to exercise rights that pertain only to the
deceased and his representatives.
29.) IMELDA O. COJUANGCO, PRIME
HOLDINGS, INC., AND THE ESTATE OF RAMON
U. COJUANGCO
Petitioners,
- versus -
SANDIGANBAYAN, REPUBLIC OF
THE PHILIPPINES, AND THE SHERIFF OF
SANDIGANBAYAN,
Respondents.
In G.R. No. 153459, although the inclusion of the
dividends, interests, and earnings of the 111,415 PTIC
shares as belonging to the Republic was not mentioned in
the dispositive portion of the Courts Decision, it is clear
from its body that what was being adjudicated in favor of
the Republic was the whole block of shares and the fruits
thereof, said shares having been found to be part of the
Marcoses ill-gotten wealth, and therefore, public money.
It would be absurd to award the shares to the Republic as
their owner and not include the dividends and interests
accruing thereto. An owner who cannot exercise
the jusesor attributes of ownership -- the right to possess,
to use and enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate, and to the
fruits - is a crippled owner.[10]
Respecting petitioners argument that the Republic has
yielded its right to the fruits of the shares when it sold
them to Metro Pacific Assets Holdings, Inc., (Metro
Pacific), the same does not lie.
Dividends are payable to the stockholders of record as of
the date of the declaration of dividends or holders of
record on a certain future date, as the case may be, unless
the parties have agreed otherwise.[11] And a transfer of
shares which is not recorded in the books of the
corporation is valid only as between the parties, hence, the
transferor has the right to dividends as against the
corporation without notice of transfer but it serves as
trustee of the real owner of the dividends, subject to the
contract between the transferor and transferee as to who is
entitled to receive the dividends.[12]
It is thus clear that the Republic is entitled to the dividends
accruing from the subject 111,415 shares since 1986 when
they were sequestered up to the time they were transferred
to Metro Pacific via the Sale and Purchase Agreement of
February 28, 2007;[13] and that the Republic has since the
latter date been serving as trustee of those dividends for
the Metro Pacific up to the present, subject to the terms
and conditions of the said agreement they entered into.
30.) PHILIP TURNER and ELNORA TURNER,
Petitioners,
-versus -
LORENZO SHIPPING
CORPORATION,
Respondent.
The Corporation Code defines how the right of
appraisal is exercised, as well as the implications of the
right of appraisal, as follows:
1) The appraisal right is exercised by any stockholder
who has voted against the proposed corporate action by
making a written demand on the corporation within 30
days after the date on which the vote was taken for the
payment of the fair value of his shares. The failure to make
the demand within the period is deemed a waiver of the
appraisal right.
2) If the withdrawing stockholder and the corporation
cannot agree on the fair value of the shares within a period
of 60 days from the date the stockholders approved the
corporate action, the fair value shall be determined and
appraised by three disinterested persons, one of whom
shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The
findings and award of the majority of the appraisers shall
be final, and the corporation shall pay their award within
30 days after the award is made. Upon payment by the
corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his or her shares to the
corporation.
3) All rights accruing to the withdrawing stockholder’s
shares, including voting and dividend rights, shall be
suspended from the time of demand for the payment of the
fair value of the shares until either the abandonment of the
corporate action involved or the purchase of the shares by
the corporation, except the right of such stockholder to
receive payment of the fair value of the shares.
4) Within 10 days after demanding payment for his or
her shares, a dissenting stockholder shall submit to the
corporation the certificates of stock representing his shares
for notation thereon that such shares are dissenting
shares. A failure to do so shall, at the option of the
corporation, terminate his rights under this Title X of
the Corporation Code. If shares represented by the
certificates bearing such notation are transferred, and the
certificates are consequently canceled, the rights of the
transferor as a dissenting stockholder under this Title shall
cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions that
would have accrued on such shares shall be paid to the
transferee.
5) If the proposed corporate action is implemented or
effected, the corporation shall pay to such stockholder,
upon the surrender of the certificates of stock representing
his shares, the fair value thereof as of the day prior to the
date on which the vote was taken, excluding any
appreciation or depreciation in anticipation of such
corporate action.
Notwithstanding the foregoing, no payment shall be made
to any dissenting stockholder unless the corporation
has unrestricted retained earnings in its books to cover the
payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of
the Corporation Code provides that if the dissenting
stockholder is not paid the value of his shares within 30
days after the award, his voting and dividend rights shall
immediately be restored.

The trust fund doctrine backstops the requirement of

unrestricted retained earnings to fund the payment of the
shares of stocks of the withdrawing stockholders. Under
the doctrine, the capital stock, property, and other assets of
a corporation are regarded as equity in trust for the
payment of corporate creditors, who are preferred in the
distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of
directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no
distribution of assets among the stockholders without first
paying corporate debts. Thus, any disposition of corporate
funds and assets to the prejudice of creditors is null and
void