STOCKHOLDERS OF F. GUANZON AND SONS, INC. VS REGISTER OF DEEDS
Lessons Applicable: Strong Juridical Personality (Corporate Law) FACTS:
Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation, dissolution and distribution among themselves in proportion to their shareholdings, as liquidating dividends, corporate assets, including real properties
Register of Deeds of Manila denied the registration of the certificate of liquidation: 1. The number of parcels not certified to in the acknowledgment; 2. P430.50 Reg. fees need be paid; 3. P940.45 documentary stamps need be attached to the document; 4. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented
Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
Stockholders appealed
o
contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be considered a transfer or conveyance) HELD: NO. affirm the resolution appealed from
Corporation - juridical person distinct from the members composing it.
o
Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members.
o
While shares of stock constitute personal property they do not represent property of the corporation.
A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is NOT the owner of any part of the capital of the corporation nor entitled to possession
The stockholder is not a co-owner or tenant in common of the corporate property
FERMIN CARAM JR. VS COURT OF APPEALS
Business Organization
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Corporation Law
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Separate and Distinct Personality
A certain Barretto initiated the incorporation of a company called Filipinas Orient Airways (FOA). Barretto was referred to as the
“moving spirit” of said corporation because it was through his effort that it was created. Before FOA’s creation though, Barretto
contracted with a third party, Alberto Arellano, for the latter to prepare a project study for the feasibility of creating a corporation like FOA. The project study was then presented to the would-be incorporators and investors. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later however, Arellano filed a collection suit against FOA, Barretto, and the Carams. Arellano claims that he was not paid for his work on the project study.
ISSUE:
Whether or not the Carams are personally and solidarily liable considering that the project study was contracted before FOA became a corporation.
HELD:
No. The Carams cannot be solidarily liable with FOA. The FOA is now a bona fide corporation. As such, FOA alone should be liable for its corporate acts as duly authorized by its officers and directors. This includes acts which ultimately led to its incorporation i.e., the project study made by Arellano. FOA has a separate and distinct personality from its incorporators. It is not justified to make
the Carams, as principal stockholders, to be responsible for FOA’s
obligations.
Palay Inc. v. Clave
G.R. No. L-56076 September 21, 1983
Facts: 1. On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned by the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The sale price was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and monthly instalments of P246.42 until fully paid.
Paragraph 6
of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly instalment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all instalments paid. 2. Respondent Dumpit paid the down payment and several instalments amounting to P13,722.50 with the last payment was made on December 5, 1967 for instalments up to September 1967. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts and sought consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. 3. Respondent filed a letter complaint with the National Housing Authority (NHA) questioning the validity of the rescission. The NHA held that the rescission is void in the absence of either judicial or notarial demand. Palay, Inc. and Onstott in his capacity as President of the corporation, jointly and severally, was ordered to refund Dumpit the amount paid plus 12% interest from the filing of the complaint. Petitioners' MR was denied by the NHA. Respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the present petition.
Issue: W/N demand is necessary to rescind a contract
Ruling: As held in previous jurisprudence, the judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. A written notice is indispensable to inform the defaulter of the rescission. Hence, the resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution (as held in the
U.P. vs. Angeles case). T
he act of a party in treating a contract as cancelled should be made known to the other. Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers
of Real Estate on Instalment Payments,”
emphasized the indispensability of notice of cancellation to the buyer when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. (Emphasis supplied).
Moreover, there was no waiver on the part of the private respondent of his right to be notified under paragraph 6 of the contract since it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. Finally, it is a matter of public policy to protect buyers of real estate on instalment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on instalment payments. As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot but since the property had already
been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the refund of instalments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another. Onstott not personally liable
Onstott was made liable because he was then the President of the corporation and the controlling stockholder but there was no sufficient proof that he used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. Finally, there are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold it to a third person. Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.
TRAMAT MERCANTILE V. CA
Dela Cuesta sold a tractor to Tramat corporation. David Ong (president of Tramat) paid dela Cuesta via a check. Tramat modified the tractor and made it into a lawn mower and subsequently sold the same to NAWASA. NAWASA refused to pay Tramat for the tractor saying that it had defects and that the tractor engine is reconditioned. Tramat through David ong subsequently caused a stop payment of the check paid to Dela Cuesta (lesson, take cash or cash in ASAP). Dela Cuesta ofcourse sued Tramat for non-payment and asked that Tramat and David Ong be solidarily held liable. The RTC granted this and asked the above mentioned to pay jointly and severally (aka solidarily). The CA said the same. The Supreme Court generally agreed that Tramat should pay however in the case of David Ong being merely the President of the company corporation, he should not be held personally liable for transactions carried in the name of the corporation. It must be remembered that the corporation has a separate and distinct personality from its officers (even its president) and the liability incurred by the corporation is to be born by the corporation. The court said essentially the same: Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person acting for and on its behalf, that properly could be made liable thereon. The case however said that the above is not a hard and fast rule. In certain circumstance the corporate officers may be held liable in cases of: 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
4
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;
5
3. He agrees to hold himself personally and solidarily liable with the corporation;
6
or 4. He is made, by a specific provision of law, to personally answer for his corporate action. Clearly Ong has not committed any of the above mentioned
and shouldn’t be held personally liable.
MARVEL BUILDING CORPORATION ET AL. V DAVID Facts:
Plaintiffs, as stockholders of Marvel Building Corp (corp) wants to enjoin from selling at public auction properties in the complaint that included 3 parcels of land, namely the Aguinaldo Building, Wise Building, and Dewey Boulevard-Padre Faura Mansion, all registered in the name of the corp. Said properties were seized to collect war profit taxes against plaintiff Maria Castro. Plaintiffs allege that the 3 properties belong to the Corp and not to Maria Castro while defendant claims that Castro is the true and exclusive owner of the said properties. In the Articles of Incorporation (AI) of the corp, the capital stock was at P2M but what was only subscribed and paid was P1.025M by 11 stockholders. Maria Castro was the president of the corp. Of the 11 stockholders, it appears that Castro was related to almost all of them (half brothers, half sisters, brother-in-law, husband of Maria CAstro). The stockholders never held any business meetings, the by-laws of the corp was never presented, and no reports of the affairs of the corporation has been made, either of its transactions or its accounts. From the books, advances were made by Maria Castro to the corp 3 times amounting to almost P400K.
Issue: WON Maria Castro is the sole and exlclusive owner of all the shares of stock of Marvel Building Corp and that the other partners are her mere dummies Held: Yes. 1.
Maria Castro had endorsements in blank of the shares of stock issued in the name of the other incorporators, and she has possession of them. She signed 25 stock certificates but only 11 were issued.
2.
The stockholders did not have that much income to pay the amounts corresponding to their shares. It was found that Castro profited a lot in her business. This shows that Castro furnished all the money that the Corp had.
3.
It is also significant that the plaintiffs, the supposed subscribers, should have come to court to assert that they actually paid for their subscriptions and that they are not mere dummies. They never did. They could have rebutted the charges, but they kept slent.
4.
Stockholders never met to discuss business matters.
5.
The books of account were kept as if they belonged to Castro alone.
6.
Castro advanced a big amount of money for the corporation.
All these show that Castro was the sole and exclusive owner of the shares and that the subscribers were her mere dummies.
G.R. No. L-15121, August 31, 1962 GREGORIO PALACIO AND MARIO PALACIO (MINOR) VS FELY TRANSPORTATION COMPANY
Ponente: Regala Facts: In their complaint, the Palacio alleged that Fely hired Alfredo Canillo as driver who negligently run over a child (Mario). Gregorio , the father of Mario is a welder and in the account of his child's injuries has abandoned his shop which is the family's source of income. Fely filed a motion to dismiss on the grounds that there is no cause of action against the company and that the cause of action is barred by prior judgment. But the court deferred the determination of the grounds alleged in the motion to dismiss until the trial of the case. The defendant then alleges (1) that complaint states no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence. In view of the evidence presented, the lower court barred the judgment in the criminal case and held that the person subsidiarily liable to pay damages is Isabel Calingasan, the employer. Issue: Whether Fely Transportation can be held liable for the damages. Ruling: The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency.
NATIONAL MARKETING CORPORATION VS ASSOCIATED FINANCE COMPANY, INC.
19 SCRA 962
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Business Organization
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Corporation Law
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Piercing the Veil of Corporate Fiction
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Fraud Case
In 1958, National Marketing Corporation (NAMARCO) entered into an agreement with Associated Finance Company, Inc. (AFCI). NAMARCO was represented by its general manager Benjamin Estrella. AFCI was represented by its president Francisco Sycip. The agreement was that NAMARCO will deliver raw sugar to AFCI. In exchange, AFCI will deliver refined sugar to NAMARCO. NAMARCO delivered the raw sugar but AFCI failed to comply with its obligation. NAMARCO then demanded AFCI to comply or if not pay the amount of the raw sugar delivered which was at P403,514.28. AFCI was not able to do either hence NAMARCO sued AFCI and Sycip was impleaded.
ISSUE:
Whether or not Sycip should be held jointly and severally liable with Associated Finance Company, Inc.
HELD:
Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that during the time of the agreement, AFCI was already insolvent. Such fact was already known to Sycip. He knew that AFCI was not in a position to transact with NAMARCO
because it could not possibly comply with its obligations. Sycip’s
assurances that AFCI can deliver said refined sugar products is obviously fashioned to defraud NAMARCO into delivering the raw sugar to AFCI. Consequently, Sycip cannot now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations. He is therefore liable jointly and severally with AFCI to pay the amount claim for the raw sugar delivered plus other damages claimed by NAMARCO with interest.
TAN BOON BEE & CO. VS HILARION JARENCIO
163 SCRA 205
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Business Organization
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Corporation Law
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Piercing the Veil of Corporate Fiction
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Alter Ego Case
In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver paper products to GPI. GPI paid a down payment but defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that one of the printing machines of GPI be auctioned. But before the auction can be had, Philippine American Drug Company (PADCO) notified the sheriff that PADCO is the actual owner of said printing machine. Notwithstanding, the sheriff still went on with the auction sale where Tan Boon Bee was the highest bidder. Later, PADCO filed with the same court a motion to nullify the sale on execution. The trial court ruled in favor of PADCO and it nullified said auction sale. Tan Boon Bee assailed the order of the trial court. Tan Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO and GPI is the same; that the veil of corporate fiction should be pierced based on the premises. PADCO on the other hand asserts ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE:
Whether or not the veil of corporate fiction should be pierced.
HELD:
Yes. PADCO, as its name suggests, is a drug company not engaged in the printing business. So it is dubious that it really owns
the said printing machine regardless of PADCO’s title over it.
Further, the printing machine, as shown by evidence, has been in
GPI’s premises even before the date when PADCO alleged that it
acquired ownership thereof. Premises considered, the veil of corporate fiction should be pierced; PADCO and GPI should be considered as one. When a corporation is merely an adjunct, business conduit or alter ego of another corporation the fiction of separate and distinct corporation entities should be disregarded.
MAGSAYSAY-LABRADOR vs. COURT OF APPEALS
G.R. No. 58168. December 19, 1989. Fernan,
C.J.
FACTS:
Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land Corporation (SUBIC), among others, to annul the deed of assignment and deed of mortgage executed in favor of the latter by her late husband. Private respondent alleged that the subject land of the two deeds was acquired through conjugal funds. Since her consent to the disposition of the same was not obtained, she claimed that the acts of assignment and mortgage were done to defraud the conjugal partnership. She further contended that the same were done without consideration and hence null and void. Petitioners, sisters of the deceased husband of the private respondent, filed a motion for intervention on the ground that their brother conveyed to them one-half of his shareholdings in SUBIC, or about 41%. The trial court denied the motion for intervention ruling that petitioners have no legal interest because SUBIC has a personality separate and distinct from its stockholders. The CA confirmed the denial on appeal. Hence, this petition.
ISSUE:
Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for annulment of the deed of assignment and deed of mortgage in favor of the corporation.
HELD:
NO. The Court noted that the interest which entitles person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. In the instant petition, it was said that the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO,
petitioner, vs.
VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL TEXTILE MILLS, INC.,
respondents.
FACTS:
In 1987, Petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990. Meanwhile, Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange Commission. In 1988, Acrylic became operational and hired workers according to its own criteria and standards. Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed. In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private respondent Company pursuant the CBA. In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit. The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct from Acrylic. Voluntary Arbitrator ruled in favour of Indophil.
ISSUE
: WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE AND DISTINCT ENTITY FROM RESPONDENT COMPANY FOR PURPOSES OF UNION REPRESENTATION. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where 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. In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxilliary services to the units of Acrylic, and that the physical plants,
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