[G.R. No. 106244.
January 22, 1997] The Government through the PCGG is now before us on certiorari
REPUBLIC OF THE PHILIPPINES, petitioner, vs. HONORABLE
SANDIGANBAYAN, VICTOR AFRICA, LOURDES AFRICA, NATHALIE
AFRICA, JOSE ENRIQUE AFRICA, PAUL DELFIN AFRICA, ROSARIO
ARELLANO, RACQUEL DINGLASAN, VICTORIA N. LEGARDA,
ANGELA N. LOBREGAT, MANUEL V. NIETO, BENITO NIETO, MA.
RITA N. DE LOS REYES, EVELYN ROMERO, ROSARIO SONGCO,
CARMEN N. TUAZON and RAFAEL V. VALDEZ, respondents.
D E C I S I O N[1]
BELLOSILLO, J.:
GOVERNMENT calls upon us to issue a writ of certiorari declaring
null and void the 26 November 1991 and 20 May 1992
Resolutions of respondent Sandiganbayan which granted the
Motion for Declaration of Non-Sequestration or Invalidity of
Sequestration over the shares of stock of private respondents
Messrs. Victor Africa, et al., in Eastern Telecommunications
Philippines, Inc. (ETPI), and which subsequently denied
reconsideration thereof thereby lifting the writ of sequestration
over the subject shares.
These facts are not disputed: On 22 July 1987 the Republic of the
Philippines through the Presidential Commission on Good
Government (PCGG) and the Office of the Solicitor General filed
before respondent Sandiganbayan a complaint for reconveyance,
reversion, accounting, restitution and damages against Messrs.
Jose L. Africa, Manuel H. Nieto, Jr., Ferdinand E. Marcos, Imelda R.
Marcos, Ferdinand R. Marcos, Jr., Roberto S. Benedicto, Juan
Ponce Enrile and Potenciano Ilusorio before the Sandiganbayan.
The complaint, docketed as Civil Case No. 0009, alleged that
defendants illegally manipulated, under the guise of expanding
the operations of Philippine Communications Satellite
Corporation (PHILCOMSAT), the purchase of major shareholdings
of Cable and Wireless Limited, a London-based
telecommunications company, in ETPI which shareholdings
defendants Roberto S. Benedicto, Jose L. Africa and Manuel H.
Nieto Jr., by themselves and through corporations organized by
them, namely, Polygon Investors and Managers, Inc., Aerocom
Investors and Managers, Inc., and Universal Molasses
Corporation, beneficially held for themselves and for defendants
Ferdinand E. Marcos and Imelda R. Marcos. [2]
Private respondents Victor Africa, Lourdes Africa, Nathalie Africa,
Jose Enrique Africa, Paul Delfin Africa, Rosario Arellano, Racquel
Dinglasan, Victoria N. Legarda, Angela N. Lobregat, Manuel V.
Nieto, Ramon Nieto, Benito Nieto, Carlos Nieto, Ma. Rita N. Delos
Reyes, Evelyn Romero, Rosario Songco, Carmen N. Tuazon and
Rafael V. Valdez, who are registered stockholders of ETPI, were
not impleaded in Civil Case No. 0009. Nonetheless, they were
denied the dividends appertaining to their shares. Thus on at
least two (2) different occasions, i.e., on 8 November 1988 and 31
January 1991, they had to file motions for leave of court to
intervene in Civil Case No. 0009 to be able to receive their cash
dividends, which motions were both granted.[3] On 4 October
1991 they filed a Motion for Declaration of Non-Sequestration or
Invalidity of Sequestration.
Private respondents anchor their Motion for Declaration of Non-
Sequestration or Invalidity of Sequestration on the absence of a
valid sequestration over their shares of stock, and on the
automatic lifting of the writ of sequestration, granting that their
shares were validly sequestered, pursuant to the second and third
paragraphs of Sec. 26, Art. XVIII, 1987 Constitution, which provide
A sequestration or freeze order shall be issued only upon showing
of a prima facie case. The order and the list of the sequestered or
frozen properties shall forthwith be registered with the proper
court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall
be filed within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted
if no judicial action or proceeding is commenced as herein
provided.
In a Resolution dated 26 November 1991, the Sandiganbayan
granted the Motion for Declaration of Non-Sequestration or
Invalidity of Sequestration filed by private respondents on the
ground that since no judicial proceeding was ever commenced
against them within the constitutionally-mandated six-month
period, the writ of sequestration issued over their shares of stock
is deemed to have been automatically lifted. In a Resolution
dated 20 May 1992, which was promulgated 8 June 1992, the
motion for reconsideration was denied for lack of merit.
claiming grave abuse of discretion amounting to lack or in excess
of jurisdiction on the part of respondent Sandiganbayan in
granting private respondents' Motion for Declaration of Non-
Sequestration or Invalidity of Sequestration. In the main, the
Government submits that "although private respondents have
neither been formally impleaded as parties nor have duly been
served with summons in Civil Case No. 0009, there being a
finding that the subject shares were being held merely on behalf
of the already impleaded defendants in Civil Case No. 0009, there
is no doubt that there is a judicial action involving private
respondents."[4] We are not persuaded.
It is elementary that before a person can be deprived of his right
or property he should first be informed of the claim against him
and the theory on which such claim is premised. He should be
given an opportunity to defend himself and protect his interest.
Impleading him as a defendant in a complaint is just too basic to
be disregarded. For, how can he be expected to be informed of
such claim, defend himself against it, protect his interest and
prepare for trial if he is not even impleaded as a defendant in a
case involving his right or property?
In the instant case, private respondents have in the past years
been deprived of their dividends which have now accrued and
accumulated, without affording them an opportunity to protect
and defend their interests. Their shares of stock in ETPI have been
challenged by the Government without the latter instituting an
action to recover the same, and only on the mere allegation in a
collateral proceeding, belatedly made, that they are also part of
ill-gotten wealth. The Government is thus seeking to recover the
shares of stock of private respondents through an action where
the named defendants are different from private respondents
herein.
The procedure is highly irregular and seriously flawed. If the
Government is really interested in claiming the shares of stock of
private respondents the proper procedure is to implead them in a
complaint for the recovery of those shares. Unfortunately, it has
allowed the period to lapse without impleading them. If the
defendants in Civil Case No. 0009, who have been particularly
identified as having manipulated the transfer of shares of stock in
ETPI to their names allegedly under unconscionable terms and
conditions, were impleaded to be able to defend themselves and
their interests, with more reason should private respondents
herein, who have not even been shown to have participated in
the illicit transactions, be impleaded and given a chance to be
heard. For, the sanctified principle that no person shall be
deprived of life, liberty or property without due process of law
requires that at the outset a person should first be named and
included in a suit before his very existence is disregarded and his
freedom and property taken away from him. Actions must be
brought against the persons who are to be bound by the
judgment obtained therein.[5]
We are not unaware of the various PCGG sequestration cases
decided by this Court on 23 January 1995 where it was held that
"corporations or business enterprises alleged to be repositories
of 'ill-gotten' wealth (need not) be actually and formally
impleaded in the actions for the recovery thereof, in order to
maintain in effect existing sequestration thereof."[6] But those
cases should be distinguished from the instant case. In those 21
cases the companies as well as properties which former President
and Mrs. Ferdinand Marcos, their relatives, friends and business
associates allegedly used as depositaries or as instruments to
illegally amass wealth, or which supposedly constituted fruits of
ill-gotten wealth, were sequestered. Complaints were thereafter
filed by the PCGG against individual persons believed to be the
owners or holders of the shares of stock of the aforesaid
companies. The companies were not themselves impleaded as
defendants but merely enumerated in lists annexed to the
complaints against the named individuals.
The defendants therein banked on the omissions and sought the
lifting of the orders of sequestration on the ground that no
proper judicial action had been filed within the time and in the
manner required by the Constitution against the corporations
with which they were associated. They argued that upon the
expiration of the reglementary period the sequestration of the
corporations should be deemed automatically lifted. Under the
facts especially attendant in those cases we said it should not be
so. There we held that the Constitution did not describe nor
specify the kind and character of the judicial action or proceeding
to be instituted but only required that the action or proceeding
involved the matter of sequestration, freezing or provisional
takeover of specific properties, having for its object the
demonstration by competent evidence that the property
sequestered, frozen or taken over was indeed "ill-gotten wealth"
over which the government had a legitimate claim for recovery
and other reliefs. The supposed omission was rationalized thus
A. Error Immaterial to Requirement to File Actions or Proceedings
within Constitutional Time Limits
Such a procedural defect, however, conceding its existence for
the nonce, does not contradict or adversely affect the actuality
that judicial actions or proceedings had been brought within the
time limits laid down by the Constitution " for" them, i.e., with
regard or in relation to, in connection with, or involving or
concerning the sequestration or seizure by the PCGG of the assets
or properties in question.
Other considerations bearing upon the matter should also be
taken into account.
B. Impleading Unnecessary in Cases for Recovery of Shares of
Stock or Bank Deposits
As regards actions in which the complaints seek recovery of
defendants' shares of stock in existing corporations (e.g., San
Miguel Corporation, Benguet Corporation, Meralco, etc.) because
(they were) allegedly purchased with misappropriated public
funds, in breach of fiduciary duty, or otherwise illicit or
anomalous conditions, the impleading of said firms would clearly
appear to be unnecessary. If warranted by the evidence,
judgments may be handed down against the corresponding
defendants divesting them of ownership of their stock, the
acquisition thereof being illegal and consequently burdened with
a constructive trust, and imposing on them the obligation of
surrendering them to the Government.
Quite the same thing may be said of illegally obtained funds
deposited in banks. The impleading of the banks would also
appear unnecessary. Indeed, there would exist no cause of action
against them. Judgment may properly be rendered on the basis of
competent evidence, that said funds are ill-gotten wealth over
which the defendants have no right, and should consequently be
surrendered to their rightful owner, the Government. The
judgment would constitute sufficient warrant for the bank to
make the corresponding transfer of the funds.
C. Impleading Unnecessary Re Firms Which Are the Res of the
Actions
And as to corporations organized with ill-gotten wealth, but are
not guilty of misappropriation, fraud or other illicit conduct in
other words, the companies themselves are the object or thing
involved in the action, the resthereof there is no need to implead
them either. Indeed, their impleading is not proper on the
strength alone of having been formed with ill-gotten funds,
absent any other particular wrongdoing on their part. The
judgment may simply be directed against the shares of stock
shown to have been issued in consideration of ill-gotten wealth.
Such showing of having been formed with, or having received ill-
gotten funds, however strong or convincing, does not, without
more, warrant identifying the corporations in question with the
persons who formed or made use of them to give the color or
appearance of lawful, innocent acquisition to illegally amassed
wealth at the least, not so as (to) place on the Government the
onus of impleading the former together with the latter in actions
to recover such wealth. Distinguished, in terms of juridical
personality and legal culpability from their erring members or
stockholders, said corporations are not themselves guilty of the
sins of the latter, of the embezzlement, asportation, etc., that
gave rise to the Government's cause of action for recovery; their
creation or organization was merely the result of their members'
(or stockholders') manipulations and maneuvers to conceal the
illegal origins of the assets or monies invested therein. In this
light, they are simply the res in the actions for the recovery of
illegally acquired wealth, and there is, in principle, no cause of
action against them and no ground to implead them as
defendants in said actions.
The Government is, thus, not to be faulted for not making such
corporations defendants in the actions referred to. It is even
conceivable that had this been attempted, motions to dismiss
would have lain to frustrate such attempts.[7]
Private respondents in the instant case, as already stated, are not
even sued nor impleaded as defendants in Civil Case No. 0009
before public respondent Sandiganbayan. Neither are they
mentioned in the complaint of the Government. Their names
only surfaced when they were forced to intervene in the case
since all the cash dividends declared by the Board of Directors of
ETPI were being turned over to the PCGG including the cash
dividends due them. Thus, each time a cash dividend was
declared they had to file a motion to intervene in Civil Case No.
0009 to be able to petition respondent court to order the PCGG
to release to them their respective dividends. Accordingly, private
respondents had to file in Civil Case No. 0009 a Motion for
Declaration of Non-Sequestration or Invalidity of Sequestration,
which respondent court granted.
Clearly, there is a material variance between the factual
circumstances in the 21 sequestration cases on one hand, and
those in the instant case on the other. In the former, court actions
were instituted against natural persons suspected to be
"dummies" whose shares of stock in different corporations the
Government has been trying to recover. In the case before us, no
court action has ever been instituted against private respondents.
In the former, the corporations which were supposedly used as
depositaries or as instruments to illegally amass wealth, or which
allegedly constituted fruits of ill-gotten wealth, were named in
lists annexed to the complaints filed against the natural persons
who were suspected of being dummies. In the latter case, there
was not even a mention of private respondents' names in the
complaints filed by the Government. In the former, the
Government was actually after the shares of stock of the
defendant-stockholders of the corporations who supposedly
misappropriated public funds or who entered into illicit or
anomalous transactions prejudicial to the government, not the
corporations themselves. Thus it was held that the omission to
implead the corporations was not fatal. In the latter, it appears
that the Government is after the shares of stock in the name of
private respondents. Consequently, the failure to implead them is
a serious procedural flaw. Indeed, the firms in the various PCGG
sequestration cases and private respondents in the present case
stand on different grounds.
Thus, since only Jose L. Africa, Manuel H. Nieto Jr., Ferdinand E.
Marcos, Imelda R. Marcos, Ferdinand R. Marcos Jr., Roberto S.
Benedicto, Juan Ponce Enrile, and Potenciano Ilusorio were
impleaded as defendants in Civil Case No. 0009 while private
respondents were not, only the shares of stock registered in the
names of defendants should be in issue. Those registered in the
names of others, e.g., those of private respondents, should be
spared unless it can be shown in a proper proceeding that they
are likewise ill-gotten wealth or fruits of ill-gotten wealth. In this
regard, if only to uphold the rule of law, the minimum
requirement is to implead the registered owners of those shares
in a formal complaint to recover them.
In the same sequestration cases, we also ruled that for lack of
proof, even of the specie prima facie, the writ of sequestration
should be lifted
This Court is not unmindful of the fact that its Resolution of July
26, 1991, on the petitioner's motion for reconsideration in G.R.
No. 92755 (PCGG v. Interco) appears to sustain the proposition
that actual impleading in the recovery action of a corporation
under sequestration for being a repository of illegally-acquired
wealth, is necessary and requisite for such proposed or pending
seizure to come under the protective umbrella of the
Constitution. But Interco is to be differentiated from the cases
now under review in that the former, as already elsewhere herein
made clear, there was a lack of proof, even of the prima facie
kind, that Eduardo Cojuangco, Jr., owned any stock in Interco, the
evidence on record being in fact that said corporation had been
organized as a family corporation of the Luys.
So too, this Court's judgment in the so-called "PJI Case" (Republic
of the Philippines [PCGG] v. Sandiganbayan and Rosario Olivares)
may not be ragarded as on all fours with the cases under
consideration. The PJI Case involved the shares of stock in the
name of eight (8) natural persons which had never been
sequestered at all.
What happened was that the PCGG simply arrogated unto itself
the right to vote those unsequestered shares on the bare claim
that the eight (8) registered owners thereof were "dummies" of
Benjamin Romualdez, the real owner of the shares; and all that
the PCGG had done as predicate for that act of appropriation of
the stock, was to include all the shares of PJI in a list (Annex A)
appended to its complaint in Sandiganbayan Case No. 0035,
describing them as among the properties illegally acquired by
Romualdez. Unfortunately, as in Interco, the PCGG failed to
substantiate by competent evidence its theory of clandestine
ownership of Romualdez; and since moreover, there had been no
sequestration of the alleged dummies' shares of stock, it was
undoubtedly correct for the Sandiganbayan to grant the latter's
motion for them to be recognized and declared as the true
owners of the stock in question, which judgment this Court
absolutely pronounced to be free from grave abuse of discretion.
[8]
The Solicitor General explained the Interco ruling in the instant
petition,[9] as well as in eight (8)[10] out of the twenty-one (21)
petitions this Court resolved on 23 January 1995 thuswise
The reason for the correctness of the (Interco) exception is
obviously the doctrine of "piercing the veil of corporate fiction."
Stated simply, this doctrine states that in an action against a
person, whether natural or a corporation, that wholly owns or
controls another corporation and uses this wholly owned or
controlled corporation to evade his or its obligation or liability x x
x x to hide the ill-gotten wealth of any or all of the persons
impleaded therein, a judgment against any or all of the
impleaded defendants may be enforced against any or all of the
said corporations even if these corporations have not been
formally impleaded as defendants in the case.
But even if we disregard the corporate fiction of ETPI, still private
respondents cannot be divested of their shares of stock unless in
a proper forum they have been shown to have committed some
wrongdoing in acquiring them. A corporation is a collection of
individuals and the idea of its being a legal entity apart from its
members is a mere fiction of, law introduced for convenience in
conducting business. When this fiction is used to justify wrong,
protect fraud, or defend crime, the law will disregard the
existence of the corporation as a distinct legal entity and view the
latter merely as an association of persons. Accordingly, the
equitable owners of the corporation shall be personally liable and
the acts of the real parties will be dealt with as though no
corporation had been formed. In the instant case, only the named
defendants in Civil Case No. 0009 are being accused of
wrongdoing in acquiring their shares of stock in ETPI. Thus only
their identified shares of stock in ETPI should be subject to the
claims of the Government.
On the other hand, private respondents who were not charged
nor impleaded as defendants are innocent until found guilty by a
court of competent jurisdiction. They should be spared until
found liable. Consequently, even if the corporate veil of ETPI is
pierced, they can never be divested of their shares of stock until
shown to have engaged in illicit activities in acquiring those
shares. At the very least, they have to be impleaded in a
complaint for recovery thereof. For, how can their shares of stock
be considered ill-gotten and consequently the writ of
sequestration of the said shares upheld when not a single case
has been filed against private respondents for the purpose? How
can the supposed prima facie case determined by the PCGG to be
existing be substantiated? To deny them their right to such shares
on the much belated allegation and merely on the basis thereof
that they fronted for former President and Mrs. Ferdinand
Marcos and their cronies would simply be to unduly perpetuate
the assault on the rudimentary rules of fair play.
In Republic v. Sandiganbayan[11] we said that "[w]e need only to
recall at this juncture that, as in 'INTERCO,' evidence of the PCGG
is nil to even come up with a prima facie case against SIPALAY
(and ALLIED). This similitude is the decisive factor that draws the
instant case away from the "Final Dispositions" made by this
Court in the 1995 Republic v. Sandiganbayan case, thus making
INTERCO, as supported by the Aetna and Seno cases, the
controlling precedent."[12] In the case at hand, how can the
PCGG establish its supposed prima facie finding against private
respondents when it has not even filed a case against them?
The Concurring Opinion with Qualifications of Mme. Justice
Melencio-Herrera in Bataan Shipyard & Engineering Co., Inc. v.
Presidential Commission an Good Government[13] cannot escape
our thoughts
I consider it imperative that sequestration measures be
buttressed by judicial proceedings the soonest possible in order
to settle the matter of ownership of sequestered shares and to
determine whether or not they are legally owned by the
stockholders of record or are "ill-gotten wealth" subject to
forfeiture in favor of the State. Sequestration alone, being
actually an ancillary remedy to a principal action, should not be
made the basis for the exercise of acts of dominion for an
indefinite period of time.
Sequestration is an extraordinary, harsh, and even severe remedy.
It should be confined to its lawful parameters and exercised, with
due regard, in the words of its enabling laws, to the requirements
of fairness, due process, and Justice.
Also worth mentioning is the Dissent in those oft-repeated PCGG
sequestration cases where in strong and eloquent language it was
said
While government efforts to recover illegally amassed wealth
should have the support from all its branches, eagerness and zeal
should not be allowed to run berserk, overriding in the process
the very principles that it is sworn to uphold. In our legal system,
the ends do not justify the means. Wrongs are never corrected by
committing other wrongs, and as above discussed, the recovery
of ill-gotten wealth does not and should never justify
unreasonable intrusions into constitutionally forbidden grounds.
[14]
As we held in Republic v. Sandiganbayan,[15] sequestration, etc.,
in order to be valid must have factual basis and must accord due
process to the parties thereby affected that said remedies are not
meant to create a permanent situation as regards the property
subject thereof, or divest ownership or rights, that they are in fact
merely provisional and temporary and subsist only until
ownership is finally judicially determined.
Thus, we add, sequestration if it is to adhere to constitutional due
process cannot be allowed to hang interminably and forever!
WHEREFORE, premises considered, the instant petition for
certiorari is DISMISSED.
SO ORDERED.
[G.R. No. 142435. April 30, 2003]
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-
OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D.
TRINIDAD, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the
Decision[1] dated October 21, 1999 of the Court of Appeals in CA-
G.R. CV No. 41536 which dismissed herein petitioners appeal
from the Decision[2] dated February 10, 1993 of the Regional
Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-
4152. The trial court had dismissed petitioners complaint for
annulment of real estate mortgage and the extra-judicial
foreclosure thereof. Likewise brought for our review is the
Resolution[3] dated February 23, 2000 of the Court of Appeals
which denied petitioners motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat,
owned Belas Export Trading (BET), a single proprietorship with
principal office at No. 814 Aurora Boulevard, Cubao, Quezon City.
BET was engaged in the manufacture of garments for domestic
and foreign consumption. The Lipats also owned the Mystical
Fashions in the United States, which sells goods imported from
the Philippines through BET. Mrs. Lipat designated her daughter,
Teresita B. Lipat, to manage BET in the Philippines while she was
managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita
Lipat executed on December 14, 1978, a special power of
attorney appointing Teresita Lipat as her attorney-in-fact to
obtain loans and other credit accommodations from respondent
Pacific Banking Corporation (Pacific Bank). She likewise
authorized Teresita to execute mortgage contracts on properties
owned or co-owned by her as security for the obligations to be
extended by Pacific Bank including any extension or renewal
thereof.
Sometime in April 1979, Teresita, by virtue of the special power
of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank amounting to
P583,854.00 to buy fabrics to be manufactured by BET and
exported to Mystical Fashions in the United States. As security
therefor, the Lipat spouses, as represented by Teresita, executed
a Real Estate Mortgage over their property located at No. 814
Aurora Blvd., Cubao, Quezon City. Said property was likewise
made to secure other additional or new loans, discounting lines,
overdrafts and credit accommodations, of whatever amount,
which the Mortgagor and/or Debtor may subsequently obtain
from the Mortgagee as well as any renewal or extension by the
Mortgagor and/or Debtor of the whole or part of said original,
additional or new loans, discounting lines, overdrafts and other
credit accommodations, including interest and expenses or other
obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly, principal or secondary,
as appears in the accounts, books and records of the Mortgagee.
[4]
On September 5, 1979, BET was incorporated into a family
corporation named Belas Export Corporation (BEC) in order to
facilitate the management of the business. BEC was engaged in
the business of manufacturing and exportation of all kinds of
garments of whatever kind and description[5] and utilized the
same machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses who
owned a combined 300 shares out of the 420 shares subscribed,
Teresita Lipat who owned 20 shares, and other close relatives and
friends of the Lipats.[6] Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general
manager.
Eventually, the loan was later restructured in the name of BEC
and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on
behalf of the corporation. A letter of credit was also opened by
Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc.,
upon the request of BEC after BEC executed the corresponding
trust receipt therefor. Export bills were also executed in favor of
Pacific Bank for additional finances. These transactions were all
secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually
became due and demandable. Unfortunately, BEC defaulted in its
payments. After receipt of Pacific Banks demand letters, Estelita
Lipat went to the office of the banks liquidator and asked for
additional time to enable her to personally settle BECs
obligations. The bank acceded to her request but Estelita failed to
fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after
compliance with the requirements of the law the mortgaged
property was sold at public auction. On January 31, 1989, a
certificate of sale was issued to respondent Eugenio D. Trinidad as
the highest bidder.
On November 28, 1989, the spouses Lipat filed before the
Quezon City RTC a complaint for annulment of the real estate
mortgage, extrajudicial foreclosure and the certificate of sale
issued over the property against Pacific Bank and Eugenio D.
Trinidad. The complaint, which was docketed as Civil Case No. Q-
89-4152, alleged, among others, that the promissory notes, trust
receipt, and export bills were all ultra vires acts of Teresita as they
were executed without the requisite board resolution of the
Board of Directors of BEC. The Lipats also averred that assuming
said acts were valid and binding on BEC, the same were the
corporations sole obligation, it having a personality distinct and
separate from spouses Lipat. It was likewise pointed out that
Teresitas authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipats sole use and benefit and that
the real estate mortgage was executed to secure the Lipats and
BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in
common that petitioners Lipat cannot evade payments of the
value of the promissory notes, trust receipt, and export bills with
their property because they and the BEC are one and the same,
the latter being a family corporation. Respondent Trinidad further
claimed that he was a buyer in good faith and for value and that
petitioners are estopped from denying BECs existence after
holding themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained
in the record, the complaint filed in this case must be, as is
hereby, dismissed. Plaintiffs however has five (5) months and
seventeen (17) days reckoned from the finality of this decision
within which to exercise their right of redemption. The writ of
injunction issued is automatically dissolved if no redemption is
effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack
of legal and factual basis.
No costs.
IT IS SO ORDERED.[7]
The trial court ruled that there was convincing and conclusive
evidence proving that BEC was a family corporation of the Lipats.
As such, it was a mere extension of petitioners personality and
business and a mere alter ego or business conduit of the Lipats
established for their own benefit. Hence, to allow petitioners to
invoke the theory of separate corporate personality would
sanction its use as a shield to further an end subversive of justice.
[8] Thus, the trial court pierced the veil of corporate fiction and
held that Belas Export Corporation and petitioners (Lipats) are
one and the same. Pacific Bank had transacted business with
both BET and BEC on the supposition that both are one and the
same. Hence, the Lipats were estopped from disclaiming any
obligations on the theory of separate personality of corporations,
which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of
Appeals in CA-G.R. CV No. 41536. Said appeal, however, was
dismissed by the appellate court for lack of merit. The Court of
Appeals found that there was ample evidence on record to
support the application of the doctrine of piercing the veil of
corporate fiction. In affirming the findings of the RTC, the
appellate court noted that Mrs. Lipat had full control over the
activities of the corporation and used the same to further her
business interests.[9] In fact, she had benefited from the loans
obtained by the corporation to finance her business. It also found
unnecessary a board resolution authorizing Teresita Lipat to
secure loans from Pacific Bank on behalf of BEC because the
corporations by-laws allowed such conduct even without a board
resolution. Finally, the Court of Appeals ruled that the mortgage
property was not only liable for the original loan of P583,854.00
but likewise for the value of the promissory notes, trust receipt,
and export bills as the mortgage contract equally applies to
additional or new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from
Pacific Bank.
The Lipats then moved for reconsideration, but this was denied
by the appellate court in its Resolution of February 23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a
quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD
LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE
AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF
PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF
BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES
IN THE EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS COURTS
JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN
THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE
DISPUTED PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS
AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY
WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT VALID OR
ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION
AND IN HOLDING THAT SAID MOTION FOR RECONSIDERATION IS
AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH
CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO
APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate
fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate
mortgage is liable not only for the amount of P583,854.00 but
also for the value of the promissory notes, trust receipt, and
export bills subsequently incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys
fees stipulated in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and
trial courts erred in holding them liable for the obligations
incurred by BEC through the application of the doctrine of
piercing the veil of corporate fiction absent any clear showing of
fraud on their part.
Respondents counter that there is clear and convincing evidence
to show fraud on part of petitioners given the findings of the trial
court, as affirmed by the Court of Appeals, that BEC was
organized as a business conduit for the benefit of petitioners.
Petitioners contentions fail to persuade this Court. A careful
reading of the judgment of the RTC and the resolution of the
appellate court show that in finding petitioners mortgaged
property liable for the obligations of BEC, both courts below
relied upon the alter ego doctrine or instrumentality rule, rather
than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person,
the separate personality of the corporation may be disregarded.
[12] This is commonly referred to as the instrumentality rule or
the alter egodoctrine, which the courts have applied in
disregarding the separate juridical personality of corporations. As
held in one case,
Where one corporation is so organized and controlled and its
affairs are conducted so that it is, in fact, a mere instrumentality
or adjunct of the other, the fiction of the corporate entity of the
instrumentality may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but
such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. xxx[13]
We find that the evidence on record demolishes, rather than
buttresses, petitioners contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET[14] and were two
of the incorporators and majority stockholders of BEC.[15] It is
also undisputed that Estelita Lipat executed a special power of
attorney in favor of her daughter, Teresita, to obtain loans and
credit lines from Pacific Bank on her behalf.[16] Incidentally,
Teresita was designated as executive-vice president and general
manager of both BET and BEC, respectively.[17] We note further
that: (1) Estelita and Alfredo Lipat are the owners and majority
shareholders of BET and BEC, respectively;[18] (2) both firms
were managed by their daughter, Teresita;[19] (3) both firms
were engaged in the garment business, supplying products to
Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both
firms held office in the same building owned by the Lipats;[20] (5)
BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so
merged with those of Mrs. Lipat such that they were practically
indistinguishable; (7) the corporate funds were held by Estelita
Lipat and the corporation itself had no visible assets; (8) the
board of directors of BEC was composed of the Burgos and Lipat
family members;[21] (9) Estelita had full control over the
activities of and decided business matters of the corporation;[22]
and that (10) Estelita Lipat had benefited from the loans secured
from Pacific Bank to finance her business abroad[23] and from
the export bills secured by BEC for the account of Mystical
Fashion.[24] It could not have been coincidental that BET and BEC
are so intertwined with each other in terms of ownership,
business purpose, and management. Apparently, BET and BEC are
one and the same and the latter is a conduit of and merely
succeeded the former. Petitioners attempt to isolate themselves
from and hide behind the corporate personality of BEC so as to
evade their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent
and remedy. In our view, BEC is a mere continuation and
successor of BET, and petitioners cannot evade their obligations
in the mortgage contract secured under the name of BEC on the
pretext that it was signed for the benefit and under the name of
BET. We are thus constrained to rule that the Court of Appeals did
not err when it applied the instrumentality doctrine in piercing
the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged
property should not be made liable for the subsequent credit
lines and loans incurred by BEC because, first, it was not covered
by the mortgage contract of BET which only covered the loan of
P583,854.00 and which allegedly had already been paid; and,
second, it was secured by Teresita Lipat without any authorization
or board resolution of BEC.
We find petitioners contention untenable. As found by the Court
of Appeals, the mortgaged property is not limited to answer for
the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats property can be held liable
under the real estate mortgage is not limited to P583,854.00. It
can be held liable for the value of the promissory notes, trust
receipt and export bills as well.For the mortgage was executed
not only for the purpose of securing the Belas Export Tradings
original loan of P583,854.00, but also for other additional or new
loans, discounting lines, overdrafts and credit accommodations,
of whatever amount, which the Mortgagor and/or Debtor may
subsequently obtain from the mortgagee as well as any renewal
or extension by the Mortgagor and/or Debtor of the whole or
part of said original, additional or new loans, discounting lines,
overdrafts and other credit accommodations, including interest
and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly
principal or secondary, as appears in the accounts, books and
records of the mortgagee.[25]
As a general rule, findings of fact of the Court of Appeals are final
and conclusive, and cannot be reviewed on appeal by the
Supreme Court, provided they are borne out by the record or
based on substantial evidence.[26] As noted earlier, BEC merely
succeeded BET as petitioners alter ego; hence, petitioners
mortgaged property must be held liable for the subsequent loans
and credit lines of BEC.
Further, petitioners contention that the original loan had already
been paid, hence, the mortgaged property should not be made
liable to the loans of BEC, is unsupported by any substantial
evidence other than Estelita Lipats self-serving testimony. Two
disputable presumptions under the rules on evidence weigh
against petitioners, namely: (a) that a person takes ordinary care
of his concerns;[27] and (b) that things have happened according
to the ordinary course of nature and the ordinary habits of life.
[28] Here, if the original loan had indeed been paid, then
logically, petitioners would have asked from Pacific Bank for the
required documents evidencing receipt and payment of the loans
and, as owners of the mortgaged property, would have
immediately asked for the cancellation of the mortgage in the
ordinary course of things. However, the records are bereft of any
evidence contradicting or overcoming said disputable
presumptions.
Petitioners contend further that the mortgaged property should
not bind the loans and credit lines obtained by BEC as they were
secured without any proper authorization or board
resolution.They also blame the bank for its laxity and
complacency in not requiring a board resolution as a requisite for
approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board
resolution since per admissions by both petitioner Estelita Lipat
and Alice Burgos, petitioners rebuttal witness, no business or
stockholders meetings were conducted nor were there election
of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board[29] and it was
Estelita Lipat and/or Teresita Lipat who decided business matters.
[30]
Secondly, the principle of estoppel precludes petitioners from
denying the validity of the transactions entered into by Teresita
Lipat with Pacific Bank, who in good faith, relied on the authority
of the former as manager to act on behalf of petitioner Estelita
Lipat and both BET and BEC. While the power and responsibility
to decide whether the corporation should enter into a contract
that will bind the corporation is lodged in its board of directors,
subject to the articles of incorporation, by-laws, or relevant
provisions of law, yet, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers
to officers, committees, or agents. The authority of such
individuals to bind the corporation is generally derived from law,
corporate by-laws, or authorization from the board, either
expressly or impliedly by habit, custom, or acquiescence in the
general course of business.[31]Apparent authority, is derived not
merely from practice. Its existence may be ascertained through
(1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or
(2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or beyond the
scope of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the
mortgage contract by virtue of a special power of attorney
executed by Estelita Lipat. Recall that Teresita Lipat acted as the
manager of both BEC and BET and had been deciding business
matters in the absence of Estelita Lipat. Further, the export bills
secured by BEC were for the benefit of Mystical Fashion owned by
Estelita Lipat.[33] Hence, Pacific Bank cannot be faulted for
relying on the same authority granted to Teresita Lipat by Estelita
Lipat by virtue of a special power of attorney. It is a familiar
doctrine that if a corporation knowingly permits one of its officers
or any other agent to act within the scope of an apparent
authority, it holds him out to the public as possessing the power
to do those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.[34]
We find no necessity to extensively deal with the liability of
Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to
state that Alfredo Lipat never disputed the validity of the real
estate mortgage of the original loan; hence, he cannot now
dispute the subsequent loans obtained using the same mortgage
contract since it is, by its very terms, a continuing mortgage
contract.
On the third and final issue, petitioners assail the decision of the
Court of Appeals for not taking cognizance of the issue on
attorneys fees on the ground that it was raised for the first time
on appeal. We find the conclusion of the Court of Appeals to be
in accord with settled jurisprudence. Basic is the rule that matters
not raised in the complaint cannot be raised for the first time on
appeal.[35] A close perusal of the complaint yields no allegations
disputing the attorneys fees imposed under the real estate
mortgage and petitioners cannot now allege that they have
impliedly disputed the same when they sought the annulment of
the contract.
In sum, we find no reversible error of law committed by the Court
of Appeals in rendering the decision and resolution herein
assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October
21, 1999 and the Resolution dated February 23, 2000 of the Court
of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against
petitioners.
SO ORDERED.
G.R. No. 91478 February 7, 1991
ROSITA PEÑA petitioner,
vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA
YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN
BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and
EDGARDO A. ZABAT,respondents.
Cesar L. Villanueva for petitioner.
Martin N. Roque for private respondents.
GANCAYCO, J.:
The validity of the redemption of a foreclosed real property is the
center of this controversy.
The facts as found by the respondent court are not disputed.
A reading of the records shows that [Pampanga Bus Co.]
PAMBUSCO, original owners of the lots in question under TCT
Nos. 4314, 4315 and 4316, mortgaged the same to the
Development Bank of the Philippines (DBP) on January 3, 1962 in
consideration of the amount of P935,000.00. This mortgage was
foreclosed. In the foreclosure sale under Act No. 3135 held on
October 25, 1974, the said properties were awarded to Rosita
Peña as highest bidder. A certificate of sale was issued in her
favor by the Senior Deputy Sheriff of Pampanga, Edgardo A.
Zabat, upon payment of the sum of P128,000.00 to the Office of
the Provincial Sheriff (Exh. 23). The certificate of sale was
registered on October 29, 1974 (Exh. G).
On November 19, 1974, the board of directors of PAMBUSCO,
through three (3) out of its five (5) directors, resolved to assign its
right of redemption over the aforesaid lots and authorized one of
its members, Atty. Joaquin Briones "to execute and sign a Deed of
Assignment for and in behalf of PAMBUSCO in favor of any
interested party . . ." (Exh. 24). Consequently, on March 18, 1975,
Briones executed a Deed of Assignment of PAMBUSCO's
redemption right over the subject lots in favor of Marcelino
Enriquez (Exh. 25). The latter then redeemed the said properties
and a certificate of redemption dated August 15, 1975 was issued
in his favor by Sheriff Zabat upon payment of the sum of one
hundred forty thousand, four hundred seventy four pesos
P140,474.00) to the Office of the Provincial Sheriff of Pampanga
(Exh. 26).
A day after the aforesaid certificate was issued, Enriquez
executed a deed of absolute sale of the subject properties in
favor of plaintiffs-appellants, the spouses Rising T. Yap and
Catalina Lugue, for the sum of P140,000.00 (Exh. F).
On August 18, 1975, a levy on attachment in favor of Capitol
Allied Trading was entered as an additional encumbrance on TCT
Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was
also annotated on the same titles concerning the Allied Trading
case entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No.
4310) in which the registrability of the aforesaid lots in the name
of the spouses Yap was sought to be resolved (Exh. 20-F). The
certificate of sale issued by the Sheriff in favor of defendant Peña,
the resolution of the PAMBUSCO's board of directors assigning its
redemption rights to any interested party, the deed of
assignment PAMBUSCO executed in favor of Marcelino B.
Enriquez, the certificate of redemption issued by the Sheriff in
favor of Enriquez as well as the deed of absolute sale of the
subject lots executed by Enriquez in favor of the plaintiffs-
appellants were all annotated on the same certificates of title
likewise on August 18, 1975. Also, on the same date, the Office of
the Provincial Sheriff of San Fernando, Pampanga informed
defendant-appellee by registered mail "that the properties under
TCT Nos. 4314, 4315 and 4316 . . . . were all redeemed by Mr.
Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may
now get her money at the Sheriffs Office (Exh. J and J-1).
On September 8, 1975, Peña wrote the Sheriff notifying him that
the redemption was not valid as it was made under a void deed
of assignment. She then requested the recall of the said
redemption and a restraint on any registration or transaction
regarding the lots in question (Exh. 27).
On Sept. 10, 1975, the CFI Branch III, Pampanga in the
aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et
al. vs. PAMBUSCO, et al., ordered the Register of Deeds of
Pampanga . . . to desist from registering or noting in his registry of
property . . . any of the following documents under contract, until
further orders:
(a) Deed of Assignment dated March 18, 1975 executed by the
defendant Pampanga Bus Company in virtue of a resolution of its
Board of Directors in favor of defendant Marcelino Enriquez;
(b) A Certificate of Redemption issued by defendant Deputy
Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez
dated August 15, 1975;
(c) Deed of Sale dated August 16, 1975 executed by defendant
Marcelino Enriquez in favor of defendant Rising Yap. (Original
Record, p. 244)
On November 17, 1975, the Land Registration Commission
opined under LRC Resolution No. 1029 that "the levy on
attachment in favor of Capitol Allied Trading (represented by
Dante Gutierrez) should be carried over on the new title that
would be issued in the name of Rising Yap in the event that he is
able to present the owner's duplicates of the certificates of title
herein involved" (Exh. G).
Meanwhile, defendant Peña, through counsel, wrote the Sheriff
asking for the execution of a deed of final sale in her favor on the
ground that "the one (1) year period of redemption has long
elapsed without any valid redemption having been exercised;"
hence she "will now refuse to receive the redemption money . . .
(Exh. 28).
On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking
payment of back rentals in the amount of P42,750.00 "for the use
and occupancy of the land and house located at Sta. Lucia, San
Fernando, Pampanga," and informing her of an increase in
monthly rental to P2,000; otherwise, to vacate the premises or
face an eviction cum collection suit (Exh. D).
In the meantime, the subject lots, formerly under TCT Nos. 4314,
4315 and 4316 were registered on June 16, 1978 in the name of
the spouses Yap under TCT Nos. 148983-R, 148984-R and
148985-R, with an annotation of a levy on attachment in favor of
Capitol Allied Trading. The LRC Resolution No. 1029 allowing the
conditioned registration of the subject lots in the name of the
spouses Yap was also annotated on TCT No. 4315 on June 16,
1978 and the notice of a pending consulta noted thereon on
August 18, 1975 was cancelled on the same date.
No Trial on the merits was held concerning Civil Case No. 4310. In
an order dated February 17, 1983, the case was dismissed
without prejudice.
Despite the foregoing, defendant-appellee Peña remained in
possession of the lots in question hence, the spouses Yap were
prompted to file the instant case.1
The antecedents of the present petition are as follows:
Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue,
are the registered owners of the lots in question under Transfer
Certificate of Title (TCT) Nos. 148983-R, 148984-R, 148985-R. In
the complaint filed on December 15, 1978, appellants sought to
recover possession over the subject lands from defendants Rosita
Peña and Washington Distillery on the ground that being
registered owners, they have to enforce their right to possession
against defendants who have been allegedly in unlawful
possession thereof since October 1974 "when the previous
owners assigned (their) right to collect rentals . . . in favor of
plaintiffs" (Record, p. 5). The amount claimed as damages is
pegged on the total amount of unpaid rentals from October 1974
(as taken from the allegations in the complaint) up to December
1978 at a monthly rate of P1,500.00 'and the further sum of
P2,000.00 a month from January 1979 until the defendants finally
vacate the . . . premises in question with interest at the legal rate
(Record, p. 61).
In their answer, defendants Rosita Peña and Washington Distillery
denied the material allegations of the complaint and by way of an
affirmative and special defense asserted that Peña is now the
legitimate owner of the subject lands for having purchased the
same in a foreclosure proceeding instituted by the DBP . . .
against PAMBUSCO . . . and no valid redemption having been
effected within the period provided by law. It was contended that
plaintiffs could not have acquired ownership over the subject
properties under a deed of absolute sale executed in their favor
by one Marcelino B. Enriquez who likewise could not have
become [the] owner of the properties in question by redeeming
the same on August 18, 1975 (Exh. 26) under an alleged[ly] void
deed of assignment executed in his favor on March 18, 1975 by
the original owners of the land in question, the PAMBUSCO. The
defense was that since the deed of assignment executed by
PAMBUSCO in favor of Enriquez was void ab initio for being an
ultra vires act of its board of directors and, for being without any
valuable consideration, it could not have had any legal effect;
hence, all the acts which flowed from it and all the rights and
obligations which derived from the aforesaid void deed are
likewise void and without any legal effect.
Further, it was alleged in the same Answer that plaintiffs are
buyers in bad faith because they have caused the titles of the
subject properties with the Register of Deeds to be issued in their
names despite an order from the then CFI, Br. III, Pampanga in
Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga
Bus Company, Inc., et al., to desist from registering or noting in
his registry of property . . . any of the above-mentioned
documents under contest, until further orders. (Record, p. 11).
For its part, defendant Washington Distillery stated that it has
never occupied the subject lots hence they should not have been
impleaded in the complaint.
The defendants, therefore, prayed that the complaint be
dismissed; that the deed of assignment executed in favor of
Marcelino Enriquez, the certificate of redemption issued by the
Provincial Sheriff also in favor of Marcelino Enriquez, and the
deed of sale of these parcels of land executed by Marcelino
Enriquez in favor of the plaintiffs herein be all declared null and
void; and further, that TCT Nos. 148983-R, 148984-R and 148985-
R, covering these parcels issued in the plaintiffs name be
cancelled and, in lieu thereof, corresponding certificates of title
over these same parcels be issued in the name of defendant
Rosita Peña.
Thereafter, the defendants with prior leave of court filed a third-
party complaint third-party defendants PAMBUSCO, Jesus
Domingo, Joaquin Briones, Salvador Bernardez (as members of
the Board of Directors of PAMBUSCO), Marcelino Enriquez, and
Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party
defendants, how ever, were declared as in default for failure to
file their answer, except Edgardo Zabat who did file his answer
but failed to appear at the pre-trial.
After trial, a decision was rendered by the court in favor of the
defendants-appellees, to wit:
WHEREFORE, and in view of all the foregoing, judgment is hereby
rendered dismissing the complaint filed by the plaintiffs against
the defendants and declaring as null and void the following:
(a) The resolution of the Board of Directors of PAMBUSCO
approved on November 19, 1974 assigning the PAMBUSCO's right
of redemption concerning the parcels involved herein
(b) The deed of assignment dated March 18, 1975 executed in
favor of Marcelino Enriquez pursuant to the resolution referred to
in the preceding paragraph;
(c) The certificate of redemption dated August 15, 1975 issued by
Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez
concerning these parcels;
(d) The deed of absolute sale dated August 15, 1975 executed by
Marcelino Enriquez in favor of the plaintiffs concerning the same
parcels and
(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of
Deeds of Pampanga in the name of the plaintiffs also covering
these parcels.
Third-party defendant Edgardo Zabat, in his capacity as Deputy
Sheriff of Pampanga is directed to execute in favor of defendant
Rosita Peña the corresponding certificate of final sale involving
the parcels bought by her in the auction sale of October 25, 1974
for which a certificate of sale had been issued to her.
Finally, the third-party defendants herein except Deputy Sheriff
Edgardo Zabat are hereby ordered to pay the defendants/third
party plaintiffs, jointly and severally, the amount of P10,000.00 as
attorney's fees plus costs.2
Thus, an appeal from said judgment of the trial court was
interposed by private respondents to the Court of Appeals
wherein in due course a decision was rendered on June 20, 1989,
the dispositive part of which reads as follows:
WHEREFORE, premises considered, the judgment of the trial
court on appeal is REVERSED. Defendant-appellee Peña is hereby
ordered to vacate the lands in question and pay the plaintiffs-
appellants the accrued rentals from October, 1974 in the amount
of P1,500.00 per month up to December, 1978 and the amount of
P2,000.00 per month thereafter, until appellee finally vacate (sic)
the premises with interest at the legal rate.
SO ORDERED.3
A motion for reconsideration filed by the appellee was denied in
a resolution dated December 27, 1989.
Hence, this petition for review on certiorari of said decision and
resolution of the appellate court predicated on the following
assigned errors:
First Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE
VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS.
Second Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY
OF THE QUESTIONED RESOLUTION AND THE SERIES OF
SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF
THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.
Third Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19
NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT
VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE.
Fourth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF
RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST
VOIDABLE OR RESCISSIBLE.
Fifth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH
1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE
FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR
DONATIONS.
Sixth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN
FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO
INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE
PURCHASERS IN BAD FAITH.
Seventh Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE TRIAL COURT.4
The petition is impressed with merit.
First, the preliminary issues.
The respondent court ruled that the trial court has no jurisdiction
to annul the board resolution as the matter falls within the
jurisdiction of the Securities and Exchange Commission (SEC) and
that petitioner did not have the proper standing to have the same
declared null and void.
In Philex Mining Corporation vs. Reyes,5
this Court held that it is the fact of relationship between the
parties that determines the proper and exclusive jurisdiction of
the SEC to hear and decide intra-corporate disputes; that unless
the controversy has arisen between and among stockholders of
the corporation, or between the stockholders and the officers of
the corporation, then the case is not within the jurisdiction of the
SEC. Where the issue involves a party who is neither a
stockholder or officer of the corporation, the same is not within
the jurisdiction of the SEC.
In Union Glass & Container Corporation vs. Securities and
Exchange Commission,6 this Court defined the relationships
which are covered within "intra-corporate disputes" under
Presidential Decree No. 902-A, as amended, as follows:
Otherwise stated, in order that the SEC can take cognizance of a
case, the controversy must pertain to any of the following
relationships (a) between the corporation, partnership or
association and the public; (b) between the corporation,
partnership or association and its stockholders, partners,
members, or officers; (c) between the corporation, partnership or
association and the state in so far as its franchise, permit or
license to operate is concerned; and (d) among the stockholders,
partners or associates themselves.
In this case, neither petitioner nor respondents Yap spouses are
stockholders or officers of PAMBUSCO. Consequently, the issue of
the validity of the series of transactions resulting in the subject
properties being registered in the names of respondents Yap may
be resolved only by the regular courts.
Respondent court held that petitioner being a stranger to the
questioned resolution and series of succeeding transactions has
no legal standing to question their validity.
In Teves vs. People's Homesite and Housing Corporation,7 this
Court held:
We note however, in reading the complaint that the plaintiff is
seeking the declaration of the nullity of the deed of sale, not as a
party in the deed, or because she is obliged principally or
subsidiarily under the deed, but because she has an interest that
is affected by the deed. This Court has held that a person who is
not a party obliged principally or subsidiarily in a contract may
exercise an action for nullity of the contract if he is prejudiced in
his rights with respect to one of the contracting parties, and can
show the detriment which would positively result to him from the
contract in which he had no intervention, Indeed, in the case now
before Us, the complaint alleges facts which show that plaintiff
suffered detriment as a result of the deed of sale entered into by
and between defendant PHHC and defendant Melisenda L.
Santos. We believe that the plaintiff should be given a chance to
present evidence to establish that she suffered detriment and
that she is entitled to relief. (Emphasis supplied.)
There can be no question in this case that the questioned
resolution and series of transactions resulting in the registration
of the properties in the name of respondent Yap spouses
adversely affected the rights of petitioner to the said properties.
Consequently, petitioner has the legal standing to question the
validity of said resolution and transactions.
As to the question of validity of the board resolution of
respondent PAMBUSCO adopted on November 19, 1974, Section
4, Article III of the amended by-laws of respondent PAMBUSCO,
provides as follows:
Sec. 4. Notices of regular and special meetings of the Board of
Directors shall be mailed to each Director not less than five days
before any such meeting, and notices of special meeting shall
state the purpose or purposes thereof Notices of regular
meetings shall be sent by the Secretary and notices of special
meetings by the President or Directors issuing the call. No failure
or irregularity of notice of meeting shall invalidate any regular
meeting or proceeding thereat; Provided a quorum of the Board
is present, nor of any special meeting; Provided at least four
Directors are present. (Emphasis supplied.)8
The trial court in finding the resolution void held as follows:
On the other hand, this Court finds merit in the position taken by
the defendants that the questioned resolution should be declared
invalid it having been approved in a meeting attended by only 3
of the 5 members of the Board of Directors of PAMBUSCO which
attendance is short of the number required by the by-laws of the
corporation.
xxx xxx xxx
In the meeting of November 19, 1974 when the questioned
resolution was approved, the three members of the Board of
Directors of PAMBUSCO who were present were Jesus Domingo,
Joaquin Briones, and Salvador Bernardez The remaining 2 others,
namely: Judge Pio Marcos and Alfredo Mamuyac were both
absent therefrom.
As it becomes clear that the resolution approved on November
19, 1974 is null and void it having been approved by only 3 of the
members of the Board of Directors who were the only ones
present at the said meeting, the deed of assignment
subsequently executed in favor of Marcelino Enriquez pursuant to
this resolution also becomes null and void. . . .9
However, the respondent court overturning said legal conclusions
of the trial court made the following disquisition:
It should be noted that the provision in Section 4, Article III of
PAMBUSCO's amended by-laws would apply only in case of a
failure to notify the members of the board of directors on the
holding of a special meeting, . . . .
In the instant case, however, there was no proof whatsoever,
either by way of documentary or testimonial evidence, that there
was such a failure or irregularity of notice as to make the
aforecited provision apply. There was not even such an allegation
in the Answer that should have necessitated a proof thereof. The
fact alone that only three (3) out of five (5) members of the board
of directors attended the subject special meeting, was not
enough to declare the aforesaid proceeding void ab initio, much
less the board resolution borne out of it, when there was no
proof of irregularity nor failure of notice and when the defense
made in the Answer did not touch upon the said failure of
attendance. Therefore, the judgment declaring the nullity of the
subject board resolution must be set aside for lack of proof.
Moreover, there is no categorical declaration in the by-laws that a
failure to comply with the attendance requirement in a special
meeting should make all the acts of the board therein null and
void ab initio. A cursory reading of the subject provision, as
aforequoted, would show that its framers only intended to make
voidable a board meeting held without the necessary compliance
with the attendance requirement in the by-laws. Just the use of
the word "invalidate" already denotes a legal imputation of
validity to the questioned board meeting absent its invalidation in
the proceedings prescribed by the corporation's by-laws and/or
the general incorporation law. More significantly, it should be
noted that even if the subject special meeting is itself declared
void, it does not follow that the acts of the board therein are ipso
facto void and without any legal effect. Without the declaration
of nullity of the subject board proceedings, its validity should be
maintained and the acts borne out of it should be presumed
valid. Considering that the subject special board meeting has not
been declared void in a proper proceeding, nor even in the trial
by the court below, there is no reason why the acts of the board
in the said special meeting should be treated as void AB.
initio. . . .10
The Court disagrees.
The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the corporation.
They are in effect, written, into the charter. In this sense they
become part of the fundamental law of the corporation with
which the corporation and its directors and officers must
comply.11
Apparently, only three (3) out of five (5) members of the board of
directors of respondent PAMBUSCO convened on November 19,
1974 by virtue of a prior notice of a special meeting. There was
no quorum to validly transact business since, under Section 4 of
the amended by-laws hereinabove reproduced, at least four (4)
members must be present to constitute a quorum in a special
meeting of the board of directors of respondent PAMBUSCO.
Under Section 25 of the Corporation Code of the Philippines, the
articles of incorporation or by-laws of the corporation may fix a
greater number than the majority of the number of board
members to constitute the quorum necessary for the valid
transaction of business. Any number less than the number
provided in the articles or by-laws therein cannot constitute a
quorum and any act therein would not bind the corporation; all
that the attending directors could do is to adjourn.12
Moreover, the records show that respondent PAMBUSCO ceased
to operate as of November 15, 1949 as evidenced by a letter of
the SEC to said corporation dated April 17, 1980.13 Being a
dormant corporation for several years, it was highly irregular, if
not anomalous, for a group of three (3) individuals representing
themselves to be the directors of respondent PAMBUSCO to pass
a resolution disposing of the only remaining asset of the
corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who attended
the special meeting on November 19, 1974 were not listed as
directors of respondent PAMBUSCO in the latest general
information sheet of respondent PAMBUSCO filed with the SEC
dated 18 March 1951.14 Similarly, the latest list of stockholders of
respondent PAMBUSCO on file with the SEC does not show that
the said alleged directors were among the stockholders of
respondent PAMBUSCO.15
Under Section 30 of the then applicable Corporation Law, only
persons who own at least one (1) share in their own right may
qualify to be directors of a corporation. Further, under Section 28
1/2 of the said law, the sale or disposition of an and/or
substantially all properties of the corporation requires, in addition
to a proper board resolution, the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the voting power
in the corporation in a meeting duly called for that purpose. No
doubt, the questioned resolution was not confirmed at a
subsequent stockholders meeting duly called for the purpose by
the affirmative votes of the stockholders holding at least two-
thirds (2/3) of the voting power in the corporation. The same
requirement is found in Section 40 of the present Corporation
Code.
It is also undisputed that at the time of the passage of the
questioned resolution, respondent PAMBUSCO was insolvent and
its only remaining asset was its right of redemption over the
subject properties. Since the disposition of said redemption right
of respondent PAMBUSCO by virtue of the questioned resolution
was not approved by the required number of stockholders under
the law, the said resolution, as well as the subsequent assignment
executed on March 8, 1975 assigning to respondent Enriquez the
said right of redemption, should be struck down as null and void.
Respondent court, in upholding the questioned deed of
assignment, which appears to be without any consideration at all,
held that the consideration thereof is the liberality of the
respondent PAMBUSCO in favor of its former corporate officer,
respondent Enriquez, for services rendered. Assuming this to be
so, then as correctly argued by petitioner, it is not just an ordinary
deed of assignment, but is in fact a donation. Under Article 725 of
the Civil Code, in order to be valid, such a donation must be made
in a public document and the acceptance must be made in the
same or in a separate instrument. In the latter case, the donor
shall be notified of the acceptance in an authentic form and such
step must be noted in both instruments.16
Non-compliance with this requirement renders the donation null
and
void.17 Since undeniably the deed of assignment dated March 8,
1975 in question,18 shows that there was no acceptance of the
donation in the same and in a separate document, the said deed
of assignment is thus void ab initio and of no force and effect.
WHEREFORE, the petition is GRANTED. The questioned decision
of the respondent Court of Appeals dated June 20, 1989 and its
resolution dated December 27, 1989 are hereby REVERSED AND
SET ASIDE and another judgment is hereby rendered AFFIRMING
in toto the decision of the trial court.
SO ORDERED.
[G.R. No. 111732. February 20, 1996]
NEW DURAWOOD CO., INC., petitioner, vs. COURT OF APPEALS,
HON. FELIX S. CABALLES, as Judge, RTC of Antipolo, Rizal, Branch
71, WILSON M. GAW, ORLANDO S. BONGAT, DURAWOOD
CONSTRUCTION AND LUMBER SUPPLY CO., INC., respondents.
DECISION
PANGANIBAN, J.:
The main issue here is: does a court have jurisdiction to issue a
new owners duplicate of a Torrens certificate of title if it is shown
that the existing owners copy has not, in fact and in truth, been
lost or destroyed? The Court resolved this issue in the negative in
this petition for review under Rule 45 of the Rules of Court, of the
Decision1 of the Court of Appeals2 promulgated on May 31, 1993
and the subsequent Resolution denying the motion for
reconsideration. The said Rulings dismissed the petition in CA-
G.R. SP No. 25434 and in effect affirmed the order3 of the
Regional Trial Court, Branch LXXI, Antipolo, Rizal4 dated April 16,
1991 in LRC Case No. 9 1-924, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(a) Declaring the owner s duplicate copy of Transfer Certificates of
Title Nos. 140486, 156454 and 140485 which were lost, null and
void and of no further force and effect and in lieu thereof.
(b) Hereby orders and directs that new copy of the said titles be
issued to the petitioner giving them the same faith and credit and
carrying over the same terms and conditions appearing on the
originals thereof, upon payment of the required fees.
SO ORDERED.
By Resolution of the First Division dated November 15, 1995, this
case along with several others was transferred to the Third
Division. After due consultation and deliberation, the Court
assigned the undersigned ponente to write this Decision.
The Facts
On February 14, 1990, a Petition for Judicial Reconstitution of the
Lost Owners Duplicate Certificates of TCT Nos. 140486; 156454
and 1404855. was filed in the Regional Trial Court, Branch LXXI,
Antipolo, Rizal by petitioner-corporation, represented by its
Branch Manager, Wilson M. Gaw x x x. Attached to said petition
was an Affidavit of Loss dated December 31, 19906 of respondent
Orlando S. Bongat, one of the stockholders of petitioner-
corporation.
Finding the petition to be sufficient in form and in substance,
respondent Judge set the case for hearing on March 18, 1991. On
April 16, 1991, respondent Judge issued the questioned order.
Sometime in May, 1991, petitioner discovered that the original
TCT Nos. N-140485, N-140486 and 156454 on file with the
Register of Deeds of Rizal had been cancelled and, in lieu thereof,
TCT Nos. 200100, 200101 and 200102 had been issued in the
name of respondent Durawood Construction and Lumber Supply,
Inc. Surprised by this cancellation, petitioner - after investigation -
found out about the reconstitution proceeding in the respondent
trial court. So, on July 17, 1991, petitioner filed suit7 in the Court
of Appeals docketed as CA-G.R. 25434 praying for the annulment
of the assailed order in LRC Case No. 91-924 penned by
respondent Judge. It also prayed for the cancellation of the new
certificates (TCT Nos. 200100, 200101 and 200102). On May 31,
1993, the respondent Court of Appeals rendered the assailed
Decision and on August 30, 1993, the Resolution denying the
motion for reconsideration. Hence, the present recourse to the
Supreme Court.
The Issues
Petitioner brought up the following ground as basis for its
petition:
The Court of Appeals gravely abused its authority in not declaring
the order of respondent Judge Caballes in LRC Case No. 91-924
null and void for want of jurisdiction and in not declaring that the
reconstitution of the owners duplicate transfer certificates of title
Nos. N-140486, N-140485 and 156454 was obtained through
fraud.
Petitioner argues that a reconstitution proceeding is one in rem
and thus jurisdiction can be acquired only through publication
and notice sent pursuant to Section 13, Republic Act No. 26. It
also alleges that fraud is manifest (1) from the insufficient
allegations of the petition filed before the trial court, as it (the
petition) does not mention the names of adjoining land owners
and interested persons, as well as (2) from the affidavit of loss
attached to the petition.
In their Comment, private respondents aver that in 1990, these
three lots were sold by petitioner to Durawood Construction and
Lumber Supply, Inc. but the sale in their favor could not be
registered because the certificates of title x x x were lost. They
also allege that the applicable law is Section 109 of R.A. No. 496,
as amended by P.D. 1529, and not Sec. 13 of R.A. No. 26, and that
fraud, in order to serve as basis for the annulment of ajudgment
must be extrinsic or collateral in character, which is not the case
in the action before the court a quo. They also fault (t)he
deliberate failure of Dy Quim Pong (petitioners board chairman)
and his family, who constitute the majority of the stockholders
and directors of (herein petitioner-corporation), to disclose the
whereabouts (of) there (sic) son, the President and General
Manager Francis Dytiongsee x x x who allegedly executed the
deed of sale of the lots and who allegedly claimed that the
owners copies of the TCTs were lost.
In its Reply, petitioner contends that the very procedure provided
under Sec. 109, P.D. 1529, which they (private respondents) insist
is the applicable provision of law in the matter, was not strictly
followed x x x. It also argues that the owners duplicate copies of
the TCTs were all along in the custody of Dy Quim Pong, whom
private respondents should have sued to compel him to
surrender the same in order that the alleged deed of sale in favor
of private respondent could be registered.
Finally, petitioner claims that respondent Wilson Gaw had no
authority to institute the petition for reconstitution in the trial
court because (t)he Court of Appeals itself, in its questioned
resolution stated that said board resolution (authorizing Gaw)
was passed without the required quorum.
From the foregoing, the issues may be summed up as follows:
(1) Which law governs the issuance of new owners duplicate
certificates of title in lieu of lost ones?
(2) Did the respondent trial court have jurisdiction to order the
issuance of the new owners duplicate certificates?
(3) Was the reconstitution of the said owners duplicate
certificates of title obtained through fraud?
The First Issue:
Law Governing Issuance of
Lost Owners Duplicate Titles
To resolve this issue, it is necessary to reexamine the following
provisions referred to by the parties:
(1) Section 13, Republic Act No. 26:8
Sec. 13. The court shall cause a notice of the petition, filed under
the preceding section, to be published, at the expense of the
petitioner, twice in successive issues of the Official Gazette, and
to be posted on the main entrance of the provincial building and
of the municipal building of the municipality or city in which the
land is situated, at least thirty days prior to the date of hearing.
The court shall likewise cause a copy of the notice to be sent, by
registered mail or otherwise, at the expense of the petitioner, to
every person named therein whose address is known, at least
thirty days prior to the date of hearing. Said notice shall state,
among other things, the number of the lost or destroyed
certificate of title, if known, the name of the registered owner,
the names of the occupants or persons in. possession of the
property, the owners of the adjoining properties and all other
interested parties, the location, area and boundaries of the
property, and the date on which all persons having any interest
therein must appear and file their claim or objections to the
petition. The petitioner shall, at the hearing, submit proof of the
publication, posting and service of the notice as directed by the
court.
(2) Section 109, P.D. 1529 (amending R.A. 496):
Sec. 109. Notice and replacement of lost duplicate certificate. - In
case of loss or theft of an owners duplicate certificate of title, due
notice under oath shall be sent by the owner or by someone in
his behalf to the Register of Deeds of the province or city where
the land lies as soon as the loss or theft is discovered. If a
duplicate certificate is lost or destroyed, or cannot be produced
by a person applying for the entry of a new certificate to him or
for the registration of any instrument, a sworn statement of the
fact of such loss or destruction may be filed by the registered
owner or other person in interest and registered.
Upon the petition of the registered owner or other person in
interest, the court may, after notice and due hearing, direct the
issuance of a new duplicate certificate, which shall contain a
memorandum of the fact that it is issued in place of the lost
duplicate certificate, but shall in all respects be entitled to like
faith and credit as the original duplicate, and shall thereafter be
regarded as such for all purposes of this decree.
A reading of both provisions clearly shows that Section 109 of P.D.
1529 is the law applicable in petitions for issuance of new owners
duplicate certificates of title which are lost or stolen or destroyed.
On the other hand, R.A. 26 applies only in cases of reconstitution
of lost or destroyed original certificates on file with the Register
of Deeds. This is expressly provided for under Section 110 of P.D.
1529 as follows:
Sec. 110. Reconstitution of lost or destroyed original of Torrens
title. - Original copies of certificates of title lost or destroyed in
the offices of Registers of Deeds as well as liens and
encumbrances affecting the lands covered by such titles shall be
reconstituted judicially in accordance with the procedure
prescribed in Republic Act No. 26 insofar as not inconsistent with
this Decree. The procedure relative to administrative
reconstitution of lost or destroyed certificate prescribed in said
Act may be availed of only in case of substantial loss or
destruction of land titles due to fire, flood or other force majeure
as determined by the Administrator of the Land Registration
Authority: Provided, That the number of certificates of titles lost
or damaged should be at least ten percent (10%) of the total
number in the possession of the Office of the Register of Deeds:
Provided, further, That in no case shall the number of certificates
of titles lost or damaged be less than five hundred (500).
Notice of all hearings of the petition for judicial reconstitution
shall be furnished by the Register of Deeds of the place where the
land is situated and to the Administrator of the Land Registration
Authority. No order or judgment ordering the reconstitution of a
certificate of title shall become final until the lapse of fifteen (15)
days from receipt by the Register of Deeds and by the
Administrator of the Land Registration Authority of a notice of
such order or judgment without any appeal having been filed by
any such officials. (As amended by R.A. 6732; italics supplied)
The Second Issue: Jurisdiction
In Demetriou vs. Court of Appeals, et al., 9 this Court ruled:
In Serra Serra v. Court Appeals (195 SCRA 482 [1991]), on facts
analogous to those involved in this case, this Court already held
that if a certificate of title has not been lost but is in fact in the
possession of another person, the reconstituted title is void and
the court rendering the decision has not acquired jurisdiction.
Consequently the decision may be attacked any time.
In the instant case, the owners duplicate certificates of title were
in the possession of Dy Quim Pong, the petitioners chairman of
the board and whose family controls the petitioner-corporation.
Since said certificates were not in fact lost or destroyed, there
was no necessity for the petition filed in the trial court for the
Issuance of New Owners Duplicate Certificates of Title x x x. In
fact, the said court never acquired jurisdiction to order the
issuance of new certificates. Hence, the newly issued duplicates
are themselves null and void.
It is obvious that this lapse happened because private
respondents and respondent judge failed to follow the procedure
set forth in P.D. No. 1529 which, as already stated, governs the
issuance of new owners duplicate certificates of title.
Section 109 of said law provides, inter alia, that due notice under
oath of the loss or theft of the owners duplicate shall be sent by
the owner or by someone in his behalf to the Register of Deeds x
x x (italics supplied). In this case, while an affidavit of loss was
attached to the petition in the lower court, no such notice was
sent to the Register of Deeds.
Private respondents tried to convince the Court that by their
failure to locate Francis Dytiongsee, they had no other recourse
but to file a petition for reconstitution. Sec. 107 of P.D. 1529,
however, states that the remedy, in case of the refusal or failure
of the holder - in this case, the petitioner - to surrender the
owners duplicate certificate of title, is a petition in court to
compel surrender of the same to the Register of Deeds, and not a
petition for reconstitution.
The Third Issue: Fraud
The respondent Court of Appeals, in its own words, confine(d) its
discussion10 in the assailed Decision only to the ground of fraud.
It ruled that the RTCs decision could be annulled only where
extrinsic or collateral fraud is shown - that is, when the fraudulent
acts prevented a party from exhibiting fully his side of the case x x
x. Hence, petitioner could not claim extrinsic fraud inasmuch as it
was duly represented by Gaw in the reconstitution proceeding.
The appellate court explained that while there may not have
been a quorum during the board meeting of petitioner-
corporation on May 10, 1984 when a resolution authorizing Gaw
to sue on its behalf was allegedly passed, this did not mean
however, that New Durawood Co., Inc. cannot be bound by Gaws
action because no howl of protest, complaint or denial came
from (said corporation), and that said corporation in fact had
taken advantage of the benefits therefrom. Hence, petitioner is
estopped from questioning Gaws acts. The appellate Court was of
the belief that petitioner-corporation ratified Gaw s authority by
acquiescence to his acts. The respondent Court thus concluded
that petitioner-corporations claim of being a victim of extrinsic
fraud is baseless.
We are appalled by this rather novel interpretation of corporate
law. It is clear that, there having been no quorum present during
the meeting in question, the board of directors could not have
validly given Gaw any express authority to file the petition. Upon
the other hand, the doctrine of apparent authority cannot apply
as to Gaw because, being a mere branch manager, he could not
be looked upon as a corporate officer clothed with the implied or
apparent power to file suit for and in behalf of a corporation.11
Neither will estoppel prevent the corporation from questioning
Gaws acts. Precisely, these acts were hidden from the company
and its top officers. How then can estoppel attach?12
Suffice it to say then, that by his surreptitious filing of the petition
for reconstitution without authority - express or implied - of his
employer, Gaw enabled respondent corporation to acquire the
certificates of title in a manner contrary to law.
In petitions for issuance of new owners duplicate copies of
Torrens titles, it is essential - as provided under Sec. 109 of P.D.
1529 as amended (supra) - that the trial court take steps to assure
itself that the petitioner is the registered owner or other person
in interest. Otherwise, new owners duplicate certificates might be
issued in favor of impostors who could fraudulently dispose,
hypothecate or otherwise deal in and with real estate in mockery
of the Torrens system of titling properties.
Be that as it may, in the case before us, whether Gaw was
authorized to file the suit or not is of little significance in finally
resolving this case. Jurisdiction is and remains the main issue.
Since we already concluded earlier that the trial court did not
have jurisdiction, necessarily its judgment must fall.
WHEREFORE, the petition is GRANTED; the assailed decision SET
ASIDE and REVERSED; the proceedings in LRC Case No. 91-924
ANNULLED; and the order issued therein dated April 15, 1991 as
well as the reconstituted Transfer Certificates of Title issued
pursuant thereto, namely, TCT Nos. 200100, 200101 and 200102
in the name of private respondent declared NULL and VOID. Costs
against private respondents.
SO ORDERED.
G.R. No. 147749 June 22, 2006
SAN PABLO MANUFACTURING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,* Respondent.
DECISION
CORONA, J.:
In this petition for review under Rule 45 of the Rules of Court, San
Pablo Manufacturing Corporation (SPMC) assails the July 19,
20001 and April 3, 2001 resolutions of the Court of Appeals in CA-
G.R. SP No. 59139.
SPMC is a domestic corporation engaged in the business of
milling, manufacturing and exporting of coconut oil and other
allied products. It was assessed and ordered to pay by the
Commissioner of Internal Revenue the total amount of
P8,182,182.852 representing deficiency miller’s tax and
manufacturer’s sales tax,3 among other deficiency taxes,4 for
taxable year 1987. The deficiency miller’s tax was imposed on
SPMC’s sales of crude oil to United Coconut Chemicals, Inc.
(UNICHEM) while the deficiency sales tax was applied on its sales
of corn and edible oil as manufactured products.
SPMC opposed the assessments but the Commissioner denied its
protest. SPMC appealed the denial of its protest to the Court of
Tax Appeals (CTA) by way of a petition for review docketed as CTA
Case No. 5423.
In its March 10, 2000 decision, the CTA cancelled SPMC’s liability
for deficiency manufacturer’s tax on the sales of corn and edible
oils but upheld the Commissioner’s assessment for the deficiency
miller’s tax. SPMC moved for the partial reconsideration of the
CTA affirmation of the miller’s tax assessment but it was denied.
SPMC elevated the case to the Court of Appeals via a petition for
review of the CTA decision insofar as it upheld the deficiency
miller’s tax assessment. In its July 19, 2000 resolution, the
appellate court dismissed the petition on the principal ground5
that the verification attached to it was signed merely by SPMC’s
chief financial officer ― without the corporate secretary’s
certificate, board resolution or power of attorney authorizing him
to sign the verification and certification against forum shopping.
SPMC sought a reconsideration of the resolution but the same
was denied. Hence, this petition.
Did the Court of Appeals err when it dismissed SPMC’s appeal?
SPMC contends that its appeal should have been given due
course since it substantially complied with the requirements on
verification and certification against forum shopping. It insists on
the liberal application of the rules because, on the merits of the
petition, SPMC was not liable for the 3% miller’s tax. It maintains
that the crude oil which it sold to UNICHEM was actually
exported by UNICHEM as an ingredient of fatty acid and
glycerine, hence, not subject to miller’s tax pursuant to Section
168 of the 1987 Tax Code.
For SPMC, Section 168 of the 1987 Tax Code contemplates two
exemptions from the miller’s tax: (a) the milled products in their
original state were actually exported by the miller himself or by
another person, and (b) the milled products sold by the miller
were actually exported as an ingredient or part of any
manufactured article by the buyer or manufacturer of the milled
products. The exportation may be effected by the miller himself
or by the buyer or manufacturer of the milled products. Since
UNICHEM, the buyer of SPMC’s milled products, subsequently
exported said products, SPMC should be exempted from the
miller’s tax.
The petition must fail.
Under Rule 43, Section 5 of the Rules of Court, appeals from the
CTA and quasi-judicial agencies to the Court of Appeals should be
verified. A pleading required to be verified which lacks proper
verification shall be treated as an unsigned pleading.6
Moreover, a petition for review under Rule 43 requires a sworn
certification against forum shopping.7 Failure of the petitioner to
comply with any of the requirements of a petition for review is
sufficient ground for the dismissal of the petition.8
A corporation may exercise the powers expressly conferred upon
it by the Corporation Code and those that are implied by or are
incidental to its existence through its board of directors and/or
duly authorized officers and agents.9 Hence, physical acts, like
the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws or
by specific act of the board of directors.10 In the absence of
authority from the board of directors, no person, not even the
officers of the corporation, can bind the corporation.11
SPMC’s petition in the Court of Appeals did not indicate that the
person who signed the verification/certification on non-forum
shopping was authorized to do so. SPMC merely relied on the
alleged inherent power of its chief financial officer to represent
SPMC in all matters regarding the finances of the corporation
including, among others, the filing of suits to defend or protect it
from assessments and to recover erroneously paid taxes. SPMC
even admitted that no power of attorney, secretary’s certificate
or board resolution to prove the affiant’s authority was attached
to the petition. Thus, the petition was not properly verified. Since
the petition lacked proper verification, it was to be treated as an
unsigned pleading subject to dismissal.12
In PET Plans, Inc. v. Court of Appeals,13 the Court upheld the
dismissal by the Court of Appeals of the petition on the ground
that the verification and certification against forum shopping was
signed by PET Plans, Inc.’s first vice-president for legal
affairs/corporate secretary without any certification that he was
authorized to sign in behalf of the corporation.
In BPI Leasing Corporation v. Court of Appeals,14 the Court ruled
that the petition should be dismissed outright on the ground that
the verification/certification against forum shopping was signed
by BPI Leasing Corporation’s counsel with no specific authority to
do so. Since the counsel was purportedly acting for the
corporation, he needed a resolution issued by the board of
directors that specifically authorized him to institute the petition
and execute the certification. Only then would his actions be
legally binding on the corporation.15
In this case, therefore, the appellate court did not commit an
error when it dismissed the petition on the ground that it was
signed by a person who had not been issued any authority by the
board of directors to represent the corporation.
Neither can the Court subscribe to SPMC’s claim of substantial
compliance or to its plea for a liberal application of the rules.
Save for the most persuasive of reasons, strict compliance with
procedural rules is enjoined to facilitate the orderly
administration of justice.16 Substantial compliance will not
suffice in a matter involving strict observance such as the
requirement on non-forum shopping,17 as well as verification.
Utter disregard of the rules cannot justly be rationalized by
harping on the policy of liberal construction.18
But even if the fatal procedural infirmity were to be disregarded,
the petition must still fail for lack of merit.
As the CTA correctly ruled, SPMC’s sale of crude coconut oil to
UNICHEM was subject to the 3% miller’s tax. Section 168 of the
1987 Tax Code provided:
Sec. 168. Percentage tax upon proprietors or operators of rope
factories, sugar central mills, coconut oil mills, palm oil mills,
cassava mills and desiccated coconut factories. Proprietors or
operators of rope factories, sugar central and mills, coconut oil
mills, palm oil mills, cassava mills and desiccated coconut
factories, shall pay a tax equivalent to three percent (3%) of the
gross value in money of all the rope, sugar, coconut oil, palm oil,
cassava flour or starch, dessicated coconut, manufactured,
processed or milled by them, including the by-product of the raw
materials from which said articles are produced, processed or
manufactured, such tax to be based on the actual selling price or
market value of these articles at the time they leave the factory
or mill warehouse: Provided, however, That this tax shall not
apply to rope, coconut oil, palm oil and the by-product of copra
from which it is produced or manufactured and dessicated
coconut, if such rope, coconut oil, palm oil, copra by-products and
dessicated coconuts, shall be removed for exportation by the
proprietor or operator of the factory or the miller himself, and are
actually exported without returning to the Philippines, whether in
their original state or as an ingredient or part of any
manufactured article or products: Provided further, That where
the planter or the owner of the raw materials is the exporter of
the aforementioned milled or manufactured products, he shall be
entitled to a tax credit of the miller's taxes withheld by the
proprietor or operator of the factory or mill, corresponding to the
quantity exported, which may be used against any internal
revenue tax directly due from him: and Provided, finally, That
credit for any sales, miller's or excise taxes paid on raw materials
or supplies used in the milling process shall not be allowed
against the miller's tax due, except in the case of a proprietor or
operator of a refined sugar factory as provided hereunder.
(emphasis supplied)
The language of the exempting clause of Section 168 of the 1987
Tax Code was clear. The tax exemption applied only to the
exportation of rope, coconut oil, palm oil, copra by-products and
dessicated coconuts, whether in their original state or as an
ingredient or part of any manufactured article or products, by the
proprietor or operator of the factory or by the miller himself.
The language of the exemption proviso did not warrant the
interpretation advanced by SPMC. Nowhere did it provide that
the exportation made by the purchaser of the materials
enumerated in the exempting clause or the manufacturer of
products utilizing the said materials was covered by the
exemption. Since SPMC’s situation was not within the ambit of
the exemption, it was subject to the 3% miller’s tax imposed
under Section 168 of the 1987 Tax Code.
SPMC’s proposed interpretation unduly enlarged the scope of the
exemption clause. The rule is that the exemption must not be so
enlarged by construction since the reasonable presumption is
that the State has granted in express terms all it intended to grant
and that, unless the privilege is limited to the very terms of the
statute, the favor would be intended beyond what was meant.19
Where the law enumerates the subject or condition upon which it
applies, it is to be construed as excluding from its effects all those
not expressly mentioned. Expressio unius est exclusio alterius.
Anything that is not included in the enumeration is excluded
therefrom and a meaning that does not appear nor is intended or
reflected in the very language of the statute cannot be placed
therein.20 The rule proceeds from the premise that the
legislature would not have made specific enumerations in a
statute if it had the intention not to restrict its meaning and
confine its terms to those expressly mentioned.21
The rule of expressio unius est exclusio alterius is a canon of
restrictive interpretation.22 Its application in this case is
consistent with the construction of tax exemptions in strictissimi
juris against the taxpayer. To allow SPMC’s claim for tax
exemption will violate these established principles and unduly
derogate sovereign authority.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.
G.R. No. L-33320 May 30, 1983
RAMON A. GONZALES, petitioner,
vs.
THE PHILIPPINE NATIONAL BANK, respondent.
Ramon A. Gonzales in his own behalf.
Juan Diaz for respondent.
VASQUEZ, J.:
Petitioner Ramon A. Gonzales instituted in the erstwhile Court of
First Instance of Manila a special civil action for mandamus
against the herein respondent praying that the latter be ordered
to allow him to look into the books and records of the respondent
bank in order to satisfy himself as to the truth of the published
reports that the respondent has guaranteed the obligation of
Southern Negros Development Corporation in the purchase of a
US$ 23 million sugar-mill to be financed by Japanese suppliers
and financiers; that the respondent is financing the construction
of the P 21 million Cebu-Mactan Bridge to be constructed by V.C.
Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by
the Honiron Philippines, Inc., as well as to inquire into the validity
of Id transactions. The petitioner has alleged hat his written
request for such examination was denied by the respondent. The
trial court having dismissed the petition for mandamus, the
instant appeal to review the said dismissal was filed.
The facts that gave rise to the subject controversy have been set
forth by the trial court in the decision herein sought to be
reviewed, as follows:
Briefly stated, the following facts gathered from the stipulation of
the parties served as the backdrop of this proceeding.
Previous to the present action, the petitioner instituted several
cases in this Court questioning different transactions entered into
by the Bark with other parties. First among them is Civil Case No.
69345 filed on April 27, 1967, by petitioner as a taxpayer versus
Sec. Antonio Raquiza of Public Works and Communications, the
Commissioner of Public Highways, the Bank, Continental Ore
Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and
General Motors Corporation In the course of the hearing of said
case on August 3, 1967, the personality of herein petitioner to
sue the bank and question the letters of credit it has extended for
the importation by the Republic of the Philippines of public works
equipment intended for the massive development program of the
President was raised. In view thereof, he expressed and made
known his intention to acquire one share of stock from
Congressman Justiniano Montano which, on the following day,
August 30, 1967, was transferred in his name in the books of the
Bank.
Subsequent to his aforementioned acquisition of one share of
stock of the Bank, petitioner, in his dual capacity as a taxpayer
and stockholder, filed the following cases involving the bank or
the members of its Board of Directors to wit:
l. On October l8,1967, Civil Case No. 71044 versus the Board of
Directors of the Bank; the National Investment and Development
Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia;
2. On May 11, 1968, Civil Case No. 72936 versus Roberto
Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar
Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming,
Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and
Batangas Sugar Central Inc.;
3. On May 8, 1969, Civil Case No. 76427 versus Alfredo
Montelibano and the Directors of both the PNB and DBP;
On January 11, 1969, however, petitioner addressed a letter to
the President of the Bank (Annex A, Pet.), requesting submission
to look into the records of its transactions covering the purchase
of a sugar central by the Southern Negros Development Corp. to
be financed by Japanese suppliers and financiers; its financing of
the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and
the construction of the Passi Sugar Mills in Iloilo. On January 23,
1969, the Asst. Vice-President and Legal Counsel of the Bank
answered petitioner's letter denying his request for being not
germane to his interest as a one-share stockholder and for the
cloud of doubt as to his real intention and purpose in acquiring
said share. (Annex B, Pet.) In view of the Bank's refusal the
petitioner instituted this action.' (Rollo, pp. 16-18.)
The petitioner has adopted the above finding of facts made by
the trial court in its brief which he characterized as having been
"correctly stated." (Petitioner-Appellant"s Brief, pp. 57.)
The court a quo denied the prayer of the petitioner that he be
allowed to examine and inspect the books and records of the
respondent bank regarding the transactions mentioned on the
grounds that the right of a stockholder to inspect the record of
the business transactions of a corporation granted under Section
51 of the former Corporation Law (Act No. 1459, as amended) is
not absolute, but is limited to purposes reasonably related to the
interest of the stockholder, must be asked for in good faith for a
specific and honest purpose and not gratify curiosity or for
speculative or vicious purposes; that such examination would
violate the confidentiality of the records of the respondent bank
as provided in Section 16 of its charter, Republic Act No. 1300, as
amended; and that the petitioner has not exhausted his
administrative remedies.
Assailing the conclusions of the lower court, the petitioner has
assigned the single error to the lower court of having ruled that
his alleged improper motive in asking for an examination of the
books and records of the respondent bank disqualifies him to
exercise the right of a stockholder to such inspection under
Section 51 of Act No. 1459, as amended. Said provision reads in
part as follows:
Sec. 51. ... The record of all business transactions of the
corporation and the minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the
corporation at reasonable hours.
Petitioner maintains that the above-quoted provision does not
justify the qualification made by the lower court that the
inspection of corporate records may be denied on the ground
that it is intended for an improper motive or purpose, the law
having granted such right to a stockholder in clear and
unconditional terms. He further argues that, assuming that a
proper motive or purpose for the desired examination is
necessary for its exercise, there is nothing improper in his
purpose for asking for the examination and inspection herein
involved.
Petitioner may no longer insist on his interpretation of Section 51
of Act No. 1459, as amended, regarding the right of a stockholder
to inspect and examine the books and records of a corporation.
The former Corporation Law (Act No. 1459, as amended) has
been replaced by Batas Pambansa Blg. 68, otherwise known as
the "Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51
of Act No. 1459 has been retained, but with some modifications.
The second and third paragraphs of Section 74 of Batas Pambansa
Blg. 68 provide the following:
The records of all business transactions of the corporation and
the minutes of any meeting shag be open to inspection by any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at his
expense.
Any officer or agent of the corporation who shall refuse to allow
any director, trustee, stockholder or member of the corporation
to examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for damages, and
in addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors
or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such
refusal; and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine
and copy excerpts from the corporation's records and minutes
has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
As may be noted from the above-quoted provisions, among the
changes introduced in the new Code with respect to the right of
inspection granted to a stockholder are the following the records
must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities. However,
while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly
required as a condition for such examination that the one
requesting it must not have been guilty of using improperly any
information through a prior examination, and that the person
asking for such examination must be "acting in good faith and for
a legitimate purpose in making his demand."
The unqualified provision on the right of inspection previously
contained in Section 51, Act No. 1459, as amended, no longer
holds true under the provisions of the present law. The argument
of the petitioner that the right granted to him under Section 51 of
the former Corporation Law should not be dependent on the
propriety of his motive or purpose in asking for the inspection of
the books of the respondent bank loses whatever validity it might
have had before the amendment of the law. If there is any doubt
in the correctness of the ruling of the trial court that the right of
inspection granted under Section 51 of the old Corporation Law
must be dependent on a showing of proper motive on the part of
the stockholder demanding the same, it is now dissipated by the
clear language of the pertinent provision contained in Section 74
of Batas Pambansa Blg. 68.
Although the petitioner has claimed that he has justifiable
motives in seeking the inspection of the books of the respondent
bank, he has not set forth the reasons and the purposes for which
he desires such inspection, except to satisfy himself as to the
truth of published reports regarding certain transactions entered
into by the respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the
respondent bank purposely to exercise the right of inspection do
not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself
with materials which he can use against the respondent bank for
acts done by the latter when the petitioner was a total stranger
to the same. He could have been impelled by a laudable sense of
civic consciousness, but it could not be said that his purpose is
germane to his interest as a stockholder.
We also find merit in the contention of the respondent bank that
the inspection sought to be exercised by the petitioner would be
violative of the provisions of its charter. (Republic Act No. 1300,
as amended.) Sections 15, 16 and 30 of the said charter provide
respectively as follows:
Sec. 15. Inspection by Department of Supervision and
Examination of the Central Bank. — The National Bank shall be
subject to inspection by the Department of Supervision and
Examination of the Central Bank'
Sec. 16. Confidential information. —The Superintendent of Banks
and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall
not reveal to any person other than the President of the
Philippines, the Secretary of Finance, and the Board of Directors
the details of the inspection or investigation, nor shall they give
any information relative to the funds in its custody, its current
accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a Court of
competent jurisdiction,'
Sec. 30. Penalties for violation of the provisions of this Act.— Any
director, officer, employee, or agent of the Bank, who violates or
permits the violation of any of the provisions of this Act, or any
person aiding or abetting the violations of any of the provisions of
this Act, shall be punished by a fine not to exceed ten thousand
pesos or by imprisonment of not more than five years, or both
such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation.
Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. Section 4 of the said Code
provides:
SEC. 4. Corporations created by special laws or charters. —
Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter
creating them or applicable to them. supplemented by the
provisions of this Code, insofar as they are applicable.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new
Corporation Code with respect to the right of a stockholder to
demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted
provisions of the charter of the respondent bank. It is not correct
to claim, therefore, that the right of inspection under Section 74
of the new Corporation Code may apply in a supplementary
capacity to the charter of the respondent bank.
WHEREFORE, the petition is hereby DISMISSED, without costs.
[G.R. No. 123553. July 13, 1998]
NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH
DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS.
PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G.
NUYDA, respondents. NORA A. BITONG, petitioner, vs. COURT
OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU,
respondents.
DECISION
BELLOSILLO, J.:
These twin cases originated from a derivative suit[1] filed by
petitioner Nora A. Bitong before the Securities and Exchange
Commission (SEC hereafter) allegedly for the benefit of private
respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter),
among others, to hold respondent spouses Eugenia D. Apostol
and Jose A. Apostol[2] liable for fraud, misrepresentation,
disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of Mr. & Ms. to the
damage and prejudice of Mr. & Ms. and its stockholders,
including petitioner.
Alleging before the SEC that she had been the Treasurer and a
Member of the Board of Directors of Mr. & Ms. from the time it
was incorporated on 29 October 1976 to 11 April 1989, and was
the registered owner of 1,000 shares of stock out of the 4,088
total outstanding shares, petitioner complained of irregularities
committed from 1983 to 1987 by Eugenia D. Apostol, President
and Chairperson of the Board of Directors. Petitioner claimed that
except for the sale of the name Philippine Inquirer to Philippine
Daily Inquirer (PDI hereafter) all other transactions and
agreements entered into by Mr. & Ms. with PDI were not
supported by any bond and/or stockholders resolution. And,
upon instructions of Eugenia D. Apostol, Mr. & Ms. made several
cash advances to PDI on various occasions amounting to P3.276
million. On some of these borrowings PDI paid no interest
whatsoever. Despite the fact that the advances made by Mr. &
Ms. to PDIwere booked as advances to an affiliate, there existed
no board or stockholders resolution, contract nor any other
document which could legally authorize the creation of and
support to an affiliate.
Petitioner further alleged that respondents Eugenia and Jose
Apostol were stockholders, directors and officers in both Mr. &
Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D.
Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed
to PDI shares of stock at P50,000.00 each or a total of
P150,000.00. The stock subscriptions were paid for by Mr. & Ms.
and initially treated as receivables from officers and employees.
But, no payments were ever received from respondents,
Magsanoc and Nuyda.
The petition principally sought to (a) enjoin respondents Eugenia
D. Apostol and Jose A. Apostol from further acting as president-
director and director, respectively, of Mr. & Ms. and disbursing
any money or funds except for the payment of salaries and
similar expenses in the ordinary course of business, and from
disposing of their Mr. & Ms. shares; (b) enjoin respondents
Apostol spouses, Magsanoc and Nuyda from disposing of the PDI
shares of stock registered in their names; (c) compel respondents
Eugenia and Jose Apostol to account for and reconvey all profits
and benefits accruing to them as a result of their improper and
fraudulent acts; (d) compel respondents Magsanoc and Nuyda to
account for and reconvey to Mr. & Ms. all shares of stock paid
from cash advances from it and all accessions or fruits thereof; (e)
hold respondents Eugenia and Jose Apostol liable for damages
suffered by Mr. & Ms. and the other stockholders, including
petitioner, by reason of their improper and fraudulent acts; (f)
appoint a management committee for Mr. & Ms. during the
pendency of the suit to prevent further dissipation and loss of its
assets and funds as well as paralyzation of business operations;
and, (g) direct the management committee for Mr. & Ms. to file
the necessary action to enforce its rights against PDI and other
third parties.
Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr.
& Ms., on the other hand, refuted the allegations of petitioner by
starting with a narration of the beginnings of Mr. & Ms. They
recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex
Libris hereafter) was incorporated for the purpose of publishing a
weekly magazine. Its original principal stockholders were spouses
Senator Juan Ponce Enrile (then Minister of National Defense)
and Cristina Ponce Enrile through Jaka Investments Corporation
(JAKA hereafter), and respondents Eugenia and Jose Apostol.
When Ex Libris suffered financial difficulties, JAKA and the
Apostols, together with new investors Luis Villafuerte and Ramon
Siy, restructured Ex Libris by organizing a new corporation known
as Mr. & Ms.
The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte,
Ramon Siy, the Apostols and Ex Libris continued to be virtually
the same up to 1989. Thereafter it was agreed among them that,
they being close friends, Mr. & Ms. would be operated as a
partnership or a close corporation; respondent Eugenia D.
Apostol would manage the affairs of Mr. & Ms.; and, no shares of
stock would be sold to third parties without first offering the
shares to the other stockholders so that transfers would be
limited to and only among the original stockholders.
Private respondents also asserted that respondent Eugenia D.
Apostol had been informing her business partners of her actions
as manager, and obtaining their advice and consent.Consequently
the other stockholders consented, either expressly or impliedly,
to her management. They offered no objections. As a result, the
business prospered. Thus, as shown in a statement prepared by
the accounting firm Punongbayan and Araullo, there were
increases from 1976 to 1988 in the total assets of Mr. & Ms. from
P457,569.00 to P10,143,046.00; in the total stockholders equity
from P203,378.00 to P2,324,954.00; and, in the net sales, from
P301,489.00 to P16,325,610.00. Likewise, cash dividends were
distributed and received by the stockholders.
Private respondents further contended that petitioner, being
merely a holder-in-trust of JAKA shares, only represented and
continued to represent JAKA in the board. In the beginning,
petitioner cooperated with and assisted the management until
mid-1986 when relations between her and her principals on one
hand, and respondent Eugenia D. Apostol on the other, became
strained due to political differences. Hence from mid-1986 to
mid-1988 petitioner refused to speak with respondent Eugenia D.
Apostol, and in 1988 the former became openly critical of the
management of the latter. Nevertheless, respondent Eugenia D.
Apostol always made available to petitioner and her
representatives all the books of the corporation.
Private respondents averred that all the PDI shares owned by
respondents Eugenia and Jose Apostol were acquired through
their own private funds and that the loan of P750,000.00 by
PDIfrom Mr. & Ms. had been fully paid with 20% interest per
annum. And, it was PDI, not Mr. & Ms., which loaned off
P250,000.00 each to respondents Magsanoc and Nuyda. Private
respondents further argued that petitioner was not the true party
to this case, the real party being JAKA which continued to be the
true stockholder of Mr. & Ms.; hence, petitioner did not have the
personality to initiate and prosecute the derivative suit which,
consequently, must be dismissed.
On 6 December 1990, the SEC Hearing Panel[3] issued a writ of
preliminary injunction enjoining private respondents from
disbursing any money except for the payment of salaries and
other similar expenses in the regular course of business. The
Hearing Panel also enjoined respondent Apostol spouses, Nuyda
and Magsanoc from disposing of their PDI shares, and further
ruled -
x x x respondents contention that petitioner is not entitled to the
provisional reliefs prayed for because she is not the real party in
interest x x x x is bereft of any merit. No less than respondents
Amended Answer, specifically paragraph V, No. 8 on Affirmative
Allegations/Defenses states that `The petitioner being herself a
minor stockholder and holder-in-trust of JAKA shares represented
and continues to represent JAKA in the Board. This statement
refers to petitioner sitting in the board of directors of Mr. & Ms. in
two capacities, one as a minor stockholder and the other as the
holder in trust of the shares of JAKA in Mr. & Ms. Such reference
alluded to by the respondents indicates an admission on
respondents part of the petitioners legal personality to file a
derivative suit for the benefit of the respondent Mr. & Ms.
Publishing Co., Inc.
The Hearing Panel however denied petitioners prayer for the
constitution of a management committee.
On 25 March 1991 private respondents filed a Motion to Amend
Pleadings to Conform to Evidence alleging that the issue of
whether petitioner is the real party-in-interest had been tried by
express or implied consent of the parties through the admission
of documentary exhibits presented by private respondents
proving that the real party-in-interest was JAKA, not petitioner
Bitong.As such, No. 8, par. V (Affirmative Allegations/Defenses),
Answer to the Amended Petition, was stipulated due to
inadvertence and excusable mistake and should be amended. On
10 October 1991 the Hearing Panel denied the motion for
amendment.
Petitioner testified at the trial that she became the registered and
beneficial owner of 997 shares of stock of Mr. & Ms. out of the
4,088 total outstanding shares after she acquired them from JAKA
through a deed of sale executed on 25 July 1983 and recorded in
the Stock and Transfer Book of Mr. & Ms. under Certificate of
Shares of Stock No. 008. She pointed out that Senator Enrile
decided that JAKA should completely divest itself of its holdings in
Mr. & Ms. and this resulted in the sale to her of JAKAs interest
and holdings in that publishing firm.
Private respondents refuted the statement of petitioner that she
was a stockholder of Mr. & Ms. since 25 July 1983 as respondent
Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17
March 1989, and not on 25 July 1983. Respondent Eugenia D.
Apostol explained that she stopped using her long signature
(Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the
signature which appeared on the face of Certificate of Stock No.
008 bearing the date 25 July 1983. And, since the Stock and
Transfer Book which petitioner presented in evidence was not
registered with the SEC, the entries therein including Certificate
of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol
claimed that she had not seen the Stock and Transfer Book at any
time until 21 March 1989 when it was delivered by petitioner
herself to the office of Mr. & Ms., and that petitioner repeatedly
referred to Senator Enrile as "my principal" during the Mr. &
Ms.board meeting of 22 September 1988, seven (7) times no less.
On 3 August 1993, after trial on the merits, the SEC Hearing Panel
dismissed the derivative suit filed by petitioner and dissolved the
writ of preliminary injunction barring private respondents from
disposing of their PDI shares and any of Mr. & Ms. assets. The
Hearing Panel ruled that there was no serious mismanagement of
Mr. & Ms. which would warrant drastic corrective measures. It
gave credence to the assertion of respondent Eugenia D. Apostol
that Mr. & Ms. was operated like a close corporation where
important matters were discussed and approved through
informal consultations at breakfast conferences. The Hearing
Panel also concluded that while the evidence presented tended
to show that the real party-in-interest indeed was JAKAand/or
Senator Enrile, it viewed the real issue to be the alleged
mismanagement, fraud and conflict of interest on the part of
respondent Eugenia D. Apostol, and allowed petitioner to
prosecute the derivative suit if only to resolve the real issues.
Hence, for this purpose, the Hearing Panel considered petitioner
to be the real party-in-interest.
On 19 August 1993 respondent Apostol spouses sold the PDI
shares registered in the name of their holding company, JAED
Management Corporation, to Edgardo B. Espiritu. On 25 August
1993 petitioner Bitong appealed to the SEC En Banc.
On 24 January 1994 the SEC En Banc[4] reversed the decision of
the Hearing Panel and, among others, ordered private
respondents to account for, return and deliver to Mr. & Ms. any
and all funds and assets that they disbursed from the coffers of
the corporation including shares of stock, profits, dividends
and/or fruits that they might have received as a result of their
investment in PDI, including those arising from the P150,000.00
advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc
and Adoracion G. Nuyda; account for and return any profits and
fruits of all amounts irregularly or unlawfully advanced to PDI and
other third persons; and, cease and desist from managing the
affairs of Mr. & Ms. for reasons of fraud, mismanagement,
disloyalty and conflict of interest.
The SEC En Banc also declared the 19 August 1993 sale of the PDI
shares of JAED Management Corporation to Edgardo B. Espiritu to
be tainted with fraud, hence, null and void, and considered Mr. &
Ms. as the true and lawful owner of all the PDI shares acquired by
respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also
declared all subsequent transferees of such shares as trustees for
the benefit of Mr. & Ms. and ordered them to forthwith deliver
said shares to Mr. & Ms.
Consequently, respondent Apostol spouses, Magsanoc, Nuyda,
and Mr. & Ms. filed a petition for review before respondent Court
of Appeals, docketed as CA-GR No. SP 33291, while respondent
Edgardo B. Espiritu filed a petition for certiorari and prohibition
also before respondent Court of Appeals, docketed as CA-GR No.
SP 33873. On 8 December 1994 the two (2) petitions were
consolidated.
On 31 August 1995 respondent appellate court rendered a
decision reversing the SEC En Banc and held that from the
evidence on record petitioner was not the owner of any share of
stock in Mr. & Ms. and therefore not the real party-in-interest to
prosecute the complaint she had instituted against private
respondents. Accordingly, petitioner alone and by herself as an
agent could not file a derivative suit in behalf of her principal. For
not being the real party-in-interest, petitioners complaint did not
state a cause of action, a defense which was never waived;
hence, her petition should have been dismissed. Respondent
appellate court ruled that the assailed orders of the SEC were
issued in excess of jurisdiction, or want of it, and thus were null
and void.[5] On 18 January 1996, petitioner's motion for
reconsideration was denied for lack of merit.
Before this Court, petitioner submits that in paragraph 1 under
the caption "I. The Parties" of her Amended Petition before the
SEC, she stated that she was a stockholder and director of Mr. &
Ms. In par. 1 under the caption "II. The Facts" she declared that
she "is the registered owner of 1,000 shares of stock of Mr. & Ms.
out of the latters 4,088 total outstanding shares" and that she
was a member of the Board of Directors of Mr. & Ms. and
treasurer from its inception until 11 April 1989. Petitioner
contends that private respondents did not deny the above
allegations in their answer and therefore they are conclusively
bound by this judicial admission. Consequently, private
respondents admission that petitioner has 1,000 shares of stock
registered in her name in the books of Mr. & Ms. forecloses any
question on her status and right to bring a derivative suit on
behalf of Mr. & Ms.
Not necessarily. A party whose pleading is admitted as an
admission against interest is entitled to overcome by evidence
the apparent inconsistency, and it is competent for the party
against whom the pleading is offered to show that the statements
were inadvertently made or were made under a mistake of fact.
In addition, a party against whom a single clause or paragraph of
a pleading is offered may have the right to introduce other
paragraphs which tend to destroy the admission in the paragraph
offered by the adversary.[6]
The Amended Petition before the SEC alleges -
I. THE PARTIES
1. Petitioner is a stockholder and director of Mr. & Ms. x x x x
II. THE FACTS
1. Petitioner is the registered owner of 1,000 shares of stock of
Mr. & Ms. out of the latters 4,088 total outstanding shares.
Petitioner, at all times material to this petition, is a member of
the Board of Directors of Mr. & Ms. and from the inception of Mr.
& Ms. until 11 April 1989 was its treasurer x x x x
On the other hand, the Amended Answer to the Amended
Petition states -
I. PARTIES
1. Respondents admit the allegations contained in Caption I, pars.
1 to 4 of the Petition referring to the personality, addresses and
capacity of the parties to the petition except x x x x but qualify
said admission insofar as they are limited, qualified and/or
expanded by allegations in the Affirmative Allegations/Defenses x
xxx
II. THE FACTS
1. Respondents admit paragraph 1 of the Petition, but qualify said
admission as to the beneficial ownership of the shares of stock
registered in the name of the petitioner, the truth being as stated
in the Affirmative Allegations/Defenses of this Answer x x x x
V. AFFIRMATIVE ALLEGATIONS/DEFENSES
Respondents respectfully allege by way of Affirmative
Allegations/Defenses, that x x x x
3. Fortunately, respondent Apostol was able to convince Mr. Luis
Villafuerte to take interest in the business and he, together with
the original investors, restructured the Ex Libris Publishing
Company by organizing a new corporation known as Mr. & Ms.
Publishing Co., Inc.x x x x Mr. Luis Villafuerte contributed his own
P100,000.00. JAKA and respondent Jose Z. Apostol, original
investors of Ex Libris contributed P100,000.00 each; Ex Libris
Publishing Company was paid 800 shares for the name of Mr. &
Ms. magazine and goodwill. Thus, the original stockholders of
respondent Mr. & Ms. were:
Cert./No./Date Name of Stockholder No. of Shares %
001-9-15-76 JAKA Investments Corp. 1,000 21%
002-9-15-76 Luis Villafuerte 1,000 21%
003-9-15-76 Ramon L. Siy 1,000 21%
004-9-15-76 Jose Z. Apostol 1,000 21%
005-9-15-76 Ex Libris Publishing Co. 800 16%
4,800 96%
4. The above-named original stockholders of respondent Mr. &
Ms. continue to be virtually the same stockholders up to this date
xxxx
8. The petitioner being herself a minor stockholder and holder-in-
trust of JAKA shares, represented and continues to represent
JAKA in the Board x x x x
21. Petitioner Nora A. Bitong is not the true party to this case, the
true party being JAKA Investments Corporation which continues
to be the true stockholder of respondent Mr. & Ms. Publishing
Co., Inc., consequently, she does not have the personality to
initiate and prosecute this derivative suit, and should therefore
be dismissed x x x x
The answer of private respondents shows that there was no
judicial admission that petitioner was a stockholder of Mr. & Ms.
to entitle her to file a derivative suit on behalf of the
corporation.Where the statements of the private respondents
were qualified with phrases such as, "insofar as they are limited,
qualified and/or expanded by," "the truth being as stated in the
Affirmative Allegations/Defenses of this Answer" they cannot be
considered definite and certain enough, cannot be construed as
judicial admissions.[7]
More so, the affirmative defenses of private respondents directly
refute the representation of petitioner that she is a true and
genuine stockholder of Mr. & Ms. by stating unequivocally that
petitioner is not the true party to the case but JAKA which
continues to be the true stockholder of Mr. & Ms. In fact, one of
the reliefs which private respondents prayed for was the dismissal
of the petition on the ground that petitioner did not have the
legal interest to initiate and prosecute the same.
When taken in its totality, the Amended Answer to the Amended
Petition, or even the Answer to the Amended Petition alone,
clearly raises an issue as to the legal personality of petitioner to
file the complaint. Every alleged admission is taken as an entirety
of the fact which makes for the one side with the qualifications
which limit, modify or destroy its effect on the other side. The
reason for this is, where part of a statement of a party is used
against him as an admission, the court should weigh any other
portion connected with the statement, which tends to neutralize
or explain the portion which is against interest.
In other words, while the admission is admissible in evidence, its
probative value is to be determined from the whole statement
and others intimately related or connected therewith as an
integrated unit. Although acts or facts admitted do not require
proof and cannot be contradicted, however, evidence aliunde can
be presented to show that the admission was made through
palpable mistake.[8] The rule is always in favor of liberality in
construction of pleadings so that the real matter in dispute may
be submitted to the judgment of the court.[9]
Petitioner also argues that since private respondents failed to
appeal the 6 December 1990 Order and the 3 August 1993
Decision of the SEC Hearing Panel declaring that she was the real
party-in-interest and had legal personality to sue, they are now
estopped from questioning her personality.
Not quite. The 6 December 1990 Order is clearly an interlocutory
order which cannot be considered as having finally resolved on
the merits the issue of legal capacity of petitioner. The SEC
Hearing Panel discussed the issue of legal capacity solely for the
purpose of ruling on the application for writ of preliminary
injunction as an incident to the main issues raised in the
complaint.Being a mere interlocutory order, it is not appealable.
For, an interlocutory order refers to something between the
commencement and end of the suit which decides some point or
matter but it is not the final decision of the whole controversy.
[10]Thus, even though the 6 December 1990 Order was adverse
to private respondents, they had the legal right and option not to
elevate the same to the SEC En Banc but rather to await the
decision which resolves all the issues raised by the parties and to
appeal therefrom by assigning all errors that might have been
committed by the Hearing Panel.
On the other hand, the 3 August 1993 Decision of the Hearing
Panel dismissing the derivative suit for failure to prove the
charges of mismanagement, fraud, disloyalty and conflict of
interest and dissolving the writ of preliminary injunction, was
favorable to private respondents. Hence, they were not expected
to appeal therefrom.
In fact, in the 3 August 1993 Decision, the Hearing Panel
categorically stated that the evidence presented showed that the
real party-in-interest was not petitioner Bitong but JAKA and/or
Senator Enrile. Petitioner was merely allowed to prosecute her
complaint so as not to sidetrack "the real issue to be resolved
(which) was the allegation of mismanagement, fraud and conflict
of interest allegedly committed by respondent Eugenia D.
Apostol." It was only for this reason that petitioner was
considered to be capacitated and competent to file the petition.
Accordingly, with the dismissal of the complaint of petitioner
against private respondents, there was no compelling reason for
the latter to appeal to the SEC En Banc. It was in fact petitioners
turn as the aggrieved party to exercise her right to appeal from
the decision. It is worthy to note that even during the appeal of
petitioner before the SEC En Banc private respondents
maintained their vigorous objection to the appeal and reiterated
petitioners lack of legal capacity to sue before the SEC.
Petitioner then contends that she was a holder of the proper
certificates of shares of stock and that the transfer was recorded
in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of
The Corporation Code which provides that no transfer shall be
valid except as between the parties until the transfer is recorded
in the books of the corporation, and upon its recording the
corporation is bound by it and is estopped to deny the fact of
transfer of said shares. Petitioner alleges that even in the absence
of a stock certificate, a stockholder solely on the strength of the
recording in the stock and transfer book can exercise all the rights
as stockholder, including the right to file a derivative suit in the
name of the corporation. And, she need not present a separate
deed of sale or transfer in her favor to prove ownership of stock.
Section 63 of The Corporation Code expressly provides -
Sec. 63. Certificate of stock and transfer of shares. - The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer
however shall be valid except as between the parties until the
transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of
shares transferred x x x x
This provision above quoted envisions a formal certificate of stock
which can be issued only upon compliance with certain
requisites. First, the certificates must be signed by the president
or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation. A mere
typewritten statement advising a stockholder of the extent of his
ownership in a corporation without qualification and/or
authentication cannot be considered as a formal certificate of
stock.[11] Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a stock
certificate where it is never detached from the stock books
although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the
company.[12] Third, the par value, as to par value shares, or the
full subscription as to no par value shares, must first be fully paid.
Fourth, the original certificate must be surrendered where the
person requesting the issuance of a certificate is a transferee
from a stockholder.
The certificate of stock itself once issued is a continuing
affirmation or representation that the stock described therein is
valid and genuine and is at least prima facie evidence that it was
legally issued in the absence of evidence to the contrary.
However, this presumption may be rebutted.[13] Similarly, books
and records of a corporation which include even the stock and
transfer book are generally admissible in evidence in favor of or
against the corporation and its members to prove the corporate
acts, its financial status and other matters including ones status as
a stockholder. They are ordinarily the best evidence of corporate
acts and proceedings.
However, the books and records of a corporation are not
conclusive even against the corporation but are prima facie
evidence only. Parol evidence may be admitted to supply
omissions in the records, explain ambiguities, or show what
transpired where no records were kept, or in some cases where
such records were contradicted.[14] The effect of entries in the
books of the corporation which purport to be regular records of
the proceedings of its board of directors or stockholders can be
destroyed by testimony of a more conclusive character than mere
suspicion that there was an irregularity in the manner in which
the books were kept.[15]
The foregoing considerations are founded on the basic principle
that stock issued without authority and in violation of law is void
and confers no rights on the person to whom it is issued and
subjects him to no liabilities.[16] Where there is an inherent lack
of power in the corporation to issue the stock, neither the
corporation nor the person to whom the stock is issued is
estopped to question its validity since an estoppel cannot operate
to create stock which under the law cannot have existence.[17]
As found by the Hearing Panel and affirmed by respondent Court
of Appeals, there is overwhelming evidence that despite what
appears on the certificate of stock and stock and transfer book,
petitioner was not a bona fide stockholder of Mr. & Ms. before
March 1989 or at the time the complained acts were committed
to qualify her to institute a stockholders derivative suit against
private respondents. Aside from petitioners own admissions,
several corporate documents disclose that the true party-in-
interest is not petitioner but JAKA.
Thus, while petitioner asserts in her petition that Certificate of
Stock No. 008 dated 25 July 1983 was issued in her name, private
respondents argue that this certificate was signed by respondent
Eugenia D. Apostol as President only in 1989 and was fraudulently
antedated by petitioner who had possession of the Certificate
Book and the Stock and Transfer Book. Private respondents stress
that petitioners counsel entered into a stipulation on record
before the Hearing Panel that the certificate was indeed signed
by respondent Apostol only in 1989 and not in 1983.
In her reply, petitioner admits that while respondent Eugenia D.
Apostol signed the Certificate of Stock No. 008 in petitioners
name only in 1989, it was issued by the corporate secretary in
1983 and that the other certificates covering shares in Mr. & Ms.
had not yet been signed by respondent Eugenia D. Apostol at the
time of the filing of the complaint with the SEC although they
were issued years before.
Based on the foregoing admission of petitioner, there is no truth
to the statement written in Certificate of Stock No. 008 that the
same was issued and signed on 25 July 1983 by its duly
authorized officers specifically the President and Corporate
Secretary because the actual date of signing thereof was 17
March 1989. Verily, a formal certificate of stock could not be
considered issued in contemplation of law unless signed by the
president or vice-president and countersigned by the secretary or
assistant secretary.
In this case, contrary to petitioners submission, the Certificate of
Stock No. 008 was only legally issued on 17 March 1989 when it
was actually signed by the President of the corporation, and not
before that date. While a certificate of stock is not necessary to
make one a stockholder, e.g., where he is an incorporator and
listed as stockholder in the articles of incorporation although no
certificate of stock has yet been issued, it is supposed to serve as
paper representative of the stock itself and of the owners interest
therein. Hence, when Certificate of Stock No. 008 was admittedly
signed and issued only on 17 March 1989 and not on 25 July
1983, even as it indicates that petitioner owns 997 shares of stock
of Mr. & Ms., the certificate has no evidentiary value for the
purpose of proving that petitioner was a stockholder since 1983
up to 1989.
And even the factual antecedents of the alleged ownership by
petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive
if not enshrouded in inconsistencies. In her testimony before the
Hearing Panel, petitioner said that early in 1983, to relieve Mr. &
Ms. from political pressure, Senator Enrile decided to divest the
family holdings in Mr. & Ms. as he was then part of the
government and Mr. & Ms. was evolving to be an opposition
newspaper. The JAKA shares numbering 1,000 covered by
Certificate of Stock No. 001 were thus transferred to respondent
Eugenia D. Apostol in trust or in blank.[18]
Petitioner now claims that a few days after JAKAs shares were
transferred to respondent Eugenia D. Apostol, Senator Enrile sold
to petitioner 997 shares of JAKA. For this purpose, a deed of sale
was executed and antedated to 10 May 1983.[19] This submission
of petitioner is however contradicted by the records which show
that a deed of sale was executed by JAKA transferring 1,000
shares of Mr. & Ms. to respondent Apostol on 10 May 1983 and
not to petitioner.[20]
Then Senator Enrile testified that in May or June 1983 he was
asked at a media interview if his family owned shares of stock in
Mr. & Ms. Although he and his family were stockholders at that
time he denied it so as not to embarrass the magazine. He called
up petitioner and instructed her to work out the documentation
of the transfer of shares from JAKA to respondent Apostol to be
covered by a declaration of trust. His instruction was to transfer
the shares of JAKA in Mr. & Ms. and Ex Libris to respondent
Apostol as a nominal holder. He then finally decided to transfer
the shareholdings to petitioner.[21]
When asked if there was any document or any written evidence
of that divestment in favor of petitioner, Senator Enrile answered
that there was an endorsement of the shares of stock. He said
that there was no other document evidencing the assignment to
petitioner because the stocks were personal property that could
be transferred even orally.[22] Contrary to Senator Enriles
testimony, however, petitioner maintains that Senator Enrile
executed a deed of sale in her favor.
A careful perusal of the records shows that neither the alleged
endorsement of Certificate of Stock No. 001 in the name of JAKA
nor the alleged deed of sale executed by Senator Enriledirectly in
favor of petitioner could have legally transferred or assigned on
25 July 1983 the shares of stock in favor of petitioner because as
of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA
was already cancelled and a new one, Certificate of Stock No.
007, issued in favor of respondent Apostol by virtue of a
Declaration of Trust and Deed of Sale.[23]
It should be emphasized that on 10 May 1983 JAKA executed a
deed of sale over 1,000 Mr. & Ms. shares in favor of respondent
Eugenio D. Apostol. On the same day, respondent Apostol signed
a declaration of trust stating that she was the registered owner of
1,000 Mr. & Ms. shares covered by Certificate of Stock No. 007.
The declaration of trust further showed that although respondent
Apostol was the registered owner, she held the shares of stock
and dividends which might be paid in connection therewith solely
in trust for the benefit of JAKA, her principal. It was also stated
therein that being a trustee, respondent Apostol agreed, on
written request of the principal, to assign and transfer the shares
of stock and any and all such distributions or dividends unto the
principal or such other person as the principal would nominate or
appoint.
Petitioner was well aware of this trust, being the person in charge
of this documentation and being one of the witnesses to the
execution of this document.[24] Hence, the mere alleged
endorsement of Certificate of Stock No. 001 by Senator Enrile or
by a duly authorized officer of JAKA to effect the transfer of
shares of JAKA to petitioner could not have been legally feasible
because Certificate of Stock No. 001 was already canceled by
virtue of the deed of sale to respondent Apostol.
And, there is nothing in the records which shows that JAKA had
revoked the trust it reposed on respondent Eugenia D. Apostol.
Neither was there any evidence that the principal had requested
her to assign and transfer the shares of stock to petitioner. If it
was true that the shares of stock covered by Certificate of Stock
No. 007 had been transferred to petitioner, the person who could
legally endorse the certificate was private respondent Eugenia D.
Apostol, she being the registered owner and trustee of the shares
of stock covered by Certificate of Stock No. 007. It is a settled rule
that the trustee should endorse the stock certificate to validate
the cancellation of her share and to have the transfer recorded in
the books of the corporation.[25]
In fine, the records are unclear on how petitioner allegedly
acquired the shares of stock of JAKA. Petitioner being the chief
executive officer of JAKA and the sole person in charge of all
business and financial transactions and affairs of JAKA[26] was
supposed to be in the best position to show convincing evidence
on the alleged transfer of shares to her, if indeed there was a
transfer. Considering that petitioners status is being questioned
and several factual circumstances have been presented by private
respondents disproving petitioners claim, it was incumbent upon
her to submit rebuttal evidence on the manner by which she
allegedly became a stockholder. Her failure to do so taken in the
light of several substantial inconsistencies in her evidence is fatal
to her case.
The rule is that the endorsement of the certificate of stock by the
owner or his attorney-in-fact or any other person legally
authorized to make the transfer shall be sufficient to effect the
transfer of shares only if the same is coupled with delivery. The
delivery of the stock certificate duly endorsed by the owner is the
operative act of transfer of shares from the lawful owner to the
new transferee.
Thus, for a valid transfer of stocks, the requirements are as
follows: (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.[27] At most, in the instant case,
petitioner has satisfied only the third requirement. Compliance
with the first two requisites has not been clearly and sufficiently
shown.
Considering that the requirements provided under Sec. 63 of The
Corporation Code should be mandatorily complied with, the rule
on presumption of regularity cannot apply. The regularity and
validity of the transfer must be proved. As it is, even the
credibility of the stock and transfer book and the entries thereon
relied upon by petitioner to show compliance with the third
requisite to prove that she was a stockholder since 1983 is highly
doubtful.
The records show that the original stock and transfer book and
the stock certificate book of Mr. & Ms. were in the possession of
petitioner before their custody was transferred to the Corporate
Secretary, Atty. Augusto San Pedro.[28] On 25 May 1988,
Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms.
about the lost stock and transfer book which was also noted by
the corporations external auditors, Punongbayan and Araullo, in
their audit. Atty. Unson even informed respondent Eugenia D.
Apostol as President of Mr. & Ms. that steps would be undertaken
to prepare and register a new Stock and Transfer Book with the
SEC. Incidentally, perhaps strangely, upon verification with the
SEC, it was discovered that the general file of the corporation
with the SEC was missing. Hence, it was even possible that the
original Stock and Transfer Book might not have been registered
at all.
On 20 October 1988 respondent Eugenia D. Apostol wrote Atty.
Augusto San Pedro noting the changes he had made in the Stock
and Transfer Book without prior notice to the corporate officers.
[29] In the 27 October 1988 directors' meeting, respondent
Eugenia D. Apostol asked about the documentation to support
the changes in the Stock and Transfer Book with regard to the
JAKA shares. Petitioner answered that Atty. San Pedro made the
changes upon her instructions conformably with established
practice.[30]
This simply shows that as of 1988 there still existed certain issues
affecting the ownership of the JAKA shares, thus raising doubts
whether the alleged transactions recorded in the Stock and
Transfer Book were proper, regular and authorized. Then, as if to
magnify and compound the uncertainties in the ownership of the
shares of stock in question, when the corporate secretary
resigned, the Stock and Transfer Book was delivered not to the
corporate office where the book should be kept but to petitioner.
[31]
That JAKA retained its ownership of its Mr. & Ms. shares was
clearly shown by its receipt of the dividends issued in December
1986.[32] This only means, very obviously, that Mr. & Ms. shares
in question still belonged to JAKA and not to petitioner. For,
dividends are distributed to stockholders pursuant to their right
to share in corporate profits. When a dividend is declared, it
belongs to the person who is the substantial and beneficial owner
of the stock at the time regardless of when the distribution profit
was earned.[33]
Finally, this Court takes notice of the glaring and open admissions
of petitioner made, not just seven (7) but nine (9) times, during
the 22 September 1988 meeting of the board of directors that
the Enriles were her principals or shareholders, as shown by the
minutes thereof which she duly signed[34] -
5. Mrs. E. Apostol explained to the Directors that through her
efforts, the asset base of the Company has improved and profits
were realized. It is for this reason that the Company has declared
a 100% cash dividend in 1986. She said that it is up for the Board
to decide based on this performance whether she should
continue to act as Board Chairman or not. In this regard, Ms. N.A.
Bitong expressed her recollection of how Ex-Libris/Mr. & Ms.
were organized and her participation for and on behalf of her
principals, as follows: She recalled that her principals were invited
by Mrs. E. Apostol to invest in Ex-Libris and eventually Mr. & Ms.
The relationship between her principals and Mrs. E. Apostol
made it possible for the latter to have access to several
information concerning certain political events and issues. In
many instances, her principals supplied first hand and
newsworthy information that made Mr. & Ms. a popular paper x x
xx
6. According to Ms. Bitong, her principals were instrumental in
helping Mr. & Ms. survive during those years that it was cash
strapped x x x x Ms. N.A. Bitong pointed out that the practice of
using the former Ministers influence and stature in the
government is one thing which her principals themselves are
strongly against x x x x
7. x x x x At this point, Ms. N. Bitong again expressed her
recollection of the subject matter as follows: (a) Mrs. E. Apostol,
she remembers, brought up the concept of a cooperative-ran
newspaper company in one of her breakfast session with her
principals sometime during the end of 1985. Her principals when
asked for an opinion, said that they recognized the concept as
something very noble and visible x x x x Then Ms. Bitong asked a
very specific question - "When you conceptualized Ex-Libris and
Mr. & Ms., did you not think of my shareholders the Ponce Enriles
as liabilities?How come you associated yourself with them then
and not now? What is the difference?" Mrs. Apostol did not
answer the question.
The admissions of a party against his interest inscribed upon the
record books of a corporation are competent and persuasive
evidence against him.[35] These admissions render nugatory any
argument that petitioner is a bona fide stockholder of Mr. & Ms.
at any time before 1988 or at the time the acts complained of
were committed. There is no doubt that petitioner was an
employee of JAKA as its managing officer, as testified to by
Senator Enrile himself.[36] However, in the absence of a special
authority from the board of directors of JAKA to institute a
derivative suit for and in its behalf, petitioner is disqualified by
law to sue in her own name. The power to sue and be sued in any
court by a corporation even as a stockholder is lodged in the
board of directors that exercises its corporate powers and not in
the president or officer thereof.[37]
It is well settled in this jurisdiction that where corporate directors
are guilty of a breach of trust, not of mere error of judgment or
abuse of discretion, and intracorporate remedy is futile or
useless, a stockholder may institute a suit in behalf of himself and
other stockholders and for the benefit of the corporation, to
bring about a redress of the wrong inflicted directly upon the
corporation and indirectly upon the stockholders.[38] The
stockholders right to institute a derivative suit is not based on any
express provision of The Corporation Code but is impliedly
recognized when the law makes corporate directors or officers
liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties.
Hence, a stockholder may sue for mismanagement, waste or
dissipation of corporate assets because of a special injury to him
for which he is otherwise without redress.[39] In effect, the suit is
an action for specific performance of an obligation owed by the
corporation to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful refusal of
the directors or management to make suitable measures for its
protection.[40]
The basis of a stockholders suit is always one in equity. However,
it cannot prosper without first complying with the legal requisites
for its institution. The most important of these is the bona fide
ownership by a stockholder of a stock in his own right at the time
of the transaction complained of which invests him with standing
to institute a derivative action for the benefit of the corporation.
[41]
WHEREFORE, the petition is DENIED. The 31 August 1995
Decision of the Court of Appeals dismissing the complaint of
petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting
the petition for certiorari and prohibition filed by respondent
Edgardo B. Espiritu as well as annulling the 5 November 1993, 24
January 1994 and 18 February 1994 Orders of the SEC En Banc in
CA-G.R. No. SP 33873, is AFFIRMED. Costs against petitioner.
SO ORDERED.
SUPREME COURT FIRST DIVISION
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO,
Petitioners,
-versus- G.R. No. L-39050 February 24, 1981
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL,
INC.,
Respondents.
x---------------------------------------------------x
DECISION
DE CASTRO, J.:
Private respondent Insular Sawmill, Inc. is a corporation organized
on September 17, 1945 with a corporate life of fifty (50) years, or
up to September 17, 1995, with the primary purpose of carrying
on a general lumber and sawmill business. To carry on this
business,
private respondent leased the paraphernal property of petitioner-
wife Guillermina M. Gelano at the corner of Canonigo and Otis,
Paco, Manila for P1,200.00 a month. It was while private
respondent was leasing the aforesaid property that its officers
and directors had come to know petitioner-husband Carlos
Gelano who received from the corporation cash advances on
account of rentals to be paid by the corporation on the land.
chanroblespublishingcompany
Between November 19, 1947 to December 26, 1950 petitioner
Carlos Gelano obtained from private respondent cash advances of
P25,950.00. The said sum was taken and received by petitioner
Carlos Gelano on the agreement that private respondent could
deduct the same from the monthly rentals of the leased premises
until said cash advances are fully paid. Out of the aforementioned
cash advances in the total sum of P25,950.00, petitioner Carlos
Gelano was able to pay only P5,950.00 thereby leaving an unpaid
balance of P20,000.00 which he refused to pay despite repeated
demands by private respondent. Petitioner Guillermina M.
Gelano refused to pay on the ground that said amount was for
the personal account of her husband asked for by, and given to
him, without her knowledge and consent and did not benefit the
family. chanroblespublishingcompany
On various occasions from May 4, 1948 to September 11, 1949
petitioners husband and wife also made credit purchases of
lumber materials from private respondent with a total price of
P1,120.46 in connection with the repair and improvement of
petitioners’ residence. On November 9, 1949 partial payment was
made by petitioners in the amount of P91.00 and in view of the
cash discount in favor of petitioners in the amount of P83.00, the
amount due private respondent on account of credit purchases of
lumber materials is P946.46 which petitioners failed to pay.
chanroblespublishingcompany
On July 14, 1952, in order to accommodate and help petitioners
renew previous loans obtained by them from the China Banking
Corporation, private respondent, through Joseph Tan Yoc Su,
executed a joint and several promissory note with Carlos Gelano
in favor of said bank in the amount of P8,000.00 payable in sixty
(60) days. For failure of Carlos Gelano to pay the promissory note
upon maturity, the bank collected from the respondent
corporation the amount of P9,106.00 including interests, by
debiting it from the
corporation’s current account with the bank. Petitioner Carlos
Gelano was able to pay private respondent the amount of
P5,000.00 but the balance of P4,106.00 remained unsettled.
Guillermina M. Gelano refused to pay on the ground that she had
no knowledge about the accommodation made by the
corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German Lee, filed a
complaint for collection against herein petitioners before the
Court of First Instance of Manila. Trial was held and when the
case was at the stage of submitting memorandum, Atty. Lee
retired from active law practice and Atty. Eduardo F. Elizalde took
over and prepared memorandum. chanroblespublishingcompany
In the meantime, private respondent amended its Articles of
Incorporation to shorten its term of existence up to December 31,
1960 only. The amended Articles of Incorporation was filed with,
and approved by the Securities and Exchange Commission, but
the trial court was not notified of the amendment shortening the
corporate existence and no substitution of party was ever made.
On November 20, 1964 and almost four (4) years after the
dissolution of the corporation, the trial court rendered a decision
in favor of private respondent the dispositive portion of which
reads as follows: chanroblespublishingcompany
“WHEREFORE, judgment is rendered, ordering:
“1. Defendant Carlos Gelano to pay plaintiff the sum of:
‘(a) P19,650.00 with interest thereon at the legal rate from the
date of the filing of the complaint on May 29, 1959 until said sum
is fully paid;
‘(b) P4,106.00, with interest thereon at the legal rate from the
date of the filing of the complaint until said sum is fully paid;
chanroblespublishingcompany
“2. Defendants Carlos Gelano and Guillermina Mendoza to pay
jointly and severally the sum of: chanroblespublishingcompany
‘(a) P946.46, with interest thereon at the agreed rate of 12% per
annum from October 6, 1946, until said sum is fully paid;
‘(b) P550.00, with interest thereon at the legal rate from the date
of the filing of the complaint until the said sum is fully paid;
chanroblespublishingcompany
‘(c) Costs of the suit’; and
“3. Defendant Carlos Gelano to pay the plaintiff the sum of
P2,000.00 attorney’s fees. chanroblespublishingcompany
“The Counterclaims of defendants are dismissed.
“SO ORDERED.”[1]
Both parties appealed to the Court of Appeals, private
respondent also appealing because it insisted that both Carlos
Gelano and Guillermina Gelano should be held liable for the
substantial portion of the claim.
On August 23, 1973, the Court of Appeals rendered a decision
modifying the judgment of the trial court by holding petitioner
spouses jointly and severally liable on private respondents claim
and increasing the award of P4,106.00. The dispositive portion of
the decision reads as follows: chanroblespublishingcompany
“WHEREFORE, modified in the sense that the amount of
P4,106.00 under paragraph 1 (b) is raised to P8,160.00 and the
clarification that the conjugal partnership of the spouses is jointly
and severally liable for the obligations adjudged against
defendant Carlos Gelano, the judgment appealed from is affirmed
in all other respects.”[2] chanroblespublishingcompany
After petitioners received a copy of the decision on August 24,
1973, they came to know that the Insular Sawmill Inc. was
dissolved way back on December 31, 1960. Hence, petitioners
filed a motion to dismiss the case and or reconsideration of the
decision of the Court of Appeals on grounds that the case was
prosecuted even after
dissolution of private respondent as a corporation and that a
defunct corporation cannot maintain any suit for or against it
without first complying with the requirements of the winding up
of the affairs of the corporation and the assignment of its
property rights within the required period.
chanroblespublishingcompany
Incidentally, after the receipt of petitioners’ motion to dismiss
and/or reconsideration or on October 28, 1973, private
respondent thru its former directors filed a Petition for
Receivership before the Court of First Instance of Manila,
docketed as Special Proceedings No. 92303,[3] which petition is
still pending before said court. chanroblespublishingcompany
On November 5, 1973, private respondent filed a comment on
the motion to dismiss and/or reconsideration and after the
parties have filed reply and rejoinder, the Court of Appeals on July
5, 1974 issued a resolution[4] denying the aforesaid motion.
chanroblespublishingcompany
Hence, the present Petition for Review, petitioners assigning the
following errors:
I IX
“THE ‘RESPONDENT COURT’ ERRED IN DENYING THE
PETITIONERS’ MOTION TO DISMISS THIS CASE DESPITE THE CLEAR
FINDING THAT ‘RESPONDENT’ HAD ALREADY CEASED TO EXIST AS
A CORPORATION SINCE DECEMBER 31, 1960 YET.
chanroblespublishingcompany
II
“THE ‘RESPONDENT COURT’ ERRED IN NOT HOLDING THAT
ACTIONS PENDING FOR OR AGAINST A DEFUNCT CORPORATION
ARE DEEMED ABATED. chanroblespublishingcompany
III
“THE ‘RESPONDENT COURT’ ERRED IN HOLDING INSTEAD THAT
EVEN IF THERE WAS NO COMPLIANCE WITH SECTIONS 77 AND 78
OF THE CORPORATION LAW FOR THE WINDING UP OF THE
AFFAIRS OF THE
CORPORATION BY THE CONVEYANCE OF CORPORATE PROPERTY
AND PROPERTY RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE
APPOINTMENT OF A RECEIVER WITHIN THREE YEARS FROM THE
DISSOLUTION OF SUCH CORPORATION, ANY LITIGATION FILED BY
OR AGAINST THE DISSOLVED CORPORATION, INSTITUTED WITHIN
THREE YEARS AFTER SUCH DISSOLUTION BUT WHICH COULD NOT
BE TERMINATED WITHIN SAID PERIOD, MAY STILL BE CONTINUED
AS IT IS NOT DEEMED ABATED. chanroblespublishingcompany
IV
“THE ‘RESPONDENT COURT’ ERRED IN THE APPLICATION TO THIS
CASE OF ITS RULING IN PASAY CREDIT AND FINANCE
CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND
IN OVERLOOKING THE DISTINCTION LAID DOWN BY THIS
HONORABLE COURT IN NUMEROUS DECIDED CASES THAT ONLY
CASES FILED IN THE NAME OF ASSIGNEES, TRUSTEES OR
RECEIVERS (FOR A DEFUNCT CORPORATION), APPOINTED WITHIN
THREE YEARS FROM ITS DISSOLUTION, MAY BE PROSECUTED
BEYOND THE SAID THREE-YEAR PERIOD, AND THAT, ALL OTHERS
ARE DEEMED ABATED. chanroblespublishingcompany
V
“THE ‘RESPONDENT COURT’ ERRED IN HOLDING THAT WITH THE
FILING OF SPECIAL PROCEEDINGS NO. 92303 IN THE COURT OF
FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF ‘PRIVATE
RESPONDENT’ ON OCTOBER 23, 1973, OR, THIRTEEN YEARS
AFTER ITS DISSOLUTION, A LEGAL PERSONALITY WILL BE
APPOINTED TO REPRESENT THE CORPORATION.
chanroblespublishingcompany
VI
“THE ‘RESPONDENT COURT’ ERRED IN PRACTICALLY RULING THAT
THE THREE-YEAR PERIOD PROVIDED FOR BY THE CORPORATION
LAW WITHIN WHICH ASSIGNEES,
TRUSTEES OR RECEIVERS MAY BE APPOINTED MAY BE EXTENDED.
VII
“THE ‘RESPONDENT COURT’ ERRED IN NOT HOLDING THAT THE
FAILURE OF ‘PRIVATE RESPONDENT’ OR ITS AUTHORIZED
COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR
OF ITS ‘CIVIL DEATH’ MAY BE CONSIDERED AS AN
ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A
FAILURE TO PROSECUTE AND RESULTING IN THE ABATEMENT OF
THE SUIT. chanroblespublishingcompany
VIII
“THE ‘RESPONDENT COURT’ ERRED IN RECOGNIZING THE
PERSONALITY OF COUNSEL APPEARING FOR ‘PRIVATE
RESPONDENT’ DESPITE HIS ADMISSION THAT HE DOES NOT
KNOW THE ‘PRIVATE RESPONDENT’ NOR HAS HE MET ANY OF ITS
DIRECTORS AND OFFICERS.
“THE ‘RESPONDENT COURT’ ERRED IN AFFIRMING THE DECISION
OF THE TRIAL COURT HOLDING IN FAVOR OF THE ‘PRIVATE
RESPONDENT’. chanroblespublishingcompany
X
“THE ‘RESPONDENT COURT’ ERRED IN MODIFYING THE TRIAL
COURT’S DECISION AND HOLDING EVEN THE CONJUGAL
PARTNERSHIP OF PETITIONERS JOINTLY AND SEVERALLY LIABLE
FOR THE OBLIGATION ADJUDGED AGAINST PETITIONER-
HUSBAND, CARLOS GELANO.”
The main issue raised by petitioner is whether a corporation,
whose corporate life had ceased by the expiration of its terms of
existence, could still continue prosecuting and defending suits
after its dissolution and beyond the period of three (3) years
provided for under Act No. 1459, otherwise known as the
Corporation Law, to
wind up its affairs, without having undertaken any step to transfer
its assets to a trustee or assignee. chanroblespublishingcompany
The complaint in this case was filed on May 29, 1959 when
private respondent Insular Sawmill, Inc. was still existing. While
the case was being tried, the stockholders amended its Articles of
Incorporation by shortening the term of its existence from
December 31, 1959 to December 31, 1960, which was approved
by the Securities and Exchange Commission.
chanroblespublishingcompany
In American corporate law, upon which our Corporation Law was
patterned, it is well settled that, unless the statutes otherwise
provide, all pending suits and actions by and against a
corporation are abated by a dissolution of the corporation.[5]
Section 77 of the Corporation Law provides that the corporation
shall “be continued as a body corporate for three (3) years after
the time when it would have been dissolved, for the purpose of
prosecuting and defending suits by or against it,” so that,
thereafter, it shall no longer enjoy corporate existence for such
purpose. For this reason, Section 78 of the same law authorizes
the corporation, “at any time during said three years to convey all
of its property to trustees for the benefit of members,
stockholders, creditors and other interested,” evidently for the
purpose, among others, of enabling said trustees to prosecute
and defend suits by or against the corporation begun before the
expiration of said period.[6] Commenting on said sections, Justice
Fisher said:
“It is to be noted that the time during which the corporation,
through its own officers, may conduct the liquidation of its assets
and sue and be sued as a corporation is limited to three years
from the time the period of dissolution commences; but that
there is no time limited within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp. Law,
Sec. 78) that the conveyance in the trustees must he made within
the three-year period. It may be found impossible to complete
the work of liquidation within the three-year period or to reduce
disputed claims to judgment. The authorities are to the effect
that suits by or against a corporation abate where it ceased to be
an entity capable of suing or being sued (7 R.C.L. Corps., Par. 750);
but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Section 78 may
sue and be sued as such in all matters connected with the
liquidation. By the terms of the statute the effect of the
conveyance is to make the trustees the legal owners of the
property conveyed, subject to the beneficial interest therein of
creditors and stockholders.”[7]
When Insular Sawmill, Inc. was dissolved on December 31, 1960,
under Section 77 of the Corporation Law, it still has the right until
December 31, 1963 to prosecute in its name the present case.
After the expiration of said period, the corporation ceased to exist
for all purposes and it can no longer sue or be sued.[8]
chanroblespublishingcompany
However, a corporation that has a pending action and which
cannot be terminated within the three-year period after its
dissolution is authorized under Section 78 to convey all its
property to trustees to enable it to prosecute and defend suits by
or against the corporation beyond the three-year period.
Although private respondent did not appoint any trustee, yet the
counsel who prosecuted and defended the interest of the
corporation in the instant case and who in fact appeared in behalf
of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only.
Said counsel had been handling the case when the same was
pending before the trial court until it was appealed before the
Court of Appeals and finally to this Court. We therefore hold that
there was a substantial compliance with Section 78 of the
Corporation Law and as such, private respondent Insular Sawmill,
Inc. could still continue prosecuting the present case even beyond
the period of three (3) years from the time of its dissolution.
chanroblespublishingcompany
From the above quoted commentary of Justice Fisher, the trustee
may commence a suit which can proceed to final judgment even
beyond the three-year period. No reason can be conceived why a
suit already commenced by the corporation itself during its
existence, not by a mere trustee who, by fiction, merely continues
the legal personality of the dissolved corporation should not be
accorded similar treatment allowed — to proceed to final
judgment and execution thereof. chanroblespublishingcompany
The word “trustee” as used in the corporation statute must be
understood in its general concept which could include the
counsel to
whom was entrusted in the instant case, the prosecution of the
suit filed by the corporation. The purpose in the transfer of the
assets of the corporation to a trustee upon its dissolution is more
for the protection of its creditor and stockholders. Debtors like
the petitioners herein may not take advantage of the failure of
the corporation to transfer its assets to a trustee, assuming it has
any to transfer which petitioner has failed to show, in the first
place. To sustain petitioners’ contention would be to allow them
to enrich themselves at the expense of another, which all
enlightened legal systems condemn.
chanroblespublishingcompany
The observation of the Court of Appeals on the issue now before
Us that: chanroblespublishingcompany
“Under Section 77 of the Corporation Law, when the corporate
existence is terminated in any legal manner, the corporation shall
nevertheless continue as a body corporate for three (3) years
after the time when it would have been dissolved, for the
purpose of prosecuting and defending suits by or against it.
According to authorities, the corporation ‘becomes incapable of
making contracts or receiving a grant. It does not, however, cease
to be a body corporate for all purposes.’ In the case of Pasay
Credit and Finance Corp. vs. Isidro Lazaro and others, 46 OG (11)
5528, this Court held that ‘a corporation may continue a pending
litigation even after the lapse of the 3-year period granted by
Section 77 of Act 1459 to corporation subsequent to their
dissolution to continue its corporate existence for the purpose of
winding up their affairs and settling all the claims by and against
same.’ We note that the plaintiff Insular Sawmill, Inc. ceased as a
corporation on December 30, 1960 but the case at bar was
instituted on May 29, 1959, during the time when the
corporation was still very much alive. Accordingly, it is our view
that ‘any litigation filed by or against it instituted within the
period, but which could not be terminated, must necessarily
prolong that period until the final termination of said litigation as
otherwise corporations in liquidation would lose what should
justly belong to them or would be exempt from the payment of
just obligations through a mere technicality, something that
courts should prevent’ (Philippine Commercial Laws by Martin,
1962 Ed., Vol. 2, p. 1716).” chanroblespublishingcompany
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main
case. Petitioners contend that the obligations contracted by
petitioner Carlos Gelano from November 19, 1947 until August
18, 1950 (before the effectivity of the New Civil Code) and from
December 26, 1950 until July 14, 1952 (during the effectivity of
the New Civil Code) were his personal obligations, hence,
petitioners should not be held jointly and severally liable. As
regards the said issues, suffice it to say that with the findings of
the Court of Appeals that the obligation contracted by petitioner-
husband Carlos Gelano redounded to the benefit of the family,
the inevitable conclusion is that the conjugal property is liable for
his debt, pursuant to paragraph 1, Article 1408, Civil Code of
1889[9] which provision incidentally can still be found in
paragraph 1, Article 161 of the New Civil Code.[10] Only the
conjugal partnership is liable, not joint and several as erroneously
described by the Court of Appeals, the conjugal partnership being
only a single entity. chanroblespublishingcompany
WHEREFORE, with the modification that only the conjugal
partnership is liable, the appealed Decision is hereby affirmed in
all other respects. Without pronouncement as to costs.
chanroblespublishingcompany SO ORDERED.
[G.R. No. 152392. May 26, 2005]
EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF APPEALS
and KOREAN AIRLINES, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision[1]
of the Court of Appeals (CA) in CA-G.R. SP No. 61000 dismissing
the petition for certiorari and mandamus filed by Expertravel and
Tours, Inc. (ETI).
The Antecedents
Korean Airlines (KAL) is a corporation established and registered
in the Republic of South Korea and licensed to do business in the
Philippines. Its general manager in the Philippines is Suk Kyoo
Kim, while its appointed counsel was Atty. Mario Aguinaldo and
his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a
Complaint[2] against ETI with the Regional Trial Court (RTC) of
Manila, for the collection of the principal amount of P260,150.00,
plus attorneys fees and exemplary damages. The verification and
certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent
and legal counsel of KAL and had caused the preparation of the
complaint.
ETI filed a motion to dismiss the complaint on the ground that
Atty. Aguinaldo was not authorized to execute the verification and
certificate of non-forum shopping as required by Section 5, Rule 7
of the Rules of Court. KAL opposed the motion, contending that
Atty. Aguinaldo was its resident agent and was registered as such
with the Securities and Exchange Commission (SEC) as required
by the Corporation Code of the Philippines. It was further alleged
that Atty. Aguinaldo was also the corporate secretary of KAL.
Appended to the said opposition was the identification card of
Atty. Aguinaldo, showing that he was the lawyer of KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed
that he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a
special meeting held on June 25, 1999. Upon his motion, KAL was
given a period of 10 days within which to submit a copy of the
said resolution. The trial court granted the motion. Atty.
Aguinaldo subsequently filed other similar motions, which the
trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit[3] of even
date, executed by its general manager Suk Kyoo Kim, alleging that
the board of directors conducted a special teleconference on June
25, 1999, which he and Atty. Aguinaldo attended. It was also
averred that in that same teleconference, the board of directors
approved a resolution authorizing Atty. Aguinaldo to execute the
certificate of non-forum shopping and to file the complaint. Suk
Kyoo Kim also alleged, however, that the corporation had no
written copy of the aforesaid resolution.
On April 12, 2000, the trial court issued an Order[4] denying the
motion to dismiss, giving credence to the claims of Atty.
Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors
indeed conducted a teleconference on June 25, 1999, during
which it approved a resolution as quoted in the submitted
affidavit.
ETI filed a motion for the reconsideration of the Order,
contending that it was inappropriate for the court to take judicial
notice of the said teleconference without any prior hearing. The
trial court denied the motion in its Order[5] dated August 8,
2000.
ETI then filed a petition for certiorari and mandamus, assailing
the orders of the RTC. In its comment on the petition, KAL
appended a certificate signed by Atty. Aguinaldo dated January
10, 2000, worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and
appointed Corporate Secretary and Resident Agent of KOREAN
AIRLINES, a foreign corporation duly organized and existing under
and by virtue of the laws of the Republic of Korea and also duly
registered and authorized to do business in the Philippines, with
office address at Ground Floor, LPL Plaza Building, 124 Alfaro St.,
Salcedo Village, Makati City, HEREBY CERTIFY that during a special
meeting of the Board of Directors of the Corporation held on June
25, 1999 at which a quorum was present, the said Board
unanimously passed, voted upon and approved the following
resolution which is now in full force and effect, to wit:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A.
Aguinaldo & Associates or any of its lawyers are hereby appointed
and authorized to take with whatever legal action necessary to
effect the collection of the unpaid account of Expert Travel &
Tours. They are hereby specifically authorized to prosecute,
litigate, defend, sign and execute any document or paper
necessary to the filing and prosecution of said claim in Court,
attend the Pre-Trial Proceedings and enter into a compromise
agreement relative to the above-mentioned claim.
IN WITNESS WHEREOF, I have hereunto affixed my signature this
10th day of January, 1999, in the City of Manila, Philippines.
(Sgd.)
MARIO A. AGUINALDO
Resident Agent
SUBSCRIBED AND SWORN to before me this 10th day of January,
1999, Atty. Mario A. Aguinaldo exhibiting to me his Community
Tax Certificate No. 14914545, issued on January 7, 2000 at
Manila, Philippines.
(Sgd.)
Doc. No. 119; ATTY. HENRY D. ADASA
Page No. 25; Notary Public
Book No. XXIV Until December 31, 2000
Series of 2000. PTR #889583/MLA 1/3/2000[6]
On December 18, 2001, the CA rendered judgment dismissing the
petition, ruling that the verification and certificate of non-forum
shopping executed by Atty. Aguinaldo was sufficient compliance
with the Rules of Court. According to the appellate court, Atty.
Aguinaldo had been duly authorized by the board resolution
approved on June 25, 1999, and was the resident agent of KAL. As
such, the RTC could not be faulted for taking judicial notice of the
said teleconference of the KAL Board of Directors.
ETI filed a motion for reconsideration of the said decision, which
the CA denied. Thus, ETI, now the petitioner, comes to the Court
by way of petition for review on certiorari and raises the following
issue:
DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS
WHEN IT RENDERED ITS QUESTIONED DECISION AND WHEN IT
ISSUED ITS QUESTIONED RESOLUTION, ANNEXES A AND B OF THE
INSTANT PETITION?[7]
The petitioner asserts that compliance with Section 5, Rule 7, of
the Rules of Court can be determined only from the contents of
the complaint and not by documents or pleadings outside
thereof. Hence, the trial court committed grave abuse of
discretion amounting to excess of jurisdiction, and the CA erred in
considering the affidavit of the respondents general manager, as
well as the Secretarys/Resident Agents Certification and the
resolution of the board of directors contained therein, as proof of
compliance with the requirements of Section 5, Rule 7 of the
Rules of Court. The petitioner also maintains that the RTC cannot
take judicial notice of the said teleconference without prior
hearing, nor any motion therefor. The petitioner reiterates its
submission that the teleconference and the resolution adverted
to by the respondent was a mere fabrication.
The respondent, for its part, avers that the issue of whether
modern technology is used in the field of business is a factual
issue; hence, cannot be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. On the merits of
the petition, it insists that Atty. Aguinaldo, as the resident agent
and corporate secretary, is authorized to sign and execute the
certificate of non-forum shopping required by Section 5, Rule 7 of
the Rules of Court, on top of the board resolution approved
during the teleconference of June 25, 1999. The respondent
insists that technological advances in this time and age are as
commonplace as daybreak. Hence, the courts may take judicial
notice that the Philippine Long Distance Telephone Company, Inc.
had provided a record of corporate conferences and meetings
through FiberNet using fiber-optic transmission technology, and
that such technology facilitates voice and image transmission
with ease; this makes constant communication between a
foreign-based office and its Philippine-based branches faster and
easier, allowing for cost-cutting in terms of travel concerns. It
points out that even the E-Commerce Law has recognized this
modern technology. The respondent posits that the courts are
aware of this development in technology; hence, may take
judicial notice thereof without need of hearings. Even if such
hearing is required, the requirement is nevertheless satisfied if a
party is allowed to file pleadings by way of comment or
opposition thereto.
In its reply, the petitioner pointed out that there are no rulings on
the matter of teleconferencing as a means of conducting
meetings of board of directors for purposes of passing a
resolution; until and after teleconferencing is recognized as a
legitimate means of gathering a quorum of board of directors,
such cannot be taken judicial notice of by the court. It asserts
that safeguards must first be set up to prevent any mischief on
the public or to protect the general public from any possible
fraud. It further proposes possible amendments to the
Corporation Code to give recognition to such manner of board
meetings to transact business for the corporation, or other
related corporate matters; until then, the petitioner asserts,
teleconferencing cannot be the subject of judicial notice.
The petitioner further avers that the supposed holding of a
special meeting on June 25, 1999 through teleconferencing
where Atty. Aguinaldo was supposedly given such an authority is
a farce, considering that there was no mention of where it was
held, whether in this country or elsewhere. It insists that the
Corporation Code requires board resolutions of corporations to
be submitted to the SEC. Even assuming that there was such a
teleconference, it would be against the provisions of the
Corporation Code not to have any record thereof.
The petitioner insists that the teleconference and resolution
adverted to by the respondent in its pleadings were mere
fabrications foisted by the
respondent and its counsel on the RTC, the CA and this Court.
The petition is meritorious.
Section 5, Rule 7 of the Rules of Court provides:
SEC. 5. Certification against forum shopping. The plaintiff or
principal party shall certify under oath in the complaint or other
initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith:
(a) that he has not theretofore commenced any action or filed
any claim involving the same issues in any court, tribunal or
quasi-judicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is such other
pending action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn that the same
or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall not be
curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after
hearing. The submission of a false certification or non-compliance
with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping,
the same shall be ground for summary dismissal with prejudice
and shall constitute direct contempt, as well as a cause for
administrative sanctions.
It is settled that the requirement to file a certificate of non-forum
shopping is mandatory[8] and that the failure to comply with this
requirement cannot be excused. The certification is a peculiar and
personal responsibility of the party, an assurance given to the
court or other tribunal that there are no other pending cases
involving basically the same parties, issues and causes of action.
Hence, the certification must be accomplished by the party
himself because he has actual knowledge of whether or not he
has initiated similar actions or proceedings in different courts or
tribunals. Even his counsel may be unaware of such facts.[9]
Hence, the requisite certification executed by the plaintiffs
counsel will not suffice.[10]
In a case where the plaintiff is a private corporation, the
certification may be signed, for and on behalf of the said
corporation, by a specifically authorized person, including its
retained counsel, who has personal knowledge of the facts
required to be established by the documents. The reason was
explained by the Court in National Steel Corporation v. Court of
Appeals,[11] as follows:
Unlike natural persons, corporations may perform physical
actions only through properly delegated individuals; namely, its
officers and/or agents.
The corporation, such as the petitioner, has no powers except
those expressly conferred on it by the Corporation Code and
those that are implied by or are incidental to its existence. In
turn, a corporation exercises said powers through its board of
directors and/or its duly-authorized officers and agents. Physical
acts, like the signing of documents, can be performed only by
natural persons duly-authorized for the purpose by corporate by-
laws or by specific act of the board of directors. All acts within the
powers of a corporation may be performed by agents of its
selection; and except so far as limitations or restrictions which
may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the
relation of agency for a natural person govern the officer or agent
of a corporation, of whatever status or rank, in respect to his
power to act for the corporation; and agents once appointed, or
members acting in their stead, are subject to the same rules,
liabilities and incapacities as are agents of individuals and private
persons.
For who else knows of the circumstances required in the
Certificate but its own retained counsel. Its regular officers, like
its board chairman and president, may not even know the details
required therein.
Indeed, the certificate of non-forum shopping may be
incorporated in the complaint or appended thereto as an integral
part of the complaint. The rule is that compliance with the rule
after the filing of the complaint, or the dismissal of a complaint
based on its non-compliance with the rule, is impermissible.
However, in exceptional circumstances, the court may allow
subsequent compliance with the rule.[12] If the authority of a
partys counsel to execute a certificate of non-forum shopping is
disputed by the adverse party, the former is required to show
proof of such authority or representation.
In this case, the petitioner, as the defendant in the RTC, assailed
the authority of Atty. Aguinaldo to execute the requisite
verification and certificate of non-forum shopping as the resident
agent and counsel of the respondent. It was, thus, incumbent
upon the respondent, as the plaintiff, to allege and establish that
Atty. Aguinaldo had such authority to execute the requisite
verification and certification for and in its behalf. The respondent,
however, failed to do so.
The verification and certificate of non-forum shopping which was
incorporated in the complaint and signed by Atty. Aguinaldo
reads:
I, Mario A. Aguinaldo of legal age, Filipino, with office address at
Suite 210 Gedisco Centre, 1564 A. Mabini cor. P. Gil Sts., Ermita,
Manila, after having sworn to in accordance with law hereby
deposes and say: THAT -
1. I am the Resident Agent and Legal Counsel of the plaintiff in
the above entitled case and have caused the preparation of the
above complaint;
2. I have read the complaint and that all the allegations contained
therein are true and correct based on the records on files;
3. I hereby further certify that I have not commenced any other
action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or different divisions thereof, or any
other tribunal or agency. If I subsequently learned that a similar
action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions
thereof, or any tribunal or agency, I will notify the court, tribunal
or agency within five (5) days from such notice/knowledge.
(Sgd.)
MARIO A. AGUINALDO
Affiant
CITY OF MANILA
SUBSCRIBED AND SWORN TO before me this 30th day of August,
1999, affiant exhibiting to me his Community Tax Certificate No.
00671047 issued on January 7, 1999 at Manila, Philippines.
(Sgd.)
Doc. No. 1005; ATTY. HENRY D. ADASA
Page No. 198; Notary Public
Book No. XXI Until December 31, 2000
Series of 1999. PTR No. 320501 Mla. 1/4/99[13]
As gleaned from the aforequoted certification, there was no
allegation that Atty. Aguinaldo had been authorized to execute
the certificate of non-forum shopping by the respondents Board
of Directors; moreover, no such board resolution was appended
thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in
the Philippines, this does not mean that he is authorized to
execute the requisite certification against forum shopping. Under
Section 127, in relation to Section 128 of the Corporation Code,
the authority of the resident agent of a foreign corporation with
license to do business in the Philippines is to receive, for and in
behalf of the foreign corporation, services and other legal
processes in all actions and other legal proceedings against such
corporation, thus:
SEC. 127. Who may be a resident agent. A resident agent may
either be an individual residing in the Philippines or a domestic
corporation lawfully transacting business in the Philippines:
Provided, That in the case of an individual, he must be of good
moral character and of sound financial standing.
SEC. 128. Resident agent; service of process. The Securities and
Exchange Commission shall require as a condition precedent to
the issuance of the license to transact business in the Philippines
by any foreign corporation that such corporation file with the
Securities and Exchange Commission a written power of attorney
designating some persons who must be a resident of the
Philippines, on whom any summons and other legal processes
may be served in all actions or other legal proceedings against
such corporation, and consenting that service upon such resident
agent shall be admitted and held as valid as if served upon the
duly-authorized officers of the foreign corporation as its home
office.[14]
Under the law, Atty. Aguinaldo was not specifically authorized to
execute a certificate of non-forum shopping as required by
Section 5, Rule 7 of the Rules of Court. This is because while a
resident agent may be aware of actions filed against his principal
(a foreign corporation doing business in the Philippines), such
resident may not be aware of actions initiated by its principal,
whether in the Philippines against a domestic corporation or
private individual, or in the country where such corporation was
organized and registered, against a Philippine registered
corporation or a Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its
resident agent, was not specifically authorized to execute the said
certification. It attempted to show its compliance with the rule
subsequent to the filing of its complaint by submitting, on March
6, 2000, a resolution purporting to have been approved by its
Board of Directors during a teleconference held on June 25, 1999,
allegedly with Atty. Aguinaldo and Suk Kyoo Kim in attendance.
However, such attempt of the respondent casts veritable doubt
not only on its claim that such a teleconference was held, but also
on the approval by the Board of Directors of the resolution
authorizing Atty. Aguinaldo to execute the certificate of non-
forum shopping.
In its April 12, 2000 Order, the RTC took judicial notice that
because of the onset of modern technology, persons in one
location may confer with other persons in other places, and,
based on the said premise, concluded that Suk Kyoo Kim and Atty.
Aguinaldo had a teleconference with the respondents Board of
Directors in South Korea on June 25, 1999. The CA, likewise, gave
credence to the respondents claim that such a teleconference
took place, as contained in the affidavit of Suk Kyoo Kim, as well
as Atty. Aguinaldos certification.
Generally speaking, matters of judicial notice have three material
requisites: (1) the matter must be one of common and general
knowledge; (2) it must be well and authoritatively settled and not
doubtful or uncertain; and (3) it must be known to be within the
limits of the jurisdiction of the court. The principal guide in
determining what facts may be assumed to be judicially known is
that of notoriety. Hence, it can be said that judicial notice is
limited to facts evidenced by public records and facts of general
notoriety.[15] Moreover, a judicially noticed fact must be one not
subject to a reasonable dispute in that it is either: (1) generally
known within the territorial jurisdiction of the trial court; or (2)
capable of accurate and ready determination by resorting to
sources whose accuracy cannot reasonably be questionable.[16]
Things of common knowledge, of which courts take judicial
matters coming to the knowledge of men generally in the course
of the ordinary experiences of life, or they may be matters which
are generally accepted by mankind as true and are capable of
ready and unquestioned demonstration. Thus, facts which are
universally known, and which may be found in encyclopedias,
dictionaries or other publications, are judicially noticed, provided,
they are of such universal notoriety and so generally understood
that they may be regarded as forming part of the common
knowledge of every person. As the common knowledge of man
ranges far and wide, a wide variety of particular facts have been
judicially noticed as being matters of common knowledge. But a
court cannot take judicial notice of any fact which, in part, is
dependent on the existence or non-existence of a fact of which
the court has no constructive knowledge.[17]
In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms, teleconferencing
can bring people together under one roof even though they are
separated by hundreds of miles.[18] This type of group
communication may be used in a number of ways, and have three
basic types: (1) video conferencing - television-like
communication augmented with sound; (2) computer
conferencing - printed communication through keyboard
terminals, and (3) audio-conferencing-verbal communication via
the telephone with optional capacity for telewriting or
telecopying.[19]
A teleconference represents a unique alternative to face-to-face
(FTF) meetings. It was first introduced in the 1960s with American
Telephone and Telegraphs Picturephone. At that time, however,
no demand existed for the new technology. Travel costs were
reasonable and consumers were unwilling to pay the monthly
service charge for using the picturephone, which was regarded as
more of a novelty than as an actual means for everyday
communication.[20] In time, people found it advantageous to
hold teleconferencing in the course of business and corporate
governance, because of the money saved, among other
advantages include:
1. People (including outside guest speakers) who wouldnt
normally attend a distant FTF meeting can participate.
2. Follow-up to earlier meetings can be done with relative ease
and little expense.
3. Socializing is minimal compared to an FTF meeting; therefore,
meetings are shorter and more oriented to the primary purpose
of the meeting.
4. Some routine meetings are more effective since one can audio-
conference from any location equipped with a telephone.
5. Communication between the home office and field staffs is
maximized.
6. Severe climate and/or unreliable transportation may
necessitate teleconferencing.
7. Participants are generally better prepared than for FTF
meetings.
8. It is particularly satisfactory for simple problem-solving,
information exchange, and procedural tasks.
9. Group members participate more equally in well-moderated
teleconferences than an FTF meeting.[21]
On the other hand, other private corporations opt not to hold
teleconferences because of the following disadvantages:
1. Technical failures with equipment, including connections that
arent made.
2. Unsatisfactory for complex interpersonal communication, such
as negotiation or bargaining.
3. Impersonal, less easy to create an atmosphere of group
rapport.
4. Lack of participant familiarity with the equipment, the medium
itself, and meeting skills.
5. Acoustical problems within the teleconferencing rooms.
6. Difficulty in determining participant speaking order; frequently
one person monopolizes the meeting.
7. Greater participant preparation time needed.
8. Informal, one-to-one, social interaction not possible.[22]
Indeed, teleconferencing can only facilitate the linking of people;
it does not alter the complexity of group communication.
Although it may be easier to communicate via teleconferencing, it
may also be easier to miscommunicate. Teleconferencing cannot
satisfy the individual needs of every type of meeting.[23]
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality,
in light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with
related to such conferences.[24] Thus, the Court agrees with the
RTC that persons in the Philippines may have a teleconference
with a group of persons in South Korea relating to business
transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents
Board of Directors, the Court is not convinced that one was
conducted; even if there had been one, the Court is not inclined
to believe that a board resolution was duly passed specifically
authorizing Atty. Aguinaldo to file the complaint and execute the
required certification against forum shopping.
The records show that the petitioner filed a motion to dismiss the
complaint on the ground that the respondent failed to comply
with Section 5, Rule 7 of the Rules of Court. The respondent
opposed the motion on December 1, 1999, on its contention that
Atty. Aguinaldo, its resident agent, was duly authorized to sue in
its behalf. The respondent, however, failed to establish its claim
that Atty. Aguinaldo was its resident agent in the Philippines. Even
the identification card[25] of Atty. Aguinaldo which the
respondent appended to its pleading merely showed that he is
the company lawyer of the respondents Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding
of the teleconference only during the hearing of January 28,
2000; Atty. Aguinaldo then prayed for ten days, or until February
8, 2000, within which to submit the board resolution purportedly
authorizing him to file the complaint and execute the required
certification against forum shopping. The court granted the
motion.[26]The respondent, however, failed to comply, and
instead prayed for 15 more days to submit the said resolution,
contending that it was with its main office in Korea. The court
granted the motion per its Order[27] dated February 11, 2000.
The respondent again prayed for an extension within which to
submit the said resolution, until March 6, 2000.[28] It was on the
said date that the respondent submitted an affidavit of its general
manager Suk Kyoo Kim, stating, inter alia, that he and Atty.
Aguinaldo attended the said teleconference on June 25, 1999,
where the Board of Directors supposedly approved the following
resolution:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A.
Aguinaldo & Associates or any of its lawyers are hereby appointed
and authorized to take with whatever legal action necessary to
effect the collection of the unpaid account of Expert Travel &
Tours. They are hereby specifically authorized to prosecute,
litigate, defend, sign and execute any document or paper
necessary to the filing and prosecution of said claim in Court,
attend the Pre-trial Proceedings and enter into a compromise
agreement relative to the above-mentioned claim.[29]
But then, in the same affidavit, Suk Kyoo Kim declared that the
respondent do[es] not keep a written copy of the aforesaid
Resolution because no records of board resolutions approved
during teleconferences were kept. This belied the respondents
earlier allegation in its February 10, 2000 motion for extension of
time to submit the questioned resolution that it was in the
custody of its main office in Korea. The respondent gave the trial
court the impression that it needed time to secure a copy of the
resolution kept in Korea, only to allege later (via the affidavit of
Suk Kyoo Kim) that it had no such written copy. Moreover, Suk
Kyoo Kim stated in his affidavit that the resolution was embodied
in the Secretarys/Resident Agents Certificate signed by Atty.
Aguinaldo. However, no such resolution was appended to the said
certificate.
The respondents allegation that its board of directors conducted
a teleconference on June 25, 1999 and approved the said
resolution (with Atty. Aguinaldo in attendance) is incredible, given
the additional fact that no such allegation was made in the
complaint. If the resolution had indeed been approved on June
25, 1999, long before the complaint was filed, the respondent
should have incorporated it in its complaint, or at least appended
a copy thereof. The respondent failed to do so. It was only on
January 28, 2000 that the respondent claimed, for the first time,
that there was such a meeting of the Board of Directors held on
June 25, 1999; it even represented to the Court that a copy of its
resolution was with its main office in Korea, only to allege later
that no written copy existed. It was only on March 6, 2000 that
the respondent alleged, for the first time, that the meeting of the
Board of Directors where the resolution was approved was held
via teleconference.
Worse still, it appears that as early as January 10, 1999, Atty.
Aguinaldo had signed a Secretarys/Resident Agents Certificate
alleging that the board of directors held a teleconference on June
25, 1999. No such certificate was appended to the complaint,
which was filed on September 6, 1999. More importantly, the
respondent did not explain why the said certificate was signed by
Atty. Aguinaldo as early as January 9, 1999, and yet was notarized
one year later (on January 10, 2000); it also did not explain its
failure to append the said certificate to the complaint, as well as
to its Compliance dated March 6, 2000. It was only on January 26,
2001 when the respondent filed its comment in the CA that it
submitted the Secretarys/Resident Agents Certificate[30] dated
January 10, 2000.
The Court is, thus, more inclined to believe that the alleged
teleconference on June 25, 1999 never took place, and that the
resolution allegedly approved by the respondents Board of
Directors during the said teleconference was a mere concoction
purposefully foisted on the RTC, the CA and this Court, to avert
the dismissal of its complaint against the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R. SP No. 61000 is
REVERSED and SET ASIDE. The Regional Trial Court of Manila is
hereby ORDERED to dismiss, without prejudice, the complaint of
the respondent.
SO ORDERED.
[G.R. No. 125469. October 27, 1997]
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE
HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and PUERTO AZUL LAND, INC., respondents.
DECISION
TORRES, JR., J.:
The Securities and Exchange Commission is the government
agency, under the direct general supervision of the Office of the
President,[1] with the immense task of enforcing the Revised
Securities Act, and all other duties assigned to it by pertinent
laws. Among its inumerable functions, and one of the most
important, is the supervision of all corporations, partnerships or
associations, who are grantees or primary franchise and/or a
license or permit issued by the government to operate in the
Philippines.[2] Just how far this regulatory authority extends,
particularly, with regard to the Petitioner Philippine Stock
Exchange, Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the
resolution of the respondent Court of Appeals, dated June 27,
1996, which affirmed the decision of the Securities and Exchange
Commission ordering the petitioner Philippine Stock Exchange,
Inc. to allow the private respondent Puerto Azul Land, Inc. to be
listed in its stock market, thus paving the way for the public
offering of PALIs shares.
The facts of the case are undisputed, and are hereby restated in
sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate
corporation, had sought to offer its shares to the public in order
to raise funds allegedly to develop its properties and pay its loans
with several banking institutions. In January, 1995, PALI was
issued a Permit to Sell its shares to the public by the Securities
and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its
shares through the Philippine Stock Exchange, Inc. (PSE), for
which purpose it filed with the said stock exchange an application
to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a
perusal of PALIs application, recommended to the PSEs Board of
Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application,
the Board of Governors of PSE received a letter from the heirs of
Ferdinand E. Marcos, claiming that the late President Marcos was
the legal and beneficial owner of certain properties forming part
of the Puerto Azul Beach Hotel and Resort Complex which PALI
claims to be among its assets and that the Ternate Development
Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by
one Rebecco Panlilio for then President Marcos and now,
effectively for his estate, and requested PALIs application to be
deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of Puerto
Azul Beach Hotel and Resort Complex were not claimed by PALI
as its assets. On the contrary, the resort is actually owned by
Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club,
entities distinct from PALI. Furthermore, the Ternate
Development Corporation owns only 1.20% of PALI. The
Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort
Complex, thereby implying that they are also asserting legal and
beneficial ownership of other properties titled under the name of
PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good Government
(PCGG) requesting for comments on the letter of the PALI and the
Marcoses. On March 4, 1996, the PSE was informed that the
Marcoses received a Temporary Restraining Order on the same
date, enjoining the Marcoses from, among others, further
impeding, obstructing, delaying or interfering in any manner by or
any means with the consideration, processing and approval by
the PSE of the initial public offering of PALI. The TRO was issued
by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig
City in Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of
Governors of the PSE reached its decision to reject PALIs
application, citing the existence of serious claims, issues and
circumstances surrounding PALIs ownership over its assets that
adversely affect the suitability of listing PALIs shares in the stock
exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the
then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs
attention the action taken by the PSE in the application of PALI for
the listing of its shares with the PSE, and requesting that the SEC,
in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the
PSEs action on PALIs listing application and institute such
measures as are just and proper and under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE,
attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its
authorized representative to appear for an inquiry on the matter.
On April 22, 1996, the PSE submitted a letter to the SEC
containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs
decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the
Commissioners authority and jurisdiction under Section 3 of the
Revised Securities Act, in conjunction with Section 3, 6(j) and
6(m) of the Presidential Decree No. 902-A, the decision of the
Board of Governors of the Philippine Stock Exchange denying the
listing of shares of Puerto Azul Land, Inc., is hereby set aside, and
the PSE is hereby ordered to immediately cause the listing of the
PALI shares in the Exchange, without prejudice to its authority to
require PALI to disclose such other material information it deems
necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April
29, 1996, which was, however denied by the Commission in its
May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no
compelling reason to consider its order dated April 24, 1996, and
in the light of recent developments on the adverse claim against
the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the
investing public. In this regard, PALI is hereby ordered to amend
its registration statements filed with the Commission to
incorporate the full disclosure of these material facts and
information.
Dissatisfied with this ruling, the PSE filed with the Court of
Appeals on May 17, 1996 a Petition for Review (with application
for Writ of Preliminary Injunction and Temporary Restraining
Order), assailing the above mentioned orders of the SEC,
submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO
ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE
ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE
DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND
ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR
ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA
LEGIS AND WHICH FORM PART OF NAVAL/MILITARY
RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY
PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN
THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE
CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review
and subsequently, a Comment and Motion to Dismiss. On June
10, 1996, PSE filed its Reply to Comment and Opposition to
Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its
Resolution dismissing the PSEs Petition for Review. Hence, this
Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction
and authority to look into the decision of the petitioner PSE,
pursuant to Section 3[3] of the Revised Securities Act in relation
to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5]
of the Revised Securities Act, and for the purpose of ensuring fair
administration of the exchange. Both as a corporation and as a
stock exchange, the petitioner is subject to public respondents
jurisdiction, regulation and control. Accepting the argument that
the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering
that the petitioner is a stock exchange whose business is
impressed with public interest. Abuse is not remote if the public
respondent is left without any system of control. If the securities
act vested the public respondent with jurisdiction and control
over all corporations; the power to authorize the establishment
of stock exchanges; the right to supervise and regulate the same;
and the power to alter and supplement rules of the exchange in
the listing or delisting of securities, then the law certainly granted
to the public respondent the plenary authority over the
petitioner; and the power of review necessarily comes within its
authority.
All in all, the court held that PALI complied with all the
requirements for public listing, affirming the SECs ruling to the
effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and
abusive manner in disapproving the application of PALI for listing
of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing Rules
and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability
for listing of shares, PSE has failed to justify why it acted
differently on the application of PALI, as compared to the IPOs of
other companies similarly that were allowed listing in the
Exchange;
3. It appears that the claims and issues on the title to PALIs
properties were even less serious than the claims against the
assets of the other companies in that, the assertions of the
Marcoses that they are owners of the disputed properties were
not substantiated enough to overcome the strength of a title to
properties issued under the Torrens System as evidence of
ownership thereof;
4. No action has been filed in any court of competent jurisdiction
seeking to nullify PALIs ownership over the disputed properties,
neither has the government instituted recovery proceedings
against these properties. Yet the import of PSEs decision in
denying PALIs application is that it would be PALI, not the
Marcoses, that must go to court to prove the legality of its
ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the
Military/Naval Reservation does not inspire belief. The point is,
the PALI properties are now titled. A property losses its public
character the moment it is covered by a title. As a matter of fact,
the titles have long been settled by a final judgment; and the final
decree having been registered, they can no longer be re-opened
considering that the one year period has already passed. Lastly,
the determination of what standard to apply in allowing PALIs
application for listing, whether the discretion method or the
system of public disclosure adhered to by the SEC, should be
addressed to the Securities Commission, it being the government
agency that exercises both supervisory and regulatory authority
over all corporations.
On August 15, 1996, the PSE, after it was granted an extension,
filed an instant Petition for Review on Certiorari, taking exception
to the rulings of the SEC and the Court of Appeals. Respondent
PALI filed its Comment to the petition on October 17, 1996. On
the same date, the PCGG filed a Motion for Leave to file a Petition
for Intervention. This was followed up by the PCGGs Petition for
Intervention on October 21, 1996. A supplemental Comment was
filed by PALI on October 25, 1997. The Office of the Solicitor
General, representing the SEC and the Court of Appeals, likewise
filed its Comment on December 26, 1996. In answer to the PCGGs
motion for leave to file petition for intervention, PALI filed its
Comment thereto on January 17, 1997, whereas the PSE filed its
own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the
comments of respondent PALI (October 17, 1996) and the
Solicitor General (December 26, 1996). On may 16, 1997, PALI
filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC
had authority to order the PSE to list the shares of PALI in the
stock exchange. Under presidential decree No. 902-A, the powers
of the SEC over stock exchanges are more limited as compared to
its authority over ordinary corporations. In connection with this,
the powers of the SEC over stock exchanges under the Revised
Securities Act are specifically enumerated, and these do not
include the power to reverse the decisions of the stock exchange.
Authorities are in abundance even in the United States, from
which the countrys security policies are patterned, to the effect of
giving the Securities Commission less control over stock
exchanges, which in turn are given more lee-way in making the
decision whether or not to allow corporations to offer their stock
to the public through the stock exchange. This is in accord with
the business judgment rule whereby the SEC and the courts are
barred from intruding into business judgments of corporations,
when the same are made in good faith. The said rule precludes
the reversal of the decision of the PSE to deny PALIs listing
application, absent a showing a bad faith on the part of the PSE.
Under the listing rule of the PSE, to which PALI had previously
agreed to comply, the PSE retains the discretion to accept or
reject applications for listing. Thus, even if an issuer has complied
with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuers listing application if the
PSE determines that the listing shall not serve the interests of the
investing public.
Moreover, PSE argues that the SEC has no jurisdiction over
sequestered corporations, nor with corporations whose
properties are under sequestration. A reading of Republic of the
Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376,
would reveal that the properties of PALI, which were derived
from the Ternate Development Corporation (TDC) and the Monte
del Sol Development Corporation (MSDC), are under
sequestration by the PCGG, and the subject of forfeiture
proceedings in the Sandiganbayan. This ruling of the Court is the
law of the case between the Republic and the TDC and MSDC. It
categorically declares that the assets of these corporations were
sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that
PALIs ownership over its properties can no longer be questioned,
since certificates of title have been issued to PALI and more than
one year has since lapsed, is erroneous and ignores well settled
jurisprudence on land titles. That a certificate of title issued under
the Torrens System is a conclusive evidence of ownership is not
an absolute rule and admits certain exceptions. It is fundamental
that forest lands or military reservations are non-alienable. Thus,
when a title covers a forest reserve or a government reservation,
such title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance
on the alleged policy of full disclosure to uphold the listing of the
PALIs shares with the PSE, in the absence of a clear mandate for
the effectivity of such policy. As it is, the case records reveal the
truth that PALI did not comply with the listing rules and disclosure
requirements. In fact, PALIs documents supporting its application
contained misrepresentations and misleading statements, and
concealed material information. The matter of sequestration of
PALIs properties and the fact that the same form part of
military/naval/forest reservations were not reflected in PALIs
application.
It is undeniable that the petitioner PSE is not an ordinary
corporation, in that although it is clothed with the marking of a
corporate entity, its functions as the primary channel through
which the vessels of capital trade ply. The PSEs relevance to the
continued operation and filtration of the securities transactions in
the country gives it a distinct color of importance such that
government intervention in its affairs becomes justified, if not
necessary. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys a monopoly of securities
transactions, and as such, it yields an immense influence upon
the countrys economy.
Due to this special nature of stock exchanges, the countrys
lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges.[6]
These provisions, read together with the general grant of
jurisdiction, and right of supervision and control over all
corporations under Sec. 3 of P.D. 902-A, give the SEC the special
mandate to be vigilant in the supervision of the affairs of stock
exchanges so that the interests of the investing public may be
fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough
authority to uphold the SECs challenged control authority over
the petitioner PSE even as it provides that the Commission shall
have absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees
of primary franchises and/or a license or permit issued by the
government to operate in the Philippines The SECs regulatory
authority over private corporations encompasses a wide margin
of areas, touching nearly all of a corporations concerns. This
authority springs from the fact that a corporation owes its
existence to the concession of its corporate franchise from the
state.
The SECs power to look into the subject ruling of the PSE,
therefore, may be implied from or be considered as necessary or
incidental to the carrying out of the SECs express power to insure
fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange.[7] It is, likewise,
observed that the principal function of the SEC is the supervision
and control over corporations, partnerships and associations with
the end in view that investment in these entities may be
encouraged and protected, and their activities pursued for the
promotion of economic development.[8]
Thus, it was in the alleged exercise of this authority that the SEC
reversed the decision of the PSE to deny the application for listing
in the stock exchange of the private respondent PALI. The SECs
action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in
line with the SECs mission to ensure proper compliance with the
laws, such as the Revised Securities Act and to regulate the sale
and disposition of securities in the country.[9] As the appellate
court explains:
Paramount policy also supports the authority of the public
respondent to review petitioners denial of the listing. Being a
stock exchange, the petitioner performs a function that is vital to
the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the
economy moves on the basis of the rise and fall of stocks being
traded. By its economic power, the petitioner certainly can
dictate which and how many users are allowed to sell securities
thru the facilities of a stock exchange, if allowed to interpret its
own rules liberally as it may please. Petitioner can either allow or
deny the entry to the market of securities. To repeat, the
monopoly, unless accompanied by control, becomes subject to
abuse; hence, considering public interest, then it should be
subject to government regulation.
The role of the SEC in our national economy cannot be
minimized. The legislature, through the Revised Securities Act,
Presidential Decree No. 902-A, and other pertinent laws, has
entrusted to it the serious responsibility of enforcing all laws
affecting corporations and other forms of associations not
otherwise vested in some other government office.[10]
This is not to say, however, that the PSEs management
prerogatives are under the absolute control of the SEC. The PSE
is, after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the
PSEs main concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold
property in its own name, to enter (or not to enter) into contracts
with third persons, and to perform all other legal acts within its
allocated express or implied powers.
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it waives
no constitutional immunities and perquisites appropriate to such
body.[11] As to its corporate and management decisions,
therefore, the state will generally not interfere with the same.
Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the
courts are without authority to substitute their judgment for the
judgment of the board of directors. The board is the business
manager of the corporation, and so long as it acts in good faith,
its orders are not reviewable by the courts.[12]
Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSEs decision in
matters of application for listing in the market, the SEC may
exercise such power only if the PSEs judgment is attended by bad
faith. In board of Liquidators vs. Kalaw,[13] it was held that 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 of ill will, partaking of the nature
of fraud.
In reaching its decision to deny the application for listing of PALI,
the PSE considered important facts, which in the general scheme,
brings to serious question the qualification of PALI to sell its
shares to the public through the stock exchange. During the time
for receiving objections to the application, the PSE heard from
the representative of the late President Ferdinand E. Marcos and
his family who claim the properties of the private respondent to
be part of the Marcos estate. In time, the PCGG confirmed this
claim. In fact, an order of sequestration has been issued covering
the properties of PALI, and suit for reconveyance to the state has
been filed in the Sandiganbayan Court. How the properties were
effectively transferred, despite the sequestration order, from the
TDC and MSDC to Rebecco Panlilio, and to the private respondent
PALI, in only a short span of time, are not yet explained to the
Court, but it is clear that such circumstances give rise to serious
doubt as to the integrity of PALI as a stock issuer. The petitioner
was in the right when it refused application of PALI, for a contrary
ruling was not to the best interest of the general public.The
purpose of the Revised Securities Act, after all, is to give adequate
and effective protection to the investing public against fraudulent
representations, or false promises, and the imposition of
worthless ventures.[14]
It is to be observed that the U.S. Securities Act emphasized its
avowed protection to acts detrimental to legitimate business,
thus:
The Securities Act, often referred to as the truth in securities Act,
was designed not only to provide investors with adequate
information upon which to base their decisions to buy and sell
securities, but also to protect legitimate business seeking to
obtain capital through honest presentation against competition
form crooked promoters and to prevent fraud in the sale of
securities. (Tenth Annual Report, U.S. Securities and Exchange
Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1)
prevention of excesses and fraudulent transactions, merely by
requirement of that details be revealed; (2) placing the market
during the early stages of the offering of a security a body of
information, which operating indirectly through investment
services and expert investors, will tend to produce a more
accurate appraisal of a security. x x x. Thus, the Commission may
refuse to permit a registration statement to become effective if it
appears on its face to be incomplete or inaccurate in any material
respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which
is found to include any untrue statement of a material fact or to
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established
its name and goodwill, and it has the right to protect such
goodwill by maintaining a reasonable standard of propriety in the
entities who choose to transact through its facilities. It was
reasonable for PSE, therefore, to exercise its judgment in the
manner it deems appropriate for its business identity, as long as
no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of
government absolutism in a thing of the past, and should remain
so.
The observation that the title of PALI over its properties is
absolute and can no longer be assailed is of no moment. At this
juncture, there is the claim that the properties were owned by
the TDC and MSDC and were transferred in violation of
sequestration orders, to Rebecco Panlilio and later on to PALI,
besides the claim of the Marcoses that such properties belong to
Marcos estate, and were held only in trust by Rebecco Panlilio. It
is also alleged by the petitioner that these properties belong to
naval and forest reserves, and therefore beyond private
dominion. If any of these claims is established to be true, the
certificates of title over the subject properties now held by PALI
may be disregarded, as it is an established rule that a registration
of a certificate of title does not confer ownership over the
properties described therein to the person named as owner. The
inscription in the registry, to be effective, must be made in good
faith. The defense of indefeasibility of a Torrens Title does not
extend to a transferee who takes the certificate of title with
notice of a flaw.
In any case, for the purpose of determining whether PSE acted
correctly in refusing the application of PALI, the true ownership of
the properties of PALI need not be determined as an absolute
fact. What is material is that the uncertainty of the properties
ownership and alienability exists, and this puts to question the
qualification of PALIs public offering. In sum, the Court finds that
the SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing in the PSE of the
private respondent PALI, since this is a matter addressed to the
sound discretion of the PSE, a corporate entity, whose business
judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in
approving the registration and sale of securities in the SEC is not
for the Court to determine, but is left to the sound discretion of
the Securities and Exchange Commission. In mandating the SEC to
administer the Revised Securities Act, and in performing its other
functions under pertinent laws, the Revised Securities Act, under
Section 3 thereof, gives the SEC the power to promulgate such
rules and regulations as it may consider appropriate in the public
interest for the enforcement of the said laws. The second
paragraph of Section 4 of the said law, on the other hand,
provides that no security, unless exempt by law, shall be issued,
endorsed, sold, transferred or in any other manner conveyed to
the public, unless registered in accordance with the rules and
regulations that shall be promulgated in the public interest and
for the protection of investors by the Commission. Presidential
Decree No. 902-A, on the other hand, provides that the SEC, as
regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as
such, is given ample authority in determining appropriate
policies. Pursuant to this regulatory authority, the SEC has
manifested that it has adopted the policy of full material
disclosure where all companies, listed or applying for listing, are
required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for the
protection of the investing public, and under pain of
administrative, criminal and civil sanctions. In connection with
this, a fact is deemed material if it tends to induce or otherwise
effect the sale or purchase of its securities.[15] While the
employment of this policy is recognized and sanctioned by laws,
nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securities must
satisfy.[16] Pertinently, Section 9 of the Revised Securities Act
sets forth the possible Grounds for the Rejection of the
registration of a security:
- - The Commission may reject a registration statement and
refuse to issue a permit to sell the securities included in such
registration statement if it finds that - -
(1) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material facts
required to be stated therein or necessary to make the
statements therein not misleading; or
(2) The issuer or registrant - -
(i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this
Act, or the rules promulgated pursuant thereto, or any order of
the Commission;
(iii) has failed to comply with any of the applicable requirements
and conditions that the Commission may, in the public interest
and for the protection of investors, impose before the security
can be registered;
(iv) had been engaged or is engaged or is about to engaged in
fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is
engaged in a business that is illegal or contrary or government
rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be
sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal
stockholder of the issuer is disqualified to such officer, director or
principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of
the Commission that the sale of its security would not work to
the prejudice to the public interest or as a fraud upon the
purchaser or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities
dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities
and Exchange Commission. This measure was meant to protect
the interest of the investing public against fraudulent and
worthless securities, and the SEC is mandated by law to safeguard
these interests, following the policies and rules therefore
provided. The absolute reliance on the full disclosure method in
the registration of securities is, therefore, untenable. At it is, the
Court finds that the private respondent PALI, on at least two
points (nos. 1 and 5) has failed to support the propriety of the
issue of its shares with unfailing clarity, thereby lending support
to the conclusion that the PSE acted correctly in refusing the
listing of PALI in its stock exchange. This does not discount the
effectivity of whatever method the SEC, in the exercise of its
vested authority, chooses in setting the standard for public
offerings of corporations wishing to do so. However, the SEC must
recognize and implement the mandate of the law, particularly the
Revised Securities Act, the provisions of which cannot be
amended or supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of
arbitrariness and whimsical animation on its part. Its action in
refusing to allow the listing of PALI in the stock exchange is
justified by the law and by the circumstances attendant to this
case.
ACCORDINGLY, in view of the foregoing considerations, the Court
hereby GRANTS the Petition for Review on Certiorari. The
decisions of the Court of Appeals and the Securities and Exchage
Commission dated July 27, 1996 and April 24, 1996, respectively,
are hereby REVERSED and SET ASIDE, and a new Judgment is
hereby ENTERED, affirming the decision of the Philippine Stock
Exchange to deny the application for listing of the private
respondent Puerto Azul Land, Inc.
SO ORDERED.
FIRST DIVISION
SY CHIM and FELICIDAD G.R. No. 164958
CHAN SY,
Petitioners, Present:
PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
SY SIY HO & SONS, INC., CHICO-NAZARIO, JJ.
doing business under the name
and style GUAN YIAC
HARDWARE, Promulgated:
Respondents.
January 27, 2006
x-------------------------------------------------
-x
DECISION
CALLEJO, SR., J.:
The Sy Siy Ho & Sons, Inc. (hereinafter referred to as the
corporation) is a domestic corporation which was organized in the
1940s,[1] engaged primarily in importing, buying and selling
hardware, machineries, spare parts, supplies and other allied
products and merchandise to be sold exclusively on wholesale
basis. It was doing business under the name and style Guan Yiac
Hardware[2] with office at No. 453-455 T. Pinpin Street
, Binondo, Manila.
The corporation was owned and controlled by Sy Chim and his
children. Sometime in 1990, a controversy ensued between Sy
Chims two
sons, Sy Tiong Shiou and Sy Tiong Bio who was then the Vice
President for Finance. Sy Chim sided with Sy Tiong Shiou. The
intra-corporate dispute reached the Securities and Exchange
Commission (SEC), docketed as SEC Case No. 04443.
On May 31, 1993, the stockholders of record, Sy Chim and Sy
Tiong Shiou (Sy Chim Group), on the one hand, and Sy Tiong Bio,
Sy Tiong Gue, Sy Tiong Sim, Sy Tiong Han and Sy Tiong Yan (Sy
Tiong Bio Group), on the other, executed a Compromise
Agreement,[3] where the latter group relinquished their shares to
Sy Chim. The parties also agreed to divide and distribute the
assets and liabilities of the corporation as follows:
(a) Mr. SY CHIM GROUP Four (4) parts, or three (3) parts Sy Chim,
one (1) part Sy Tiong Shiou.
(b) Mr. SY TIONG BIO GROUP Five (5) parts at the rate of one (1)
each.[4]
Some of the shares of stocks were assigned to Felicidad Chan Sy,
wife of Sy Chim. The spouses Sy Chim and Felicidad Chan Sy, and
spouses Sy Tiong Shiou and Juanita Tan Sy, and their children,
Charlie, Romer and Jesse James Tan, then became stockholders
and members of the Board of Directors of the corporation. The
officers of the corporation were as follows: Sy Chim, President;
Felicidad Chan Sy, Assistant Treasurer; Sy Tiong Shiou, Vice
President and General Manager; Juanita Tan Sy (wife of Sy Tiong
Shiou), Corporate Treasurer; and Charlie Tan (son of spouses Sy
Tiong Shiou), Assistant General Manager.
As of the year 2000, the corporation had a gross profit of
P45,084,908.11 and P42,954,252.32 in 2001.[5] As of April 19,
2002, it had a capital stock of P150,000,000.00, divided into
150,000 shares, with a par value of P1,000.00 per share. The
treasury stocks amounted to P70,720,000.00. It had a subscribed
and paid-up capital of 103,733 shares and P103,733,000.00
respectively. The stockholders and the respective shareholdings
were as follows:
Stockholder No. of Shares Amount Subscribed
Subscribed and Paid (PHP)
SY CHIM 35,013 35,013,000
FELICIDAD CHAN SY 17,509 17,509,000
CHARLIE TAN 20,338 20,338,000
ROMER TAN 19,636 19,636,000
JESSE JAMES TAN 11,233 11,233,000
SY TIONG SHIOU 2 2,000
JUANITA TAN SY 2 _ 2,000
TOTAL 103,733 PHP103,733,000[6]
After almost a decade later, another intra-corporate dispute
ensued, this time between Sy Chim and his wife, on the one
hand, and their son Sy Tiong Shiou, on the other. In a letter
addressed to the corporation dated February 3, 2003, Corporate
Treasurer Juanita Tan Sy requested that she immediately be
removed from all responsibilities and obligations pertaining to all
corporate funds of the corporation, considering that Felicidad
Chan Sy was the one who handled and managed all deposits and
funds while Sy Chim supervised all expenditures. She further
reported that Felicidad Chan Sy did not make any cash deposit to
any bank from November 1, 2002 to January 31, 2003, and that
the total amount of cash as reflected in the bank statements is far
less than that reported in the corporations financial statements
and other records. She then proposed that the Board call a
special meeting to discuss these matters.[7] Thus, on March 24,
2003, a special meeting of the board of directors was held with
the spouses Sy Tiong Shiou and Juanita Tan Sy and their sons
Charlie, Romer and Jesse James Tan in attendance. In two
separate resolutions, Juanita Tan Sy was removed as corporate
treasurer and relieved of all responsibilities; the spouses Sy Chim
were held accountable for the undeposited money; and a new
external auditor was hired to make a complete audit of all books
and records.[8] Banaria Banaria and Company then submitted
Financial Reports covering 2001 and 2002.[9]
In a Letter[10] dated April 15, 2003, Sy Tiong Shiou informed his
parents of the corporations cash balance shortage as of March
31, 2003 (as reflected in the auditors report) and that there was
also an undeposited amount of P2,000,000.00 for the current
salary and emergency funds, and they had several postdated
checks in their possession. Sy Tiong Shiou requested that the
shortage be accounted for, and that the undeposited funds be
remitted. He also requested that the postdated checks and
original receipts for all disbursements of corporate funds be
turned over to Corporate Treasurer Juanita Tan Sy. The spouses Sy
Chim did not respond.
Spouses Sy Tiong Shiou and Juanita Tan Sy, their three sons held
another meeting on April 21, 2003, again without written notice
to the spouses Sy Chim, and approved a resolution[11]
authorizing Romer Tan to file a complaint for and in behalf of the
corporation against the said spouses in the Regional Trial Court
(RTC) of Manila. Sy Tiong Shiou was elected President of the
corporation.
The complaint[12] for accounting and damages against the
spouses Sy Chim was filed on May 6, 2003. The complaint alleged
that Felicidad Chan Sy, as custodian of all cash collections, had
been depositing amounts less than those appearing in the
financial statements which are in the defendants custody and
that no deposits were made in the corporations account from
November 1, 2002 to January 31, 2003. Based on the accountants
report, Felicidad Chan Sy failed to account for P67,117,230.30.
Plaintiff further alleged that, based on the corporations General
Information Sheet for 2003, the subscribed shares of the
corporation were as follows:
Name of Subscriber No. of Shares Subscribed Amount Paid-Up
Sy Tiong Shiou 27,987 P 27,987,000.00
Juanita Tan 32,017 32,017,000.00
Charlie Tan 12,512 12,512,000.00
Romer Tan 12,079 12,079,000.00
Jesse James Tan 6,910 6,910,000.00
Sy Chim 21,539 21,539,000.00
Felicidad Chan Sy 10,771 10,771,000.00
Total 123,815 P123,815,000.00[13]
Plaintiff prayed that, after due proceedings, judgment be
rendered in its favor, as follows:
a. Ordering defendants to render a full, complete and true
accounting of all the amounts, proceeds and funds paid to,
received and earned by the plaintiff since 1993 and to restitute to
the plaintiff, jointly and severally, all such amounts, proceeds and
funds that they have misappropriated;
b. Ordering defendants to pay, jointly and severally, the plaintiff
the amount of One Million (P1,000,000.00) Pesos by way of
exemplary damages, and One Million (P1,000,000.00) Pesos by
way of attorneys fees plus Five Thousand (P5,000.00) Pesos per
court appearance and litigation expenses in the amount of not
less than One Hundred Thousand (P100,000.00) Pesos;
c. Cost of suit.
Plaintiff further prays for such other reliefs [it] deems just and
equitable in the premises.[14]
In their answer[15] to the complaint, defendants averred, inter
alia, that any unaccounted cash account and irregularities in the
management of the corporation, if any, were the full
responsibility of Sy Tiong Shiou, Romer Tans own father, since he
has direct and actual management of the corporation under the
by-laws. Sy Chim, as corporate president, was a mere figurehead,
who only had general supervision over the corporations officers.
Juanita Tan Sy, as corporate treasurer, had custody of the
corporations funds and should have kept a complete and accurate
record of receipts, disbursements, and other commercial
transactions of the corporation. Felicidad Chan Sy merely
performed clerical work and acted as Corporate Treasurer only in
the absence of Juanita Tan Sy and under the latters close
supervision. They averred that any and all meetings of the
stockholders and members of the corporations Board of Directors
were null and void as they violated the corporate by-laws as well
as the Corporation Code. Defendants further denied executing
any deed or document authorizing the transfer of their shares, or
that treasury shares had been issued by the corporation.
Assuming that treasury shares were validly issued in 2002 as
claimed in the complaint, defendants should have been allowed
to exercise their pre-emptive rights over such shares.
Defendants prayed that they be granted the following reliefs:
(1) Dismissing the instant Complaint for utter lack of merit;
(2) Ordering Plaintiff Mr. Romer S. Tan to pay the following:
(a) Three Million Pesos (PHP3,000,000.00), by way of moral
damages;
(b) Three Million Pesos (PHP3,000,000.00), by way of exemplary
damages;
(c) Two Million Pesos (PHP2,000,000.00), by way of attorneys
fees;
(d) Costs of suit.
Other reliefs just and equitable under the premises are, likewise
prayed for.[16]
Feeling aggrieved, the spouses Sy Chim and Felicidad Chan Sy
filed a criminal complaint in the Office of the City Prosecutor of
Makati against the spouses Sy Tiong Shiou and their children for
violation of Section 74 of the Corporation Code.
In the meantime, Sy Chim, as corporate president, called for a
stockholders meeting on June 11, 2003. An amended complaint
was filed on July 1, 2003, praying for the issuance of a temporary
restraining order
and/or writ of preliminary prohibitory injunction. It was alleged,
among others, that on April 15, 2003, defendant Sy Chim and his
other children and the siblings of Sy Tiong Shiou, namely, Sy Yu
Hui-Pabilona, Sy Tiong Gue, Sy Tiong Yan, Sy Yu San, Sy Yu Siong,
Sy Yu Bun and her son, Bryan Lim, with two armed unidentified
men, forcibly entered the office and took P6,500,000.00 in cash
and postdated checks and other important documents, including
five boxes of Hennesy X.O. wine. Since defendant Sy Chim
abandoned his duties and responsibilities as president, the board
of directors elected Sy Tiong Shiou as president during a special
meeting on May 6, 2003. Sy Chim issued a Notice of Stockholders
Meeting on June 11, 2003 although he was no longer the
president of the corporation. The amended complaint further
alleged that a criminal complaint for robbery was filed against the
culprits in the Office of the City Prosecutor of Manila.
The plaintiff corporation prayed for that the court grant injunctive
relief, as follows:
a. An order be issued making the preliminary injunction
permanent;
b. Ordering defendants to render a full, complete and true
accounting of all the amounts, proceeds and funds paid to,
received and earned by the plaintiff since 1993 and to restitute to
the plaintiff, jointly and severally, all such amounts, proceeds and
funds that they have misappropriated;
c. Ordering defendants to pay, jointly and severally, the plaintiff
the amount of One Million (P1,000,000.00) Pesos by way of
exemplary damages, and One Million (P1,000,000.00) Pesos by
way of attorneys fees plus Five Thousand (P5,000.00) Pesos per
court appearance and litigation expenses in the amount of not
less than One Hundred Thousand (P100,000.00) Pesos;
d. Cost of suit.
Plaintiff further prays for such other reliefs [it] deems just and
equitable in the premises.[17]
During the hearing of plaintiffs petition for injunctive relief,
defendants submitted the following to the court: a Joint Affidavit,
[18] the Joint Supporting Affidavit[19] of See Cha and See Su Pe,
and the Complaint-Affidavit[20] of Felicidad Chan Sy for violation
of Section 74 of the Corporation Code against the spouses Sy
Tiong Shiou and Juanita Tan Sy, Jolie Ross Tan, Charlie Tan, Romer
Tan and Jesse James Tan filed in the Office of the City Prosecutor.
On August 6, 2003, the RTC issued an Order[21] granting the plea
for a writ of preliminary injunction on a bond of P500,000.00, and
enjoined defendant Sy Chim or any person acting for and in his
behalf from calling or holding a stockholders and/or Board of
Directors meetings of the corporation. This was followed by a writ
of preliminary injunction.[22]
On July 18, 2003, defendants filed a Motion for Production and
Inspection of Documents[23] (all the corporate books, accounting
records, financial statements and other documents mentioned in,
and pertinent to, the allegations of the complaint), praying that
they be permitted to inspect, examine and photocopy such
documents. Plaintiff opposed the motion, contending that it was
premature because defendants had not yet filed their answer to
the complaint.[24] On August 5, 2003, defendants also filed a
Motion for the Appointment of an Independent Auditor, to
conduct an audit of the funds and assets of the plaintiff
corporation.[25]
Plaintiff did not object to the motion.[26] The RTC granted the
motion on August 8, 2003 and appointed the accounting firm of
Punongbayan &
Araullo to conduct the audit of the corporations books and
records covering the period from 1993 to the present. The
Motion for Production and Inspection of Documents filed by the
defendants was, however, denied. Instead, the parties have been
directed to provide the accounting firm of all the books of
accounts, vouchers, receipts, purchase orders and similar other
documents necessary, and warned that failure to comply with the
order will be dealt with as for contempt. The RTC also directed
plaintiff to make its records available to the accounting firm, and
after completion of the firms task, to make such records available
for defendants inspection.[27]
In their answer to the amended complaint, defendants averred
that the meetings of the stockholders and board of directors were
null and void for having been conducted without prior notice to
them.[28]
Meanwhile, plaintiff moved that the court set aside its Order
appointing an independent auditor.
On August 26, 2003, defendants filed a Motion for the
Appointment of a Management Committee,[29] thus:
3. Defendants alleged that under Article IV of the By-Laws of Sy
Siy Ho & Sons, Inc., the funds of the corporation are under the
supervision, control and administration of Sy Tiong Shiou, as the
General Manager, and Sy Tiong Shious wife, Juanita Tan, as
Treasurer; and that the direction and control of the business and
operations of Guan Yiac Hardware were in the hands of the
General Manager Sy Tiong Shiou, who had the power to direct
and actively manage Guan Yiac Hardware.
4. Thus, defendants alleged that for any unaccounted difference
of the corporations account, including the PHP67,117,230.30
alleged in the Amended Complaint, it is Sy Tiong Shiou and
Juanita Tan who are at fault in view of their powers as General
Manager and Treasurer under the By-Laws of the Corporation and
in actual practice since they have active control of the day-to-day
operations of the Corporation.
5. However, while this Honorable Court will still determine, in the
course of these proceedings, whether it is defendants Sy Chim
and Felicidad Chan Sy or whether it is Sy Tiong Shiou and Juanita
Tan who are the parties responsible for the dissipation and loss of
the corporate funds and assets of Sy Siy Ho & Sons, Inc., the
active day-to-day control and management of Sy Siy Ho & Sons,
Inc. is still under the control and supervision of Sy Tiong Shiou
and Juanita Tan, especially so since defendants had been
physically ousted from their residence by Sy Tiong Shiou and his
family since 15 April 2003, and defendants have been denied
access to the corporate premises and its books and records.
6. The plaintiff itself has alleged that there has been a massive
dissipation and loss of its corporate assets and funds, and this
Court is still in the process of determining whether the General
Manager, Sy Tiong Shiou, and Treasurer, Juanita Tan, are the
parties responsible for such dissipation and loss. In view of the
foregoing, until this Honorable Court resolves with finality that Sy
Tiong Shiou and his wife, Juanita Tan, are not responsible for the
dissipation and loss, the control and management of the
Corporation must be transferred to an independent party to
ensure the preservation of the corporate assets.
7. While Sy Tiong Shiou and Juanita Tan remain in control of the
management of the corporation, there is imminent danger of
further dissipation, loss, wastage or destruction of the corporate
funds and assets.
8. Nor can control and management of the corporation be
transferred to the other stockholders Romer Sy Tan, Jesse James
Tan and Charlie Tan, or the Corporate Secretary Jolie Ross S. Tan,
who are all children of Sy Tiong Shiou and Juanita Tan.
9. Annexes E and J of the Amended Complaint, show that Romer
Sy Tan, Jesse James Tan and Charlie Tan, and Jolie Ross S. Tan,
allegedly acting as the members of the Board of Directors and the
corporate secretary of Sy Siy Ho & Sons, Inc., took part in the
actuations against defendants.
9.1 Plaintiffs annex E shows that Romer Sy Tan, Jesse James Tan
and Charlie Tan all signed the minutes of the purported special
meeting of the board of directors wherein, in a highly self-serving
manner, Juanita Tan was declared to have no knowledge of the
deposits, disbursements and expenditures of the plaintiff since
1993, and that all of these as well as the deposits were in the
control of the defendants. Jolie Ross Tan, on the other hand,
signed the Secretarys Certificate wherein Juanita Tan was
removed of all responsibilities pertaining to the funds of the
corporation since 1993.
9.2 On the other hand, annex J of plaintiffs Amended Complaint
shows that Romer Sy Tan, Jesse James Tan and Charlie Tan, and
Jolie Ross S. Tan all signed the minutes of the purported special
joint meeting of the board of directors and stockholders wherein
they supposedly declared defendant Sy Chim as having
abandoned his position, made Sy Tiong Shiou the President and
Chairman of the Board of Directors of the corporation, made
Juanita Tan the Vice President of the corporation, and cancelled
defendant Sy Chims authority as a signatory on the corporations
bank accounts.
9.3 Romer Sy Tan is also acting as the representative of Sy Siy Ho
& Sons, Inc. in this and in another case against the defendants.
10. Hence, all of the children of Sy Tiong Shiou and Juanita Tan
have taken action against their grandparents, defendants Sy Chim
and Felicidad Chan Sy. Obviously, the entire family of Sy Tiong
Shiou and Juanita Tan is acting against the defendants. In view of
the foregoing, the management and control of Sy Siy Ho & Sons,
Inc. cannot be transferred to any or all of the children of Sy Tiong
Shiou and Juanita Tan since they obviously would not protect the
interests of defendants Sy Chim and Felicidad Chan Sy as
stockholders of Sy Siy Ho & Sons, Inc.
11. Thus, there exists an urgent need for the immediate
appointment of a management committee to administer, manage
and preserve the assets, funds, properties and records of Sy Siy
Ho & Sons, Inc. in order to prevent any further dissipation,
wastage and loss.[30]
The control and management of the corporation must be
transferred pendente lite to an independent party to ensure the
preservation of the corporate assets.[31]
Plaintiff opposed the motion, contending that defendants failed
to allege and establish the two requisites for the creation of a
management committee under Section 1, Rule 9 of the Interim
Rules of Procedure for Intra-Corporate Controversies (Interim
Rules for brevity) under Republic Act No. 8799. It averred that,
compared to previous years under the management of Sy Tiong
Shiou, the volume of sales and importation of the corporation
had considerably increased, and that its obligation of
P29,404,664.00 to Metrobank was paid, and was thus in current
status. Plaintiff also alleged that:
8. The kind of plaintiffs business requires a special talent or
managerial sagacity that only a person who has been exposed to
it for a long and continuous period of time possesses. Sy Tiong
Shiou is that kind of individual because he has been in this kind of
business for more than forty (40) years, starting as an ordinary
employee and now as President and General Manager of the
plaintiff. As such, he knows its intimate details and nuances.
9. The appointment of a management committee to manage the
business affairs of the plaintiff would not only be unwise and ill-
advised. It might lead to a disastrous consequence for all its
stockholders and instead of saving the enterprise, as defendants
would claim, it will only result to its untimely demise. If this will
happen, the interest of all the stockholders as well as the welfare
of its more than seventy (70) employees, including that of their
families, will be greatly affected and jeopardized. xxx[32]
On September 9, 2003, defendants filed a Motion for Leave to
File and Third-Party Complaint against Sy Tiong Shiou and Juanita
Tan Sy, with the following prayer:
1. Declaring third-party defendants Sy Tiong Shiou and Juanita
Tan directly and solely liable in respect of plaintiffs claim for
accounting and damages and, in the same judgment, in the
remote event that third-party plaintiffs Sy Chim and/or Felicidad
Chan Sy are adjudged liable to plaintiff, ordering Sy Tiong Shiou
and Juanita Tan to pay all amounts necessary to discharge Sy
Chims and Felicidad Chan Sys liability to plaintiff by way of
indemnity or reimbursement;
2. Ordering third-party defendants to pay third-party plaintiffs the
amount of P300,000.00 as litigation expenses and attorneys fees.
Third-party plaintiffs further pray for such other reliefs as the
Honorable Court may deem just and equitable under the
premises.[33]
For their part, Sy Tiong Shiou and Juanita Tan Sy alleged
31. As shown, since 1993, third-party defendants Sy Tiong Shiou
and Juanita Tan have had full and complete control of the day-to-
day operations and complete custody and control of the
corporate funds of Sy Siy Ho & Sons, Inc., hence, they are the real
parties-in-interest in this case.
32. As shown, third-party defendants Sy Tiong Shiou and Juanita
Tan are liable for any shortfall or unaccounted difference of cash
account of Sy Siy Ho & Sons, Inc. for the period 1993 to 2003,
including the PHP67,117,230.30 alleged in paragraph 12 of the
Amended Complaint dated 30 June 2003, especially so since
third-party plaintiffs have been physically ousted from their
residence by Sy Tiong Shiou and his family since 15 April 2003,
and denied access to the corporate premises by Sy Tiong Shiou
and his family as well as its books and records.
33. Hence, third-party defendants Sy Tiong Shiou and Juanita Tan
should render a full, complete and true accounting of all the
amounts, proceeds and funds paid to, received and earned by Sy
Siy Ho & Sons, Inc. since 1993, and should be declared solely
liable to Sy Siy Ho & Sons, Inc. for any shortfall or unaccounted
difference of cash account of Sy Siy Ho & Sons, Inc. for the period
1993-2003, including the PHP67,117,230.30 alleged in paragraph
12 of the Amended Complaint dated 30 June 2003, and in the
remote event that this Honorable Court holds Sy Chim and
Felicidad Chan Sy liable to plaintiff, Sy Chim and Felicidad Chan Sy
are entitled to full indemnity and reimbursement from Sy Tiong
Shiou and Juanita Tan in respect of plaintiffs claim.[34]
On September 12, 2003, the RTC issued an Order[35] granting the
motion for the creation of a management committee pendente
lite to be composed of three members, one to be designated by
the court as chairman, and two others to be nominated by the
parties within 10 days, failing which the court would appoint the
same. Such management committee would have the power and
functions enumerated under Section 5, Rule 9 of the Interim
Rules.[36] The RTC justified the issuance of its order on its finding
that the parties were pointing accusing fingers at each other for
the unaccounted funds. According to the trial court, the question
of who should be held responsible for the unaccounted funds
would only be determined after an extensive audit of the
companys books. Moreover, while the main case is yet to be
heard, the fact remains that corporate assets, funds, properties
and records were in imminent danger of further dissipation or
total loss. Thus, it would serve the best interest of the company,
as well as its stockholders and creditors, to have the corporation
managed by an independent committee exclusively accountable
to the court. According to the RTC, the corporations assets,
income and properties would be protected and preserved until
the final determination of the main controversy.
The court further stated that the appointment of a receiver was
justified where pleadings requesting appointment were without
qualification as to information and belief and were not
controverted by defendants.[37] It noted that sufficient
allegations of misappropriation of corporate assets were made,
and that the appointment of a receiver is justified upon a
showing that
one who is president, director, managing officer and controlling
stockholder has allowed himself unauthorized salary increases,
used corporate funds for his private purposes, entrusted his
duties to others, conducted a competing business and made a
secret profit by transactions between the two concerns, used
employees and equipment of the company for his own business,
failed to keep complete corporate accounts, incurred penalties
for delinquent corporate taxes, and otherwise caused waste and
loss.[38]
On October 8, 2003, the RTC granted defendants Motion to File a
Third-Party Complaint and ordered that such complaint be
admitted.[39] Third-party defendants failed to file their answer
thereon and were declared in default upon motion of the third-
party plaintiffs.
Plaintiff corporation filed a motion for reconsideration of the
September 12, 2003 Order of the trial court creating a
management committee. Plaintiff reiterating its claim that
defendants failed to adduce evidence to prove the twin requisites
for the creation of a management committee under Section 1,
Rule 9 of the Interim Rules.
On October 15, 2003, the trial court issued a Supplemental
Order[40] directing the president, vice president, secretary,
treasurer, accountant, bookkeeper of the corporation or any
person acting on their behalf or under their instruction to allow
the parties or their duly-authorized representatives to be present
during the audit. The said officers were likewise enjoined to
secure court approval before disbursing funds in excess of
P10,000.00. Finally, the officers were directed to submit the
names of the banks the corporation did business with and to
indicate the balance of its accounts. The trial court gave the said
officers ten (10) days to comply with this order and that, upon
their failure to do so, would be dealt with as for contempt and
meted the appropriate penalty as warranted by the evidence.
However, Punongbayan & Araullo withdrew as independent
auditor.[41] Plaintiff filed a motion for the reconsideration of the
Supplemental Order, and, thereafter, a Manifestation and Motion,
[42] praying that the order of the court appointing an
independent auditor be executed. On December 11, 2003,
defendants filed a Comment/Opposition to Plaintiff Manifestation
and Motion.[43] Plaintiff made a reply thereto.
In an Order[44] dated December 19, 2003, the RTC denied
plaintiffs motion for reconsideration of the Supplemental Order.
The trial court designated Wencita C. Salvador as comptroller
tasked to oversee the maintenance of corporate books of
accounts, budget administration, internal control on
disbursements, reporting and interpretation of financial
statements, tax administration, protection of assets, financial
evaluation and government reporting. She was also designated as
a co-signatory to all checks or withdrawals of funds, to receive a
monthly fee of P50,000.00. The RTC reserved the authority to
expand her authority. However, it modified its Order dated
October 15, 2003, in that its prior approval was no longer
required in the disbursement of funds, except those in excess of
P500,000.00. It further ordered plaintiff not to obtain any loan or
other credit accommodations without its prior approval, and
directed plaintiffs depository banks to be advised of its order.
The hearing for the formation of the management committee was
set on January 9, 2004.[45] Plaintiff filed a motion for
reconsideration of the trial courts Order dated December 19,
2003.
The spouses Sy Tiong Shiou and Juanita Tan Sy filed a petition for
certiorari in the Court of Appeals (CA) assailing the October 8,
2003 and December 19, 2003 Orders of the RTC. The petition,
docketed as CA-G.R. SP No. 81897 and raffled to the appellate
courts 7th Division, contained the following prayer:
1. Upon the filing of this petition, a temporary restraining order
and/or writ of preliminary injunction be issued
restraining/enjoining the Honorable Respondent JUDGE from
undertaking further proceedings in Civil Case No. 03-106456 until
further orders from this Honorable Court;
2. After due proceedings, this petition be given due course and,
thereafter, judgment be rendered annulling and setting aside the
assailed Orders dated October 8, 2003 (Annex H, supra) and the
Order dated December 19, 2003 (Annex R, supra) and striking out
and quashing the Third-Party Complaint or ordering the
Honorable Respondent JUDGE to strike out and quash the Third-
Party Complaint.
Petitioners also pray for costs and for such other reliefs as just
and equitable under the premises.[46]
Meantime, in an Order[47] dated January 27, 2004, the RTC
declared that its December 19, 2003 Order designating Wencita
Salvador as comptroller was immediately executory.She was,
likewise, directed to immediately assume her functions and
ordered all the corporation officers to immediately turn over all
corporate books and records as may be required by her, and to
cooperate fully. The court designated the accounting firm of R.S.
Bernaldo & Associates to conduct the audit. The court also
directed the parties to provide the firm with all the financial
books of the corporation.
In a Letter dated January 30, 2004, Salvador informed the
corporation that she was assuming the position of comptroller
effective February 2, 2004.
The corporation filed an Urgent Motion[48] to lift the January 27,
2004 Order of the RTC, but before the RTC could resolve the
motion, the corporation filed a petition for certiorari with
injunctive relief in the CA, docketed as CA-G.R. SP No. 82171. The
following allegations were made:
A. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND
VIOLATED PETITIONERS RIGHT TO DUE PROCESS IN ISSUING THE
ORDER OF 12 SEPTEMBER 2003 (Annex F) GRANTING THE
MOTION OF THE DEFENDANTS (Private Respondents herein) FOR
THE CREATION OF A MANAGEMENT COMMITTEE PENDENTE LITE,
AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONERS
MOTION FOR RECONSIDERATION (Annex G) AND SUPPLEMENTAL
MOTION FOR RECONSIDERATION OF SAID ORDER (Annex H).
B. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND
VIOLATED PETITIONERS RIGHT TO DUE PROCESS IN ISSUING THE
SUPPLEMENTARY ORDER DATED OCTOBER 15, 2003 (Annex I),
AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONERS
MOTION FOR RECONSIDERATION OF SAID ORDER (Annex J).
C. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND
VIOLATED PETITIONERS RIGHT TO DUE PROCESS IN ISSUING THE
ORDER DATED DECEMBER 19, 2003 (Annex P), AND IN NOT
RESOLVING BUT INSTEAD MOOTING PETITIONERS MOTION FOR
RECONSIDERATION OF SAID ORDER (Annex Q).
D. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND
VIOLATED PETITIONERS RIGHT TO DUE PROCESS IN ISSUING THE
ORDER DATED JANUARY 27, 2004 (Annex S) AND IN NOT
RESOLVING BUT INSTEAD MOOTING PETITIONERS URGENT
MOTION TO LIFT ORDER DATED JANUARY 27, 2004 (Annex T).[49]
The appellate court set the hearing on the plea for injunctive
relief.[50]
On June 29, 2005, the CA rendered judgment granting the
petition and nullifying the orders issued by the RTC. The fallo of
the decision reads:
WHEREFORE, in view of the foregoing, the petition is GRANTED.
The Orders of September 12, 2003, October 15, 2003, December
19, 2003 and January 27, 2004, are hereby ANNULLED and SET
ASIDE. The instant case is remanded to the Regional Trial Court of
Manila, Branch 46, for further proceedings with special
instructions to resolve the same with deliberate dispatch in
accordance with the rules on summary procedure as defined by
the Interim Rules of Procedure for Intra-Corporate Controversies.
No pronouncement as to cost.
SO ORDERED.[51]
The CA ruled that respondents failed to prove a requirement for
the creation of a management committee under Section 1, Rule 9
of the Interim Rules: that there was imminent danger of massive
dissipation, loss, wastage or destruction of assets and other
properties of the corporation. The appellate court declared that
other than the bare allegations of Sy Chim and Felicidad Chan Sy
that they could not protect their interests because of dissention
among themselves on the one hand, and members of the board
of directors on the other, they failed to show that the business
operations of the corporation were paralyzed. The CA
emphasized that the creation of a management committee is for
the benefit of all the interested parties, not exclusively for the
benefit of the party at whose instance it is to be created. The
appellate court stated that a simple turn over of pertinent
receipts would facilitate the accounting sought for, without
resorting to the creation of a management committee; the
accuracy of the validity of the accounting report made as basis of
the complaint for accounting and damages should then be
validated during trial on the merits. Citing Jacinto v. First Womens
Credit Corporation,[52] the CA ruled that the trial court abused
its discretion amounting to excess of jurisdiction in ordering the
creation of a management committee pendente lite.
The CA also ruled that the trial court abused its discretion in
designating a comptroller and an accounting firm to assess the
corporations financial books and records. The CA stated that the
appointment of a comptroller was not authorized by the Interim
Rules. Thus, while Section 2, Rule 9 of the Interim Rules allows
the appointment of a receiver, there was no point in discussing
the same since the trial court committed abuse of its
discretion in creating a management committee. The CA
concluded that, when the trial court created a management
committee and designated an auditing firm and a comptroller, it
thereby imposed additional burden on the corporation.
The CA likewise declared that the order imposing a limitation of
Five Hundred Thousand Pesos (P500,000.00) disbursement
without prior court approval was likewise unnecessary and has no
direct bearing to the issue involved in the case pending before
the court a quo.
Spouses Sy Chim and Felicidad Chan Sy filed a motion for the
partial reconsideration of the decision, which the appellate court
denied.[53]
Said spouses, now petitioners, filed the instant petition for review
on certiorari, alleging that:
I
RESPONDENT COURT OF APPEALS ERRED IN INTERPRETING
SECTION 1, RULE 9 OF THE INTERIM RULES OF PROCEDURE
GOVERNING INTRA-CORPORATE CONTROVERSIES BECAUSE IT
FAILS TO GIVE FULL FORCE AND EFFECT TO THE PROTECTIVE
POWERS OF THE COURT.
II
RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
AUDIT AND ASSESSMENT OF THE CORPORATE BOOKS AND
RECORDS OF THE CORPORATION IS UNNECESSARY AND IS MORE
THAN WHAT THE CASE DEMANDS.
III
RESPONDENT COURT OF APPEALS ERRED IN RULING ON THE 8
AUGUST 2003 ORDER OF THE TRIAL COURT DIRECTING THE
CONDUCT OF AN AUDIT OF THE BOOKS AND RECORDS OF SY SIY
HO & SONS, INC. (SSHI) BECAUSE SUCH ORDER WAS NOT
COVERED BY THE PETITION BEFORE THE COURT OF APPEALS.
IV
RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
TRIAL COURT HAS NO POWER AND AUTHORITY TO DESIGNATE A
COMPTROLLER AND TO MONITOR THE DISBURSEMENTS OF THE
CORPORATION.
V moved that such orders be reconsidered.
RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
APPOINTMENT OF AN AUDITING FIRM IS PREMATURE.
VI
RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
TRIAL COURT GRAVELY ABUSED ITS DISCRETION IN ISSUING THE
ASSAILED ORDERS.[54]
The threshold issue is whether or not the RTC committed grave
abuse of its discretion amounting to excess or lack of jurisdiction
in (a) creating a management committee; (b) designating an
independent auditor and ordering an audit of the corporate
books and records of the corporation; and (c) appointing a
comptroller; and whether the issues raised in this Court are
factual in nature and proscribed by Rule 45 of the Rules of Civil
Procedure.
On the first issue, petitioners aver that the CA erred in strictly
applying the requisites under Section 1, Rule 9 of the Interim
Rules regarding the creation of a management committee. The
petitioners posit that the word and in Section 1(1), Rule 9 should
be interpreted as or, since a literal interpretation of the provision
would frustrate the plain intention of the Rule. They point out
that the appellate courts strict interpretation of the rule is
contrary to the spirit of Presidential Decree No. 902-A. They
further assert that the RTC is empowered to act and put a stop to
misappropriation of a corporations funds and thus prevent
business operations from being paralyzed. According to the
petitioners, for the Court to idly wait and watch as assets of the
corporation are plundered until the business is paralyzed, would
render inutile Section 1, Rule 9 of the Interim Rules.
Petitioners assert that at the time the complaint was filed in the
trial court, respondents abused their positions and mismanaged
corporate affairs, thus necessitating the immediate creation of a
management committee.
Petitioners maintain that corporate funds have massively
dissipated and would continue as long as the management and
control of the corporation remained with respondents. In fact,
respondents admitted in their complaint that there had been
massive dissipation of the funds and assets of the corporation
since 1993 when they (respondents) were still corporate officers.
Contrary to the ruling of the CA, the creation of the management
committee would ensure the continuity of the corporations
business operations and remove the management of the business
from the hands of those responsible for the dissipation of its
assets. Thus, petitioners insist, the interest of the corporation and
its stockholders would be preserved and protected through the
creation of a management committee.
Petitioners further assert that the appointment of an
independent auditing firm would satisfy the corporations claim
for a full accounting and ensure that all books, records and
documents of the corporation would be submitted to the auditor
to ensure a fair, impartial and full accounting. Such accounting
would determine the full extent of misappropriation of corporate
funds, as well as the shareholdings of its stockholders. Petitioners
insist that there was a necessity for the court to do so in order to
determine the true status of corporate funds, and to determine
who should be held responsible for the alleged misappropriation.
Petitioners assert that the auditors report is of doubtful
credibility as it is inconsistent with the external auditors report
(which has no indication of any missing fund). Moreover, the
appointment of an external auditor is necessitated by time
constraints and the volume of financial records to be examined.
Petitioners point out that, as gleaned from the amended
complaint, the corporation prayed for the accounting of the
missing funds; the appointment of an impartial and competent
auditor to conduct the audit achieves this purpose.
Petitioners maintain that respondent corporations failure to
question the trial courts appointment of an independent auditor
and accounting firm through a motion for reconsideration
effectively estopped them from assailing such orders; instead of
filing a petition for certiorari in the CA, respondent should have
On the issue of whether or not the trial court may designate a
comptroller, petitioners point out that although Section 1, Rule 9
of the Interim Rules does not specifically authorize the RTC to
appoint a comptroller, the same rule authorizes such court to
appoint a receiver; this latter power necessarily implies the
authority to designate a comptroller. According to petitioners, a
comptroller would exercise more limited functions and ensure
that no illegitimate corporate expenditures would be made and
that all government requirements will be complied with before
the formation of a management committee.
By way of comment, respondent avers that the issues raised by
petitioners are factual, which is proscribed by Rule 45 of the
Rules of Civil Procedure; whether or not there is factual basis for
the creation of a management committee under Section 1, Rule 9
of the Interim Rules is a question of fact. The CA correctly ruled
that petitioners failed to allege and substantiate the need for the
appointment of an auditing firm, as well as the requisites for the
creation of a management committee. The Order of the trial
court dated August 8, 2003 had already been overtaken and
rendered moot by the January 27, 2004 Order of the RTC which
the CA affirmed. Also, whether or not there is a need for the
appointment of comptroller and the limits of her power are
questions of fact which should not be raised in this Court.
The petition is partially granted.
Section 1, Rule 9 of the Interim Rules provides:
SECTION 1. Creation of a management committee. As an incident
to any of the cases filed under these Rules or the Interim Rules on
Corporate Rehabilitation, a party may apply for the appointment
of a management committee for the corporation, partnership or
association, when there is imminent danger of:
(1) Dissipation, loss, wastage or destruction of assets or other
properties; and
(2) Paralyzation of its business operations which may be
prejudicial to the interest of the minority stockholders, parties-
litigants or the general public.[55]
The said Rules, which took effect on April 1, 2001, was
promulgated by the Court pursuant to its power to promulgate
rules concerning pleading, practice and procedure in all courts
xxx providing for simplified and inexpensive procedure for the
speedy disposition of cases under Section 5(5), Article VIII of the
Constitution.
We do not agree with petitioners contention that the word and in
Section 1, Rule 9 of the Interim Rules should be interpreted to
mean or. While it is true that in Section 6(d) of Presidential
Decree No. 902-A,[56] an applicant for the appointment of a
management committee is mandated to prove only one of the
two requisites provided therein, the Court, in Jacinto v. First
Womens Credit Corporation,[57] ruled that the two requisites
should be present before a management committee may be
created and a receiver appointed by the RTC:
A reading of the aforecited legal provision reveals that for a
minority stockholder to obtain the appointment of an interim
management committee, he must do more than merely make a
prima facie showing of a denial of his right to share in the
concerns of the corporation; he must show that the corporate
property is in danger of being wasted and destroyed; that the
business of the corporation is being diverted from the purpose
for which it has been organized; and that there is serious
paralyzation of operations all to his detriment.
The rationale for the need to establish the confluence of the two
(2) requisites under Section 1, Rule 9 by an applicant for the
appointment of a
management committee is primarily based upon the fact that
such committee and receiver appointed by the court will
immediately take over the management of the corporation,
partnership or association, including such power as it may deem
appropriate, and any of the powers specified in Section 5 of the
Rule.[58]
Indeed, upon the appointment of a receiver, the duly
elected/appointed officers of the corporation are divested of the
management of such
corporation in favor of the management committee/receiver.
Such transference of the corporations management will certainly
have a negative, if not crippling effect, on the operations/affairs
of the corporation not only with banks and other business
institutions including those abroad which it deals business with. A
wall of uncertainty is erected; the short and long-term plans of
the management of the corporation are disrupted, if not derailed.
[59]
Thus, the creation and appointment of a management committee
and a receiver is an extraordinary and drastic remedy to be
exercised with care and caution; and only when the requirements
under the Interim Rules are shown. It is a drastic course for the
benefit of the minority stockholders, the parties-litigants or the
general public are allowed only under pressing circumstances
and, when there is inadequacy, ineffectual or exhaustion of legal
or other remedies. The power to intervene before the legal
remedy is exhausted and misused when it is exercised in aid of
such a purpose.[60] The power of the court to continue a
business of a corporation, partnership or association must be
exercised with the greatest care and caution. There should be a
full consideration of all the attendant facts, including the interest
of all the parties concerned.
Neither Presidential Decree No. 902-A and Republic Act No. 8799
nor the Interim Rules of Procedure define imminent danger.
Danger is a general term, including peril, jeopardy, hazard and
risk; as used in the Rule, it refers to exposure or liability to injury.
Imminent refers to something which is threatening to happen at
once, something close at hand, something to happen upon the
instant, close although not yet happening, and on the verge of
happening.[61]
In the present case, petitioners failed to make a strong showing
that there was an imminent danger of dissipation, loss, wastage
or destruction of assets or other properties of respondent
corporation and paralysis of its business operations which may be
prejudicial to the interest of the parties-litigants, petitioners, or
the general public. The RTC thus committed grave abuse of its
discretion amounting to excess of jurisdiction in creating a
management committee and the subsequent appointment of a
comptroller.
The bone of contention between the parties is whether there was
a shortage or unaccounted funds of the corporation, including
P67,117,230.30 allegedly incurred from 1993 (when petitioner Sy
Chim assumed office as President, Felicidad Chan Sy as Assistant
Treasurer, Sy Tiong Shiou as General Manager, and Juanita Tan Sy
as Corporate Treasurer); and who should be held accountable
therefor. Petitioners blame Sy Tiong Shiou and Juanita Tan Sy,
while the latter pin liability on petitioners based on the financial
report of the Banaria Banaria and Company and the claim of
Juanita Tan Sy. However, these issues of fact have yet to be
determined by the trial court after due proceedings. Indeed,
petitioners admitted the following in their motion for the
appointment of a management committee:
4. Thus, defendants allege that for any unaccounted difference of
the corporations account, including the PHP67,117,230.30
alleged in the Amended Complaint, it is Sy Tiong Shiou and
Juanita Tan who are at fault in view of their powers as General
Manager and Treasurer under the By-laws of the Corporation and
in actual practice since they have active control of the day-to-day
operations of the Corporation.
5. However, while this Honorable Court will still determine, in the
course of these proceedings, whether it is defendants Sy Chim
and Felicidad Chan Sy or whether it is Sy Tiong Shiou and Juanita
Tan who are the parties responsible for the dissipation and loss of
the corporate funds and assets of Sy Siy Ho & Sons, Inc., the
active day-to-day control and management of Sy Siy Ho and Sons,
Inc. is still under the control and supervision of Sy Tiong Shiou
and Juanita Tan, especially so since defendants have been
physically ousted from their residence by Sy Tiong Shiou and his
family since 15 April 2003, and defendants have been denied
access to the corporate premises and its books and records.[62]
Petitioners failed to adduce a shred of evidence during the
hearing of their motion to prove their claim that there was
imminent danger of dissipation, loss, wastage or destruction of
the assets or other properties of respondent ever since Sy Tiong
Shiou became president and Juanita Tan Sy continued discharging
her duties as corporate treasurer; nor is there proof that there
was imminent danger of paralyzing the business operations of the
corporation.
We have reviewed the records and find that, contrary to the
findings of the RTC, there is no imminent danger of dissipation or
total loss of the assets, funds, properties and records of
respondent corporation, or paralysis of business operations. In
fact, records show that there has been no slack in the business
operations of respondent corporation.
Petitioners were divested of their corporate positions, and thus
stockholdings in the corporation were reduced. Petitioners claim
that Sy Tiong Shiou and Juanita Tan Sy (third-party defendants
below) and their children unlawfully ousted them from their
positions and reduced their shareholdings in the corporation.
They posit that the formers claim that they (petitioners)
misappropriated the funds and assets of respondent was
designed to justify the unlawful ouster of petitioners from the
management of respondent corporation.Such claims, however,
have yet to be proven.
While the allegation that Sy Tiong Shiou and Juanita Tan Sy
abused their positions and mismanaged the affairs of respondent
corporation is a distinct possibility, petitioners failed to adduce
proof thereon. Mere possibility without proof of abusing
corporate positions and dissipation of assets and properties of
the corporation is not a valid ground for the appointment of a
management committee/receiver. Petitioners even failed to
adduce evidence to controvert the following allegations of
respondent:
b. A comparative breakdown of the volume of sales and
importation of the plaintiff for the years 2002 and 2003, during
the watch of defendant Sy Chim as President and during the time
that Sy Tiong Shiou took over as President would clearly show
that it has tremendously increased. A copy of the comparative
chart is attached hereto as Annex B;
c. In a certification dated August 29, 2003 issued by Amelin S. Yap,
SVP, Center Head of Metrobank, it is demonstrated that plaintiff,
through the able and competent management and leadership of
Sy Tiong Shiou, has been able to service and pay its financial
obligations when it paid Fourteen Million Nine Hundred Eleven
Thousand Six Hundred Sixty-Four (P14,911,664.00) Pesos under
trust receipt obligation from the period of April 2003 up to
August 2003. Likewise, it has also paid Fourteen Million Four
Hundred Ninety-Three Thousand (P14,493,000.00) Pesos under
loan obligation from the period April 2003 to August 2003.
Further, the bank certified that plaintiffs obligations are in current
status. Photocopy of the said certification is attached hereto as
Annex C;
d. On September 1, 2003, CHINABANK, through its Senior
Assistant Vice President, International Banking Group, Elaine
Marissa L. Ong issued a certification that, as per records as of
August 28, 2003, plaintiffs outstanding trust receipts amounted
only to P9,462,835.90 and that these trust receipts are not
beyond 180 days. Photocopy of the said certification is attached
hereto as Annex D;
e. Likewise, on September 1, 2003, Allied Banking Corporation,
through its Senior Assistant Vice President Florentina Garrovillo,
issued a certification that, as per records as of August 29, 2003,
plaintiffs outstanding trust receipts amounted to Seven Million
Two Hundred Ninety-Four Thousand Three Hundred Six Pesos &
77/100 (Php7,294,306.77) and that, as of that date, these trust
receipts are not beyond 180 days. Photocopy of the said
certification is attached hereto as Annex E.
7. In contrast, during defendant Sy Chims incumbency as
President, the plaintiff could hardly pay its financial obligations
with its creditor banks. In fact, it has to ask and request for
extensions. When Trust Receipt with Reference No.
014/TR/000631/02 fell due on February 7, 2003 after 180 days,
defendant Sy Chim as President of the plaintiff could not pay the
same and instead asked for an extension of 90 days or up to May
8, 2003. Photocopy of the document showing this transaction is
attached hereto as Annex F.[63]
We agree that past conduct and condition of the corporation may
be considered in determining the present situation and what the
future will be. However, a management committee or receiver
will not be appointed merely because of things done or
attempted at a past time when the present situation and the
prospects for the future are not such as to warrant taking the
control of the property out of the hands of its owners.[64] The
circumstances to justify the appointment of a management
committee/ receiver must be extraordinary and something more
must be shown than past misconduct and a mere apprehension
based thereon of future wrongdoing.[65] To repeat, in the
absence of a strong showing of an imminent danger of
dissipation, loss, wastage or destruction of assets or other
properties of a corporation and paralysis of its business
operations, the mere apprehension of future misconduct based
upon prior mismanagement will not authorize the appointment
of a management committee/receiver.[66]
We also agree with the CA ruling that the RTC committed grave
abuse of its discretion in excess of its jurisdiction in appointing a
comptroller and ordering her to immediately assume office
before the creation of a management committee. However, the
CA ruled that the RTC committed a grave abuse of its discretion
amounting to excess of its jurisdiction, thus:
As defined in Blacks Law Dictionary, a comptroller is an officer of
a business, charged with certain duties in relation to the fiscal
affairs of the same, principally to examine and audit the accounts,
to keep records, and report the financial situation from time to
time. We have perused the Interim Rules of Procedure for Intra-
Corporate Controversies and nowhere in the said rules does it
authorize the designation of a comptroller. Rule 9, Section 2 of
the Procedure, however, mandates that, in the event the court
finds the application for the creation of a management
committee sufficient in form and substance, the court shall issue
an order appointing a receiver of known probity, integrity and
competence and without any conflict of interest as therein
defined to immediately take over the corporation, partnership or
association,
specifying such powers as it may deem appropriate under the
circumstances, including any of the powers specified in Section 5
of said Rule. We see no need to discuss whether it would have
been appropriate for the court-a-quo to appoint a receiver in
view of the finding of this Court that the creation of a
management committee was done in grave abuse of discretion.
[67]
Indeed, the RTC committed grave abuse of its discretion in
ordering the appointment of Wencita Salvador as comptroller. We
do not foreclose the power of a management committee to
appoint a comptroller under Section 5, Rule 9 of the Interim
Rules. However, with the Courts ruling that the creation of such
committee and the appointment of a receiver is without factual
basis, it follows that the appointment of a comptroller is, likewise,
unnecessary.
We agree with petitioners contention that the RTC acted in the
exercise of its discretion in appointing an independent auditor.
Such appointment is appropriate and even necessary if only to
limit the issues for trial and thus abbreviate the proceedings. The
ouster of petitioners as president and treasurer of respondent
and the takeover by third-party defendants and their children of
the management and control of the corporation is based on the
claim of Juanita Tan Sy that petitioner Felicidad Chan Sy had a
shortage of P67,117,230.30 for 2001 and 2002 per the report of
the auditing firm, Banaria Banaria & Company. Petitioners, for
their part, claim that such report is inconsistent with that of
respondents external auditor Anita Uy from 1994 to 2002 which
were submitted to the Bureau of Internal Revenue and the SEC
showing that no amount was due to stockholders.In the report of
the Banaria Banaria & Company, the corporation had retained
earnings of P56,170,114.89 for the period ending December 31,
2001, whereas per report of Uy, respondent had net earnings of
only P16,252,114.89, hence, the need for an independent
auditor. Moreover, such audit would forestall any
misappropriation of corporate funds and assets of respondent
corporation in the interim.
We note that petitioners prayed for the appointment of an
independent auditor, and that respondent did not even object to
the motion. Consequently, the RTC appointed the Punongbayan &
Araullo firm to conduct the audit. However, respondent made a
volte face and filed its Manifestation and Motion dated
November 26, 2003 and posited that an independent auditor was
not necessary since in its complaint, it merely prayed for an
accounting of the funds which were missing based on the report
of the Banaria Banaria & Company auditing firm.
We hold that an independent audit is imperative in this case so
that, based on such report, the RTC would be able to determine
the veracity not only of respondents claim that petitioners
misappropriated corporate funds and assets, but also that of
petitioners who claim otherwise.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals is AFFIRMED
WITH THE MODIFICATIONthat the Orders of the Regional Trial
Court dated August 8, 2003, October 15, 2003 and January 27,
2004, relative to the appointment of R.S. Bernabe and Associates
as independent auditor, are AFFIRMED.

No costs.

SO ORDERED.