CORPORATION LAW CASE DIGESTS
3C & 3S – ATTY. CARLO BUSMENTE
RAMON LEE vs. CA
G.R. No. 93695 – February 4, 1992
FACTS:
A complaint for a sum of money was filed by the International
Corporate Bank, Inc. against the private respondents (Sacoba
Manufacturing Corp., Pablo Gonzales, Jr. and Tomas Gonzales) who, in
turn, filed a third party complaint against ALFA (Alfa Integrated Textile
Mills) and the petitioners and the DBP. The trial court issued an order
requiring the issuance of an alias summons upon ALFA through the DBP
as a consequence of the petitioners' letter informing the court that the
summons for ALFA was erroneously served upon them considering that
the management of ALFA had been transferred to the DBP. The DBP
claimed that it was not authorized to receive summons on behalf of
ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence. Private
respondents argued that the voting trust agreement dated March 11,
1981 did not divest the petitioners of their positions as president and
executive vice-president of ALFA so that service of summons upon ALFA
through the petitioners as corporate officers was proper. Petitioners
reiterating their stand that by virtue of the voting trust agreement they
ceased to be officers and directors of ALFA, hence, they could no longer
receive summons or any court processes for or on behalf of ALFA. In
support of their second motion for reconsideration, the petitioners
attached thereto a copy of the voting trust agreement between all the
stockholders of ALFA (the petitioners included), on the one hand, and
the DBP, on the other hand, whereby the management and control of
ALFA became vested upon the DBP. Trial court reversed itself by setting
aside its previous Order dated January 2, 1989 and declared that
service upon the petitioners who were no longer corporate officers of
ALFA cannot be considered as proper service of summons on ALFA. In a
petition for certiorari, the CA set aside the orders of the respondent
judge and respondent corporation is ordered to file its answer within
the reglementary period.
ISSUE:
WON the execution of the voting trust agreement by a stockholder
whereby all his shares to the corporation have been transferred to the
trustee deprives the stockholder of his position as director of the
corporation making the latter authorized to receive service of summons
for and in behalf of the private domestic corporation.
HELD:
YES. Both under the old and the new Corporation Codes there is no
dispute as to the most immediate effect of a voting trust agreement on
the status of a stockholder who is a party to its execution — from legal
title-holder or owner of the shares subject of the voting trust
agreement, he becomes the equitable or beneficial owner. The
penultimate question, therefore, is whether the change in his status
deprives the stockholder of the right to qualify as a director under
section 23 of the present Corporation Code which deletes the phrase "in
his own right." Section 30 of the old Code states that:
"Every director must own in his own right at least one
share of the capital stock of the stock corporation of
which he is a director, which stock shall stand in his
name on the books of the corporation. A director who
ceases to be the owner of at least one share of the
capital stock of a stock corporation of which is a
director shall thereby cease to be a director . . .."
(Underlining supplied)
With the omission of the phrase "in his own right" the election
of trustees and other persons who in fact are not the beneficial
owners of the shares registered in their names on the books of
the corporation becomes formally legalized (see Campos and
Lopez-Campos, supra, p. 296). Hence, this is a clear
indication that in order to be eligible as a director, what is
material is the legal title to, not beneficial ownership of,
the stock as appearing on the books of the corporation.
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The facts of this case show that the petitioners, by virtue of the
voting trust agreement executed in 1981 disposed of all their
shares through assignment and delivery in favor of the DBP, as
trustee. Consequently, the petitioners ceased to own at least
one share standing in their names on the books of ALFA as
required under Section 23 of the new Corporation Code. They
also ceased to have anything to do with the management of the
enterprise. The petitioners ceased to be directors. Hence, the
transfer of the petitioners' shares to the DBP created vacancies
in their respective positions as directors of ALFA.
Considering that the voting trust agreement between ALFA and
the DBP transferred legal ownership of the stocks covered by
the agreement to the DBP as trustee, the latter became the
stockholder of record with respect to the said shares of stocks.
In the absence of a showing that the DBP had caused to be
transferred in their names one share of stock for the purpose of
qualifying as directors of ALFA, the petitioners can no longer be
deemed to have retained their status as officers of ALFA which
was the case before the execution of the subject voting trust
agreement. There appears to be no dispute from the records
that DBP has taken over full control and management of the
firm.
There can be no reliance on the inference that the five-year
period of the voting trust agreement in question had lapsed in
1986 so that the legal title to the stocks covered by the said
voting trust agreement ipso facto reverted to the petitioners as
beneficial owners pursuant to the 6th paragraph of section 59
of the new Corporation Code which reads:
"Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed
period, and the voting trust certificates as well as the
certificates of stock in the name of the trustee or trustees shall
thereby be deemed cancelled and new certificates of stock shall
be reissued in the name of the transferors."
On the contrary, it is manifestly clear from the terms of the
voting trust agreement between ALFA and the DBP that the
duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP.
In view of the foregoing, the ultimate issue of whether or not
there was proper service of summons on ALFA through the
petitioners is readily answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is
provided that:
"Sec. 13.Service upon private domestic corporation or
partnership. — If the defendant is a corporation organized
under the laws of the Philippines or a partnership duly
registered, service may be made on the president, manager,
secretary, cashier, agent or any of its directors."
In view of the foregoing, the ultimate issue of whether or not
there was proper service of summons on ALFA through the
petitioners is readily answered in the negative. Under section
13, Rule 14 of the Revised Rules of Court, it is provided that:
"Sec. 13.Service upon private domestic corporation or
partnership. — If the defendant is a corporation organized
under the laws of the Philippines or a partnership duly
registered, service may be made on the president, manager,
secretary, cashier, agent or any of its directors."
ONG YONG vs. TIU
G.R. No. 144476 – February 1, 2002
FACTS:
The First Landlink Asia Development Corporation (FLADC) was fully
owned by the Tius. This commercial complex, then unfinished, was
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threatened with incompletion when its owner found it in financial
distress in the amount of P190,000,000.00 for being indebted to the
Philippine National Bank. The Ongs were invited by the Tius to invest in
FLADC and the corresponding Pre-Subscription Agreement was
executed whereby both parties agreed to maintain equal shareholdings
in FLADC with the Ongs investing cash while the Tius contributing
property, which included a parcel of land in the name of Masagana
Telemart, Inc.
The Ongs: subscription of 1 million shares of FLADC at a par
value of P100.00 per share. P100 Million is payable in
cash.
The Tius: subscribe to 549,800 shares more of FLADC at a par
value of P100.00 per share over and above their
previous subscription of 450,200 shares in order to
complete a subscription of 1 million shares. Masagana
Telamart, Inc. executed a Deed of Assignment over the
1,902.30 square meter property in favor of FLADC and
delivered the owner's copy of the transfer certificate of
title of the same as well as the possession thereof to
the latter (pp. 221-226, Rollo). Title over the 151
square meter property was also transferred in the
name of FLADC.
The P190,000,000.00 loan from the PNB was also settled, but
not quite in accord with the provisions of the Pre-Subscription
Agreement. The Ongs had to pay P70,000,000.00 more aside from their
P100,000,000.00 subscription payment, and the Tius had to advance
P20,000,000.00 in cash, which amount was loaned to them by the
former.
The controversy between the two parties arose when the Ongs
refused to credit the number of FLADC shares in the name of Masagana
Telamart, Inc. commensurate to its 1,902.30 square meter property
contribution; also when they refused to credit the number of FLADC
shares in favor of the Tius commensurate to their 151 square meter
property contribution; and when David S. Tiu and Cely Y. Tiu were
proscribed from assuming and performing their duties as Vice-
President and Treasurer, respectively of FLADC. These became the basis
of the Tius' unilateral rescission of the Pre-Subscription Agreement on
February 23, 1996.
On February 27, 1996, the Tius sought the Securities and
Exchange Commission (SEC) confirmation of their rescission of the Pre-
Subscription Agreement.
SEC Hearing Officer Rolando G. Andaya, Jr. rendered a decision
confirming the rescission:
(a)The cancellation of the 1,000,000 shares subscription of the
individual defendants in FLADC
(b)FLADC to pay the amount of P170,000,000.00 to the
individual defendants representing the return of their
contribution for 1,000,000 shares of FLADC
(f)The individual defendants, individually and collectively, their
agents and representatives, to desist from exercising or
performing any and all acts pertaining to stockholder, director
or officer of FLADC or in any manner intervene in the
management and affairs of FLADC
(g)The individual defendants, jointly and severally, to return to
FLADC interest payment in the amount of P8,866,669.00 and
all interest payments as well as any payments on principal
received from the P70,000,000.00 inexistent loan, plus the legal
rate of interest thereon from the date of their receipt of such
payment, until fully paid.
SEC Hearing Officer Manolito S. Soller issued an omnibus order
and partially reconsidered the decision:
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…partially reconsidered only insofar
as the investment amounting to P70
million which is hereby declared not
as premium on capital stock but a
liability of FLADC or advances of the
defendants made in favor of FLADC,
and that the interest paid on account
thereof is hereby declared legal and
valid.
SEC en banc:
…Confirms the rescission of the Pre-
Subscription Agreement and
REVERSING the same insofar as it held
that the seventy million (P70 M) paid
by the Ong Group over and above the
par value of the one million
(1,000,000) shares of stocks of FLADC
which they had subscribed as loan
and not premium.
Court of Appeals: Affirmed with modification the appealed decision.
(a) The Ong and Tiu Groups are ordered to liquidate
First Landlink Asia Development Corporation in
accordance with the following cash and property
contributions of the parties therein.
(b) The remaining assets of First Landlink Asia
Development Corporation shall be transferred to
the Tius.
(c) First Landlink Asia Development Corporation is
hereby ordered to pay the amount of
P70,000,000.00 that was advanced to it by the Ong
Group upon the finality of this decision.
(d) The Tius are hereby ordered to pay the amount of
P20,000,000.00 loaned them by the Ongs upon the
finality of this decision.
1st ISSUE: WON rescission is not applicable when "rights" over
the subject matter of the rescission have been acquired
by third persons.
The Ongs argue that the payment on subscription of
P100 million by the Ongs is not to the Tius and the
payment of P54.98 million by the Tius is not to the Ongs,
but to FLADC, the corporation, which is distinct and
separate from the Ongs and the Tius notwithstanding
the fact that they may be the only stockholders.
RULING: Applicable. FLADC is not a third person in relation to
the Pre-Subscription Agreement though not named as
a party. FLADC is deemed a party to the agreement by
virtue of stipulations pour autrui clearly and
deliberately conferring on it a favor or benefit which it
subsequently accepted. (Art. 1311, Civil Code) 12 Such
benefit was in the form of the payments made by the
parties for their subscription to shares of stock in
FLADC, which FLADC accepted.
2nd ISSUE: WON the Ongs violated the "Pre-Subscription
Agreement" when it prevented the Tius from assuming
the duties and responsibilities of the Vice-President
and Treasurer of FLADC by not providing them with
adequate offices.
RULING: YES. The Pre-Subscription Agreement provides that
the position of Vice-President and Treasurer of FLADC
shall be nominated from the Tiu Group. Despite the
provision in the agreement turning over the
management and administration of FLADC to the Ong
Group, there is nothing in the agreement which states
that the elected Vice-President and Treasurer of
FLADC cannot or must not be allowed to assume the
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responsibilities of their respective office. The Ongs
have reduced the positions of Vice-President and
Treasurer of FLADC to mere figure heads.
3rd ISSUE: WON the Court of Appeals erred in ordering the
transfer to the Tiu Group whatever remains of the
assets of the FLADC and the management thereof,
upon the return to each group of their respective cash
and property contribution.
The Ongs further cite Sec. 122 of the Corporation Code
to support their claim that the order of the Court of
Appeals for the return of the parties' contribution
(distribution of FLADC assets, in the words of the Ongs)
is prohibited, thus:
"Sec. 122.Corporate Liquidation. — . . ."Except by
decrease of capital stock and as otherwise allowed by
this Code, no corporation shall distribute any of its
assets or property except upon lawful dissolution and
after payment of all its debts and liabilities."
RULING: NO. As a legal consequence of rescission, the order of
the Court of Appeals to return the cash and property
contribution of the parties is based on law, hence,
cannot be considered an act of misappropriation. For
how can the rescission of the Pre-Subscription
Agreement be implemented without returning to the
two groups whatever they delivered to the corporation
in accordance with the Agreement?
With regard to the order of the Court of Appeals
transferring to the Tiu Group whatever remains of the
assets of FLADC and the management thereof, the
same is but an inevitable consequence of the
rescission of the Pre-Subscription Agreement.
Restoration of the parties to status quo ante dictates
that the building constructed on the two (2) existing
lots of FLADC, the remaining asset of FLADC, be
transferred to the Tiu Group. The status quo ante
immediately prior to the execution of the Pre-
Subscription Agreement was that the Tius, then wholly
owning FLADC, had control and custody over this
remaining asset.
G.R. No. 144629 - Petition of the Tius
1st ISSUE: WON the Court of Appeals erred in ordering the
liquidation of FLADC instead of merely ordering the
restitution of the parties' respective investments.
RULING: NO. Restoration of the parties to their relative position
which they would have occupied had no contract ever
been made is not practicable nor possible because we
cannot turn back the hands of time when the mall was
only "nearing completion" in 1994, when the mall was
not fully tenanted yet and they had an existing loan of
P190 million with PNB with an interest of 19% per
annum. But the Masagana Citimall is now completely
constructed/finished, the P190 million loan fully paid
without their having to pay enormous interest, and the
Tius cannot deny that the Ongs are partly to be
credited for the success of the venture. What the Tius
want the Court to order would have been fair and just
had there been no fault on their part and had they
come to Court with clean hands because he who comes
to Court must come with clean hands. If, as the Tius
espouse, the Court would simply order the return of
the P190 million of the Ongs, then, the Tius would
be unjustly enriched at the expense of the Ongs.
Under the law, no one shall unjustly enrich himself at
the expense of another. "Niguno non deue
enriquecerse tortizamente condano de otro. (In short,
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magmumukhang milking cows lang yung mga Ongs
kapag ibabalik lang yung investment nila)
2nd ISSUE: WON the Tiu Group cannot be credited with the
number of shares commensurate to the value of said
lot (indicated below).
According to CA, "Under the Pre-Subscription
Agreement, the Tius were obliged to execute a Deed of
Assignment over a 151 square meter parcel of land
in favor of FLADC as payment of 49,800 shares
thereof at a par value of P100.00 per share. While
there is on record a Deed of Assignment thereon in
favor of FLADC, said Deed of Assignment was not
executed by the Tius in favor of FLADC. The Deed of
Assignment was executed by the Lichaucos in favor of
FLADC. If ever somebody has to be credited with the
number of shares commensurate to the value of the 151
square meter property, it will not be the Tius but the
Lichaucos.
RULING: NO, They must be credited. The Lichaucos are not
parties to the Pre-Subscription Agreement and are not
even demanding that they be credited with such
shares in exchange for the said property. Just like this
property, the 1,902.30 sq. m. parcel of land in the name
of Masagana Telamart, Inc. (also a corporation owned
by the Tius), was also acquired by the Tius before the
execution of the Pre-Subscription Agreement. The fact
that the 1,902.30 sq. m. property was acquired by the
Tius beforehand does not prejudice the Ongs, as
shown by the Ongs' non-objection to crediting the
Masagana Telamart, Inc. with the commensurate
number of shares, subject only to the Tius' payment of
the expenses for the transfer of the title in the name of
FLADC. So, too, in the case of the 151 sq. m. property,
the fact that the Deed of Assignment between the
Lichaucos and the FLADC was executed prior to the
execution of the Pre-Subscription Agreement does not
prejudice the Ongs. Therefore, the Tius should be
credited with 49,800 shares in FLADC for this property
contribution, pursuant to the Pre-Subscription
Agreement.
3rd ISSUE: WON the P70 million paid by the Ongs in excess of the
actual par value of one million shares they acquired
from FLADC was a premium on capital and not an
advance.
RULING: NO, it is an advance. "The Pre-Subscription Agreement
is explicit in its terms —that the Ongs agreed to pay
P100,000,000.00 only for 1 million shares in FLADC at
a par value of P100.00 per share. FLADC's application
for an increase in capital stock shows that the par
value of each of its shares is P100.00 only. The same
application also shows that the Ongs subscribed to 1
million shares of FLADC at a par value of P100.00 per
share (Ibid). There is nothing in the application which
shows that FLADC's shares are to be sold at a premium
or at an amount higher than the stated par value per
share.
"The Tius also claim that the P70,000,000.00 cannot
be treated as an advance because there was no board
resolution authorizing FLADC to incur such an
obligation. As pointed out by SEC Hearing Official
Soller, the fact that no board resolution was passed
allowing FLADC to incur such an obligation is
immaterial, it appearing that there was also no board
resolution authorizing FLADC to secure a
P20,000,000.00 advance from the Tius. What matters
then and now is that the P190,000,000.00 loan from
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PNB was finally settled in order for FLADC to resume

its business without fear of foreclosure of its
properties.

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