CORPO. Case Digests #1
They also alleged that
A. DOCTRINE OF PIERCING THE CORPORATE VEIL
1. CONCEPT BUILDERS, INC. vs. NLRC; and Norberto Marabe,
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio
Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina,
Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos
[G.R. No. 108734. May 29, 1996]
FACTS:
Concept Builders, Inc., a domestic corporation, is engaged in the
construction business. Private respondents were employed by said
company as laborers, carpenters and riggers.
Private respondents were served individual written notices of
termination of employment by Concept Builders, effective
on November 30, 1981. It was stated in the individual notices that
their contracts of employment had expired and the project in which
they were hired had been completed. However, Public respondent
found it to be, the fact, that at the time of the termination of private
respondents employment, the project in which they were hired had
not yet been finished and completed. Concept Builders had to
engage the services of sub-contractors whose workers performed
the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal,
unfair labor practice and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against petitioner. The
Labor Arbiter rendered judgment ordering Concept Builders to
reinstate private respondents and to pay them back wages
equivalent to one year. NLRC dismissed the motion for
reconsideration filed by petitioner on the ground that the said
decision had already become final and executory.
The Labor Arbiter issued a writ of execution directing the sheriff to
execute the Decision. The writ was partially satisfied. Thereafter, an
Alias Writ of Execution was issued by the Labor Arbiter directing the
sheriff to collect the balance of the judgment award, and to
reinstate private respondents to their former positions. The sheriff
issued a report stating that he tried to serve the alias writ of
execution on Concept Builders through the security guard on duty
but the service was refused on the ground that Concept Builders no
longer occupied the premises.
Upon motion of private respondents, the Labor Arbiter issued a
second alias writ of execution. The said writ had not been enforced
by the special sheriff because all the employees inside Concept
Builders premises claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by Concept Builders
The said special sheriff recommended that a break-open order be
issued to enable him to enter Concept Builders premises so that he
could proceed with the public auction sale of the aforesaid personal
properties. A certain Dennis Cuyegkeng filed a third-party claim with
the Labor Arbiter alleging that the properties sought to be levied
upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President.
Private respondents filed a Motion for Issuance of a Break-Open
Order, alleging that HPPI and petitioner’s corporation were owned
by the same incorporator stockholders.
petitioner temporarily suspended its business operations in order to
evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any damages
which petitioner and HPPI may suffer because of the issuance of the
break-open order. HPPI filed an Opposition to private respondents
motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from Concept Builders.
HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm while
Concept Builders was then engaged in construction.
The Labor Arbiter issued an Order which denied private respondents
motion for break-open order. Private respondents then appealed to
the NLRC. The NLRC set aside the order of the Labor Arbiter, issued a
break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction
sale of the properties already levied upon. It dismissed the third-
party claim for lack of merit. Petitioner moved for reconsideration
but the motion was denied by the NLRC. Hence, the resort to the
present petition.
ISSUE: Whether or not Concept Builders, Inc and HPPI are one and
the same corporation as would justify the piercing the veil of
corporate fiction.
HELD:
It is a fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. This is
true likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and circumstances of each
case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will
justify the application of the doctrine of piercing the corporate veil,
to wit:
1. Stock ownership by one or common ownership of both
corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
The test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the
corporate veil. in applying the instrumentality or alter ego doctrine,
the courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to
that operation.
Thus, the question of whether a corporation is a mere alter ego, a
mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission
on May 15, 1987, stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-
party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
“Both information sheets were filed by the same Virgilio O. Casino as
the corporate secretary of both corporations. It would also not be
amiss to note that both corporations had the same president, the
same board of directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant shared
the same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not
of respondents.”
Clearly, petitioner ceased its business operations in order to evade
the payment to private respondents of backwages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner’s corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to
petitioner’s corporation.
It is very obvious that the second corporation seeks the protective
shield of a corporate fiction whose veil in the present case could,
and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy
upon the property subject of the execution, private respondents had
no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the
NLRC.
2. Bibiano Reynoso v CA and General Credit Corporation
(sorry kung mahaba; I included the details and the story kasi ma-
detail magparecite si Sir)
Facts: In the early 1960s, the Commercial Credit Corporation (CCC), a
financing and investment firm decided to organize franchise
companies in different parts of the country where it shall hold 30%
equity. CCC’s employees were designated as managers of the
franchise companies. Bibiano Reynoso was the resident manager of
CCC-QC (Quezon City).
CCC-QC entered into an exclusive management contract with CCC
where CCC-QC shall sell and/or assign its receivables to CCC.
However this was discontinued due to the DOSRI Rule prohibiting
corporations from lending funds to its directors, officers,
stockholders, etc. Due to such DOSRI Rule, CCC decided to form CCC-
Equity Corp. to which CCC transferred its 30% equity in CCC-QC.
Reynoso and several others became employees of CCC-Equity while
still he was still a manager of CCC-QC. Reynoso oversaw the
operations of CCC-QC and supervised its employees. However,
Reynoso still received his salaries and benefits from CCC and he was
also a member of CCC’s Employees Pension Plan.
In 1980, a complaint for sum of money was filed by CCC-QC against
Reynoso (who had been dismissed from employment by CCC-Equity)
and his wife Hidelita Nuval. The complaint alleged that he embezzled
funds of CCC-QC amounting to 1,300,593.11, P630,000 of which was
supposedly used to buy a house in Valle Verde I, Pasig City. The
property was mortgaged to CCC and later foreclosed.
The RTC dismissed the case for lack of merit and granted Reynoso’s
counterclaim for degradation, humiliation and mental anguish
suffered: 185,000 plus 14% interest p.a. until fully paid;
P3,639,470.82 with 14% interest p.a.; 200,000 as moral damages;
100,000 as exemplary damages; 25,000 for Atty’s fees and costs of
suit. The decision became final and a Writ of Execution was issued
in 1989. However, judgment remained unsatisfied so Reynoso filed a
Motion for Alias Writ of Execution. Meanwhile, in 1983, CCC became
known as the General Credit Corporation.
General Credit Corp filed a special appearance alleging that it was
not a party to the case and therefore, Reynoso should direct his
claim against CCC-QC and not General Credit. Reynoso refused to do
so, stating that CCC-QC is an adjunct instrumentality and agency of
CCC. He invoked a decision of the SEC where it was declared that
General Credit Corp, CCC-Equity and other franchised companies like
CCC-QC were declared as one corporation. In 1992, the RTC issued
an order directing issuance of the alias writ of execution and denied
General Credit’s Omnibus Motion which alleged that the SEC
decision was still pending appeal and that the levy on the properties
was erroneous.
In a separate case filed in 1992, General Credit filed a complaint
against Reynoso and Edgardo Tanangco, Deputy Sheriff of QC
praying that the levy on the parcel of land in Pasig be enjoined and
annulled. RTC did not issue a TRO. General Credit instituted 2
petitions for certiorari with the CA. The CA enjoined Reynoso and
the Sheriff from conducting auction sale, from levying upon and
selling on execution other properties of petitioner General Credit.
[Injunction granted]. The CA also nullified the decision of the RTC
denying its Omnibus Motion [CA ruled in favor of General Credit
Corp]. Hence this petition for review before the SC.
General Credit Corp. contends that it is a corporation separate and
distinct from CCC-QC and therefore, its properties may not be levied
upon to satisfy the monetary judgment in favor of Reynoso against
CCC-QC. Reynoso contends that Genera Credit Corp is the same
entity as CCC-QC and merely changed its name.
Issue: Whether or not the judgment in favor of Reynoso (against
CCC-QC) may be executed against General Credit Corporation

Decision: Petition is meritorious. General Credit Corporation may be
held liable for the obligations of CCC-QC.
A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence. It
is an artificial being invested by law with a personality separate
and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related
Any piercing of the corporate veil has to be done with caution.
However, the Court will not hesitate to use its supervisory and
adjudicative powers where the corporate fiction is used as an unfair
device to achieve an inequitable result, defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when
necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., we
held:
When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced
the veil of corporate fiction in numerous cases where it was used,
among others, to avoid a judgment credit; to avoid inclusion of
corporate assets as part of the estate of a decedent; to avoid liability
arising from debt; when made use of as a shield to perpetrate fraud
and/or confuse legitimate issues; or to promote unfair objectives or
otherwise to shield them.
In the appealed judgment, the Court of Appeals sustained
respondent’s arguments of separateness and its character as a
different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business
affairs of a subsidiary corporation are so controlled by the mother
corporation to the extent that it becomes an instrument or agent of
its parent. But even when there is dominance over the affairs of
the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.
We stated in Tomas Lao Construction v. National Labor Relations
Commission, that the legal fiction of a corporation being a judicial
entity with a distinct and separate personality was envisaged for
convenience and to serve justice. Therefore, it should not be used as
a subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of
Commercial Credit Corporation was intended to publicly identify it
as a component of the CCC group of companies engaged in one and
the same business, i.e., investment and financing. The organization
of subsidiary corporations as what was done here is usually resorted
to for the aggrupation of capital, the ability to cover more territory
and population, the decentralization of activities best decentralized,
and the securing of other legitimate advantages. But when the
mother corporation and its subsidiary cease to act in good faith
and honest business judgment, when the corporate device is used
by the parent to avoid its liability for legitimate obligations of the
subsidiary, and when the corporate fiction is used to perpetrate
fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives.
However, it is pierced in order to remedy injustice, such as that
inflicted in this case.
Factually and legally, the CCC had dominant control of the business
operations of CCC-QC. The exclusive management contract insured
that CCC-QC would be managed and controlled by CCC and would
not deviate from the commands of the mother corporation. In
addition to the exclusive management contract, CCC appointed its
own employee, petitioner, as the resident manager of CCC-QC.
Petitioner’s designation as "resident manager" implies that he was
placed in CCC-QC by a superior authority. In fact, even after his
assignment to the subsidiary corporation, petitioner continued to
receive his salaries, allowances, and benefits from CCC, which later
became respondent General Credit Corporation. Not only that.
Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan
of CCC.
There are other indications in the record which attest to the
applicability of the identity rule in this case, namely: the unity of
interests, management, and control; the transfer of funds to suit
their individual corporate conveniences; and the dominance of
policy and practice by the mother corporation insure that CCC-QC
was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the
same principal line of business involving a single transaction process.
Under their discounting arrangements, CCC financed the operations
of CCC-QC. The subsidiary sold, discounted, or assigned its accounts
receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC
since 1971, shows the pervasive and intensive auditing function of
CCC over CCC-QC. The two corporations also shared the same office
space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was
even verified by the director-representative of CCC. The lawyers
who filed the complaint and amended complaint were all in-house
lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now
General Credit Corporation, is not a formal party in the case. The
reason for this is that the complaint was filed by CCC-QC against
petitioner. The choice of parties was with CCC-QC. The judgment
award in this case arose from the counterclaim which petitioner set
up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint
are quite revealing. As narrated above, the discounting agreements
through which CCC controlled the finances of its subordinates
became unlawful when Central Bank adopted the DOSRI
prohibitions. Under this rule the directors, officers, and stockholders
are prohibited from borrowing from their company. Instead of
adhering to the letter and spirit of the regulations by avoiding DOSRI
loans altogether, CCC used the corporate device to continue the
prohibited practice. CCC organized still another corporation, the
CCC-Equity Corporation. However, as a wholly owned subsidiary,
CCC-Equity was in fact only another name for CCC. Key officials of
CCC, including the resident managers of subsidiary corporations,
were appointed to positions in CCC-Equity.
In order to circumvent the Central Bank’s disapproval of CCC-QC’s
mode of reducing its DOSRI lender accounts and its directive to
follow Central Bank requirements, resident managers, including
petitioner, were told to observe a pseudo-compliance with the
phasing out orders. For his unwillingness to satisfactorily conform to
these directives and his reluctance to resort to illegal practices,
petitioner earned the ire of his employers. Eventually, his services
were terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with
CCC-QC because of difficulties faced by the firm in implementing the
required phase-out program. Funds from his current account in the
Far East Bank and Trust Company were transferred to CCC-QC. These
monies were alleged in the criminal complaints against him as
having been stolen. Complaints for qualified theft and estafa were
brought by CCC-QC against petitioner.1âwphi1 These criminal cases
were later dismissed. Similarly, the civil complaint which was filed
with the Court of First Instance of Pasig and later transferred to the
Regional Trial Court of Quezon City was dismissed, but his
counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy,
the mother firm closed CCC-QC, in obvious fraud of its creditors.
CCC-QC, instead of opposing its closure, cooperated in its own
demise. Conveniently, CCC-QC stated in its opposition to the motion
for alias writ of execution that all its properties and assets had been
transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent
General Credit Corporation, the new name of CCC, that the
corporate fiction should be appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,
reiterated in Concept Builders Inc. v. National Labor Relations, it is
very obvious that respondent "seeks the protective shield of a
corporate fiction whose veil the present case could, and should, be
pierced as it was deliberately and maliciously designed to evade its
financial obligation of its employees."
If the corporate fiction is sustained, it becomes a handy deception
to avoid a judgment debt and work an injustice. The decision raised
to us for review is an invitation to multiplicity of litigation. As we
stated in Islamic Directorate vs. Court of Appeals, the ends of justice
are not served if further litigation is encouraged when the issue is
determinable based on the records.
A court judgment becomes useless and ineffective if the employer,
in this case CCC as a mother corporation, is placed beyond the legal
reach of the judgment creditor who, after protracted litigation, has
been found entitled to positive relief. Courts have been organized
to put an end to controversy. This purpose should not be negated by
an inapplicable and wrong use of the fiction of the corporate veil.
CA decision reversed. Injunction against holding of auction sale of
properties of General Credit Corporation for execution of judgment
in favor of Reynoso is lifted.
3.GCC vs Alsons Dev. & Inv.Corp
4. GOLDLINE TOURS, INC. v. HEIRS OF MARIA CONCEPCION LACSA
(full-text SC decision on the topic of corporate veil)
FACTS: Ma. Concepcion Lacsa and her sister, Miriam Lacsa, boarded
a Goldline passenger bus owned and operated by Travel &Tours
Advisers, Inc. They were enroute from Sorsogon to Cubao, Quezon
City.
Upon reaching the highway at Barangay San Agustin in Pili,
Camarines Sur, the Goldline bus, driven by Rene Abania, collided
with a passenger jeepney coming from the opposite direction. As a
result, a metal part of the jeepney was detached and struck
Concepcion in the chest, causing her instant death. Concepcion’s
heirs instituted in the RTC a suit against Travel & Tours Advisers Inc.
and Abania to recover damages arising from breach of contract of
carriage.
RTC ruled in favor of the heirs of Concepcion. On appeal, it was
dismissed for failure of the defendants to pay the docket and other
lawful fees within the required period. Plaintiffs moved for the
issuance of a writ of execution (WE) to implement the decision
which was later on granted. The sheriff implementing the WE
rendered a Sheriffs Partial Return, certifying that the WE had been
personally served and a copy of it had been duly tendered to Travel
& Tours Advisers, Inc. or William Cheng, and that Cheng had failed to
settle the judgment amount despite promising to do so. Accordingly,
a tourist bus bearing Plate No. NWW-883 was levied pursuant to the
writ of execution.
Petitioner submitted a so-called verified third party claim, claiming
that the tourist bus bearing Plate No. NWW-883 be returned to
petitioner because it was the owner; that petitioner had not been
made a party to the civil case; and that petitioner was a corporation
entirely different from Travel & Tours Advisers, Inc. It is notable that
petitioners Articles of Incorporation was amended shortly after the
filing of civil case against Travel & Tours Advisers, Inc.
RTC dismissed petitioners verified third-party claim, observing that
the identity of Travel & Tours Advisers, Inc. could not be divorced
from that of petitioner considering that Cheng had claimed to be the
operator as well as the President/Manager/incorporator of both
entities; and that Travel & Tours Advisers, Inc. had been known in
Sorsogon as Goldline. RTC denied petitioner’s MR.
ISSUE: Is Goldline Tours a separate and distinct entity from Travel
and Tours Advisers, Inc.?
RULING: NO. In the order, the RTC rendered its justification for
rejecting the third-party claim of petitioner in the following manner:
The main contention of Third Party Claimant is that
it is the owner of the Bus and therefore, it should not be
seized by the sheriff because the same does not belong to
the defendant Travel & Tours Advises, Inc. (GOLDLINE) as
the third party claimant and defendant are two separate
corporation with separate juridical personalities. Upon the
other hand, this Court had scrutinized the documents
submitted by the Third party Claimant and found out that
William Ching who claimed to be the operator of the
Travel & Tours Advisers, Inc. (GOLDLINE) is also the
President/Manager and incorporator of the Third Party
 Claimant Goldline Tours Inc. and he is joined by his co-
incorporators who are Ching and Dy thereby this Court
could only say that these two corporations are one and the
same corporations. This is of judicial knowledge that since
Travel & Tours Advisers, Inc. came to Sorsogon it has been
known as GOLDLINE.
This Court is not persuaded by the proposition of
the third party claimant that a corporation has an
existence separate and/or distinct from its members
insofar as this case at bar is concerned, for the reason that
whenever necessary for the interest of the public or for the
protection of enforcement of their rights, the notion of
legal entity should not and is not to be used to defeat
public convenience, justify wrong, protect fraud or defend
crime.
Apposite to the case at bar is the case of Palacio vs. Fely
Transportation Co., where the SC held:
Where the main purpose in forming the corporation
was to evade ones subsidiary liability for damages in a
criminal case, the corporation may not be heard to
say that it has a personality separate and distinct
from its members, because to allow it to do so would
be to sanction the use of fiction of corporate entity as
a shield to further an end subversive of justice. The
Supreme Court can even substitute the real party in
interest in place of the defendant corporation in
order to avoid multiplicity of suits and thereby save
the parties unnecessary expenses and delay.
This is what the third party claimant wants to do
including the defendant in this case, to use the
separate and distinct personality of the two
corporation as a shield to further an end subversive
of justice by avoiding the execution of a final
judgment of the court.
As we see it, the RTC had sufficient factual basis to find
that petitioner and Travel and Tours Advisers, Inc. were one and the
same entity, specifically: (a) documents submitted by petitioner in
the RTC showing that William Cheng, who claimed to be the
operator of Travel and Tours Advisers, Inc., was also the
President/Manager and an incorporator of the petitioner; and (b)
Travel and Tours Advisers, Inc. had been known in Sorsogon as
Goldline. On its part, the CA cogently observed:
As stated in the (RTC) decision supra,
William Ching disclosed during the trial of the
case that defendant Travel & Tours Advisers, Inc.
(Goldline), of which he is an officer, is operating
sixty (60) units of Goldline buses. That the
Goldline buses are used in the operations of
defendant company is obvious from Mr. Chengs
admission. The Amended Articles of
Incorporation of Gold Line Tours, Inc. disclose
that the following persons are the original
incorporators thereof: Antonio O. Ching, Maribel
Lim Ching, witness William Ching, Anita Dy Ching
and Zosimo Ching. We see no reason why
defendant company would be using Goldline
buses in its operations unless the two companies
are actually one and the same.
Moreover, the name Goldline was added
to defendants name in the Complaint. There was
no objection from William Ching who could have
raised the defense that Gold Line Tours, Inc. was
in no way liable or involved. Indeed it appears to
this Court that rather than Travel & Tours
Advisers, Inc. it is Gold Line Tours, Inc., which
should have been named party defendant.
Be that as it may, We concur in the trial
courts finding that the two companies are
actually one and the same, hence the levy of
the bus in question was proper.
The RTC thus rightly ruled that petitioner might not be
shielded from liability under the final judgment through the use of
the doctrine of separate corporate identity. Truly, this fiction of law
could not be employed to defeat the ends of justice.
Petition is DENIED.
B. RIGHT TO MORAL DAMAGES
1. JARDINE DAVIES, INC. v. COURT OF APPEALS
G.R. No. 128066, June 19, 2000, (Bellosillo, J.)
Purefoods decided to install two generators in its food processing
plant due to the series of power failures at that time. Bidding for the
supply and installation of the generators were held. Out of the 8
prospective bidders, Far East Mills Supply Corporation (FEMSCO)
was confirmed the award by Purefoods. Immediately, FEMSCO
submitted the required performance bond in the amount of
P1,841,187.90 and contractor's all-risk insurance policy in the
amount of P6,137,293.00 which PUREFOODS through its Vice
President Benedicto G. Tope acknowledged in a letter dated 18
December 1992. FEMSCO also made arrangements with its principal
and started the PUREFOODS project by purchasing the necessary
materials. PUREFOODS on the other hand returned FEMSCO's
Bidder's Bond in the amount of P1,000,000.00, as requested.
Later, Purefoods unilaterally cancelled the award as “significant
factors were uncovered and brought to their attention which dictate
the cancellation and warrant a total review and rebid of the
project.” FEMSCO protested the cancellation of the award, however
before the matter could be resolved, Purefoods awarded the project
to Jardine. FEMSCO wrote Purefoods to honor it contact and for
Jardine to cease and desist from installing the 2 generators at
Purefoods. The letters went unheeded.
FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for
reneging on its contract, and JARDINE for its unwarranted
interference and inducement. Trial ensued. After FEMSCO presented
its evidence, JARDINE filed a Demurrer to Evidence.
The RTC granted Jardine’s demurrer and dismissed the case against
it and trial proceeded as regards Purefoods. The trial court ordered
Purefoods to indemnify FEMSCO the sum of P2.3M representing the
value of engineering services rendered, and US$14,000, P900,000
contractors mark-up and attorneys fees. FEMSCO and Purefoods
appealed to the CA. FEMSCO appealed the resolution which granted
the demurrer to Jardine while Purefoods appealed the decision
which ordered it to pay FEMSCO.
The CA affirmed the decision of the RTC in toto and reversed the
resolution of the RTC and ordered Jardine to pay FEMSCO P2M as
moral damages and Purefoods to pay an additional P2M as moral
damages as well.
The case was raised to the SC. Purefoods contends that it did not
accept FEMSCO’s proposal but it more of a qualified acceptance
constituting a counter-offer which requires FEMSCO’s conforme.
Since Purefoods never received a conforme, it had every right to
revoke its qualified acceptance. Also since Purefoods was never in
bad faith, moral and exemplary damages should not have been
awarded.
Jardine asserts that it had no prior knowledge of the supposed
contract between Purefoods and FEMSCO, and neither did it induce
Purefoods to violate the latter’s alleged contract with FEMSCO.
Jardine reasons that FEMSCO, an artificial person, is not entitled to
moral damages, and if proper, P2M is extremely excessive.
ISSUES:
1. Is FEMSCO entitled to moral damages from Purefoods
2. Is FEMSCO entitled to moral damages from Jardine?
3. Is there a perfected contract between Purefoods and
FEMSCO?
RULING:
1. Yes. Petitioner PUREFOODS also argues that it was never in bad
faith. On the contrary, it believed in good faith that no such
contract was perfected. We are not convinced. We subscribe to
the factual findings and conclusions of the trial court which
were affirmed by the appellate court -
Hence, by the unilateral cancellation of the contract, the
defendant (petitioner PURE FOODS) has acted with bad faith
and this was further aggravated by the subsequent inking of a
contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought
that by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into
by both parties after a process of bidding. This, to the Court's
mind, is a flagrant violation of the express provisions of the law
and is contrary to fair and just dealings to which every man is
due.
This Court has awarded in the past moral damages to a corporation
whose reputation has been besmirched. In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers
on account of the urgency of the project, only to be canceled later.
We thus sustain respondent appellate court's award of moral
damages. We however reduce the award from P2,000,000.00 to
P1,000,000.00, as moral damages are never intended to enrich the
recipient. Likewise, the award of exemplary damages by way of
example for the public good is excessive and should be reduced to
P100,000.00.
2. No. While it may seem that petitioners PUREFOODS and
JARDINE connived to deceive respondent FEMSCO, we find no
specific evidence on record to support such perception.
Likewise, there is no showing whatsoever that petitioner
JARDINE induced petitioner PUREFOODS. The similarity in the
design submitted to petitioner PUREFOODS by both petitioner
JARDINE and respondent FEMSCO, and the tender of a lower
quotation by petitioner JARDINE are insufficient to show that
petitioner JARDINE indeed induced petitioner PUREFOODS to
violate its contract with respondent FEMSCO.
3. Yes. In the instant case, there is no issue as regards the subject
matter of the contract and the cause of the obligation. The
controversy lies in the consent - whether there was an
acceptance of the offer, and if so, if it was communicated,
thereby perfecting the contract. To resolve the dispute, there is
a need to determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS started the process of
entering into the contract by conducting a bidding, Art. 1326 of
the Civil Code, which provides that "[a]dvertisements for
bidders are simply invitations to make proposals," applies.
Accordingly, the Terms and Conditions of the Bidding
disseminated by petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including
respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective
offers.
Quite obviously, the 12 December 1992 letter of petitioner
PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e.,
"This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the
same letter enumerated certain "basic terms and conditions," these
conditions were imposed on the performance of the obligation
rather than on the perfection of the contract. In fine, the
enumerated "basic terms and conditions" were prescriptions on
how the obligation was to be performed and implemented. They
were far from being conditions imposed on the perfection of the
contract.
But even granting arguendo that the 12 December 1992 letter of
petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and
contractor's all-risk insurance was an implied acceptance, if not a
clear indication of its acquiescence to, the "conditional counter-
offer," which expressly stated that the performance bond and the
contractor's all-risk insurance should be given upon the
commencement of the contract. Corollarily, the acknowledgment
thereof by petitioner PUREFOODS, not to mention its return of
FEMSCO's bidder's bond, was a concrete manifestation of its
knowledge that respondent FEMSCO indeed consented to the
"conditional counter-offer." After all, as earlier adverted to, an
acceptance may either be express or implied,[10] and this can be
inferred from the contemporaneous and subsequent acts of the
contracting parties.
2. Filipino Broadcasting v. Ago Medical Educ. Center
3.MERALCO v. T.E.A.M. ELECTRONICS CORPORATION, et al.
FACTS:
T.E.A.M. Electronics Corporation (TEC) was formerly
known as NS Electronics (Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is wholly owned by
respondent Technology Electronics Assembly and Management
Pacific Corporation (TPC). Petitioner Manila Electric Company
(Meralco) is a utility company supplying electricity in Metro Manila.
Meralco and NS Electronics (Philippines), Inc., the
predecessor-in-interest of respondent TEC, entered into two
Agreements for the Sale of Electric Energy. Under these, Meralco
undertook to supply with electric power TEC's building known as
Dyna Craft International Manila (DCIM) located in Taguig, Metro
Manila. Another contract was entered into for the supply of electric
power to TEC's NS Building.
In 1986, TEC, under its former name National Semi-
Conductors (Phils.) entered into a Contract of Lease with Ultra
Electronics Industries, Inc. (Ultra) for the use of the former's DCIM
building for a period of five years. Ultra was, however, ejected from
the premises in 1988 by virtue of a court order, for repeated
violation of the terms and conditions of the lease contract.
In 1987, Meralco conducted a surprise inspection of the
electric meters installed at the DCIM building. The meters were
found to be allegedly tampered with and did not register the actual
power consumption in the building. Meralco demanded the
payment of P7,040,401.01 representing its unregistered
consumption as a result of the alleged tampering of the meters. TEC
received the letters but since Ultra was in possession of the subject
building during the covered period, TEC's Managing Director, Mr.
Bobby Tan, referred the demand letter to Ultra.. Ultra, in turn,
informed TEC that its Executive VP had met with Meralco's
representative. Ultra further intimated that assuming that there was
tampering of the meters, Meralco's assessment was excessive. For
failure of TEC to pay the differential billing, Meralco disconnected
the electricity supply to the DCIM building.
TEC demanded the reconnection of electrical service,
claiming that it had nothing to do with the alleged tampering but
Meralco refused to heed the demand. Hence, TEC filed a complaint
before the Energy Regulatory Board (ERB) praying that electric
power be restored to the DCIM building. The ERB immediately
ordered the reconnection of the service but Meralco complied with
it only after TEC paid P1M, under protest. The complaint before the
ERB was later withdrawn as the parties deemed it best to have the
issues threshed out in the regular courts. Prior to the reconnection,
Meralco conducted a scheduled inspection of the questioned meters
and found them to have been tampered anew.
Meanwhile, Meralco conducted another inspection, this
time, in TEC's NS Building. The inspection allegedly revealed that the
electric meters were not registering the correct power consumption.
Meralco thus demanded payment of P280,813.72 representing the
differential billing. TEC denied Meralco's allegations and claim.
Meralco, thus, sent TEC another letter demanding payment. TEC
then paid the above amount, under protest.
TEC and TPC filed a complaint for damages against
Meralco and Ultra before the RTC. The RTC rendered a Decision in
favor of TEC and TPC, and against Ultra and Meralco. The court
ordered Ultra and Meralco to pay TEC and TPC actual damages, and
Meralco to pay TEC and TPC moral damages (P500,000), exemplary
damages (P200,000), plus attorney’s fees.
The trial court found the evidence insufficient to prove
that TEC was guilty of tampering the meter installations. The
deformed condition of the meter seal and the existence of an
opening in the wire duct leading to the transformer vault did not, in
themselves, prove the alleged tampering, especially since access to
the transformer was given only to petitioner's employees. The
sudden drop in TEC's (or Ultra's) electric consumption did not, per
se, show meter tampering. The delay in the sending of notice of the
results of the inspection was likewise viewed by the court as
evidence of inefficiency and arbitrariness on the part of petitioner.
More importantly, petitioner's act of disconnecting the DCIM
building's electric supply constituted bad faith and thus makes it
liable for damages. The court further denied petitioner's claim of
differential billing primarily on the ground of equitable
negligence. Considering that TEC and TPC paid P1M to avert the
disconnection of electric power; and because Ultra manifested to
settle the claims of petitioner, the court imposed solidary liability on
both Ultra and petitioner for the payment of the P1M.
Ultra and petitioner appealed to the CA which affirmed
the RTC decision, with a modification of the amount of actual
damages and interest thereon. The appellate court agreed with the
RTC's conclusion. In addition, it considered Meralco negligent for
failing to discover the alleged defects in the electric meters; in
belatedly notifying TEC and TPC of the results of the inspection; and
in disconnecting the electric power without prior notice.
ISSUES: 1) WON TEC tampered with the electric meters installed at
its DCIM and NS buildings; 2) WON Meralco was justified in
disconnecting the electric power supply in TEC's DCIM building; and
3) WON TEC is liable for the differential billing as computed by
petitioner.
HELD:
1) NO. It is obvious that petitioner wants this Court to revisit the
factual findings of the lower courts. Well-established is the doctrine
that under Rule 45 of the Rules of Court, only questions of law, not
of fact, may be raised before the Court. We would like to stress that
this Court is not a trier of facts and may not re-examine and weigh
anew the respective evidence of the parties. Factual findings of the
trial court, especially those affirmed by the Court of Appeals, are
binding on this Court.
2) NO. In view of the negative finding on the alleged tampering of
electric meters on TEC's DCIM and NS buildings, petitioner's claim of
differential billing was correctly denied by the trial and appellate
courts. With greater reason, therefore, could petitioner not exercise
the right of immediate disconnection.
3) NO. As to the damages awarded by the CA, we deem it proper to
modify the same. Actual damages are compensation for an injury
that will put the injured party in the position where it was before the
injury. They pertain to such injuries or losses that are actually
sustained and susceptible of measurement. Except as provided by
law or by stipulation, a party is entitled to adequate compensation
only for such pecuniary loss as is duly proven. Basic is the rule that
to recover actual damages, not only must the amount of loss be
capable of proof; it must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best
evidence obtainable.
Respondent TEC sufficiently established, and petitioner in
fact admitted, that the former paid P1,000,000.00 and P280,813.72
under protest, the amounts representing a portion of the latter's
claim of differential billing. With the finding that no tampering was
committed and, thus, no differential billing due, the aforesaid
amounts should be returned by petitioner, with interest, as ordered
by the Court of Appeals and pursuant to the guidelines set forth by
the Court.
However, despite the appellate court's conclusion that no
tampering was committed, it held Ultra solidarily liable with
petitioner for P1,000,000.00, only because the former, as occupant
of the building, promised to settle the claims of the latter. This ruling
is erroneous. Ultra's promise was conditioned upon the finding of
defect or tampering of the meters. It did not acknowledge any
culpability and liability, and absent any tampered meter, it is absurd
to make the lawful occupant liable. It was petitioner who received
the P1 million; thus, it alone should be held liable for the return of
the amount.
TEC also sufficiently established its claim for the
reimbursement of the amount paid as rentals for the generator set it
was constrained to rent by reason of the illegal disconnection of
electrical service. The official receipts and purchase orders
submitted by TEC as evidence sufficiently show that such rentals
were indeed made. However, the amount of P150,000.00 per month
for five months, awarded by the CA, is excessive. Instead, a total
sum ofP150,000.00, as found by the RTC, is proper.
As to the payment of exemplary damages and attorney's
fees, we find no cogent reason to disturb the same. Exemplary
damages are imposed by way of example or correction for the public
good in addition to moral, temperate, liquidated, or compensatory
damages. In this case, to serve as an example – that before a
disconnection of electrical supply can be effected by a public utility,
the requisites of law must be complied with – we affirm the award
of P200,000.00 as exemplary damages. With the award of exemplary
damages, the award of attorney's fees is likewise proper, pursuant
to Article 2208 of the Civil Code. It is obvious that TEC needed the
services of a lawyer to argue its cause through three levels of the
judicial hierarchy. Thus, the award ofP200,000.00 is in order.
We, however, deem it proper to delete the award of moral
damages. TEC's claim was premised allegedly on the damage to its
goodwill and reputation. As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings,
serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a reputation that
is debased, resulting in its humiliation in the business realm. But in
such a case, it is imperative for the claimant to present proof to
justify the award. It is essential to prove the existence of the factual
basis of the damage and its causal relation to petitioner's acts. In the
present case, the records are bereft of any evidence that the name
or reputation of TEC/TPC has been debased as a result of
petitioner's acts. Besides, the trial court simply awarded moral
damages in the dispositive portion of its decision without stating the
basis thereof. Petition DENIED.
C. CORPORATE NAME
1. Philips Export BV v. CA
Facts:
Philips Export B.V. (PEBV), a foreign corporation organized under the
laws of the Netherlands is the registered owner of the trademarks
PHILIPS and PHILIPS SHIELD EMBLEM. Philips Electrical Lamps, Inc.
and Philips Industrial Development, Inc. are the authorized users of
these trademarks. On the other hand, Standard Philips Corporation
was issued a Certificate of Registration by Securities and Exchange
Commission (SEC) on 19 May 1982. PEBV filed a letter complaint
with the SEC asking for the cancellation of the word "PHILIPS" from
Standard Philips Corporation’s corporate name in view of the prior
registration with the Bureau of Patents of the trademark "PHILIPS"
and the logo "PHILIPS SHIELD EMBLEM" in the name of PEBV.
Standard Philips refused to amend its Articles of Incorporation
prompting PEBV to file with the SEC a petition for the issuance of a
Writ of Preliminary Injunction alleging that Standard's use of the
word PHILIPS amounts to an infringement and clear violation of
PEBV’s exclusive right to use the same considering that both parties
engage in the same business.
The SEC dismissed the petition ruling that Section 18 of the
Corporation Code is applicable only when the corporate names in
question are identical. Here, there is no confusing similarity between
PEBV’s and Standard Philip's corporate names as those of the former
contain at least two words different from that of the latter. The
Court of Appeals affirmed SEC’s decision ruling that Standard Philips'
products consisting of chain rollers, belts, bearings and cutting saw
are unrelated and non-competing with PEBV’s products i.e. electrical
lamps such that consumers would not in any probability mistake one
as the source or origin of the product of the other.
Issue: Was there a confusing similarity between PEBV’s and
Standard Philip’s corporate names?
Ruling: Yes. Our own Corporation Code, in its Section 18, expressly
provides that:
"No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other
name already protected by law or ispatently deceptive, confusing or
contrary to existing law. Where a change in the corporate name is
approved, the commission shall issue an amended certificate of
incorporation under the amended name." (Emphasis supplied)
The statutory prohibition cannot be any clearer. To come within its
scope, two requisites must be proven, namely:
(1) that the complainant corporation acquired a prior right over the
use of such corporate name; and
(2) the proposed name is either:
(a) identical or
(b) deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.
The right to the exclusive use of a corporate name with freedom
from infringement by similarity is determined by priority of adoption
(1 Thompson, p. 80 citing Munn v. Americana Co., 82 N., Eq. 63, 88
Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134
Pao. 921). In this regard, there is no doubt with respect to
Petitioners' prior adoption of the name "PHILIPS" as part of its
corporate name. Petitioners Philips Electrical and Philips Industrial
were incorporated on 29 August 1956 and 25 May 1956,
respectively, while Respondent Standard Philips was issued a
Certificate of Registration on 19 April 1982, twenty-six (26) years
later (Rollo, p. 16). Petitioner PEBV has also used the trademark
"PHILIPS" on electrical lamps of all types and their accessories since
30 September 1922, as evidenced by Certificate of Registration No.
1651.
The second requisite no less exists in this case. In determining the
existence of confusing similarity in corporate names, the test is
whether the similarity is such as to mislead a person using ordinary
care and discrimination. In so doing, the Court must look to the
record as well as the names themselves (Ohio Nat. Life Ins. Co. v.
Ohio Life Ins. Co., 210 NE 2d298). While the corporate names of
Petitioners and Private Respondent are not identical, a reading of
Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS
ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT,
INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the
dominant word in that all the companies affiliated or associated
with the principal corporation, PEBV, are known in the Philippines
and abroad as the PHILIPS Group of Companies.
Respondents maintain, however, that Petitioners did not present an
iota of proof of actual confusion or deception of the public much
less a single purchaser of their product who has been deceived or
confused or showed any likelihood of confusion. It is settled,
however, that proof of actual confusion need not be shown. It
suffices that confusion is probably or likely to occur (6 Fletcher
[Perm Ed], pp. 107-108, enumerating a long line of cases). In
allowing Private Respondent the continued use of its corporate
name, the SEC maintains that the corporate names of Petitioners
PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC. contain at least two words different from that
of the corporate name of respondent STANDARD PHILIPS
CORPORATION, which words will readily identify Private Respondent
from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and
Partnership Names formulated by the SEC, the proposed name
“should not be similar to one already used by another corporation or
partnership. If the proposed name contains a word already used as
part of the firm name or style of a registered company, the
proposed name must contain two other words different from the
company already registered" (Emphasis ours). It is then pointed out
that Petitioners Philips Electrical and Philips Industrial
have twowords different from that of Private Respondent's name.
What is lost sight of, however, is that PHILIPS is a trademark or trade
name which was registered as far back as 1922. Petitioners,
therefore, have the exclusive right to its use which must be free
from any infringement by similarity. A corporation has an exclusive
right to the use of its name, which may be protected by injunction
upon a principle similar to that upon which persons are protected in
the use of trademarks and tradenames (18 C.J.S. 574). Such principle
proceeds upon the theory that it is a fraud on the corporation which
has acquired a right to that name and perhaps carried on its
business thereunder, that another should attempt to use the same
name, or the same name with a slight variation in such a way as to
induce persons to deal with it in the belief that they are dealing with
the corporation which has given a reputation to the name (6
Fletcher [Perm Ed], pp. 30-40, citing Borden Ice Cream Co. v.
Borden's Condensed Milk Co., 210 F 510). Notably, too, Private
Respondent's name actually contains only a single word, that is,
"STANDARD", different from that of Petitioners inasmuch as the
inclusion of the term "Corporation" or "Corp." merely serves the
purpose of distinguishing the corporation from partnerships and
other business organizations.
2. Lyceum of the Phils. vs CA
D. CORPORATION BY ESTOPPEL/DE FACTO
1. REYNALDO M. LOZANO vs. HON. ELIEZER R. DE LOS SANTOS,
Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA
G.R. No. 125221; June 19, 1997
Facts: Reynaldo Lozano was the president of the Kapatirang
Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA)
while respondent Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators' and Drivers' Association, Inc.
(SAMAJODA). In August 1995, upon the request of the Sangguniang
Bayan of Mabalacat, Pampanga, Lozano and Anda agreed to
consolidate their respective associations and form the Unified
Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc.
(UMAJODA). They also agreed to elect one set of officers who shall
be given the sole authority to collect the daily dues from the
members of the consolidated association. Elections were held and
both of them ran for president. It was petitioner who won. Anda
protested and, alleging fraud, refused to recognize the results of the
election. He also refused to abide by their agreement and continued
collecting the dues from the members of his association despite
several demands to desist. Petitioner was thus constrained to file
the complaint to restrain private respondent from collecting the
dues and to order him to pay damages in the amount of P25,000.00
and attorney's fees of P500.00. He filed a civil case for damages
against respondent Anda before the MCTC of Mabalacat and
Magalang, Pampanga. Anda moved to dismiss the complaint for lack
of jurisdiction, claiming that jurisdiction was lodged with the SEC.
The MCTC denied the motion and the motion for reconsideration.
Anda filed a petition for certiorari before the RTC of Angeles City.
The trial court found the dispute to be intracorporate, hence,
subject to the jurisdiction of the SEC, and ordered the MCTC to
dismiss the civil case accordingly.
ISSUE: whether or not the SEC has jurisdiction over a case of
damages between heads/presidents of 2 associations who intended
to consolidate/merge their associations but not yet approved and
registered with the SEC
RULING: No, the SEC does not have jurisdiction over the case.
The jurisdiction of the SEC is set forth in Section 5 of PD
No. 902-A. This jurisdiction is determined by a concurrence of two
elements: (1) the status or relationship of the parties; and (2) the
nature of the question that is the subject of their controversy. The
first element requires that the controversy must arise out of
intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State in so far
as it concerns their individual franchises. The second element
requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation, partnership or
association or deal with the internal affairs of the corporation,
partnership or association. After all, the principal function of the SEC
is the supervision and control of corporations, partnership and
associations with the end in view that investments in these entities
may be encouraged and protected, and their entities may be
encouraged and protected, and their activities pursued for the
promotion of economic development.
There is no intracorporate nor partnership relation
between petitioner and private respondent. The controversy
between them arose out of their plan to consolidate their respective
jeepney drivers' and operators' associations into a single common
association. This unified association was, however, still a proposal. It
had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation is accordance
with Sections 78 and 79 of the Corporation Code. Consolidation
becomes effective not upon mere agreement of the members but
only upon issuance of the certificate of consolidation by the SEC.
When the SEC, upon processing and examining the articles of
consolidation, is satisfied that the consolidation of the corporations
is not inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the
reorganization official. The new consolidated corporation comes into
existence and the constituent corporations dissolve and cease to
exist.
The KAMAJDA and SAMAJODA to which petitioner and
private respondent belong are duly registered with the SEC, but
these associations are two separate entities. The dispute between
petitioner and private respondent is not within the KAMAJDA nor
the SAMAJODA. It is between members of separate and distinct
associations. They have no intracorporate relation much less do they
have an intracorporate dispute. The SEC therefore has no
jurisdiction over the complaint.
The doctrine of corporation by estoppel advanced by
private respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement of the
parties. It cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties, neither can it be
conferred by the acquiescence of the court. Corporation by estoppel
is founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into
business relations with third person. Where there is no third person
involved and the conflict arises only among those assuming the form
of a corporation, who therefore know that it has not been
registered, there is no corporation by estoppel.
2. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES,
INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN,
PHILIPPINE FOOTBALL FEDERATION, respondents.
FACTS:
petitioner International Express Travel and Tour Services,
Inc.,(IETTSI) through its managing director, wrote a letter to the
Philippine Football Federation (Federation), through its president
private respondent Henri Kahn, wherein the former offered its
services as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of
China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of
P176,467.50
petitioner wrote the Federation, through the private respondent a
demand letter requesting for the amount of P265,894.33. The
Federation, through the Project Gintong Alay, paid the amount of
P31,603.00. Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the
Federation.[5] Thereafter, no further payments were made despite
repeated demands.
This prompted petitioner to file a civil case before the RTC
Manila. Petitioner sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an
alternative defendant. Petitioner sought to hold Henri Kahn liable
for the unpaid balance for the tickets purchased by the Federation
on the ground that Henri Kahn allegedly guaranteed the said
obligation.
Kahn filed a counterclaim against IETTSI averring that it had no cause
of action against him either in his personal nor official capacity as he
did not guarantee the payment but merely acted as an agent of the
Federation w/c has a separate & distinct juridical personality. The
Federation, in failing to file its answer, was declared in default.
The RTC found Kahn personally liable since a voluntary
unincorporated association, like the Federation, doesn’t have the
power to enter nor ratify a contract. The contract thus entered into
by its officers or agents on its behalf is not binding on the
association nor enforceable against it – but against the officers or
agents in their personal capacity. On appeal to the CA, decision was
reversed saying that IETTSI failed to prove that Kahn guaranteed the
obligation, hence this petition. In finding for Henri Kahn, the Court of
Appeals recognized the juridical existence of the Federation. It
rationalized that since petitioner failed to prove that Henri Kahn
guaranteed the obligation of the Federation, he should not be held
liable for the same as said entity has a separate and distinct
personality from its officers.
ISSUE: WON the Philippine Football Federation is a juridical person?
HELD: No.
powers and functions granted to national sports associations
clearly indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber
property are acts which may only be done by persons, whether
natural or artificial, with juridical capacity. However, while we agree
with the appellate court that national sports associations may be
accorded corporate status, such does not automatically take place
by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire
juridical personality, the State must give its consent either in the
form of a special law or a general enabling act. We cannot agree
with the view of the appellate court and the private respondent that
the Philippine Football Federation came into existence upon the
passage of these laws. Nowhere can it be found in R.A. 3135 or P.D.
604 any provision creating the Philippine Football Federation. These
laws merely recognized the existence of national sports associations
and provided the manner by which these entities may acquire
juridical personality.
Section 11 of R.A. 3135 and Section 7 of P.D. 604 require that
before an entity may be considered as a national sports association,
such entity must be recognized by the accrediting organization, the
Philippine Amateur Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under P.D. 604. This
fact of recognition, however, Henri Kahn failed to substantiate. In
attempting to prove the juridical existence of the Federation, Henri
Kahn attached to his motion for reconsideration before the trial
court a copy of the constitution and by-laws of the Philippine
Football Federation. Unfortunately, the same does not prove that
said Federation has indeed been recognized and accredited by either
the Philippine Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports association
within the purview of the aforementioned laws and does not have
corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn
should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting to
act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered
into or for other acts performed as such agent.[14] As president of
the Federation, Henri Kahn is presumed to have known about the
corporate existence or non-existence of the Federation. We cannot
subscribe to the position taken by the appellate court that even
assuming that the Federation was defectively incorporated, the
petitioner cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in such a
manner as to recognize and in effect admit its existence. The
doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine
applies to a third party only when he tries to escape liability on a
contract from which he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, the petitioner is not
trying to escape liability from the contract but rather is the one
claiming from the contract.
3. SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT
OF APPEALS, THE CIVIL SERVICE COMMISSION and AL-
AMANAH INVESTMENT BANK OF THE
PHILIPPINES, respondents.
FACTS: petitioner Sappari K. Sawadjaan was among the first
employees of the Philippine Amanah Bank (PAB) when it was
created by virtue of Presidential Decree No. 264 on 02 August 1973.
He rose through the ranks, working his way up from his initial
designation as security guard, to settling clerk, bookkeeper, credit
investigator, project analyst, appraiser/ inspector, and eventually,
loans analyst.
while still designated as appraiser/investigator, Sawadjaan was
assigned to inspect the properties offered as collaterals by
Compressed Air Machineries and Equipment Corporation (CAMEC)
for a credit line of (P5,000,000.00). The properties consisted of two
parcels of land. On the basis of his Inspection and Appraisal Report,
the PAB granted the loan application. When the loan matured on 17
May 1989, CAMEC requested an extension of 180 days, but was
granted only 120 days to repay the loan.
In the meantime, Sawadjaan was promoted to Loans Analyst I.
In 1990 Congress passed Republic Act 6848 creating the AIIBP
and repealing P.D. No. 264 (which created the PAB). All assets,
liabilities and capital accounts of the PAB were transferred to the
AIIBP and the existing personnel of the PAB were to continue to
discharge their functions unless discharged. In the ensuing
reorganization, Sawadjaan was among the personnel retained by the
AIIBP.
When CAMEC failed to pay despite the given extension, the
bank, now referred to as the AIIBP, discovered that one of the TCTs
was was spurious, the property described therein non-existent, and
that the property covered by another TCT had a prior existing
mortgage in favor of one Divina Pablico.
the Board of Directors of the AIIBP created an Investigating
Committee to look into the CAMEC transaction, which had cost the
bank (P6,000,000.00) in losses.
petitioner received a memorandum from Islamic Bank [AIIBP]
Chairman Roberto F. De Ocampo charging him with Dishonesty in
the Performance of Official Duties and/or Conduct Prejudicial to the
Best Interest of the Service and preventively suspending him.
In his memorandum, petitioner informed the Investigating
Committee that he could not submit himself to the jurisdiction of
the Committee because of its alleged partiality. For his failure to
appear before the hearing set on 17 September 1993, the
Investigating Committee declared petitioner in default and the
prosecution was allowed to present its evidence ex parte.
Subsequently, the Investigating Committee rendered a decision, the
pertinent portions of which reads as follows:
In view of respondent SAWADJAANS abject failure to perform his
duties and assigned tasks as appraiser/inspector, which resulted to
the prejudice and substantial damage to the Bank, respondent
should be held liable therefore. At this juncture, however, the
Investigating Committee is of the considered opinion that he could
not be held liable for the administrative offense of dishonesty
considering the fact that no evidence was adduced to show that he
profited or benefited from being remiss in the performance of his
duties. The record is bereft of any evidence which would show that
he received any amount in consideration for his non-performance of
his official duties.
This notwithstanding, respondent cannot escape liability. As
adverted to earlier, his failure to perform his official duties resulted
to the prejudice and substantial damage to the Islamic Bank for
which he should be held liable for the administrative offense of
CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE.
Premises considered, the Investigating Committee recommends that
respondent SAPPARI SAWADJAAN be meted the penalty of SIX (6)
MONTHS and ONE (1) DAY SUSPENSION from office in accordance
with the Civil Service Commissions Memorandum Circular No. 30,
Series of 1989.
the Board of Directors of the Islamic Bank [AIIBP] adopted the
resolution finding petitioner guilty of Dishonesty in the Performance
of Official Duties and/or Conduct Prejudicial to the Best Interest of
the Service and imposing the penalty of Dismissal from the Service.
On reconsideration, the Board of Directors of the Islamic Bank
[AIIBP] reduced the penalty imposed on petitioner from dismissal to
suspension for a period of six (6) months and one (1) day.
petitioner filed a notice of appeal to the Merit System Protection
Board (MSPB). The CSC dismissed the appeal for lack of merit and
affirmed the resolution of AIIBP imposing the penalty of dismissal on
the petitioner. MR was denied. CA affirmed CSC’s decision.
Sawadjaan filed the present petition for certiorari under Rule 65 of
the Rules of Court challenging the above Decision and Resolution of
the CA on the ground that the court a quo erred: i) in ignoring the
facts and evidences that the alleged Islamic Bank has no valid by-
laws; ii) in ignoring the facts and evidences that the Islamic Bank lost
its juridical personality as a corporation on 16 April 1990; iii) in
ignoring the facts and evidences that the alleged Islamic Bank and its
alleged Board of Directors have no jurisdiction to act in the manner
they did in the absence of a valid by-laws; iv) in not correcting the
acts of the Civil Service Commission who erroneously rendered the
assailed Resolutions.
HELD: Petitioners efforts are unavailing, and we deny his petition for
its procedural and substantive flaws.
The records show that petitioners counsel received the
Resolution of the Court of Appeals denying his motion for
reconsideration on 27 December 1999. The fifteen day reglamentary
period to appeal under Rule 45 of the Rules of Court therefore
lapsed on 11 January 2000. On 23 February 2000, over a month after
receipt of the resolution denying his motion for reconsideration, the
petitioner filed his petition for certiorari under Rule 65.
It is settled that a special civil action for certiorari will not lie as
a substitute for the lost remedy of appeal. Petitioners recurrent
argument, tenuous at its very best, is premised on the fact that since
respondent AIIBP failed to file its by-laws within the designated 60
days from the effectivity of Rep. Act No. 6848, all proceedings
initiated by AIIBP and all actions resulting therefrom are a patent
nullity. Or, in his words, the AIIBP and its officers and Board of
Directors,
. . . [H]ave no legal authority nor jurisdiction to manage much less
operate the Islamic Bank, file administrative charges and investigate
petitioner in the manner they did and allegedly passed Board
Resolution No. 2309 on December 13, 1993 which is null and
void for lack of an (sic) authorized and valid by-laws. The CIVIL
SERVICE COMMISSION was therefore affirming, erroneously, a null
and void Resolution No. 2309 dated December 13, 1993…”
The AIIBP was created by Rep. Act No. 6848. It has a main
office where it conducts business, has shareholders, corporate
officers, a board of directors, assets, and personnel. It is, in fact,
here represented by the Office of the Government Corporate
Counsel, the principal law office of government-owned corporations,
one of which is respondent bank. At the very least, by its failure to
submit its by-laws on time, the AIIBP may be considered a de
facto corporation whose right to exercise corporate powers may not
be inquired into collaterally in any private suit to which such
corporations may be a party. Moreover, a corporation which has
failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of
Corporations details the procedures and remedies that may be
availed of before an order of revocation can be issued. There is no
showing that such a procedure has been initiated in this case.
In any case, petitioners argument is irrelevant because this
case is not a corporate controversy, but a labor dispute; and it is an
employers basic right to freely select or discharge its employees, if
only as a measure of self-protection against acts inimical to its
interest. Regardless of whether AIIBP is a corporation, a partnership,
a sole proprietorship, or a sari-saristore, it is an undisputed fact that
AIIBP is the petitioners employer. AIIBP chose to retain his services
during its reorganization, controlled the means and methods by
which his work was to be performed, paid his wages, and,
eventually, terminated his services.
And though he has had ample opportunity to do so, the
petitioner has not alleged that he is anything other than an
employee of AIIBP. He has neither claimed, nor shown, that he is a
stockholder or an officer of the corporation. Having accepted
employment from AIIBP, and rendered his services to the said bank,
received his salary, and accepted the promotion given him, it is now
too late in the day for petitioner to question its existence and its
power to terminate his services. One who assumes an obligation to
an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
Even if we were to consider the facts behind petitioner
Sawadjaans dismissal from service, we would be hard pressed to
find error in the decision of the AIIBP.
As appraiser/investigator, the petitioner was expected to
conduct an ocular inspection of the properties offered by CAMEC as
collaterals and check the copies of the certificates of title against
those on file with the Registry of Deeds. Not only did he fail to
conduct these routine checks, but he also deliberately
misrepresented in his appraisal report that after reviewing the
documents and conducting a site inspection, he found the CAMEC
loan application to be in order. Despite the number of pleadings he
has filed, he has failed to offer an alternative explanation for his
actions.
4. LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
Those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general
partners.
FACTS: On behalf of "Ocean Quest Fishing Corporation," Antonio
Chua and Peter Yao entered into a Contract, for the purchase of
fishing nets of various sizes from respondent Philippine Fishing Gear
Industries, Inc. (PFGI). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was
not a signatory to the agreement. (Total price of nets: P532,045;
four hundred pieces of floats worth P68,000 were also sold to the
corp.)
Buyers failed to pay for the fishing nets and the floats. PFGI filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a
prayer for a writ of preliminary attachment. The suit was brought
against the three in their capacities as general partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from SEC.  The lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced
by attaching the fishing nets on board F/B Lourdes which was then
docked at the Fisheries Port, Navotas, Metro Manila.
Chua: instead of answering the Complaint, filed a Manifestation
admitting his liability and requesting a reasonable time within which
to pay. He also turned over to PFGI some of the nets which were in
his possession.
Peter Yao: filed an Answer, after which he was deemed to have
waived his right to cross-examine witnesses and to present evidence
on his behalf, because of his failure to appear in subsequent
hearings.
Lim Tong Lim: filed an Answer with Counterclaim and Cross claim
and moved for the lifting of the Writ of Attachment.
The trial court maintained the Writ, and upon motion of PFGI,
ordered the sale of the fishing nets at a public auction. PFGI won the
bidding and deposited with the said court the sales proceeds
(P900,000). The trial court ruled in favor of PFGI and that Chua, Yao
and Lim, as general partners, were jointly liable to pay PFGI. RTC
provided that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement (the agreement was silent as to the nature
of their obligations, but that joint liability could be presumed from
the equal distribution of the profit and loss.)
Lim appealed to the CA which, affirmed the RTC. Thus Lim filed the
Petition for Review on Certiorari arguing that under the doctrine of
corporation by estoppel, liability can be imputed only to Chua and
Yao, and not to him.
ISSUE: Whether Lim should be held jointly liable with Chua and Yao
under the Doctrine of Corporation by estoppel.
RULING: Yes.
Under Sec. 21 of the Corporation Code, even if the ostensible
corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence.
Reason behind the doctrine: An unincorporated association has no
personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law;
it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives
or agents do so without authority and at their own risk.
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such
case, all those who benefited from the transaction made by the
ostensible corporation, despite knowledge of its legal defects, may
be held liable for contracts they impliedly assented to or took
advantage of.
There is no dispute that the respondent, PFGI, is entitled to be paid
for the nets it sold. Petitioner contests that he should not be held
jointly liable with Chua and Yao, insisting that only those who dealt
in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he
cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the
contract entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by estoppel.
5. PEOPLE V. ENGR. CARLOS GARCIA
Section 25 of the Corporation Code provides that "(a)ll persons who
assume to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all the debts, liabilities
and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a defense its lack of
corporate personality."
FACTS:
In 1993, Carlos Garcia, Patricio Botero, and Luisa Miraples were
accused of illegal recruitment. It was alleged that they represented
themselves as the incorporators and officers of Ricorn Philippine
International Shipping Lines, Inc.; that Ricorn is a recruitment agency
for seamen; that Garcia is the president, Botero is the vice-
president, and Miraples (now at large) is the treasurer. It was later
discovered that Ricorn was never registered with the Securities and
Exchange Commission (SEC) and that it was never authorized to
recruit by the Philippine Overseas Employment Agency (POEA).
Botero and Garcia were convicted. Botero appealed.
In his defense, Botero averred that he was not an incorporator; he
insisted he was a mere applicant of Ricorn and not a conspirator of
the other accused who defrauded the complainants. He claims that
even as a Ricorn employee, he merely performed "minimal
activities" like following-up applicants' passports, seaman's book and
SOLAS, and conducting simple interviews. He denies he had a hand
in the selection of workers to be employed abroad.
ISSUES: WON the conviction of Botero was correct. YES.
RULING:
We reject appellant Botero's pretense that he is also a victim rather
than a culprit in this case. His submissions are at war with the
evidence on record. His co-accused Garcia introduced him to the
complainants as the vice-president of Ricorn. He used a table with a
nameplate confirming he was the vice-president of Ricorn. He
procured the passports, seaman's books and SOLAS for the
applicants. It was from him that the complainants inquired about
the status of their applications. He also admitted he gave money to
accused Garcia for Ricorn's incorporation. Beyond any reasonable
doubt, appellant Botero engaged in recruitment and placement
activities in that he, through Ricorn, promised the complainants
employment abroad.
For engaging in recruitment of workers without obtaining the
necessary license from the POEA, Boteros should suffer the
consequences of Ricorn's illegal act for according to the Labor Code,
"(i)f the offender is a corporation, partnership, association or entity,
the penalty shall be imposed upon the officer or officers of the
corporation, partnership, association or entity responsible for
violation; . . . "
The evidence shows that appellant Botero was one of the
incorporators of Ricorn. For reasons that cannot be discerned from
the records, Ricorn's incorporation was not consummated. Even
then, appellant cannot avoid his liabilities to the public as an
incorporator of Ricorn. He and his co-accused Garcia held
themselves out to the public as officers of Ricorn. They received
money from applicants who availed of their services. They are thus
estopped from claiming that they are not liable as corporate officials
of Ricorn.
Section 25 of the Corporation Code provides that "(a)ll persons who
assume to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all the debts, liabilities
and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a defense its lack of
corporate personality."
E. BOARD OF DIRECTORS
1. GOKONGWEI vs SEC
2. PENA vs CA
FACTS:
Pampanga Bus Co. (PAMBUSCO), original owners of the 3 lots in
question, mortgaged the same to DBP on January 3, 1962 in
consideration of the amount of P935,000.00. This mortgage was
foreclosed. In the foreclosure sale, said properties were awarded to
Rosita Peña as highest bidder. A certificate of sale was issued in her
favor.
The board of directors of PAMBUSCO, through 3 out of its 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. Consequently,
Briones executed a Deed of Assignment of PAMBUSCO's redemption
right over the subject lots in favor of Marcelino Enriquez. The latter
then redeemed the said properties.
A day after, Enriquez executed a deed of absolute sale of the subject
properties in favor of plaintiff-appellants, the spouses Rising T. Yap
and Catalina Lugue-Yap.
Yap then registered the properties under his name and demanded
Peña to vacate the properties. When Pena refused to do so, spouses
Yap sought to recover the possession of the lots from Peña. The
latter countered that she 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.
Pena alleged that the deed of assignment executed by PAMBUSCO
in favor of Enriquez is void for being an ultra vires act of its board of
directors and for being without any valuable consideration. The by-
laws of PAMBUSCO provide that four out of five directors must be
present in a special meeting of the board to constitute a quorum,
and that the corporation has already ceased to operate.
CFI ruled in favor of Petitioner Peña, but the same was overturned
by the CA.
ISSUE: WON the deed of assignment in favor of Enriquez valid.
HELD: NO. By-laws PAMBUSCO, provides:
"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."
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.
Apparently, only 3 out of 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, at least 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.
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. Being a dormant corporation for several years, it
was highly irregular, if not anomalous, for a group of 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 3 alleged directors who attended the special
meeting on were not listed as directors of respondent PAMBUSCO
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.
Under Section 30 of the then applicable Corporation Law, only
persons who own at least 1 share in their own right may qualify to
be directors of a corporation. Further, under Section 28, the sale or
disposition of all 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 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
2/3of 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 assigning to
respondent Enriquez the said right of redemption, should be struck
down as null and void.
3. Ramon Lee and Antonio Lacdao v. CA, Sacoba Manufacturing
Corp., Pablo Gonzales, Jr., and Thomas Gonzales
Facts: On 15 November 1985, a complainant for sum of money was
filed by the International Corporate Bank, Inc. against Sacoba
Manufacturing Corp., Pablo Gonzales Jr., and Tomas Gonzales who,
in turn, filed a third party complaint against Alfa Integrated Textile
Mills (ALFA), Ramon C. Lee (ALFA's president) and Antonio DM.
Lacdao (ALFA's vice president) on 17 March 1986. On 17 September
1987, Lee and Lacdao filed a motion to dismiss the third party
complaint which the RTC Makati, denied in an Order dated 27 June
1988. On 18 July 1988, Lee and Lacdao filed their answer to the third
party complaint.
Meanwhile, on 12 July 1988, the trial issued an order requiring the
issuance of an alias summons upon ALFA through the DBP as a
consequence of Lee and Lacdao's 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. In a
manifestation dated 22 July 1988, 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. On 4 August 1988, the trial
court issued an order advising Sacoba Manufacturing, et. al. to take
the appropriate steps to serve the summons to ALFA. On 16 August
1988, Sacoba Manufacturing, et. al. filed a Manifestation and
Motion for the Declaration of Proper Service of Summons which the
trial court granted on 17 August 1988.
On 12 September 1988, Lee and Lacdao filed a motion for
reconsideration submitting that the Rule 14, section 13 of the
Revised Rules of Court is not applicable since they were no longer
officers of ALFA and Sacoba Manufacturing, et. al. should have
availed of another mode of service under Rule 14, Section 16 of the
said Rules, i.e., through publication to effect proper service upon
ALFA. On 2 January 1989, the trial court upheld the validity of the
service of summons on ALFA through Lee and Lacdao, thus, denying
the latter's motion for reconsideration and requiring ALFA to file its
answer through Lee and Lacdao as its corporate officers. On 19
January 1989, a second motion for reconsideration was filed by Lee
and Lacdao 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, Lee and Lacdao attached thereto a copy of the
voting trust agreement between all the stockholders of ALFA (Lee
and Lacdao included), on the one hand, and the DBP, on the other
hand, whereby the management and control of ALFA became vested
upon the DBP.
On 25 April 1989, the trial court reversed itself by setting aside its
previous Order dated 2 January 1989 and declared that service upon
Lee and Lacdao who were no longer corporate officers of ALFA
cannot be considered as proper service of summons on ALFA. On 15
May 1989, Sacoba Manufacturing, et. al. moved for a
reconsideration of the Order which was affirmed by the court in is
Order dated 14 August 1989 denying Sacoba Manufacturing, et. al.'s
motion for reconsideration.
On 18 September 1989, a petition for certiorari was belatedly
submitted by Sacoba Manufacturing, et. al. before the Court of
Appeals which, nonetheless, resolved to give due course thereto on
21 September 1989. On 17 October 1989, the trial court, not having
been notified of the pending petition for certiorari with the
appellate court issued an Order declaring as final the Order dated 25
April 1989. Sacoba Manufacturing, et. al. in the said Order were
required to take positive steps in prosecuting the third party
complaint in order that the court would not be constrained to
dismiss the same for failure to prosecute. Subsequently, on 25
October 1989 Sacoba Manufacturing, et. al. filed a motion for
reconsideration on which the trial court took no further action. On
19 March 1990, after Lee and Lacdao filed their answer to Sacoba
Manufacturing, et. al.'s petition for certiorari, the appellate court
rendered its decision, setting aside the orders of trial court judge
dated 25 April 1989 and 14 August 1989. On 11 April 1990, Lee and
Lacdao moved for a reconsideration of the decision of the appellate
court which resolved to deny the same on 10 May 1990. Lee and
Lacdao filed the petition for certiorari.
In the meantime, the appellate court inadvertently made an entry of
judgment on 16 July 1990 erroneously applying the rule that the
period during which a motion for reconsideration has been pending
must be deducted from the 15-day period to appeal. However, in its
Resolution dated 3 January 1991, the appellate court set aside the
aforestated entry of judgment after further considering that the rule
it relied on applies to appeals from decisions of the Regional Trial
Courts to the Court of Appeals, not to appeals from its decision to
the Supreme Court pursuant to the Supreme Court's ruling in the
case of Refractories Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539 [1989].
Issues:
1. Whether the execution of the voting trust agreement by
Lee and Lacdao whereby all their shares to the corporation
have been transferred to the trustee deprives the
stockholder of their positions as directors of the
corporation.
2. Whether 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 Lee and Lacdao as
beneficial owners pursuant to the 6th paragraph of section
59 of the new Corporation Code.
 3. Whether there was proper service of summons on ALFA
through Lee and Lacdao, to bind ALFA.
Ruling:
1. YES. Lee and Lacdao, 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, Lee and
Lacdao 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. Lee and Lacdao ceased to be
directors. Hence, the transfer of their shares to the DBP created
vacancies in their respective positions as directors of ALFA. The
transfer of shares from the stockholders of ALFA to the DBP is the
essence of the subject voting trust agreement. 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 because 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, Lee and Lacdao 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 is no dispute from the records that DBP has
taken over full control and management of the firm.
2. NO. The 6th paragraph of section 59 of the new Corporation Code
reads that "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." However, 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. Had the five-year period of
the voting trust agreement expired in 1986, the DBP would not have
transferred an its rights, titles and interests in ALFA "effective June
30, 1986" to the national government through the Asset
Privatization Trust (APT) as attested to in a Certification dated 24
January 1989 of the Vice President of the DBP's Special Accounts
Department II. In the same certification, it is stated that the DBP,
from 1987 until 1989, had handled s account which included ALFA's
assets pursuant to a management agreement by and between the
DBP and APT. Hence, there is evidence on record that at the time of
the service of summons on ALFA through Lee and Lacdao on 21
August 1987, the voting trust agreement in question was not yet
terminated so that the legal title to the stocks of ALFA, then, still
belonged to the DBP.
3. NO. It is a basic principle in Corporation Law that a corporation
has a personality separate and distinct from the officers or members
who compose it. Thus, the role on service of processes on a
corporation enumerates the representatives of a corporation who
can validly receive court processes on its behalf. Not every
stockholder or officer can bind the corporation considering the
existence of a corporate entity separate from those who compose it.
The rationale of the rule is that service must be made on a
representative so integrated with the corporation sued as to make it
a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him. Herein, Lee
and Lacdao do not fall under any of the enumerated officers. The
service of summons upon ALFA, through Lee and Lacdao, therefore,
is not valid. To rule otherwise will contravene the general principle
that a corporation can only be bound by such acts which are within
the scope of the officer's or agent's authority.
4. BENGUET ELECTRlC COOPERATIVE, INC., petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and
BOARD OF DIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC.,
* respondents.
FACTS: Peter Cosalan, the general manager of the Benguet Electric
Cooperative, Inc. (BENECo) was informed by COA that cash advances
received by officers and employees of Benguet Electric had been
virtually written off in the books of BENECo, that per diems and
allowances showed substantial inconsistencies with the directives of
the National Electrification Administration (NEA), and that there
were several irregularities in the utilization of funds amounting to
P37Mphp released by NEA to BENECo. Cosalan then implemented
the remedial measures recommended by COA. Board members of
BENECo responded by abolishing the housing allowance of Cosalan,
reduced his salary, representation and other allowances, and
directed him to hold in abeyance all disciplinary actions, and struck
his name out as principal signatory of Benguet Electric. The Board
adopted another series of resolutions which resulted in the ouster of
Cosalan as general manager. Cosalan nonetheless continued to work
as general manager, contending that only the NEA can suspend and
remove him. The Board then refused to act on Cosalan’s request to
release compensation due him. Cosalan filed a complaint with the
NLRC against the Board of Benguet Electric and impleaded Benguet
Electric itself as well as the individual members of the board in their
official and private capacities. The Labor Arbiter ruled in favor of
Cosalan, holding both the company and the board solidarily liable to
Cosalan. NLRC modified award to Cosalan by declaring Benguet
Electric solely liable thus exonerating its Board members. Hence, this
petition.
ISSUE: WON both the corporation and board members are both
liable to Cosalan.
RULING: YES. As a general rule, the Board members and officers of a
corporation who purport to act for and in behalf of the corporation
within the scope of their authority and in good faith do not become
liable, whether civilly or otherwise, for the consequences of their
acts. Those acts, when they are of such a nature and are done under
such circumstances, are properly attributed to the corporation alone
and no personal liability is incurred by such officers and Board
members.
In this case, however, the NLRC clearly overlooked or disregarded
the circumstances under which respondent Board members had in
fact acted. As noted earlier, the respondent Board members
responded to the efforts of Cosalan to take seriously and implement
the Audit Memoranda issued by the COA explicitly addressed to the
petitioner Beneco, first by stripping Cosalan of the privileges
attached to his position as General Manager, then by suspending
indefinitely and finally dismissing Cosalan from such position. As also
noted earlier, respondent Board members offered no suggestion at
all of any just or lawful cause that could sustain the suspension and
dismissal of Cosalan. They obviously wanted to get rid of Cosalan
and so acted with indecent haste in removing him from his position
and denying him substantive and procedural due process. Thus, the
record showed strong indications that respondent Board members
had illegally suspended and dismissed Cosalan precisely because
he was trying to remedy the financial irregularities and violations
of NEA regulations which the COA had brought to the attention of
Beneco. At the very least, a strong presumption had arisen, which it
was incumbent upon respondent Board members to disprove, that
they had acted in reprisal against respondent Cosalan and in an
effort to suppress knowledge about and remedial measures against
the financial irregularities the COA Audits had unearthed. That
burden respondent Board members did not discharge.
Under Section 31 of the Corporation Code, respondent Board
members may be held liable for damages under the foregoing
circumstance:
Sec. 31. Liability of directors, trustees or officers. —
Directors or trustees who wilfully and knowingly vote for
or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such
directors or trustees shall be jointly liable and severally
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons . . .
The court ruled that respondent Board members were guilty of
"gross negligence or bad faith in directing the affairs of the
corporation" in enacting the series of resolutions noted earlier
indefinitely suspending and dismissing respondent Cosalan from the
position of General Manager of Beneco. Respondent Board
members, in doing so, acted belong the scope of their authority as
such Board members. The dismissal of an officer or employee in bad
faith, without lawful cause and without procedural due process, is
an act that is contra legem.
Thus, BENECo and its Board members are properly held solidarily
liable for the awards made by the Labor Arbiter. But since Beneco
was controlled by and which have acted only through respondent
Board members, it has a right to be reimbursed for any amounts
that Beneco may be compelled to pay to respondent Cosalan. The
liability-generating acts here are the personal and individual acts of
respondent Board members, and are not properly attributed to
Beneco itself. Such right of reimbursement is essential if the
innocent members of Beneco are not to be penalized for the acts of
respondent Board members which were both done in bad faith and
ultra vires.
5. ESGUERRA v. CA
FACTS: Julieta Esguerra filed a complaint for administration of
conjugal partnership or separation of property against her husband
Vicente Esguerra, Jr. before (the trial) court. The said complaint was
later amended on 31 October 1985 impleading V. Esguerra
Construction Co., Inc. (VECCI) and other family corporations as
defendants.
The parties entered into a compromise agreement which was
submitted to the court, to wit:
1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall
sell/alienate/transfer or dispose of in any lawful and
convenient manner, and under the terms and conditions
recited in the enabling resolutions of its Board of
Directors and stockholders, all the following properties:
XXX
2. After the above-mentioned properties shall have been
sold/alienated/transferred or disposed of and funds are
realized therefrom, and after all the financial obligations of
defendant VECCI (those specified in the enabling
resolutions and such other obligations determined to be
due and will become due) are completely paid and/or
settled, defendant VECCI shall cause to be paid and/or
remitted to the plaintiff such amount/sum equivalent to
fifty percent (50%) of the (net) resulting balance of such
funds.
By virtue of said agreement, Esguerra Bldg. I was sold and the net
proceeds distributed according to the agreement. The controversy
arose with respect to Esguerra Building II. Esguerra started claiming
one-half of the rentals of the said building which VECCI refused.
Thus, Esguerra filed a motion with respondent court praying that
VECCI be ordered to remit one-half of the rentals to her effective
January 1990 until the same be sold. VECCI opposed said motion.
Meanwhile, Esguerra Bldg. II was sold to Sureste Properties, Inc. for
P150,000,000.00. Esguerra filed a motion seeking the nullification of
the sale on the ground that VECCI is not the lawful and absolute
owner thereof and that she has not been notified nor consulted as
to the terms and conditions of the sale. Petitioner contends that
VECCI violated the condition in the compromise agreement requiring
that the sale be made under the terms and conditions recited in the
enabling resolutions of its Board of Directors and stockholders. She
rues that no shareholders or directors meeting, wherein these
resolutions were passed, was actually held. She thus bewails this
sale as improper for not having complied with the requirements
mandated by Section 40 of the Corporation Code.
ISSUE: (related to Corpo) WON the corporate secretary’s
certification of the shareholders and directors resolution authorizing
such sale sufficient, or does the buyer need to go behind such
certification and investigate further the truth and veracity thereof?
HELD: YES. Corporate secretary’s certification of the shareholders
and directors resolution authorizing such sale is sufficient.
VECCIS Sale of Esguerra Building II A Valid Exercise of Corporate
Power
The compromise agreement clearly showed that the enabling
resolutions of its (VECCIs) board of directors and stockholders
referred to were those then already existing; to wit: (1) the
resolution of the stockholders of VECCI, (where) the stockholders
authorized VECCI to sell and/or disposed all or substantially all its
property and assets upon such terms and conditions and for such
consideration as the board of directors may deem expedient. (2) the
resolution, (where) the board of directors of VECCI authorized VECCI
to sell and/or dispose all or substantially all the property and assets
of the corporation, at the highest available price/s they could be
sold or disposed of in cash, and in such manner as may be held
convenient under the circumstances, and authorized the President
Vicente B. Esguerra, Jr. to negotiate, contract, execute and sign such
sale for and in behalf of the corporation.
VECCIs sale of all the properties mentioned in the judicially-
approved compromise agreement was done on the basis of its
Corporate Secretarys Certification of these two resolutions. The
partial decision did not require any further board or stockholder
resolutions to make VECCIs sale of these properties valid. Being
regular on its face, the Secretarys Certification was sufficient for
private respondent Sureste Properties, Inc. to rely on. It did not have
to investigate the truth of the facts contained in such certification.
Otherwise, business transactions of corporations would become
tortuously slow and unnecessarily hampered. Ineluctably, VECCIs
sale of Esguerra Building II to private respondent was not ultra vires
but a valid execution of the trial courts partial decision. Based on the
foregoing, the sale is also deemed to have satisfied the
requirements of Section 40 of the Corporation Code.
Furthermore, petitioner Julieta Esguerra is estopped from contesting
the validity of VECCIs corporate action in selling Esguerra Building II
on the basis of said resolutions and certification because she never
raised this issue in VECCIs prior sales of the other properties sold
including the Esguerra Building I. The same identical resolutions and
certification were used in such prior sales.
6. TAM WING TAK vs. HON. RAMON P. MAKASIAR (in his Capacity
as Presiding Judge of the RTC of Manila) and ZENON DE GUIA (in
his capacity as Chief State Prosecutor)
G.R. No. 122452 January 29, 2001
In 1992, petitioner, in his capacity as director of Concord-World
Properties, Inc., (Concord), a domestic corporation, filed an affidavit-
complaint charging Vic Ang Siong with violation of B.P. Blg. 22. The
complaint alleged that a check for the amount of P83,550,000.00,
issued by Vic Ang Siong in favor of Concord, was dishonored when
presented for encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of
Concord, the payee of the dishonored check, since the firms board
of directors had not empowered him to act on its behalf. Second, he
and Concord had already agreed to amicably settle the issue after he
made a partial payment of P19,000,000.00 on the dishonored check.
The City Prosecutor dismissed the complaint on the following
grounds: (1) that petitioner lacked the requisite authority to initiate
the criminal complaint for and on Concords behalf; and (2) that
Concord and Vic Ang Siong had already agreed upon the payment of
the latter’s balance on the dishonored check.
Petitioner then filed Civil Case for mandamus with the RTC of
Quezon City to compel the Chief State Prosecutor to file or cause the
filing of an information charging Vic Ang Siong with violation of B.P.
Blg. 22. RTC denied the petition.
ISSUE:
(1)Will mandamus lie to compel the City Prosecutor to file the
necessary information in court?
(2) Was there valid service of the City Prosecutors resolution upon
petitioner?
Yes, pursuant to Section 2 of DOJ Order No. 223. (Remedial issue)
RULING: Respondent Chief State Prosecutor in refusing to order the
filing of an information for violation of B.P. Blg. 22 against Vic Ang
Siong did not act without or in excess of jurisdiction or with grave
abuse of discretion.
First, with respect to the agreement between Concord and Victor
Ang Siong to amicably settle their difference, we find this resort to
an alternative dispute settlement mechanism as not contrary to law,
public policy, or public order. Efforts of parties to solve their
disputes outside of the courts are looked on with favor, in view of
the clogged dockets of the judiciary.
Second, it is not disputed in the instant case that Concord, a
domestic corporation, was the payee of the bum check, not
petitioner. Therefore, it is Concord, as payee of the bounced check,
which is the injured party. Since petitioner was neither a payee nor
a holder of the bad check, he had neither the personality to sue
nor a cause of action against Vic Ang Siong. Under Section 36 of the
Corporation Code, read in relation to Section 23, it is clear that
where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. Note that petitioner failed to
show any proof that he was authorized or deputized or granted
specific powers by Concords board of director to sue Victor Ang
Siong for and on behalf of the firm. Clearly, petitioner as a minority
stockholder and member of the board of directors had no such
power or authority to sue on Concords behalf. Nor can we uphold
his act as a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit.
There is no showing that petitioner has complied with the foregoing
requisites. It is obvious that petitioner has not shown any clear legal
right which would warrant the overturning of the decision of public
respondents to dismiss the complaint against Vic Ang Siong. A public
prosecutor, by the nature of his office, is under no compulsion to file
a criminal information where no clear legal justification has been
shown, and no sufficient evidence of guilt nor prima facie case has
been presented by the petitioner. No reversible error may be
attributed to the court a quo when it dismissed petitioners special
civil action for mandamus.
7. FILIPINAS PORT SERVICES, INC., represented by stockholders,
ELIODORO C. CRUZ and MINDANAO TERMINAL AND BROKERAGE
SERVICES, INC., vs VICTORIANO S. GO, ARSENIO LOPEZ CHUA,
EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS SYBICO,
MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S.
JAYME, and ELIEZER B. DE JESUS,
G.R. No. 161886
FACTS:
Petitioner Eliodoro C. Cruz, Filports president from 1968 until
he lost his bid for reelection as Filports president during the general
stockholders meeting in 1991, wrote a letter[2] to the corporation’s
Board of Directors questioning the boards creation of the following
positions with a monthly remuneration of P13,050.00 each, and the
election thereto of certain members of the board, to wit:
Asst. Vice-President for Corporate Planning - Edgar C.
Trinidad (Director)
Asst. Vice-President for Operations - Eliezer B. de
Jesus (Director)
Asst. Vice-President for Finance - Mary Jean D. Co
(Director)
Asst. Vice-President for Administration - Henry Chua
(Director)
Special Asst. to the Chairman - Arsenio Lopez
Chua (Director)
Special Asst. to the President - Fortunato V. de Castro
In his aforesaid letter, Cruz requested the board to take
necessary action/actions to recover from those elected to the
aforementioned positions the salaries they have received. Cruz,
purportedly in representation of Filport and its stockholders, among
which is herein co-petitioner Mindanao Terminal and Brokerage
Services, Inc. (Minterbro), filed with the SEC a petition which he
describes as a derivative suit against the herein respondents who
were then the incumbent members of Filports Board of Directors,
for alleged acts of mismanagement detrimental to the interest of
the corporation and its shareholders at large.
In the same petition, Cruz alleged that despite demands
made upon the respondent members of the board of directors to
desist from creating the positions in question and to account for the
amounts incurred in creating the same, the demands were
unheeded. Cruz thus prayed that the respondent members of the
board of directors be made to pay Filport, jointly and severally, the
sums of money variedly representing the damages incurred as a
result of the creation of the offices/positions complained of and the
aggregate amount of the questioned increased salaries.
In their Answer, the respondents denied the allegations of
mismanagement. The respondents further averred that Cruz and his
co-petitioner Minterbro, while admittedly stockholders of Filport,
have neither authority nor standing to bring the so-called derivative
suit for and in behalf of the corporation. Respondents averred that
Cruz filed the alleged derivative suit in bad faith and purely for
harassment purposes on account of his non-reelection to the board
in the 1991 general stockholders meeting.
The RTC-Davao City rendered its decision in the case. Even
as it found that (1) Filports Board of Directors has the power to
create positions not provided for in the by-laws of the corporation
since the board is the governing body; and (2) the increases in the
salaries of the board chairman, vice-president, treasurer and
assistant general manager are reasonable, the trial court
nonetheless rendered judgment against the respondents by
ordering the directors holding the positions of Assistant Vice
President for Corporate Planning, Special Assistant to the President
and Special Assistant to the Board Chairman to refund to the
corporation the salaries they have received as such
officers considering that Filipinas Port Services is not a big
corporation requiring multiple executive positions and that said
positions were just created for accommodation.
From the adverse decision of the trial court, herein
respondents went on appeal to the CA. In its decision, the CA, taking
exceptions to the findings of the trial court that the creation of the
positions of Assistant Vice President for Corporate Planning, Special
Assistant to the President and Special Assistant to the Board
Chairman was merely for accommodation purposes, granted the
respondents appeal, reversed and set aside the appealed decision of
the trial court and accordingly dismissed the so-called derivative suit
filed by Cruz, et al.
Hence, petitioners present recourse.
ISSUES:
1. Whether or not the Filports Board of Directors acted
within its powers in creating the executive committee and
other positions, each with corresponding remuneration,
and in increasing the salaries of the positions of Board
Chairman, Vice-President, Treasurer and Assistant General
Manager.
2. Whether or not the petitioners have the legal standing.
HELD:
First issue:
The governing body of a corporation is its board of
directors. Section 23 of the Corporation Code explicitly provides that
unless otherwise provided therein, the corporate powers of all
corporations formed under the Code shall be exercised, all business
conducted and all property of the corporation shall be controlled
and held by a board of directors. Thus, with the exception only of
some powers expressly granted by law to stockholders (or members,
in case of non-stock corporations), the board of directors (or
trustees, in case of non-stock corporations) has the sole authority to
determine policies, enter into contracts, and conduct the ordinary
business of the corporation within the scope of its charter, i.e., its
articles of incorporation, by-laws and relevant provisions of law.
Verily, the authority of the board of directors is restricted to the
management of the regular business affairs of the corporation,
unless more extensive power is expressly conferred.
In the present case, the boards creation of the positions
of Assistant Vice Presidents for Corporate Planning, Operations,
Finance and Administration, and those of the Special Assistants to
the President and the Board Chairman, was in accordance with the
regular business operations of Filport as it is authorized to do so by
the corporations by-laws, pursuant to the Corporation Code.
The election of officers of a corporation is provided for under
Section 25 of the Code which reads:
Sec. 25. Corporate officers, quorum. Immediately
after their election, the directors of a
corporation must formally organize by the
election of a president, who shall be a director, a
treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of
the Philippines, and such other officers as may
be provided for in the by-laws. (Emphasis
supplied.)
In turn, the amended Bylaws of Filport provides the following:
Officers of the corporation, as
provided for by the by-laws, shall be elected by
the board of directors at their first meeting after
the election of Directors. xxx
The officers of the corporation shall be
a Chairman of the Board, President, a Vice-
President, a Secretary, a Treasurer, a General
Manager and such other officers as the Board of
Directors may from time to time provide, and
these officers shall be elected to hold office until
their successors are elected and
qualified. (Emphasis supplied.)
Likewise, the fixing of the corresponding remuneration for the
positions in question is provided for in the same by-laws of the
corporation, viz:
 xxx The Board of Directors shall fix the
compensation of the officers and agents of the
corporation. (Emphasis supplied.)
Unfortunately, the bylaws of the corporation are silent as to
the creation by its board of directors of an executive
committee. Under Section 35 of the Corporation Code, the creation
of an executive committee must be provided for in the bylaws of the
corporation.
Notwithstanding the silence of Filports bylaws on the
matter, we cannot rule that the creation of the executive committee
by the board of directors is illegal or unlawful. One reason is the
absence of a showing as to the true nature and functions of said
executive committee considering that the executive committee,
referred to in Section 35 of the Corporation Code which is as
powerful as the board of directors and in effect acting for the board
itself, should be distinguished from other committees which are
within the competency of the board to create at anytime and whose
actions require ratification and confirmation by the board. Another
reason is that, the Board of Directors has the power to create
positions not provided for in Filports bylaws since the board is the
corporations governing body, clearly upholding the power of its
board to exercise its prerogatives in managing the business affairs of
the corporation.
As well, it may not be amiss to point out that, as testified
to and admitted by petitioner Cruz himself, it was during his
incumbency as Filport president that the executive committee in
question was created, and that he was even the one who moved for
the creation of the positions of the AVPs for Operations, Finance and
Administration. By his acquiescence and/or ratification of the
creation of the aforesaid offices, Cruz is virtually precluded from
suing to declare such acts of the board as invalid or illegal. And it
makes no difference that he sues in behalf of himself and of the
other stockholders. Indeed, as his voice was not heard in protest
when he was still Filports president, raising a hue and cry only now
leads to the inevitable conclusion that he did so out of spite and
resentment for his non-reelection as president of the corporation.
With regard to the increased emoluments of the Board
Chairman, Vice-President, Treasurer and Assistant General Manager
which are supposedly disproportionate to the volume and nature of
their work, the Court, after a judicious scrutiny of the increase vis--
vis the value of the services rendered to the corporation by the
officers concerned, agrees with the findings of both the trial and
appellate courts as to the reasonableness and fairness thereof.
But even assuming, in gratia argumenti, that there was
mismanagement resulting to corporate damages and/or business
losses, still the respondents may not be held liable in the absence, as
here, of a showing of bad faith in doing the acts complained of.
If the cause of the losses is merely error in business
judgment, not amounting to bad faith or negligence, directors
and/or officers are not liable. For them to be held accountable, the
mismanagement and the resulting losses on account thereof are not
the only matters to be proven; it is likewise necessary to show that
the directors and/or officers acted in bad faith and with malice in
doing the assailed acts. Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill-will partaking of the
nature of fraud. We have searched the records and nowhere do we
find a dishonest purpose or some moral obliquity, or conscious
doing of a wrong on the part of the respondents that partakes of the
nature of fraud.
Second Issue:
Under the Corporation Code, where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. But an individual stockholder may be permitted to institute
a derivative suit in behalf of the corporation in order to protect or
vindicate corporate rights whenever the officials of the corporation
refuse to sue, or when a demand upon them to file the necessary
action would be futile because they are the ones to be sued, or
because they hold control of the corporation. In such actions, the
corporation is the real party-in-interest while the suing stockholder,
in behalf of the corporation, is only a nominal party.
Here, the action below is principally for damages resulting
from alleged mismanagement of the affairs of Filport by its
directors/officers, it being alleged that the acts of mismanagement
are detrimental to the interests of Filport. Thus, the injury
complained of primarily pertains to the corporation so that the suit
for relief should be by the corporation. However, since the ones to
be sued are the directors/officers of the corporation itself, a
stockholder, like petitioner Cruz, may validly institute a derivative
suit to vindicate the alleged corporate injury, in which case Cruz is
only a nominal party while Filport is the real party-in-interest. For
sure, in the prayer portion of petitioner’s petition before the SEC,
the reliefs prayed were asked to be made in favor of Filport.
Besides, the requisites before a derivative suit can be filed
by a stockholder are present in this case, to wit:
a) the party bringing suit should be a
shareholder as of the time of the act or
transaction complained of, the number of his
shares not being material;
b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board
of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the
corporation, the wrongdoing or harm having
been, or being caused to the corporation and
not to the particular stockholder bringing the
suit.
Indisputably, petitioner Cruz (1) is a stockholder of Filport;
(2) he sought without success to have its board of directors remedy
what he perceived as wrong when he wrote a letter requesting the
board to do the necessary action in his complaint; and (3) the
alleged wrong was in truth a wrong against the stockholders of the
corporation generally, and not against Cruz or Minterbro, in
particular. In the end, it is Filport, not Cruz which directly stands to
benefit from the suit. And while it is true that the complaining
stockholder must show to the satisfaction of the court that he has
exhausted all the means within his reach to attain within the
corporation itself the redress for his grievances, or actions in
conformity to his wishes, nonetheless, where the corporation is
under the complete control of the principal defendants, as here,
there is no necessity of making a demand upon the directors. The
reason is obvious: a demand upon the board to institute an action
and prosecute the same effectively would have been useless and an
exercise in futility. In fine, we rule and so hold that the petition filed
with the SEC at the instance of Cruz, which ultimately found its way
to the RTC of Davao City as Civil Case No. 28,552-2001, is a
derivative suit of which Cruz has the necessary legal standing to
institute.