Corporation Law Cases Full Text
Corporation Law Cases Full Text
Corporation Law Cases Full Text
L-14441
the securities, said court concluded that the phrase "interested person"
refers only to issuers, dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court as
controlling on the issue in this case. Our Securities Act in Section 7(c)
thereof, requires the publication and notice of the registration statement.
Pursuant thereto, the Securities and Exchange Commissioner caused the
publication of an order in part reading as follows:
. . . Any person who is opposed with this petition must file his written
opposition with this Commission within said period (2 weeks). . . .
In other words, as construed by the administrative office entrusted with the
enforcement of the Securities Act, any person (who may not be "aggrieved"
or "interested" within the legal acceptation of the word) is allowed or
permitted to file an opposition to the registration of securities for sale in the
Philippines. And this is in consonance with the generally accepted principle
that Blue Sky Laws are enacted to protect investors and prospective
purchasers and to prevent fraud and preclude the sale of securities which
are in fact worthless or worth substantially less than the asking price. It is
for this purpose that herein petitioner duly filed his opposition giving
grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply
to the opposition. Subsequently both the petition and the opposition were
set for hearing during which the petitioner was allowed to actively
participate and did so by cross-examining the respondent's witnesses and
filing his memorandum in support of his opposition. He therefore to all
intents and purposes became a party to the proceedings. And under the
New Rules of Court,5 such a party can appeal from a final order, ruling or
decision of the Securities and Exchange Commission. This new Rule
eliminating the word "aggrieved" appearing in the old Rule, being
procedural in nature,6 and in view of the express provision of Rule 144 that
the new rules made effective on January 1, 1964 shall govern not only cases
brought after they took effect but all further proceedings in cases then
pending, except to the extent that in the opinion of the Court their
application would not be feasible or would work injustice, in which event the
former procedure shall apply, we hold that the present appeal is properly
within the appellate jurisdiction of this Court.
The order allowing the registration and sale of respondent's securities is
clearly a final order that is appealable. The mere fact that such authority
may be later suspended or revoked, depending on future developments,
does not give it the character of an interlocutory or provisional ruling. And
the fact that seven days after the publication of the order, the securities are
deemed registered (Sec. 7, Com. Act 83, as amended), points to the finality
of the order. Rights and obligations necessarily arise therefrom if not
reviewed on appeal.
Our position on this procedural matter that the order is appealable and
the appeal taken here is proper is strengthened by the intervention of the
Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the
constitutional issues herein presented affect the validity of Section 13 of the
Corporation Law, which, according to the respondent, conflicts with the
Parity Ordinance and the Laurel-Langley Agreement recognizing, it is
claimed, its right to exploit our petroleum resources notwithstanding said
provisions of the Corporation Law.
2.
Respondent
likewise
contends
that
since
the
order
of
Registration/Licensing dated September 9, 1958 took effect 30 days from
September 3, 1958, and since no stay order has been issued by the
Supreme Court, respondent's shares became registered and licensed under
the law as of October 3, 1958. Consequently, it is asserted, the present
appeal has become academic. Frankly we are unable to follow respondent's
argumentation. First it claims that the order of August 29 and that of
September 9, 1958 are not final orders and therefor are not appealable.
Then when these orders, according to its theory became final and were
implemented, it argues that the orders can no longer be appealed as the
question of registration and licensing became moot and academic.
But the fact is that because of the authority to sell, the securities are, in all
probabilities, still being traded in the open market. Consequently the issue is
much alive as to whether respondent's securities should continue to be the
subject of sale. The purpose of the inquiry on this matter is not fully served
just because the securities had passed out of the hands of the issuer and its
dealers. Obviously, so long as the securities are outstanding and are placed
in the channels of trade and commerce, members of the investing public are
entitled to have the question of the worth or legality of the securities
resolved one way or another.
But more fundamental than this consideration, we agree with the late
Senator Claro M. Recto, who appeared as amicus curiae in this case, that
while apparently the immediate issue in this appeal is the right of
respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the
Filipino public, the real and ultimate controversy here would actually call for
the construction of the constitutional provisions governing the disposition,
utilization, exploitation and development of our natural resources. And
certainly this is neither moot nor academic.
3. We now come to the meat of the controversy the "tie-up" between SAN
JOSE OIL on the one hand, and the respondent SAN JOSE PETROLEUM and its
associates, on the other. The relationship of these corporations involved or
affected in this case is admitted and established through the papers and
documents which are parts of the records: SAN JOSE OIL, is a domestic
mining corporation, 90% of the outstanding capital stock of which is owned
by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation,
the majority interest of which is owned by OIL INVESTMENTS, Inc., another
foreign (Panamanian) company. This latter corporation in turn is wholly
(100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL
PETROLEUM COMPANY, C.A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were 9,976 stockholders of
PANCOASTAL PETROLEUM found in 49 American states and U.S. territories,
holding 3,476,988 shares of stock; whereas, as of November 30, 1956,
PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373
stockholders scattered in 49 American state. In the two lists of stockholders,
there is no indication of the citizenship of these stockholders,7 or of the
total number of authorized stocks of each corporation, for the purpose of
determining the corresponding percentage of these listed stockholders in
relation to the respective capital stock of said corporation.
Petitioner, as well as the amicus curiae and the Solicitor General8 contend
that the relationship between herein respondent SAN JOSE PETROLEUM and
its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the
Philippine Constitution, and Section 13 of the Corporation Law, which
inhibits a mining corporation from acquiring an interest in another mining
corporation. It is respondent's theory, on the other hand, that far from
violating the Constitution; such relationship between the two corporations is
in accordance with the Laurel-Langley Agreement which implemented the
organized under the laws of the Philippines and at least 60% of the capital
stock of which is owned or controlled by citizens of the United States. . . .
3. The United States of America reserves the rights of the several States of
the United States to limit the extent to which citizens or corporations or
associations owned or controlled by citizens of the Philippines may engage
in the activities specified in this Article. The Republic of the Philippines
reserves the power to deny any of the rights specified in this Article to
citizens of the United States who are citizens of States, or to corporations or
associations at least 60% of whose capital stock or capital is owned or
controlled by citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are owned or controlled
by citizens of the Philippines. . . . (Emphasis supplied.)
Re-stated, the privilege to utilize, exploit, and develop the natural resources
of this country was granted, by Article XIII of the Constitution, to Filipino
citizens or to corporations or associations 60% of the capital of which is
owned by such citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and business
enterprises owned or controlled directly or indirectly, by citizens of the
United States.
There could be no serious doubt as to the meaning of the word "citizens"
used in the aforementioned provisions of the Constitution. The right was
granted to 2 types of persons: natural persons (Filipino or American citizens)
and juridical persons (corporations 60% of which capital is owned by
Filipinos and business enterprises owned or controlled directly or indirectly,
by citizens of the United States). In American law, "citizen" has been defined
as "one who, under the constitution and laws of the United States, has a
right to vote for representatives in congress and other public officers, and
who is qualified to fill offices in the gift of the people. (1 Bouvier's Law
Dictionary, p. 490.) A citizen is
One of the sovereign people. A constituent member of the sovereignty,
synonymous with the people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L.
Ed. 691.)
A member of the civil state entitled to all its privileges. (Cooley, Const. Lim.
77. See U.S. v. Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21
Wall. [U.S.] 162, 22 L. Ed. 627.)
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an
American business enterprise entitled to parity rights in the Philippines? The
answer must be in the negative, for the following reasons:
Firstly It is not owned or controlled directly by citizens of the United
States, because it is owned and controlled by a corporation, the OIL
INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and controlled
by American citizens through the OIL INVESTMENTS, for this latter
corporation is in turn owned and controlled, not by citizens of the United
States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL
COMPANY and PANCOASTAL PETROLEUM.
Thirdly Although it is claimed that these two last corporations are owned
and controlled respectively by 12,373 and 9,979 stockholders residing in the
different American states, there is no showing in the certification furnished
(2)
that in the meetings of the board of directors, any director may be
represented and may vote through a proxy who also need not be a director
or stockholder; and
(3)
that no contract or transaction between the corporation and any
other association or partnership will be affected, except in case of fraud, by
the fact that any of the directors or officers of the corporation is interested
in, or is a director or officer of, such other association or partnership, and
that no such contract or transaction of the corporation with any other
person or persons, firm, association or partnership shall be affected by the
fact that any director or officer of the corporation is a party to or has an
interest in, such contract or transaction, or has in anyway connected with
such other person or persons, firm, association or partnership; and finally,
that all and any of the persons who may become director or officer of the
corporation shall be relieved from all responsibility for which they may
otherwise be liable by reason of any contract entered into with the
corporation, whether it be for his benefit or for the benefit of any other
person, firm, association or partnership in which he may be interested.
These provisions are in direct opposition to our corporation law and
corporate practices in this country. These provisions alone would outlaw any
corporation locally organized or doing business in this jurisdiction. Consider
the unique and unusual provision that no contract or transaction between
the company and any other association or corporation shall be affected
except in case of fraud, by the fact that any of the directors or officers of the
company may be interested in or are directors or officers of such other
association or corporation; and that none of such contracts or transactions
of this company with any person or persons, firms, associations or
corporations shall be affected by the fact that any director or officer of this
company is a party to or has an interest in such contract or transaction or
has any connection with such person or persons, firms associations or
corporations; and that any and all persons who may become directors or
officers of this company are hereby relieved of all responsibility which they
would otherwise incur by reason of any contract entered into which this
company either for their own benefit, or for the benefit of any person, firm,
association or corporation in which they may be interested.
The impact of these provisions upon the traditional judiciary relationship
between the directors and the stockholders of a corporation is too obvious
to escape notice by those who are called upon to protect the interest of
investors. The directors and officers of the company can do anything, short
of actual fraud, with the affairs of the corporation even to benefit
themselves directly or other persons or entities in which they are interested,
and with immunity because of the advance condonation or relief from
responsibility by reason of such acts. This and the other provision which
authorizes the election of non-stockholders as directors, completely
disassociate the stockholders from the government and management of the
business in which they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the
management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, as
holder of the only subscribed stock of the former corporation and acting "on
behalf of all future holders of voting trust certificates," entered into a voting
trust agreement12 with James L. Buckley and Austin E. Taylor, whereby said
Trustees were given authority to vote the shares represented by the
outstanding trust certificates (including those that may henceforth be
issued) in the following manner:
(a) At all elections of directors, the Trustees will designate a suitable proxy
or proxies to vote for the election of directors designated by the Trustees in
their own discretion, having in mind the best interests of the holders of the
voting trust certificates, it being understood that any and all of the Trustees
shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees shall designate
a suitable proxy or proxies to vote for or against such proposition as the
Trustees in their own discretion may determine, having in mind the best
interest of the holders of the voting trust certificates;
(c) With respect to all other matters arising at any meeting of stockholders,
the Trustees will instruct such proxy or proxies attending such meetings to
vote the shares of stock held by the Trustees in accordance with the written
instructions of each holder of voting trust certificates. (Emphasis supplied.)
It was also therein provided that the said Agreement shall be binding upon
the parties thereto, their successors, and upon all holders of voting trust
certificates.
And these are the voting trust certificates that are offered to investors as
authorized by Security and Exchange Commissioner. It can not be doubted
that the sale of respondent's securities would, to say the least, work or tend
to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to
dismiss this appeal, is denied and the orders of the Securities and Exchange
Commissioner, allowing the registration of Respondent's securities and
licensing their sale in the Philippines are hereby set aside. The case is
remanded to the Securities and Exchange Commission for appropriate
10 | c o r p o c a s e s 2 1 - 4 0
action in consonance with this decision. With costs. Let a copy of this
decision be furnished the Solicitor General for whatever action he may deem
advisable to take in the premises. So ordered.
LIM v. CA
In 1994, Pastor Lim died. His wife, Rufina Lim petitioned with the lower
court, acting as a probate court, for the inclusion of 5 corporations into the
inventory of the estate of Pastor Lim. The 5 corporations were: Auto Truck
Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active
Distributing, Inc. and Action Company. Rufina alleged that the assets of
these corporations were owned wholly by Pastor; that these corporations
themselves are owned by Pastor and they are mere dummies of Pastor. The
corporations filed a motion for exclusion from the estate. They presented
proof (Torrens Titles) showing that the assets of the corporations are in their
respective names and titles. The probate court denied their motion. The
Court of Appeals reversed the decision of the probate court.
ISSUE: Whether or not the corporations and/or their assets should be
included in the inventory of the estate.
HELD: No. As regards the assets, the corporations were able to present their
respective Torrens Titles over the disputed assets. It is true that a probate
court may pass upon the question ownership albeit in a provisional manner
but still, a Torrens Title cannot be attacked collaterally in a probate
proceeding, it must be attacked directly in a separate proceeding.
As regards the corporations, to include them in the inventory is tantamount
to the piercing of the veil of corporate fiction because the probate court
effectively adopted the theory of Rufina. This cannot be done. Firstly, the
probate court is sitting in a limited capacity. Secondly, Rufina was not able
to present sufficient evidence that indeed the corporations are mere
conduits of Pastor. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of
itself a sufficient reason for disregarding the fiction of separate corporate
personalities. The veil cant be pierced without any showing that indeed the
corporation is being used merely as a dummy. To disregard the separate
juridical personality of a corporation, the wrong-doing must be clearly and
convincingly established. It cannot be presumed.
[2]
11 | c o r p o c a s e s 2 1 - 4 0
1995 and 15 September 1995 of the Regional Trial Court of Quezon City, Branch 93,
sitting as a probate court.
[3]
[4]
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate
is the subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In
Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy,
Petitioner".
Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company are corporations
formed, organized and existing under Philippine laws and which owned real properties
covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse
and duly represented by her nephew George Luy, filed on 17 March 1995, a joint
petition for the administration of the estate of Pastor Y. Lim before the Regional Trial
Court of Quezon City.
[5]
Private respondent corporations, whose properties were included in the inventory of the
estate of Pastor Y. Lim, then filed a motion for the lifting of lis pendens and motion for
exclusion of certain properties from the estate of the decedent.
[6]
[7]
In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93,
sitting as a probate court, granted the private respondents twin motions, in this wise:
[8]
"3. The late Pastor Y. Lim personally owned during his lifetime the
following business entities, to wit:
Business Entity
X
Address:
X
BF Homes,
Paraaque,
Metro Manila.
X
12 | c o r p o c a s e s 2 1 - 4 0
Aguinaldo Highway,
Bacoor, Cavite.
X
Auto Truck
Avenue,
TBA Corp.
2251
Roosevelt
Quezon City.
X
Homes, Paraaque,
Metro Manila.
X
Action Company
X
100 20th Avenue
13 | c o r p o c a s e s 2 1 - 4 0
Corporation
cation
X
Title
Lo
k. Auto Truck
Domingo
Sto.
TBA
Corporation
Cainta, Rizal
q.
27896
Alliance
Marketing
Prance,
TCT
No.
Metro Manila
Copies of the above-mentioned Transfer Certificate of Title and/or Tax
Declarations are hereto attached as Annexes "C" to "W".
X
"7. The aforementioned properties and/or real interests left by the late
Pastor Y. Lim, are all conjugal in nature, having been acquired by him
during the existence of his marriage with petitioner.
"8. There are other real and personal properties owned by Pastor Y. Lim
which petitioner could not as yet identify. Petitioner, however will
submit to this Honorable Court the identities thereof and the necessary
documents covering the same as soon as possible."
On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an
order , thus:
[10]
"Wherefore, the order dated 08 June 1995 is hereby set aside and the
Registry of Deeds of Quezon City is hereby directed to reinstate the
annotation of lis pendens in case said annotation had already been
deleted and/or cancelled said TCT Nos. 116716, 116717, 116718, 116719
and 51282.
Further more (sic), said properties covered by TCT Nos. 613494,
365123, 236256 and 236237 by virtue of the petitioner are included in
the instant petition.
SO ORDERED."
On 04 September 1995, the probate court appointed Rufina Lim as special
administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators of
the estate of Pastor Y. Lim, after which letters of administration were accordingly
issued.
[11]
In an order dated 12 September 1995, the probate court denied anew private
respondents motion for exclusion, in this wise:
[12]
14 | c o r p o c a s e s 2 1 - 4 0
"The issue precisely raised by the petitioner in her petition is whether the
corporations are the mere alter egos or instrumentalities of Pastor Lim,
Otherwise (sic) stated, the issue involves the piercing of the corporate
veil, a matter that is clearly within the jurisdiction of this Honorable
Court and not the Securities and Exchange Commission. Thus, in the
case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue
decided by the regular court was whether the corporation involved
therein was the mere extension of the decedent. After finding in the
affirmative, the Court ruled that the assets of the corporation are also
assets of the estate.
A reading of P.D. 902, the law relied upon by oppositors, shows that the
SECs exclusive (sic) applies only to intra-corporate controversy. It is
simply a suit to settle the intestate estate of a deceased person who,
during his lifetime, acquired several properties and put up corporations
as his instrumentalities.
SO ORDERED."
On 15 September 1995, the probate court acting on an ex parte motion filed by
petitioner, issued an order the dispositive portion of which reads:
[13]
"Wherefore, the parties and the following banks concerned herein under
enumerated are hereby ordered to comply strictly with this order and to
produce and submit to the special administrators , through this
Honorable Court within (5) five days from receipt of this order their
respective records of the savings/current accounts/time deposits and
other deposits in the names of Pastor Lim and/or corporations abovementioned, showing all the transactions made or done concerning
savings /current accounts from January 1994 up to their receipt of this
court order.
XXX
XXX
XXX
SO ORDERED."
Private respondent filed a special civil action for certiorari , with an urgent prayer for a
restraining order or writ of preliminary injunction, before the Court of Appeals
questioning the orders of the Regional Trial Court, sitting as a probate court.
[14]
On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents,
rendered the assailed decision , the decretal portion of which declares:
[15]
15 | c o r p o c a s e s 2 1 - 4 0
xxx
xxx
(4) In all matters of probate, both testate and intestate, where the gross
value of the estate exceeds One Hundred Thousand Pesos (P100,000) or,
in probate matters in Metro Manila, where such gross value exceeds Two
Hundred Thousand Pesos (P200,000);
xxx
xxx
xxx
16 | c o r p o c a s e s 2 1 - 4 0
xxx
xxx"
Simply put, the determination of which court exercises jurisdiction over matters of
probate depends upon the gross value of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on the
principle that a probate court may pass upon title to certain
properties, albeit provisionally, for the purpose of determining whether a certain
property should or should not be included in the inventory.
In a litany of cases, We defined the parameters by which the court may extend its
probing arms in the determination of the question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS, held:
[18]
[21]
17 | c o r p o c a s e s 2 1 - 4 0
[23]
"Settled is the rule that a Court of First Instance (now Regional Trial
Court), acting as a probate court, exercises but limited jurisdiction, and
thus has no power to take cognizance of and determine the issue of title
to property claimed by a third person adversely to the decedent, unless
the claimant and all other parties having legal interest in the property
consent, expressly or impliedly, to the submission of the question to the
probate court for adjudgment, or the interests of third persons are not
thereby prejudiced, the reason for the exception being that the question
of whether or not a particular matter should be resolved by the court in
the exercise of its general jurisdiction or of its limited jurisdiction as a
special court (e.g. probate, land registration, etc.), is in reality not a
jurisdictional but in essence of procedural one, involving a mode of
practice which may be waived. x x x
x x x. These considerations assume greater cogency where, as here,
the Torrens title is not in the decedents name but in others, a
situation on which this Court has already had occasion to rule x x
x."(emphasis Ours)
Petitioner, in the present case, argues that the parcels of land covered under the Torrens
system and registered in the name of private respondent corporations should be included
in the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the
determination by the probate court of whether these properties should be included or
not is merely provisional in nature, thus, not conclusive and subject to a final
determination in a separate action brought for the purpose of adjudging once and for all
the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in the
name of private respondent corporations, the jurisprudence pronounced in BOLISAY
vs., ALCID is of great essence and finds applicability, thus:
[24]
18 | c o r p o c a s e s 2 1 - 4 0
A perusal of the records would reveal that no strong compelling evidence was ever
presented by petitioner to bolster her bare assertions as to the title of the deceased
Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, " The
Property Registration Decree", proscribes collateral attack on Torrens Title, hence:
"xxx
xxx
xxx
19 | c o r p o c a s e s 2 1 - 4 0
Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations,
which are the private respondents in the instant case. Petitioner thus attached as
Annexes "F" and "G" of the petition for review affidavits executed by Teresa Lim
and Lani Wenceslao which among others, contained averments that the incorporators of
Uniwide Distributing, Inc. included on the list had no actual participation in the
organization and incorporation of the said corporation. The affiants added that the
persons whose names appeared on the articles of incorporation of Uniwide Distributing,
Inc., as incorporators thereof, are mere dummies since they have not actually
contributed any amount to the capital stock of the corporation and have been merely
asked by the late Pastor Y. Lim to affix their respective signatures thereon.
[25]
[26]
[27]
It is settled that a corporation is clothed with personality separate and distinct from that
of the persons composing it. It may not generally be held liable for that of the persons
composing it. It may not be held liable for the personal indebtedness of its stockholders
or those of the entities connected with it.
[28]
Rudimentary is the rule that a corporation is invested by law with a personality distinct
and separate from its stockholders or members. In the same vein, a corporation by legal
fiction and convenience is an entity shielded by a protective mantle and imbued by law
with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE
INTERNATIONAL BANK vs. COURT OF APPEALS , We enunciated:
[29]
The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where badges
of fraud exist, where public convenience is defeated; where a wrong is sought to be
justified thereby, the corporate fiction or the notion of legal entity should come to
naught.
[31]
Further, 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 right; and (3) The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of. The absence of any of these elements
prevent "piercing the corporate veil".
[32]
20 | c o r p o c a s e s 2 1 - 4 0
Moreover, to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
[34]
Granting arguendo that the Regional Trial Court in this case was not merely acting in a
limited capacity as a probate court, petitioner nonetheless failed to adduce competent
evidence that would have justified the court to impale the veil of corporate fiction.
Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and
Lani Wenceslao is unavailing considering that the aforementioned documents possess
no weighty probative value pursuant to the hearsay rule. Besides it is imperative for us
to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were
not at all presented during the course of the proceedings in the lower court. To put it
differently, for this Court to uphold the admissibility of said documents would be to
relegate from Our duty to apply such basic rule of evidence in a manner consistent with
the law and jurisprudence.
Our pronouncement in PEOPLE
LEONIDAS finds pertinence:
BANK
AND
TRUST
COMPANY
vs.
[35]
"Affidavits are classified as hearsay evidence since they are not generally
prepared by the affiant but by another who uses his own language in
writing the affiants statements, which may thus be either omitted or
misunderstood by the one writing them. Moreover, the adverse party is
deprived of the opportunity to cross-examine the affiants. For this
reason, affidavits are generally rejected for being hearsay, unless the
affiant themselves are placed on the witness stand to testify thereon."
As to the order of the lower court, dated 15 September 1995, the Court of Appeals
correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in
issuing said order; The probate court had no authority to demand the production of bank
accounts in the name of the private respondent corporations.
[36]
21 | c o r p o c a s e s 2 1 - 4 0
As culled from the decisions of the lower courts and the pleadings of the
parties, the factual background of this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a
parcel of land in Camarin, Caloocan City known as Lot 861 of the Tala Estate.
The land had an aggregate area of twenty-five (25) hectares and was
covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of
Deeds of Caloocan City. The property was later subdivided into five lots with
an area of five hectares each and pursuant thereto, TCT No. 5779 was
cancelled and five new transfer certificates of title were issued in the name
of Gutierrez, namely TCT No. 7123 covering Lot 861-A, TCT No. 7124
covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering
Lot 861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty
Corporation (Cardale) executed a Deed of Sale with Mortgage relating to the
lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration
of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez
P171,000.00. It was agreed that the balance of P629,000.00 would be paid
in several installments within five years from the date of the deed, at an
interest of nine percent per annum based on the successive unpaid
principal balances. Thereafter, the titles of Gutierrez were cancelled and in
lieu thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted
a mortgage on three of the four parcels of land covered by TCT Nos. 7531,
7532 and 7533, encompassing fifteen hectares of land.[1] The encumbrance
was annotated upon the certificates of title and the owners duplicate
certificates. The owners duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage
obligation, Gutierrez filed a complaint for rescission of the contract with the
Quezon City Regional Trial Court (RTC), which was docketed as Civil Case No.
Q-12366.[2] On 20 October 1969, during the pendency of the rescission
case, Gutierrez died and was substituted by her executrix, respondent Rita
C. Mejia (Mejia).
In 1971, plaintiffs presentation of evidence was
terminated. However, Cardale, which was represented by petitioner Adalia
B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of
Cardale, lost interest in proceeding with the presentation of its evidence and
the case lapsed into inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532
and 7533 became delinquent in the payment of real estate taxes in the
amount of P102,300.00, while the other mortgaged property covered by TCT
No. 7531 became delinquent in the amount of P89,231.37, which
culminated in their levy and auction sale on 1 and 12 September 1983, in
satisfaction of the tax arrears. The highest bidder for the three parcels of
land was petitioner Merryland Development Corporation (Merryland), whose
President and majority stockholder is Francisco. A memorandum based upon
the certificate of sale was then made upon the original copies of TCT Nos.
7531 to 7533.
On 13 August 1984, before the expiration of the one year redemption
period, Mejia filed a Motion for Decision with the trial court. The hearing of
said motion was deferred, however, due to a Motion for Postponement filed
by Cardale through Francisco, who signed the motion in her capacity as
officer-in-charge, claiming that Cardale needed time to hire new counsel.
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However, Francisco did not mention the tax delinquencies and sale in favor
of Merryland. Subsequently, the redemption period expired and Merryland,
acting through Francisco, filed petitions for consolidation of title,[3] which
culminated in the issuance of certain orders[4] decreeing the cancellation of
Cardales TCT Nos. 7531 to 7533 and the issuance of new transfer
certificates of title free from any encumbrance or third-party claim
whatsoever in favor of Merryland. Pursuant to such orders, the Register of
Deeds of Caloocan City issued new transfer certificates of title in the name
of Merryland which did not bear a memorandum of the mortgage liens in
favor of Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366
an undated Manifestation to the effect that the properties subject of the
mortgage and covered by TCT Nos. 7531 to 7533 had been levied upon by
the local government of Caloocan City and sold at a tax delinquency sale.
Francisco further claimed that the delinquency sale had rendered the issues
in Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the
trial court dismissed the case, explaining that since the properties
mortgaged to Cardale had been transferred to Merryland which was not a
party to the case for rescission, it would be more appropriate for the parties
to resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of
Gutierrez, filed with the RTC of Quezon City a complaint for damages with
prayer for preliminary attachment against Francisco, Merryland and the
Register of Deeds of Caloocan City. The case was docketed as Civil Case No.
Q-49766. On 15 April 1988, the trial court rendered a decision[5] in favor of
the defendants, dismissing the complaint for damages filed by Mejia. It was
held that plaintiff Mejia, as executrix of Gutierrezs estate, failed to establish
by clear and convincing evidence her allegations that Francisco controlled
Cardale and Merryland and that she had employed fraud by intentionally
causing Cardale to default in its payment of real property taxes on the
mortgaged properties so that Merryland could purchase the same by means
of a tax delinquency sale. Moreover, according to the trial court, the failure
to recover the property subject of the Deed of Sale with Mortgage was due
to Mejias failure to actively pursue the action for rescission (Civil Case No.
12366), allowing the case to drag on for eighteen years. Thus, it ruled that xxx
xxx
xxx
The act of not paying or failing to pay taxes due the government by the
defendant Adalia B. Francisco, as treasurer of Cardale Financing and Realty
Corporation do not, per se, constitute perpetration of fraud or an illegal act.
It do [sic] not also constitute an act of evasion of an existing obligation (to
plaintiff) if there is no clear showing that such an act of non-payment of
taxes was deliberately made despite its (Cardales) solvency and capability
to pay. There is no evidence showing that Cardale Financing and Realty
Corporation was financially capable of paying said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where
all the
members or stockholders commit illegal act; (2) where the
corporation is used as dummy to commit fraud or wrong; (3) where the
corporation is an agency for a parent corporation; and (4) where the stock of
a corporation is owned by one person. (I, Fletcher, 58, 59, 61 and 63).
None of the foregoing reasons can be applied to the incidents in this case:
(1) there appears no illegal act committed by the stockholders of defendant
Merryland Development Corporation and Cardale Financing and Realty
Corporation; (2) the incidents proven by evidence of the plaintiff as well as
23 | c o r p o c a s e s 2 1 - 4 0
that of the defendants do not show that either or both corporations were
used as dummies by defendant Adalia B. Francisco to commit fraud or
wrong. To be used as [a] dummy, there has to be a showing that the
dummy corporation is controlled by the person using it. The evidence of
plaintiff failed to prove that defendant Adalia B. Francisco has controlling
interest in either or both corporations. On the other hand, the evidence of
defendants clearly show that defendant Francisco has no control over either
of the two corporations; (3) none of the two corporations appears to be an
agency for a parent (the other) corporation; and (4) the stock of either of
the two corporation [sic] is not owned by one person (defendant Adalia B.
Francisco). Except for defendant Adalia B. Francisco, the incorporators and
stockholders of one corporation are different from the other.
xxx
xxx
xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years
before the then Court of First Instance, now the Regional Trial Court. Even if
the trial of the said case became protracted on account of the retirement
and/or promotion of the presiding judge, as well as the transfer of the case
from one sala to another, and as claimed by the plaintiff that the defendant
lost interest, (which allegation is unusual, so to speak), the court believe
[sic] that it would not have taken that long to dispose [of] said case had
plaintiff not slept on her rights, and her duty and obligation to see to it that
the case is always set for hearing so that it may be adjudicated [at] the
earliest possible time. This duty pertains to both parties, but plaintiff should
have been more assertive, as it was her obligation, similar to the obligation
of plaintiff relative to the service of summons in other cases. The fact that
Cardale Financing and Realty Corporation did not perform its obligation as
provided in the said Deed of Sale with Mortgage (Exhibit A) is very clear.
Likewise, the fact that Andrea Cordova, the contracting party, represented
by the plaintiff in this case did not also perform her duties and/or obligation
provided in the said contract is also clear. This could have been the reason
why the plaintiff in said case (Exhibit E) slept on her rights and allowed
the same to remain pending for almost 18 years. However, and irrespective
of any other reason behind the same, the court believes that plaintiff,
indeed, is the one to blame for the failure of the testate estate of the late
Andrea Cordova Vda. de Gutierrez to recover the money or property due it
on the basis of Exhibit A.
xxx
xxx
xxx
xxx Had the plaintiff not slept on her rights and had it not been for her
failure to perform her commensurate duty to pursue vigorously her case
against Cardale Financing and Realty Corporation in said Civil Case No.
12366, she could have easily known said non-payment of realty taxes on the
said properties by said Cardale Financing and Realty Corporation, or, at least
the auction sales that followed, and from which she could have redeemed
said properties within the one year period provided by law, or, have availed
of remedies at the time to protect the interest of the testate estate of the
late Andrea Cordova Vda. de Gutierrez.
xxx
xxx
xxx
The dispositive portion of the trial courts decision states WHEREFORE, in view of all the foregoing consideration, the court hereby
renders judgment in favor of the defendants Register of Deeds of Caloocan
City, Merryland Development Corporation and Adalia B. Francisco, and
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xxx
xxx
xxx Appellee Francisco knew that Cardale of which she was vice-president
and treasurer had an outstanding obligation to Gutierrez for the unpaid
balance of the real properties covered by TCT Nos. 7531 to 7533, which
Cardale purchased from Gutierrez which account, as of December 1988,
already amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she also
knew that Gutierrez had a mortgage lien on the said properties to secure
payment of the aforesaid obligation; she likewise knew that the said
mortgaged properties were under litigation in Civil Case No. Q-12366 which
was an action filed by Gutierrez against Cardale for rescission of the sale
and/or recovery of said properties (Exh. E). Despite such knowledge,
appellee Francisco did not inform Gutierrezs Estate or the Executrix (herein
appellant) as well as the trial court that the mortgaged properties had
incurred tax delinquencies, and that Final Notices dated July 9, 1982 had
been sent by the City Treasurer of Caloocan demanding payment of such tax
arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp. 37-38,
record). Both notices which were addressed to
Cardale Financing & Realty Corporation c/o Merryland Development
Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains,
Quezon City, gave warning that if the taxes were not paid within the
aforesaid period, the properties would be sold at public auction to satisfy the
tax delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee
Francisco did not inform the Estate of Gutierrez or her executrix about the
tax delinquencies and of the impending auction sale of the said properties.
Even a modicum of good faith and fair play should have encouraged
appellee Francisco to at least advise Gutierrezs Estate through her
executrix (herein appellant) and the trial court which was hearing the
complaint for rescission and recovery of said properties of such fact, so that
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And as if what she had already accomplished were not enough fraudulence,
appellee Francisco, acting in behalf of Merryland, caused the issuance of
new transfer certificates of title in the name of Merryland, which did not
anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to
further avoid payment of the mortgage indebtedness owing to Gutierrezs
estate, Cardale corporation was dissolved. Finally, to put the properties
beyond the reach of the mortgagee, Gutierrezs estate, Merryland caused
the subdivision of such properties, which were subsequently sold on
installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring
the mortgagor to inform the mortgagee of the tax delinquencies, if any, of
the mortgaged properties. Moreover, petitioners claim that Cardales failure
to pay the realty taxes, per se, does not constitute fraud since it was not
proven that Cardale was capable of paying the taxes. Petitioners also
contend that if Mejia, as executrix of Gutierrezs estate, was not remiss in
her duty to pursue Civil Case No. 12366, she could have easily learned of
the non-payment of realty taxes on the subject properties and of the auction
sale that followed and thus, have redeemed the properties or availed of
some other remedy to conserve the estate of Gutierrez. In addition, Mejia
could have annotated a notice of lis pendens on the titles of the mortgaged
properties, but she failed to do so. It is the stand of petitioners that
respondent has not adduced any proof that Francisco controlled both
Cardale and Merryland and that she used these two corporations to
perpetuate a fraud upon Gutierrez or her estate. Petitioners maintain that
the evidence shows that, apart form the meager share of petitioner
Francisco, the stockholdings of both corporations comprise other
shareholders, and the stockholders of either of them, aside from petitioner
Francisco, are composed of different persons. As to Civil Case No. 12366,
petitioners insist that the decision of the trial court in that case constitutes
res judicata to the instant case.[8]
It is dicta in corporation law that a corporation is a juridical person with a
separate and distinct personality from that of the stockholders or members
who compose it.[9] However, when the legal fiction of the separate
corporate personality is abused, such as when the same is used for
fraudulent or wrongful ends, the courts have not hesitated to pierce the
corporate veil. One of the earliest formulations of this doctrine of piercing
the corporate veil was made in the American case of United States v.
Milwaukee Refrigerator Transit Co.[10] If any general rule can be laid down, in the present state of authority, it is
that a corporation will be looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears; but, when the notion of
legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association
of persons.
Since then a good number of cases have firmly implanted this doctrine in
Philippine jurisprudence.[11] One such case is Umali v. Court of Appeals[12]
wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with
a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will be
considered as a mere association of persons. The members or stockholders
of the corporation will be considered as the corporation, that is, liability will
27 | c o r p o c a s e s 2 1 - 4 0
attach directly to the officers and stockholders. The doctrine applies when
the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
With specific regard to corporate officers, the general rule is that the officer
cannot be held personally liable with the corporation, whether civilly or
otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In such
cases, the officers acts are properly attributed to the corporation.[13]
However, if it is proven that the officer has used the corporate fiction to
defraud a third party,[14] or that he has acted negligently, maliciously or in
bad faith,[15] then the corporate veil shall be lifted and he shall be held
personally liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the
totality of the circumstances appertaining conduce to the inevitable
conclusion that petitioner Francisco acted in bad faith. The events leading
up to the loss by the Gutierrez estate of its mortgage security attest to this.
It has been established that Cardale failed to comply with its obligation to
pay the balance of the purchase price for the four parcels of land it bought
from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was
secured by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and
7533. This prompted Gutierrez to file an action for rescission of the Deed of
Sale with Mortgage (Civil Case No. Q-12366), but the case dragged on for
about fourteen years when Cardale, as represented by Francisco, who was
Vice-President and Treasurer of the same,[16] lost interest in completing its
presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs
estate, filed a Motion for Decision with the trial court, there is no question
that Francisco knew that the properties subject of the mortgage had
become tax delinquent. In fact, as treasurer of Cardale, Francisco herself
was the officer charged with the responsibility of paying the realty taxes on
the corporations properties. This was admitted by the trial court in its
decision.[17] In addition, notices dated 9 July 1982 from the City Treasurer
of Caloocan demanding payment of the tax arrears on the subject properties
and giving warning that if the realty taxes were not paid within the given
period then such properties would be sold at public auction to satisfy the tax
delinquencies were sent directly to Franciscos address in White Plains,
Quezon City.[18] Thus, as early as 1982, Francisco could have informed the
Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax
arrears and of the notice from the City Treasurer so that the estate could
have taken the necessary steps to prevent the auction sale and to protect
its interests in the mortgaged properties, but she did no such thing. Finally,
in 1983, the properties were levied upon and sold at public auction wherein
Merryland - a corporation where Francisco is a stockholder[19] and
concurrently acts as President and director[20] - was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,[21] the
period for redeeming the properties subject of the tax sale had not yet
expired.[22] Under the Realty Property Tax Code,[23] pursuant to which the
tax levy and sale were prosecuted,[24] both the delinquent taxpayer and in
his absence, any person holding a lien or claim over the property shall have
the right to redeem the property within one year from the date of
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attributing grave abuse of discretion to the trial court in issuing the order of
9 December 1994.
Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R.
SP No. 36484 was consolidated with the petition of ARBC in CA-G.R. SP No.
36330.
On 16 August 1996 the Court of Appeals rendered a Decision [11] denying
both petitions of ARBC and Molina. On 3 October 1996 petitioners Motion
for Reconsideration [12] was denied. Hence, this petition.
In their consolidated Petition before this Court, petitioners first submit that
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT
HAD THE RIGHT TO CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN
THE SITUATION OF THE PARTIES AFTER THE FILING OF THE ORIGINAL
COMPLAINT.[13] In support of this assigned error petitioners insist that x x x (T)here was not only a substantial change in private respondents
cause of action but there was even an alteration in the theory of the case x
x x (W)hile in the original complaint the only thing alleged and is being
prayed for is for petitioner ARB (ARBC) to be enjoined from replacing the
security guards of private respondent x x x and for the two contracts x x x
to be enforced until August 15, 1994 and for petitioner ARB (ARBC) to be
ordered to pay x x x attorneys fees, what is alleged and is being prayed for
in the amended and supplemental complaint is for both petitioners to be
ordered to pay P171,853.80 (for unpaid services) x x x and P300,226.66 (for
lost income) x x x plus moral and exemplary damages and attorneys fees.
Obviously, petitioner ARB (ARBC) is being required to answer for a liability or
legal obligation under the amended and supplemental complaint wholly
different from that stated in the original complaint such as but not limited to
the amount of P171,852.80 which was never mentioned in the original
contract. Under these circumstances, a different cause of action was
introduced by the amendment.
Also, there was a change in the theory of the case. Whereas in the original
contract what is sought for by private respondent is the enforcement of the
two (2) contracts which is what is known in legal parlance as specific
performance, in the amended and supplemental complaint what is sought
for is x x x a rescission of the contracts with damages x x x x [14]
We cannot subscribe to the contention of petitioners that the Amended and
Supplemental Complaint substantially changed TBSS' cause of action nor
was there any alteration in the theory of the case. As correctly observed by
the Court of Appeals, "the amendatory allegations are mere amplifications
of the cause of action for damages x x x x An amendment will not be
considered as stating a new cause of action if the facts alleged in the
amended complaint show substantially the same wrong with respect to the
same transaction, or if what are alleged refer to the same matter but are
more fully and differently stated, or where averments which were implied
are made in expressed terms, and the subject of the controversy or the
liability sought to be enforced remains the same."[15]
The original as well as amended and supplemental complaints readily
disclose that the averments contained therein are almost identical. In the
original complaint, TBSS prays, among others, that the two (2) Service
Contracts be declared as subsisting until 15 August 1994 and that
petitioners be made to pay P50,000.00 as attorneys fees.[16] Significantly,
33 | c o r p o c a s e s 2 1 - 4 0
in its penultimate paragraph, TBSS prays "for such other reliefs that are
considered just and equitable under the premises."[17] This is a "catch-all"
phrase which definitely covers the amplifications and additional averments
contained in the Amended and Supplemental Complaint. Due to events
supervening after the filing of the original complaint, it became incumbent
upon TBSS to amend its original complaint. One of the supervening events
was the withholding by petitioner ARBC of some amounts intended for the
payroll of TBSS due to pilferage or losses which allegedly occurred due to
the negligence and inefficiency of TBSS' security guards. Plainly, this
withholding of the payroll was only an offshoot of the pretermination of the
two (2) Service Contracts on the part of ARBC.
Significantly, the pretermination of the Service Contracts was already
alleged in the original complaint. In fact it was one, if not the most basic,
issue discussed therein. Since the withholding of the payroll was only an
offshoot of the issue on the pretermination of the contract, we can safely
conclude that the allegation on the withholding of the payroll in the
Amended and Supplemental Complaint was only an amplification of an issue
that was already included and discussed in the original complaint. It was
therefore error on the part of petitioners to conclude that private respondent
changed its cause of action in the Amended and Supplemental Complaint.
Neither could they say that they were being made to answer for a liability or
legal obligation that was wholly different from that stated in the original
complaint.
Grave abuse of discretion therefore could not be imputed to the trial court
for admitting the Amended and Supplemental Complaint of private
respondent TBSS. It also follows that the appellate court could not be faulted
for putting its stamp of approval on the order of the trial court admitting the
same.
Petitioners also argue, as their second assigned error, that THE COURT OF
APPEALS ERRED IN HOLDING THAT THE ALLEGATIONS IN THE AMENDED AND
SUPPLEMENTAL COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER
MOLINA LIABLE TO PRIVATE RESPONDENT IN HIS PERSONAL CAPACITY. In
support of their contention petitioners submit x x x (W)hen x x x Molina allegedly applied P171,853.80 payable to private
respondent to the losses suffered by petitioner ARB (ARBC) due to the
negligence and indifference of the private respondents security guards and
when petitioner Molina replaced the said security guards x x x Molina was
not acting in his personal capacity but x x x as officer of petitioner ARB
(ARBC).
Since petitioner Molina did not so act in his personal capacity but only in his
official capacity as officer of petitioner ARB (ARBC) then petitioner Molina
cannot be held personally liable for the alleged liability of petitioner ARB
(ARBC) x x x x [18]
In affirming the order of the trial court denying petitioner Molinas Motion to
Dismiss, the appellate court ruled Similarly, We find no error committed by respondent Judge in denying the
motion to dismiss.
In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is
alleged:
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5. But fate would have it that defendant ARBC would subsequently breach
the aforesaid contracts by surreptitiously preterminating the same and as
precursor thereto, defendant ARBC, through defendant Mark Molina, would
impute against plaintiff pretended and fabricated violations and baselessly
blame plaintiff for alleged losses of company properties by just deducting
the values thereof from plaintiffs billings without even complying with the
procedure agreed upon in the contracts x x x x
It may be pertinent to state that all these accusations and imputations,
albeit false and concocted, were made by defendant Mark P. Molina x x x x
17. Such unsalutary breach of contract by defendant ARBC through
defendant Mark Molina has resulted to plaintiffs damage and prejudice by
way of lost income consisting of the unexpired portion of the contract, i.e.,
up to August 15, 1994, entailing a total amount of P300, 266.66 x x x x
The above allegations, particularly the subparagraph, "It may be pertinent
to state that all these accusations and imputations, albeit false and
concocted, were made by defendant Mark P. Molina," are sufficient
statement of a cause of action against petitioner Mark Molina in his personal
capacity.[19]
In this regard, we agree with petitioners. It is basic that a corporation is
invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which
it may be related. As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities
to which it may be connected and vice versa. However, the veil of corporate
fiction may be pierced when it is used as a shield to further an end
subversive of justice; or for purposes that could not have been intended by
the law that created it; or to defeat public convenience, justify wrong,
protect fraud, or defend crime; or to perpetuate deception; or as an alter
ego, adjunct or business conduit for the sole benefit of the stockholders.[20]
Prescinding from the foregoing, the general rule is that officers of a
corporation are not personally liable for their official acts unless it is shown
that they have exceeded their authority.[21] Article 31 of the Corporation
Code is in point Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully 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 liable jointly
and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons x x x x
On the basis hereof, petitioner Molina could not be held jointly and severally
liable for any obligation which petitioner ARBC may be held accountable for,
absent any proof of bad faith or malice on his part. Corollarily, it is also
incorrect on the part of the Court of Appeals to conclude that there was a
sufficient cause of action against Molina as to make him personally liable for
his actuations as Vice President for Operations of ARBC. A cursory reading of
the records of the instant case would reveal that Molina did not summarily
withhold certain amounts from the payroll of TBSS. Instead, he enumerated
instances [22] which in his view were enough bases to do so.
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March 3, 1997
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12.
The CBCI constitutes part of the reserve investment against liabilities
required of respondent as an insurance company under the Insurance Code;
13.
Without any consideration or benefit whatsoever to Filriters, in
violation of law and the trust fund doctrine and to the prejudice of
policyholders and to all who have present or future claim against policies
issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of
Filriters, without any board resolution, knowledge or consent of the board of
directors of Filriters, and without any clearance or authorization from the
Insurance Commissioner, executed a detached assignment purportedly
assigning CBCI No. 891 to Philfinance;
xxx
xxx
xxx
14.
Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are
Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding
the same positions in Philfinance), without any consideration or benefit
redounding to Filriters and to the grave prejudice of Filriters, its policy
holders and all who have present or future claims against its policies,
executed similar detached assignment forms transferring the CBCI to
plaintiff;
xxx
xxx
xxx
15.
The detached assignment is patently void and inoperative because
the assignment is without the knowledge and consent of directors of
Filriters, and not duly authorized in writing by the Board, as requiring by
Article V, Section 3 of CB Circular No. 769;
16.
The assignment of the CBCI to Philfinance is a personal act of Alfredo
Banaria and not the corporate act of Filriters and such null and void;
a)
The assignment was executed without consideration and for that
reason, the assignment is void from the beginning (Article 1409, Civil Code);
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b)
The assignment was executed without any knowledge and consent of
the board of directors of Filriters;
c)
The CBCI constitutes reserve investment of Filriters against liabilities,
which is a requirement under the Insurance Code for its existence as an
insurance company and the pursuit of its business operations. The
assignment of the CBCI is illegal act in the sense of malum in se or malum
prohibitum, for anyone to make, either as corporate or personal act;
d)
The transfer of dimunition of reserve investments of Filriters is
expressly prohibited by law, is immoral and against public policy;
e)
The assignment of the CBCI has resulted in the capital impairment
and in the solvency deficiency of Filriters (and has in fact helped in placing
Filriters under conservatorship), an inevitable result known to the officer
who executed assignment.
17.
Plaintiff had acted in bad faith and with knowledge of the illegality
and invalidity of the assignment.
a)
The CBCI No. 891 is not a negotiable instrument and as a certificate
of indebtedness is not payable to bearer but is a registered in the name of
Filriters;
b)
The provision on transfer of the CBCIs provides that the Central Bank
shall treat the registered owner as the absolute owner and that the value of
the registered certificates shall be payable only to the registered owner; a
sufficient notice to plaintiff that the assignments do not give them the
registered owner's right as absolute owner of the CBCI's;
c)
CB Circular 769, Series of 1980 (Rules and Regulations Governing
CBCIs) provides that the registered certificates are payable only to the
registered owner (Article II, Section 1).
18.
Plaintiff knew full well that the assignment by Philfinance of CBCI No.
891 by Filriters is not a regular transaction made in the usual of ordinary
course of business;
a)
The CBCI constitutes part of the reserve investments of Filriters
against liabilities requires by the Insurance Code and its assignment or
transfer is expressly prohibited by law. There was no attempt to get any
clearance or authorization from the Insurance Commissioner;
b)
The assignment by Filriters of the CBCI is clearly not a transaction in
the usual or regular course of its business;
c)
The CBCI involved substantial amount and its assignment clearly
constitutes disposition of "all or substantially all" of the assets of Filriters,
which requires the affirmative action of the stockholders (Section 40,
Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila,
Branch XXXIII found the assignment of CBCI No. D891 in favor of Philfinance,
and the subsequent assignment of the same CBCI by Philfinance in favor of
Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:
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SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals
10, but their appeals likewise failed. The findings of the fact of the said court
are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI
No. D891. Under a deed of assignment dated November 27, 1971, Filriters
transferred CBCI No. D891 to Philippine Underwriters Finance Corporation
(Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which
was still registered in the name of Filriters, to appellant Traders Royal Bank
(TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back
the note on maturity date, it executed a deed of assignment, dated April 27,
1981, conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and
registration of CBCI No. D891 in its name before the Security and Servicing
Department of the Central Bank (CB). Central Bank, however, refused to
effect the transfer and registration in view of an adverse claim filed by
defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus
against the Central Bank in the Regional Trial Court of Manila. The suit,
however, was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be
impleaded as a respondent and the court adjudge which of them is entitled
to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB
now comes to this Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is thus free
fro any defect of title of prior parties and from any defense available to prior
parties among themselves, and it may thus, enforce payment of the
instrument for the full amount thereof against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a
negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed
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thereon, and that the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred
by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was
fictitious, having made without consideration, and did not conform to
Central Bank Circular No. 769, series of 1980, better known as the "Rules
and Regulations Governing Central Bank Certificates of Indebtedness",
which provided that any "assignment of registered certificates shall not be
valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from
Philfinance whose interest was inexistent, having acquired the certificate
through simulation. What happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation, to guarantee its financing
operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For
lack of such authority, the assignment did not therefore bind Filriters and
violated as the same time Central Bank Circular No. 769 which has the force
and effect of a law, resulting in the nullity of the transfer (People v. Que Po
Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue,
165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it
could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against
plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance
owns 90% of Filriters equity and the two corporations have identical
corporate officers, thus demanding the application of the doctrine or
piercing the veil of corporate fiction, as to give validity to the transfer of the
CBCI from registered owner to petitioner TRB. 14 This renders the payment
by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is
no merit to the lower court's ruling that the transfer of the CBCI from
Filriters to Philfinance was null and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence
of words of negotiability within the meaning of the negotiable instruments
law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx
xxx
xxx
The Central Bank of the Philippines (the Bank) for value received, hereby
promises to pay bearer, of if this Certificate of indebtedness be registered,
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xxx
xxx
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Clearly shown in the record is the fact that Philfinance's title over CBCI No.
D891 is defective since it acquired the instrument from Filriters fictitiously.
Although the deed of assignment stated that the transfer was for "value
received", there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation. Thus, for lack of any consideration, the assignment made is a
complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance did
not conform to Central Bank Circular No. 769, series of 1980, otherwise
known as the "Rules and Regulations Governing Central Bank Certificates of
Indebtedness", under which the note was issued. Published in the Official
Gazette on November 19, 1980, Section 3 thereof provides that any
assignment of registered certificates shall not be valid unless made . . . by
the registered owner thereof in person or by his representative duly
authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For
lack of such authority, the assignment did not therefore bind Filriters and
violated at the same time Central Bank Circular No. 769 which has the force
and effect of a law, resulting in the nullity of the transfer (People vs. Que Po
Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue,
165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it
could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must
upheld, as the respondent Filriters and Philfinance, though separate
corporate entities on paper, have used their corporate fiction to defraud TRB
into purchasing the subject CBCI, which purchase now is refused registration
by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have
the same corporate officers, if the principle of piercing the veil of corporate
entity were to be applied in this case, then TRB's payment to Philfinance for
the CBCI purchased by it could just as well be considered a payment to
Filriters, the registered owner of the CBCI as to bar the latter from claiming,
as it has, that it never received any payment for that CBCI sold and that said
CBCI was sold without its authority.
xxx
xxx
xxx
We respectfully submit that, considering that the Court of Appeals has held
that the CBCI was merely borrowed by Philfinance from Filriters, a sister
corporation, to guarantee its (Philfinance's) financing operations, if it were
to be consistent therewith, on the issued raised by TRB that there was a
piercing a veil of corporate entity, the Court of Appeals should have ruled
that such veil of corporate entity was, in fact, pierced, and the payment by
TRB to Philfinance should be construed as payment to Filriters. 17
We disagree with Petitioner.
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Petitioner cannot put up the excuse of piercing the veil of corporate entity,
as this merely an equitable remedy, and may be awarded only in cases
when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime or where a corporation is a mere alter
ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to
such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests
of innocent third persons dealing with the corporate entity which the law
aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains,
despite the petitioners insistence on the contrary. For one, other than the
allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead
the court under circumstance to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in the
absence of such grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters. In Liddel & Co., Inc.
vs. Collector of Internal Revenue, 20 the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself a sufficient reason for disregarding the fiction
of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness
from Philfinance.
On its face the subject certificates states that it is registered in the name of
Filriters. This should have put the petitioner on notice, and prompted it to
inquire from Filriters as to Philfinance's title over the same or its authority to
assign the certificate. As it is, there is no showing to the effect that
petitioner had any dealings whatsoever with Filriters, nor did it make
inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in
the owner's name at any office of the Bank or any agency duly authorized
by the Bank, and such registration is noted hereon. After such registration
no transfer thereof shall be valid unless made at said office (where the
Certificates has been registered) by the registered owner hereof, in person,
or by his attorney, duly authorized in writing and similarly noted hereon and
upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered owner thereof.
The bank or any agency duly authorized by the Bank may deem and treat
the bearer of this Certificate, or if this Certificate is registered as herein
authorized, the person in whose name the same is registered as the
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Yes, sir.
45 | c o r p o c a s e s 2 1 - 4 0
A
Well, this was CBCI of the company sought to be examined by the
Insurance Commission sometime in early 1981 and this CBCI No. 891 was
among the CBCI's that were found to be missing.
Q
Let me take you back further before 1981. Did you have the
knowledge of this CBCI No. 891 before 1981?
A
Yes, sir. This CBCI is an investment of Filriters required by the
Insurance Commission as legal reserve of the company.
Q
A
Well, you see, the Insurance companies are required to put up legal
reserves under Section 213 of the Insurance Code equivalent to 40 percent
of the premiums receipt and further, the Insurance Commission requires this
reserve to be invested preferably in government securities or government
binds. This is how this CBCI came to be purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating
requirements of the law. Thus, the anauthorized use or distribution of
same by a corporate officer of Filriters cannot bind the said corporation,
without the approval of its Board of Directors, and the maintenance of
required reserve fund.
the
the
not
the
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WAS
THE
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balance of the purchase and repair of a jeep body could only result from an
obvious misapprehension that petitioners corporate assets could be used to
answer for the liabilities of its individual directors, officers, and
incorporators.
Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly
inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever
obligation said incorporators, directors and officers of the corporation had
incurred, it was incurred in their personal capacity. When directors and
officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating
fraud or promoting injustice, and be thereby held liable therefor by piercing
its corporate veil. While there are no hard and fast rules on disregarding
separate corporate identity, we must always be mindful of its function and
purpose. A court should be careful in assessing the milieu where the
doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors
and officers in their personal capacities ought to be kept separate in this
case.
The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be prosecuted or
defended in the name of the real party in interest.[20] It is plainly an error
to lay the claim for legal fees of private respondent Gregorio Manuel at the
door of petitioner (FMC) rather than individual members of the Francisco
family.
However, with regard to the procedural issue raised by petitioners
allegation, that it needed to be summoned anew in order for the court to
acquire jurisdiction over it, we agree with respondent courts view to the
contrary.
Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days from
service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made.
The purpose of a summons is to enable the court to acquire jurisdiction over
the person of the defendant. Although a counterclaim is treated as an
entirely distinct and independent action, the defendant in the counterclaim,
being the plaintiff in the original complaint, has already submitted to the
jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil
Procedure,[21] if a defendant (herein petitioner) fails to answer the
counterclaim, then upon motion of plaintiff, the defendant may be declared
in default. This is what happened to petitioner in this case, and this Court
finds no procedural error in the disposition of the appellate court on this
particular issue.
Moreover, as noted by the respondent court, when
petitioner filed its motion seeking to set aside the order of default, in effect
it submitted itself to the jurisdiction of the court. As well said by respondent
court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he
records show that upon its request, plaintiff-appellant was granted time to
file a motion for reconsideration of the disputed decision. Plaintiff-appellant
did file its motion for reconsideration to set aside the order of default and
the judgment rendered on the counterclaim.
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2.
x x x actual damages incurred for the construction of the
warehouses/bunks, and for the materials used in the total sum of
P1,500,000.00.
3. Moral and exemplary damages of P500,000.00.
4. Attorneys fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the Corporation Luxuria
Homes, Incorporated, is further directed to execute the management
contract she committed to do, also in consideration of the various
undertakings that Plaintiff rendered for her.[4]
Aggrieved by the aforecited decision, petitioners appealed to respondent
Court of Appeals, which, as aforestated, affirmed with modification the
decision of the trial court. The appellate court deleted the award of moral
damages on the ground that respondent James Builder Construction is a
corporation and hence could not experience physical suffering and mental
anguish. It also reduced the award of exemplary damages. The dispositive
portion of the decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
modification that the award of moral damages is ordered deleted and the
award of exemplary damages to the plaintiffs-appellee should only be in the
amount of FIFTY THOUSAND (P50,000.00) PESOS.[5]
Petitioners motion for reconsideration was denied, prompting the filing of
this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to
this petition for failing to show convincingly any reversible error on the part
of the Court of Appeals. This Court however deleted the grant of exemplary
damages and attorneys fees. The Court also reduced the trial courts
award of actual damages from P1,500,000.00 to P500,000.00 reasoning that
the grant should not exceed the amount prayed for in the complaint. In the
prayer in the complaint respondents asked for actual damages in the
amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a
motion for reconsideration. On March 17, 1997, this Court found merit in
the petitioners motion for reconsideration and reinstated this petition for
review.
From their petition for review and motion for reconsideration before this
Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to
substantiate the allegations in their complaint and entitle them to their
prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents
for the transactions supposedly entered into between petitioner Posadas
and private respondents?
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Posadas contracted
initial development of
payments made by
squatter relocation,
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Obviously in the instant case, private respondents failed to show proof that
petitioner Posadas acted in bad faith.
Consequently since private
respondents failed to show that petitioner Luxuria Homes, Inc., was a party
to any of the supposed transactions, not even to the agreement to negotiate
with and relocate the squatters, it cannot be held liable, nay jointly and in
solidum, to pay private respondents. In this case since it was petitioner
Aida M. Posadas who contracted respondent Bravo to render the subject
services, only she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the
court to compel petitioners to execute a management contract with them on
the basis of the authorization letter dated May 3, 1989. The full text of Exh
D reads:
I hereby certify that we have duly authorized the bearer, Engineer Bravo to
negotiate, in our behalf, the ejectment of squatters from our property of 1.6
hectares, more or less, in Sucat, Muntinlupa. This authority is extended to
him as the representatives of the Managers, under our agreement for them
to undertake the development of said area and the construction of housing
units intended to convert the land into a first class subdivision.
The aforecited document is nothing more than a to-whom-it-may-concern
authorization letter to negotiate with the squatters. Although it appears
that there was an agreement for the development of the area, there is no
showing that same was never perfected and finalized. Private respondents
presented in evidence only drafts of a proposed management contract with
petitioners handwritten marginal notes but the management contract was
not put in its final form. The reason why there was no final uncorrected
draft was because the parties could not agree on the stipulations of said
contract, which even the private respondents admitted as found by the trial
court.[19] As a consequence the management drafts submitted by the
private respondents should at best be considered as mere unaccepted
offers. We find no cogent reason, considering that the parties no longer are
in a harmonious relationship, for the execution of a contract to develop a
subdivision.
It is fundamental that there can be no contract in the true sense in the
absence of the element of agreement, or of mutual assent of the parties. To
compel petitioner Posadas, whether as representatives of petitioners Luxuria
Homes or in her personal capacity, to execute a management contract
under the terms and conditions of private respondents would be to violate
the principle of consensuality of contracts. In Philippine National bank v.
Court of Appeals,[20] we held that if the assent is wanting on the part of one
who contracts, his act has no more efficacy than if it had been done under
duress or by a person of unsound mind. In ordering petitioner Posadas to
execute a management contract with private respondents, the trial court in
effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its
perfection. At anytime prior to the perfection of a contract, unaccepted
offers and proposals remain as such and cannot be considered as binding
commitments; hence not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision
dated March 15, 1996, of respondent Honorable Court of Appeals and its
Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA
M. POSADAS to pay PRIVATE RESPONDENTS the amount of P435,000.00 as
balance for the preparation of the architectural design, site development
58 | c o r p o c a s e s 2 1 - 4 0
plan and survey. All other claims of respondents are hereby DENIED for lack
of merit.
SO ORDERED
Adm. Matter No. R-181-P
FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L.
Dalisay, Senior Deputy Sheriff of Manila, with "malfeasance in office, corrupt
practices and serious irregularities" allegedly committed as follows:
1.
Respondent sheriff attached and/or levied the money belonging to
complainant Cruz when he was not himself the judgment debtor in the final
judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced but
rather the company known as "Qualitrans Limousine Service, Inc.," a duly
registered corporation; and,
2.
Respondent likewise caused the service of the alias writ of execution
upon complainant who is a resident of Pasay City, despite knowledge that
his territorial jurisdiction covers Manila only and does not extend to Pasay
City.
In his Comments, respondent Dalisay explained that when he garnished
complainant's cash deposit at the Philtrust bank, he was merely performing
a ministerial duty. While it is true that said writ was addressed to Qualitrans
Limousine Service, Inc., yet it is also a fact that complainant had executed
an affidavit before the Pasay City assistant fiscal stating that he is the
owner/president of said corporation and, because of that declaration, the
counsel for the plaintiff in the labor case advised him to serve notice of
garnishment on the Philtrust bank.
On November 12, 1984, this case was referred to the Executive Judge of the
Regional Trial Court of Manila for investigation, report and recommendation.
Prior to the termination of the proceedings, however, complainant executed
an affidavit of desistance stating that he is no longer interested in
prosecuting the case against respondent Dalisay and that it was just a
"misunderstanding" between them. Upon respondent's motion, the
Executive Judge issued an order dated May 29, 1986 recommending the
dismissal of the case.
It has been held that the desistance of complainant does not preclude the
taking of disciplinary action against respondent. Neither does it dissuade the
Court from imposing the appropriate corrective sanction. One who holds a
public position, especially an office directly connected with the
administration of justice and the execution of judgments, must at all times
be free from the appearance of impropriety.1
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whose business he had absolute control knowing that the letter was in no
position to comply with the obligation it had assumed. Consequently, said
stockholder cannot now seek refuge behind the general principle that a
corporation has a personality distinct and separate from that of its
stockholders and that the latter are not personally liable for the corporate
obligations. Upon the facts proven, the court is justified in "piercing the veil
of corporate fiction" and in holding said stockholder personally liable, jointly
and severally with the corporation, for the sums of money adjudged in favor
of the aggrieved party.
2. ID.; WHEN MAY CORPORATE FICTION BE DISREGARDED. It is settled law
in this and other jurisdictions that when the corporation is the mere alter
ego of a person, the corporate fiction may be disregarded; the same being
true when the corporation is controlled, and its affairs are so conducted as
to make it merely an instrumentality, agency or conduit of another (Koppel
Phils. etc. v. Yatco etc., 43 Off. Gaz., No. 11, November, 1947; Yutivo Sons
etc. v. Court of Tax Appeals etc., 110 Phil., 751; promulgated on January 28,
1961.)
DECISION
DIZON, J.:
Appeal taken by the National Marketing Corporation hereinafter referred
to as NAMARCO, from the decision of the Court of First Instance of Manila in
Civil Case No. 45770 ordering the Associated Finance Company, Inc.
hereinafter referred to as the ASSOCIATED to pay the NAMARCO the sum
of P403,514.28, with legal interest thereon from the date of filing of the
action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as
attorneys fees, plus costs, but dismissing the complaint insofar as
defendant Francisco Sycip was concerned, as well as the latters
counterclaim. The appear is only from that portion of the decision dismissing
the case as against Francisco Sycip.
On March 25, 1958, ASSOCIATED, a domestic corporation, through its
President, appellee Francisco Sycip, entered into an agreement to exchange
sugar with NAMARCO, represented by its then General Manager, Benjamin
Estrella, whereby the former would deliver to the latter 22,516 bags (each
weighing 100 pounds) of "Victorias" and/or "National" refined sugar in
exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil"
raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages
equivalent to 20% of the contractual value of the sugar should either party
fail to comply with the terms and conditions stipulated (Exhibit A). Pursuant
thereto, on May 19, 1958, NAMARCO delivered to ASSOCIATED 7,732.71
bags of "Busilak" and 17,285.08 piculs of "Pasumil" domestic raw sugar. As
ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of "Victorias"
and/or "National" refined sugar agreed upon, latter, an January 12, 1959,
demanded in writing from the ASSOCIATED either (a) immediate delivery
thereof before January 20, or (b) payment of its equivalent cash value
amounting to P372,639.80.
On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO
the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but
the latter rejected the offer. Instead, on January 21 of the same year, it
demanded payment of the 7,732.71 bags of "Busilak" raw sugar at P15.30
61 | c o r p o c a s e s 2 1 - 4 0
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had assumed. Consequently, he can not now seek refuge behind the general
principle that a corporation has a personality distinct and separate from that
of its stockholders and that the latter are not personally liable for the
corporate obligations. To the contrary, upon the proven facts, We feel
perfectly justified in "piercing the veil of corporate fiction" and in holding
Sycip personally liable, jointly and severally with his co-defendant, for the
sums of money adjudged in favor of appellant. It is settled law in this and
other jurisdictions that when the corporation is the mere alter ego of a
person, the corporate fiction may be disregarded; the same being true when
the corporation is controlled, and its affairs are so conducted as to make it
merely an instrumentality, agency or conduit of another (Koppel Phils. etc. v.
Yatco etc., 43 Off. Gaz. No. 11, November, 1947; Yutivo Sons etc. v. Court of
Tax Appeals etc., G.R. No. L-13203 promulgated on January 28, 1961.)
Wherefore, the decision appealed from is modified by sentencing defendantappellee Francisco Sycip to pay, jointly and severally with the Associated
Finance Company, Inc., the sums of money which the trial court sentenced
the latter to pay to the National Marketing Corporation, as follows: the sum
of FOUR HUNDRED THREE THOUSAND FIVE HUNDRED FOURTEEN P E S O S
AND TWENTY-EIGHT CENTAVOS (P403,514.28), with interest at the legal rate
from the date of the filing of the action until fully paid plus an additional
amount of EIGHTY THOUSAND SEVEN HUNDRED TWO PESOS AND EIGHTYSIX CENTAVOS (80,702.86) as liquidated damages and P5,000.00 as
attorneys fees and further to pay the costs. With costs.
G.R. No. L-41337 June 30, 1988
TAN BOON BEE & CO., INC., petitioner,
vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH
XVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and
PHILIPPINE AMERICAN CAN DRUG COMPANY, respondents.
De Santos, Balgos & Perez Law Office for petitioner.
Araneta Mendoza & Papa Law Office for respondent Phil. American Drug
Company.
PARAS, J.:
This is a petition for certiorari, with prayer for preliminary injunction, to
annul and set aside the March 26, 1975 Order of the then Court of First
Instance of Manila, Branch XXIII, setting aside the sale of "Heidelberg"
cylinder press executed by the sheriff in favor of the herein petitioner, as
well as the levy on the said property, and ordering the sheriff to return the
said machinery to its owner, herein private respondent Philippine American
Drug Company.
Petitioner herein, doing business under the name and style of Anchor Supply
Co., sold on credit to herein private respondent Graphic Publishing, Inc.
(GRAPHIC for short) paper products amounting to P55,214.73. On December
20, 1972, GRAPHIC made partial payment by check to petitioner in the total
amount of P24,848.74; and on December 21, 1972, a promissory note was
executed to cover the balance of P30,365.99. In the said promissory note, it
was stipulated that the amount will be paid on monthly installments and
that failure to pay any installment would make the amount immediately
demandable with an interest of 12% per annum. On September 6, 1973, for
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failure of GRAPHIC to pay any installment, petitioner filed with the then
Court of First Instance of Manila, Branch XXIII, presided over by herein
respondent judge, Civil Case No. 91857 for a Sum of Money (Rollo, pp. 3638). Respondent judge declared GRAPHIC in default for failure to file its
answer within the reglementary period and plaintiff (petitioner herein) was
allowed to present its evidence ex parte. In a Decision dated January 18,
1974 (Ibid., pp. 39-40), the trial court ordered GRAPHIC to pay the petitioner
the sum of P30,365.99 with 12% interest from March 30, 1973 until fully
paid, plus the costs of suit. On motion of petitioner, a writ of execution was
issued by respondent judge; but the aforestated writ having expired without
the sheriff finding any property of GRAPHIC, an alias writ of execution was
issued on July 2, 1974.
Pursuant to the said issued alias writ of execution, the executing sheriff
levied upon one (1) unit printing machine Identified as "Original Heidelberg
Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC. In
a Notice of Sale of Execution of Personal Property dated July 29, 1974, said
printing machine was scheduled for auction sale on July 26, 1974 at 10:00
o'clock at 14th St., Cor. Atlanta St., Port Area, Manila (lbid., p. 45); but in a
letter dated July 19, 1974, herein private respondent, Philippine American
Drug Company (PADCO for short) had informed the sheriff that the printing
machine is its property and not that of GRAPHIC, and accordingly, advised
the sheriff to cease and desist from carrying out the scheduled auction sale
on July 26, 1974. Notwithstanding the said letter, the sheriff proceeded with
the scheduled auction sale, sold the property to the petitioner, it being the
highest bidder, and issued a Certificate of Sale in favor of petitioner (Rollo,
p. 48). More than five (5) hours after the auction sale and the issuance of
the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with
the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974,
PADCO filed with the Court of First Instance of Manila, Branch XXIII, a Motion
to Nullify Sale on Execution (With Injunction) (Ibid., pp, 49-55), which was
opposed by the petitioner (Ibid., pp. 5668). Respondent judge, in an Order
dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of PADCO. The
decretal portion of the said order, reads:
WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the
Sheriff in favor of the plaintiff as well as the levy on the said property is
hereby set aside and declared to be without any force and effect. The Sheriff
is ordered to return the said machinery to its owner, the Philippine American
Drug Co.
Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an
Addendum to Motion for Reconsideration (Ibid., pp. 94-08), but in an Order
dated August 13, 1975, the same was denied for lack of merit (Ibid., p. 109).
Hence, the instant petition.
In a Resolution dated September 12, 1975, the Second Division of this Court
resolved to require the respondents to comment, and to issue a temporary
restraining order (Rollo, p. 111 ). After submission of the parties'
Memoranda, the case was submitted for decision in the Resolution of
November 28, 1975 (Ibid., p. 275).
Petitioner, to support its stand, raised two (2) issues, to wit:
I
THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT
JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY
64 | c o r p o c a s e s 2 1 - 4 0
xxx
xxx
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66 | c o r p o c a s e s 2 1 - 4 0
While We recognize the fact that these movants the MBTC, the Phillips
spouses, the Phillips corporation and the Hacienda Benito, Inc. did raise in
their respective answers the issue as to the propriety of the instant petition
for certiorari on the ground that the remedy should have been appeal within
the reglementary period, We considered such issue as a mere technicality
which would have accomplished nothing substantial except to deny to the
petitioner the right to litigate the matters he raised ...
Litigations should, as much as possible, be decided on their merits and not
on technicality (De las Alas vs. Court of Appeals, 83 SCRA 200, 216 [1978]).
Every party-litigant must be afforded the amplest opportunity for the proper
and just determination of his cause, free from the unacceptable plea of
technicalities (Heirs of Ceferino Morales vs. Court of Appeals, 67 SCRA 304,
310 [1975]).
PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First
Instance of Manila, is ANNULLED and SET ASIDE, and the Temporary
Restraining Order issued is hereby made permanent.
SO ORDERED.
[G.R. No. 117416. December 8, 2000]
Avelina G. Ramoso, Renato B. Salvatierra, Benefrido M. Cruz, Leticia L.
Medina, Pelagio Pascual, Domingo P. Santiago, Amado S. Veloira, Concepcion
F. Blaylock, in their own behalf and in behalf of numerous other persons
similarly situated, Commercial Credit Corp. of North Manila, Commercial
Credit Corp. of Cagayan Valley, Commercial Credit Corp. of Olongapo City,
and Commercial Credit Corp. of Quezon City, petitioners, vs. Court of
Appeals, General Credit Corp. (Formerly Commercial Credit Corp.), CCC
Equity Corp., Resource and Finance Corp., Generoso G. Villanueva and
Leonardo B. Alejandrino, and Securities and Exchange Commission,
respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the decision[1] of the Court of
Appeals dated October 8, 1993, and its resolution[2] dated September 22,
1994 in CA G.R. SP No. 29225, which affirmed the Securities and Exchange
Commissions decision stating thus:
WHEREFORE, the appealed decision of the hearing officer in SEC Case No.
2581 is hereby MODIFIED as follows:
1. Piercing the veil of corporate fiction among GCC, CCC Equity and the
franchise companies - Commercial Credit Corporation of North Manila,
Commercial Credit Corporation of Cagayan Valley, Commercial Credit
Corporation of Olongapo City, and Commercial Credit Corporation of Quezon
City - is not proper for being without merit; and
2. The declaration that petitioning franchise corporations and individual
petitioners are not liable for the payment of bad accounts assigned to, and
discounted by GCC is SET ASIDE for being in excess of jurisdiction.[3]
The facts of this case as gleaned from the records are as follows:
67 | c o r p o c a s e s 2 1 - 4 0
On March 11, 1957, Commercial Credit Corporation was registered with SEC
as a general financing and investment corporation. CCC made proposals to
several investors for the organization of franchise companies in different
localities. The proposed trade names and indicated areas were: (a)
Commercial Credit Corporation - Cagayan Valley; (b) Commercial Credit
Corporation - Olongapo City; and (c) Commercial Credit Corporation Quezon City.
Petitioners herein invested and bought majority shares of stocks, while CCC
retained minority holdings. Management contracts were executed between
each franchise company and CCC, under the following terms and conditions:
(1) The franchise company shall be managed by CCCs resident manager.
(2) Management fee equivalent to 10% of net profit before taxes shall be
paid to CCC. (3) All expenses shall be borne by the franchise company,
except the salary of the resident manager and the cost of credit
investigation. (4) CCC shall set prime rates for discounting or rediscounting
of receivables. Apart from these, each investor was required to sign a
continuing guarantee for bad accounts that might be incurred by CCC due to
discounting activities.
In 1974, CCC attempted to obtain a quasi-banking license from Central Bank
of the Philippines. But there was a hindrance because Section 1326 of CBs
Manual of Regulations for Banks and Other Financial Intermediaries,
states:
Sec. 1326. General Policy. Dealings of a bank with any of its directors,
officers or stockholders and their related interests should be in the regular
course of business and upon terms not less favorable to the bank than those
offered to others. (Emphasis supplied)
The above DOSRI regulation and set guidelines are entitled to make sure
that lendings by banks or other financial institutions to its own directors,
officers, stockholders or related interests are above board. In view of said
hindrance, what CCC did was divest itself of its shareholdings in the
franchise companies.
It incorporated CCC Equity to take over the
administration of the franchise companies under new management
contracts. In the meantime, CCC continued providing a discounting line for
receivables of the franchise companies through CCC Equity. Thereafter, CCC
changed its name to General Credit Corporation (GCC).
The companies operations were on course until 1981, when adverse media
reports unraveled anomalies in the business of GCC. Upon investigation,
petitioners allegedly discovered the dissipation of the assets of their
respective franchise companies. Among the alleged fraudulent schemes by
GCC involved transfer or assignment of its uncollectible notes and accounts;
utilization of spurious commercial papers to generate paper revenues; and
release of collateral in connivance with unauthorized loans. Furthermore,
GCC allegedly divested itself of its assets through a questionable offset of
receivables arrangement with one of its creditors, Resource and Finance
Corporation.
On February 24, 1984, petitioners filed a suit against GCC, CCC Equity and
RFC. Petitioners prayed for (1) receivership, (2) an order directing GCC and
CCC Equity solidarily to pay petitioners and depositors for the losses they
sustained, and (3) nullification of the agreement between GCC and RFC.
On June 6, 1984, all respondents, except CCC Equity, filed a motion to
dismiss asserting that SEC lacked jurisdiction, and that petitioners were not
68 | c o r p o c a s e s 2 1 - 4 0
the real parties in interest. Both motions, for receivership and for dismissal,
were subsequently denied by the hearing officer.
On February 23, 1990, the hearing officer ordered piercing the corporate
veil of GCC, CCC Equity, and the franchise companies. He later declared
that GCC was not liable to individual petitioners for the losses, since as
investors they assumed the risk of their respective investments. The
franchise companies and the individual petitioners were held not liable to
GCC for the bad accounts incurred by the latter through the discounting
process. The decretal portion of his order reads:
WHEREFORE, judgment is hereby rendered, as follows:
1. Declaring GCC, CCC-Equity
Credit Corporation of North
Cagayan Valley, Commercial
Commercial Credit Corporation
2. Declaring that the petitioning franchised companies are not liable for the
payment of bad accounts assigned to, and discounted by GCC;
3. Declaring the individual petitioners who executed continuing guaranties
to secure the obligation of the franchised companies to GCC arising from the
discounting accounts should not be held liable thereon;
4.
Declaring that GCC is not liable to individual petitioners for the
investments they made in the franchised companies;
5. Dismissing the petition with respect to respondent Resource Finance
Corporation, Generoso Villanueva and Leonardo Alejandrino.[4]
In an en banc decision, dated October 6, 1992, the SEC reversed the ruling
of its hearing officer. Petitioners appealed to the Court of Appeals. On
October 8, 1993, the appellate court affirmed respondent SECs decision.
Petitioners moved for a reconsideration, but it was denied on September 22,
1994.
Hence, the instant petition raising the following issues:
I. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE
THAT GCCS FRAUD UPON PETITIONERS AND MISMANAGEMENT OF THE
FRANCHISE COMPANIES WARRANT THE PIERCING OF ITS VEIL OF CORPORATE
FICTION.
II. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE
THAT ONLY THE SEC HAS JURISDICTION OVER THE ISSUE OF WHETHER
INDIVIDUAL PETITIONERS MAY BE HELD LIABLE ON THE SURETY
AGREEMENTS FOR BAD ACCOUNTS INCURRED BY GCC THROUGH THE
DISCOUNTING PROCESS.
III.WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
REVERSE AND SET ASIDE THE 06, OCTOBER 1992 SEC DECISION.
Petitioners pray for the piercing of the corporate fiction of GCC, CCC Equity,
RFC and the franchise companies. They allege that (1) GCC was the alterego of CCC Equity and the franchise companies; (2) GCC created CCC Equity
to circumvent CBs DOSRI Regulation; and (3) GCC mismanaged the
franchise companies. Ultimately, petitioners pray that the SEC en banc
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70 | c o r p o c a s e s 2 1 - 4 0
71 | c o r p o c a s e s 2 1 - 4 0
specialized knowledge and skill of the SEC to interpret the said discounting
agreements and continuing guaranties executed to secure the same
because the regular courts possess the utmost competence to do so by
merely applying the general principles laid down under civil law on
contracts.
xxx
The matter of whether the petitioners must be held liable on their separate
suretyship is one that belongs to the regular courts. As the respondent SEC
notes in its comment, the franchised companies accounts discounted by
GCC would arise even if there is no intra-corporate relationship between the
parties. In other words, the controversy did not arise out of the parties
relationships as stockholders. The Court agrees. This matter is better left to
the regular courts in which the private respondents have filed suits to
enforce the suretyship agreements allegedly executed by the
petitioners.[13]
Not every conflict between a corporation and its stockholders involves
corporate matters that only the SEC can resolve. In Viray vs. Court of
Appeals, 191 SCRA 308, 323 (1990), we stressed that a contrary
interpretation would dissipate the powers of the regular courts and distort
the meaning and intent of PD No. 902-A.
It is true that the trend is toward vesting administrative bodies like the SEC
with the power to adjudicate matters coming under their particular
specialization, to insure a more knowledgeable solution of the problems
submitted to them.
This would also relieve the regular courts of a
substantial number of cases that would otherwise swell their already
clogged dockets. But as expedient as this policy may be, it should not
deprive the courts of justice of their power to decide ordinary cases in
accordance with the general laws that do not require any particular
expertise or training to interpret and apply. Otherwise, the creeping takeover by the administrative agencies of the judicial power vested in the
courts would render the Judiciary virtually impotent in the discharge of the
duties assigned to it by the Constitution.
Finally, we note that petitioners were given ample opportunity to present
evidence in support of their claims. But mere allegations do not constitute
convincing evidence. We find no sufficient reason to overturn the decisions
of both the SEC and the appellate court.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
decision and resolution of the Court of Appeals dated October 8, 1993 and
September 22, 1994, respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-20502
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In a complaint for unfair labor practice filed before the Court of Industrial
Relations on June 6, 1956 by a prosecutor of the latter court, Emilio, Ariston
and Rodolfo, all surnamed Cano, were made respondents in their capacity as
president and proprietor, field supervisor and manager, respectively, of
Emilio Cano Enterprises, Inc.
After trial, Presiding Judge Jose S. Bautista rendered decision finding Emilio
Cano and Rodolfo Cano guilty of the unfair labor practice charge, but
absolved Ariston for insufficiency of evidence. As a consequence, the two
were ordered, jointly and severally, to reinstate Honorata Cruz, to her
former position with payment of backwages from the time of her dismissal
up to her reinstatement, together with all other rights and privileges
thereunto appertaining.
Meanwhile, Emilio Cano died on November 14, 1958, and the attempt to
have the case dismissed against him having failed, the case was appealed
to the court en banc, which in due course affirmed the decision of Judge
Bautista. An order of execution was issued on August 23, 1961 the
dispositive part of which reads: (1) to reinstate Honorata Cruz to her former
position as ordered in the decision; and (2) to deposit with the court the
amount of P7,222.58 within ten days from receipt of the order, failing which
the court will order either a levy on respondents' properties or the filing of
an action for contempt of court.
The order of execution having been directed against the properties of Emilio
Cano Enterprises, Inc. instead of those of the respondents named in the
decision, said corporation filed an ex parte motion to quash the writ on the
ground that the judgment sought to be enforced was not rendered against it
which is a juridical entity separate and distinct from its officials. This motion
was denied. And having failed to have it reconsidered, the corporation
interposed the present petition for certiorari.1wph1.t
The issue posed before us is: Can the judgment rendered against Emilio and
Rodolfo Cano in their capacity as officials of the corporation Emilio Cano
Enterprises, Inc. be made effective against the property of the latter which
was not a party to the case?
The answer must be in the affirmative. While it is an undisputed rule that a
corporation has a personality separate and distinct from its members or
stockholders because of a fiction of the law, here we should not lose sight of
the fact that the Emilio Cano Enterprises, Inc. is a closed family corporation
where the incorporators and directors belong to one single family. Thus, the
following are its incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo
and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where
the corporation and its members can be considered as one. And to hold
such entity liable for the acts of its members is not to ignore the legal fiction
but merely to give meaning to the principle that such fiction cannot be
invoked if its purpose is to use it as a shield to further an end subversive of
justice. 1 And so it has been held that while a corporation is a legal entity
existing separate and apart from the persons composing it, that concept
cannot be extended to a point beyond its reason and policy, and when
invoked in support of an end subversive of this policy it should be
disregarded by the courts (12 Am. Jur. 160-161).
A factor that should not be overlooked is that Emilio and Rodolfo Cano are
here indicted, not in their private capacity, but as president and manager,
73 | c o r p o c a s e s 2 1 - 4 0
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On November 21, 1995, Dr. Celso Samson, Secretary General of the PNRC
wrote petitioner requiring him to restitute within seventy two (72) hours
from notice, the total sum of P135,927.78 representing cash shortage,
technical shortage and unremitted collections.[4]
On December 15, 1995, petitioner applied for early retirement from the
service, and later wrote Dr. Samson requesting for a re-audit by an
independent auditor of his accounts. However, Dr. Samson denied the
request.[5]
On May 28, 1996, petitioner filed with the National Labor Relations
Commission, Sub-Regional Arbitration Branch X, Butuan City, a complaint for
illegal dismissal, damages and underpayment of wages against the
Philippine National Red Cross and its key officials.[6]
On June 14, 1996, respondent Philippine National Red Cross filed with the
Surigao del Norte provincial office, Department of Labor and Employment, a
motion to dismiss the complaint for lack of jurisdiction over the subject
matter of the case because the PNRC is a government corporation whose
employees are members of the Government Service Insurance System
(GSIS), and embraced within the Civil Service Law and regulations.[7]
On July 25, 1996, petitioner filed an opposition to motion to dismiss arguing
that there was between the PNRC and its duly appointed paid staff, an
employer-employee relationship, governed by the Labor Code of the
Philippines.[8]
On October 11, 1996, the Labor Arbiter issued an order dismissing the
complaint for lack of jurisdiction, finding that the Philippine National Red
Cross is a government corporation with an original charter, having been
created by Republic Act No. 95.[9]
On November 12, 1996, the Labor Arbiter denied petitioner's motion for
reconsideration filed on October 14, 1996.[10]
On November 20, 1996, petitioner filed a notice of appeal and appeal
memorandum with the National Labor Relations Commission.[11]
On March 21, 1997, the National Labor Relations Commission, Fifth Division,
issued a resolution dismissing the appeal and confirming the decision of the
Labor Arbiter that dismissed petitioner's complaint for lack of jurisdiction.
[12]
Hence, this recourse.
On July 7, 1997, we resolved to require respondents to comment on the
petition within ten (10) days from notice.[13]
On August 7, 1997, respondent Philippine National Red Cross filed its
comment.[14] On November 7, 1997, the Solicitor General filed its
comment.[15]
Resolving the issue set out in the opening paragraph of this opinion, we rule
that the Philippine National Red Cross (PNRC) is a government owned and
controlled corporation, with an original charter under Republic Act No. 95, as
amended. The test to determine whether a corporation is government
owned or controlled, or private in nature is simple. Is it created by its own
charter for the exercise of a public function, or by incorporation under the
75 | c o r p o c a s e s 2 1 - 4 0
FELICIANO, J.:
Private respondent Peter Cosalan was the General Manager of Petitioner
Benguet Electric Cooperative, Inc. ("Beneco"), having been elected as such
by the Board of Directors of Beneco, with the approval of the National
Electrification Administrator, Mr. Pedro Dumol, effective 16 October 1982.
On 3 November 1982, respondent Cosalan received Audit Memorandum No.
1 issued by the Commission on Audit ("COA"). This Memorandum noted that
cash advances received by officers and employees of petitioner Beneco in
the amount of P129,618.48 had been virtually written off in the books of
Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to
secure the approval of the National Electrification Administration ("NEA")
before writing off or condoning those cash advances, and recommended the
adoption of remedial measures.
On 12 November 1982, COA issued another Memorandum Audit
Memorandum No. 2 addressed to respondent Peter Cosalan, inviting
attention to the fact that the audit of per diems and allowances received by
76 | c o r p o c a s e s 2 1 - 4 0
77 | c o r p o c a s e s 2 1 - 4 0
78 | c o r p o c a s e s 2 1 - 4 0
appeal was posted by registered mail on 3 May 1988 and received by the
NLRC the following day. 4 Clearly, the memorandum on appeal was filed out
of time.
Respondent Board members, however, insist that their Memorandum on
Appeal was filed on time because it was delivered for mailing on 1 May 1988
to the Garcia Communications Company, a licensed private letter carrier.
The Board members in effect contend that the date of delivery to Garcia
Communications was the date of filing of their appeal memorandum.
Respondent Board member's contention runs counter to the established rule
that transmission through a private carrier or letter-forwarder instead of
the Philippine Post Office is not a recognized mode of filing pleadings. 5
The established rule is that the date of delivery of pleadings to a private
letter-forwarding agency is not to be considered as the date of filing thereof
in court, and that in such cases, the date of actual receipt by the court, and
not the date of delivery to the private carrier, is deemed the date of filing of
that pleading. 6
There, was, therefore, no reason grounded upon substantial justice and the
prevention of serious miscarriage of justice that might have justified the
NLRC in disregarding the ten-day reglementary period for perfection of an
appeal by the respondent Board members. Accordingly, the applicable rule
was that the ten-day reglementary period to perfect an appeal is mandatory
and jurisdictional in nature, that failure to file an appeal within the
reglementary period renders the assailed decision final and executory and
no longer subject to review. 7 The respondent Board members had thus lost
their right to appeal from the decision of the Labor Arbiter and the NLRC
should have forthwith dismissed their appeal memorandum.
There is another and more compelling reason why the respondent Board
members' appeal should have been dismissed forthwith: that appeal was
quite bereft of merit. Both the Labor Arbiter and the NLRC had found that
the indefinite suspension and termination of services imposed by the
respondent Board members upon petitioner Cosalan was illegal. That
illegality flowed, firstly, from the fact that the suspension of Cosalan was
continued long after expiration of the period of thirty (30) days, which is the
maximum period of preventive suspension that could be lawfully imposed
under Section 4, Rule XIV of the Omnibus Rules Implementing the Labor
Code. Secondly, Cosalan had been deprived of procedural due process by
the respondent Board members. He was never informed of the charges
raised against him and was given no opportunity to meet those charges and
present his side of whatever dispute existed; he was kept totally in the dark
as to the reason or reasons why he had been suspended and effectively
dismissed from the service of Beneco Thirdly, respondent Board members
failed to adduce any cause which could reasonably be regarded as lawful
cause for the suspension and dismissal of respondent Cosalan from his
position as General Manager of Beneco. Cosalan was, in other words, denied
due process both procedural and substantive. Fourthly, respondent Board
members failed to obtain the prior approval of the NEA of their suspension
now dismissal of Cosalan, which prior approval was required, inter alia,
under the subsisting loan agreement between the NEA and Beneco. The
requisite NEA approval was subsequently sought by the respondent Board
members; no NEA approval was granted.
In reversing the decision of the Labor Arbiter declaring petitioner Beneco
and respondent Board members solidarily liable for the salary, allowances,
79 | c o r p o c a s e s 2 1 - 4 0
80 | c o r p o c a s e s 2 1 - 4 0
81 | c o r p o c a s e s 2 1 - 4 0
generating acts here are the personal and individual acts of respondent
Board members, and are not properly attributed to Beneco itself.
WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment
filed by respondent Board members is TREATED as their answer, and the
decision of the National Labor Relations Commission dated 21 November
1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE and the decision
dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby REINSTATED
in toto. In addition, respondent Board members are hereby ORDERED to
reimburse petitioner Beneco any amounts that it may be compelled to pay
to respondent Cosalan by virtue of the decision of Labor Arbiter Amado T.
Adquilen. No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
[G.R. No. L-61145. February 20, 1984.]
REPUBLIC OF THE PHILIPPINES (Director of Lands), Petitioner, v. IGLESIA NI
CRISTO and JUDGE DOMINGO M. ANGELES, Branch I, Court of First Instance
of Camarines Norte, Respondents.
The Solicitor General for Petitioner.
Joaquin Ortega
Respondents.
and
Cruz,
Esguerra,
Tafalla
Perel
&
Associates
for
SYLLABUS
1.
CIVIL LAW; LAND REGISTRATION; PUBLIC LAND LAW; IGLESIA NI
CRISTO NOT ENTITLED TO APPLY FOR REGISTRATION OF LAND UNDER
SECTION 48(b) THEREOF. The trial court found, and it is a matter of
judicial notice, that the Iglesia "is a duly registered corporation sole." As the
application is for confirmation of an imperfect or incomplete title, that
application is necessarily subject to the provisions of law only Filipino
citizens are entitled to apply for registration of lands of the public domain.
The Iglesia is not a Filipino citizen. The lands in question are still public lands
until registered.
2.
CONSTITUTIONAL LAW; PATRIMONY OF THE NATION; IGLESIA NI
CRISTO AS A CORPORATION CANNOT ACQUIRE ALIENABLE PUBLIC LAND.
Under Section 11 of Article XIV of the Constitution, the Iglesia ni Cristo is
disqualified as a corporation to hold lands of the public domain except by
lease. The Iglesia in its appellees brief has not shown that it is not covered
by the said constitutional and statutory provisions. Its statement on page 2
of its brief that it "is not a religious corporation" when it filed its application
is belied by the facts.
3.
MERCANTILE LAW; CORPORATION LAW; IGLESIA NI CRISTO,
REGISTERED AS A CORPORATION SOLE, NOT AS A TRUSTEE; NOT QUALIFIED
TO REGISTER LAND AS TRUSTEE IN THE CASE AT BAR. Iglesia ni Cristo
contends that it is entitled to register the lands as a trustee. This contention
is erroneous. The unarguable fact is that it is a corporation sole governed by
section 109 et sequitur of the Corporation Code. It did not apply for
registration as a trustee. As stated at the outset, the matter is subject to the
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therein, but whose titles have not been perfected or completed, may apply
to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor,
unless the Land Registration Act, to wit:chanrob1es virtual 1aw library
(a)
...
(b)
Those who by themselves or through their predecessors in interest
have been in open, continuous, exclusive, and notorious possession and
occupation of agricultural lands of the public domain, under a bona fide
claim of acquisition of ownership, for at least thirty years immediately
preceding the filing of the application for confirmation of title except when
prevented by war or force majeure. These shall be conclusively presumed to
have performed all the conditions essential to a Government grant and shall
be entitled to a certificate of title under the provisions of this
chapter."cralaw virtua1aw library
(c)
...
"Sec. 49.
No person claiming title to lands of the public domain not in
possession of the qualifications specified in the last preceding section may
apply for the benefits of this chapter."cralaw virtua1aw library
The Iglesia is not a Filipino citizen, The lands in question are still public lands
until registered (Heirs of Pelagio Zara v. Director of Lands, 127 Phil. 8).
Moreover, under the aforecited section 11 of Article XIV, it is disqualified as
a corporation to hold lands of the public domain except by lease. (Manila
Electric Company v. Castro Bartolome, L-49623, June 29, 182, 114 SCRA
799; Director of Lands, v. Lood, L-32521, September 2, 1983, 124 SCRA
460).
The Iglesia in its appellees brief has not shown that it is not covered by the
said constitutional and statutory provisions. Its statement on page 2 of its
brief that it "is not a religious corporation" when it filed its application is
belied by the facts.
It contends that it is entitled to register the lands as a trustee. This
contention is erroneous. The unarguable fact is that it is a corporation sole
governed by section 109 et sequitur of the Corporation Code. It did not
apply for registration as a trustee.
As stated at the outset, the matter is subject to the governing principle of
stare decisis et non quieta movere (follow past precedents and do not
disturb what has been settled).
WHEREFORE, the trial courts decision is reversed and set aside and the
Iglesias application is dismissed with costs against it.
SO ORDERED.
[G.R. No. 80767. April 22, 1991.]
BOY SCOUTS OF THE PHILIPPINES, Petitioner, v. NATIONAL LABOR
RELATIONS COMMISSION, FORTUNATO ESGUERRA, ROBERTO MALABORBOR,
ESTANISLAO MISA, VICENTE EVANGELISTA, and MARCELINO GARCIA,
Respondents.
Julio O. Lopez for Petitioner.
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SYLLABUS
1.
COMMONWEALTH ACT NO. III AS AMENDED BY PRESIDENTIAL DECREE
NO. 460; BOY SCOUTS OF THE PHILIPPINES; FUNCTION, WITH PUBLIC
ASPECT. BSPs functions as set out in its statutory charter do have a
public aspect. BSPs functions do relate to the fostering of the public virtues
of citizenship and patriotism and the general improvement of the moral
spirit and fiber of our youth. The social value of activities like those to which
the BSP dedicates itself by statutory mandate have in fact, been accorded
constitutional recognition (Article II of the 1987 Constitution). The public
character of BSPs functions and activities must be conceded, for they
pertain to the educational, civic and social development of the youth which
constitutes a very substantial and important part of the nation.
2.
ID.; ID.; NATIONAL EXECUTIVE BOARD; SUBSTANTIAL GOVERNMENTAL
PARTICIPATION IN THE CHOICE OF
MEMBERS. The second aspect that the Court must take into account
relates to the governance of the BSP. The composition of the National
Executive Board of the BSP includes, as noted from Section 5 of its charter
quoted earlier, includes seven (7) Secretaries of Executive Departments.
The seven (7) Secretaries (now six [6] in view of the abolition of the
Department of Youth and Sports and merger thereof into the Department of
Education, Culture and Sports) by themselves do not constitute a majority of
the members of the National Executive Board. We must note at the same
time that the appointments of members of the National Executive Board,
except only the appointments of the Regional Chairman and Scouts of
Senior age from the various Scout Regions, are subject to ratification and
confirmation by the Chief Scout, who is the President of the Philippines.
Vacancies to the Board are filled by a majority vote of the remaining
members thereof, but again subject to ratification and confirmation by the
Chief Scout. We must assume that such confirmation or ratification involves
the exercise of choice or discretion on the part of ratifying or confirming
power. It does appears therefore that there is substantial governmental (i.e.,
Presidential) participation or intervention in the choice of the majority of the
members of the National Executive Board of the BSP.
3.
ID.; ID.; CHARACTER OF ASSETS AND FUNDS. The third aspect
relates to the character of the assets and funds of the BSP. The original
assets of the BSP were acquired by purchase or gift or other equitable
arrangement with the Boy Scouts of America, of which the BSP was part
before the establishment of the Commonwealth of the Philippines. The BSP
charter, however, does not indicate that such assets were public or statal in
character or had originated from the Government or the State. According to
petitioner BSP, its operating funds used for carrying out its purposes and
programs, are derived principally from membership dues paid by the Boy
Scouts themselves and from property rentals. In this respect, the BSP
appears similar to private non-stock, non-profit corporations, although its
charter expressly envisages donations and contributions to it from the
Government and any of its agencies and instrumentalities. We note only
that BSP funds have not apparently heretofore been regarded as public
funds by the Commission on Audit, considering that such funds have not
been audited by the Commission.
4.
ID.; ID.; A GOVERNMENT-CONTROLLED
CORPORATION AND
INSTRUMENTALITY OF THE GOVERNMENT. While the BSP may be seen to
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termination
of
services
are
as
87 | c o r p o c a s e s 2 1 - 4 0
Meanwhile, in a letter of the same date, the BSP National President informed
private respondents that their refusal to comply with the Special Orders was
not sufficiently justified and constituted rank disobedience. Memoranda
subsequently issued by the BSP Secretary-General stressed that such
refusal as well as the explanations proffered therefor, were unacceptable
and could altogether result in termination of employment with petitioner
BSP. These warnings notwithstanding, private respondents continued
pertinaciously to disobey the disputed transfer orders.
Petitioner BSP consequently imposed a five-day suspension on the five (5)
private respondents, in the latter part of January 1985. Subsequently, by
Special Order dated 12 February 1985 issued by the BSP Secretary-General,
private respondents services were ordered terminated effective 15
February 1985.
On 22 February 1985, private respondents amended their original complaint
to include charges of illegal dismissal and unfair labor practice against
petitioner BSP. 4 The Labor Arbiter thereafter proceeded to hear the
complaint.
In a decision 5 dated 31 July 1985, the Labor Arbiter ordered the dismissal of
private respondents complaint for lack of merit.
On 27 February 1987, however, the ruling of the Labor Arbiter was reversed
by public respondent, NLRC, which held that private respondents had been
illegally dismissed by petitioner BSP. The dispositive portion of the NLRC
decision read:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the Decision appealed from is hereby
SET ASIDE and a new one entered ordering the respondent-appellee
[petitioner BSP] to reinstate the complainants-appellants [private
respondents] to their former positions without loss of seniority rights and
other benefits appurtenant thereto and with full backwages from the time
they were illegally dismissed from the service up to date of their actual
reinstatement.
SO ORDERED."cralaw virtua1aw library
The Court notes at the outset that in the Position Paper 6 filed by petitioner
BSP with the Labor Arbiter, it was alleged in the second paragraph thereof,
that petitioner is a "civic service, non-stock and non-profit organization,
relying mostly [on] government and public support, existing under and by
virtue of Commonwealth Act. No. 111, as amended, by Presidential Decree
No. 460 . . ." A similar allegation was contained in the Brief for Appellee 7
and in the Petition 8 and Memorandum 9 filed by petitioner BSP with public
respondent NLRC and this Court, respectively. The same allegation,
moreover, appeared in the Comment 10 (also treated as the Memorandum)
submitted to this Court by the Solicitor General on behalf of public
respondent NLRC; for their part private respondents stated in their Appeal
Memorandum 11 with the NLRC that petitioner BSP is "by mandate of law a
Public Corporation," a statement reiterated by them in their Memorandum
12 before this Court.chanrobles law library
In a Resolution dated 9 August 1989, this Court required the parties and the
Office of the Government Corporate Counsel to file a comment on the
question of whether or not petitioner BSP is in fact a government-owned or
controlled corporation.
88 | c o r p o c a s e s 2 1 - 4 0
Petitioner, private respondents, the Office of the Solicitor General and the
Office of the Government Corporate Counsel filed their respective
comments.
The central issue is whether or not the BSP is embraced within the Civil
Service as that term is defined in Article IX (B) (2) (1) of the 1987
Constitution which reads as follows:jgc:chanrobles.com.ph
"The Civil Service embraces all branches, subdivisions, instrumentalities,
and agencies of the Government, including government-owned or controlled
corporations with original charters.
x
x"
The answer to the central issue will determine whether or not private
respondent NLRC had jurisdiction to render the Decision and Resolution
which are here sought to be nullified.
The responses of the parties, on the one hand, and of the Office of the
Solicitor General and the Office of the Government Corporate Counsel, upon
the other hand, in compliance with the Resolution of this Court of 9 August
1989, present a noteworthy uniformity. Petitioner BSP and private
respondents submit substantially the same view "that the BSP is a purely
private organization." In contrast, the Solicitor General and the Government
Corporate Counsel take much the same position, that is, that the BSP is a
"public corporation or a "quasi-public corporation" and, as well, a
"government controlled corporation."cralaw virtua1aw library
Petitioner BSPs compliance with our Resolution invokes the following
provisions of its Constitution and By-laws:jgc:chanrobles.com.ph
"The Boy Scouts of the Philippines declares that it is an independent,
voluntary, non-political, non-sectarian and non-governmental organization,
with obligations towards nation building and with international
orientation."cralaw virtua1aw library
The BSP, petitioner stresses, does not receive any monetary or financial
subsidy from the Government whether on the national or local level. 13
Petitioner declares that it is a "purely private organization" directed and
controlled by its National Executive Board the members of which are, it is
said, all "voluntary scouters, including seven (7) Cabinet Secretaries. 14
Private respondents submitted a supplementary memorandum arguing that
while petitioner BSP was created as a public corporation, it had lost that
status when Section 2 of Commonwealth Act No. 111 as amended by P.D.
No. 460 conferred upon it the powers which ordinary private corporations
organized under the Corporation Code have:chanrobles virtual lawlibrary
"Sec. 2.
The said corporation shall have perpetual succession with
power to sue and be sued; to hold such real and personal estate as shall be
necessary for corporate purposes, and to receive real and personal property
by gift, devise, or bequest; to adopt a seal, and to alter or destroy the same
at pleasure; to have offices and conduct its business and affairs in the City
of Manila and in the several provinces; to make and adopt by-laws, rules and
regulations not inconsistent with the laws of the Philippines, and generally
to do all such acts and things (including the establishment of regulations for
the election of associates and successors: as may be necessary to carry into
89 | c o r p o c a s e s 2 1 - 4 0
effect the provisions of the Act and promote the purposes of said
corporation."cralaw virtua1aw library
Private respondents also point out that the BSP is registered as a private
employer with the Social Security System and that all its staff members and
employees are covered by the Social Security Act, indicating that the BSP
had lost its personality or standing as a public corporation. It is further
alleged that the BSPs assets and liabilities, official transactions and
financial statements have never been subjected to audit by the government
auditing office, i.e., the Commission on Audit, being audited rather by the
private auditing firm of Sycip Gorres Velayo and Co. Private respondents
finally state that the appointments of BSP officers and staff were not
approved or confirmed by the Civil Service Commission.
The views of the Office of the Solicitor General and the Office of the
Government Corporate Counsel on the above issue appeared to be generally
similar. The Solicitor Generals Office, although it had appeared for the NLRC
and filed a Comment on the latters behalf on the merits of the Petition for
Certiorari, submitted that the BSP is a government-owned or controlled
corporation, having been created by virtue of Commonwealth Act No. 111
entitled "An Act to Create a Public Corporation to be known as the Boy
Scouts of the Philippines and to Define its Powers and Purposes." The
Solicitor General stressed that the BSP was created in order to "promote,
through organization, and cooperation with other agencies the ability of
boys to do things for themselves and others, to train them in scout craft,
and to teach them patriotism, courage, self-reliance, and kindred virtues,
using the methods which are now in common use by boy scouts." 15 He
further noted that the BSPs objectives and purposes are "solely of a
benevolent character and not for pecuniary profit by its members. 16 The
Solicitor General also underscored the extent of government participation in
the BSP under its charter as reflected in the composition of its governing
body:chanrobles law library
"The governing body of the said corporation shall consist of a National
Executive Board composed of (a) the President of the Philippines or his
representative; (b) the charter and life members of the Boy Scouts of the
Philippines; (c) the Chairman of the Board of Trustees of the Philippine
Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the
Philippines; (e) the Secretary of Education and Culture, the Secretary of
Social Welfare, the Secretary of National Defense, the Secretary of Labor,
the Secretary of Finance, the Secretary of Youth and Sports, and the
Secretary of Local Government and Community Development; (f) an equal
number of individuals from the private sector; (g) the National President of
the Girl Scouts of the Philippines; (h) one Scout of Senior age from each
Scout Region to represent the boy membership; and (i) three
representatives of the cultural minorities. Except for the Regional Chairman
who shall be elected by the Regional Scout Councils during their annual
meetings, and the Scouts of their respective regions, all members of the
National Executive Board shall be either by appointment or cooption, subject
to ratification and confirmation by the Chief Scout, who shall be the Head of
State. . . ." 17 (Emphasis supplied)
The Government Corporate Counsel, like the Solicitor General, describes the
BSP as a "public corporation" but, unlike the Solicitor General, suggests that
the BSP is more of a "quasi corporation" than a "public corporation." The
BSP, unlike most public corporations which are created for a political
purpose, is not vested with political or governmental powers to be exercised
for the public good or public welfare in connection with the administration of
90 | c o r p o c a s e s 2 1 - 4 0
x"
(Emphasis supplied)
Examining the relevant statutory provisions and the arguments outlined
above, the Court considers that the following need to be considered in
arriving at the appropriate legal characterization of the BSP for purposes of
determining whether its officials and staff members are embraced in the
Civil Service. Firstly, BSPs functions as set out in its statutory charter do
have a public aspect. BSPs functions do relate to the fostering of the public
virtues of citizenship and patriotism and the general improvement of the
moral spirit and fiber of our youth. The social value of activities like those to
which the BSP dedicates itself by statutory mandate have in fact, been
accorded constitutional recognition. Article II of the 1987 Constitution
includes in the "Declaration of Principles and State Policies," the
following:chanrobles.com.ph : virtual law library
"Sec. 13.
The State recognizes the vital role of the youth in nationbuilding and shall promote and protect their physical, moral, spiritual,
intellectual, and social well-being. It shall inculcate in the youth patriotism
and nationalism, and encourage their involvement in public and civic
affairs."cralaw virtua1aw library
At the same time, BSPs functions do not relate to the governance of any
part of territory of the Philippines; BSP is not a public corporation in the
same sense that municipal corporations or local governments are public
corporations. BSPs functions can not also be described as proprietary
functions in the same sense that the functions or activities of governmentowned or controlled corporations like the National Development Company or
the National Steel Corporation can be described as proprietary or "businesslike" in character. Nevertheless, the public character of BSPs functions and
activities must be conceded, for they pertain to the educational, civic and
social development of the youth which constitutes a very substantial and
important part of the nation.
The second aspect that the Court must take into account relates to the
governance of the BSP. The composition of the National Executive Board of
the BSP includes, as noted from Section 5 of its charter quoted earlier,
includes seven (7) Secretaries of Executive Departments. The seven (7)
Secretaries (now six [6] in view of the abolition of the Department of Youth
and Sports and merger thereof into the Department of Education, Culture
and Sports) by themselves do not constitute a majority of the members of
the National Executive Board. We must note at the same time that the
appointments of members of the National Executive Board, except only the
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appointments of the Regional Chairman and Scouts of Senior age from the
various Scout Regions, are subject to ratification and confirmation by the
Chief Scout, who is the President of the Philippines. Vacancies to the Board
are filled by a majority vote of the remaining members thereof, but again
subject to ratification and confirmation by the Chief Scout. 18 We must
assume that such confirmation or ratification involves the exercise of choice
or discretion on the part of ratifying or confirming power. It does appears
therefore that there is substantial governmental (i.e., Presidential)
participation or intervention in the choice of the majority of the members of
the National Executive Board of the BSP.
The third aspect relates to the character of the assets and funds of the BSP.
The original assets of the BSP were acquired by purchase or gift or other
equitable arrangement with the Boy Scouts of America, of which the BSP
was part before the establishment of the Commonwealth of the Philippines.
The BSP charter, however, does not indicate that such assets were public or
statal in character or had originated from the Government or the State.
According to petitioner BSP, its operating funds used for carrying out its
purposes and programs, are derived principally from membership dues paid
by the Boy Scouts themselves and from property rentals. In this respect, the
BSP appears similar to private non-stock, non-profit corporations, although
its charter expressly envisages donations and contributions to it from the
Government and any of its agencies and instrumentalities. 19 We note only
that BSP funds have not apparently heretofore been regarded as public
funds by the Commission on Audit, considering that such funds have not
been audited by the Commission.
While the BSP may be seen to be a mixed type of entity, combining aspects
of both public and private entities, we believe that considering the character
of its purposes and its functions, the statutory designation of the BSP as "a
public corporation" and the substantial participation of the Government in
the selection of members of the National Executive Board of the BSP, the
BSP, as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative
Code of 1987 designates the BSP as one of the attached agencies of the
Department of Education, Culture and Sports ("DECS"). 20 An "agency of the
Government" is defined as referring to any of the various units of the
Government including a department, bureau, office, instrumentality,
government-owned or-controlled corporation, or local government or distinct
unit therein. 21 "Government instrumentality" is in turn defined in the 1987
Administrative Code in the following manner:chanrobles virtual lawlibrary
"Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations." 22
(Emphasis supplied)
The same Code describes a "chartered institution" in the following
terms:jgc:chanrobles.com.ph
"Chartered institution refers to any agency organized or operating under
a special charter, and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the state universities
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[1973]
Constitution
specifically
93 | c o r p o c a s e s 2 1 - 4 0
party had expressly raised the issue of jurisdiction in the pleadings poses no
obstacle to this ruling of the Court, which may motu proprio take cognizance
of the issue of existence or absence of jurisdiction and pass upon the same.
27
ACCORDINGLY, the Decision of the Labor Arbiter dated 31 July 1985, and the
Decision dated 27 February 1987 and Resolution dated 16 October 1987,
issued by public respondent NLRC, in NLRC Case No. 1637-84, are hereby
SET ASIDE. All other orders and resolutions rendered in this case by the
Labor Arbiter and the NLRC are likewise SET ASIDE. No pronouncement as to
costs.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
G.R. No. L-4043
May 26, 1952
CENON S. CERVANTES, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar
for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying
petitioner's claim for quarters allowance as manager of the National Abaca
and Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a
salary of P15,000 a year. By a resolution of the Board of Directors of this
corporation approved on January 19 of that year, he was granted quarters
allowance of not exceeding P400 a month effective the first of that month.
Submitted the Control Committee of the Government Enterprises Council for
approval, the said resolution was on August 3, 1949, disapproved by the
said Committee on strenght of the recommendation of the NAFCO auditor,
concurred in by the Auditor General, (1) that quarters allowance constituted
additional compensation prohibited by the charter of the NAFCO, which fixes
the salary of the general manager thereof at the sum not to exceed P15,000
a year, and (2) that the precarious financial condition of the corporation did
not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to
reconsider its action and approve his claim for allowance for January to June
15, 1949, amounting to P1,650. The claim was again referred by the Control
Committee to the auditor General for comment. The latter, in turn referred it
to the NAFCO auditor, who reaffirmed his previous recommendation and
emphasized that the fact that the corporation's finances had not improved.
In view of this, the auditor General also reiterated his previous opinion
against the granting of the petitioner's claim and so informed both the
Control Committee and the petitioner. But as the petitioner insisted on his
claim the Auditor General Informed him on June 19, 1950, of his refusal to
modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on
June 18, 1939, with a capital stock of P20,000,000, 51 per cent of which was
to be able to be subscribed by the National Government and the remainder
to be offered to provincial, municipal, and the city governments and to the
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95 | c o r p o c a s e s 2 1 - 4 0
That the Control Committee had good grounds for disapproving the
resolution is also clear, for, as pointed out by the Auditor General and the
NAFCO auditor, the granting of the allowance amounted to an illegal
increase of petitioner's salary beyond the limit fixed in the corporate charter
and was furthermore not justified by the precarious financial condition of the
corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only
because it is based on a law that is unconstitutional as an illegal delegation
of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for
doing an act, the first day is excluded and the last day included (Section 13
Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his
executive order and that the order was in fact promulgated on October 4,
1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a
policy and a standard is established by the statute" there is no undue
delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the
President of the Philippines, among others, to make reforms and changes in
government-controlled corporations, lays down a standard and policy that
the purpose shall be to meet the exigencies attendant upon the
establishment of the free and independent government of the Philippines
and to promote simplicity, economy and efficiency in their operations. The
standard was set and the policy fixed. The President had to carry the
mandate. This he did by promulgating the executive order in question
which, tested by the rule above cited, does not constitute an undue
delegation of legislative power.
It is also contended that the quarters allowance is not compensation and so
the granting of it to the petitioner by the NAFCO board of directors does not
contravene the provisions of the NAFCO charter that the salary of the
chairman of said board who is also to be general manager shall not exceed
P15,000 per anum. But regardless of whether quarters allowance should be
considered as compensation or not, the resolution of the board of the
directors authorizing payment thereof to the petitioner cannot be given
effect since it was disapproved by the Control Committee in the exercise of
powers granted to it by Executive Order No. 93. And in any event,
petitioner's contention that quarters allowance is not compensation, a
proposition on which American authorities appear divided, cannot be
insisted on behalf of officers and employees working for the Government of
the Philippines and its Instrumentalities, including, naturally, governmentcontrolled corporations. This is so because Executive Order No. 332 of 1941,
which prohibits the payment of additional compensation to those working
for the Government and its Instrumentalities, including governmentcontrolled corporations, was in 1945 amended by Executive Order No. 77 by
expressly exempting from the prohibition the payment of quarters allowance
"in favor of local government officials and employees entitled to this under
existing law." The amendment is a clear indication that quarters allowance
was meant to be included in the term "additional compensation", for
otherwise the amendment would not have expressly excepted it from the
prohibition. This being so, we hold that, for the purpose of the executive
order just mentioned, quarters allowance is considered additional
compensation and, therefore, prohibited.
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In view of the foregoing, the petition for review is dismissed, with costs.
G.R. No. 79182
September 11, 1991
PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO
MERCADO, respondents.
Bacorro & Associates for petitioner.
Alberto L. Dalmacion for private respondent.
PARAS, J.:p
This is a petition for certiorari to set aside the Resolution * dated July 3,
1987 of respondent National Labor Relations Commission (NLRC for brevity)
which affirmed the decision dated April 30, 1986 of Labor Arbiter Vito J.
Minoria of the NLRC, Regional Arbitration Branch No. VII at Cebu City in Case
No. RAB-VII-0556-85 entitled "Danilo Mercado, Complainant, vs. Philippine
National Oil Company-Energy Development Corporation, Respondent",
ordering the reinstatement of complainant Danilo Mercado and the award of
various monetary claims.
The factual background of this case is as follows:
Private respondent Danilo Mercado was first employed by herein petitioner
Philippine National Oil Company-Energy Development Corporation (PNOCEDC for brevity) on August 13, 1979. He held various positions ranging from
clerk, general clerk to shipping clerk during his employment at its Cebu
office until his transfer to its establishment at Palimpinon, Dumaguete,
Oriental Negros on September 5, 1984. On June 30, 1985, private
respondent Mercado was dismissed. His last salary was P1,585.00 a month
basic pay plus P800.00 living allowance (Labor Arbiter's Decision, Annex "E"
of Petition, Rollo, p. 52).
The grounds for the dismissal of Mercado are allegedly serious acts of
dishonesty committed as follows:
1.
On ApriI 12, 1985, Danilo Mercado was ordered to purchase 1,400
pieces of nipa shingles from Mrs. Leonardo Nodado of Banilad, Dumaguete
City, for the total purchase price of Pl,680.00. Against company policy,
regulations and specific orders, Danilo Mercado withdrew the nipa shingles
from the supplier but paid the amount of P1,000.00 only. Danilo Mercado
appropriated the balance of P680.00 for his personal use;
2.
In the same transaction stated above, the supplier agreed to give the
company a discount of P70.00 which Danilo Mercado did not report to the
company;
3.
On March 28, 1985, Danilo Mercado was instructed to contract the
services of Fred R. Melon of Dumaguete City, for the fabrication of rubber
stamps, for the total amount of P28.66. Danilo Mercado paid the amount of
P20.00 to Fred R. Melon and appropriated for his personal use the balance of
P8.66.
97 | c o r p o c a s e s 2 1 - 4 0
98 | c o r p o c a s e s 2 1 - 4 0
1.
Whether or not matters of employment affecting the PNOC-EDC, a
government-owned and controlled corporation, are within the jurisdiction of
the Labor Arbiter and the NLRC.
2.
Assuming the affirmative, whether or not the Labor Arbiter and the
NLRC are justified in ordering the reinstatement of private respondent,
payment of his savings, and proportionate 13th month pay and payment of
damages as well as attorney's fee.
Petitioner PNOC-EDC alleges that it is a corporation wholly owned and
controlled by the government; that the Energy Development Corporation is
a subsidiary of the Philippine National Oil Company which is a government
entity created under Presidential Decree No. 334, as amended; that being a
government-owned and controlled corporation, it is governed by the Civil
Service Law as provided for in Section 1, Article XII-B of the 1973
Constitution, Section 56 of Presidential Decree No. 807 (Civil Service
Decree) and Article 277 of Presidential Decree No. 442, as amended (Labor
Code).
The 1973 Constitution provides:
The Civil Service embraces every branch, agency, subdivision and
instrumentality of the government including government-owned or
controlled corporations.
Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the
decision at the time when the 1973 Constitution was in force, said decision
is null and void because under the 1973 Constitution, government-owned
and controlled corporations were governed by the Civil Service Law. Even
assuming that PNOC-EDC has no original or special charter and Section 2(i),
Article IX-B of the 1987 Constitution provides that:
The Civil Service embraces all branches, subdivision, instrumentalities and
agencies of the Government, including government-owned or controlled
corporations with original charters.
such circumstances cannot give validity to the decision of the Labor Arbiter
(Ibid., pp. 192-193).
This issue has already been laid to rest in the case of PNOC-EDC vs.
Leogardo, 175 SCRA 26 (July 5, 1989), involving the same petitioner and the
same issue, where this Court ruled that the doctrine that employees of
government-owned and/or con controlled corporations, whether created by
special law or formed as subsidiaries under the General Corporation law are
governed by the Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution. "Thus, under the present state of
the law, the test in determining whether a government-owned or controlled
corporation is subject to the Civil Service Law are the manner of its creation,
such that government corporations created by special charter are subject to
its provisions while those incorporated under the General Corporation Law
are not within its coverage."
Specifically, the PNOC-EDC having been incorporated under the General
Corporation Law was held to be a government owned or controlled
corporation whose employees are subject to the provisions of the Labor
Code (Ibid.).
99 | c o r p o c a s e s 2 1 - 4 0
The fact that the case arose at the time when the 1973 Constitution was still
in effect, does not deprive the NLRC of jurisdiction on the premise that it is
the 1987 Constitution that governs because it is the Constitution in place at
the time of the decision (NASECO v. NLRC, G.R. No. 69870, 168 SCRA 122
[1988]).
In the case at bar, the decision of the NLRC was promulgated on July 3,
1987. Accordingly, this case falls squarely under the rulings of the
aforementioned cases.
As regards the second issue, the record shows that PNOC-EDC's accusations
of dishonesty and violations of company rules are not supported by
evidence. Nonetheless, while acknowledging the rule that administrative
bodies are not governed by the strict rules of evidence, petitioner PNOCEDC alleges that the labor arbiter's propensity to decide the case through
the position papers submitted by the parties is violative of due process
thereby rendering the decision null and void (Ibid., p. 196).
On the other hand, private respondent contends that as can be seen from
petitioner's Motion for Reconsideration and/or Appeal dated July 28, 1986
(Annex "F" of the Petition, Rollo, pp. 57- 64), the latter never questioned the
findings of facts of the Labor Arbiter but simply limited its objection to the
lack of legal basis in view of its stand that the NLRC had no jurisdiction over
the case (Private Respondent's Memorandum, Rollo, p. 104).
Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January
15, 1986 (Annex "C" of the Petition Rollo, pp. 41-45) before the Regional
Arbitration Branch No. VII of Cebu City and its Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 5764) before the NLRC of Cebu City. Indisputably, the requirements of due
process are satisfied when the parties are given an opportunity to submit
position papers. What the fundamental law abhors is not the absence of
previous notice but rather the absolute lack of opportunity to ventilate a
party's side. There is no denial of due process where the party submitted its
position paper and flied its motion for reconsideration (Odin Security Agency
vs. De la Serna, 182 SCRA 472 [February 21, 1990]). Petitioner's subsequent
Motion for Reconsideration and/or Appeal has the effect of curing whatever
irregularity might have been committed in the proceedings below (T.H.
Valderama and Sons, Inc. vs. Drilon, 181 SCRA 308 [January 22, 1990]).
Furthermore, it has been consistently held that findings of administrative
agencies which have acquired expertise because their jurisdiction is
confined to specific matters are accorded not only respect but even finality
(Asian Construction and Development Corporation vs. NLRC, 187 SCRA 784
[July 27, 1990]; Lopez Sugar Corporation vs. Federation of Free Workers, 189
SCRA 179 [August 30, 1990]). Judicial review by this Court does not go so far
as to evaluate the sufficiency of the evidence but is limited to issues of
jurisdiction or grave abuse of discretion (Filipinas Manufacturers Bank vs.
NLRC, 182 SCRA 848 [February 28, 1990]). A careful study of the records
shows no substantive reason to depart from these established principles.
While it is true that loss of trust or breach of confidence is a valid ground for
dismissing an employee, such loss or breach of trust must have some basis
(Gubac v. NLRC, 187 SCRA 412 [July 13, 1990]). As found by the Labor
Arbiter, the accusations of petitioner PNOC-EDC against private respondent
Mercado have no basis. Mrs. Leonardo Nodado, from whom the nipa shingles
were purchased, sufficiently explained in her affidavit (Rollo, p. 36) that the
total purchase price of P1,680.00 was paid by respondent Mercado as
100 | c o r p o c a s e s 2 1 - 4 0
agreed upon. The alleged discount given by Mrs. Nodado is not supported
by evidence as well as the alleged appropriation of P8.66 from the cost of
fabrication of rubber stamps. The Labor Arbiter, likewise, found no evidence
to support the alleged violation of company rules. On the contrary, he found
respondent Mercado's explanation in his affidavit (Rollo, pp. 38-40) as to the
alleged violations to be satisfactory. Moreover, these findings were never
contradicted by petitioner petitioner PNOC-EDC.
PREMISES CONSIDERED, the petition is DENIED and the resolution of
respondent NLRC dated July 3, 1987 is AFFIRMED with the modification that
the moral damages are reduced to Ten Thousand (P10,000.00) Pesos, and
the exemplary damages reduced to Five Thousand (P5,000.00) Pesos.
SO ORDERED.
In this petition for review on certiorari under Rule 45 of the Revised Rules of
Court, petitioners seek to annul the decision of the Court of Appeals in CA-G.R.
SP. No. 31748 dated 23 May 1994 and its subsequent resolution dated 10 May
1995 denying petitioners motion for reconsideration.
The present case involves two separate but interrelated conflicts. The facts
leading to the first controversy are as follows:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority
stockholder of Tormil Realty & Development Corporation while private
respondents who are the children of Judge Torres deceased brother Antonio
A. Torres, constituted the minority stockholders. In particular, their respective
shareholdings and positions in the corporation were as follows:
Name of Stockholder
Number of
Percentage
Position(s)
Shares
Manuel A. Torres, Jr.
100,120
101 | c o r p o c a s e s 2 1 - 4 0
57.21
Dir./Pres./Chair
Milagros
Torres
P.
33,430
Josefina
Torres
Sec.
Ma.
Carlos
19.10
8,290
4.73
Antonio
Jr. 8,290
Ma.
Morales
T.
Dir./Cor-Sec.
P.
Torres,
4.73
Luisa
4.45
7,790
Dante D. Morales
Director
Jacinta
4.73
8,290
P.
Cor-
Dir./Ass.
Cristina
4.73
8,290
Ma.
Torres
Dir./Treasurer
500
P.
Director
T.
Director
.28
Director
[1]
TCT 81834
TCT 144240
3.
374079
TCT 77008
Manila
TCT 65689
Manila
TCT 109200
Manila
July
13,
Makati
1984
TCT
8,307
TCT 41527
TCT 41528
102 | c o r p o c a s e s 2 1 - 4 0
78,493
Pasay
Pasay
9,855
TCT 41529
5.
Aug.
Stocks
06,
6,
Aug.
Stocks
9.
Stocks
10.
Stocks
El
06,
1984
48,737
7.
Aug.
Stocks
8.
Aug.
Stocks
1984
2,000
07,
1984
6,300
20,
Aug.
Jockey
Filipino
Club
San
Miguel
Corp.
China
Banking
Corp.
Ayala
Corp.
Ayala
Fund
1984
7,468
29,
Hogar
Manila
07,
1984
50,283
Aug.
Pasay
1984
1,322
225,972
[2]
Noting the disappearance of the Makati and Pasay City properties from the
corporations inventory of assets and financial records private respondents, on
31 March 1987, were constrained to file a complaint with the Securities and
Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel
Judge Torres to deliver to Tormil Corporation the two (2) deeds of assignment
covering the aforementioned Makati and Pasay City properties which he had
unilaterally revoked and to cause the registration of the corresponding titles in
the name of Tormil. Private respondents alleged that following the
disappearance of the properties from the corporations inventory of assets, they
103 | c o r p o c a s e s 2 1 - 4 0
found that on October 24, 1986, Judge Torres, together with Edgardo Pabalan
and Graciano Tobias, then General Manager and legal counsel, respectively, of
Tormil, formed and organized a corporation named Torres-Pabalan Realty and
Development Corporation and that as part of Judge Torres contribution to the
new corporation, he executed in its favor a Deed of Assignment conveying the
same Makati and Pasay City properties he had earlier transferred to Tormil.
The second controversy--involving the same parties--concerned the
election of the 1987 corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil
corporation was scheduled on 25 March 1987 in compliance with the provisions
of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1)
share each to petitioners Tobias, Jocson, Jurisprudencia, Azura and
Pabalan. These assigned shares were in the nature of qualifying shares, for
the sole purpose of meeting the legal requirement to be able to elect
them (Tobias and company) to the Board of Directors as Torres nominees.
The assigned shares were covered by corresponding Tormil Stock
Certificates Nos. 030, 029, 028, 027, 026 and at the back of each certificate the
following inscription is found:
The present certificate and/or the one share it represents, conformably to the
purpose and intention of the Deed of Assignment dated March 6, 1987, is not
held by me under any claim of ownership and I acknowledge that I hold the
same merely as trustee of Judge Manuel A. Torres, Jr. and for the sole purpose
of qualifying me as Director;
(Signature of Assignee)
[5]
The reason behind the aforestated action was to remedy the inequitable
lopsided set-up obtaining in the corporation, where, notwithstanding his
controlling interest in the corporation, the late Judge held only a single seat in
the nine-member Board of Directors and was, therefore, at the mercy of the
minority, a combination of any two (2) of whom would suffice to overrule the
majority stockholder in the Boards decision making functions.
[6]
The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential
bungalow in Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina
Torres introduced us to the stockholders namely: Milagros Torres, Antonio
Torres, Jr., Ma. Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta
Torres. Antonio Torres, Jr. questioned our authority and personality to appear
104 | c o r p o c a s e s 2 1 - 4 0
105 | c o r p o c a s e s 2 1 - 4 0
3.
Edgardo Pabalan
4.
Graciano Tobias
5.
6.
Melvin Jurisprudencia
7.
8.
Josefina Torres
9.
Dante Morales
After the election, it was resolved that after the meeting, the new board of
directors shall convene for the election of officers.
xxx
. [7]
106 | c o r p o c a s e s 2 1 - 4 0
2.
Declaring as permanent and final the writ of preliminary injunction
issued by the Hearing Panel on February 13, 1989;
3.
Declaring as null and void the election and appointment of
respondents to the Board of Directors and executive positions of TORMIL
held on March 25, 1987, and all their acts and resolutions made for and in
behalf of TORMIL by authority of and pursuant to such invalid appointment
& election held on March 25, 1987;
4.
Ordering the respondents jointly and severally, to pay the
complainants the sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) and by way of attorneys fees.
[8]
Before the filing of these motions, the Commission en banc had already
completed all proceedings and had likewise ruled on the merits of the
appealed cases. Viewed in this light, we thus feel that there is nothing left to
be done except to deny these motions to suspend proceedings.
[10]
On the same date, the SEC en banc rendered a decision, the dispositive
portion of which reads, thus:
[11]
107 | c o r p o c a s e s 2 1 - 4 0
[12]
From the said decision, petitioners filed a motion for reconsideration which
was denied in a resolution issued by the Court of Appeals dated 10 May 1995.
[13]
Insisting on their cause, petitioners filed the present petition for review
alleging that the Court of Appeals committed the following errors in its decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A
FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C. - AC NO. 339 BEING PROPERLY
BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN
OMISSION RESULTING IN A CLEAR TRANSGRESSION OR
CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TO
PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE
RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN
RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE
DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339
AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE
SAID DECEASEDS TESTATE ESTATE, AND MOREOVER, WHEN IT
SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS
APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM
GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE
AND THE ORIGINAL RECORD OF S.E.C. -AC NO. 339 NOT HAVING
ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE NO. 3153
INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE
(AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE)
AND WAS NOT A MERE CASE OF LESION OR INADEQUACY OF
CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO
ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,
(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE
AND THE ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING
ACTUALLY BEEN EXAMINED, THAT THE RECORDING BY THE LATE
108 | c o r p o c a s e s 2 1 - 4 0
Petitioners insist that the failure to transmit the original records to the Court
of Appeals deprived them of procedural due process. Without the evidence and
the original records of the proceedings before the SEC, the Court of Appeals,
petitioners adamantly state, could not have possibly made a proper
appreciation and correct determination of the issues, particularly the factual
issues they had raised on appeal. Petitioners also assert that since the Court of
Appeals allegedly gave due course to their petition, the original records should
have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91
(dated 27 February 1991) which provides that:
a)
it granted the restraining order applied for by the herein petitioners, and
after hearing, also the writ of preliminary injunction sought by them; under
the original SC Circular No. 1-91, a petition for review may be given due
course at the onset (paragraph 8) upon a mere prima facie finding of errors of
fact or law having been committed, and such prima facie finding is but
consistent with the grant of the extra-ordinary writ of preliminary injunction;
109 | c o r p o c a s e s 2 1 - 4 0
b)
it required the parties to submit simultaneous memoranda in its
resolution dated October 15, 1993 (this is in addition to the comment required
to be filed by the respondents) and furthermore declared in the same
resolution that the petition will be decided on the merits, instead of
outrightly dismissing the same;
c)
it rendered a full length decision, wherein: (aa) it expressly declared
the respondent S.E.C. as having erred in denying the pertinent motions to
suspend proceedings; (bb) it declared the supposed error as having become a
non-issue when the respondent C.A. proceeded to hear (the) appeal; (cc) it
formulated and applied its own theory ofnegotiorum gestio in justifying the
non-substitution of the deceased principal party in S.E C. -AC No. 339 and
moreover, its theory of di minimis non curat lex (this, without first
determining the true extent of and the correct legal characterization of the socalled shortage of Tormil shares; and, (dd) it expressly affirmed the
assailed decision of respondent S.E.C .
[15]
10. Due course.-- If upon the filing of the comment or such other pleadings
or documents as may be required or allowed by the Court of Appeals or upon
the expiration of the period for the filing thereof, and on the bases of the
petition or the record the Court of Appeals finds prima facie that the court or
agency concerned has committed errors of fact or law that would warrant
reversal or modification of the award, judgment, final order or resolution
sought to be reviewed, it may give due course to the petition; otherwise, it
shall dismiss the same. The findings of fact of the court or agency concerned,
when supported by substantial evidence, shall be binding on the Court of
Appeals.
11. Transmittal of record.-- Within fifteen (15) days from notice that the
petition has been given due course, the Court of Appeals may require the court
or agency concerned to transmit the original or a legible certified true copy of
the entire record of the proceeding under review. The record to be transmitted
may be abridged by agreement of all parties to the proceeding. The Court of
110 | c o r p o c a s e s 2 1 - 4 0
Petitioners contend that the decisions of the SEC and the Court of Appeals
are null and void for being rendered without the necessary substitution of
parties (for the deceased petitioner Manuel A. Torres, Jr.) as mandated by Sec.
17, Rule 3 of the Revised Rules of Court, which provides as follows:
SEC. 17. Death of party.--After a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal representative
of the deceased to appear and to be substituted for the deceased, within a
period of thirty (30) days, or within such time as may be granted. If the legal
representative fails to appear within said time, the court may order the
opposing party to procure the appointment of a legal representative of the
deceased within a time to be specified by the court, and the representative
shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if
defrayed by the opposing party, may be recovered as costs. The heirs of the
deceased may be allowed to be substituted for the deceased, without requiring
the appointment of an executor or administrator and the court may appoint
guardian ad litem for the minor heirs.
Petitioners insist that the SEC en banc should have granted the motions to
suspend they filed based as they were on the ground that the Regional Trial
Court of Makati, where the probate of the late Judge Torres will was pending,
had yet to appoint an administrator or legal representative of his estate.
We are not unaware of the principle underlying the aforequoted provision:
It has been held that when a party dies in an action that survives, and no order
is issued by the Court for the appearance of the legal representative or of the
heirs of the deceased to be substituted for the deceased, and as a matter of fact
no such substitution has ever been effected, the trial held by the court without
such legal representative or heirs, and the judgment rendered after such trial,
are null and void because the court acquired no jurisdiction over the persons
of the legal representative or of the heirs upon whom the trial and the
judgment are not binding.
[16]
111 | c o r p o c a s e s 2 1 - 4 0
It can readily be observed therefore that the parties involved in the present
controversy are virtually the same parties fighting over the representation of the
late Judge Torres estate. It should be recalled that the purpose behind the rule
on substitution of parties is the protection of the right of every party to due
process. It is to ensure that the deceased party would continue to be properly
represented in the suit through the duly appointed legal representative of his
estate. In the present case, this purpose has been substantially fulfilled
(despite the lack of formal substitution) in view of the peculiar fact that both
proceedings involve practically the same parties. Both parties have been
fiercely fighting in the probate proceedings of Judge Torres holographic will for
appointment as legal representative of his estate. Since both parties claim
interests over the estate, the rights of the estate were expected to be fully
protected in the proceedings before the SEC en banc and the Court of
Appeals. In either case, whoever shall be appointed legal representative of
Judge Torres estate (petitioner Pabalan or private respondents) would no
longer be a stranger to the present case, the said parties having voluntarily
submitted to the jurisdiction of the SEC and the Court of Appeals and having
thoroughly participated in the proceedings.
The foregoing rationale finds support in the recent case of Vda. de Salazar
v. CA, wherein the Court expounded thus:
[18]
The need for substitution of heirs is based on the right to due process accruing
to every party in any proceeding. The rationale underlying this requirement in
case a party dies during the pendency of proceedings of a nature not
extinguished by such death, is that xxx the exercise of judicial power to hear
and determine a cause implicitly presupposes in the trial court, amongst other
essentials, jurisdiction over the persons of the parties. That jurisdiction was
inevitably impaired upon the death of the protestee pending the proceedings
below such that unless and until a legal representative is for him duly named
and within the jurisdiction of the trial court, no adjudication in the cause could
have been accorded any validity or binding effect upon any party, in
representation of the deceased, without trenching upon the fundamental right
to a day in court which is the very essence of the constitutionally enshrined
guarantee of due process.
We are not unaware of several cases where we have ruled that a party having
died in an action that survives, the trial held by the court without appearance
of the deceaseds legal representative or substitution of heirs and the judgment
rendered after such trial, are null and void because the court acquired no
jurisdiction over the persons of the legal representatives or of the heirs upon
112 | c o r p o c a s e s 2 1 - 4 0
whom the trial and the judgment would be binding. This general rule
notwithstanding, in denying petitioners motion for reconsideration, the Court
of Appeals correctly ruled that formal substitution of heirs is not necessary
when the heirs themselves voluntarily appeared, participated in the case and
presented evidence in defense of deceased defendant. Attending the case at
bench, after all, are these particular circumstances which negate petitioners
belated and seemingly ostensible claim of violation of her rights to due
process. We should not lose sight of the principle underlying the general rule
that formal substitution of heirs must be effectuated for them to be bound by a
subsequent judgment. Such had been the general rule established not because
the rule on substitution of heirs and that on appointment of a legal
representative are jurisdictional requirements per se but because noncompliance therewith results in the undeniable violation of the right to due
process of those who, though not duly notified of the proceedings, are
substantially affected by the decision rendered therein. xxx.
It is appropriate to mention here that when Judge Torres died on April 3,
1991, the SEC en banc had already fully heard the parties and what remained
was the evaluation of the evidence and rendition of the judgment.
Further, petitioners filed their motions to suspend proceedings only after
more than two (2) years from the death of Judge Torres. Petitioners counsel
was even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of
Court. Instead, it was private respondents who informed the SEC of Judge
Torres death through a manifestation dated 24 April 1991.
[19]
For the SEC en banc to have suspended the proceedings to await the
appointment of the legal representatives by the estate was impractical and
would have caused undue delay in the proceedings and a denial of
justice. There is no telling when the probate court will decide the issue, which
may still be appealed to the higher courts.
In any case, there has been no final disposition of the properties of the late
Judge Torres before the SEC. On the contrary, the decision of the
SEC enbanc as affirmed by the Court of Appeals served to protect and preserve
his estate. Consequently, the rule that when a party dies, he should be
substituted by his legal representative to protect the interest of his estate in
observance of due process was not violated in this case in view of its peculiar
situation where the estate was fully protected by the presence of the parties
who claim interest thereto either as directors, stockholders or heirs.
Finally, we agree with petitioners contention that the principle
of negotiorum gestio does not apply in the present case. Said principle
explicitly covers abandoned or neglected property or business.
[20]
III
Petitioners find legal basis for Judge Torres act of revoking the assignment
of his properties in Makati and Pasay City to Tormil corporation by relying on
Art. 1191 of the Civil Code which provides that:
113 | c o r p o c a s e s 2 1 - 4 0
We sustain the ruling of respondent SEC in the decision appealed from (Rollo,
pp. 45-46) that x x x the shortage of 972 shares would not be valid ground for respondent
Torres to unilaterally revoke the deeds of assignment he had executed on July
13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL real
properties covered by TCT No. 374079 (Makati) and TCT No. 41527, 41528
and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent Torres received from
TORMIL by virtue of the deeds of assignment and the stock certificates
issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the first two
issuances were in satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a valid ground for
the revocation of the deeds covering Pasay and Quezon City properties.
In Universal Food Corp. vs. CA, the Supreme Court held:
The general rule is that rescission of a contract will not be permitted for a
slight or carnal breach, but only for such substantial and fundamental breach
as would defeat the very object of the parties in making the agreement.
The shortage of 972 shares definitely is not substantial and fundamental
breach as would defeat the very object of the parties in entering into
contract. Art. 1355 of the Civil Code also provides: Except in cases
specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influences. There being no
fraud, mistake or undue influence exerted on respondent Torres by TORMIL
and the latter having already issued to the former of its 225,000 unissued
114 | c o r p o c a s e s 2 1 - 4 0
shares, the most logical course of action is to declare as null and void the deed
of revocation executed by respondent Torres. (Rollo, pp. 45-46.)
[21]
The aforequoted Civil Code provision does not apply in this particular
situation for the obvious reason that a specific number of shares of stock (as
evidenced by stock certificates) had already been issued to the late Judge
Torres in exchange for his Makati and Pasay City properties. The records thus
disclose:
DATE
SHARES
OF
ORDER OF
PROPERTY
LOCATION
ASSIGNMENT
ASSIGNED
ISSUED
COMPLIANCE
1.
City)
July
13,252
13,
NO.
OF
TO
1984
TCT
BE
81834
Quezon
3rd
TCT 144240
Quezon City)
TCT 77008
Manila)
TCT
65689
Manila)
78,493
TCT 102200
3.
374079
July
Makati
2nd
Manila)
13,
8,307
1984
TCT
1st
TCT 41527
Pasay)
TCT
41528
Pasay)
9,855
TCT 41529
5.
August
6,
Stocks
2,000
6.
August
Stocks
48,737
6,
Pasay)
1984
El
7th
1984
Manila
Hogar
Jockey
Filipino
Club
5th
7.
August
7,
Stocks
50,238
8.
August
Stocks
6,300
4th
7,
1984
San
8th
Miguel
Corp.
1984
China
6th
Banking
Corp.
115 | c o r p o c a s e s 2 1 - 4 0
9.
Stocks
August
20,
7,468.2)
1984
9th
Ayala
Corp.
1,322.1)
225,972.3
Moreover, we agree with the contention of the Solicitor General that the
shortage of shares should not have affected the assignment of the Makati and
Pasay City properties which were executed in 13 and 24 July 1984 and the
consideration for which have been duly paid or fulfilled but should have been
applied logically to the last assignment of property -- Judge Torres Ayala Fund
shares--which was executed on 29 August 1984.
[23]
IV
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to
penalize the late Judge Torres by invalidating the questioned entries in the
stock and transfer book, simply because he initially made those entries (they
were later affirmed by an acting corporate secretary) and because the stock
and transfer book was in his possession instead of the elected corporate
secretary, if the background facts herein-before narrated and the serious
animosities that then reigned between the deceased Judge and his relatives are
to be taken into account;
xxx.
116 | c o r p o c a s e s 2 1 - 4 0
to the 1987 annual stockholders meeting of Tormil, as the late Judge Torres
had so indicated in the stock and transfer book in the form of the entries now
in question;
10.13. Surely, it would have been futile nay foolish for him to have insisted
under those circumstances, for the regular secretary, who was then part of a
group ranged against him, to make the entries of the assignments in favor of
his nominees;
[24]
Thus, we agree with the ruling of the SEC en banc as affirmed by the Court
of Appeals:
117 | c o r p o c a s e s 2 1 - 4 0
be kept in the principal office of the corporation but would likewise open the
flood gates of confusion in the corporation as to who has the proper custody
of the stock and transfer book and who are the real stockholders of records of
a certain corporation as any holder of the stock and transfer book, though not
the corporate secretary, at pleasure would make entries therein.
The fact that respondent Torres holds 81.28% of the outstanding capital stock
of TORMIL is of no moment and is not a license for him to arrogate unto
himself a duty lodged to (sic) the corporate secretary.
[26]
118 | c o r p o c a s e s 2 1 - 4 0