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TOPIC: Corporate Rehabilitation; Recovery of an unlawfully

detained corporate property under rehabilitation

LEONARDO S. UMALE, [deceased] represented by CLARISSA


VICTORIA, JOHN LEO, GEORGE LEONARD, KRISTINE,
MARGUERITA ISABEL, AND MICHELLE ANGELIQUE, ALL
SURNAMED UMALE v.
ASB REALTY CORPORATION
G.R. No. 181126, June 15, 2011, DEL CASTILLO, J.

FACTS:

In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of


the subject premises in favor of ASB Realty in consideration of the full
redemption of Amethyst Pearls outstanding capital stock from ASB Realty.
Thus, ASB Realty became the owner of the subject premises and obtained in its
name Transfer Certificate of Title No. PT-105797, which was registered in 1997
with the Registry of Deeds of Pasig City.

Sometime in 2003, ASB Realty commenced an action in the Metropolitan


Trial Court (MTC) of Pasig City for unlawful detainer of the subject premises
against petitioner Leonardo S. Umale (Umale). ASB Realty alleged that it
entered into a lease contract with Umale for the period June 1, 1999-May 31,
2000. Their agreement was for Umale to conduct a pay-parking business on the
property and pay a monthly rent of P60,720.00 to ASB Realty.

Upon the contracts expiration on May 31, 2000, Umale continued


occupying the premises and paying rentals albeit at an increased monthly rent
of P100,000.00. The last rental payment made by Umale to ASB Realty was for
the June 2001 to May 2002 period, as evidenced by the Official Receipt No.
56511 dated November 19, 2001.

On June 23, 2003, ASB Realty served on Umale a Notice of Termination


of Lease and Demand to Vacate and Pay. ASB Realty stated that it was
terminating the lease effective midnight of June 30, 2003; that Umale should
vacate the premises, and pay to ASB Realty the rental arrears amounting
to P1.3 million by July 15, 2003. Umale failed to comply with ASB Realtys
demands and continued in possession of the subject premises, even
constructing commercial establishments thereon.

Umale admitted occupying the property since 1999 by virtue of a verbal


lease contract but vehemently denied that ASB Realty was his lessor. He was
adamant that his lessor was the original owner, Amethyst Pearl. Since there
was no contract between himself and ASB Realty, the latter had no cause of
action to file the unlawful detainer complaint against him.

In asserting his right to remain on the property based on the oral lease
contract with Amethyst Pearl, Umale interposed that the lease period agreed
upon was "for a long period of time." He then allegedly paid P1.2 million in
1999 as one year advance rentals to Amethyst Pearl.

Umale further claimed that when his oral lease contract with Amethyst
Pearl ended in May 2000, they both agreed on an oral contract to sell. They

agreed that Umale did not have to pay rentals until the sale over the subject
property had been perfected between them. Despite such agreement with
Amethyst Pearl regarding the waiver of rent payments, Umale maintained that
he continued paying the annual rent of P1.2 million. He was thus surprised
when he received the Notice of Termination of Lease from ASB Realty.

Umale also challenged ASB Realtys personality to recover the subject


premises considering that ASB Realty had been placed under receivership by
the Securities and Exchange Commission (SEC) and a rehabilitation receiver
had been duly appointed. Under Section 14(s), Rule 4 of the Administrative
Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation
receiver that has the power to "take possession, control and custody of the
debtors assets." Since ASB Realty claims that it owns the subject premises, it
is its duly-appointed receiver that should sue to recover possession of the
same.

ASB Realty replied that it was impossible for Umale to have entered into a
Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had
been liquidated in 1996. ASB Realty insisted that, as evidenced by the written
lease contract, Umale contracted with ASB Realty, not with Amethyst Pearl. As
further proof thereof, ASB Realty cited the official receipt evidencing the rent
payments made by Umale to ASB Realty. The MTC ruled in favor of Umale,
however, the RTC revered the formers decision, which the CA affirmed.

ISSUE:
Whether or not the corporate officer of ASB Realty (duly authorized by
the Board of Directors) file suit to recover an unlawfully detained corporate
property despite the fact that the corporation had already been placed under
rehabilitation

HELD:
Corporate rehabilitation is defined as "the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover
by way of the present value of payments projected in the plan more if the
corporation continues as a going concern than if it is immediately liquidated."
It was first introduced in the Philippine legal system through PD 902-A, as
amended. The intention of the law is "to effect a feasible and viable
rehabilitation by preserving a floundering business as a going concern,
because the assets of a business are often more valuable when so maintained
than they would be when liquidated." This concept of preserving the
corporations business as a going concern while it is undergoing rehabilitation
is called debtor-in-possession or debtor-in-place. This means that the debtor
corporation (the corporation undergoing rehabilitation), through its Board of
Directors and corporate officers, remains in control of its business and
properties, subject only to the monitoring of the appointed rehabilitation
receiver. The concept of debtor-in-possession, is carried out more particularly
in the SEC Rules, the rule that is relevant to the instant case. It states therein
that the interim rehabilitation receiver of the debtor corporation "does not take
over the control and management of the debtor corporation." Likewise, the
rehabilitation receiver that will replace the interim receiver is tasked only to
monitor the successful implementation of the rehabilitation plan. There is
nothing in the concept of corporate rehabilitation that would ipso facto
deprive the Board of Directors and corporate officers of a debtor corporation,
such as ASB Realty, of control such that it can no longer enforce its right to
recover its property from an errant lessee.

To be sure, corporate rehabilitation imposes several restrictions on the


debtor corporation. The rules enumerate the prohibited corporate actions and
transactions (most of which involve some kind of disposition or encumbrance of
the corporations assets) during the pendency of the rehabilitation proceedings
but none of which touch on the debtor corporations right to sue. The

implication therefore is that our concept of rehabilitation does not restrict this
particular power, save for the caveat that all its actions are monitored closely by
the receiver, who can seek an annulment of any prohibited or anomalous
transaction or agreement entered into by the officers of the debtor corporation.

TOPIC: Jurisdiction of Special Commercial Court

HOME GUARANTY CORPORATION


v.
R-II BUILDERS INC., and NATIONAL HOUSING AUTHORITY
G.R. No. 192649, March 9, 2011, PEREZ, J.

FACTS:
National Housing Authority (NHA) and R-II Builders, Inc. (R-II Builders)
for the implementation of the Smokey Mountain Development and Reclamation
Project (SMDRP).On September 26, 1994, NHA and R-II Builders, alongside
petitioner Housing Guaranty Corporation (HGC) as guarantor and the
Philippine National Bank (PNB) as trustee, entered into an Asset Pool
Formation Trust Agreement which provided the mechanics for the
implementation of the project. To back the project, an Asset Pool was created.
On the same date, the parties likewise executed a Contract of Guaranty
whereby HGC, upon the call made by PNB and conditions therein specified,
undertook to redeem the regular Smokey Mountain Project Participation
Certificate (SMPPCs) upon maturity and to pay the simple interest thereon to
the extent of 8.5% per annum. Subsequent to RII Builders' infusion ofP300
Million into the project, the issuance of the SMPPCs and the termination of
PNBs services on 29 January 2001, NHA, R-II Builders and HGC agreed on the
institution of Planters Development Bank (PDB) as trustee on 29
January 2001.
By October 24, 2002, however, all the Regular SMPPCs issued had
reached maturity and, unredeemed, already amounted to an aggregate face
value of P2.513 Billion. The lack of liquid assets with which to effect
redemption of the regular SMPPCs prompted PDB to make a call on HGCs
guaranty and to execute in the latters favor a Deed of Assignment and
Conveyance (DAC) of the entire Asset Pool,. On 1 September 2005, R-II Builders

filed the complaint against HGC and NHA before Branch 24 of the Manila
Regional Trial Court, a Special Commercial Court (SCC). Contending that
HGCs failure to redeem the outstanding regular SMPPCs despite obtaining
possession of the Asset Pool ballooned the stipulated interests and materially
prejudiced its stake on the residual values of the Asset Pool, R-II Builders
alleged, among other matters, that the DAC should be rescinded since PDB
exceeded its authority in executing the same prior to HGCs redemption and
payment of the guaranteed SMPPCs. Having filed its answer to the complaint,
in the meantime, HGC went on to move for the conduct of a preliminary
hearing on its affirmative defenses which included such grounds as lack of
jurisdiction.
On August 2, 2007, R-II Builders, in turn, filed a motion to admit its
Amended and Supplemental Complaint which deleted the prayer for resolution
of the DAC initially prayed for in its original complaint. In lieu thereof, said
pleading introduced causes of action for conveyance of title to and/or
possession of the entire Asset Pool, for NHA to pay the Asset Pool the sum
ofP1,803,729,757.88 representing the cost of the changes and additional works
on the project and for an increased indemnity for attorneys fees in the sum of
P2,000,000.00. Consistent with its joint order dated January 2, 2008 which
held that R-II Builders complaint was an ordinary civil action and not an intracorporate controversy, Branch 24 of the Manila RTC issued a clarificatory order
dated 1 February 2008 to the effect, among other matters, that it did not have
the authority to hear the case.
As a consequence, the case was re-raffled to respondent Branch 22 of
the Manila RTC. R-II Builders filed a motion to admit it Second Amended
Complaint, on the ground that its previous Amended and Supplemental
Complaint had not yet been admitted in view of the non payment of the
correct docket fees therefore. Said Second Amended Complaint notably
resurrected R-II Builders cause of action for resolution of the DAC, deleted its
causes of action for accounting and conveyance of title to and/or possession of
the entire Asset Pool, reduced the claim for attorneys fees to P500,000.00,
sought its appointment as Receiver pursuant to Rule 59 of the Rules of Court
and, after an inventory in said capacity, prayed for approval of the liquidation
and distribution of the Asset Pool in accordance with the parties agreements.
On 2 September 2008, HGC filed its opposition to the admission of R-II
Builders Second Amended Complaint on the ground that respondent RTC had
no jurisdiction to act on the case until payment of the correct docket fees.

ISSUE:
1.) Whether or not Branch 24 of Manila RTC, a Special Commercial Court
has a jurisdiction over the case.
2.) Whether a branch of the Regional Trial Court which has no jurisdiction
to try and decide a case has authority to remand the same to another
co-equal Court in order to cure the defects on venue and jurisdiction.

HELD:
1.) No. the said court significantly took cognizance of its lack
of jurisdiction over the case in the following wise:
At the outset, it must be stated that this Court is a designated Special
Commercial Court tasked to try and hear, among others, intra-corporate
controversies to the exclusion of ordinary civil cases. When the case was
initially assigned to this Court, it was classified as an intra-corporate case.
However, in the ensuing proceedings relative to the affirmative defences raised
by defendants, even the plaintiff conceded that the case is not an intracorporate controversy or even if it is, this Court is without authority to hear the
same as the parties are all housed in Quezon City. Thus, the more prudent
course to take was for this Court to declare that it does not have the authority
to hear the complaint it being an ordinary civil action. As to whether it is
personal or civil, this Court would rather leave the resolution of the same to
Branch 22 of this Court.
Being outside the jurisdiction of Special Commercial Courts, the rule is
settled that cases which are civil in nature, like the one commenced by R-II
Builders, should be threshed out in a regular court.
2.) No. Calleja ruled on the issue, thus: Such being the cases, RTC Br. 58
did not have the requisite authority or power to order the transfer of the case to
another branch of the Regional Trial Court. The only action that RTC-Br. 58
could take on the matter was to dismiss the petition for lack of jurisdiction. A
re-raffle which causes a transfer of the case involves courts with the same
subject matter jurisdiction. It cannot involve courts which have different
jurisdictions exclusive of the other. More apt in this case, a re-raffle of a case
cannot cure a jurisdictional defect.

TOPIC: Corporate Rehabilitation; Period of Appeal


BPI FAMILY SAVINGS BANK, INC.
v.
PRYCE GASES, INC., INTERNATIONAL FINANCE CORPORATION,
and NEDERLANDSE FINANCIERINGS-MAATSCHAPPIJ VOOR
ONTWIKKELINGSLANDEN N.V.
G.R. No. 188365, June 29, 2011, CARPIO, J.
FACTS:

Pryce Gases, Inc. (PGI) is a corporation engaged in the business of


producing, selling and trading in all kinds of liquids, gases, and other
chemicals, including but not limited to oxygen, acetylene, hydrogen, nitrogen,
argon, carbon dioxide, carbonex, nitrous oxide, compressed air, helium, and
other allied or related products. PGI is a debtor of the International Finance
Corporation (IFC), an international organization and an affiliate of the
International Bank of Reconstruction and Development (World Bank), and the
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO),
a Dutch development bank engaged in promoting the expansion of private
enterprise in emerging markets.

On 27 August 2002, IFC and FMO filed a Petition for Rehabilitation with
the Regional Trial Court of Makati due to the failure of PGI to service its debts
as well as the refusal of PGIs parent company, the Pryce Corporation, to
provide financial support to PGI. The case was raffled to Branch 142 and was
docketed as SP Proc. No. 02-1016. The petition for rehabilitation was meant to
preserve PGIs workforce and ensure that its cash flow would not be diverted to
ill-advised ventures but would instead be channelled back to its operating
capital to generate profits to pay off and retire debts. IFC and FMO proposed a
financial restructuring that called for the conversion of dollar-denominated
loans to peso and the splitting of the whole debt instrument into two
categories: (1) the sustainable debt which would be rescheduled as a senior
loan and secured by PGIs assets; and (2) the unsustainable portion to be
transformed into redeemable preferred shares with voting rights. Under the
proposal, senior loans shall be paid in five years while the shares are forecast
to be redeemed in ten years. Based on the proposed financial restructuring,
PGIs loan from BPI Family Savings Bank, Inc. (BFB) shall be paid in ten years
as it was a non-MTI creditor.

The RTC ruled that the Motion to Dismiss Appeal filed by respondent
Pryce Gases, Inc. is granted and the appeal of BPI Family Savings Bank, Inc. is
dismissed. On 19 April 2007, BFB filed a petition for certiorari before the Court
of Appeals which held ruled that corporate rehabilitations are special
proceedings and as such, appeals from the final order or decision therein
should be by record on appeal in accordance with Section 2, Rule 41 of the
1997 Rules of Civil Procedure.

ISSUE:

Whether or not the Court of Appeals committed a reversible error in


sustaining the RTC, Branch 138, in dismissing BFBs appeal.

HELD:

The petition has no merit. Section 5 of the Interim Rules on Corporate


Rehabilitation provides that "(t)he review of any order or decision of the court
or an appeal therefrom shall be in accordance with the Rules of Court x x x."

Under A.M. No. 00-8-10-SC, a petition for corporate rehabilitation is


considered a special proceeding. Thus, the period of appeal provided in
paragraph 19(b) of the Interim Rules Relative to the Implementation of Batas
Pambansa Blg. 129 for special proceedings shall apply, that is, the period of
appeal shall be 30 days since a record of appeal is required. Thus:
19. Period of Appeal. (a) x x x

(b) In appeals in special proceedings in accordance with Rule 109 of the


Rules of Court and other cases wherein multiple appeals are allowed, the
period of appeal shall be thirty (30) days, a record of appeal being
required.

On 14 September 2004, this Court issued A.M. No. 04-9-07-SC providing


that all decisions and final orders in cases falling under the Interim Rules of
Corporate Rehabilitation and the Interim Rules of Procedure Governing IntraCorporate Controversies under Republic Act No. 8799 shall be appealed to the
Court of Appeals through a petition for review under Rule 43 of the Rules of
Court, to be filed within fifteen (15) days from notice of the decision or final
order of the Regional Trial Court. However, in this case, BFB filed a notice of
appeal on 3 November 2003, before the effectivity of A.M. No. 04-9-07-SC.
Hence, at the time of filing of BFBs appeal, the applicable mode of appeal is
Section 2, Rule 41 of the 1997 Rules of Civil Procedure which provides:

Sec. 2. Modes of Appeal. (a) Ordinary appeal. - The appeal to the Court of Appeals in cases
decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the court
which rendered the judgment or final order appealed from and serving a
copy thereof upon the adverse party. No record on appeal shall be
required except in special proceedings and other cases of multiple or
separate appeals where the law or these Rules so require. In such cases,
the record on appeal shall be filed and served in like manner.

Under Section 9, Rule 41 of the 1997 Rules of Civil Procedure, "(a) partys
appeal by record on appeal is deemed perfected as to him with respect to the
subject matter thereof upon approval of the record on appeal filed in due time."

In this case, BFB did not perfect the appeal when it failed to file the record on
appeal.

The filing of the notice of appeal on 3 November 2003 was not sufficient
because at the time of its filing, the Rules required the filing of the record on
appeal and not merely a notice of appeal. The issuance by the Court of A.M.
No. 04-9-07-SC providing that all decisions and final orders in cases falling
under the Interim Rules of Corporate Rehabilitation and the Interim Rules of
Procedure Governing Intra-Corporate Controversies under Republic Act No.
8799 shall be appealed to the Court of Appeals through a petition for review
under Rule 43 of the Rules of Court, to be filed within 15 days from notice of
the decision or final order of the Regional Trial Court, did not change the fact
that BFBs appeal was not perfected. Further, BFB filed its Motion With Leave
to Withdraw Notice of Appeal only on 20 April 2006 or almost two years after
the issuance of A.M. No. 04-9-07-SC on 14 September 2004.

Appeal is not a matter of right but a mere statutory privilege. The party
who seeks to exercise the right to appeal must comply with the requirements of
the rules, failing in which the right to appeal is lost. While the Court, in certain
cases, applies the policy of liberal construction, it may be invoked only in
situations where there is some excusable formal deficiency or error in a
pleading, but not where its application subverts the essence of the proceeding
or results in the utter disregard of the Rules of Court.

In addition, BFB filed a motion for reconsideration of the 9 May 2006


Order of the RTC, Branch 138. Under Section 1, Rule 3 of the Interim Rules of
Procedure on Corporate Rehabilitation, the proceedings shall be summary and
non-adversarial in nature and a motion for new trial or reconsideration is a
prohibited pleading. Hence, in view of the failure of BFB to perfect its appeal
and its subsequent filing of a motion for reconsideration which is a prohibited

pleading, the 10 October 2003 Order of the RTC, Branch 138, approving the
rehabilitation plan had become final and executory.

TOPIC: Public Company as defined in Securities Regulation


Code
PHILIPPINE VETERANS BANK
v.
JUSTINA CALLANGAN, in her capacity as Director of the
Corporation Finance Department of the Securities and
Exchange Commission and/or the SECURITIES AND
EXCHANGE COMMISSION
G.R. No. 191995, August 3, 2011, BRION, J.

FACTS:
On March 17, 2004, respondent Justina F. Callangan, the Director of the
Corporation Finance Department of the Securities and Exchange Commission
(SEC), sent the Bank a letter, informing it that it qualifies as a public company
under Section 17.2 of the Securities Regulation Code (SRC) in relation with
Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC.
The Bank is thus required to comply with the reportorial requirements set forth
in Section 17.1 of the SRC.
The Bank responded by explaining that it should not be considered a
public company because it is a private company whose shares of stock are

available only to a limited class or sector, i.e., to World War II veterans, and not
to the general public.
In a letter dated April 20, 2004, Director Callangan rejected the Banks
explanation and assessed it a total penalty of One Million Nine Hundred ThirtySeven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for
failing to comply with the SRC reportorial requirements from 2001 to 2003. The
Bank moved for the reconsideration of the assessment, but Director Callangan
denied the motion in SEC-CFD Order No. 085, Series of 2005 dated July 26,
2005. When the SEC En Banc also dismissed the Banks appeal for lack of
merit in its Order dated August 31, 2006, prompting the Bank to file a petition
for review with the Court of Appeals (CA).
On March 6, 2008, the CA dismissed the petition and affirmed the
assailed SEC ruling, with the modification that the assessment of the penalty
be recomputed from May 31, 2004. The CA also denied the Banks motion for
reconsideration, opening the way for the Banks petition for review
on certiorari filed with this Court. On June 16, 2010, the Court denied the
Banks petition for failure to show any reversible error in the assailed CA
decision and resolution.
ISSUE:
Whether or not the Bank is a Public company.
HELD:

To determine whether the Bank is a public company burdened with the


reportorial requirements ordered by the SEC, we look to Subsections 17.1 and
17.2 of the SRC, which provide:
Section 17. Periodic and Other Reports of Issuers.
17.1. Every issuer satisfying the requirements in Subsection
17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of the issuers
fiscal year, or such other time as the Commission may prescribe, an
annual report which shall include, among others, a balance sheet, profit

and loss statement and statement of cash flows, for such last fiscal year,
certified by an independent certified public accountant, and a
management discussion and analysis of results of operations; and
b) Such other periodical reports for interim fiscal periods and current
reports on significant developments of the issuer as the Commission may
prescribe as necessary to keep current information on the operation of
the business and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall
apply to the following:
xxxx
c) An issuer with assets of at least Fifty million pesos
(P50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holders each
holding at least one hundred (100) shares of a class of its equity
securities: Provided, however, That the obligation of such issuer to
file reports shall be terminated ninety (90) days after notification to
the Commission by the issuer that the number of its holders
holding at least one hundred (100) shares is reduced to less than
one hundred (100). (emphasis supplied)
The Court also cited Rule 3(1)(m) of the Amended Implementing Rules
and Regulations of the SRC, which defines a public company as any
corporation
with
a
class
of
equity
securities
listed
on
an
Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and
having two hundred (200) or more holders, at least two hundred (200) of which
are holding at least one hundred (100) shares of a class of its equity securities.
From these provisions, it is clear that a public company, as
contemplated by the SRC, is not limited to a company whose shares of stock
are publicly listed; even companies like the Bank, whose shares are offered
only to a specific group of people, are considered a public company, provided
they meet the requirements enumerated above.
The records establish, and the Bank does not dispute, that the Bank has
assets exceeding P50,000,000.00 and has 395,998 shareholders. It is thus
considered a public company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.

TOPIC: Sale of Shares of Stocks

FONTANA RESORT AND COUNTRY CLUB, INC. AND RN


DEVELOPMENT CORP.
v.
SPOUSES ROY S. TAN AND SUSAN C. TAN
G.R. No. 154670, January 30, 2012, LEONARDO-DE
CASTRO, J.

FACTS:
Respondent Spouses tan bought from petitioner RN Development
Corporation two class "D" shares of stock in petitioner Fontana Resort worth P
387, 300.00, enticed by the promises of petitioners' sales agents, that they
would construct a park with first class leisure facilities in Clark Field,
Pampanga to be called Fontana Leisure Park and that those class "D"
shareholders would be admitted to one membership in the country club, which
will entitled them to use park facilities and stay at a two bedroom villa for five
ordinary weekdays and two weekends every year for free. Two years later,
respondents filed before the SEC a complaint for a refund of their P 387,
300.00 they spent to purchase shares of stock form Fontana. Respondents
alleged that they have been deceive into buying the Fontana shares because of
petitioners fraudulent misrepresentations. The construction of the park turned
out to be still unfinished and the policies, rules and regulations of the country
club were obscure.
The respondent spouses after availing one free accommodation at the
villa, but the succeeding reservations were refused. Petitioners filed their
answer in which they asserted that respondents had been fully informed of the
privileges given to them as shareholders of class "D" , since these were all
explicitly provided in the promotional materials for the country club, the
articles of incorporation and the bylaws of Fontana Resort and they denied that
they unjustly cancelled respondents' reservation.
Lastly, petitioners averred that when respondents were first
accommodated at FLP, minor or finishing construction works were left to be

done and that facilities of the country club were already operational. SEC-SICD
Hearing Officer Bacalla rendered a decision in favor of Spouses Tan. They
appealed the said decision of Bacalla before the SEC en banc but their appeal
was denied. Petitioners filed before the CA a petition for review and find their
appeal to be partly meritorious. Petitioner filed a motion for reconsideration,
but it was denied, hence the petition for review.

ISSUE:
Whether or not Petitioner committed fraud or defaulted on their promises
as would justify the annulment or recission of their contract of sale with
Respondents.
HELD:

NO, the petitioners did not commit fraud or default on their promises as
would justify the annulment or recission of their contract of sale with
Respondents. Article 1330 provides that fraud refers to dolo causante or causal
fraud, in which, prior to or simultaneous with the execution of the contract,
one party secures the consent of the other party by using deception, without
which such consent would not have been given. The fraud must be the
determining cause of the contract or must have caused the consent to be given.
The general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary
care for his concerns and that private dealings have been entered into fairly
and regularly. In this case, respondents have miserably failed to prove how
petitioners employed fraud to induced respondents to buy shares of stock. It
can only be expected that petitioners presented the Fontana Leisure Park and
the country club in the most positive light in order to attract investor-members.
There is no showing that in their sales talk to respondents, petitioner actually
used insidious words or machinations, without which, respondents would not
have brought shares from Fontana. Respondents appear to be literate and of
above-average means, who may not be easily deceived into parting with a
substantial amount of money. What is apparent is that respondents knowingly
and willingly consented to buying the shares from Fontana, but were later on
disappointed with the actual FLP facilities and club membership benefits.

Respondents' complaint sufficiently alleged a cause of action for the annulment


or recission of the contract of sale of Fontana class "D" shares by petitioners to
respondents, however, respondents were unable to establish preponderance of
evidence that they are entitled to said annulment or recission. Petition granted,
judgment and resolution reversed and set aside.

TOPIC: Foreign Corporations not licensed to do business in the


Philippines

TUNA PROCESSING, INC.


v.
PHILIPPINE KINGFORD, INC.
G.R. No. 185582, February 29, 2012, PEREZ, J.

FACTS:

Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters


Patent, and an Indonesian Patent, entered into a Memorandum of Agreement
(MOA) with five Philippine tuna processors including Respondent Philippine
Kingford, Inc. (KINGFORD).

The MOA provides for the enforcing of the

abovementioned patents, granting licenses under the same, and collecting


royalties, and for the establishment of herein Petitioner Tuna Processors, Inc.
(TPI).

Due to a series of events not mentioned in the Petition, the tuna


processors, including Respondent KINGFORD, withdrew from Petitioner TPI
and correspondingly reneged on their obligations. Petitioner TPI submitted the
dispute for arbitration before the International Centre for Dispute Resolution in
the State of California, United States and won the case against Respondent
KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of
Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the RTC
denied for lack of merit. Respondent KINGFORD then sought for the inhibition
of the RTC judge, Judge Alameda, and moved for the reconsideration of the
order denying the Motion. Judge Alameda inhibited himself notwithstanding
[t]he unfounded allegations and unsubstantiated assertions in the motion.
Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent
KINGFORDSs Motion for Reconsideration and dismissed the Petition on the
ground that Petitioner TPI lacked legal capacity to sue in the Philippines.
Petitioner TPI is a corporation established in the State of California and not
licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not a foreign corporation not licensed to do business in the


Philippines, but which collects royalties from entities in the Philippines, sue
here to enforce a foreign arbitral award.

HELD:

YES. Petitioner TPI, although not licensed to do business in the


Philippines, may seek recognition and enforcement of the foreign arbitral award
in accordance with the provisions of the Alternative Dispute Resolution Act of
2004. A foreign corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is
concerned.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that


the opposing party in an application for recognition and enforcement of the
arbitral award may raise only those grounds that were enumerated under
Article V of the New York Convention, to wit:

Article V
1. Recognition and enforcement of the award may be refused, at
the request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and
enforcement is sought, proof that:

a. The parties to the agreement referred to in Article II were, under


the law applicable to them, under some incapacity, or the said agreement
is not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the country where the award
was made;
b. The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case;
c. The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration,
provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of the award which
contains

decisions

on

matters

submitted

to

arbitration may

be

recognized and enforced;


d. The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the parties, or,
failing such agreement, was not in accordance with the law of the
country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has
been set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be


refused if the competent authority in the country where recognition and
enforcement is sought finds that:

a. The subject matter of the difference is not capable of settlement


by arbitration under the law of that country; or

b. The recognition or enforcement of the award would be contrary


to the public policy of that country.

Not one of the abovementioned exclusive grounds touched on the


capacity to sue of the party seeking the recognition and enforcement of the
award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute


Resolution, which was promulgated by the Supreme Court, likewise support
this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a
foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award. The contents of such petition are enumerated in
Rule 13.5. Capacity to sue is not included. Oppositely, in the rule on
local arbitral awards or arbitrations in instances where the place of
arbitration is in the Philippines, it is specifically required that a petition
to determine any question concerning the existence, validity and
enforceability of such arbitration agreement available to the parties
before the commencement of arbitration and/or a petition for judicial
relief from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction after arbitration has already
commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.

Indeed, it is in the best interest of justice that in the enforcement

of a

foreign arbitral award, the Court deny availment by the losing party of the
rule that bars foreign corporations not licensed to do business in the
Philippines from maintaining a suit in Philippine courts. When a party
enters into a contract containing a foreign arbitration clause and, as in

this case, in fact submits itself to arbitration, it

becomes bound by the

contract, by the arbitration and by the result of arbitration, conceding thereby


the capacity of the other party to enter into the contract, participate in the
arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the wisdom of then
Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals [1998], to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it
must be stressed, voluntarily and actively participated in the arbitration
proceedings from the very beginning, it will destroy the very essence of
mutuality inherent in consensual contracts.

Clearly, on the matter of capacity to sue, a foreign arbitral award should


be respected not because it is favored over domestic laws and procedures, but
because Republic Act No. 9285 has certainly erased any conflict of law
question.

Finally, even assuming, only for the sake of argument, that the
RTC correctly observed that the Model Law, not the New York Convention,
governs the subject arbitral award, Petitioner TPI may still seek recognition and
enforcement of the award in Philippine court, since the Model Law prescribes
substantially
enforcement.

identical

exclusive

grounds

for

refusing

recognition

or

TOPIC: Corporate Rehabilitation; Requisites

SAN JOSE TIMBER CORPORATION and CASILAYAN SOFTWOOD


DEVELOPMENT CORPORATION
v.
SECURITIES AND EXCHANGE COMMISSION, TIERRA FACTOR
CORPORATION AND OTHER CREDITORS OF SAN JOSE TIMBER
CORPORATION and CASILAYAN SOFTWOOD DEVELOPMENT
CORPORATION
G.R. No. 162196, February 27, 2012, MENDOZA, J.

FACTS:

Petitioner CSDC is a corporation duly organized and existing under and


by virtue of the laws of the Republic of the Philippines and the controlling
stockholder and creditor of petitioner SJTC, being the owner of more than 99%
of its outstanding capital stock.

Petitioner SJTC is primarily engaged in the operation of a logging


concession with a base camp in Pabanog, Wright, Western Samar, under and
by virtue of a Timber License Agreement (TLA) No. 118 issued by the
Department of Environment and Natural Resources (DENR). The TLA was to
expire in 2007.

On February 8, 1989, the DENR issued a Moratorium Order (MO)


suspending all logging operations in the island of Samar effective February
1989 up to May 30, 1989.

As a consequence, SJTC was constrained to cease operations effective


February 8, 1989, despite the fact that the expiration of the period set forth in
the MO was still up to May 30, 1989.

The cessation of its operations caused SJTC to lose all its income. Thus,
on August 7, 1990, SJTC and CSDC filed with the SEC a petition for the
appointment of a rehabilitation receiver and for suspension of payments
entitled, "In Re: Petition for the Appointment of a Rehabilitation Receiver for
SJTC Timber Corporation and For Suspension of Payments," which was
docketed as SEC Case No. 3843.

After due hearing, the SEC Hearing Panel, in its Order dated March 14,
1991, granted the appointment of a rehabilitation receiver and suspension of
payments with the condition that SJTC would "resuscitate its operations and
properly service its liabilities in accordance with the duly approved schedule to
be submitted by the Rehabilitation Receiver" within a one (1) year period.

On February 26, 1992, the petitioners submitted their Motion to Approve


Revised Rehabilitation Plan and Urgent Motion to Extend Waiting Period for
Commencement of Rehabilitation dated February 24, 1992 to allow the proper
government authorities to deliberate on and approve the lifting of the existing
logging moratorium in Samar. The petitioners prayed that the waiting period be
extended by one (1) year and five (5) months from March 15, 1992.

The SEC Hearing Panel extended the waiting period up to August 15,
1992 but held in abeyance its approval of the revised rehabilitation plan.
Upon subsequent motions of petitioners, SJTC and CSDC, the SEC Hearing
Panel extended the waiting period several times.

Meanwhile, on March 4, 1996, prior to the expiration of the waiting


period to commence rehabilitation, the petitioners filed their Motion For
Settlement of Claims Against Petitioner San Jose dated February 21, 1996. The
SEC granted the motion for settlement of claims subject to certain conditions.
Subsequently, the petitioners filed their Motion to Dispose of Personal
Properties dated May 7, 1997 which was granted by the SEC in its Order dated
November 26, 1997. The SEC ordered the proceeds of the sale be deposited in
an escrow account to be withdrawn only for the settlement of petitioners
obligation.

On May 6, 2002, however, the SEC En Banc motu proprio handed down
its decision terminating the rehabilitation proceedings and dismissing the
petition for rehabilitation and opined that SJTC could no longer be
rehabilitated because the logging moratorium/ban, which was crucial for its
rehabilitation, had not been lifted. The May 6, 2002 Decision of the SEC was
affirmed by the CA in its September 22, 2003. The petitioners filed a motion for

reconsideration of the aforesaid decision but it was denied in the CA Resolution


dated January 29, 2004. The petitioners filed this petition for review before this
Court on the ground that the CA erred in affirming the dissolution of SJTC
when the vast majority of the creditors had agreed to await the rehabilitation of
SJTC. Meanwhile, during the pendency of the petition before the Court, the
DENR issued an Order dated August 15, 2005, allowing SJTC to resume
operations and extending the term of the TLA up to 2021.

Consequently,

on

October

14,

2005,

the

petitioners

filed

their Supplemental Petition with the Court citing the August 15, 2005 DENR
Order praying for the reversal of the CA decision and the remand of the case to
the SEC for the immediate approval and implementation of the rehabilitation
plan.

On July 9, 2008, the Court resolved to dispense with the comments of


the other respondent creditors, gave due course to the petition and directed the
parties to submit their respective memoranda within thirty (30) days from
notice.
Records disclose that on October 6, 2008, SJTC and CSDC filed their
Memorandum. Thereafter, the SEC and the SSS filed their respective
memoranda. On January 29, 2009, petitioners SJTC and CSDC filed their
Reply Memorandum.
In its Resolution dated March 30, 2009, the Court resolved to note the
filing of the Reply Memorandum and to await the memoranda of the other
respondent creditors. To date, no other memorandum has been filed.

ISSUE:
Whether or not the rehabilitation of petitioner San Jose is feasible.

HELD:

Rehabilitation contemplates a continuance of corporate life and activities


in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency. The purpose of rehabilitation proceedings is
to enable the company to gain a new lease on life and thereby allow creditors to
be paid their claims from its earnings. The rehabilitation of a financially
distressed corporation benefits its employees, creditors, stockholders and, in a
larger sense, the general public.

Under

the

Rules

of

Procedure

on

Corporate

Rehabilitation,

"rehabilitation" is defined as the restoration of the debtor to a position of


successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the corporation
continues as a going concern than if it is immediately liquidated.

An indispensable requirement in the rehabilitation of a distressed


corporation is the rehabilitation plan. Section 5 of the Interim Rules of
Procedure on Corporate Rehabilitation provides the requisites thereof:

SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include


(a) the desired business targets or goals and the duration and coverage of
the rehabilitation; (b)
such rehabilitation which

the
shall

terms
include

and
the

conditions
manner

of

of
its

implementation, giving due regard to the interests of secured creditors;


(c) the material financial commitments to support the rehabilitation plan;
(d) the means for the execution of the rehabilitation plan, which may
include conversion of the debts or any portion thereof to equity,

restructuring of the debts, dacion en pago, or sale of assets or of the


controlling interest; (e) a liquidation analysis that estimates the
proportion of the claims that the creditors and shareholders would
receive if the debtor's properties were liquidated; and (f) such other
relevant information to enable a reasonable investor to make an informed
decision on the feasibility of the rehabilitation plan.

"A successful rehabilitation usually depends on two factors: (1) a positive


change in the business fortunes of the debtor, and (2) the willingness of the
creditors and shareholders to arrive at a compromise agreement on repayment
burdens, extent of dilution, etc. The debtor must demonstrate by convincing
and compelling evidence that these circumstances exist or are likely to exist by
the time the debtor submits his revised or substitute rehabilitation plan for the
final approval of the court."

Given the high standards that the Rules require, mere unsupported
assertions by the debtor that "the parties are close to an agreement" or that
"business is expected to pick up in the next several quarters" are not sufficient.
Circumstances that might demonstrate in a convincing and compelling manner
that the debtor could successfully be rehabilitated include the following:
a) the business fortunes of the debtor have actually improved since the
petition was filed;
b) the general circumstances and forecast for the sector in which the
debtor is operating supports the likelihood that the debtor's business will
revive;
c) the debtor has taken concrete steps to improve its operating efficiency;
d) the debtor has obtained legally binding investment commitments from
parties contingent on the approval of a rehabilitation plan;

e) the debtor has successfully addressed other factors that would


increase the risk that the debtor's rehabilitation plan would fail;
f) the majority of the secured and unsecured creditors have expressly
demonstrated a preference that the debtor be rehabilitated rather than
liquidated and are willing to compromise on their claims to reach that
result;
g) the debtor's shareholders have expressed a willingness to dilute their
equity in connection with a debt equity swap.

Both the SEC and the CA had reasonable basis in deciding to terminate
the rehabilitation proceedings of SJTC because of the lack of certainty that the
logging ban would, in fact, be lifted. It is clear from the records that the
proposed rehabilitation plan of the petitioners would depend entirely on the
lifting of the logging ban either by the lifting of the moratorium on logging
activities in Samar issued by the DENR, or by the enactment of a law on
selective logging. Such lifting of the logging ban is indispensable to the
rehabilitation of SJTC. If it would not be lifted, the company would have no
source of income or revenues and no investor or creditor would come in to lend
a hand in its resuscitation.

Thus, SJTCs rehabilitation appears highly feasible and the proceedings


thereon should be revived. It should, therefore, be given an opportunity to be
heard by the SEC to determine if it could maintain its corporate existence. For
said reason, the case should be remanded to the SEC so that it could factor in
the aforecited figures and claims of SJTC and assess whether or not SJTC
could still recover. It appears from the figures that SJTC can generate sufficient
income to pay all its obligations to all its creditors except, as the petitioners
pledged, its corporate affiliates who allegedly represent more than 66% of the
liabilities.

WHEREFORE, the September 22, 2003 Decision of the Court of Appeals


and its January 29, 2004 Resolution are REVERSED and SET ASIDE. The case
is hereby REMANDED to the SEC for further evaluation and appropriate
action.

TOPIC: Jurisdiction of Securities and Exchange Commission

BANK OF THE PHILIPPINE ISLANDS, as successor-in-interest of


Far East Bank and Trust Company
v.
EDUARDO HONG, doing business under the name and style
"SUPER LINE PRINTING PRESS" and the COURT OF APPEALS
G.R. No. 161771, February 15, 2012, VILLARAMA, JR., J.

FACTS:

On September 16, 1997, the EYCO Group of Companies ("EYCO") filed a


petition for suspension of payments and rehabilitation before the Securities
and Exchange Commission (SEC), docketed as SEC Case No. 09-97-5764. A
stay order was issued on September 19, 1997 enjoining the disposition in any
manner except in the ordinary course of business and payment outside of
legitimate business expenses during the pendency of the proceedings, and
suspending all actions, claims and proceedings against EYCO until further
orders from the SEC. On December 18, 1998, the hearing panel approved the
proposed rehabilitation plan prepared by EYCO despite the recommendation of
the management committee for the adoption of the rehabilitation plan prepared
and submitted by the steering committee of the Consortium of Creditor Banks
which appealed the order to the Commission. On September 14, 1999, the SEC
rendered its decision disapproving the petition for suspension of payments,
terminating EYCOs proposed rehabilitation plan and ordering the dissolution
and liquidation of the petitioning corporation. The case was remanded to the
hearing panel for liquidation proceedings. On appeal by EYCO, (CA-G.R. SP No.
55208) the CA upheld the SEC ruling. EYCO then filed a petition for certiorari
before this Court, docketed as G.R. No. 145977,which case was eventually
dismissed under Resolution dated May 3, 2005 upon joint manifestation and
motion to dismiss filed by the parties. Said resolution had become final and
executory on June 16, 2005.

Sometime in November 2000 while the case was still pending with the
CA, petitioner Bank of the Philippine Islands (BPI), filed with the Office of the
Clerk of Court, Regional Trial Court of Valenzuela City, a petition for extrajudicial foreclosure of real properties mortgaged to it by Eyco Properties, Inc.
and Blue Star Mahogany, Inc. Public auction of the mortgaged properties was
scheduled on December 19, 2000.

Claiming that the foreclosure proceedings initiated by petitioner was


illegal, respondent Eduardo Hong, an unsecured creditor of Nikon Industrial
Corporation, one of the companies of EYCO, filed an action for injunction and
damages against the petitioner in the same court (RTC of Valenzuela City).
the

trial

court

denied

the

motion

to

dismiss. Petitioners

motion

for

reconsideration was likewise denied. Petitioner challenged the validity of the


trial courts ruling before the CA via a petition for certiorari under Rule 65.
The CA affirmed the trial courts denial of petitioners motion to dismiss.

ISSUE:
Whether or not SEC has jurisdiction.
HELD:

Jurisdiction is defined as the power and authority of a court to hear and


decide a case. A courts jurisdiction over the subject matter of the action is
conferred only by the Constitution or by statute. The nature of an action and
the subject matter thereof, as well as which court or agency of the government
has jurisdiction over the same, are determined by the material allegations of
the complaint in relation to the law involved and the character of the reliefs

prayed for, whether or not the complainant/plaintiff is entitled to any or all of


such reliefs. And jurisdiction being a matter of substantive law, the established
rule is that the statute in force at the time of the commencement of the action
determines the jurisdiction of the court.

R.A. No. 8799, which took effect on August 8, 2000, transferred to the
appropriate regional trial courts the SECs jurisdiction over those cases
enumerated in Sec. 5 of P.D. No. 902-A. Section 5.2 of R.A. No. 8799 provides:
SEC. 5.2 The Commissions jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts
of general jurisdiction or the appropriate Regional Trial Court: Provided, that
the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intracorporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed. (Emphasis supplied.)

Upon the effectivity of R.A. No. 8799, SEC Case No. 09-97-5764 was no
longer pending. The SEC finally disposed of said case when it rendered on
September 14, 1999 the decision disapproving the petition for suspension of
payments, terminating the proposed rehabilitation plan, and ordering the
dissolution and liquidation of the petitioning corporation. With the enactment
of the new law, jurisdiction over the liquidation proceedings ordered in SEC
Case No. 09-97-5764 was transferred to the RTC branch designated by the
Supreme Court to exercise jurisdiction over cases formerly cognizable by the
SEC. There is no showing in the records that SEC Case No. 09-97-5764 had
been transferred to the appropriate RTC designated as Special Commercial
Court at the time of the commencement of the injunction suit on December 18,
2000. Given the urgency of the situation and the proximity of the scheduled

public auction of the mortgaged properties as per the Notice of Sheriffs Sale,
respondent was constrained to seek relief from the same court having
jurisdiction over the foreclosure proceedings RTC of Valenzuela City.
Respondent thus filed Civil Case No. 349-V-00 in the RTC of Valenzuela City on
December 18, 2000 questioning the validity of and enjoining the extrajudicial
foreclosure initiated by petitioner. Pursuant to its original jurisdiction over
suits for injunction and damages, the RTC of Valenzuela City, Branch 75
properly took cognizance of the injunction case filed by the respondent. No
reversible error was therefore committed by the CA when it ruled that the RTC
of Valenzuela City, Branch 75 had jurisdiction to hear and decide respondents
complaint for injunction and damages.

Lastly, it may be mentioned that while the Consortium of Creditor Banks


had agreed to end their opposition to the liquidation proceedings upon the
execution of the Agreement dated February 10, 2003, on the basis of which the
parties moved for the dismissal of G.R. No. 145977, it is to be noted that
petitioner is not a party to the said agreement. Thus, even assuming that the
SEC retained jurisdiction over SEC Case No. 09-97-5764, petitioner was not
bound by the terms and conditions of the Agreement relative to the foreclosure
of those mortgaged properties belonging to EYCO and/or other accommodation
mortgagors.

TOPIC:

Jurisdiction

Stockholders meeting

of

SEC;

Authority

to

call

for

MANUEL H. NIETO, JR.


v.
SECURITIES AND EXCHANGE COMMISSION (SEC), ATTY.
VERNETTE G. UMALI-PACO in her capacity as General Counsel
of the SEC and in her personal capacity, and JOHN/JANE DOES
G.R. No. 175263, March 14, 2012, PEREZ, J.
FACTS:

The voting shares of PHC were 80.5% owned by Philcomsat, which in


turn, was wholly owned by the Philippine Overseas Telecommunications
Corporation (POTC). The PHC Board of Directors (Board) informed the SEC that
they had decided not to convene the stockholders meeting for 2005 pending
results of the 2004 election, which was then the subject of various court
litigations. Jose Ozamiz (Ozamiz), a minority stockholder of PHC, wrote to SEC
and requested the issuance of a cease and desist order from SEC against the
group of Nieto, consisting of directors and officers of PHC, in order to prevent
the latter from allegedly dissipating the corporate assets; and that a
stockholders meeting be convened.

In response to Ozamizs letter, Nieto alleged that Ozamiz was attempting


to pre-empt any judgment in cases pending before the various courts involving
the stockholders of Philcomsat, POTC and PHC. Another letter was filed by
Ozamiz to SEC urging the latter to order PHC to hold a stockholders meeting to
elect a new set of directors and officers and to form the NOMELEC (A
Nominations Committee).

On 26 February 2006, the SEC promulgated an Order in SEC Case No.


02-06-113, thus:
IN VIEW OF THE FOREGOING, the Commission hereby resolves to:
1. Direct the directors and responsible officers of PHC and the concerned
parties to submit to the Commission, within ten (10) days from receipt of
this Order, the names of their nominees to the NOMELEC to be
composed of five (5) members, namely:
a) One (1) from the Africa group;
b) One (1) from Nieto group;
c) A representative from the minority group, Mr. Jose Ozamiz, who
petitioned the calling of the annual stockholders meeting of PHC;
d) A representative of the Republic of the Philippines; and
e) A common neutral party to be chosen by the other (4) members
of the NOMELEC.
2. Direct the directors and responsible officers of PHC, within the same
period to submit the preferred date of annual meeting of PHC which
should be held not later than 17 April 2006; and
3. Direct the directors and responsible officers of PHC to comply with all
the requirements for the conduct of meetings for publicly listed
companies including the posting of notices for two (2) consecutive weeks
prior to the date of meeting in strategic places within the premises of
PHC.

SEC issued another Order on 5 April 2006 reiterating the demand that
PHC convene its annual stockholders meeting. The third Order issued on even
date denied Nietos motion for reconsideration of the 26 February 2006 Order.

On 11 April 2006, Nieto filed a petition for certiorari and prohibition to enjoin
the SEC from calling the PHCs annual stockholders meeting. During the
pendency of the petition before the Court of Appeals or on 1 July 2006, the
majority stockholders of PHC entered into a Memorandum of Understanding
(MOU) agreeing to unite and form a common slate for the Board in POTC,
Philcomsat and PHC. They requested the SEC to set a date for the annual
stockholders meeting. The group of Nieto was a party to the MOU. Four (4)
days after the execution of the MOU, the Court of Appeals issued a Temporary
Restraining Order (TRO) enjoining SEC from implementing its orders.

On 7 August 2006, the SEC filed its Comment to the petition and
defended the order calling of the stockholders meeting of PHC as within its
power and jurisdiction to issue.

On 1 September 2006, petitioner filed a Motion to Withdraw Petition in


view of the MOU. This action notwithstanding, the Court of Appeals proceeded
to render a Decision annulling the assailed orders of the SEC and directing it to
cease exercising its regulatory powers. In other words, the Court of Appeals
granted Nietos petition,

ISSUE:
Whether or not the SEC has the authority to call a stockholders meeting.
HELD:

The main point of Nietos petition before the Court of Appeals was to
oppose the calling of the annual stockholders meeting. By signing the MOU,
Nieto agreed to the convening of the annual stockholders meeting. As a

consequence of the MOU, Nieto no longer had any actual relief forthcoming
from the case he filed with the Court of Appeals.

The basic questions subject of the MOU and that of the case before the
Court of Appeals, overlap. The parties, specifically Nieto, effectively removed the
issues from the courts. While the courts can go ahead and render a decision,
as did the Court of Appeals, Nieto has divested himself of interest therein and
as to him, mooted the case. Nieto could not stop the Court of Appeals from
proceeding until rendition of judgment, and he cannot now question such
judgment.

At any rate, whichever way the Court of Appeals decides the case would
not have any effect on Nieto. The nullification of the SECs decision to call for a
stockholders meeting is a decision on the SECs authority to call for a meeting.
It was not about, and would not result into, a prohibition against an agreement
by the parties to, in fact and of their own accord, call for a stockholders
meeting.

A case becomes moot and academic when there is no more actual


controversy between the parties or no useful purpose can be served in passing
upon the merits of the case. In such cases, there is no actual substantial relief
to which petitioner would be entitled to and which would be negated by the
dismissal of the petition. Parenthetically, almost a year from the filing of the
parties respective Memorandum, Roberto L. Abad (Abad), claiming to be an
independent director of PHC, filed an urgent motion for leave to intervene. Abad
asserts that "to allow Mr. Nieto to seek the reversal of a Decision that is proper
and in conformity with law and jurisprudence would adversely affect herein
movant-intervenors rights and interests as PHC director and stockholder."

Abads motion for leave to intervene, as an independent director of PHC,


was intended to sustain the Decision of the Court of Appeals in nullifying the
SEC orders calling for stockholders meeting. Abad is apparently opposed to the
holding of the stockholders meeting and the decision that favors his position
may be reversed by this Court. Abads position as an independent director
contradicts that of Nieto and the parties to the MOU, who all had agreed to call
for a stockholders meeting.

The rendering of the instant petition as moot also forecloses any interest
on the part of Abad to intervene.

WHEREFORE, this petition is hereby DISMISSED FOR BEING MOOT


AND ACADEMIC.
SO ORDERED.

TOPIC: Delegation of Powers; Authority to sign Certificate of


Non-forum Shopping

COSCO PHILIPPINES SHIPPING, INC.


v.
KEMPER INSURANCE COMPANY
G.R. No. 179488, April 23, 2012, PERALTA, J.
FACTS:
Kemper Insurance, a foreign insurance company operating out of the
U.S.A. With no license to engage in business in the Philippines, insured the
shipment of imported frozen boneless beef owned by Genosi. However, upon
arrival in the Philippines, Genosi rejected the shipment by reason of spoilage.
Genosi thus filed a claim against both Cosco Philippines Inc. (The petitioner),
and Kemper Insurance (the respondent). Kemper insurance paid the claim
(US$64,492.58) and was thus issued a Loss and Subrogation Receipt, which it
used in filing a complaint for Insurance Loss and Damages against the
petitioner before the RTC. During the pre-trial, and before it could mark its
exhibits, petitioner filed a Motion to Dismiss, contending that the same was
filed by one Atty. Rodolfo A. Lat, who failed to show his authority to sue and
sign the corresponding certification against forum shopping. It argued that
Atty. Lats act of signing the certification against forum shopping was a clear
violation of Section 5, Rule 7 of the 1997 Rules of Court. The trial court
granted the motion to dismiss and dismissed the case. It ruled that it is
mandatory that the certification must be executed by the plaintiff itself, and
not by counsel. Since respondents counsel did not have a Special Power of
Attorney (SPA) to act on its behalf, hence, the certification against forum
shopping executed by said counsel was fatally defective and constituted a valid
cause for dismissal of the complaint. On appeal to the CA, however, the
appellate court reversed the RTC. It held that factual circumstances of the
case warrant the liberal application of the rules. Petitioner thus filed the
instant petition for review with the Supreme Court. It argues that respondent
failed to submit any board resolution or secretarys certificate authorising Atty.
Lat file the complaint and to sign the certificate of non-forum shopping on its
behalf. The special power of attorney signed by one Brent Healy, an
underwriter of the company (who lacked the necessary authorisation from the

board of directors), only authorised him to represent respondent during the


pre-trial and other stages of the proceedings.
ISSUE:
Whether or not Atty. Lat was properly authorized by respondent to sign
the certification against forum shopping on its behalf.
HELD:

The Supreme Court has consistently held that the certification against
forum shopping must be signed by the principal parties. If, for any reason, the
principal party cannot sign the petition, the one signing on his behalf must
have been duly authorized. With respect to a corporation, the certification
against forum shopping may be signed for and on its behalf, by a specifically
authorized lawyer who has personal knowledge of the facts required to be
disclosed in such document. A corporation has no power, except those
expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through
its board of directors and/or its duly authorized officers and agents. Thus, it
has been observed that the power of a corporation to sue and be sued in any
court is lodged with the board of directors that exercises its corporate powers.
In turn, physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors.

In the present case, since respondent is a corporation, the certification


must be executed by an officer or member of the board of directors or by one
who is duly authorized by a resolution of the board of directors; otherwise, the
complaint will have to be dismissed. The lack of certification against forum
shopping is generally not curable by mere amendment of the complaint, but
shall be a cause for the dismissal of the case without prejudice. The same rule
applies to certifications against forum shopping signed by a person on behalf of

a corporation which are unaccompanied by proof that said signatory is


authorized to file the complaint on behalf of the corporation.

There is no proof that respondent, a private corporation, authorized Atty.


Lat, through a board resolution, to sign the verification and certification
against forum shopping on its behalf. Accordingly, the certification against
forum shopping appended to the complaint is fatally defective, and warrants
the dismissal of respondent's complaint for Insurance Loss and Damages (Civil
Case No. 99-95561) against petitioner.

TOPIC: Liability of Corporations; Personal Liability of an


Officer

UNITED COCONUT PLANTERS BANK


v.
PLANTERS PRODUCTS, INC., JANET LAYSON
and GREGORY GREY
G.R. No. 179015, June 13, 2012, ABAD, J.

FACTS:
Planters Products, Incorporated (PPI), a fertilizer manufacturer, entered
into an arrangement with Janet Layson for the delivery of fertilizers to her,
payable from the proceeds of the loan that United Coconut Planters Bank
(UCPB) extended to her. Layson executed a pagares written on the dorsal side
of a UCPB promissory note, which states that Layson had an approved loan
with UCPB- Iloilo Branch for P200,000.00. The second portion of the pagares,
signed by the branch manager Gregory Grey, stated that the assignment has
been duly accepted and that payment is duly guaranteed within 60 days from
PPIs Invoice. Subsequently, Layson executed a Letter Guarantee binding herself
to pay PPI the face value of the pagares in case UCPB did not pay the same at
maturity. But contrary to her undertakings, Layson withdrew with branch
manager Greys connivance the P200,000.00 loan that UCPB granted her. On
the strength of the three documents, PPI delivered quantities of fertilizers to
Layson. Layson and Grey duplicated their transactions with PPI covering two
loans of P100,000.00 each. Subsequently, PPI presented the documents of the
financed transactions to UCPB for collection. But the bank denied the claim on
the ground that it neither authorized the transactions nor the execution of the
documents which were not part of its usual banking transactions. UCPB
claimed that branch manager Grey exceeded his authority in guaranteeing
payment of Laysons purchases on credit.
ISSUE:
Whether or not UCPB is bound by Greys undertaking on its behalf to
deliver to PPI the proceeds of the banks loan to Layson in payment of the
fertilizers she bought.

HELD:
Petition GRANTED. A corporation like UCPB is liable to innocent third
persons where it knowingly permits its officer, or any other agent, to perform
acts within the scope of his general or apparent authority, holding him out to
the public as possessing power to do those acts. But, here, it is plain from the
guarantee Grey executed that he was acting for himself, not in representation
of UCPB. UCPB cannot be bound by Greys above undertaking since he appears
to have made it in his personal capacity. He signed it under his own name, not
in UCPBs name or as its branch manager. Indeed, the wordings of the
undertaking do not at all make any allusion to UCPB. Besides, by its tenor,
Greys undertaking was a guarantee. It says, payment unconditionally
guaranteed within sixty (60) days from Planters Products, Inc. Invoice date up
to Pesos: Two Hundred Thousand (P200,000.00) only. As it happens, bank
guarantees are highly regulated transactions under the law. They are
undertakings that are not so casually issued by banks or by their branch
managers at the dorsal side of a clients promissory note as if an afterthought.
A bank guarantee is a contract that binds the bank and so may be entered into
only under authority granted by its board of directors. Such authority does not
appear on any document. Indeed, PPI had no right to expect branch manager
Grey to issue one without such authorization.

TOPIC: Powers of Corporation; To Sell or Otherwise Dispose Of


All or Substantially All Of Corporate Assets (Sec. 40)

METROPOLITAN BANK and TRUST COMPANY


v.
CENTRO DEVELOPMENT CORPORATION, CHONGKING
KEHYENG, MANUEL CO KEHYENG and Quirino Kehyeng
G.R. No. 180974, June 13, 2012, SERENO, J.
FACTS:
On 20 March 1990, in a special meeting of the board of directors of
respondent Centro Development Corporation (Centro), its president Go Eng Uy
was authorized to mortgage its properties and assets to secure the mediumterm loan of P 84 million of Lucky Two Corporation and Lucky Two Repacking.
The properties and assets consisted of a parcel of land with a building and

improvements located at Salcedo St., Legaspi Village, Makati City, and covered
by Transfer Certificate of Title (TCT) Nos. 139880 and 139881. This
authorization was subsequently approved on the same day by the stockholders.
Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy,
executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines
Islands (BPI).5 Under the MTI, respondent Centro, together with its affiliates
Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy, expressed its
desire to obtain from time to time loans and other credit accommodations from
certain creditors for corporate and other business purposes. To secure these
obligations from different creditors, respondent Centro constituted a continuing
mortgage on all or substantially all of its properties and assets enumerated
above unto and in favor of BPI, the trustee. Should respondent Centro or any of
its affiliates fail to pay their obligations when due, the trustee shall cause the
foreclosure of the mortgaged property.Thereafter, the mortgage was duly
recorded with the Registry of Deeds of Makati City.
Centro and BPI amended the MTI to allow an additional loan of P 36
million and to include San Carlos Milling Company, Inc. (San Carlos) as a
borrower in addition to Centro, Lucky Two Corp. and Lucky Two
Repacking. Then, on 28 July 1994, Centro and BPI again amended the MTI for
another loan of P 24 million, bringing the total obligation to P 144 million.
Meanwhile, respondent Centro, represented by Go Eng Uy, approached
petitioner Metropolitan Bank and Trust Company (Metrobank) sometime in
1994 and proposed that the latter assume the role of successor-trustee of the
existing MTI. After petitioner Metrobank agreed to the proposal, the board of
directors of respondent Centro allegedly resolved on 12 August 1994 to
constitute petitioner as successor-trustee of BPI. Thereafter, on 27 September
1994, petitioner
and
respondent
Centro
executed
the
assailed
MTI,12 amending the previous agreements by appointing the former as the
successor-trustee of BPI. It is worth noting that this MTI did not amend the
amount of the total obligations covered by the previous MTIs.
It was only sometime in 1998 that respondents herein, Chongking
Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng, allegedly discovered that
the properties of respondent Centro had been mortgaged, and that the MTI
that had been executed appointing petitioner as trustee. Notably, respondent
Chongking Kehyeng had been a member of the board of directors of Centro
since 1989, while the two other respondents, Manuel Co Kehyeng and Quirino

Keyheng, had been stockholders since 1987. Respondents Kehyeng were


minority stockholders who owned thirty percent (30%) of the outstanding
capital stock of respondent Centro.
On different dates, the Kehyengs allegedly questioned the mortgage of the
properties through letters addressed to Go Eng Uy and Jacinta Go. They
alleged that they were not aware of any board or stockholders meeting held on
12 August 1994, when petitioner was appointed as successor-trustee of BPI in
the MTI. Respondents demanded a copy of the minutes of the meeting held on
that date, but received no response. Thereafter, on 14 October 1998 and 19
November 1998, the Kehyengs allegedly wrote to petitioner, informing it that
they were not aware of the 12 August 1994 board of directors meeting.
Petitioner did not respond to the letters. During the period April 1998 to
December 1998, San Carlos obtained loans in the total principal amount
of P 812,793,513.23 from petitioner Metrobank.
San Carlos failed to pay these outstanding obligations despite demand.
Thus, petitioner, as trustee of the MTI, enforced the conditions thereof and
initiated foreclosure proceedings, denominated as Foreclosure No. S-04-11, on
the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a
Petition for Extrajudicial Foreclosure of Mortgage with the executive judge of
the Regional Trial Court (RTC) of Makati City. Petitioner alleged that the total
amount of the Promissory Notes that San Carlos executed in favor of the former
amounted to P812,793,513.23. As of 30 April 2000, the total outstanding
obligation, inclusive of interests and penalties, was P1,178,961,181.45.
ISSUE:
1.) Whether or not the requirements of Section 40 of the Corporation
Code was complied with in the execution of the MTI;
2.) Whether petitioner was negligent or failed to exercise due diligence;

HELD:

1.) Reading carefully the Secretarys Certificate, it is clear that the main
purpose of the directors Resolution was to appoint petitioner as the new

trustee of the previously executed and amended MTI. Going through the
original and the revised MTI, we find no substantial amendments to the
provisions of the contract. We agree with petitioner that the act of appointing a
new trustee of the MTI was a regular business transaction. The appointment
necessitated only a decision of at least a majority of the directors present at the
meeting in which there was a quorum, pursuant to Section 25 of the
Corporation Code.

The second paragraph of the directors Resolution No. 005, s. 1994,


which empowered Go Eng Uy "to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company
which are necessary and pertinent thereto," must be construed to mean that
such power was limited by the conditions of the existing mortgage, and not that
a new mortgage was thereby constituted.

Moreover, it is worthy to note that respondents do not assail the previous


MTI executed with BPI. They do not question the validity of the mortgage
constituted over all or substantially all of respondent Centros assets pursuant
to the 21 March 1994 MTI in the amount of P 84 million. Nor do they question
the additional loans increasing the value of the mortgage to P 144 million; or
the use of Centros properties as collateral for the loans of San Carlos, Lucky
Two Corporation, and Lucky Two Repacking.
Thus, Section 40 of the Corporation Code finds no application in the present
case, as there was no new mortgage to speak of under the assailed directors
Resolution.

2.) Republic Act No. 8971, or the General Banking Law of 2000,
recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of

banking; thus, the law requires banks to have high standards of integrity
and performance. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. In the case at
bar, petitioner itself was negligent in the conduct of its business when it
extended unsecured loans to the debtors. Worse, it was in serious breach of its
duty as the trustee of the MTI. It was not able to protect the interests of the
parties and was even instrumental in violating the terms of the MTI, to the
detriment of the parties thereto. Thus, petitioner has only itself to blame for
being left with insufficient recourse against petitioner under the assailed MTI.