Stockholders of F. Guanzon and Sons, Inc v.

Register of Deeds of Manila (1962)

G.R. No. L-18216 October 30, 1962
Lessons Applicable: Strong Juridical Personality (Corporate Law)

FACTS: Sept 19, 1960: 5 stockholders of F Guanzon executed a certificate of liquidation of the assets of the corporation.
By virtue of a resolution dissolving the corporation, they wish to distribute as liquidated dividends among themselves
and in proportion to their shareholdings, the assets of the corporation, which includes real estate properties in Manila.
The Register of Deeds however, upon presentment of the certificate of liquidation by the 5 stockholders, denied
registration of the properties to be distributed on 7 grounds, 3 of which were questioned by the stockholders: (1) no
statement of the # of parcels of land to be distributed (2) registration fees iao P430.50 (3) doc stamp tax iao P940.45 (4)
court judgment approving the dissolution and directing disposition of the assets. The stockholders claim that the
certificate of liquidation merely partitions/distributes the corporate assets among them because the corporation has
already been dissolved. Hence they need not comply with the requirements imposed by the Register of Deeds and the
Land Registration Authority. The LRA counters that the distribution of the corporate assets upon dissolution of the
corporation, is ultimately a transfer/conveyance of property to the stockholders.

ISSUE: W/N the certificate of liquidation involves a mere distribution of corporate assets or a transfer or conveyance of
property.

HELD: It is a transfer/conveyance of property. A corporation is a juridical person separate and distinct from the
stockholders. Properties registered in the name of the corporation are owned by it as a separate entity. The shares held
by stockholders are their personal property and not the corporation, and it only typifies an aliquot part of the
corporation’s property or the right to share in the proceeds. The holder of such share is not the owner of any part of the
capital of the corporation, nor is he entitled to possession of any definite portion of its assets, neither is he a co-owner.
Liquidation by stockholders after a corporation’s dissolution is not mere partitioning of community property, but already
a conveyance or transfer of title to them from the corporation.

The distribution of the corporate properties to the SHs was deemed not in the nature of a partition among co-owners,
but rather a disposition by the corporation to the SHs as opposite parties to a contract
Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its
members;
shares of stock are personal property, and NOT corporate property
share of stock typifies an aliquot part of the corporation’s property, or the right to share in the proceeds to that extent
when distributed
holder of shares is not the owner of any part of the capital of the corporation, nor is he entitled to the possession of any
definite portion of its property or assets .

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al.,

G.R. No. 176579, June 28, 2011 (652 SCRA 690)

THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a
Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance
Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares
(or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First
Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers of such corporation or association must
be citizens of the Philippines. (Emphasis supplied)

II. THE ISSUE

 Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only,
or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public
utility?

III. THE RULING

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total
common shares in PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term
“capital” shall include such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11,
Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

To construe broadly the term “capital” as the total outstanding capital stock, including both common
and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop
a self-reliant and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors.
PLDT’s Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to
vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of
stockholders.” On the other hand, holders of common shares are granted the exclusive right to vote in the election of
directors. PLDT’s Articles of Incorporation state that “each holder of Common Capital Stock shall have one vote in respect
of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes.”

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common
shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document required to be
submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of
PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to
control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable
40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00
per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the
par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover,
99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares
but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o
franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x
corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such
citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of
PLDT’s common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends
that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and
control of a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the
Court to apply the foregoing definition of the term “capital” in determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.]

Gamboa v. Teves etal., GR No. 176579, October 9, 2012 (682 SCRA 397)

Facts:

The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12
million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus, First
Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it violates the Constitutional provision
on filipinazation of public utility, stated in Section 11, Article XII of the 1987 Philippine Constitution, which limits foreign
ownership of the capital of a public utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the
petitioner, hence this new case, resolving the motion for reconsideration for the 2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011
decision?

Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an
economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to achieve, that is
– to conserve and develop our patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting rights, as
well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to vote in the election of directors,
coupled with benefits, is tantamount to an effective control. Therefore, the Court’s interpretation of the term ‘capital’ was
not erroneous. Thus, the motion for reconsideration is denied.

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO
GARCIA,3 and LEONOR MOLL, defendants-appellees.

Facts:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization avowedly for the protection, preservation and development of the coconut
industry in the Philippines. General manager and board chairman was Maximo M. Kalaw; defendants
Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became
director only on December 22, 1947.

An unhappy chain of events conspired to deter NACOCO from fulfilling some contracts
entered. Nature supervened. Four devastating typhoons visited the Philippines: the first in October,
the second and third in November, and the fourth in December, 1947. Coconut trees throughout the
country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were
destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary
to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem.

The buyers threatened damage suits. All the settlements sum up to P1,343,274.52.

NACOCO, represented by the Board of Liquidators, seeks to recover the above sum of
P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan
Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the
old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw,
with bad faith and/or breach of trust for having approved the contracts without prior approval of the
Board.

The lower court came out with a judgment dismissing the complaint. Hence, plaintiff
appealed direct to this Court. Plaintiff levelled a major attack on the lower court's holding that Kalaw
justifiedly entered into the controverted contracts without the prior approval of the corporation's
directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof,
recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on
behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to
the proper accomplishment for which the Corporation was organized.”

ISSUE: Whether or not the acts of the respondent as General Manager without prior
approval of the Board are valid corporate acts.

HELD:

Not of de minimis importance in a proper approach to the problem at hand, is the nature
of a general manager's position in the corporate structure. A rule that has gained acceptance through
the years is that a corporate officer "intrusted with the general management and control of its
business, has implied authority to make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the corporation. As such officer, "he may,
without any special authority from the Board of Directors perform all acts of an ordinary nature, which
by usage or necessity are incident to his office, and may bind the corporation by contracts in matters
arising in the usual course of business.

Settled jurisprudence has it that where similar acts have been approved by the directors
as a matter of general practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors. In varying language, existence of such authority
is established, by proof of the course of business, the usage and practices of the company and by the
knowledge which the board of directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.

In the case at bar, the practice of the corporation has been to allow its general manager
to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without
prior board approval. If the by-laws were to be literally followed, the board should give its stamp of
prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

Viewed in the light of the entire record, the judgment under review must be, as it is
hereby, affirmed.