ARTICLES OF INCORPORATION
,
1. Red Line Transportation Co. vs. Rural Transit Co.
GR No. 41570 | Sept. 6, 1934
Facts:
· This is a petition for review of an order of the
Public Service Commission granting to the Rural Transit
Company, Ltd., a certificate of public convenience to
operate a transportation service between Ilagan in the
Province of Isabela and Tuguegarao in the Province of
Cagayan, and additional trips in its existing express
service between Manila Tuguegarao.
· On June 4, 1932, Rural Transit filed an application
for certification of a new service between Tuguegarao
and Ilagan with the Public Company Service
Commission (PSC), since the present service is not
sufficient
· Rural Transit further stated that it is a holder of a
certificate of public convenience to operate a passenger
bus service between Manila and Tuguegarao
· Red Line opposed said application, arguing that
they already hold a certificate of public convenience for
Tuguegarao and Ilagan, and is rendering adequate
service. They also argued that granting Rural Transit’s
application would constitute a ruinous competition over
said route
· On Dec. 21, 1932, Public Service Commission
approved Rural Transit’s application, with the condition
that "all the other terms and conditions of the various
certificates of public convenience of the herein applicant
and herein incorporated are made a part hereof."
· A motion for rehearing and reconsideration was
filed by Red Line since Rural Transit has a pending
application before the Court of First Instance for
voluntary dissolution of the corporation
· A motion for postponement was filed by Rural
Transit as verified by M. Olsen who swears "that he was
the secretary of the Rural Transit Company, Ltd
· During the hearing before the Public Service
Commission, the petition for dissolution and the CFI’s
decision decreeing the dissolution of Rural Transit were
admitted without objection
· At the trial of this case before the Public Service
Commission an issue was raised as to who was the real
party in interest making the application, whether the
Rural Transit Company, Ltd., as appeared on the face of
the application, or the Bachrach Motor Company, Inc.
using name of the Rural Transit Company, Ltd., as a
trade name
· However, PSC granted Rural Transit’s application
for certificate of public convenience and ordered that a
certificate be issued on its name
· PSC relied on a Resolution in case No. 23217,
authorizing Bachrach Motor to continue using Rural
Transit’s name as its tradename in all its applications
and petitions to be filed before the PSC. Said resolution
was given a retroactive effect as of the date of filing of
the application or April 30, 1930
Issue: Can the Public Service Commission authorize a
corporation to assume the name of another corporation
as a trade name?
Ruling: NO
· The Rural Transit Company, Ltd., and the
Bachrach Motor Co., Inc., are Philippine corporations
and the very law of their creation and continued
existence requires each to adopt and certify a distinctive
name
· The incorporators "constitute a body politic and
corporate under the name stated in the certificate."
· A corporation has the power "of succession by its
corporate name." It is essential to its existence and
cannot change its name except in the manner provided
by the statute. By that name alone is it authorized to
transact business.
· The law gives a corporation no express or implied
authority to assume another name that is
unappropriated: still less that of another corporation,
which is expressly set apart for it and protected by the
law. If any corporation could assume at pleasure as an
unregistered trade name the name of another
corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of
administration and supervision.
In this case, the order of the commission authorizing the
Bachrach Motor Co., Incorporated, to assume the name
of the Rural Transit Co., Ltd. likewise incorporated, as its
trade name being void. Accepting the order of December
21, 1932, at its face as granting a certificate of public
convenience to the applicant Rural Transit Co., Ltd., the
said order last mentioned is set aside and vacated on
the ground that the Rural Transit Company, Ltd., is not
the real party in interest and its application was fictitious
2. Pison-Arceo Agricultural and Dev Corp vs NLRC
279 SCRA 312 – Business Organization – Corporation
Law – Suit Under a Corporate Name
In 1988, a labor case for illegal dismissal was filed
against Jose Edmundo Pison and Hacienda Lanutan.
The labor arbiter issued a favorable for the dismissed
workers. Pison appealed and the National Labor
Relations Commission (NLRC) affirmed the labor arbiter.
However, in the NLRC ruling, it ordered Pison-Arceo
Agricultural and Development Corporation (PADC) as
solidarily liable together with Pison and the Hacienda,
PADC being the owner of the Hacienda and in which
Pison is a majority stockholder. PADC assails the order
of the NLRC on due process grounds as it averred that it
was not issued summons hence it was not able to
defend itself in court and therefore the judgment against
it is void.
ISSUE: Whether or not the contention of PADC is
correct.
HELD: No. The Supreme Court emphasized that in labor
cases and other administrative cases, the Rule of Civil
Procedure are not strictly applied especially so in the
interest of laborers. So long as there is a substantial
compliance, a party can be placed under the jurisdiction
of the labor court. In the case at bar, there is substantial
compliance when summons was served to Jose
Edmundo Pison who was also the administrator of the
Hacienda. PADC is therefore adequately represented by
Pison in the proceedings in the labor tribunal. If at all, the
non-inclusion of the corporate name of PADC in the case
before the executive labor arbiter was a mere procedural
error which did not at all affect the jurisdiction of the
labor tribunals.
3. PHILIPS EXPORT VS. COURT OF APPEALS-
Corporate Trade Name
A corporation’s right to use its corporate and trade name
is a property right, a right in rem, which it may assert and
protect against the whole world.
FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the
cancellation of the word “Philips” the corporate name of
Standard Philips Corporation in view of its prior
registration with the Bureau of Patents and the SEC.
However, Standard Philips refused to amend its Articles
of Incorporation so PEBV filed with the SEC a petition for
the issuance of a Writ of Preliminary Injunction, however
this was denied ruling that it can only be done when the
corporate names are identical and they have at least 2
words different. This was affirmed by the SEC en banc
and the Court of Appeals thus the case at bar.
ISSUE:
Whether or not Standard Philips can be enjoined from
using Philips in its corporate name
RULING: YES
A corporation’s right to use its corporate and trade name
is a property right, a right in rem, which it may assert and
protect against the whole world. According to Sec. 18 of
the Corporation Code, no corporate name may be
allowed if the proposed name is identical or deceptively
confusingly similar to that of any existing corporation or
to any other name already protected by law or is patently
deceptive, confusing or contrary to existing law.
For the prohibition to apply, 2 requisites must be present:
(1) the complainant corporation must have acquired a
prior right over the use of such corporate name and
(2) the proposed name is either identical or deceptively
or confusingly similar to that of any existing corporation
or to any other name already protected by law or
patently deceptive, confusing or contrary to existing law.
With regard to the 1st requisite, PEBV adopted the name
“Philips” part of its name 26 years before Standard
Philips. As regards the 2nd, the test for the existence of
confusing similarity is whether the similarity is such as to
mislead a person using ordinary care and discrimination.
Standard Philips only contains one word, “Standard”,
different from that of PEBV. The 2 companies’ products
are also the same, or cover the same line of products.
Although PEBV primarily deals with electrical products, it
has also shipped to its subsidiaries machines and parts
which fall under the classification of “chains, rollers,
belts, bearings and cutting saw”, the goods which
Standard Philips also produce. Also, among Standard
Philips’ primary purposes are to buy, sell trade x x x
electrical wiring devices, electrical component, electrical
supplies. Given these, there is nothing to prevent
Standard Philips from dealing in the same line of
business of electrical devices. The use of “Philips” by
Standard Philips tends to show its intention to ride on the
popularity and established goodwill of PEBV.
4. Lyceum of the Philippines vs. Court of Appeals
[GR 101897, 5 March 1993]
Facts: Lyceum of the Philippines Inc. had sometime
before commenced in the SEC a proceeding (SEC-Case
No. 1241) against the Lyceum of Baguio, Inc. to require
it to change its corporate name and to adopt another
name not "similar [to] or identical" with that of petitioner.
In an Order dated 20 April 1977, Associate
Commissioner Julio Sulit held that the corporate name of
petitioner and that of the Lyceum of Baguio, Inc. were
substantially identical because of the presence of a
"dominant" word, i.e., "Lyceum," the name of the
geographical location of the campus being the only word
which distinguished one from the other corporate name.
The SEC also noted that Lyceum of the Philippines Inc.
had registered as a corporation ahead of the Lyceum of
Baguio, Inc. in point of time, and ordered the latter to
change its name to another name "not similar or identical
[with]" the names of previously registered entities. The
Lyceum of Baguio, Inc. assailed the Order of the SEC
before the Supreme Court (GR L-46595). In a Minute
Resolution dated 14 September 1977, the Court denied
the Petition for Review for lack of merit. Entry of
judgment in that case was made on 21 October 1977.
Armed with the Resolution of the Supreme Court, the
Lyceum of the Philippines then wrote all the educational
institutions it could find using the word "Lyceum" as part
of their corporate name, and advised them to
discontinue such use of "Lyceum." When, with the
passage of time, it became clear that this recourse had
failed, and on 24 February 1984, Lyceum of the
Philippines instituted before the SEC SEC-Case 2579 to
enforce what Lyceum of the Philippines claims as its
proprietary right to the word "Lyceum." The SEC hearing
officer rendered a decision sustaining petitioner's claim
to an exclusive right to use the word "Lyceum." The
hearing officer relied upon the SEC ruling in the Lyceum
of Baguio, Inc. case (SEC-Case 1241) and held that the
word "Lyceum" was capable of appropriation and that
petitioner had acquired an enforceable exclusive right to
the use of that word. On appeal, however, by Lyceum Of
Aparri, Lyceum Of Cabagan, Lyceum Of Camalaniugan,
Inc., Lyceum Of Lallo, Inc., Lyceum Of Tuao, Inc., Buhi
Lyceum, Central Lyceum Of Catanduanes, Lyceum Of
Southern Philippines, Lyceum Of Eastern Mindanao, Inc.
and Western Pangasinan Lyceum, Inc.,, which are also
educational institutions, to the SEC En Banc, the
decision of the hearing officer was reversed and set
aside. The SEC En Banc did not consider the word
"Lyceum" to have become so identified with Lyceum of
the Philippines as to render use thereof by other
institutions as productive of confusion about the identity
of the schools concerned in the mind of the general
public. Unlike its hearing officer, the SEC En Banc held
that the attaching of geographical names to the word
"Lyceum" served sufficiently to distinguish the schools
from one another, especially in view of the fact that the
campuses of Lyceum of the Philippines and those of the
other Lyceums were physically quite remote from each
other. Lyceum of the Philippines then went on appeal to
the Court of Appeals. In its Decision dated 28 June
1991, however, the Court of Appeals affirmed the
questioned Orders of the SEC En Banc. Lyceum of the
Philippines filed a motion for reconsideration, without
success. Lyceum of the Philippines filed the petition for
review.
Issue:
1. Whether the names of the contending Lyceum schools
are confusingly similar.
2. Whether the use by the Lyceum of the Philippines of
"Lyceum" in its corporate name has been for such length
of time and with such exclusivity as to have become
associated or identified with the petitioner institution in
the mind of the general public (or at least that portion of
the general public which has to do with schools).
Held:
1. The Articles of Incorporation of a corporation must,
among other things, set out the name of the corporation.
Section 18 of the Corporation Code establishes a
restrictive rule insofar as corporate names are
concerned. It provides that "No corporate name may be
allowed by the Securities an Exchange Commission if
the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or
to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When
a change in the corporate name is approved, the
Commission shall issue an amended certificate of
incorporation under the amended name." The policy
underlying the prohibition in Section 18 against the
registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the
avoidance of fraud upon the public which would have
occasion to deal with the entity concerned, the evasion
of legal obligations and duties, and the reduction of
difficulties of administration and supervision over
corporations. Herein, the Court does not consider that
the corporate names of the academic institutions are
"identical with, or deceptively or confusingly similar" to
that of Lyceum of the Philippines Inc.. True enough, the
corporate names of the other schools (defendant
institutions) entities all carry the word "Lyceum" but
confusion and deception are effectively precluded by the
appending of geographic names to the word "Lyceum."
Thus, the "Lyceum of Aparri" cannot be mistaken by the
general public for the Lyceum of the Philippines, or that
the "Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines. Further, etymologically,
the word "Lyceum" is the Latin word for the Greek
lykeion which in turn referred to a locality on the river
Ilissius in ancient Athens "comprising an enclosure
dedicated to Apollo and adorned with fountains and
buildings erected by Pisistratus, Pericles and Lycurgus
frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." In
time, the word "Lyceum" became associated with
schools and other institutions providing public lectures
and concerts and public discussions. Thus today, the
word "Lyceum" generally refers to a school or an
institution of learning. Since "Lyceum" or "Liceo" denotes
a school or institution of learning, it is not unnatural to
use this word to designate an entity which is organized
and operating as an educational institution. To determine
whether a given corporate name is "identical" or
"confusingly or deceptively similar" with another entity's
corporate name, it is not enough to ascertain the
presence of "Lyceum" or "Liceo" in both names. One
must evaluate corporate names in their entirety and
when the name of Lyceum of the Philippines is
juxtaposed with the names of private respondents, they
are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.
2. The number alone of the private respondents in the
present case suggests strongly that the Lyceum of the
Philippines' use of the word "Lyceum" has not been
attended with the exclusivity essential for applicability of
the doctrine of secondary meaning. It may be noted also
that at least one of the private respondents, i.e., the
Western Pangasinan Lyceum, Inc., used the term
"Lyceum" 17 years before Lyceum of the Philippines
registered its own corporate name with the SEC and
began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word
"Lyceum," that institution would have been the Western
Pangasinan Lyceum, Inc. rather than Lyceum of the
Philippines. Hence, Lyceum of the Philippines is not
entitled to a legally enforceable exclusive right to use the
word "Lyceum" in its corporate name and that other
institutions may use "Lyceum" as part of their corporate
names.
PURPOSE CLAUSE
1. Asuncion vs De Yriarte
[G.R. No. 9321. September 24, 1914.]
FACTS: The proposed incorporators began an action in
the CFI to compel the chief of the division of archives to
receive and register said articles of incorporation and to
do any and all acts necessary for the complete
incorporation of the persons named in the articles. The
court below found in favor of the defendant and refused
to order the registration of the articles mentioned,
maintaining and holding that the defendant, under the
Corporation Law, had authority to determine both the
sufficiency of the form of the articles and the legality of
the object of the proposed corporation. This appeal is
taken from that judgment
The chief of the division of archives, the respondent,
refused to file the articles of incorporation, upon the
ground that the object of the corporation, as stated in the
articles, was not lawful and that, in pursuance of section
6 of Act No. 1459, they were not registerable.
Hence, this action to obtain a writ of mandamus.
ISSUE: Whether or not the chief of the division of
archives has authority, under the Corporation Law, on
being presented with articles of incorporation for
registration, to decide not only as to the sufficiency of the
form of the articles, but also as to the lawfulness of the
purposes of the proposed corporation.
HELD: YES.
CORPORATION LAW; POWERS AND DUTIES OF
CHIEF OF DIVISION OF ARCHIVES, EXECUTIVE
BUREAU. — The chief of the division of archives, for
and on behalf of the division, has authority under the
Corporation Law (Act No. 1459) to determine the
sufficiency of the form of articles of incorporation offered
for registration with the division.
Section 6 of the Corporation Law reads in part as
follows:
“Five or more persons, not exceeding fifteen, a majority
of whom are residents of the Philippine Islands, may
form a private corporation for any lawful purpose by
filing with the division of archives, patents, copyrights,
and trademarks of the Executive Bureau articles of
incorporation duly executed and acknowledged before a
notary public, . . .”
Simply because the duties of an official happen to
be ministerial, it does not necessarily follow that he
may not, in the administration of his office,
determine questions of law. We are of the opinion that
it is the duty of the division of archives, when articles of
incorporation are presented for registration, to determine
whether the objects of the corporation as expressed in
the articles are lawful. We do not believe that, simply
because articles of incorporation presented for
registration are perfect in form, the division of archives
must accept and register them and issue the
corresponding certificate of incorporation no matter what
the purpose of the corporation may be as expressed in
the articles. The chief of the division of archives, on
behalf of the division, has also the power and duty to
determine from the articles of incorporation presented for
registration the lawfulness of the purposes of the
proposed corporation and whether or not those purposes
bring the proposed corporation within the purview of the
law authorizing corporations for given purposes.
MANDAMUS TO COMPEL HIM TO PERFORM DUTIES.
— The duties of the chief of the division of archives, so
far as relates to the registration of articles of
incorporation, are purely ministerial and not discretional;
and mandamus will lie to compel him to perform his
duties under the Corporation Law if, in violation of law,
he refuse to perform them
On the contrary, there is no incompatibility in holding, as
we do hold, that his duties are ministerial and that he
has no authority to exercise discretion in receiving and
registering articles of incorporation. He may exercise
judgment — that is, the judicial function — in the
determination of the question of law referred to, but he
may not use discretion. The question whether or not the
objects of a proposed corporation are lawful is one that
can be decided one way only. If he err in the
determination of that question and refuse to file articles
which should be filed under the law, that decision is
subject to review and correction and, upon proper
showing, he will be ordered to file the articles.
Discretion, it may be said generally, is a faculty
conferred upon a court or other official by which he
may decide a question either way and still be right.
The power conferred upon the division of archives
with respect to the registration of articles of
incorporation is not of that character. It is of the
same character as the determination of a lawsuit by
a court upon the merits. It can be decided only one
way correctly.
2. Gala vs Ellice Agro Industrial Corp.
Doctrine: The legal right of a taxpayer to reduce the
amount of what otherwise, could be his taxes or
altogether to avoid them, by means which the law
permits, could be doubted
Facts: The spouses Manuel and Alicia Gala and their
children Guia Domingo, Ofelia Gala, Raul Gala and Rita
Benson, and their encargados (rough translation;
representatives) VirgilioGaleon and Julian Jader, formed
and organized Ellice Agro Industrial Corporation (Ellice).
As payment for their subscriptions the Spouses Gala
transferred several parcles of land to Ellice.
Subsequently, the children and the encargados formed
and organized another corporation, Margo Management
and Development Corporation (Margo). The father,
Manuel Gala, sold his shares in Ellice to Margo.
Subsequently, Alicia transferred her shares to Margo.
In 1990, a special stockholder’s meeting of Margo was
held where a new board of directors was elected. Raul
Gala was elected as chairman, president, and general
manager. During the meeting, the board approved the
commencement of proceeding to annul the dispositions
of Margos’s property made by Alicia Gala. Similarity, a
special stockholder’s meeting was held in Ellice. A new
board was elected and Raul Gala also became
chairman, president and GM of Ellice, Raul Gala along
with the respondents filed a case against the petitiones
in the SEC for accounting and restitution for alleged
mismanagement of funds of Ellice.
In turn the petitioners filed in the SEC a petition for the
nullification of the election of directors of officers of both
Margo and Ellice. Essentially, petitioners sought to
disregard the separate juridical personalities of two
corporations, namely, Ellice Agro-Industrial Corporation
and Margo Management and Development Corporation,
for the purpose of treating all property purportedly owned
by said corporations as properly solely owned by the
Gala Spouses. Among their arguments were: (1) said
corporations were organized for purpose of exempting
the property the property of the Gala Spouses from the
coverage of land reform laws, and (2) the two
corporations were meant to be used as mere tools for
the avoidance of estate taxes.
Issue: Whether the separate juridical personalities of
Ellice and Margo could be disregard on the grounds that
they were meant to be tools to avoid land reform laws
and estate taxes.
Held: NO, a perusal of the Articles of Incorporation of
Ellice and Margo shows no sign of the allegedly illegal
purposes that petitioners are complaining of. And even
assuming that the petitioner’s allegations were true, the
legality of the purposes for which the two corporations
were formed should be first threshed out in an
administrative case before the Securities and Exchange
Commission. (Doctrine of Primary Jurisdiction).
Moreover, on the contention that Ellice and Margo were
meant to be tools for the avoidance of estate taxes, the
court said that “…the legal right of a taxpayer to reduce
the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits,
cannot be doubted. (citing: Liddel& Co., Inc c. CIR)”
Note: Simplified, this case is about a feud between
family members who organized two corporation.
Petitioners are Alicia Gala (mother), Guia Domingo
(sister), and Rita Benson (Sister), Respondents are Raul
Gala (brother), Ellice Inc., and Margo Inc. (the family
corporations).
PRINCIPAL PLACE OF BUSINESS
1. HYATT ELEVATORS AND ESCALATORS
CORPORATION v GOLDSTAR ELEVATORS, PHILS.
October 24, 2005 | Panganiban, J. | Certiorari | Venue –
Venue of Personal Actions
PETITIONER: Hyatt Elevators and Escalators
Corporation
RESPONDENT: Goldstar Elevators, Phils., Inc.
SUMMARY: A case for unfair trade practices was filed by
HYATT against GOLDSTAR. Both were corporations
dealing with elevators. The case was filed in
Mandaluyong despite both have their principal office
located in Makati. GOLDSTAR filed a motion to dismiss
on the ground of improper venue. The court held that it is
clear in the Civil Code and the Corporation Code that in
matters of venue, residence shall be considered
synonymous as domicile which shall be understood to
be the place where their legal representation is
established or where they exercise their principal
functions. This matter was also settled by jurisprudence.
DOCTRINE: It is a well established rule that the
residence of a corporation is the place where its principal
office is located, as stated in its Articles of Incorporation.
FACTS:
1. Both parties are engaged in the same business of
selling installing and maintaining/servicing elevators and
escalators. On February 23, 1999, HYATT filed a
complaint for unfair trade practices and damages unther
Articles 19, 20 and 21 of the Civil Code of the Philippines
against LG industrial Systems Co. Ltd (LGISC) and LG
International Corporation (LGIC), alleging that in 1988,
HYATT was appointed by LGISC and LGIC as the
exclusive distributor of LG elevators in the Philippines
under a “Distributorship Agreement.” In the latter part of
1996, LGISC made a proposal to change the
Distributorship Agreement to that of the joint venture,
however HYATT allege that the representatives of
LGISC and LGIC conducted the meeting in bad faith in
order to put pressures upon them and eventually
terminated the Exclusive Distributorship Agreement.
2. LGISC and LGIC filed a Motion to Dismiss on the
following grounds: (1) lack of jurisdiction over the
persons of defendants, summons not having been
served on its resident agent; (2) improper venue; and (3)
failure to state a cause of action.
3. HYATT then filed a motion for leave of court to amend
the complaint when it learned that LGISC was to be
substituted to LG Otis because of the latter succeeding
the former. THe motion also averred that Goldstar was
being utilized by LG OTIS and LGIC in perpetrating their
unlawful and unjustified acts against HYATT. Goldstar
was additionally impleaded as a party-defendant.
4. Goldstar filed a Motion to Dismiss the amended
complaint, raising the following grounds: (1) the venue
was improperly laid, as neither HYATT nor defendants
reside in Mandaluyong City, where the original case was
filed, and (2) failure to state a cause of action agains
(respondent), since the amended complaint fails to
allege with certainty what specific ultimate acts
GOLDSTAR performed in violation of HYATT’s rights.
5. Trial court dismiss the motion. Goldstar filed a MR but
the same was dismissed. CA reversed RTC and
declared that the venue was clearly improper, because
none of the litigants “resided” in Mandaluyong City,
where the case was filed.
ISSUE:
1. WoN the venue (Mandaluyong) was improper— YES.
RULING: Petition DENIED.
RATIO:
1. Sec 2 Rule 4 of the 1997 Revised Rules of Court
states tgat “Venue of personal actions – all other actions
may be commenced and tried where the plaintiff resides,
or where the defendant or any of the principal defendant
resides, or in the case of a non-resident defendant
where he may be found, at the election of the plaintiff.”
2. But since both parties to this case are corporations,
there is a need to clarify the meaning of “residence.” The
law recognize two types of persons: (1) Natural and (2)
juridical. Corporations fall under juridical. A corporation,
however, has no residence1 in the same sense in which
this term is applied to a natural person.
3. In the case Young Auto Supply Company v Court of
Appelas, the court ruled that “for practical purposes, a
corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the
articles of incorporation.” But even before this ruling, it
has been already established that the residence of a
corporation is the place where its principal office is
established.
1 Residence is the permanent home---the place to
which, whenever absent for business or pleasure,
one intends to return
4. The court held that in the purpose of venue,
“residence” is the same with “domicile.” Correspondingly
the Civil Code provides: “Art 51. When the law creating
or recognizing them, or any other provision does not fix
the domicile of juridical persons, the same shall be
understood to be the place where their legal
representation is established or where they exercise
their principal functions.” AND Under Section 14(3) of the
Corporation Code, the place where the principal office of
the corporation is to be located is one of the required
contents of the articles of incorporation, which shall be
filed with the Securities and Exchange Commission
(SEC).
5. In the present case, there is no question as to the
residence of respondent. What needs to be examined is
that of petitioner. Admittedly, the latter’s principal place
of business is Makati, as indicated in its Articles of
Incorporation. Since the principal place of business of a
corporation determines its residence or domicile, then
the place indicated in petitioner’s articles of incorporation
becomes controlling in determining the venue for this
case.
6. HYATT argues that the Rules of Court did not provide
that when the plaintiff is a corporation, the complaint
should be filed in the location of its principal office as
indicated in its articles of incorporation. This is however
settled by jurisprudence.
7. The choice of venue should not be left to the plaintiff’s
whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court
even if not allowed by the rules on venue.
2. Sy vs Tyson Enterprises
119 SCRA 367 – Business Organization – Corporation
Law – Business Address
In 1979, Tyson Enterprises, Inc. filed a collection suit
against Universal Parts Supply Corporation and its
president John Sy. The suit was filed in Pasig, Rizal.
John Sy filed a motion to file for a bill of particulars which
was denied. Subsequently, Sy filed a motion to dismiss
on the ground of improper venue. Sy alleged that Tyson
Enterprises should have filed the case either in Bacolod
City (business address of Universal Parts) or in Manila
(business address of Tyson Enterprises). Sy alleged that
it is improper for Tyson Enterprises to file the case in
Pasig even if it is the residence of Tyson’s president and
general manager, Dominador Ti.
The trial court as well as the Court of Appeals denied
Sy’s motion on the ground that he waived the defense of
improper venue when he filed his motion to file for a bill
of particulars; that the prior motion placed Sy under the
jurisdiction of the trial court.
ISSUE: Whether or not a plaintiff-corporation may file a
civil case not in its business address nor the business
address/residence of the defendant but in the place of
residence of its incorporators/officers.
HELD: No. A corporation has a separate and distinct
personality from its incorporators. Its place of business is
its residence and not the residence of its president or
any other officer. Hence, venue is improperly laid in this
case. The trial court of Pasig has no jurisdiction.
Anent the issue that there was a waiver, as a rule, the
defense of improper venue is waived if it is not alleged in
a motion to dismiss. In the case at bar, Sy was able to
file his motion to dismiss in a timely manner. It is of no
moment that there was a prior motion for a bill of
particulars that was filed. There is nothing in the rule that
states that no other motion should have been filed prior
to filing a motion to dismiss before a motion to dismiss
grounded on improper venue may be allowed.
3. Young Auto Supply vs. Court of Appeals
[GR 104175, 25 June 1993]
Facts: On 28 October 1987, Young Auto Supply Co. Inc.
(YASCO) represented by Nemesio Garcia, its president,
Nelson Garcia and Vicente Sy, sold all of their shares of
stock in Consolidated Marketing & Development
Corporation (CMDC) to George C. Roxas. The purchase
price was P8,000,000.00 payable as follows: a down
payment of P4,000,000.00 and the balance of
P4,000,000.00 in four postdated checks of
P1,000,000.00 each. Immediately after the execution of
the agreement, Roxas took full control of the four
markets of CMDC. However, the vendors held on to the
stock certificates of CMDC as security pending full
payment of the balance of the purchase price. The first
check of P4,000,000.00, representing the down
payment, was honored by the drawee bank but the four
other checks representing the balance of P4,000,000.00
were dishonored. In the meantime, Roxas sold one of
the markets to a third party. Out of the proceeds of the
sale, YASCO received P600,000.00, leaving a balance
of P3,400,000.00.
Subsequently, Nelson Garcia and Vicente Sy assigned
all their rights and title to the proceeds of the sale of the
CMDC shares to Nemesio Garcia. On 10 June 1988,
YASCO and Garcia filed a complaint against Roxas in
the Regional Trial Court, Branch 11, Cebu City, praying
that Roxas be ordered to pay them the sum of
P3,400,000.00 or that full control of the three markets be
turned over to YASCO and Garcia. The complaint also
prayed for the forfeiture of the partial payment of
P4,600,000.00 and the payment of attorney's fees and
costs. Failing to submit his answer, and on 19 August
1988, the trial court declared Roxas in default. The order
of default was, however, lifted upon motion of Roxas. On
22 August 1988, Roxas filed a motion to dismiss. After a
hearing, wherein testimonial and documentary evidence
were presented by both parties, the trial court in an
Order dated 8 February 1991 denied Roxas' motion to
dismiss. After receiving said order, Roxas filed another
motion for extension of time to submit his answer. He
also filed a motion for reconsideration, which the trial
court denied in its Order dated 10 April 1991 for being
pro-forma. Roxas was again declared in default, on the
ground that his motion for reconsideration did not toll the
running of the period to file his answer. On 3 May 1991,
Roxas filed an unverified Motion to Lift the Order of
Default which was not accompanied with the required
affidavit of merit. But without waiting for the resolution of
the motion, he filed a petition for certiorari with the Court
of Appeals. The Court of Appeals dismissal of the
complaint on the ground of improper venue. A
subsequent motion for reconsideration by YASCO was to
no avail. YASCO and Garcia filed the petition.
Issue: Whether the venue for the case against YASCO
and Garcia in Cebu City was improperly laid.
Held: A corporation has no residence in the same sense
in which this term is applied to a natural person. But for
practical purposes, a corporation is in a metaphysical
sense a resident of the place where its principal office is
located as stated in the articles of incorporation. The
Corporation Code precisely requires each corporation to
specify in its articles of incorporation the "place where
the principal office of the corporation is to be located
which must be within the Philippines." The purpose of
this requirement is to fix the residence of a corporation in
a definite place, instead of allowing it to be ambulatory.
Actions cannot be filed against a corporation in any
place where the corporation maintains its branch offices.
The Court ruled that to allow an action to be instituted in
any place where the corporation has branch offices,
would create confusion and work untold inconvenience
to said entity. By the same token, a corporation cannot
be allowed to file personal actions in a place other than
its principal place of business unless such a place is also
the residence of a co-plaintiff or a defendant. With the
finding that the residence of YASCO for purposes of
venue is in Cebu City, where its principal place of
business is located, it becomes unnecessary to decide
whether Garcia is also a resident of Cebu City and
whether Roxas was in estoppel from questioning the
choice of Cebu City as the venue. The decision of the
Court of Appeals was set aside.
CORPORATE TERM
1. Benguet Consolidated Mining Co vs Pineda
98 Phil 711 – Business Organization – Corporation Law
– Sociedad Anonima – Corporate Existence
Benguet Consolidated Mining Company was organized
in 1903 under the Spanish Code of Commerce of 1886
as a sociedad anonima. It was agreed by the
incorporators that Benguet Mining was to exist for 50
years.
In 1906, Act 1459 (Corporation Law) was enacted which
superseded the Code of Commerce of 1886. Act 1459
essentially introduced the American concept of a
corporation. The purpose of the law, among others, is to
eradicate the Spanish Code and make sociedades
anonimas obsolete.
In 1953, the board of directors of Benguet Mining
submitted to the Securities and Exchange Commission
an application for them to be allowed to extend the life
span of Benguet Mining. Then Commissioner Mariano
Pineda denied the application as it ruled that the
extension requested is contrary to Section 18 of the
Corporation Law of 1906 which provides that the life of a
corporation shall not be extended by amendment
beyond the time fixed in their original articles.
Benguet Mining contends that they have a vested right
under the Code of Commerce of 1886 because they
were organized under said law; that under said law,
Benguet Mining is allowed to extend its life by simply
amending its articles of incorporation; that the prohibition
in Section 18 of the Corporation Code of 1906 does not
apply to sociedades anonimas already existing prior to
the Law’s enactment; that even assuming that the
prohibition applies to Benguet Mining, it should be
allowed to be reorganized as a corporation under the
said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to
extend its life. It is a well settled rule that no person has
a vested interest in any rule of law entitling him to insist
that it shall remain unchanged for his benefit. Had
Benguet Mining agreed to extend its life prior to the
passage of the Corporation Code of 1906 such right
would have vested. But when the law was passed in
1906, Benguet Mining was already deprived of such
right.
To allow Benguet Mining to extend its life will be inimical
to the purpose of the law which sought to render
obsolete sociedades anonimas. If this is allowed,
Benguet Mining will unfairly do something which new
corporations organized under the new Corporation Law
can’t do – that is, exist beyond 50 years. Plus, it would
have reaped the benefits of being a sociedad anonima
and later on of being a corporation. Further, under the
Corporation Code of 1906, existing sociedades
anonimas during the enactment of the law must choose
whether to continue as such or be organized as a
corporation under the new law. Once a sociedad
anonima chooses one of these, it is already proscribed
from choosing the other. Evidently, Benguet Mining
chose to exist as a sociedad anonima hence it can no
longer elect to become a corporation when its life is near
its end.
2. Alhambra Cigar vs SEC
24 SCRA 269 – Business Organization – Corporation
Law – Corporate Lifespan
On January 15, 1912, Alhambra Cigar & Cigarette
Manufacturing Company, Inc. was incorporated. Its
lifespan was for 50 years so on January 15, 1962, it
expired. Thereafter, its Board authorized its liquidation.
Under the prevailing law, Alhambra has 3 years to
liquidate.
In 1963, while Alhambra was liquidating, Republic Act
3531 was enacted. It amended Section 18 of the
Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the
period fixed by the articles of incorporation for a term not
to exceed fifty years in any one instance. Previous to
Republic Act 3531, the maximum non-extendible term of
such corporations was fifty years.
Alhambra now amended its articles of incorporation to
extend its lifespan for another 50 years. The Securities
and Exchange Commission (SEC) denied the amended
articles of incorporation.
ISSUE: Whether or not a corporation under liquidation
may still amend its articles of incorporation to extend its
lifespan.
HELD: No. Alhambra cannot avail of the new law
because it has already expired at the time of its
passage. When a corporation is liquidating pursuant to
the statutory period of three years to liquidate, it is only
allowed to continue for the purpose of final closure of its
business and no other purposes. In fact, within that
period, the corporation is enjoined from “continuing the
business for which it was established”. Hence,
Alhambra’s board cannot validly amend its articles of
incorporation to extend its lifespan.
3. Majority Stockholders vs Lim
Short Summary: This lengthy case involves the validity
of the infusion of additional capital effected by the board
of directors, the questionable issuance of shares of stock
by the majority stockholders and the extension of
RUBY’s corporate term. As described by the SC, the
present action has been instituted for the purpose of
protecting the true and legitimate interests of Ruby
against the Majority Stockholders.
RUBY has been experiencing severe liquidity problem.
The majority stockholders wanted to infuse more capital
into the corporation through issuance of additional
shares. Hence, the Revised BENHAR/RUBY
Rehabilitation Plan of the majority stockholders
proposed to call for subscription of unissued shares for
P11.814M. This led to the special meeting of RUBY’s
board meeting whose resolution authorized the issuance
of the unissued portion of the authorized capital stocks
of the corporation in the form of common stocks.
However, the minority stockholders contended, among
others, that they were not given notice as required and
reasonable time to exercise their pre-emptive rights.
Hence, the minority stockholders wanted to nullify the
acts of the majority stockholders in implementing the
capital infusion. Pre-emptive right refers to the right of a
stockholder of a stock corporation to subscribe to all
issues or disposition of shares of any class, in proportion
to their respective shareholdings. SC ruled in favor of the
minority stockholders.
Facts:
- Ruby Industrial Corporation (RUBY) is a domestic
corporation engaged in glass manufacturing. Reeling
from severe liquidity problems beginning in 1980, RUBY
filed on December 13, 1983 a petition for suspension of
payments with the SEC which was granted.
- On August 10, 1984, the SEC Hearing Panel created
the management committee (MANCOM) for RUBY,
composed of representatives from Ruby’s creditors. One
of the many task of MANCOM is study, review and
evaluate the proposed rehabilitation plan for RUBY.
- Subsequently, two (2) rehabilitation plans were
submitted to the SEC the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu
Kim Giang, and the Alternative Plan of the minority
stockholders represented by Miguel Lim (Lim). But the
implementation of both majority plans has been enjoined
by the SEC and CA. Later, the SC issued a final
injunction on the implementation.
- Sept 18, 1991: Notwithstanding the injunction order,
SEC issued an Order approving the Revised
BENHAR/RUBY Plan and creating a new management
committee to oversee its implementation. It also
dissolves the MANCOM.
- The Revised BENHAR/RUBY Plan had proposed the
calling for subscription of unissued shares through a
Board Resolution from the P11.814 million of theP23.7
million ACS “in order to allow the long overdue program
of the REHAB Program.”
- Oct 2, 1991: To implement the Revised plan, RUBY’s
board of directors held a special meeting and took up the
capital infusion of P11.814 Million representing the
unissued and unsubscribed portion of the present ACS
of P23.7 Million.
- The Board resolved that: The corporation be authorized
to issue out of the unissued portion of the authorized
capital stocks of the corporation in the form of common
stocks 11.8134.00 [Million] to be subscribed and paid in
full by the present stockholders in proportion to their
present stockholding in the corporation on staggered
basis…and that should any of the stockholders fail to
exercise their rights to buy the number of shares they
are qualified to buy by making the first installment
payment of 25% on or before October 13, 1991, then the
other stockholders may buy the same and that only
when none of the present stockholders are interested in
the shares may there be a resort to selling them by
public auction.
- The minority directors claimed they were not notified of
said board meeting.
- Sept 1, 1996: Lim receive a Notice of Stockholders’
Meeting scheduled on September 3, 1996. The matters
that will be taken up in said meeting include the
extension of RUBY’s corporate term for another twenty-
five (25) years and election of Directors.
- Sept 3, 1996: Lim together with other minority
stockholders, appeared in order to put on record their
objections on the validity of holding thereof and the
matters to be taken therein. Specifically, they questioned
the percentage of stockholders present in the meeting
which the majority claimed stood at 74.75%(from
59.829%) of the outstanding capital stock of RUBY. Lim
argued that the majority stockholders claimed to have
increased their shares to 74.75% by subscribing to the
unissued shares of the authorized capital stock (ACS).
Lim pointed out that such move of the majority was in
implementation of the BENHAR/RUBY Plan which calls
for capital infusion of P11.814 Million representing the
unissued and unsubscribed portion of the present ACS
of P23.7 Million.
- Jan 20, 1998: the SC affirmed CA decision setting
aside the SEC orders approving the Revised
BENHAR/RUBY Plan because it not only recognized the
void deeds of assignments entered into with some of
RUBY’s creditors in violation of the CA’s decision in CA-
G.R. SP No. 18310, but also maintained a financing
scheme which will just make the rehabilitation plan more
costly and create a worse situation for RUBY.
- Mar 17, 2000, Lim filed a Motion informing the SEC of
acts being performed by BENHAR and RUBY. Allegedly,
the implementation of the new percentage stockholdings
of the majority stockholders and the calling of
stockholders’ meeting and the subsequent resolution
approving the extension of corporate life of RUBY for
another twenty-five (25) years, were all done in violation
of the decisions of the CA and this Court, and without
compliance with the legal requirements under the
Corporation Code. There being no valid extension of
corporate term, RUBY’s corporate life had legally
ceased. Consequently, Lim moved that the SEC: (1)
declare as null and void the infusion of additional capital
made by the majority stockholders and restore the
capital structure of RUBY to its original structure prior to
the time injunction was issued; and (2) declare as null
and void the resolution of the majority stockholders
extending the corporate life of RUBY for another twenty-
five (25) years.
- Sept 18, 2002, the SEC overruled the objections
raised by the minority stockholders regarding the
questionable issuance of shares of stock by the majority
stockholders and extension of RUBY’s corporate term
because the filing of the amendment of articles of
incorporation by RUBY in 1996 complied with all the
legal requisites and hence the the presumption of
regularity in the act of a government entity stands. It
pointed out that Lim raised the issue only in the year
2000. Moreover, the SEC found that notwithstanding his
allegations of fraud, Lim never proved the illegality of the
additional infusion of the capitalization by RUBY so as to
warrant a finding that there was indeed an unlawful act.
- Before the CA, Lim demonstrated the following
evidence to rebut the presumption of regularity:
(1) it was the board of directors and not the stockholders
which conducted the meeting without the approval of the
MANCOM; (2) there was no written waivers of the
minority stockholders’ pre-emptive rights and thus it was
irregular to merely notify them of the board of directors’
meeting and ask them to exercise their option; (3) there
was an existing permanent injunction against any
additional capital infusion on the BENHAR/RUBY Plan,
while the CA and this Court both rejected the Revised
BENHAR/RUBY Plan; (4) there was no General
Information Sheet reports made to the SEC on the
alleged capital infusion, as per certification by the SEC.
CA Decision (which is cited by SC in its decision):
- SEC erred in not finding that the October 2, 1991
meeting held by RUBY’s board of directors was illegal
because the MANCOM was neither involved nor
consulted in the resolution approving the issuance of
additional shares of RUBY. The CA further noted that the
October 2, 1991 board meeting was conducted on the
basis of the September 18, 1991 order of the SEC
Hearing Panel approving the Revised BENHAR/RUBY
Plan, which plan was set by CA and SC.
- The CA pointed out that records confirmed the
proposed infusion of additional capital for RUBY’s
rehabilitation, approved during said meeting, as
implementing the Revised BENHAR/RUBY Plan.
Necessarily then, such capital infusion is covered by the
final injunction against the implementation of the revised
plan.
- The CA likewise faulted the SEC in relying on the
presumption of regularity on the matter of the extension
of RUBY’s corporate term through the filing of amended
articles of incorporation. SEC should have invalidated
the resolution extending the corporate term of RUBY for
another twenty-five (25) years. With the expiration of the
RUBY’s corporate term, the CA ruled that it was error for
the SEC in not commencing liquidation proceedings.
Issue: WON the additional capital infusion is valid? [No
because the issuance of additional shares was done in
breach of trust by the controlling stockholders. Here, the
majority sought to impose their will and, through
fraudulent means, attempt to siphon off Ruby’s valuable
assets to the great prejudice of Ruby itself, as well as
the minority stockholders and the unsecured creditors.]
Ratio: A stock corporation is expressly granted the
power to issue or sell stocks. The power to issue shares
of stock in a corporation is lodged in the board of
directors and no stockholders’ meeting is required to
consider it because additional issuances of shares of
stock do not need approval of the stockholders. What is
only required is the board resolution approving the
additional issuance of shares. The corporation shall also
file the necessary application with the SEC to exempt
these from the registration requirements under the
Revised Securities Act (now the Securities Regulation
Code).
But CA found, which the Court affirmed, that: the
foregoing payment schedules as embodied in the said
Revised plan which gives Benhar undue advantage over
the other creditors goes against the very essence of
rehabilitation, which requires that no creditor should be
preferred over the other. One of the salient features of
the Revised Benhar/Ruby Plan is to Call on unissued
shares forP11.814 M and if minority will take up their
pre-emptive rights and dilute minority shareholdings.
With the nullification of the Revised BENHAR/RUBY
Plan by both CA and SC on Jan 20, 1998, the legitimate
concerns of the minority stockholders and MANCOM
who objected to the capital infusion which resulted in the
dilution of their shareholdings, the expiration of RUBY’s
corporate term and the pending incidents on the void
deeds of assignment of credit – all these should have
been duly considered and acted upon by the SEC when
the case was remanded to it for further proceedings.
With the final rejection of the courts of the Revised
BENHAR/RUBY Plan, it was grave error for the SEC not
to act decisively on the motions filed by the minority
stockholders who have maintained that the issuance of
additional shares did not help improve the situation of
RUBY except to stifle the opposition coming from the
MANCOM and minority stockholders by diluting the
latter’s shareholdings. Worse, the SEC ignored the
evidence adduced by the minority stockholders
indicating that the correct amount of subscription of
additional shares was not paid by the majority
stockholders and that SEC official records still reflect the
60%-40% percentage of ownership of RUBY.
The SEC remained indifferent to the reliefs sought by the
minority stockholders, saying that the issue of the validity
of the additional capital infusion was belatedly raised.
Even assuming the October 2, 1991 board meeting
indeed took place, the SEC did nothing to ascertain
whether indeed, as the minority claimed: (1) the minority
stockholders were not given notice as required and
reasonable time to exercise their pre-emptive rights; and
(2) the capital infusion was not for the purpose of
rehabilitation but a mere ploy to divest the minority
stockholders of their 40.172% shareholding and reduce
it to a mere 25.25%.
Pre-emptive right under Sec. 39 of the Corporation Code
refers to the right of a stockholder of a stock corporation
to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings.
The right may be restricted or denied under the articles
of incorporation, and subject to certain exceptions and
limitations. The stockholder must be given a reasonable
time within which to exercise their preemptive rights.
Upon the expiration of said period, any stockholder who
has not exercised such right will be deemed to have
waived it.
The validity of issuance of additional shares may be
questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does
not exist, either because the issue comes within the
exceptions in Section 39 or because it is denied or
limited in the articles of incorporation, an issue of shares
may still be objectionable if the directors acted in breach
of trust and their primary purpose is to perpetuate or shift
control of the corporation, or to “freeze out” the minority
interest. In this case, the following relevant observations
should have signaled greater circumspection on the part
of the SEC -- upon the third and last remand to it
pursuant to our January 20, 1998 decision -- to demand
transparency and accountability from the majority
stockholders, in view of the illegal assignments and
objectionable features of the Revised BENHAR/RUBY
Plan, as found by the CA and as affirmed by this Court:
There can be no gainsaying the well-established rule in
corporate practice and procedure that the will of the
majority shall govern in all matters within the limits of the
act of incorporation and lawfully enacted by-laws not
proscribed by law. It is, however, equally true that other
stockholders are afforded the right to intervene
especially during critical periods in the life of a
corporation like reorganization, or in this case,
suspension of payments, more so, when the majority
seek to impose their will and through fraudulent means,
attempt to siphon off Ruby’s valuable assets to the great
prejudice of Ruby itself, as well as the minority
stockholders and the unsecured creditors.
Certainly, the minority stockholders and the unsecured
creditors are given some measure of protection by the
law from the abuses and impositions of the majority,
more so in this case, considering the give-away signs of
private respondents’ perfidy strewn all over the factual
landscape. Indeed, equity cannot deprive the minority of
a remedy against the abuses of the majority, and the
present action has been instituted precisely for the
purpose of protecting the true and legitimate interests of
Ruby against the Majority Stockholders. On this score,
the Supreme Court, has ruled that:
“Generally speaking, the voice of the majority of the
stockholders is the law of the corporation, but there are
exceptions to this rule. There must necessarily be a limit
upon the power of the majority. Without such a limit the
will of the majority will be absolute and irresistible and
might easily degenerate into absolute tyranny. x x x”[67]
(Additional emphasis supplied.)
Lamentably, the SEC refused to heed the plea of the
minority stockholders and MANCOM for the SEC to
order RUBY to commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on
Corporate Recovery. Under the circumstances,
liquidation was the only hope of the minority
stockholders for effecting an orderly and equitable
settlement of RUBY’s obligations, and compelling the
majority stockholders to account for all funds, properties
and documents in their possession, and make full
disclosure on the nullified credit assignments.
In fine, no error was committed by the CA when it set
aside the September 18, 2002 Order of the SEC and
declared the nullity of the acts of majority stockholders in
implementing capital infusion through issuance of
additional shares in October 1991 and the board
resolution approving the extension of RUBY’s corporate
term for another 25 years.
COMMENCEMENT OF CORPORATE EXISTENCE
1. Marc II Marketing, Inc. vs. Joson
G.R. No. 171993. December 12, 2011.
Petitioner Marc II Marketing, Inc. is a corporation
primarily engaged in buying, marketing, selling and
distributing in retail or wholesale for export or import
household appliances and products and other items.
Respondent Alfredo Joson, on the other hand, was the
General Manager, incorporator, director and stockholder
of petitioner corporation. Lucila Goson, in her capacity
as President of Marc Marketing, Inc., to work as the
General Manager of petitioner corporation. It was
formalized through the execution of a Management
Contract as petitioner corporation is yet to be
incorporated at the time of its execution. It was explicitly
provided therein that respondent shall be entitled to 30%
of its net income for his work as General Manager.
Respondent will also be granted 30% of its net profit to
compensate for the possible loss of opportunity to work
overseas. Petitioner corporation decided to stop and
cease its operations, due to poor sales collection
aggravated by the inefficient management of its affairs.
On the same date, it formally informed respondent of the
cessation of its business operation. Concomitantly,
respondent was apprised of the termination of his
services as General Manager since his services as such
would no longer be necessary for the winding up of its
affairs. Feeling aggrieved, respondent filed a Complaint
for Reinstatement and Money Claim against petitioners
before the Labor Arbiter. Insisting that the Labor Arbiter
has no jurisdiction over the case, petitioners instead filed
an Urgent Motion to Resolve the Motion to Dismiss and
the Motion to Suspend Filing of Position Paper.
ISSUES:
1. Which between the Labor Arbiter or the RTC, has
jurisdiction over respondent’s dismissal as General
Manager of petitioner corporation.
2. Whether respondent as General Manager of petitioner
corporation is a corporate officer or a mere employee of
the latter.
RULING:
1. The Labor Arbiter has jurisdiction over the case.
Respondent’s dismissal as petitioner corporation’s
General Manager did not amount to an intra-corporate
controversy which is exclusively cognizable by the
Regional Trial Courts. The dismissal of a corporate
officer is always regarded as a corporate and/or an intra-
corporate controversy. Intra-corporate controversies also
include controversies in the election or appointments of
directors, trustees, officers or managers of such
corporations, partnerships or associations.
2. Respondent is not a corporate officer, but an
employee of the corporation. Corporate officers are
those officers of a corporate who are given that
character either by the Corporation Code or by the
corporation’s by-laws. The aforesaid Section 25 of the
Corporation Code, particularly the phrase “such other
officers as may be provided for in the by-laws,” has been
clarified and elaborated in this Court’s recent
pronouncement in Matling Industrial and Commercial
Corporation v. Coros, 633 SCRA 12 (2010), where it
held, thus: Conformably with Section 25, a position must
be expressly mentioned in the [b]y-[l]aws in order to be
considered as a corporate office. Thus, the creation of
an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate
office. A careful perusal of petitioner corporation’s by-
laws, particularly paragraph 1, Section 1, Article IV,
would explicitly reveal that its corporate officers are
composed only of: (1) Chairman; (2) President; (3) one
or more Vice-President; (4) Treasurer; and (5)
Secretary. The position of General Manager was not
among those enumerated. The board of directors has no
power to create other corporate offices without first
amending the corporate by-laws so as to include therein
the newly created corporate office. The corporate
officers enumerated in the by-laws are the exclusive
officers of the corporation while the rest could only be
regarded as mere employees or subordinate officials.
INCORPORATORS
1. NAUTICA CANNING CORPORATION, FIRST
DOMINION PRIME HOLDINGS,INC. and FERNANDO
R. ARGUELLES, JR., v. ROBERTO C. YUMUL
G.R. No. 164588, October 19, 2005, YNARES-
SANTIAGO
FACTS: Yumul was one of the incorporators of Nautica
Canning Corporation. Under the AOI, Yumul has
subscribed to 1 share with par value of Php 100. Yumul
was appointed Chief Operating Officer/General Manager
of Nautica. First Dominion Prime Holdings, Inc. (FDPHI),
Nautica’s parent company, through its Chairman Alvin Y.
Dee, granted Yumul an Option to Purchase up to 15% of
the total stocks it subscribed from Nautica. A Deed of
Trust and Assignment was executed between FDPHI
and Yumul whereby the former assigned 14,999 of its
subscribed shares in Nautica to the latter. The deed
stated that the 14,999 “shares were acquired and paid
for in the name of the ASSIGNOR only for convenience,
but actually executed in behalf of and in trust for the
ASSIGNEE.”
When Nautica declared dividends, Yumul received his
cash dividend representing his 15% share. Upon
resignation, Yumul requested Dee to formalize his offer
to buy Yumul’s 15% share in Nautica and demanding the
issuance of the corresponding certificate of shares in his
name should Dee refuse to buy the same. Dee, through
Nautica’s corporate secretary, denied the request
claiming that Yumul was not a stockholder of Nautica
and that he was just a nominal owner of one share as
the beneficial ownership belonged to Dee who paid for
said share when Nautica was incorporated. Yumul
requested that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica, and
that he, as a stockholder, be allowed to inspect its books
and records.
Yumul’s requests were denied allegedly because he
neither exercised the option to purchase the shares nor
paid for the acquisition price of the 14,999 shares. Atty.
Arguelles maintained that the cash dividend received by
Yumul is held by him only in trust for First Dominion
Prime Holdings, Inc.
Yumul filed a petition for mandamus with the SEC,
praying that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica and
that the certificate of stocks corresponding thereto be
issued in his name. The SEC ruled in favor of Yumul.
Upon appeal, the CA affirmed the SEC ruling.
ISSUES:
1. WON Yumul has transferred his subscription to Dee
and has thereby ceased to be a stockholder of Nautica.
2. WON the Corporate Secretary of Nautica may be
compelled to record the Deed of Assignment in the Stock
and Transfer Book of the corporation.
HELD:
1. NO. The validity of its incorporation is not affected
when such individual gives nominal ownership of only
one share of stock to each of the other four
incorporators. Incorporators continue to be stockholders
of a corporation unless, subsequent to the incorporation,
they have validly transferred their subscriptions to the
real parties in interest. A transfer of shares of stock not
recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is
concerned. As between the corporation on the one hand,
and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of
determining who its shareholders are. Without such
recording, the transferee may not be regarded by the
corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock
certificates. Even granting that there was an agreement
between Yumul and Dee whereby the former is holding
the share in trust for Dee, the same is binding only as
between them thus, the SEC and the Court of Appeals
correctly found Yumul to be a stockholder of Nautica.
The conduct of the parties also constitute sufficient proof
of Yumul’s status as a stockholder. He was elected as a
director, thereafter, he was elected as president. Thus,
Nautica and its stockholders knowingly held Yumul out to
the public as an officer and a stockholder of the
corporation.
2. NO. Petitioners allege that Yumul failed to exercise
the option to purchase shares of stocks in Nautica, thus
there was no cause or consideration for the Deed of
Trust and Assignment, which makes it void for being
simulated or fictitious. Anent the validity of the Deed of
Trust and Assignment, the Court ruled that the
determination of whether a contract is simulated or not is
an issue that could be resolved by applying pertinent
provisions of the Civil Code, particularly those relative to
obligations and contracts. Disputes concerning the
application of the Civil Code are properly cognizable by
courts of general jurisdiction. The SC refrained from
ruling on whether or not Yumul can compel the corporate
secretary to register said deed. It is only after an
appropriate case is filed and decision rendered thereon
by the proper forum can the issue be resolved.