BLISS DEVELOPMENT CORP.
EMPLOYEES UNION to register in accordance with Section 7 of executive Order
SENTRO NG DEMOKRATIKONG MANGGAGAWA
(BDCEU-SDM) vs. HON. PURA FERRER CALLEJA
G.R. No. 80887 September 30, 1994
FACTS:
Petitoner BDCEU-SDM is a duly registered labor union. It
filed with the Department of Labor, National Capital Region, a
petition for certification election of private respondent Bliss
Development Corporation (BDC).
Med-Arbiter Fernando dismissed the petition for lack of
jurisdiction stating that the majority of BDC’s stocks is owned
by the Human Settlement Development Corporation (HSDC),
a wholly-owned government corporation. Therefore, BDC is
subject to Civil Service law, rules and regulations. Its
employees therefore, are prohibited to join or form labor
organization.
Petitioner then filed an appeal with Bureau of Labor Relations.
In the meantime, President Corazon Aquino issued Executive
Order No. 180, extending to government employees the right
to organize and bargain collectively.
Respondent Director Calleja (BLR) issued an order dismissing
the appeal ruling that Bliss Development Corporation which is
under the then Ministry of Human Settlement, is a
government Corporation where the workers are prohibited
from organizing and joining labor unions.
However, with the issuance of EO 180 (government
employees are now given the right to bargain), the BLR
enjoins the petitioner to register in accordance with the
provisions in said executive order.
ISSUE:
W/N BDC is a government-owned controlled
corporation subject to Civil Service Laws, rules and
regulations. Corollary to this issue is the question of W/N
petitioner is covered by Executive Order No. 180 and must
register as a precondition for filing a petition for certification
election.
RULING:
In determining whether a corporation created under the
Corporation Code is government owned or controlled or not,
the rule applied is the ownership test whereby a corporation
will be deemed owned by the government if the majority of
its voting stocks are owned by the government.
It appearing that Human Settlement Development
Corporation (HSDC), which is a wholly-owned government
corporation, owns a majority of the stocks of Bliss
Development Corporation (BDC), our conclusion is that BDC
is a government-owned corporation subject to the
coverage of the Civil Service law, rules and
regulations.
Section 1 of Executive Order No. 180 expressly limits its
application to only government-owned or controlled
corporations with original charters. Hence, public
respondent's order dated August 7, 1987 requiring petitioner
No. 180 is without legal basis.
A government-owned corporation could create several
subsidiary corporations. Conceivably, all government-owned
or controlled corporations could be created, no longer by
special charters, but through incorporations under the general
law.
The Civil Service embraces government-owned or controlled
corporations with original charter; and, therefore, by clear
implication, the Civil Service does not include government-
owned or controlled corporations which are organized as
subsidiaries of government-owned or controlled corporations
under the general corporation law.
A corporation is created by operation of law. It acquires a
judicial personality either by special law or a general law. The
general law under which a private corporation may be formed
or organized is the Corporation Code, the requirements of
which must be complied with by those wishing to incorporate.
Only upon such compliance will the corporation come into
being and acquire a juridical personality, thus giving rise to its
right to exist and act as a legal entity. On the other hand, a
government corporation is normally created by special law,
referred to often as a charter.
BDC is a government-owned corporation created under the
Corporation Law. It is without a charter hence, Executive
Order No. 180 does not apply to it.
Consequently, public respondent committed grave abuse of
discretion in ordering petition to register under Section 7, of
Executive Order No. 180 as a precondition for filing a petition
for certification election.
G.R. No. 111008 November 7, 1994
TRAMAT MERCANTILE, INC. AND
DAVID ONG, petitioners,
vs. HON. COURT OF APPEALS AND
MELCHOR DE LA
CUESTA, respondents.
TOPIC: Corporate officers and agents -
Authority; Liability of corporate officers
FACTS:
1. Melchor de la Cuesta, doing business
under the name and style of "Farmers
Machineries," sold to Tramat, 1 unit
HINOMOTO TRACTOR.
2. David Ong, Tramat's president and
manager, issued check for P33,500
payment (apparently replacing an
 earlier postdated check for
P33,080.00).
3. Tramat, in turn, sold the tractor,
together with an attached lawn mower
fabricated by it, to the Metropolitan
Waterworks and Sewerage System
("NAWASA") for P67,000.
4. David Ong caused a "stop payment" of
the check when NAWASA refused to
pay the tractor and lawn mower after
discovering that, aside from some
stated defects of the attached lawn
mower, the engine was a its stockholders or
reconditioned unit.
5. De la Cuesta filed an action for the
recovery of P33,500.
6. ONG averred:
- that de la Cuesta had no cause
of action; that the questioned
transaction was between
plaintiff and Tramat Mercantile,
Inc., and not with Ong in his personal
capacity; and
- that the payment of the check
was stopped because the subject
tractor had been priced as a brand
new, not as a reconditioned unit.
7. The trial court ruled in favor of
petitioner.
8. CA affirmed. MR was denied.
ISSUE: WON Ong jointly and severally
liable with Tramat? NO!
HELD:
Ong acted, not in his personal
capacity, but as an officer of a
corporation, TRAMAT, with a distinct and
separate personality. As such, it should
only be the corporation, not the person
acting for and on its behalf, that properly
could be made liable thereon.
Personal liability of a corporate
director, trustee or officer along (although
not necessarily) with the corporation may
so validly attach, as a rule, only when —
1. He assents:
(a) to a patently unlawful
act of the corporation, or
(b) for bad faith, or gross
negligence in directing its affairs, or
(c) for conflict of interest,
resulting in damages to the corporation,
other
persons;
2. He consents to the issuance of
watered stocks or who, having
knowledge thereof, does not
forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself
personally and solidarily liable with the
corporation; or
4. He is made, by a specific
provision of law, to personally answer for
his corporate action.
In the case at bench, there is no
indication that petitioner David Ong could
be held personally accountable under
any of the abovementioned cases.
Petition is given due course.
Appealed decision is modified as it holds
petitioner Ong jointly and severally liable
with Tramat Mercantile, Inc. In all other
respects, the decision appealed from is
affirmed.
LUIS C. CLEMENTE, LEONOR CLEMENTE
DE ELEPAÑO, HEIRS OF ARCADIO C.
OCHOA, represented by FE O. OCHOA-
BAYBAY, CONCEPCION, MARIANO,
ARTEMIO, VICENTE, ANGELITA, ROBERTO,
HERNANDO AND LOURDES, all surnamed
ELEPAÑO, petitioners, vs. THE HON. COURT
OF APPEALS, ELVIRA PANDINCO-CASTRO
AND VICTOR CASTRO, respondents.
G.R. No. 82407 March 27, 1995
VITUG, J.:
FACTS: Petitioners sought to be declared the owners
of a piece of land situated in Calamba, Laguna bought
by "Sociedad Popular Calambeña". The “sociedad”
was organized at the advent of the early American
occupation of the Philippines. It did business and held
itself out as a corporation from 1909 up to 1932. Its
principal business was cockfighting or the operation
and management of a cockpit. The "Sociedad"
acquired the subject parcel of land from the Friar
Lands Estate of Calamba. Patent was issued and the
Real Property Tax Register of the Office of the
Treasurer of Calamba, Laguna showed that the lot was
declared and assessed for taxation purposes.
Plaintiffs show that Mariano Elepaño and Pablo
Clemente, now both deceased, were the original
stockholders of the "sociedad." Pablo Clemente's
shares of stocks were later distributed and apportioned
to his heirs. The "sociedad" then issued stock
certificates to the heirs. On the basis of their respective
stocks certificates, they, along with the heirs of
Mariano Elepaño jointly claimed ownership over the
subject parcel of land, asserting that their fathers being
the only known stockholders of the "sociedad" they, to
the exclusion of all others, are entitled to be declared
owners of the lot. Private respondents, in their answer;
likewise claimed ownership of the property by virtue
of acquisitive prescription.
The trial court dismissed the complaint on the grounds
of insufficiency of evidence and absent a corporate
liquidation, it is the corporation, not the stockholders,
which can assert, if at all, any title to the corporate
assets. The CA sustained the dismissal of the
complaint.
ISSUE: Whether or not petitioners can be held to have
succeeded in establishing for themselves a firm title to
the property in question.
HELD: NO. Except in showing that they are the
successors-in-interest of Elepaño and Clemente,
petitioners have been unable to come up with any
evidence to substantiate their claim of ownership of
the corporate asset.
If, indeed, the sociedad has long become defunct, it
should behoove petitioners, or anyone else who may
have any interest in the corporation, to take
appropriate measures before a proper forum for a
peremptory settlement of its affairs. We might invite
attention to the various modes provided by the
Corporation Code for dissolving, liquidating or
winding up, and terminating the life of the corporation.
Among the causes for such dissolution are when the
corporate term has expired or when, upon a verified
complaint and after notice and hearing, the SEC
orders the dissolution of a corporation for its
continuous inactivity for at least 5 years. The
corporation continues to be a body corporate for 3
years after its dissolution for purposes of prosecuting
and defending suits by and against it and for enabling
it to settle and close its affairs, culminating in the
disposition and distribution of its remaining assets. It
may, during the 3-year term, appoint a trustee or a
receiver who may act beyond that period. If the 3-year
extended life has expired without a trustee or receiver
having been expressly designated by the corporation,
the board of directors (or trustees) itself may be
permitted to so continue as "trustees" by legal
implication to complete the corporate liquidation. Still
in the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including
not only the shareholders but likewise the creditors of
the corporation, acting for and in its behalf, might
make proper representations with the SEC for working
out a final settlement of the corporate concerns.
CHEMPHIL EXPORT & IMPORT
CORPORATION vs. Court of Appeals,
December 12, 1995G.R. Nos. 112438-39
Facts: Dynetics, Inc. and Antonio M. Garcia
filed a complaint for declaratory relief and/or
injunction against the PISO, BPI, LBP, PCIB
and RCBC or the consortium with the
Regional Trial Court seeking judicial
declaration, construction and interpretation
of the validity of the surety agreement that
Dynetics and Garcia had entered into with the
consortium and to perpetually enjoin the
latter from claiming, collecting and enforcing
any purported obligations which Dynetics
and Garcia might have undertaken in said
agreement. The consortium filed their
respective answers with counterclaims
alleging that the surety agreement in question
was valid and binding and that Dynetics and
Garcia were liable under the terms of the said
agreement.
A notice of garnishment covering Garcia's
shares in CIP/Chemphil (including the
disputed shares) was served on Chemphil
through its then President. The notice of
garnishment was duly annotated in the stock
and transfer books of Chemphil on the same
date.
The trial court denied the application of
Dynetics and Garcia for preliminary
injunction and instead granted the
consortium's prayer for a consolidated writ of
preliminary attachment. Hence, after the
consortium had filed the required bond, a writ
of attachment was issued and various real and
personal properties of Dynetics and Garcia
were garnished, including the disputed
shares. This garnishment, however, was not
annotated in Chemphil's stock and transfer
book.
The Court holds that the CONSORTIUM has
admitted that the writ of
attachment/garnishment issued on the shares
of stock belonging to plaintiff Antonio M.
Garcia was not annotated and registered in
the stock and transfer books of CHEMPHIL.
On the other hand, the prior attachment
issued in favor of SBTC against the same
CHEMPHIL shares of Antonio M. Garcia,
was duly registered and annotated in the
stock and transfer books of CHEMPHIL.
Issue: Whether or not the attachment of
shares of stock, in order to bind third persons,
must be recorded in the stock and transfer
book of the corporation?
Held: The Court of Appeals agreed with the
consortium's position that the attachment of
shares of stock in a corporation need not be
recorded in the corporation's stock and
transfer book in order to bind third
persons.Section 7(d), Rule 57 of the Rules of
Court was complied with by the consortium
(through the Sheriff of the trial court) when
the notice of garnishment over the Chemphil
shares of Garcia was served on the president
of Chemphil. Indeed, to bind third persons,
no law requires that an attachment of shares
of stock be recorded in the stock and transfer
book of a corporation.
Therefore, ruled the Court of Appeals, the
attachment made over the Chemphil shares in
the name of Garcia was made in accordance
with law and the lien created thereby
remained valid and subsisting at the time
Garcia sold those shares to FCI (predecessor-
in-interest of appellee CEIC) in 1988. A
secretary's major function is to assist his or
her superior. He/she is in effect an extension
of the latter. Obviously, as such, one of her
duties is to receive letters and notices for and
in behalf of her superior, as in the case at
bench.
The notice of garnishment was addressed to
and was actually received by Chemphil's
president through his secretary who formally
received it for him. Thus, in one case, 56 we
ruled that the secretary of the president may
be considered an "agent" of the corporation
and held that service of summons on him is
binding on the corporation.
Moreover, the service and receipt of the
notice of garnishment was duly
acknowledged and confirmed by the
corporate secretary of Chemphil, Rolando
Navarro and his successor Avelino Cruz
through their respective certifications.We
rule, therefore, that there was substantial
compliance with Sec. 7 (d), Rule 57 of the
Rules of Court.
First Philippine International Bank vs Court of
Appeals
252 SCRA 259 [GR No. 115849 January 24, 1996]
Facts: In the course of its banking operations, the
defendant Producer Bank of the Philippines acquired
6 parcels of land with a total area of 101 hectares
located at Don Jose, Sta. Rosa, Laguna and covered by
TCT No. T-106932 to T-106937. The property used to
be owned by BYME Investment and Development
Corporation which hd them mortgaged with the bank
as collateral for a loan. The plaintiff originals,
Demetrio Demetria and Jose Janolo wanted to
purchase the property and thus initiated negotiations
for that purpose. In the early part of August 1987 said
plaintiffs, upon the suggestion of BYME investment’s
legal counsel, Fajardo met with defendant Mercurio
Rivera, manager of the property management
department of the defendant bank. The meeting was
held in pursuant to plaintiffs’ plan to buy the property.
After the meeting, plaintiff Janolo, following the
advice of defendant Rivera made a formal purchase
offer to the Bank through a letter dated August
30,1987. Negotiations took place and an offer price
was fixed at P5.5million. During the course of the
negotiations, the defendant bank was placed under
conservatorship and a new conservator was appointed
to which the name has been refused to recognize. A
derivative suit has been filed against Rivera for the
damages suffered from the alleged perfect contract of
sale involving the 6 parcels of land.
Issue: Whether or not a derivative suit may lie
involving the bank and its stockholders.
Held: No. An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation
wherein he hold stock in order to protect or vindicate
corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones, to be sued or
hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party with
the corporation as the real party in interest.
In the face of the damaging admissions taken from the
complaint in the second case, petitioners, quite
strangely, sought to deny that the second case was a
derivative suit, reasoning that it was brought not by the
minority shareholders, but by Henry Co. etal. who not
only hold or control over 80% of the outstanding
capital stock, but also constitute the majority in the
board of directors of petitioners bank. That being so,
then they really represent the bank, so whether they
sued derivatively or directly, there is undeniably an
identity of interest/entity represented.
In addition to the many cases, where the corporate
fiction has been regarded, we now add the instant case,
and declare herewith that the corporate veil cannot be
used to shield an otherwise blatant violation of the
prohibition against forum shopping. Shareholders,
whether suing as the majority in direct actions or as the
minority in a derivative suit, cannot be allowed to trifle
with court processes particularly where, as in this case,
the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using
and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to
use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
From the facts, the official bank price, at any rte, the
bank placed its official, Rivera is a position of
authority to accept offers to buy and negotiate the sale
by having the offer officially acted upon by the bank.
The bank cannot turn around and say, as it now does,
that what Rivera states as the bank’s action on the
matter is not in fact so. It is a familiar doctrine, the
doctrine of ostensible authority, that if a corporation
on knowingly permits one of its officers, or any other
agent, to do acts within the scope of apparent
authority, and thus holds him out to the public as
possessing power to do those acts, the corporation
will, as against any one who has in good faith dealt
with the corporation through such agent, he estopped
from denying his authority.
A bank is liable for wrongful acts of its officers done
in the interest of the bank or in he course of dealings
of the officers in their representative capacity but not
for acts outside the scope of their authority. A bank
holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds
they my thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to
shrink its responsibility for such fraud even through no
benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to
innocent third persons where the representation is
made in the course of its business by an agent acting
within the general scope of its authority even though,
in the particular case, the agent is secretly abusing his
authority and attempting to perpetrate fraud upon his
principal or some other person, for his own ultimate
benefit.
Section 28-A of BP 68 merely gives the conservator
power to revoke contracts that are, under existing law,
deemed not to be effective – i.e void, voidable,
unenforceable or rescissible. Hence, the conservator
merely takes the place of a bank’s board of directors.
What the said board cannot do – such as repudiating a
contract validly entered into under the doctrine of
implied authority – the conservator cannot do either.
Santos vs. National Labor Relations
Commission
[GR 101699, 13 March 1996]
First Division, Vitug (J): 4 concur
Facts: Melvin D. Millena, on 1 October
1985, was hired to be the project accountant
for Mana Mining and Development
Corporation's (MMDC) mining operations in
Gatbo, Bacon, Sorsogon. On 12 August
1986, Millena sent to Mr. Gil Abaño, the
MMDC corporate treasurer, a memorandum
calling the latter's attention to the failure of
the company to comply with the withholding
tax requirements of, and to make the
corresponding monthly remittances to, the
Bureau of Internal Revenue (BIR) on account
of delayed payments of accrued salaries to
the company's laborers and employees. In a
letter, dated 8 September 1986, Abaño
advised Millena that it was the board's
decision that it stop porduction (operation) in
Sorsogon due to the upcoming rainy seasons
and the deterioration of the peace and order
in the said area; that the corporation will
undertake only necessary maintenance and
repair work and will keep overhead down to
the minimum manageable level; and that the
corporation will not need a project
accountant until the corporaton resumes full-
scale operations. Millena expressed "shock"
over the termination of his employment. He
complained that he would not have resigned
from the Sycip, Gores & Velayo accounting
firm, where he was already a senior staff
auditor, had it not been for the assurance of a
"continuous job" by MMDC's Eng. Rodillano
E. Velasquez. Millena requested that he be
reimbursed the "advances" he had made for
the company and be paid his "accrued
salaries/claims." The claim was not heeded.
On October 1986, Millena filed with the
NLRC Regional Arbitration, Branch No. V,
in Legazpi City, a complaint for illegal
dismissal, unpaid salaries, 13th month pay,
overtime pay, separation pay and incentive
leave pay against MMDC and its two top
officials, namely, Benjamin A Santos (the
President) and Rodillano A. Velasquez (the
executive vice-president). In his complaint-
affidavit (position paper), submitted on 27
October 1986, Millena alleged, among other
things, that his dismissal was merely an
offshoot of his letter of 12 August 1986 to
Abaño about the company's inability to pay
its workers and to remit withholding taxes to
the BIR. On 27 July 1988, Labor Arbiter
Fructouso T. Aurellano, finding no valid
cause for terminating complaint's
employment, ruledthat a partial closure of an
establishment due to losses was a
retrenchment measure that rendered the
employer liable for unpaid salaries and other
monetary claims. The Labor Arbiter ordered
Santos, et. al. to pay Millena the amount of
P37,132.25 corresponding to the latter's
unpaid salaries and advances: P5,400.00 for
petitioner's 13th month pay; P3,340.95 as
service incentive leave pay; and P5, 400.00
as separation pay. Santos, et. al. were further
ordered to pay Millena 10% of the monetary
awards as attorney's fees. Alleging abuse of
discretion by the Labor Arbiter, the company
and its co-respondents filed a "motion for
reconsideration and /or appeal." 8 The
motion/appeal was forthwith indorsed to the
Executive Director of the NLRC in Manila.
In a resolution, dated 04 September 1989, the
NLRC affirmed the decision of the Labor
Arbiter. A writ of execution correspondingly
issued; however, it was returned unsatisfied
for the failure of the sheriff to locate the
offices of the corporation in the addressed
indicated. Another writ of execution and an
order of garnishment was thereupon served
on Santos at his residence. Contending that
he had been denied due process, Santos filed
a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal
of the writ of execution and order of
garnishment. He averred that he had never
received any notice, summons or even a copy
of the complaint; hence, he said, the Labor
Arbiter at no time had acquired jurisdiction
over him. On 16 August 1991, the NLRC
dismissed the motion for reconsideration.
Santos filed the petition for certiorari.
Issue: Whether Santos should be made
solidarily liable with MMDC.
Held: A corporation is a judicial entity with
legal personality separated and distinct from
those acting for and in its behalf and, in
general, from the people comprising it. The
rule is that obligations incurred by the
corporation, acting through its directors,
officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law,
peculiar situations or valid grounds can exist
to warrant, albeit done sparingly, the
disregard of its independent being and the
lifting of the corporate veil. As a rule, this
situation might arise a corporation is used to
evade a just and due obligation or to justify a
wrong, to shield or perpetrate fraud, to carry
out similar other unjustifiable aims or
intentions, or as a subterfuge to commit
injustice and so circumvent the law. Without
necessarily piercing the veil of corporate
fiction, personal civil liability can also be
said to lawfully attach to a corporate director,
trustee or officer; to wit: When (1) He assents
(a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (b) for
conflict of interest, resulting in damages to
the corporation, its stockholders or other
persons; (2) He consents to the issuance of
watered stocks or who, having knowledge
thereof, does not forthwith file with the
corporate secretary his written objection
thereto; (3) He agrees to hold himself
personally and solidarily liable with the
corporation; or (4) He is made, by a specific
provision of law, to personally answer for his
corporate action. The case of Santos is way
of these exceptional instances. It is not even
shown that Santos has had a direct hand in the
dismissal of Millena enough to attribute to
Santos a patently unlawful act while acting
for the corporation. Neither can Article 289
of the Labor Code be applied since this
specifically refers only to the imposition of
penalties under the Code. It is undisputed that
the termination of Millena's employment has,
instead, been due, collectively, to the need for
a further mitigation of losses, the onset of the
rainy season, the insurgency problem, in
Sorsogon and the lack of funds to further
support the mining operation in Gatbo. It is
basic that a corporation is invested by law
with a personally separate and distinct from
those of the persons composing it as well as
from that of any, other legal entity to which it
may be related. Mere ownership by a single
stockholder or by another corporation of all
nearly all of the capital stock of a corporation
is not of itself sufficient ground for
disregarding the separate corporate
personally. Similar to the case of Sunio vs.
National Labor Relations Commission,
Santos should not have been made personally
answerable for the payment of Millena's back
salaries.
Concept Builders Inc. vs. National Labor
Relations Commission (NLRC, First
Division)
[GR 108734, 29 May 1996]
First Division, Hermosisima Jr. (J): 4 concur
Facts: Concept Builders, Inc., (CBI) a
domestic corporation, with principal office at
355 Maysan Road, Valenzuela, Metro
Manila, is engaged in the construction
business while Norberto Marabe; Rodolfo
Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia,
Jr., Mariano Rio, Paulina Basea, Alfredo
Albera, Paquito Salut, Domingo Guarino,
Romeo Galve, Dominador Sabina, Felipe
Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben
Robalos were employed by said company as
laborers, carpenters and riggers. On
November 1981, Marabe, et. al. were served
individual written notices of termination of
employment by CBI, effective on 30
November 1981. It was stated in the
individual notices that their contracts of
employment had expired and the project in
which they were hired had been completed.
The National Labor Relations Commission
(NLRC) found it to be, the fact, however, that
at the time of the termination of Marabe,
et.al.'s employment, the project in which they
were hired had not yet been finished and
completed. CBI had to engage the services of
sub-contractors whose workers performed
the functions of Marabe, et. al. Aggrieved,
Marabe, et. al. filed a complaint for illegal
dismissal, unfair labor practice and non-
payment of their legal holiday pay, overtime
pay and thirteenth-month pay against CBI.
On 19 December 1984, the Labor Arbiter
rendered judgment ordering CBI to reinstate
Marabe et. al. and to pay them back wages
equivalent to 1 year or 300 working days. On
27 November 1985, the NLRC dismissed the
motion for reconsideration filed by CBI on
the ground that the said decision had already
become final and executory.
On 16 October 1986, the NLRC Research
and Information Department made the
finding that Marabe, et. al.'s back wages
amounted to P199,800.00. On 29 October
1986, the Labor Arbiter issued a writ of
execution directing the sheriff to execute the
Decision, dated 19 December 1984. The writ
was partially satisfied through garnishment
of sums from CBI's debtor, the Metropolitan
Waterworks and Sewerage Authority, in the
amount of P81,385.34. Said amount was
turned over to the cashier of the NLRC. On 1
February 1989, an Alias Writ of Execution
was issued by the Labor Arbiter directing the
sheriff to collect from CBI the sum of
P117,414.76, representing the balance of the
judgment award, and to reinstate Marabe, et.
al. to their former positions. On 13 July 1989,
the sheriff issued a report stating that he tried
to serve the alias writ of execution on
petitioner through the security guard on duty
but the service was refused on the ground that
CBI no longer occupied the premises. On 26
September 1986, upon motion of Marabe, et.
al., the Labor Arbiter issued a second alias
writ of execution. The said writ had not been
enforced by the special sheriff because, as
stated in his progress report dated 2
November 1989, that all the employees inside
CBI's premises claimed that they were
employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by CBI; that levy was made
upon personal properties he found in the
premises; and that security guards with high-
powered guns prevented him from removing
the properties he had levied upon. The said
special sheriff recommended that a "break-
open order" be issued to enable him to enter
CBI's premises so that he could proceed with
the public auction sale of the aforesaid
personal properties on 7 November 1989. On
6 November 1989, a certain Dennis
Cuyegkeng filed a third-party claim with the
Labor Arbiter alleging that the properties
sought to be levied upon by the sheriff were
owned by HPPI, of which he is the Vice-
President. On 23 November 1989, Marabe,
et. al. filed a "Motion for Issuance of a Break-
Open Order," alleging that HPPI and CBI
were owned by the same
incorporator/stockholders. They also alleged
that petitioner temporarily suspended its
business operations in order to evade its legal
obligations to them and that Marabe, et. al.
were willing to post an indemnity bond to
answer for any damages which CBI and HPPI
may suffer because of the issuance of the
break-open order. On 2 March 1990, the
Labor Arbiter issued an Order which denied
Marabe, et. al.'s motion for break-open order.
Marabe, et. al. then appealed to the NLRC.
On 23 April 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-
open order and directed Marabe, et. al. to file
a bond. Thereafter, it directed the sheriff to
proceed with the auction sale of the
properties already levied upon. It dismissed
the third-party claim for lack of merit. CBI
moved for reconsideration but the motion
was denied by the NLRC in a Resolution,
dated 3 December 1992. Hence, the petition.
Issue: Whether the NLRC was correct in
issuing the break-open order to levy the
“HPPI properties” located at CBI amd/or
HPPI’s premises at 355 Maysan Road,
Valenzuela, Metro Manila.
Held: It is a fundamental principle of
corporation law that a corporation is an entity
separate and distinct from its stockholders
and from other corporations to which it may
be connected. But, this separate and distinct
personality of a corporation is merely a
fiction created by law for convenience and to
promote justice. So, when the notion of
separate juridical personality is used to defeat
public convenience, justify wrong, protect
fraud or defend crime, or is used as a device
to defeat the labor laws, this separate
personality of the corporation may be
disregarded or the veil of corporate fiction
pierced. This is true likewise when the
corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.
The conditions under which the juridical
entity may be disregarded vary according to
the peculiar facts and circumstances of each
case. No hard and fast rule can be accurately
laid down, but certainly, there are some
probative factors of identity that will justify
the application of the doctrine of piercing the
corporate veil, to wit: (1) Stock ownership by
one or common ownership of both
corporations; (2) Identity of directors and
officers; (3) The manner of keeping corporate
books and records; and (4) Methods of
conducting the business. The SEC en banc
explained the "instrumentality rule" which
the courts have applied in disregarding the
separate juridical personality of corporations
as "Where one corporation is so organized
and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may
be disregarded. The control necessary to
invoke the rule is not majority or even
complete stock control but such domination
of instances, policies and practices that the
controlled corporation has, so to speak, no
separate mind, will or existence of its own,
and is but a conduit for its principal. It must
be kept in mind that the control must be
shown to have been exercised at the time the
acts complained of took place. Moreover, the
control and breach of duty must proximately
cause the injury or unjust loss for which the
complaint is made." The test in determining
the applicability of the doctrine of piercing
the veil of corporate fiction is as (1) Control,
not mere majority or complete stock control,
but complete domination, not only of
finances but of policy and business practice
in respect to the transaction attacked so that
the corporate entity as to this transaction had
at the time no separate mind, will or existence
of its own; (2) Such control must have been
used by the defendant to commit fraud or
wrong, to perpetuate the violation of a
statutory or other positive legal duty or
dishonest and unjust act in contravention of
plaintiff's legal rights; and (3) The aforesaid
control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any one of these elements
prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality
and not form, with how the corporation
operated and the individual defendant's
relationship to that operation. Thus the
question of whether a corporation is a mere
alter ego, a mere sheet or paper corporation,
a sham or a subterfuge is purely one of fact.
Here, while CBI claimed that it ceased its
business operations on 29 April 1986, it filed
an Information Sheet with the Securities and
Exchange Commission on 15 May 1987,
stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. On the
other hand, HPPI, the third-party claimant,
submitted on the same day, a similar
information sheet stating that its office
address is at 355 Maysan Road, Valenzuela,
Metro Manila. Further, both information
sheets were filed by the same Virgilio O.
Casiño as the corporate secretary of both
corporations. Both corporations had the same
president, the same board of directors, the
same corporate officers, and substantially the
same subscribers. From the foregoing, it
appears that, among other things, the CBI and
the HPPI shared the same address and/or
premises. Under these circumstances, it
cannot be said that the property levied upon
by the sheriff were not of CBI's. Clearly, CBI
ceased its business operations in order to
evade the payment to Marabe, et. al. of back
wages and to bar their reinstatement to their
former positions. HPPI is obviously a
business conduit of CBI and its emergence
was skillfully orchestrated to avoid the
financial liability that already attached to
CBI.
COMMUNICATION MATERIALS AND
DESIGN, INC et al vs.CA et al. G.R. No.
102223 August 22, 1996 FACTS:
Petitioners COMMUNICATION
MATERIALS AND DESIGN, INC.,
(CMDI) and ASPAC MULTI-TRADE INC.,
(ASPAC) are both domestic corporations..
Private Respondents ITEC, INC. and/or
ITEC, INTERNATIONAL, INC. (ITEC) are
corporations duly organized and existing
under the laws of the State of Alabama, USA.
There is no dispute that ITEC is a foreign
corporation not licensed to do business in the
Philippines.
ITEC entered into a contract with ASPAC
referred to as “Representative Agreement”.
Pursuant to the contract, ITEC engaged
ASPAC as its “exclusive representative” in
the Philippines for the sale of ITEC’s
products, in consideration of which, ASPAC
was paid a stipulated commission. Through a
“License Agreement” entered into by the
same parties later on, ASPAC was able to
incorporate and use the name “ITEC” in its
own name. Thus , ASPAC Multi-Trade, Inc.
became legally and publicly known as
ASPAC-ITEC (Philippines). One year into
the second term of the parties’ Representative
Agreement, ITEC decided to terminate the
same, because petitioner ASPAC allegedly
violated its contractual commitment as
stipulated in their agreements. ITEC charges
the petitioners and another Philippine
Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL),
the President of which is likewise petitioner
Aguirre, of using knowledge and information
of ITEC’s products specifications to develop
their own line of equipment and product
support, which are similar, if not identical to
ITEC’s own, and offering them to ITEC’s
former customer.
The complaint was filed with the RTC-
Makati by ITEC, INC. Defendants filed a
MTD the complaint on the following
grounds: (1) That plaintiff has no legal
capacity to sue as it is a foreign corporation
doing business in the Philippines without the
required BOI authority and SEC license, and
(2) that plaintiff is simply engaged in forum
shopping which justifies the application
against it of the principle of “forum non
conveniens”. The MTD was denied.
Petitioners elevated the case to the
respondent CA on a Petition for Certiorari
and Prohibition under Rule 65 of the Revised
ROC. It was dismissed as well. MR denied,
hence this Petition for Review on Certiorari
under Rule 45.
ISSUE: 1. Did the Philippine court acquire
jurisdiction over the person of the petitioner
corp, despite allegations of lack of capacity
to sue because of non-registration?
2. Can the Philippine court give due course to
the suit or dismiss it, on the principle of
forum non convenience?
HELD: petition dismissed. 1. YES; We are
persuaded to conclude that ITEC had been
“engaged in” or “doing business” in the
Philippines for some time now. This is the
inevitable result after a scrutiny of the
different contracts and agreements entered
into by ITEC with its various business
contacts in the country. Its arrangements,
with these entities indicate convincingly that
ITEC is actively engaging in business in the
country.
A foreign corporation doing business in the
Philippines may sue in Philippine Courts
although not authorized to do business here
against a Philippine citizen or entity who had
contracted with and benefited by said
corporation. To put it in another way, a party
is estopped to challenge the personality of a
corporation after having acknowledged the
same by entering into a contract with it. And
the doctrine of estoppel to deny corporate
existence applies to a foreign as well as to
domestic corporations. One who has dealt
with a corporation of foreign origin as a
corporate entity is estopped to deny its
corporate existence and capacity.
In Antam Consolidated Inc. vs. CA et al. we
expressed our chagrin over this commonly
used scheme of defaulting local companies
which are being sued by unlicensed foreign
companies not engaged in business in the
Philippines to invoke the lack of capacity to
sue of such foreign companies. Obviously,
the same ploy is resorted to by ASPAC to
prevent the injunctive action filed by ITEC to
enjoin petitioner from using knowledge
possibly acquired in violation of fiduciary
arrangements between the parties.
2. YES; Petitioner’s insistence on the
dismissal of this action due to the application,
or non application, of the private
international law rule of forum non
conveniens defies well-settled rules of fair
play. According to petitioner, the Philippine
Court has no venue to apply its discretion
whether to give cognizance or not to the
present action, because it has not acquired
jurisdiction over the person of the plaintiff in
the case, the latter allegedly having no
personality to sue before Philippine Courts.
This argument is misplaced because the court
has already acquired jurisdiction over the
plaintiff in the suit, by virtue of his filing the
original complaint. And as we have already
observed, petitioner is not at liberty to
question plaintiff’s standing to sue, having
already acceded to the same by virtue of its
entry into the Representative Agreement
referred to earlier.
Thus, having acquired jurisdiction, it is now
for the Philippine Court, based on the facts of
the case, whether to give due course to the
suit or dismiss it, on the principle of forum
non convenience. Hence, the Philippine
Court may refuse to assume jurisdiction in
spite of its having acquired jurisdiction.
Conversely, the court may assume
jurisdiction over the case it it chooses to do
so; provided, that the following requisites are
met:
 1) That the Philippine Court is one to which
the parties may conveniently resort to;
2) That the Philippine Court is in a position
to make an intelligent decision as to the law
and the facts; and,
3) That the Philippine Court has or is likely
to have power to enforce its decision. The
aforesaid requirements having been met, and
in view of the court’s disposition to give due
course to the questioned action, the matter of
the present forum not being the “most
convenient” as a ground for the suit’s
dismissal, deserves scant consideration.
Acme Shoe, Rubber
and Plastic Corp.
V.
Court of Appeals
G.R. No. 103576. August 22, 1996
Ponente: Vitug, J.
Digest Maker: J. Ragragio
FACTS: Acme Shoe entered into a loan agreement
with Producer’s Bank for P3M. This loan was
secured by chattel mortgage (the subject property
of the chattel mortgage is never mentioned), with a
provision as follows:
"In case the MORTGAGOR executes subsequent promissory note
or notes either as a renewal of the former note, as an extension
thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments
on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new
contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations
were existing on the date thereof. This mortgage shall also stand
as security for said obligations and any and all other obligations
of the MORTGAGOR to the MORTGAGEE of whatever kind and
nature, whether such obligations have been contracted before,
during or after the constitution of this mortgage."
Acme Shoe eventually paid the P3M loan. Acme
Shoe later took out another loan for P2.7M, which
was also eventually fully paid. Some time later,
Acme Shoe took out another loan, this time for
P1M. However, due to financial constraints, they
were unable to settle the loan.
Producer’s Bank applied for extrajudicial
foreclosure of the chattel mortgage. In response,
Acme Shoe filed a petition for injunction at the RTC.
The RTC dismissed Acme Shoe’s petition, and
ordered the foreclosure of the chattel mortgage. On
appeal, the Court of Appeals upheld the RTC in toto.
ISSUES/HELD: Is the foreclosure valid? (No)
RATIO: The Supreme Court discussed real
securities (pledge, mortgage or antichresis), and
gave the general rule that real securities may
secure after-incurred obligations, or future
obligations not yet existing at the time the security
agreement is entered into. However, the Court
pointed out that chattel mortgage is the exception
to this rule, being covered by a special law (Act No.
1508) that provides in the prescribed form:
"x x x (the) mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one
not entered into for the purpose of fraud."
The Court interpreted this provision in the
prescribed form of a chattel mortgage to refer to an
existing obligation, and not a future obligation. As
applied in this case, the chattel mortgage only
applied to the P3M loan and was terminated when
that loan was fully paid. Being merely accessory in
nature, the chattel mortgage could not have existed
independently of the principal obligation of P3M.
Therefore, at the time that Producer’s Bank applied
for extrajudicial foreclosure, there was no longer
anything to foreclose, since the chattel mortgage
already ceased to exist.
As to future obligations, the Court ruled that a
chattel mortgage may, at best, include a promise to
include debts that are yet to be contracted, and this
promise can be a binding commitment that can be
compelled upon. To implement this, once a new
debt is contracted, the parties must either execute
a new chattel mortgage agreement including the
new debt, or must amend the old contract
according to the form provided by law. Refusal on
the part of the borrower to do so under such a
promise may be considered an act of default.
Nevertheless, a foreclosure can only cover the
debts extant at the time of constitution and during
the life of the chattel mortgage sought to be
foreclosed.
 Columbia et al, being foreign corporations,
DISPOSITIVE: Appealed decisions set aside, should have such license to be able to
without prejudice to to the appropriate legal
maintain an action in Philippine courts.
recourse by private respondent as may still be
warranted as an unsecured creditor.
Sunshine point to the fact that Columbia et al
Columbia Pictures vs CA, 261 SCRA 144 are the copyright owners or owners of
exclusive rights of distribution in the
Philippines of copyrighted motion pictures or
Facts: The National Bureau of Investigation
films, and also to the appointment of Atty.
has engaged in an anti-film piracy drive by
Rico V. Domingo as their attorney-in-fact, as
investigating various video establishments in
being constitutive of “doing business in the
Metro Manila involving cases violating PD
Philippines” under Section 1(f) (1) and (2),
No. 49, as amended, including Sunshine
Rule 1 of the Rules of the Board of
Home Video Inc. (“Sunshine”), owned and
Investments. As foreign corporations doing
operated by Danilo A. Pelindario with
business in the Philippines, Section 133 of
address at No. 6 Mayfair Center, Magallanes,
Batas Pambansa Blg. 68, or the Corporation
Makati, Metro Manila. On
Code of the Philippines, denies them the right
to maintain a suit in Philippine courts in the
November 14, 1987, NBI Senior Agent
absence of a license to do business.
Lauro C. Reyes applied for a search warrant
Consequently, they have no right to ask for
with the court a quo against Sunshine seeking
the issuance of a search warrant.
the seizure, among others, of pirated video
tapes of copyrighted films, which the court
Columbia et al’s contention:
granted.
Columbia et al denied that they are doing
In the course of the search of the premises
business in the Philippines and contend that
indicated in the search warrant, the NBI
Sunshine have not adduced evidence to prove
Agents found and seized various video tapes
that petitioners are doing such business here,
of duly copyrighted motion pictures/films
as would require them to be licensed by the
owned or exclusively distributed by
Securities and Exchange Commission.
Columbia Pictures, Inc. et al (Columbia et
al.)
Moreover, an exclusive right to distribute a
product or the ownership of such exclusive
Thereafter, the court has lifted the search
right does not conclusively prove the act of
warrant which it had therefore issued after a
doing business nor establish the presumption
series of motions, up until the CA. In the SC,
of doing business.
Sunshine challenged Columbia et al’s legal
standing in our courts, they being foreign
corporations not licensed to do business in Ruling: No, foreign film corporations do not
the Philippines. transact or do business in the Philippines and,
therefore, do not need to be licensed in order
to take recourse to our courts.
Issue: Whether or not Columbia et al were
“doing business” in the Philippines, thus,
needs to be licensed before having a legal As acts constitutive of “doing business,” the
standing in Philippine courts. fact that Columbia et al are admittedly
copyright owners or owners of exclusive
distribution rights in the Philippines of
Sunshine’s contention:
motion pictures or films does not convert
such ownership into an indicium of doing
business which would require them to obtain
a license before they can sue upon a cause of
action in local courts.
Neither is the appointment of Atty. Rico V.
Domingo as attorney-in-fact of Columbia et
al., with express authority pursuant to a
special power of attorney
Held: Based on Article 133 of the
Corporation Code and gauged by such
statutory standards, Columbia et al are not
barred from maintaining the present action.
There is no showing that, under our statutory
or case law, Columbia et al are doing,
transacting, engaging in or carrying on
business in the Philippines as would require
obtention of a license before they can seek
redress from our courts. No evidence has
been offered to show that petitioners have
performed any of the enumerated acts or any
other specific act indicative of an intention to
conduct or transact business in the
Philippines.
Article 125 and Article 133 of the
Corporation Code of the Philippines, as
interpreted, says that any foreign corporation
not doing business in the Philippines may
maintain an action in our courts upon any
cause of action, provided that the subject
matter and the defendant are within the
jurisdiction of the court. It is not the absence
of the prescribed license but “doing business”
in the Philippines without such license which
debars the foreign corporation from access to
our courts. In other words, although a foreign
corporation is without license to transact
business in the Philippines, it does not follow
that it has no capacity to bring an action. Such
license is not necessary if it is not engaged in
business in the Philippines.
No general rule or governing principles can
be laid down as to what constitutes “doing”
or “engaging in” or “transacting” business.
Each case must be judged in the light of its
own peculiar environmental circumstances.
The true tests, however, seem to be whether
the foreign corporation is continuing the
body or substance of the business or
enterprise for which it was organized or
whether it has substantially retired from it
and turned it over to another.
Authorities agrees that a foreign corporation
is “doing,” “transacting,” “engaging in,” or
“carrying on” business in the State when, and
ordinarily only when, it has entered the State
by its agents and is there engaged in carrying
on and transacting through them some
substantial part of its ordinary or customary
business, usually continuous in the sense that
it may be distinguished from merely casual,
sporadic, or occasional transactions and
isolated acts.
The Corporation Code does not itself define
or categorize what acts constitute doing or
transacting business in the Philippines.
Jurisprudence has, however, held that the
term implies a continuity of commercial
dealings and arrangements, and
contemplates, to that extent, the performance
of acts or works or the exercise of some of the
functions normally incident to or in
progressive prosecution of the purpose and
subject of its organization.
As a general rule, a foreign corporation will
not be regarded as doing business in the State
simply because it enters into contracts with
residents of the State, where such contracts
are consummated outside the State. In fact, a
view is taken that a foreign corporation is not
doing business in the state merely because
sales of its product are made there or other
business furthering its interests is transacted
there by an alleged agent, whether a
corporation or a natural person, where such
activities are not under the direction and
control of the foreign corporation but are
engaged in by the alleged agent as an
independent business.
It is generally held that sales made to
customers in the State by an independent
dealer who has purchased and obtained title
from the corporation to the products sold are
not a doing of business by the corporation.
Likewise, a foreign corporation which sells
its products to persons styled “distributing
agents” in the State, for distribution by them,
is not doing business in the State so as to
render it subject to service of process therein,
where the contract with these purchasers is
that they shall buy exclusively from the
foreign corporation such goods as it
manufactures and shall sell them at trade
prices established by it.
Merely engaging in litigation has been
considered as not a sufficient minimum
contact to warrant the exercise of jurisdiction
over a foreign corporation.
Esguerra v. CA
G.R. No. 119310, February 3, 1997
FACTS: Julieta Esguerra filed a complaint
for administration of conjugal partnership or
separation of property against her husband
Vicente Esguerra Jr. before the trial court.
Said complaint was later amended
impleading V. Esguerra Construction Co.
Inc. (VECCI) and other family corporations
as defendants. The parties entered into a
compromise agreement.
The compromise agreement provided that
VECCI shall sell/alienate/transfer or dispose
of in any lawful and convenient manner, and
under the terms and conditions in the
resolutions of its Board of Directors and
stockholders the following properties: (a) two
(2) real estate and buildings in Makati, (b)
two (2) real estate and improvements located
in Antipolo, Rizal, (c) real estate and
improvements located in Cainta, Rizal, and
(d) real estate and improvements in San
Mateo, Rizal. After said properties have been
sold or disposed of and after all the financial
obligations of VECCI are completely paid,
VECCI shall pay to Julieta the sum
equivalent to fifty percent (50%) of the net
resulting balance of such funds.
When Makati building II was sold to Sureste
Properties Inc., Julieta filed a motion for
nullification of the sale before the trial court
on the ground that VECCI is not the absolute
owner of the property and that VECCI
violated the condition in the compromise
agreement requiring that the sale be made
under the terms and conditions in the
enabling resolutions of its Board of Directors
and stockholders. The trial court resolved in
favor of Julieta but on appeal, the Court of
Appeals reversed the lower court’s decision.
Hence, this appeal.
ISSUE: Was the sale of Makati building II a
valid exercise of corporate power?
RULING: Yes. The trial courts partial
decision dated January 11, 1990 approving
the compromise agreement clearly showed
that the enabling resolutions of its (VECCIs)
board of directors and stockholders referred
to were those then already existing; to wit: (1)
the resolution of the stockholders of VECCI
dated November 9, 1989, (where) the
stockholders authorized VECCI to sell and/or
disposed all or substantially all its property
and assets upon such terms and conditions
and for such consideration as the board of
directors may deem expedient.i (2) the
resolution dated 9 November 1989, (where)
the board of directors of VECCI authorized
VECCI to sell and/or dispose all or
substantially all the property and assets of the
corporation, at the highest available price/s
they could be sold or disposed of in cash, and
in such manner as may be held convenient
under the circumstances, and authorized the
President Vicente B. Esguerra, Jr. to
negotiate, contract, execute and sign such
sale for and in behalf of the corporation.ii
VECCIs sale of all the properties mentioned
in the judicially-approved compromise
agreement was done on the basis of its
Corporate Secretarys Certification of these
two resolutions. The partial decision did not
require any further board or stockholder
resolutions to make VECCIs sale of these
properties valid. Being regular on its face, the
Secretarys Certification was sufficient for
private respondent Sureste Properties, Inc. to
rely on. It did not have to investigate the truth
of the facts contained in such certification.
Otherwise, business transactions of
corporations would become tortuously slow
and unnecessarily hampered. Ineluctably,
VECCIs sale of Esguerra Building II to
private respondent was not ultra vires but a
valid execution of the trial courts partial
decision. Based on the foregoing, the sale is
also deemed to have satisfied the
requirements of Section 40 of the
Corporation Code.
Republic Planters Bank vs. Agana
[GR 51765, 3 March 1997]
Facts: On 18 September 1961, the Robes-
Francisco Realty & Development Corporation
(RFRDC) secured a loan from the Republic
Planters Bank in the amount of P120,000.00. As
part of the proceeds of the loan, preferred shares
of stocks were issued to RFRDC through its
officers then, Adalia F. Robes and one Carlos F.
Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan,
which is P120,000.00, the Bank lent such amount
partially in the form of money and partially in the
form of stock certificates numbered 3204 and
3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a
total of P8,000.00. Said stock certificates were in
the name of Adalia F. Robes and Carlos F.
Robes, who subsequently, however, endorsed
his shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms
and conditions: "The Preferred Stock shall have
the following rights, preferences, qualifications
and limitations, to wit: 1. Of the right to receive a
quarterly dividend of 1%, cumulative and
participating. xxx 2. That such preferred shares
may be redeemed, by the system of drawing lots,
at any time after 2 years from the date of issue at
the option of the Corporation." On 31 January
1979, RFRDC and Robes proceeded against the
Bank and filed a complaint anchored on their
alleged rights to collect dividends under the
preferred shares in question and to have the bank
redeem the same under the terms and conditions
of the stock certificates. The bank filed a Motion
to Dismiss 3 private respondents' Complaint on
the following grounds: (1) that the trial court had
no jurisdiction over the subject-matter of the
action; (2) that the action was unenforceable
under substantive law; and (3) that the action was
barred by the statute of limitations and/or laches.
The bank's Motion to Dismiss was denied by the
trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days
from 30 July 1979 to submit their respective
memoranda after the submission of which the
case would be deemed submitted for resolution.
On 7 September 1979, the trial court rendered the
decision in favor of RFRDC and Robes; ordering
the bank to pay RFRDC and Robes the face
value of the stock certificates as redemption
price, plus 1% quarterly interest thereon until full
payment. The bank filed the petition for certiorari
with the Supreme Court, essentially on pure
questions of law.
Issue:
1. Whether the bank can be
compelled to redeem the preferred
shares issued to RFRDC and Robes.
2. Whether RFRDC and Robes are
entitled to the payment of certain rate of
interest on the stocks as a matter of right
without necessity of a prior declaration of
dividend.
Held:
1. While the stock certificate does allow
redemption, the option to do so was clearly
vested in the bank. The redemption therefore is
clearly the type known as "optional". Thus, except
as otherwise provided in the stock certificate, the
redemption rests entirely with the corporation and
the stockholder is without right to either compel or
refuse the redemption of its stock. Furthermore,
the terms and conditions set forth therein use the
word "may". It is a settled doctrine in statutory
construction that the word "may" denotes
discretion, and cannot be construed as having a
mandatory effect. The redemption of said shares
cannot be allowed. The Central Bank made a
finding that the Bank has been suffering from
chronic reserve deficiency, and that such finding
resulted in a directive, issued on 31 January 1973
by then Gov. G. S. Licaros of the Central Bank, to
the President and Acting Chairman of the Board
of the bank prohibiting the latter from redeeming
any preferred share, on the ground that said
redemption would reduce the assets of the Bank
to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited
for a just and valid reason. The directive issued
by the Central Bank Governor was obviously
meant to preserve the status quo, and to prevent
the financial ruin of a banking institution that
would have resulted in adverse repercussions,
not only to its depositors and creditors, but also
to the banking industry as a whole. The directive,
in limiting the exercise of a right granted by law to
a corporate entity, may thus be considered as an
exercise of police power.
2. Both Section 16 of the Corporation Law and
Section 43 of the present Corporation Code
prohibit the issuance of any stock dividend
without the approval of stockholders,
representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special
meeting duly called for the purpose. These
provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right
but a matter of consensus. Furthermore, "interest
bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are
paid to common stockholders, is legal only when
construed as requiring payment of interest as
dividends from net earnings or surplus only. In
compelling the bank to redeem the shares and to
pay the corresponding dividends, the Trial
committed grave abuse of discretion amounting
to lack or excess of jurisdiction in ignoring both
the terms and conditions specified in the stock
certificate, as well as the clear mandate of the
law.
TRADERS ROYAL BANK V CA G.R. No.
93397 March 3, 1997
FACTS:
Filriters registered owner of Central Bank
Certificate of Indebtedness (CBCI).
Filriters transferred it to Philfinance by one
of its officers without authorization from
the company. Subsequently, Philfinance
transferred same CBCI to Traders Royal
Bank (TRB) under a repurchase
agreement. When Philfinance failed to do
so, The TRB tried to register in its name in
the CBCI. The Central Bank did not want
to recognize the transfer.
Docketed as Civil Case No. 83-17966 in
the Regional Trial Court of Manila, Branch
32, the action was originally filed as a
Petition for Mandamus 5 under Rule 65 of
the Rules of Court, to compel the Central
Bank of the Philippines to register the
transfer of the subject CBCI to petitioner
Traders Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC:
transfer is null and void. * CA: The
appellate court ruled that the subject
CBCI is not a negotiable instrument.
Philfinance acquired no title or rights
under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank
and which the latter can register with the
Central Bank. Thus, the transfer of the
instrument from Philfinance to TRB was
merely an assignment, and is not
governed by the negotiable instruments
law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an
instrument to be negotiable must conform
to the following requirements: (a) It must
be in writing and signed by the maker or
drawer; (b) Must contain an unconditional
promise or order to pay a sum certain in
money; (c) Must be payable on demand,
or at a fixed or determinable future time;
(d) Must be payable to order or to bearer;
and (e) Where the instrument is
addressed to a drawee, he must be
named or otherwise indicated therein with
reasonable certainty.
Under section 3, Article V of Rules and
Regulations Governing Central Bank
Certificates of Indebtedness states that
the assignment of registered certificates
shall not be valid unless made at the
office where the same have been issued
and registered or at the Securities
Servicing Department, Central Bank of the
Philippines, and by the registered owner
thereof, in person or by his
representative, duly authorized in writing.
For this purpose, the transferee may be
designated as the representative of the
registered owner. ISSUES & RULING: 1.
Whether the CBCI is negotiable
instrument or not.
The pertinent portions of the subject CBCI
read:
xxx xxx xxx
The Central Bank of the Philippines (the
Bank) for value received, hereby promises
to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS
GUARANTY ASSURANCE CORPORATION,
the registered owner hereof, the principal
sum of FIVE HUNDRED THOUSAND
PESOS.
NO. The CBCI is not a negotiable
instrument, since the instrument clearly
stated that it was payable to Filriters, and
the certificate lacked the words of
negotiability which serve as an expression
of consent that the instrument may be
transferred by negotiation.
Before the instruments become negotiable
instruments, the instrument must conform
to the requirements under the Negotiable
Instrument Law. Otherwise instrument
shall not bind the parties.
2. Whether the Assignment of registered
certificate is valid or null and void.
IT'S NULL AND VOID. Obviously the
Assignment of certificate from Filriters to
Philfinance was null and void. One of
officers who signed the deed of
assignment in behalf of Filriters did not
have the necessary written authorization
from the Board of Directors of Filriters. For
lack of such authority the assignment is
considered null and void.
Clearly shown in the record is the fac
t that
Philfinance's title over CBCI is defectiv
e since it acquired the instrument from
Filriters fictitiously. Under 1409 of the Civil
Code those contracts which are absolutely
simulated or fictitious are considered void
and inexistent from the beginning.
Petitioner knew that Philfinance is not
registered owner of the CBCI No. D891.
The fact that a non-owner was disposing
of the registered CBCI owned by another
entity was a good reason for petitioner to
verify of inquire as to the title Philfinance
to dispose to the CBCI.
OTHER NOTES:
1. the mere ownership by a single
stockholder or by another corporation of
all or nearly all of the capital stock of a
corporation is not of itself a sufficient
reason for disregarding the fiction of
separate corporate personalities.