PEDRO PALTING vs.
SAN JOSE PETROLEUM, INC. GR L-14441, 17 December 1966 FACTS:
San Jose Petroleum filed with the Philippine Securities and Exchange Commission a sworn registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock with a par value of $0.35 a share, at P1.00 per share
Pedro R. Palting and others, allegedly prospective investors in the shares of San Jose Petroleum, filed with the Securities and Exchange Commission an opposition to the registration and licensing of the securities on the grounds that (1) the tie-up between the issuer, San Jose Petroleum, a Panamanian corporation, and San Jose Oil, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of the share of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound business principles.
ISSUE:
Whether or not San Jose Petroleum can validly engage in business in the Philippines.
RULING: NO.
It does not have the required percentage of Filipino capital to validly exercise its business in the Philippines. In the two lists of stockholders, there is no indication of the citizenship of these stockholders, or of the total number of authorized stocks of each corporation for the purpose of determining the corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation.
These provisions are in direct opposition to the corporation law and corporate practices in this country. These provisions alone would outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and unusual provision that no contract or transaction between the company and any other association or corporation shall be affected except in case of fraud, by the fact that any of the directors or officers of the company may be interested in or are directors or officers of such other association or corporation; and that none of such contracts or transactions of this company with any person or persons, firms, associations or corporations shall be affected by the fact that any director or officer of this company is a party to or has an interest in such contract or transaction or has any connection with such person or persons, firms, associations or corporations: and that any and all persons who may become directors or officers of this company are hereby relieved of all responsibility which they would otherwise incur by reason of any contract entered into which this company either for their own benefit, or for the benefit of any person, firm, association or corporation in which they may be interested.
182 | P a g e DEVELOPMENT BANK OF THE PHILIPPINES
vs.
COURT OF APPEALS, REMINGTON INDUSTRIAL SALES GR 126200, 16 August 2001
FACTS:
Between July 1981 and April 1984, Marinduque Mining entered into 3 mortgage agreements with PNB and DBP involving its real properties located in Surigao del Norte, Negros Occidental, and Rizal, as well as its equipment located therein. Marinduque failed to pay its loans, causing the foreclosure of the said mortgages. PNB and DBP thereafter gained control of the said properties.
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation. The purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorney‘s fees and the costs of suit.
Remington‘s original complaint was amended to include PNB, DBP, Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since the personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of co-defendant MMIC such that practically there has only been a change of name for all legal purpose and intents.
ISSUE:
Whether or not the takeover of PNB and DBP over Marinduque Mining is in bad faith.
RULING: NO.
Their actions are mandated under the law. Where the corporations have directors and officers in common, there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where one corporation was ‗insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness In the same manner that when the corporation is insolvent, its directors who are its creditors cannot secure to themselves any advantage or preference over other creditors. They cannot thus take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors.
Directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others.
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Disloyalty
JOHN GOKONGWEI vs.
SEC, ANDRES SORIANO, et al. GR L-45911, 11 April 1979 FACTS:
Gokonwei alleged that on September 18, 1976, individual respondents amended by bylaws of San Miguel Corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders.
It was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void.
ISSUE:
Whether or not SMC‘s BoD acted in bad faith in making the amendment which disqualified Gokongwei from being elected as Director.
RULING: NO.
SMC is merely protecting its interest from Gokongwei, who owns companies in direct competition with SMC‘s business. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, they occupy a fiduciary relation, and in this sense the relation is one of trust. It springs from the fact that directors have the control and guidance of corporate affairs and property; hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made.
Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns.
184 | P a g e ELEANOR ERICA STRONG, ET AL.
vs.
FRANCISCO GUTIERREZ REPIDE G.R. No. L-7154. February 21, 1912 FACTS:
Eleanor Strong was the owner of 800 shares of the capital stock of Philippine Sugar Estate Development Company. Gutierrez Rapide, owner of three-fourths shares of the company‘s stock , 1 of the 5 directors of the company and was elected by the board as administrator general of such company, took steps to purchase the 800 shares owned by Strong, which he knew were in the possession of F. Stuart Jones, as her agent. Instead of seeing Jones, who had an office next door, Repide employed one Kauffman. Kaufmann, in turn, employed Mr. Sloan, a broker, to purchase the stock for him. Kauffman told Sloan that the stock to be purchased was for a member of his wife‘s family. This action by Repide was due to the negotiations initiated by the government where the latter will purchase the company‘s lands (together with other friar lands) at a price which greatly enhance the value of the stock.
As a result of the negotiations, Jones, assuming he had the power and without consulting Strong, sold the 800 shares. Strong filed a case to recover the shares from Repide on the ground that the shares had been sold and delivered by Strong‘s agent without authority to do so and on the ground that Repide fraudulently concealed from Strong‘s agent the facts affecting the value of the stock so sold and delivered.
ISSUE:
Whether or notRepide, acting in good faith, has the duty to disclose to the agent of Strong the facts bearing upon or which might affect the value of the stocks.
RULING: YES.
The Court ruled that there is no relationship of a fiduaciary nature exists between a director and a shareholder in a business corporation. There are cases, however, where, by reason of special facts, such duty of a director to disclose to a shareholder the knowledge which he may possess regarding the value of the shares of the company before he purchases any from a shareholder. Some special facts are present in this case such as the fact the Repide is not only a director of the corporation but an owner of three-fourths shares of its stock. He was the chief negotiator for the sale of all the lands and was acting substantially as the agent of the shareholders by reason of his ownership of the shares. Thus, a purchase of stock in a corporation by a director and owner of three-fourths of the entire capital stock, who was also administrator general of the company and engaged in the negotiations which finally led to the sale of company‘s lands to the government at a price which greatly enhanced the value of the stock, was fraudulent as procured by insidious machination where he employed an agent to make the purchase, concealing both his identity as purchaser and his knowledge of the state of the negotiations and their probable successful result
185 | P a g e