BAR REVIEW POINTERS FOR 2016
By:HERNANDO B. PEREZ
CORPORATION
I. Mendez vs. People, 726 SCRA 203 (PP)Sole or Single Proprietorship. – A sole proprietorship is a form of business organization
conducted for profit by a single individual, and requires the proprietor or owner hereof to secure licenses and permits, register the business name, and pay taxes to the national government without acquiring juridical or legal personality of its own. (Mendez vs. People, 726 SCRA 203)
II. What is the meaning of the doctrine of legal entity of corporations? (PP)
It means that a corporation is a juridical person with a personality separate and distinct from that of each shareholder. It also means that the stockholders of a corporation are different from the corporation itself. (Section 2; Seaoil Petroleum Corp. vs. Autocorp Group, 569 SCRA 387, Oct. 17, 2008; SEC Opinions, Jan. 18, 1993 and June 18, 1993.)
III. What are the consequences of the doctrine of legal entity?
The consequences of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders are as follows:
1. The stockholders are not personally liable for the debts of the corporation and vice-versa.
2. The stockholders are not liable for corporate acts unless otherwise provided by law. The stockholders are not the owners of corporate properties and assets.
3. The stockholders cannot sell or maintain actions in their own name in connection with corporation affairs, business or property. Neither do stockholders have the right to recover possession of corporation property or to recover damages for injury to properties belonging to the corporation, and vice-versa.
4. The property belonging to the corporation cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former.
IV. Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014. (PP)
Separate personality: A stockholder, director, or representative does not became a party
to a contract just because a corporation executed a contract through that stockholder, director or representative. Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. ( Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014.)
Illustration: BF Corporation entered into a contract with Shangri-la for the construction
for the latter of a mall and multi-level parking structure along EDSA. Shangri-la defaulted in the payment of the construction of the said structure. Under the contract between the parties, whenever a dispute should arise between them, the matter should be submitted to arbitration. BF initiated arbitration proceedings between BF and Shangri-la. The directors of Shangri-la were included in the arbitration proceedings. The Arbitral Tribunal rendered a decision finding that BF failed to prove the existence of circumstances that render the directors of Shangri-la solidarily liable. Was the decision correct? RULING: The decision is correct. Shangri-la’s directors are not are not liable for the contractual obligations of Shangri-la to BF Corporation. A stockholder, director, or representative does not became a party to a contract just because a corporation executed a contract through that stockholder, director or representative. Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. ( Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014.)
V. Explain the doctrine of “piercing the veil of corporate fiction”. “Piercing the veil of corporate
fiction” means that while a corporation can not generally be made liable for acts or liabilities of its stockholders or members, and vice versa because a corporation has a personality separate and distinct from its stockholders or members, however, the corporate existence is disregarded under this doctrine where the corporation is formed or used for illegitimate purposes or justify wrong or evade a just and valid obligation. In such case, the corporation and the stockholders shall be considered as one and the same. (Vicmar Development Corp. vs. Elarcosa, 777 SCRA 239, Dec. 9, 2015)
The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely:
a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or
c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. In the absence of malice, bad faith, such corporate officer cannot be made personally liable for corporate liabilities. (Prisma Construction & Dev. Corp. vs. Menchaves, 614 SCRA 590, March 9, 2010; Timoteo H. Sarona vs. National Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280, January 18, 2012. )
VI. Guillermo vs. Uson, G. R. No. 198967, March 7, 2016 (PP)
Piercing the veil of corporate fiction. When the shield of a separate corporate identity is
used to commit wrongdoing and opprobriously elude responsibility, the courts and legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith. (Guillermo vs. Uson, G. R. No. 198967, March 7, 2016)
Illustration: Uson filed a complaint with the NLRC for illegal dismissal against his
employer, Royal Class Ventures. The Labor Arbiter ruled in favor of Uson and ordered Royal Ventures to reinstate Uson to his former position. On the third Alias Writ of Execution to satisfy judgment, Uson asked to hold Guillermo and other officers liable to satisfy the decision which was granted. It appears that Guillermo was the owner of the said corporation which was alleged to be dissolved. The Labor Arbiter ruled that it pierced the veil of the corporate fiction of Royal Class Ventures and held Guillermo, in his personal capacity, jointly and severally liable with the corporation for the enforcement of the claims of Uson. It was found that Guillermo caused the dissolution of Royal Class Ventures to avoid the judgment of the Labor Arbiter. Was it proper to pierce the veil of corporation fiction of Royal Class Ventures? Ruling: The veil of corporate fiction can be pierced and responsible corporate directors and officers or even a separate but related corporation may be made solidarily liable in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so. Bad faith, to connote liability, shall mean a dishonest purpose, moral obliquity and a conscious doing of wrong. Here, bad faith was evident on the part of Guillermo who appears to be the person responsible with all the dealings of Royal Class Ventures and the malicious dismissal of Uson. He was also the person responsible for the dissolution of the corporation to avoid the judgment of the Labor Arbiter. (Guillermo vs. Uson, G. R. No. 198967, March 7, 2016)
VII. Commissioner of Customs vs. Oilink International Corporation, 728 SCRA 471, July 2, 2014. (PP)
Alter Ego principle : Union Refinery Corporation (URC) was established on Sept. 15, 1966. It imported oil products. On January 11, 1996, Oilink was incorporated for manufacturing,
importing, exporting oil and gas. URC and Oilink has interlocking directorate. On July 8, Customs Commissioner Tan made a final demand for the payment of P138 million plus from URC and Oilink and assessed both corporations. Oilink formally protested the assessment on the ground that it was not a party liable for the assessed deficiency taxes. Was the assessment on Oilink valid? RULING: The doctrine of piercing the veil of corporate fiction has no application here because of Commissioner of Customs did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protest fraud, defend crime, confuse legitimate legal or juridical issues, or circumvent the law. (Commissioner of Customs vs. Oilink International Corporation, 728 SCRA 471, July 2, 2014.)
IV. Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620 (PP)
Doctrine of Separate Juridical Personality: The general rule is that a corporation is
invested by law with a personality separate and distinct from that of the persons composing it, or from any other legal entity that it may be related to. The obligations of a corporation, acting through its directors, officers and employees are its own sole liabilities. Therefore, the corporation’s directors, officers, or employees are generally not personally liable for the obligations of the corporation. (Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620).
Piercing the veil of corporate fiction: To hold a director or officer personally liable for
corporate obligations, two requisites must concur: (1) complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. (Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620)
Illustration: Respondent Nite was the president of Bancapital Development Corporation
(Bancap). Bancap sold treasury bills worth P250 M as a discounted price to Bank of Commerce (Bancom). Prior to that Bancom and Bancap had been dealing with each other as buyer and seller of treasury bills since 1991. Bancom fully paid the price but Bancap was able to deliver only P88 million worth of treasury bills. Respondent Nite was prosecuted criminally for violating Sec. 19 of BP Blg. 178 and estafa. Respondent was acquitted of both crtiminal charges but was declared civilly liable to Bancom in the amount of P162, the difference between P250 which was sold and P88 which was delivered. Respondent filed a partial motion for reconsideration and claimed that the rule on separate personality could not be disregarded absent proof that Bancap was used as a tool to commit fraud, injustice, or crime against Bancom. The motion was granted and so Bancom sought to have the ruling reversed. Issue: Could
respondent Nite be personally liable for Bancap’s failure to deliver the full amount of treasury bills sold? Ruling: The transaction between Bancom and Bancap is an ordinary sale
and the liability of Bancap springs from its contractual obligation to Bancom. Respondent Nite, in this case, cannot be held personally liable for Bancap’s obligation. Piercing the veil of corporation fiction and holding a director personally liable for the debts of the corporation require clear and convincing proof of the director’s bad faith or wrongdoing. The acquittal of Nite from estafa has already resolved the issue of fraud with finality. Thus, the element of deceit being non-existent in the case, such finding is held to be conclusive. Therefore, since the prosecution failed to prove that Nite acted in bad faith, Bancap’s liability cannot be made the former’s personal liability. (Bank of Commerce vs. Marilyn P. Nite, G. r. No. 211535, July 22, 2015; 763 SCRA 620).
V. Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014. J. Carpio ponente (PP)
Facts: Livesey was promoted as Managing Director by CBB Philippines Strategic Property Services, Inc. (CBB). His salary was not paid. Livesey filed a case against CBB. CBB’s President, Elliot entered into a compromise agreement with Livesey. CBB paid only the first installment leaving two more installments unpaid. Livesey moved for the issuance of a writ of execution but was not enforced because CBB ceased its operation and another corporation, Binswanger Philippines, Inc. was organized. The key officers of CBB including its President, Elliot transferred to Binswanger and CBB’s business assumed by Binswanger. CBB stands for Chesterton Blumenauer Binswanger. Livesey asked that the writ of execution be served on Binswanger, Phil., Inc. which raised the defense of separate personality from that of CBB’s. May the veil of corporate fiction be pierced so that CBB and Binswanger may be considered as one and the same?
` Answer: The corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. There is a definite link between the CBB’s closure and Binswanger Inc.’s establishment. CBB ceased to exist only in name and it was re-connected with the Binswanger Philippines, Inc. It was not just coincidence that Binswanger is engaged in the same line of business CBB embarked on: (1) it even holds office in the same building and on the very same floor where CBB once stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger, performing the tasks they were doing at CVB; (3) notwithstanding the CBB’s closure, Binswanger’s Web Editor in an e-mail supplied information that Binswanger is “now known” as either CBB (Chesterton Bluemenauer Binsweanger or as Chestreton Petty, Ltd.) in the Philippines; (4) Binswanger’s takeover of CBB’s project with PNB. (Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014. J. Carpio ponente)
VI. How may a corporation be established as a mere alter ego of another corporation or person?
The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporation fiction may be allowed only if the following elements concur:
(1) control – not mere stock control, but complete domination- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such 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 a wrong doing to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of the plaintiffs legal right;
(3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.
VII. WPM International Trading, Inc. vs. Labayen, 735 SCRA 297, Sept. 17, 2015 (PP)
Alter Ego. Question: Manlapaz was the chairman, present and treasurer of WPM
International Trading (WPM). WPM entered into a contract for the renovation of its Quickbite Divisoria store with CLN. Out of the P432,876 renovation cost only the amount of P320,000 was paid to CLN. CLN filed a case against WPM and Manlapaz, claiming that WPM was a mere alter ego of Manlapaz. Should the veil of corporate fiction be pierced? Answer: The plaintiff failed to prove that Manlapaz acting as president had absolute control over WPM. Even granting that he exercised a certain degree of control over the finances, policies and practices of WPM, in view of his position, as president, chairman and treasurer of the corporation, such control does not necessarily warrant piercing the veil of corporate fiction since there was not a single proof that WPM was formed to defraud CLN, or that Manlapaz was guilty of bad faith or fraud. (WPM International Trading, Inc. vs. Labayen, 735 SCRA 297, Sept. 17, 2015).
VIII. (PNB, et al vs. Hydro, G. R. 167530, March 13, 2013. Justice Leonardo-de Castro).
Facts: DBP and PNB foreclosed the mortgages on the properties of Marinduque Mining
and Industrial Corp. (MMIC) as a result of which, DBP and PNB acquired substantially all the assets of MMIC. DBP and PNB organized NMIC and resumed operations of MMIC. DBP and PNB owned 67% and 43% of NMIC. All the directors of NMIC were nominated either by DBP or PNB. Zosa, a director of NMIC was also Governor of DBP and was signing contracts in behalf of NMIC. NMIC engaged services of Hercon for the former’s mine stripping and road construction program. NMIC had unpaid balance in favor of Hercon which filed a case against
NMIC, DBP and PNB claiming that NMIC was a mere alter ego of DBP and PNB. Should the action against DBP and PNB prosper?
Answer: Piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the corporate veil. Nothing in the records shows that the corporate finances, policies and practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have no separate mind, will or existence of its own but a mere conduit for DBP or PNB. Hence, the action against DBP or PNB cannot prosper. (PNB, et al vs. Hydro, G. R. 167530, March 13, 2013. Justice Leonardo-de Castro).
IX. Is the mere fact that a single person owns or controls one or more corporation or substantial identity of incorporators of two corporations, sufficient to disregard the separate personalities of the corporations?
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality. The substantial identity of the incorporators of two or more corporations does not imply that there was fraud so as to justify the piercing of the writ of corporate fiction. To disregard the said separate juridical personality, the wrong doing must be proven clearly and convincingly. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente).
X. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente).
Respondent New ANJH Enterprises is a sole proprietorship owned by respondent Noel Awayan. Allegedly due to dwindling capital, on Feb. 11, 2010 Noel informed Dole as well as his employees of the impending cessation of operation effective March 5, 2010. On March 15, 2010 Noel assigned the equipment, tools and machines used by New ANJH to NH Oil, a new corporation whose articles of incorporation was prepared on Jan. 27, 2010 with Noel owning more than 2/3 of the subscribed capital stock. The remaining shares had been subscribed by Noel’s sister, Heidi and other members of the Awayan family. Petitioners filed a case for illegal dismissal on the ground that while New ANJ stopped operations, it resumed operation as NH Oil using the same machineries with the same owners and management. Issue: Should the corporate identity of NH Oil be pierced?
Ruling: The application of the doctrine of piercing the veil of corporate fiction is
frowned upon. However, this Court will not hesitate to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime is committed against another in disregard of his rights. Petitioners were terminated from employment because of the impending permanent
closure of the business. However, the buyer of the assets of their employer was a corporation owned by the same employer and members of his family. Furthermore, the business reopened in less than a month under the same management. In this case, circumstances show that the buyer of the assets of petitioners’ employer is none other than his alter ego. The court is compelled to remove NH Oil’s corporate mask as it had become and was used as, a shield for fraud, illegality and inequity against the petitioners. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente).
XI. (Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016).
What are the powers of a corporation? A corporation is not restricted to the exercise of
powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest of welfare of the corporation. (Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016).
Illustration: Petitioner Magallanes Watercraft Association, Inc. (MWAI) is a local
association of motorized banca owners and operators ferrying cargoes and passengers from Magallanes, Agusan del Norte to Butuan City. Respondents Auguis and Basnig were members and officers of MWAI. For refusal of the respondents to pay the association dues and berthing fees, petitioner suspended the rights and privileges of the respondents. Respondents claimed that the petitioner did not have the power to suspend the respondents and hence, such suspension was an ultra vires act of a corporation because neither the articles of incorporation or by-laws of the petitioner vested it the power or authority to recommend disciplinary action on delinquent officers and/or members. Ruling: A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest of welfare of the corporation. (Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016).
XII. University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.
May an educational institution secure the loans of third persons? As a rule an
educational institution may not secure the loans of third persons. Securing loans of third persons is not among the purposes for which an educational institution was established. (University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.)
Effect of act of a corporation which is not provided for in the articles of incorporation or the law. Corporations are artificial entities granted legal personalities upon
their creation by their incorporators in accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing with corporations cannot assume that corporations have powers. It is up to those persons dealing with corporations to determine their competence as expressly defined by law and their articles of incorporation. A corporation may exercise its
powers only within those definitions. Corporate acts that are outside those express definitions under the law or articles of incorporation is created are ultra vires. The only exception is when acts are necessary and incidental to carry out a corporation’s purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation’s articles of incorporation. (University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.)
IV. What are the tests to determine the nationality of a corporation?
Nationality of a corporation is determined either by:
1. Incorporation test wherein the nationality of a corporation is determined by the state of incorporation, regardless of the nationality of the stockholders, or
2. Domicile test wherein the nationality of a corporation is determined by the state where it is domiciled, or
3. Control test wherein the nationality of the controlling stockholders or members
determines the nationality of the corporation. In the Philippines, the control test is being applied. Thus, for purposes of determining compliance with the citizenship requirements of law, the nationality of the controlling stockholders or members is the determining factor. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014).
V. What is the “grandfather rule” in determining the nationality of a corporation?
The “grandfather rule” of determining the nationality of a corporation traces the nationality of the stockholders of investor corporations so as to ascertain the nationality of the corporation where the investment is made.
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, of which belong to Filipino citizens, all of the shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014).
The “grandfather rule” should be applied only when there is a problem on the nationality of the investor-corporation itself. Thus, if the Filipino ownership in a corporation that invests in another corporation engaged in the development or exploitation of natural resources is below the
legal requirement of 60%, its Filipino ownership is equivalent only to same extent or percentage. However, if the investor corporation is at least 60% Filipino-owned, its entire shareholding in the investee corporation is to be considered Filipino-owned. When the 60-40 Filipino- foreign equity is not in doubt, the Grandfather Rule will not apply. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014).
VI. When are officers of a corporation solidarily liable with the corporation?
The solidary liability may be incurred, but only under the following exceptional circumstances: 1) When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; 3) When a director, trustee or officers has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; 4) When a director, trustee or officer is made, by specific provision of law, personally liable for his personal action. (Pioneer Insurance & Surety Corp. vs. Morning Star Travel & Tours, Inc., 762 SCRA 283, July 8, 2015. )
VII. Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015. (PP)
Piercing the veil of corporate fiction. Piercing the corporate veil in order to hold
corporate officers personally liable for the corporation’s debts requires that the “bad faith or wrongdoing of the director must be established clearly and convincingly [as] bad faith is never presumed”. (Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.)
VIII. (Rivera vs. Genesis Transport Services, Inc., 764 SCRA, August 3, 2015; Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.)
Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that the “bad faith or wrongdoing of the director must be established clearly and convincingly [as] bad faith is never presumed”. (Rivera vs. Genesis Transport Services, Inc., 764 SCRA, August 3, 2015; Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.)
IX. (Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring).
Q. When is there a sale of all or substantially all of the assets of the corporation?
A. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. (Concurring opinion of J. Velasco in Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, citing Sec. 40, par. 2 of the Corporation Code).
Nell Doctrine. The Nell Doctrine states the rule that the transfer of all the assets of a
corporation to another shall not render the latter liable to the liabilities of the transferor except: (1) Where the purchaser expressly or impliedly agrees to assume such debts; (2) Where the transaction amounts to a consolidation or merger of corporations; (3) Where the purchasing corporation is merely a continuation of the selling corporation; and (4) Where the transaction is entered into fraudulently in order to escape liability for such debts. Thus, despite the sale of all corporate assets, the transferee corporation cannot be prejudiced as it is not in privity with the contracts between the transferor corporation and its creditors except in the instances mentioned above. (Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring).
Illustration: MADCI, a real estate development corporation offered for sale shares of a
golf and country club. Yu bought several shares. Upon full payment of the shares to MADCI, Yu visited the supposed site of the golf and country club and discovered that it was nonexistent. Despite demand for refund, Yu did not receive any refund. All the assets of MADCI consisting of 120 hectares of land were sold to YIL, YILPI AND YICRI (YATS Group). Issue: Should YATS Group be held jointly and severally liable to Yu despite the absence of fraud in the sale of assets and bad faith on the YATS Group. RULING: Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) Where the purchaser expressly or impliedly agrees to assume such debts; (2) Where the transaction amounts to a consolidation or merger of corporations; (3) Where the purchasing corporation is merely a continuation of the selling corporation; and (4) Where the transaction is entered into fraudulently in order to escape liability for such debts. The aforesaid principle is called the Nell Doctrine. YATS Group is liable jointly and severally to Yu because it is merely a continuation of the business of MADCI, despite the lack of fraud. (Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring). NOTE: In the concurring opinion of Justice Velasco, he stated – The element of fraud, however is not required in order for the transferee to be liable under Section 40 of the Corporation Code, as previously mentioned. This is so since the basis for the liability thereon is not that the transfer was done in fraud of creditors but that it included the goodwill of the transferor, and to protect the creditors of the transferor since the alienation effectively removes the transferor’s properties from its creditors’ reach. The sale between MADCI and petitioners of the 120-hectare property was a business enterprise transfer contemplated under Section 40 of the Corporation Code, which results in the solidary assumption by petitioners of MADCI’s admitted obligation. (Ibid.)
X. Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015. Nature of membership in non-stock corporation. Membership in a non-stock
corporation is a property right and as such, public policy demands that its termination must be done in accordance with substantial justice. Since the termination of membership in a non-stock corporation is linked to the deprivation of property rights over the share, the emergence of such adverse consequences make legal and equitable standards come to fore. (Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015)
Illustration: Valley Golf and Country Club is a non-stock, non-profit corporation which
operates a golf course. The members and their guests are entitled to play golf and avail of the facilities and privileges provided by the golf club. The members are assessed monthly membership dues. Reyes purchased one membership share in Valley Golf. Reyes became delinquent in paying the membership dues. Desirous to transfer ownership of his share, Reyes inquired with the Club the status of his membership. He learned that Valley Golf sold his share at public auction due to delinquency in the payment of membership dues. Reyes claimed he was not notified of the sale at public auction. Valley Golf maintained that it sent notice to Reyes by registered mail but without any proof as to who received it. Was the sale of Reyes’ share valid? Ruling: Termination of membership in a non-stock corporation constitutes an infringement of property rights which one should not be deprived of without conforming with the demands of substantial justice. A person’s share in a golf club is a property right which he cannot be deprived of without affording him the benefit of due process. Hence, a delinquent member should first be afforded the opportunity to settle his unpaid obligation by notifying him of the delinquency before the penalty of termination of membership thru the sale of share in a public auction can be meted out. In other words, no sale on public auction involving the share of unduly notified shareholder can be validly conducted. The sale of Reyes’ share in Valley Golf was not valid. (Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015)
XI. GSIS Family Bank vs. BPI Family Bank. G. R. No. 175278, September 23, 2015. (PP)
Corporate name – No corporate name may be allowed by the Securities and 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. Hence, Royal Savings Bank cannot change its name to “GSIS Family Bank” in 2002 since 17 years before, “Family Savings Bank” was incorporated and later changed to BPI Family Savings Bank in 1985 and thus, the latter has the prior right over the use of the said corporate name. (GSIS Family Bank vs. BPI Family Bank. G. R. No. 175278, September 23, 2015.)
XII. Bernas, et al. vs. Cinco, , G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104 (PP)
Removal of Directors:
Q. How may a director be removed? A. Any director or trustee of a corporation may
be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation is a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote, provided that such removal shall take place either at a regular or special meeting called for the purpose. Removal may be with or
without cause provided such removal may not be used to deprive minority representation.
Such meeting may be called by the (1) secretary on order of the president or (2) on written
demand of the stockholders representing or holding at least a majority of the outstanding capital stock or if non-stock corporation on written demand of majority of the members.
(Sec. 28, Corporation Code; Bernas vs. Cinco, G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104).
Illustration:
As a result of alleged mishandling of corporate funds, stockholders of the Makati Sports Club (MSC) representing at least 100 shares sought the assistance of the MSC Oversight Committee (MSCOC) in calling for a special stockholders’ meeting for the purpose of electing a new set of officers, thereby removing the Bernas Group from the Board of Directors and Officers of the Corporation. The MSCOC thus called a special stockholders’ meeting wherein the members of the Bernas Group were removed from office and replaced by the Cinco Group. The term of the Bernas Group was supposed to expire in 1998 or 1999 but the Cinco Group took office after they were elected on December 17, 1997. In the annual stockholders’ meeting subsequently held on April 20, 1998, at which 2/3 of stockholders were present, the majority approved and ratified the calling and holding of December 17, 1997 special stockholders’ meeting, including the removal of the Bernas Group and the election of their replacements. The Bernas Group filed an action with the SEC claiming that the MSCOC is not vested with the power to call for the corporate meetings as the authority lies with the corporate secretary.
Issues: (1) Was the removal of the Bernas Group valid? (2) Was the stockholders’ ratification of the removal of the directors valid? Ruling: (1) While directors may be removed
with or without cause, however the meeting for the removal of directors must be done in accordance with the law or the by-laws of the corporation. Neither the Corporation Code nor the MSC by-laws authorizes MSCOC to exercise the power to call a special meeting for the purpose of removing directors of MSC. The defect goes into the very authority of the persons who made the call for the meeting. The removal was not valid. (2) A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals or public policy or public duty, and are like similar transactions between individuals, void. They cannot serve as basis of a court
action nor acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may became binding and enforceable when ratified by the stockholders. The December 1997 meeting is void ab initio and cannot be validated. The removal of the Bernas Group is void. (Bernas vs. Cinco, G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104).
XIII. Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014 (PP)
Derivative suit: A derivative suit is an action filed by stockholders to enforce a
corporate action. It is an exception to the general rule that the corporation’s power to sue is exercised only by the board of directors or trustees. Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the corporation refuse to sue to vindicate the rights of the corporation. It is allowed when the “directors (or officers) are guilty of breach of trust, not of mere error of judgment. In derivative suits, the real party-in-interest is the corporation, and the suing stockholder is a mere nominal party. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014).
Requisites of Derivative suit: A stockholder or member may bring an action in the name
of a corporation or association, as the case may be, provided that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time of the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws of the corporation to obtain the relief he desires; (3) No appraisal rights are available for the acts complained of and (4) The suit is not a nuisance or harassment suit, and (5) The action brought by the stockholder or member must be in the name of the corporation or association. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014).
Reasons for disallowing individual suits to enforce remedies for the corporation: The
reasons for disallowing direct individual suit are: (1) A stockholder in a corporation has no title legal or equitable to the corporate property; to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) Prior rights of the creditors may be prejudiced; (3) Filing of such suit would conflict with the duty of the management to sue; (3) Cause multiplicity of suits, and (5) would cause confusion in ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014).
Illustration: Pasig Printing Corporation (PPC) obtained an option to lease Mid-Pasig’s
property which includes the Rockland area. PPC’s board of directors issued a resolution waiving all its rights, interests and participation in the option to lease Mid-Pasig’s property in favor of Villamor. PPC received no consideration for this waiver in favor of Villamor. PPC represented by Villamor entered into a Memorandum of Agreement with MC Home Depot under which it will
continue to occupy the area as PPC’s sub-leasee for 4 years at monthly rental of P4.5 million plus goodwill of P18 million. MC Home Depot issued postdated checks for the rentals and goodwill and gave them to Villamor who did not turn over to PPC the amount of the checks upon encashment. Balmores, a stockholder and director of PPC wrote a letter to the directors of PPC informing them that Villamor should be made deliver to PPC the value of the checks issued by MC Home Depot. Due to inaction of the directors, Balmores filed an intra-corporate controversy complaint with the Regional Trial Court against the directors and Villamor. He prayed that a receiver be appointed because PPC’s assets were not only in imminent danger, but actually been dissipated, lost, wasted and destroyed. RTC ruled against Balmores who brought the case to the Court of Appeals. The Court of Appeals ruled that the case filed by Balmores was a derivative suit because there were allegations of fraud or ultra vires acts. Was the action filed by Balmores a derivative suit? RULING: The action filed by Balmores was not a derivative suit. In derivative suits, the real party-in-interest is the corporation, and the suing stockholder is a mere nominal party. Balmores failed to show that he exhausted all administrative remedies. Though he tried to communicate with PPC’s directors about the checks in Villamor’s possession before he filed an action, Balmores was not able to show that this comprised all the remedies available under the articles of incorporation, by-laws, laws or rules governing PPC. Balmores also did not implead PPC as a party in the case nor did he allege that he was filing on behalf of the corporation. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014).
XIV. Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014. Leonardo-de Castro, ponente (PP)
Derivative suit. The legal standing of minority stockholders to bring derivative suits is
not a statutory right, there being no provision in the Corporation Code or related statutes authorizing the same, but is instead a product of jurisprudence cased on equity. However, a derivative suit cannot prosper without first complying with the legal requisites for its institution. (Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014)
Question: What is the effect of the failure of the petitioners to state with particularity in
the Complaint that they had exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, bylaws, and laws or rules governing the corporation to obtain the relief they desire?
Answer: Where the complaint contained no allegation whatsoever of any effort to avail
of intra-corporate remedies, the case should be dismissed. Even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and specified the reasons for such opinion. Failure to do allows the court to dismiss the Complaint, even motu propio. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at will. (Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014)
XV. Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, 726 SCRA 623 (PP)
Merger: In a merger of two existing corporations, one of the corporations survives and
continues the business, while the other is dissolved, and all its rights, properties, and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed or merged corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights, privileges, and powers, as well as their liabilities. (Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, 726 SCRA 623, Sept. 29, 2014).
XVI. Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016.
Must the stock certificate be required to be surrendered before the transfer thereof can be recorded in the books of the corporation? Under Sec. 63 of the Corporation Code,
certain minimum requisites must be complied with before there could be a valid transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third parties, the transfer must be recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative that is the operative act of transfer of shares from the original owner to the transferees. The delivery contemplated in Section 63, however, pertains to the delivery of
the certificate of shares by the transferor to the transferee, that is, from the original
stockholder named in the certificate to the person or entitle the stockholder was transferring the shares to, whether by sale or some other form of absolute conveyance of ownership. Shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferees by delivery of the duly indorsed certificate of stock. (Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016.)
Illustration: Ting Ping purchased shares of stock in TCL Sales Corporation. Ting Ping
requested TCL’s Corporate Secretary to enter the said transfer in the Stock and Transfer Book of the Corporation. When the Corporate Secretary refused despite repeated demands, Ting Ping filed an action for Mandamus against TCL and its Corporate Secretary, Teng. Judgment was rendered in favor of Ting Ping. Teng’s position is that Ting Ping must first surrender the certificates of stock purchased before the transfer to Ting Ping may be transferred in the books of the corporation. Ting Ping on the other hand, manifested his intention to surrender the subject certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in his name. Issue: Is the delivery or surrender of the stock certificate from Ting Ping to TCL necessary before the conveyance may be recorded in its books? Ruling: The delivery or surrender of the stock certificates from Ting Ping to TCL is not a requisite before the conveyance
may be recorded in it books. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. Besides Ting Ping manifested his intention to surrender the subject certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in his name. (Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016.)
XVII. Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016. (PP)
When will transfer of shares bind the corporation and third persons? 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 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. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises. (Interport Resources
Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.)
Exception when the corporation is bound by unrecorded transfer of shares.
However, Section 63 of the Corporation Code will not apply if it is the corporation itself who unduly refused to accept the tender of payments of stocks and unduly refused to recognize the assignment of rights based on Subscription Agreements it issued. This provision could not be the source of rights of corporations who employed dubious machinations to justify their refusal. (Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.)
Illustration. Oceanic and respondent R. C. Lee entered into a subscription agreement
covering 5,000,000 shares of stock wherein the latter paid only 25% of the subscription. Later, Oceanic merged with Interport, the latter as surviving corporation. R. C. Lee assigned to respondent SSI the said Subscription Agreements outstanding in the name of R. C. Lee and the Oceanic official receipts showing 25% has already been paid. Later, R. C. Lee requested Interport for a list of subscription agreements and stock certificates issued in the name of R. C. Lee and other individuals named in the request, which in turn, was provided. Upon finding no record showing any transfer or assignment to SSI of the Oceanic subscription agreements, R. C. Lee paid its unpaid subscription and was accordingly issued stock certificates corresponding thereto. SSI, on the other hand, tried for several times to tender payment for the balance of the 5,000,000 shares covered by Oceanic subscription agreements. However, Interport consistently refused to accept such tender. SSI later learned that Interport had issued the 5,000,000 shares to R. C. Lee, relying on the latter’s registration as the owner of the subscription agreements in the
books of Interport, and on affidavits of R. C. Lee that no transfers or encumbrances of the shares had been made. SSI filed an action to compel Interport to deliver the 5,000,000 shares and pay damages, alleging collusion between Interport and R. C. Lee. Interport claimed that it is not bound by the transfer of the subscription agreement from R. C. Lee to SSI because said transfer was not recorded in the books of Interport. Is Interport bound by the said transfer of the subscription to SSI? RULING: Section 63 of the Corporation Code which denies the validity of the transfer of shares, except between the parties if such transfer is not recorded in the books of the corporation is not applicable in the case at bar since it is Interport which unduly refused to recognize the assignment of shares between R. C. Lee and SSI. Interport was duly notified of the assignment when SSI tendered its payment of the 75% unpaid balance, and it could not anymore refuse to recognize the transfer of the subscription. (Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.)
XVIII. F & S Velasco, Inc. vs. Madrid, 774 SCRA 388, Nov. 10, 2015. Madrid inherited the shares of stock of his wife, Angela in F & S Velasco Co., Inc. (FSVCI) as her sole heir. As such Madrid may compel the issuance of certificates of shares in his favor as well as the registration of his wife’s stock in his name. However, Madrid’s inheritance of Angela’s shares of stock was not recorded in the books of the corporation. Issue: Will such inheritance entitle Madrid to the powers and prerogatives appurtenant to the shares? Ruling: Madrid’s inheritance of Angela’s shares does not ipso facto afford him the rights accorded to ownership of FSVCI’s shares of stock. All transfers must be registered in the corporate books in order to be binding on the corporation. (F & S Velasco, Inc. vs. Madrid, 774 SCRA 388, Nov. 10, 2015)
XIX. Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015.
What is the nature of Stock Certificate? Is the Stock Certificate the only proof that a person is a stockholder? A stock certificate is prima facie evidence that the holder is a
shareholder of the corporation, but the possession of the certificate is not the sole determining factor of one’s stock ownership. A certificate of stock is merely the paper representative or tangible evidence of the stock itself and of the various interests therein. The certificate is not stock in the corporation but is merely evidence of the holder’s interest and status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of such ownership. It expresses the contract between the corporation and the stockholder, but it is not essential to the existence of a stock in stock or the creation of relation of shareholder to the corporation. (Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015)
Illustration: Claiming to be stockholders, petitioners sought to examine the books and
records of Abra Valley Colleges, Inc. however, the latter claimed that petitioners were not stockholders of the corporation and hence, had no right of inspection. Petitioners had no stock certificates issued in their favor but they have official receipts of their payments for their subscriptions of the shares of Abra Valley; certification of the Securities and Exchange Commission stating that Abra Valley had issued shares in favor of the petitioners, such issuance
being part of the authorized and unissued capital stock as stated in the Secretary’s Certificate and the general information sheet. Petitioners previously attended the annual stockholders’ meeting as stockholders of Abra Valley, and participated in the election of the Board of Directors at which some of them were chosen as members. Respondents allowed them to be elected and sit in the Board of Directors as members. Are the petitioners entitled to the rights of a stockholder? RULING: A person becomes a stockholder of a corporation by acquiring a share through either purchase or subscription. The petitioners acquired their shares in Abra Valley by (1) subscribing to 36 shares each from Abra Valley’s authorized and unissued capital stock, and (2) by purchasing the shareholdings of existing stockholders, as borne out by the latter’s indorsement on the stock certificates. A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of one’s stock ownership. Petitioners are stockholders of the corporation and may inspect the books and records of the corporation. (Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015)
XX. Terelay Investment and Development Corporation vs. Yulo, 765 SCRA 1, August 5, 2015
May a stockholder with insignificant shareholding examine the books of the corporation? The Corporation Code has granted to all stockholders the right to inspect the
corporate books and records, and in so doing has not required any specific amount of interest for the exercise of the right to inspect. Ubi lex non distinguit nec nos distinguere debemos. When the law has made no distinction, we ought not to recognize any distinction. Neither could the petitioner arbitrarily deny the respondent’s right to inspect the corporate books and records on the basis that her inspection would be used for a doubtful or dubious reason. Hence, the petitioners submission that the respondent’s shareholding is “insignificant holding” of only . 001% of the petitioner’s stockholdings did not justify denial of respondent’s application for inspection of the corporate books and records. (Terelay Investment and Development Corporation vs. Yulo, 765 SCRA 1, August 5, 2015).
XXI. Alabang Development Corporation vs. Alabang Hills Village Association, G. R. No. 187456, June 2, 2014. J. Peralta ponente. (PP)
Capacity to sue. ADC’s corporate registration was revoked by SEC on May 26, 2003. It
filed a complaint against AHVA on October 19, 2006. May the action be allowed to continue? Answer: ADC filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed for liquidation in Sec. 122 of the Corporation Code. Thus, it is clear that the petitioner lacks the capacity to sue as a corporation at the time of the filing of the complaint. (Alabang Development Corporation vs. Alabang Hills Village Association, G. R. No. 187456, June 2, 2014. J. Peralta ponente.)
XXII. What is the doctrine of Forum Non Conveniens? Under the doctrine of Forum Non
Convenience, a Philippine court in a conflict-of-laws case may assume jurisdiction if 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. (Continental Micronesia, Inc. vs. Basso, 771 SCRA 329, Sept. 23, 2015). (PP)
XXIII. Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016. (PP)
When an offline international air carrier is doing business in the Philippines. An
offline international air carrier selling passage tickets in the Philippines through a general sales agent, is a resident foreign corporation doing business in the Philippines. (Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016).
When subject to Gross Philippine Billings Tax. Question: Sec. 28 of the National
Internal Revenue Code provides, “International Air Carrier. ‘Gross Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the payment of payment of the ticket or passage document.” Air Canada was engaged in business in the Philippines through a local agent that sells airline tickets on its behalf. However, Air Canada does not have flights originating from or coming to the Philippines and does not operate any airplane in the Philippines. Issue: Is it subject to ‘Gross Philippine
Billings’? Ruling: Section 28 of the NIRC attaches only when the carriage of persons, excess
baggage, cargo and mail originated from the Philippines in a continuous and uninterrupted flight, regardless of where the passage documents were sold. Not having flights to and from the Philippines, Air Canada is not liable for the ‘Gross Philippine Billings’ tax. (Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016. J. Leonen, ponente).
SECURITIES REGULATIONS CODE
I. Jardeleza vs. Sereno, 733 SCRA 279, August 19, 2014. (PP)Insider Trading. Insider trading involves the trading of securities based on knowledge of
material information not disclosed to the public at the time. It is an offense that assaults the integrity of our vital securities market. Manipulative devices and deceptive practices, including insider trading, throw a monkey wrench right into the heart of the securities industry. When someone trades in the market with unfair advance in the form of highly valuable secret inside information, all other participants are defraud. All of the mechanisms become worthless. Given enough of the stock market scandals, coupled with the related loss of faith in the market, such
abuses could presage a sever drain of capital. ( Jardeleza vs. Sereno, 733 SCRA 279, August 19, 2014).
II. What is a public company? Must the company be listed in the stock exchange to be a public company?
(1) A public company is any corporation with a class of equity securities listed on an Exchange OR with assets in excess of P50 million and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least 100 shares of a class of its equity securities.
(2) Public company is not limited to a company whose shares are publicly listed. Even companies like banks whose shares are offered only to a specific group of people, are considered public provided they meet the requirements mentioned above. (Phil. Veterans Bank vs. SEC, Aug. 3, 2011).
PRESIDENTIAL DECREE
NO. 902-A
(As amended by Securities Regulation Code)
I. Q. What are the guidelines to be followed in case a commercial case is filed with an improper RTC which is not a Special Commercial Court? (PP)
A. Should a commercial case filed before a proper RTC is erroneously raffled to its regular branch, the case shall be referred to the Executive Judge for re-docketing as a commercial case, after which, the same shall be assigned to the sole special branch if the RTC has only one Special Commercial Court or by referring it to the Executive Judge for re-docketing as a commercial case and raffle the case among its special branches if the RTC has multiple Special Commercial Courts or refer the case to the nearest RTC with a Special Commercial Court within the judicial region and upon referral, and assign the same to the sole special branch or raffle off the case among its Special Commercial Courts, as the case may be, when the RTC to where the action was filed has no internal branch designated as Special Commercial Court. ( Gonzales, et al. vs. GJH Land, Inc., et al., G. R. No. 202664, November 10, 2015, J. Perlas-Bernabe, ponente).
II. What is an intra-corporate controversy?
An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or
associates themselves. (Philip L. Go, Pacifico Q. Lim, et al. vs. Distinction Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012.; Strategic Alliance Dev. Corp. vs. Star Infrastructure Dev. Corp., 635 SCRA 380, Nov. 17, 2010. )
III. Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.) (PP) IV. Intra-corporate controversy:
Q. What is the relationship test to determine whether the conflict is intra-corporate? A.
Under the relationship test, the existence of any of the following relationships makes the conflict intra-corporate: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers, and (4) among the stockholders, partners or associates themselves. (Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.)
Q. What is the controversy test to determine whether the conflict is intra-corporate? A.
The nature of the controversy test dictates that the “controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.” (Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.)
Illustration: LMI is a corporation listed in the Philippine Stock Exchange. LMI entered
into a Memorandum of Agreement with PHILCOMSAT for the latter to gain controlling interest in LMI through an increase in its authorized capital stock. LMI increased its capital stock and PHILCOMSAT subscribed to the agreed shares of LMI. LMI changed its name to PHC and applied with the Philippine Stock Exchange (PSE) for listing of the shares representing the increase in its capital stock which included the shares subscribed by PHILCOMSAT. PCGG requested PSE to defer the listing of PHC shares. POTC, owner of 100% of PHILCOMSAT asked PCGG to rescind its objection to the listing of the increase in PHC’s capital stock. The Government owns 34.9% of POTC. PCGG failed to act on the request. PHILCOMSAT filed a complaint before the Sandiganbayan against PCGG to compel the latter to withdraw its opposition to the listing of the increase in PHC’s capital stock. The Sandiganbayan dismissed the case for lack of jurisdiction. Issue: Was the dismissal the case correct? Ruling: The Sandiganbayan has no jurisdiction over the case. The controversy in the present case stems from the act of PCGG in requesting the PSE to suspend the listing of PHC’s increase in capital stock. Such request was done in pursuit of protecting the interest of the Republic of the Philippines, a legitimate stockholder in PHC’s controlling parent company, POTC. Therefore, applying the relationship test and the nature of controversy test, the dispute is an intra-corporate controversy. ( Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.)
V. Is an action filed by a condominium unit owner against the condominium corporation questioning the assessment made, an intra-corporate controversy?
There is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno, an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799. Philip L. Go, Pacifico Q. Lim, et al. vs. Distinction Properties Development and
Construction, Inc., G.R. No. 194024, April 25, 2012.
Facts: Cullen purchased from MLHI a condominium unit in Medical Plaza Makati
Condominium Corp., Petitioner herein. Petitioner demanded from the Cullen payment of alleged unpaid association dues. Cullen refused to pay and claimed that he had been paying association dues. Petitioner claimed that the unpaid dues were carried over from the seller of the unit, MLHI. Cullen was declared delinquent and was not allowed to run as director and vote at the election of directors. On the other hand, MLHI claimed that the association dues had been paid in full. Cullen filed an action with the regular Regional Trial Court for damages against MLHI and Medical Plaza Makati Condominium Corp. which filed motions to dismiss on the ground of lack of jurisdiction because it is HLURB that has jurisdiction over the case. Which entity has jurisdiction over the case, (a) HLURB, (b) Regular Regional Trial Court, or (c) Regional Trial Court sitting as a special commercial court?
Answer: HLURB does not have jurisdiction over the case because said entity has
jurisdiction only to hear and decide inter-association and/or intra-association controversies or conflicts concerning homeowners’ association. The same cannot apply to the present case as it involves a controversy between a condominium unit owner and a condominium corporation.
The intra-corporate dispute between Cullen and the condominium corporation is within the jurisdiction of the RTC sitting as a special commercial court and not the HLURB. The case is dismissed and remanded to the Executive Judge of the RTC of Makati for re-raffle among the designated special commercial courts. (Medical Plaza Makati Condominium Corp, vs. Cullen, G. No. 181416, Nov. 11, 2013, Justice Peralta, ponente).
VI. SEC vs. CA, 739 SCRA 99, October 22, 2014 (PP)
Validation of Proxy: Omico scheduled its annual stockholders’ meeting on November 3,
2008 and the validation of proxies on October 25, 2008. Astra objected to the validation of proxies issued in favor of Tommy Kin Hing Tia representing 38% of the outstanding capital stock of Omico. Despite the objections of Astra, Omico’s Board of Inspectors declared that the proxies issued in favor of Tin were valid. Astra filed a complaint before the SEC praying for the invalidation of the proxies issued in favor of Tin. Does SEC have jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation? RULING: While the regular courts now had the power to hear and decide cases involving controversies in
