Case Doctrines in Corporation Law (part III)

CASE DOCTRINES IN CORPORATION LAW (part III)

Prepared by  Glenn Rey D. Anino

Republic Bank vs. Cuaderno, 19 SCRA 671 , March 30, 1967

Corporation; Banks; Derivative suit by stockholder.—An individual stockholder may institute a derivative or representative suit on behalf of the corporation, wherein he holds stock, in order to protect or vindicate corporate rights, whenever the of f icials of the corporation refuse to sue, or are the ones to be sued or hold 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.

Same; When authority of corporation to bring suit is not required.—Such a suit need not be authorized by the corporation where its objective is to nullify the action taken by its manager and the board of directors, in which case any demand for intra-corporate remedy would be futile.

Same; Nonjoinder of other stockholders.—The fact that no other stockholder has made common cause with the plaintiff is irrelevant since the smallness of plaintiff’s holding is no ground for denying him relief.

Same; Joinder of corporation.—Whether in a derivative suit filed by a stockholder, the corporation should be joined as a plaintiff or a defendant is not important. What is important is that the corporation should be made a party in order to make the court’s judgment binding upon it and thus bar future relitigations of the issues. Misjoinder of parties is not a ground for dismissing an action.

Same; Derivative suit is not a quo warranto proceeding.—A derivative suit by a stockholder for the purpose of annulling the appointment of a defendant as Chairman of the Board of Directors is not a quo warranto proceeding. The plaintiff is not claiming title to the position of Chairman of the Board of Directors. His action is designed to prevent diversion of the corporate funds for the payment of the salary of said Chairman.

Same; Stockholder’s suit to annul actions of bank’s Board of Directors.—A stockholder has a cause of action to annul certain actions of the Board of Directors of a bank, which actions were considered anomalous and a breach of trust prejudicial to the bank.

Pleadings; Motion to dismiss; Hypothetical admission of facts alleged in the complaint.—The facts pleaded in the complaint are deemed hypothetically admitted by the defendants who file a motion to dismiss the complaint for failure to state a cause of action.

Same; Actions; Sufficiency of cause of action.—The test of sufficiency of the facts alleged in the complaint is whether or not the court could render a valid judgment as prayed for, accepting as true the exclusive facts set forth in the complaint. If the court should doubt the truth of the facts averred, it must not dismiss the complaint but should require an answer and proceed to trial on the merits.

Same; Pendency of other cases.—A case should not be dismissed due to the pendency of other litigations between the same parties if said ground was not invoked in the motion to dismiss, The .fact that said case may be incorporated, by amendment, in any one of the other pending actions does not justify its dismissal since the amendment of the complaint in the other cases rests on the discretion of the court. It is possible that the amendment would not be allowed. [Republic Bank vs. Cuaderno, 19 SCRA 671(1967)]

Reynoso IV vs. Court of Appeals, 345 SCRA 335 , November 22, 2000

Corporation Law; Securities & Exchange Commission; Fraud; When the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for legitimate objective. However, it is pierced in order to remedy injustice.—It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.

Same; Same; Same; The ends of justice are not served if further litigation is encouraged when the issue is determinable based on the records.—If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals, the ends of justice are not served if further litigation is encouraged when the issue is determinable based on the records.

Same; Courts; Contracts; Fraud; Piercing the Veil of Corporate Fiction; Courts have been organized to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate veil.—A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive relief. Courts have been organized to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate veil. [Reynoso IV vs. Court of Appeals, 345 SCRA 335(2000)]

Nestlé Philippines, Inc. vs. Court of Appeals, 203 SCRA 504 , November 13, 1991

Revised Securities Act; Issuance of previously authorized but unissued capital stock to existing stockholders; Registration requirement; Exempt transactions.—Consideration of the underlying statutory purpose of Section 6(a) (4) compels us to sustain the view taken by the SEC and the Court of Appeals. The reading by the SEC of the scope of application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation. By limiting the class of exempt transactions contemplated by the last clause of Section 6(a) (4) to issuances of stock done in the course of and as part of the process of increasing the authorized capital stock of a corporation, the SEC is enabled to examine issuances by a corporation of previously authorized but theretofore unissued capital stock, on a case-to-case basis, under Section 6(b); and thereunder, to grant or withhold exemption from the normal registration requirements depending upon the perceived level of need for protection by the investing public in particular cases.

Same; Same; Same; Same.—Under the reading urged by petitioner Nestlé of the reach and scope of the third clause of Section 6(a) (4), the issuance of previously authorized but unissued capital stock would automatically constitute an exempt transaction, without regard to the length of time which may have intervened between the last increase in authorized capital stock and the proposed issuance during which time the condition of the corporation may have substantially changed, and without regard to whether the existing stockholders to whom the shares are proposed to be issued are only two giant corporations as in the instant case, or are individuals numbering in the hundreds or thousands. In contrast, under the ruling issued by the SEC, an issuance of previously authorized but still unissued capital stock may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration under the Revised Securities Act are “not necessary in the public interest and for the protection of the investors” by reason, inter alia, of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves. In fine, petitioner Nestlé’s proposed construction of Section 6(a) (4) would establish an inflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed. [Nestlé Philippines, Inc. vs. Court of Appeals, 203 SCRA 504(1991)]

Atrium Management Corp vs.  CA G.R. No. 109491  Feb 28, 2001, supra

Dee vs. Securities and Exchange Commission, 199 SCRA 238 , July 16, 1991

Corporation Law; Securities and Exchange Commission: The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnership and associations and those dealing with internal affairs of such entities.—In other words, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between corporation, partnership or association and the public; (b) between the corporation, partnership, or association and its stockholders, partners, members or officers; (c) between the corporation, partnership or association and the state insofar as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners, or associates themselves (Union Glass & Container Corp. vs. SEC, 126 SCRA 31 [1983]). The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with internal affairs of such entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting corporations (Pereyra vs. IAC, 181 SCRA 244 [1990]; Sales v. SEC, 169 SCRA 121 [1989]). The jurisdiction of the SEC in SEC Case No. 1748 is limited to deciding the controversy in the election of the directors and officers of Natelco. Thus, the SEC was correct when it refused to rule on whether the issuance of the shares of Natelco stocks to CSI violated Sec. 20 (h) of the Public Service Act. The SEC ruling as to the issue involving the Public Service Act, Section 20 (h), asserts that the Commission En Banc is not empowered to grant much less cancel franchise for telephone and communications, and therefore has no authority to rule that the issuance and sale of shares would in effect constitute a violation of Natelco’s secondary franchise. It would be in excess of jurisdiction on our part to decide that a violation of our public service laws has been committed. The matter is better brought to the attention of the appropriate body for determination. Neither can the SEC provisionally decide the issue because it is only vested with the power to grant or revoke the primary corporate franchise. The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the only issue in this case.

Same; Shares of Stocks; Stockholders, Rights of; The pre-emptive right of stockholders is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares.—While the group of Luciano Maggay was in control of Natelco by virtue of the restraining order issued in G.R. No. 50885, the Maggay Board issued 113,800 shares of stock to CSI. Petitioner said that the Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their right of pre-emption to the unissued shares. This Court in Benito vs. SEC, et al., has ruled that: “Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of preemption over the unissued shares. However, the general rule is that pre-emptive right is recognized only with respect to new issues of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later reoffered, he cannot therefore (sic) claim a dilution of interest (Benito vs. SEC, et al., 123 SCRA 722).” The questioned issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the stockholders as claimed by the petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders’ meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no preemptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI.

Courts; Contempt of Court; The court has no authority to punish for disobedience of an order issued without authority.—Accordingly, it is clear that since the trial judge in the lower court (CFI of Camarines Sur) did not have jurisdiction in issuing the questioned restraining order, disobedience thereto did not constitute contempt, as it is necessary that the order be a valid and legal one. It is an established rule that the court has no authority to punish for disobedience of an order issued without authority (Chanco v. Madrilejos, 9 Phil. 356; Angel Jose Realty Corp. v. Galao, et al., 76 Phil. 201). Finally, it is wellsettled that the power to punish for contempt of court should be exercised on the preservative and not on the vindictive principle. Only occasionally should the court invoke its inherent power in order to retain that respect without which the administration of justice must falter or fail (Rivera v. Florendo, 144 SCRA 643, 662-663 [1986]; Lipata v. Tutaan, 124 SCRA 880 [1983]). [Dee vs. Securities and Exchange Commission, 199 SCRA 238(1991)]

Nielson & Company, Inc. vs. Lepanto Consolidated Mining Company, 26 SCRA 540 , December 28, 1968

Corporation law; Shares of stock; Consideration for which shares of stock may be issued; A share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation.—From the provision of Section 16 of the Corporation Law, the consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property then those shares do not fall under the category of "stock dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness. It is the shares of stock ,that are originally issued by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original capitalization or f rom the increased capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation. Under Section 16 of the Corporation Law stock dividends can not be issued to a person who is not a stockholder in payment of services rendered.

Same; "Stock dividend"; "Dividend"; Concept and nature.—A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is, as what the term itself implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits (Sec. 16, Corporation Law). So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at par. (Words and Phrases, p. 270). When a corporation issues stock dividends, it shows that the corporation's accumulated profits have been capitalized instead of distributed to the stockholders or retained as surplus available f or distribution, in money or kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends rather ,to postpone said realization, in ,that the fund represented by the new stock has been transferred from surplus to assets and no longer available for actual distribution (Fisher v. Trinidad, 43 Phil. 973). Thus, it is apparent that stock dividends are issued only to stockholders. This is so because only stockholders are entitled to dividends. They are the only ones who have a right to a proportional share in that part of the surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder; the proportional interest of each stockholder remains the same (Towne v. Eisner, 62 L. Ed. 372). If a stockholder is deprived of his stock dividends—and this happens if the shares of stock f orming part of the stock dividends are issued to a nonstockholder—then the proportion of the stockholder's interest changes radically. Stock dividends are civil fruits of the original investment, and to the owners of the shares belong the civil fruits (Art. 441, Civil Code). The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the enterprise which the corporation, by its governing agents sets apart for ratable division among the holders of the capital stock. It means the fund actually set aside, and declared by the directors of the corporation as a dividend, and duly ordered by the directory, or by the stockholders, at a corporate meeting, to be divided or distributed among the stockholders according to their respective interests (7 Thompson on Corporations 134135).

Wise & Co. vs. Meer, 78 Phil. 655 , June 30, 1947

1.TAXATION; INCOME TAX; LIQUIDATING DIVIDENDS; DISTRIBUTION NOT A DIVIDEND, THOUGH SO-CALLED.—Although the various resolutions mentioned in the decision speak of distributions of dividends when referring to those alluded to therein, "a distribution does not necessarily become a dividend by reason of the fact that it is called a dividend by the distributing corporation."

2.ID.; ID.; ID.; CONNOTATION OF.—"The ordinary connotation of liquidating dividend involves the distribution of assets by a corporation to its stockholders upon dissolution." (Klein, Federal Income Taxation, 253-254.)

3.ID.; ID.; ID.; ID.—The determining element therefore is whether the distribution was in the ordinary course of business and with intent to maintain the corporation as a going concern, or after deciding to quit with intent to liquidate the business. Proceedings actually begun to dissolve the corporation or formal action taken to liquidate it are but evidentiary and not indispensable.

4.ID.; ID.; ID.; ID.; DISTINGUISHED FROM ORDINARY DIVIDEND.—"The distinction between a distribution in liquidation and an ordinary dividend is factual; the result in each case depending on the particular circumstances of the case and the intent of the parties. If the distribution is in the nature of a recurring return on stock it is an ordinary dividend. However, if the corporation is really winding up its business or recapitalizing and narrowing its activities, the distribution may properly be treated as in complete or partial liquidation and as payment by the corporation to the stockholder for his stock. The corporation is, in the latter instances, wiping out all or part of the stockholders' interest in the company * * *."

5.ID. ; ID.; ID.; TAXABILITY OF.—Payments for surrendered or relinquished stock in a corporation in complete liquidation, sometimes called liquidating dividends, are taxable income under the Income Tax Law, Act No. 2833, section 25 (a), as amended by section 4 of Act No. 3761.

6.ID.; ID.; ID.; ID.; STATUTORY CONSTRUCTION ; CONSTRUCTION IN SOURCE OF LOCAL LAW AUTHORITATIVE.—The judicial construction attached to the sources of statutes adopted in a jurisdiction are of authoritative value in the interpretation of such local laws.

7.ID.; ID.; ID.; ID.; No DOUBLE TAXATION.—"The gains realized by the stockholders from the distribution of the assets in liquidation were subject to the normal tax in like manner as if they had sold their stock to third persons. The objection that this results in double taxation of the accumulated earnings and profits is no more available in the one case than it would have been in the other."

8.ID.; ID.; ID.; ID.; INDIVIDUAL OR CORPORATION LIABLE TO TAX,— Gains resulting from distributions made in complete liquidation or dissolution of a corporation as specifically contemplated in section 25 (a) of the former Income Tax Law, are taxable as income, whether the stockholder happens to be an individual or a corporation.

9.ID.; ID.; ID.; SUBJECT TO NORMAL AND ADDITIONAL TAX.—Payments for surrendered stock, or so-called liquidating dividends, provided for in section 25 (a) of the former Income Tax Law, were subject to both the normal and the additional tax.

10.ID.; ID.; ID.; GAIN TAXABLE IRRESPECTIVE OF SOURCE OF DISTRIBUTION.—Section 25 (a) of the law, far from limiting the taxability, provides that the gain thus realized is a "taxable income"—under the law so long as a gain is realized, it will be a taxable income whether the distribution comes from the earnings or profits of the corporation or from the sale of all of its assets in general. so long as the distribution is made "in complete liquidation or dissolution."

11.ID.; ID.; ID. ; STATUTORY CONSTRUCTION ; LAW PREVAILS OVER REGULATION.—In case of conflict between a law and an administrative regulation, the law prevails.

12.CORPORATIONS ; DIVIDENDS; OWNERSHIP OF.—"As between successive owners of shares of stock in a corporation, the general rule is that dividends belong to the persons who are the owners of the stock at the time they are declared, without regard to the time during which the dividends were earned, and this is true although the dividends are made payable at a future date." (18 C. J. S., 1119, sec. 470 [a].)

13.ID.; ID.; ID.; PLACE WHERE EARNED; CASE AT BAR.—The facts and data furnished here by the parties satisfactorily show that the dividends in question were paid to plaintiffs, personally or thru their proxies or agents, in the Philippines. But aside from this, from the moment they were declared and a definite fund specified for their payment (all surplus remaining "after providing for return of capital and various expenses")—and all of this was done in the Philippines—to all legal intents and purposes they earned those dividends in this country. From the record it can be deduced that the funds and assets of the Manila Wine Merchants, Ltd., from which those dividends proceeded, were in the Philippines where its business was located. So far as the record discloses, its liquidation was .effected in terms of Philippine pesos, indicating that it was made here. And this in turn would lead to the deduction that the funds and assets liquidated were here.

Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc., 436 SCRA 235 , August 12, 2004

Corporations; Corporate Officers; Apparent Authority; Agency; The property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors.—A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of direc-tors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides: “SEC. 23. The Board of Directors or Trustees.—Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.” Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law. . . .

Same; Same; Same; Estoppel; Acts done by corporate officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them.— Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.

Same; Same; Same; Same; Power of Attorney; Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.—Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done.

Same; Same; Same; Same; The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.—It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority. There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.

Same; Same; Same; Elements; For the principle of apparent authority to apply, the petitioner was burdened to prove the following.—For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence.

Same; Same; Same; Implied Ratification; Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent.—For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name. Ratification is based on waiver—the intentional relinquishment of a known right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification of that act must also be in writing. [Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc., 436 SCRA 235(2004)]

Pirovano, et al. vs. De la Rama Steamship Co., 96 Phil. 335, December 29, 1954

1.CORPORATIONS; DONATIONS; DONATION GlVEN "OUT OF GRATITUDE FOR SERVICES RENDERED" Is REMUNERATIVE.—A donation given by the corporation to the minor children of its late president because he "was to a large extent responsible for the rapid and very successful development and expansion of the activities of this company" is remunerative in nature in contemplation of law.

2.ID.; ID.; PERFECTED DONATION CAN ONLY BE RESCINDED ON LEGAL GROUNDS.—Where the donation made by the corporation has not only been granted in several resolutions duly adopted by its board of directors but also it has been formally ratified by its stockholders, with the concurrence of its only creditor, and accepted by the donee, the donation -has reached the stage of perfection which is valid and binding upon the corporation and as such cannot be rescinded unless there exist legal grounds for doing so.

3.ID.; ID.; DONATION DISTINGUISHED FROM GRATUITY.—While a donation may technically be different from a gratuity, in substance they are the same. They are even similar to a pension. Thus, it was said that "A pension is a gratuity only when it is granted for services previously rendered, and which at the time they were rendered gave rise to no legal obligation." (Words and Phrases, Permanent Edition, p. 675; O'Dea vs. Cóók, 169 Pac., 306, 176 Cal., 659.) [Pirovano, et al. vs. De la Rama Steamship Co., 96 Phil. 335(1954)]

4.ID.; POWERS OF A CORPORATION; ACTS PERFORMED WITHIN THE POWERS GRANTED ARE NOT "ULTRA VIRES".—Where the corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, to aid in any other manner any person in the affairs and prosperity of whom it has a lawful interest, a donation made to the heirs of its late president in recognition of the valuable services rendered by the latter which had immensely contributed to its growth, comes within this broad grant of power and can not be considered an ultra vires act.

5.ID.; ID.; "ULTRA VIRES" ILLEGAL ACTS DISTINGUISHED; EFFECT OF RATIFICATION BY STOCKHOLDERS.—Illegal acts of a corporation contemplate the doing of an act which is contrary to law, morals, or public order, or contravene some rules of public policy or public duty, and are, like similar transactions between individuals, void. They can not serve as basis of a court action, nor acquire validity by performance, ratification, or estoppel. On the other hand, ultra vires acts or those which are not illegal and void ab initio but are merely within the scope of the article of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders.

6.ID.; ID.; "ULTRA VIRES" ACTS; RATIFICATION BY STOCKHOLDERS OF "ULTRA VIRES" ACTS CURES INFIRMITY.—The ratification by the stockholders of an ultra vires act which is not illegal cures the infirmity of the corporate act and makes it perfectly valid and enforceable, specially so if it is not merely executory but executed and consummated and no creditors are prejudiced thereby.

7.ATTORNEY'S FEES, WHEN MAY BE AWARDED AS DAMAGES.—When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest, attorney's fees may be awarded as damages (Article 2208, paragraph 2, of the new Civil Code). [Pirovano, et al. vs. De la Rama Steamship Co., 96 Phil. 335(1954)]

Yasuma vs. Heirs of Cecilio S. De Villa, 499 SCRA 466 , August 22, 2006

Corporation Law; Agency; The general principles of agency govern the relation between the corporation and its officers or agents—when authorized, their acts bind the corporation, otherwise, their acts cannot bind it.—A corporation is a juridical person, separate and distinct from its stockholders. Being a juridical entity, a corporation may act through its board of directors, as provided in Section 23 of the Corporation Code of the Philippines: Sec. 23. The Board of Directors or Trustees.—Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees . . . x x x x x x x x x The corporation can also act through its corporate officers who may be authorized either expressly by the by-laws or board resolutions or impliedly such as by general practice or policy or as are implied from express powers.The general principles of agency govern the relation between the corporation and its officers or agents. When authorized, their acts can bind the corporation. Conversely, when unauthorized, their acts cannot bind it.

Same; Same; The corporation may ratify—expressly or impliedly—the unauthorized acts of its corporate officers.—The corporation may ratify the unauthorized act of its corporate officer. Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized and becomes the authorized act of the party so making the ratification. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ratification can be made either expressly or impliedly. Implied ratification may take various forms—like silence or acquiescence, acts showing approval or adoption of the act, or acceptance and retention of benefits flowing therefrom.

Same; Same; Loans; Special Power of Attorney; The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney.—The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. The promissory notes evidencing the loans were signed by de Villa (who was the president of respondent corporation) as borrower without indicating in what capacity he was signing them. In fact, there was no mention at all of respondent corporation. On their face, they appeared to be personal loans of de Villa.

Same; Same; Same; Ratification is a voluntary choice that is knowingly made.—Respondent corporation could not have ratified the act of de Villa because there was no proof that it knew that he took out a loan on its behalf. As stated earlier, ratification is a voluntary choice that is knowingly made. The corporation could not have ratified an act it had no knowledge of: x x x x x x x x x Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification . . . . The fact that the corporation admitted receiving the proceeds of the loan did not amount to ratification of the loan. It accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. Petitioner did not show that the corporation acted in bad faith. It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was under no obligation to check the source of the investments which went into its coffers. As long as the investment was used for legitimate corporate purposes, the investor bore the risk of loss.

Same; Same; Same; Investments; As long as the investment is used for legitimate corporate purposes, the investor bears the risk of loss.—The fact that the corporation admitted receiving the proceeds of the loan did not amount to ratification of the loan. It accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. Petitioner did not show that the corporation acted in bad faith. It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was under no obligation to check the source of the investments which went into its coffers. As long as the investment was used for legitimate corporate purposes, the investor bore the risk of loss.

Same; Same; Real Estate Mortgage; Special Power of Attorney; In the absence of a special power of attorney in favor of the corporation’s president, no valid mortgage could be executed by him.—A special power of attorney is necessary to create or convey real rights over immovable property. Furthermore, the special power of attorney must appear in a public document. In the absence of a special power of attorney in favor of de Villa as president of the corporation, no valid mortgage could have been executed by him. Since the mortgage was void, it could not be ratified. Petitioner cannot blame anyone but himself. He did not check if the person he was dealing with had the authority to mortgage the property being offered as collateral. [suma vs. Heirs of Cecilio S. De Villa, 499 SCRA 466(2006)]

Loyola Grand Villas Homeowners (South) Association, Inc. vs. Court of Appeals, 276 SCRA 681 , August 07, 1997

Corporation Law; Statutory Construction; Words and Phrases; Ordinarily, the word “must” connotes an imperative act or operates to impose a duty which may be enforced—it is synonymous with “ought” which connotes compulsion or mandatoriness though the word “must” in a statute, like “shall,” is not always imperative and may be consistent with an exercise of discretion.—As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of the word “must” in this section. Ordinarily, the word “must” connotes an imperative act or operates to impose a duty which may be enforced. It is synonymous with “ought” which connotes compulsion or mandatoriness. However, the word “must” in a statute, like “shall,” is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret “shall” as the context or a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word “must.” Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words “shall” and “must” to be directory, they should be given that meaning.

Same; Same; By-Laws; The legislative deliberations demonstrate that automatic corporate dissolution for failure to file the bylaws on time was never the intention of the legislature.—This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner.

Same; Same; Same; Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46 of the Corporation Code reveals the legislative intent to attach a directory, and not mandatory, meaning for the word “must” in the first sentence thereof.—Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuti interpretatix est ipsum statutum), Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word “must” in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws “within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission.” It necessarily follows that failure to file the by-laws within that period does not imply the “demise” of the corporation.

Same; Same; Same; By-laws may be necessary for the “government” of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes.—By-laws may be necessary for the “government” of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: “In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid.” (Italics supplied.)

Same; Same; Same; Due Process; There can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws—the incorporators must be given the chance to explain their neglect or omission and to remedy the same.—Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright “demise” of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

Same; Same; Same; Presidential Decree 902-A; Statutes in Materia; Securities and Exchange Commission; The failure of the Corporation Code to provide for the consequences of the non-filing of by-laws on time has been rectified by P.D. No. 902-A; Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.—Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the Securities and Exchange Commission of which state: * * * That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.

Same; By-Laws; Failure to file the by-laws within the period required by law by no means tolls the automatic dissolution of a corporation.—As the “rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it,” by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation.

Same; Administrative Law; Subdivisions; Home Insurance and Guaranty Corporation; Jurisdiction; With respect to homeowners associations, the HIGC shall exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission.—That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1986. With respect to homeowners associations, the HIGC shall “exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission x x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding.”

San Miguel Corp. (Mandaue Packaging Products Plants) vs. Mandaue Packing Products Plants-San Miguel Packaging Products–San Miguel Corp. Monthlies Rank-and-File Union-FFW, 467 SCRA 107 , August 16, 2005

Same; Same; Same; Bylaws; Words and Phrases; Bylaws has traditionally been defined as regulations, ordinances, rules or laws adopted by an association or corporation or the like for its internal governance, including rules for routine matters such as calling meetings and the like; If those key bylaw provisions on matters such as quorum requirements, meetings, or on the internal governance of the local/chapter are themselves already provided for in the constitution, then it would be feasible to overlook the requirement for bylaws.—Bylaws has traditionally been defined as regulations, ordinances, rules or laws adopted by an association or corporation or the like for its internal governance, including rules for routine matters such as calling meetings and the like. The importance of bylaws to a labor organization cannot be gainsaid. Without such provisions governing the internal governance of the organization, such as rules on meetings and quorum requirements, there would be no apparent basis on how the union could operate. Without a set of bylaws which provides how the local/chapter arrives at its decisions or otherwise wields its attributes of legal personality, then every action of the local/chapter may be put into legal controversy. However, if those key bylaw provisions on matters such as quorum requirements, meetings, or on the internal governance of the local/chapter are themselves already provided for in the constitution, then it would be feasible to overlook the requirement for bylaws. Indeed in such an event, to insist on the submission of a separate document denominated as “ByLaws” would be an undue technicality, as well as a redundancy.

Same; Same; Same; The local/chapter retains a separate legal personality from that of its officers or members that remains viable notwithstanding any turnover in its officers or members.—In its Memorandum, petitioner alleges that the bargaining unit that respondent sought to represent is no longer the same because of the dynamic nature of petitioner’s business, a lot of changes having occurred in the work environment, and that four of respondent’s officers are no longer connected with petitioner. Assuming that these manifestations are true, they have no effect on the Court’s ruling that a certification election should be immediately conducted with respondent as one of the available choices. Petitioner’s bare manifestations adduce no reason why the certification election should not be conducted forthwith. If there are matters that have arisen since the filing of the petition that serve to delay or cancel the election, these can be threshed out during the pre-election conferences. Neither is the fact that some of respondent’s officers have since resigned from petitioner of any moment. The local/chapter retains a separate legal personality from that of its officers or members that remains viable notwithstanding any turnover in its officers or members.

China Banking Corporation vs. Court of Appeals, 270 SCRA 503 , March 26, 1997

Securities and Exchange Commission; Actions; Jurisdiction; The better policy in determining which body has jurisdiction over a case would be to consider not only the status of relationship of the parties but also the nature of the question that is the subject of their controversy.—The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC. P.D. No. 902-A conferred upon the SEC the following pertinent powers: * * * The aforecited law was expounded upon in Viray v. CA and in the recent cases of Mainland Construction Co., Inc. v. Movilla and Bernardo v. CA, thus: . . . . The better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject of their controversy.

Same; Same; Same; Corporation Law; The purchase of a share or membership certificate at public auction by a party (and the issuance to it of the corresponding Certificate of Sale) transfers ownership of the same to the latter and thus entitle it to have the said share registered in its name as a member.—As to the first query, there is no question that the purchase of the subject share or membership certificate at public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974, expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has even noted said agreement in its corporate books. In addition, Calapatia, the original owner of the subject share, has not contested the said transfer. By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict that arose between petitioner and VGCCI aptly exemplifies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

Same; Same; Same; Same; By-Laws; The proper interpretation and application of a corporation’s by-laws is a subject which irrefutably calls for the special competence of the SEC.—An important consideration, moreover, is the nature of the controversy between petitioner and private respondent corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art. VIII of its by-laws which provides that “after a member shall have been posted as delinquent, the Board may order his/her/its share sold to satisfy the claims of the Club . . .” It is pursuant to this provision that VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI’s aforequoted bylaws, a subject which irrefutably calls for the special competence of the SEC.

Same; Same; Same; Estoppel; The plaintiff who files a complaint with one court which has no jurisdiction over it is not estopped from filing the same complaint later with the competent court.—In Zamora v. Court of Appeals, this Court, through Mr. Justice Isagani A. Cruz, declared that: It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is not estopped from doing so simply because it made a mistake before in the choice of the proper forum. . .

Appeals; Procedural Rules; Remand of Cases; The remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Supreme Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof.—Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie v. Court of Appeals, citing Escudero v. Dulay and The Roman Catholic Archbishop of Manila v. Court of Appeals: In the interest of the public and for the expeditious administration of justice the issue on infringement shall be resolved by the court considering that this case has dragged on for years and has gone from one forum to another. It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be served if a case or the determination of an issue in a case is remanded to the trial court only to have its decision raised again to the Court of Appeals and from there to the Supreme Court. We have laid down the rule that the remand of the case or of an issue to the lower court for further reception of evidence is not necessary where the Court is in position to resolve the dispute based on the records before it and particularly where the ends of justice would not be subserved by the remand thereof. Moreover, the Supreme Court is clothed with ample authority to review matters, even those not raised on appeal if it finds that their consideration is necessary in arriving at a just disposition of the case.

Loans; Pledge; The contracting parties to a pledge agreement may stipulate that the said pledge will also stand as security for any future advancements (or renewals thereof) that the pledgor may procure from the pledgee.—VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner’s favor. It contends that the same was null and void for lack of consideration because the pledge agreement was entered into on 21 August 1974 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August 1983. VGCCI’s contention is unmeritorious. A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein that the said pledge will also stand as security for any future advancements (or renewals thereof) that Calapatia (the pledgor) may procure from petitioner.

Corporation Law; By-Laws; In order to be bound, a third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third person and the shareholder was entered into.—In order to be bound, the third party must have acquired knowledge of the pertinent by—laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia’s name. Petitioner’s belated notice of said by-laws at the time of foreclosure will not suffice.

Same; Words and Phrases; A membership share is quite different in character from a pawn ticket.—Similarly, VGCCI’s contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, is clearly not applicable: In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder who must renew the pledge, if it is to be kept alive. It is quite obvious from the aforequoted case that a membership share is quite different in character from a pawn ticket and to reiterate, petitioner was never informed of Calapatia’s unpaid accounts and the restrictive provisions in VGCCI’s by-laws.

Same; Same; The term “unpaid claim” in Sec. 63 of the Corporation Code refers to “any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction,” such as monthly dues.—Finally, Sec. 63 of the Corporation Code which provides that “no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation” cannot be utilized by VGCCI. The term “unpaid claim” refers to “any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction.” In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply.

PMI Colleges vs. National Labor Relations Commission, 277 SCRA 462 , August 15, 1997

Same; Same; Corporation Law; By-Laws; Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same.—Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated petitioner’s bylaws. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same. No proof appears on record that private respondent ever knew anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there is such a provision. How can it now expect the Labor Arbiter and the NLRC to believe it? That this allegation has never been denied by private respondent does not necessarily signify admission of its existence because technicalities of law and procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature. [PMI Colleges vs. National Labor Relations Commission, 277 SCRA 462(1997)]

Cojuangco, Jr. vs. Roxas, 195 SCRA 797 , April 16, 1991

Constitutional Law; Sequestration; Due Process; PCGG cannot perform act of strict ownership of sequestered property.—The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO. The constitutional right against deprivation of life, liberty and property without due process of law is so well-known and too precious so that the hand of the PCGG must be stayed in its indiscriminate takeover of and voting of shares allegedly ill-gotten in these cases. It is only after appropriate judicial proceedings when a clear determination is made that said shares are truly illgotten when such a takeover and exercise of acts of strict ownership by the PCGG are justified.

Same; Same; PCGG has no right to vote the sequestered shares of petitioners including the sequestered corporate shares; Reasons.—In the light of the foregoing discussion, the Court finds and so holds that the PCGG has no right to vote the sequestered shares of petitioners including the sequestered corporate shares. Only their owners, duly authorized representatives or proxies may vote the said shares. Consequently, the election of private respondents Adolfo Azcuna, Edison Coseteng and Patricio Pineda as members of the board of directors of SMC for 1990-1991 should be set aside.

Same; Same; Same; Corporation Law; Rights of Stockholders.—Nevertheless, the right of the Government, represented by the PCGG, as conservator of sequestered assets must be adequately protected. The important rights of stockholders are the following: a) the right to vote; b) the right to receive dividends; c) the right to receive distributions upon liquidation of the corporation; and d) the right to inspect the books of the corporation. It is through the right to vote that the stockholder participates in the management of the corporation. The right to vote, unlike the rights to receive dividends and liquidating distributions, is not a passive thing because management or administration is, under the Corporation Code, vested in the board of directors, with certain reserved powers residing in the stockholders directly. The board of directors and executive committee (or management committee) and the corporate officers selected by the board may make it very difficult if not impossible for the PCGG to carry out its duties as conservator if the Board or officers do not cooperate, are hostile or antagonistic to the conservator’s objectives. [Cojuangco, Jr. vs. Roxas, 195 SCRA 797(1991)]

Lee vs. Court of Appeals, 205 SCRA 752 , February 04, 1992

Mercantile Law; Corporation Code; Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director.—Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not the beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269111. 351, 109 N.E. 1051).

Same; Same; Voting Trusts; A voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends and other rights to which a stockholder may be entitled until the liquidation of the corporation.—There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: "Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors." On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP.

Remedial Law; Civil Procedure; Service of summons; If the defendant is a corporation organized under the laws of the Philippines, service may be made on the president, manager, secretary, cashier, agent or any of its directors.—It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes on a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him.

Nautica Canning Corporation vs. Yumul, 473 SCRA 415 , October 19, 2005

Corporation Law; Stockholders; As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are.—It is possible for a business to be wholly owned by one individual. The validity of its incorporation is not affected when such individual gives nominal ownership of only one share of stock to each of the other four incorporators. This is not necessarily illegal. But, this is valid only between or among the incorporators privy to the agreement. It does bind the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to the real parties in interest. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are.

Same; Same; 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.—We held in Ponce v. Alsons Cement Corp. that:... [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. Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates[.]

Civil Procedure; Appeals; Securities and Exchange Commission; Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by the Supreme Court, if supported by substantial evidence, in recognition of their expertise on the specific matters under their consideration.—We see no cogent reason to set aside the factual findings of the SEC, as upheld by the Court of Appeals. Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by the Supreme Court, if supported by substantial evidence, in recognition of their expertise on the specific matters under their consideration, moreso if the same has been upheld by the appellate court, as in this case.

Corporation Law; Statutes; Section 23 of Batas Pambansa (BP) Blg. 68 or the Corporation Code of the Philippines requires that every director must own at least one share of the capital stock of the corporation of which he is a director. Before one may be elected president of the corporation, he must be a director.—Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every director must own at least one share of the capital stock of the corporation of which he is a director. Before one may be elected president of the corporation, he must be a director. Since Yumul was elected as Nautica’s Director and as President thereof, it follows that he must have owned at least one share of the corpora tion’s capital stock. Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the SEC correctly ruled that he has the right to inspect the books and records of Nautica, pursuant to Section 74 of BP Blg. 68 which states that the records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

Same; Same; Courts; Jurisdictions; Intra-Corporate Disputes; The Securities Regulation Code (Republic Act No. 8799); Republic Act No. 8799 transferred from the SEC to the regional trial court jurisdiction over cases involving intra-corporate disputes.—When the controversy involves matters purely civil in character, it is beyond the ambit of the limited jurisdiction of the SEC. As held in Viray v. Court of Appeals, the better policy in determining which body has jurisdiction over a case would be to consider not only the status or relationship of the parties, but also the nature of the question that is the subject of their controversy. This, however, is now moot and academic due to the passage of Republic Act No. 8799 or The Securities Regulation Code which took effect on August 8, 2000. The Act transferred from the SEC to the regional trial court jurisdiction over cases involving intra-corporate disputes. Thus, whether or not the issue is intra-corporate, it is now the regional trial court and no longer the SEC that takes cognizance of the controversy. [Nautica Canning Corporation vs. Yumul, 473 SCRA 415(2005)]

Republic vs. Estate of Hans Menzi, 476 SCRA 20 , November 23, 2005

Corporation Law; Stock Certificates; Transfer of Ownership; The delivery of a duly indorsed stock certificate is sufficient to transfer ownership of shares of stock in stock corporations; The absence of a deed of assignment is not a fatal flaw which renders the transfer invalid.—The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient to transfer ownership of shares of stock in stock corporations. Such mode of transfer is valid between the parties. In order to bind third persons, however, the transfer must be recorded in the books of the corporation. Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid as the Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals, the execution of a deed of sale does not necessarily make the transfer effective.

Appeals; It is not the function of the Supreme Court to examine and weigh all over again the evidence presented by the parties in the proceedings before the Sandiganbayan.—The Sandiganbayan’s factual findings that the 154 block was sold to US Automotive while Menzi was still alive, and that Atty. Montecillo merely accepted payment by virtue of the authority conferred upon him by Menzi himself are conclusive upon this Court, supported, as they are, by the evidence on record. As held by the Sandiganbayan: … The sale was made pursuant to the Stock Option executed in 1968 between the parties to the sale, considering the restrictions contained in Bulletin’s Articles of Incorporation as amended in 1968 limiting the transferability of its shares. Negotiations for the sale took place and were concluded before the death of Menzi. After his death, full payment of the entire consideration of the sale, principal and interest, was made only after judicial confirmation thereof in the Probate Case. The transaction was duly supported by the corresponding receipt, voucher, cancelled checks, cancelled promissory note, and BIR certification of payment of the corresponding taxes due thereon. The Supreme Court is not a trier of facts. It is not our function to examine and weigh all over again the evidence presented by the parties in the proceedings before the Sandiganbayan.

Evidence; Burden of Proof; Affirmative Defenses; Pleadings and Practice; It is procedurally required for each party in a case to prove his own affirmative allegations by the degree of evidence required by law; While it is incumbent upon the plaintiff who is claiming a right to prove his case, the defendant must likewise prove his own allegations to buttress its claim that it is not liable.—It is procedurally required for each party in a case to prove his own affirmative allegations by the degree of evidence required by law. In civil cases such as this one, the degree of evidence required of a party in order to support his claim is preponderance of evidence, or that evidence adduced by one party which is more conclusive and credible than that of the other party. It is therefore incumbent upon the plaintiff who is claiming a right to prove his case. Corollarily, the defendant must likewise prove its own allegations to buttress its claim that it is not liable.

Same; Same; Same; The burden of proof may be on the plaintiff or defendant—it is on the defendant if he alleges affirmative defense which is not a denial of an essential ingredient in the plaintiff’s cause of action, but is one which, if established, will be a good defense, i.e., an “avoidance” of the claim.—The party who alleges a fact has the burden of proving it. The burden of proof may be on the plaintiff or the defendant. It is on the defendant if he alleges an affirmative defense which is not a denial of an essential ingredient in the plaintiff’s cause of action, but is one which, if established, will be a good defense—i.e., an “avoidance” of the claim. In the instant case, Cojuangco’s allegations are in the nature of affirmative defenses which should be adequately substantiated. He did not deny that Bulletin shares were registered in his name but alleged that he held these shares not as nominee of Marcos, as the Republic claimed, but as nominee of Menzi. He did not, however, present any evidence to support his claim and, in fact, filed a Manifestation dated July 20, 1999 stating that he “sees no need to present any evidence in his behalf.”

Ill-Gotten Wealth; Words and Phrases; Ill-gotten wealth is any asset, property, business enterprise or material possession of persons within the purview of Executive Orders Nos. 1 and 2, acquired by them directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates by any of the means or similar schemes set out under the Rules and Regulations of the Presidential Commission on Good Government (PCGG).—These pieces of uncontradicted evidence suffice to establish that the 198 and 214 blocks are indeed ill-gotten wealth as defined under the Rules and Regulations of the PCGG, viz.: Sec. 1. Definition.—(A) “Ill-gotten wealth is hereby defined as any asset, property, business enterprise or material possession of persons within the purview of Executive Orders Nos. 1 and 2, acquired by them directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates by any of the following means or similar schemes: (1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public treasury; (2) Through the receipt, directly or indirectly, of any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the official concerned; (3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of its subdivisions, agencies or instrumentalities or government-owned or controlled corporations; (4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form of interest or participation in any business enterprise or undertaking; (5) Through the establishment of agricultural, industrial or commercial monopolies or other combination and/or by the issuance, promulgation and/or implementation of decrees and orders intended to benefit particular persons or special interests; and (6) By taking undue advantage of official position, authority, relationship or influence for personal gain or benefit.

Same; Corporation Code; Stock Certificates; A stock certificate is merely a tangible evidence of ownership of shares of stock—its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock certificate.—The fact that the stock certificates covering the shares registered under the names of Campos, Cojuangco and Zalamea were found in Menzi’s possession does not necessarily prove that the latter owned the shares. A stock certificate is merely a tangible evidence of ownership of shares of stock. Its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock certificate. Hence, as registered owners, Campos and Zalamea validly ceded their shares in favor of the Government. This assignment is now a fait accompli for the benefit of the entire nation.

Same; Presidential Commission on Good Government (PCGG); Sequestration; Exception; While it is true that PCGG is not empowered to sell sequestered assets without prior Sandiganbayan approval, this case clearly presents an exception because the Supreme Court itself directed PCGG to accept the cash deposit offered by Bulletin in payment for the Cojuangco and Zalamea sequestered shares subject to the alternatives mentioned therein and the outcome of the remand to the Sandiganbayan on question of ownership of these sequestered shares.—The contention that the sale of the 214 block to the Bulletin was null and void as the PCGG failed to obtain approval from the Sandiganbayan is likewise unmeritorious. While it is true that the PCGG is not empowered to sell sequestered assets without prior Sandiganbayan approval, this case presents a clear exception because this Court itself, in the Teehankee Resolution, directed the PCGG to accept the cash deposit offered by Bulletin in payment for the Cojuangco and Zalamea sequestered shares subject to the alternatives mentioned therein and the outcome of the remand to the Sandiganbayan on the question of ownership of these sequestered shares.

Damages; An award of actual or compensatory damages requires proof of pecuniary loss—in this case, the Republic has not proven with a reasonable degree of certainty, premised on competent proof and the best evidence obtainable, that it has suffered any actual pecuniary loss by reason of the acts of the defendants.—With regard to the Republic’s prayer for damages, we find the same not supported by sufficient evidence. An award of actual or compensatory damages requires proof of pecuniary loss. In this case, the Republic has not proven with a reasonable degree of certainty, premised on competent proof and the best evidence obtainable, that it has suffered any actual pecuniary loss by reason of the acts of the defendants. Hence, actual or compensatory damages may not be awarded.

Same; While no proof of pecuniary loss is necessary in order that moral, temperate, nominal and exemplary damages may be adjudicated, proof of damage or injury should nonetheless be adduced.—While no proof of pecuniary loss is necessary in order that moral, temperate, nominal and exemplary damages may be adjudicated, proof of damage or injury should nonetheless be adduced. As found by the Sandiganbayan, however, the Republic failed to show the factual basis for the award of moral damages and its causal connection to defendants’ acts. Thus, moral damages, which are designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer, may not be awarded. Temperate, nominal, and exemplary damages, attorney’s fees, litigation expenses and judicial costs may likewise not be adjudicated for failure to present sufficient evidence to establish entitlement to these awards.

Rural Bank of Lipa City, Inc. vs. Court of Appeals, 366 SCRA 188 , September 28, 2001

Corporation Law; The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee.—Petitioners argue that by virtue of the Deed of Assignment, private respondents had relinquished to them any and all rights they may have had as stockholders of the Bank. While it may be true that there was an assignment of private respondents’ shares to the petitioners, said assignment was not sufficient to effect the transfer of shares since there was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners admit that the assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee. Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock.

Same; Requirements to Have a Valid Transfer of Stocks.—We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are: (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.

Provident International Resources Corporation vs. Venus, 554 SCRA 540 , June 17, 2008

Administrative Law; Securities and Exchange Commission (SEC); Authority of Securities and Exchange Commission (SEC) Explained.—It can be said that the SEC’s regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporation’s concerns. This authority more vividly springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners’ association, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.

Same; Same; As the administrative agency responsible for the registration and monitoring of Stock and Transfer Books (STBs), it is the body cognizant of the STB registration procedures, and in possession of the pertinent files, records and specimen signatures of authorized officers relating to the registration of STBs.—Going to the particular facts of the instant case, we find that the SEC has the primary competence and means to determine and verify whether the subject 1979 STB presented by the incumbent assistant corporate secretary was indeed authentic, and duly registered by the SEC as early as September 1979. As the administrative agency responsible for the registration and monitoring of STBs, it is the body cognizant of the STB registration procedures, and in possession of the pertinent files, records and specimen signatures of authorized officers relating to the registration of STBs. The evaluation of whether a STB was authorized by the SEC primarily requires an examination of the STB itself and the SEC files. This function necessarily belongs to the SEC as part of its regulatory jurisdiction. Contrary to the allegations of respondents, the issues involved in this case can be resolved without going into the intra-corporate controversies brought up by respondents.

Same; Same; As the regulatory body, it is the Securities and Exchange Commission’s (SEC’s) duty to ensure that there is only one set of Stock and Transfer Book (STB) for each corporation.—As the regulatory body, it is the SEC’s duty to ensure that there is only one set of STB for each corporation. The determination of whether or not the 1979-registered STB is valid and of whether to cancel and revoke the August 6, 2002 certification and the registration of the 2002 STB on the ground that there already is an existing STB is impliedly and necessarily within the regulatory jurisdiction of the SEC.

Union of Supervisors(R.B.)—NATU vs. Secretary ofLabor, 109 SCRA 139 , November 12, 1981

Evidence; Corporations; Labor Law; Without the signature of the secretary of the meeting, an alleged minute taken by a mere clerk has neither probative value nor credibility.—These allegations were never refuted. In fact, Mrs. Unson herself admitted that she was a clerk, "just a mere clerk" (p. 278, NLRC rec.) although it was part of her duties to take down stenographic notes of the discussions in board meetings; that it was likewise routinary for her to submit her transcribed notes to Luna as secretary; and that when she did the same after transcribing her notes of the February 12th meeting, Luna informed her that there were errors, but such errors were never corrected. Since there is nothing in the records to indicate that Luna has been changed as secretary, the minutes should have been signed by him before being officially released. Without such signature, neither probative value nor credibility could be accorded to such minutes; for the one who signed, Abad, is also the accuser of, and therefore biased against Luna.

Same; Same; Same; Constitutional Law; Criminal Law; Remarks made at the meeting of an official board are privileged in nature as a valid exercise of one's constitutional freedom of expression, particularly when intended to protect the interest of member-employees of the Provident Fund being jointly administered by Union and Management as a result of a CBA. An employee cannot be dismissed for making such remarks alleged to be libelous.—Moreover, Luna's remarks at the meeting of an official board are privileged in nature as a valid exercise of his constitutional freedom of expression. He addressed his remarks to the body that has jurisdiction over the question of management of the assets of the Provident Fund. Luna's remarks were intended to protect the interests of the members of the Provident Fund from what he honestly believed was a risky venture on the part of management. His protests could even be treated as union activity by the Industrial Peace Act, which assures the employees' right "to self-organization and to form, join or assist labor organizations of their own choosing and to engage in concerted activities for the purpose of collective bargaining and other mutual aid and protection x x x" (Sec. 3, Rep. Act 875). This is so because Luna's membership in the PF Board of Trustees was by virtue of his being president of the RB Union of Supervisors. The Provident Fund was itself created as a result of the union's collective bargaining agreement with the bank. Luna was therefore acting out his role as protector of his constituents when he voiced out his apprehension and protests over the plan of management. It matters not that he acted singly or individually. What is important is that he had been selected by the supervisors of respondent bank to be their president and representative in the PF Board of Trustees. His actuations as such should therefore be considered as legitimate exercise of the employees' right to self-organization and as an activity for their mutual aid and protection, aside from being privileged communication protected by the constitutional guarantee on free speech. His remarks were in defense of the interest of the Provident Fund, part of which comes from the contribution of the rank and file employees. Moreover, his remarks had factual basis. As heretofore stated, the Central Bank took over the management of the respondent Republic Bank because it became distressed due to mismanagement. And his remarks were addressed to the Board of Trustees which has jurisdiction over the matter.

Same; Same; Same; Charge of insubordination for failure to turn over the records of the Provident Fund is without justifiable ground where employee explained his posture and management failed to take it up through the grievance machinery under the CBA.—The other basis for dismissal—insubordination—appears to be likewise without justifiable ground. Such charge arose out of the alleged refusal of Luna to obey the order of his superior, to turn over the records of the Provident Fund to the new administrator. The "order" referred to was not an order but a letter-request dated February 21, 1974 of Provident Fund Chairman Abad as it was in fact entitled "Request to Turn Over Records re Provident Fund" (p. 191, NLRC rec.). Upon receipt thereof, Luna immediately answered in writing (p. 192, NLRC, rec.), explaining why he feels justified to keep them. And in his answer to the charges, Luna averred that when no follow-up was made thereon, he assumed that his explanation had been satisfactory (p. 201, NLRC rec.). Indeed, the Board of Trustees, upon receipt of such written explanation, should have referred the matter to the grievance machinery under the collective bargaining agreement.

Same; Same; Same; Evidence; Circumstances indicating management tried to maneuver employee's ouster.—That the respondent bank tried to maneuver Luna's ouster is evident from the way the investigation was conducted by its Committee on Personnel. As shown in the above narration of events, the testimonies of witnesses—who were not even under oath—were taken without notice to Luna and without giving him a chance to cross-examine them. And corporate actions through the Board of Directors, such as filing of charges, suspension and termination, were taken against Luna just as soon as, and on the very same dates the reports are made. Were it not for the filing of this complaint with the NLRC Luna could have been booted out of office without due process.

Labor Law; The fact that other employees-officers of the union were not dismissed even if they were guilty of substantially same act of alleged insubordination, etc. as petitioner-employee does not necessarily mean latter's dismissal not made due to his union activities, especially where latter appears to be more militant than the others.—To this, WE may ask the following: Why was not Cañizares cited for dereliction of duty when he also walked out of the meeting on February 12, 1974; failed to attend the special meeting on February 26, 1974 despite notice; and walked out of the meeting on March 12, 1974 after Luna was physically ejected therefrom by security guards? The answers to these questions are obvious: Cañizares and the other union officers were not as active and militant in their defense of union rights, much less did they pose any threat against the respondent bank's plan to control the funds of the Provident Fund which was established as a result of the collective bargaining agreement. Only Luna posed such threat. Understandably therefore, management wanted him out. Forgotten were his almost 22 years of service to the respondent bank without any showing of any irregularity in the performance of his duties during those long years.

Same; Same.—All these circumstances taken together indubitably show that Luna's discharge was discriminatory and constituted unfair labor practice under paragraph (5) Section 4 of the Industrial Peace Act. He is therefore entitled to reinstatement with back wages pursuant to the policy to decree back wages not exceeding three (3) years without requiring the parties to submit proof of compensation received from other sources at the time of illegal dismissal until actual reinstatement, in order that judgment in favor of an employee or laborer can be executed without delay (Luzon StevedoringCorp. vs. C.I.R., 61 SCRA 162).

.

Torres, Jr. vs. Court of Appeals, 278 SCRA 793 , September 05, 1997

Corporation Law; Corporate Secretary; It is the corporate secretary’s duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance.—It is precisely the brewing family discord between Judge Torres and private respondents-his nephew and nieces that should have placed Judge Torres on his guard. He should have been more careful in ensuring that his actions (particularly the assignment of qualifying shares to his nominees) comply with the requirements of the law. Petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to the opposite faction. It is the corporate secretary’s duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance. In other words, there are remedies within the law that petitioners could have availed of, instead of taking the law in their own hands, as the cliché goes.

Same; Same; In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records—he keeps the stock and transfer book and makes proper and necessary entries therein.—Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals: We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the Corporation Code, as follows (Rollo, p. 45): In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records. Corollarily, he keeps the stock and transfer book and makes proper and necessary entries therein.

Same; All corporations, big or small, must abide by the provisions of the Corporation Code, and being a simple family corporation is not an exemption.—All corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and practices other than those established by law. [Torres, Jr. vs. Court of Appeals, 278 SCRA 793(1997)]

Philpotts vs. Philippine Manufacturing Co. and Berry., 40 Phil. 471 , November 08, 1919

CORPORATIONS; EXAMINATION OF COMPANY'S AFFAIRS BY STOCKHOLDER; RIGHT OF STOCKHOLDER TO ACT THROUGH REPRESENTATIVE.—The right of examination into corporate affairs which is conceded to the stockholder by section 51 of the Corporation Law may be exercised either by the stockholder in person or by any duly authorized representative. [Philpotts vs. Philippine Manufacturing Co. and Berry., 40 Phil. 471(1919)]

Gonzales vs. Philippine National Bank, 122 SCRA 489 , May 30, 1983

Corporation Law; Under the new Corporation Code (B.P. No. 68) the right of a stockholder to examine the books of a corporation is subject to certain limitations.—As may be noted from the abovequoted provisions, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following: the records must be kept at the principal office of the corporation; the inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information secured through a prior examination, and that the person asking for such examination must be “acting in good faith and for a legitimate purpose in making his demand.”

Same; The unqualified provision on the right of a stockholder to examine corporate books under the old law (Act 1459) no longer holds true under B.P. No. 68.—The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of the petitioner that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of the respondent bank loses whatever validity it might have had before the amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.

Same; Stockholder has the duty of showing good motive or purpose for demanding an examination of corporate books. One who acquired one share of stock of a bank to be able to examine its books can hardly be said to have been motivated with good faith or proper purpose in demanding inspection of the bank’s transactions before he became a stockholder.—Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder.

Same; Banks; The Philippine National Bank is not governed, as a rule, by the Corporation Code, but by its Charter.—The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code provides: “SEC. 4. Corporations created by special laws or charters.—Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.”

Same; Same; The right of a stockholder to examine corporate books under the new Corporation Code does not apply to the Philippine National Bank.—The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the above-quoted provisions of the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplemental capacity to the charter of the respondent bank.

Poliand Industrial Limited vs. National Development Company, 467 SCRA 500 , August 22, 2005

Corporation Law; Mergers; Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation; The merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with Corporation Code.—The Court cannot accept POLIAND’s theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. The merger, however, does not become effective upon the mere agreement of the constituent corporations. As specifically provided under Section 79 of said Code, the merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but also marks the moment whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed 4 corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the surviving corporation.

Same; Same; In the absence of SEC approval, there is no effective transfer of the shareholdings in one corporation to another.—The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with the statutory requirements is a condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the President could not have intended that the parties disregard the requirements of law. In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities.

Obligations and Contracts; Letters of Instructions (LOIs); Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it does not create privity of contract between the Development Bank of the Philippines (DBP) and POLIAND or its predecessors-in-interest.—The Court affirms the appellate court’s ruling that POLIAND does not have any cause of action against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create any privity of contract between DBP and POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a grant of authority by the President on DBP to enter into certain transactions for the satisfaction of GALLEON’s obligations. There is, however, nothing from the records of the case to indicate that DBP had acted as surety or guarantor, or had otherwise accommodated GALLEON’s obligations to POLIAND or its predecessors-in-interest.

Actions; Appeals; Assignment of Errors; Pleadings and Practice; Generally, an appellate court may only pass upon errors assigned; Exceptions.—POLIAND contends that NDC can no longer raise the issue on the latter’s liability for the payment of the maritime lien considering that upon appeal to the Court of Appeals, NDC did not assign it as an error. Generally, an appellate court may only pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and consider errors not assigned: (a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.

Same; Same; Maritime Law; Maritime Lien; The issue on maritime lien is a matter of record having been adequately ventilated before and passed upon by the trial court and the appellate court, thus by way of exception, a party is not precluded from again raising the issue before the Supreme Court even if it did not specifically assign the matter as an error before the Court of Appeals; The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal if it finds that their consideration is necessary in arriving at a just decision of the case.—The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly raised and argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable thereon by the trial court. DBP’s appellant’s brief pointed out POLIAND’s failure to present convincing evidence to prove its alternative cause of action, which POLIAND disputed in its appellee’s brief. The issue on the maritime lien is a matter of record having been adequately ventilated before and passed upon by the trial court and the appellate court. Thus, by way of exception, NDC is not precluded from again raising the issue before this Court even if it did not specifically assign the matter as an error before the Court of Appeals. Besides, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal if it finds that their consideration is necessary in arriving at a just decision of the case.

Code of Commerce; Ship Mortgage Decree of 1978 (P.D. No. 1521); Article 578 of the Code of Commerce is not relevant to the facts in the instant case because it governs the sale of vessels in a foreign port.—NDC cites Articles 578 and 580 of the Code of Commerce to bolster its argument that the foreclosure of the vessels extinguished all claims against the vessels including POLIAND’s claim. Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines the formal and registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons. On the other hand, the resolution of the instant case depends on the determination as to which creditor is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable.

Same; Same; Article 580 of the Code of Commerce had been repealed by the pertinent provisions of PD 1521, otherwise known as the Ship Mortgage Decree of 1978.—Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section 17 of P.D. No. 1521 also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under Section 17, which have preference over the preferred mortgage lien in the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority over all other claims, thereby engendering an irreconcilable conflict with the order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law.

Same; Same; If the mortgage of vessel is constituted for the purpose under Section 2 of P.D. No. 1521, the mortgage obtains a preferred status provided the formal requisites enumerated under Section 4 of the same law are complied with.—If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred status provided the formal requisites enumerated under Section 4 are complied with. Upon enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17.

Same; Same; A mortgage constituted for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, or to facilitate the acquisition of the funds necessary for the purchase of the vessels, may be characterized as a preferred mortgage under Section 2 of P.D. No. 1521.—There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to NDC’s assertion, the mortgage constituted on GALLEON’s vessels in favor of DBP may appropriately be characterized as a preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted the same for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels. While it is correct that GALLEON executed the mortgage in consideration of DBP’s guarantee of the prompt payment of GALLEON’s obligations to the Japanese lenders, DBP’s undertaking to pay the Japanese banks was a condition sine qua non to the acquisition of funds for the purchase of the GALLEON vessels. Without DBP’s guarantee, the Japanese lenders would not have provided the funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of DBP was therefore constituted to facilitate the acquisition of funds necessary for the purchase of the vessels.

Ship Mortgage Decree of 1978 (P.D. 1521); Concurrence and Preference of Credits; Statutory Construction; General legislation must give way to special legislation on the same subject, and generally so interpreted as to embrace only cases in which the special provisions are not applicable.—The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit. General legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable.

Same; Same; Maritime Lien; Mortgage Lien; Under Section 17, PD 1521, a maritime lien arising prior in time to the recording of the preferred mortgage is considered to be superior to the preferred mortgage lien.—Before POLIAND’s claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521, which reads: SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien.—Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.

Same; Same; Same; Words and Phrases; As long as an expense on a vessel is indispensable to maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21, PD 1521.—The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crew’s salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have a status superior to DBP’s preferred mortgage lien. As stated in Section 21, P.D. No. 1521, a maritime lien may consist in “other necessaries spent for the vessel.” The ship modification cost may properly be classified under this broad category because it was a necessary expenses for the vessel’s navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521.

Same; Maritime Lien; Evidence; Appeals; The determination of the existence and amount of the maritime lien is a finding of fact which is within the province of the courts below—such findings of fact of the lower courts are deemed conclusive and binding upon the Supreme Court.—All told, the determination of the existence and the amount of POLIAND’s claim for maritime lien is a finding of fact which is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. The Court finds no sufficient justification to reverse the findings of the trial court and the appellate court in respect to the existence and amount of maritime lien.

Same; Same; Subrogation; A person, though not a sailor entitled to wages, can still make a claim for the advances spent for the salary and wages of the crew under the principle of legal subrogation—a third person who satisfies the obligation to an original maritime lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel.—In its defense, DBP reiterates the following arguments: (1) The salary and crew’s wages cannot be claimed by POLIAND or its predecessors-in-interest because none of them is a sailor or mariner; (2) Even if conceded, POLIAND’s preferred maritime lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIAND’s claim is barred by prescription and laches. The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to wages, they can still make a claim for the advances spent for the salary and wages of the crew under the principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals, a third person who satisfies the obligation to an original maritime lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel.

Same; Same; Prescription; Statute of Frauds; The reliance on Statute of Frauds is misplaced, where the party hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not to any contract or agreement.—DBP’s reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement.

Same; Same; Same; Laches; The prescriptive period is tolled when a written demand is made for the satisfaction of the obligation before the lapse of the ten-year prescriptive period; Laches does not lie where there was no unreasonable delay on the part of a party in asserting its rights.—Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon an obligation created by law must be brought within ten years from the time the right of action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON’s obligations to POLIAND’s predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of GALLEON’s outstanding obligations had commenced. Prescription could not have set in because the prescriptive period was tolled when POLIAND made a written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive period. Laches also does not lie because there was no unreasonable delay on the part of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably.

Same; Same; Actions; Words and Phrases; A maritime lien is akin to a mortgage lien that in spite of the transfer of ownership, the lien is not extinguished; The enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem; The expression “action in rem” is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated responsible for the claim or the obligation upon which the proceedings are based.—All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem. The expression “action in rem” is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based. Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.

Same; Same; Bad Faith; The institution of the extrajudicial foreclosure proceedings was tainted with bad faith, considering that at that time National Development Company (NDC) had already assumed the management and operations of the debtor company and NDC could not have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of the foreclosure—considering that NDC was in a position to know or discover the financial condition of debtor company when it took over its management, the lack of notice to the latter’s creditors suggests that the extrajudicial foreclosure was effected to prejudice the rights of the other creditors.—On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings was tainted with bad faith. It took place when NDC had already assumed the management and operations of GALLEON. NDC could not have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of foreclosure. As aptly held by the Court of Appeals: x x x Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the vessels were subject to various liens. At the very least, to evince good faith, NDC could have inquired as to the existence of other claims against the vessels apart from DBP’s mortgage lien. Considering that NDC was also in a position to know or discover the financial condition of GALLEON when it took over its management, the lack of notice to GALLEON’s creditors suggests that the extrajudicial foreclosure was effected to prejudice the rights of GALLEON’s other creditors. [Poliand Industrial Limited vs. National Development Company, 467 SCRA 500(2005)]

Babst vs. Court of Appeals, 350 SCRA 341 , January 26, 2001

Corporation Law; It is settled that in the 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; BPI has a right to institute the case a quo.—At the outset, the preliminary issue of BPI’s right of action must first be addressed. ELISCON and MULTI assail BPI’s legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger between BPI and CBTC. It is settled that in the 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. Hence, BPI has a right to institute the case a quo.

Same; There can be implied consent of the creditor to the substitution of debtors.—Subsequently, in the case of Vda. e Hijos de Pio Barretto y Cia., Inc. v. Albo, & Sevilla, Inc., et al., this Court reiterated the rule that there can be implied consent of the creditor to the substitution of debtors. [Babst vs. Court of Appeals, 350 SCRA 341(2001)]

Iglesia Evangelista Metodism En Las Islas Filipinas (IEMELIF) (Corporation Sole), Inc. vs. Lazaro, 624 SCRA 224 , July 06, 2010

Corporation Law; Court Distinguished a Corporation Sole from a Corporation Aggregate.—Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a 2009 case involving IEMELIF, the Court distinguished a corporation sole from a corporation aggregate. Citing Section 110 of the Corporation Code, the Court said that a corporation sole is “one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church.” A corporation aggregate formed for the same purpose, on the other hand, consists of two or more persons.

Same; Same; The Corporation Code provides no specific mechanism for amending the articles of incorporation of a corpo­ration sole; Section 109 of the Corporation Code allows the appli­cation to religious corporations of the general provisions governing non-stock corporations.—True, the Corporation Code provides no specific mechanism for amending the articles of incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-stock corporations.

Same; Same; Although a non-stock corporation has a personality that is distinct from those of its members who established it, its articles of incorporation cannot be amended solely through the action of its board of trustees; The amendment needs the concurrence of at least two-thirds of its membership.—Although a non-stock corporation has a personality that is distinct from those of its members who established it, its articles of incorporation cannot be amended solely through the action of its board of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its membership. The one member, here the General Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its membership.

Same; Securities and Exchange Commission (SEC); Considering its experience and specialized capabilities in the area of corporation law, the Securities and Exchange Commission’s (SEC’s) prior action on the Iglesia Evangelica Metodista En Las Islas Filipinas (IEMELIF) issue should be accorded great weight.—As the CA noted, the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and advice of the SEC. The latter’s interpretation and application of the Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws. Considering its experience and specialized capabilities in the area of corporation law, the SEC’s prior action on the IEMELIF issue should be accorded great weight.

Mentholatum Co. vs. Mangaliman et al., 72 Phil. 524, June 27, 1941

1.FOREIGN CORPORATIONS; MEANING OF "DOING" OR "ENGAGING IN" OR "TRANSACTING" BUSINESS.—No general rule or governing principles can "be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems 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. (Traction Cos. vs. Collectors of Int. Revenue [C. C. A. Ohio], 223 F., 984, 987.) 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, and in progressive prosecution of, the purpose and object of its organization.

2.ID.; ID.; LICENSE REQUIRED BY SECTION 68 OF CORPORATION LAW; EIGHT TO SUE AND BE SUED.—The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co.. Inc. maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority (Mechem on Agency, sec. 1; Story on Agency, sec. 3; Sternaman vs. Metropolitan Life Ins. Co., 170 N. Y., 21), it cannot now, to the advantage of its principal, claim an independent standing in court.

3.PLEADING AND PRACTICE; OBJECT OF PLEADINGS; POSITION CONTRADICTORY TO, OR INCONSISTENT WITH, PLEADINGS.—The object of the pleadings being to draw the lines of battle between litigants and to indicate fairly the nature of the claims or defenses of both parties (1 Sutherland's Code Pleading, Practice & Forms, sec. 83; Milliken vs. Western Union Tel. Co., 110 N. Y., 403; 18 N. E., 251; Eckrom vs. Swenseld, 46 N. D., 561, 563; 179 N. W., 920), a party cannot subsequently take a position contradictory to, or inconsistent with, his pleadings, as the facts therein admitted are to be taken as true for the purpose of the action. [Mentholatum Co. vs. Mangaliman et al., 72 Phil. 524(1941)]

Top-Weld Manufacturing, Inc. vs. ECED, S.A., 138 SCRA 118 , August 09, 1985

Corporations; Words and Phrases; Test to determine what constitutes “doing” or “engaging in” business in the Philippines.— There is no general rule or governing principle laid down as to what constitutes “doing” or engaging in” or “transacting” business in the Philippines. Each case must be judged in the light of its peculiar circumstances. (Mentholatum Co. v. Mangaliman, 72 Phil. 524). Thus, a foreign corporation with a settling agent in the Philippines which issued twelve marine policies covering different shipments to the Philippines (General Corporation of the Philippines v. Union Insurance Society of Canton, Ltd., 87 Phil. 313) and a foreign corporation which had been collecting premiums on outstanding policies (Manufacturing Life Insurance Co. v. Meer, 89 Phil. 351) were regarded as doing business here. The acts of these corporations should be distinguished from a single or isolated business transaction or occasional, incidental and casual transactions which do not come within the meaning of the law. Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign corporation’s intention to do other business in the Philippines, said single act or transaction constitutes “doing” or “engaging in” or “transacting” business in the Philippines. (Far East International Import and Export Corporation v. Nankai Kogyo, Co., 6 SCRA 725).

Same; Same; Respondents are “doing business in the Philippines” having entered into contracts for the manufacture and distribution of welding products and equipments.—Judged by the foregoing standards, we agree with the Court of Appeals in considering the respondents as “doing business” in the Philippines. When the respondents entered into the disputed contracts with the petitioner, they were carrying out the purposes for which they were created, i.e. to manufacture and market welding products and equipment. The terms and conditions of the contracts as well as the respondents’ conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. This fact is even more strengthened by the admission of the respondents that they are negotiating with another group for the transfer of the distributorship and franchising rights from the petitioner.

Same; Same; A foreign corporation doing business in the Philippines must secure a prior license from the BOI under R.A. 5455.—The respondent court, however, erred in holding that “IRTI and ECED have not secured such written certificate in consequence of which there is no occasion for the Board of Investments to impose the requirements prescribed in the aforequoted provisions of Sec 4, R.A. No. 5455 x x x.” To accept this view would open the way for an interpretation that by doing business in the country without first securing the required written certificate from the Board of Investments, a foreign corporation may violate or disregard the safeguards which the law, by its provisions, seeks to establish.

Same; Contracts; A contract entered into by a Philippine corporation with a foreign corporation for manufacture and marketing of the latter’s product is illegal if the same was not previously licensed with the BOI under R.A. 5455. For being in pari delicto, the Philippine corporation cannot ask our courts to prohibit the foreign corporation from terminating their contract and giving the license to produce and market its products to another.—The parties are charged with knowledge of the existing law at the time they enter into the contract and at the time it is to become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more knowledgeable about his own state law than his alien or foreign contemporary. In this case, the record shows that, at least, petitioner had actual knowledge of the applicability of R.A. No. 5455 at the time the contract was executed and at all times thereafter. This conclusion is compelled by the fact that the same statute is now being propounded by the petitioner to bolster its claim. We, therefore, sustain the appellate court’s view that “it was incumbent upon TOP-WELD to know whether or not IRTI and ECED were properly authorized to engage in business in the Philippines when they entered into the licensing and distributorship agreements.” The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case.

Same; Evidence; He who alleges must produce the evidence to prove it and hearsay evidence once admitted shall be given the credence it deserves.—The burden of overcoming the responsive effect of the answer is upon the petitioner. He who alleges a fact has the burden of proving it and a mere allegation is not evidence. (Legasca v. De Vera, 79 Phil. 376) Hearsay evidence alone may be insufficient to establish a fact in an injunction suit (Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and given the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464).

Same; Same; Judgments; Judgments may be rendered on the basis of affidavits where they are overwhelming, uncontroverted, and not inherently improbable.—Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits submitted, where as here, said affidavits are overwhelming, uncontroverted by competent evidence and not inherently improbable, we are constrained to uphold the allegations of the respondents regarding the multifarious violations of the contracts made by the petitioner. Accordingly, we rule that there exists a just cause for respondents to move for the termination of their contracts with the petitioner.

Contracts; Moot and Academic; Injunction; An injunction suit to prevent a contracting party from licensing another for its products becomes moot after the expiration of the term of the agreement.—Moreover, the facts on record show that the “License and Technical Assistance Agreement” between petitioner and respondent IRTI was extended only for a period of one year or to be precise, from January 1, 1975 to December 31, 1975. The original injunction suit was brought in the court a quo in June 1975, the purpose being to stop the respondent from terminating the contract. This purpose was realized when the court granted the injunction. By the time respondents’ appeal was decided by the Court of Appeals, it was already past the extended period. The dispute between the parties had been rendered moot and academic. It should be stated that the courts be it the original trial court or the appellate court have no power to make contracts for the parties. No court would be justified in extending the life of the contracts, subject of this controversy, since that would do violence to the basic principle that contracts must be the voluntary agreements of parties. [Top-Weld Manufacturing, Inc. vs. ECED, S.A., 138 SCRA 118(1985)]

Avon Insurance PLC vs. Court of Appeals, 278 SCRA 312 , August 29, 1997

Remedial Law; Courts; Jurisdiction; A single act or transaction made in the Philippines could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation’s intention to do business in the Philippines.—The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation’s intention to do business in the Philippines.

Same; Same; Same; There is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state.—As it is, private respondent has made no allegation or demonstration of the existence of petitioners’ domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract of reinsurance.

Same; Same; Same; There is no showing that petitioners had performed any act in the country that would place it within the sphere of the court’s jurisdiction.—As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court’s jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or inconvenience of a party.

Same; Same; Same; Summons; Jurisdiction over the person of the defendant in civil cases is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons.—In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons.

Same; Same; Same; Same; The service of summons upon the defendant becomes an important element in the operation of a court’s jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person.—Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. The service of summons upon the defendant becomes an important element in the operation of a court’s jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the suit.

Same; Same; Same; The action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had.—When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court’s jurisdiction, the defendant in an action can, by special appearance object to the court’s assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation’s objections, threatens to impose its jurisdiction upon the same.

Same; Same; Same; If besides his objection to the jurisdiction of the court defendant alleges in his motion to dismiss any other ground for dismissing the action or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court.—If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court.

Same; Same; Same; If the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence to the court’s jurisdiction.—As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute an acquiescence to the court’s jurisdiction. Thus, it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturings, were all in protest of the private respondent’s insistence on holding them to answer a charge in a forum where they believe they are not subject to. Clearly, to continue the proceedings in a case such as those before Us would just “be useless and a waste of time.” [Avon Insurance PLC vs. Court of Appeals, 278 SCRA 312(1997)]

International Broadcasting Corporation vs. Jalandoon, 475 SCRA 446 , November 18, 2005

Remedial Law; Securities and Exchange Commission; Jurisdictions; As ownership of IBC has been vested upon the Republic, the subject matter of the instant suit falls within the definition of intracorporate controversy over which Securities and Exchange Commission (SEC) had jurisdiction at the time this case was initiated.—As stated by SEC in its Order, the sequestration proceedings over IBC are over. The Sandiganbayan has ordered the transfer of IBC’s shares of stock in the name of the Republic of the Philippines. As ownership of IBC has been vested upon the Republic, the subject matter of the instant suit falls within the definition of intracorporate controversy over which SEC had jurisdiction at the time this case was initiated.

Same; Same; Same; Sec. 5.2 of Republic Act No. 8799 confirms the interpretation that it refers to cases where no further proceedings are required for their final resolution.—The fact that Sec. 5.2 of Republic Act No. 8799 states that the pending cases over which SEC shall retain jurisdiction “should be resolved within one (1) year from the enactment of this Code,” confirms the interpretation that it refers to cases where no further proceedings are required for their final resolution. [International Broadcasting Corporation vs. Jalandoon, 475 SCRA 446(2005)]