[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney’s fees.[3] To the original balance on the price of jeep body were added the costs of repair.[4] In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner’s claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial court’s decision.[5] Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to petitioner’s complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioner’s Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence to counter petitioner’s collection suit, he filed a permissive counterclaim for the unpaid attorney’s fees.[6]

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- “In the Matter of Intestate Estate of Benita Trinidad”. Said court also found that his legal services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.[7]

Dissatisfied with the trial court’s order, petitioner elevated the matter to the Court of Appeals, posing the following issues:

“I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM.”[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial court’s jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when petitioner’s new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial court’s jurisdiction.[10]

On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the

corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-à-vis the individual persons who hired the services of private respondent, is separate and distinct,[11] hence, the liability of said individuals did not become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

“However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)

“In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellant’s veil of corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation.”[12]

Now before us, petitioner assigns the following errors:

“I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE COUNTERCLAIM.”[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature.

Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.[14]

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the opposing party’s claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the other,[15] requiring in each case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of individual persons.[16]

Private respondents dispute petitioner’s claim that its right to due process was violated when respondents’ counterclaim was granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and counterclaim on petitioner’s former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner,

private respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioner’s obligations to the respondents by running up more interest it could recover from them. Private respondents therefore claim damages against petitioner.[17]

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations to which it may be connected.[18] However, under the doctrine of piercing the veil of corporate entity, the corporation’s separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial court’s resort to this doctrine. The rationale behind piercing a corporation’s identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad’s estate. These estate proceedings did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an obvious

misapprehension that petitioner’s corporate assets could be used to answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action —including a counterclaim — must be prosecuted or defended in the name of the real party in interest.[20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family.

However, with regard to the procedural issue raised by petitioner’s allegation, that it needed to be summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court’s view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

“Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for

reconsideration to set aside the order of default and the judgment rendered on the counterclaim.

“Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered to have submitted to the court’s jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).”[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.

SO ORDERED.

SEVENTH DAY ADVENTIST G.R. No. 150416

CONFERENCE CHURCH OF

SOUTHERN PHILIPPINES, INC.,

and/or represented by MANASSEH

C. ARRANGUEZ, BRIGIDO P.

GULAY, FRANCISCO M. LUCENARA,

DIONICES O. TIPGOS, LORESTO

C. MURILLON, ISRAEL C. NINAL,

GEORGE G. SOMOSOT, JESSIE

T. ORBISO, LORETO PAEL and

JOEL BACUBAS,

Petitioners, Present:

 

PUNO, J., Chairperson, SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ.

 

 

NORTHEASTERN MINDANAO

MISSION OF SEVENTH DAY

ADVENTIST, INC., and/or

represented by JOSUE A. LAYON,

WENDELL M. SERRANO, FLORANTE

P. TY and JETHRO CALAHAT

and/or SEVENTH DAY ADVENTIST

CHURCH [OF] NORTHEASTERN

MINDANAO MISSION,

Respondents. Promulgated:

July 21, 2006

  

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

D E C I S I O N

CORONA, J.:

 

This petition for review on certiorari assails the Court of Appeals (CA) decision[1]

and resolution[2] in CA-G.R. CV No. 41966 affirming, with modification, the decision of

the Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil Case No.

63.

 

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title

(TCT) No. 4468 in Bayugan, Agusan del Sur originally owned by Felix Cosio and his

wife, Felisa Cuysona.

 

On April 21, 1959, the spouses Cosio donated the land to the South Philippine

Union Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan

(SPUM-SDA Bayugan).[3] Part of the deed of donation read:

  KNOW ALL MEN BY THESE PRESENTS: 

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and as well in possession as in expectancy of in and to all the place of land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, more particularly and bounded as follows, to wit:  

1.      a parcel of land for Church Site purposes only.2.      situated [in Barrio Bayugan, Esperanza].3.      Area: 30 meters wide and 30 meters length or 900 square

meters.4.      Lot No. 822-Pls-225. Homestead Application No. V-36704,

Title No. P-285.5.      Bounded Areas

North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio xxx. [4]  

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh

Day Adventist Church, on behalf of the donee.

 

Twenty-one years later, however, on February 28, 1980, the same parcel of land

was sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern

Mindanao Mission (SDA-NEMM).[5] TCT No. 4468 was thereafter issued in the name of

SDA-NEMM.[6]

 

Claiming to be the alleged donee’s successors-in-interest, petitioners asserted

ownership over the property. This was opposed by respondents who argued that at the

time of the donation, SPUM-SDA Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were

petitioners members of the local church then, hence, the donation could not have been

made particularly to them.

 

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63

(a suit for cancellation of title, quieting of ownership and possession, declaratory relief

and reconveyance with prayer for preliminary injunction and damages), in the RTC of

Bayugan, Agusan del Sur. After trial, the trial court rendered a decision[7] on November

20, 1992 upholding the sale in favor of respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral

damages and attorney’s fees.[8] Petitioners’ motion for reconsideration was likewise

denied. Thus, this petition.

The issue in this petition is simple: should SDA-NEMM’s ownership of the lot

covered by TCT No. 4468 be upheld?[9] We answer in the affirmative.

The controversy between petitioners and respondents involves two supposed

transfers of the lot previously owned by the spouses Cosio: (1) a donation to petitioners’

alleged predecessors-in-interest in 1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a property may be transferred by tradition as a consequence of a sale.

 

Petitioners contend that the appellate court should not have ruled on the validity

of the donation since it was not among the issues raised on appeal. This is not correct

because an appeal generally opens the entire case for review.

We agree with the appellate court that the alleged donation to petitioners was

void.

 

Donation is an act of liberality whereby a person disposes gratuitously of a thing

or right in favor of another person who accepts it. The donation could not have been

made in favor of an entity yet inexistent at the time it was made. Nor could it have been

accepted as there was yet no one to accept it.

 

The deed of donation was not in favor of any informal group of SDA members but

a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither

juridical personality nor capacity to accept such gift.

 

Declaring themselves a de facto corporation, petitioners allege that they should

benefit from the donation.

But there are stringent requirements before one can qualify as a de facto

corporation:

  (a)               the existence of a valid law under which it may be

incorporated;(b)               an attempt in good faith to incorporate; and(c)               assumption of corporate powers.[10]

While there existed the old Corporation Law (Act 1459),[11] a law under which

SPUM-SDA Bayugan could have been organized, there is no proof that there was an

attempt to incorporate at that time.

 

The filing of articles of incorporation and the issuance of the certificate of

incorporation are essential for the existence of a de facto corporation.[12] We have

held that an organization not registered with the Securities and Exchange Commission

(SEC) cannot be considered a corporation in any concept, not even as a corporation de

facto.[13] Petitioners themselves admitted that at the time of the donation, they were not

registered with the SEC, nor did they even attempt to organize[14] to comply with legal

requirements.

Corporate existence begins only from the moment a certificate of incorporation is

issued. No such certificate was ever issued to petitioners or their supposed

predecessor-in-interest at the time of the donation. Petitioners obviously could not have

claimed succession to an entity that never came to exist. Neither could the principle of

separate juridical personality apply since there was never any corporation[15] to speak

of. And, as already stated, some of the representatives of petitioner Seventh Day

Adventist Conference Church of Southern Philippines, Inc. were not even members of

the local church then, thus, they could not even claim that the donation was particularly

for them.[16]

 

“The de facto doctrine thus effects a compromise between two conflicting public interest[s]—the one opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to the parties and of establishing a general assurance of security in business dealing with corporations.”[17]  

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the defective or non-existent corporation.[18]

In view of the foregoing, petitioners’ arguments anchored on their supposed de

facto status hold no water. We are convinced that there was no donation to petitioners

or their supposed predecessor-in-interest.

On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The

factual findings of the trial court in this regard were not convincingly disputed. This Court

is not a trier of facts. Only questions of law are the proper subject of a petition for review

on certiorari.[19]

 

Sustaining the validity of respondents’ title as well as their right of ownership over

the property, the trial court stated:

 [W]hen Felix Cosio was shown the Absolute Deed of Sale during

the hearing xxx he acknowledged that the same was his xxx but that it was not his intention to sell the controverted property because he had previously donated the same lot to the South Philippine Union Mission of SDA Church of Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not have disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According to him, the P2,000.00 was not a consideration of the sale but only a form of help extended. 

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would then this inadequacy of the consideration render the contract invalid?

 Article 1355 of the Civil Code provides:

 Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

 No evidence [of fraud, mistake or undue influence] was

adduced by [petitioners]. 

xxx 

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership] of the land. There is that strong and solid presumption that titles were legally issued and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be received as evidence in all the Courts and shall be conclusive as to all matters contained therein. 

[This action was instituted almost seven years after the certificate of title in respondents’ name was issued in 1980.][20]

 

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be

transferred to the vendee upon the actual or constructive delivery thereof. On this, the

noted author Arturo Tolentino had this to say:

 The execution of [a] public instrument xxx transfers the ownership

from the vendor to the vendee who may thereafter exercise the rights of an owner over the same[21]

 

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made

upon constructive delivery of the property on February 28, 1980 when the sale was

made through a public instrument.[22] TCT No. 4468 was thereafter issued and it

remains in the name of SDA-NEMM.

 

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

 

SO ORDERED.

G.R. No. 117604. March 26, 1997]

CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

D E C I S I O N

KAPUNAN, J.:

Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September 1994 which denied petitioner's motion for reconsideration.

The case unfolds thus:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation (CBC, for brevity).[1]

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in its books.[2]

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's favor was duly noted in its corporate books.[3]

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the aforestated pledge agreement still existing between Calapatia and petitioner.[4]

Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock.[5]

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of Calapatia's unsettled accounts with the club.[6]

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding certificate of sale.[7]

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24.[8] Said notice was followed by a demand letter dated 12 December 1985 for the same amount[9] and another notice dated 22 November 1986 for P23,483.24.[10]

On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate No. 1219).

Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction.[11]

On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name.[12]

On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00.[13]

On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name.[14]

On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency."[15] Consequently, the case was dismissed.[16]

On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration.[17]

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer. It declared thus:

The Commission en banc believes that appellant-petitioner has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can proceed with the foreclosure of the pledged share.

WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET ASIDE. The auction sale conducted by appellee-respondent Club on December 10, 1986 is declared NULL and VOID. Finally, appellee-respondent Club is ordered to issue another membership certificate in the name of appellant-petitioner bank.

SO ORDERED.[18]

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7 December 1993.[19]

The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as follows:

In order that the respondent Commission can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the 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 in so far as its franchise, permit or license to operate is concerned, and (d) among the stockholders, partners or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The establishment of any of the relationship mentioned will not necessarily always confer jurisdiction over the dispute on the Securities and Exchange Commission to the exclusion of the regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, that the rule admits of no exceptions or distinctions is not that absolute. 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 (Viray vs. Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323).

Indeed, the controversy between petitioner and respondent bank which involves ownership of the stock that used to belong to Calapatia, Jr. is not within the competence

of respondent Commission to decide. It is not any of those mentioned in the aforecited case.

WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent Securities and Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack of jurisdiction over the subject matter of the case. Accordingly, the complaint of respondent China Banking Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in this instance.

SO ORDERED.[20]

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994.[21]

Hence, this petition wherein the following issues were raised:

II

ISSUES

WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED WHEN:

1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;

2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT VALLEY GOLF.

The petition is granted.

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:

SECTION 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the

Philippines, and in the exercise of its authority, it shall have the power to enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm, association or person.

xxx

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the Management Committee created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA[22] and in the recent cases of Mainland Construction Co., Inc. v. Movilla[23] and Bernardo v. CA,[24] 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.

Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to determine therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the controversy between petitioner and private respondent corporation is intra-corporate.

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.[25] 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 exemplies an intra-corporate controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

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 . . ."[26] 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 by-laws, a subject which irrefutably calls for the special competence of the SEC.

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz:[27]

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the regulatory statute administered."

In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the

former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an administrative agency.]'" The Court in the earlier case of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their jurisdiction with the regular courts, "evidently,. . . had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on one and the same claim."

In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance of the instant case.

VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI.

VGCCI's contention lacks merit.

In Zamora v. Court of Appeals,[28] 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 . . .

We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint and led to petitioner's recourse to the SEC.

Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.

It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its responsive pleadings, private respondent duly answered and countered all the issues raised by petitioner.

Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Gabriel-Almoradie v. Court of Appeals,[29] citing Escudero v. Dulay[30] and The Roman Catholic Archbishop of Manila v. Court of Appeals:[31]

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.

In the recent case of China Banking Corp., et al. v. Court of Appeals, et al.,[32] this Court, through Mr. Justice Ricardo J. Francisco, ruled in this wise:

At the outset, the Court's attention is drawn to the fact that that since the filing of this suit before the trial court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication.

In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to enable us to render a sound judgment and since only questions of law were raised (the proper jurisdiction for Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits of the case.

The procedural niceties settled, we proceed to the merits.

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[33] but the loan or promissory

note which it secured was obtained by Calapatia much later or only on 3 August 1983.[34]

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:

xxx

This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory notes, drafts, bills or exchange, discounts, and all other obligations of every kind which have heretofore been contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of them, in favor of the PLEDGEE, including discounts of Chinese drafts, bills of exchange, promissory notes, etc., without any further endorsement by the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses (including attorney's fees) which PLEDGEE may incur in connection with the collection thereof.[35] (Emphasis ours.)

The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a renewal of the first promissory note covered by the same pledge agreement.

VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share in question in accordance with the express provision found in its by-laws.

Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the foreclosure proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in paying his monthly dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as the pledgee of Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until VGCCI itself sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of good faith.

In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:

The general rule really is that third persons are not bound by the by-laws of a corporation since they are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third persons have actual or constructive knowledge of the same. In the case at bar, petitioner had actual knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent. Because of this actual knowledge of such by-laws then the same bound the petitioner as of the time when petitioner purchased the share. Since the by-laws was already binding upon petitioner when the latter purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said share subject to the right of the private respondent to sell the said share for reasons of delinquency and the right of private respondent to have a first lien on said shares as these rights are provided for in the by-laws very very clearly.[36]

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.:[37]

And moreover, the by-law now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.

"An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption." (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)

"When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice." (Brinkerhoff-Farris Trust & Savings Co. vs. Home Lumber Co., 118 Mo., 447.)

"The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone." (Ireland vs. Globe Milling Co., 21 R.I., 9.)

"A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons." (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Underscoring ours.)

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. The ruling of the SEC en banc is particularly instructive:

By-laws signifies 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. In other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and control of its affairs, in whole or in part, in the management and control of its affairs and activities. (9 Fletcher 4166. 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme Court held that the by-law restricting the transfer of shares cannot have any effect on the the transferee of the shares in question as he "had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by the by-law between the shareholder x x x and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a purchaser." (Underscoring supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said case is applicable to the present controversy. Appellant-petitioner bank as a third party can not be bound by appellee-respondent's by-laws. It must be recalled that when appellee-respondent communicated to appellant-petitioner bank that the pledge agreement was duly noted in the club's books there was no mention of the shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus, appellant-petitioner was in good faith when the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full protection without surrender of the certificate, their cancellation, and the issuance to him of new ones, and when done, the pledgee will be fully protected against a subsequent purchaser who would be charged with constructive notice that the certificate is covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or tenders to him the amount due on the debt secured. In other words, the pledgee has the right to resort to its collateral for the payment of the debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate to a third person who purchased the same certificate covered by the pledge, will certainly defeat the right of the pledgee to resort to its collateral for the payment of the debt. The pledgor or his representative or registered stockholders has no right to require a return of the pledged stock until the debt for which it was given as security is paid and satisfied, regardless of the length of time which have elapsed since debt was created. (12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the corporation or of third persons, if he has no notice thereof, but not otherwise. He also takes it free of liens or claims that may subsequently arise in favor of the corporation if it has notice of the pledge, although no demand for a transfer of the stock to the pledgee on the corporate books has been made. (12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739)[38]

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,[39] 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.

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."[40] 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.[41] What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.

SO ORDERED.

PAUL LEE TAN, ANDREW G.R. No. 153468

LIUSON, ESTHER WONG,

STEPHEN CO, JAMES TAN, Present:

JUDITH TAN, ERNESTO

TANCHI JR., EDWIN NGO, PANGANIBAN, CJ.,Chairperson,

VIRGINIA KHOO, SABINO YNARES-SANTIAGO,

PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,

LIZARES and GRACE CALLEJO, SR., andCHRISTIAN HIGH SCHOOL, CHICO-NAZARIO, JJ.

Petitioners,

- versus -

PAUL SYCIP and MERRITTO LIM, Promulgated:

Respondents. August 17, 2006

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

 

 

DECISION

 

PANGANIBAN, CJ.:

 

 

For stock corporations, the “quorum” referred to in Section 52 of the Corporation

Code is based on the number of outstanding voting stocks. For nonstock corporations,

only those who are actual, living members with voting rights shall be counted in

determining the existence of a quorum during members’ meetings. Dead members shall

not be counted.

The Case

 

The present Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court seeks the reversal of the January 23[2] and May 7, 2002,[3] Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution dismissed the appeal filed by petitioners with the CA. Allegedly, without the proper authorization of the other petitioners, the Verification and Certification of Non-Forum Shopping were signed by only one of them -- Atty. Sabino Padilla Jr. The second Resolution denied reconsideration.

The Facts

 

 

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit

educational corporation with fifteen (15) regular members, who also constitute the board

of trustees.[4] During the annual members’ meeting held on April 6, 1998, there were

only eleven (11)[5] living member-trustees, as four (4) had already died. Out of the

eleven, seven (7)[6] attended the meeting through their respective proxies. The

meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty.

Antonio C. Pacis, who argued that there was no quorum.[7] In the meeting, Petitioners

Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the

four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC),

petitioners maintained that the deceased member-trustees should not be counted in the

computation of the quorum because, upon their death, members automatically lost all

their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null

and void for lack of quorum. She held that the basis for determining the quorum in a

meeting of members should be their number as specified in the articles of incorporation,

not simply the number of living members.[8] She explained that the qualifying phrase

“entitled to vote” in Section 24[9] of the Corporation Code, which provided the basis for

determining a quorum for the election of directors or trustees, should be read together

with Section 89.[10]

The hearing officer also opined that Article III (2)[11] of the By-Laws of GCHS,

insofar as it prescribed the mode of filling vacancies in the board of trustees, must be

interpreted in conjunction with Section 29[12] of the Corporation Code. The SEC en

banc denied the appeal of petitioners and affirmed the Decision of the hearing officer in

toto.[13] It found to be untenable their contention that the word “members,” as used in

Section 52[14] of the Corporation Code, referred only to the living members of a

nonstock corporation.[15]

 

As earlier stated, the CA dismissed the appeal of petitioners, because the

Verification and Certification of Non-Forum Shopping had been signed only by Atty.

Sabino Padilla Jr. No Special Power of Attorney had been attached to show his

authority to sign for the rest of the petitioners.

 

Hence, this Petition.[16]

 

Issues

 

Petitioners state the issues as follows:

 

“Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for purposed of conducting the Annual Members’ Meeting.

 

“Petitioners have maintained before the courts below that the DEAD members should no longer be counted in computing quorum

primarily on the ground that members’ rights are ‘personal and non-transferable’ as provided in Sections 90 and 91 of the Corporation Code of the Philippines.

 

“The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even involve a non-stock corporation as petitioner GCHS.

“The Honorable Court of Appeals on the other hand simply refused to resolve this question and instead dismissed the petition for review on a technicality – the failure to timely submit an SPA from the petitioners authorizing their co-petitioner Padilla, their counsel and also a petitioner before the Court of Appeals, to sign the petition on behalf of the rest of the petitioners.

 

“Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord with law particularly the pronouncements of this Honorable Court in Escorpizo v. University of Baguio (306 SCRA 497), Robern Development Corporation v. Quitain (315 SCRA 150,) and MC Engineering, Inc. v. NLRC, (360 SCRA 183). Due course should have been given the petition below and the merits of the case decided in petitioners’ favor.”[17]

 

 

In sum, the issues may be stated simply in this wise: 1) whether the CA erred in

denying the Petition below, on the basis of a defective Verification and Certification; and

2) whether dead members should still be counted in the determination of the quorum,

for purposes of conducting the annual members’ meeting.

The Court’s Ruling

 

The present Petition is partly meritorious.

 

Procedural Issue:

Verification and Certification

of Non-Forum Shopping

 

 

The Petition before the CA was initially flawed, because the Verification and

Certification of Non-Forum Shopping were signed by only one, not by all, of the

petitioners; further, it failed to show proof that the signatory was authorized to sign on

behalf of all of them. Subsequently, however, petitioners submitted a Special Power of

Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf.[18]

In the interest of substantial justice, this initial procedural lapse may be excused.

[19] There appears to be no intention to circumvent the need for proper verification and

certification, which are aimed at assuring the truthfulness and correctness of the

allegations in the Petition for Review and at discouraging forum shopping.[20] More

important, the substantial merits of petitioners’ case and the purely legal question

involved in the Petition should be considered special circumstances[21] or compelling

reasons that justify an exception to the strict requirements of the verification and the

certification of non-forum shopping.[22]

Main Issue:

Basis for Quorum

 

 

Generally, stockholders’ or members’ meetings are called for the purpose of

electing directors or trustees[23] and transacting some other business calling for or

requiring the action or consent of the shareholders or members,[24] such as the

amendment of the articles of incorporation and bylaws, sale or disposition of all or

substantially all corporate assets, consolidation and merger and the like, or any other

business that may properly come before the meeting.

Under the Corporation Code, stockholders or members periodically elect the

board of directors or trustees, who are charged with the management of the corporation.

[25] The board, in turn, periodically elects officers to carry out management functions on

a day-to-day basis. As owners, though, the stockholders or members have residual

powers over fundamental and major corporate changes.

While stockholders and members (in some instances) are entitled to receive

profits, the management and direction of the corporation are lodged with their

representatives and agents -- the board of directors or trustees.[26] In other words, acts

of management pertain to the board; and those of ownership, to the stockholders or

members. In the latter case, the board cannot act alone, but must seek approval of the

stockholders or members.[27]

Conformably with the foregoing principles, one of the most important rights of a

qualified shareholder or member is the right

to vote -- either personally or by proxy -- for the directors or trustees who are to manage

the corporate affairs.[28] The right to choose the persons who will direct, manage and

operate the corporation is significant, because it is the main way in which a stockholder

can have a voice in the management of corporate affairs, or in which a member in a

nonstock corporation can have a say on how the purposes and goals of the corporation

may be achieved.[29] Once the directors or trustees are elected, the stockholders or

members relinquish corporate powers to the board in accordance with law.

 

In the absence of an express charter or statutory provision to the contrary, the

general rule is that every member of a nonstock corporation, and every legal owner of

shares in a stock corporation, has a right to be present and to vote in all corporate

meetings. Conversely, those who are not stockholders or members have no right to

vote.[30] Voting may be expressed personally, or through proxies who vote in their

representative capacities.[31] Generally, the right to be present and to vote in a

meeting is determined by the time in which the meeting is held.[32]

 

Section 52 of the Corporation Code states:

 

“Section 52. Quorum in Meetings. – Unless otherwise provided for in this

Code or in the by-laws, a quorum shall consist of the stockholders

representing a majority of the outstanding capital stock or a majority of the

members in the case of non-stock corporations.”

 

 

In stock corporations, the presence of a quorum is ascertained and counted on

the basis of the outstanding capital stock, as defined by the Code thus:

 

“SECTION 137. Outstanding capital stock defined. – The term

‘outstanding capital stock’ as used in this Code, means the total shares of

stock issued under binding subscription agreements to subscribers or

stockholders, whether or not fully or partially paid, except treasury shares.”

(Underscoring supplied)

 

 

 

The Right to Vote in

Stock Corporations

 

The right to vote is inherent in and incidental to the ownership of corporate

stocks.[33] It is settled that unissued stocks may not be voted or considered in

determining whether a quorum is present in a stockholders’ meeting, or whether a

requisite proportion of the stock of the corporation is voted to adopt a certain measure

or act. Only stock actually issued and outstanding may be voted.[34] Under Section 6

of the Corporation Code, each share of stock is entitled to vote, unless otherwise

provided in the articles of incorporation or declared delinquent[35] under Section 67 of

the Code.

 

Neither the stockholders nor the corporation can vote or represent shares that

have never passed to the ownership of stockholders; or, having so passed, have again

been purchased by the corporation.[36] These shares are not to be taken into

consideration in determining majorities. When the law speaks of a

given proportion of the stock, it must be construed to mean the shares that have passed

from the corporation, and that may be voted.[37]

 

Section 6 of the Corporation Code, in part, provides:

 

“Section 6. Classification of shares. – The shares of stock of stock

corporations may be divided into classes or series of shares, or both, any

of which classes or series of shares may have such rights, privileges or

restrictions as may be stated in the articles of incorporation: Provided,

That no share may be deprived of voting rights except those classified and

issued as “preferred” or “redeemable” shares, unless otherwise provided

in this Code: Provided, further, that there shall always be a class or series

of shares which have complete voting rights.

 

x x x x x x x x x

 

“Where the articles of incorporation provide for non-voting shares in

the cases allowed by this Code, the holders of such shares shall

nevertheless be entitled to vote on the following matters:

 

1.      Amendment of the articles of incorporation;

2.      Adoption and amendment of by-laws;

3.      Sale, lease, exchange, mortgage, pledge or other disposition

of all or substantially all of the corporation property;

4.      Incurring, creating or increasing bonded indebtedness;

5.      Increase or decrease of capital stock;

6.      Merger or consolidation of the corporation with another

corporation or other corporations;

7.      Investment of corporate funds in another corporation or

business in accordance with this Code; and

8.      Dissolution of the corporation.

 

“Except as provided in the immediately preceding paragraph, the

vote necessary to approve a particular corporate act as provided in this

Code shall be deemed to refer only to stocks with voting rights.”

 

Taken in conjunction with Section 137, the last paragraph of Section 6 shows

that the intention of the lawmakers was to base the quorum mentioned in Section 52 on

the number of outstanding voting stocks.[38]

 

The Right to Vote in

Nonstock Corporations

 

 

In nonstock corporations, the voting rights attach to membership.[39] Members

vote as persons, in accordance with the law and the bylaws of the corporation. Each

member shall be entitled to one vote unless so limited, broadened, or denied in the

articles of incorporation or bylaws.[40] We hold that when the principle for determining

the quorum for stock corporations is applied by analogy to nonstock corporations, only

those who are actual members with voting rights should be counted.

 

Under Section 52 of the Corporation Code, the majority of the members

representing the actual number of voting rights, not

the number or numerical constant that may originally be specified in the articles

of incorporation, constitutes the quorum.[41]

 

The March 3, 1986 SEC Opinion[42] cited by the hearing officer uses the phrase

“majority vote of the members”; likewise Section 48 of the Corporation Code refers to 50

percent of 94 (the number of registered members of the association mentioned therein)

plus one. The best evidence of who are the present members of the corporation is the

“membership book”; in the case of stock corporations, it is the stock and transfer book.

[43]

 

Section 25 of the Code specifically provides that a majority of the directors or

trustees, as fixed in the articles of incorporation, shall constitute a quorum for the

transaction of corporate business (unless the articles of incorporation or the bylaws

provide for a greater majority). If the intention of the lawmakers was to base the

quorum in the meetings of stockholders or members on their absolute number as fixed

in the articles of incorporation, it would have expressly specified so. Otherwise, the only

logical conclusion is that the legislature did not have that intention.

 

 

 

Effect of the Death

of a Member or Shareholder

 

Having thus determined that the quorum in a members’ meeting is to be

reckoned as the actual number of members of the corporation, the next question to

resolve is what happens in the event of the death of one of them.

In stock corporations, shareholders may generally transfer their shares. Thus, on

the death of a shareholder, the executor or administrator duly appointed by the Court is

vested with the legal title to the stock and entitled to vote it. Until a settlement and

division of the estate is effected, the stocks of the decedent are held by the

administrator or executor.[44]

 

On the other hand, membership in and all rights arising from a nonstock

corporation are personal and non-transferable, unless the articles of incorporation or the

bylaws of the corporation provide otherwise.[45] In other words, the determination of

whether or not “dead members” are entitled to exercise their voting rights (through their

executor or administrator), depends on those articles of incorporation or bylaws.

 

Under the By-Laws of GCHS, membership in the corporation shall, among

others, be terminated by the death of the member.[46] Section 91 of the Corporation

Code further provides that termination extinguishes all the rights of a member of the

corporation, unless otherwise provided in the articles of incorporation or the bylaws.

 

Applying Section 91 to the present case, we hold that dead members who are

dropped from the membership roster in the manner and for the cause provided for in the

By-Laws of GCHS are not to be counted in determining the requisite vote in corporate

matters or the requisite quorum for the annual members’ meeting. With 11 remaining

members, the quorum in the present case should be 6. Therefore, there being a

quorum, the annual members’ meeting, conducted with six[47] members present, was

valid.

 

Vacancy in the

Board of Trustees

 

 

As regards the filling of vacancies in the board of trustees, Section 29 of the

Corporation Code provides:

“SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office.”

 

 

 

 

Undoubtedly, trustees may fill vacancies in the board, provided that those

remaining still constitute a quorum. The phrase “may be filled” in Section 29 shows that

the filling of vacancies in the board by the remaining directors or trustees constituting a

quorum is merely permissive, not mandatory.[48] Corporations, therefore, may choose

how vacancies in their respective boards may be filled up -- either by the remaining

directors constituting a quorum, or by the stockholders or members in a regular or

special meeting called for the purpose.[49]

 

The By-Laws of GCHS prescribed the specific mode of filling up existing

vacancies in its board of directors; that is, by a majority vote of the remaining members

of the board.[50]

 

While a majority of the remaining corporate members were present, however, the

“election” of the four trustees cannot be legally upheld for the obvious reason that it was

held in an annual meeting of the members, not of the board of trustees. We are not

unmindful of the fact that the members of GCHS themselves also constitute the

trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes

that vacancies in the board must be filled up by the remaining trustees. In other words,

these remaining member-trustees must sit as a board in order to validly elect the new

ones.

Indeed, there is a well-defined distinction between a corporate act to be done by

the board and that by the constituent members of the corporation. The board of

trustees must act, not individually or separately, but as a body in a lawful meeting. On

the other hand, in their annual meeting, the members may be represented by their

respective proxies, as in the contested annual members’ meeting of GCHS.

 

WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the

Court of Appeals are hereby REVERSED AND SET ASIDE. The remaining members

of the board of trustees of Grace Christian High School (GCHS) may convene and fill up

the vacancies in the board, in accordance with this Decision. No pronouncement as to

costs in this instance.

 

SO ORDERED.

G.R. No. L-61523 July 31, 1986

ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA CONSOLIDATED SECURITIES and INVESTMENT CORPORATION, petitioners, vs.THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC., respondents.

Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioners.

Bito, Misa & Lozada Law Offices for respondents.

 

GUTIERREZ, JR., J.:

This petition for certiorari and prohibition seeks to set aside the order of the Regional Trial Court of Laguna which denied the petitioners' motion to dismiss on the ground that the reason relied upon by them does not appear to be indubitable. Petitioners also seek to set aside the decision and resolution of the Intermediate Appellate Court which respectively upheld the order of the trial court and denied the petitioners' motion for reconsideration of the same.

On April 9, 1981, respondent Stokely Van Camp. Inc. (Stokely) filed a complaint against Banahaw Milling Corporation (Banahaw), Antam Consolidated, Inc., Tambunting Trading Corporation (Tambunting), Aurora Consolidated Securities and Investment Corporation, and United Coconut Oil Mills, Inc. (Unicom) for collection of sum of money.

In its complaint, Stokely alleged: (1) that it is a corporation organized and existing under the laws of the state of Indiana, U.S.A. and has its principal office at 941 North Meridian Street, Indianapolis, Indiana, U.S.A., and one of its subdivisions "Capital City Product Company" (Capital City) has its office in Columbus, Ohio, U.S.A.; (2) that Stokely and Capital City were not engaged in business in the Philippines prior to the commencement of the suit so that Stokely is not licensed to do business in this country and is not required to secure such license; (3) that on August 21, 1978, Capital City and Coconut Oil Manufacturing (Phil.) Inc. (Comphil) with the latter acting through its broker Roths child Brokerage Company, entered into a contract (No. RBS 3655) wherein Comphil undertook to sell and deliver and Capital City agreed to buy 500 long tons of crude coconut oil to be delivered in October/November 1978 at the c.i.f. price of US$0.30/1b. but Comphil failed to deliver the coconut oil so that Capital City covered its coconut oil needs in the open market at a price substantially in excess of the contract and sustained a loss of US$103,600; that to settle Capital City's loss under the contract, the

parties entered into a second contract (No. RBS 3738) on November 3, 1978 wherein Comphil undertook to buy and Capital City agreed to sell 500 long tons of coconut crude oil under the same terms and conditions but at an increased c.i.f. price of US$0.3925/lb.; (4) that the second contract states that "it is a wash out against RBS 3655" so that Comphil was supposed to repurchase the undelivered coconut oil at US$0.3925 from Capital City by paying the latter the sum of US$103,600.00 which is the same amount of loss that Capital City sustained under the first contract; that Comphil again failed to pay said amount, so to settle Capital City's loss, it entered into a third contract with Comphil on January 24, 1979 wherein the latter undertook to sell and deliver and Capital City agreed to buy the same quantity of crude coconut oil to be delivered in April/May 1979 at the c.i.f. price of US$0.3425/lb.; (5) that the latter price was 9.25 cents/lb. or US$103,600 for 500 long tons below the then current market price of 43.2 cents/lb. and by delivering said quantity of coconut oil to Capital City at the discounted price, Comphil was to have settled its US$103,600 liability to Capital City; (6) that Comphil failed to deliver the coconut oil so Capital City notified the former that it was in default; (7) that Capital City sustained damages in the amount of US$175,000; and (8) that after repeated demands from Comphil to pay the said amount, the latter still refuses to pay the same.

Respondent Stokely further prayed that a writ of attachment be issued against any and all the properties of the petitioners in an amount sufficient to satisfy any lien of judgment that the respondent may obtain in its action. In support of this provisional remedy and of its cause of action against the rest of the petitioners other than Comphil, the respondent alleged the following: 1) After demands were made by respondent on Comphil, the Tambuntings ceased to be directors and officers of Comphil and were replaced by their five employees, who were managers of Tambunting's pawnshops and said employees caused the name of Comphil to be changed to "Banahaw Milling Corporation" and authorized one of the Tambuntings, Antonio P. Tambunting, Jr., who was at that time neither a director nor officer of Banahaw to sell its oil mill; 2) Unicom has taken over the entire operations and assets of Banahaw because the entire and outstanding capital stock of the latter was sold to the former; 3) ALL of the issued and outstanding capital stock of Comphil are owned by the Tambuntings who were the directors and officers of Comphil and who were the ones who benefited from the sale of Banahaw's assets or shares to Unicorn; 4) ALL of the petitioners evaded their obligation to respondent by the devious scheme of using Tambunting employees to replace the Tambuntings in the management of Banahaw and disposing of the oil mill of Banahaw or their entire interests to Unicorn; and 5) Respondent has reasonable cause to believe and does believe that the coconut oil milk which is the only substantial asset of Banahaw is about to be sold or removed so that unless prevented by the Court there will probably be no assets of Banahaw to satisfy its claim.

On April 10, 1981, the trial court ordered the issuance of a writ of attachment in favor of the respondent upon the latter's deposit of a bond in the amount of P l,285,000.00.

On June 3, 1981, the respondent filed a motion for reconsideration to reduce the attachment bond. Attached to this motion is an affidavit by the assistant attorney of the

respondent's counsel stating that he has verified with the records of Comphil and the Securities and Exchange Commission (SEC) the facts he alleged in the prayer for the attachment order.

On June 11, 1981, the petitioners filed a motion to dismiss the complaint on the ground that the respondent, being a foreign corporation not licensed to do business in the Philippines, has no personality to maintain the instant suit.

After the respondent had filed an opposition to the motion to dismiss and petitioner has opposed the attachment and the motion to reduce the attachment bond, the trial court issued an order, dated August 10, 1981, reducing the attachment bond to P 500,000.00 and denying the motion to dismiss by petitioners on the ground that the reason cited therein does not appear to be indubitable.

Petitioners filed a petition for certiorari before the Indianapolis intermediate Appellate Court.

On June 14, 1982, the appellate court dismissed the petition stating that the respondent judge did not commit any grave abuse of discretion in deferring the petitioners' motion to dismiss because the said judge is not yet satisfied that he has the necessary facts which would permit him to make a judicious resolution. The appellate court further ruled that in another case entitled United Coconut Oil Mills, Inc. and Banahaw Milling Corporation v. Hon. Maximiano C. Asuncion and Stokely Van Camp, Inc. where the facts and issues raised therein are intrinsically the same as in the case at bar, it has already denied the petition for certiorari filed by Unicom and Banahaw for lack of merit and the same was upheld by the Supreme Court.

Petitioners filed a motion for reconsideration but the same was denied. Hence, they filed this instant petition for certiorari and prohibition with prayer for temporary restraining order, questioning the propriety of the appellate court's decision in: a) affirming the deferment of the resolution on petitioner' motion to dismiss; and b) denying the motion to set, aside the order of attachment.

With regards to the first question, petitioners maintain that the appellate court erred in denying their motion to dismiss since the ground relied upon by them is clear and indubitable, that is, that the respondent has no personality to sue. Petitioners argue that to maintain the suit filed with the trial court, the respondent should have secured the requisite license to do business in the Philippines because, in fact, it is doing business here. Petitioners anchor their argument that the respondent is a foreign corporation doing business in the Philippines on the fact that by the respondent's own allegations, it has participated in three transactions, either as a seller or buyer, which are by their nature, in the pursuit of the purpose and object for which it was organized. Petitioners further argue that the test of whether one is doing business or not is "whether there is continuity of transactions which are in the pursuance of the normal business of the corporation" and that the transactions entered into by respondent undoubtedly fall within this category.

We reject the petitioners' arguments.

In the case of Top-Weld Manufacturing, Inc. v. ECED, S.A. (138 SCRA 118,127-128), we stated:

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 circumstance (Mentholatum Co. v. Mangaliman, 72 Phil.524). Thus, a foreign corporation with a settling agent in the Philippines which issues 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).

In the Mentholatum Co. v. Mangaliman case earlier cited, this Court held:

xxx xxx xxx

...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 warning-organized or whether it has substantially was retired from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [CCA., 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 workers or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77, Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 111. 367.) '

In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners

was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. Instead of making an outright demand on the petitioners, the respondent opted to try to push through with the transaction to recover the amount of US$103,600.00 it lost. This explains why in the second transaction, the petitioners were supposed to buy back the crude coconut oil they should have delivered to the respondent in an amount which will earn the latter a profit of US$103,600.00. When this failed the third transaction was entered into by the parties whereby the petitioners were supposed to sell crude coconut oil to the respondent at a discounted rate, the total amount of such discount being US$103,600.00. Unfortunately, the petitioners failed to deliver again, prompting the respondent to file the suit below.

From these facts alone, it can be deduced that in reality, there was only one agreement between the petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Thus, the trial court, and the appellate court did not err in denying the petitioners' motion to dismiss not only because the ground thereof does not appear to be indubitable but because the respondent, being a foreign corporation not doing business in the Philippines, does not need to obtain a license to do business in order to have the capacity to sue. As we have held in Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc. (102 Phil. 1, 18):

xxx xxx xxx

(d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is ' not necessary because it is not engaged in business in the Philippines. In fact, the transaction herein involved is the first business undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated transactions do not constitute engaging in business in the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our courts (Marshall-Wells Co. v. Henry W. Elser & Co. 49 Phil. 70; Pacific Vegetable Oil Corporation v. Angel 0. Singson, G.R. No. L-7917, April 29, 1955; also cited in Facilities Management Corporation v. De la Osa, 89 SCRA 131, 138).

We agree with the respondent that it is a common ploy of defaulting local companies which are sued by unlicensed foreign companies not engaged in business in the Philippines to invoke lack of capacity to sue. The respondent cites decisions from 1907

to 1957 recognizing and rejecting the improper use of this procedural tactic. (Damfschieffs Rhedered Union v. Cia Trans-atlantica, 8 Phil. 766 11907]; Marshall-Wells Co. v. Henry W. Elser & Co., 49 Phil. 70 [1924]; Western Equipment Co. v. Reyes, 51 Phil. 115 [1927]; Central Republic Bank v. Bustamante, 71 Phil. 359 [1941]; Pacific Vegetable Oil Co. v. Singson, 96 Phil.-986 [1955]; Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1 [1957]). The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of sound public policy. It intended to favor domestic corporations who enter was never into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this country. The petitioners in this case are engaged in the exportation of coconut oil, an export item so vital in our country's economy. They filed this petition on the ground that Stokely is an unlicensed foreign corporation without a bare allegation or showing that their defenses in the collection case are valid and meritorious. We cannot fault the two courts below for acting as they did.

Anent the second issue they raise, the petitioners contend that the trial court should not have issued the order of attachment and the appellate court should not have affirmed the same because the verification in support of the prayer for attachment is insufficient. They state that the person who made such verification does not personally know the facts relied upon for the issuance of the attachment order. Petitioners capitalize on the fact that Renato Calma, the assistant attorney of Bito, Misa, and Lozada, counsel for respondent, stated in his verification that "he has read the foregoing complaint and that according to his information and belief the allegations therein contained are true and correct."

The above contention deserves scant consideration.

We rule that the defect in the original verification was cured when Renato Calma subsequently executed an affidavit to the effect that the allegations he made in support of the prayer for attachment were verified by him from the records of Comphil and the Securities and Exchange Commission. Moreover, petitioner had the opportunity to oppose the issuance of the writ.

As to the merit of the attachment order itself, we find that the allegations in the respondent's complaint satisfactorily justify the issuance of said order.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of merit. The Temporary Restraining Order dated February 2, 1983 is hereby DISSOLVED. Costs against the petitioners.

SO ORDERED.

TIMESHARE REALTY   G.R. No. 158941

CORPORATION,    

Petitioner,   Present:

     

    YNARES-SANTIAGO, J.,

    Chairperson,

- versus -   AUSTRIA-MARTINEZ,

   CORONA,*

    NACHURA, and

    REYES, JJ.

CESAR LAO and    

CYNTHIA V. CORTEZ,   Promulgated:

Respondents.   February 11, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

 

D E C I S I O N

 

 

AUSTRIA-MARTINEZ, J.:

 

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules

of Court, assailing the October 30, 2002 Resolution[1] of the Court of Appeals (CA),

*

which denied due course to the appeal of Timeshare Realty Corporation (petitioner)

from the March 25, 2002 Decision[2] of the Securities and Exchange Commission (SEC)

in SEC Case No. 01-99-6199; and the July 4, 2003 CA Resolution,[3] which denied

petitioner’s Motion for Reconsideration.

As found by the SEC,[4] the antecedent facts are as follows:

 

On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V.

Cortez (respondents), one timeshare of Laguna de Boracay for US$7,500.00 under

Contract No. 135000998 payable in eight months and fully paid by the respondents.

 

Sometime in February 1998, the SEC issued a resolution to the effect that

petitioner was without authority to sell securities, like timeshares, prior to February 11,

1998. It further stated in the resolution/order that the Registration Statement of

petitioner became effective only on February 11, 1998. It also held that the 30 days

within which a purchaser may exercise the option to unilaterally rescind the purchase

agreement and receive the refund of money paid applies to all purchase agreements

entered into by petitioner prior to the effectivity of the Registration Statement.

 

Petitioner sought a reconsideration of the aforesaid order but the SEC denied the

same in a letter dated March 9, 1998.

On March 30, 1998, respondents wrote petitioner demanding their right and

option to cancel their Contract, as it appears that Laguna de Boracay is selling said

shares without license or authority from the SEC. For failure to get an answer to the

said letter, respondents this time, through counsel, reiterated their demand through

another letter dated June 29, 1998. But despite repeated demands, petitioner failed

and refused to refund or pay respondents.[5]

 

 

Respondents directly filed with SEC En Banc[6] a Complaint[7] against petitioner

and the Members of its Board of Directors - Julius S. Strachan, Angel G. Vivar, Jr. and

Cecilia R. Palma - for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178.

[8] Petitioner filed an Answer[9] to the Complaint but the SEC En Banc, in an Order[10]

dated April 25, 2000, expunged the Answer from the records due to tardiness.

 

On March 25, 2002, the SEC En Banc rendered a Decision in favor of

respondents, ordering petitioner, together with Julius S. Strachan, Angel G. Vivar, Jr.,

and Cecilia R. Palma, to pay respondents the amount of US$7,500.00.[11]

 

Petitioner filed a Motion for Reconsideration[12] which the SEC En Banc denied

in an Order[13] dated June 24, 2002.

 

Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July 4,

2002[14] and had 15 days or until July 19, 2002 within which to appeal. However, on

July 10, 2002, petitioner sought from the CA an extension of 30 days, counted from July

19, 2002, or until August 19, 2002, within which to appeal.[15] The CA partly granted

the motion in an Order dated July 24, 2002, to wit:

 As prayed for, but conditioned on the timeliness of its filing, the

Motion for Extension to File Petition for Review dated 09 July 2002 and filed before this Court on 10 July 2002 is GRANTED and petitioners are

given a non-extendible period of fifteen (15) days from 10 July 2002 or until 25 July 2002 within which to file the desired petition, otherwise, the above-entitled case will be dismissed. (Emphasis supplied.) [16]

Petitioner purportedly received the July 24, 2002 CA Order on July 29, 2002,[17]

but filed a Petition for Review with the CA on August 19, 2002.[18]

 

In the assailed October 30, 2002 Resolution, the CA dismissed the Petition for

Review, thus:

 Under Section 4, Rule 43 of the 1997 Revised Rules of Civil

Procedure, petitioners shall not be given an extension longer than fifteen (15) days from the expiration of the reglementary period, except for the most compelling reason. 

Thus, on 24 July 2002, in the absence of a compelling reason that justifies the granting of a longer period of extension, this Court issued a resolution wherein petitioners were given an extension of ONLY fifteen days from 10 July 2002 or until 25 July 2002 within which to file the petition for review, otherwise, the above entitled case will be dismissed. 

However, records show that petitioners filed their petition for review only on 19 August 2002, which is twenty-five (25) days beyond the allowed 15-day extended period granted by this Court. 

WHEREFORE, the appeal from the decision of the Securities and Exchange Commission (SEC) Case No. 01-99-6199 is hereby DISMISSED for failure of the petitioners to file their Petition for Review under the 15-day period granted by this Court as provided by Rule 43, Section 4 of the 1997 Revised Rules of Civil Procedure. 

SO ORDERED.[19]

 

and denied petitioner's Motion for Reconsideration in the assailed Resolution dated July

4, 2003.[20]

 

Petitioner filed the present petition, urging us to look beyond the procedural lapse

in its appeal, and resolve the following substantive issues:

Whether or not the eventual approval or issuance of license has retroactive effect and therefore ratifies all earlier transactions; 

Whether or not a party in a contract could withdraw or rescind unilaterally without valid reason.[21]

 

We deny the petition.

 

A judgment must become final at the time appointed by law[22] -- this is a

fundamental principle upon which rests the efficacy of our courts whose processes and

decrees command obedience only when these are perceived to have some degree of

permanence and predictability. Thus, an appeal from such judgment, not being a

natural right but a mere statutory privilege, must be perfected according to the mode

and within the period prescribed by the law and the rules; otherwise, the appeal is

forever barred, and the judgment becomes binding.[23]

 

Section 70 of Republic Act No. 8799[24] which was enacted on July 19, 2000, is

the law which governs petitioner’s appeal from the orders of the SEC En Banc. It

prescribes that such appeal be taken to the CA “by petition for review in accordance

with the pertinent provisions of the Rules of Court,” specifically Rule 43.[25]

 

Section 4 of Rule 43 is restrictive in its treatment of the period within which a

petition may be filed:

 Section 4. Period of appeal. - The appeal shall be taken within

fifteen (15) days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis supplied.)

 

Petitioner’s Motion for Extension of Time to File Petition for Review flouted the

foregoing restriction: it sought, not a 15-day, but a 30-day extension of the appeal

period;[26] and it did not even bother to cite a compelling reason for such extension,

other than its counsel’s caseload which, as we have repeatedly ruled, hardly qualifies as

an imperative cause for moderation of the rules.[27]

 

Its motion for extension being inherently flawed, petitioner should not have

presumed that the CA would fully grant the same.[28] Instead, it should have exercised

due diligence by filing the proper petition within the allowable period,[29] or at the very

least, ascertaining from the CA whether its motion for extension had been acted upon.

[30] As it were, petitioner’s counsel left the country, unmindful of the possibility that his

client’s period to appeal was about to lapse - as it indeed lapsed on July 25, 1999, after

the CA allowed them a 15-day extension only, in view of the restriction under Section 4,

Rule 43. Thus, petitioner has only itself to blame that the Petition for Review it filed on

August 19, 1999 was late by 25 days. The CA cannot be faulted for dismissing it.

 

The Court notes that the CA reckoned the 15-day extension it granted to

petitioner from July 10, 1999, the date petitioner filed its Motion for Extension, rather

than from July 19, 1999, the date of expiration of petitioner’s original period to appeal.

While such computation of the CA appears to be erroneous, petitioner did not question

it in the present petition. But even if we do reckon the 15-day extension period from

July 19, 1999, the same would have ended on August 3, 1999, making petitioner’s

appeal still inexcusably tardy by 16 days. Either way we reckon it, therefore, petitioner’s

appeal was not perfected within the period prescribed under Rule 43.

Nevertheless, the Court opts to resolve the substantive issues raised by

petitioner in its appeal so as to determine the lawful rights of the parties and put an end

to the litigation.

 

Petitioner claims that at the time it entered into a timeshare purchase agreement

with respondents on October 6, 1996, it already possessed the requisite license and

marketing agreement to engage in such transactions,[31] as evidenced by its

registration with the SEC as a corporation.[32] Petitioner argues that when it was

registered and authorized by the SEC as broker of securities[33] - such as the Laguna

de Boracay timeshares - this had the effect of ratifying its October 6, 1996 purchase

agreement with respondents, and removing any cause for the latter to rescind it.

 

The Court is not persuaded.

 

As cited by the SEC En Banc in its March 25, 2002 Decision, as early as

February 13, 1998, the SEC, through Director Linda A. Daoang, already rendered a

ruling on the effectivity of the registration statement of petitioner, viz:

 This has reference to your registration statement which was

rendered effective 11 February 1998. The 30 days within which a purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of money paid, applies to all purchase agreements entered into by the registrant prior to the effectivity of the registration statement. The 30-day rescission period for contracts signed before the Registration Statement was rendered effective shall commence on 11 February 1998. The rescission period for contracts after 11 February 1998 shall commence on the date of purchase agreement. (Emphasis supplied.)[34]

 

Petitioner sought a reconsideration of said ruling but the same was denied by

Director Daoang in an Order dated March 9, 1998.[35] However, petitioner did not

resort to any other administrative remedy against said ruling, such as by questioning the

same before the SEC En Banc. Having failed to exhaust the administrative remedies

available to it, petitioner is already bound by said ruling and can no longer question the

same through a direct and belated recourse to us.[36]

 

Finally, the provisions of B.P. Blg. 178 do not support the contention of petitioner

that its mere registration as a corporation already authorizes it to deal with unregistered

timeshares. Corporate registration is just one of several requirements before it may

deal with timeshares:

 Section 8.  Procedure for registration. - (a) All securities required to

be registered under subsection (a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect to such securities, containing or having attached thereto, the following:

x x x x

(36) Unless previously filed and registered with the Commission and brought up to date:

 

(a) A copy of its articles of incorporation with all amendments thereof and its existing by-laws or instruments corresponding thereto, whatever the name, if the issuer be a corporation.

 

Prior to fulfillment of all the other requirements of Section 8, petitioner is

absolutely proscribed under Section 4 from dealing with unregistered timeshares, thus:

Section 4.  Requirement of registration of securities. - (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided. (Emphasis supplied.) 

WHEREFORE, the petition is DENIED for lack of merit.

 

Costs against petitioner.

 

SO ORDERED.