Certificate of Stock:

Corporate Law Case Digest: Makati Sports Club Inc V. Cecile Cheng (2010)

G.R. No. 178523 June 16, 2010Lessons Applicable: Certificate of stock = merely tangible evidence of stock(CorporateLaw)

FACTS: October 20, 1994: Makati Sports Club Inc (MSCI) BOD adopted a

resolution authorizing the sale of 19 unissued shares at a floor price of P400,000and P450,000 per share for Class A and B, respectively.

Cheng was a Treasurer and Director of Makati Sports Club in 1995 July 7, 1995: Hodreal expressed his interest to buy a share, for this purpose he

sent the letter requesting to be wait listed November 1995: McFoods acquiried shares of Makati Sports Club at P1,800,000

through Urban Bank December 15, 1995: Stock cert. was issued to McFoods December 27, 1995: McFoods advised its offer to resell November 24, 1995: Hodreal paid McFoods P1,400,000 December 27, 1995: Hodreal again paid P1,400,000 February 7, 1996: Cheng advised sale by McFoods to Hodreal of the share

evidenced by a certificate new certificate was issued 1997: investigation showed that Cheng profited from the transaction because of

her knowledge MSCI sought judgment that would order respondents to pay the sum

of P1,000,000.00, representing the amount allegedly defrauded, together withinterest and damages

CA affirmed RTC: dismissed

ISSUE: W/N MSCI was defrauded by Cheng's collaboration with Mc Foods

HELD: NO. petition is DENIED no evidence on record that the Membership Committee acted on Hodreal's letter SEC. 29. (a) The Membership Committee shall process applications for

membership; ascertain that the requirements for stock ownership, includingcitizenship, are complied with; submit to the Board its recommended on applicantsfor inclusion in the Waiting List; take charge of auction sales of shares of stock;and exercise such other powers and perform such other functions as may beauthorized by the Board.

Membership Committee failed to question the alleged irregularities attending McFoods’ purchase

purchase price of P1,800,000.00 is P1,400,000.00 more than the floor price - NOTdetrimental

Upon payment and the execution of the Deed of Absolute Sale, it had the right todemand the deliveryof the stock certificate in its name.

The right of a transferee to have stocks transferred to its name is an inherent rightflowing from its ownership of the stocks

certificate of stock paper representative or tangible evidence of the stock itself and of the various

interests therein not a stock in the corporation but is merely evidence of the holder’s interest and

status in the corporation, his ownership of the share represented thereby MSCI failed to repurchase Mc Foods’ Class "A" share within the 30 day pre-emptive

period no proof that Cheng personally profited

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE INSURANCE CO. INC.), petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

[G.R. No. 118043. July 23, 1998]

FACTS:

Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic corporation engaged in the life insurance business. It issued shares of stock as stock dividends and paid documentary stamp taxes on each certificate on the basis of its par value. The CIR, held Lincoln liable based on the book value of the shares, and consequently, should be used as basis for determining the amount of the documentary stamp tax. Accordingly, the CIR issued a deficiency documentary stamp tax assessment. Lincoln appealed the Commissioner’s ruling to the CTA, which held that the amount of the documentary stamp tax should be based on the par value stated on each certificate of stock. In turn, CIR appealed to the Court of Appeals which, reversed the CTA’s decision.

ISSUE: Whether in determining the amount to be paid as documentary stamp tax, it is the par value of the certificates of stock or the book value of the shares which should be considered.

HELD: The par value of the certificates of stock should be the basis for determining the amount to be paid as documentary stamp tax. First, the NIRC Sec. 224 provides that “On every original issue, whether on organization, reorganization or for any lawful purpose, of certificates of stock by any association, company or corporation, there shall be collected a documentary stamp tax of one peso and ten centavos on each two hundred pesos, or fractional part thereof, of the par value of such certificates … ”

There is no basis for considering stock dividends as a distinct class from ordinary shares of stock since under this provision only certificates of stock are required to be distinguished (into either one with par value or one without) rather than the classes of shares themselves.

A stock certificate is merely evidence of a share of stock and not the share itself. (Sec. 63, Corporation Code). Stock dividends are in the nature of shares of stock, the consideration for which is the amount of unrestricted retained earnings converted

into equity in the corporation’s books. There is, therefore, no reason for determining the actual value of such dividends for purposes of the documentary stamp tax if the certificates representing them indicate a par value.

Second. The documentary stamp tax here is not levied upon the specific transaction which gives rise to such original issuance but on the privilege of issuing certificates of stock. A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business.

BITONG vs. CAG.R. No. 123553 July 13, 1998

FACTS:

Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner Nora Bitong complained of irregularities committed from 1983 to 1987 by Eugenia Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders' resolution. And, upon instructions of Eugenia Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders' resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. She further alleged that on 2 May 1986 respondents Eugenia Apostol, Leticia Magsanoc and Adoracion Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated, as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda.

Petitioner then filed a derivative suit before the SEC allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc., against respondent spouses Eugenia Apostol and Jose Apostol. However, private respondents contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. Private respondents argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms. Hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed.

At the trial, petitioner contends that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKA's interest and holdings in that publishing firm.

Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. The SEC En Banc reversed the decision of the Hearing Panel. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent CA, while respondent Edgardo Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals. Said two petitions were consolidated. On 31 August 1995 CA rendered a decision reversing the SEC En Banc and held that petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. For not being the real party-in-interest, petitioner's complaint did not state a cause of action, a defense which was never waived. Motion for reconsideration was likewise denied. Hence, this petition.

ISSUE: Whether or not petitioner is a bona fide stockholder of Mr. & Ms. at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.

RULING: Sec. 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one's status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings.

However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be

regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. These considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estopped cannot operate to create stock which under the law cannot have existence.

Petitioner in her reply admitted that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioner's name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before. Based on this admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioner's submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date.

While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owner's interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989.

The basis of a stockholder's suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. WHEREFORE, the petition is DENIED.

TRANSFER OF SHARES:

The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals[GR 124535, 28 September 2001]

Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed

a Deed of Assignment, wherein he assigned his shares, as well as those of 8 other shareholders under his control with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they acknowledged their indebtedness to the Bank in the amount of P4,000,000.00, and stipulated that said debt will be paid out of the proceeds of the sale of their real property described in the Agreement.

At a meeting of the Board of Directors of the Bank on 15 November 1993, the Villanueva spouses assured the Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor. When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54.

The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of their shares. On 15 January 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter dated 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in favor of the Bank.

Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment of the stockholders' meeting and election of directors and officers on 15 January 1994, with damages and prayer for preliminary injunction (SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was denied

by the SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.

However, a motion for reconsideration was granted on 16 December 1994, upon finding that since the Villanuevas' have not disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was issued enjoining Bautista, et. al. from acting as directors and officers of the bank. Thereafter, Bautista, et al. filed an urgent motion to quash the writ of preliminary injunction, challenging the propriety of the said writ considering that they had not yet received a copy of the order granting the application for the writ of preliminary injunction. With the impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus Motion praying that the said meeting and election of officers scheduled on 14 January 1995 be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. 1 day before the scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining order preventing Bautista, et al. from holding the stockholders meeting and electing the board of directors and officers of the Bank.

A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before the SEC en banc. On 7 June 1995, the SEC en banc denied the petition for certiorari. A subsequent motion for reconsideration was likewise denied by the SEC en banc in a Resolution dated 29 September 1995. A petition for review was filed before the Court of Appeals (CA-GR SP 38861), assailing the Order dated 7 June 1995 and the Resolution dated 29 September 1995 of the SEC en banc in SEC EB 440. The appellate court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration was likewise denied by the Court of Appeals in an Order dated 29 March 1996. The bank, Bautista, et al. filed the instant petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of the corporation. As it is, compliance with any of these requisites has not been clearly and sufficiently shown. Still, while the assignment may be valid and binding on the bank, et al. and the Villanuevas, it does not necessarily make the transfer effective.

Consequently, the bank et al., as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the Villanuevas cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with finality.

CHEMPHIL EXPORT & IMPORT CORPORATION v. GONZALES G.R. No. 112438‐39, December 12, 1995 | G.R. No. 113394, December 12, 1995

FACTS: Dynetics and Garcia filed a complaint for declaratory relief and/or

injunction against PISO, BPI, LBP, PCI Bank and RCBC or the consortium with the RTC of Makati, seeking judicial declaration, construction and interpretation of the validity of the surety agreement that Dynetics and Garcia entered into with the consortium and to perpetually enjoin the latter from claiming, collecting and enforcing any purported obligations which Dynetics and Garcia might have undertaken in the agreement.

Seven months later, Dynetics, Garcia and Matrix Management filed a complaint for declaratory relief and/or injunction against Security Bank & Trust Co. The court granted SBTC’s prayer for the issuance of a writ of preliminary attachment, where a notice of garnishment on the shares of Garcia in Chemphil was served on Chemphil. However, this writ was thereafter lifted, and then reinstated.In the meantime, the court denied the application of Dynetics and Garcia for preliminary injunction and instead granted the consortium’s prayer for a consolidated writ of preliminary attachment (case 8527). The garnishment for this attachment was NOT annotated in Chemphil’s stock and transfer book. Motion to dismiss was filed by PCI Bank—granted. MR filed by consortium—denied.During the pendency of the appeal, a compromise agreement was entered into between Garcia and the consortium.

In 1988, Garcia under a Deed of Sale transferred to Ferro Chemicals (FCI) the disputed shares and other properties for P79M. It was agreed that part of the purchase price shall be paid to Security Bank for whatever judgment credits it may be adjudged against Garcia.FCI issued a check—refused by Security Bank because it was insufficient to cover the debt.

FCI assigned 4M shares in Chemphil to CEIC.

Garcia failed to comply with the compromise agreement—consortium filed a motion for execution—granted by the court. Garcia’s properties were levied upon on execution were his 1.7M shares in Chemphil previously garnished. The consortium acquired the disputed shares of stock in the public sale conducted by the sheriff for P85M.

CEIC filed a motion to intervene saying that it is the owner of the shared—granted by the court, but limited only to the incidents covered by the order. Consortium opposed to CEIC’s motion—their attachment lien over the shares must prevail over the private sale in favor of CEIC considering that the shares were garnished in the consortium’s favor. On December 1989 Trial court granted CEIC’s motion and denied consortium’s.

Consortium and PCIB filed separate motions for reconsideration for the aforesaid order –which was denied (March 1990). Consortium appealed to the CA and PCIB separately filed to the same court petition for certiorari, prohibition and

mandamus with a prayer for the issuance of the writ of preliminary injunction, likewise assailing the very same orders (dated December 1989 and March 1990).CA rendered decision confirming the ownership of Consortium over disputed shares and dismissing PCIB’s petition for certiorari on the grounds that PCIB violated the rule against forum-shopping and that no grave abuse of discretion was committed by the Trial court issuing the assailed orders. PCIB filed to the SC petition for review.

ISSUE: Who is the real owner of the stock? CEIC or The ConsortiumWON PCIB is guilty of forum-shopping.

RULING:

The SC upholds the decision of the CA finding PCIB guilty of forum-shopping. Rule 65 of the Rules of Court is not difficult to understand. Certiorari is available only if there is no appeal or other plain, speedy and adequate remedy in the ordinary course of law. Hence, in instituting a separate petition for certiorari, PCIB has deliberately resorted to forum-shopping. PCIB cannot hide behind the subterfuge that SC Circular 28-91 was not yet in force when it filed the certiorari proceedings in the CA. The rule against forum-shopping has long been established. SC Circular 28-91 merely formalized the prohibition and provided the appropriate penalties against transgressors.

Forum-shopping or the act of the party against whom an adverse judgment has been rendered in one forum, of seeking another opinion (and possibly favorable) in another forum (other than by appeal or the special civil action for certiorari), or the institution of two (2) or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition, has been characterized as an act of malpractice that is prohibited and condemned as trifling with the Courts and abusing their processes. It constitutes improper conduct which tends to degrade the administration of justice. It has also been aptly described as deplorable because it adds to the congestion of the already heavily burdened dockets of the courts.

For resorting for forum-shopping, PCIB was reprimanded and warned by the SC.

Ponce vs. Alsons Cement Corporation [GR 139802, 10 December 2002]Second Division, Quisumbing (J): 4 concur

Facts: On 25 January 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus and damages

against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his complaint,Ponce alleged, among others, that "the late Fausto G. Gaid was an incorporator of Victory CementCorporation (VCC), having subscribed to and fully paid 239,500 shares of said corporation; that on 8February 1968, Ponce and Fausto Gaid executed a "Deed of Undertaking" and "Indorsement" whereby the latter acknowledges that the former is the owner of said shares and he was therefore assigning/endorsing the same to Ponce; that on 10 April 1968, VCC was renamed Floro Cement Corporation (FCC); that on 22October 1990, FCC was renamed Alsons Cement Corporation (ACC); that from the time of incorporation ofVCC up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or Ponce; and that despite repeated demands, ACC and Giron refused and continue to refuse without any justifiable reason to issue to Ponce the certificates of stocks corresponding to the 239,500 shares of Gaid, in violation of Ponce's right to secure the corresponding certificate of stock in his name. ACC and Giron moved to dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an Order dated 29 February 1996. Ponce appealed

the Order of dismissal. On 6 January 1997, the Commission En Banc reversed the appealed Order and directed the Hearing Officer to proceed with the case. In ruling that a transfer or assignment of stocks need not be registered first before it can take cognizance of the case to enforce Ponce's rights as a stockholder, the Commission En Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987).

Their motion for reconsideration having been denied, ACC and Giron appealed the decision of the SEC En Banc and the resolution denying their motion for reconsideration to the Court of Appeals. In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the shares between Gaid and Ponce was registered in the stock and transfer book of ACC, Ponce failed to state a cause of action. Thus, said the appellate court, "the complaint for mandamus should be dismissed for failure to state a cause of action." Ponce's motion for reconsideration was denied in a resolution dated 10 August 1999. Ponce filed the petition for review on certiorari.

Issue: Whether Ponce can require the corporate secretary, Giron, to register Gaid’s shares in his name.

Held: Fausto Gaid was an original subscriber of ACC's 239,500 shares. From the Amended Articles ofIncorporation approved on 9 April 1995, each share had a par value of P1.00 per share. Ponce had not made a previous request upon the corporate secretary of ACC, Francisco M. Giron Jr., to record the alleged transfer of stocks. Pursuant to Section 63 of the Corporation Code, a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned.

As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises. Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the transferee even when there has been compliance with the requirements of Section 64 of the Corporation Code. The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder.

Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee's name. A petition for mandamus fails to state a cause of action where it appears that the petitioner is not the registered stockholder and there is no allegation that he holds any power of attorney from the registered stockholder, from whom he obtained the stocks, to make the transfer.

The deed of undertaking with indorsement presented by Ponce does not establish, on its face, his right to demand for the registration of the transfer and the issuance of certificates of stocks. Under the provisions of our statute touching the transfer ofstock, the mere indorsement of stock certificates does not in itself give to the indorsee such a right to have a transfer of the shares of stock on the books of the company as will entitle him to the writ of mandamus to compel the company and its officers to make such transfer at his demand, because, under such circumstances the duty, the legal obligation, is not so clear and indisputable as to justify the issuance of the writ.

As a general rule, as between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer to the indorsee, or a power of attorney authorizing such transfer. Thus, absent an allegation that the transfer of shares is recorded in the stock and transfer book of ACC, there appears no basis for a clear and indisputable duty or clear legal obligation that can be imposed upon the corporate secretary, so as to justify the issuance of the writ of mandamus to compel him to perform the transfer of the shares to Ponce.

Puno vs. Puno EnterprisesSeptember 11, 2009

Facts:Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a complaint for specific performance against respondent. Petitioner averred that he is the son of the deceased with the latter’s common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that respondent allow petitioner to inspect its corporate book, render an accounting of all the transactions it entered into from 1962, and give petitioner all the profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno.

Issue:Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the death of a shareholder.

Held:Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation. Section 63 of the Corporation Code provides that no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation.During such interim period, the heirs stand as the equitable owners of the stocks, the executor or administrator duly appointed by the court being vested with the legal title to the stock.Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. Consequently, during such time, it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder.

Lingayen Gulf Electric Power Co. vs. Baltazar (G.R. No. L-4824) – 1953

NB: 1963 Issue: WON Petitioner Baltazar is liable for unpaid subscribed

shares despite lack of publication? NO.

Facts: Lingayen Gulf Electric Power Company has an authorized capital stock of P300,000

with a par value of P100 per share Irineo Baltazar have subscribed for 600 shares which he paid P15,000. After

incorporation, he made further payments leaving a balance of P18,500 23 July 1946 – majority of the stockholders of the corporation, Baltazar included, held

a meeting and adopted a resolution stating to call the balanace of all unpaid subscribed capital stock as of July 23, 1946, the first 50% payable within 60 days beginnning August 1, 1946, and the remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution also provided, that all unpaid subscription after the due dates of both calls would be subject to 12 per cent interest per annum.

Lastly, the resolution provided, that after the expiration of 60 days’ grace which would be on December 1, 1946, for the first call, and on February 1, 1947, for the second call, all subscribed stocks remaining unpaid would revert to the corporation.

22 September 1946 – the corporation wrote a letter to Baltazar reminding him that the first 50% of his unpaid subscription would be due on Oct. 01, 1946

25 September 1946- Baltazar replied asking to be allowed to pay his unpaid subscription by February 1, 1947 and that if he fails to pay, his unpaid subscription would be reverted to the corporation

19 December 1947 – Baltazar wrote to the BoD of the corporation, offering to withdraw complete from the corporation by selling out all his shares of stock in total amount of P23, 000. His offer was left unacted

17 April 1948 – the BoD held a meeting and adopted a resolution (Res 17) nulling and voiding the resolution approved on June 23, 1946. At the said meeting the directors also decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call payable within 60 days from receipt of notice from the Secretary-Treasurer.

10 June 1949 – the stockholders of the corporation held another meeting in which all are present, either in person or by proxy, adopting resolution No. 4, whereby it was agreed to revalue the stocks and assets of the company so as to attract outside investors to put in money for the rehabilitation of the company. The president was authorized to make all arrangement for such appraisal and the Secretary to call a meeting upon completion of the reassessment.

It was admitted by the defendant that he received notice from the Secretary-Treasurer of the company, demanding payment of the unpaid balance of his subscription. It was agreed by the parties that the call of the Board of Directors was not published in a newspaper of general circulation as required by section 40 of the Corporation Law.

On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to the defendant, demanding the payment of the unpaid balance of his subscription amounting to P18,500. The defendant ignored the said demand. Hence, this action.

The defense: (a) the plaintiff’s action was premature because there was no valid call Granting that there was a valid call, the defendant was released from the obligation of

the balance of his subscription by stockholders’ resolutions no 17 and 4.

Issues: Was the call discussed in the meeting of April 17, 1948 valid? Was the defendant released from the obligation of the unpaid balance of his

subscription by virtue of stockholders’ resolution Nos. 17 and 4? Is the defendant entitled to compensation as president of the plaintiff corporation?

Ruling: The call made in the meeting of April 17, 1948 is not valid in accordance to Sec 40 of

the Corporation Law The release attempted in Resolution No. 17 of 1946 was not valid for lack of a

unanimous vote, thereby, not releasing the defendant from the obligation in accordance to Sec 850 (2 Thompson on Corporation, p. 186)

As regards the compensation of President claimed by defendant and appellant, it is clear that he is not entitled to the same.

For defendant’s several years of service as President and up to the filing of the action against him, he never filed a claim for salary. He thought of claiming it only when this suit was brought against him.

“In conclusion we hold that under the Corporation Law, notice of call for payment for unpaid subscribed stock must be published, except when the corporation is insolvent, in which case, payment is immediately demandable. We also rule that release from such payment must be made by all the stockholders.”

Gamboa v. Teves, GR No. 176579, June 28, 2011 652 SCRA 690definition of the term capital to satisfy the nationality requirement under Sec. 11, Art. XII

FACTS:

PLDT was granted a franchise to engage in the telecommunications business in 1928 through Act. No. 3436. During Martial Law 26 percent of the outstanding common shares were sold by General Telephone and Electronics Corporation (GTE) (an American company) to Philippine Telecommunications Investment Corporation (PTIC), who in turn assigned 111,415 shares of stock of PTIC (46 percent of outstanding capital stock) to Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered by PCGG and adjudged by the court to belong to the Republic.

54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the remaining 46 percent was sold through public bidding by the Inter-Agency Privatization Council, and eventually ended up being bought by First Pacific subsidiary Metro Pacific Asset Holdings Inc. (MPAH) after the corporation exercised it’s right of first refusal. The transaction was an indirect sale of 12 million shares or 6.3 percent of the outstanding common shares of PLDT, making First Pacific’s common shareholdings of PLDT to 37 percent and the total common shareholdings of foreigners in PLDT to 81.47 percent. Japanese NTT DoCoMo owns 51.56 percent of the other foreign shareholdings/equity.

Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of Art. XII of the Constitution, which limits foreign ownership of the capital of a public utility to not more than 40 percent.

ISSUE:

(1) Whether petitioner’s choice of remedy was proper?

(2) Whether the term “capital” under Sec. 11, Article XII of the Constitution refers only to the total common shares or to the total outstanding stock of PLDT (public utility)?

HELD:

(1) NO. However, since the threshold and purely legal issue on the definition of the term “capital” in Section 11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus. It is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications.

(2) The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares. The SC directed the SEC to apply this definition in determining what was the extent of allowable

foreign ownership in PLDT, and in case of violation, impose the appropriate penalty under the law.

Consistent with the constitutional mandate that the “State shall develop a self-reliant and independent national economy effectively controlled by Filipinos,” the term "capital" means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both of which results to "effective control."

"Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin requirements must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." This guarantees that the “controlling interest” in public utilities always lies in the hands of Filipino citizens.

A broader definition would unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility would be contrary to Sec. 11, Art. XII, a self-executing provision of the Constitution.

A similar definition is found in Section 10, Article XII of the Constitution, the Foreign Investments Act of 1991 and it’s IRR, Regulation of Award of Government Contracts or R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or R.A. No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No. 1521.

VELASCO (Separate Dissenting Opinion)

The present petition partakes of a collateral attack on PLDT’s franchise as a public utility with petitioner pleading as ground PLDT’s alleged breach of the 40% limit on foreign equity. Such is not allowed. As discussed in PLDT v. National Telecommunications Commission, a franchise is a property right that can only be questioned in a direct proceeding.

(1) The intent of the framers of the Constitution was not to limit the application of the word “capital” to voting or common shares alone. Constitutional Commission records show that by using the word “capital,” the framers of the Constitution adopted the definition or interpretation that includes all types of shares, whether voting or non-voting.

(2) Cassus Omissus Pro Omisso Habendus Est––a person, object or thing omitted must have been omitted intentionally. In this case, the intention of the framers of the Constitution is very clear––to omit the phrases “voting stock” and “controlling interest.”

(3) The FIA should also be read in harmony with the Constitution. Since the Constitution only provides for a single requirement for the operation of a public utility under Sec. 11, i.e., 60% capital must be Filipino-owned, a mere statute cannot add another requirement. Otherwise, such statute may be considered unconstitutional. Accordingly, the phrase “entitled to vote” should not be interpreted to be limited to common shares alone or those shares entitled to vote in the election of members of the Board of Directors.

(4) Further, the FIA did not say “entitled to vote in the management affairs of the corporation” or “entitled to vote in the election of the members of the Board of Directors.” Verily, where the law does not distinguish, neither should We. Hence, the proper interpretation of the phrase “entitled to vote” under the FIA should be that it applies to all shares, whether classified as voting or non-voting shares.

(5) Additionally, control is another inherent right of ownership. The circumstances enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to the stocks deemed as non-voting as to fundamental and major corporate changes. Thus, the issue should not only dwell on the daily management affairs of the corporation but also on the equally important fundamental changes that may need to be voted on.

(6) The SEC rules, opinions and jurisprudence use the “control test”, which requires that the nationality of a corporation is determined by the total outstanding capital stock irrespective of the number of shares, and “capital” denotes the total shares subscribed and paid irrespective of their nomenclature.

(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign investors in the governing body to their proportionate share in the capital of the corporation.

ABAD (Dissenting Opinion)

(1) Authority to define and interpret the meaning of “capital” in Sec. 11, Art. XII belongs to Congress as part of it’s policy making powers, as the power to authorize and control a public utility is a prerogative of Congress. Sec. 11, Art. XII is no self-executing and requires Congressional action to clarify it’s meaning. FIA is restricted to certain areas of investment and should not be construed to clarify the meaning of “capital” under the constitutional provision as they are rules which apply to future investors.

(2) “Capital” refers to the entirety of the corporation’s outstanding voting stock as, first, the 40 percent limit (if held only to preferred shareholders) would render meaningless the fourth sentence which limits foreign participation in the governing body of public utilities, and, second, amicus curiae Dr. Villegas, Chairman of the Committee of National Economy, said that the term “capital” did not distinguish among the classes of shares. In both economic and business terms, capital always meant the entire shares of stock. Further, Philippine policy on foreign ownership already discourages foreign investments and to impose additional restrictions would aggravate economic growth.

(3) Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities and the Court need not add more by restricting the definition of capital.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R. No. 176579, June 28, 2011

D E C I S I O N

CARPIO, J.:

I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

II. THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. To construe broadly the term “capital” as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.” On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT’s Articles of Incorporation state that “each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes.” It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse,

preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term “capital” in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.]

Go v. Distinction Properties Development and Construction, Inc.G.R. No. 194024

FACTS

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of condominium units in Phoenix Heights Condominium developed by the respondent.

In August 2008, petitioners, as condominium unit-owners, filed a complaint before the HLURB against DPDCI for unsound business practices and violation of the MDDR, alleging that DPDCI committed misrepresentation in their circulated flyers and brochures as to the facilities or amenities that would be available in the condominium and failed to perform its obligation to comply with the MDDR.

In defense, DPDCI alleged that the brochure attached to the complaint was “a mere preparatory draft”. HLURB rendered its decision in favor of petitioners. DPDCI filed with the CA its Petition for Certiorari and Prohibition on the ground that HLURB acted without or beyond its jurisdiction.

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the controversy did not fall within the scope of the administrative agency’s authority.

ISSUES:

1. Whether the HLURB has jurisdiction over the complaint filed by the petitioners2. Whether PHCC is an indispensable party

HELD:

1. Jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff's cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought.

2. An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest. It is "precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’ The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even to those present. The purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between the parties themselves, but also as regards other persons who may be affected by the judgment.

PHCC is an indispensable party and should have been impleaded, as it would be directly and adversely affected by any determination therein. Evidently, the cause of action rightfully pertains to PHCC.

CORP OFFICER’S DISMISSAL IS ALWAYS A CORPORATE ACT –INTRACORPORATE CONTROVERSY

Okol v. Slimmers

FACTS: Leslie Okol, a Vice President of Slimmers World, was terminated from employment after an incident with the Bureau of Customs regarding equipment belonging to/consigned to Slimmers World. As such, Okol filed a complaint with the Arbitration branch of the NLRC against Slimmers World for illegal suspension, illegal dismissal, unpaid commissions, damages, and attorney’s fees, with prayer for reinstatement and payment of backwages. Slimmers World filed a Motion to Dismiss the case, asserting that the NLRC had no jurisdiction over the subject matter of the complaint. Slimmers World’s motion was sustained, with the labor arbiter ruling that since Okol was the vice president at the time of her dismissal, being a corporate officer, the dispute was an intra-corporate controversy falling outside the jurisdiction of the arbitration branch. On appeal, the NLRC reversed the LA decision and ordered Slimmers World to reinstate Okol. The CA subsequently set aside the NLRC decision and ruled that the case was an intra-corporate controversy, and falls within the jurisdiction of the regular courts pursuant to RA 8799.

ISSUE 1: Whether Okol was an employee or corporate officer of Slimmers World.

HELD: Okol was a CORPORATE OFFICER at the time of her dismissal. According to the Amended By-Laws of Slimmers World which enumerate the power of the board of directors as well as the officers of the corporation, “The general management of the corporation shall be vested in a board of five directors who shall be stockholders and who shall be elected annually by the stockholders and who shall serve until the election and qualification of their successors” and “Like the Chairman of the Board and the President, the Vice President shall be elected by the Board of Directors from [its] own members. The Vice President shall be vested with all the powers and authority and is required to perform all the duties of the President during the absence of the latter for any cause. The Vice President will perform such duties as the Board of Directors may impose upon him from time to time.” This clearly shows that Okol was a director and officer of Slimmers World.

An office is created by the charter of the corporation and the officer is elected by the directors and stockholders. On the other hand, an employee usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

ISSUE 2: W/N the NLRC has jurisdiction over the illegal dismissal case filed by Okol.

HELD: NO. Since it has been shown that Okol was a corporate officer, her charges of illegal suspension, illegal dismissal, unpaid commissions, reinstatement and backwages against Slimmers World fall squarely within the ambit of intra-corporate disputes. A corporate officer’s dismissal is always a corporate act, or an intra-

corporate controversy which arises between a stockholder and a corporation. The question of remuneration involving a stockholder and officer, not a mere employee, is not a simple labor problem but a matter that comes within the area of corporate affairs and management and is a corporate controversy in contemplation of the Corporate Code. The determination of the rights of a director and corporate officer dismissed from his employment as well as the corresponding liability of a corporation, if any, is an intra-corporate dispute subject to the jurisdiction of the regular courts.

Prior to its amendment, Section 5 of PD 902-A provided that intra-corporate disputes fall within the jurisdiction of the SEC. Subsection 5.2, Section 5 of RA 8799, transferred to RTCs the SEC’s jurisdiction over all cases listed in Section 5 of PD 902-A.

CA affirmed. Petition denied, without prejudice to Okol’s taking recourse to and seeking relief through the appropriate remedy in the proper forum.

Jurisdiction over the subject matter is conferred by law.

CORPORATE BOOKS AND RECORDS:

MANUEL TORRES Jr vs. CA278 SCRA 793 – Business Organization – Corporation Law – Transfer of Shares of Stocks – Corporate Records – 1997

FACTS: Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC and was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily overridden by minority stockholders. So in 1987, before the regular election of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power over other family members.

However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself because he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere secretary can do because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders, they refused to take part in the election. Judge Torres and his five assignees then decided to conduct the election among themselves considering that the 6 of them constitute a quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is valid.

HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74 provides that the stock and transfer book should be kept at the principal office of the corporation. Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make the entry. There are judicial remedies for this. Needless to say, the subsequent election is invalid because the assignment of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and practices other than those established by law.

MERGER AND CONSOLIDATION:

Babst vs. Court of Appeals [GR 99398, 26 January 2001]; also Elizalde Steel Consolidated Inc. vs.Court of Appeals [GR 104625]First Division, Ynares Santiago (J): 4 concur

Facts: On 8 June 1973, ELISCON obtained from Commercial Bank and Trust Company (CBTC) a loan in the amount of P8,015,900.84, with interest at the rate of 14% per annum, evidenced by a promissory note.Elizalde Steel Consolidated, Inc. (ELISCON) defaulted in its payments, leaving an outstanding indebtedness in the amount of P2,795,240.67 as of 31 October 1982. The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on 31 August 1977.

Subsequently, on 26 September 1978, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness ofMULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in favor of National Steel Corporation (NSC) 3 domestic letters of credit in the amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used to purchase tin black plates from NSC. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving an outstanding account, as of 31 October 1982, in the total amount of P3,963,372.08.

On 22 December 1980, theBank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago allits fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16.

On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment of Debt. In June 1981, ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. InOctober 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors, but BPI expressly rejected the formula submitted to it for not being acceptable. Consequently, on 17 January 1983, BPI, assuccessor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, Branch 147, a complaint for sum of money against ELISCON, MULTI and Babst (Civil Case 49226).

On 20 February 1987, the trial court rendered its Decision in favor of BPI. In due time, ELISCON, MULTI and Babst filed their respective notices of appeal. On 29 April 1991, the Court of Appeals rendered a Decision modifying the judgment of thetrial court. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was, however, denied in a Resolution dated 9 March 1992. Subsequently, ELISCON filed a petition for review on certiorari (GR. 104625). Meanwhile, Babst also filed a petition for review with the Court (GR 99398).

Issue [1]: Whether the BPI can institute the present case.

Held [1]: There was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence BPI has a right to institute the present case.

Issue [2]: Whether BPI, the surviving corporation in a merger with CBTC, consented to the assumption byDBP of the obligations of ELISCON.

Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution ofDBP for ELISCON as debtor. The authority granted by BPI to its account officer to attend the creditors' meeting was an authority to represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for the bank. Even granting arguendo that the said account officer was not so empowered, BPI could have subsequently registered its objection to the substitution, especially after it had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment formula, not to thesubstitution itself. BPI gives no cogent reason in withholding its consent to the substitution, other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to pay only arises upon the principal debtor's failure or refusal to pay. There was no indication that the principal debtor will default in payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government. More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCON's creditors, andearmarked for that purpose the amount of P4,015,534.54 for payment to BPI.

Notwithstanding the fact that a reliable institution backed by government funds was offering to pay ELISCON's debts, not as mere surety but as substitute principal debtor, BPI, for reasons known only to itself, insisted in going after the sureties. BPI'sconduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor.

SURVIVING CORPORATIONS:

BPI VS BPI EMPLOYEES UNION

Facts: The BSP approved the Articles of Merger executed on January 20, 2000 by and between BPI, and FEBTC. This Article and Plan of Merger was approved by the SEC on April 7, 2000. Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC employees, including those in its different branches across the country, were hired by petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained.

Respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank is the exclusive bargaining agent of BPI’s rank and file employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, respondent union invited said FEBTC employees to a meeting regarding the Union Shop Clause of the existing CBA between petitioner BPI and respondent union. The parties both advert to certain provisions of the existing CBA.

After the meeting called by the union, some of the former FEBTC employees joined the union, while others refused. Later, however, some of those who initially joined retracted their membership. Respondent union then sent notices to the former FEBTC employees who refused to join, as well as those who retracted their membership and called them to a hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their employment.

After two months of management inaction on the request, respondent informed petitioner of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. However, the issue remained unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties. Voluntary Arbitrator ruled in favor of petitioner BPI. Respondent Union filed a motion for reconsideration, but the voluntary arbitrator denied the same. It appealed to the CA and the CA reversed and set aside the decision of the voluntary arbitrator. Hence, this petition.

Issue: May a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed employees from the coverage of a union shop clause contained in its existing CBA with its own certified labor union

Employment Contracts

Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot uphold the reasoning that the general stipulation

regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation.

The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the parties. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power.(BANK OF THE PHILIPPINE ISLANDS v. BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK, G.R. No. 164301, August 10, 2010)Equality)

Philippine National Bank vs. Andrada Electric & Engineering Co. [GR 142936, 17 April 2002]Third Division, Panganiban (J): 3 concur, 1 on official leave

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of

the Pampanga SugarMills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI311. The PNB organized the ational Sugar Development Corporation (NASUDECO) in September 1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in otherPNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company (AEEC) for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of the NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by AEEC). Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC allegedly suffered actual damages in

the total amount of P513,263.80; and that in order to recover these sums, AEEC was compelled to engage the professional services of counsel, to whomAEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees.PNB and NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is lackor want of privity of contract between the them and AEEC. Said motion was denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB andNASUDECO filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may beallowed only if the following elements concur: (1) control — not mere stock control, but complete domination — not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. The absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's corporate existence had not been legally extinguished or terminated. Further, prior to PNB's acquisition of the

foreclosed assets, PASUMIL had previously made partial payments to AEEC for the former's obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness between

PASUMIL and PNB remains, despite AEEC's insistence to the contrary.