REPUBLIC of the PHILIPPINES vs. MARSMAN DEVELOPMENT CORP.

Defendant corporation was a timber license holder with concessions in Camarines Norte. 

Investigations led to the discovery that certain taxes were due on it. BIR assessed Marsman 3 times for unpaid taxes. Atty. Moya, in behalf of the corporation, received the first 2 assessments. He requested for reinvestigation. 

As a result, corporation failed to pay within the prescribed period. Numerous BIR warnings were given. After 3 years of futile notifications, BIR sued the corporation.

ISSUE:

WON present action is barred by prescription, in light of the fact that the corporation law allows corporations to continue only for 3 years after its dissolution, for the purpose of presenting or defending suits by or against it, and to settle its affairs.

RULING:

NO.

Although Marsman was extra-judicially dissolved, with the 3-year rule, nothing however bars an action for recovery of corporate debts against the liquidators. In fact, the 1st assessment was given before dissolution, while the 2nd and 3rd assessments were given just 6 months after dissolution (within the 3-year rule). Such facts definitely established that the Government was a creditor of the corporation for whom the liquidator was supposed to hold assets of the corporation.

RATIO:

Code provides for a 3-year period for continuation of the corporate existence for purposes of liquidation, BUT there is nothing in the provision which bars an action for recovery of debts of the corporation against the liquidator himself, after the lapse of the 3-year period rule.

NATIONAL UNION of BANK EMPLOYEES vs. LAZARO, CBTCP, BPI

This is a case digested by a classmate. You know I never realized the wisdom of  the teacher requiring us to furnish each one a print out digest of the cases we discussed in front , until I've started reading just this morning the thick pile of my classmates cases. It's really a big help, especially in cases that are undigested in the net where you had to rely on LawPhil's actual case. (Plus the fact that you're too busy to further include hunting down all those cases in your itineraries. Well at least the snippets in Atty. Villanueva's book is giving great ease.)    

I've been inconsistent with that class rule. Kudos to the ones who faithfully digested and printed the cases and distributed them out of their own pockets and still managed to effectively discuss their own cases in front. Salud!

I wonder what we'll say to each other in the near future when were already lawyers and we accidentally found each other in court appearing for adverse parties. "Atty. Clavecilla?" "Woah! Atty. De los Reyes! I never expected" "I believe were appearing on opposite poles" "Ahaha! Yes indeed" "It's Good to see you around" "Likewise.. by the way.. I was doing quick reads before the hearing this morning? funny I still have one of your digested cases in school"  "Hahaha really? the one with our names in it?" "Haha yeah its still here in a folder in my satchel together with the others, I had to read back because of this case" "Ow! hahaha glad to be of help"  

This is generally a labor case. It's actually one of the cases in Labor Relations. The implication however is commercial in nature, in so far as the law applicable is concerned with regard to the issue. 

Let me give you a quick picture: The Commercial Bank and Trust Company, (which is obviously a commercial as well as a trust bank) entered into a CBA (Collective Bargaining Agreement) with the bank's Union. 

What kind of employees are we talking about here?  We're talking about rank and file of the bank which comprised over 1000 employees. This bank is big, it's actually foreign based. It's a subsidiary of  Synovus Bank chartered in Georgia. So if the bank is big, boy, the Union here were talking about is also big because the above 1000 employees were affiliated with the National Union Bank Employees, so dig that, just by the sound of it you'd know it's a national labor organization. So both parties were negotiating and renegotiating the CBA. 

Here's the thing. In the midst of these CBA negotiations however, the bank went into merger with BANK OF THE PHILIPPINE ISLANDS, (BPI) who assumed all its assets and liabilities. Hence, the bank suspended the negotiations with the Union. 

So as a result, the Union filed before the trial court (CFI- Manila) a complaint for specific performance, damages, and a preliminary injunction against private respondents. Wait a minute, CFI?

I think the case was dismissed for lack of jurisdiction. In the special civil action for certiorari filed with the Supreme Court the sole issue of whether or not the courts may take cognizance of claims for damages arising from a labor controversy surfaced. Co'z you know if you get back to your labor laws it is the Labor Arbiter who should first take cognizance of these things. and the appeal is with the NLRC.

I think the court sustained the dismissal of the case, which is, as correctly held by the respondent court (Judge Lazaro and the CFI of Manila)  "an unfair labor practice controversy within the original and exclusive jurisdiction of the labor arbiters and the exclusive appellate jurisdiction of the National Labor Relations Commission." 

So tingnan ngayon naten yung other issue which is actually the biggest issue here. The claim against the BPI.

Actually according to the petitioners  it is BPI who is the principal respondent here — Some said ininduce  ni Ayala ang CBTC to violate the existing CBA. Uh-oh I wouldn't comment on that, pero imposible namang di alam ni Ayala yan.  Remember back in the day during those times  I think around 90s to early 2000 when banks were establishing consortium, and then suddenly they've begin to merge.  Date I think ang dame nila and pasikatan.  Now almost all of them have conglomerated. Now I think we only have 3 key players competing with each other in the banking industry. We have BPI of the Ayala conglomerate, who merged with Far East Bank, BPI being the surviving entity. Of course there's BDO of Henry Sy, belonging to the SM Group of Companies, that merged with PCI bank and thirdly the Metrobank group. all the rest are either small commercial or trust banks. Well of course there's Landbank and the others who are GOCCs.

Geez I remember working in a bank. I won't say what bank it is. We were working back office, I was with the Account Management Group, we handled Credit Supervision and Control. Back office so kami yung guys na alam mo yon? After 1pm nakatangal na yun polo barong & naka white t-shirt nalang, pero Hanes ah LOL. Tatlo lang actually kami sa team. Yun secretary ng VP namen, si Jen. Yun liason officer namen si Eric and me somehow training for CI kuno. Naka leave ako sa school noon so I decided to work. Mga kachokaran namen ni Eric mga taga Clearing, mostly kase ng mga Clearing mga boys e. And mga taga Letran den, San Beda, may UST.  Clearing is a part of the Cash Department, actually back office sila ng Cash, sila yun taga clear ng cheke sa Central Bank. So.. pag mga 4pm na wala na masyado trabaho nandun kami ni Eric sa Clearing, you know, konting tawanan, kape, konting usapang bankero, konting serious na usapan, pero pag usapang chiks, jusme di nawawala, it's a given I guess, actually mostly ng magaganda of course nasa Cash and New Accounts.     Natatandaan ko may private joke kame ni Eric eh... inisip namen and kami lang nakakaalam talaga di namen shineshare kahit sa mga taga Clearing and MIS, tsk, it was our cosa nostra, our own affair.  And siste ganito...  lam mo yun word expression during 70's ewan ko kung inabot nyo to ah, well most of you reading this blog are probably melenials, I dunno, I get around a hundred page views a day.. kidding, just chop it down to half.  Anyway, what we did was we took the expressions of our moms and dads before, kapanahunan kase ng mga erpats and ermats namen sila Nora Aunor LOL, Vilma Santos... eh expression noon ganito... pagnakitang maganda suot mo and bongga dating mo sasabihin nila sayo "WALASTIK AH!" ha ha ha!.. or "WALANJO AH!" LOL.. It's the same as the words "Bonga" or Bongacious" we have now, in short parang "IKAW NAAA!!. So samen iniba namen meaning. Pagbabae ka and flat chested ka babatiin ka namen ng "Walanjo Ah!" and pag lalaki ka  pero magsuot ka ng pantalon flat na flat harap ni wala man lang tambok and para kang babae na naka-pants babatiin ka namen ng "Walastik Ah!!!. Hahaha actually ang ibig sabihin ng Walanjo samen is 'Walang joga' LOL and yung "Walastik" 'Walang etits' LOL" as in 'walang stick'.   So eto na... nakita namen si Gayle... kabiruan namen sa Cash... e ang ganda ng suot matangkad kasi si Gayle and sexy, mukang model talaga, pang haute couture... pag sinabing haute couture di ba matangkad  payat & flat chested... so pasok si Gayle... nakaakbay ako kay Eric "Uy si Gayle si Gayle"  And Eric goes "Gayle" ":) Baket?!"  "Walanjo ah" (hehehe). And Gayle brushes her shoulders and goes "Thank you... ganda ba?"  I was just raising my thumb up and smiling coz I couldn't say a word kase gusto ko na talagang tumawa pinipigilan ko lang.  Then nakita namen si VP Garcia, VP ng CorPlan... kapapasok lang.. matanda na yon, lam mo naman yung matatanda minsan kung magsalawal sobrang taas ng belt hahaha, yun halos hatakin na yun crotch tas nakatuck-in yung long sleeved shirt & nakasampay yung americana suit. Eh wala akong masabe, sabe ko ba naman... "Sir Walastik ah" Ha Ha Ha!.  Bigla kaming nagkatinginan ni Eric, muntik na kaming matawa kaya bigla kaming pumasok sa loob. LOL.  Kaso nalaman ni Jen, yun secretary namen, eto kasing si Eric kahit may boobs si Jen (chubby kase) sinasabihan ng "Jen.. walastik ah"  & taka si Jen bakit tumatawa ako ng malakas..& she goes "Kayong dalawa kayo tigil-tigilan nyo nga ako.. ano ibig sabihin nyan?" "Wala"... "Hmmmp ireresearch ko yan"  Niresearch nga naguusap sila ng mga Clearing boys e by that time gets na din nila so tawa sila ng tawa, then sinumbong nya kame kay Gayle, pumunta si Gayle sa opisina gulat kame tawa ng tawa and pinaghahampas kame ni Eric  "All these time biling bili ko mga compliments nyo yun pala... hahaha... tong dalawang to"  Pasok yun manager ng Cash smiling "Baket baket? Ang iingay nyo jan baket? marinig kayo ni boss"   "Eto Ma'am dalawang to... hahaha....."  "Araaaayy!" kinurot ako. Kwinento ni Jen and the Cash manager bolted out laughing... "E ma'am biling-bili nya naman eh" "Nakooo tong dalawang tooo... sobrang pipilyooo.. parepareho kayo ng mga boys sa Clearing magsama-sama na nga kayo" "Ma'am pigilan nyo mga yan baka makita nila si Pres..."  Ha Ha Ha  they couldn't stop laughing when they found out I greeted VP Garcia with 'Walastik' LOL. And tawa kami ng tawa after, kasi si VP Garcia talagang clueless. Di naman sila nagsumbong. Eh di mo naman pedeng pakialaman sa pananamit nya yun matanda na yun, isa pa VP yun, di ka pede basta-basta umasta sa VP, unless palabiro sya, e di nga palabiro eh. But  boy, that was really fun. 

Anyway.. lets get back to the case.  BPI's answer to the complaint is that they should not be liable because they were not the employers at the time the unfair labor practice was committed.

ISSUE:

Is BPI liable to the employees of Commercial Bank and Trust Company, in effect of the merger?

RULING:

BPI shall be liable for the employees based on the following grounds:

1. BPI has expressly assumed all the assets and liabilities of Commercial Bank and Trust Company.

2. Under the Corporation Code, the surviving or consolidated corporation shall be responsible and liable for all the liabilities of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations, and any claim, action or proceeding pending by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation, as the case may be.

3. No rights of creditors nor any lien upon the property of any such constituent may be impaired by such merger or consolidation.

COLLECTOR of INTERNAL REVENUE vs. UNIVERSITY of VISAYAS

Respondent UNIVERSITY OF THE VISAYAS did not file with the BIR income tax return for the years, 1946 to 1950. (I think Greg Slaughter, player of Ginebra is an alumni of this school) 

After investigation conducted by a BIR Examiner, the examiner filed returns of respondent's net income for the said years based on profit and loss statements shown and submitted to the examiner by the respondent  UV accountant.

And in connection with it Respondent wrote a letter   addressed to the petitioner requesting that the 25% surcharge imposed for non-payment of income tax be eliminated because its failure to file income tax returns for the years 1946 to 1950 and to pay income tax thereon was due to the honest belief that private schools were exempt from taxation.

The petitioner claims Respondent is not entitled to an exemption since the respondent is a corporation organized for profit which inures to the benefit of Vicente Gullas, its president. The respondent denies the petitioner's claim.

Another point raised by appellant to show that appellee is not entitled to the exemption of the law refers to the use made by it of part of its income in acquiring additional buildings and equipment which, it is claimed, would in the end to redound to the benefit of its stockholders. Appellant claims that "By capitalizing its earnings in the aforementioned manner, the value of the properties of the corporation was enhanced and, therefore, such profits inured to the benefit of the stockholders or members. The property of the corporation may be sold at any time and the profits thereof divided among the stockholders or members."

According to the amended articles of incorporation, all shares of the corporation had been subscribed and paid for In March 1949 the Visayan Institute was raised to the category of a university and renamed "University of the Visayas."

Vicente ' Gullas, president of the respondent, testified that the respondent is not engaged in a profit-making enterprise but in a purely educational pursuit; that the sources of income of the respondent are the various fees paid by the students like annual fee, book rental, etc.; that those receipts are spent for salaries of the teachers, repair of the buildings, purchase of library books and athletic equipment, scholarship funds and contributions to charity; that while the respondent realizes profit out of its operation, the profit goes to the improvement and repurchase of library books and equipment, establishment of scholarship funds, and musical instruments; that since its original incorporation, no dividends have been declared and distributed to the stockholders; and that as president of the respondent, he receives a salary of Pl,000 a month and P300 a month allowance for transportation, representation and entertainment.

ISSUE:

Is the Corporation in question a non-stock corporation and therefore exempt from taxation.

HELD:

The fact that the original articles of incorporation was amended to convert the corporation FROM A NON-STOCK TO A STOCK CORPORATION IS NOT A CONCLUSIVE PROOF THAT THE RESPONDENT IS ENGAGED IN A PROFIT-MAKING BUSINESS, part of which inures to the benefit of a single stockholder or individual.

The fact that when on 29 August 1930 the corporation was converted from a non-stock to a stock corporation, "its assets had increased from P6,000.00 cash and P3,000.00 worth of books (t.s.n., p. 23) into assets worth P50,000.00, which were distributed in the form of shares of stock to the members of the non-stock corporation, predecessor of the stock corporation  and that at the meeting of the Board of Trustees of the respondent   move to double the stock dividend of the corporation "  is not enough for an inference that the respondent has been turned into a corporation for business and profit.

The fact is that since its incorporation, the respondent has not declared any cash dividend and no part of its profits has inured to the benefit of any stockholder or individual. The mere realization of profits out of its operation does not automatically result in the loss of its privilege of exemption from the payment of income tax as long as no part of its profits inures to the benefit of any stockholder or individual.

CAGAYAN VALLEY ENT. vs. CA

Have you ever looked for a SCRA citation, finding it you downloaded or had the entire case photo copied from the thick book only to find out when you were reading it 30 minutes before the class recitation that you downloaded the fuckin’ wrong case?

Well I tell you what, that just happened to me.  I was suppose to digest  the case CAGAYAN VALLEY ENT. vs. CA. I downloaded CAGAYAN ELECTRIC POWER & LIGHT CO. vs. COMMISSIONER.  Take a close look at the inserted image. I didn’t know I digested another CEPALCO case.

So what I did was to infer from the written words the author Atty. Maria Zarah Villanueva wrote under said topic in her book. 

She said :

When a single proprietorship is incorporated into a family corporation, being managed by the same manager, under the old set-up, and continues in the same line of business, with its factories being in the same set-up, the corporation is deemed merely a continuation of the single proprietorship and its separate juridical personality can be pierced. 

So deducting from what he wrote, of course we remember the 3 business classification that we have right?  1. SOUL PROPRIETORSHIP, 2. PARTNERSHIP & 3. CORPORATION.    The topic is Acquisition, Transfers & Mergers.  As I infer from a non-existing case digest basing on Atty. Villanueva’s words in his book it’s obvious the Cagayan Valley case is not about  Acquisition, neither a Transfer of assets. It appears the topic he’d like tackle here is Merger.  Of course in Merger we know that there is a surviving entity. All the rest that had been merged to it is dissolved, hence naturally, the acquisition and transfer is inevitable.  In Consolidation its different.  As explained by the teacher, Consolidation is the fusion of two or more entities to form a single distinct entity. No we’re not talking about Consortium, that’s merely an agreement you call group of companies. Being Consolidated means being bonded as one so obviously its make-up, size and content differ.      

In the Cagayan Valley case perhaps there had been a fusion of 2 types of business both run by the same family. They probably tried to merge a single proprietorship and a corporation. I don’t know if they’ve prepared articles of merger and submitted it to the SEC but what’s important here is..  Q: Would there be a co-called Merger between a Single-Proprietorship and a Corporation?

Villanueva answered it in the review book. The answer is NO. It is therefore not necessary to comply with the Corporation Code and the SEC Rules.  Villanueva explains:

SP  +  C  (if  Same MANAGER, Same LINE OF BUSINESS, Same SET-UP) = Deemed MERELY a CONTINUATION of the SINGLE PROPREITORSHIP 

Question: Can it be PIERCED?  Answer: YES. The Separate Juridical Personality can be Pierced.. 

Damn it I better read the fuckin’ case.      

TORRES vs. CA

TRDC is a small family owned corporation engaged in the realty business.  Tormil Realty & Development Corporation. 81% of its capital stocks were owned by Judge Manuel Torres. The other 19% thereof were owned by his nieces and nephews.

Here’s his dilemma. Even though Judge Torres owns majority of the stocks of TRDC and was also the president thereof, he is only entitled to one vote among  the 9-seat Board of Directors.  So do the math… his vote can be easily overridden by minority stockholders. (Geez must have been a wonderful family gathering each and every board meeting)

So here’s what the judge did. In 1987, before the regular election of the company’s 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 to 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.  (So hinarang ng pamangkin na babae) 

Lets take a close look on what the judge did, thereafter.

Here’s what happened. The validity of said assignments were of course questioned. But the judge asserted that it is impractical for him to order the CORSEC (Carlos) to make the entries because Carlos is one of his opposition.

So what Judge Torres did was he made the entries himself because HE WAS KEEPING THE STOCK AND TRANSFER BOOK. He further rationalized 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 were valid. And whether or not the subsequent election is valid. In other words DOES THE ASSIGNMENT HAD A VALID EFFECT?

HELD:

No. The assignment of the shares of stocks did not comply with procedural requirements.

Stockholders who transfer shares has no authority to effect their entries in the Stock and Transfer Book even when the Corporate Secretary is at odds with such stockholder.

1. It did not comply with the by laws of TRDC
2. 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. It also provides that the CORPORATE SECRETARY is the CUSTODIAN OF CORPORATE RECORDS in the absence of any provision to the contrary. (I presume there was no contrary provision in the By-laws) Hence, transfer effected were therefore VOID.

Further, his excuse of not ordering the secretary to make the entries have no weight. There are remedies in the law that the transferor-stockholder could have availed of, instead of taking the law in his hands. (Writing it himself).

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 ask for specific performance to compel her to make the entry.

In other words, 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.

MINDANAO SAVINGS and LOAN ASSOCIATION, INC. vs. WILLKOM

Take note of 3 Corporations:

FISLAI  - First Iligan Savings and Loan Association, Inc.  (Merged Entity)

DSLAI  - Davao Savings and Loan Association, Inc.  (Surviving entity)

MSLAI -  Mindanao Savings Loan Association, Inc.  (Renamed DSLAI & Petitioner in this case)

FISLAI  and DSLAI  are entities duly registered with the - SEC primarily engaged in the business of granting loans and receiving deposits from the general public, and treated as banks. 

FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation but their articles of merger were not registered with the SEC due to incomplete documentation. 

DSLAI changed its corporate name to MSLAI by way of an amendment to its Articles of Incorporation and it was approved by the SEC. However, the Board of Directors of FISLAI passed and approved Board Resolution assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities. 

Here’s the thing, MSLAI got bankrupt and failed. Hence, the Monetary Board of the Central Bank of the Philippines declared its insolvency, had it undergone dissolution and ordered its liquidation with PDIC as its liquidator. 

But prior to the closure of MSLAI,  A certain Uy filed with the RTC of Iligan City, an action for collection of sum of money against FISLAI.  RTC issued a summary decision in favor of Uy and directing FISLAI to pay. So as a consequence, 6 parcels of land owned by FISLAI were levied and sold to Willkom in order to pay Uy.  

This prompted MSLAI (represented by PDIC), to  file before the RTC a complaint for the annulment of the Sheriff’s Sale alleging that the sale on execution of the subject properties was conducted without notice to it and to PDIC. 

Respondent Willkom in its answer, averred that MSLAI had no cause of action because MSLAI is a separate and distinct entity from FISLAI on the ground that the “unofficial merger” between FISLAI and DSLAI (now MSLAI) did not take effect considering that the merging companies did not comply with the formalities and procedure for merger or consolidation as prescribed by the Corporation Code of the Philippines. 

RTC dismissed the case for lack of jurisdiction. CA affirmed but ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down by the Corporation Code for a valid merger or consolidation.

ISSUE

Question? Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

HELD

Court held NO. 

In merger, one of the corporations survives while the rest are dissolved and all their rights, properties, and liabilities are acquired by the surviving corporation. 

Although there is a dissolution of the absorbed or merged corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights, privileges, and powers, as well as their liabilities. 

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them. 

The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76,[24] 77,[25] 78,[26] and 79[27] of the Corporation Code, are:

(1) PLAN OF MERGER/CONSOLIDATION.  The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements required in the articles of incorporation of a corporation;

(2) SUBMISSION OF PLAN TO STOCKHOLDERS/MEMBERS.  Submission of plan to stockholders or members of each corporation for approval. A meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be respected;

(3) EXECUTION OF THE FORMAL AGREEMENT.  Execution of the formal agreement, referred to as the articles of merger or consolidation, by the corporate officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated corporation, or amend the articles of incorporation of the surviving corporation;

(4) SUBMISSION OF ARTICLES OF MERGER TO SEC.  Submission of said articles of merger or consolidation to the SEC for approval;

(5) SEC HEARING.  If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before;

(6)  SEC ISSUANCE OF CERTIFICATE OF MERGER. Issuance of certificate of merger or consolidation. 

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its prior determination that the merger is not inconsistent with the Corporation Code or existing laws. In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. 

Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still incomplete without the certification. 

The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take place. 

So in effect BSP dissolved and liquidated an entity that practically does not exist.

ONG YONG vs. TIU

"All the words I can recall, could never capture all.. the loveliness of you" 

See what I mean? See how romantic the lyrics in those days? Pamatay!. Got this from my dad's music collection. Damn it.. will somebody kick me way back in time. Scotteeeyy!?  

Alright, let's get this job done.  This is a wonderful story of two Filipino-Chinese families, ONE BLOCK-MAILING THE OTHER.   

It started with a construction of a building, particularly a mall. The Masagana Citymall in Pasay City. I don’t know if you’ve seen it. It’s somewhere there (I actually dunno where) you might have been in there you just didn't know it (I think I've never been to Pasay).  The construction was threatened with stoppage. It’s owner company FLADC (First Landlink Asia Development Corporation)  which was owned by the Tiu’s encountered financial difficulties. It was heavily indebted to PNB for P190 Million. 

Here’s what the Tiu’s did to get into this predicament. It mortgaged the 2 lands where the mall was being erected and used the money to erect the building. The thing was, the building construction was taking so long so it naturally follows the (ROI) return of investments is temporarily put to a stagnant position, hence putting the mortgage contract with the PNB in a brink of foreclosure.       

So to stave off a foreclosure end-result of the mortgaged 2 lands, the Tius invited the Ongs to invest in FLADC. Both families entered a Pre-Subscription Agreement and under this agreement the Ongs and the Tius contracted to maintain equal shareholdings in FLADC. (so it’s like the Tius is saying to the Ongs, “come on in, mi casa es su casa!”.. of course that's just a whole bologny) The Ongs were to subscribe to 1 Million shares at a par value of P100.00 each while the Tius were to subscribe to an additional approximately half a million shares at  P100.00 each in addition to their already existing subscription of roughly half a million. 

Here’s where the bone of contention started..

In addition to the previous said agreement between both families, they agreed that the Tius were entitled to nominate the Vice –President and the Treasurer plus 5 Directors while the Ongs were entitled to nominate the President, the Secretary and 6 other  Directors, including the Chairman of the Board of Directors. Moreover, the Ongs were given the right to manage and operate the mall.  (So inferring from this said agreement, indirectly parang sinasabe ng Tius “Okay lang hawakan nyo yung top position, basta hawak namen yung pera" Utak den eh no?)

So buying themselves into the company, lets compute..  1M x 100 pesos =100M, so the Ongs paid P100 Million in cash for 1M shares of stock. The Tius committed to contribute to the company a 4 storey building and 2 parcels of land respectively valued at P20M for 200T shares and P30M for 300T shares and P50M for 50T shares to cover the additional stock subscription.  So basically their even right? 

But the Ongs chipped in another P70M to FLADC and but wait, there's more, nagdagdag pa ng P20M handed to the Tius, over and above the P100M investment, so a total of P190M right?  (So parang sinabe ng Ongs sa Tius “Sige bayaran nyo na P190M utang sa PNB para clean slate tayo, para good credit standing tayo kung uutang tayo ulet” E di tuwang-tuwa yung Tiu). So ganun nga nangyare, the P190M Ong investment was used to settle the P190M mortgage indebtedness of FLADC to PNB.

Okay na maganda na.. e kaso

The business harmony between the Ongs and the Tius in FLADC however was short-lived, because the Tius RESCINDED the PRE-SUBSCRIPTION AGREEMENT. They accused the Ongs of 1. refusing to credit FLADC shares covering their real property contribution. (Hala! San galing yun??).  2. Preventing two of the Tius from assuming positions as VP and Treasurer. 

So obviously it’s an INTRA-CORPORATE CONTROVERSY, wag na tayo makialam pa,  let’s not dig deeper into it. 

Basically we see here a RESCISSION on grounds of BREACH OF CONTRACT. 

ISSUE:

Question, Can they RESCIND?   

HELD:

NO THEY CANNOT RESCIND.

Court said the Pre-Subscription Agreement will still be governed by Sec. 60 of the Corporation Code.

Now why did they say that?

In subscription contracts kase the subject matter of contract are usually unissued shares. In this case, the subject matter of contract between the Ongs & the Tius was the 1M unissued shares, binili nga ng mga Ongs diba para makapasok sila as shareholders. Now the court said since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code okay? And according to the code a subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation, its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Gets?

Now, punta tayo sa rescission..

Considering therefore, that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities therefore will not prosper, because only FLADC (not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs simply because  it was the real party in interest therein.

Remember the INCHOATE nature of the stockholders interest in the corporation? The corporation has a strong juridical personality separate and dinstinct from the stockholders right? In Guanzon & Sons vs. Register of Deeds I think they even made distinction between partition and conveyance in the transfer of corporate assets to its shareholders, if partition kase that means they own it kaya pinagparte-parte nila, the court said no the corporate personality is separate and distinct kaya its a conveyance not a partition. Gets?

Now lets say the Tius were adversely affected by the Ongs unwillingness to let them assume their positions, as we refer to their intra-corporate controversy, the court said that rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law have not been met. (the principle kase is.. if the code allows it e di konting away lang & mababaw na dahilan rescission na). Imagine the court even said “A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code.”

Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law.

And remember the Trust Fund Doctrine?  That doctrine prevents this thing to happen. E biro mo nga naman here you are like a good natured wide eyed trusting little child bringing all you have to the table in good faith trusting that it will be in good hands and will grow profit, tapos magugulat ka nalang biglang iiicha-pwera ka and uuwi kang walang dala. 

If there'll be rescission then there'll be distribution. And the court said "Distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation"

The court said.. “Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs..”

“We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one on the Ongs because that was where the problem precisely started. It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over the corporation again and exclude the Ongs from it."

After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it.

The court said even further "Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds."

So there you go. Never can anyone say it more clearly than the highest court. 

So here we found out that a pre-subscription agreement no matter it is termed is a subscription agreement according to the code, and a subscription agreement cannot be rescinded on grounds of intra-corporate issues such as in this case prevention to assume office.  The Corporation Code, the SEC Rules, and the Rules of Court in fact provide intra-corporate remedies and rescission is certainly not one of them because it is contrary and clearly violates the Trust Fund Doctrine.  

The Ongs won this case.

ABENDANTE vs. RELATO

Ang gulo ng kasong to nung nirecite ko sa class. Yun teacher kase sabat ng sabat eh. FACTS (SABAT), ISSUE (SABAT SABAT), RULING (SABAT SABAT SABAT). Di nga ako umabot ng issue & ruling eh.. FACTS palang (sabat sabat sabat sabat sabat sabat   sabat..)

This is an electoral contest case. COMELEC matter. (Geez speaking of the COMELEC, I think I have a pending job application with the said government office, particularly with ECAD (Electoral Contests Adjudication Department) where my tita was the director. I’ve figured sayang professional civil service eligibility ko so one unexpected funny day I popped up in her office. “Tita Betty!” “Hello!! how are you. (bless) O!! bat nandito ka? Kamusta mommy mo?” “Ok lang.. magaaply ako tita” “Saan? Dito?.. o may opening kame kailangan namen ng ‘court interpreter’” “Yown!!” “Ay nako kaya  lang bat ngayon ka lang?? baka may kalaban ka na” “Why tita?” “Paalis na ako, I'm retiring & paving the way for the new director,  in fact I’m already slowly packing up.. ayan nakita mo yang mga box na yan?” “Onga no hehe and I’m sure the new director will have her own people to bring in.. darn” "Hay nako.. sana inagahan mo.. bakit ngayon mo lang sinabe.. kumain ka na ba?..” LOL wrong timing.. bummer. 

Let's get back to the case. This is a provincial election case matter. The action was instituted in the CFI of Camarines Sur.by Pedro Abendante against Baldomero Relato both were running for Mayorship of Cabusao, Camarines Sur during the elections of November 13, 1951, grabe, actually this was decided 1953. ( You know sometimes I love that era, the 50s?, I think God made a mistake, I was born late, I would have loved to see that era. He should’ve brought me into this world earlier, you know, okay lang kahit mas matanda na ako kaysa ngayon. I mean I could do away with all these gadgets and stuff, technology, the internet, I could live without it, just give me a ranch somewhere in the outskirts of Manila and about a handful of  thorough breds I’m so fine with that. I dunno I think the 50s is the golden age, when we were all prim and proper, and  all dressed up decent, strongly principled and all, and our language clean. WTF beam back Scotty!!)  

So Pedro Abendante, a Liberal, ran for and against Baldomero Relato, a Nacionalista. The thing was, between Libmanan and Cabusao there is a leper colony, known as Bicol Treatment Station, and in this colony precinct No. 11 was created in connection with the elections held on November 13, 1951.

The Board of Canvassers of Cabusao canvassed the result of the election but EXCLUDED THEREFROM THE VOTES CAST IN PRECINCT NO. 11, It was declared illegal by the said Board, coz you see during those times all lepers or inmates of the leprosarium were not entitled to vote pursuant to a repeal of Sections 14 and 15 of Republic Act No. 180 by Section 4 of the Republic Act No. 599.

So to make the long story short they  proclaimed Pedro Abendante as mayor-elect with a majority of 56 votes.

Here comes the controversy..

Another Board of Canvassers was constituted at the instance of the Assistant Provincial Fiscal of Camarines Sur, and said Board, and in their canvassing the election returns, INCLUDED THE VOTES CAST IN PRECINCT NO. 11, and proclaimed Baldomero Relato as mayor-elect with a majority of 82 votes.

Funny isn’t it, the deciding vote is determined by a group of lepers. I mean it’s not suppose to be funny, who would want to laugh at their predicament, but notice these two candidates? Fighting for an issue out of something they wouldn’t normally care about, and in fact I’m sure they would shun away from. But this time it’s life and death to them and they were almost embracing the issue. (Pag election talaga lalabas talaga kulay mo.. di ka lang magpapapicture and yayakapin mga street kid and magkakamay kasama kumaen mahihirap.. yayakapen mo pa pati may ketong manalo ka lang.)  

The Commission on Elections revoked the two certificates of canvass and the two proclamations made by the Boards of Canvassers already referred to and directed the Board of Canvassers originally constituted to reconvene and make a new canvass of the election returns, including therein the votes cast in precinct No. 11.

Then the original Board of Canvassers reconvened and made a new canvass as directed by the COMELEC but refrained from making any proclamation contending that the votes cast in said precinct were illegal and void. Upon insistence of the Commission on Elections and its representatives, the Board of Canvassers proclaimed Baldomero Relato as the duly elected mayor with 935 votes as against protestant's 853.

The lower court decided that the lepers who voted in precinct No. 11 are qualified voters, and, as a result, declared  Relato legally elected. From this decision Abendante appealed.

ISSUE:

1.    The validity of the votes cast in precinct No. 11. 
2.    Does Comelec have the power to cancel the canvass of election returns of the Board of Canvassers. 

HELD:

1. As to the validity, there was a claim that the lepers who cast their votes in precinct No. 11 do not have the residence qualification because they are allegedly residents of the municipality of Libmanan, for which reason, it is claimed, they have no right to be registered in the list of voters of said precinct.

So it’s a question of fact which should be established by sufficient evidence and it was found out in this case the evidence was wanting. So.. not  that there was no accurate evidence.. its just that of course  the court could not take judicial notice coz it’s a fact that should be proven.

So the presumption is.. the Board of Inspectors have passed upon the qualifications of said voters when they presented themselves for registration because the Board entered their names in the list, so logically it follows that they were qualified. (Syempre alangan na bang isulat mo yung hindi naman boboto e para kang eng-eng non.  Ang tanong pano kaya nila sinulat… “Eeeew!! Wag mo na isulat ako na magsusulat.. EEEEWWW!!!” )

Even supposing that said voters are disqualified for lack of residence qualification this matter should have been brought up before the Board of Inspectors during the period provided for by law for the exclusion of voters. having failed to do so, it is now too late to raise this question in these proceedings. Syempre ganon naman eh.. lagging too late pag Comelec.

2. So obviously Abendante raised the issue of whether the Commission on Elections can cancel the canvass of the election returns made by the legally constituted Board of Canvassers which proclaimed the him as mayor-elect. So obviously it was contended that the Commission on Elections has no such power and therefore the proclamation made by the Board of Canvassers after said period upon the instruction of the Commission on Elections has no valid effect.

Under the Constitution, the COMELEC is charged with the exclusive duty of enforcing and administering all laws relative to the conduct of elections (Section 2, Article X, Constitution of the Philippines). In addition to the powers and functions conferred upon it by the Constitution, the COMELEC has direct and immediate supervision over the provincial, municipal, and city officials designated by law to perform the duties relative to the conduct of elections (Section 3, Revised Election Code).

The duties of the municipal Board of Canvassers are MINISTERIAL IN CHARACTER, and extend only to the counting of votes as they appear in the statements of election received from the municipal treasurer and to the issuance of the necessary statement of the result of their canvass. (Galang vs. Miranda, et al., 36 Phil., 316, 319-320.) Its duty being ministerial, it follows that the Board of Canvassers can not pass on the validity of an election return, and much less exclude it from the canvass on the ground that the votes cast in the precinct where the returns came from are illegal. The Board of Canvassers of Cabusao failed to do its duty when it excluded from the canvass the returns coming from precinct No. 11. The Commission on Elections was therefore justified in ordering said Board to reconvene and make a new canvass by including the returns in said precinct.

Even supposing that the Commission on Elections has exceeded its authority because the period for filing a protest has already elapsed when it acted on the matter, appellant is deemed to have waived his right to question such irregularity when he failed to take the matter to the Supreme Court by way of certiorari as required by law. (Section 5, Revised Election Code.)

So I guess Baldomero Relato wins this case and therefor went on to win the said mayoralty race.

I wonder if he did something to go back and thank the lepers who voted for him and saw to it that their welfare were assuredly taken care of. Otherwise our humanitarian character of the Filipino candidate had been degraded and degeneration could have started from that day slowly creeping in and eating up like leprosy ever since.   

SALFIC ALCAN Inc. vs. IMPERIAL VEGETABLE OIL, Inc.

Here’s a landmark case on the Doctrine of APPARENT AUTHORITY. President of IVO entered into Speculative Contracts with SALFIC (take note) without securing the Board of Director’s approval.

I got no diagram, let’s see… so to illustrate you just picture an inverted triangle in your head. The acute angle on your left is the AGENT, which is the president of IVO. The angle on the right is your PRINCIPAL, the IVO’s board of directors. You go downward and you have the 3RD PARTY, Salfic.  

Now here’s the basic rule in the Doctrine of Apparent Authority. If a corporation knowingly permits its officers/agent to act within the scope of apparent authority, then it holds him out to the public as possessing the power to do those acts, (gets? It’s simply giving him the capacity to act or perform all acts necessary in order to see the transaction be brought into its completion. Kunyare you sent your agent to close a deal therefore it is understood that you are not only giving him the power and authority to negotiate and to transact but also it is apparent that you are also giving him the authority to sign for how could he bring the transaction to its completion e kung di nya pipirmahan yun kontrata). So therefore since this is the case then it is understood that the corporation will be estopped from denying the agent’s authority pag nagkabulilyaso diba?  

Now here’s what happened here…

Salfic is a French corporation engaged in international purchase, sale and trading of coconut oil. So apparently IVO sells coconut oil. Safic then placed purchase orders with IVO for 2,000 tons of  crude coconut oil, valued at US$222.50 per ton, so roughly that would amount to what US$444.00+?

IVO however failed to deliver and, instead, offered a "wash out" settlement. Washout settlement meaning the coconut oil subject of the purchase contracts were to be "sold back" to IVO. Yet IVO wanted it to be sold at the prevailing price in the international market at the time of wash out. And IVO bound itself to pay to Safic the difference between the said prevailing price and the contract price of the 2,000  tons which amounted to US$293,500.00. 

IVO however failed to pay this amount despite repeated oral and written demands. Salfic then goes to court and alleged that on eight occasions, it placed purchase orders with IVO for a total of 4,750 tons and prayed to collect from IVO an aggregate amount of US$391,593.62 and the US$293,500.00 difference between the contract price and the international market value, plus attorney's fees and litigation expenses. 

So to make the long story short, nagkabulilyaso. E speculative contract eh. Parang stocks, di ka pa naglalabas ng pera nalulugi ka na, or the other way around, di ka pa nagdedeliver kumikita ka na. Biro mo laway lang puhunan mo, wala pa sayo products bayad na yung buyer, it’s like sort of a pre-selling thingie. And this is precisely the reason why the board of directors of IVO disapproved the  president’s proposal in an earlier board meeting that the company engage in said practice.  Sabi seguro ng board “patay tayo dyan mr. president pag di tayo nakadeliver dyan asunto aabutin naten for collection and damages” So yun nga nangyare, Salfic went to court for collection and damages. 

Ang depensa ng IVO  “Salfic has no legal capacity to sue since it is doing business in the Philippines without the required licenses”.   And when pushed further IVO reveals that the subject contracts were speculative contracts entered into by IVO's President in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading. 

So nagkalaglagan ngayon.. sabi ng board “Wala namang board approval yang kontrata na yan eh, ni hindi nga dumaan sa minutes ng board ya eh!” (hahaha! may dialogue… LOL… ginagaya ko lang naman si Kim Wong, the junket operator of Soler Casino sa senate inquiry on the recent money laundering case… “Yes your honor.. O sabi ni Ms. Deguito boss okay na… 25 million papasok this morning… o sabi ko naman a ganun ba? O ipasok mo sa Soler... mga tanghali tumawag ule… o.. boss may papasok 55milliion… o sabe ko naman ule ah ganon? O ipasok sa Soler” HA HA HA!!! WTF)   Boy.. if dialogues within dialogues are somehow construed as presumptions of regularity and the spontaneity in relaying facts in the witness stands are deemed evidence of accuracy I don’t know what would, LOL. 

E kaso totoo. Evidence shows the board is actually oblivious, clueless about the said contract. And even truth to the matter is IVO doesn’t even have license from the Central Bank to engage in speculative contracts. And why didn’t they know? Because the president who was signatory to the contract never even submitted it to the board hence never recorded into the company’s books of corporation. 

So this is a question of whether the act of the agent which is the president binds the principal which is the corporation against third party which is Salfic. 

ISSUE:

So the question is can the corporation be held liable for the losses sustained on such contracts or would it be the president that should be held solidarily liable?

RULING:

Court held NO.

1. It is the Board and not the Officer that exercises corporate power. So the officer is merely an agent who acted beyond the scope of his authority.  

Actually to tell you frankly the By-laws of IVO specifically stated that the president would have direct and active management of the business. A provision in the by-laws stated “conducting the same according to the orders, resolutions and instructions of the Board of Directors and according to his own discretion whenever and wherever the same is not expressly limited by such orders, resolutions and instructions”

But regarding this th court said that IVO president had no blanket authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances when he was authorized to act according to his discretion, that discretion must not conflict with prior Board orders, resolutions and instructions.

2. There is no evidence that the board ratified the contracts. 

Under Art. 1898 of the Civil Code:

“Acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same expressly or impliedly.”  

BTW TAKE NOTE: The Doctrine of Apparent Authority favors only those who deal in good faith. Meaning if the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification.  

So the court deemed Salfic has knowledge of the IVO president’s act of ultra vires since there were much ample time for Salfic to have obtained from the president prior authorization from the IVO board yet it didn’t do so. 

Question therefore, is the Doctrine of Ratification applicable in this case?  Answer, NO, because when the agent entered into speculative contracts the principal did not know, he did not secure the IVO board’s approval. He did not even submit the contracts to the board, hence there was nothing to be ratified. 

Question, can Salfic rely on the Doctrine of Implied Agency?  Answer, NO, because before the said controversial contract IVO did not enter into identical contracts with Salfic.  So it’s a fairly new dealing. And if you deal with someone who just knocked on your door one sunny day, especially when it pertains to cash outlay it’s only logical that you investigate the agent’s background (not the personal background WTF are you talkin’ about!!.. you investigate if he is really being backed by the company he is saying he is.. otherwise you end up crying looted of your remaining money in your bank account watching the latest pyramid scam news on t.v.) You see the basis for agency is representation. This is what Villanueva is saying in his book “must discover upon his peril the authority of the agent”.

You see these doctrines are all under the Ultra Vires Doctrine. And if we say ultra vires then it presupposes that there is irregularity. 

Question:  Is there a way where an act of an agent in excess of his authority can bind the corporation? 

Answer: Yes there is. 

I think the teacher have clearly stated the remedies to ultra vires acts in this case. Stating 3 Doctrines that could override Art. 1898, where the agent may act without the authority of the board of directors and still may be considered binding the corporation.  1. The Doctrine of Estoppel, 2. The Doctrine of Ratification, and 3. The Doctrine of Apparent Authority.    

I wonder if Implied Actual Authority can be considered remedy along prefecture of this 3 doctrines. Well if it’s Express Actual Authority then there’s no question with that right?, but let’s be reminded that implied actual authority is also in need of ratification. And if something is in need of ratification then it presupposes that there is presence of an irregularity.  Therefore it is also based on prior acts which could be ratified or approved by the board right?. The mere acceptance of the benefits by the principal which was irregularly brought in by the agent is tacit proof of ratification.  So in a way it could be a remedy right? I dunno it may come under the Doctrine of Ratification or.. looks like its probably the Doctrine of Implied Agency. Semantics always play the culprit to a lot of things.

So IVO wins this case.