Corporate Law Case Digest
Corporate Law Case Digest
Corporate Law Case Digest
On October 20, 1994, Makati Sports Club (MSCI) through its BOD adopted a resolution-authorizing the
sale of 19 unissued shares of Class A and Class B. Defendant Cheng was the Corporate treasurer and
Director.
On July 7, 1995, Hodreal expressed his interest to buy a share and requested that his name be
included in the waiting list.
Sometime in November 1995, McFoods Inc. expressed its interest in acquiring a share.McFood was
able to buy the Class A shares from petitioner in the amount P1,800,000.Payment for the share was
made on November 28, 1995. The Deed of Absolute Sale was executed on December 15, 1995 and the
stock certificate was issued on January 5, 1996.
By December 27, 1995, McFood sent a notice to petitioner that it was ofering to resell the stock for P
2,800,000.
It appear that while the sale between petitioner and McFood was under negotiation, there was also
an ongoing negotiation between McFoods and Hodreal.On November 24, 1995, Hondreal paid
McFoods P1,400,000 and another payment in the amount of P1,400,00 was made on December 27,
1995.On January 29, 1996, McFoods and Hodreal executed a Deed of Sale for the same share of stock.
Only on February 7, 1996 was petitioner was advised of the sale between McFoods and Hodreal. A
new certificate of stock was issued upon request.
However, Cheng had been accused of profiteering from the said transaction upon an investigation
conducted. Petitioner alleged that Cheng and McFoods confabulated with one another at the expense
of MSCI.
Thus, petitioner filed against Cheng and demanded to pay P1,000,000 as amount allegedly defrauded
with damages.
Petiitoner: Cheng in collaboration with McFoods committed fraud in transacting the transfersinvolving
Stock Certificate No. A 2243. Cheng is alleged to provide insiders information as tothe status of the
shares and facilitated the transfer by doctoring the books to give asemblance of regularity to the
transfer. McFoods never intended to become a legitimate holderof Class A shares but did so for the
purpose of realising a profit in the amount of P1,000,000 atthe expense of the petitioner.
Issue: Whether McFoods can validly sold his MSCI share prior to the issuance of the certificate of sale
Held: Yes
ISEC. 30. x x x .
(e) Sale of Shares of Stockholder. Where the registered owner of share of stock desires to sell his
share of stock, he shall first offer the same in writing to the Club at fair market value and the club shall
have thirty (30) days from receipt of written offer within which to purchase such share, and only if the
club has excess revenues over expenses (unrestricted retained earning) and with the approval of two-
thirds (2/3) vote of the Board of Directors. If the Club fails to purchase the share, the stockholder may
dispose of the same to other persons who are qualified to own and hold shares in the club. If the
share is not purchased at the price quoted by the stockholder and he reduces said price, then the Club
shall have the same pre-emptive right subject to the same conditions for the same period of thirty
(30) days. Any transfer of share, except by hereditary succession, made in violation of these
conditions shall be null and void and shall not be recorded in the books of the Club.
The share of stock so acquired shall be offered and sold by the Club to those in the Waiting List in the
order that their names appear in such list, or in the absence of a Waiting List, to any
applicant.27cralaw
We disagree.
Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class "A" share of stock to
MSCI for the price of P2,800,000.00 for the latter to exercise its pre-emptive right as required by
Section 30(e) of MSCI's Amended By-Laws, it legally had the right to do so since it was already an
owner of a Class "A" share by virtue of its payment on November 28, 1995, and the Deed of Absolute
Share dated December 15, 1995, notwithstanding the fact that the stock certificate was issued only
on January 5, 1996. A certificate of stock is the paper representative or tangible evidence of the stock
itself and of the various interests therein. The certificate is 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. It is not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share of stock
or the nature of the relation of shareholder to the corporation.28cralaw
Therefore, Mc Foods properly complied with the requirement of Section 30(e) of the Amended By-
Laws on MSCI's pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods' Class "A"
share within the thirty (30) day pre-emptive period as provided by the Amended By-Laws. It was only
on January 29, 1996, or 32 days after December 28, 1995, when MSCI received Mc Foods' letter of
offer to sell the share, that Mc Foods and Hodreal executed the Deed of Absolute Sale over the said
share of stock. While Hodreal had the right to demand the immediate execution of the Deed of
Absolute Sale after his full payment of Mc Foods' Class "A" share, he did not do so. Perhaps, he
wanted to wait for Mc Foods to first comply with the pre-emptive requirement as set forth in the
Amended By-Laws. Neither can MSCI argue that Mc Foods was not yet a registered owner of the
share of stock when the latter offered it for resale, in order to void the transfer from Mc Foods to
Hodreal. The corporation's obligation to register is ministerial upon the buyer's acquisition of
ownership of the share of stock. The corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers.
FACTS:
February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation
(VCC), executed a “Deed of Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce
is the owner of the shares and he was therefore assigning/endorsing it to Ponce
VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC)
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 the plaintiff.
Despite repeated demands, the ACC refused to issue the certificates of stocks
SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss
Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer
Ponce, filed a complaint with the SEC for mandamus
CA: mandamus should be dismissed for failure to state a cause of action
in the absence of any allegation that the transfer of the shares was registered in the stock and
transfer book
Interport Resources Corporation v. Securities Specialist Inc and R.C. Lee Securities Inc. G.R. No.
154069 | 06 June 2016 Author: Fabula, Jane Blessilda Ponente: J. Bersamin Doctrine: 1.
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. 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. (Author’s Note: The case in an exception to
the general rule).
Name of the parties: Petitioner: Interport Resources Corporation Respondent: Securities Specialist, Inc
and R.C. Lee Securities Inc. Applicable Articles: Section 63 of the Corporation Code: “No transfer of
shares of stock shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show the name of the parties to the transaction, the date of
transfer, the number of the certificate/s and the number of shares transferred.” (Author’s Note: this
was cited as the general rule. The case is an exception.)
Facts: 1. In January 1977, Oceanic Oil and Mineral Resources, Inc (Oceanic) entered into a subscription
agreement with R.C. Lee, a domestic corporation engaged in the trading of stockes and other
securities, covering 5,000,000.00 of its shares with par value of PhP 0.01per share, for a total value of
PhP 50,000.00. R.C. Lee paid 25% of the subscription, leaving 75% of the subscription unpaid. Oceanic
issued Subscription Agreement Nos. 1805, 1808, 1809, 1810 and 1811 to R.C. Lee. On July 1978,
Oceanic merged with Interport, with the latter as the surviving corporation. Under the terms of the
merger, each share of Oceanic was exchanged for a share of Interport. On April 16, 1979 and April 18,
1979, SSI received the Subscription Agreements, all outstanding in the name of R.C. Lee. They were
duly delivered to SSI through stock assignment indorsed in blank by R.C. Lee.
Later on, R.C Lee requested for a list of subscription agreements and stock certificates issued in its
name, to which Interport complied with. Upon showing that there was no transfer of assignment of
the Oceanic subscription agreements o Interport, R.C. Lee paid its unpaid subscription and was
accordingly issued stock certificates corresponding thereto. 6. On February 8, 1989, Interport issued a
call of the full payment of subscription receivables, setting March 15, 1989 as the deadline. SSI
tendered payment. However, Interport refused to honor the Oceanic subscriptions. 7. Still, on the
deadline, SSI directly tendered payment to Interport for the balance of the 5,000,000 shares covered
by the Oceanic subscription agreements, some of which were in the name of R.C. Lee and indorsed in
blank. Interport originally rejected the tender of payment of all unpaid subscriptions on the ground
that the Oceanic subscription agreements should have been previously converted to shares in
Interport. 8. SSI required Interport to furnish it with a copy of any notice reporting the conversion of
the Oceanic shares to Interport shares. However, Interport failed to show any proof of the notice.
Thus, through a letter dated March 30, 1989, SSI asked SEC for a copy of Interport’s board resolution
requiring said conversion. The SEC informed SSI that SEC had no record of any. 9. SSI officers met with
Interport’s officers to request a copy of the said resolution. Still, Interport did not produce a copy of
such. 10. On March 31, 1989, or 16 days after its tender of payment, SSI learned that Interport had
issued the shares to R.C. Lee, relying on the latter’s registration as the owner of the subscription
agreements in Interport’s books. 11. On April 27, 1989, SSI demanded the delivery of the 5,000,000.
Interport shares on the basis of a purported assignment of the subscription agreements covering the
shares made in 1979. R.C. Le failed to do so because it had already sold the same to other parties. 12.
On October 6, 1989, SSI commenced the case in SEC to compel Interport and R.C. Lee to deliver the
5,000,000 shares and to pay damages. Ruling of the SEC: A. Through SEC’s Securities Investigation and
Clearing Department It ordered Interport to deliver the 5,000,000 shares covered by Oceanic, and
both Interport and R.C. Lee to, jointly and severally, to indemnify the complainant in the sum of PhP
500,00.00.00 by way of temperate or moderate damages, PhP 500,00.00 by way of exemplary
damages, to pay litigation expenses, including attorney’s fees in the sum of PhP 300,00.00, and the
costs of the suit. B.
Through SEC En Banc Partial reversion of the decision, ordering Interport to deliver the shares to SSI,
to the extent only of 25% as duly paid by SSI, and if not possible, to deliver the value at the market
price as of date of judgment and ordering both Interport and R.C. Lee to indemnify Interport PhP
500,00.00 by way of exemplary damages, to pay litigation expenses, including attorney’s fees in the
sum of PhP 300,00.00, and the costs of the suit. Basis: To order Interport to return the 5,000,000
shares or the pay the entire value without requiring SSI to pay the balance of 75% will be inequitable.
c.
Whether Interport was liable to deliver to SSI the Oceanic shares of stock, or its value – YES
Whether SSI is entitled to exemplary damages and attorney’s fees – NO.
d.
e. RULING: 1.
Interport was liable tto deliver the Oceanic shares of stock, or the value thereof, under Subscription
Agreements 1805, 1809 to 1811 to SSI
Interport’s Contentions (n italics): 1. R.C. Lee should be liable for the delivery of 25% of the shares
under the subscription agreements inasmuch as it has already received all of the 5,000,000 shares
upon its payment of the 75% balance of the subscription price to Interport 2. It was only proper to
R.C. Lee to deliver the 25% of the shares because it had already received the corresponding payment
from SSI for the assignment of shares 3. R.C. Lee would be unjustly enriched if it retained the
5,000,000 shares and the 25% payment of the subscription price made by SSI in favor of R.C. Lee as a
result of the assignment. a.
b.
The SEC explained that the Oceanic subscription agreements were duly delivered to SSI supported by
stock assignments of R.C. Lee and by official receipts of Oceanic showing that twenty five percent of
the subscription had been paid. R.C. Lee did not deny having subscribed and delivered such stock
assignments to Oceanic subscription agreements. Having negotiated them by allowing to be in street
certificates, R.C. Lee cannot legally and morally claim any further interests over such subscription or
the shares of stock they represent. When SSI tendered the balance of unpaid subscription on the
subject five million shares on the basis of the existing subscription agreements covering
4.
the same, Interport was bound to accept the payment even if the same were being tendered in the
name of the registered subscriber (R.C. Lee), and once the payment is fully accepted in the name of
R.C. Lee,, Inrerport is bound to recognize the stock assignment duly executed by R.C. in favor of SSI.
Novation, which consists in substituting a new debtor in place of the original one, may be made even
without the knowledge of against the will of the latter, but not without the consent of the creditor.
The SEC correctly categorized the assignment of the subscription agreements as a form of novation by
substitution of a new debtor, and which required the notice of the creditor. The change of debtor
took place when R.C. Lee assigned the Oceanic shares to SSI so that it is now obliged to settled the
75% unpaid balance. Interport is duly notified of the assignment when SSI tendered payment for the
75% unpaid balance, and it could refuse to recognize the transfer of subscription. Novation
extinguished an obligation between two parties. Extinctive novation is never presumed; there must an
express intention to novate, or in cases where it is implied, the acts of the parties must clearly
demonstrate their intent to dissolve the old obligation. An extinctive novation would have the twin
effect of extinguishing an existing obligation and creating a new one on its stead. The assignment of
the subscription agreements to SSI was to extinguish the obligation of R.C. Lee to Oceanic, now
Interport, to settle the unpaid balance on the subscription. As a result, Interport was no longer
obliged to accept any payment from R.C. Lee. On the other hand, Interport is legally bound to accept
SSI’s tender of payment for the 75% balance on the subscription price because SSI had become the
new debtor. The issuance of stock certificate in the name of R.C. Lee had no legal basis in the absence
of a contractual agreement between R.C. Lee and Interport.
SSI have already waived its rights over the 5,000,000 shares due to its failure to register the
assignment in the books of Interport, and that it is estopped from claiming the assigned shares,
inasmuch as the assignor R.C. Lee had already transferred the shares to other parties. a. To say that
SSI be considered to have abandoned its rights under the subscription agreements, since there has
been 10 years since the assignment has been made, is to ignore the rule that since the law does not
prescribe any period within which the registration should be effected, the right does not accrue until
there has been a demand and a refusal to record the transfer.
b. SSI was denied recognition on March 15, 1989, and the complaint was filed in the SEC on October 6,
1989. This is the period to be taken into account, not the one between 1979 and 1989. 5.
It merely relied on its records, in accordance with Section 74 of the Corporation Code, when it issued
the stock certificates to R.C. Lee upon its full payment of the subscription price. a. Under Section 63 of
the Corporation Code, no transfer of shares of stock shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to show the name of the parties to
the transaction, the date of transfer, the number of the certificate/s and the number of shares
transferred. b. Hence, 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. 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. c. HOWEVER, THIS CANNOT BE
APPLIED HERE, because Interport had unduly refused to recognize the assignment of the shares
between R.C. Lee and SSI.
2.
Interport and RC Lee were not liable to pay exemplary damages and attorney’s fees. a. Article 2229 of
the Civil Code provides that exemplary damages may be imposed by way of example or correction for
the public good. While they cannot be recovered as a matter of right, they need not be proved,
although the plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages should be
awarded. Exemplary damages are imposed not to enrich one party or impoverish another, but to
serve as a deterrent against or as a negative incentive to curb socially deleterious actions. b. SSI was
not able to show that it was entitled to moral, temperate or compensatory damages. The award of
temperate damages was not proper because the alleged pecuniary loss was merely speculative in
nature.
c. The Court also finds that Interport’s act of refusing to accept SSI’s tender of payment for the 75%
balance of the subscription price was not performed in a wanton, fraudulent, oppressive or
malevolent manner, having relied on its records which did not show that an assignment has already
been made between R.C. Lee and SSI.
DISPOSITION: 1. Interport to accept the tender of payment SSI corresponding to the 75% of the
unpaid balance of the total subscription price under Subscription Agreement Nos. 1805, 1808-1811; 2.
Deliver 5,000,000 shares of stock and to issue the corresponding stock certificates to SSI upon the
receipt of payment of the latter; 3. Cancel the stock certificates issued to R.C. Lee; 4. Reimburse R.C.
Lee the amounts it paid representing the 75% unpaid balance of the total subscription price of the
Subscription Agreement; 5. If Item 4 is no longer possible, Interport shall pay SSI the market value of
the 5,000,000 shares of stock covered by Subscription Agreements. 6. Award to exemplary damages
and attorney’s fees is deleted.
Facts:
The late Cresenciano C. De Castro (De Castro) is the registered owner of Unit 802 of of the
condominium, covered by Condominium Certificate of Title (CCT) No. 2826
For failure to pay assessment dues amounting to P79,905.41 as of July 31, 1986 despite demand,
Welbit Construction Corp., Wack Wack Condominium Corp., and Spouses Eugenio Juan Gonzalez and
Matilde Gonzalez (petitioners) caused the annotation of a lien for unpaid assessments and other
dues... petitioners filed a petition for the extra-judicial foreclosure of the subject property
De Castro filed a petition for annulment of foreclosure proceedings before the Securities and
Exchange Commission (SEC) which then had the jurisdiction over intra-corporate disputes... that the
assessments imposed were excessive, oppressive, unconscionable, and arbitrary; and that the
petitioners have no special power of attorney or authority was granted to them nor was there any
agreement between the parties to that effect
Issues:
Whether or not the CA erred in declaring the extra-judicial foreclosure proceeding null and void.
Ruling:
the Regional Trial Court (RTC) of Mandaluyong City, Branch 211, ruled for the validity of the extra-
judicial foreclosure proceedings instituted by the petitioners. The RTC thoroughly discussed that the
evidence on record clearly show that De Castro was aware of his unsettled dues and penalties... the
CA reversed and set aside the RTC Decision, on the sole ground that the petitioners have no sufficient
authority to extra-judicially foreclose the subject property
The extra-judicial foreclosure of Condominium Unit No. 802 is SET ASIDE for being null and void.
Section 20 of the Condominium Act merely provides that the assessments, upon any condominium
made in accordance with a duly registered declaration of restrictions, shall be a lien upon the said
condominium, and also prescribes the procedure by which such liens may be enforced
The amount of any such assessment plus any other charges thereon, such as interest, costs (including
attorney's fees) and penalties, as such may be provided for in the declaration of restrictions, shall be
and become a lien upon the condominium to be registered with the Register of Deeds of the city or
province where such condominium project is located.
such liens may be enforced in the same manner provided for by law for the judicial or extra-judicial
foreclosure of mortgage or real property
Indeed, it does not grant the petitioners the authority to foreclose. The aforecited provision clearly
provides that the rules on extra-judicial foreclosure of mortgage or real property should be followed.
requires that the petition for extra-judicial foreclosure be supported by evidence that petitioners hold
a special power or authority to foreclose,... Examine the same to ensure that the special power of
attorney authorizing the extra-judicial foreclosure of the real property is either inserted into or
attached to the deed of real estate mortgage
[w]ithout proof of petitioner's special authority to foreclose, the Clerk of Court as Ex-Officio Sheriff is
precluded from acting on the application for extra-judicial foreclosure."[27]
Under Section 5 of Article [V] of the By-Laws, in the event a member defaults in the payment of any
assessment duly levied in accordance with the Master Deed and the By-Laws, the Board of Directors
may enforce collection thereof by any of the remedies provided by the Condominium Act and other
pertinent laws, such as foreclosure
The Master Deed with Declaration of Restrictions of the Condominium Project is annotated on the
Condominium Certificate of title 2826
1984 condominium corporation's Board Resolution... lso signed by De Castro as a member of the
Board of Directors at that time,
YUJUICO VS QUIAMBAO GR No. 180416 June 2, 2014 Facts: During the annual stockholder’s meeting
of STRADEC, petitioner Yujuico was elected as president and chairman of the company. Yujuico
replaced Quiambao, the respondent. STRADEC appointed Sumbilla as Treasurer and Blando as
Corporate Secretary. During the stockholders’ meeting, Yujuico demanded Quiambao for the turnover
of the corporate records of the company, particularly the accounting files, ledgers, journals and other
records of the corporation’s business. Quiambao refused and caused the removal of the corporate
records of STRADEC from the company’s principal office. Blando likewise demanded Pilapil, the
previous corporate secretary, for the turnover of the stock and transfer book of STRADEC. Pilapil
refused. Thus, the petitioners filed a complaint against respondents for the violation of Section 74 in
relation to Section 144 of the Corporation Code.
Issue: Whether the respondents can be held liable under Section 74 in relation to Section 144 of the
Corporation Code
Ruling: No. A criminal action based on the violation of a stockholder’s right to examine or inspect the
corporate records and the stock and transfer book of a corporation under the 2nd and 4th paragraphs
of Section 74 of the Corporation Code can only be maintained against corporate officers or any other
persons acting on behalf of such corporation. Violations of the 2nd and 4th paragraphs of Sec. 74
contemplates a situation wherein a corporation, acting thru one of its officers or agents, denies the
right of any of its stockholders to inspect the records, minutes and the stock and transfer book of such
corporation. The petitioner’s complaint failed to establish that respondents were acting on behalf of
STRADEC. Instead, it was revealed that respondents are merely outgoing officers of STRADEC who, for
some reason, withheld and refused to turn-over the company records of STRADEC, and that STRADEC
is actually merely trying to recover custody of the withheld records. Thus, petitioners are not actually
invoking their right to inspect the records and the stock and transfer book of STRADEC under Sec. 74.
What they seek to enforce is the proprietary right of STRADEC to be in possession of such records and
book. Such right, though certainly legally enforceable by other means, cannot be enforced by a
criminal prosecution based on a violation of the 2nd and 4th paragraphs of Sec. 74. Therefore, the
criminal case is dismissed for lack of probable cause.
The stockholder’s right of inspection of the corporation’s book and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of
the corporate property, whether this ownership or interest be termed an equitable ownership, a
beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of self-
protection. The inspection has to be germane to the petitioner’s interest as a stockholder, and has to
be proper and lawful in character and not inimical to the interest of the corporation.
FACTS: Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) are family-
owned corporations, where petitioners and private respondent Eduardo Ang are shareholders,
officers and members of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriano Manufacturing Corp. filed a Civil case 4257-
MC against Eduardo, together with Michael, and some other persons for allegedly conniving to
fraudulently wrest control/management of the corporations.
During the pendency of the above-mentioned Civil Case, particularly in July 2004, Eduardo sought
permission to inspect the corporate books of VMC and Genato on account of petitioners alleged
failure to update him on the financial and business activities of these family corporations.
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Petitioners denied the request claiming that Eduardo would use the information obtained from said
inspection for purposes inimical to the corporations’ interests. Because of petitioners’ refusal to grant
Eduardo’s request, the latter filed an Affidavit-Complaint against petitioners, charging them with
violation of two counts of Sec. 74 (Corporation Code), in relation to Sec. 144.
Petitioners denied violating Sec. 74 and reiterated the allegations contained in their complaint in Civ.
Case 4257-MC. They alleged that Eduardo consistently pressured petitioner Flordeliza, his daughter,
to improperly transfer ownership of the corporations’ V.A.G building to him. When the proposed
transfer of the V.A.G. building did not materialize, petitioners claim that Eduardo instituted an action
to compel donation of said property to him. Moreover, they claim that Eduardo attempted to forcibly
evict petitioner Jason from his office at VMC so he can occupy the same; that Eduardo and his cohorts
constantly created trouble by intervening in the daily operations of the corporations without the
knowledge or consent of the board of directors.
ISSUE: Whether the petitioners violated Sec, 74 of the Corporation Code of the PH.
RULING: NO. The stockholders’ right to inspect corporate books is not without limitations. It is now
expressly required as a condition for such examination that the one requesting it must not have been
guilty of using improperly any information secured through a prior examination, or that the person
asking for such examination must be acting in good faith and for a legitimate purpose in making his
demand.
In order therefore for the penal provision under Sec 144 of the Corporation Code to apply in a case of
violation of a stockholder or members right to inspect the corporate books/records the elements
provided for under Sec 74 must be present.
Facts:
On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc. (FQB+7), a
Complaint[4] for intra-corporate dispute, injunction, inspection of corporate books and records, and
damages, against respondents Nathaniel D. Bocobo
(Nathaniel), Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio). The Complaint alleged that
FQB+7 was established in 1985 with the following directors and subscribers, as reflected in its Articles
of Incorporation:
The Complaint further alleged that, sometime in April 2004, Vitaliano discovered a General
Information Sheet (GIS) of FQB+7, dated September 6, 2002, in the Securities and Exchange
Commission (SEC) records. This GIS was filed by Francisco Q. Bocobo's heirs, Nathaniel and
The substantive changes found in the GIS, respecting the composition of directors and subscribers of
FQB+7, prompted Vitaliano to write to the "real" Board of Directors (the directors reflected in the
Articles of Incorporation), represented by Fidel N. Aguirre (Fidel).
Vitaliano questioned the validity and truthfulness of the alleged stockholders meeting held on
September 3, 2002. He asked the "real" Board to rectify what he perceived as erroneous entries in the
GIS, and to allow him to... inspect the corporate books and records. The "real" Board allegedly
ignored Vitaliano's request.
On September 27, 2004, Nathaniel, in the exercise of his power as FQB+7's president, appointed
Antonio as the corporation's attorney-in-fact, with power of administration over the corporation's
farm in Quezon Province.[12] Pursuant thereto, Antonio... attempted to take over the farm, but was
allegedly prevented by Fidel and his men.
The case, docketed as SEC Case No. 04-111077, was assigned to Branch 24 of the RTC of Manila
(Manila RTC), which was a designated special commercial court, pursuant to A.M. No. 03-03-03-SC.
On October 27, 2004, the trial court issued... the writ of preliminary injunction[17] after Vitaliano filed
an injunction bond.
The respondents filed a motion for an extension of 10 days to file the "pleadings warranted in
response to the complaint," which they received on October 6, 2004.[18] The trial court denied this
motion for being a prohibited pleading under Section 8, Rule 1... of the Interim Rules of Procedure
Governing Intra-corporate Controversies under Republic Act (R.A.) No. 8799.
The respondents filed a Petition for Certiorari and Prohibition,[20] docketed as CA-G.R. SP No. 87293,
before the CA. They later amended their Petition by impleading Fidel, who allegedly shares Vitaliano's
interest in keeping them out of the... corporation, as a private respondent therein.
The respondents sought, in their certiorari petition, the annulment of all the proceedings and
issuances in SEC Case No. 04-111077[22] on the ground that Branch 24 of the Manila RTC has no
jurisdiction over the subject matter, which they... defined as being an agrarian dispute.[23] They
theorized that Vitaliano's real goal in filing the Complaint was to maintain custody of the corporate
farm in Quezon Province. Since this land is agricultural in nature, they claimed that jurisdiction
belongs... to the Department of Agrarian Reform (DAR), not to the Manila RTC.[24] They also raised
the grounds of improper venue (alleging that the real corporate address is different from that stated
in the Articles of Incorporation)[25] and... forum-shopping[26] (there being a pending case between
the parties before the DAR regarding the inclusion of the corporate property in the agrarian reform
program).[27] Respondents also raised their defenses to Vitaliano's suit,... particularly the alleged
disloyalty and fraud committed by the "real" Board of Directors,[28] and respondents' "preferential
right to possess the corporate property" as the heirs of the majority stockholder Francisco Q. Bocob
The respondents further informed the CA that the SEC had already revoked FQB+7's Certificate of
Registration on September 29, 2003 for its failure to comply with the SEC reportorial requirements.
[30] The CA determined that the corporation's dissolution was... a conclusive fact after petitioners
Vitaliano and Fidel failed to dispute this factual assertion.
the CA determined that the trial court committed a grave abuse of discretion when it issued the writ
of preliminary injunction to remove the respondents from their positions in the Board of Directors
based only on Vitaliano's self-serving and empty... assertions. Such assertions cannot outweigh the
entries in the GIS, which are documented facts on record, which state that respondents are
stockholders and were duly elected corporate directors and officers of FQB+7, Inc. The CA held that
Vitaliano only proved a future right in... case he wins the suit. Since an injunction is not a remedy to
protect future, contingent or abstract rights, then Vitaliano is not entitled to a writ.
On the second issue, the CA postulated that Section 122 of the Corporation Code allows a dissolved
corporation to continue as a body corporate for the limited purpose of liquidating the corporate
assets and distributing them to its creditors, stockholders, and others in... interest. It does not allow
the dissolved corporation to continue its business. That being the state of the law, the CA determined
that Vitaliano's Complaint, being geared towards the continuation of FQB+7, Inc.'s business, should be
dismissed because the corporation has lost... its juridical personality.[35] Moreover, the CA held that
the trial court does not have jurisdiction to entertain an intra-corporate dispute when the corporation
is already dissolved.
After dismissing the Complaint, the CA reminded the parties that they should proceed with the
liquidation of the dissolved corporation based on the existing GIS
Herein petitioners filed a Motion for Reconsideration... petitioners maintained that the CA erred in
characterizing the reliefs they sought as a continuance of the dissolved corporation's business, which
is prohibited under Section 122 of the Corporation Code. Instead, they argued, the relief they seek is...
only to determine the real Board of Directors that can represent the dissolved corporation.
The CA denied the Motion for Reconsideration in its December 16, 2005 Resolution.[39] It determined
that the crucial issue is the trial court's jurisdiction over an intra-corporate dispute involving a
dissolved corporation.[40] Based... on the prayers in the Complaint, petitioners seek a determination
of the real Board that can take over the management of the corporation's farm, not to sit as a
liquidation Board. Thus, contrary to petitioners' claims, their Complaint is not geared towards
liquidation but a... continuance of the corporation's business.
Issues:
Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation.
Ruling:
The CA did not nullify the October 15, 2004 Order merely because of the interchanged pages. Instead,
the CA determined that the applicant, Vitaliano, was not able to show that he had an actual and
existing right that had to be protected by... a preliminary injunction. The most that Vitaliano was able
to prove was a future right based on his victory in the suit. Contrasting this future right of Vitaliano
with respondents' existing right under the GIS, the CA determined that the trial court should not have
disturbed... the status quo. The CA's discussion regarding the interchanged pages was made only in
addition to its above ratiocination. Thus, whether the pages were interchanged or not will not affect
the CA's main finding that the trial court issued the Order despite the absence of a clear... and existing
right in favor of the applicant, which is tantamount to grave abuse of discretion.
Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its business,
but allows it to continue with a limited personality in order to settle and close its affairs, including its
complete liquidation, thus:
Sec. 122. Corporate liquidation. Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in
any other manner, shall nevertheless be continued... as a body corporate for three (3) years after the
time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to dispose of and convey its property and to
distribute its assets,... but not for the purpose of continuing the business for which it was established.
Upon learning of the corporation's dissolution by revocation of its corporate franchise, the CA held
that the intra-corporate Complaint, which aims to continue the corporation's business, must now be
dismissed under Section 122.
Petitioners concede that a dissolved corporation can no longer continue its business. They argue,
however, that Section 122 allows a dissolved corporation to wind up its affairs within 3 years from its
dissolution. Petitioners then maintain that the Complaint, which seeks only a... declaration that
respondents are strangers to the corporation and have no right to sit in the board or act as officers
thereof, and a return of Vitaliano's stockholdings, intends only to resolve remaining corporate issues.
The resolution of these issues is allegedly part of... corporate winding up.
Does the Complaint seek a continuation of business or is it a settlement of corporate affairs? The
answer lies in the prayers of the Complaint
The Court fails to find in the prayers above any intention to continue the corporate business of
FQB+7. The Complaint does not seek to enter into contracts, issue new stocks, acquire properties,
execute business transactions, etc. Its aim is not to continue the corporate... business, but to
determine and vindicate an alleged stockholder's right to the return of his stockholdings and to
participate in the election of directors, and a corporation's right to remove usurpers and strangers
from its affairs.
Neither are these issues mooted by the dissolution of the corporation. A corporation's board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation to
continue its existence for a limited purpose, necessarily there must be... a board that will continue
acting for and on behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes
the dissolved corporation's board of directors to conduct its liquidation within three years from its
dissolution. Jurisprudence has even recognized... the board's authority to act as trustee for persons in
interest beyond the said three-year period.[43] Thus, the determination of which group is the bona
fide or rightful board of the dissolved corporation will still provide practical relief to the... parties
involved.
The same is true with regard to Vitaliano's shareholdings in the dissolved corporation. A party's
stockholdings in a corporation, whether existing or dissolved, is a property right[44] which he may
vindicate against another party who has deprived him... thereof. The corporation's dissolution does
not extinguish such property right. Section 145 of the Corporation Code ensures the protection of this
right, thus:
Sec. 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or officers,... shall be removed or impaired
either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal
of this Code or of any part thereof.
The CA's ruling is founded on the assumptions that intra-corporate controversies continue only in
existing corporations; that when the corporation is dissolved, these controversies cease to be intra-
corporate and need no longer be resolved; and that the status quo in the... corporation at the time of
its dissolution must be maintained. The Court finds no basis for the said assumptions.
Jurisdiction over the subject matter is conferred by law. R.A. No. 8799[45] conferred jurisdiction over
intra-corporate controversies on courts of general jurisdiction or RTCs,[46] to be designated by the
Supreme Court.
Thus, as long as the nature of the controversy is intra-corporate, the designated RTCs have the
authority to exercise jurisdiction over such cases.
So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of Presidential Decree
(P.D.) No. 902-A (or The SEC Reorganization Act) for a description of such controversies:... a) Devices
or schemes employed by or any acts, of the board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the
public and/or of the stockholder, partners, members... of associations or organizations registered with
the Commission;... b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively; and...
between such corporation, partnership or association and the state insofar as it concerns their
individual franchise or right to exist as such entity;... c) Controversies in the election or appointments
of directors, trustees, officers or managers of such corporations, partnerships or associations.
The Court reproduced the above jurisdiction in Rule 1 of the Interim Rules of Procedure Governing
Intra-corporate Controversies under R.A. No. 8799:
SECTION 1. (a) Cases Covered These Rules shall govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers
or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, or members of any... corporation, partnership, or
association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and
among stockholders, members, or associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or... associates, respectively;
Reyes v. Regional Trial Court of Makati, Br. 142[47] contains a comprehensive discussion of these two
tests,... thus:
The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the
SEC [now the RTC], regardless of the subject matter of the dispute. This came to be known as the
relationship test.
However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court
introduced the nature of the controversy test. We declared in this case that it is not the mere
existence of an intra-corporate relationship that gives rise to an... intra-corporate controversy; to rely
on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that
the dispute involves a corporation, its directors, officers, or stockholders.
Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy
must not only be rooted in the existence of an intra-corporate relationship,... but must as well pertain
to the enforcement of the parties' correlative rights and obligations under the Corporation Code and
the internal and intra-corporate regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy... or if there will still be conflict even if the
relationship does not exist, then no intra-corporate controversy exists.
The Court then combined the two tests and declared that jurisdiction should be determined by
considering not only the status or relationship of the parties, but also the nature of the question
under controversy.
'To determine whether a case involves an intra-corporate controversy, and is to be heard and decided
by the branches of the RTC specifically designated by the Court to try and decide such cases, two
elements must concur: (a) the status or relationship of the... parties, and [b] the nature of the
question that is the subject of their controversy.
The first element requires that the controversy must arise out of intra-corporate or partnership
relations between any or all of the parties and the corporation, partnership, or association of which
they are stockholders, members or associates, between any or all of them... and the corporation,
partnership or association of which they are stockholders, members or associates, respectively; and
between such corporation, partnership, or association and the State insofar as it concerns the
individual franchises. The second element requires that the... dispute among the parties be
intrinsically connected with the regulation of the corporation. If the nature of the controversy
involves matters that are purely civil in character, necessarily, the case does not involve an intra-
corporate controversy.'
Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of intra-corporate or
partnership relations, and (b) the nature of the question subject of the controversy must be such that
it is intrinsically connected with the regulation of the corporation or... the enforcement of the parties'
rights and obligations under the Corporation Code and the internal regulatory rules of the
corporation. So long as these two criteria are satisfied, the dispute is intra-corporate and the RTC,
acting as a special commercial court, has jurisdiction... over it.
the Court finds and so holds that the case is essentially an intra-corporate dispute. It obviously arose
from the intra-corporate relations between the parties, and the questions involved pertain to their
rights and... obligations under the Corporation Code and matters relating to the regulation of the
corporation. We further hold that the nature of the case as an intra-corporate dispute was not
affected by the subsequent dissolution of the corporation.
It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and
remedies of corporate actors against other corporate actors. The statutory provision assures an
aggrieved party that the corporation's dissolution will not impair, much less... remove, his/her rights
or remedies against the corporation, its stockholders, directors or officers. It also states that
corporate dissolution will not extinguish any liability already incurred by the corporation, its
stockholders, directors, or officers. In short, Section 145... preserves a corporate actor's cause of
action and remedy against another corporate actor. In so doing, Section 145 also preserves the nature
of the controversy between the parties as an intra-corporate dispute.
The dissolution of the corporation simply prohibits it from continuing its business. However, despite
such dissolution, the parties involved in the litigation are still corporate actors. The dissolution does
not automatically convert the parties into total strangers or change... their intra-corporate
relationships. Neither does it change or terminate existing causes of action, which arose because of
the corporate ties between the parties. Thus, a cause of action involving an intra-corporate
controversy remains and must be filed as an intra-corporate... dispute despite the subsequent
dissolution of the corporation.
WHEREFORE, premises considered, the Petition for Review on Certiorari is PARTIALLY GRANTED. The
assailed June 29, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 87293, as well as its
December 16, 2005 Resolution, are ANNULLED with respect to... their dismissal of SEC Case No. 04-
111077 on the ground of lack of jurisdiction. The said case is ordered REINSTATED before Branch 24 of
the Regional Trial Court of Manila. The rest of the assailed issuances are AFFIRMED.
Principles:
Pursuant to Section 145 of the Corporation Code, an existing intra-corporate dispute, which does not
constitute a continuation of corporate business, is not affected by the subsequent dissolution of the
corporation.
Neither are these issues mooted by the dissolution of the corporation. A corporation's board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation to
continue its existence for a limited purpose, necessarily there must be... a board that will continue
acting for and on behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes
the dissolved corporation's board of directors to conduct its liquidation within three years from its
dissolution. Jurisprudence has even recognized... the board's authority to act as trustee for persons in
interest beyond the said three-year period.[43] Thus, the determination of which group is the bona
fide or rightful board of the dissolved corporation will still provide practical relief to the... parties
involved.
Facts:
Riverside Mills Corporation (RMC)... established a Provident and Retirement Plan[4] (Plan) for its
regular employees. Under the Plan, RMC and its employees shall each contribute 2% of the
employee's current basic monthly salary, with RMC's contribution to... increase by 1% every five (5)
years up to a maximum of 5%. The contributions shall form part of the provident fund (the Fund)
which shall be held, invested and distributed by the Commercial Bank and Trust Company.
the
Plan "may be amended or terminated by the Company at any time on account of business conditions,
but no such action shall operate to permit any part of the assets of the Fund to be used for, or
diverted to purposes other than for the exclusive benefit of the members of the Plan... and their ...
beneficiaries. In no event shall any part of the assets of the Fund revert to [RMC] before all liabilities
of the Plan have been satisfied.
the Board of Trustees of RMCPRF (the Board) entered into an Investment Management Agreement[6]
(Agreement) with Philbank (now, petitioner Metropolitan Bank and Trust Company)
). Pursuant to the Agreement, petitioner shall act as an... agent of the Board and shall hold, manage,
invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall be in force
for one (1) year and shall be deemed automatically renewed unless sooner terminated
RMC ceased business operations. Nonetheless, petitioner continued to render investment services to
respondent Board. In a letter[7] dated September 27, 1995, petitioner informed respondent Board
that Philbank's Board of Directors had... decided to apply the remaining trust assets held by it in the
name of RMCPRF against part of the outstanding obligations of RMC.
RMC Unpaid Employees Association, Inc. (Association), representing the terminated employees of
RMC, learned of Trust Account No. 1797. Through counsel, they demanded payment of their share
When such demand went unheeded, the Association, along with the individual members of RMCPRF,
filed a complaint for accounting against the Board and its officers... as well as petitioner bank.
during the trial, the Board passed a Resolution[9] in court declaring that the Fund belongs exclusively
to the employees of RMC. It authorized petitioner to release the proceeds of Trust Account No. 1797
through the Board, as the... court may direct. Consequently, plaintiffs amended their complaint to
include the Board as co-plaintiffs.
RTC rendered a decision in favor of respondents. The trial court declared invalid the reversion and
application of the proceeds of the Fund to the outstanding obligation of RMC to petitioner bank.
On appeal, the CA affirmed the trial court. It held that the Fund is distinct from RMC's account in
petitioner bank and may not be used except for the benefit of the members of RMCPRF.
the Agreement was specific that upon the termination of the Agreement, petitioner shall deliver the
Fund to the Board or its successor, and not to RMC as... trustor.
Issues:
whether the proceeds of the RMCPRF may be applied to satisfy RMC's debt to Philbank.
Ruling:
A trust is a "fiduciary relationship with respect to property which involves the existence of equitable
duties imposed upon the holder of the title to the property to deal with it for the benefit of another."
A trust is either express or implied. Express trusts are... those which the direct and positive acts of the
parties create, by some writing or deed, or will, or by words evincing an intention to create a trust.[
RMC Provident and Retirement Plan created an express trust to provide retirement benefits to the
regular employees of RMC. RMC retained legal title to the Fund but held the same in trust for the
employees-beneficiaries.
The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan after all the
liabilities of the Fund to the employees under the trust had been paid.
Paragraph 13 of the Plan provided that "[i]n no event shall any part of the assets of the Fund... revert
to the Company before all liabilities of the Plan have been satisfied."
Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have "technically
reverted" to RMC, allegedly after no further claims were made thereon
Thereafter, it applied the proceeds of the Fund to RMC's debt with the bank pursuant to
Paragraph 9 of Promissory Note No. 1618-80[17] which RMC executed on May 12, 1981.
Petitioner contends that it was justified in supposing that reversion had occurred because its efforts
to locate claims against the Fund from the National Labor Relations Commission (NLRC), the lower
courts, the CA and the Supreme Court proved futile.
Employees' trusts or benefit plans are intended to provide economic assistance to employees upon
the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability.
They give security against certain hazards to which members of the
Plan may be exposed. They are independent and additional sources of protection for the working
group and established for their exclusive benefit and for no other purpose.
Here, while the Plan provides for a reversion of the Fund to RMC, this... cannot be done until all the
liabilities of the Plan have been paid. And when RMC ceased operations in 1984, the Fund became
liable for the payment not only of the benefits of qualified retirees at the time of RMC's closure but
also of those who were separated from work as... a consequence of the closure.
The distinction between just and authorized causes for dismissal lies in the fact that payment of
separation pay is required in dismissals for an authorized cause but not so in dismissals for just cause.
Applied to this case, the penal nature of the provision in Paragraph 7 of the Plan, whereby a member
separated for cause shall not be entitled to withdraw the contributions made by him and his
employer, indicates that the "separation for cause" being referred to therein is any... of the just
causes under Article 282 of the Labor Code,... To be sure, the cessation of business by RMC is an
authorized cause for the termination of its employees. Hence, not only those qualified for retirement
should receive their total benefits under the Fund, but those laid off should also be entitled to collect
the balance of their... account as of the last day of the month prior to RMC's closure.
Until these... liabilities shall have been settled, there can be no reversion of the Fund to RMC.
Under Paragraph 6[25] of the Agreement, petitioner's function shall be limited to the liquidation and
return of the Fund to the Board upon the termination of the Agreement. Paragraph 14 of said
Agreement further states that "it shall be the duty of... the Investment Manager to assign, transfer,
and pay over to its successor or successors all cash, securities, and other properties held by it
constituting the fund less any amounts constituting the charges and expenses which are authorized
[under the Agreement] to be payable... from the Fund."[26] Clearly, petitioner had no power to effect
reversion of the Fund to RMC.
reversion petitioner effected also could hardly be said to have been done in good faith and with due
regard to the rights of the employee-beneficiaries. The restriction imposed under Paragraph 13 of the
Plan stating that "in no event shall any part of the assets of the
Fund revert to the Company before all liabilities of the Plan have been satisfied," demands more than
a passive stance as that adopted by petitioner in locating claims against the Fund.
the beneficiaries of the Fund are readily identifiable - the regular or... permanent employees of RMC
who were qualified retirees and those who were terminated as a result of its closure. Petitioner
needed only to secure a list of the employees concerned from the Board of Trustees which was its
principal under the Agreement and the trustee of the
Plan or from RMC which was the trustor of the Fund under the Retirement Plan. Yet, petitioner
notified respondent Board of Trustees only after Philbank's Board of Directors had decided to apply
the remaining trust assets of RMCPRF to the liabilities of the company.
Paragraph 13 of the Plan states that "[a]lthough it is expected that the Plan will continue indefinitely,
it may be amended or terminated by the Company at any time on account of business conditions."
There is no dispute as to the management... prerogative on this matter, considering that the Fund
consists primarily of contributions from the salaries of members-employees and the Company.
However, it must be stressed that the RMC Provident and Retirement Plan was primarily established
for the benefit of regular... and permanent employees of RMC. As such, the Board may not
unilaterally terminate the Plan without due regard to any accrued benefits and rightful claims of
members-employees. Besides, the Board is bound by Paragraph 13 prohibiting the reversion of the
Fund to RMC before... all the liabilities of the Plan have been satisfied.
Under Section 122[27] of the Corporation Code, a dissolved corporation shall nevertheless continue
as a body corporate for three (3) years for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs,... to dispose and convey its property and to
distribute its assets, but not for the purpose of continuing the business for which it was established.
Within those three (3) years, the corporation may appoint a trustee or receiver who shall carry out
the said purposes beyond... the three (3)-year winding-up period. Thus, a trustee of a dissolved
corporation may commence a suit which can proceed to final judgment even beyond the three (3)-
year period of liquidation.
during and beyond the three (3)-year winding-up period of RMC, the Board of Trustees of RMCPRF
may do no more than settle and close the affairs of the Fund. The Board retains its authority to act on
behalf of its members, albeit, in a limited... capacity. It may commence suits on behalf of its members
but not continue managing the Fund for purposes of maximizing profits. Here, the Board's act of
issuing the Resolution authorizing petitioner to release the Fund to its beneficiaries is still part of the
liquidation... process, that is, satisfaction of the liabilities of the Plan, and does not amount to doing
business. Hence, it was properly within the Board's power to promulgate.
Facts:
PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and
supervisor in the Maintenance Department of PCCr under the supervision and control of Atty.
Florante A. Seril
Administration.
The petitioners, however, were made to understand, upon application with respondent school, that
they were under MBMSI, a corporation engaged in providing janitorial services to clients. Atty. Seril is
also the President and General Manager of
MBMSI.
PCCr discovered that the Certificate of Incorporation of MBMSI had been revoked
PCCr, through its President, respondent Gregory Alan F. Bautista... citing the revocation, terminated
the school's... relationship with MBMSI, resulting in the dismissal of the employees or maintenance
personnel under MBMSI... the dismissed employees, led by their supervisor, Benigno Vigilla... filed
their respective complaints for illegal dismissal, reinstatement, back wages, separation pay...
underpayment of salaries, overtime pay, holiday pay, service... incentive leave, and 13th month pay
against MBMSI, Atty. Seril, PCCr, and Bautista.
they alleged that it was the school, not MBMSI, which was their real employer because (a) MBMSI's
certification had been revoked; (b) PCCr had direct control over MBMSI's operations; (c) there was no
contract between MBMSI and PCCr; and (d) the selection and... hiring of employees were undertaken
by PCCr.
PCCr and Bautista contended that (a) PCCr could not have illegally dismissed the complainants
because it was not their direct employer; (b) MBMSI was the one who had complete and direct
control over the complainants; and (c) PCCr had a contractual agreement... with MBMSI, thus, making
the latter their direct employer.
PCCr submitted several documents before LA Ronaldo Hernandez, including releases, waivers and
quitclaims in favor of MBMSI executed by the complainants to prove that they were employees of
MBMSI and not PCCr.
the LA handed down his decision, finding that (a) PCCr was the real principal employer of the
complainants ; (b) MBMSI was a mere adjunct or alter ego/labor-only contractor; (c) the complainants
were regular employees of PCCr; and (d) PCCr/Bautista were in... bad faith in dismissing the
complainants.
The LA explained that PCCr was actually the one which exercised control over the means and methods
of the work of the petitioners, thru Atty. Seril, who was acting, throughout the time in his capacity as
Senior Vice President for Administration of PCCr, not in any way or time as... the supposed
employer/general manager or president of MBMSI.
the CA denied the petition and affirmed the two Resolutions of the NLRC
The CA pointed out that based on the principle of solidary liability and Article 1217... of the New Civil
Code,... petitioners' respective releases, waivers and quitclaims in favor of MBMSI and Atty. Seril
redounded to the benefit of the respondents.
Issues:
w... hether or not their c... laims against the respondents were amicably settled by virtue of the
releases, waivers and quitclaims which they had executed in favor of MBMSI.
whether or not a dissolved corporation can enter into an agreement such as releases, waivers and
quitclaims beyond the 3-year winding up period... whether or not a labor-only contractor is solidarily
liable with the employer.
Ruling:
Petitioners had several opportunities to question the authenticity of the said documents but did not
do so.
Well-settled is the rule that this Court is not a trier of facts and this doctrine applies with greater force
in labor cases. Questions of fact are for the labor tribunals to resolve
Moreover, findings of fact of quasi-judicial bodies like the NLRC, as affirmed by the CA, are generally
conclusive on this Court.
there is still no reason to reverse the factual findings of the NLRC and the CA.
What is on record is only the self-serving allegation of petitioners that the releases, waivers and
quitclaims were mere forgeries. Petitioners failed... to substantiate this allegation.
On the contrary, the records confirm that petitioners were really paid their separation pay and had
executed releases, waivers and quitclaims in return.
The executed releases, waivers and quitclaims are valid and binding notwithstanding the revocation
of MBMSI's Certificate of Incorporation. The revocation does not result in the termination of its
liabilities
Petitioners contend that under Article 106... of the Labor Code, a labor-only contractor's liability is not
solidary as it... is the employer who should be directly responsible to the supplied worker.
the Court disagrees.
The NLRC and the CA correctly ruled that the releases, waivers and quitclaims executed by petitioners
in favor of MBMSI redounded to the benefit of PCCr pursuant to Article 1217 of the New Civil Code.
The reason is that MBMSI is solidarily liable with the respondents for the... valid claims of petitioners
pursuant to Article 109 of the Labor Code.
As correctly pointed out by the respondents, the basis of the solidary liability of the principal with
those engaged in labor-only contracting is the last paragraph of Article 106 of the Labor Code, which
in part provides: "In such cases [labor-only contracting], the person... or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him."
Considering that MBMSI, as the labor-only contractor, is solidarily liable with the respondents, as the
principal employer, then the NLRC and the CA correctly held that the respondents' solidary liability
was already expunged by virtue of the releases, waivers and quitclaims... executed by each of the
petitioners in favor of MBMSI pursuant to Article 1217 of the Civil Code which provides that "payment
made by one of the solidary debtors extinguishes the obligation."
In light of these conclusions, the Court holds that the releases, waivers and quitclaims executed by
petitioners in favor of MBMSI redounded to the respondents' benefit. The liabilities of the
respondents to petitioners are now deemed extinguished.
While it is the duty of the courts to prevent the exploitation of employees, it also behooves the courts
to protect the sanctity of contracts that do not contravene the law.
The law in protecting the rights of the laborer authorizes neither oppression... nor self-destruction of
the employer. While the Constitution is committed to the policy of social justice and the protection of
the working class, it should not be supposed that every labor dispute will be automatically decided in
favor of labor. Management also has its own... rights, which, as such, are entitled to respect and
enforcement in the interest of simple fair play.