98 Phil 711 – Business Organization – Corporation Law – Sociedad Anonima – Corporate Existence 

Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of 1886 as a  sociedad anonima. It was agreed by the incorporators that Benguet Mining was to exist for 50 years.

In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of 1886. Act 1459 essentially introduced the American concept of a corporation. The purpose of the law, among others, is to eradicate the Spanish Code and make sociedades anonimas obsolete.

In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange Commission an application for them to be allowed to extend the life span of Benguet Mining. Then Commissioner Mariano Pineda denied the application as it ruled that the extension requested is contrary to Section 18 of the Corporation Law of 1906 which provides that the life of a corporation shall not be extended by amendment beyond the time fixed in their original articles.

Benguet Mining contends that they have a vested right under the Code of Commerce of 1886 because they were organized under said law; that under said law, Benguet Mining is allowed to extend its life by simply amending its articles of incorporation; that the prohibition in Section 18 of the Corporation Code of 1906 does not apply to sociedades anonimas already existing prior to the Law’s enactment; that even assuming that the prohibition applies to Benguet Mining, it should be allowed to be reorganized as a corporation under the said Corporation Law.

ISSUE: Whether or not Benguet Mining is correct.

HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Had Benguet Mining agreed to extend its life prior to the passage of the Corporation Code of 1906 such right would have vested. But when the law was passed in 1906, Benguet Mining was already deprived of such right.

To allow Benguet Mining to extend its life will be inimical to the purpose of the law which sought to render obsolete sociedades anonimas. If this is allowed, Benguet Mining will unfairly do something which new corporations organized under the new Corporation Law can’t do – that is, exist beyond 50 years. Plus, it would have reaped the benefits of being a  sociedad anonima and later on of being a corporation. Further, under the Corporation Code of 1906, existing sociedades anonimas during the enactment of the law must choose whether to continue as such or be organized as a corporation under the new law. Once a sociedad anonima chooses one of these, it is already proscribed from choosing the other. Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no longer elect to become a corporation when its life is near its end.

26 SCRA 242 – Business Organization – Corporation Law – Domicile of a Corporation – By Laws Must Yield To a Court Order – Corporation is an Artificial Being

In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in 1963, Renato Tayag was appointed as the ancillary administrator (of the properties of Perkins she left behind in the Philippines).

A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock certificates to Tayag. CTC-NY refused. Tayag then  filed with the court a petition to have said stock certificates be declared lost and to compel BCI to issue new stock certificates in replacement thereof. The trial court granted Tayag’s petition.

BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two stock certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that the stock certificates exists and that they are with CTC-NY; that according to BCI’s by laws, it can only issue new stock certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final and executory order as to who really owns a certificate of stock.

ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.

HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given rights and privileges under the law. Corollary, it also has obligations under the law and one of those is to follow valid legal court orders. It is not immune from judicial control because it is domiciled here in the Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. Further, to allow BCI’s opposition is to render the court order against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse then is for our local courts to create a legal fiction such that the stock certificates in issue be declared lost even though in reality they exist in the hands of CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to turn over the stock certificates hence ownership can be said to have been settled in favor of estate of Perkins here. Also, assuming that there really is a conflict between BCI’s bylaws and the court order, what should prevail is the lawful court order. It would be highly irregular if court orders would yield to the bylaws of a corporation. Again, a corporation is not immune from judicial orders.

287 SCRA 232 – Business Organization – Corporation Law – Extent of Power of the Securities and Exchange Commission

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order for PALI to develop its properties.

 PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to facilitate exchange. The PSE Board of Governors denied PALI’s application on the ground that there were multiple claims on the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some other corporations were claiming assets if not ownership over PALI.

PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC reversed PSE’s decisions and ordered the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control. In order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC has the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange.

HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse decisions issued by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted with bad faith when it denied the application of PALI. Based on the multiple adverse claims against the assets of PALI, PSE deemed that granting PALI’s application will only be contrary to the best interest of the general public. It was reasonable for the PSE to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded.

PNB, NASUDECO vs. Andrada Electric and Engineering Company (2002)

Doctrine:Basic is the rule that a corporation has a legal personality distinct andseparate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat publicconvenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that thePhilippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchasedat the resulting public auction by the Development Bank of the Philippines (DBP), willnot make PNB liable for the PASUMIL’s contractual debts to respondent.

Facts:

1.PASUMIL (Pampanga Sugar Mills) engaged the services of Andrada Electric for electrical rewinding, repair, the construction of a power house building,installation of turbines, transformers, among others. Most of the services werepartially paid by PASUMIL, leaving several unpaid accounts.2.On August 1975, PNB, a semi-government corporation, acquired the assets of PASUMIL—assets that were earlier foreclosed by the DBP.3.On September 1975, PNB organized NASUDECO (National Sugar DevelopmentCorporation), under LOI No. 311 to take ownership and possession of the assetsand ultimately, to nationalize and consolidate its interest in other PNB controlledsugar mills. NASUDECO is a semi-government corporation and the sugar arm of the PNB.4.Andrada Electric alleges that PNB and NASUDECO should be liable for PASUMIL’s unpaid obligation amounting to 500K php, damages, and attorney’sfees, having owned and possessed the assets of PASUMIL.Issue:Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AndradaElectric and Engineering Company.Held: NO.Basic is the rule that a corporation has a legal personality distinct and separate from thepersons and entities owning it. The corporate veil may be lifted only if it has been usedto shield fraud, defend crime, justify a wrong, defeat public convenience, insulate badfaith or perpetuate injustice.Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bankof the Philippines (DBP), will not make PNB liable for the PASUMIL's contractualdebts to Andrada Electric & Engineering Company (AEEC).

74 Phil 560 – Civil Law – Torts and Damages – Distinction of Liability of Employers Under Article 2180 and Their Liability for Breach of Contract

In January 1932, Francisco De Borja entered into a contract of sale with the NVSD (Natividad-Vasquez Sabani Development Co., Inc.). The subject of the sale was 4,000 cavans of rice valued at Php2.10 per cavan. On behalf of the company, the contract was executed by Antonio Vasquez as the company’s acting president. NVSD. only delivered 2,488 cavans and failed and refused despite demand to deliver the rest hence De Borja incurred damages (apparently, NVSD was insolvent). He then sue Vasquez for payment of damages.

ISSUE: Whether or not Vasquez is liable for damages.

HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja contracted with. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf.

The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation’s contract, its non fulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable.

JUSTICE PARAS Dissenting :

Vasquez as president of NVSD is liable for damages. Vasquez, as acting president and manager of NVSD, and with full knowledge of the then insolvent status of his company, agreed to sell to De Borja  4,000 cavans of palay. Further, NVSD was soon thereafter dissolved.

Monfort Hermanos Agricultural Development Corp. vs Monfort III(GR No 152542, July 8, 2004, Santiago)

Facts:Monfort Corp represented by its president, Antonia Salvatierra filed a complaint against the respondents for the delivery of motor vehicles, tractors and fighting cocks. The respondents filed a motion to dismiss on the ground that Antonia does not have the authority to represent the corporation in this particular case. Antonia contended that they have submitted board resolutions signed by its directors. However, this board resolution is being contested because four of the directors who signed the resolution have not been duly elected by the company.

Issue:Whether or not Antonia has the authority to represent the corporation in this case.

Held:The SC said Antonia does not have the authority to represent the corporation in this particular case. The board resolution in question was held invalid because the general information sheet of the corporation readily indicated that four out of the six signatories in the board resolution do not appear in the general information sheet. This only showed there is now a doubt whether the four directors appearing in the resolution were duly elected as directors of the corporation.

More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that she was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against Loreta that Wensha had to investigate, then it should have informed her of those charges and required her to explain her side. Wensha should also have kept records of the investigation conducted while Loreta was on leave. The law requires that two notices be given to an employee prior to a valid termination: the first notice is to inform the employee of the charges against her with a warning that she may be terminated from her employment and giving her reasonable opportunity within which to explain her side, and the second notice is the notice to the employee that upon due consideration of all the circumstances, she is being terminated from her employment. This is a requirement of due process and clearly, Loreta did not receive any of those required notices. (WENSHA

SPA CENTER, INC. v. LORETA T. YUNG, G.R. No. 185122,August 16, 2010)

Pioneer insurance vs ca

G.R. No. 84197 July 28, 1989

Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a partnership absent intent to form one (Corporate Law)

FACTS:

1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship

May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract regarding:

2 DC-#A type aircrafts

1 set of necessary spare parts

Total: $ 190,000 in installments

May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim

Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto Cervantes and Constancio Maglana contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corp.. to expand his business

Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security

Restructuring of obligation to change the maturity was done 2x w/o the knowledge of other defendants

made the surety of JDA prescribed so not entitled to reimbursement

Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel mortgage as security

CA affirmed Trial of Merits: Only Lim is liable to pay

ISSUE: W/N failure of respondents to incorporate = de facto partnership.

HELD: NO. CA affirmed.

Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume the relation of partners as bet. themselves, when their purpose is that no partnership shall exists

Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to make others liable)

Lim never intended to form a corp.