Hall vs.

Piccio Issue: W/N the court had jurisdiction to decree the dissolution of the company,
[GR L-2598, 29 June 1950] because it being a de facto corporation, dissolution thereof may only be ordered in a
quo warranto proceeding instituted in accordance with section 19 of the Corporation
Facts: On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma
Law.
Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in
Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co.,
Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the article was an affidavit of
the treasurer stating that 23,428 shares of stock had been subscribed and fully paid
Held: Yes, the court has jurisdiction to take cognizance of the case!
with certain properties transferred to the corporation described in a list appended
thereto. Immediately after the execution of said articles of incorporation, the
corporation proceeded to do business with the adoption of by-laws and the election
of its officers.
Section 20 of the Corporation Law does not apply in this situation
On 2 December 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commissioner, for the issuance of the corresponding
certificate of incorporation. On 22 March 1948, pending action on the articles of
incorporation by the aforesaid governmental office, Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of
First, not having obtained the certificate of incorporation, the Far Eastern Lumber and
Leyte the civil case, alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it Commercial Co. even its stockholders may not probably claim "in good faith" to
dissolved because of bitter dissension among the members, mismanagement and be a corporation. (Under our statue it is to be noted (Corporation Law, sec. 11) that it
fraud by the managers and heavy financial losses. C. Arnold Hall and Bradley P. Hall, is the issuance of a certificate of incorporation by the Director of the Bureau of
filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the Commerce and Industry which calls a corporation into being. The immunity if
cause of action. collateral attack is granted to corporations "claiming in good faith to be a corporation
under this act." Such a claim is compatible with the existence of errors and
After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the
irregularities; but not with a total or substantial disregard of the law. Unless there has
company; and at the request of Brown, et. al., appointed Pedro A. Capuciong as the
receiver of the properties thereof, upon the filing of a P20,000 bond. Hall and Hall been an evident attempt to comply with the law the claim to be a corporation "under
offered to file a counter-bond for the discharge of the receiver, but Judge Piccio this act" could not be made "in good faith." )
refused to accept the offer and to discharge the receiver. Whereupon, Hall and Hall
instituted the present special civil action with the Supreme Court.

Issue: Whether Brown, et. al. may file an action to cause the dissolution of the Far
Eastern Lumber and Commercial Co., without State intervention.
Held: The Securities and Exchange Commission has not issued the corresponding
certificate of incorporation. The personality of a corporation begins to exist only from
the moment such certificate is issued not before. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its
stockholders may not probably claim "in good faith" to be a corporation. Under the
statue it is to be noted that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry which calls a corporation into
being. The immunity if collateral attack is granted to corporations "claiming in good
faith to be a corporation under this act." Such a claim is compatible with the existence
of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith."
This is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution.
Even the existence of a de jure corporation may be terminated in a private suit for its
dissolution between stockholders, without the intervention of the state.
SECTION 20
SECTION 20
Sec. 20. De facto corporations. The due incorporation of any corporation claiming
in good faith to be a corporation under this Code, and its right to exercise corporate
powers, shall not be inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the Solicitor General in a
quo warranto proceeding.
HALL v PICCIO
86 Phil 603, GR No L-2598, June 29, 1950
Facts: On May 28, 1947, petitioners C. Arnold Hall and Bradley P. Hall, and
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S.
Abella, signed and acknowledged in Leyte, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and managers, . Attached to
the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation.
The said articles of incorporation was filed in the office of SEC. Pending action of the
articles of incorporation by SEC, the respondents filed a civil case against the
petitioners alleging that Far Eastern Lumber and Commercial Co was an
unregistered partnership and that they wished it dissolved because of bitter
dissension among the members, mismanagement and fraud by the managers and
heavy financial losses. The court (thru Judge Piccio) ordered the dissolution of the
company. Halls offered to file a counter bond for the discharge of the receiver but the
judge refused to accept the offer and discharge the receiver.
Second, this is not a suit in which the corporation is a party. This is a litigation
between stockholders of the alleged corporation, for the purpose of obtaining its
dissolution. Even the existence of a de jure corporation may be terminated in a
private suit for its dissolution between stockholders, without the intervention of the
state.
Grace Christian High School vs Court of Appeals
281 SCRA 133 Business Organization Corporation Law Members of the
Corporate Board
Grace Christian High School (GCHS) is an educational institution in Grace Village
(QC?). Grace Village Association, Inc. (GVAI)is the homeowners association in Grace
Village. GVAI has an existing by-laws which was already in effect since 1968. But in
1975, the board of directors made a draft amending the by-laws whereby the
representative of GCHS shall have a permanent seat in the 15-seat board. The draft
however was never presented to the general membership for approval. But
nevertheless, the representative of GCHS held a seat in the board for 15 years until
in 1990 when a proposal was made to the board to reconsider the practice of
allowing the GCHS representative in taking a permanent seat. Thereafter, an election
was scheduled for the 15 seat in the board. GCHS opposed the election as it insists
that the election should only be for 14 directors because it has a permanent seat.
GVAI argued that GCHS claim has no basis because the 1975 proposed amendment
was never ratified. GCHS averred that it was ratified when it was allowed to take the
seat for 15 years and as such its right has already vested.
ISSUE: Whether or not the representative from Grace Christian High School should
be allowed to have a permanent seat in the board of directors.
HELD: No. The Corporation Code is clear when it provides that members of the
board of a corporation must be elected by the stockholders (stock corporation) or
the members (non-stock corporation). Admittedly, there are corporations who allow
some of their directors to sit in the board without being elected but such practice
cannot prevail over provisions of law. Practice, no matter how long continued, cannot
give rise to any vested right if it is contrary to law. Further, there is no reason as to
why a representative from GCHS should be given an automatic seat. It should
therefore go through the process of election. It cannot also be argued that the draft of
the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15

Page 1 of 8
years without an election. In the first place, the proposal was merely a draft and even
if passed and approved by the general membership, it cannot be given effect
because it is void and contrary to the law. GCHS seat in the corporate board is at
best merely tolerated by GVAI.
Grace Christian Highschool vs Court of Appeals (1997)
February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
Facts: Petitioner Grace Christian High School is an educational institution offering
preparatory, kindergarten and secondary courses at the Grace Village in Quezon
City. Private respondent Grace Village Association, Inc., is an organization of lot
and/or building owners, lessees and residents at Grace Village, while private
respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman
of the committee on election. It appears that a committee of the board of directors
prepared a draft of an amendment to the by-laws which says that Grace Christian
High school will have a permanent director of the association. This draft was never
presented to the general membership for approval. Nevertheless, the petitioner was
given a permanent seat in the board of directors of the association. The association
committee on election informed that the petitoners permanent seat in board is invalid
because it was never approved by the majority of its members. Hence they will have
an election. The petitioner school requested the cancellation of the election, the
association denied. So the petitioner school instituted an action to the Home
Insurance Guaranty Corporation but their action was denied. The board adopted a
resolution declaring the 1975 provision null and void for lack of approval by members
of the association and the 1968 by-laws to be effective. The petitioner school
appealed to the CA but CA ruled that the amended by laws in 1975 is null and void.
Issue: WON Grace Christian High school can have permanent seat in board as
director?
Held: No. The former and present corporation law leave no room for doubt as to their
meaning: the board of directors of corporations must be elected from among the
stockholders or members. There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by petitioner the
unelected members sit as ex officio members, i.e., by virtue of and for as long as they
hold a particular office. Nor can petitioner claim a vested right to sit in the board on
the basis of practice. Practice, no matter how long continued, cannot give rise to
any vested right if it is contrary to law. Even less tenable is petitioners claim that its
right is coterminus with the existence of the association.
02. Grace Christian High School vs Court of Appeals
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
FACTS:
Grace Christian High School (GCHS) is an educational institution in Grace Village
(QC). Grace Village Association, Inc. (GVAI) is the homeowners association in Grace
Village. GVAI has an existing by-laws which was already in effect since 1968. But in
1975, the board of directors made a draft amending the by-laws whereby the
representative of GCHS shall have a permanent seat in the 15-seat board. The draft
however was never presented to the general membership for approval. But
nevertheless, the representative of GCHS held a seat in the board for 15 years until
in 1990 when a proposal was made to the board to reconsider the practice of
allowing the GCHS representative in taking a permanent seat. Thereafter, an election
was scheduled for the 15 seat in the board. GCHS opposed the election as it insists
that the election should only be for 14 directors because it has a permanent seat.
GVAI argued that GCHS claim has no basis because the 1975 proposed amendment
was never ratified. GCHS averred that it was ratified when it was allowed to take the
seat for 15 years and as such its right has already vested.
Page 2 of 8
ISSUE: WON the representative from Grace Christian High School should be allowed
to have a permanent seat in the board of directors.
HELD: No. The Corporation Code is clear when it provides that members of the
board of a corporation must be elected by the stockholders (stock corporation) or the
members (non-stock corporation). Admittedly, there are corporations who allow some
of their directors to sit in the board without being elected but such practice cannot
prevail over provisions of law. Practice, no matter how long continued, cannot give
rise to any vested right if it is contrary to law. Further, there is no reason as to why a
representative from GCHS should be given an automatic seat. It should therefore go
through the process of election. It cannot also be argued that the draft of the by-laws
in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an
election. In the first place, the proposal was merely a draft and even if passed and
approved by the general membership, it cannot be given effect because it is void and
contrary to the law. GCHS seat in the corporate board is at best merely tolerated by
GVAI.
1. G.R. No. L-45911 April 11, 1979
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO,
WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL
CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA,
respondents.
DOCTRINE: The doctrine of "corporate opportunity" is precisely a recognition by the
courts that the fiduciary standards could not be upheld where the fiduciary was acting
for two entities with competing interests. This doctrine rests fundamentally on the
unfairness, in particular circumstances, of an officer or director taking advantage of
an opportunity for his own personal profit when the interest of the corporation justly
calls for protection.
It is not denied that a member of the Board of Directors of the San Miguel
Corporation has access to sensitive and highly confidential information, such as: (a)
marketing strategies and pricing structure; (b) budget for expansion and
diversification; (c) research and development; and (d) sources of funding, availability
of personnel, proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or director of San
Miguel Corporation, who is also the officer or owner of a competing corporation, from
taking advantage of the information which he acquires as director to promote his
individual or corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made. Certainly,
where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively his
duty, to satisfy his loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.
FACTS:
Petitioner, as stockholder of respondent San Miguel Corporation, filed with the
Securities and Exchange Commission (SEC) a petition for "declaration of nullity of
amended by-laws, cancellation of certificate of filing of amended by- laws, injunction
and damages with prayer for a preliminary injunction" against the majority of the
members of the Board of Directors and San Miguel Corporation as an unwilling
petitioner.
SEC case 1375
As a first cause of action-----(1976) individual respondents amended by bylaws of the
corporation, basing their authority to do so on a resolution of the stockholders
adopted on March 13, 1961, when the outstanding capital stock of respondent
corporation was only P70,139.740.00, divided into 5,513,974 common shares at
P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of
the amendment, the outstanding and paid up shares totalled 30,127,047 with a total
par value of P301,270,430.00. It was contended that according to section 22 of the
Corporation Law and Article VIII of the by-laws of the corporation, the power to
amend, modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less than 2/3 of
the subscribed and paid up capital stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at the time of the amendment. Since
the amendment was based on the 1961 authorization, petitioner contended that the
Board acted without authority and in usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in 1961 had
already been exercised in 1962 and 1963, after which the authority of the Board
ceased to exist.
As a third cause of action, petitioner averred that the membership of the Board of
Directors had changed since the authority was given in 1961, there being six (6) new
directors.
As a fourth cause of action, it was claimed that prior to the questioned amendment,
petitioner had all the qualifications to be a director of respondent corporation, being a
Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights
inherent in stock ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents purposely
provided for petitioner's disqualification and deprived him of his vested right as afore-
mentioned hence the amended by-laws are null and void. 1
As additional causes of action, it was alleged that:
1. corporations have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra vires and void;
2. that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other
corporations, entered into contracts (specifically a management contract) with
respondent corporation, which was allowed because the questioned amendment
gave the Board itself the prerogative of determining whether they or other persons
are engaged in competitive or antagonistic business;
3. that the portion of the amended bylaws which states that in determining whether or
not a person is engaged in competitive business, the Board may consider such
factors as business and family relationship, is unreasonable and oppressive and,
therefore, void; and
4. that the portion of the amended by-laws which requires that "all nominations for
election of directors ... shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting" is likewise unreasonable
and oppressive.
In view of the fact that the annual stockholders' meeting of respondent corporation
had been scheduled for May 10, 1977, petitioner filed with respondent Commission a
Manifestation stating that he intended to run for the position of director of respondent
corporation. Thereafter, respondents filed a Manifestation with respondent
Commission, submitting a Resolution of the Board of Directors of Respondent
Corporation disqualifying and precluding petitioner from being a candidate for director
unless he could submit evidence on May 3, 1977 that he does not come within the
disqualifications specified in the amendment to the by-laws, subject matter of SEC
Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to
resolve pending incidents in the case and to issue a writ of injunction, alleging that
private respondents were seeking to nullify and render ineffectual the exercise of
jurisdiction by the respondent Commission, to petitioner's irreparable damage and
prejudice, Allegedly despite a subsequent Manifestation to prod respondent
Commission to act, petitioner was not heard prior to the date of the stockholders'
meeting.
Petitioner alleges that there appears a deliberate and concerted inability on the part
of the SEC to act hence petitioner came to this Court.
SEC. CASE NO. 1423
Petitioner likewise alleges that, having discovered that respondent corporation has
been investing corporate funds in other corporations and businesses outside of the
primary purpose clause of the corporation, in violation of section 17 1/2 of the
Corporation Law.
Page 3 of 8
----------
With respect to the afore-mentioned SEC cases, it is petitioner's contention before
this Court that respondent Commission gravely abused its discretion when it failed to
act with deliberate dispatch on the motions of petitioner seeking to prevent illegal
and/or arbitrary impositions or limitations upon his rights as stockholder of
respondent corporation, and that respondent are acting oppressively against
petitioner, in gross derogation of petitioner's rights to property and due process. He
prayed that this Court direct respondent SEC to act on collateral incidents pending
before it.
Issues:
1. Whether or not amended by-laws are valid is purely a legal question which public
interest requires to be resolved
2. Whether or not the amended by-laws of SMC of disqualifying a competitor from
nomination or election to the Board of Directors of SMC are valid and reasonable
3. Whether or not respondent SEC gravely abused its discretion in denying
petitioner's request for an examination of the records of San Miguel International Inc.,
a fully owned subsidiary of San Miguel Corporation
HELD:
1. Yes. It is settled that the doctrine of primary jurisdiction has no application where
only a question of law is involved. 8a Because uniformity may be secured through
review by a single Supreme Court, questions of law may appropriately be determined
in the first instance by courts. 8b In the case at bar, there are facts which cannot be
denied, viz.: that the amended by-laws were adopted by the Board of Directors of the
San Miguel Corporation in the exercise of the power delegated by the stockholders
ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on
February 10, 1977 held specially for that purpose, the amended by-laws were ratified
by more than 80% of the stockholders of record; that the foreign investment in the
Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was
made by the San Miguel Corporation in 1948; and that in the stockholders' annual
meeting held in 1972 and 1977, all foreign investments and operations of San Miguel
Corporation were ratified by the stockholders.
2. Yes. Petitioner claims that the amended by-laws are invalid and unreasonable
because they were tailored to suppress the minority and prevent them from having
representation in the Board", at the same time depriving petitioner of his "vested
right" to be voted for and to vote for a person of his choice as director.
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San
Miguel Corporation content that ex. conclusion of a competitor from the Board is
legitimate corporate purpose, considering that being a competitor, petitioner cannot
devote an unselfish and undivided Loyalty to the corporation; that it is essentially a
preventive measure to assure stockholders of San Miguel Corporation of reasonable
protective from the unrestrained self-interest of those charged with the promotion of
the corporate enterprise; that access to confidential information by a competitor may
result either in the promotion of the interest of the competitor at the expense of the
San Miguel Corporation, or the promotion of both the interests of petitioner and
respondent San Miguel Corporation, which may, therefore, result in a combination or
agreement in violation of Article 186 of the Revised Penal Code by destroying free
competition to the detriment of the consuming public.
A. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF
DIRECTORS EXPRESSLY CONFERRED BY LAW -- In this jurisdiction, under
section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the
qualifications, duties and compensation of directors, officers and employees ... " This
must necessarily refer to a qualification in addition to that specified by section 30 of
the Corporation Law, which provides that "every director must own in his right at least
one share of the capital stock of the stock corporation of which he is a director ... " In
Government v. El Hogar, 14 the Court sustained the validity of a provision in the
corporate by-law requiring that persons elected to the Board of Directors must be
holders of shares of the paid up value of P5,000.00, which shall be held as security
for their action, on the ground that section 21 of the Corporation Law expressly gives
the power to the corporation to provide in its by-laws for the qualifications of directors
and is "highly prudent and in conformity with good practice. "
B. NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR --
Pursuant to section 18 of the Corporation Law, any corporation may amend its
articles of incorporation by a vote or written assent of the stockholders representing
at least two-thirds of the subscribed capital stock of the corporation If the amendment feasibility study. Sano submitted a letter proposal dated October 17, 1986 (First
changes, diminishes or restricts the rights of the existing shareholders then the Contract) to Punsalan regarding his request for professional engineering consultancy
disenting minority has only one right, viz.: "to object thereto in writing and demand
payment for his share." Under section 22 of the same law, the owners of the majority services which services are offered in the amount of P350,000.00. Initially, Cheng
of the subscribed capital stock may amend or repeal any by-law or adopt new by-
Yang, the majority stockholder of petitioner, objected to said offer as another
laws. It cannot be said, therefore, that petitioner has a vested right to be elected
director, in the face of the fact that the law at the time such right as stockholder was company can provide for the same service at a lower price. However, Punsalan
acquired contained the prescription that the corporate charter and the by-law shall be
subject to amendment, alteration and modification. preferred Sanos services because of lattersmembership in the task force, which

task force was supervising the transition of the Bureau from the Marcos to the Aquino
C. AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A
STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A government. Petitioner, through Punsalan, thereafter confirmed the contract.
CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE
OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID -- section 21 of the
Corporation Law expressly provides that a corporation may make by-laws for the On December 4, 1986, upon Punsalans request, private respondent sent petitioner
qualifications of directors. Thus, it has been held that an officer of a corporation another letter-proposal (Second Contract) which offers the same service already at
cannot engage in a business in direct competition with that of the corporation where
he is a director by utilizing information he has received as such officer, under "the P400,000.00 instead of the previous P350,000.00 offer. On January 10, 1987, Andy
established law that a director or officer of a corporation may not enter into a
Villaceren, vice-president of petitioner, received the operations manual prepared by
competing enterprise which cripples or injures the business of the corporation of
which he is an officer or director. Sano and which manual operations was submitted by petitioner to the Bureau in

It is also well established that corporate officers "are not permitted to use their compliance for its application to operate a bonded warehouse. Thereafter, in May
position of trust and confidence to further their private interests." In a case where
1987, the Bureau issued to it a license to operate. Private respondent also conducted
directors of a corporation cancelled a contract of the corporation for exclusive sale of
a foreign firm's products, and after establishing a rival business, the directors entered in the third week of January 1987 in the warehouse of petitioner, a three-day training
into a new contract themselves with the foreign firm for exclusive sale of its products,
the court held that equity would regard the new contract as an offshoot of the old seminar for the petitioners employees.
contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may
not reap the fruits of his misconduct to the exclusion of his principal. 28 On February 9, 1988, private respondent filed a collection suit against petitioner. He

3. YEs. Pursuant to the second paragraph of section 51 of the Corporation Law,
"(t)he record of all business transactions of the corporation and minutes of any
meeting shall be open to the inspection of any director, member or stockholder of the
corporation at reasonable hours."
alleged that he had prepared an operations manual for petitioner, conducted a
seminar-workshop for its employees and delivered to it a computer program but that
despite demand, petitioner refused to pay him for his services. Petitioner, on its part,

The stockholder's right of inspection of the corporation's books and records is based denied that Sano had prepared such manual operations and at the same time
upon their ownership of the assets and property of the corporation. It is, therefore, an
alleged that the letter-agreement was signed by Punsalan without authority and as
incident of ownership of the corporate property, whether this ownership or interest be
termed an equitable ownership, a beneficial ownership, or a ownership. This right is such unenforceable. It alleges that the disputed contract was not authorized by
predicated upon the necessity of self-protection. It is generally held by majority of the
courts that where the right is granted by statute to the stockholder, it is given to him its board of directors.
as such and must be exercised by him with respect to his interest as a stockholder
and for some purpose germane thereto or in the interest of the corporation. In other Issue: Whether or not the Second Contract signed by Punsalan is enforceable and
words, 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 binding against petitioner.
corporation. In the case at bar, considering that the foreign subsidiary is wholly
owned by respondent San Miguel Corporation and, therefore, under its control, it Held: Yes, the Second Contract is binding and enforceable. The general rule is that,
would be more in accord with equity, good faith and fair dealing to construe the
statutory right of petitioner as stockholder to inspect the books and records of the in the absence of authority from the board of directors, no person, not even its
corporation as extending to books and records of such wholly subsidiary which are in
officers, can validly bind a corporation. A corporation is a juridical person, separate
respondent corporation's possession and control.
and distinct from its stockholders and members having xxx powers, attributes and
WHEREFORE, judgment is hereby rendere GRANTING the petition by allowing
properties expressly authorized by law or incident to its existence. Being a juridical
petitioner to examine the books and records of San Miguel International, Inc. as
specified in the petition. The petition, insofar as it assails the validity of the amended entity, a corporation may act through itsboard of directors, which exercises almost all
by- laws and the ratification of the foreign investment of respondent corporation, for
lack of necessary votes, is hereby DISMISSED. No costs. corporate powers, lays down all corporate business policies and is responsible for

the efficiency of management, as provided in Section 23 of the Corporation Code.

Peoples Aircargo and Warehousing Co., Inc. vs. Court of Appeals [October 7, 1998]

However, it is familiar doctrine that if a corporation knowingly permits one of its

Post under case digests, Commercial Law at Wednesday, March 21, 2012 Posted
by Schizophrenic Mind officers, or any other agent, to act within the scope of an apparent authority, it holds

him out to the public as possessing the power to do those acts and thus, the
Facts: Petitioner is a domestic corporation organized in 1986 to operate a customs
corporation witll, as against anyone who has in good faith dealt with it through such
bonded warehouse at the old Manila International Airport (MIA). To obtain a license
agent, be estopped from denying the agents authority. Thus private respondent shall
from the Bureau of Customs, Antonio Punsalan, Jr., the corporation president,
not be faulted for believing that Punsalans conformity to the contract in dispute was
solicited a proposal from private respondent Stefani Sano for the preparation of a
Page 4 of 8
also binding on petitioner. In the case at bar, petitioner, through its president Antonio
Punsalan Jr., entered into the First Contract without first securing board approval.
Despite such lack of board approval, petitioner did not object to or repudiate said
contract, thus "clothing" its president with the power to bind the corporation. The
grant of apparent authority to Punsalan is evident in the testimony of Yong senior
vice president, treasurer and major stockholder of petitioner. Furthermore, private
respondent prepared an operations manual and conducted a seminar for the
employees of petitioner in accordance with their contract. Petitioner accepted the
operations manual, submitted it to the Bureau of Customs and allowed the seminar
for its employees. As a result of its aforementioned actions, petitioner was given by
the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo
then that the Second Contract was outside the usual powers of the president,
petitioner's ratification of said contract and acceptance of benefits have made it
binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified
"by the acceptance of benefits under them" under Article 1405.
Marc II Marketing, Inc. vs. Alfredo M. Joson [GR No. 171993, December 12, 2011]
Post under case digests, Commercial Law, labor law at Tuesday, March 01,
2016 Posted by Schizophrenic Mind
FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director
and stockholder of Marc II Marketing (petitioner corporation). Before petitioner
corporation was officially incorporated, respondent has already been engaged by
petitioner Lucila Joson, in her capacity as President of Marc Marketing Inc., to work
as the General Manager of petitioner corporation through a management contract.
However, petitioner corporation decided to stop and cease its operation wherein
respondent's services were then terminated. Feeling aggrieved, respondent filed a
Complaint for Reinstatement and Money Claim against petitioners before the
Labor Arbiter which ruled in favor of respondent. The National Labor and Relations
Commission (NLRC) reversed said decision. The Court of Appeals (CA) however,
upheld the ruling of the Labor Arbiter. Hence, this petition.
ISSUE: Whether or nor the Labor Arbiter has jurisdiction over the controversy at bar
RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides
that it is the Labor Arbiter who has the original and exclusive jurisdiction over cases
involving termination or dismissal of workers when the person dismissed or
terminated is a corporate officer, the case automatically falls within the province of
the Regional Trial Court (RTC). The dismissal of a corporate officer is always
regarded as a corporate act and/or an intra-corporate controversy.
In conformity with Section 25 of the Corporation Code, whoever are the corporate
officers enumerated in the by-laws are the exclusive officers of the corporation and
the Board has no power to create other officers without amending first the corporate
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by-laws. However, the Board may create appointive positions other than the positions
of the corporate officers, but the persons occupying such positions are not
considered as corporate officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of the corporate officers,
except those functions lawfully delegated to them. Their functioning and duties are to
be determined by the Board of Directors/Trustees.
In the case at bar, the respondent was not a corporate officer of petitioner corporation
because his position as General Manager was not specifically mentioned in the
roster of corporate officers in its corporate by-laws. Thus respondent, can only be
regarded as its employee or subordinate official. Accordingly, respondent's dismissal
as petitioner corporation's General Manager did not amount to an intra-corporate
controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not
with the RTC.
Marc II Marketing, Inc. vs. Joson
G.R. No. 171993. December 12, 2011.
Petitioner Marc II Marketing, Inc. is a corporation primarily engaged in buying,
marketing, selling and
distributing in retail or wholesale for export or import household appliances and
products and other items.
Respondent Alfredo Joson, on the other hand, was the General Manager,
incorporator, director and stockholder of
petitioner corporation. Lucila Goson, in her capacity as President of Marc Marketing,
Inc., to work as the General
Manager of petitionercorporation. It was formalized through the execution of a
Management Contract as petitioner
corporation is yet to be incorporated at the time of its execution. It was explicitly
provided therein that respondent
shall be entitled to 30% of its net income for his work as General Manager.
Respondent will also be granted 30% of
its net profit to compensate for the possible loss of opportunity to work overseas.
Petitioner corporation decided to
stop and cease its operations, due to poor sales collection aggravated by the
inefficient management of its affairs. On
the same date, it formally informed respondent of the cessation of its business
operation. Concomitantly, respondent
was apprised of the termination of his services as General Manager since his
services as such would no longer be
necessary for the winding up of its affairs. Feeling aggrieved, respondent filed a
Complaint for Reinstatement and
Money Claim against petitioners before the Labor Arbiter. Insisting that the Labor
Arbiter has no jurisdiction over
the case, petitioners instead filed an Urgent Motion to Resolve the Motion to Dismiss
and the Motion to Suspend
Filing of Position Paper.
Which between the Labor Arbiter or the RTC, has jurisdiction over respondents
dismissal as General
Manager of petitioner corporation.
Whether respondent as General Manager of petitioner corporation is a corporate
officer or a mere employee
of the latter.
The Labor Arbiter has jurisdiction over the case. Respondents dismissal as
petitioner corporations General
Manager did not amount to an intra-corporate controversy which is exclusively
cognizable by the Regional Trial
Courts. The dismissal of a corporate officer is always regarded as a corporate and/or
an intra-corporate controversy.
Intra-corporate controversies also includes controversies in the election or
appointments of directors, trustees,
officers or managers of such corporations, partnerships or associations.
Respondent is not a corporate officer, but an employee of the corporation. Corporate
officers are those officers of a
corporate who are given that character either by the Corporation Code or by the
corporations by-laws. The
aforesaid Section 25 of the Corporation Code, particularly the phrase such other
officers as may be provided for in
the by-laws, has been clarified and elaborated in this Courts recent pronouncement
in Matling Industrial and
Commercial Corporation v. Coros, 633 SCRA 12 (2010), where it held, thus:
Conformably with Section 25, a
position must be expressly mentioned in the [b]y-[l]aws in order to be considered as a
corporate office. Thus, the
creation of an office pursuant to or under a [b]y-[l]aw enabling provision is not enough
to make a position a
corporate office. A careful perusal of petitioner corporations by-laws, particularly
paragraph 1, Section 1, Article
IV, would explicitly reveal that its corporate officers are composed only of: (1)
Chairman; (2) President; (3) one or
more Vice-President; (4) Treasurer; and (5) Secretary. The position of General
Manager was not among those
enumerated. The board of directors has no power to create other corporate offices
without first amending the
corporate by-laws so as to include therein the newly created corporate office. The
corporate officers enumerated in
the by-laws are the exclusive officers of the corporation while the rest could only be
regarded as mere employees or
subordinate officials.
Spouses David and Coordinated Group, Inc. vs. Construction Industry
Arbitration Commission and Spouses Quiambao
G.R. No. 159795; July 30, 2004
Justice Puno
Facts:
1 Petitioner Coordinated Group, Inc. (CGI) is a corporation engaged in the
construction business, with petitioner-spouses Roberto and Evelyn David
as its President and Treasurer, respectively.
2 Respondent spouses Narciso and Aida Quiambao engaged the services
of petitioner CGI to design and construct a five-storey concrete
office/residential building on their land in Tondo, Manila. The Design/Build
Contract of the parties provided that: (a) petitioner CGI shall prepare the
working drawings for the construction project; (b) respondents shall pay
petitioner CGI the sum of Seven Million Three Hundred Nine Thousand
Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the
construction of the building, including the costs of labor, materials and
equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost
of the design; and (c) the construction of the building shall be completed
within nine (9) months after securing the building permit.
3 However, petitioners failed to follow the specifications and plans as
previously agreed upon. Respondents demanded the correction of the
errors but petitioners failed to act on their complaint. Consequently,
respondents rescinded the contract on October 31, 1998, after paying
74.84% of the cost of construction.
4 Respondents then engaged the services of another contractor, RRA and
Associates, to inspect the project and assess the actual accomplishment
of petitioners in the construction of the building. It was found that
petitioners revised and deviated from the structural plan of the building
without notice to or approval by the respondents.
5 Respondents filed a case for breach of contract against petitioners before
the Regional Trial Court (RTC) of Manila. At the pre-trial conference, the
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parties agreed to submit the case for arbitration to the Construction
Industry Arbitration Commission (CIAC).
6 Atty. Custodio O. Parlade was appointed by the CIAC as sole arbitrator to
resolve the dispute. With the agreement of the parties, Atty. Parlade
designated Engr. Loreto C. Aquino to assist him in assessing the technical
aspect of the case.
7 The RTC of Manila then dismissed the case and transmitted its records to
the CIAC.
8 After conducting hearings and two (2) ocular inspections of the
construction site, the arbitrator rendered judgment against petitioners.
9 Petitioners appealed to the Court of Appeals which affirmed the
arbitrators decision but deleted the award for lost rentals.
Issue:
Whether or not petitioners can be held jointly and severally liable with co-petitioner
Coordinated Group, Inc.
Ruling:
The issue may appear to be a question of law as it would call for
application of the law on the separate liability of a corporation. However, the law can
be applied only after establishing a factual basis, i.e., whether petitioner spouses as
corporate officers were grossly negligent in ordering the revisions on the construction
plan without the knowledge and consent of the respondent spouses. On this issue,
the Court of Appeals again affirmed the factual findings of the arbitrator, thus:
As a general rule, the officers of a corporation are
not personally liable for their official acts unless it is shown that
they have exceeded their authority. However, the personal
liability of a corporate director, trustee or officer, along with
corporation, may so validly attach when he assents to a
patently unlawful act of the corporation or for bad faith or gross
negligence in directing its affairs.
The following findings of public respondent (CIAC)
would support its ruling in holding petitioners severally and
jointly liable with the Corporation:
"x x x When asked whether the Building was underdesigned
considering the poor quality of the soil, Engr. Villasenor
defended his structural design as adequate. He admitted that
the revision of the plans which resulted in the construction of
additional columns was in pursuance of the request of Engr.
David to revise the structural plans to provide for a significant
reduction of the cost of construction. When Engr. David was
asked for the justification for the revision of the plans, he
confirmed that he wanted to reduce the cost of construction. x
x x"
Thus, the petitioner spouses can be held jointly and severally liable with
co-petitioner Coordinated Group, Inc.
Inter-Asia Investments Industries vs. CA Case Digest
Inter-Asia Investments Industries vs. Court of Appeals
[GR 125778, 10 June 2003]
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock
Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries)
for and in consideration of the sum of P19,500,000.00 all its right, title and interest in
and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The
Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of
Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement,
Inter-Asia as seller made warranties and representations. The Agreement was later
amended with respect to the "Closing Date," originally set up at 10:00 a.m. of 30
September 1978, which was moved to 31 October 1978, and to the mode of payment
of the purchase price. The Agreement, as amended, provided that pending
submission by SGV of FARMACOR's audited financial statements as of 31 October
1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated
purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00,
Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of
P12,000,000.00; and that if the amount retained is not sufficient to make up for the
deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference
within 5 days from date of receipt of the audited financial statements.
Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00
upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From
the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated
28 November 1978 submitted by SGV, it appears that FARMACOR had, for the 10
months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's
equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of
P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00
after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed
Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to
P6,225,775.00 which is the difference between the contract price of P19,500,000.00
and the shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries
having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of
P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed
by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00,
it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII)
superstructures in the amount of P759,570.00. To the proposal respondent agreed.
Inter-Asia, however, welched on its promise.
to sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to
perform all acts which are expressly, impliedly and inherently stated therein.
G.R. No. 193840 : June 15, 2011
MEGAN SUGAR CORPORATION, Petitioner, v. REGIONAL TRIAL COURT OF
ILOILO, BRANCH 68, DUMANGAS, ILOILO; NEW FRONTIER SUGAR CORP.
AND EQUITABLE PCI BANK, Respondents.
PERALTA, J.:
FACTS:
Respondent New Frontier Sugar Corporation (NFSC) obtained a loan from
respondent Equitable PCI Bank (EPCIB) which was secured by a real estate
mortgage over NFSC land consisting of ninety-two (92) hectares located in Passi
City, Iloilo, and a chattel mortgage over NFSC sugar mill.

Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus NFSC subsequently entered into a Memorandum of Agreement (MOA) with Central
P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint Iloilo Milling Corporation (CIMICO), whereby the latter agreed to take-over the
against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action operation and management of the NFSC raw sugar factory and facilities.
of which was for the recovery of above-said amount of P4,853,503.00 17 plus
interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries NFSC filed a compliant for specific performance and collection against CIMICO for
failed to pay the balance of the purchase price and accordingly set up a the latter failure to pay its obligations under the MOA.
counterclaim. Finding for Asia Industries, the trial court rendered on 27 November
1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00 CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a
plus interest thereon at the legal rate from the filing of the complaint until fully paid, case against NFSC for sum of money and/or breach of contract. For NFSC failure to
the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the pay its debt, EPCIB instituted extra-judicial foreclosure proceedings over NFSC land
counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January and sugar mill. During public auction, EPCIB was the sole bidder and was thus able
1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for to buy the entire property and consolidate the titles in its name.
reconsideration of the decision having been denied by the Court of Appeals by
Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari. The RTC issued a restraining order, directing EPCIB and PISA to desist from taking
possession over the property in dispute. Hence, CIMICO was able to continue its
Issue: Whether the 24 January 1980 letter signed by Inter-Asias president is valid
possession over the property.
and binding.
CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA
Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and
whereby MEGAN assumed CIMICO rights, interests and obligations over the
binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court
property.
of Appeals, the general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
During the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty.
corporation is a juridical person, separate and distinct from its stockholders and
Sabig) appeared before the RTC and entered his appearance as counsel for
members, "having . . . powers, attributes and properties expressly authorized by law
MEGAN.Several counsels objected to Atty. Sabig appearance since MEGAN was not
or incident to its existence." Being a juridical entity, a corporation may act through its
a party to the proceedings; however, Atty. Sabig explained to the court that MEGAN
board of directors, which exercises almost all corporate powers, lays down all
had purchased the interest of CIMICO and manifested that his statements would bind
corporate business policies and is responsible for the efficiency of management, as
MEGAN./span>
provided in Section 23 of the Corporation Code of the Philippines. Under this
provision, the power and responsibility to decide whether the corporation should
In denying MEGAN petition, the CA ruled that since Atty. Sabig had actively
enter into a contract that will bind the corporation is lodged in the board, subject to
participated before the RTC, MEGAN was already estopped from assailing the RTC
the articles of incorporation, bylaws, or relevant provisions of law. However, just as a
jurisdiction.
natural person may authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and powers to officers,
ISSUE: Whether Atty. Sabig is the agent of MEGAN and is thus estopped from
committees or agents. The authority of such individuals to bind the corporation is
assailing the jurisdiction of the RTC.
generally derived from law, corporate bylaws or authorization from the board, either
expressly or impliedly by habit, custom or acquiescence in the general course of
HELD: YES.
business, viz: "A corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that [the] authority to do so has been
CIVIL LAW: Doctrine of Estoppel, Relationship of Principal and Agent
conferred upon him, and this includes powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally
After a judicial examination of the records pertinent to the case at bar, this Court
conferred, powers added by custom and usage, as usually pertaining to the particular
agrees with the finding of the CA that MEGAN is already estopped from assailing the
officer or agent, and such apparent powers as the corporation has caused person
jurisdiction of the RTC./span>
dealing with the officer or agent to believe that it has conferred.... [A]pparent authority
is derived not merely from practice. Its existence may be ascertained through (1) the
The doctrine of estoppel is based upon the grounds of public policy, fair dealing,
general manner in which the corporation holds out an officer or agent as having the
good faith and justice, and its purpose is to forbid one to speak against his own act,
power to act or, in other words the apparent authority to act in general, with which it
representations, or commitments to the injury of one to whom they were directed and
clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or
who reasonably relied thereon.The doctrine of estoppel springs from equitable
constructive knowledge thereof, within or beyond the scope of his ordinary powers. It
principles and the equities in the case. It is designed to aid the law in the
requires presentation of evidence of similar acts executed either in its favor or in
administration of justice where without its aid injustice might result. It has been
favor of other parties. It is not the quantity of similar acts which establishes apparent
applied by this Court wherever and whenever special circumstances of a case so
authority, but the vesting of a corporate officer with the power to bind the
demand.
corporation." Hence, an officer of a corporation who is authorized to purchase the
stock of another corporation has the implied power to perform all other obligations
Based on the events and circumstances surrounding the issuance of the assailed
arising therefrom, such as payment of the shares of stock. By allowing its president
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orders, this Court rules that MEGAN is estopped from assailing both the authority of
Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN,
that Atty. Sabig said in court that he was only appearing for the hearing of Passi
Sugar motion for intervention and not for the case itself, his subsequent acts, coupled
with MEGAN inaction and negligence to repudiate his authority, effectively bars
MEGAN from assailing the validity of the RTC proceedings under the principle of
estoppel.
MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed
him with apparent authority to act in their behalf. It must be remembered that when
Atty. Sabig entered his appearance, he was accompanied by Concha, MEGAN
director and general manager.Concha himself attended several court hearings, and
on December 17, 2002, even sent a letter to the RTC asking for the status of the
case. A corporation may be held in estoppel from denying as against innocent third
persons the authority of its officers or agents who have been clothed by it with
ostensible or apparent authority. Atty. Sabig may not have been armed with a board
resolution, but the appearance of Concha made the parties assume that MEGAN had
knowledge of Atty. Sabig actions and, thus, clothed Atty. Sabig with apparent
authority such that the parties were made to believe that the proper person and entity
to address was Atty. Sabig. Apparent authority, or what is sometimes referred to as
the "holding out" theory, or doctrine of ostensible agency, imposes liability, not as the
result of the reality of a contractual relationship, but rather because of the actions of a
principal or an employer in somehow misleading the public into believing that the
relationship or the authority exists.
One of the instances of estoppel is when the principal has clothed the agent with
indicia of authority as to lead a reasonably prudent person to believe that the agent
actually has such authority. With the case of MEGAN, it had all the opportunity to
repudiate the authority of Atty. Sabig since all motions, pleadings and court orders
were sent to MEGAN office. However, MEGAN never questioned the acts of Atty.
Sabig and even took time and effort to forward all the court documents to him.
To this Court mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as
MEGAN was aware from the very beginning that CIMICO was involved in an on-
going litigation.
PETITION DENIED.
Megan Sugar Corporation v. Regional Trial Court of Iloilo, et al
G.R. No. 170352, 1 June 2011, (Peralta, J.)
FACTS:
New Frontier Sugar Corporation (NFSC) obtained a loan from Equitable PCI Bank
secured by a real estate mortgage over NFSCs land and a chattel mortgage over
NFSCs sugar mill. Due to illiquidity problems, NFSC entered into a MOA with Central
Iloilo Milling Corporation (CIMICO) whereby the latter would take-over the operation
and management of NFSC.
NFSC filed a complaint for specific performance against CIMICO for failure to pay its
obligations. CIMICO countered by filing a case for sum of money and breach of
contract.
Meanwhile, Equitable PCI Bank instituted extra-judicial foreclosure proceedings due
to NFSCs failure to pay. During the public auction, Equitable was the sole bidder. It
was able to consolidate the titles in its name. Equitable then hired Industrial Security
Agency (PISA) to secure the land and mill. Afterwards, Equitable sold the same to
Passi Iloilo Sugar Central.
Despite the consolidation of title and the subsequent sale of the property to Passi,
CIMICO was able to retain the property due to a restraining order it filed. Afterwards,
CIMICO and Megan Sugar Corporation entered into a MOA whereby Megan
assumed CIMICOs rights and interests over the property.
Passi Sugar then filed a motion for intervention claiming to be the vendee of
Equitable. During the hearing for the said motion, Atty. Reuben Mikhail Sabig
appeared before the RTC as counsel for Megan. He manifested that his statements
would bind Megan. Several motions were filed by Equitable to hold in escrow the
sugar quedans or the proceeds therefrom. The RTC granted such motion. Megan
Corporation or its director officer was ordered to deposit in escrow the sugar
quedans.
Atty. Sabig appearing for Megan, filed a motion for reconsideration which was denied.
Then, Megan on its own, appealed before the CA alleging that the RTC which
rendered the decision had no jurisdiction over Megan. CA denied such motion ruling
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that Megan was already estopped from assailing the RTCs jurisdiction since Atty.
Sabig who represented that he was the counsel for Megan, had actively participated
before the RTC.
ISSUE:
Whether or not Megan Sugar Corporation is estopped from questioning the
jurisdiction of the RTC
RULING:
Petition DENIED. Megan Sugar Corporation is already estopeed.
MEGAN points out that its board of directors did not issue a resolution authorizing
Atty. Sabig to represent the corporation before the RTC. It contends that Atty. Sabig
was an unauthorized agent and as such his actions should not bind the corporation.
In addition, MEGAN argues that the counsels of the different parties were aware of
Atty. Sabigs lack of authority because he declared in court that he was still in the
process of taking over the case and that his voluntary appearance was just for the
hearing of the motion for intervention of Passi Sugar.
After a judicial examination of the records pertinent to the case at bar, this Court
agrees with the finding of the CA that MEGAN is already estopped from assailing the
jurisdiction of the RTC.
The doctrine of estoppel is based upon the grounds of public policy, fair dealing,
good faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been
applied by this Court wherever and whenever special circumstances of a case so
demand.
MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed
him with apparent authority to act in their behalf. It must be remembered that when
Atty. Sabig entered his appearance, he was accompanied by Concha, MEGANs
director and general manager. Concha himself attended several court hearings, and
on December 17, 2002, even sent a letter to the RTC asking for the status of the
case. A corporation may be held in estoppel from denying as against innocent
third persons the authority of its officers or agents who have been clothed by it
with ostensible or apparent authority.
Apparent authority, or what is sometimes referred to as the "holding out"
theory, or doctrine of ostensible agency, imposes liability, not as the result of
the reality of a contractual relationship, but rather because of the actions of a
principal or an employer in somehow misleading the public into believing that
the relationship or the authority exists.
Like the CA, this Court notes that MEGAN never repudiated the authority of Atty.
Sabig when all the motions, pleadings and court orders were sent not to the office of
Atty. Sabig but to the office of MEGAN, who in turn, would forward all of the same to
Atty. Sabig. One of the instances of estoppel is when the principal has clothed
the agent with indicia of authority as to lead a reasonably prudent person to
believe that the agent actually has such authority. With the case of MEGAN, it
had all the opportunity to repudiate the authority of Atty. Sabig since all motions,
pleadings and court orders were sent to MEGANs office. However, MEGAN never
questioned the acts of Atty. Sabig and even took time and effort to forward all the
court documents to him.
In addition, it bears to point out that MEGAN was negligent when it did not assail
the authority of Atty. Sabig within a reasonable time from the moment when the
first adverse order was issued. With such an order that directly affects the
disposition of MEGANs assets and one that involves a substantial amount, it is
inconceivable for Atty. Sabig or for Concha not to inform MEGANs board of such an
order or for one of the directors not to hear of such order thru other sources. As
manifested by NFSC, MEGAN is a family corporation and Concha is the son-in-law of
Eduardo Jose Q. Miranda (Eduardo), the President of MEGAN. Elizabeth Miranda,
one of the directors, is the daughter of Eduardo. MEGANs treasurer, Ramon Ortiz is
a cousin of the Mirandas. Thus, given the nature and structure of MEGANs board, it
is unimaginable that not a single director was aware of the January 16, 2003 RTC
Order. However, far from repudiating the authority of Atty. Sabig, Atty. Sabig even
filed a Manifestation36 that MEGAN will deposit the quedans, as directed by the
RTC, every "Friday of the week."
The rule is that the active participation of the party against whom the action was
brought, coupled with his failure to object to the jurisdiction of the court or
administrative body where the action is pending, is tantamount to an invocation of
that jurisdiction and a willingness to abide by the resolution of the case and will bar
said party from later on impugning the court or bodys jurisdiction.