Cases in Corporation law
120
BUSINESS ORGANIZATION II CORPORATION LAW COMPILATION OF CASE DIGESTS 2013
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corporation lawbanking lawscommercial law
Transcript of Cases in Corporation law
BUSINESS ORGANIZATION II
CORPORATION LAW
COMPILATION OF CASE DIGESTS
2013
CORPORATION LAWVITALIANO N. AGUIRRE II AND FIDEL N. AGUIRRE II AND FIDEL N. AGUIRRE VS. FQB+, INC., NATHANIEL D. BOCOBO, PRISCILA BOCOBO AND ANTONIO DE VILLA
G.R. No. 170770. January 9, 2013.
DISSOLUTION, EFFECT ON PROPERTY RIGHTS
(by Gibran Abubakar)
FACTS:
On October 5, 2004, Vitaliano (as subscriber) filed, in his individual capacity and on behalf of FQB+7, Inc. a complaint for intra-corporate dispute, injunction, inspection of corporate books and records, and damages against Nathaniel Bacobo, Priscila Bacobo, and Antonio De Villa, herein respondents.
The complaint alleges that in April 2004, Vitaliano discovered a new General Information Sheet (GIS) of FQB+7 in the SEC records, which was filed by Nathaniel and Priscila as heirs of the corporate president, Francisco Bacobo. The GIS provided for a substantial change in the composition of BOD. It was stated therein an annual meeting held on September 2002 has elected a new set of BOD, naming Nathaniel and Priscila as Directors.
Questioning the validity of the alleged stockholders meeting, Vitaliano wrote a letter to the "real" BOD. He further asked for the rectification of the erroneous entries in the GIS, and for the inspection of corporate books and records. However, the BOD did not grant his request.
Nathaniel, acting as the newly appointed president, appointed Antonio as the corporation's attorney-in-fact, with the power of administration over the corporation's farm. Fidel Aguirre, as director, prevented Antonio to take possession of the farm.
Believing that respondents are usurping the management powers of the "real" BOD, the said complaint for intra-corporate dispute, injunction, inspection of corporate books and records, and damages was filed.
The RTC issued the writ of preliminary injunction. Aggrieved, respondents filed a petition for certiorari in the CA questioning the jurisdiction
of Manila RTC. They contended, inter alia, that FQB+7's Certificate of Registration was already revoked by SEC on September 29, 2003 for failure to comply with the reportorial requirements; and that, the corporation has been dissolved for that purpose, affecting the trial court's jurisdiction to hear the intra-corporate dispute.
CA held that the RTC does not have jurisdiction to entertain an intra-corporate dispute when a corporation is already dissolved, since its juridical personality is lost as a result thereof. CA reminded the parties to proceed with the liquidation of the dissolved corporation based on the existing GIS.
Having denied their MR, petitioners elevated this case before the SC.
ISSUE:
Whether or not a corporate dissolution renders an existing intra-corporate dispute moot and academic, and that the trial court has no jurisdiction over it.
HELD: NO.
Vitaliano's complaint seeks 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. These issues cannot be mooted by the dissolution of the corporation. Corporation's BOD is not rendered functus officio by its dissolution. Since, Section 122 of the Corporation Code 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.
As regards shareholdings in a corporation, dissolution does not extinguish such property right. A party's stockholdings in a corporation, whether existing or dissolved, is a property right (Gamboa v. Teves, 2011) which he may vindicate against another party who has deprived him thereof. Section 145 of the Code ensures the protection of this right.
To be considered as an intra-corporate dispute, the case: (1) must arise out of intra-corporate or partnership relations ("relationship test"), and (2) 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 ("nature of the controversy test"). 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 nature of the case as intra-corporate dispute is not affected by the dissolution of the corporation. Section 145 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 preserves a corporate actor's cause of action and remedy against another corporate actor. In so doing, Section 145 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 and change their intra-corporate relationships. Neither does it change or terminate existing cause of action, which arose because of the corporate tie 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.
HEIRS OF FAUSTO C. IGNACIO VS. HOME BANKERS SAVINGS AND TRUST CO., ET AL.,
G.R. No. 177783. January 23, 2013.
CORPORATIONS; POWER OF BANK EMPLOYEE TO BIND BANK
( By Jocelyn Alce)
Doctrine: A corporation may only give valid acceptance of an offer of sale through its authorized officers or agents. Specifically, a counter-offer to repurchase a property will not bind a corporation by mere acceptance of an agent in the absence of evidence of authority from the corporation’s board of directors.
Facts:
The case sprang from a real estate mortgage of two parcels of land in August 1981. Fausto C. Ignacio mortgaged the properties to Home Bankers Savings and Trust Company (Bank) as security for a loan extended by the Bank. After Ignacio defaulted in the payment of the loan, the property was foreclosed and subsequently sold to the Bank in a public auction.
Ignacio offered to repurchase the property. Universal Properties Inc. (UPI), the bank’s collecting agent sent Ignacio a letter on March 22, 1984 which contained the terms of the repurchase. However, Ignacio annotated in the letter new terms and conditions. He claimed that these were verbal agreements between himself and the Bank’s collection agent, UPI. No repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold the property to third parties.
Ignacio then filed an action for specific performance against the Bank for the reconveyance of the properties after payment of the balance of the purchase price. He argued that there was implied acceptance of the counter-offer of the sale through the receipt of the terms by representatives of UPI. The Bank denied that it gave its consent to the counter-offer of Ignacio. It countered that it did not approve the unilateral amendments placed by Ignacio.
RTC: Render decision in favor of the plaintiff and against the defendant.
CA: REVERSED and SET ASIDE the decision of RTC.
Petitioner file a petition for Certiorari.
Issue:
Whether a contract for the repurchase of the foreclosed properties was perfected between petitioner and respondent bank.
Ruling: No.
The Supreme Court declared that the Bank as a corporation can only exercise its powers and transact business through its board of directors or officers and agents authorized by a board resolution or its by-laws. A person representing the corporation in negotiations must be authorized by the corporation to accept the counter-offer to a sale. Since the Bank did not accede to the counter proposal of Ignacio, there was no valid acceptance of the offer.
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.
An agent cannot bind a corporation in any contract without delegation of powers from the board. Mere communication of modified terms to a bank agent who gave his assent has no effect on the corporation.
A contract of sale is perfected only when there is consent validly given. There is no consent when a party merely negotiates a qualified acceptance or a counter-offer. An acceptance must reflect all aspects of the offer to amount to a meeting of the minds between the parties.
In the absence of conformity or acceptance by properly authorized bank officers of petitioner’s counter-proposal, no perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to compel respondent bank to accept the P600,000 being tendered by him as payment for the supposed balance of repurchase price.
TOWN AND COUNTRY ENTERPRISES, INC. VS. HON. NORBERTO J. QUISUMBING, JR., ET AL./TOWN AND COUNTRY ENTERPRISES
G.R. No. 173610/G.R. No. 174132. October 1, 2012
RESULTS OF CORPORATE REHABILITATION
(by Carl Dominic Alpuerto)
FACTS
Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.
Town and Country Enterprises, Inc. (TCEI) borrowed P12 million from Metrobank, and said loan was secured by a mortgage over 20 parcels of land. Unable to pay upon demand, TCEI lost the properties to Metrobank due to foreclosure and auction. When TCEI held on to the properties, Metrobank asked the Regional Trial Court (RTC) to issue a writ of possession in the bank's favor.
Meanwhile, in a separate corporate rehabilitation proceeding, TCEI successfully asked the Securities and Exchange Commission (SEC) for a stay order on the payment of its obligations. Based on that stay order, TCEI asked the RTC which is hearing the writ of possession case to suspend the said proceedings, which the RTC granted. On review by the Court of Appeals, the latter reversed the decision and ordered the RTC to continue with the writ of possession case.
The RTC later granted Metrobank's petition and issued a writ of possession. On appeal, the Court of Appeals affirmed the RTC's decision, after which TCEI's land titles were then cancelled in exchange for new titles in the name of Metrobank. TCEI sought remedy before the SEC, the rehabilitation court which had earlier issued the stay order, to annul the said cancellation and transfer of titles, but the SEC denied TCEI's petition. On review, the Court of Appeals agreed with the SEC.
ISSUES
1.) Is the granting of the Writ of Possession by the RTC in favor of Metrobank valid, in view of the stay order issued by the SEC in the rehabilitation proceeding?
2.) Can the register of deeds transfer the titles to Metrobank in view of the said stay order?
RULING
In response to the following issues, the court ruled that:
1.) Yes, the granting of the Writ of Possession is valid because the subject properties are no longer within the scope of the corporate rehabilitation proceeding.
The purpose of corporate rehabilitation is to enable an insolvent company to gain a new lease on life and eventually pay its loans. To allow this to happen, a stay order is issued to defer all present claims against the company until the time of its projected recovery. In this case, however, Metrobank had already acquired ownership over the mortgaged parcels of land when TCEI started its petition for corporate rehabilitation. No doubt Metrobank acquired ownership over the properties when TCEI failed to redeem these within the three-month period prescribed by Section 47 of Republic Act 8791.
It does not matter, then, if Metrobank only had the certificate of sale registered before the Deed of Registry a couple of months later, and had consolidated its ownership over a year later. "The
mortgagor loses all interest over the foreclosed property after the expiration of the redemption period and the purchaser becomes the absolute owner thereof when no redemption is made."
Thus, having acquired ownership of the said properties, Metrobank can simply file an ex-parte motion for issuance of the writ of possession - "the issuance of which has been held to be a ministerial function which cannot be hindered by an injunction or an action for the annulment of the mortgage or the foreclosure itself." There is an exception to this rule, however, and that is where the property is held by a third party claiming a right adverse to that of the judgment debtor. But, on the other hand, the rehabilitation receiver's claim is far from adverse. He is an officer of the court who is appointed to protect the interests of TCEI's investors and creditors, not the interests of TCEI per se or its officers and directors.
2.) It follows then that the register of deeds can transfer the titles to Metrobank. "Upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds."
Finally, proceedings in corporate rehabilitation cases are summary and non-adversarial, and do not impair the debtor's contracts or diminish the status of preferred creditors. Thus, the stay order, which only suspends the enforcement of all claims, cannot be held to extend to the period not within its scope. In this case, there was no more claim by Metrobank to speak of because the bank had already acquired ownership over the subject properties prior to the issuance of the stay order.
CARGILL, INC. VS. INTRA STRATA ASSURANCE CORPORATION
G.R. No. 168266, March 15, 2010.
FOREIGN CORPORATION, DOING BUSINESS WITHOUT A LICENSE
(by Tani Angub)
Facts:
Petitioner Cargill, Inc. is a corporation organized and existing under the laws of the State of Delaware, United States of America. Petitioner and Northern Mindanao Corporation (NMC) executed a contract whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses, to be delivered from 1 January to 30 June 1990 at the price of $44 per metric ton. The contract provides that petitioner would open a Letter of Credit with the Bank of Philippine Islands. Under the "red clause" of the Letter of Credit, NMC was permitted to draw up to $500,000 representing the minimum price of the contract upon presentation of some documents.
The contract was amended three times: first, on 11 January 1990, increasing the purchase price of the molasses to $47.50 per metric ton; second, on 18 June 1990, reducing the quantity of the molasses to 10,500 metric tons and increasing the price to $55 per metric ton; and third, on 22 August 1990, providing for the shipment of 5,250 metric tons of molasses on the last half of
December 1990 through the first half of January 1991, and the balance of 5,250 metric tons on the last half of January 1991 through the first half of February 1991. The third amendment also required NMC to put up a performance bond equivalent to $451,500, which represents the value of 10,500 metric tons of molasses computed at $43 per metric ton. The performance bond was intended to guarantee NMC’s performance to deliver the molasses during the prescribed shipment periods according to the terms of the amended contract.
In compliance with the terms of the third amendment of the contract, respondent Intra Strata Assurance Corporation (respondent) issued on 10 October 1990 a performance bond in the sum of P11,287,500 to guarantee NMC’s delivery of the 10,500 tons of molasses, and a surety bond7 in the sum of P9,978,125 to guarantee the repayment of downpayment as provided in the contract.
NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric tons. Thus, petitioner sent demand letters to respondent claiming payment under the performance and surety bonds. When respondent refused to pay, petitioner filed a complaint for sum of money against NMC and respondent.
Petitioner, NMC, and respondent entered into a compromise agreement, which the trial court approved in its Decision dated 13 December 1991. The compromise agreement provides that NMC would pay petitionerP3,000,000 upon signing of the compromise agreement and would deliver to petitioner 6,991 metric tons of molasses from 16-31 December 1991. However, NMC still failed to comply with its obligation under the compromise agreement. Hence, trial proceeded against respondent.
On 23 November 1994, the trial court rendered a decision in favor of plaintiff [Cargill, Inc.], ordering defendant INTRA STRATA ASSURANCE CORPORATION to solidarily pay plaintiff. The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of merit. On appeal, the Court of Appeals reversed the trial court’s decision and dismissed the complaint. Hence, this petition.
Issue:
Whether petitioner is doing or transacting business in the Philippines in contemplation of the law and established jurisprudence;
Held: Petition meritorious.
The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. Under Article 123 of the Corporation Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts as provided under Section 133 of the Corporation Code:
Sec. 133. Doing business without a license. – No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
Thus, the threshold question in this case is whether petitioner was doing business in the Philippines. The Corporation Code provides no definition for the phrase "doing business." Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455),14 provides that:
x x x the phrase "doing business" shall include soliciting orders, purchases, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. (Emphasis supplied)
This is also the exact definition provided under Article 44 of the Omnibus Investments Code of 1987.
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991, which repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated not only the acts or activities which constitute "doing business" but also those activities which are not deemed "doing business." Section 3(d) of RA 7042 states:
[T]he phrase "doing business" shall include "soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase ‘doing business’ shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in Philippine courts, respondent bears the burden of proving that petitioner’s business activities in the Philippines were not just casual or occasional, but so systematic and regular as to manifest continuity and permanence of activity to constitute doing
business in the Philippines. In this case, we find that respondent failed to prove that petitioner’s activities in the Philippines constitute doing business as would prevent it from bringing an action.
The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of each case. In the case of Antam Consolidated, Inc. v. CA, in which a foreign corporation filed an action for collection of sum of money against petitioners therein for damages and loss sustained for the latter’s failure to deliver coconut crude oil, the Court emphasized the importance of the element of continuity of commercial activities to constitute doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines.
Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to NMC to deliver to petitioner the molasses, considering that NMC already received the minimum price of the contract. There is no showing that the transactions between petitioner and NMC signify the intent of petitioner to establish a continuous business or extend its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that "doing business" does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.
Most of these activities do not bring any direct receipts or profits to the foreign corporation, consistent with the ruling of this Court in National Sugar Trading Corp. v. CA that activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the Philippines. In this case, the contract between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It was NMC, the domestic corporation, which derived income from the transaction and not petitioner. To constitute "doing business," the activity undertaken in the Philippines should involve profit-making. Besides, under Section 3(d) of RA 7042, "soliciting purchases" has been deleted from the enumeration of acts or activities which constitute "doing business."
Other factors which support the finding that petitioner is not doing business in the Philippines are: (1) petitioner does not have an office in the Philippines; (2) petitioner imports products from the Philippines through its non-exclusive local broker, whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade in the Philippines; and (3) the local broker is an independent contractor and not an agent of petitioner.
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.:
An exporter in one country may export its products to many foreign importing countries without performing in the importing countries specific commercial acts that would constitute doing business in the importing countries. The mere act of exporting from one’s own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country. The importing country does not require jurisdiction over the foreign exporter who has not yet performed any specific commercial act within the territory of the importing country. Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have deleterious effect not only on Philippine exports, but also on global trade.1avvphi1
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing
basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license. (Emphasis supplied)
In the present case, petitioner is a foreign company merely importing molasses from a Philipine exporter. A foreign company that merely imports goods from a Philippine exporter, without opening an office or appointing an agent in the Philippines, is not doing business in the Philippines.
SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO AND THE HEIRS OF THE LATE GRACE G. CHEU VS. GILBERT GUY/SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO AND THE HEIRS OF THE LATE GRACE G. CHEU VS. THE HON. OFELIA C. CALO, IN HER CAPACITY AS PRESIDING JUDGE OF THE RTC-MANDALUYONG CITY-BRANCH 211 AND GILBERT GUY
G.R. No. 189486/G.R. No. 189699. September 5, 2012
INTRACORPORATE CONTROVERSY;MONEY CLAIM; ENDORSEMENT OF STOCK CERTIFICATE
(by Leslie Babatuan)
Facts:
Gilbert G. Guy son of spouses Simny and Francisco Guy, claims to own 80% of their multi-million family corporation GoodGold Realty Development Inc, stating that he owns 519, 997 shares (fully paid upon incorporation) out of the 650,000 subscribed capital stock. His mother Simny however contends that it was she and her husband who established the corporation and only placed the bulk of the shares in Gilbert’s name because being their son, they had entrusted to him the future of their corporations. She further claims that during the incorporation of GoodGold, they were advised by their lawyers to issue the stock certificates with corresponding blank endorsements signed by Francisco as President and Atty. Paras as Corporate Secretary.; including Stock Certificate Nos. 004-014 under Gilbert’s name.
In 1999, Francisco gave instructions to redistribute the shares of the corporation evenly among his children while maintaining a proportionate share for himself and Simny. Hence, GoodGold’s certificates were cancelled and new ones were issued showing that the 4 siblings had 65,000 shares each while the spouses had 195,000 shares each.
Five years after the redistribution, Gilbert brought an action against his mother Simny and his sisters for the annulment of the said transfers of shares along with some corporate documents, alleging fraud and that his signatures at the back of the stock certificates which purportedly
endorsed the same were forged and must be nullified. NBI reports on the examination of signatures however showed them to be authentic. Gilbert withdrew his complaint. Three years thereafter, a new action was filed by Gilbert with the caption “Intra-corporate Controversy: For the Declaration of Nullity of Fraudulent Transfers of Shares of Stock Certificates, Fabricated Shares of Stocks, Falsified General Information Sheets, Minutes of Meetings, etc…” against his mother and sisters.
Gilbert claims that he is “unaware of any document signed by him that would justify and support the transfer of his shares to herein petitioners.”
Simny and daughters filed their manifestation that the action filed by Gilbert was a mere nuisance and harassment suit under Sec 1(b), Rule 1 of the Interim Rules of Procedure on Intra-Corporate Controversies.
RTC dismissed the case as a nuisance and harassment suit, CA reversed RTC.
Held:
Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely conclusions of law that, without supporting statements of the facts to which the allegations of fraud refer, do not sufficiently state an effective cause of action.
Tested against established standards, we find that the charges of fraud which Gilbert accuses his siblings are not supported by the required factual allegations.
Not every allegation of fraud done in a corporate setting or perpetrated by corporate officers will bring the case within the special commercial court’s jurisdiction. To fall within this jurisdiction, there must be sufficient nexus showing that the corporation’s nature, structure, or powers, were used to facilitate the fraudulent device or scheme.
Failure to specifically allege the fraudulent acts in intra-corporate controversies is indicative of a harassment or nuisance suit and may be dismissed motu proprio.
In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a ground for dismissal since such a defect can be cured by a bill of particulars.
A bill of particulars may be ordered as to a defense of fraud or mistake if the circumstances constituting fraud or mistake are not stated with the particularity required by the rule.
The above-stated rule, however, does not apply to intra-corporate controversies… In cases governed by the Interim Rules of Procedure on Intra-corporate Controversies, a bill of particulars is a prohibited pleading… This is because fraud in intra-corporate controversies must be based on “devises and 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,” as stated under Rule 1, Section 1 (a)(1) of the Interim Rules. The act of fraud or misrepresentation complained of becomes a criterion in determining
whether the complaint on its face has merits, or within the jurisdiction of special commercial court, or merely a nuisance suit.
When a stock certificate is endorsed in blank by the owner thereof, it constitutes what is termed as a “street certificate,” so that upon its face the holder is entitled to demand its transfer to his name from the issuing corporation.
With Gilbert’s failure to allege specific acts of fraud in his complaint and his failure to rebut the NBI report, this court pronounces, as a consequence thereof, that the signatures appearing on the stock certificates, including his blank endorsement thereon were authentic. With the stock certificates having been endorsed in blank by Gilbert which he himself delivered to his parents, the same can be cancelled and transferred in the names of herein petitioners.
MANUEL D. YNGSON, JR., (IN HIS CAPACITY AS THE LIQUIDATOR OF ARCAM & CO., INC.) VS. PHILIPPINE NATIONAL BANK
G.R. No. 171132, August 15, 2012.
LIQUIDATION; RIGHT OF SECURED CREDITOR TO FORECLOSE MORTGAGE; PREFERENCE FOR UNPAID WAGES
(by Romualdo Barloso)
Facts:
ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga. Between 1991 and 1993, ARCAM applied for and was granted a loan by respondent PNB. To secure the loan, ARCAM executed a Real Estate Mortgage over a 350,004-square meter parcel of land and a Chattel Mortgage over various personal properties consisting of machinery, generators, field transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB. Thus, on November 25, 1993, pursuant to the provisions of the Real Estate Mortgage and Chattel Mortgage, PNB initiated extrajudicial foreclosure proceedings. The public auction was scheduled on December 29, 1993 for the mortgaged real properties and December 8, 1993 for the mortgaged personal properties.
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments, Appointment of a Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance of a temporary restraining order (TRO) and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction, enjoining PNB and the Sheriff from proceeding with the foreclosure sale of the mortgaged properties. An interim management committee was also created.
On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation and appointed Atty. Manuel D. Yngson, Jr. & Associates as Liquidator for ARCAM. With this development, PNB resumed the proceedings for the extrajudicial foreclosure sale of the mortgaged properties. PNB emerged as the highest winning bidder in the auction sale. Petitioner filed with the SEC a motion to nullify
the auction sale and posited that all actions against ARCAM are suspended because liquidation is a continuation of the petition for suspension proceedings. Petitioner argued that the prohibition against foreclosure subsisted during liquidation because payment of all of ARCAM’s obligations were proscribed except those authorized by the Commission. Moreover, petitioner asserted that the mortgaged assets should be included in the liquidation and the proceeds shared with the unsecured creditors.
In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits secured creditors from foreclosing on their mortgages to satisfy the mortgagor’s debt after the termination of the rehabilitation proceedings and during liquidation proceedings.
Consequently, the SEC issued a Resolution denying petitioner’s motion to nullify the auction sale. It held that PNB was not legally barred from foreclosing on the mortgages.
Issue:
Whether or not secured creditor is prohibited from foreclosing a mortgage during liquidation.
Held: No, secured creditor is not prohibited.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, the Supreme Court held that if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the preference and prove their credits as ordinary claims.
Moreover, Section 2248 of the Civil Code provides:
"Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers."
In this case, PNB, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a management committee or rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation proceedings or upon the lifting of the stay order.
It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his lien during liquidation proceedings is retained. Section 114 of said law thus provides:
“SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance; if its value exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor’s right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.”
In the case at bar, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the mortgaged properties should be respected.
ILDEFONSO S. CRISOLOGO VS. PEOPLE OF THE PHILIPPINES AND CHINA BANKING CORPORATION
G.R. No. 199481, December 3, 2012.
LIABILITY OF CORPORATE OFFICERS
(by Jennelyn Bilocura)
FACTS:
Petitioner ILDEFONSO S. CRISOLOGO, as President of Novachemical Industries, Inc. (Novachem), purchased 1,600 kgs. of amoxicillin trihydrate micronized from Hyundai Chemical Company based in Seoul, South Korea and glass containers from San Miguel Corporation (SMC).
To finance the purchase, petitioner applied for commercial letters of credit from private respondent China Banking Corporation (Chinabank). Subsequently, Chinabank issued two (2) Letters of Credit in the respective amounts in dollars with a peso equivalent of P2,139,119.80 and P1,712,289.90.
After petitioner received the goods, he executed for and in behalf of Novachem the corresponding two (2) trust receipt agreements in favor of Chinabank.
Chinabank, through its Staff Assistant, Ms. Maria Rosario De Mesa (Ms. De Mesa), filed before the City Prosecutor's Office of Manila a Complaint-Affidavit charging petitioner for violation of P.D. No. 115 in relation to Article 315 1(b) of the RPC for his purported failure to turn-over the goods or the proceeds from the sale thereof, despite repeated demands. It averred that the latter, with intent to defraud, and with unfaithfulness and abuse of confidence, misapplied, misappropriated and converted the goods subject of the trust agreements, to its damage and prejudice.
In his defense, petitioner claimed that as a regular client of Chinabank, Novachem was granted a credit line and letters of credit (L/Cs) secured by trust receipt agreements. The subject L/Cs were included in the special term-payment arrangement mutually agreed upon by the parties, and payable in installments. In the payment of its obligations, Novachem would normally give instructions to Chinabank as to what particular L/C or trust receipt obligation its payments would be applied. However, the latter deviated from the special arrangement and misapplied payments intended for the subject L/Cs and exacted unconscionably high interests and penalty charges.
The RTC Ruling
The RTC rendered a Decision acquitting petitioner of the criminal charges for failure of the prosecution to prove his guilt beyond reasonable doubt. It, however, adjudged him civilly liable to Chinabank.
The CA Ruling
On appeal of the civil aspect, the CA affirmed the RTC Decision holding petitioner civilly liable. It noted that petitioner signed the "Guarantee Clause" of the trust receipt agreements in his personal capacity and even waived the benefit of excussion against Novachem. As such, he is personally and solidarily liable with Novachem.
ISSUE:
1. Whether or not debts incurred by directors, officers, and employees acting as corporate agents are their direct liability but of the corporation they represent.
2. Whether or not petitioner is civilly liable personally and solidarily with Novachem for the obligations secured by the subject trust receipts based on the finding that he signed the guarantee clauses therein in his personal capacity and even waived the benefit of excussion.
HELD:
1. Settled is the rule that debts incurred by directors, officers, and employees acting as corporate agents are not their direct liability but of the corporation they represent, except if they contractually agree/stipulate or assume to be personally liable for the corporation’s debts, as in this case.
(In fine, the genera rule is debts incurred by directors, officers, and employees acting as corporate agents are not their direct liability but of the corporation they represent, the exception is if they contractually agree/stipulate or assume to be personally liable for the corporation’s debts, as in this case. In the exeption, the contractual agreement/stipulation for the directors, officers, and employees to be personally liable for the corporation’s debts must be proven.)
2. No, as regards the Trust Receipt (dated August 31, 1989) and Irrevocable Letter of Credit (L/C No. DOM-33041) issued to SMC for the glass containers, petitioner lldefonso S. Crisologo shall be absolved from any civil liability.
Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is committed by a corporation, as in this case, the penalty provided for under the law shall be imposed upon the directors, officers, employees or other officials or person responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. In this case, petitioner was acquitted of the charge for violation of the Trust Receipts Law in relation to Article 315 1(b) of the RPC. As such, he is relieved of the corporate criminal liability as well as the corresponding civil liability arising therefrom. However, as correctly found by the RTC and the CA, he may still be held liable for the trust receipts and L/C transactions he had entered into in behalf of Novachem.
The RTC and the CA adjudged petitioner personally and solidarily liable with Novachem for the obligations secured by the subject trust receipts based on the finding that he signed the guarantee clauses therein in his personal capacity and even waived the benefit of excussion. However, a review of the records shows that petitioner signed only the guarantee clauses of the Trust Receipt and the corresponding Application and Agreement for Commercial Letter of Credit. With respect to the Trust Receipt (dated August 31, 1989) and Irrevocable Letter of Credit (L/C No. DOM-33041) issued to SMC for the glass containers, the second pages of these documents that would have reflected the guarantee clauses were missing and did not form part of the prosecution's formal offer of evidence. In relation thereto, Chinabank stipulated before the CA that the second page of the Trust Receipt attached to the complaint before the court a quo would serve as the missing page. A perusal of the said page, however, reveals that the same does not bear the signature of the petitioner in the guarantee clause. Hence, it was error for the CA to hold petitioner likewise liable for the obligation secured by the said trust receipt. Neither was sufficient evidence presented to prove that petitioner acted in bad faith or with gross negligence as regards the transaction that would have held him civilly liable for his actions in his capacity as President of Novachem.
METROPOLITAN BANK AND TRUST COMPANY VS. CENTRO DEVELOPMENT CORP., ET AL.
G.R. No. 180974, June 13, 2012.
CORPORATE APPROVAL FOR APPOINTMENT OF TRUSTEE
(by Donn Serpico Capon)
FACTS:
In 1994, Cento Development Corporation (Centro), by virtue of a Board Resolution duly ratified by 2/3 of the outstanding Stockholders, authorized Go Eng Uy, the Corporate President, to execute a Mortgage Trust Indenture [MTI] with BPI Savings, mortgaging its assets including Lucky 2 Corporations and Lucky 2 Repacking to secure a loan of P84 Million. The mortgage was later registered. MTI was amended to allow additional loan of P36 Million and to include San Carlos Milling owned by the Centro. The total loan obtained was P144 Million.
Centro entered into an agreement with Metrobank in 1994 making Metrobank as successor-trustee of the existing MTI. The amended MTI was further amended to make Metrobank a successor-trustee of the mortgaged properties but the amount was not amended. This amendment was approved by the majority of the stockholders [not 2/3].
In 1998, respondents Manuel, Chongking and Quirino all surnamed Kehyengs discovered the MTI and their subsequent amendments without them being notified about the transactions. Chongking sits as a director while all of them owned a total of 30% of the stocks.
The loan of San Carlos became due and Centro failed to pay despite repeated demands. Metrobank foreclosed the San Carlos Milling. The Kehyengs filed for the annulment of the foreclosure of the San Carlos Milling and filed in the same case for the annullment of the MTI. RTC dismissed the case holding that the foreclosure was valid and as a matter of right Metrobank is entitled to foreclose the San Carlos Milling. RTC further ruled that the MTI was validly entered into since it was approved by the Majority of the Board and duly ratified by 2/3 of the Stockholders.
CA reversed the RTC rulings holding that MTI was invalid because it was only approved by the majority of the stockholders not by 2/3. Thus, falling short of the required votes under the Corporation Code. On the issue of the foreclosure, the CA ruled that Metrobank was duty-bound to know if Go Eng Uy was duly authorized by the Corporation to execute the MTI.
ISSUES:
1. WON the Kehyengs were guilty of laches2. WON the votes required by Sec 40 of the CCP was conplied3. WON Metrobank was negligent
The Kehyengs were not guilty of Laches
Metrobank contends that the Kehyengs have slept on their rights for not acting immediately. The MTI was entered first in 1994 and amended in 1998. It took them 8 years to act on their rights. SC ruled that laches is not applicable in this case because the respondents Kehyengs were not aware of the transactions entered into by the Corporation. Laches comes into play only when the party asserting the rights is aware of what his rights were. In the case at bar, the
respondents were not notified by the Corporation about the transactions it entered with BPI and Metrobank.
Vote Requirements was complied
The Kehyengs argue that the Sec 40 of the Corporation Code was not complied with which requires 2/3 votes of the Stockholders to ratify a corporate act which disposes all or substantially all of the corporate assets. This contention is not meritorious. What the respondents was assailing was the amended MTI which was ratified only by the majority of the stockholders not by 2/3. It should be noted that the original MTI was duly ratified by 2/3 of the Stockholders. The subsequent amendments do not require 2/3 votes by the Stcokholders unless there is a substantial change in the amended MTI. In the present case, the amendment was not substantial. Therefore, the 2/3 votes is not applicable.
Metrobank is not entitled to the foreclosure
On September 5, 2011, the SC issued an order through a resolution requiring Metrobank to submit all amendments of the MTI and a financial statement as to the payments advanced by the Centro and the outstanding balance. The Metrobank failed to submit these documents, instead, what was submitted were instruments issued by Centro in favor of Metrobank that are not directly connected with the MTI. The omission of Metrobank violate the Sec 1.13 of the MTI which requires that a promissory note must be covered by an outstanding and secured by lien in MTI.
Thus, the Metrobank failed to prove that they are entitled to the benefits of the MTI.
The foreclosure is declared to have no effect and further declared the MTI to be valid
STEELCASE, INC. VS. DESIGN INTERNATIONAL SELECTIONS, INC.
G.R. No. 171995, April 18, 2012.
DOING BUSINESS WITHOUT A LICENSE;ESTOPPEL
(by Chen Catarman)
Facts:
Petitioner Steelcase is a foreign corporation existing under the laws of Michigan, USA.
Respondent Design International Selections Inc. (DESI), a corporation existing under Philippine Laws and engaged in the furniture business, including distribution.
Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install and service its products to end-user customers within the Philippines.
Business relationship continued smoothly until terminated after 12 years due to breached with neither party admitting any fault.
Steelcase filed a complaint for sum of money against DISI for the unpaid account of $600,000 and pay for damages.
DISI filed a counterclaim praying for issuance of TRO and writ of preliminary injunction to enjoin Steelcase from selling its products in the Philippines except to DISI, dismissal for lack of merit, and damages.
DISI alleged that the complaint has no cause of action for Steelcase lacks the capacity to sue in Philippine courts as it was doing business in the country without license.
RTC and CA ruled in favor of respondent, thus this petition to SC.
Issues:
(1) WON Steelcase is doing business in the Philippines without license; and
(2) WON DISI is estopped from challenging the Steelcase’s legal capacity to sue.
Ruling:
(1) Court favors the petitioner. Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines. Under RA 7042 (foreign investments act of 1991) expressly states that doing business excludes the appointment by a foreign corporation of a local distributor domiciled in the Philippines which transacts business in its own name and for its own account. Appointment of a distributor in the Philippines is not sufficient “doing business” unless it is under full control of the foreign corporation. In the case at bench, DISI was an independent contractor, distributing various products of Steelcase and of that of other companies, acting in its own name and account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under the exemptions under RA No. 7042.
(2) Court favors petitioner. DISI is estopped from challenging Steelcase’s capacity to sue. Entering into a dealership agreement with Steelcase charged DISI with the knowledge that Steelcase was not licensed to engage in business activities in the Philippines. DISI only raised the issue of the
absence of a license with the Steelcase after it was informed that it owed the latter $ 600,000 for the sale and delivery of its products under their special credit arrangement. By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it and even benefiting from it, DISI is estopped from questioning Steelcase’s existence and capacity to sue. A foreign corporation doing business in the Philippines may sue in Philippine courts although
not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by said corporation. A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contact with it. The doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations.
BANK OF THE PHILIPPINE ISLANDS VS. BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK
G.R. No. 164301, August 18, 2010.
EFFECT ON EMPLOYMENT AND SENIORITY RIGHTS OF MERGER
(by Jo-ana Marie Desuyo)
Facts:
On April 7, 2000 the Articles and Plan of Merger between Bank of the Philippine Islands (BPI) and Far East Bank and Trust Company (FEBTC) was approved by the Securities and Exchange Commission (SEC). Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC employees were hired by petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained.
Respondent Union is the exclusive bargaining agent of BPI’s rank and file employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, respondent Union invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the existing CBA between petitioner BPI and respondent Union.
Section 2, Article II states:
Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment
Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as those who retracted their membership, and called them to a hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their employment pursuant thereto. When the issue remained unsolved, the parties submitted it to voluntary arbitration.
The Voluntary Arbitrator ruled in favor of petitioner BPI’s interpretation that the former FEBTC employees were not covered by the Union Security Clause of the CBA on the ground that the said employees were not new employees who were hired and subsequently regularized, but were absorbed employees “by operation of law” because the “former
employees of FEBTC can be considered assets and liabilities of the absorbed corporation.” Respondent Union filed a Motion for Reconsideration but it was denied.
Respondent appealed to the Court of Appeals (CA) which ruled in their favor. CA ruled that “new” and “absorbed” employees are similar. Hence, the FEBTC employees are to be considered as “new” employees for purposes of applying the provisions of the CBA regarding the “union-shop” clause.
Hence, this appeal.
Issue:
Whether or not the former FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing CBA between petitioner and respondent Union.
Ruling:
Petition is denied. The FEBTC employees are covered by the Union Shop Clause.
The court ruled that Section 2, Article II of the CBA is silent as to how one becomes a “regular employee” of the BPI for the first time. However, it must be properly appreciated that petitioner’s new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment.
As a general rule, all employees in the bargaining unit covered by a Union Shop Clause in their CBA with management are subject to its terms. However, under law and jurisprudence, the following kinds of employees are exempted from its coverage, namely, employees who at the time the union shop agreement takes effect are bona fide members of a religious organization which prohibits its members from joining labor unions on religious grounds; employees already in the service and already members of a union other than the majority at the time the union shop agreement took effect; confidential employees who are excluded from the rank and file bargaining unit; and employees excluded from the union shop by express terms of the agreement. In the case at bar, BPI failed to prove that the situation of the former FEBTC employees fall to any of these exceptions.
Petitioner argued that as a consequence of the merger, that these absorbed employees as included in the “assets and liabilities” of the dissolved corporation.
The court however ruled that the absorbed FEBTC employees are neither assets nor liabilities. It is contrary to public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger. Assets and liabilities, in this case, should be deemed to refer only to property rights and obligations of FEBTC and do not include the employment contracts of its personnel. The Corporation Code (Sec. 80) does not mandate the absorption of the employees of the non-surviving corporation by the surviving corporation in the case of a merger. Whether or not there is a stipulation in the Articles of Merger and Plan of Merger with respect to the employment contracts of existing personnel of the non-surviving entity, it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation.
Citing American jurisprudence, the court further ruled that on the consequences of voluntary mergers on the right to employment and seniority rights, it has been recognized in
some cases that the accumulated seniority does not survive and cannot be transferred to the "new" job, unless stipulated in the contract or agreement (Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597).
The absorption of the dissolved corporation’s employees or the recognition of the absorbed employees’ service with their previous employer may be demanded from the surviving corporation if required by provision of law or contract.
The lack of a provision in the plan of merger regarding the transfer of employment contracts to the surviving corporation could have very well been deliberate on the part of the parties to the merger, in order to grant the surviving corporation the freedom to choose who among the dissolved corporation’s employees to retain, in accordance with the surviving corporation’s business needs. The surviving corporation is duty-bound to protect the rights of its own employees who may be affected by the merger in terms of seniority and other conditions of their employment due to the merger.
With respect to FEBTC employees that BPI chose to employ and who also chose to be absorbed, then due to BPI’s blanket assumption of liabilities and obligations under the articles of merger, BPI was bound to respect the years of service of these FEBTC employees and to pay the same, or commensurate salaries and other benefits that these employees previously enjoyed with FEBTC.
SAMUEL U. LEE, ET AL. VS. BANGKOK BANK PUBLIC COMPANY, LIMITED
G.R. No. 173349, February 9, 2011.
SUSPENSION OF PAYMENTS; PROPERTIES OWNED BY PRIVATE INDIVIDUALS
(by Miguel Esparaguera)
The Case (in brief): This is Petition for Review on Certiorari under Rule 45, petitioners assail the March 15, 2006 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 79362, which reversed and set aside the April 21, 2003 Decision of the Regional Trial Court (RTC), Branch 73 in Antipolo City, in Civil Case No. 99-5388, entitled Bangkok Bank Public Company Limited v. Spouses Samuel U. Lee and Pauline Lee and Asiatrust Development Bank for the Rescission of Real Estate Mortgage (REM), Annulment of Foreclosure Sale, Cancellation of Titles and Damages. They assail also the June 29, 2006 CA Resolution denying their motion for reconsideration.
The Facts:
Samuel U. Lee, Thelma U. Lee, Maybelle L. Lim, and Daniel U. Lee owned and controlled five corporation of which two are: Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI).
These 2 corporations entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively. Bangkok Bank required guarantees from the Lee family for the two CLAs. Consequently, the Lee family executed guarantees in favor of Bangkok Bank on
December 1, 1995 for the CLA for MDEC and on April 17, 1996 for the CLA of MHI. Under the guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal debtors, the payment of any and all indebtedness of MDEC and MHI with Bangkok Bank. Bangkok Bank, however, did not require the setting aside, as collateral, of any particular property to answer for any future unpaid obligation. Subsequently, MDEC and MHI made several availments from the CLAs.
On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development Bank, Inc. (Asiatrust). This facility had an available credit line of forty million pesos (PhP 40,000,000) for letters of credit, advances on bills and export packing; and a separate credit line of two million dollars (USD 2,000,000) for bills purchase.
In the meantime, in May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and later entered into a joint venture with Louisville Realty and Development Corporation to develop the properties into a residential subdivision, called Louisville Subdivision. This has become the main subject issue of this instant.
For one reason or another, MDEC and MHI defaulted in their payments with the Respondent, as well as, with AsiaTrust Bank.
In December 1997, the negotiation was concluded when Asiatrust had agreed to Samuel’s proposition that he would mortgage the subject Antipolo properties to secure the loan, and therefore execute a REM over the properties. While the titles of the Antipolo properties had been delivered by Samuel to Asiatrust and the REM had been executed in January 1998, spouses Samuel and Pauline Lee were requested to sign a new deed of mortgage on February 23, 1998, and, thus, it was only on that date that the said mortgage was actually notarized, registered, and annotated at the back of the titles.
On February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee family filed before the Securities and Exchange Commission (SEC) a Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver. Said petition acknowledged, among others, MDEC and MHI’s indebtedness with Bangkok Bank, and admitted that matured and maturing obligations could not be met due to liquidity problems. The petition likewise had a list of creditors to whom the corporations remain indebted, which included Asiatrust. The petition stated that the Lee family and their corporations had more than sufficient properties to cover all liabilities to their creditors; and presented a list of all their properties including the subject properties located in Antipolo, Rizal. Notably, the list of properties attached to the petition indicated that the subject Antipolo properties of the spouses Lee had already been earmarked, or that they had already served as security, for MDEC’s unpaid obligation with Asiatrust.
On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee corporations from disposing of their property in any manner except in the ordinary course of business, and from making any payments outside the legitimate expenses of their business during the pendency of the petition.
On March 12, 1998, Bangkok Bank instituted an action before the RTC, Branch 141 in Makati City to recover the loans extended to MDEC and MHI under the guarantees, docketed as Civil Case No. 98-628. Bangkok Bank’s application for the issuance of a writ of preliminary attachment was granted through the Orders dated March 17 and 18, 1998, covering the properties of the Lee family in Antipolo, Cavite, Quezon City, and Baguio, among others.
However, the RTC dismissed the case filed by the respondent (Bangkok Bank). In dismissing the instant case, the trial court found no concrete proof of the alleged fraud committed by the Lee family and Asiatrust, more so, that of a collusion or conspiracy between them. The RTC explained that a mortgage contract is an onerous undertaking to secure payment of an obligation and cannot be considered as a gratuitous alienation. Finally, it held that neither fraud nor a violation of the SEC suspension order can result from the execution of the REM and the foreclosure of the subject properties, because according to the testimony of Bangkok Bank’s sole witness, the subject properties are not covered by the SEC Suspension Order for which reason Bangkok Bank filed an action to attach them. As the subject properties are not covered by the SEC Suspension Order, the RTC held that there is nothing that precludes the spouses Lee from mortgaging them to Asiatrust.
The Court of Appeals reversed and set aside the RTC Decision. A new judgment is rendered ordering the: 1. Rescission of the Real Estate Mortgage over Appellees-spouses Lee’s Antipolo properties in favor of appellee Asiatrust; 2. Annulment of the Foreclosure Sale conducted on April 15, 1998; 3. Cancellation of the Transfer Certificate of Titles in the name of Asiatrust; and 4. Reversion of the titles in favor of appellees-spouses Lee.
The Issues:
WON:1. Bangkok Bank can maintain an action to rescind the REM on the subject Antipolo
properties despite its failure to exhaust all legal remedies to satisfy its claim.2. Properties owned by private individuals should be covered by a suspension order issued
by the SEC in an action for suspension of payments.3. A surety or guarantor is guilty of defrauding creditors for executing a REM in favor of one
creditor prior to the filing of a Petition for Suspension of Payments.
The RULING:
The Supreme Court (SC) ruled in favor of the petitioner which set aside the decision of the CA and upheld/reinstated the RTC. In explain their decision, the Court said:
In the first issue, it can be clearly provisions of the SEC law that in cases of petitions for the suspension of payments, the SEC has jurisdiction over corporations, partnerships and associations, which are grantees of primary franchise or license or permit issued by the government to operate in the Philippines, and their properties. And it is indubitably clear from Sec. 5(d) of the said law that only corporations, partnerships and associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of suspension of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations, partnerships or associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which is conferred by law and not by the policy of any court or agency.
In the second issue, in consonant of the first issue, the Court said: Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a petition for suspension of payments.
In the third issue, the Supreme Court held, as it said : A careful reading of Art. 1387 of the Civil Code in conjunction with its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the burden of proof.
Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith. Regrettably, in ratiocinating that fraud was committed by both the spouses Lee and Asiatrust, the CA merely anchored its holding on the presumption espoused under Art. 1387 of the Code, nothing more.
The alleged fraud on the part of the spouses Lee was not proved and substantiated.
The Court further explained :While prejudice to Bangkok Bank ultimately resulted in the series of inopportune events that led to the present case, it cannot be denied that no clear, satisfactory and convincing evidence was presented to show fraud on the part of both the spouses Lee and Asiatrust. Nor was bad faith on the part of Asiatrust and the 12 other subsequent purchasers established. Accordingly, the REM annotated on the titles of the subject Antipolo properties and the subsequent foreclosure of the same properties cannot and should not be rescinded.
The Court Order:
Wherefore, premises considered, the petition is hereby GRANTED. Accordingly, the CA’s March 15, 2006 Decision and June 29, 2006 Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE. The RTC’s April 21, 2003 Decision in Civil Case No. 99-5388 is hereby REINSTATED.
EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT CANADA VS. BAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR HOLDERS OF THE US$200,000,000 13.5% SENIOUR NOTES OF BAYAN TELECOMMUNICATIONS, INC.) AND ATTY. REMIGIO A. NOVAL (AS THE COURT-APPOINTED REHABILITATION RECEIVER OF BAYANTEL).
G.R. Nos. 174457-59/G.R. Nos. 175418-20/G.R. No. 177270. December 5, 2012
PURPOSE OF REHABILITATION
(by Michelle Liao)
Facts:
These are seven consolidated petitions for review on certiorari filed in connection with the corporate rehabilitation of Bayan Telecommunications, Inc. (Bayantel).
Bayantel entered into loan agreements with several creditors, and to secure said loans, Bayantel executed an Omnibus Agreement. Bayantel executed an Assignment Agreement in favor of the lenders under the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or secured creditors).
Foreseeing the impossibility of further meeting its obligations, Bayantel entered in to debt restructuring agreements with some creditors. But Bayantel still could not fulfil its obligations under the restructured agreement.
On July 2003, The Bank of New York filed a petition14 for the corporate rehabilitation of Bayantel.
On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay Order15 which directed, among others, the suspension of all claims against Bayantel, and appointed Atty. Noval as rehabilitation receiver.
On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation Court, approved the Report and Recommendations as follows (among others):
1. XXX the pari passu treatment of all creditors whose claims are subject to restructuring shall be maintained and shall extend to all payment terms and treatment of past due interest.
2. Due regard shall be given to the rights of the secured creditors and no changes in the security positions of the creditors shall be granted as a result of the rehabilitation plan as amended and approved herein.
3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced to the amount of [US]$325,000,000 for a period of 19 years.
4. Unsustainable debt shall be converted into an appropriate instrument that shall not be a financial burden for Bayantel.
5. All provisions relating to equity in the rehabilitation plan, as approved and amended, must strictly conform to the requirements of the Constitution limiting foreign ownership to 40%.
6. A Monitoring Committee shall be formed composed of representatives from all classes of the restructured debt. The Rehabilitation Receiver’s role shall be limited to the powers of monitoring and oversight as provided in the Interim Rules.
Court of Appeals rulings
The CA upheld all the orders of the Rehabilitation court, except # 6. It declared the orders of the rehabilitation court void insofar as they defined the powers and functions of the Monitoring Committee.
Issues:
(1) whether the claims of secured and unsecured creditors should be treated pari passu during rehabilitation (YES) and whether such treatment of creditors during rehabilitation impairs the Assignment Agreement (NO)
(2) whether the Court of Appeals erred in setting Bayantel’s sustainable debt at US$325 million, payable in 19 years (NO)
(3) whether a debtor may submit a rehabilitation plan in a creditor-initiated rehabilitation (YES)
(4) whether the conversion of debt to equity in excess of 40% of the outstanding capital stock in favor of petitioners violates the constitutional limit on foreign ownership of a public utility (YES)
(5) whether the write-off of respondent’s penalties and default interest and recomputation of its past due interest violate the pari passuprinciple (NO)
(6) whether petitioners are entitled to costs (NO)(7) whether the Monitoring Committee in this case may exercise control over Bayantel’s
operations (NO)
Held:
1) In G.R. Nos. 174457-59, petitioners/secured creditors maintain that a "Trigger Event" had occurred which rendered respondent’s obligations due and demandable.
Bayantel reasons that enforcing preference in payment at this stage of the rehabilitation would only disrupt the progress it has made so far. It assures petitioners that their security rights are adequately protected in case the collateral assets are disposed.
Rehabilitation is an attempt to conserve and administer the assets of an insolvent corporation in the hope of its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity. The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.
If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall issue, not later than five (5) days from the filing of the petition, an Order which includes among others XXX a stay order staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor;The stay order shall be effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation
The justification for suspension of actions for claims is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the "rescue" of the debtor company. It is intended to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again without having to divert attention and resources to litigation in various fora.
As between the creditors, the key phrase is "equality is equity." When a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of them should be given any preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of all pending claims against the corporation under receivership.
Since then, the principle of equality in equity has been cited as the basis for placing secured and unsecured creditors in equal footing or in pari passu with each other during rehabilitation. In legal parlance, pari passu is used especially of creditors who, in marshaling assets, are entitled to receive out of the same fund without any precedence over each other.
In G.R. Nos. 175418-20,
2) In G.R. Nos. 175418-20, Petitioners dispute the fixing of respondent’s sustainable debt at US$325 million, spread over 19 years against the Receiver’s proposal of US$370 million payable in 15 years saying that Bayantel’s financial projections as unreliable and contrived; they believe that the prospective cash flow of Bayantel must be reckoned against industry standards.
The underlying objective is to foster the rehabilitation of the debtor by insulating it against claims, preserving its assets and taking steps to ensure that the rights of all parties concerned are adequately protected.
This Court is convinced that the Court of Appeals ruled in accord with this policy when it upheld the Rehabilitation Court’s determination of respondent’s sustainable debt. We find the sustainable debt of US$325 million, spread over 19 years, to be a more realistically achievable amount considering respondent’s modest revenue projections. Bayantel projected a constant rise in its revenues at the range of 1.16%-4.91% with periodic reverses every two years. On the other hand, petitioner’s proposal of a sustainable debt of US$471 million to be paid in 12 years and the Receiver’s proposal of US$370 million to be paid in 15 years betray an over optimism that could leave Bayantel with nothing to spend for its operations.
3) Petitioners point out that the Interim Rules only allows the debtor, in a creditor-initiated petition for corporate rehabilitation, to file a comment or opposition but not to submit its own rehabilitation plan.
We cannot agree.
Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who between the debtor and the creditor initiated the petition. Nowhere in said Rule is there any provision that prohibits the debtor in a creditor-initiated petition to file its own rehabilitation plan for consideration by the court. Quite the reverse, one of the functions and powers of the rehabilitation receiver under Section 14(m) of said Rule is to study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon
4) Two steps must be followed in order to determine whether the conversion of debt to equity in excess of 40% of the outstanding capital stock violates the constitutional limit on foreign ownership of a public utility: First,identify into which class of shares the debt shall be converted, whether common shares, preferred shares that have the right to vote in the election of directors
or non-voting preferred shares; Second, determine the number of shares with voting right held by foreign entities prior to conversion. If upon conversion, the total number of shares held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional limit on foreign ownership is violated. Otherwise, the conversion shall be respected.
In its Rehabilitation Plan, among the material financial commitments made by respondent Bayantel is that its shareholders shall "relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors as per the Term Sheet." Evidently, the parties intend to convert the unsustainable portion of respondent's debt into common stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus Creditors which are foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is precisely the scenario proscribed by the Filipinization provision of the Constitution. Therefore, the Court of Appeals acted correctly in sustaining the 40% debt-to-equity ceiling on conversion.
5) The secured creditors, however, join petitioners in protesting the condonation of penalties and default interest. Rather than observing absolute equality, they insist that the pari passu principle should be applied such that creditors within the same class are treated alike.
This lacks merit.
Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest.
As applied to this case, the pari passu treatment of claims during rehabilitation entitles all creditors, whether secured or unsecured, to receive payment out of Bayantel’s cash flow. Despite their preferred position, therefore, the secured creditors shall not be paid ahead of the unsecured creditors but shall receive payment only in the proportion owing to them.
In any event, the debt restructuring schemes complained of shall be implemented among all creditors regardless of class. Both secured and unsecured creditors shall suffer a write-off of penalties and default interest and the escalating interest rates shall be equally imposed on them. We repeat, the commitment embodied in the pari passu principle only goes so far as to ensure that the assets of the distressed corporation are held in trust for the equal benefit of all creditors. It does not espouse absolute equality in all aspects of debt restructuring.
6)There is no prevailing party in rehabilitation proceedings which is non-adversarial in nature. Hence, the Rehabilitation Court’s award for costs is not proper.
In G.R. No. 177270
7) The appellate court ruled that the Rehabilitation Court committed grave abuse of discretion in vesting the Monitoring Committee with powers beyond monitoring and overseeing Bayantel’s operations.
Petitioner contends that the Rehabilitation Court intended for the Monitoring Committee to exercise powers greater than those of the Receiver.
We find no merit in petitioner’s argument.
The Interim Rules prohibit the Rehabilitation Receiver from taking over the management and control of the company under rehabilitation, and limit his role to merely overseeing and monitoring the operations of the company. However, the [c]ourt also appreciates that the Rehabilitation Receiver must oversee the implementation of the rehabilitation plan as approved by the [c]ourt.
Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take over the management and control of the debtor but shall closely oversee and monitor its operations during the pendency of the rehabilitation proceeding. The Rehabilitation Receiver shall be considered an officer of the court and his core duty is to assess how best to rehabilitate the debtor and to preserve its assets pending the determination of whether or not it should be rehabilitated and to implement the approved plan.
Section 6(d) of PD 902-A empowers the Rehabilitation Court to create and appoint a management committee to undertake the management of corporations when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties or paralyzation of business operations of such corporations which may be prejudicial to the interest of minority stockholders, parties-litigants or the general public.
In this case, petitioner neither filed a petition for the appointment of a management committee nor presented evidence to show any of the above dangers. Unless petitioner satisfies these requisites, we cannot sanction the exercise by the Monitoring Committee of powers that will amount to management of respondent’s operations.
VALLEY GOLF & COUNTRY CLUB, INC. VS. ROSA O. VDA. CARAM
G.R. No. 158805, April 16, 2009.
NON-STOCK CORPORATIONS
(by Debbie Samonte)
FACTS:
Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf course. The members and their guests are entitled to play golf on the said course and avail of the facilities and privilege. The shareholders are likewise assessed monthly membership dues.
Cong. Fermin Z. Caram, Jr., respondent’s husband, subscribed and paid in full 1 Golf Share of the petitioner and was subsequently issued with a stock certificate which indicated a par value of P9,000.00. It was alleged by the petitioner that Caram stopped paying his monthly dues and that it has sent 5 letters to Caram concerning his delinquent account. The Golf Share was subsequently sold at public auction for P25,000.00 after the BOD had authorized the sale and the Notice of Auction Sale was published in the Philippine Daily Inquirer
Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and
the RTC included the Golf Share as part of Caram’s estate. The RTC approved a project of
partition of Caram’s estate and the Golf Share was adjudicated to the wife, who paid the
corresponding estate tax due, including that on the golf Share.
It was only through a letter that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed in a letter that they were entitled to the refund of
P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of the petitioner.
Caram’s wife filed an action for reconveyance of the Golf Share with damages before the SEC
against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the wife, ordering
Valley Golf to convey ownership of the Golf Share, or in the alternative. to issue one fully paid
share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.
The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation Code, a
share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction
only upon the failure of the stockholder to pay the unpaid subscription or balance for the share.
However, the section could not have applied in Caram’s case since he had fully paid for the Golf
Share and he had been assessed not for the share itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction
sale had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals
affirmed the hearing officer’s decision, and so the petitioner appealed before SC.
ISSUE:
WON a non-stock corporation seize and dispose of the membership share of a fully-paid
member on account of its unpaid debts to the corporation when it is authorized to do so
under the corporate by-laws but not by the Articles of Incorporation?
RULING:
The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such as Valley Golf.
Section 91 of the Corporation Code provides:
SEC. 91. Termination of membership.—Membership shall be terminated in the manner
and for the causes provided in the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise provided in the articles of incorporation or
the by-laws. (Emphasis supplied)
A share can only be deemed delinquent and sold at public auction only upon the failure of the
stockholder to pay the unpaid subscription. Delinquency in monthly club dues was merely an
ordinary debt enforceable by judicial action in a civil case. A provision creating a lien upon
shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation,
should be embodied in the Articles of Incorporation, and not merely in the by-laws. Moreover,
the by-laws of petitioner should have provided formal notice and hearing procedure
before a member’s share may be seized and sold.
The procedure for stock corporation’s recourse on unpaid subscription is not applicable
in member’s shares in a non-stock corporation.
SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith when
it sent the final notice to Caram under the pretense they believed him to be still alive, when in
fact they had very well known that he had already died. The Court stated:
Whatever the reason Caram was unable to respond to the earlier notices, the fact
remains that at the time of the final notice, Valley Golf knew that Caram, having died and
gone, would not be able to settle the obligation himself, yet they persisted in sending him
notice to provide a color of regularity to the resulting sale.
That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf
Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of
Appeals.
Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final
notice to Caram on the deliberate pretense that he was still alive could bring into operation
Articles 19, 20 and 21 under the Chapter on Human Relations of the Civil Code. These
provisions enunciate a general obligation under law for every person to act fairly and in good
faith towards one another. Non-stock corporations and its officers are not exempt from that
obligation.
MATLING INDUSTRIAL AND COMMERCIAL CORP., ET AL. VS. RICARDO R. COROS
G.R. No. 157802, October 13, 2010.
PERSONS CONSIDERED AS CORPORATE OFFICERS
(by Marc Gabriel Pates)
FACTS:
Ricardo R. Coros filed a complaint for illegal suspension and illegal dismissal in the NLRC, Iligan City.
against: Matling and some of its corporate officers: Richard K. Spencer, Catherine Spencer, Alex Mancilla.
Matling, et. al. filed MTD, ground: jurisdiction pertains to SEC for being an intra-corporate dispute and that Coros was a member of Matling’s BOD prior to his termination.
Pursuant to RA 8799: THE SECURITIES REGULATION CODE, effective AUGUST 8, 2000, the SEC’s jurisdiction over all intra-corporate disputes was transferred to the RTC.
LA dismissed the case.
NLRC reversed – Coros was not a “corporate officer.” His position was not listed in Matling’s AOI, Constitution and By Laws.
CA dismissed petition; affirmed NLRC. – A corporate officer position must if not listed in the by-laws, have been created by the BOD or SH.
Coros’ position was an ordinary office.
Matling claims that their President was granted “full power to create new offices and appoint the officers thereto,” pursuant to their By-Law No. V: Officers.
ISSUE/S: Who has jurisdiction over the complaint for illegal dismissal filed by a “Vice President for Finance and Administration”?
Depends on:
(a.) WON the position is a “corporate officer”?
(b.) WON Coros as a “Director” and “Stockholder” – would make the case an intra-corporate dispute?
HELD: Properly with the NLRC (LA)
1. He is an “employee” not a “corporate officer”. His position was an ordinary office.
First of all: Corporate officers in the context of PD 902-A are exclusively those who are given that character either by the CORPORATION CODE or by the Corporation’s By-Laws.
The creation of an office pursuant to a By-Law enabling provision is not enough to make a position a “corporate office.”
The criteria for distinguishing between
(a.) Corporate Officers – who may be ousted from office at will and
(b.) Ordinary Corporate Employees – who may only be terminated for just cause
Depend on: the manner of creation of the office.
Pursuant to SECTION 25 of the CORPORATION CODE :
1) a position must be expressly mentioned in the By-Laws in order to be a “corporate office.”
2) the power to elect corporate officers was vested by the law exclusively in the BOD.
cannot be delegated
Matling’s By-Law No. III: DIRECTORS AND OFFICERS listed the 4 corporate officers:
(a.) President;
(b.) Vice-President;
(c.) Secretary; and
(d.) Treasurer.
Matling’s BOD’s interpretation can easily leave the way open to circumvent the constitutionally guaranteed “security of tenure” of the employee.
Even SEC OPINION 25 NOV, 1993 interpreted SEC 25 to mean that the other positions created by the BOD without amending it’s By-Laws are NOT “Corporate Offices”.
Coros was appointed VP for Nationwide Expansion only by Malonzo, Matling’s General Manager.
2. No.
SC cited: VIRAY V. CA
To determine whether a dispute constitutes an intra-corporate controversy or not, court considers 2 elements:
1st: the status or relationship of the parties;
2nd: the nature of the question that is the subject of the controversy.
In this case, Coros was supposedly at once an employee, a SH, and a Director of Matling .
The circumstances surrounding his appointment to office must be fully considered to determine WHETHER his dismissal constituted an intra-corporate controversy OR a labor termination dispute.
Obviously, respondent was not appointed as VP for Finance & Administration because of being a SH or Director, but rather because he has been employed continuously for 33 years in the company, first as a bookkeeper, climbing up.
Even though he might have become a SH, it had no relation to his promotion. (subsequent yung pag-acquire nya ng shares & directorship)
Besides, his status as a SH or Director was not affected by his dismissal from employment.
DISPOSITION: Petition DENIED. CA AFFIRMED.
QUEENSLAND-TOKYO COMMODITIES, INC., ET AL. VS. THOMAS GEORGE
G.R. No. 172727, September 8, 2010.
LIABILITY OF OFFICERS AND DIRECTORS
(by Madelein Perocillo)
Facts:
QTCI is a duly licensed broker engaged in trading of commodity futures. Guillermo Mendoza Jr. together with Oniler Lontoc encouraged Thomas George to invest. George invested with QTCI and appointed Mendoza as his attorney-in-fact with full authority to trade and to manage his account. However, sometime on 1996, a Cease-and-Desist Order was issued by SEC to QTCI. Alarmed, respondent demanded a return of his investment but to no avail. Found out that Mendoza and Lontoc were not licensed to trade.
Responded filed a complaint for Recovery of Investment with Damages with SEC against QTCI represented by Collado and its President, Lau. The petitioners, in their answer, denied the allegations stating that they were not a privy to any arrangement handled by the unlicensed brokers and even that, the petitioner was estopped from raising the ground after one year.
SEC rendered their decision in favor of the respondent. Petitioners appealed to the Commission en banc but the same has dismissed due to technical issues. Then the petitioner went to CA via petition for review under Rule 43.
CA affirmed SEC decision. MR denied. Hence, a petition for review on certiorari was filed.
Issues:
Whether or not the petitioners knowingly permitted an unlicensed trader to handle the respondent’s accounts and if so, can be held solidarily liable for damages and awards.
SC Ruling:
It affirmed the decision with modifications as to the amounts of moral and exemplary damages.
The Special Power of Attorney executed by the respondent in favor of Mendoza formed part of the Customer’s Agreement with QTCI. Petitioners did not object to and in fact recognize Mendoza’s appointment as respondent’s attorney-in-fact even if the latter was not a licensed dealer. Thus, petitioners violated the Revised Rules and Regulations on Commodity Features prohibiting any unlicensed person to engage in, solicit or accept orders in futures contract.
Furthermore, petitioners shall be liable solidarily liable for the payment of respondent’s claim.
Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.
In this case, findings contained that there are seven unlicensed investment consultants in QTCI and the company practice of changing deeds of Special Power of Attorney bearing those who are licensed. The presence of seven unlicensed investment consultants apart from Mendoza and Collado’s participation in the unlawful execution of orders under the account clearly established the fact that the management of QTCI failed to implement the rules and regulations against the hiring of, and associating with, unlicensed consultants or traders. How these unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent the management is. Lau, being the chief operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in supervising the operations of QTCI, he could have detected and prevented the unlawful acts of Collado and Mendoza.
GABRIEL C. SINGSON, ET AL. VS. COMMISSION ON AUDIT
G.R. No. 159355, August 9, 2010.
PER DIEM OF DIRECTORS
(by Marissa Regudo)
THE CASE
This is petition for certiorari seeking to set aside Decision No. 2002-081, dated April 23, 2002, of the Commission on Audit (COA), which affirmed the Decision No. 2000-008, dated June 1, 2000, and the Resolution in CAO I Decision No. 2000-012, dated August 11, 2000, of the Corporate Audit Office I, and the COA Resolution No. 2003-115, dated July 31, 2003, which denied petitioners’ motion for reconsideration thereof and upheld the disallowance of petitioners’ Representation and Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of Disallowance No. 99-001-101 (96-96) dated June 7, 1999.
THE FACTS
The Philippine International Convention Center Inc. (PICCI) is a government corporation with Bangko Sentral ng Pilipinas (BSP) as its sole stockholder. Araceli Villanueva, one of the petitioners is a member of the BOD and the OIC of PICCI. The other co-petitioners namely: Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C. Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes are also members of the BOD and officials of the BSP. Under PICCI By-Laws, they were authorized to receive Php. 1,000.00 per diem day for every meeting attended. Pursuant also to Monetary Board Resolution No. 15 and as amended by Resolution No. 34, the BSP-MB granted additional monthly Representation and Transporation Allowance (RATA) in the amount of Php. 1, 500.00 to each of the petitioners on their capacity as BOD members of PICCI. Said RATA was given to the petitioners from January 1996 to December 1998 which totaled in the amount of Php. 1, 565, 000.00.
On June 07, 1999, PICCI Corporate Auditor Adelaida A. Aldocino issued a Notice of Disallowance No. 99-001-01 (96-98), addressed to petitioner Araceli E. Villanueva, disallowing in audit the payment of petitioners’ RATA in the total amount of Php. 1, 565, 000.00 and directing them to settle immediately the said disallowances.
As to Araceli Villanueva for double payment from PICCI as member of the BOD and OIC of PICCI as prohibited by the Constitution and by the Compensation Policy Guidelines No. 6. As to the other petitioners for double payments of RATA being a member of the BOD of PICCI and officers of the BSP. The reasons are as follows: (a) As to petitioner Araceli E. Villanueva, there was double payment of RATA to her as member of the PICCI Board and as OIC of PICCI, which was in violation of Section 8, Article IX-B of the 1987 Constitution and, moreover, Compensation Policy Guideline No. 6 provides that an official already granted commutable RATA and designated by competent authority to perform duties in concurrent capacity as OIC of another position whether or not in the same agency and entitled to similar benefits, shall not be granted said similar benefits, except where said similar allowances are higher in rates than those of his regular position, in which case he may be allowed to collect the difference thereof; and (b) As to other petitioners, there was double payment of RATA to them as members of the PICCI Board and as officers of BSP, which was in violation of Section 8, Article IX-B of the 1987 Constitution
and PICCI By-laws and, further, the contemplation of the constitutional provisions which authorized double compensation is construed to mean statutes passed by the national legislative body and does not include resolutions passed by governing boards, i.e., Section 229 of the Government Accounting and Auditing Manual.
Petitioners sought reconsideration of the Notice of Disallowance which Corporate Auditor Aldovino denied. Petitioners then filed their Notice of Appeal and Appeal Memorandum.
On June 01, 2000, Director Cresencio S. Sunico, Corporate Audit Office I rendered a decision affirming the disallowance of the RATA received by the petitioners in CAO Decision No. 2000-2008 stating that Section 8, of Article III of PICCI By-Laws prohibits the payment of salary to directors in the form of compensation or reimbursement of expense except per diems and neither the payment of RATA be legally founded on Section 30 of the Corporation Code. The PICCI By-Laws allow only the payment of per diems to the directors. Thus, BSP Board Resolution granting RATA of Php. 1, 500.00 violated PICCI By-Laws.
On petition for review, COA affirmed the CAO I Decision No. 2000-008 dated June 01, 2000 and Notice of Disallowance No. 99-001-01 (96-98). It directed the Auditor to determine the amounts to be refunded by the petitioners and ruled that the Php. 1, 500.00 RATA given by the BSP was not valid.
Hence, this petition for certiorari was filed.
THE ISSUES1. Whether or not COA committed grave abuse of discretion in finding that the petitioners
violated its By-Laws when Section 30 of the Corporation Code authorizes the stockholders to grant compensation to its directors;
2. Whether or not there is Double Compensation made in favor of the petitioners; and
3. Whether or not the respondent committed grave abuse of discretion in directing the auditor to enforce refund of the payments to the petitioner.
THE DECISION
The petition is DISMISSED. Decision No. 2002-081, dated April 23, 2002, of the Commission on Audit and its Resolution No. 2003-115, dated July 31, 2003, which denied petitioners’ motion for reconsideration thereof and upheld the disallowance of petitioners’ Representation and Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of Disallowance No. 99-001-101 (96-96) dated June 7, 1999, are AFFIRMED WITH MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance (RATA) they received pursuant to Monetary Board Resolution No. 15 dated January 5, 1994, as amended by Monetary Board Resolution No. 34 dated January 12, 1994, of the Bangko Sentral ng Pilipinas granting each of them an additional monthly RATA of P1,500.00, for every meeting attended, in their capacity as members of the Board of Directors of Philippine International Convention Center, Inc. (PICCI), or in the total amount ofP1,565,000.00, covering the period from 1996-1998.
THE RATIONALE
1. In construing the said provision, it bears stressing that the directors of a corporation shall not receive any compensation for being members of the board of directors, except for reasonable per diems. The two instances where the directors are to be entitled to compensation shall be when it is fixed by the corporation’s by-laws or when the stockholders, representing at least a majority of the outstanding capital stock, vote to grant the same at a regular or special stockholder’s meeting, subject to the qualification that, in any of the two situations, the total yearly compensation of directors, as such directors, shall in no case exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.
Section 8 of the Amended By-Laws of PICCI, in consonance with Section 30 of the Corporation Code, restricted the scope of petitioners’ compensation by fixing their per diem at P1,000.00:
The nomenclature for the compensation of the directors used herein is per diems, and not salary or any other words of similar import. Thus, petitioners are allowed to receive only per diems of P1,000.00 for every meeting that they actually attended. However, the Board of Directors may increase or decrease the amount of per diems, when the prevailing circumstances shall warrant. No other compensation may be given to them, except only when they serve the corporation in another capacity.
2. MB Resolution No. 15, dated January 5, 1994, as amended by MB Resolution No. 34, dated January 12, 1994, are valid corporate acts of petitioners that became the bases for granting them additional monthly RATA of P1,500.00, as members of the Board of Directors of PICCI. The RATA is distinct from salary (as a form of compensation). Unlike salary which is paid for services rendered, the RATA is a form of allowance intended to defray expenses deemed unavoidable in the discharge of office. Hence, the RATA is paid only to certain officials who, by the nature of their offices, incur representation and transportation expenses. Indeed, aside from the RATA that they have been receiving from the BSP, the grant ofP1,500.00 RATA to each of the petitioners for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, in addition to their P1,000.00 per diem, does not run afoul the constitutional proscription against double compensation.
3. SC’s ruling in Blaquera applies to the instant case. Petitioners in this case received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA. In present case, the Court took into account the good faith of the recipients of the allowances, bonuses, and other benefits disallowed by respondent and ruled that they need not refund the same.As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 15 dated January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994, of the BSP, the Court sees no need for them to refund their RATA respectively, in the total amount of P1,565,000.00, covering the period from 1996-1998
VIVIAN T. RAMIREZ, ET AL. VS. MAR FISHING CO., INC,. ET AL.,
G.R. No. 168208, June 13, 2012.
PIERCING THE CORPORATE VEIL
(by Mario Rizon)
Facts:
Respondent Mar Fishing engaged in business of fishing and canning of tuna, sold its principal assets to Miramar fishing Co. through public bidding. The proceeds of the sale were paid to the trade and investment corporation of the Philippines.
In view of that transfer of ownership, Mar fishing issued a memorandum informing all its workers that the company would cease to operate by the end of the month. Two days prior to the month end, it notified the department of labor of the closure of its business operations.
Thereafter, Mar fishing’s labor union and Miramar entered into a memorandum of agreement providing that the acquiring company, Miramar, shall absorb Mar fishing’s regular rank and file employees whose performance was satisfactory, without loss of seniority rights and privileges. Unfortunately, these workers were not absorbed by the acquiring company. Thus, the petitioners filed a complaint of illegal dismissal w/ money claims before the arbitration branch of NLRC.
LA rendered a decision contending that Mar fishing had necessarily closed its business operations, considering that Miramar had already bought the tuna canning plant. By reason of closure, the petitioners were legally dismissed for authorized cause. LA ordered Mar fishing to give separation pay to its workers.
Aggrieved by the decision of the LA, the petitioners pursued the action to the NLRC, w/c modified the decision awarding back wages until the date when the LA upheld the validity of their dismissal. Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar fishing and Miramar were one and the same entity, since their officers were the same. Hence, both companies were ordered to solidarily pay the monetary claims.
On reconsideration, the NLRC modified its ruling by imposing liability only on Mar Fishing. The labor court held that petitioners had no cause of actions against the transferee in the absence of any stipulation in the contract that the transferee assumes the obligation of the transferor.
The petitioners filed a petition for certiorari under rule 65, contending that Mar fishing and Miramar should be made liable for their separation pay, and that their back wages should be up to the time of their actual reinstatement. For lack of verification and certification of non forum shopping, the CA instantly dismissed the action for certiorari against 225 complainant.
Issue related to Corporation:
WON it is proper to pierce the veil of corporate fiction between Mar fishing and Miramar.
Held:
Since the petitioner did not question the judgment of the lower court with regard to the validity of such dismissal, the only issue in this case is whether or not the piercing of the corporate fiction is proper for this case.
The Court ruled in a negative. The court sustains the ruling of the LA as affirmed by NLRC that Miramar and Mar fishing are separate distinct entities, based on the marked differences in their stock ownership. The fact that Mar fishing’s officers remained as such in Miramar does not by itself warrant a conclusion that the two companies are one of the same. Neither can the veil of corporate fiction between the two companies be pierced by the rest of the petitioner’s submission that the alleged takeover by Miramar of Mar fishing’s operations and evident similarity of their business. At this point, since the piercing the veil of corporate fiction is frowned up, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect a fraud, or perpetuate a deception. Unfortunately, the petitioners have failed to do.
Petition denied.
TOWN AND COUNTRY ENTERPRISES, INC. VS. HON. NORBERTO J. QUISUMBING, JR., ET AL./TOWN AND COUNTRY ENTERPRISES
G.R. No. 173610/G.R. No. 174132. October 1, 2012
RESULTS OF CORPORATE REHABILITATION
(by Chelissa Mae Rojas)
FACTS:
This is a consolidated case.
TCEI executed in favor of Metrobank a Deed of Real Estate Mortgage over 20 parcels of land registered in its name to secure the payment of its loan. For failure of TCEI to pay after demand, Metrobank caused the extrajudicial foreclosure of the lots which was later on registered under its name as the highest bidder. Metrobank filed a petition for issuance of a writ of possession.
On the other hand, TCEI filed a petition for declaration of a state of suspension of payments, with approval of a proposed rehabilitation plan (as a consequence of Asian financial crisis). With the issuance of a Stay Order, TCEI filed a motion to suspend the proceeding for the issuance of writ of possession filed by Metrobank. The court granted the motion. MR denied. Hence, petition for certiorari was filed by Metrobank with CA.
CA directed the issuance of a writ of possession in favor of Metrobank. But, on the other hand, the rehabilitation court issued the Order approving the rehabilitation plan and granting a moratorium of 5 years within which TCEI can make payments to its creditors.
TCEI appealed the decision of CA granting writ of possession saying they were deprived of due process and that the writ issued was contrary to the rules on corporate rehabilitation. This was denied by CA saying that Metrobank was entitled to the property as purchaser in the foreclosure sale. Hence, this petition for review with the SC.
ISSUE:
Whether or not the order granting the Writ of Possession in favor of Metrobank is valid and enforceable considering that the properties of TCEI are now in the possession of the rehabilitation receiver in view of the earlier judgment of approval of the Petition for Corporate Rehabilitation
Whether or not the Register of Deeds can legally transfer the titles subject matter of the Petition for Rehabilitation in favor of Metrobank on 26 June 2003 in view of the existence of the Stay Order on 8 October 2002 prohibiting the enforcement of claims and the subsequent judgment approving the Rehabilitation Plan in favor of Petitioner.
HELD: Yes. Yes.
Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.31 A principal feature of corporate rehabilitation is the Stay Order which defers all actions or claims against the corporation seeking corporate rehabilitation from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.32 Under Section 24, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation which was in force at the time TCEI filed its petition for rehabilitation a quo, the approval of the rehabilitation plan also produces the following results:
a. The plan and its provisions shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled;
b. The debtor shall comply with the provisions of the plan and shall take all actions necessary to carry out the plan;
c. Payments shall be made to the creditors in accordance with the provisions of the plan;
d. Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the plan; and
e. Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the plan is successfully implemented.
Metrobank acquired ownership over the mortgaged properties upon the expiration of the redemption period on 6 February 2002; hence TCEI is already out on a limb in invoking the
Stay Order issued by the Rehabilitation Court on 8 October 2002 and the approval of its rehabilitation plan on 29 March 2004. An essential function of corporate rehabilitation is, admittedly, the Stay Order which is a mechanism of suspension of all actions and claims against the distressed corporation upon the due appointment of a management committee or rehabilitation receiver. The Stay Order issued by the Rehabilitation Court in SEC Case No. 023-02 cannot, however, apply to the mortgage obligations owing to Metrobank which had already been enforced even before TCEI’s filing of its petition for corporate rehabilitation on 1 October 2002.
Petition DENIED.
LISAM ENTERPRISES, INC., REPRESENTED BY LOLITA A. SORIANO AND LOLITA A. SORIANO VS. BANCO DE ORO UNIBANK, INC., ET AL.,
G.R. No. 143264, April 23, 2012.
DERIVATIVE SUITS
(by Richard San Miguel)
Facts:
On August 13, 1999, petitioners filed a Complaint against respondents for Annulment of Mortgage with Prayer for Temporary Restraining Order & Preliminary Injunction with Damages with the RTC of Legaspi City. Petitioner Lolita A. Soriano alleged that she is a stockholder of petitioner Lisam Enterprises, Inc. (LEI) and a member of its Board of Directors, designated as its Corporate Secretary.
Sometime in 1993, plaintiff LEI, in the course of its business operation, acquired by purchase a parcel of residential land with improvement situated at Legaspi City. On or about 28 March 1996, defendant Lilian S. Soriano and the late Leandro A. Soriano, Jr., as husband and wife, in their personal capacity and for their own use and benefit, obtained a loan from defendant PCIB in the total amount of P20 Million. As security for the payment of the aforesaid credit accommodation, the late Leandro A. Soriano, Jr. and defendant Lilian S. Soriano, as president and treasurer, respectively of plaintiff LEI, but without authority and consent of the board of said plaintiff and with the use of a falsified board resolution, executed a real estate mortgage on 28 March 1996, over the above-described property of plaintiff LEI in favor of defendant PCIB. Plaintiff alleged that PCIB, knowing fully well that the property being mortgaged by the Spouses Soriano belongs to plaintiff LEI, a corporation, negligently and miserably failed to exercise due care and prudence required of a banking institution. Specifically, defendant PCIB failed to investigate and to delve into the propriety of the issuance of or due execution of subject board resolution, which is the very foundation of the validity of subject real estate mortgage. Further, it failed to verify the genuineness of the signatures appearing in said board resolution nor to confirm the fact of its issuance with plaintiff Lolita A. Soriano, as the corporate secretary of plaintiff LEI.
Said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita A.
Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself and on behalf and for the benefit of plaintiff LEI, made demands upon defendants Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the principal sum of P20 Million. On 25 June 1999, plaintiffs commenced a derivative suit against defendants Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., before the Securities and Exchange Commission, docketed as SEC Case No. 06-99-6339 for “Fraudulent Scheme and Unlawful Machination with Damages” in order to protect and preserve the rights of plaintiffs.
On September 28, 1999, respondent PCIB filed a Motion to Dismiss the Complaint on grounds of lack of legal capacity to sue, failure to state cause of action, and litis pendencia. Petitioners filed an Opposition thereto, while PCIB's co-defendants filed a Motion to Suspend Action.
On November 11, 1999, the RTC issued the first assailed Resolution dismissing petitioners' Complaint. Petitioners then filed a Motion for Reconsideration of said Resolution. While awaiting resolution of the motion for reconsideration, petitioners also filed, on January 4, 2000, a Motion to Admit Amended Complaint, amending paragraph 13 of the original complaint to read as follows:
That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself and on behalf and for the benefit of plaintiff LEI, made demands upon defendant Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the principal sum of P20 Million. However, said defendants, for reason only known to them, continued and still continue to ignore said demands, to the damage and prejudice of plaintiffs; that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was ever taken by the Board, hence, this action for the benefit and in behalf of the corporation;
On May 15, 2000, the trial court issued the questioned Order denying both the Motion for Reconsideration and the Motion to Admit Amended Complaint. The trial court held that no new argument had been raised by petitioners in their motion for reconsideration to address the fact of plaintiffs' failure to allege in the complaint that petitioner Lolita A. Soriano made demands upon the Board of Directors of Lisam Enterprises, Inc. to take steps to protect the interest of the corporation against the fraudulent acts of the Spouses Soriano and PCIB. The trial court further ruled that the Amended Complaint can no longer be admitted, because the same absolutely changed petitioners' cause of action.
Issue:
Whether or not the amended complaint altering the cause of action should be admitted and whether or not Lolita Soriano had legal standing to file such the derivative suit.
Held:
Pertinent provisions of Rule 10 of the Rules of Court provide as follows:
Sec. 2. Amendments as a matter of right. - A party may amend his pleadings once as a matter of right at any time before a responsive pleading is served x x x.
Sec. 3. Amendments by leave of court. - Except as provided in the next preceding section, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay. x x x
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule in such manner that the phrase "or that the cause of action or defense is substantially altered" was stricken-off and not retained in the new rules. The clear import of such amendment in Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter the cause of action or defense." This should only be true, however, when despite a substantial change or alteration in the cause of action or defense, the amendments sought to be made shall serve the higher interests of substantial justice, and prevent delay and equally promote the laudable objective of the rules which is to secure a "just, speedy and inexpensive disposition of every action and proceeding.”
With the amendment stating “that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was ever taken by the Board, hence, this action for the benefit and in behalf of the corporation,” does the amended complaint now sufficiently state a cause of action? In Hi-Yield Realty, Incorporated v. Court of Appeals, the Court enumerated the requisites for filing a derivative suit, as follows:
a) the party bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.
ADVENT CAPITAL AND FINANCE CORPORATION VS. NICASIO I. ALCANTARA AND EDITHA I. ALCANTARA,
G.R. No. 183050, January 25, 2012
PROPERTY COVERED BY CORPORATE REHABILITATION
(by Ruby Mary Gold Tamsi)
FACTS:
Petitioner Advent Capital filed a petition for rehabilitation with the RTC of Makati City. The court appointed Atty. Danilo L. Concepcion as rehabilitation receiver. Upon the latter’s audit with the Advent’s books, Atty. Concepcion found that respondents -Alcantara owed Advent Capital P27, 398,026.59, representing trust fees that it supposedly earned for managing their several trust acounts.
Atty. Concepcion requested Belson Securities, Inc. (Belson) to deliver to him, as the rehabilitation receiver, the P7, 635,597.50 cash dividends that Belson held under the Alcantara’s Trust Account. Belson refused because there was no order from the rehabilitation court. Thus, Atty. Concepcion filed a motion with the rehabilitation court. The Alcantara’s objected that the money in their trust account belonged to them under the Trust Agreement. Advent Capital could not claim any right or interest in the dividends generated by their investments since Advent Capital merely held these in trust for the Alcantara’s – the trustors-beneficiares. Moreover, the Alcantara’s concluded that the rehabilitation court had no jurisdiction over the subject dividends.
However, the rehabilitation court granted Atty. Concepcion’s motion. The Alcantara filed a special civil action of certiorari before the CA to annul the rehabilitation court’s order, which was granted and directed Atty. Concepcion to account for and deliver the dividends to Alcantara. The CA denied Atty. Concepcion and Advent Capital’s motion for reconsideration, hence, this petition for review under Rule 45.
ISSUE: Whether or not the cash dividends held by Belson and claimed by both the Alcantaras and
Advent Capital constitute corporate assets of the latter that the rehabilitation court may, upon motion, require to be conveyed to the rehabilitation receiver for his disposition;
RULING:
The problem in this case is that the trust fees that Advent Capital’s receiver was claiming were for past quarters. Based on the Trust Agreement stipulation, these should have been deducted as they became due. As it happened, at the time Advent Capital made its move to collect its supposed management fees, it neither had possession nor control of the money it wanted to apply to its claim. Belson, a third party, held the money in the Alcantaras’ names. Whether it should deliver the same to Advent Capital or to the Alcantaras is not clear. What is clear is that the issue as to who should get the same has been seriously contested.
The practice in the case of banks is that they automatically collect their management fees from the funds that their clients entrust to them for investment or lending to others. But the banks can freely do this since it holds or has control of their clients’ money and since their trust agreement authorized the automatic collection. If the depositor contests the deduction, his remedy is to bring an action to recover the amount he claims to have been illegally deducted from his account.
Here, Advent Capital does not allege that Belson had already deducted the management fees owing to it from the Alcantaras’ portfolio at the end of each calendar quarter. Had this been done, it may be said that the money in Belson’s possession would technically be that of Advent Capital. Belson would be holding such amount in trust for the latter. And it would be for the Alcantaras to institute an action in the proper court against Advent Capital and Belson for misuse of its funds.
But the above did not happen. Advent Capital did not exercise its right to cause the automatic deduction at the end of every quarter of its supposed management fee when it had full control of the dividends. That was its fault. For their part, the Alcantaras had the right to presume that Advent Capital had deducted its fees in the manner stated in the contract. The burden of proving that the fees were not in fact collected lies with Advent Capital.
Further, Advent Capital or its rehabilitation receiver cannot unilaterally decide to apply the entire amount of cash dividends retroactively to cover the accumulated trust fees. Advent Capital merely managed in trust for the benefit of the Alcantaras the latter’s portfolio, which under Paragraph 2 of the Trust Agreement, includes not only the principal but also its income or proceeds. The trust property is only fictitiously attributed by law to the trustee “to the extent that the rights and powers vested in a nominal owner shall be used by him on behalf of the real owner.”1[15]
The real owner of the trust property is the trustor-beneficiary. In this case, the trustors-beneficiaries are the Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras’ portfolio on its own. The income and principal of the portfolio could only be withdrawn upon the Alcantaras’ written instruction or order to Advent Capital. The latter could not also assign or encumber the portfolio or its income without the written consent of the Alcantaras. All these are stipulated in the Trust Agreement.
Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting
claims of the parties over the dividends that Belson held in trust for their owners. Certainly, not the rehabilitation court which has not been given the power to resolve ownership disputes between Advent Capital and third parties. Neither Belson nor the Alcantaras are its debtors or creditors with interest in the rehabilitation.
Advent Capital must file a separate action for collection to recover the trust fees that it allegedly earned and, with the trial court’s authorization if warranted, put the money in escrow for payment to whoever it rightly belongs. Having failed to collect the trust fees at the end of each calendar quarter as stated in the contract, all it had against the Alcantaras was a claim for payment which is a proper subject for an ordinary action for collection. It cannot enforce its money claim by simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in the possession of a third party.
Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested parties. Thus, the Interim Rules “incorporate the concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the traditional approach of receiving evidence, and the grant of authority to the court to decide the case, or any incident, on the basis of affidavits and documentary evidence.
Here, Advent Capital’s claim is disputed and requires a full trial on the merits. It must be resolved in a separate action where the Alcantaras’ claim and defenses may also be presented and heard. Advent Capital cannot say that the filing of a separate action would defeat the purpose of corporate rehabilitation. In the first place, the Interim Rules do not exempt a company under rehabilitation from availing of proper legal procedure for collecting debt that may be due it. Secondly, Court records show that Advent Capital had in fact sought to recover one of its assets by filing a separate action for replevin involving a car that was registered in its name.
Hence, petition denied.
1
SIOCHI FISHERY ENTERPRISES, INC., ET AL. VS. BANK OF THE PHILIPPINE ISLANDS,
G.R. No. 193872. October 19, 2011.
ROLE OF REHABILITATION RECEIVER
(by Leni Fae Veronilla)
FACTS:Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are domestic corporations of the Siochi family. Petitioners are engaged in various businesses and have interlocking stockholders and directors. In the course of their business, petitioners borrowed from respondent Bank of the Philippine Islands (BPI) and from Ayala Life Assurance, Inc. As of 30 June 2004, petitioners’ total obligation amounted to P85,362,262.05. On 15 July 2004, petitioners filed with the RTC a petition for corporate rehabilitation. Petitioners prayed that the RTC:(1) issue a stay order; (2) declare petitioners in a state of suspension of payments; (3) approve petitioners’ proposed rehabilitation plan; and (4) appoint a rehabilitation receiver.
The RTC granted the said petition and appointed Atty. Cesar C. Cruz as the petitioner’s rehabilitation receiver. The respondent Bank opposed the petition on the ground among others that the rehabilitation plan was unfeasible and prejudicial to its interest. Atty. Cruz, the rehabilitation receiver, prayed before the RTC to issue an order to call for a meeting between the petitioners and their creditor. RTC denied the motion. Thereafter, the RTC issued an order of approval of the petitioners’ rehabilitation plan.
On appeal, the Court of Appeals set aside the RTC’s Order on the ground that the lower court’s order of granting the petition was rife with procedural infirmities. Hence, the present petition.
ISSUE:Whether or not the RTC correctly gave due course in granting the petition for corporate rehabilitation?
HELD:No. The petition is denied. The Court of Appeals’ decision is affirmed.
In the present case, the RTC hastily approved the rehabilitation plan in the same order giving due course to the petition.
The RTC confined the initial hearing to the issue of jurisdiction and failed to address other more important matters relating to the petition and comment. The RTC also failed to refer for evaluation of the rehabilitation plan to the rehabilitation receiver. Thus, the rehabilitation receiver was unable to submit his recommendations and make modifications or revisions to the rehabilitation plan as necessary. Moreover, the RTC denied the rehabilitation receiver’s motion
to issue an order directing petitioners and their creditors to attend a meeting. In its 20 October 2009 Decision, the Court of Appeals found: The most glaring procedural infirmity committed by the court a quo, however, is its failure to refer respondent corporations’ petition for rehabilitation and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules that if the court is satisfied that there is merit in the petition, it shall give due course to the petition and “immediately” refer the same and its annexes to the rehabilitation receiver x x x.
It is discernible from the foregoing that there are serious matters which should be determined before rehabilitation may be had. For this reason, the Interim Rules required the appointment of a rehabilitation receiver simultaneously with the issuance of the Stay Order and prescribed the following qualifications: expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor, knowledge in management, finance, and rehabilitation of distressed companies, and general familiarity with the rights of creditors in rehabilitation, etc. to further emphasize the significance of the role of the rehabilitation receiver in rehabilitation proceedings, the Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation plan and submit his recommendations to the court. In fact, his recommendation bears much weight as it is one of the factors which must be considered by the court if it were to approve the rehabilitation plan. More importantly, it must be emphasized that the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors. Thus, the court a quo committed serious error when it failed to refer the petition forrehabilitation and its annexes to the appointed receiver.
We have likewise observed that the court a quo made an unwarranted procedural shortcut as its finding that there was merit in respondent corporations’ petition for rehabilitation was made in the same Order approving their Rehabilitation Plan.
As an officer of the court and an expert, the rehabilitation receiver plays an important role in corporate rehabilitation proceedings. In Pryce Corporation v. Court of Appeals, the Court held that, “the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.” Section 14 of the Interim Rules of Procedure on Corporate Rehabilitation enumerates the powers and functions of the rehabilitation receiver: (1) verify the accuracy of the petition, including its annexes such as the schedule of debts and liabilities and the inventory of assets submitted in support of the petition; (2) accept and incorporate, when justified, amendments to the schedule of debts and liabilities; (3) recommend to the court the disallowance of claims and rejection of amendments to the schedule of debts and liabilities that lack sufficient proof and justification; (4) submit to the court and make available for review by the creditors a revised schedule of debts and liabilities; (5) investigate the acts, conduct, properties, liabilities, and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceedings or to the formulation of a rehabilitation plan; (6) examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate; (7) make available to the creditors documents and notices necessary for them to follow and participate in the proceedings;
(8) report to the court any fact ascertained by him pertaining to the causes of the debtor’s problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and Irregularities committed by the stockholders, directors, management, or any other person; (9) employ such person or persons such as lawyers, accountants,appraisers, and staff as are necessary in performing his functions and duties as rehabilitation receiver; (10) monitor the operations of the debtor and to immediately report to thecourt any material adverse change in the debtor’s business; (11) evaluate the existing assets and liabilities, earnings and operations of the debtor; (12) determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders, and the general public; (13) study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon; (14) prohibit and report to the court any encumbrance, transfer, or disposition of thedebtor’s property outside of the ordinary course of business or what is allowed by the court; (15) prohibit and report to the court any payments outside of the ordinary course of business; (16) have unlimited access to the debtor’s employees, premises, books, records, and financial documents during business hours; (17) inspect,copy, photocopy, or photograph any document, paper, book, account, or letter, whether in the possession of the debtor or other persons; (18) gain entry into any property for the purpose of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; (19) take possession, control, and custody of the debtor’s assets; (20) notify the parties and the court as to contracts that the debtor has decided to continue to perform or breach; (21) be notified of, and to attend all meetings of the board of directors and stockholders of the debtor; (22) recommend any modification of an approved rehabilitation plan as he may deem appropriate; (23) bring to the attention of the court any material change affecting the debtor’s ability to meet the obligations under the rehabilitation plan; (24) recommend the appointment of a management committee in the cases provided for under Presidential Decree No. 902-A, as amended; (25)recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors, or the general public; and (26) apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers.
The rehabilitation plan is an indispensable requirement in corporate rehabilitation proceedings. Section 5 of the Rules enumerates the essential requisites of a rehabilitation plan:
The rehabilitation plan shall include: (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors; (c) the material financial commitments to support the rehabilitation plan;
(d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor’s properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.
The Court notes that petitioners failed to include a liquidation analysis in their rehabilitation plan.
Incidentally, since the time of filing on 15 July 2004 of the petition for corporate rehabilitation, there has been no showing that petitioners’ situation has improved or that they have complied faithfully with the terms of the rehabilitation plan.
Court DENIES the petition and AFFIRMS decision of the CA.
BANKING LAWSFAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) VS. TENTMAKERS GROUP, INC., GREGORIA PILARES SANTOS AND RHOEL P. SANTOS,
G.R. No. 171050, July 4, 2012.
DEGREE OF DILIGENCE REQUIRED OF BANKS
(by Leah Lara Bardoquillo)
FACTS OF THE CASE:
The signatures of respondents, Gregoria Pilares Santos (Gregoria) and Rhoel P.
Santos (Rhoel), President and Treasurer of respondent Tentmakers Group,
Inc. (TGI)respectively, appeared on the three (3) promissory notes for loans contracted with
petitioner Far East Bank and Trust Company (FEBTC), now known as Bank of the Philippine
Islands (BPI). The first two (2) promissory notes were signed by both of them on July 5, 1996,
as evidenced by Promissory Note No. 2-038-965034[3] for ₱255,000.00 and Promissory Note
No. 2-038-965040[4] for ₱155,000.00. Gregoria and Rhoel alleged that they did sign on “blank”
promissory notes intended for future use. The sixty (60)-day notes became due and
demandable on September 3, 1996.
FEBTC filed a Complaint[6] before the RTC for the payment of the principal of the
promissory notes which amounted to a total of ₱887,613.37 inclusive of interest, penalty
charges and attorney’s fees. In the said complaint, Gregoria and Rhoel were impleaded to be
jointly and severally liable with TGI for the unpaid promissory notes. In defense, the
respondents alleged that FEBTC had no right at all to demand from them the amount being
claimed; that records would show the absence of any resolution coming from the Board of
Directors of TGI, authorizing the signatories to receive the proceeds and the FEBTC to release
any loan. FEBTC violated the rules and regulations of the Central Bank as well as its own
policy when it failed to require the respondents to submit the said board resolution, it allegedly
being a condition sine qua non before granting a loan to a corporate entity, for the protection of
the depositors/borrowers. RTC ruled in favor of FEBTC, but was reversed by the CA thus this
Petition for Certiorari.
ISSUE:
Whether or not the CA erred in ruling that petitioner did not comply with the guidelines
under the manual of regulation for banks, that there was no board resolution/corporate
secretary’s certificate designating the signatories for the corporation.
HELD:
NO. The SC denied the petition and affirmed the decision of the CA.
Ratio:
FEBTC violated the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP) by its failure to strictly follow the guidelines in the conferment of unsecured loans
set forth under the Manual of Regulations for Banks (MORB)
In this case, although there were promissory notes, there was no proof of receipt by the
respondents of the same amounts reflected in the said promissory notes. There was no Board
Resolution/Corporate Secretary’s Certificate either, designating the authorized signatories for
the corporation specifically for the loan covered by the Promissory Notes. Even
granting arguendo that the two Board Resolutions (Exhibits “A” and “B”) dated March 3, 1995
and April 11, 1995, respectively, authorizing Gregoria and Rhoel to transact business with
FEBTC, were binding, still the petition would not prosper as there was no evidence of crediting
of the proceeds of the promissory notes. Further, there were no collaterals, real estate
mortgage, chattel mortgage or pledges to ensure the payment of the loan.
On a final note, FEBTC should have been more circumspect in dealing with its
clients. It cannot be over emphasized that the banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in general in the
banking industry. Consequently, the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence is expected.[27] In handling loan transactions, banks are under obligation to ensure compliance by the clients
with all the documentary requirements pertaining to the approval and release of the loan
applications. For failure of its branch manager to exercise the requisite diligence in abiding by
the MORB and the banking rules and practices, FEBTC was negligent in the selection and
supervision of its employees.
WESTMONT BANK, FORMERLY ASSOCIATES BANK NOW UNITED OVERSEAS BANK PHILIPPINES VS.. MYRNA DELA ROSA-RAMOS, DOMINGO TAN AND WILLIAM CO.,
G.R. No. 160260. October 24, 2012.
DEGREE OF DILIGENCE REQUIRED
(by Billy Anjo Labradores)
FACTS
From 1986, respondent Myrna Dela Rosa-Ramos (Dela Rosa-Ramos) maintained a
checking/current account with the United Overseas Bank Philippines (Bank) at the latter’s Sto. Cristo Branch, Binondo, Manila. In her several transactions with the Bank, Dela Rosa-Ramos got acquainted with its Signature Verifier, respondent Domingo Tan.
In the course of their acquaintance, Tan offered Dela Rosa-Ramos a "special arrangement" wherein he would finance or place sufficient funds in her checking/current account whenever there would be an overdraft or when the amount of said checks would exceed the balance of her current account. It was their arrangement to make sure that the checks she would issue would not be dishonored. Tan offered the service for a fee of P50.00 a day for every P40,000.00 he would finance. This financier-debtor relationship started in 1987 and lasted until1998.
In order to guarantee payment for such funding, Dela Rosa-Ramos issued postdated checks covering the principal amount plus interest as computed by Tan on specified date.
Relative to their said agreement, Dela Rosa-Ramos issued and delivered to Tan the
following Associated Bank checks drawn against her current account and payable to "cash," to wit:
CHECK NO. CURRENT ACCT. DATE AMOUNT 467322(Exh. A)1008-08341-0 May 8, 1988 PhP200,000.00
According to Dela Rosa-Ramos , Check No. 467322 for P200,000.00. was originally dated August 28, 1987 but was altered to make it appear that it was dated May 8, 1988. Tan then deposited the check in the account of the other respondent, William Co (Co), despite the obvious superimposed date. As a result, the amount of P200,00.00 or the value indicated in the check was eventually charged against her checking account.
Claiming that the four checks mentioned were deposited by Tan without her consent,
Dela Rosa-Ramos instituted a complaint against Tan and the Bank before the RTC
ISSUE
Whether or not the bank is bound by the negligence committed by its employees thereby resulting to a breach of its fiduciary obligation to its depositor.
RULING
Public interest is intimately carved into the banking industry because the primordial concern here is the trust and confidence of the public. This fiduciary nature of every bank’s relationship with its clients/depositors impels it to exercise the highest degree of care, definitely more than that of a reasonable man or a good father of a family. It is, therefore, required to treat the accounts and deposits of these individuals with meticulous care. The rationale behind this is well expressed in Sandejas v. Ignacio:
“The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society – banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.”
Considering that banks can only act through their officers and employees, the fiduciary obligation laid down for these institutions necessarily extends to their employees. Thus, banks must ensure that their employees observe the same high level of integrity and performance for it is only through this that banks may meet and comply with their own fiduciary duty. It has been repeatedly held that “a bank’s liability as an obligor is not merely vicarious, but primary” since they are expected to observe an equally high degree of diligence, not only in the selection, but also in the supervision of its employees. Thus, even if it is their employees who are negligent, the bank’s responsibility to its client remains paramount making its liability to the same to be a direct one.
As regards Check No. 467322, the Bank avers that Dela Rosa- Ramos’ acquiesced to the change of the date in the said check. It argues that her continued acts of dealing and transacting with the Bank like subsequently issuing checks despite her experience with this check only shows her acquiescence which is tantamount to giving her consent. Obviously, the Bank has not taken to heart its fiduciary responsibility to its clients. Rather than ask and wonder why there were indeed subsequent transactions, the more paramount issue is why the Bank through its several competent employees and officers, did not stop, double check and ascertain the genuineness of the date of the check which displayed an obvious alteration. This failure on the part of the Bank makes it liable for that loss.
The defendant-bank is not faultless in the irregularities of its signature-verifier. In the first place, it should have readily rejected the obviously altered plaintiff’s P200,000.00-check, thus, avoid its unwarranted deposit in defendant-Co’s account and its corollary loss from plaintiff’s deposit, had its other employees, even excepting TAN, performed their duties efficiently and well.
PHILIPPINE BANKING CORPORATION VS. ARTURO DY, ET AL.,
G.R. No. 183774. November 14, 2012.
LEVEL OF DILIGENCE REQUIRED OF BANKS
(by Cristine Lim)
FACTS:
Cipriana was the registered owner of a parcel of land in Barrio Tongkil, Minglanilla, Cebu. She and her husband, Jose Delgado, sold the property to a certain Cecilia Tan (buyer). It was agreed that the buyer shall make partial payments from time to time. At that time of sale, the buyer was already occupying a portion of the property where she operates a noodle (bihon) factory while the rest were occupied by the tenants.
After paying the balance, buyer demanded the execution of the deed of sale but was refused. It was found out that the property was sold to the Dys and its subsequent mortgage to Philippine Bank Corporation (Philbank). Spoused Delgado alleged that the deed of absolute sale in favor of the Dys were fictitious to enable them to use the property as collateral for their loan application with Philbank. On the other hand, Philbank asserted that it is an innocent mortgagee for value without notice of defect in the title of the Dys. Spouses Delgado insisted that Philbank is not a mortgagee in good faith for having granted the loan and accepted the mortgage despite knowledge of the simulation sale to the Dys and for failure to verify the nature of the buyer’s physical possession of a portion of the lot. Spouses Delgado prayed for the the cancellation of the mortage in Philbank’s favor.
ISSUE:
Whether or not Philbank is not considered a mortgagee in good faith for failure to ascertain the properties acquired and to exercise greater care when it conducted an ocular inspection
HELD:
Philbank is a mortgagee in good faith.
The doctrine of mortgagee in good faith is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failure of which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owners. The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title.
In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on the property. On the other hand, Sps. Delgadowere parties to the simulated sale in favor of the Dys which was
intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado).
In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were privies.
A finding of negligence must always be contextualized in line with the attendant circumstances of a particular case the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed Thus, without diminishing the time honored principle that nothing short of extraordinary diligence is required of banks whose business is impressed with public interest, Philbank's inconsequential oversight should not and cannot serve as a basis for fraud and deceit.
In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to Philbank's detriment. In this regard, Philbank is entitled to have its mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties.
PHILIPPINE COMMERCIAL BANK VS. ANTONIO B. BALMACEDA AND ROLANDO N. RAMOS,
G.R. No. 158143, September 21, 2011.
DEGREE OF DILIGENCE REQUIRED BY BANKS; UNILATERAL FREEZING OF ACCOUNTS
(by Beryl Mantos)
DOCTRINE: The General Banking Law of 2000[31] requires of banks the highest standards of integrity and performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Romanpater familias or a good father of a family.[32] The highest degree of diligence is expected
FACTS:
PCIB filed an action for recovery of sum of money against Balmaceda for allegedly obtaining and enchashing Manager’s check, which were all cross checks, through fraud which amounted to P11, 937,150.
Balmaceda successfully obtained and misappropriated the bank’s funds by falsifying several commercial documents and taking advantage of his position as branch manager. He accomplished this by claiming that he had been instructed by one of the Bank’s corporate
clients to purchase Manager’s checks on its behalf, with the value of the checks to be debited from the client’s corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase of Manager’s checks, payable to several persons. Then, he would forge the signature of the client’s authorized representative on these forms and sign the forms as PCIB’s approving officer. Finally, he would have an authorized officer of PCIB issue the Manager’s checks. Balmaceda would subsequently ask his subordinates to release the Manager’s checks to him, claiming that the client had requested that he deliver the checks.[5] After receiving the Manager’s checks, he encashed them by forging the signatures of the payees on the checks.
Ramos, on the other hand, was a depositary of the bank. He was impleaded by the bank in this case for his alleged receipt of some proceeds from Balmaceda’s fraud, for after Balmaceda enchased the checks, he deposited most of the money on Ramos’ account.
Balmaceda failed to answered and was declared in default. Ramos’ defense was that he was a businessman engaged in buying and selling fighting cocks, and Balmaceda was one of his biggest clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmaceda’s money.
RTC granted in favor of the bank, but CA reversed said decision on appeal holding that Ramos cannot be held liable for payment of the amount held to have received from Balmaceda, for his participation in the said fraud was not sufficientlyl proven by the prosecution.
ISSUE: WON Ramos is liable to return the amount allegedly received from Balmaceda’s scheme
RULING:
NO.
One point that cannot be disregarded is the significant role that PCIB played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s employees to fill up the application forms for the Manager’s checks, to be debited from the bank account of one of the bank’s clients, without providing the necessary Authority to Debit from the client.[26] PCIB also admitted that these Manager’s checks were subsequently released to Balmaceda, and not to the client’s representative, based solely on Balmaceda’s word that the client had tasked him to deliver these checks.[27]
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that were plainly crossed checks. The crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the
payee’s account.[30] In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which were all crossed checks, or checks payable to the “payee’s account only.”
The General Banking Law of 2000[31] requires of banks the highest standards of integrity and performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Romanpater familias or a good father of a family.[32] The highest degree of diligence is expected.[33]
UNION BANK OF THE PHILIPPINES VS. SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU,
G.R. Nos. 173090-91. September 7, 2011
PAYMENT IN FOREIGN CURRENCY
(by Ma. Richam Medina)
FACTS:
• On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and
respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit
Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu
credit facilities in such amounts as may be approved
• From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans
pursuant to this CLA in the total amount of three million six hundred thirty-two thousand
dollars (US$3,632,000.00), as evidenced by promissory notes.
• On June 23, 1998, Union Bank advised the spouses Tiu through a letter that, in
view of the existing currency risks, the loans shall be redenominated to their equivalent
Philippine peso amount on July 15, 1998.
• On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to
redenominate the loans at the rate of US$1=P41.40 with interest of 19% for one year.
• On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring
Agreement
• The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed
their debt and waived any action on account thereof.
• As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real
Estate Mortgage in favor of Union Bank over their “residential property inclusive of lot and
improvements”.
• The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00)
via three loan facilities (payment schemes).
• The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on
August 3, 1999; and (2) anotherP13,197,546.79 as of May 8, 2001. Adding the amounts paid
under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up
to P89,407,546.79.
• Asserting that the spouses Tiu failed to comply with the payment schemes set up
in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings
on the residential property of the spouses Tiu, covered by TCT No. T-11951.
• The property was to be sold at public auction onJuly 18, 2002.
• The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a
Complaint seeking to have the Extrajudicial Foreclosure declared null and void
• The spouses Tiu claim that from the beginning the loans were in pesos, not in
dollars.
• Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso
equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00.
• The spouses Tiu further claim that they were merely forced to sign the Restructuring
Agreement and take up an additional loan ofP5,000,000.00, the proceeds of which they never
saw because this amount was immediately applied by Union Bank to interest payments.
• The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid,
as the loans have already been fully paid.
• They also allege that they are not the owners of the improvements constructed on the lot
because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T. King,
Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.
• The spouses Tiu further claim that prior to the signing of the Restructuring Agreement,
they entered into a Memorandum of Agreement with Union Bank whereby the former
deposited with the latter several certificates of shares of stock of various companies and four
certificates of title of various parcels of land located in Cebu.
• The spouses Tiu claim that these properties have not been subjected to any lien in favor
of Union Bank, yet the latter continues to hold on to these properties and has not returned the
same to the former.
• On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily
and validly entered into by both parties.
• Presenting as evidence the Warranties embodied in the Real Estate Mortgage, Union
Bank contends that the foreclosure of the mortgage on the residential property of the spouses
Tiu was valid and that the improvements thereon were absolutely owned by them.
• Union Bank denies receiving certificates of shares of stock of various companies or the
four certificates of title of various parcels of land from the spouses Tiu.
• However, Union Bank also alleges that even if said certificates were in its possession it
is authorized under the Restructuring Agreement to retain any and all properties of the debtor as
security for the loan.
• On December 16, 2004, the RTC rendered its Decision in Civil Case No. MAN-4363 in
favor of Union Bank.• In upholding the validity of the Restructuring Agreement, the RTC held that the spouses Tiu failed to present any evidence to prove either fraud or intimidation or any other act vitiating their consent to the same• The RTC noted that they could not present any detailed accounting as to the total amount they have paid after the execution of the Restructuring Agreement.
• Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals
• The Court of Appeals held that the loan transactions were in pesos, since there was
supposedly no stipulation the loans will be paid in dollars and since no dollars ever exchanged
hands.
• Considering that the loans were in pesos from the beginning, the Court of Appeals
reasoned that there is no need to convert the same.
• By making it appear that the loans were originally in dollars, Union Bank overstepped its
rights as creditor, and made unwarranted interpretations of the original loan agreement.
• According to the Court of Appeals, the Restructuring Agreement, which purportedly
attempts to create a novation of the original loan, was not clearly authorized by the debtors
and was not supported by any cause or consideration.
• Since the Restructuring Agreement is void, the original loan of P94,432,000.00
(representing the amount received by the spouses Tiu of US$3,632,000.00 using the
US$1=P26.00 exchange rate) should subsist.
• With regard to the ownership of the improvements on the subject mortgaged
property, the Court of Appeals ruled that it belonged to respondent Rodolfo Tiu’s father,
Jose Tiu, since 1981. According to the Court of Appeals, Union Bank should not have relied on
warranties made by debtors that they are the owners of the property
• The Court of Appeals likewise found Union Bank liable to return the certificates of stocks
and titles to real properties of the spouses Tiu in its possession.
• The appellate court held that Union Bank made judicial admissions of such possession
in its Reply to Plaintiff’s Request for Admission.
• Finally, the Court of Appeals took judicial notice that before or during the financial
crisis, banks actively convinced debtors to make dollar loans in the guise of benevolence,
saddling borrowers with loans that ballooned twice or thrice their original loans.
• The Court of Appeals, noting “the cavalier way with which banks exploited and
manipulated the situation,”.
• On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union
Bank’s Motion for Reconsideration.
• ISSUES :
1. WON THERE WERE DOLLAR LOANS OBTAINED BY TIU SPOUSES FROM UNION
BANK .
2. WON RESTRUCTURING AGREEMENT BETWEEN TIU SPOUSES AND UNION BANK IS
VOID FOR LACK OF CAUSE OR CONSIDERATION
• RULING : For the validity of the Restructuring Agreement
• As previously discussed, the Court of Appeals declared that the Restructuring
Agreement is void on account of its being a failed novation of the original loan agreements. The
Court of Appeals explained that since there was no stipulation that the loans will be paid in
dollars, and since no dollars ever exchanged hands, the original loan transactions were
in pesos. Proceeding from this premise, the Court of Appeals held that the Restructuring
Agreement, which was meant to convert the loans into pesos, was unwarranted.
• Thus, the Court of Appeals reasoned that: Be that as it may, however, since the loans of
the Tiu spouses from Union Bank were peso loans from the very beginning, there is no need for
conversion thereof. A Restructuring Agreement should merely confirm the loans, not add
thereto. By making it appear in the Restructuring Agreement that the loans were originally dollar
loans, Union Bank overstepped its rights as a creditor and made unwarranted interpretations of
the original loan agreement. This Court is not bound by such interpretations made by Union
Bank. When one party makes an interpretation of a contract, he makes it at his own risk, subject
to a subsequent challenge by the other party and a modification by the courts. In this case, that
party making the interpretation is not just any party, but a well entrenched and highly respected
bank. The matter that was being interpreted was also a financial matter that is within the
profound expertise of the bank. A normal person who does not possess the same financial
proficiency or acumen as that of a bank will most likely defer to the latter’s esteemed opinion,
representations and interpretations. It has been often stated in our jurisprudence that banks
have a fiduciary duty to their depositors. According to the case of Bank of the Philippine
Islands vs. IAC (G.R. No. 69162, February 21, 1992), “as a business affected with public
interest and because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.” Such fiduciary relationship should also extend to the bank’s borrowers who,
more often than not, are also depositors of the bank. Banks are in the business of lending while
most borrowers hardly know the basics of such business. When transacting with a bank, most
borrowers concede to the expertise of the bank and consider their procedures, pronouncements
and representations as unassailable, whether such be true or not. Therefore, when there is a
doubtful banking transaction, this Court will tip the scales in favor of the borrower. Given the
above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union
Bank does not operate to supersede all previous loan documents, as claimed by Union Bank.
But the said Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm
the original loan of the Tiu spouses but attempts to create a novation of the said original loan
that is not clearly authorized by the debtors and that is not supported by any cause or
consideration. According to Article 1292 of the New Civil Code, in order that an obligation may
by extinguished by another which substitutes the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. Such is not the case in this instance. No valid novation of the
original obligation took place. Even granting arguendo that there was a novation, the sudden
change in the original amount of the loan to the new amount declared in the Restructuring
Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil
Code, contracts without cause, or with unlawful cause, produce no effect whatever. A contract
whose cause did not exist at the time of the transaction is void. Accordingly, Article 1297 of the
New Civil Code mandates that, if the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be extinguished at any event. Since the
Restructuring Agreement is void and since there was no intention to extinguish the original loan,
the original loan shall subsist.
• Union Bank does not dispute that the spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of
US$1=P26.
• However, Union Bank claims that this (receipt in Phil. Peso) does not change the
true nature of the loan as a foreign currency loan, and proceeded to illustrate in its
Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow
in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos.
• We agree with Union Bank on this point. Although indeed, the spouses Tiu received
peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the
promissory notes, expressed the amount of the loans in US dollars and not in any other
currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars,
the amount stipulated in said loan documents.
• Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union
Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes,
without converting the same to pesos. The spouses Tiu, who are in the construction business
and appear to be dealing primarily in Philippine currency, should therefore purchase the
necessary amount of dollars to pay Union Bank, who could have justly refused payment in any
currency other than that which was stipulated in the promissory notes.
• We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez,
which merely attests to the fact that the spouses Tiu received the peso equivalent of their dollar
loan, proves the intention of the parties that such loans should be paid in pesos. If such had
been the intention of the parties, the promissory notes could have easily indicated the
same.
• Such stipulation of payment in dollars is not prohibited by any prevailing law or
jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code
provides:
• Art. 1249.The payment of debts in money shall be made in the currency stipulated, and if
it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.• Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529 ("An Act to Assure Uniform Value of Philippine Coin and Currency), which took effect earlier on June 16, 1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation (e.g loan/ mutuum) in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred.• OnJune 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.
• On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign
currency loans, however, prior Bangko Sentral approval was required.On July 5, 1996,
Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2
thereof. The same statute also explicitly provided that parties may agree that the obligation or
transaction shall be settled in a currency other than Philippine currency at the time of payment.
• Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995, when the agreement to pay in foreign currency was still
considered void under Republic Act No. 529, the actual loans, as shown in the promissory
notes, were taken out from September 22, 1997 to March 26, 1998, during which time
Republic Act No. 8183 was already in effect.
• In United Coconut Planters Bank v. Beluso, we held that: [O]pening a credit line does
not create a credit transaction of loan or mutuum, since the former is merely a preparatory
contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged,
for the considerations specified therefor, to lend to the other party amounts not exceeding the
limit provided. The credit transaction (LOAN) thus occurred not when the credit line was
opened, but rather when the credit line was availed of. x x x.• Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.• Similarly, the Court of Appeals’ pronouncement that the novation was not supported by any cause or consideration is likewise incorrect. This conclusion suggests that when the parties signed the Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is important to note at this point that in the determination of the nullity of a contract based on the lack of consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that “[a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.”
• In the case at bar, the Restructuring Agreement was signed at the height of the financial
crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to
pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly
increasing. If the parties did not enter into the Restructuring Agreement in December 1999 and
the peso continued to deteriorate, the ability of the spouses Tiu to pay and the ability of Union
Bank to collect would both have immensely suffered. As shown by the evidence presented by
Union Bank, the peso indeed continued to deteriorate, climbing to US$1=P50.01 on December
2000. Hence, in order to ensure the stability of the loan agreement, Union Bank and the
spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at
P150,364,800.00 and the unpaid interest at P5,000,000.00.
• Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring
Agreement was vitiated by fraud and mistake.
• We have painstakingly perused over the records of this case, but failed to find any
documentary evidence of the alleged payment of P40,447,185.60 before the execution of the
Restructuring Agreement.
• As regards the alleged redenomination of the same dollar loans in 1997 at the rate
of US$1=P26.34, the spouses Tiu merely relied on the following direct testimony of
Herbert Hojas, one of the witnesses of Union Bank
• Neither party presented any documentary evidence of the alleged redenomination in
1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was
obviously uncertain in his statement that said redenomination was made in 1997.
• As pointed out by the trial court, the Restructuring Agreement, being notarized, is
a public document enjoying a prima faciepresumption of authenticity and due execution.
Clear and convincing evidence must be presented to overcome such legal presumption. The
spouses Tiu, who attested before the notary public that the Restructuring Agreement “is their
own free and voluntary act and deed,” failed to present sufficient evidence to prove otherwise. It
is difficult to believe that the spouses Tiu, veteran businessmen who operate a multi-million
peso company, would sign a very important document without fully understanding its contents
and consequences.
• This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid
and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to
March 26, 1998 which had a total amount of US$3,632,000.00.
CITYTRUST BANKING CORPORATION VS. CARLOS ROMULO N. CRUZ,
G.R. No. 157049, August 11, 2010.
NEGLIGENCE OF BANKING INSTITUTIONS
(by Christopher John Menguito)
FACTS:
Carlos Romulo Cruz, the respondent, an architect and businessman, maintained a savings and checking account at the petitioner’s Loyola Heights Branch. Due to an oversight by its bank employee, the savings account of respondent was closed.
Due to the closure, the respondent sustained extreme embarrassment, for the checks he issued would not be honored although his savings account was sufficiently funded and the accounts were maintained under the petitioner’s check-o-matic arrangement.
The respondent sued in the RTC to claim for damages from the petitioner. After the trial, The RTC ruled in favor of the respondent, and ordered the petitioner to pay him ₱100,000.00 as moral damages, ₱20,000.00 as exemplary damages, and ₱20,000.00 as attorney’s fees. The RTC found that the petitioner failed to properly supervise its teller in which the respondent sustained embarassment and humilitation, entitling him to damages.
The petitioner appealed to the CA, arguing the RTC erred in ordering it to pay moral and exemplary damages. However, the CA affirmed the RTC. The petitioner sought for reconsideration, but CA denied its motion for reconsideration for lack of merit.
ISSUE:
Whether or not the bank is liable for damages caused to the respondent.
RULING:
Yes. The petition has no merit.
The errors sought to be reviewed focused on the correctness of the factual findings of the CA. Such review will require the Court to again assess the facts. Yet, the Court is not a trier of facts. Thus, the appeal is not proper, for only questions of law can be elevated to the Court via petition for review on certiorari.
The petitioner as a banking institution has the direct obligation to supervise closely its employees handling its depositors' account. It should always be mindful of the fiduciary nature of its relationship with the depositors which require it and its employees to record accurately every single transaction, considering that the depositor's account should always reflect the amounts of money the depositors could dispose of as they saw fit. If the bank fell short of this obligation, it should bear the responsibility for the consequences to the depositors, who, like the herein respondent, suffered embarrassment due to the negligence in the handling of his account.
In several court decisions, banks are made liable for negligence even without sufficient proof of malice or bad faith and awarded damages each time to the suing depositors in proper consideration of their reputation and social standing.
Finally, it is never overemphasized that the public always relies on a bank's profession of diligence and meticulousness in rendering service. Its failure to exercise such warrants its liability for exemplary damages and reasonable attorney's fees.
PDICPDIC VS CITIBANK AND BANK OF AMERICA
(by Jhona Grace Alo)
Facts:
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course of its banking business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. These funds, which were lodged in the books of Citibank under the account “Their Account-Head Office/Branches-Foreign Currency,” were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.
On the other hand, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign branches a total of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books under the account “Due to Head Office/Branches”. Because BA also excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments for dollar deposits.
Declaratory relief by Citibank and Bank of America
Citibank and BA each filed a petition for declaratory relief before the Court of First Instance (now the Regional Trial Court) of Rizal on July 19, 1979and December 11, 1979, respectively.
In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements they received from their head office and other foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were improper and erroneous. The cases were then consolidated.
RTC Decision
The RTC ruled in favour of the banks and stated that the money placements subject of the petitions:
1. Were not assessable for insurance purposes under the PDIC Charter because said placements were deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and Regulations, such deposits are excluded from the computation of deposit liabilities.
2. Section 3(f) of the PDIC Charter likewise excludes from the definition of the term “deposit” any obligation of a bank payable at the office of the bank located outside the Philippines.
3. There was no depositor-depository relationship between the respondents and their head office or other branches.
As a result, such deposits were not included as third-party deposits that must be insured. Rather, they were considered inter-branch deposits which were excluded from the assessment base, in accordance with the practice of the United States Federal Deposit Insurance Corporation (FDIC) after which PDIC was patterned.
Appeal by PDIC to CA
CA which affirmed the ruling of the RTC in 2005.
1. CA found that the money placements were received as part of the bank’s internal dealings by Citibank and BA as agents of their respective head offices. This showed that the head office and the Philippine branch were considered as the same entity. Thus, no bank deposit could have arisen from the transactions between the Philippine branch and the head office because there did not exist two separate contracting parties to act as depositor and depositary.
2. The CA called attention to the purpose for the creation of PDIC which was to protect the deposits of depositors in the Philippines and not the deposits of the same bank through its head office or foreign branches.
3. Because there was no law or jurisprudence on the treatment of inter-branch deposits between the Philippine branch of a foreign bank and its head office and other branches for purposes of insurance, the CA was guided by the procedure observed by the FDIC which considered inter-branch deposits as non-assessable.
4. The CA cited Section 3(f) of R.A. No. 3591, now Section 4, which specifically excludes obligations payable at the office of the bank located outside the Philippines from the definition of a deposit or an insured deposit.
PDIC contentions
PDIC argues that the head offices of Citibank and BA and their individual foreign branches are separate and independent entities. It insists that under American jurisprudence, a bank’s head office and its branches have a principal-agent relationship only if they operate in the same jurisdiction.
In the case of foreign branches, however, no such relationship exists because the head office and said foreign branches are deemed to be two distinct entities.
Under Philippine law, specifically, Section 3(b) now 4 (b) of R.A. No. 3591, which defines the terms “bank” and “banking institutions,” PDIC contends that the law treats a branch of a foreign bank as a separate and independent banking unit.
ISSUE:
WILL SUCH DEPOSIT AT CITIBANK IN THE PHILIPPINES BE REQUIRED TO BE INSURED AT PDIC?
RULING:
No. The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and independent legal personality to conduct business in the country.
In the alternative, it may create a branch in the Philippines , which would not be a legally independent unit, and simply obtains a license to do business in the Philippines.
In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines.
Their Philippine branches are, as the name implies, merely branches, without a separate legal personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter
In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.
Residents and citizens of thePhilippineswho are creditors of a branch in thePhilippinesof foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of R.A. No. 3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the “Corporation” which shall insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment of the PDIC:
Section 1. Statement of State Policy and Objectives. – It is hereby declared to be the policy of the State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain faith and confidence in the country’s banking system, and protect it from illegal schemes and machinations.
SECRECY ON BANK DEPOSITSEJERCITO V. SANDIGANBAYAN, 509 SCRA 190 (2006)
(by Rodelo Martin Damaolao)
FACTS:
-[In the case of Pp. v. Estrada] Special Prosecution Panel (composed of the Ombudsman, the Special Prosecutor, Deputy Special Prosecutor, Asst. Ombudsman, Special Prosecution III and SP II), filed before Sandiganbayan are quest for the issuance of subpoena duces tecum directing the president of Export and Industry Bank (EIB) or his/her representative to produce documents relating to the acts therein specified.
-The Special Prosecution Panel likewise requested for issuance of Subpoena Duces Tecum / Ad testificandum directed to the authorized representative of Equitable-PCI Bank to produce statements of accounts in the name of Jose Velarde and testify thereon.
-Estrada, claiming to have learned from the media that the Special Prosecution Panel had requested for the issuance of subpoenas the examination of bank accounts belonging to him, attended the hearing of the case and filed before the Sandiganbayan a letter of opposition and requested that he be given time to retain the services of a lawyer and prayed that the issuance of the subpoena be held in abeyance for at least 10 days to enable him to take appropriate legal steps.
-In open court, Associate Justice Sandoval of Sandiganbayan advised Estrada that his remedy was to file a motion to quash, for which he was given up to 12nn the following day.
-Estrada unassisted by counsel filed a motion to quash claiming that his bank accounts are covered by RA 1405 and do not fall under any of the exceptions stated therein.
-Other requests for issuance of Subpoena’s were filed, and thus issued, hence, motion to quash was filed by Estrada but was denied by Sandiganbayan. Sandiganbayan further denied Motion for reconsideration.
ISSUES:
1. Whether or not Estrada’s Account is covered by the term “deposit” as used in RA 1405.2.Whether or not Estrada’s Trust and Savings accounts are exempt from the protection of RA 1405.
HELD:
-An examination of RA 1405 shows that the term “deposits” used therein is to be understood broadly and not limited to accounts which give rise to a creditor-debtor relationship between the
depositor and the bank. If the money deposited under an account may be used by banks for authorized loans to third persons, then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and the bank falls under the category of accounts which the law precisely seeks to protect.
-The phrase “of whatever nature” proscribes any restrictive interpretation of deposits. RA 1405 applies not only to money which are invested, such as those placed in a trust account.
-These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two exceptions applicable in this case namely: (1) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or invested is the subject matter of the litigation.
-Exception 1 applies since the plunder case pending against former President Estrada is analogous to bribery or dereliction of duty, while exception 2 applies because the money deposited in Estrada’s bank accounts is said to form part of the subject matter of the same plunder case.
GSIS VS. CA
GR No. 189206 June 8, 2011
(by Rodelo Martin Damaolao)
Facts: The case is an incident to an original civil case filed by “the banks” (i.e. LBP, Industrial
Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation and Westmont Bank) against DOMSAT Holdings and GSIS for damages and for the collection of sum of money.
The original contract was for “the banks “ to loan out 11million US dollars to DOMSAT which was secured with a surety by the GSIS.
Subsequently, DOMSAT failed to pay the loan and GSIS refused to comply with its obligations and alleged that the loan was not used for its purpose but was transferred and deposited the 11million US dollars to Citibank New York and then to Westmont Bank in Binondo.
During the pendency of the case, GSIS requested for the issuance of a subpoena duces tecum for the production of the following documents:
Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank; All applications for cashier's/ manager's checks and bank transfers funded by the
account of DOMSAT Holdings, Inc. with or through the Westmont Bank; Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont
Bank; and All applications for cashier's/manager's checks funded by the account of
Philippine Agila Satellite, Inc. with or through the Westmont Bank.
The RTC issued the said subpoena but “the banks” filed a motion to quash on the grounds that the said subpoena is in violation of the Law on the Secrecy of Bank Deposits.
That the law declares bank deposits to be "absolutely confidential" except: x x x (6) In cases where the money deposited or invested is the subject matter of the litigation.
GSIS on the otherhand argued that it needed such documents so as to prove its defense.
After the CA quashed the issuance of the subpoena, GSIS then raised the issue on whether DOMSAT and Westmont Bank’s disclosure of the said documents during trial, no longer makes the documents secret and confidential and the rights of GSIS to inquire on such documents should not be suppressed.
GSIS’ argument is based on the Law on the Secrecy of Bank Deposits which allows the disclosure of the bank deposits if the money is the subject of the ligation.
Furthermore, GSIS argued that its liability is contingent upon whether DOMSAT indeed used the money for its intended purpose.
Issue:Whether or not the deposit can be disclosed to respondent GSIS?Whether or not the exception to the law on the secrecy of bank deposits apply in the case?
Held: The SC ruled that because the deposit involves foreign currency, the applicable law
should be Republic Act No. 6426 and not Republic Act No. 1405. Under RA 1405, there are 4 exceptions as to when bank deposits can be disclosed:
a) upon written permission of the depositor; b) in cases of impeachment; c) upon order of a competent court in the case of bribery or dereliction of duty of
public officials or, when the money deposited or invested is the subject matter of the litigation; or
d) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent court.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions. It covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application.
On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors. It is a special law designed especially for foreign currency deposits in the Philippines. A general law does not nullify a specific or special law.
It should be noted that the exception is only applicable if the fund deposited is the subject of the original complaint and inquiry.
In the case at bar, the original complaint is a simple money claim with damages.
LOURDES T. MARQUEZ VS. HON. ANIANO A. DESIERTO, ET AL.
G.R. No. 135882 June 27, 2001
(by Debbie N. Samonte)
FACTS:
Petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto to produce several bank documents for purposes of inspection in camera relative to various accounts maintained at Union Bank of the Philippines - Julia Vargas Branch where petitioner was the branch manager. The accounts to be inspected were involved in a case pending with the Ombudsman for violation of RA 3019 Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public Estates Authority and AMARI. The Order was grounded on Section 15 of RA 6770 (Ombudsman Act of 1989) which provides, among others, the following powers, functions and duties of the Ombudsman:
(8) Administer oaths, issue subpoena and subpoena duces tecum and take testimony in any investigation or inquiry, including the power to examine and have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same penalties provided therein.
Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the Secrecy of Bank Deposits (R.A. 1405) and places the office of the Ombudsman in the same footing as the courts of law in this regard.”
The basis of the Ombudsman in ordering an in camera inspection of the accounts was a trail of managers checks purchased by one George Trivinio, a respondent in a pending with the office of the Ombudsman. Trivinio purchased 51 MCs amounting to P272.1 Million at Traders Royal Bank (TRB). Out of the 51 MCs, eleven 11 MCs amounting to P70.6M were deposited and credited to an account maintained at the UBP.
The FFIB panel met with Marquez and Atty. Fe B. Macalino for the purpose of allowing petitioner and Atty. Macalino to view the checks furnished by TRB. Atty. Macalino advised Ms. Marquez to comply with the order of the Ombudsman. Marquez agreed to an in camera inspection but after a day, she wrote to the Ombudsman that the accounts in question could not readily be identified since the checks were issued in cash or bearer, and asked for time to respond to the order. Marquez said that these accounts had long been dormant, hence were not covered by the new account number generated by the UB system, thus sought to verify from the Interbank records archives for the whereabouts of these accounts.
The Ombudsman stated that UBP-Julia Vargas, not Interbank, was the depositary bank of the subject TRB MCs as shown at its dorsal portion and as cleared by the Philippine Clearing
House. Regardless that the checks were payable to cash or bearer, the name of the depositor(s) could easily be identified since the account numbers where said checks were deposited were identified in the order. Even if the accounts were already classified as dormant accounts, the bank was still required to preserve the records pertaining to the accounts within a certain period of time as required by existing banking rules and regulations.
The Ombudsman issued an order directing Marquez to produce the bank documents, stating that her persistent refusal to comply with the order is unjustified, was merely intended to delay the investigation of the case, constitutes disobedience of or resistance to a lawful order issued by the office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770.
Marquez filed a petition for declaratory relief, prohibition and injunction against the Ombudsman allegedly because the Ombudsman and other persons acting under his authority were continuously harassing her to produce the bank documents relative to the accounts in question. The Ombudsman issued another order stating that unless she appeared before the FFIB with the documents requested, Marquez would be charged with indirect contempt and obstruction of justice.
The lower court denied petitioner’s prayer for TRO stating that since petitioner failed to show prima facie evidence that the subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman, no writ of injunction may be issued by the RTC to delay the investigation pursuant to Section 14 of the Ombudsman Act of 1989.
Petitioner filed a motion for reconsideration but was denied.
Petitioner received a copy of the motion to cite her for contempt. She filed with the Ombudsman an opposition to the motion to cite her in contempt on the ground that the filing thereof was premature due to the petition pending in the lower court. She also reiterated that she had no intention to disobey the orders of the Ombudsman, but she wanted to be clarified as to how she would comply with the orders without her breaking any law, particularly RA 1405.
ISSUES:
1. WON Marquez may be cited for indirect contempt for her failure to produce the documents requested by the Ombudsman.
2. WON the order of the Ombudsman to have an in camera inspection of the questioned account is allowed as an exception to the law on secrecy of bank deposits (RA 1405).
HELD:
An examination of the secrecy of bank deposits law (RA 1405) would reveal the following exceptions:
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco
SC ruled that before an in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. The account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present during the inspection, and such inspection may cover only the account identified in the pending case.
In UBP v. CA, SC held that “Section 2 of the Law on Secrecy of Bank Deposits, as amended, declares bank deposits to be “absolutely confidential” except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation”
In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank account for inspection.
Zones of privacy are recognized and protected in our laws. The Civil Code provides that “every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons” and punishes as actionable torts several acts for meddling and prying into the privacy of another. It also holds a public officer or employee or any private individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of letters and other private communications. The Revised Penal Code makes a crime of the violation of secrets by an officer, the revelation of trade and industrial secrets, and trespass
to dwelling. Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.
Ombudsman is ordered to cease and desist from requiring Union Bank Manager Lourdes T. Marquez, or anyone in her place to comply with the order dated October 14, 1998, and similar orders.
TRUST RECEIPTS LAWLAND BANK OF THE PHILIPPINES VS. LAMBERTO C. PEREZ, ET AL.,
G.R. No. 166884. June 13, 2012
DEFINITION OF TRUST RECEIPT
(By Christine Athena Monsanto)
FACTS:
LBP filed a complaint for estafa or violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. 115, against the respondents before the City Prosecutor’s Office in Makati City. LBP extended a credit accommodation to ACDC through the execution of an Omnibus Credit Line Agreement between LBP and ACDC. The respondents, as officers and representatives of ACDC, executed trust receipts in connection with the construction materials, with a total principal amount of P52,344,096.32. The trust receipts matured, but ACDC failed to return to LBP the proceeds of the construction projects or the construction materials subject of the trust receipts. LBP sent ACDC a demand letter,[8] dated May 4, 1999, for the payment of its debts, including those under the Trust Receipts Facility in the amount of P66,425,924.39. When ACDC failed to comply with the demand letter, LBP filed the affidavit-complaint. Makati Assistant City Prosecutor Amador Y. Pineda dismissed the complaint. LBP MR was also denied.
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City Prosecution. He pointed out that there was no question that the goods covered by the trust receipts were received by ACDC. The City Prosecutor of Makati City was directed to file an information for estafa under Art. 315 (1) (b) of the Revised Penal Code in relation to Section 13, Presidential Decree No. 115 against respondents Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-Panlilio] and Napoleon O. Garcia. The respondents filed a motion for reconsideration Secretary of Justice denied.
In a petition for review before the Court of Appeals, the CA Applied the doctrine in Colinares, it ruled that this case did not involve a trust receipt transaction, but a mere loan. It emphasized that construction materials, the subject of the trust receipt transaction, were delivered to ACDC
even before the trust receipts were executed. It noted that LBP did not offer proof that the goods were received by ACDC, and that the trust receipts did not contain a description of the goods, their invoice value, the amount of the draft to be paid, and their maturity dates. It also adopted ACDC’s argument that since no payment for the construction projects had been received by ACDC, its officers could not have been guilty of misappropriating any payment. The Petition was granted and decision of the Secretary of Justice was reversed ad set aside. LBP now files this petition for review on certiorari.
While the case was pending, the respondents filed a motion to dismiss. They informed the Court that LBP had already assigned to Philippine Opportunities for Growth and Income, Inc. all of its rights, title and interests in the loans subject of this case in a Deed of Absolute Sale. The respondents also stated that Avent Holdings Corporation, in behalf of ACDC, had already settled ACDC’s obligation to LBP. However, SC denied the petition.
ISSUE: Whether or not the disputed transactions are not trust receipts?
HELD: The disputed transactions are not trust receipts.
There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner. 2 Thus, under the Trust Receipts Law intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative – the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale
2 Section 4 of P.D. 115. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by
and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of
the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale[.]
transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.
At the onset of these transactions, LBP knew that ACDC was in the construction business and that the materials that it sought to buy under the letters of credit were to be used for the following projects: the Metro Rail Transit Project and the Clark Centennial Exposition Project. LBP had in fact authorized the delivery of the materials on the construction sites for these projects, as seen in the letters of credit it attached to its complaint. Clearly, they were aware of the fact that there was no way they could recover the buildings or constructions for which the materials subject of the alleged trust receipts had been used. Notably, despite the allegations in the affidavit-complaint wherein LBP sought the return of the construction materials, its demand letter dated May 4, 1999 sought the payment of the balance but failed to ask, as an alternative, for the return of the construction materials or the buildings where these materials had been used.
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the industry or line of work that the borrowers were engaged in was construction. Goods and the materials that are used for a construction project are often placed under the control and custody of the clients employing the contractor, who can only be compelled to return the materials if they fail to pay the contractor and often only after the requisite legal proceedings. The contractor’s difficulty and uncertainty in claiming these materials (or the buildings and structures which they become part of), as soon as the bank demands them, disqualify them from being covered by trust receipt agreements.
Based on these premises, we cannot consider the agreements between the parties in this case to be trust receipt transactions because (1) from the start, the parties were aware that ACDC could not possibly be obligated to reconvey to LBP the materials or the end product for which they were used; and (2) from the moment the materials were used for the government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should not be brought against the respondents, who are liable only for a loan.
As the law stands today, violations of Trust Receipts Law are criminally punishable, but no criminal complaint for violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation with P.D. 115, should prosper against a borrower who was not part of a genuine trust receipt transaction. In this case, the misappropriation could be committed should the entrustee fail to turn over the proceeds of the sale of the goods covered by the trust receipt transaction or fail to return the goods themselves. The respondents could not have failed to return the proceeds since their allegations that the clients of ACDC had not paid for the projects it had undertaken with them at the time the case was filed had never been questioned or denied by LBP. What can only be attributed to the respondents would be the failure to return the goods subject of the trust receipts.
TRUTH IN LENDING ACTBANK OF THE PHILIPPINES ISLANDS, INC. VS. SPS. NORMAN AND ANGELINA YU, ET AL.,
G.R. No. 184122, January 20, 2010.
TRUTH IN LENDING ACT- DISCLOSURE OF FINANCIAL CHARGES IN THE PROMISSORY NOTE
(by Kristine Nejudne)
FACTS :
Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and Tuanson Builders Corporation (Tuanson Builders) borrowed various sums totaling P75 million from Far East Bank and Trust Company. For collateral, they executed real estate mortgages over several of their properties,[1] including certain lands in Legazpi City owned by Tuanson Trading. In 1999, unable to pay their loans, the Yus and Tuanson Builders requested a loan restructuring, which the bank, now merged with Bank of the Philippine Islands (BPI), granted. By this time, the Yus' loan balance stood at P33,400,000.00. The restructured loan used the same collaterals, with the exception of Transfer Certificate of Title 40247 that secured a loan of P1,600,000. Despite the restructuring, Yus’ had a difficulty in paying their loan in which the BPI moved for extrajudicial foreclosure on the mortgaged properties in Legazpi City and Pili, Camarines Sur, wherein Magnacraft Development Corporation (Magnacraft) won as the highest bidder. The spouses and Magnacraft entered into a compromise agreement but filed a new complaint against BPI for recovery of alleged excessive penalty charges, attorney's fees, and foreclosure expenses that the bank caused to be incorporated in the price of the auctioned properties. The spouses moved for summary judgment on the following issues: reduction of penalty alleging that the company (BPI) violated RA 3765 or Truth in Lending Act and reduction of attorney’s fees w/c granted by RTC and affirmed by CA.
ISSUE:
1. Whether or not the case presented no genuine issues of fact such as to warrant a summary judgment by the RTC; and
2. Where summary judgment is proper, whether or not the RTC and the CA a) correctly deleted the penalty charges because of BPI's alleged failure to comply with the Truth in Lending Act; b) correctly reduced the attorney's fees to 1% of the judgment debt; and c) properly dismissed BPI's counterclaims for moral and exemplary damages, attorney's fees, and litigation expenses.
SC RULING:
One, a summary judgment is apt when the essential facts of the case are uncontested or the parties do not raise any genuine issue of fact. Since the parties admitted not only the existence, authenticity, and genuine execution of these documents but also what they stated, the trial court did not need to hold a trial for the reception of the evidence of the parties.
Two, although BPI failed to state the penalty charges in the disclosure statement but the promissory note that the Yus signed, on the same date as the disclosure statement, contained a penalty clause. The promissory note is an acknowledgment of a debt and commitment to repay it on the date and under the conditions that the parties agreed on. It is a valid contract absent proof of acts which might have vitiated consent. In this case, the promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in Lending Act.
Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable and iniquitous, thus, finds the ruling of the RTC in its original decision reasonable and fair. Thus, the penalty charge of 12% per annum or 1% per month is imposed.
As for the award of attorney's fee, it being part of a party's liquidated damages, the same may likewise be equitably reduced. The CA correctly affirmed the RTC Order to reduce it from 10% to 1% based on the following reasons: (1) attorney's fee is not essential to the cost of borrowing, but a mere incident of collection; (2) 1% is just and adequate because BPI had already charged foreclosure expenses; (3) attorney's fee of 10% of the total amount due is onerous considering the rote effort that goes into extrajudicial foreclosures
SECURITIES REGULATION CODESECURITIES AND EXCHANGE COMMISSION VS. PROSPERITY.COM, INC.,
G.R. No. 164197, January 25, 2012.
INVESTMENT CONTRACT
(by Kara Mae Noveda)
Facts:
Prosperity.Com, Inc. (PCI), herein respondent, has sold computer software and hosted websites without providing internet service. What PCI does to accrue earnings is “sell” a 15-Mega Byte (MB) capacity website for US$234.00 (later increased to US$294.00), the same company encourages these buyers to, thereafter, earn commissions, interest in real estate in the Philippines and in the US, from the former by way of enlisting two other buyers as his/her down-lines. This scheme, as it appears, is akin to that of the Golconda Ventures, Inc. (GVI), a company whose operations were ceased due to a cease and desist order (order) issued against it by the SEC. It should also be noted that PCI has been run by the persons behind the GVI.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken over GVI’s operations. After hearing, the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCI’s scheme constitutes an Investment contract and, following the Securities Regulations Code, it should have first registered such contract or securities with the SEC. Instead of asking the SEC to lift its CDO, PCI filed with the Court of Appeals (CA) a petition for certiorari against the SEC with an application for a temporary restraining order (TRO) and preliminary injunction in CA-G.R. SP 62890.
Issues:
Does the above scheme violate the SRC? More particulary: Does the scheme by PCI constitute an “investment contract”--which makes it a transaction which should be registered with the SEC?
Held:
No. It is not an investment contract.
Rationale: First of all, what makes an investment contract? The SC, in this decision, was persuaded by an American case, Securities and Exchange Commission v. W.J. Howey Co. which defines an investment contract, to be one consisting of the following elements (referred to as the Howey test):
(1) a contract, transaction, or scheme;
(2) an investment of money;
(3) investment is made in a common enterprise;
(4) expectation of profits; and
(5) profits arising primarily from the efforts of others.
The PCI scheme fails in the fourth and fifth aspect. The commissions, interest and insurance coverage are but incentives for the down-line accommodations. They are not “profits” per se. Likewise, the Court addressed the last element: “Evidently, it is PCI that expects profit from the network marketing of its products. PCI is correct in saying that the US$234 it gets from its clients is merely a consideration for the sale of the websites that it provides.”
PHILIPPINE VETERANS BANK VS. JUSTINA CALLANGAN, ETC. AND/OR THE SECURITIES AND EXCHANGE COMMISSION
G.R. No. 191995, August 3, 2011.
PUBLIC COMPANY
(by Adelaida Paquibot)
Facts:
Respondent Justina F. Callangan, the Director of the Corporation Finance Department of the Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies as a "public company" under Section 17.2 of the Securities Regulation Code (SRC) in relation with Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the reportorial requirements set forth in Section 17.1 of the SRC.
The Bank responded by explaining that it should not be considered a "public company" because it is a private company whose shares of stock are available only to a limited class or sector, i.e., to World War II veterans, and not to the general public.
Respondent rejected the Bank’s explanation and assessed it a penalty for failing to comply with the SRC reportorial requirements from 2001 to 2003. The Bank moved for the reconsideration of the assessment, but respondent denied the motion. SEC en banc and CA affirmed the SEC’s ruling. Hence, this petition for review on certiorari.
Issue:
WON petitioner-bank is a public company under the provisions of SRC.
HELD:
Yes. A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P 50,0000.00 and with 200 or more stockholders at least 200 of them holding not less than 100 shares of such company.
From these provisions, it is clear that a “ public company,” as contemplated by the SRC, is not limited to a company whose shares of stocks are publicly listed; even companies like the Bank whose shares are offered only to a specific group of people, are considered a public company, provided they meet the requirements enumerated above.
