Corpo Code Cases Set 1

8/10/2019 Corpo Code Cases Set 1

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SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs. COURT OF APPEALS

G.R. No. 129459

Facts:Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc. entered intoan agreement with defendant-appellee Motorich Sales Corporation for thetransfer to it of a parcel of land, paid the down payment in the sum ofP100,000.00 , the balance to be paid on or before March 2, 1989. Mr. AndresT. Co, president of plaintiff-appellant corporation, was ready with the amountcorresponding to the balance, covered by Metrobank Cashiers Check No.004223, payable to defendant-appellee Motorich Sales Corporation; thatplaintiff-appellant and defendant-appellee Motorich Sales Corporation weresupposed to meet in the office of plaintiff-appellant but defendant-appellee streasurer, Nenita Lee Gruenberg, did not appear despite repeated demandsand in utter disregard of its commitments had refused to execute the

Transfer of Rights/Deed of Assignment which is necessary to transfer thecertificate of title.

As a result of defendants-appellees Nenita Lee Gruenberg and Motorich SalesCorporations bad faith in refusing to execute a formal Transfer ofRights/Deed of Assignment, plaintiff-appellant suffered moral and nominaldamages which may be assessed against defendants, that as a result ofdefendants- appellees Nenita Lee Gruenberg and Motorich Sales Corporationsunjustified and unwarranted failure to execute the required Transfer ofRights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary damages inthe sum of P100,000; that by reason of defendants- appellees bad faith inrefusing to execute a Transfer of Rights/Deed of Assignment in favor ofplaintiff-appellant, the latter lost the opportunity to construct a residentialbuilding in the sum of P100,000; In its answer, defendants-appelleesMotorich Sales Corporation and Nenita Lee Gruenberg interposed asaffirmative defense that the President and Chairman of Motorich did not sign

the agreement adverted to of the amended complaint; that Mrs. Gruenbe rgssignature on the agreement is inadequate to bind Motorich.

RTC: rendered the judgment appealed from; dismissing plaintiff- appellants

complaint, ruling that:'The issue to be resolved is: whether plaintiff had the right to compeldefendants to execute a deed of absolute sale in accordance with theagreement and if so, whether plaintiff is entitled to damages. There is noevidence to show that defendant Nenita Lee Gruenberg was indeedauthorized by defendant corporation, Motorich Sales, to dispose of thatproperty. Since the property is clearly owned by the corporation, MotorichSales, then its disposition should be governed by the requirement laid downin Sec. 40, of the Corporation Code of the Philippines.

Regarding the question of damages, the Court likewise, does not findsubstantial evidence to hold defendant Nenita Lee Gruenberg liableconsidering that she did not in anyway misrepresent herself to be authorized

by the corporation to sell the property to plaintiff.

CA:debunked petitioners arguments and affirmed the Decision of the RTCwith the modification that Respondent Nenita Lee Gruenberg was ordered torefund P100,000 to petitioner, the amount remitted as downpayment orearnest money.

Hence this petition.

Issues:1. Whether or not there is a valid contract of sale between petitioner andMotorich?2. Whether or not the doctrine of piercing the veil of corporate fiction beapplied to Motorich?3. Whether or ntot respondents liable for damages and attorneys fees?

Ruling:


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1. Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that itentered through its president, Andres Co, into the disputed Agreement withRespondent Motorich Sales Corporation, which was in turn allegedlyrepresented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that

when Gruenberg and Co affixed their signatures on the contract they bothconsented to be bound by the terms thereof. Ergo, petitioner contends thatthe contract is binding on the two corporations. We do not agree.True, Gruenberg and Co signed the Agreement according to which a lotowned by Motorich Sales Corporation was purportedly sold. Such contract,however, cannot bind Motorich, because it never authorized or ratified suchsale. A corporation is a juridical person separate and distinct from itsstockholders or members. Accordingly, the property of the corporation is notthe property of its stockholders or members and may not be sold by thestockholders or members without express authorization from thecorporations board of directors.

Indubitably, a corporation may act only through its board of directors, or,

when authorized either by its bylaws or by its board resolution, through itsofficers or agents in the normal course of business. The general principles ofagency govern the relation between the corporation and its officers or agents,subject to the articles of incorporation, bylaws, or relevant provisions of law.

In the case at bar, Respondent Motorich categorically denies that it everauthorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land.Consequently, petitioner had the burden of proving that Nenita Gruenbergwas in fact authorized to represent and bind Motorich in the transaction.Petitioner failed to prove such authority. It has not shown any provision ofsaid respondents articles of incorporation, bylaws or board resolution toprove that Nenita Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitionerfrom the responsibility of ascertaining the extent of her authority torepresent the corporation. Petitioner cannot assume that she, by virtue ofher position, was authorized to sell the property of the corporation. Selling isobviously foreign to a corporate treasurers function, which generally has

been described as to receive and keep the funds of the corporation, and todisburse them in accordance with the authority given him by the board or theproperly authorized officers

2. The Court has consistently ruled that [w]hen the fiction is used as ameans of perpetrating a fraud or an illegal act or as a vehicle for the evasionof an existing obligation, the circumvention of statutes, the achievement orperfection of a monopoly or generally the perpetration of knavery or crime,the veil with which the law covers and isolates the corporation from themembers or stockholders who compose it will be lifted to allow for itsconsideration merely as an aggregat ion of individuals.

We stress that the corporate fiction should be set aside when it becomes ashield against liability for fraud, illegality or inequity committed on thirdpersons. The question of piercing the veil of corporate fiction is essentially,then, a matter of proof. In the present case, however, the Court finds noreason to pierce the corporate veil of Respondent Motorich. Petitioner

utterly failed to establish that said corporation was formed, or that it isoperated, for the purpose of shielding any alleged fraudulent or illegalactivities of its officers or stockholders; or that the said veil was used toconceal fraud, illegality or inequity at the expense of third persons, likepetitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not.Section 96 of the Corporation Code. The articles of incorporation of MotorichSales Corporation does not contain any provision stating that (1) the numberof stockholders shall not exceed 20, or (2) a preemption of shares isrestricted in favor of any stockholder or of the corporation, or (3) listing itsstocks in any stock exchange or making a public offering of such stocks isprohibited. From its articles, it is clear that Respondent Motorich is not aclose corporation. Motorich does not become one either, just becauseSpouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribedcapital stock. The [m]ere ownership by a single stockholder or by anothercorporation of all or nearly all of the capital stock of a corporation is not ofitself sufficient ground for disregarding the separate corporate personalities.


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3. Andres Co is not a neophyte in the world of corporate business. He hasbeen the president of Petitioner Corporation for more than ten years and hasalso served as chief executive of two other corporate entities. Co cannot feign

ignorance of the scope of the authority of a corporate treasurer such asGruenberg. Neither can he be oblivious to his duty to ascertain the scope ofGruenbergs authorization to enter into a contract to sell a parcel of landbelonging to Motorich.Indeed, petitioners claim of fraud and bad faith is unsubstantiated and failsto persuade the Court. Indubitably, petitioner appears to be the victim of itsown officers negligence in entering into a contract with and paying anunauthorized officer of another corporation.

NARRA NICKEL MINING AND DEVELOPMENT CORP vs. REDMONTCONSOLIDATED MINES CORP.

G.R. No. 195580

Facts:Respondent Redmont Consolidated Mines Corp., a domestic corporationorganized and existing under Philippine laws, took interest in mining andexploring certain areas of the province of Palawan. After inquiring with theDepartment of Environment and Natural Resources, it learned that the areaswhere it wanted to undertake exploration and mining activities wherealready covered by Mineral Production Sharing Agreement (MPSA)applications of petitioners Narra, Tesoro and McArthur. Through itspredecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an applicationfor an MPSA and Exploration Permit (EP) with the Mines and Geo-SciencesBureau (MGB).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over1,782 hectares in Province of Palawan. The MPSA and EP were thentransferred to Madridejos Mining Corporation (MMC) and assigned topetitioner McArthur .

Petitioner Narra acquired its MPSA from Alpha Resources and DevelopmentCorporation and Patricia Louise Mining & Development Corporation(PLMDC) which previously filed an application for an MPSA with the MGB

Through the said application, the DENR issued MPSA-IV-1-12 covering anarea of 3.277 hectares in Municipality of Narra, Palawan. Subsequently,PLMDC conveyed, transferred and/or assigned its rights and interests overthe MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B,labeled as MPSA-AMA-IVB-154 over 3,402 hectares in Barangays Malinao andPrincesa Urduja, Municipality of Narra, Province of Palawan. SMMIsubsequently conveyed, transferred and assigned its rights and interest overthe said MPSA application to Tesoro.

Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)separate petitions for the denial of pet itioners applications for MPSA. In the

petitions, Redmont alleged that at least 60% of the capital stock of McArthur,Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI),a 100% Canadian corporation. Redmont reasoned that since MBMI is aconsiderable stockholder of petitioners, it was the driving force behindpetitioners filing of the MPSAs over the areas covered by applications since itknows that it can only participate in mining activities through corporationswhich are deemed Filipino citizens. Redmont argued that given thatpetitioners capital stocks were mostly owned by MBMI, they were likewisedisqualified from engaging in mining activities through MPSAs, which arereserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons underSection 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of1995. Additionally, they stated that their nationality as applicants isimmaterial because they also applied for Financial or Technical AssistanceAgreements denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 forTesoro and AFTA-IVB-07 for Narra, which are granted to foreign-ownedcorporations. Nevertheless, they claimed that the issue on nationality should


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not be raised since McArthur, Tesoro and Narra are in fact PhilippineNationals as 60% of their capital is owned by citizens of the Philippines. Theyasserted that though MBMI owns 40% of the shares of PLMC 40% of theshares of MMC (which owns 5,997 shares of McArthur) and 40% of the sharesof SLMC (which, in turn, owns 5,997 shares of Tesoro), the shares of MBMIwill not make it the owner of at least 60% of the capital stock of each ofpetitioners. They added that the best tool used in determining the nationalityof a corporation is the "control test," embodied in Sec. 3 of RA 7042 or theForeign Investments Act of 1991.

POA: issued a resolution disqualifying petitioners f rom gaining MPSAs; it isclearly established that respondents are not qualified applicants to engage inmining activities. Finds McArthur Mining Inc., Tesoro Mining andDevelopment, Inc., and Narra Nickel Mining and Development Corp. as,DISQUALIFIED for being considered as Foreign Corporations . TheirMineral Production Sharing Agreement (MPSA) are hereby DECLARED NULLAND VOID.

McArthur and Tesoro filed a joint Notice of Appeal and Memorandum ofAppeal with the Mines Adjudication Board (MAB) while Narra separatelyfiled its Notice of Appeal and Memorandum of Appeal. Pending the resolutionof the appeal filed by petitioners with the MAB, Redmont filed a Complaint with the Securities and Exchange Commission (SEC), seeking the revocationof the certificates for registration of petitioners on the ground that they areforeign-owned or controlled corporations engaged in mining in violation ofPhilippine laws.

Subsequently, Redmont filed before the Regional Trial Court of Quezon City(RTC) a Complaint for injunction with application for issuance of a temporaryrestraining order and/or writ of preliminary injunction, Redmont prayed forthe deferral of the MAB proceedings pending the resolution of the Complaintbefore the SEC. But before the RTC can resolve Redmonts Complaint andapplications for injunctive reliefs, the MAB issued an order finding the appealmeritorious.

MAB: REVERSES and SETS ASIDE the Resolution dated of the Panel ofArbitrators of Region IV-B.

Redmont filed a Motion for Reconsideration . of the order of the MAB.Subsequently, it filed a Supplemental Motion for Reconsideration . Before the MAB could resolve Redmonts Motion for Recons ideration andSupplemental Motion for Reconsideration, Redmont filed before the RTC aSupplemental Complaint.

RTC: issued an order granting Redmonts application for a TRO and settingthe case for hearing the prayer for the issuance of a writ of preliminaryinjunction. It issued an Order granting the issuance of a writ of preliminaryinjunction enjoining the MAB from finally disposing of the appeals ofpetitioners and from resolving Redmonts Motion for Reconsideration andSupplement Motion for Reconsider ation of the MABs

However, the MAB issued a second Order denying Redmonts Motion for

Reconsideration and Supplemental Motion for Reconsideration and resolvingthe appeals filed by petitioners. Hence, the petition for review filed byRedmont before the CA, assailing the Orders issued by the MAB.

CA: PARTIALLY GRANTED petitions and assailed orders of the Mining Adjudication Board are reversed and set aside . The findings of the Panelof Arbitrators of the Department of Environment and Natural Resources thatrespondents McArthur, Tesoro and Narra are foreign corporations is upheldand, therefore, the rejection of their applications for Mineral Product SharingAgreement should be recommended to the Secretary of the DENR. Withrespect to the applications of respondents McArthur, Tesoro and Narra forFinancial or Technical Assistance Agreement (FTAA) or conversion of theirMPSA applications to FTAA, the matter for its rejection or approval is left fordetermination by the Secretary of the DENR and the President of the Republicof the Philippines.

CA denied the Motion for Reconsideration filed by petitioners.


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CA found that there was doubt as to the nationality of petitioners when itrealized that petitioners had a common major investor, MBMI, a corporationcomposed of 100% Canadians. Pursuant to the first sentence of paragraph 7of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the1967 SEC Rules which implemented the requirement of the Constitution andother laws pertaining to the exploitation of natural resources, the CA used the"grandfather rule" to determine the nationality of petitioners.

In determining the nationality of petitioners, the CA looked into theircorporate structures and their corresponding common shareholders. Usingthe grandfather rule, the CA discovered that MBMI in effect owned majorityof the common stocks of the petitioners as well as at least 60% equityinterest of other majority shareholders of petitioners through joint ventureagreements. The CA found that through a "web of corporate layering, it isclear that one common controlling investor in all mining corporationsinvolved x x x is MBMI. Thus, it concluded that petitioners McArthur, Tesoroand Narra are also in partnership with, or privies-in-interest of, MBMI. It

viewed the conversion of the MPSA applications of petitioners into FTAAapplications suspicious in nature and, as a consequence, it recommended therejection of petitioners MPSA applications by the Secretary of the DENR .

Finally, the CA upheld the f indings of the POA in its Resolution whichconsidered petitioners McArthur, Tesoro and Narra as foreign corporations.Nevertheless, the CA determined that the POAs declaration that the MPSAs ofMcArthur, Tesoro and Narra are void is highly improper.

While petition is pending in CA, Redmont filed with the Office of the Presidenta petition to cancel petitioners FTAAs. The OP, affirmed the cancellation ofthe issued FTAAs, agreed with Redmont sta ting that petitioners committedviolations against the Constitution. Motion for Reconsideration of theDecision was further denied by the OP in a Resolution.

CA affirmed the Decision and Resolution of the OP.

Hence this petition.

Issues:1. The Court of Appeals erred when it did not dismiss the case for lack ofjurisdiction considering that the Panel of Arbitrators has no jurisdiction todetermine the nationality of Narra, Tesoro and McArthur.

2. The Court of Appeals ruling that Narra, Tesoro and McArthur are foreigncorporations based on the "Grandfather Rule" is contrary to law, particularlythe express mandate of the Foreign Investments Act of 1991, as amended,and the FIA Rules.

Ruling:1. We affirm the ruling of the CA in declaring that the POA has jurisdictionover the instant case. The POA has jurisdiction to settle disputes over rightsto mining areas which definitely involve the petitions filed by Redmontagainst petitioners Narra, McArthur and Tesoro. Redmont, by filing itspetition against petitioners, is asserting the right of Filipinos over mining

areas in the Philippines against alleged foreign-owned mining corporations.Such claim constitutes a "dispute" found in Sec. 77 of RA 7942:Within thirty (30) days, after the submission of the case by the parties for thedecision, the panel shall have exclusive and original jurisdiction to hear anddecide the following:(a) Disputes involving rights to mining areas(b) Disputes involving mineral agreements or permits.

It is basic that the jurisdiction of the court is determined by the statute inforce at the time of the commencement of the action.Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary ReorganizationAct of 1980" reads:Sec. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exerciseexclusive original jurisdiction:1. In all civil actions in which the subject of the litigation is incapable ofpecuniary estimation.Section 77. Panel of Arbitrators.


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It is clear that POA has exclusive and original jurisdiction over any and alldisputes involving rights to mining areas. One such dispute is an MPSAapplication to which an adverse claim, protest or opposition is filed byanother interested applicant. In the case at bar, the dispute arose ororiginated from MPSA applications where petitioners are asserting theirrights to mining areas subject of their respective MPSA applications. Sincerespondent filed 3 separate petitions for the denial of said applications, thena controversy has developed between the parties and it is POAs jurisdictionto resolve said disputes.Moreover, the jurisdiction of the RTC involves civil actions while whatpetitioners filed with the DENR Regional Office or any concerned DENRE orCENRO are MPSA applications. Thus POA has ju risdiction.

2. In statutory construction is when there is conflict between the Constitutionand a statute, the Constitution will prevail. Specifically pertaining to theprovisions under Art. XII of the Constitution on National Economy andPatrimony, Sec. 3 of the FIA will have no place of application. As decreed by

the honorable framers of our Constitution, the grandfather rule prevails andmust be applied.

Under the above-quoted SEC Rules, there are two cases in determining thenationality of the Investee Corporation. The first case is the liberal rule, latercoined by the SEC as the Control Test and pertains to the portion in saidParagraph 7 of the 1967 SEC Rules which states, (s)hares belonging tocorporations or partnerships at least 60% of the capital of which is owned byFilipino citizens shall be considered as of Philippine nat ionality. Under theliberal Control Test, there is no need to further trace the ownership of the60% (or more) Filipino stockholdings of the Investing Corporation since acorporation which is at least 60% Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper andpertains to the portion in said Paragraph 7 of the 1967 SEC Rules whichstates, "but if the percentage of Filipino ownership in the corporation orpartnership is less than 60%, only the number of shares corresponding tosuch percentage shall be counted as of Philippine nationality." Under the

Strict Rule or Grandfather Rule Proper, the combined totals in the InvestingCorporation and the Investee Corporation must be to determine the totalpercentage of Filipino ownership.

After a scrutiny of the evidence extant on record, the Court finds that thiscase calls for the application of the grandfather rule since, as ruled by thePOA and affirmed by the OP, doubt prevails and persists in the corporateownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro,since their common investor, the 100% Canadian corporation MBMI,funded them. Obviously, the instant case presents a situation which exhibitsa scheme employed by stockholders to circumvent the law, creating a cloudof doubt in the Courts mind. To determine, therefore, the actualparticipation, direct or indirect, of MBMI, the grandfather rule must be used.

WILSON GAMBOAvs.

FINANCE SECRETARY

Facts:There are two sides claiming of their versions of the facts here is the facts,according to petitioner Wilson P. Gamboa, a stockholder of Philippine LongDistance Telephone Company. which granted PLDT a franchise and the rightto engage in telecommunications business. In 1969, General Telephone andElectronics Corporation (GTE), an American company and a major PLDTstockholder, sold 26 % of the outstanding common shares of PLDT to PTIC.Prime Holdings, Inc. subsequently became the owner of 111,415 shares ofstock of PTIC by virtue of three Deeds of Assignment executed by PTICstockholders Ramon Cojuangco and Luis Tirso Rivilla. The 111,415 shares ofstock of PTIC held by PHI were sequestered by the Presidential Commissionon Good Government. The 111,415 PTIC shares, which represent about46.125 % of the outstanding capital stock of PTIC, were later declared by thisCourt to be owned by the Republic of the Philippines.


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First Pacific, a Bermuda-registered, Hong Kong-based investment firm,acquired the remaining 54 percent of the outstanding capital stock of PTIC.

The Inter-Agency Privatization Council of the Philippine Governmentannounced that it would sell the 111,415 PTIC shares, or 46.125 % of theoutstanding capital stock of PTIC, through a public bidding, there are onlytwo bidders, Parallax Venture Fund XXVII and Pan-Asia Presidio Capital.Parallax won with a bid of P25.6 billion or US$510 million.

On the other hand, public respondents Finance Secretary Margarito B. Teves,version of facts; PTIC was incorporated and had since engaged in thebusiness of investment holdings. PTIC held 26,034,263 PLDT common shares,or 13.847 percent of the total PLDT outstanding common shares. PHI becamethe owner of 111,415 PTIC shares or 46.125 percent of the outstandingcapital stock of PTIC by virtue of three Deeds of Assignment executed byRamon Cojuangco and Luis Tirso Rivilla. The 111,415 PTIC shares held byPHI were sequestered by the PCGG, and subsequently declared by this Court

as part of the ill-gotten wealth of former President Ferdinand Marcos. Thesequestered PTIC shares were reconveyed to the Republic of the Philippinesin accordance with this Courts decision .

The Philippine Government decided to sell the 111,415 PTIC shares, whichrepresent 6.4 % of the outstanding common shares of stock of PLDT, anddesignated the Inter-Agency Privatization Council (IPC) An invitation to bidwas published in seven different newspapers, a pre-bid conference was held.

During the bidding, Parallax Capital Management LP emerged as the highestbidder with a bid of P25,217,556,000. The government notified First Pacificand gave First Pacific its right of first refusal in accordance with P TICsArticles of Incorporation. First Pacific announced its intention to matchParallaxs bid.

The House of Representatives (HR) Committee on Good Governmentconducted a public hearing on the particulars of the then impending sale ofthe 111,415 PTIC shares. The HR Committee Report No. 2270 concluded that:

(a) the auction of the governments 111,415 PTIC shares bore due diligence,transparency and conformity with existing legal procedures; and (b) FirstPacifics intended acquisition of the governments 111,415 PTIC sharesresulting in First Pacifics 100% ownership of PTIC will not violate the40 percent constitutional limit on foreign ownership of a public utilitysince PTIC holds only 13.847 percent of the total outstanding commonshares of PLDT. First Pacific completed the acquisition of the 111,415 sharesof stock of PTIC.

Petitioner filed the instant petition for prohibition, injunction, declaratoryrelief, and declaration of nullity of sale of the 111,415 PTIC shares claims,among others, that the sale of the 111,415 PTIC shares would result in anincrease in First Pacifics common shareholdings in PLDT from 30.7 % to 37% , and this, combined with Japanese NTT DoCoMos common shareholdingsin PLDT, would result to a total foreign common shareholdings in PLDT of51.56 % which is over the 40 % constitutional limit.

Issue:1. whether the term capital in Section 11, Article XII of the Constitutionrefers to the total common shares only or to the total outstanding capitalstock (combined total of common and non-voting preferred shares) of PLDT,a public utility.

Ruling:The 1987 Constitution provides for the Filipinization of public utilities byrequiring that any form of authorization for the operation of public utilitiesshould be granted only to citizens of the Philippines or to corporations orassociations organized under the laws of the Philippines at least sixty percentum of whose capital is owned by such citizens. The provision is [anexpress] recognition of the sensitive and vital position of public utilitiesboth in the national economy and for national security. The evidentpurpose of the citizenship requirement is to prevent aliens from assumingcontrol of public utilities, which may be inimical to the national interest. Thisspecific provision explicitly reserves to Filipino citizens control of publicutilities, pursuant to an overriding economic goal of the 1987 Constitution: to


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conserve and develop our patrimony and ensure a self -reliant andindependent national economy effectively controlled by Filipinos.

Any citizen or juridical entity desiring to operate a public utility musttherefore meet the minimum nationality requirement prescribed in Section11, Article XII of the Constitution. Hence, for a corporation to be grantedauthority to operate a public utility, at least 60 % of its capital must beowned by Filipino citizens.

The term capital in Section 11, Article XII of the Constitution refers only toshares of stock entitled to vote in the election of directors , and thus inthe present case only to common shares, and not to the total outstandingcapital stock comprising both common and non-voting preferred shares.The Corporation Code of the Philippines classifies shares as common orpreferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may

be divided into classes or series of shares, or both, any of which classes orseries of shares may have such rights, privileges or restrictions as may bestated in the articles of incorporation: Provided, That no share may bedeprived of voting rights except those classified and issued aspreferred or redeemable shares, unless otherwise provided in thisCode : Provided, further, That there shall always be a class or series of shareswhich have complete voting rights. Any or all of the shares or series of sharesmay have a par value or have no par value as may be provided for in thearticles of incorporation: Provided, however, That banks, trust companies,insurance companies, public utilities, and building and loan associations shallnot be permitted to issue no-par value shares of stock.

Indisputably, construing the term capital in Section 11, Article XII of theConstitution to include both voting and non-voting shares will result in theabject surrender of our telecommunications industry to foreigners,amounting to a clear abdication of the States constitutional duty to limitcontrol of public utilities to Filipino citizens. Such an interpretation certainly

runs counter to the constitutional provision reserving certain areas ofinvestment to Filipino citizens, such as the exploitation of natural resourcesas well as the ownership of land, educational institutions and advertisingbusinesses. The Court should never open to foreign control what theConstitution has expressly reserved to Filipinos for that would be a betrayalof the Constitution and of the national interest. The Court must perform itssolemn duty to defend and uphold the intent and letter of the Constitution toensure, in the words of the Constitution.

The petition is partly granted and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stockentitled to vote in the election of directors, and thus in the present caseonly to common shares, and not to the total outstanding capital stock(common and non-voting preferred shares) .

HON. ALFREDO LIMvs.

COURT OF APPEALS

G.R. No. 124715

Facts:Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whoseestate is the subject of probate proceedings in Special Proceedings. Privaterespondents Auto Truck Corporation, Alliance Marketing Corporation, SpeedDistributing, Inc., Active Distributing, Inc. and Action Company arecorporations formed, organized and existing under Philippine laws andwhich owned real properties covered under the Torrens system.

Pastor Y. Lim died intestate. Private respondent corporations, whoseproperties were included in the inventory of the estate of Pastor Y. Lim, thenfiled a motion 6 for the lifting of lis pendens and motion 7 for exclusion ofcertain properties from the estate of the decedent.


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RTC: sitting as a probate court, granted the private respondents' twinmotions.

Subsequently, Rufina Luy Lim filed a verified amended petition whichcontained the following averments:

The late Pastor Y. Lim personally owned during his lifetime Although the above business entities dealt and engaged in business

with the public as corporations, all their capital, assets and equitywere however, personally owned by the late Pastor Y Lim. Hence thealleged stockholders and officers appearing in the respective articlesof incorporation of the above business entities were mere dummiesof Pastor Y. Lim, and they were listed therein only for purposes ofregistration with the Securities and Exchange Commission.

That the following real properties, although registered in the name ofthe above entities, were actually acquired by Pastor Y. Lim during hismarriage with petitioner, The aforementioned properties and/or

real interests left by the late Pastor Y. Lim, are all conjugal in nature,having been acquired by him during the existence of his marriagewith petitioner.

RTC: as probate court denied anew private respondents' motion for exclusion

Private respondent filed a special civil action for certiorari with an urgentprayer for a restraining order or writ of preliminary injunction, before theCourt of Appeals questioning the orders of the Regional Trial Court, sitting asa probate court.

CA: set aside and decide in favor of herein private respondents

Hence the instant petition for review.

Issue:

Whether or not Court of Appeals erred in reversing the orders of the lowercourt, which merely allowed the preliminary or provisional inclusion of theprivate respondents as part of the estate of the late deceased.

Ruling:A perusal of the records would reveal that no strong compelling evidence wasever presented by petitioner to bolster her bare assertions as to the title ofthe deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwiseknown as, "The Property Registration Decree", proscribes collateral attack onTorrens Title.

Inasmuch as the real properties included in the inventory of the estate of theLate Pastor Y. Lim are in the possession of and are registered in the name ofprivate respondent corporations, which under the law possess a personalityseparate and distinct from their stockholders, and in the absence of anycogency to shred the veil of corporate fiction, the presumption ofconclusiveness of said titles in favor of private respondents should stand

undisturbed.

The corporate mask may be lifted and the corporate veil may be piercedwhen a corporation is just but the alter ego of a person or of anothercorporation. Where badges of fraud exist, where public convenience isdefeated; where a wrong is sought to be justified thereby, the corporatefiction or the notion of legal entity should come to naught. Further, the test indetermining the applicability of the doctrine of piercing the veil of corporatefiction is as follows:1) Control, not mere majority or complete stock control, but completedomination, not only of finances but of policy and business practice in respectto the transaction attacked so that the corporate entity as to this transactionhad at the time no separate mind, will or existence of its own;(2) Such control must have been used by the defendant to commit fraud orwrong, to perpetuate the violation of a statutory or other positive legal duty,or dishonest and unjust act in contravention of plaintiffs legal right; and


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(3) The aforesaid control and breach of duty must proximately cause theinjury or unjust loss complained of. The absence of any of these elementsprevent "piercing the corporate veil"

The decision of the Court of Appeals which nullified and set aside the ordersissued by the Regional Trial Court, Branch 93, acting as a probate court, dated04 July 1995 and 12 September 1995 is AFFIRMED. 1wphi1.nt

RUBEN SAWvs.HON. COURT OF APPEALS

G.R. No. 90580

Facts:A collection suit with preliminary attachment was f iled by Equitable BankingCorporation against Freeman, Inc. and Saw Chiao Lian, its President and

General Manager. The petitioners moved to intervene, alleging that (1) theloan transactions between Saw Chiao Lian and Equitable Banking Corp. werenot approved by the stockholders representing at least 2/3 of corporatecapital; (2) Saw Chiao Lian had no authority to contract such loans; and (3)there was collusion between the officials of Freeman, Inc. and EquitableBanking Corp. in securing the loans.

RTC: Motion for intervention is denied

Meanwhile Equitable and Saw Chiao Lian entered into a compromiseagreement which they submitted to and was approved by the lower court.But because it was not complied with, Equitable secured a writ of execution,and two lots owned by Freeman, Inc. were levied upon and sold at publicauction to Freeman Management and Development Corp.

CA: sustained the denial of the petitioners' motion for intervention holdingthat "the compromise agreement between Freeman, Inc., through itsPresident, and Equitable Banking Corp. will not necessarily prejudice

petitioners whose rights to corporate assets are at most inchoate, prior to thedissolution of Freeman.

Issue:Whether or not Court of Appeals erred in holding that the petitioners cannotintervene in the case because their rights as stockholders of Freeman aremerely inchoate and not actual, material, direct and immediate prior to thedissolution of the corporation.

Issue:Petition is DENIED. The petitioners base their right to intervene for theprotection of their interests as stockholders on Everett v . Asia Banking Corp .where it was held:The well-known rule that shareholders cannot ordinarily sue in equity toredress wrongs done to the corporation, but that the action must be broughtby the Board of Directors, . . . has its exceptions. (If the corporation [were]under the complete control of the principal defendants, . . . it is obvious that a

demand upon the Board of Directors to institute action and prosecute thesame effectively would have been useless, and the law does not requirelitigants to perform useless acts.

The Everett case is not applicable because it involved an action filed by theminority stockholders where the board of directors refused to bring an actionin behalf of the corporation. In the case at bar, it was Freeman, Inc. that wasbeing sued by the creditor bank.

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Corpo Code Cases Set 1