November 2009 Philippine Supreme Court Decisions on Commercial Law

Here are selected November 2009 Philippine Supreme Court decisions on commercial law:

Corporate employees;  appointment. Ordinary company employees are generally employed not by action of the directors and stockholders but by that of the managing officer of the corporation who also determines the compensation to be paid such employees. Corporate officers, on the other hand, are elected or appointed by the directors or stockholders, and are those who are given that character either by the Corporation Code or by the corporation’s by-laws.

Here, it was the PDMC president who appointed petitioner Gomez administrator, not its board of directors or the stockholders. The president alone also determined her compensation package. Moreover, the administrator was not among the corporate officers mentioned in the PDMC by-laws. The corporate officers proper were the chairman, president, executive vice-president, vice-president, general manager, treasurer, and secretary.  Gloria V. Gomez vs. PNOC Development and Management Corporation (PDMC), G.R. No. 174044, November 27, 2009.

Rehabilitation; accommodation mortgagors. The rehabilitation court committed no reversible error when it removed TCT No. 133164 from the coverage of the stay order. The Interim Rules of Procedure on Corporate Rehabilitation is silent on the enforcement of claims specifically against the properties of accommodation mortgagors. It only covers the suspension, during the pendency of the rehabilitation, of the enforcement of all claims against the debtor, its guarantors and sureties not solidarily liable with the mortgagor.

Furthermore, the newly adopted Rules of Procedure on Corporate Rehabilitation has a specific provision for this special arrangement among a debtor, its creditor and its accommodation mortgagor. Section 7(b), Rule 3 of the said Rules explicitly allows the foreclosure by a creditor of a property not belonging to a debtor under corporate rehabilitation.  Pacific Wide Realty and Development Corporation vs. Puerto Azul Land, Inc./Pacific Wide Realty and Development Corporation Vs. Puerto Azul Land, Inc., G.R. No. 178768/G.R. No. 180893, November 25, 2009.

Iniquitous and unconscionable interest rate (again)

In September 2009, the Supreme Court promulgated its decision in Ileana Dr. Macalino vs. Bank of the Philippines Islands, G.R. No. 175490, September 17, 2009, and held that the interest rate of 1.5% per month on credit card payments should be reduced to 1% per month.

In Sps. Isagani & Diosdada Castro vs. Angelina de Leon Tan, G.R. No. 168940. November 24, 2009, the Supreme Court again faced the issue of whether the interest rate imposed (this time under a loan agreement) is excessive.  Here, the loan agreement (denominated as Kasulatan ng Sanglaan ng Lupa at Bahay) provided for an interest rate of 5% per month, compounded monthly.  The principal amount of the loan was PhP30,000.

The borrowers (spouses Tan) failed to pay the loan and the lenders (spouses Castro) instituted an extra-judicial foreclosure of mortgage. The lenders emerged as the only bidder and the redemption period expired without the property being redeemed.

A Complaint for Nullification of Mortgage and Foreclosure and/or Partial Rescission of Documents and Damages was subsequently filed before the Regional Trial Court of Malolos, Bulacan. The complainants alleged, inter alia, that the interest rate imposed on the principal amount of P30,000.00 is unconscionable.

The Regional Trial Court reduced the interest rate to 12% per annum and the Court of Appeals affirmed.

In proceedings before the Supreme Court, the petitioners contend that with the removal by the Bangko Sentral of the ceiling on the rate of interest that may be stipulated in a contract of loan, the lender and the borrower could validly agree on any interest rate on loans. Thus, they argue that the Court of Appeals gravely erred when it declared the stipulated interest in the Kasulatan as null as if there was no express stipulation on the compounded interest.

On the other hand, respondents assert that the appellate court correctly struck down the said stipulated interest for being excessive and contrary to morals, if not against the law. They also point out that a contract has the force of law between the parties, but only when the terms, clauses and conditions thereof are not contrary to law, morals, public order or public policy.

October 2009 Philippine Supreme Court Decisions on Commercial Law

Here are selected October 2009 Philippine Supreme Court decisions on commercial law:

Board of trustees;  qualification of Chairman.  The Court of Appeals correctly held that petitioner Villafuerte’s nomination must of necessity be understood as being subject to or in accordance with the qualifications set forth in the By-Laws of the BAP-SBP. Since the said by-laws require the Chairman of the Board of Trustees to be a trustee himself, petitioner Villafuerte was not qualified since he had neither been elected nor appointed as one of the trustees of BAP-SBP. In other words, petitioner Villafuerte never validly assumed the position of Chairman because he failed in the first place to qualify therefor.  Rep. Luis R. Villafuerte, et al. vs. Gov. Oscar S. Moreno, et al., G.R. No. 186566, October 2, 2009

By-laws; membership. Under the by-laws, a three-man panel is mandated to review, verify and validate the lists of members submitted by BAP and PB to FIBA based on an agreed set of criteria for membership formulated by the three-man panel. There is no question that the three-man panel had not yet formulated a set of criteria prior to or as of the time of signing of the Bangkok Agreement. If only for this, it stands to reason that the three-man panel could not have, by any stretch of the imagination, possibly validated all organizations proposed by the BAP and PB for BAP-SBP membership as “active” or “voting” members on a wholesale basis. It could not have done so since there was still no set of criteria by which to embark on such an endeavor. The rules and procedures for validation were formulated by the three-man panel only after the execution of the Bangkok Agreement. In fact, several of the petitioners actively participated in the membership validation process which was done after the execution of the Bangkok Agreement.

The membership validation resulted in the conferment of active membership status upon 19 BAP-SBP members, 17 of which participated in the June 12, 2008 meeting. Hence, respondents, who were elected by 17 of the 19 active and voting members of the BAP-SBP during the meeting held on June 12, 2008, are the legitimate officers of the organization, their election in accordance with the applicable rules on the said exercise. Rep. Luis R. Villafuerte, et al. vs. Gov. Oscar S. Moreno, et al., G.R. No. 186566, October 2, 2009

Legalese 2009 (Week 41)

Lexicon

check – a bill of exchange drawn on a bank payable on demand (Negotiable Instruments Law, sec. 185).

September 2009 Philippine Supreme Court Decisions on Commercial Law and Tax Law

Here are selected September 2009 Philippine Supreme Court decisions on commercial law and tax law:

Commercial law

Corporation;  board resolution.  The second letter-agreement modified the first one entered into by petitioner, through Atty. Jose Soluta, Jr. In previously allowing Atty. Soluta to enter into the first letter-agreement without a board resolution expressly authorizing him, petitioner had clothed him with apparent authority to modify the same via the second letter-agreement. Associated Bank (now United Overseas Bank [Phils.]) vs. Spouses Rafael and Monaliza Pronstroller/Spouses Eduardo and Ma. Pilar Vaca (Intervenors), G.R. No. 148444, September 3, 2009.

Corporation;  board vacancy. After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term of office is deemed to have already expired. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term. To be precise, Makalintal’s term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the Corporation Code, he continued to hold office until his resignation on November 10, 1998. This holdover period, however, is not to be considered as part of his term, which, as declared, had already expired.

With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose.  Valle Verde Country Club, Inc., et al. Vs. Victor Africa, G.R. No. 151969, September 4, 2009.

Corporation; corporation sole. Even if the transformation of IEMELIF from a corporation sole to a corporation aggregate was legally defective, its head or governing body, i.e., Bishop Lazaro, whose acts were approved by the Highest Consistory of Elders, still did not change. A corporation sole is one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church. As opposed to a corporation aggregate, a corporation sole consists of a single member, while a corporation aggregate consists of two or more persons. If the transformation did not materialize, the corporation sole would still be Bishop Lazaro, who himself performed the questioned acts of removing Juane as Resident Pastor of the Tondo Congregation. If the transformation did materialize, the corporation aggregate would be composed of the Highest Consistory of Elders, which nevertheless approved the very same acts. As either Bishop Lazaro or the Highest Consistory of Elders had the authority to appoint Juane as Resident Pastor of the IEMELIF Tondo Congregation, it also had the power to remove him as such or transfer him to another congregation. Iglesia Evangelisca Metodista En Las Islas Filipinas (IEMELIF), Inc. vs. Nataniel B. Juane/Nataniel B. Juane Vs. Iglesia Evangelisca Metodista En Las Islas Filipinas (IEMELIF), Inc., G.R. No. 172447, September 18, 2009.

Power of board to elect replacement for resigned holdover director

Under section 29 of the Corporation Code, the board of directors, if there remains a quorum, can fill up a vacancy in the board of directors, except when: (1) the vacancy was caused by the removal of a director by the stockholders; or (2) the vacancy was caused by the expiration of the term of the director.

If the vacancy was caused by the resignation of a director who was occupying the position in a hold-over capacity, can the remaining directors fill up the vacancy or would that power vest with the stockholders?

In Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4, 2009, the stockholders of Valle Verde Country Club (VVCC) elected the following as members of the board during its 1996 annual stockholders’ meeting: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.

Because of lack of quorum, no stockholders’ meetings were held in the years 1997, 1998, 1999, 2000, and 2001. Thus, the directors continued to serve in the VVCC Board in a hold-over capacity.

Dinglasan resigned from his position as member of the VVCC Board on September 1998. The following month, the remaining directors elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation of Dinglasan. Subsequently, Makalintal also resigned as member of the VVCC Board. The remaining members of the VVCC board elected Jose Ramirez (Ramirez) to replace Makalintal on March 6, 2001.

Victor Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC), respectively. In his nullification complaint before the RTC, Africa alleged that the election of Roxas was contrary to Section 29, in relation to Section 23, of the Corporation Code. According to Africa, the resulting vacancies should have been filled by the stockholders in a regular or special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case. The SEC and the RTC agreed with Africa.