June 2014 Philippine Supreme Court Decisions on Commercial Law

Here are select June 2014 ruling of the Supreme Court of the Philippines on commercial law:

Corporations; capacity to sue  of dissolved corporations. The trustee of a corporation may continue to prosecute a case commenced by the corporation within three years from its dissolution until rendition of the final judgment, even if such judgment is rendered beyond the three-year period allowed by Section 122 of the Corporation Code. However, there is nothing in the said cases which allows an already defunct corporation to initiate a suit after the lapse of the said three-year period. On the contrary, the factual circumstances in the abovecited cases would show that the corporations involved therein did not initiate any complaint after the lapse of the three-year period. In fact, as stated above, the actions were already pending at the time that they lost their corporate existence.

In the present case, petitioner filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment, on the ground that such complaint was filed for the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122 of the Corporation Code. Alabang Development Corporation v. Alabang Hills Village Association and Rafael Tinio, G.R. No. 187456, June 2, 2014.

Corporations; refusal to allow inspection is a criminal offense. We find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection of the stock and transfer book is not a punishable offense under the Corporation Code. Such refusal, when done in violation of Section 74( 4) of the Corporation Code, properly falls within the purview of Section 144 of the same code and thus may be penalized as an offense. Aderito Z. Yujuico and Bonifacio C. Sumbilla v. Cezar T. Quiambao and Eric C. Pilapil, G.R. No. 180416, June 2, 2014.

April 2014 Philippine Supreme Court Decisions on Commercial Law

Here are select April 2014 rulings of the Supreme Court of the Philippines on commercial law:

Corporate officers; liability. On  the  issue  of  the  solidary  obligation  of  the  corporate officers impleaded vis-à-vis the corporation for Mapua’s illegal dismissal, “[i]t is hornbook principle that personal liability of corporate directors, trustees or officers attaches only when: (a) they assent to a patently unlawful act of the corporation,  or  when  they  are  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; (b)  they consent to the issuance of watered down stocks or when, having knowledge of  such  issuance,  do  not  forthwith  file  with  the  corporate  secretary  their written objection; (c) they agree to hold themselves personally and solidarily liable with the corporation; or (d) they are made by specific provision of law personally answerable fortheir corporate action.SPI Technologies, Inc., et al. v. Victoria K. Mapua,G.R. No. 199022, April 7, 2014.

Corporate officers; liability. A corporation has a personality separate and distinct from its officers and board of directors who may only be held personally liable for damages if it is proven that they acted with malice or bad faith in the dismissal of an employee. Absent any evidence on record that petitioner Bautista acted maliciously or in bad faith in effecting the termination of respondent, plus the apparent lack of allegation in the pleadings of respondent that petitioner Bautistaacted in such manner, the doctrine of corporate fiction dictates that only petitioner corporation should be held liable for the illegal dismissal of respondent. Mirant (Philippines) Corporation, et al. v. Joselito A. Caro,G.R. No. 181490, April 23, 2014.

Corporations; merger; concept. Merger is a re-organization of two or more corporations that results in their consolidating into a single corpor ation, which is one of the constituent corporations, one disappearing or dissolving and the other surviving.  To put it another way, merger is the absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s).  The absorbing corporation continues its existence while the life or lives of the other corporation(s) is or are terminated. Bank of Commerce v. Radio Philippines Network, Inc., et al.,G.R. No. 195615, April 21, 2014.

June 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select June 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; derivative suit. A derivative suit is an action brought by a stockholder on behalf  of  the  corporation  to  enforce  corporate  rights  against  the corporation’s directors, officers or other insiders. Under Sections 23 and 36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the right to decide whether or not a corporation should sue. Since these directors or officers will never be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law to bring an action in the name of the corporation to hold these directors and officers accountable. In derivative suits, the real party in interest is the corporation, while the stockholder is a mere nominal party.  Juanito Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang, G.R. No. 201675, June 19, 2013.

Corporation; shares of stock. In a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased.

Here, FEGDI clearly failed to deliver the stock certificates, representing the shares of stock purchased by Vertex, within  a reasonable time from the point the shares should have been delivered.  This was a substantial breach of their contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code.  It is not entirely  correct to say that a sale had already been consummated as Vertex already  enjoyed the rights a shareholder can exercise.  The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer ownership.  Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc., G.R. No. 202079, June 10, 2013.

March 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select March 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; separate personality. A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected. As a consequence of its status as a distinct legal entity and as a result of a conscious policy decision to promote capital formation, a corporation incurs its own liabilities and is legally responsible for payment of its obligations. In other words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder. This protection from liability for shareholders is the principle of limited liability. Phil. National Bank vs. Hydro Resources Contractors Corp., .G.R. Nos. 167530, 167561, 16760311. March 13, 2013

Corporation; piercing the corporate veil. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

February 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select February 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; liability of officers and directors. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.

This is consistent with the provisions of the Corporation Code of the Philippines, which states:

Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

January 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select January 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporations; power of bank employee to bind bank. Even assuming that the bank officer or employee whom petitioner claimed he had talked to regarding the March 22, 1984 letter had acceded to his own modified terms for the repurchase, their supposed verbal exchange did not bind respondent bank in view of its corporate nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was authorized by respondent bank’s Board of Directors to accept petitioner’s counter-proposal to repurchase the foreclosed properties at the price and terms other than those communicated in the March 22, 1984 letter. As this Court ruled in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.:

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.