CORPORATION LAW

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner, vs. THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY, respondents.

G.R. No. L-8451. December 20, 1957. FELIX, J.:

Topic: Classification of Corporation as to number of members, Corporation Sole

FACTS: Mateo Rodis sold his parcel of land located in Davao City to the herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc. on Oct. 4, 1954. Herein petitioner is a corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.

Upon presentation of the deed of sale to the Register of Deeds of Davao for registration, the latter required herein petitioner to submit an affidavit declaring that 60 percent of the members thereof were Filipino citizens.

Petitioner claimed that a corporation sole has only one incorporator and the owner of the land would be the Catholic population of Davao and not the corporation sole or the congregation.

The Register of Deeds referred the matter to The Land Registration Commissioner for resolution. The Commissioner resolved, after proper hearing, that the herein petitioner corporation was not qualified to acquire private lands in the Philippines in the absence of that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen. This is pursuant to the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution.

After the motion to reconsider said resolution was denied, an action for mandamus was instituted with the Supreme Court by said corporation sole, alleging that under the Corporation Law the deed of sale is actually in favor of the Catholic Church which is qualified to acquire private agricultural lands for the establishment and maintenance of places of worship, and prayed that judgment be rendered reversing and setting aside the resolution of the Land Registration Commissioner in question.

ISSUE: Whether or not corporations sole is qualified to acquire lands in the Philippines in view of the provisions of section 1 and 5 of Article XIII of the 1935 Constitution.

HELD: The framers of the Constitution had not in mind the corporations sole nor intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and approved the same.

The Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not the owner of the properties that he may acquire but merely the administrator thereof.

It has been shown that:

(1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5 incorporators, is composed of only one person, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any percentage whatsoever;

(2) (2) the corporation sole is only the administrator and not the owner of the temporalities (Secular properties) located in the territory comprised by said corporation sole;

(3) (3) such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation sole; and

(4) (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or corporation sole, but if any nationality is to be accorded to a corporation sole, it is to be judged from the nationality of the majority of the faithfuls thereof.

The framers of the Constitution intended said provisions (Sections 1 and 5 of Article XIII) as barrier for foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped wealth for our people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of corporations sole in the Philippines, for they are mere administrators of the "temporalities" or properties titled in their name and for the benefit of the members of their respective religion composed of an overwhelming majority of Filipinos.

Decision of the Land Registration Commission is reversed.

 THE DIRECTOR OF LANDS, petitioner, vs. INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC., ETC., respondents.

G.R. No. 73002 December 29, 1986 . NARVASA, J.

 

Topic: Classification of Corporation as to the Number of members, Corporation Sole

Principle: The 1973 Constitution cannot impair vested rights. Thus where land was acquired in 1962 when corporations were allowed to acquire lands not beyond 1,024 hectares, the same may be registered in 1982 although under 1973 Constitution corporations cannot acquire lands of the public domain.

A corporation that acquired private land in 1962may have it registered in 1982 despite the prohibition in the 1973Constitution which cannot be given retroactive effect as to impair vested rights.

NATURE: appeal by certiorari from a judgment of the Intermediate Appellate Court affirming a decisionof the Court of First Instance of Isabela, which ordered registration in favor of Acme Plywood & Veneer Co., Inc. of five parcels of land measuring 481, 390 square meters, more or less, acquired by it from Mariano and Acer Infiel, members of the Dumagat tribe.

 

FACTS: The land subject of the Land Registration proceeding was ancestrally acquired by Acme Plywood & Veneer Co.,Inc., on October 29,1962 (thus according to the lower court, the applicable phil. Constitution is the 1935), from Mariano Infiel and Acer Infiel, both members of the Dumagat tribe and as such are cultural minorities. the possession of the Infiels over the land relinquished or sold to Acme Plywood & Veneer Co., Inc., dates back before the Philippines was discovered by Magellan as the ancestors of the Infiels have possessed and occupied the land from generation to generation until the same came into the possession of Mariano Infiel and Acer Infiel. The land sought to be registered is a private land pursuant to the provisions of Republic Act No. 3872granting absolute ownership to members of the non-Christian Tribes on land occupied by them or their ancestral lands, whether with the alienable or disposable public land or within the public domain;   

 

The Director of Lands asserts that, the registration proceedings have been commenced only on July 17, 1981, or long after the 1973Constitution had gone into effect, the latter is the correctly applicable law; and since section 11 of its Article XIV prohibits private corporations or associations from holding alienable lands of the public domain, except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935 Constitution which was in force in1962 when Acme purchased the lands in question from the Infiels),it was reversible error to decree registration in favor of Acme.

 

ISSUE: Whether the title that the Infiels had transferred to Acme in 1962 could be confirmed in favor of the latter in proceedings instituted by it in1981 when the 1973 Constitution was already in effect, having in mind the prohibition therein against private corporations holding lands of the public domain except in lease not exceeding 1,000hectares.

 

HELD: YEs. Even on the proposition that the land remained technically "public" land, despite immemorial possession of the Infiels and their ancestors, until title in their favor was actually confirmed in appropriate proceedings under the Public Land Act, there can be no serious question of Acme's right to acquire the land at the time it did, there also being nothing in the 1935Constitution that might be construed to prohibit corporations from purchasing or acquiring interests in public land to which the vendor had already acquired that type of so-called "incomplete" or "imperfect" title. The only limitation then extant was that corporations could not acquire, hold or lease public agricultural lands in excess of 1,024 hectares. The purely accidental circumstance that confirmation proceedings were brought under the aegis of the 1973 Constitution which forbids corporations from owning lands of the public domain cannot defeat a right already vested before that law came into effect, or invalidate transactions then perfectly valid and proper. This Court has already held, in analogous circumstances, that the Constitution cannot impair vested rights.

 

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name must be regarded as simply another accidental circumstance, productive of a defect hardly more than procedural and in nowise affecting the substance and merits of the right of ownership sought to be confirmed in said proceedings, there being no doubt of Acme's entitlement to the land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under either the 1935 or the 1973Constitution, could have had title in themselves confirmed and registered,only a rigid subservience to the letter of the law would deny the same benefit to their lawful successor-in-interest by valid conveyance which violates no constitutional mandate.

 

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter from themselves applying for confirmation of title and, after issuance of the certificate/s of title in their names, deeding the lands back to Acme. But this would be merely indulging in empty charades,whereas the same result is more efficaciously and speedily obtained, with no prejudice to anyone, by a liberal application of the rule on amendment to conform to the evidence suggested in the dissent in Meralco. 

ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc., respondents.

G.R. No. L-2598. June 29, 1950. BENGZON, J.

 

Topic: Classification of Corporation as to Legal Status. De Facto Corporation

 

FACTS: The petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers.

 

Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.

 

On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses.

 

Hon. Edmund S. Piccio ordered the dissolution of the company.

 

In this special civil action the respondent (petitioner) contends that the court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.

 

Section 19. If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two years from date of its incorporation, its corporate powers cease. The due incorporation of any corporation claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of the Attorney-General.

 

ISSUE: Whether the Corporation is a de facto Corporation.

 

HELD: No. All the parties are informed that the Securities and Exchange Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or sought to know, that the personality of a corporation begins to exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel.

 

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows:

 

. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of the Attorney-General.

 

There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim “in good faith” to be a corporation.

 

Petition is dismissed. 

RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena Salas, as stockholders on their own behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other stockholders thereof who may wish to join in this action, plaintiffs-appellants, vs. MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO, defendants-appellants.

G.R. No. L-17504 & L-17506. February 28, 1969. CAPISTRANO, J.

 

Topic: Corporate Powers. Express powers. Invest Corporate Funds for Non Primary Purpose Endeavor.

 

FACTS: This was a derivative suit commenced by four minority stockholders against the Ma-ao Sugar Centra Co., Inc. and the corporation’s directors The complaint comprising the period November, 1946 to October, 1952, stated five causes of action, Among others, 1. For alleged illegal and ultra-vires acts consisting of self-dealing irregular loans, and unauthorized investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining, P7,000.00.

 

The investments were made not in pursuance of the corporate purpose and without the requisite authority of two-thirds of the stockholders.

 

The lower court orders it to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other company whose purpose is not connected with the Sugar Central business.

 

ISSUE: Whether the investment of corporate funds by the Ma-Ao Sugar Central in another corporation

(Philippine Fiber Processing Co) violate the Corporation Law.

 

HELD: No. The legal provision invoked by the plaintiffs, as appellants, Sec. 17-½ of the Corporation Law,

provides:

 

No corporation organized under this act shall invest its funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, unless its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitlin them to exercise at least two-thirds of the voting power on such proposal at a stockholders' meeting called for the purpose.

 

On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the Corporation Law, which provides:

 

(10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of incorporation, to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities and other evidences of indebtedness of any domestic or foreign corporation.

 

Reconciling these 2 apparently conflicting provisions is easy.

 

A private corporation, in order to accomplish its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary.

 

Power to invest corporate funds. — A private corporation has the power to invest its corporate funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary. 

 

 VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAEGOCHANEFANN, LOUISE Y. GOCHAN, ESTEBAN Y.GOCHAN, JR., DOMINIC Y. GOCHAN, FELIX O. GOCHAN III,MERCEDES R. GOCHAN, ALFREDO R. GOCHAN, ANGELINAR. GOCHAN-HERNAEZ, MARIA MERCED R. GOCHAN,CRISPO R. GOCHAN, JR., MARION R. GOCHAN, MACTANREALTY DEVELOPMENT CORPORATION and FELIXGOCHAN & SONS REALTY CORPORATION, petitioners, vs.  RICHARD G. YOUNG, DAVID G. YOUNG, JANE G. YOUNG-LLABAN, JOHN D. YOUNG, JR., MARY G. YOUNG-HSU andALEXANDER THOMAS G. YOUNG as heirs of Alice Gochan; theINTESTATE ESTATE OF JOHN D. YOUNG, SR.; and CECILIA GOCHAN-UY and MIGUEL C. UY, for themselves and on behalf and for the benefit of FELIX GOCHAN & SONS REALTYCORPORATION, respondents.

G.R. No. 131889. March 12, 2001. PANGANIBAN, J.

Topic: Piercing the veil of corporate fiction

Principles/Doctrines: The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.

Nature of the Case: Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Petition assails the Decision of the Court of Appeals (CA) denying petitioner’s Motion for Reconsideration.

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FACTS: Felix Gochan and Sons Realty Corporation (Gochan Realty) was registered with the SEC with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as incorporators. Felix Gochan Sr.’s daughter, Alice, mother of respondents, inherited 50 shares of stock in Gochan Realty from the former. She died in 1955, leaving the 50 shares to her husband, John Young, Sr. In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children, Richard Young, David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu and Alexander Thomas Young. Having earned dividends, these stocks numbered 179 by 20 September 1979.

 

Five days later (25 September), at which time all the children had reached the age of majority, their father John, Sr., requested Gochan Realty to partition the shares of his late wife by canceling the stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of[herein respondents]. Respondent Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining stockholders by the Articles of Incorporation. John, Sr. died, leaving the shares to the[respondents]. Cecilia Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of officers and directors and damages against respondents. A Notice of Lis Pendens was annotated as[sic] real properties of the corporation.

SEC, through its Hearing Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis pendens annotated upon the titles of the corporate lands.

 

[petitioners] filed a Motion for cancellation ofNotice of Lis Pendens. [Respondents] opposed the said motion. SEC, through its Hearing Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis pendens annotated upon the titles of the corporate lands. Court of Appeals reversed the SEC Order for the cancellation of the notice of lis pendens..

 

ISSUE: Whether or not the cancellation of [the] notice of lis pendens was justified considering that the suit did not involve real properties owned by Gochan Realty.”

 

HELD: Yes. In several causes of action of the Complaint, there are allegations of breach of trust and confidence and usurpation of business opportunities in conflict with petitioners’ fiduciary duties to the corporation, resulting in damage to the Corporation. Under these causes of action, respondents are asking for the delivery to the Corporation of possession of the parcels of land and their corresponding certificates of title. Hence, the suit necessarily affects the title to or right of possession of the real property sought to be reconveyed. The Rules of Court allows the annotation of a notice of lis pendens in actions affecting the title or right of possession of real property.

 

The fact that respondents are not stockholders of the Mactan Realty Development Corporation and the Lapu-Lapu Real Estate Corporation does not make them non-parties to this case. To repeat, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the Complaint. In this case, it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners,and that the former acquired the properties sought to be reconveyed to FGSRC in violation of the directors-petitioners’ fiduciary duty to FGSRC.The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical if, as alleged in the present case, the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.

 

Petition denied. Decision of the CA is affirmed.