Case Digests

VI.

1. MSCI-NACUSIP Local Chapter, petitioner, vs. NATIONAL WAGES AND

PRODUCTIVITY COMMISSION and MONOMER SUGAR CENTRAL,
INC., respondents. G.R. No. 125198. March 3, 1997

FACTS:

On January 11, 1990, Asturias Sugar Central, Inc. (ASCI), executed a Memorandum of
Agreement with Monomer Trading Industries, Inc. (MTII), whereby MTII shall acquire the
assets of ASCI by way of a Deed of Assignment provided that an entirely new organization in
place of MTII shall be organized, which new corporation shall be the assignee of the assets of
ASCI. Thus, a new corporation was organized and incorporated on February 15, 1990 under the
corporate name Monomer Sugar Central, Inc. (MSCI), the private respondent herein.
MSCI applied for exemption from the coverage of Wage Order No. RO VI-01 issued by the
Regional Tripartite Wages and Productivity Board VI (Board) on the ground that it is a
distressed employer. MSCI submitted its audited financial statements and income tax returns
duly stamped “received” by the BIR and the SEC.
The petitioner MSCI-NACUSIP Local Chapter (Union), in opposition, maintained that MSCI is
not distressed; that respondent applicant has not complied with the requirements for exemption;
and that the financial statements submitted by MSCI do not reflect the true and valid financial
status of the company, etc.
The Board denied MSCI’s application for exemption based on the finding that the applicant’s
losses of P3,400,738.00 for the period February 15, 1990 to August 31, 1990 constitute an
impairment of only 5.25% of its paid-up capital of P64,688,528.00, cannot be said to be
sufficient to meet the required 25% loss in order to qualify for the exemption, as provided in
NWPC Guidelines No. 01, Series of 1992. An appeal was brought before the public respondent
NATIONAL WAGES AND PRODUCTIVITY COMMISSION (Commission). The Commission
reversed and set aside the orders of the Board, and granted MSCI’s application for exemption
from Wage Order No. RO VI-01, for a period of 1 yr from its effectivity. Hence this Petition
for Certiorari under Rule 65 by the Petitioner.
ISSUE:

What is the correct paid-up capital of MSCI for the period covered by the application for
exemption — P5 million or P64,688,528.00? (Would it qualify MSCI as a distressed employer
and thus be entitled to exemption from compliance with Wage Order No. RO VI-01)
RULING:

NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01, Series of
1996, define Capital as referring to paid-up capital at the end of the last full accounting period, in
the case of corporations; or total invested capital at the beginning of the period under review, in
the case of partnerships and single proprietorships. To have a clear understanding of what paid-
up capital is, a referral to Sections 12 and 13 of the Corporation Code would be helpful:
“Sec. 12. Minimum capital stock required of stock corporations. — Stock corporations
incorporated under this Code shall not be required to have any minimum authorized capital
stock except as otherwise specifically provided for by special law, and subject to the provisions
of the following section.”
“Sec. 13. Amount of capital stock to be subscribed and paid for purposes of incorporation. —
At least 25% of the authorized capital stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least 25% percent of the total subscription must
be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call for
payment by the board of directors: Provided, however, That in no case shall the paid-up capital
be less thanP5,000.00”
Paid-up capital is that portion of the authorized capital stock which has been both subscribed and
paid. In the case at bar, MSCI was organized and incorporated on February 15, 1990 with an
authorized capital stock of P60 million, P20 million of which was subscribed. Of theP20 million
subscribed capital stock, P5 million was paid-up.
The argument of the Board that the value of the assets of ASCI transferred to MSCI as well as
the loans or advances made by MTII to MSCI should have been taken into consideration in
computing the paid-up capital of MSCI is unmeritorious. Not all funds or assets received by the
corporation can be considered paid-up capital, for this term has a technical signification in
Corporation Law. Such must form part of the authorized capital stock of the corporation,
subscribed and then actually paid up.
The loans and advances of MTII to respondent MSCI cannot be treated as investments, unless
the corresponding shares of stocks are issued. But as it turned out, such loans and advances were
in fact treated as liabilities of MSCI to MTII as shown in its 1990 audited financial statements.
The treatment by the Board of these loans as part of MSCI’s capital stock without satisfying
certain mandatory requirements is prohibited under Sec 38 of the Corporation Code which
provides:
“Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. No
corporation shall increase or decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of directors and, at a stockholders’
meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor
the increase or diminution of the capital stock, or the incurring, creating or increasing of any
bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock
or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place
of the stockholders’ meeting at which the proposed increase or diminution of the capital stock or
the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to
each stockholders at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or served personally.”
The above requirements, which are condition precedents before the capital stock of a corporation
may be increased, were not observed in this case. Henceforth, the paid-up capital stock of MSCI
for the period covered by the application for exemption still stood at P5 million. The losses,
therefore, amounting to P3,400,738.00 for the period Feb 15, 1990 to Aug 31, 1990 impaired
MSCI’s paid-up capital of P5M by as much as 68%. MSCI is qualified as a distressed employer.
Respondent Commission thus acted well within its jurisdiction in granting MSCI full exemption
from Wage Order No. RO VI-01 as a distressed employer.
WHEREFORE, the petition is DISMISSED.
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2. FOREST HILLS GOLF & COUNTRY CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.

BRION, J.:

Before the Court is a petition for review on certiorari,1 filed under Rule 45 of the Rules of
Court, assailing the decision2 dated February 22, 2012 and the resolution3dated May
31, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89296.

The Facts

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock
corporation that operates and maintains a golf and country club facility in Antipolo City.
Forest Hills was created as a result of a joint venture agreement between Kings
Properties Corporation (Kings) and Fil-Estate Golf and Development, Inc. (FEGDI).
Accordingly, Kings and FEGDI owned the shares of stock of Forest Hills, holding 40%
and 60% of the shares, respectively.

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1)
Class "C" common share of Forest Hills for ₱1.1 million. Prior to the full payment of the
purchase price, RSACC transferred its interests over FEGDI's Class "C" common share
to respondent Vertex Sales and Trading, Inc. (Vertex).4 RSACC advised FEGDI of the
transfer and FEGDI, in turn, requested Forest Hills to recognize Vertex as a
shareholder. Forest Hills acceded to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in
the name of FEGDI, prompting Vertex to demand for the issuance of a stock certificate
in its name.5 As its demand went unheeded, Vertex filed a complaint6 for rescission with
damages against defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the
developer of the Forest Hills golf course. Vertex averred that the defendants defaulted
in their obligation as sellers when they failed and refused to issue the stock certificate
covering the Class "C" common share. It prayed for the rescission of the sale and the
return of the sums it paid; it also claimed payment of actual damages for the
defendants’ unjustified refusal to issue the stock certificate.

Forest Hills denied transacting business with Vertex and claimed that it was not a party
to the sale of the share; FELI claimed the same defense. While admitting that no stock
certificate was issued, FEGDI alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised rights and privileges of one. FEGDI
added that during the pendency of Vertex's action for rescission, a stock certificate was
issued in Vertex's name,7 but Vertex refused to accept it.

The RTC Ruling

In its March 1, 2007 decision,8 the Regional Trial Court (RTC) dismissed Vertex's
complaint after finding that the failure to issue a stock certificate did not constitute a
violation of the essential terms of the contract of sale that would warrant its rescission.
The RTC noted that the sale was already consummated notwithstanding the non-
issuance of the stock certificate. The issuance of a stock certificate is a collateral matter
in the consummated sale of the share; the stock certificate is not essential to the
creation of the relation of a shareholder. Hence, the RTC ruled that the non-issuance of
the stock certificate is a mere casual breach that would not entitle Vertex to rescind the
sale.9

The CA Ruling

Vertex appealed the RTC's dismissal of its complaint. In its February 22, 2012
decision,10 the CA reversed the RTC. It declared that "in the 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."11 It based its ruling on Section 63 of the
Corporation Code,12 which requires for a valid transfer of stock –

(1) the delivery of the stock certificate;

(2) the endorsement of the stock certificate by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and

(3) to be valid against third parties, the transfer must be recorded in the books of
the corporation.

Without the issuance of the stock certificate and despite Vertex’s full payment of the
purchase price, the share cannot be considered as having been validly transferred.
Hence, the CA rescinded the sale of the share and ordered the defendants to return the
amount paid by Vertex by reason of the sale. The dispositive portion reads:

WHEREFORE, in view of the foregoing premises, the appeal is hereby GRANTED and
the March 1, 2007 Decision of the Regional Trial Court, Branch 161, Pasig City in Civil
Case No. 68791 is hereby REVERSED AND SET ASIDE. Accordingly, the sale of x x x
one (1) Class "C" Common Share of Forest Hills Golf and Country Club is hereby
rescinded and defendants-appellees are hereby ordered to return to Vertex Sales and
Trading, Inc. the amount it paid by reason of the said sale.13 (emphasis ours)

The CA denied Forest Hills' motion for reconsideration in its resolution of May 31,
2012.14

The Parties’ Arguments

Forest Hills filed the present petition for review on certiorari to assail the CA rulings. It
argues that rescission should be allowed only for substantial breaches that would defeat
the very object of the parties making the agreement.
The delay in the issuance of the stock certificate could not be considered as a
substantial breach, considering that Vertex was recognized as, and enjoyed the
privileges of, a stockholder.

Forest Hills also objects to the CA ruling that required it to return the amount paid by
Vertex for the share of stock. It claims that it was not a party to the contract of sale;
hence, it did not receive any amount from Vertex which it would be obliged to return on
account of the rescission of the contract.

In its comment to the petition,15 Vertex disagrees and claims that its compliance with its
obligation to pay the price and the other fees called into action the defendants’
compliance with their reciprocal obligation to deliver the stock certificate, but the
defendants failed to discharge this obligation. The defendants’ three (3)-year delay in
issuing the stock certificate justified the rescission of the sale of the share of stock. On
account of the rescission, Vertex claims that mutual restitution should take place. It
argues that Forest Hills should be held solidarily liable with FEGDI and FELI, since the
delay was caused by Forest Hills’ refusal to issue the share of FEGDI, from whom
Vertex acquired its share.

The Court’s Ruling

The assailed CA rulings (a) declared the rescission of the sale of one (1) Class "C"
common share of Forest Hills to Vertex and (b) ordered the return by Forest Hills,
FEGDI, and FELI to Vertex of the amount the latter paid by reason of the sale. While
Forest Hills argues that the ruling rescinding the sale of the share is erroneous, its
ultimate prayer was for the reversal and setting aside of the ruling holding it liable to
return the amount paid by Vertex for the sale.16

The Court finds Forest Hills’ prayer justified.

Ruling on rescission of sale is a

settled matter

At the outset, we declare that the question of rescission of the sale of the share is a
settled matter that the Court can no longer review in this petition. While Forest Hills
questioned and presented its arguments against the CA ruling rescinding the sale of the
share in its petition, it is not the proper party to appeal this ruling.

As correctly pointed out by Forest Hills, it was not a party to the sale even though the
subject of the sale was its share of stock. The corporation whose shares of stock are
the subject of a transfer transaction (through sale, assignment, donation, or any other
mode of conveyance) need not be a party to the transaction, as may be inferred from
the terms of Section 63 of the Corporation Code. However, to bind the corporation as
well as third parties, it is necessary that the transfer is recorded in the books of the
corporation. In the present case, the parties to the sale of the share were FEGDI as the
seller and Vertex as the buyer (after it succeeded RSACC). As party to the sale, FEGDI
is the one who may appeal the ruling rescinding the sale. The remedy of appeal is
available to a party who has "a present interest in the subject matter of the litigation
and is aggrieved or prejudiced by the judgment. A party, in turn, is deemed
aggrieved or prejudiced when his interest, recognized by law in the subject matter
of the lawsuit, is injuriously affected by the judgment, order or decree."17 The
rescission of the sale does not in any way prejudice Forest Hills in such a manner that
its interest in the subject matter – the share of stock – is injuriously affected. Thus,
Forest Hills is in no position to appeal the ruling rescinding the sale of the share. Since
FEGDI, as party to the sale, filed no appeal against its rescission, we consider as final
the CA’s ruling on this matter.

Ruling on return of amounts paid by

reason of the sale modified

The CA’s ruling ordering the "return to [Vertex] the amount it paid by reason of the
sale"18 did not specify in detail what the amount to be returned consists of and it did not
also state the extent of Forest Hills, FEGDI, and FELI’s liability with regard to the
amount to be returned. The records, however, show that the following amounts were
paid by Vertex to Forest Hills, FEGDI, and FELI by reason of the sale:

Payee Date of Payment Purpose Amount Paid

FEGDI February 9, 1999 Purchase price for ₱780,000.0019
one (1) Class "C"
common share
FEGDI February 9, 1999 Transfer fee P 60,000.0020
Forest Hills February 23, 1999 Membership fee P 150,000.0021
FELI September 25, Documentary P 6,300.0022
2000 Stamps
FEGDI September 25, Notarial fees P 200.0023
2000

A necessary consequence of rescission is restitution: the parties to a rescinded contract

must be brought back to their original situation prior to the inception of the contract;
hence, they must return what they received pursuant to the contract.24 Not being a
party to the rescinded contract, however, Forest Hills is under no obligation to return the
amount paid by Vertex by reason of the sale. Indeed, Vertex failed to present sufficient
evidence showing that Forest Hills received the purchase price for the share or any
other fee paid on account of the sale (other than the membership fee which we will deal
with after) to make Forest Hills jointly or solidarily liable with FEGDI for restitution.

Although Forest Hills received ₱150,000.00 from Vertex as membership fee, it should
be allowed to retain this amount. For three years prior to the rescission of the sale, the
nominees of Vertex enjoyed membership privileges and used the golf course and the
amenities of Forest Hills.25 We consider the amount paid as sufficient consideration for
the privileges enjoyed by Vertex's nominees as members of Forest Hills.

WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for
review on certiorari. The decision dated February 22, 2012 and the resolution dated
May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED.
Petitioner Forest Hills Golf & Country Club is ABSOLVED from liability for any amount
paid by Vertex Sales and Trading, Inc. by reason of the rescinded sale of one (1) Class
"C" common share of Forest Hills Golf & Country Club.

SO ORDERED.

ARTURO D. BRION
Associate Justic

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GR No. 194964, January 11, 2016
3.University of Mindanao (Petitioner) v Bangko Sentral ng Pilipinas et al. (Respondents)
Second Division
Ponente: Leonen, J.

Nature of Action: An action for the nullification and cancellation of mortgage on the ground that
the person who entered into contract has no authority to execute such contract.

FACTS:

Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks:
(1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo B. Torres chaired both thrift banks. He acted as FISLAI's
President, while his wife, Dolores P. Torres, acted as DSLAI's President and FISLAI's Treasurer.
Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. On May 25, 1982, University of Mindanao's Vice President for
Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over University of
Mindanao's property in Cagayan de Oro City in favor of Bangko Sentral ng Pilipinas. "The
mortgage served as security for FISLAI's PI.9 Million loan" It was allegedly executed on
University of Mindanao's behalf. As proof of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino Petalcorin showed a Secretary's Certificate signed by
University of Mindanao's Corporate Secretary, Aurora de Leon. The Secretary’s certificate states
among others the authorizing of the chairman to appoint Satunino Pactolerin to represent the
University of Mindanao to transact, transfer, convey, lease, mortgage, or otherwise hypothecate
the subject properties. Saturnino Petalcorin executed another deed of real estate mortgage,
allegedly on behalf of University of Mindanao, over its two properties in Iligan City. This
mortgage served as additional security for FISLAI's loans. FISLAI and DSLAI eventually merged
with DSLAI as the surviving corporation in an effort to rehabilitate the thrift banks due to the
heavy withdrawals of depositors. DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI). MSLAI failed to recover from its losses. Bangko Sentral ng Pilipinas
later on foreclosed the mortgaged properties. University of Mindanao filed two Complaints for
nullification and cancellation of mortgage. One Complaint was filed before the Regional Trial
Court of Cagayan de Oro City, and the other Complaint was filed before the Regional Trial Court
of Iligan City. University of Mindanao alleged that it did not obtain any loan from Bangko Sentral
ng Pilipinas and that Aurora De Leon’s certification was anomalous. That it never authorized
Saturnino Petalcorin to execute real estate mortgage contracts involving its properties to secure
FISLAI's debts and it never ratified the execution of the mortgage contracts. The Regional Trial
Courts ruled in favor of University of Mindanao. The Court of Appeals however ruled that
"although BSP failed to prove that the UM Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real properties, Aurora de Leon's Secretary's
Certificate" clothed Petalcorin with apparent and ostensible authority to execute the mortgage deed
on its behalf. Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's
Certificate. University of Mindanao is estopped from denying Saturnino Petalcorin's authority.

ISSUE:

Whether petitioner University of Mindanao is bound by the real estate mortgage contracts
executed by Saturnino Petalcorin.

RULING:
 No. Acts of an officer that are not authorized by the board of directors/trustees do not bind
the corporation unless the corporation ratifies the acts or holds the officer out as a person with
authority to transact on its behalf.

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties
on its behalf. There was no board resolution to that effect. Thus, the mortgages executed by
Saturnino Petalcorin were unenforceable. The mortgage contracts executed in favor of respondent
do not bind petitioner. They were executed without authority from petitioner. Being a juridical
person, petitioner cannot conduct its business, make decisions, or act in any manner without action
from its Board of Trustees. The Board of Trustees must act as a body in order to exercise corporate
powers. Individual trustees are not clothed with corporate powers just by being a trustee. Hence,
the individual trustee cannot bind the corporation by himself or herself. The corporation may,
however, delegate through a board resolution its corporate powers or functions to a representative,
subject to limitations under the law and the corporation's articles of incorporation. The relationship
between a corporation and its representatives is governed by the general principles of
agency. Article 1317 of the Civil Code provides that there must be authority from the principal
before anyone can act in his or her name:

ART. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

Hence, without delegation by the board of directors or trustees, acts of a person - including
those of the corporation's directors, trustees, shareholders, or officers—executed on behalf of the
corporation are generally not binding on the corporation. The unenforceable status of contracts
entered into by an unauthorized person on behalf of another is based on the basic principle that
contracts must be consented to by both parties. There is no contract without meeting of the minds
as to the subject matter and cause of the obligations created under the contract. Consent of a person
cannot be presumed from representations of another, especially if obligations will be incurred as a
result. Thus, authority is required to make actions made on his or her behalf binding on a person.
Contracts entered into by persons without authority from the corporation shall generally be
considered ultra vires and unenforceable against the corporation.
******************************************************************************
4. SEÑERES VS COMELEC
In 1999, Melquiades Robles was elected president and chairperson of BUHAY, a party-list
group duly registered with the Commission on Elections (COMELEC). The constitution of
BUHAY provides for a three-year term for all its party officers, without re-election. BUHAY
participated in the 2001 and 2004 elections, with Robles as its president. All the required
Manifestations of Desire to Participate in the said electoral exercises, including the
Certificates of Nomination of representatives, carried the signature of Robles as president of
BUHAY. On January 26, 2007, in connection with the May 2007 elections, BUHAY again filed
a Manifestation of its Desire to Participate in the Party-List System of Representation. As in
the past two elections, the manifestation to participate bore the signature of Robles as
BUHAY president.
Dr. Hans Christian Señeres, on the other hand, filed with the COMELEC a Petition to Deny
Due Course to Certificates. In it, Señeres alleged that he was the acting president and
secretary-general of BUHAY, having assumed that position since August 17, 2004 when
Robles vacated the position. Señeres also claim that the nominations made by Robles
(nominations pertaining as to who should represent BUHAY in Congress) were, for lack of
authority, void owing to the expiration of the latter’s term as party president. Furthermore,
Señeres asserted that Robles was, under the Constitution, disqualified from being an officer
of any political party, the latter being the Acting Administrator of the Light Railway Transport
Authority (LRTA), a government-controlled corporation. Robles, so Señeres would charge,
was into a partisan political activity which civil service members, like the former, were enjoined
from engaging in.
On July 9 and July 18, 2007, respectively, the COMELEC issued two resolutions proclaiming
BUHAY as a winning party-list organization for the May 2007 elections entitled to three (3)
House seats and it also declared Robles as the duly authorized representative of BUHAY.
ISSUE: Whether or not Robles should be disqualified as president of BUHAY.
HELD: No, Robles is not disqualified as the president of BUHAY. His being the chairman of
LRTA and the president of BUHAY, a party-list group, is not compatible. There is no law
prohibiting that the LRTA chair cannot be a president of a party-list group. Further, Robles is
not guilty of electioneering. Robles’ act of nominating BUHAY representatives to Congress is
not electioneering. The crime electioneering is clearly defined under Section 79 (b) of the
Omnibus Election Code but Robles did not commit any act defined thereunder.
Anent the issue that Robles’ term as president of BUHAY already expired when he made the
nominations hence the nominations are void, the Supreme Court ruled that the nominations
are valid. This is because of the “Hold-Over” doctrine under corporation law. As a general
rule, officers and directors of a corporation hold over after the expiration of their terms until
such time as their successors are elected or appointed. The holdover doctrine has, to be
sure, a purpose which is at once legal as it is practical. It accords validity to what would
otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise
in its relation to outsiders.