DEE VS.

SEC
Facts:
MCLEOD VS. NLRC
Facts:
Petitioner John McLeod filed a complaint for money claims, damages, and attorney’s fees plus interest
against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc. (Far Eastern), Sta. Rosa
Textiles, Inc. (Sta. Rosa), Patricio Lim, and Eric Hu. He alleged, among others, that he was the Assistant
Spinning Manager of Universal Textiles, Inc. (UTEX) from 1956 to 1980. The President of UTEX at that
time was Patricio Lim. In 1978, Lim formed Peggy Mills, Inc. (Peggy Mills) with Filsyn having controlling
interest. Petitioner was absorbed by Peggy Mills as its Vice President and Plant Manager of its Sta. Rosa,
Laguna plant. In 1991, Filsyn sold Peggy Mills to Far Eastern and was renamed as Sta. Rosa Textile with
Patricio Lim as the Chairman and President. Petitioner claimed that the subject monetary benefits were
not given to him when he retired. Respondents alleged that by the end of July 1992, Peggy Mills closed
operations due to irreversible losses, but the corporation still exists at present. Its assets were acquired by
Sta. Rosa which was established in April 1992 but still remains non-operational at present. They also
alleged that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship
with petitioner. Further, they claimed that petitioner has no cause of action against Filsyn, Far Eastern,
Sta. Rosa, and Eric Hu (Director of Sta. Rosa), since Sta. Rosa only acquired the assets and not the
liabilities of Peggy Mills, and Patricio Lim was only impleaded as Board Chairman of Sta. Rosa and not as
private individual. In his Reply, petitioner alleged that all respondents are one and have the same entities,
and, as such, are solidarily liable for all salaries and benefits petitioner is entitled to. He claimed that all
respondents have the same office address, same counsel, and key personnel such as Patricio Lim and Eric
Hu. Respondents countered this by alleging that except for Peggy Mills, the other respondents are not the
proper persons in interest due to the lack of employer-employee relationship between them and
petitioner. The Labor Arbiter ruled in favor of petitioner. The LA Decision was reversed by the NLRC. The
CA affirmed with modification the NLRC decision, rejecting petitioner’s theory that all respondent
corporations are the same corporate entity which should be held solidarily liable for the payment of his
monetary claims. The CA ruled that that the fact that (1) all respondent corporations have the same
address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office
at respondent corporations’ address; and (4) all respondent corporations have common officers and key
personal, would not justify the application of the doctrine of piercing the veil of corporate fiction.
Issue:
Whether or not SRTI should be liable to pay petitioner’s claims.
Held: No.
Petitioner claimed that after Far Eastern purchased Peggy Mills, he continued to work at the same plant
and with the same responsibilities until his retirement. He claimed that Far Eastern merely renamed
Peggy Mills as Sta. Rosa and, as such, he asked all the respondents for the payment of his benefits. The SC
did not agree. What took place between Peggy Mills and Sta. Rosa was dation in payment with lease. A
corporation that purchases the assets of another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate consideration for such assets, except when any
of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume
the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where
the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts. None of these
exceptions is present in this case. In this case, Peggy Mills transferred its assets to Sta. Rosa to settle its
obligation to the latter. The SC was not convinced that Peggy Mills fraudulently transferred these assets to
escape its liability for any of its debts. Peggy Mills had already paid its employees, except petitioner, their
money claims. There was also no showing that there was a merger or consolidation, as there is no proof
showing that the subject dation in payment involved any corporate merger or consolidation. Neither is
there any showing of factors indicative that Sta. Rosa is a mere instrumentality of Peggy Mills. Moreover,
Sta. Rosa did not expressly or impliedly agree to assume any of Peggy Mills’ debts. There being no proof of
employer-employee relationship between petitioner and respondent corporations and Eric Hu,
petitioner’s cause of action is only against his former employer, Peggy Mills. On Patricio Lim’s personal
liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or
an officer of a corporation cannot be made personally liable for corporate liabilities. Failing to impute any
obligation on Lim, petitioner cannot hold the latter solidarily liable with Peggy Mills. The records are
bereft of any evidence that Lim acted with malice or bad faith.
ISLAMIC DIRECTORATE OF THE PHILIPPINES VS. CA
Facts:
Islamic Directorate of the Philippines (IDP) is the owner of the subject lands located in Quezon City. After
the declaration of Martial Law in 1972, two Muslim groups within the IDP sprung – the Carpizo Group,
and the Abbas Group. The SEC later ruled, in a suit between these two groups, that the election of both
the Carpizo and Abbas groups as IDP board members to be null and void. No further steps were taken
prescribed by the SEC were taken by the groups and, hence, no valid election of the member of the Board
of Trustees of IDP was ever called. On April 20, 1989, the Carpizo Group caused to be signed an alleged
Board Resolution of the IDP, authorizing the sale of the subject lands to private respondent INC,
evidenced by a Deed of Absolute Sale. The 1971 IDP Board of Trustees, petitioner Tamano Group (IDP-
Tamano Group), filed a petition before the SEC seeking to declare the sale null and void. Meanwhile, INC,
pursuant to the Deed of Absolute Sale executed in its favor, filed an action for specific performance
against the Carpizo Group, the vendor, before the Quezon City RTC. In the same case, INC filed a motion
to compel a certain Mrs. Leticia Ligon (Ligon), allegedly the mortgagee of the subject lots, to produce and
surrender to the Register of Deeds of Quezon City the owner’s duplicate copy of the TCTs covering the
subject lots. The IDP-Tamano Group filed a motion to intervene in the specific performance case, but the
same was denied. The RTC then rendered a partial judgment, ordering the Carpizo Group to comply with
its obligation under the Deed of Absolute Sale and, in a separate decision, ordered Ligon to deliver the
owner’s copy of the TCTs to the Register of Deeds. Ligon filed a petition for certiorari to the CA, but it was
dismissed. She then filed a petition for review before the SC. In the meantime, the SEC came out with a
decision in favor of petitioner, declaring the sale null and void. INC filed a motion for intervention in the
SEC but was denied on account of the fact that the decision had become final and executory. INC then
elevated the SEC case to the CA via a special civil action for certiorari. The CA ruled in favor of INC and
set aside the SEC decision declaring the sale null and void. Petitioner brought the instant petition before
the SC. While the said petition was pending, the SC rendered a judgment in the petition of Ligon,
affirming the CA’s decision and ruling against Ligon, ordering her to surrender the owner’s duplicate
copies of the TCTs to the Register of Deeds.
Issue:
Whether or not the sale by the Carpizo group was invalid.
Held: Yes.
The Carpizo group-INC sale was null and void ab initio because of the Carpizo group’s failure to comply
with Section 39 of the Corporation Code on disposition of all or substantially all assets of the corporation.
It appears that the subject property is the only property of IDP. Hence, its sale to a third party is a sale or
disposition of all the corporate property and assets of IDP falling within Section 39. For the sale to be
valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the
bona fide members of the corporation should have been obtained. These twin requirements were not met
as the Carpizo Group which voted to sell the subject property was a fake Board of Trustees, and those
whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution
authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as
they were made to appear to be. Apparently, there are only 15 official members of the petitioner
corporation including the eight (8) members of the Board of Trustees. Hence, the disputed Deed of
Absolute Sale executed by the fake Carpizo Board and INC was intrinsically void ab initio.
PNB VS. ANDRADA
Facts:
On August 26, 1975, PNB acquired the assets of Pampanga Sugar Mills (PASUMIL), a corporation
engaged in the business of general construction for the repairs and/or construction of different kind of
machineries and buildings, that were earlier foreclosed by the DBP. PNB then organized the National
Sugar Development Corporation (NASUDECO), a semi-government corporation, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled
sugar mills. PASUMIL, prior to October 29, 1971, engaged the services of respondent for electrical
rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid accounts
with PNB. PASUMIL and PNB, and NASUDECO, failed and refused to pay to respondent the unpaid
balance. Respondent then filed a complaint against PNB, NASUDECO, and PASUMIL to hold them jointly
and severally liable for the unpaid balance. PNB and NASUDECO filed a motion to dismiss on the ground
that there was no privity of contract between them and respondent. The motion was dismissed. After the
proceedings, the RTC rendered a judgment in favor of respondent, ordering PNB, NASUDECO, and
PASUMIL to pay jointly and severally respondent. The CA affirmed the RTC ruling, holding that it was
offensive to the basic tenets of justice and equity for a corporation to take over and operate the business of
another corporation, while disavowing or repudiating any responsibility, obligation, or liability arising
therefrom.
Issue:
Whether or not PNB is liable for the unpaid debts of PASUMIL to respondent.
Held: No.
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: 1) where the purchaser expressly or impliedly
agrees to assume the debts; 2) where the transaction amounts to a consideration or merger of the
corporations; 3) where the purchasing corporation is merely a continuation of the selling corporation;
and, 4) where the transaction is fraudulently entered into in order to escape liability for those debts. The
above exceptions do not apply to this case. Here, the SC held that there was no merger or consolidation
with respect to PASUMIL and PNB. The procedure for merger and consolidation under the Corporation
Code was not followed. In fact, PASUMIL’s corporate existence had not been legally extinguished or
terminated. Prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to respondent for the former’s obligations. Neither did PNB expressly or impliedly agree to
assume the debt of PASUMIL to respondent. Clearly, the corporate separateness between PASUMIL and
PNB remains, despite respondent’s insistence to the contrary.
NIELSON & COMPANY VS. LEPANTO CONSOLIDATED MINING (include: payment of
shares of stock to third persons)
Facts:
Lepanto Consolidated Mining (Lepanto) executed a management contract in favor of Nielson & Company
(Nielson), binding the latter to operate, manage, develop, and explore the mining claims of the former,
and to mine and mill, such pay ore as may be found therein and to market the metallic products recovered
therefrom which may prove to be marketable, as well as to render for Lepanto other services specified in
the contract. Lepanto then terminated the management contract on its own when, after a certain period of
time, Nielson failed to execute its obligations under the contract. The lower court’s judgment being
appealed by the instant case ruled in favor of Nielson, holding that the subject contract is a contract of
lease of services. In its MR, Lepanto claimed that the management contract is in the nature of a contract
of agency under Article 1868 of the New Civil Code, not a contract for lease of services, under Article 1544
of the New Civil Code, and, hence, it could terminate the contract on its own.
Issue:
Whether or not the subject management contract is a contract of agency.
Held: No.
In both agency and lease of services one of the parties binds himself to render some service to the other
party. Agency, however, is distinguished from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is employment. The lessor of services does
not represent his employer, while the agent represents his principal. Agency is a preparatory contract, as
agency “does not stop with the agency because the purpose is to enter into other contracts” with third
persons. In an agency relationship, the agent’s power is to bring about business relations between his
principal and third persons. The agent is destined to execute juridical acts. While in lease of services, it
contemplates only material (non-juridical) acts. As stated, the obligation of Nielson under the
management contract is to operate, manage, develop, and explore the mining claims of Lepanto, and to
mine and mill, such pay ore as may be found therein and to market the metallic products recovered
therefrom which may prove to be marketable, as well as to render for Lepanto other services specified in
the contract. Lepanto then terminated the management contract on its own when, for a certain period of
time, Nielson failed to execute its obligations under the contract. It thus appeared that the principal and
paramount undertaking of Nielson was the operation and development of the mine and the operation of
the mill. In the performance of this principal undertaking, Nielson was not in any way executing juridical
acts for Lepanto, in order to create, modify, or extinguish business relations between Lepanto and third
persons. In other words, Nielson was not acting as the agent of Lepanto, under the contract, in a sense
that under the law of agency, it is tasked to perform material acts for Lepanto, for a compensation. It is
true that the management contract provides that Nielson would also act as purchasing agent of supplies
and enter into contracts regarding the sale of mineral, but the contract also provides that Nielson could
not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is clear, therefore,
that even in these cases Nielson could not execute juridical acts which would bind Lepanto without first
securing the approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an agent.
Additionally, while the agreement provides (in Paragraph XI) that Lepanto may terminate the contract at
will, it may only do so by giving notice of termination 90 days in advance only in the event that Nielson
should prosecute in bad faith and not in accordance with approved mining practice the operation and
development of the mining properties of Lepanto. Lepanto could not terminate the agreement if Nielson
should cease to prosecute the operation and development of the mining properties by reason of acts of
God, strike and other causes beyond the control of Nielson. In this case, the reason why Nielson failed to
perform its undertaking was because of the ongoing war, which is a cause beyond the control of Nielson.
Also, the employment of Lepanto by Nielson was principally in consideration of the know-how and
technical services Nielson offered Lepanto. This contract was a “detailed operating contract”, not a
contract of agency. No records showed that Lepanto considered Nielson as its agent and that Lepanto
terminated the contract because it had lost its trust and confidence in Nielson. Since there was no
showing that Nielson ceased to prosecute the operation and development of the mines in good faith,
Lepanto had violated its contract with Nielson. Even assuming that the management contract was a
contract of agency, paragraph XI should not have been inserted since under Article 1733 of the old Civil
Code (now Art. 1868), agency is essentially revocable at the will of the principal – that means, with or
without cause. The SC, thus, held that the management contract in question cannot be unilaterally
revoked by Lepanto since the contract is not a contract of agency, but a contract of lease of services.
HYDRO RESOURCES CONTRACTORS CORPORATION VS. NATIONAL IRRIGATION
ADMINISTRATION (authority of administrator to sign the joint computation)
Facts:
In a bidding conducted by the National Irrigation Administration (NIA), petitioner Hydro Resources
(Hydro) was awarded the contract for the main civil work of the Magat River Multi-Purpose Project. The
project was funded by peso and foreign currency components. The foreign currency component was
computed at the exchange rate of P7.3735 to dollar. The foreign currency allocation was for the purpose of
equipment financing. The parties then entered into a Memorandum of Agreement (MOA) whereby they
agreed that Hydro may directly avail of the foreign currency component of the contract for the sole
purpose of purchasing necessary spare parts and equipment for the project. This was made in order for
the contractor to avoid further delays in the procurement of the said spare parts and equipment. The
MOA was supplemented (Supplemental MOA) to include among the items to be financed out of the
foreign currency portion “construction materials, supplies and services as well as equipment and
materials for incorporation in the permanent works of the Project.” Work on the project progressed
steadily until Hydro substantially completed the project in 1982 and the final acceptance was made by
NIA on Feb. 14, 1984. During the execution of the contract, the foreign exchange value of peso against the
US dollar declined and steadily deteriorated. Whenever Hydro’s availment of the foreign currency
component exceeded the amount of the foreign currency payable to Hydro for a particular period, NIA
charged interest in dollars based on the prevailing exchange rate instead of the fixed exchange rate of Php
7.3735 to the dollar. When Hydro received payments from NIA in PH Pesos, NIA made deductions from
Hydro’s foreign currency component at the fixed rate as abovementioned instead of the prevailing
exchange rate. Upon completion of the project, a final reconciliation of the total entitlement of Hydro to
the foreign currency component of the contract was made, which showed that the total entitlement of
Hydro exceeded the amount of US dollars required by Hydro to repay the advances made by NIA for the
importation of new equipment, spare parts, and tools. Hydro then requested for a full and final payment
due to this underpayment. After a joint computation, it was shown that Hydro was still entitled to a
foreign exchange differential. This prompted Hydro to make demands from NIA to pay the differential,
which the latter refused to honor until it was turned down with finality by the NIA. Hydro then filed a
request for arbitration with the CIAC. The CIAC decided in favor of Hydro, ruling that Hydro is entitled to
the differential. On appeal to the CA, the CA reversed the CIAC decision.
Issue:
Whether or not Hydro is entitled to the foreign currency differential.
Held: Yes.
The contract between NIA and Hydro is an internationally tendered contract, considering that it was
funded by the International Bank for Reconstruction and Development (IBRD). As such, the contract is
exempt from the provision of RA No. 529 (An Act to Assure Uniform Value of Philippine Coin and
Currency). Even assuming that RA No. 529 is applicable, Hydro is still entitled to its claim because
Section 1 of R.A. No. 529 states that only the stipulation requiring payment in foreign currency is void, but
not the obligation to make payment. This can be gleaned from the provision that "every other domestic
obligation heretofore or hereafter incurred" shall be "discharged upon payment in any coin and currency
which at the time is legal tender for public and private debts." It is thus erroneous for the Court of Appeals
to disallow petitioner's claim for foreign currency differential because NIA's obligation should be
converted to Philippine Pesos which was legal tender at the time. Also, Hydro’s claim should be computed
at the prevailing, not the fixed, exchange rate. When the MOA and the Supplemental MOA were in effect,
there were instances when the foreign currency availed of by Hydro exceeded the foreign currency payable
to it for that particular Progress Payment. In instances like these, NIA actually charged Hydro interest in
foreign currency computed at the prevailing exchange rate and not at the fixed rate. NIA now insists that
the exchange rate should be computed according to the fixed rate and not the escalating rate it actually
charged Hydro. NIA is, therefore, estopped from invoking the contractual stipulation providing for the
fixed rate to justify a lower computation than that claimed by Hydro. It cannot be allowed to hide behind
the very provision which it itself continuously violated. An admission or representation is rendered
conclusive upon the person making it and cannot be denied nor disproved as against the person relying
thereon. A party may not go back on his own acts and representations to the prejudice of the other party
who relied upon them.
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION VS. CA
Facts:
Loyola Grand Villas Homeowners Association, Inc. (LGHVAI) was organized by Victorio V. Soliven. Its
first president, on Feb. 8, 1993 as the association of homeowners and residents of Loyola Grand Villas. It
was registered with the Home Financing Corporation, predecessor of respondent HIGC, as the sole
homeowners’ organization in the said subdivision. For unknown reasons, LGVHAI failed to file its
corporate by-laws. Sometime in 1988, the officers of LGVHAI tried to register its by-laws, but failed to do
so. They then discovered that there were two other organizations within the subdivision – the North
Association and the South Association. When Soliven, in July 1989, inquired about the status of LGVHAI,
the head of the legal department of HIGC informed him that the association had been automatically
dissolved for its non-submission of its by-laws within the period required by the Corporation Code and
there was non-use of corporate charter since HIGC never received any report on the association’s
activities. This information resulted in the registration of the South Association with the HIGC. Hence,
LGVHAI officers lodged a complaint with the HIGC. The HIGC Hearing Officer ruled in favor of LGVHAI.
The South Association appealed to the Appeals Board of the HIGC, which dismissed the appeal.
Aggrieved, the South Association appealed to the CA, which ruled against it.
Issue:
Whether or not LGVHAI’s failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatic dismissal of the said corporation.
Held: No.
Petitioner contended that, among others, Section 46 uses the word “must” with respect to the filing of by-
laws, noncompliance therewith would result in self-extinction either due to non-occurrence of a
suspensive condition or the occurrence of a resolutory condition “under the hypothesis that by the
issuance of the certificate of registration alone the corporate personality is deemed already formed.”
Hence, the filing of by-laws is mandatory for a corporation to be granted corporate existence. The SC
disagreed. The word "must" in a statute, like "shall," is not always imperative. It may be consistent with an
exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a
reasonable construction of the statute in which it is used demands or requires. This is equally true as
regards the word "must." Thus, if the language of a statute considered as a whole and with due regard to
its nature and object reveals that the legislature intended to use the words "shall" and "must" to be
directory, they should be given that meaning. From the records of the deliberations on the Corporation
Code, it was clear that automatic corporate dissolution for failure to file the by-laws on time was never the
intention of the legislature. Moreover, even without resorting to the records of deliberations of the
Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner. Section 46
reveals the legislative intent to attach a directory, and not mandatory, meaning for the word ''must" in the
first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of
the by-laws even prior to incorporation. This provision in the same section of the Code rules out
mandatory compliance with the requirement of filing the by-laws "within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the by-laws within that period does not imply the
"demise" of the corporation. By-laws may be necessary for the "government" of the corporation but these
are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes .
There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of
corporate powers. Even under PD 902-A, there can be no automatic corporate dissolution simply because
the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the
Corporation Code. Failure to submit the bylaws, under PD 902-A, may be a ground for revocation of the
certificate of registration but only after proper notice and hearing were afforded to the incorporators.
There is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components
of due process in any democratic institution, agency or society. In other words, the incorporators must be
given the chance to explain their neglect or omission and remedy the same. The by-laws may not be
essential to corporate birth but these are required by law for an orderly governance and management of
corporations. Nonetheless, failure to file them within the period required by law by no means tolls the
automatic dissolution of a corporation.
CHINA BANKING VS. CA
Facts:
Galicano Calapatia, Jr. (Calapatia) a stockholder of respondent Valley Golf & Country Club, Inc. (VGCCI),
pledged his Stock Certificat No. 1219 to petitioner China Banking Corporation (CBC). CBC wrote VGCCI
requesting that the pledge agreement be recorded in its books, who replied that it did so. Calapatia then
obtained a loan of Php 20,000 from CBC, secured by the pledge agreement still existing between him and
CBC. Due to Calapatia’s failure to pay his obligation, CBC filed a petition for extrajudicial foreclosure. CBC
informed VGCCI of the foreclosure proceedings and requested that the pledged stock be transferred to its
name and the same be recorded in its corporate books. VGCCI wrote CBC expressing its inability to accede
to CBC’s request in view of Calapatia’s unsettled accounts with the club. Despite this, a public auction was
held and petitioner emerged as the highest bidder. VGCCI sent Calapatia a notice demanding full payment
of his overdue account. VGCCI, after causing to be published a notice of auction sale of a number of its
stock certificates including Calapatia’s share, informed Calapatia of the termination of his membership
due to the sale of his stock. CBC advised VGCCI that it is the new owner of Calapatia’s stock. VGCCI
replied that for reason of delinquency, Calapatia’s stock was sold at public auction. CBC then filed a case
with the RTC for the nullification of VGCCI’s auction sale and for the issuance of a new stock certificate.
The case was dismissed for lack of jurisdiction over the subject matter on the theory that it involves an
intra-corporate dispute. CBC, after its MR was denied, filed a complaint with the SEC for the nullification
of the said auction sale and cancellation of any new stock certificate issued and for the issuance of a new
stock certificate in its name. The SEC Hearing Officer rendered a decision in favor of VGCCI, holding that
“considering that the said share is delinquent, VGCCI had valid reason not to transfer the share in the
name of petitioner in the books of VGCCI until liquidation of delinquency. The SEC en banc reversed the
decision of its hearing officer. On appeal to the CA, the CA rendered its decision nullifying and setting
aside the orders of the SEC ad dismissed CBC’s original complaint.
Issue:
Whether or not CBC is bound by VGCCI’s by-laws.
Held: No.
Firstly, it is settled that CBC has now become a bona fide stockholder of VGCCI. There is no question that
the purchase of the subject share or membership certificate at public auction by petitioner (and the
issuance to it of the corresponding Certificate of Sale) transferred ownership of the same to the latter and
thus entitled petitioner to have the said share registered in its name as a member of VGCCI. By virtue of
the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict
that arose between petitioner and VGCCI aptly exemplifies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of P.D. 902-A. Likewise, the SC held that the pledge
agreement between Calapatia and CBC was valid. VGCCI insisted that due to Calapatia's failure to settle
his delinquent accounts, it had the right to sell the share in question in accordance with the express
provision found in its by-laws. With this, VGCCI maintained that CBC is bound by its by-laws. In order to
be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at
the time the pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws
when it sent notice formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's
name. Petitioner's belated notice of said by-laws at the time of foreclosure will not suffice. Similarly,
VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil
Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good
father of a family, fails to convince. It is quite obvious that a membership share is quite different in
character from a pawn ticket and to reiterate, CBC was never informed of Calapatia' s unpaid accounts
and the restrictive provisions in VGCCI's by-laws.
SALAFRANCA VS. PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION
Facts:
Petitioner Enrique Salafranca (Salafranca) worked with private respondent Philamlife Village
Homeowners Association (Philamlife) as administrative officer for a period of 6 months. He was
reappointed to his position three more times. After his term expired, he still continued to work in the
same capacity without the benefit of a renewed contract. Later, Philamlife decided to amend its by-laws,
to include therein, among others, a provision on officers, particularly, the position of administrative
officer under which said officer shall hold office at the pleasure of the Board of Directors. In view of this,
Philamlife informed Salafranca that his term of office shall be coterminous with the Board of Directors
which appointed him to his position. Furthermore, until he submits a medical certificate showing his state
of health, his employment shall be on a month-to-month basis, Notwithstanding Salafranca’s failure to
submit his medical certificate, he continued working until his termination. Claiming that his services had
been unlawfully and unceremoniously dismissed, Salafranca filed a complaint for illegal dismissal with
money claims and damages. The Labor Arbiter ruled in favor of Salafranca, ordering Philamlife to pay
him his backwages, separation pay, and 13 th month pay. The NLRC reversed the LA decision, ordering
Philamlife to pay Salafranca his retirement pay instead. Aggrieved, Salafranca went to the SC to seek
redress.
Issue:
Whether or not Salafranca’s dismissal was illegal.
Held: Yes.
The SC initially held that there established an employer-employee relationship between Salafranca and
Philamlife. Furthermore, it ruled that Salafranca has obtained regular employee status; hence, entitled to
security of tenure. Also, petitioner’s dismissal was found by the SC as having no factual basis whatsoever.
In another effort to validate Salafranca’s dismissal, Philamlife posited that his position is coterminous
with that of the Board of Directors, as provided in the amended by-laws. Admittedly, the right to amend
the by-laws lies solely in the discretion of the employer, this being in the exercise of management
prerogative or business judgment. However, this right, extensive as it may be, cannot impair the
obligation of existing contracts or rights. Philamlife’s insistence that it can legally dismiss petitioner on
the ground that his tenure has expired is untenable. To reiterate, Salafranca, being a regular employee, is
entitled to security of tenure; hence, his services may only be terminated for causes provided by law. If
private respondent wanted to make the petitioner's position co-terminus with that of the Board of
Directors, then the amendment must be effective after petitioner's stay with the private respondent, not
during his term. Obviously, the measure taken by the private respondent in amending its by-laws is
nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular
employee guaranteed under the Labor Code.