STA. CLARA HOMEOWNER’S ASSOCIATION VS. GASTON

FACTS: Spouses Victor Ma. Gaston and Lydia Gaston, the private respondents, filed a complaint for damages with preliminary  injunction/preliminary mandatory injunction and temporary restraining order before the Regional Trial Court against petitioners Sta Clara Homeowners Association (SCHA). 

The complaint alleged that the private respondents purchased their lots in Sta. Clara Subdivision and at the time of the purchase, there was no mention or requirement of membership in any homeowners’ association.    From that time on, they have remained non-members of the SCHA. They also stated  that an arrangement was made wherein homeowners who  were non-members of the association were issued non-member gate pass stickers for their vehicles for identification by the security guards manning the subdivision’s entrances and exits.  This arrangement remained undisturbed until sometime  in the middle of March 1998, when SCHA disseminated a board resolution which decreed that only its members in good standing were to be issued stickers for use in their vehicles. 

Petitioners filed a motion to dismiss arguing that the trial court had no jurisdiction over the case as it involved an intra-corporate dispute between SCHA and its members.  The proper forum must be the Home Insurance and Guarantee Corporation (HIGC).   They  stated that that the Articles of Incorporation of SCHA, which was duly approved by the Securities and Exchange Commission , provides that the association shall be a non-tock corporation with all the homeowners of Sta. Clara constituting its membership.  Its by-laws also contains a provision that all real estate owners automatically become members of the association.    Moreover, the private respondents allegedly enjoyed the privileges of membership and abided by the rules of the association, and even attended the general special meeting of the association members.

ISSUE: Whether or not private respondents are members of SCHA.

HELD: No. Clearly then, no privity of contract exists between petitioners and private respondents. As a general rule, a contract is a meeting of minds between two persons. In the present case, however, other than the said Articles of Incorporation and By-laws, there is no showing that private respondents have agreed to be SCHA members. Private respondents cannot be compelled to become members of the SCHA by the simple expedient of including them in its Articles of Incorporation and By-laws without their express or implied consent.

PADCOM CONDOMINIUM VS. ORTIGAS CENTER ASSOCIATION INC.

G.R. No. 146807. May 9, 200

FACTS: Padcom Condominium Corporation (PADCOM) owns and manages the Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The land on which the building stands was originally acquired from the Ortigas &Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale. Among the terms and conditions in the deed of sale was the requirement that the transferee and its successor-in-interest must become members of an association for realty owners and long-term lessees in the area later known as the Ortigas Center. 

Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer. In 1982, Ortigas Center Association, Inc. was organized to advance the interests and promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas Center. It sought the collection of membership dues per month from PADCOM. The corporate books showed that PADCOM owed the Association membership dues, interests and penalty charges from April 1983 to June 1993.

The letters exchanged between the parties through the years showed repeated demands for payment, requests for extensions of payment, and even a settlement scheme proposed by PADCOM in September 1990. In view of PADCOM’s failure and refusal to pay its arrears in monthly dues, including interests and penalties thereon, the Association filed a complaint for collection of sum of money before the Regional Trial Court of Pasig City, but the same was dismissed. On appeal, the Court of Appeals reversed and set aside the trial court’s dismissal. Hence, this petition.

ISSUE: Whether PADCOM can be compelled to join the association pursuant to the provision on automatic membership appearing as a condition in the Deed of Sale and the annotation thereof on Transfer Certificate of Title. 

HELD: Yes. It is undisputed that when the land in question was bought by PADCOM's predecessor-in-interest, TDC, from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and restrictions of the Deed of Sale. Evidently, it was agreed by the parties that dues shall be collected from an automatic member and such fees or assessments shall be a lien on the property.

Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their assigns and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on automatic membership with the Association is also binding on the former.

FREEDOM OF ASSOCIATION

PADCOM’s contention that the automatic membership clause is a violation of its freedom of association. PADCOM was never forced to join the association. It could have avoided such membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association.

Q: Assuming that PADCOM did not see the annotation, will it still be bound thereby?

Yes. Under the Torrens system of registration, claims and liens of whatever character, except those mentioned by law, existing against the land binds the holder of the title and the whole world.

VILLAMOR, JR. V. UMALE

FACTS: Balmores, a stockholder of Pasig Printing Corporation (PPC)  filed an intra-corporate controversy complaint against petitioner-directors for their alleged devices or schemes amounting to fraud or misrepresentation. Previously, PPC’s BOD issued a resolution waiving all its rights and interests in an option to lease contract in favor of the law firm of Atty. Villamor, who failed to turn over the amount to PPC. Balmores complains against the alleged inaction of the BOD. SC ruled that what he filed was a derivative suit. Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the acts of PPC’s directors, specifically the waiver of rights in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC’s or a group of stockholders’.

ISSUE: Whether the respondent Balmores’ action is a derivative suit.

HELD: No. For a derivative suit to prosper, the following requisites must be met:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; 

(4) The suit is not a nuisance or harassment suit.

However, there is a fifth requisite which is not included in the enumeration but is implied in the first paragraph of Interim Rules for derivative suits which is that the action brought by the stockholder or member must be "in the name of [the] corporation or association. ..." This requirement has already been settled in jurisprudence. The reason given is that the judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res judicata against it.

Moreover, in this case, respondent Balmores failed to allege that appraisal rights were not available for the acts complained of. Furthermore, Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the acts of PPC's directors, specifically the waiver of rights in favor of Villamor's law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC's or a group of stockholders'.

CUA JR., VS. OCAMPO

FACTS: Philippine Racing Club, Inc. (PRCI) is a corporation organized and established under Philippine laws to conduct business related to horse track racing and other business connected thereto including public betting, raising horses, and breeding the same. PRCI holds a franchise granted under Republic Act No. 6632, as amended by Republic Act No. 7953, to operate a horse racetrack and manage betting stations. Under its franchise, PRCI may operate only one racetrack.

In 1999, the Articles of Incorporation of PRCI was amended to include a secondary purpose which is to acquire real properties and/or develop real properties into mix-use realty projects including but not limited to leisure, recreational and memorial parks and to own, operate, manage and/or sell these real estate projects.

PRCI owns only two real properties. Following the trend in the development of properties, PRCI wished to convert its Makati property from a racetrack to urban residential and commercial use. The PRCI management decided to transfer its racetrack from Makati to Cavite. PRCI began developing its Cavite property as a racetrack. 

So that PRCI could continue to focus its efforts on pursuing its core business competence of horse racing, the PRCI management opted to acquire another domestic corporation, JTH Davies Holdings, Inc. for the said secondary purpose. PRCI entered into a Sale and Purchase Agreement for the acquisition from JME of 95.55% of the outstanding capital stock of JTH.

Then, respondents Miguel, et al., as minority stockholders of PRCI, filed before the RTC a Complaint, based on three causes of action: (1) the approval by the majority directors of PRCI of the Board Resolutions with undue haste and deliberate speed, despite the absence of any disclosure and information; (2) respondent Solomon, as PRCI President maliciously refused and resisted the request of respondents Miguel, et al., for complete and adequate information relative to the disputed Board Resolutions; and (3) without being officially and formally nominated, the majority directors of PRCI illegally and unlawfully constituted themselves as members of the Board of Directors and/or Executive Officers of JTH, rendering all the actions they have taken as such null and void ab initio. RTC ruled in favor of the minority stockholders. CA affirmed RTC decision. Respondents questioned the infirmities of Miguel’s complaint.

ISSUE: Whether or not the derivative suit is properly constituted. 

HELD: No. The court reversed the decision and lifted the TRO issued. The Court stresses that the corporation is the real party in interest in a derivative suit, and the suing stockholder is only a nominal party. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. Moreover, there must be no appraisal rights available. In this case, the transaction falls under one of the instances wherein the appraisal right is available under Sec. 81: sale of all or substantially all the property of the corporation, but the right was not exercised by the petitioner. It was the SH themselves who caused the unavailability to exercise their appraisal right by not voting against the proposed corporate action. Instead, they filed a derivative suit.

DERIVATIVE SUIT REQUIREMENTS

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; 

(4) The suit is not a nuisance or harassment suit.

FORUM SHOPPING

Allowing two different minority stockholders to institute separate derivative suits arising from the same factual background, alleging the same causes of action, and praying for the same reliefs, is tantamount to allowing the corporation, the real party-in-interest, to file the same suit twice, resulting in the violation of the rules against a multiplicity of suits and even forum-shopping. It is also in disregard of the separate-corporate-entity principle, because it is to look beyond the corporation and to give recognition to the different identities of the stockholders instituting the derivative suits.

TURNER VS. LORENZO SHIPPING CORP.

FACTS: The petitioners held shares of stock of the respondent, a domestic corporation engaged in cargo shipping activities. In June 1999, the respondent decided to amend its articles of incorporation to remove the stockholders’ pre-emptive rights to newly issued shares of stock. Feeling that the corporate move would be prejudicial to their interest as stockholders, the petitioners voted against the amendment and demanded payment of their shares 


Because of the disagreement on the valuation of the shares, the parties constituted an appraisal committee. Petitioners then demanded for payment in accordance with the valuation of the committee but the respondent refused the petitioners’ demand, explaining that pursuant to the Corporation Code, the dissenting stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted retained earnings to cover the fair value of the shares, but that it had no retained earnings at the time of the petitioners’ demand, as borne out by its Financial Statements for Fiscal Year 1999 


Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages in the RTC. The respondent opposed the motion for partial summary judgment, stating that the determination of the unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and that the petitioners did not have a cause of action against the respondent.

The evidence submitted by plaintiffs shows that in its quarterly financial statement it submitted to the Securities and Exchange Commission, the defendant has retained earnings. This is not disputed by the defendant. Its only argument against paying is that there must be unrestricted retained earnings at the time the demand for payment is made.

ISSUE: Whether the CA correctly concluded that the RTC had exceeded its jurisdiction in entertaining the petitioners’ complaint and in rendering the summary judgment and issuing writ of execution.

HELD:  Yes. The cause of action was premature. The reckoning period is at the time when the case is filed. Section 1, Rule 2, of the Rules of Court requires that every ordinary civil action must be based on a cause of action. The RTC concluded that the respondent’s obligation to pay had accrued by its having the unrestricted retained earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation Code did not provide that the unrestricted retained earnings must already exist at the time of the demand. First, in order to give rise to any obligation to pay on the part of the respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission that could sustain their action to collect.

Lastly, unless the plaintiff has a valid and subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible.

CIR VS. RUFINO ET. AL.,

G.R. Nos. L-33665-68 February 27, 1987

FACTS: The defunct Eastern Theatrical Co., Inc. or the Old Corporation is a corporation organized to engage in the business of operating theaters, opera houses, places of amusement and other related business enterprises, more particularly the Lyric and Capitol Theaters in Manila. The Old Corporation shall terminate in 1959. The new Corporation also in the name of Eastern Theatrical Co Inc., was organized on 1958, engaged in the same kind of business as the Old Corporation. 

Upon the recommendation of the BOD, it was decided that the Old Corporation and New Corporation should merge to continue the exhibition of moving pictures at the Lyric and Capitol Theaters even after the expiration of the corporate existence of the Old Corporation. Hence, a Deed of Assignment providing for the conveyance and transfer of all the business, property, assets and goodwill of the Old Corporation to the New Corporation in exchange for the latter’s stocks was made. 

As agreed, the New Corporation issued to the stockholders of the former stocks in the New Corporation equal to the stocks each one held in the Old Corporation. Consequently, Bureau of Internal Revenue found that the merger of the corporations was not undertaken for a bona fide business purpose but merely to avoid liability for the capital gains tax on the exchange of the old for the new shares of stock. Accordingly, he imposed the deficiency assessments against the private respondents.

The petitioner points to the exchange was only on paper as the New Corporation did not actually issue stocks in exchange for the properties of the Old Corporation at the time of the supposed merger; that the increase in capitalization of the New Corporation was registered with the Securities and Exchange Commission only 37 days after the Old Corporation expired; that prior to such registration, it was not possible for the New Corporation to effect the exchange provided for in the said agreement because it was capitalized only at P200,000.00 as against the capitalization of the Old Corporation at P2,000,000.00. Consequently, as there was no merger, the automatic dissolution of the Old Corporation on its expiry date resulted in its liquidation, for which the respondents are now liable in taxes on their capital gains.

For their part, the private respondents insist that there was a genuine merger between the Old Corporation and the New Corporation pursuant to a plan aimed at enabling the latter to continue the business of the former in the operation of places of amusement, specifically the Capitol and Lyric Theaters; that those mentioned by the petitioner did not have to be completed at the time of the merger such as the increase and distribution of the stock of the New Corporation. Moreover, the Old Corporation was dissolved on January 1, 1959, pursuant to the Deed of Assignment, and not on January 25, 1959, its original expiry date. As the properties of the Old Corporation were transferred to the New Corporation before that expiry date, there could not have been any distribution of liquidating dividends by the Old Corporation for which the private respondents should be held liable in taxes.

The CTA ruled that there was a valid merger and no taxable gain should be imposed. 

ISSUE: Whether or not there is a taxable gain and a valid merger.

HELD: There was a valid merger although the actual transfer of the properties subject of the Deed of Assignment was not made on the date of the merger.

It was necessary for the Old Corporation to surrender its net assets first to the New Corporation before the latter could issue its own stock to the shareholders of the Old Corporation because the New Corporation had to increase its capitalization for this purpose. This required the adoption of the resolution to this effect, the registration of such issuance with the SEC, and its approval took place after the date of the merger but they were deemed part and parcel of, and indispensable to the validity and enforceability of, the Deed of Assignment.

The Court finds no impediment to the exchange of property for stock between the two corporations being considered to have been effected on the date of the merger. That, in fact, was the intention, and the reason why the Deed of Assignment was made retroactive to January 1, 1959. Such retroaction provided in effect that all transactions set forth in the merger agreement shall be deemed to be taking place simultaneously on January 1, 1959, when the Deed of Assignment became operative.

On the tax issue, the basic consideration is the purpose of the merger, as this would determine whether the exchange of properties involved therein shall be subject or not to the capital gains tax. The Court stated that one certain indication of a scheme to evade the capital gains tax is the subsequent dissolution of the new corporation after the transfer to it of the properties of the old corporation and the liquidation of the former soon thereafter.

In this case, the purpose of the merger was to continue the business of the Old Corporation, whose corporate life was about to expire. Moreover, the New Corporation was not dissolved after the merger agreement in 1959. On the contrary, it continued to operate the places of amusement originally owned by the Old Corporation and transferred to the New Corporation, particularly the Capitol and Lyric Theaters, in accordance with the Deed of Assignment. On an additional note, the Supreme Court further held that it was not possible for a corporation, by mere amendment of its charter, to extend its life beyond the time fixed in the original articles; in fact, this was specifically prohibited. The prohibition made it necessary for the Old and New Corporations to enter into the questioned merger, to enable the former to continue its unfinished business through the latter.

BABST VS CA

FACTS: Elizalde Steel Consolidated, Inc. (ELISCON) obtained a loan from Commercial Bank and Trust Company (CBTC) in the amount of P8,015,900.84, evidenced by a promissory note. ELISCON defaulted on its payments, leaving an outstanding balance of P2,795,240.67.

The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said bank. Subsequently, Antonio Roxas Chua and Chester Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC.

The Bank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON became heavily indebted to DBP as it suffered financial difficulties.

ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCON’s obligations to its creditors, but BPI rejected the formula.

BPI then filed a complaint for sum of money against ELISCON, MULTI, and Babst. ELISCON argued that the complaint was premature since DBP had made serious efforts to settle its obligations with BPI. Babst, on the other hand, asserted that his suretyship covers only obligations which MULTI incurred solely for its benefit and not for any third party liability. MULTI denied knowledge of the BPI-CBTC merger.

BPI argued that it did not give express consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected.

ISSUE: Whether or not BPI consented to the assumption by DBP of the obligations of ELISCON.

HELD:  Yes. The rule that consent must be “express” is not absolute for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words. In short, there can be implied consent of the creditor to the substitution of debtors.

In the instant case, the failure of BPI to register its objection to the take-over by DBP of ELISCON’s is deemed to be a form of implied consent on the part of BPI. BPI merely objected to the payment formula, not the substitution of debtors. BPI’s conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI.

In merger, the receivables of the dissolved corporation are transferred to the surviving corporation. Thus, the surviving corporation has the power to file an action to recover any debt that pertains to the other corporation. Therefore, the cause of action should be directed against DBP as the new debtor.

MINDANAO SAVINGS VS CA

FACTS: In 1985, Davao Savings and Loan Association, Inc. (DSLAI) merged with another banking company, the First Iligan Savings and Loan Association, Inc. (FISLAI), with the former as the surviving corporation. The merger was never registered with SEC for lack of documentation.  DSLAI changed its name to Mindanao Savings and Loan Association, Inc. (MSLAI) which was approved by the SEC in 1987.

In 1986, the Board of Directors of FISLAI passed and approved a Board Resolution assigning its assets in favor of DSLAI which in turn assumed the formers liabilities.

MSLAI subsequently suffered insolvency, and was later on ordered to be liquidated by the Monetary Board with the Philippine Deposit Insurance Company (PDIC) as the liquidator. 

However, unknown to MSLAI and PDIC, a money judgment was rendered against FLSAI, which resulted to several parcels of land owned by the latter to be sold at public auction, which was bought by Willkom, and subsequently transferred to his name upon the expiration of the redemption period. PDIC and MSLAI sought for the annulment of the sale on execution of the subject properties, alleging that the sale was conducted without notice to the latter, and that the properties sold are in custodia legis, since MSLAI was under receivership and liquidation. Willkom argued that MSLAI has no cause of action since it is a separate and distinct entity from FISLAI, because of the unsuccessful merger for failure to follow the procedure laid down by the Corporation Code.

The RTC declared that it could not annul the decision in Civil Case as it was rendered by a court of coordinate jurisdiction.

On appeal, the appellate court sustained the dismissal of petitioner’s complaint, but on a different ground. Citing that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down for a valid merger or consolidation; consequently, the claim against FISLAI and the subsequent sale of the levied properties at public auction is valid. The CA went on to say that even if there had been a de facto merger between FISLAI and MSLAI (formerly DSLAI), Willkom, having relied on the clean certificates of title, was an innocent purchaser for value, whose right is superior to that of MSLAI. Furthermore, the alleged assignment of assets and liabilities executed by FISLAI in favor of MSLAI was not binding on third parties because it was not registered.

Hence, this petition.

ISSUES: 

1. Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective; and

2. Was there novation of the obligation by substituting the person of the debtor?

HELD:

1. No. First, where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. In this case, the recommendation of the Monetary Board of the Central Bank of the Philippines is required as FISLAI and DSLAI are corporations treated as banks. Moreover, the issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take place. In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. 

2. No. It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. 

EXPERT TRAVEL &TOURS v. CA

FACTS: Korean Airlines, a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines, through their appointed counsel Atty. Aguinaldo filed a complaint against Expertravel and Tours (ETI) for a collection of sum of money. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.

In the course of the proceeding a special teleconference occurred and it is alleged that the general manager and counsel attended such meeting and it is further alleged the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim, the general manager of KAL also alleged, however, that the corporation had no written copy of the aforesaid resolution. ETI now challenge the authority of the appointed counsel to sign for the certification against non-forum shopping.

ISSUE: Whether or not a special teleconference would authorize Atty. Aguinaldo to certify a certification against non-forum shopping

HELD: Petition GRANTED.

In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. Although it may be easier to communicate via teleconferencing, it may also be easier to miscommunicate. Teleconferencing cannot satisfy the individual needs of every type of meeting. In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences. Thus, the Court agrees with the RTC that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance.

ADDTNL NOTES:

TELECONFERENCING

Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium. 

This type of group communication may be used in a number of ways, and have three basic types: 

(1) video conferencing - television-like communication augmented with sound; 

(2) computer conferencing - printed communication through keyboard terminals, and 

(3) audio-conferencing-verbal communication via the telephone with optional capacity for telewriting or telecopying.19

ADVANTAGES

1. People (including outside guest speakers) who wouldn’t normally attend a distant FTF meeting can participate.

2. Follow-up to earlier meetings can be done with relative ease and little expense.

3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and more oriented to the primary purpose of the meeting.

4. Some routine meetings are more effective since one can audio-conference from any location equipped with a telephone.

5. Communication between the home office and field staffs is maximized.

6. Severe climate and/or unreliable transportation may necessitate teleconferencing.

7. Participants are generally better prepared than for FTF meetings.

8. It is particularly satisfactory for simple problem-solving, information exchange, and procedural tasks.

9. Group members participate more equally in well-moderated teleconferences than an FTF meeting.21

DISADVANTAGES

1. Technical failures with equipment, including connections that aren’t made.

2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.

3. Impersonal, less easy to create an atmosphere of group rapport.

4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.

5. Acoustical problems within the teleconferencing rooms.

6. Difficulty in determining participant speaking order; frequently one person monopolizes the meeting.

7. Greater participant preparation time needed.

8. Informal, one-to-one, social interaction not possible.

LOYOLA GRAND VILLAS HOMEOWNERS ASSOCIATION v. CA

FACTS: In 1983, LGVHAI was organized by Victorio V. Soliven, the owner of the developer,  as the association of homeowners and residents of the Loyola Grand Villas. For unknown reasons, the HOA did not file its corporate by-laws. The officers of the HOA tried to register its by-laws but failed. It was then that they discovered the existence of were other organisations within the subdivision – the North Association and the South Association. When Soliven inquired about the status of their HOA, the head of the legal department of the HIGC, informed him that the HOA had been automatically dissolved for two reasons.  First, it failed to submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the association’s activities.

The LGVHAI to lodge a complaint with the HIGC questioning the revocation without due notice and hearing. The HIGC ruled in favor of the HOA. The South Association appealed to the Appeals Board of the HIGC which was dismissed for lack of merit. Then, the South Association appealed to the CA. 

The South Association contends that, since Section 46 uses the word "must" with respect to the filing of by-laws, noncompliance therewith would result in "self-extinction" and that "non-provision for remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence had yet evolved," and therefore, there was "no need to proclaim its demise." Moreover, it contends that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former.

The Court of Appeals affirmed the Resolution of the HIGC Appeals Board for which reason elevated the case to the Supreme Court.

ISSUE: May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution?

HELD: No. 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. 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. Non-filing of the by-laws will not result in automatic dissolution of the corporation. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm.

ADDTNL NOTES:

CA DECISION

The court said that Section 46 and 22, Corporation Code, or in any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the corporation thus, it must be construed with P.D. 902-A.

SEC. 6 (1) OF P.D. 902-A.

This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the failure to file by-laws \ Such suspension or revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or suspend the certificates of registration or homeowners association.

SEC. 9, CORPORATION CODE

The adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the by-laws have not yet been filed, a corporation may be considered a de facto corporation. 

MUST = OUGHT

The word "must" connotes an imperative act or operates to impose a duty which may be enforced. However, the is not always imperative in a statute. It may be consistent with an exercise of discretion. Thus, if the languages 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.

SEC. 19, CORPORATION CODE

Under Section 19 of the Corporation Code, a Corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. 

SALAFRANCA V. PHILAMLIFE

FACTS: In 1981, Enrique Salafranca was hired as an administrative officer by the Philamlife Village Homeowners Association, Inc. (HOA). Salafranca was tasked to manage the village’s day to day activities. His employment was originally for 6 months only but he was reappointed to his position multiple times until his employment expired 1983.  But even after the expiration and without renewal, he still continued to work. Then, in 1987, the HOA the amended its by-laws. Among the amendment was a provision that the administrative officer (Salafranca) shall have a tenure which is co-terminus with the Board of Directors which appointed him. Furthermore, until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month basis. Notwithstanding the failure of Salafranca to submit the requirements, he continued working until his termination in December 1992 which is the expiration of the tenure of the Board of Directors.

Therefore, Salafranca filed a complaint for illegal dismissal with money claims and for damages.

Respondents contention is that  the term of employment was co-terminus with the term of the BOD. The Labor Arbiter rendered a decision in favor of Salafranca stating that the Amendment of the By-Laws would not be applicable to the case because Salafranca had become a regular employee long time before the Amendment took place. Moreover, the Amendment should be applied prospectively and not retroactively.

NLRC reversed the decision of the Labor Arbiter. The reason of the NLRC is that the fact that he continued to work did not in any way make his employment permanent because he was reminded of the nature of his position.

Hence, this petition.

ISSUE: Whether or not Salafranca was illegally dismissed.

HELD: Yes. At that time, Salafranca already enjoys security of tenure because he is already a  regular employee. While the HOA has the right to amend its by-laws but such amendment must not impair existing contracts or rights. In this case, the provision that Salafranca’s position shall be co-terminus with the appointing Board impairs his right to security of tenure which has already vested even prior to the amendment of the by-laws in 1987.

The security of tenure which is granted to an employee who was become regular after working for more than 1 year. Such regular employee cannot be dismissed without just or authorized cause under the Labor Code.

ADDTNL NOTES:

PROOF OF E-E RELATIONSHIP

1. He was extended successive appointments by respondents.

2. The HOA paid petitioner a fixed salary for his services.

3. The HOA had the power of dismissal over Salafranca

4. The HOA controlled the work of the petitioner not only with respect to  the ends to be achieved but also the means to be used.

PROOF OF EMPLOYMENT REGULARITY

There is no dispute that the petitioner already attained the status of a regular employee because he had rendered service to the responded for 11 years.

DEFENSES OF THE HOA

1. Gross negligence and serious misconduct.

2. They did not proceed to a full blown investigation to save the petitioners reputation.

3. Petition was filed out of time. (3 months applies, not 60 days, because the revised rules on the petition of certiorari was not yet in effect)