Tuesday, March 12, 2013

Lanuza vs. CA


Lanuza vs. CA
GR No. 131394 | March 28, 2005

Facts:
·         Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18 August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which denied petitioners’ motion for reconsideration.
·         In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation
·         Onrubia et. al, who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.
·         In 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding.
·         In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their property rights was filed before the SEC over 120 founders’ shares and 12 common shares owned by their father
·         SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers.
·         SEC en banc: affirmed the decision
·         As a result, the shares of Acayan were recorded in the stock and transfer book.
·         On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors
·         Onrubia et al filed a petition with SEC questioning the validity of said meeting  alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation
·         Petition was dismissed
·         SC en banc: shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation
·         Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the following issues:
1.        whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation
(They contended that the basis is the stock and transfer book, not articles of incorporation in computing the quorum)
2.        whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al
·         CA decision:
1.        For purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles of incorporation
2.        To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides. the incorporators have already proved their stockholdings through the provisions of the articles of incorporation.
·         Appeal was made by Lanuza et al before the SC
·         Lanuza et al’ contention:
  1. 1992 stockholders’ meeting was valid and legal
  2. Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book Onrubia et al prepared
  3. Onrubia et al must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan
·         Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the ground of res judicata
·         Another appeal was made
·         Lanuza et al’s contention:  instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation
·         Onrubia et al’s manifestation and motion: moved for the dismissal of the case

Issue:  What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book?

Ruling:
·         Articles of Incorporation
-       Defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders.
-       Contents are binding, not only on the corporation, but also on its shareholders.
·         Stock and transfer book
-       Book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law
-       necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters
-       Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein
·         In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares. Hence, at that time, the corporation had 776 issued and outstanding shares.
·         According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders representing a majority of the outstanding capital stock.” As such, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares
·         To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares.
·         The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book. 
·         One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed to keep its records accurately. A corporation’s records are not the only evidence of the ownership of stock in a corporation.
·         It is no less than the articles of incorporation that declare the incorporators to have in their name the founders and several common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs          

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners

Red Line Transport vs. Rural Transit


Red Line Transportation Co. vs. Rural Transit Co.
GR No. 41570 | Sept. 6, 1934

Facts:
·         This is a petition for review of an order of the Public Service Commission granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing express service between Manila Tuguegarao.
·         On June 4, 1932, Rural Transit filed an application for certification of a new service between Tuguegarao and Ilagan with the Public Company Service Commission (PSC), since the present service is not sufficient
·         Rural Transit further stated that it is a holder of a certificate of public convenience to operate a passenger bus service between Manila and Tuguegarao
·         Red Line opposed said application, arguing that they already hold a certificate of public convenience for Tuguegarao and Ilagan, and is rendering adequate service. They also argued that granting Rural Transit’s application would constitute a ruinous competition over said route
·         On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with the condition that "all the other terms and conditions of the various certificates of public convenience of the herein applicant and herein incorporated are made a part hereof."
·         A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending application before the Court of First Instance for voluntary dissolution of the corporation 
·         A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd
·         During the hearing before the Public Service Commission, the petition for dissolution and the CFI’s decision decreeing the dissolution of Rural Transit were admitted without objection
·         At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name
·         However, PSC granted Rural Transit’s application for certificate of public convenience and ordered that a certificate be issued on its name
·         PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s name as its tradename in all its applications and petitions to be filed before the PSC. Said resolution was given a retroactive effect as of the date of filing of the application or April 30, 1930

Issue: Can the Public Service Commission authorize a corporation to assume the name of another corporation as a trade name?

Ruling: NO
·         The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name
·         The incorporators "constitute a body politic and corporate under the name stated in the certificate."
·         A corporation has the power "of succession by its corporate name." It is essential to its existence and cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business.
·         The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and open the door to frauds and evasions and difficulties of administration and supervision.
In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious

Roxas vs. CTA


Roxas vs. CTA
GR No. L-25043 | April 26, 1968

Facts:
·         Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their grandchildren by hereditary succession the following properties:
a.        Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas
-          Tenants who have been tilling the lands expressed their desire to purchase from Roxas y Cia, the parcels which they actually occupied
-          The govt, in line with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings
-          The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and subdivision expenses
-          Unfortunately, the govt did not have funds
-          A special arrangement was made with the Rehabilitation Finance Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan
-          Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the RFC to pay its loan from the proceeds of the yearly amortizations paid by the farmers
-          In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Sec. 34 of the Tax Code

b.        Residential house and lot at Wright St., Malate, Manila
-          After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals of 8K/year to Roxas y Cia

c.        Shares of stocks in different corporations

·         To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a partnership called Roxas y Compania
·         On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus P10.00 compromise penalty for late payment.
-          Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax
·         The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955, resulting from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers
·         The brothers protested the assessment but was denied, thus appealing to the CTA
·         CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa

Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the business of selling real estate

Ruling: NO, being an isolated transaction
·         Real estate dealer: any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year:
·         Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals
·         The fact that there were hundreds of vendees and them being paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period
·         the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless
·         It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. But due to the lack of funds, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself
·         The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly
·         Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%

As to the deductions
a.        P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer given as gifts to various persons – representation expenses
·         Representation expenses: deductible from gross income as expenditures incurred in carrying on a trade or business
·         In this case, the evidence does not show such link between the expenses and the business of Roxas y Cia
b.        Contributions to the Pasay police and fire department and other police departments as Christmas funds
·         Contributions to the Christmas funds are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities
·         Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes
·         As to the contribution to the Manila Police trust fund, such is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.
c.        Contributions to the Philippines Herald's fund for Manila's neediest families
·         The contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes
·         There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code
d.        Contribution to Our Lady of Fatima chapel at the FEU
·         University gives dividends to its stockholders
·         Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization
·         The contributions belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders


No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively