G.R. No. 146018 - Edgar Cokaliong Shipping Lines vs. UCPB General Insurance Company

Case Summary (G.R. No. 146018)

Petitioner

Rosita Pena acquired the lots at a foreclosure sale conducted under Act No. 3135 (October 25, 1974) and received a certificate of sale after payment. She remained in possession and subsequently protested later transactions that resulted in registration of the lots in the names of the spouses Yap.

Respondents and Third Parties

The spouses Rising T. Yap and Catalina Lugue became registered owners under TCT Nos. 148983-R, 148984-R and 148985-R following a chain of transactions involving an alleged assignment by PAMBUSCO of its redemption right to Marcelino Enriquez, the latter’s redemption of the foreclosed lots, and Enriquez’s sale to the Yaps. PAMBUSCO’s board members, the sheriff, and other third parties were impleaded; most third-party defendants defaulted.

Key Dates

January 3, 1962: PAMBUSCO mortgaged the lots to DBP (P935,000).
October 25, 1974: Foreclosure sale; Pena was highest bidder and paid P128,000; certificate of sale issued and registered October 29, 1974.
November 19, 1974: PAMBUSCO board purportedly adopted a resolution assigning its right of redemption.
March 18, 1975: Deed of assignment from PAMBUSCO (through Briones) to Marcelino Enriquez.
August 15, 1975: Enriquez redeemed by payment (certificate of redemption issued by Sheriff Zabat).
August 16/18, 1975: Enriquez executed deed of absolute sale to the Yaps; various annotations and levy on attachment noted on titles August 18, 1975.
September 10, 1975: CFI Branch III, Pampanga ordered the Register of Deeds to desist from registering the contested documents.
June 16, 1978: Subject lots registered in the name of the spouses Yap, with annotation of levy on attachment.
June 20, 1989: Court of Appeals decision reversing the trial court in favor of the Yaps.
December 27, 1989: CA denial of appellee’s motion for reconsideration.
February 7, 1991: Supreme Court decision reversing the Court of Appeals (applicable Constitution: 1987 Philippine Constitution).

Applicable Law and Sources Cited

1987 Philippine Constitution (applicable because the decision date is 1991).
Corporation law authorities and provisions discussed in the decision: the then-applicable Corporation Law provisions (including references to Section 25 and Section 30 of the Corporation Law), Section 28 1/2 (sale/disposition of all or substantially all properties requiring affirmative stockholder approval), and Section 40 of the present Corporation Code as analogous authority.
Civil Code provisions on donations (the decision cites Article 725 and Article 749 of the Civil Code concerning formalities required for donations and the effect of non-compliance).
Precedents and authorities relied upon in the decision: Philex Mining Corp. v. Reyes; Union Glass & Container Corporation v. Securities and Exchange Commission; Teves v. Peoples Homesite and Housing Corporation; Uzon v. Del Rosario; Aldaba v. Court of Appeals; Fletcher Cyclopedia.

Factual Summary — Foreclosure, Sale and Subsequent Transactions

PAMBUSCO mortgaged the subject lots to DBP in 1962; the mortgage was foreclosed and the lots sold at auction on October 25, 1974, where petitioner Pena was highest bidder and paid P128,000. On November 19, 1974 PAMBUSCO’s board purportedly resolved to assign the company’s right of redemption, and on March 18, 1975 Briones executed a Deed of Assignment in favor of Marcelino Enriquez. Enriquez paid redemption money and obtained a sheriff’s certificate of redemption dated August 15, 1975 (payment P140,474). Enriquez then executed a deed of absolute sale to the Yaps (August 16/15, 1975). Annotations, a levy on attachment, and a notice of pending consulta were entered in August 1975. Pena protested the redemption as void by reason of an allegedly void deed of assignment, and the CFI issued a desist order on September 10, 1975. Nonetheless, the Register of Deeds issued titles to the spouses Yap on June 16, 1978 (with annotation of a levy), and the Yaps later sought possession from Pena, who remained in possession.

Procedural Background

The spouses Yap filed a complaint (December 15, 1978) to recover possession and claimed unpaid rentals from Pena. Pena defended asserting her legitimacy as owner via the foreclosure sale and that the subsequent redemption and transactions were void. The trial court found for Pena, declaring null the PAMBUSCO board resolution, the deed of assignment to Enriquez, the certificate of redemption in Enriquez’s favor, Enriquez’s deed of sale to the Yaps, and the Yap titles; it ordered the sheriff to execute a final sale to Pena. The Court of Appeals reversed on June 20, 1989, awarding possession to the Yaps; the Supreme Court granted review.

Issues Presented to the Supreme Court

Key issues included: (1) whether the trial court had jurisdiction to rule on the validity of PAMBUSCO’s board resolution and related transactions or whether such intra-corporate matters fell exclusively within SEC jurisdiction; (2) whether Pena had standing to challenge the validity of the corporate resolution and assignments as a stranger to those instruments; (3) whether the PAMBUSCO board resolution of November 19, 1974 and the subsequent Deed of Assignment to Enriquez were valid; (4) whether the assignment amounted to a donation requiring formalities, and if so whether non-compliance rendered the assignment void ab initio; and (5) whether the Yaps were purchasers in good faith.

Ruling — Jurisdiction and Standing

The Court held that the trial court properly exercised jurisdiction. Citing Philex Mining Corp. v. Reyes and Union Glass, the Court explained that SEC’s exclusive jurisdiction over intra-corporate disputes is limited to controversies among the corporation, its stockholders, members or officers, or between stockholders themselves. Because neither Pena nor the Yap spouses were stockholders or officers of PAMBUSCO, the controversy did not fall within the exclusive jurisdiction of the SEC and was properly cognizable by the regular courts. On standing, the Court applied Teves, observing that a person who is not a party to a contract or corporate act may still seek its nullity if the person’s rights are prejudiced; here the resolution and subsequent transactions adversely affected Pena’s property rights, thus she had legal standing to assail their validity.

Ruling — Validity of Board Resolution and Corporate Formalities

The Court affirmed the trial court’s conclusion that the November 19, 1974 board resolution was void. PAMBUSCO’s bylaws required at least four directors to be present at a special meeting; only three of five attended. Under the then-applicable Corporation Law and Section 25, the articles or bylaws may require a greater number for a quorum, and any number less than that fixed cannot constitute a quorum; acts taken without such quorum do not bind the corporation. The Court also emphasized the corporation’s status: PAMBUSCO had ceased operations and was effectively dormant, and the three purported directors present on November 19, 1974 were not on SEC records as directors or stockholders. Because the resolution purported to dispose of PAMBUSCO’s only remaining asset (its redemption right), disposal required not only a proper board resolution but also affirmative stockholder approval (two-thirds voting power) under the then-applicable law (Section 28 1/2). No such stockholder approval was obtained. Therefore, the board resolution and the subsequent assignment effectuating disposition of the redemption right were null and void.

Ruling — Nature of the Deed of Assignment and Donation Formalities

The Court treated the deed of assignment to Enriquez as effectively a donation (th

Case Syllabus (G.R. No. 146018)

Facts of the Case

Original owners: Pampanga Bus Co., Inc. (PAMBUSCO) owned lots covered by TCT Nos. 4314, 4315 and 4316.
Mortgage: PAMBUSCO mortgaged the lots to the Development Bank of the Philippines (DBP) on January 3, 1962 for P935,000.00.
Foreclosure and sale: Mortgage was foreclosed; in the foreclosure sale under Act No. 3135 held on October 25, 1974, the properties were awarded to Rosita Pena as highest bidder.
Certificate of sale: Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, issued a certificate of sale in favor of Rosita Pena upon payment of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23); the certificate of sale was registered on October 29, 1974 (Exh. G).
PAMBUSCO board resolution: On November 19, 1974, PAMBUSCO’s board of directors, through three out of five directors, resolved to assign PAMBUSCO’s right of redemption and authorized Atty. Joaquin Briones to execute a Deed of Assignment in favor of any interested party (Exh. 24).
Deed of Assignment to Enriquez: On March 18, 1975, Briones executed a Deed of Assignment of PAMBUSCO’s redemption right to Marcelino Enriquez (Exh. 25).
Redemption by Enriquez: Marcelino Enriquez redeemed the properties; Sheriff Zabat issued a certificate of redemption dated August 15, 1975 in Enriquez’s favor upon payment of P140,474.00 to the Office of the Provincial Sheriff of Pampanga (Exh. 26).
Deed of sale to Yap spouses: A day after the certificate of redemption, Enriquez executed a deed of absolute sale of the properties in favor of Spouses Rising T. Yap and Catalina Lugue for P140,000.00 (Exh. F).
Annotations and notices: On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered on the titles and a Notice of a pending consulta was annotated concerning Civil Case No. 4310 (Dante Gutierrez, et al. vs. PAMBUSCO) challenging registrability in the name of the Yap spouses (Exh. 20-F).
Registry annotations: On August 18, 1975, the certificate of sale in favor of Pena, PAMBUSCO’s board resolution assigning redemption rights, the deed of assignment in favor of Enriquez, the certificate of redemption in favor of Enriquez, and the deed of sale from Enriquez to the Yaps were all annotated on the same certificates of title.
Sheriff’s notification to Pena: On August 18, 1975, the Provincial Sheriff’s Office informed Pena by registered mail that the properties were redeemed by Enriquez on August 15, 1975 and she could collect her money at the Sheriff’s Office (Exh. J and J-1).
Contest by Pena: On September 8, 1975, Pena notified the Sheriff that the redemption was not valid because it was made under a void deed of assignment and requested recall of the redemption and restraint on any registration or transaction (Exh. 27).
Court order restraining registration: On September 10, 1975, CFI Branch III, Pampanga in Civil Case No. 4310 ordered the Register of Deeds to desist from registering or noting certain documents including (a) the Deed of Assignment dated March 18, 1975, (b) the Certificate of Redemption dated August 15, 1975, and (c) the Deed of Sale dated August 16, 1975, until further orders (Original Record, p. 244).
LRC opinion: On November 17, 1975, the Land Registration Commission (LRC) opined under LRC Resolution No. 1029 that the levy on attachment in favor of Capitol Allied Trading should be carried over to a new title issued in the name of Rising Yap if he presented the owners’ duplicates of the certificates of title (Exh. G).
Actions by parties pending finality: Pena sought execution of a deed of final sale in her favor claiming the redemption period expired (Exh. 28). Plaintiff Yap demanded back rentals and increased rent by letter dated December 30, 1977 (Exh. D).
Registration in Yap names: The subject lots were registered on June 16, 1978 in the names of the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with annotation of the levy on attachment and the conditioned registration under LRC Resolution No. 1029; notice of pending consulta of August 18, 1975 was canceled June 16, 1978.
Civil Case No. 4310 disposition: No trial on merits was held; the case was dismissed without prejudice by order dated February 17, 1983.
Possession: Despite the foregoing developments, Pena remained in possession of the lots, prompting the Yaps to file the present action.

Procedural History

Complaint: On December 15, 1978, Spouses Rising T. Yap and Catalina Lugue filed a complaint to recover possession of the subject lands from Rosita Pena and Washington Distillery, alleging Yap spouses were registered owners and seeking recovery of rentals and damages for alleged unlawful possession since October 1974 (Record, p. 5–6).
Defenses and counterclaims: Pena and Washington Distillery denied allegations; Pena asserted she was legitimate owner by purchase at foreclosure and that no valid redemption was exercised; alleged that the deed of assignment to Enriquez was void ab initio for being ultra vires and without consideration; alleged plaintiffs were buyers in bad faith for causing registration despite a CFI order to desist; prayed for nullification of the deed of assignment, redemption certificate, deed of sale and cancellation of TCTs and reissuance in Pena’s name.
Third-party complaint: Defendants filed a third-party complaint against PAMBUSCO, its directors (Jesus Domingo, Joaquin Briones, Salvador Bernardez), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat; all third-party defendants except Zabat were declared in default for failure to answer; Zabat answered but failed to appear at pre-trial.
Trial court decision: After trial, the trial court rendered judgment dismissing the plaintiffs’ complaint and declared null and void: (a) PAMBUSCO board resolution of November 19, 1974 assigning redemption rights; (b) Deed of Assignment dated March 18, 1975 in favor of Enriquez; (c) Certificate of Redemption dated August 15, 1975 issued to Enriquez; (d) Deed of Absolute Sale dated August 15, 1975 by Enriquez to plaintiffs; and (e) TCT Nos. 148983‑R, 148984‑R and 148985‑R in plaintiffs’ names. The court directed Deputy Sheriff Zabat to execute a certificate of final sale in favor of Pena and ordered third-party defendants (except Zabat) to pay P10,000.00 attorneys’ fees plus costs (trial court decision quoted in record).
Appeal: Private respondents appealed to the Court of Appeals.
Court of Appeals decision: On June 20, 1989, the Court of Appeals reversed the trial court judgment and ordered Pena to vacate the lands and to pay plaintiffs accrued rentals from October 1974 at P1,500.00/month up to December 1978 and P2,000.00/month thereafter until vacatur, with legal interest. Motion for reconsideration by appellee Pena was denied on December 27, 1989.
Petition for review: Pena filed a petition for review on certiorari to the Supreme Court, assigning seven errors challenging the Court of Appeals’ rulings, notably jurisdiction, standing, validity of the board resolution and deed of assignment, alleged donation formalities, and good faith of the Yap spouses.

Issues Presented on Petition for Review

Whether the trial court had jurisdiction to rule on the validity of the PAMBUSCO board resolution and subsequent transfers, or whether the issue fell within SEC’s exclusive jurisdiction.
Whether petitioner (Pena) had legal standing to assail the validity of the board resolution and the series of transactions culminating in the registration of the properties in the names of the Yap spouses.
Whether the PAMBUSCO board resolution of November 19, 1974, assigning the corporation’s right of redemption, was valid or void.
Whether the Deed of Assignment dated March 18 (or March 8 as variously cited), 1975 in favor of Marcelino Enriquez was valid, voidable, or void ab initio.
Whether the Deed of Assignment failed to comply with formalities required for donations (if characterized as such) and therefore was void.
Whether the Yap spouses were purchasers in good faith or in bad faith, particularly considering prior court orders to desist from registration.
Whether the Court of Appeals erred in reversing the trial court judgment.

Jurisdictional and Standing Analysis

SEC jurisdiction principle: