G.R. No. 96551 - Premium Marble Resources, Inc. vs. Court of Appeals

Case Summary (G.R. No. 96551)

Factual Background

In August to October 1982, three checks in the aggregate amount of P31,663.88 drawn by Ayala Investment and Development Corporation and payable to Premium Marble Resources, Inc. were deposited, without Premium’s apparent authority, into the current account of Intervest Merchant Finance with International Corporate Bank. Premium alleged that the checks were crossed and payable to Premium and that the bank nevertheless accepted them for deposit to Intervest’s account, presented them for collection, and permitted Intervest to use the proceeds to Premium’s prejudice. Premium alleged demand for restitution and refusal by the bank, and asserted damages of P31,663.88, plus exemplary damages and attorneys’ fees.

Procedural Posture in the Trial Court

Premium, by Atty. Arnulfo Dumadag, instituted Civil Case No. 14413 against International Corporate Bank. Shortly thereafter Printline Corporation filed Civil Case No. 14444 against the same bank; the cases were consolidated. A different counsel for Premium, the Siguion Reyna, Montecillo and Ongsiako Law Office, filed a motion to dismiss on the ground that the suit was filed without authority from Premium’s duly constituted board of directors, attaching minutes and a board resolution to that effect. Atty. Dumadag opposed, contending that the persons who purportedly signed the board resolution were not the corporation’s directors but former officers and that the law firm represented an adversarial faction. The bank joined the motion to dismiss.

Trial Court Ruling

The trial court dismissed the consolidated cases. The court found conflicting claims of authority to represent Premium: one set of officers (Zavalla, Gan, Pengson, Silva, Yujuico, Millare) asserted authorization by minutes of April 1, 1982; another set (Belen, Nograles, Reyes) submitted a July 30, 1986 resolution denying authorization. The court relied on the Articles of Incorporation and the SEC records showing officers elected as of March 4, 1981, and concluded that, absent proof that the 1982 election was reported to the SEC, the group represented by Atty. Dumadag lacked legal capacity to sue. The court further held that the intra-corporate controversy pending before the SEC (SEC Case No. 2688) precluded either faction from validly prosecuting suits in the corporate name until resolved.

Court of Appeals Decision

The Court of Appeals affirmed the trial court’s dismissal. The appellate court agreed that the power of the corporation to sue and be sued rested with the board of directors as shown by SEC records and that authority to act on behalf of the corporation, and any question regarding the validity of subscriptions and incumbency of directors, was a matter for the SEC’s sound judgment. The Court of Appeals therefore sustained the trial court’s view that, in the absence of a board resolution evidencing authority, the action must fail.

Petitioners’ Contentions on Review

Petitioners challenged the Court of Appeals decision on multiple grounds. They asserted that the motion to dismiss filed by the Siguion Reyna firm was not in fact on behalf of Premium but for a rival faction; that the Siguion Reyna firm had adverse appearances in other cases; that counsel who filed the complaint (Atty. Dumadag) was authorized by the board; that the Court of Appeals erred in holding that under SEC Case No. 2688 the incumbent directors could not act for the corporation; and that the Court of Appeals lacked jurisdiction to prohibit the incumbent board from acting when the SEC had not issued any express prohibition.

Supreme Court’s Analysis and Legal Reasoning

The Court framed the dispositive issue as whether the suit was authorized by a duly constituted board of directors. It examined the documentary record submitted by both factions. Petitioners relied on minutes of April 1, 1982 as purported proof of board authorization; the opposing faction relied on a July 30, 1986 resolution denying authorization. The Court compared these documents with Premium’s Articles of Incorporation and the SEC’s General Information Sheet and certification dated August 19, 1986, which showed the officers and directors as of March 4, 1981. The Court observed that the April 1, 1982 minutes did not appear to have been reported to the SEC and that the last SEC entry as of 1986 reflected the earlier 1981 incumbency.

The Court applied Section 26 of the Corporation Code, noting that the provision requires the corporation to file within thirty days after election the names and residences of the elected directors and officers, and that the rule serves to inform the public and those dealing with the corporation of its officers and managers. The Court concluded that petitioners’ claim of a valid change in board composition was not substantiated by the requisite SEC filing. The Court reaffirmed the principle that, in the absence of a board resolution or appropriate proof of incumbency, no person, including purported officers, may validly bind the corporation in litigation. The Court also agreed with the appellate court that the intra-corporate dispute pending

Case Syllabus (G.R. No. 96551)

Parties and Posture

Premium Marble Resources, Inc., Petitioner filed Civil Case No. 14413 for damages against International Corporate Bank, Respondent.
Printline Corporation, Petitioner filed a similar action docketed as Civil Case No. 14444, which was later consolidated with Civil Case No. 14413.
The Court of Appeals, Respondent affirmed the trial court's dismissal of the consolidated actions.
The present petition sought review of the Court of Appeals decision affirming dismissal for lack of corporate authority to sue.

Key Factual Allegations

The complaint alleged that Ayala Investment and Development Corporation issued three checks in August to October 1982 totaling P31,663.88 payable to the plaintiff corporation.
The complaint alleged that former officers headed by Saturnino G. Belen, Jr. deposited the checks to the current account of Intervest Merchant Finance maintained with International Corporate Bank.
The complaint alleged that the checks were crossed and payable to the plaintiff's account only yet the defendant bank accepted and presented them for collection, causing the drawee bank to clear the items.
The complaint alleged that the plaintiff demanded restitution from International Corporate Bank but that the bank refused, resulting in damages amounting to P31,663.88.

Procedural History

Premium Marble Resources, Inc. filed its complaint on July 18, 1986 and retained Atty. Arnulfo Dumadag as counsel.
Printline Corporation filed a similar suit days later, and the two cases were consolidated by the trial court.
A different counsel, Siguion Reyna, Montecillo and Ongsiako Law Office, moved to dismiss on the ground that the suits were filed without board authority as shown by an excerpt of board minutes.
The trial court granted the motion to dismiss, concluding that authority to sue was disputed and that the intra-corporate controversy was pending before the Securities and Exchange Commission as SEC Case No. 2688.
The Court of Appeals affirmed the trial court's dismissal, and petitioners sought relief before the Supreme Court.

Issues Presented

Whether the Court of Appeals erred in entertaining the motion to dismiss filed by counsel who allegedly represented a faction adverse to the petitioners.
Whether the Court of Appeals erred in ruling that counsel who filed the suits were not authorized by the corporate board to file Civil Case Nos. 14413 and 14444.
Whether the existence of SEC Case No. 2688 precluded the incumbent board from acting for and on behalf of the corporation.
Whether the Court of Appeals lacked jurisdiction to preclude the incumbent board from filing suits before the