Premium Marble Resources, Inc. vs. Court of Appeals

A complaint filed in a corporation's name must be authorized by the corporation's duly constituted board of directors, and in the absence of proof that a board's election was reported to the SEC as required by Section 26 of the Corporation Code, the persons claiming to act for the corporation cannot validly bind it.

Premium Marble Resources, Inc. ("Premium") was a corporation embroiled in an intra-corporate dispute between two rival sets of officers, each claiming to be the duly constituted board of directors. One set, represented by Atty. Arnulfo Dumadag, initiated damages suits against International Corporate Bank for the bank's alleged wrongful acceptance of crossed checks payable to Premium and their deposit into the account of a conduit corporation, Intervest Merchant Finance. The other set, represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, moved to dismiss the suits on the ground that the filing was unauthorized. A related intra-corporate controversy was pending before the Securities and Exchange Commission as SEC Case No. 2688. Printline Corporation, a sister company of Premium, had filed a similar action and both cases were consolidated.

On July 18, 1986, Premium Marble Resources, Inc., assisted by Atty. Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank, docketed as Civil Case No. 14413. The complaint alleged that sometime between August and October 1982, Ayala Investment and Development Corporation issued three checks (Nos. 097088, 097414, and 27884) in the aggregate amount of ₱31,663.88, payable to Premium and drawn against Citibank. According to the complaint, former officers of Premium headed by Saturnino G. Belen, Jr., without authority from the corporation, deposited these checks into the current account of Intervest Merchant Finance, which Intervest maintained with the defendant bank under Account No. 0200-02027-8. Although the checks were clearly payable to Premium and were crossed and marked "for payee's account only," the defendant bank accepted them for deposit to Intervest's account, presented them for collection from the drawee bank, and upon clearing, allowed Intervest to use the funds to the prejudice of Premium. Premium demanded restitution, but the bank refused. Premium prayed for the value of the checks plus interest, ₱100,000.00 as exemplary damages, and ₱30,000.00 as attorney's fees.

A few days after Premium filed the case, Printline Corporation, a sister company of Premium, filed a similar action for damages against the same bank, docketed as Civil Case No. 14444. Thereafter, both civil cases were consolidated. Meanwhile, the same corporation — Premium — but this time represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors, as shown by an excerpt of the minutes of Premium's board of directors' meeting. In opposition, Atty. Dumadag contended that the persons who signed the board resolution — Belen, Jr., Nograles, and Reyes — were not directors of the corporation but former officers and stockholders who had been dismissed for irregularities and fraudulent acts, and that the Articles of Incorporation showed they were not majority stockholders. The Siguion Reyna Law Office, in a rejoinder, asserted that the general information sheet filed with the SEC was the best evidence of the corporation's stockholders, since the Articles of Incorporation did not reflect subsequent changes in share ownership. The defendant bank filed a manifestation adopting Premium's motion to dismiss in toto and joining in the prayer for dismissal.

The lower court dismissed the consolidated cases, concluding that the officers represented by Atty. Dumadag did not yet have legal capacity to sue on behalf of the corporation, and that neither set of officers could prosecute cases in the name of the corporation until SEC Case No. 2688 — an intra-corporate controversy — was resolved. The Court of Appeals affirmed. On review before the Supreme Court, petitioner presented the minutes of a board meeting held on April 1, 1982, showing the election of Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico, and Rodolfo Millare as officers, as proof that the filing was authorized. The rival set — Belen, Jr., Nograles, and Reyes — presented a resolution dated July 30, 1986, showing that Premium did not authorize the filing of any suit against the bank. Petitioner also submitted the Articles of Incorporation dated November 6, 1979, listing Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva as directors. However, the general information sheet and a certification issued by the SEC on August 19, 1986 showed that as of March 4, 1981, the officers and directors of Premium were Alberto C. Nograles (President/Director), Fernando D. Hilario (Vice President/Director), Augusto I. Galace (Treasurer), Jose L.R. Reyes (Secretary/Director), Pido E. Aquilar (Director), and Saturnino G. Belen, Jr. (Chairman of the Board). While the minutes of the April 1, 1982 meeting stated that newly elected officers for 1982 were Gan, Zavalla, Yujuico, and Millare, petitioner failed to show that this election was reported to the SEC; the last entry in the General Information Sheet with the SEC, as of 1986, reflected the set of officers elected in March 1981.

• Authority of Counsel to File Suit: Petitioner argued that Atty. Dumadag was duly authorized by the board of directors to file the case, presenting the minutes of the April 1, 1982 board meeting as proof of such authorization.
• Invalidity of the Motion to Dismiss: Petitioner maintained that the motion to dismiss filed by the Siguion Reyna Law Office was filed not on behalf of the corporation but on behalf of the group of Belen, who were clients of that law office, and that the same law office had appeared in other cases where Premium was the adverse party.
• Jurisdiction of the Court of Appeals: Petitioner contended that the Court of Appeals was without jurisdiction to prohibit the incumbent board from acting and filing the case when the SEC, where SEC Case No. 2688 was pending, had not even made such a prohibition.
• Incumbency of the Board: Petitioner asserted that the set of officers represented by Atty. Dumadag — Zavalla, Gan, Pengson, Silva, Yujuico, and Millare — were the incumbent officers of Premium, as shown by the Articles of Incorporation and the April 1, 1982 board minutes.

• Lack of Authority to Sue: Respondent bank adopted in toto Premium's motion to dismiss filed by the Siguion Reyna Law Office, joining in the prayer for dismissal on the ground that Premium lacked authority from its duly constituted board of directors to institute the action.
• Dependence on SEC Resolution: Respondent argued, through the lower court's reasoning as adopted, that the existence of a cause of action was dependent on the resolution of the intra-corporate controversy pending before the SEC, and that neither set of officers could prosecute cases in the name of the corporation until that controversy was resolved.

• Corporate Authority to Sue: Whether the filing of the case for damages against International Corporate Bank was authorized by a duly constituted board of directors of petitioner corporation.

• Corporate Authority to Sue: No. The petition was denied, the Court finding that the officers who authorized the filing failed to prove they were the duly constituted board, having not reported their election to the SEC as required by Section 26 of the Corporation Code, while the SEC's records reflected the rival set of officers as incumbent.

• Corporate Authority to Sue: The power of a corporation to sue and be sued in any court is lodged with the board of directors, which exercises corporate powers. In the absence of authority from the board, no person — not even officers of the corporation — can validly bind the corporation. Petitioner, through the set of officers represented by Atty. Dumadag, presented minutes of an April 1, 1982 board meeting showing the election of Zavalla, Gan, Pengson, Silva, Yujuico, and Millare. However, petitioner failed to show that this election was reported to the SEC as required by Section 26 of the Corporation Code, which mandates that within thirty days after the election of directors, trustees, and officers, the secretary or any other officer shall submit to the SEC the names, nationalities, and residences of those elected. The SEC's general information sheet and certification dated August 19, 1986 showed that as of March 4, 1981, the officers and directors of Premium were Nograles, Hilario, Galace, Reyes, Aquilar, and Belen, Jr. — the set represented by the Siguion Reyna Law Office. The last entry in the General Information Sheet with the SEC, as of 1986, reflected the officers elected in March 1981, not those purportedly elected on April 1, 1982. The objective of Section 26 is to give the public information, under sanction of oath of responsible officers, about the corporation's key officers and managers so that those dealing with it may know or have the means of knowing facts concerning its financial resources and business responsibility. Because the claim that Zavalla et al. were the incumbent officers was not fully substantiated, and because an intra-corporate controversy was pending before the SEC, the filing of the suit was not shown to have been authorized by a duly constituted board.

• Corporate Authority to Sue — The power of a corporation to sue and be sued in any court is lodged with the board of directors, which exercises corporate powers. In the absence of authority from the board of directors, no person, not even officers of the corporation, can validly bind the corporation. In this case, the Court applied this principle to hold that the officers who authorized the filing of the damages suit could not bind the corporation because they had not proven they were the duly constituted board, having failed to report their election to the SEC.

• SEC Reporting Requirement (Section 26, Corporation Code) — Within thirty days after the election of directors, trustees, and officers, the secretary or any other officer of the corporation shall submit to the SEC the names, nationalities, and residences of those elected. The objective is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition, and operational status of the company, together with information on its key officers or managers, so that those dealing with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility. The Court relied on this provision to determine which set of officers was the duly constituted board, finding that the SEC's records — the general information sheet and certification — prevailed over unreported board minutes.

• "In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation." — This passage states the ratio decidendi: the corporation cannot be bound by a suit filed without board authorization, and the failure to report the election to the SEC under Section 26 meant the purported board's authority was not established.

• "The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers." — This formulation, quoted by the Court from the Court of Appeals' decision, articulates the fundamental principle that corporate capacity to sue resides exclusively in the board, a principle central to the dismissal.

• "Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility." — This passage explains the legislative purpose behind the SEC reporting requirement, establishing why SEC records are the authoritative source for determining who the corporation's officers are.

• Visayan vs. NLRC, 196 SCRA 410, G.R. No. 69999, April 30, 1991 — Cited as supporting authority for the proposition that in the absence of authority from the board of directors, no person, not even officers of the corporation, can validly bind the corporation.

• HB Humphrey Co. vs. Pollock Roller Runner Sled Co., 278 Mass 350, 180 NE 164 — Cited as foreign authority supporting the legislative objective of Section 26 of the Corporation Code, namely to provide public information about a corporation's officers and financial condition.

• Section 26, Corporation Code (Report of election of directors, trustees and officers) — Requires that within thirty days after the election of directors, trustees, and officers, the secretary or any other officer of the corporation shall submit to the SEC the names, nationalities, and residences of those elected. The Court applied this provision to determine which set of officers was the duly constituted board, holding that because the set represented by Atty. Dumadag failed to report their April 1, 1982 election to the SEC, the SEC's records reflecting the rival set (elected March 1981) as incumbent officers prevailed, and the filing of the suit was therefore unauthorized.

Regalado, Romero, Puno, and Mendoza, JJ., concurred.