Republic of the Philippines

SUPREME COURT
Manila
SPECIAL SECOND DIVISION
G.R. No. 144476 April 8, 2003
ONG YONG, JUANITA TAN ONG, I!SON T. ONG, ANNA !. ONG, I!!IAM T.
ONG, I!!IE T. ONG, "#$ JU!IE ONG A!ON%O, petitioners,
vs
&A'I& S. TIU, CE!Y Y. TIU, MO!Y YU GA, (E!EN SEE YU, &. TERENCE Y. TIU,
JO)N YU, !OUR&ES C. TIU, INTRA!AN& RESOURCES &E'E!OPMENT CORP.,
MASAGANA TE!AMART, INC., REGISTER O* &EE&S O* PASAY CITY, "#$ +,-
SECURITIES AN& E.C)ANGE COMMISSION, respon!ents
"#############################"
G.R. No. 14462/ April 8, 2003
&A'I& S. TIU, CE!Y Y. TIU, MO!Y YU GA, (E!EN SEE YU, &. TERENCE Y. TIU,
JO)N YU, !OUR&ES C. TIU, "#$ INTRA!AN& RESOURCES &E'E!OPMENT
CORP., petitioners,
vs
ONG YONG, JUANITA TAN ONG, I!SON T. ONG, ANNA !. ONG, I!!IAM T.
ONG, I!!IE T. ONG, "#$ JU!IA ONG A!ON%O, respon!ents
R E S O ! U T I O N
CORONA, J.0
$efore us are the %&' (otion for reconsi!eration, !ate! March &), *++*, of petitioner
(ovants On, -on,, .uanita /an On,, 0ilson On,, Anna On,, 0illia( On,, 0illie On,
an! .ulia On, Alon1o %the On,s'2 %*' (otion for partial reconsi!eration, !ate! March
&), *++*, of petitioner (ovant 0illie On, see3in, a reversal of this Court4s
Decision,
&
!ate! 5ebruar6 &, *++*, in 7R Nos &8889: an! &88:*; a<r(in, =ith
(o!i>cation the !ecision
*
of the Court of Appeals, !ate! October ), &;;;, =hich in
turn uphel!, li3e=ise =ith (o!i>cation, the !ecision of the SEC en banc, !ate!
Septe(ber &&, &;;?2 an! %@' (otion for issuance of =rit of e"ecution of petitioners
Davi! S /iu, Cel6 - /iu, Mol6 -u 7o=, $elen See -u, D /erence - /iu, .ohn -u an!
Lour!es C /iu %the /ius' of our 5ebruar6 &, *++* Decision
A brief recapitulation of the facts sho=s thatA
In &;;8, the construction of the Masa,ana Citi(all in Pasa6 Cit6 =as
threatene! =ith stoppa,e an! inco(pletion =hen its o=ner, the 5irst
Lan!lin3 Asia Develop(ent Corporation %5LADC', =hich =as o=ne! b6 the
/ius, encountere! !ire >nancial !i<culties It =as heavil6 in!ebte! to the
Philippine National $an3 %PN$' for P&;+ (illion /o stave oB foreclosure of
the (ort,a,e on the t=o lots =here the (all =as bein, built, the /ius
invite! On, -on,, .uanita /an On,, 0ilson / On,, Anna L On,, 0illia( /
On, an! .ulia On, Alon1o %the On,s', to invest in 5LADC Cn!er the Pre#
Subscription A,ree(ent the6 entere! into, the On,s an! the /ius a,ree! to
(aintain eDual sharehol!in,s in 5LADCA the On,s =ere to subscribe to
&,+++,+++ shares at a par value of P&++++ each =hile the /ius =ere to
subscribe to an a!!itional )8;,?++ shares at P&++++ each in a!!ition to
their alrea!6 e"istin, subscription of 8)+,*++ shares 5urther(ore, the6
a,ree! that the /ius =ere entitle! to no(inate the Vice#Presi!ent an! the
/reasurer plus >ve !irectors =hile the On,s =ere entitle! to no(inate the
Presi!ent, the Secretar6 an! si" !irectors %inclu!in, the chair(an' to the
boar! of !irectors of 5LADC Moreover, the On,s =ere ,iven the ri,ht to
(ana,e an! operate the (all
Accor!in,l6, the On,s pai! P&++ (illion in cash for their subscription to &,+++,+++
shares of stoc3 =hile the /ius co((itte! to contribute to 5LADC a four#store6
buil!in, an! t=o parcels of lan! respectivel6 value! at P*+ (illion %for *++,+++
shares', P@+ (illion %for @++,+++ shares' an! P8;? (illion %for 8;,?++ shares' to
cover their a!!itional )8;,?++ stoc3 subscription therein /he On,s pai! in another
P9+ (illion
@
to 5LADC an! P*+ (illion to the /ius over an! above their P&++ (illion
invest(ent, the total su( of =hich %P&;+ (illion' =as use! to settle the P&;+ (illion
(ort,a,e in!ebte!ness of 5LADC to PN$
/he business har(on6 bet=een the On,s an! the /ius in 5LADC, ho=ever, =as
shortlive! because the /ius, on 5ebruar6 *@, &;;:, rescin!e! the Pre#Subscription
A,ree(ent /he /ius accuse! the On,s of %&' refusin, to cre!it to the( the 5LADC
shares coverin, their real propert6 contributions2 %*' preventin, Davi! S /iu an!
Cel6 - /iu fro( assu(in, the positions of an! perfor(in, their !uties as Vice#
Presi!ent an! /reasurer, respectivel6, an! %@' refusin, to ,ive the( the o<ce spaces
a,ree! upon
Accor!in, to the /ius, the a,ree(ent =as for Davi! S /iu an! Cel6 S /iu to assu(e
the positions an! perfor( the !uties of Vice#Presi!ent an! /reasurer, respectivel6,
but the On,s prevente! the( fro( !oin, so 5urther(ore, the On,s refuse! to
provi!e the( the space for their e"ecutive o<ces as Vice#Presi!ent an! /reasurer
5inall6, an! (ost serious of all, the On,s refuse! to ,ive the( the shares
correspon!in, to their propert6 contributions of a four#stor6 buil!in,, a &,;+*@+
sDuare#(eter lot an! a &)& sDuare#(eter lot Eence, the6 felt the6 =ere Fusti>e! in
settin, asi!e their Pre#Subscription A,ree(ent =ith the On,s =ho alle,e!l6 refuse!
to co(pl6 =ith their un!erta3in,s
In their !efense, the On,s sai! that Davi! S /iu an! Cel6 - /iu ha! in fact assu(e!
the positions of Vice#Presi!ent an! /reasurer of 5LADC but that it =as the6 =ho
refuse! to co(pl6 =ith the corporate !uties assi,ne! to the( It =as the contention
of the On,s that the6 =ante! the /ius to si,n the chec3s of the corporation an!
un!erta3e their (ana,e(ent !uties but that the /ius shie! a=a6 fro( helpin, the(
(ana,e the corporation On the issue of o<ce space, the On,s pointe! out that the
/ius !i! in fact alrea!6 have e"istin, e"ecutive o<ces in the (all since the6 o=ne!
it &++G before the On,s ca(e in 0hat the /ius reall6 =ante! =ere ne= o<ces
=hich =ere an6=a6 subseDuentl6 provi!e! to the( On the (ost i(portant issue of
their alle,e! failure to cre!it the /ius =ith the 5LADC shares co((ensurate to the
/ius4 propert6 contributions, the On,s asserte! that, althou,h the /ius e"ecute! a
!ee! of assi,n(ent for the &,;+*@+ sDuare#(eter lot in favor of 5LADC, the6 %the
/ius' refuse! to pa6 P )9+,:;+ for capital ,ains ta" an! !ocu(entar6 sta(p ta"
0ithout the pa6(ent thereof, the SEC =oul! not approve the valuation of the /ius4
propert6 contribution %as oppose! to cash contribution' /his, in turn, =oul! (a3e it
i(possible to secure a ne= /ransfer Certi>cate of /itle %/C/' over the propert6 in
5LADC4s na(e In an6 event, it =as eas6 for the /ius to si(pl6 pa6 the sai! transfer
ta"es an!, after the ne= /C/ =as issue! in 5LADC4s na(e, the6 coul! then be ,iven
the correspon!in, shares of stoc3s On the &)& sDuare#(eter propert6, the /ius
never e"ecute! a !ee! of assi,n(ent in favor of 5LADC /he /ius initiall6 clai(e!
that the6 coul! not as 6et surren!er the /C/ because it =as Hstill bein,
reconstitute!H b6 the Lichaucos fro( =ho( the /ius bou,ht it /he On,s later on
!iscovere! that 5LADC ha! in realit6 o=ne! the propert6 all alon,, even before their
Pre#Subscription A,ree(ent =as e"ecute! in &;;8 /his (eant that the &)& sDuare#
(eter propert6 =as at that ti(e alrea!6 the corporate propert6 of 5LADC for =hich
the /ius =ere not entitle! to the issuance of ne= shares of stoc3
/he controvers6 >nall6 ca(e to a hea! =hen this case =as co((ence!
8
b6 the /ius
on 5ebruar6 *9, &;;: at the Securities an! E"chan,e Co((ission %SEC', see3in,
con>r(ation of their rescission of the Pre#Subscription A,ree(ent After hearin,, the
SEC, throu,h then Eearin, O<cer Rolan!o 7 An!a6a, .r, issue! a !ecision on Ma6
&;, &;;9 con>r(in, the rescission sou,ht b6 the /ius, as follo=sA
0EERE5ORE, Fu!,(ent is hereb6 ren!ere! con>r(in, the rescission of the
Pre#Subscription A,ree(ent, an! conseDuentl6 or!erin,A
%a' /he cancellation of the &,+++,+++ shares subscription of the in!ivi!ual
!efen!ants in 5LADC2
%b' 5LADC to pa6 the a(ount of P&9+,+++,+++++ to the in!ivi!ual
!efen!ants representin, the return of their contribution for &,+++,+++
shares of 5LADC2
%c' /he plaintiBs to sub(it =ith %sic' the Securities an! E"chan,e
Co((ission a(en!e! articles of incorporation of 5LADC to confor( =ith
this !ecision2
%!' /he !efen!ants to surren!er to the plaintiBs /C/ Nos &@*8;@, &@*8;8,
&@8+:: %for(erl6 &))?9', &@)@*) an! &@8*+8 an! an6 other title or !ee!
in the na(e of 5LADC, failin, in =hich sai! titles are !eclare! voi!2
%e' /he Re,ister of Dee!s to issue ne= certi>cates of titles in favor of the
plaintiBs an! to cancel the annotation of the Pre#Subscription A,ree(ent
!ate! &) Au,ust &;;8 on /C/ No &@8+:: %for(erl6 &))?9'2
%f' /he in!ivi!ual !efen!ants, in!ivi!uall6 an! collectivel6, their a,ents an!
representatives, to !esist fro( e"ercisin, or perfor(in, an6 an! all acts
pertainin, to stoc3hol!er, !irector or o<cer of 5LADC or in an6 (anner
intervene in the (ana,e(ent an! aBairs of 5LADC2
%,' /he in!ivi!ual !efen!ants, Fointl6 an! severall6, to return to 5LADC
interest pa6(ent in the a(ount of P?,?::,::;++ an! all interest pa6(ents
as =ell as an6 pa6(ents on principal receive! fro( the P9+,+++,+++++
ine"istent loan, plus the le,al rate of interest thereon fro( the !ate of their
receipt of such pa6(ent until full6 pai!2
%h' /he plaintiB Davi! /iu to pa6 in!ivi!ual !efen!ants the su( of
P*+,+++,+++++ representin, his loan fro( sai! !efen!ants plus le,al
interest fro( the !ate of receipt of such a(ount
SO ORDERED
)
On (otion of both parties, the above !ecision =as partiall6 reconsi!ere! but onl6
insofar as the On,s4 P9+ (illion =as !eclare! not as a pre(iu( on capital stoc3 but
an a!vance %loan' b6 the On,s to 5LADC an! that the i(position of interest on it =as
correct
:
$oth parties appeale!
9
to the SEC en banc =hich ren!ere! a !ecision on Septe(ber
&&, &;;?, a<r(in, the Ma6 &;, &;;9 !ecision of the Eearin, O<cer /he SEC en
banc con>r(e! the rescission of the Pre#Subscription A,ree(ent but reverte! to
classif6in, the P9+ (illion pai! b6 the On,s as pre(iu( on capital an! not as a loan
or a!vance to 5LADC, hence, not entitle! to earn interest
?
On appeal, the Court of Appeals %CA' ren!ere! a !ecision on October ), &;;;, thusA
0EERE5ORE, the Or!er !ate! Septe(ber &&, &;;? issue! b6 the Securities
an! E"chan,e Co((ission En $anc in SEC AC CASE NOS );? an! :+&
con>r(in, the rescission of the Pre#Subscription A,ree(ent !ate! Au,ust
&), &;;8 is hereb6 A55IRMED, subFect to the follo=in, MODI5ICA/IONSA
& /he On, an! /iu 7roups are or!ere! to liDui!ate 5irst Lan!lin3 Asia
Develop(ent Corporation in accor!ance =ith the follo=in, cash an!
propert6 contributions of the parties therein
%a' On, 7roup I P&++,+++,+++++ cash contribution for one %&'
(illion shares in 5irst Lan!lin3 Asia Develop(ent Corporation at a
par value of P&++++ per share2
%b' /iu 7roupA
&' P8),+*+,+++++ ori,inal cash contribution for 8)+,*++
shares in 5irst Lan!lin3 Asia Develop(ent Corporation at
a par value of P&++++ per share2
*' A four#store6 buil!in, !escribe! in /ransfer Certi>cate
of /itle No &))?9 in the na(e of Intralan! Resources an!
Develop(ent Corporation value! at P*+,+++,+++++ for
*++,+++ shares in 5irst Lan!lin3 Asia Develop(ent
Corporation at a par value of P&++++ per share2
@' A &,;+*@+ sDuare#(eter parcel of lan! covere! b6
/ransfer Certi>cate of /itle No &))?9 in the na(e of
Masa,ana /ela(art, Inc value! at P@+,+++,+++++ for
@++,+++ shares in 5irst Lan!lin3 Asia Develop(ent
Corporation at a par value of P&++++ per share
*' 0hatever re(ains of the assets of the 5irst Lan!lin3 Asia Develop(ent
Corporation an! the (ana,e(ent thereof is %sic' hereb6 or!ere!
transferre! to the /iu 7roup
@' 5irst Lan!lin3 Asia Develop(ent Corporation is hereb6 or!ere! to pa6 the
a(ount of P9+,+++,+++++ that =as a!vance! to it b6 the On, 7roup upon
the >nalit6 of this !ecision Shoul! the for(er incur in !ela6 in the pa6(ent
thereof, it shall pa6 the le,al interest thereon pursuant to Article **+; of
the Ne= Civil Co!e
8' /he /ius are hereb6 or!ere! to pa6 the a(ount of P*+,+++,+++++
loane! the( b6 the On,s upon the >nalit6 of this !ecision Shoul! the
for(er incur in !ela6 in the pa6(ent thereof, it shall pa6 the le,al interest
thereon pursuant to Article **+; of the Ne= Civil Co!e
SO ORDERED
;
An interestin, si!eli,ht of the CA !ecision =as its !escription of the rescission (a!e
b6 the /ius as the Hhei,ht of in,ratitu!eH an! as Hpullin, a fast oneH on the On,s
/he CA (oreover foun! the /ius ,uilt6 of =ithhol!in, 5LADC fun!s fro( the On,s
an! !ivertin, corporate inco(e to their o=n MA//ERCO account
&+
/hese =ere
>n!in,s later on a<r(e! in our o=n 5ebruar6 &, *++* Decision =hich is the subFect
of the instant (otion for reconsi!eration
&&
$ut there =as also a stran,e aspect of the CA !ecision /he CA conclu!e! that both
the On,s an! the /ius =ere in pari delicto %=hich =oul! not have le,all6 entitle!
the( to rescission' but, Hfor practical consi!erations,H that is, their inabilit6 to =or3
to,ether, it =as best to separate the t=o ,roups b6 rescin!in, the Pre#Subscription
A,ree(ent, returnin, the ori,inal invest(ent of the On,s an! a=ar!in, practicall6
ever6thin, else to the /ius
/heir (otions for reconsi!eration havin, been !enie!, both parties >le! separate
petitions for revie= before this Court
In their petition !oc3ete! as 7R No &8889:, Ong et al. vs. Tiu et al, the On,s
ar,ue! that the /ius (a6 not properl6 avail of rescission un!er Article &&;& of the
Civil Co!e consi!erin, that the Pre#Subscription A,ree(ent !i! not provi!e for
reciprocit6 of obli,ations2 that the ri,hts over the subFect (atter of the rescission
%capital assets an! properties' ha! been acDuire! b6 a thir! part6 %5LADC'2 that the6
!i! not co((it a substantial an! fun!a(ental breach of their a,ree(ent since the6
!i! not prevent the /ius fro( assu(in, the positions of Vice#Presi!ent an! /reasurer
of 5LADC, an! that the failure to cre!it the @++,+++ shares correspon!in, to the
&,;+*@+ sDuare#(eter propert6 covere! b6 /C/ No &@8+:: %for(erl6 &))?9' =as
!ue to the refusal of the /ius to pa6 the reDuire! transfer ta"es to secure the
approval of the SEC for the propert6 contribution an!, thereafter, the issuance of
title in 5LADC4s na(e /he6 also ar,ue! that the liDui!ation of 5LADC (a6 not
le,all6 be or!ere! b6 the appellate court even for so calle! Hpractical
consi!erationsH or even to prevent Hfurther sDuabbles an! nu(erous liti,ations,H
since the sa(e are not vali! ,roun!s un!er the Corporation Co!e Moreover, the
On,s be=aile! the failure of the CA to ,rant interest on their P9+ (illion an! P*+
(illion a!vances to 5LADC an! Davi! S /iu, respectivel6, an! to a=ar! costs an!
!a(a,es
In their petition !oc3ete! as 7R No &88:*;, Tiu et al. vs. Ong et al, the /ius, on
the other han!, conten!e! that the rescission shoul! have been li(ite! to the
restitution of the parties4 respective invest(ents an! not the liDui!ation of 5LADC
base! on the erroneous perception b6 the court thatA the Masa,ana Citi(all =as
threatene! =ith inco(pletion since 5LADC =as in >nancial !istress2 that the /ius
invite! the On,s to invest in 5LADC to settle its P&;+ (illion loan fro( PN$2 that
the6 violate! the Pre#Subscription A,ree(ent =hen it =as the Lichaucos an! not the
/ius =ho e"ecute! the !ee! of assi,n(ent over the &)& sDuare#(eter propert6
co((ensurate to 8;,?++ shares in 5LADC thereb6 failin, to pa6 the price for the
sai! shares2 that the6 !i! not turn over to the On,s the entire a(ount of 5LADC
fun!s2 that the6 =ere !ivertin, rentals fro( lease contracts !ue to 5LADC to their
o=n MA//ERCO account2 that the P9+ (illion pai! b6 the On,s =as an a!vance an!
not a pre(iu( on capital2 an! that, b6 rescin!in, the Pre#Subscription A,ree(ent,
the6 =ante! to =restle a=a6 the (ana,e(ent of the (all an! prevent the On,s
fro( enFo6in, the pro>ts of their P&;+ (illion invest(ent in 5LADC
On 5ebruar6 &, *++*, this Court pro(ul,ate! its Decision %the subFect of the instant
(otions', a<r(in, the assaile! !ecision of the Court of Appeals but =ith the
follo=in, (o!i>cationsA
& the P*+ (illion loan e"ten!e! b6 the On,s to the /ius shall earn interest
at t=elve percent %&*G' per annu( to be co(pute! fro( the ti(e of
Fu!icial !e(an! =hich is fro( April *@, &;;:2
* the P9+ (illion a!vance! b6 the On,s to the 5LADC shall earn interest at
ten percent %&+G' per annu( to be co(pute! fro( the !ate of the 5LADC
$oar! Resolution =hich is .une &;, &;;:2 an!
@ the /ius shall be cre!ite! =ith 8;,?++ shares in 5LADC for their propert6
contribution, speci>call6, the &)& sD ( parcel of lan!
/his Court a<r(e! the fact that both the On,s an! the /ius violate! their respective
obli,ations un!er the Pre#Subscription A,ree(ent /he On,s prevente! the /ius
fro( assu(in, the positions of Vice#Presi!ent an! /reasurer of the corporation On
the other han!, the Decision establishe! that the /ius faile! to turn over 5LADC
fun!s to the On,s an! that the /ius !iverte! rentals !ue to 5LADC to their
MA//ERCO account ConseDuentl6, it hel! that rescission =as not possible since both
parties =ere in pari delicto Eo=ever, this Court a,ree! =ith the Court of Appeals
that the re(e!6 of speci>c perfor(ance, as espouse! b6 the On,s, =as not practical
an! soun! either an! =oul! onl6 lea! to further HsDuabbles an! nu(erous
liti,ationsH bet=een the parties
On March &), *++*, the /ius >le! before this Court a Motion for Issuance of a 0rit of
E"ecution on the ,roun!s thatA %a' the SEC or!er ha! beco(e e"ecutor6 as earl6 as
Septe(ber &&, &;;? pursuant to Sections & an! &*, Rule 8@ of the Rules of Court2
%b' an6 further !ela6 =oul! be inFurious to the ri,hts of the /ius since the case ha!
been pen!in, for (ore than si" 6ears2 an! %c' the SEC no lon,er ha! Duasi#Fu!icial
Furis!iction un!er RA ?9;; %Securities Re,ulation Co!e' /he On,s >le! their
opposition, conten!in, that the Decision !ate! 5ebruar6 &, *++* =as not 6et >nal
an! e"ecutor62 that no ,oo! reason e"iste! to issue a =arrant of e"ecution2 an!
that, pursuant to Section )* of RA ?9;;, the SEC retaine! Furis!iction over pen!in,
cases involvin, intra#corporate !isputes alrea!6 sub(itte! for >nal resolution upon
the eBectivit6 of the sai! la=
Asi!e fro( their opposition to the /ius4 Motion for Issuance of 0rit of E"ecution, the
On,s >le! their o=n HMotion for Reconsi!eration2 Alternativel6, Motion for
Mo!i>cation %of the 5ebruar6 &, *++* Decision'H on March &), *++*, raisin, t=o (ain
pointsA %a' that speci>c perfor(ance an! not rescission =as the proper re(e!6
un!er the pre(ises2 an! %b' that, assu(in, rescission to be proper, the subFect
!ecision of this Court shoul! be (o!i>e! to entitle (ovants to their proportionate
share in the (all
On their >rst point %speci>c perfor(ance an! not rescission =as the proper re(e!6',
(ovants On, ar,ue that their alle,e! breach of the Pre#Subscription A,ree(ent
=as, at (ost, casual =hich !i! not Fustif6 the rescission of the contract /he6 stress
that provi!in, appropriate o<ces for Davi! S /iu an! Cel6 - /iu as Vice#Presi!ent
an! /reasurer, respectivel6, ha! no bearin, on their obli,ations un!er the Pre#
Subscription A,ree(ent since the sai! obli,ation %to provi!e e"ecutive o<ces'
pertaine! to 5LADC itself Such obli,ation arose fro( the relations bet=een the sai!
o<cers an! the corporation an! not an6 of the in!ivi!ual parties such as the On,s
Li3e=ise, the alle,e! failure of the On,s to cre!it shares of stoc3 in favor of the /ius
for their propert6 contributions also pertaine! to the corporation an! not to the
On,s .ust the sa(e, it coul! not be !one in vie= of the /ius4 refusal to pa6 the
necessar6 transfer ta"es =hich in turn resulte! in the inabilit6 to secure SEC
approval for the propert6 contributions an! the issuance of a ne= /C/ in the na(e of
5LADC
Besides, according to the Ongs, the principal objective of both parties in entering
into the Pre-Subscription Agreement in 1! "as to raise the P1# million
desperatel$ needed for the pa$ment of %&A'()s loan to P*B Eence, in this li,ht, the
alle,e! failure to provi!e o<ce space for the t=o corporate o<cers =as no (ore
than an inconseDuential infrin,e(ent 5or rescission to be Fusti>e!, the la= reDuires
that the breach of contract shoul! be so Hsubstantial or fun!a(entalH as to !efeat
the pri(ar6 obFective of the parties in (a3in, the a,ree(ent At an6 rate, the On,s
clai( that it =as the /ius =ho =ere ,uilt6 of fun!a(ental violations in failin, to
re(it fun!s !ue to 5LADC an! !ivertin, the sa(e to their MA//ERCO account
/he On,s also alle,e that, in vie= of the >n!in,s of the Court that both parties =ere
,uilt6 of violatin, the Pre#Subscription A,ree(ent, neither of the( coul! resort to
rescission un!er the principle of pari delicto In a!!ition, since the cash an! other
contributions no= sou,ht to be returne! alrea!6 belon, to 5LADC, an innocent thir!
part6, sai! re(e!6 (a6 no lon,er be availe! of un!er the la=
On their secon! point %assu(in, rescission to be proper, the On,s shoul! be ,iven
their proportionate share of the (all', (ovants On, vehe(entl6 ta3e e"ception to
the secon! ite( in the !ispositive portion of the Duestione! Decision insofar as it
!ecree! that =hatever re(ains of the assets of 5LADC an! the (ana,e(ent thereof
%after liDui!ation' shall be transferre! to the /ius /he6 point out that the (all itself,
=hich =oul! have been foreclose! b6 PN$ if not for their ti(el6 invest(ent of P&;+
(illion in &;;8 an! =hich is no= =orth about P& billion (ainl6 because of their
eBorts, shoul! be inclu!e! in an6 partition an! !istribution /he6 %the On,s' shoul!
not (erel6 be ,iven interest on their capital invest(ents /he sai! portion of our
Decision, accor!in, to the(, a(ounte! to the unFust enrich(ent of the /ius an! ran
contrar6 to our o=n pronounce(ent that the act of the /ius in unilaterall6 rescin!in,
the a,ree(ent =as Hthe hei,ht of in,ratitu!eH an! an atte(pt Hto pull a fast oneH as
it =oul! prevent the On,s fro( enFo6in, the fruits of their P&;+ (illion invest(ent in
5LADC It also contravenes this Court4s assurance in the Duestione! Decision that
the On,s an! /ius H=ill have a bountiful return of their respective invest(ents
!erive! fro( the pro>ts of the corporationH
0illie On, >le! a separate HMotion for Partial Reconsi!erationH !ate! March ?, *++*,
pointin, out that there =as no violation of the Pre#Subscription A,ree(ent on the
part of the On,s2 that, after (ore than seven 6ears since the (all be,an its
operations, rescission ha! beco(e not onl6 i(practical but =oul! also a!versel6
aBect the ri,hts of innocent parties2 an! that it =oul! be highl$ ine+uitable and
unfair to simpl$ return the P1## million investment of the Ongs and give the
remaining assets no" amounting to about P1 billion to the Tius
/he /ius, in their opposition to the On,s4 (otion for reconsi!eration, counter that
the ar,u(ents therein are a (ere re#hash of the contentions in the On,s4 petition for
revie= an! previous (otion for reconsi!eration of the Court of Appeals4 !ecision
/he /ius co(pare the ar,u(ents in sai! plea!in,s to prove that the On,s !o not
raise ne= issues, an!, base! on =ell#settle! Furispru!ence,
&*
the On,s4 present
(otion is therefore pro-forma an! !i! not prevent the Decision of this Court fro(
attainin, >nalit6
On .anuar6 *;, *++@, the Special Secon! Division of this Court hel! oral ar,u(ents
on the respective positions of the parties On 5ebruar6 *9, *++@, Dr 0illie On, an!
the rest of the (ovants On, >le! their respective (e(oran!a On 5ebruar6 *?,
*++@, the /ius sub(itte! their (e(oran!u(
0e ,rant the On,s4 (otions for reconsi!eration
/his is not the >rst ti(e that this Court has reverse! itself on a (otion for
reconsi!eration In Philippine (onsumers %oundation, ,nc. vs. *ational
Telecommunications (ommission,
&@
this Court, throu,h then Chief .ustice 5eli" V
Ma3asiar, sai! that its (e(bers (a6 an! !o chan,e their (in!s, after a re#stu!6 of
the facts an! the la=, illu(inate! b6 a (utual e"chan,e of vie=s
&8
After a thorou,h
re#e"a(ination of the case, =e >n! that our Decision of 5ebruar6 &, *++* overloo3e!
certain aspects =hich, if not correcte!, =ill cause e"tre(e an! irreparable !a(a,e
an! preFu!ice to the On,s, 5LADC an! its cre!itors
/he proce!ural rule on pro-forma (otions pointe! out b6 the /ius shoul! not be
blin!l6 applie! to (eritorious (otions for reconsi!eration As lon, as the sa(e
a!eDuatel6 raises a vali! ,roun!
&)
%i.e., the !ecision or >nal or!er is contrar6 to la=',
this Court has to evaluate the (erits of the ar,u(ents to prevent an unFust !ecision
fro( attainin, >nalit6 In Securit$ Ban- and Trust (ompan$ vs. (uenca,
&:
=e rule!
that a (otion for reconsi!eration is not pro-forma for the reason alone that it
reiterates the ar,u(ents earlier passe! upon an! reFecte! b6 the appellate court
0e e"plaine! there that a (ovant (a6 raise the sa(e ar,u(ents, if onl6 to
convince this Court that its rulin, =as erroneous Moreover, the rule %that a (otion
is pro-forma if it onl6 repeats the ar,u(ents in the previous plea!in,s' =ill not appl6
if sai! ar,u(ents =ere not sDuarel6 passe! upon an! ans=ere! in the !ecision
sou,ht to be reconsi!ere! ,n the case at bar, no ruling "as made on some of the
petitioner Ongs) arguments 5or instance, no clear rulin, =as (a!e on =h6 an or!er
!istributin, corporate assets an! propert6 to the stoc3hol!ers =oul! not violate the
statutor6 precon!itions for corporate !issolution or !ecrease of authori1e! capital
stoc3 /hus, it =oul! serve the en!s of Fustice to entertain the subFect (otion for
reconsi!eration since so(e i(portant issues therein, althou,h (ere repetitions,
=ere not consi!ere! or clearl6 resolve! b6 this Court
7oin, no= to the (erits, =e resolve =hether the /ius coul! le,all6 rescin! the Pre#
Subscription A,ree(ent 0e rule that the6 coul! not
5LADC =as ori,inall6 incorporate! =ith an authori1e! capital stoc3 of )++,+++
shares =ith the /ius o=nin, 8)+,*++ shares representin, the pai!#up capital 0hen
the /ius invite! the On,s to invest in 5LADC as stoc3hol!ers, an increase of the
authori1e! capital stoc3 beca(e necessar6 to ,ive each ,roup eDual %)+#)+'
sharehol!in,s as a,ree! upon in the Pre#Subscription A,ree(ent /he authori1e!
capital stoc3 =as thus increase! fro( )++,+++ shares to *,+++,+++ shares =ith a par
value of P&++ each, =ith the On,s subscribin, to &,+++,+++ shares an! the /ius to
)8;,?++ (ore shares in a!!ition to their 8)+,*++ shares to co(plete &,+++,+++
shares /hus, the subFect (atter of the contract =as the &,+++,+++ unissued shares
of 5LADC stoc3 allocate! to the On,s Since these =ere unissue! shares, the parties4
Pre#Subscription A,ree(ent =as in fact a subscription contract as !e>ne! un!er
Section :+, /itle VII of the Corporation Co!eA
An6 contract for the acDuisition of unissued stoc- in an e.isting
corporation or a corporation still to be for(e! shall be !ee(e! a
subscription =ithin the (eanin, of this /itle, not=ithstan!in, the fact that
theparties refer to it as a purchase or some other contract %Italics supplie!'
A subscription contract necessaril6 involves the corporation as one of the
contractin, parties since the subFect (atter of the transaction is propert6 o=ne! b6
the corporation I its shares of stoc3 /hus, the subscription contract %!eno(inate!
b6 the parties as a Pre#Subscription A,ree(ent' =hereb6 the On,s investe! P&++
(illion for &,+++,+++ shares of stoc3 =as, fro( the vie=point of the la=, one
bet=een the On,s an! 5LADC, not bet=een the On,s an! the /ius Other=ise
state!, the /ius !i! not contract in their personal capacities =ith the On,s since the6
=ere not sellin, an6 of their o=n shares to the( It =as 5LADC that !i!
Consi!erin, therefore that the real contractin, parties to the subscription a,ree(ent
=ere 5LADC an! the On,s alone, a civil case for rescission on the ,roun! of breach
of contract >le! b6 the /ius in their personal capacities =ill not prosper Assu(in, it
ha! vali! reasons to !o so, onl6 5LADC %an! certainl6 not the /ius' ha! the le,al
personalit6 to >le suit rescin!in, the subscription a,ree(ent =ith the On,s
inas(uch as it =as the real part6 in interest therein Article &@&& of the Civil Co!e
provi!es that Hcontracts ta3e eBect onl6 bet=een the parties, their assi,ns an!
heirsJH /herefore, a part6 =ho has not ta3en part in the transaction cannot sue or
be sue! for perfor(ance or for cancellation thereof, unless he sho=s that he has a
real interest aBecte! thereb6
&9
In their 5ebruar6 *?, *++@ Me(oran!u(, the /ius clai( that there are t=o contracts
e(bo!ie! in the Pre#Subscription A,ree(entA a sharehol!er4s a,ree(ent bet=een
the /ius an! the On,s !e>nin, an! ,overnin, their relationship an! a subscription
contract bet=een the /ius, the On,s an! 5LADC re,ar!in, the subscription of the
parties to the corporation /he6 point out that these t=o co(ponent parts for( one
=hole a,ree(ent an! that their ter(s an! con!itions are intrinsicall6 relate! an!
!epen!ent on each other /hus, the breach of the sharehol!ers4 a,ree(ent, =hich
=as alle,e!l6 the consi!eration for the subscription contract, =as also a breach of
the latter
Asi!e fro( the fact that this is an entirel6 ne= an,le never raise! in an6 of their
previous plea!in,s until after the oral ar,u(ents on .anuar6 *;, *++@, =e >n! this
ar,u(ent too straine! for co(fort It is obviousl6 inten!e! to re(e!6 an! cover up
the /ius4 lac3 of le,al personalit6 to rescin! an a,ree(ent in =hich the6 =ere
personall6 not parties#in#interest Assu(in, ar,uen!o that there =ere t=o Hsub#
a,ree(entsH e(bo!ie! in the Pre#Subscription A,ree(ent, this Court fails to see
ho= the sharehol!ers a,ree(ent bet=een the On,s an! /ius can, =ithin the boun!s
of reason, be interprete! as the consi!eration of the subscription contract bet=een
5LADC an! the On,s /here =as nothin, in the Pre#Subscription A,ree(ent even
re(otel6 su,,estin, such alle,e! inter!epen!ence $e that as it (a6, ho=ever, the
/ius are nevertheless not the proper parties to raise this point because the6 =ere
not parties to the subscription contract bet=een 5LADC an! the On,s /hus, the6 are
not in a position to clai( that the sharehol!ers a,ree(ent bet=een the( an! the
On,s =as =hat in!uce! 5LADC an! the On,s to enter into the subscription contract
It is the On,s alone =ho can sa6 that /hou,h 5LADC =as represente! b6 the /ius in
the subscription contract, 5LADC ha! a separate Furi!ical personalit6 fro( the /ius
/he case before us !oes not =arrant piercin, the veil of corporate >ction since there
is no proof that the corporation is bein, use! Has a cloa3 or cover for frau! or
ille,alit6, or to =or3 inFusticeH
&?
/he /ius also ar,ue that, since the On,s represent 5LADC as its (ana,e(ent,
breach b6 the On,s is breach b6 5LADC /his (ust also fail because such an
ar,u(ent !isre,ar!s the separate Furi!ical personalit6 of 5LADC
/he /ius alle,e that the6 =ere prevente! fro( participatin, in the (ana,e(ent of
the corporation /here is evi!ence that the On,s !i! prevent the ri,htfull6 electe!
/reasurer, Cel6 /iu, fro( e"ercisin, her function as such /he recor!s sho= that the
Presi!ent, 0ilson On,, supervise! the collection an! receipt of rentals in the
Masa,ana Citi(all2
&;
that he or!ere! the sa(e to be !eposite! in the ban32
*+
an!
that he hel! on to the cash an! properties of the corporation
*&
Section *) of the
Corporation Co!e prohibits the Presi!ent fro( actin, concurrentl6 as /reasurer of the
corporation /he rationale behin! the provision is to ensure the eBective (onitorin,
of each o<cer4s separate functions
Eo=ever, althou,h the /ius =ere a!versel6 aBecte! b6 the On,s4 un=illin,ness to
let the( assu(e their positions, rescission !ue to breach of contract is !e>nitel6 the
=ron, re(e!6 for their personal ,rievances The Corporation Code, SEC rules
and even the Rules of Court provide for appropriate and adequate intra-
corporate remedies, other than rescission, in situations like this Rescission
is certainl6 not one of the(, speciall6 if the part6 as3in, for it has no le,al
personalit6 to !o so an! the reDuire(ents of the la= therefor have not been (et A
contrar6 !octrine =ill trea! on e"tre(el6 !an,erous ,roun! because it =ill allo= Fust
an6 stoc3hol!er, for Fust about an6 real or i(a,ine! oBense, to !e(an! rescission of
his subscription an! call for the !istribution of so(e part of the corporate assets to
hi( =ithout co(pl6in, =ith the reDuire(ents of the Corporation Co!e
Eence, the /ius, in their personal capacities, cannot see3 the ulti(ate an!
e"traor!inar6 re(e!6 of rescission of the subFect a,ree(ent base! on a less than
substantial breach of subscription contract Not onl6 are the6 not parties to the
subscription contract bet=een the On,s an! 5LADC2 the6 also have other available
an! eBective re(e!ies un!er the la=
All this not=ithstan!in,, ,rantin, but not conce!in, that the /ius possess the le,al
stan!in, to sue for rescission base! on breach of contract, sai! action =ill
nevertheless still not prosper since rescission =ill violate the /rust 5un! Doctrine an!
the proce!ures for the vali! !istribution of assets an! propert6 un!er the
Corporation Co!e
/he /rust 5un! Doctrine, >rst enunciate! b6 this Court in the &;*@ case of Philippine
Trust (o. vs. /ivera,
**
provi!es that subscriptions to the capital stoc3 of a corporation
constitute a fun! to =hich the cre!itors have a ri,ht to loo3 for the satisfaction of
their clai(s
*@
/his !octrine is the un!erl6in, principle in the proce!ure for the
!istribution of capital assets, e(bo!ie! in the Corporation Co!e, =hich allo=s the
!istribution of corporate capital onl6 in three instancesA %&' a(en!(ent of the
Articles of Incorporation to re!uce the authori1e! capital stoc3,
*8
%*' purchase of
re!ee(able shares b6 the corporation, re,ar!less of the e"istence of unrestricte!
retaine! earnin,s,
*)
an! %@' !issolution an! eventual liDui!ation of the corporation
5urther(ore, the !octrine is articulate! in Section 8& on the po=er of a corporation
to acDuire its o=n shares
*:
an! in Section &** on the prohibition a,ainst the
!istribution of corporate assets an! propert6 unless the strin,ent reDuire(ents
therefor are co(plie! =ith
*9
/he !istribution of corporate assets an! propert6 cannot be (a!e to !epen! on the
=hi(s an! caprices of the stoc3hol!ers, o<cers or !irectors of the corporation, or
even, for that (atter, on the earnest !esire of the court a +uo Hto prevent further
sDuabbles an! future liti,ationsH unless the in!ispensable con!itions an! proce!ures
for the protection of corporate cre!itors are follo=e! Other=ise, the Hcorporate
peaceH lau!abl6 hope! for b6 the court =ill re(ain nothin, but a !rea( because this
ti(e, it =ill be the cre!itors4 turn to en,a,e in HsDuabbles an! liti,ationsH shoul! the
court or!er an unla=ful !istribution in blatant !isre,ar! of the /rust 5un! Doctrine
In the instant case, the rescission of the Pre#Subscription A,ree(ent =ill eBectivel6
result in the unauthori1e! !istribution of the capital assets an! propert6 of the
corporation, thereb6 violatin, the /rust 5un! Doctrine an! the Corporation Co!e,
since rescission of a subscription a,ree(ent is not one of the instances =hen
!istribution of capital assets an! propert6 of the corporation is allo=e!
Contrar6 to the /ius4 alle,ation, rescission =ill, in the >nal anal6sis, result in the
pre(ature liDui!ation of the corporation =ithout the bene>t of prior !issolution in
accor!ance =ith Sections &&9, &&?, &&; an! &*+ of the Corporation Co!e
*?
/he /ius
(aintain that rescin!in, the subscription contract is not s6non6(ous to corporate
liDui!ation because all rescission =ill entail =oul! be the si(ple restoration of
the status +uo ante an! a return to the t=o ,roups of their cash an! propert6
contributions 0e =ish it =ere that si(ple Ver6 noticeable is the fact that the /ius
!o not e"plain =h6 rescission in the instant case =ill not eBectivel6 result in
liDui!ation /he /ius (erel6 refer in cavalier fashion to the en!#result of rescission
%=hich inci!entall6 is &++G favorable to the(' but turn a blin! e6e to its unfair,
ineDuitable an! !isastrous eBect on the corporation, its cre!itors an! the On,s
In their Me(oran!u( !ate! 5ebruar6 *?, *++@, the /ius clai( that rescission of the
a,ree(ent =ill not result in an unauthori1e! liDui!ation of the corporation because
their case is actuall6 a petition to !ecrease capital stoc3 pursuant to Section @? of
the Corporation Co!e Section &** of the la= provi!es that H%e'"cept b6 !ecrease of
capital stoc3J, no corporation shall !istribute an6 of its assets or propert6 e"cept
upon la=ful !issolution an! after pa6(ent of all its !ebts an! liabilitiesH /he /ius
clai( that their case for rescission, bein, a petition to !ecrease capital stoc3, !oes
not violate the liDui!ation proce!ures un!er our la=s All that nee!s to be !one,
accor!in, to the(, is for this Court to or!er %&' 5LADC to >le =ith the SEC a petition
to issue a certi>cate of !ecrease of capital stoc3 an! %*' the SEC to approve sai!
!ecrease /his ne= ar,u(ent has no (erit
/he /ius4 case for rescission cannot vali!l6 be !ee(e! a petition to !ecrease capital
stoc3 because such action never co(plie! =ith the for(al reDuire(ents for
!ecrease of capital stoc3 un!er Section @@ of the Corporation Co!e No (aForit6 vote
of the boar! of !irectors =as ever ta3en Neither =as there an6 stoc3hol!ers
(eetin, at =hich the approval of stoc3hol!ers o=nin, at least t=o#thir!s of the
outstan!in, capital stoc3 =as secure! /here =as no revise! treasurer4s a<!avit
an! no proof that sai! !ecrease =ill not preFu!ice the cre!itors4 ri,hts On the
contrar6, all their plea!in,s containe! =ere alle,e! acts of violations b6 the On,s to
Fustif6 an or!er of rescission
5urther(ore, it is an i(proper Fu!icial intrusion into the internal aBairs of the
corporation to co(pel 5LADC to >le at the SEC a petition for the issuance of a
certi>cate of !ecrease of stoc3 Decreasin, a corporation4s authori1e! capital stoc3
is an a(en!(ent of the Articles of Incorporation It is a !ecision that onl6 the
stoc3hol!ers an! the !irectors can (a3e, consi!erin, that the6 are the contractin,
parties thereto ,n this case, the Tius are actuall$ not just as-ing for a revie" of the
legalit$ and fairness of a corporate decision. The$ "ant this (ourt to ma-e a
corporate decision for %&A'( 0e !ecline to intervene an! or!er corporate structural
chan,es not voluntaril6 a,ree! upon b6 its stoc3hol!ers an! !irectors
/ruth to tell, a Fu!icial or!er to !ecrease capital stoc3 =ithout the assent of 5LADC4s
!irectors an! stoc3hol!ers is a violation of the Hbusiness Fu!,(ent ruleH =hich states
thatA
""" """ """ %C'ontracts intra vires entere! into b6 the boar! of !irectors
are bin!in, upon the corporation an! courts =ill not interfere unless such
contracts are so unconscionable an! oppressive as to a(ount to =anton
!estruction to the ri,hts of the (inorit6, as =hen plaintiBs aver that the
!efen!ants %(e(bers of the boar!', have conclu!e! a transaction a(on,
the(selves as =ill result in serious inFur6 to the plaintiBs stoc3hol!ers
*;
/he reason behin! the rule is aptl6 e"plaine! b6 Dean Cesar L Villanueva, an
estee(e! author in corporate la=, thusA
Courts an! other tribunals are =ont to overri!e the business Fu!,(ent of
the boar! (ainl6 because, courts are not in the business of business, an!
the laisse0 faire rule or the free enterprise s6ste( prevailin, in our social
an! econo(ic set#up !ictates that it is better for the State an! its or,ans to
leave business to the business(en2 especiall6 so, =hen courts are ill#
eDuippe! to (a3e business !ecisions More i(portantl6, the social contract
in the corporate fa(il6 to !eci!e the course of the corporate business has
been veste! in the boar! an! not =ith courts
@+
Apparentl6, the /ius !o not reali1e the ille,al conseDuences of see3in, rescission
an! control of the corporation to the e"clusion of the On,s Such an act infrin,es on
the la= on re!uction of capital stoc3 Or!erin, the return an! !istribution of the
On,s4 capital contribution =ithout !issolvin, the corporation or !ecreasin, its
authori1e! capital stoc3 is not onl6 a,ainst the la= but is also preFu!icial to
corporate cre!itors =ho enFo6 absolute priorit6 of pa6(ent over an! above an6
in!ivi!ual stoc3hol!er thereof
Strippe! to its barest essentials, the issue of rescission in this case is not !i<cult to
un!erstan! If rescission is !enie!, =ill inFustice be inKicte! on an6 of the partiesL
/he ans=er is no because the >nancial interests of both the /ius an! the On,s =ill
re(ain intact an! safe =ithin 5LADC On the other han!, if rescission is ,rante!, =ill
an6 of the parties suBer an inFusticeL De>nitel6 6es because the On,s =ill >n!
the(selves out in the streets =ith nothin, but the (one6 the6 ha! in &;;8 =hile the
/ius =ill not onl6 enFo6 a =in!fall esti(ate! to be an6=here fro( P8)+ (illion to
P;++ (illion
@&
but =ill also ta3e over an e"tre(el6 pro>table business =ithout (uch
eBort at all
Another ver6 i(portant point follo=s /he Court of Appeals an!, later on, our
Decision !ate! 5ebruar6 &, *++*, state! that both ,roups =ere in pari delicto,
(eanin,, that both the /ius an! the On,s co((itte! breaches of the Pre#
Subscription A,ree(ent /his (a6 be true to a certain e"tent but, Fu!,in, fro( the
co(parative ,ravit6 of the acts separatel6 co((itte! b6 each ,roup, =e >n! that
the On,s4 acts =ere relativel6 ta(e vis#M#vis those co((itte! b6 the /ius in not
surren!erin, 5LADC fun!s to the corporation an! !ivertin, corporate inco(e to their
o=n MA//ERCO account /he On,s =ere ri,ht in not issuin, to the /ius the shares
correspon!in, to the four#stor6 buil!in, an! the &,;+*@+ sDuare#(eter lot because
no title for it coul! be issue! in 5LADC4s na(e, o=in, to the /ius4 refusal to pa6 the
transfer ta"es An! as far as the &)& sDuare#(eter lot =as concerne!, =h6 shoul!
5LADC issue a!!itional shares to the /ius for propert6 alrea!6 o=ne! b6 the
corporation an! =hich, in the >nal anal6sis, =as alrea!6 factore! into the
sharehol!in,s of the /ius before the On,s ca(e inL
0e are appalle! b6 the atte(pt b6 the /ius, in the =or!s of the Court of Appeals, to
Hpull a fast oneH on the On,s because that =as =here the proble( precisel6 starte!
It is clear that, =hen the >nances of 5LADC i(prove! consi!erabl6 after the eDuit6
infusion of the On,s, the /ius starte! plannin, to ta3e over the corporation a,ain
an! e"clu!e the On,s fro( it It appears that the /ius4 refusal to pa6 transfer ta"es
(i,ht not have reall6 been at all unintentional because, b6 failin, to pa6 that
relativel6 s(all a(ount =hich the6 coul! easil6 aBor!, the /ius shoul! have
e"pecte! that the6 =ere not ,oin, to be ,iven the correspon!in, shares It =as,
fro( ever6 an,le, the perfect e"cuse for blac3ballin, the On,s In other =or!s, the
/ius create! a proble( then use! that sa(e proble( as their prete"t for sho=in,
their partners the !oor In the process, the6 stoo! to be re=ar!e! =ith a bonan1a of
an6=here bet=een P8)+ (illion to P;++ (illion in assets %fro( an invest(ent of
onl6 P8) (illion =hich =as nearl6 foreclose! b6 PN$', to the e"tre(e an!
irreparable !a(a,e of the On,s, 5LADC an! its cre!itors
After all is sai! an! !one, no one can close his e6es to the fact that the Masa,ana
Citi(all =oul! not be =hat it has beco(e to!a6 =ere it not for the ti(el6 infusion of
P&;+ (illion b6 the On,s in &;;8 /here are no ifs or buts about it
0ithout the On,s, the /ius =oul! have lost ever6thin, the6 ori,inall6 investe! in
sai! (all If onl6 for this an! the fact that this Resolution can trul6 pave the =a6 for
both ,roups to enFo6 the fruits of their invest(ents N assu(in, ,oo! faith an!
honest intentions N =e cannot allo= the rescission of the subFect subscription
a,ree(ent /he On,s4 shortco(in,s =ere far fro( serious an! certainl6 less than
substantial2 the6 =ere in fact re(e!iable an! correctable un!er the la= It =oul! be
totall6 a,ainst all rules of Fustice, fairness an! eDuit6 to !eprive the On,s of their
interests on pett6 an! tenuous ,roun!s
0EERE5ORE, the (otion for reconsi!eration, !ate! March &), *++*, of petitioners
On, -on,, .uanita /an On,, 0ilson On,, Anna On,, 0illia( On,, 0illie On, an! .ulie
On, Alon1o an! the (otion for partial reconsi!eration, !ate! March &), *++*, of
petitioner 0illie On, are hereb6 7RAN/ED /he Petition for Con>r(ation of the
Rescission of the Pre#Subscription A,ree(ent !oc3ete! as SEC Case No +*#;:#)*:;
is hereb6 DISMISSED for lac3 of (erit /he unilateral rescission b6 the /ius of the
subFect Pre#Subscription A,ree(ent, !ate! Au,ust &), &;;8, is hereb6 !eclare! as
null an! voi!
/he (otion for the issuance of a =rit of e"ecution, !ate! March &), *++*, of
petitioners Davi! S /iu, Cel6 - /iu, Mol6 -u 7o=, $elen See -u, D /erence - /iu,
.ohn -u an! Lour!es C /iu is hereb6 DENIED for bein, (oot
Accor!in,l6, the Decision of this Court, !ate! 5ebruar6 &, *++*, a<r(in, =ith
(o!i>cation the !ecision of the Court of Appeals, !ate! October ), &;;;, an! the
SEC en banc, !ate! Septe(ber &&, &;;?, is hereb6 REVERSED
Costs a,ainst the petitioner /ius
SO ORDERED
O#1 Yo#1, -+ "l. 23. Ti4, -+ "l.
O7R &8889:, ? April *++@P2 also Tiu, et al. vs. Ong 1ong, et al. 23/ 1!!456
Resolution of Special Secon! Division, Corona %.'A @ concur
Facts: In &;;8, the construction of the Masa,ana Citi(all in Pasa6 Cit6 =as threatene!
=ith stoppa,e an! inco(pletion =hen its o=ner, the 5irst Lan!lin3 Asia Develop(ent
Corporation %5LADC', =hich =as o=ne! b6 Davi! S /iu, Cel6 - /iu, Mol6 -u 7o=, $elen
See -u, D /erence - /iu, .ohn -u an! Lour!es C /iu %the /ius', encountere! !ire >nancial
!i<culties It =as heavil6 in!ebte! to the Philippine National $an3 %PN$' for P&;+ (illion
/o stave oB foreclosure of the (ort,a,e on the t=o lots =here the (all =as bein, built,
the /ius invite! On, -on,, .uanita /an On,, 0ilson / On,, Anna L On,, 0illia( / On, an!
.ulia On, Alon1o %the On,s', to invest in 5LADC Cn!er the Pre#Subscription A,ree(ent
the6 entere! into, the On,s an! the /ius a,ree! to (aintain eDual sharehol!in,s in
5LADCA the On,s =ere to subscribe to &,+++,+++ shares at a par value of P&++++ each
=hile the /ius =ere to subscribe to an a!!itional )8;,?++ shares at P&++++ each in
a!!ition to their alrea!6 e"istin, subscription of 8)+,*++ shares 5urther(ore, the6
a,ree! that the /ius =ere entitle! to no(inate the Vice#Presi!ent an! the /reasurer plus )
!irectors =hile the On,s =ere entitle! to no(inate the Presi!ent, the Secretar6 an! :
!irectors %inclu!in, the chair(an' to the boar! of !irectors of 5LADC Moreover, the On,s
=ere ,iven the ri,ht to (ana,e an! operate the (all Accor!in,l6, the On,s pai! P&++
(illion in cash for their subscription to &,+++,+++ shares of stoc3 =hile the /ius co((itte!
to contribute to 5LADC a four#store6 buil!in, an! t=o parcels of lan! respectivel6 value!
at P*+ (illion %for *++,+++ shares', P@+ (illion %for @++,+++ shares' an! P8;? (illion %for
8;,?++ shares' to cover their a!!itional )8;,?++ stoc3 subscription therein /he On,s pai!
in another P9+ (illion @ to 5LADC an! P*+ (illion to the /ius over an! above their P&++
(illion invest(ent, the total su( of =hich %P&;+ (illion' =as use! to settle the P&;+
(illion (ort,a,e in!ebte!ness of 5LADC to PN$ /he business har(on6 bet=een the
On,s an! the /ius in 5LADC, ho=ever, =as shortlive! because the /ius, on *@ 5ebruar6
&;;:, rescin!e! the Pre#Subscription A,ree(ent /he /ius accuse! the On,s of %&'
refusin, to cre!it to the( the 5LADC shares coverin, their real propert6 contributions2 %*'
preventin, Davi! S /iu an! Cel6 - /iu fro( assu(in, the positions of an! perfor(in,
their !uties as Vice#Presi!ent an! /reasurer, respectivel6, an! %@' refusin, to ,ive the(
the o<ce spaces a,ree! upon /he controvers6 >nall6 ca(e to a hea! =hen the case =as
co((ence! b6 the /ius on *9 5ebruar6 &;;: at the Securities an! E"chan,e Co((ission
%SEC', see3in, con>r(ation of their rescission of the Pre#Subscription A,ree(ent After
hearin,, the SEC, throu,h then Eearin, O<cer Rolan!o 7 An!a6a, .r, issue! a !ecision
on &; Ma6 &;;9 con>r(in, the rescission sou,ht b6 the /ius On (otion of both parties,
the above !ecision =as partiall6 reconsi!ere! but onl6 insofar as the On,s4 P9+ (illion
=as !eclare! not as a pre(iu( on capital stoc3 but an a!vance %loan' b6 the On,s to
5LADC an! that the i(position of interest on it =as correct $oth parties appeale! to the
SEC en banc =hich ren!ere! a !ecision on && Septe(ber &;;?, a<r(in, the &; Ma6 &;;9
!ecision of the Eearin, O<cer /he SEC en banc con>r(e! the rescission of the Pre#
Subscription A,ree(ent but reverte! to classif6in, the P9+ (illion pai! b6 the On,s as
pre(iu( on capital an! not as a loan or a!vance to 5LADC, hence, not entitle! to earn
interest On appeal, the Court of Appeals %CA' ren!ere! a !ecision on ) October &;;;,
(o!if6in, the SEC or!er of && Septe(ber &;;? /heir (otions for reconsi!eration havin,
been !enie!, both parties >le! separate petitions for revie= before the Supre(e Court On
& 5ebruar6 *++*, the Supre(e Court pro(ul,ate! its Decision, a<r(in, the assaile!
!ecision of the Court of Appeals but =ith the (o!i>cations that the P*+ (illion loan
e"ten!e! b6 the On,s to the /ius shall earn interest at &*G per annu( to be co(pute!
fro( the ti(e of Fu!icial !e(an! =hich is fro( *@ April &;;:2 that the P9+ (illion
a!vance! b6 the On,s to the 5LADC shall earn interest at &+G per annu( to be co(pute!
fro( the !ate of the 5LADC $oar! Resolution =hich is &; .une &;;:2 an! that the /ius
shall be cre!ite! =ith 8;,?++ shares in 5LADC for their propert6 contribution, speci>call6,
the &)& sD ( parcel of lan! /he Court a<r(e! the fact that both the On,s an! the /ius
violate! their respective obli,ations un!er the Pre#Subscription A,ree(ent
On &) March *++*, the /ius >le! before the Court a Motion for Issuance of a 0rit of
E"ecution Asi!e fro( their opposition to the /ius4 Motion for Issuance of 0rit of E"ecution,
the On,s >le! their o=n HMotion for Reconsi!eration2 Alternativel6, Motion for Mo!i>cation
%of the 5ebruar6 &, *++* Decision'H on &) March *++* 0illie On, >le! a separate HMotion
for Partial Reconsi!erationH !ate! ? March *++*, pointin, out that there =as no violation
of the Pre#Subscription A,ree(ent on the part of the On,s, a(on, others On *; .anuar6
*++@, the Special Secon! Division of this Court hel! oral ar,u(ents on the respective
positions of the parties On *9 5ebruar6 *++@, Dr 0illie On, an! the rest of the (ovants
On, >le! their respective (e(oran!a On *? 5ebruar6 *++@, the /ius sub(itte! their
(e(oran!u(
ssue !"#: 0hether the pre#Subscription A,ree(ent e"ecute! b6 the On,s is actuall6 a
subscription contract
$eld !"#: 5LADC =as ori,inall6 incorporate! =ith an authori1e! capital stoc3 of )++,+++
shares =ith the /ius o=nin, 8)+,*++ shares representin, the pai!#up capital 0hen the
/ius invite! the On,s to invest in 5LADC as stoc3hol!ers, an increase of the authori1e!
capital stoc3 beca(e necessar6 to ,ive each ,roup eDual %)+#)+' sharehol!in,s as a,ree!
upon in the Pre#Subscription A,ree(ent /he authori1e! capital stoc3 =as thus increase!
fro( )++,+++ shares to *,+++,+++ shares =ith a par value of P&++ each, =ith the On,s
subscribin, to &,+++,+++ shares an! the /ius to )8;,?++ (ore shares in a!!ition to their
8)+,*++ shares to co(plete &,+++,+++ shares /hus, the subFect (atter of the contract
=as the &,+++,+++ unissue! shares of 5LADC stoc3 allocate! to the On,s Since these
=ere unissue! shares, the parties4 Pre#Subscription A,ree(ent =as in fact a subscription
contract as !e>ne! un!er Section :+, /itle VII of the Corporation Co!e A subscription
contract necessaril6 involves the corporation as one of the contractin, parties since the
subFect (atter of the transaction is propert6 o=ne! b6 the corporation N its shares of
stoc3 /hus, the subscription contract %!eno(inate! b6 the parties as a Pre#Subscription
A,ree(ent' =hereb6 the On,s investe! P&++ (illion for &,+++,+++ shares of stoc3 =as,
fro( the vie=point of the la=, one bet=een the On,s an! 5LADC, not bet=een the On,s
an! the /ius Other=ise state!, the /ius !i! not contract in their personal capacities =ith
the On,s since the6 =ere not sellin, an6 of their o=n shares to the( It =as 5LADC that
!i! Consi!erin, therefore that the real contractin, parties to the subscription a,ree(ent
=ere 5LADC an! the On,s alone, a civil case for rescission on the ,roun! of breach of
contract >le! b6 the /ius in their personal capacities =ill not prosper Assu(in, it ha!
vali! reasons to !o so, onl6 5LADC %an! certainl6 not the /ius' ha! the le,al personalit6 to
>le suit rescin!in, the subscription a,ree(ent =ith the On,s inas(uch as it =as the real
part6 in interest therein Article &@&& of the Civil Co!e provi!es that Hcontracts ta3e eBect
onl6 bet=een the parties, their assi,ns an! heirs H /herefore, a part6 =ho has not ta3en
part in the transaction cannot sue or be sue! for perfor(ance or for cancellation thereof,
unless he sho=s that he has a real interest aBecte! thereb6
ssue !%#: 0hether the rescission of Pre#Subscription A,ree(ent =oul! result in
unauthori1e! liDui!ation
$eld !%#: /he rescission of the Pre#Subscription A,ree(ent =ill eBectivel6 result in the
unauthori1e! !istribution of the capital assets an! propert6 of the corporation, thereb6
violatin, the /rust 5un! Doctrine an! the Corporation Co!e, since rescission of a
subscription a,ree(ent is not one of the instances =hen !istribution of capital assets an!
propert6 of the corporation is allo=e! Rescission =ill, in the >nal anal6sis, result in the
pre(ature liDui!ation of the corporation =ithout the bene>t of prior !issolution in
accor!ance =ith Sections &&9, &&?, &&; an! &*+ of the Corporation Co!e