GR 239010; (July, 2022) (Digest)
G.R. No. 239010 , July 6, 2022
SECURITIES AND EXCHANGE COMMISSION and AZUCENA LOCSIN-GARCIA, PETITIONERS, VS. AZ 17/31 REALTY, INC., RESPONDENT.
FACTS
AZ 17/31 Realty, Inc. was incorporated on April 23, 2008. Its Articles of Incorporation listed Pacita Javier as one of the incorporators and initial directors. However, Pacita Javier had died on August 17, 2004, nearly four years prior to the incorporation. Her son, Enrique de Zuzuarregui, also an incorporator, was the informant on her death certificate. Azucena Locsin-Garcia filed a complaint with the Securities and Exchange Commission (SEC) seeking the revocation of the corporation’s certificate of registration on the ground of fraud, alleging the company was fraudulently incorporated by misrepresenting a deceased person as an incorporator.
The SEC’s Company Registration and Monitoring Department (SEC-CRMD) revoked the certificate of registration, finding fraud in the procurement of the certificate. The SEC En Banc affirmed this revocation. On appeal, the Court of Appeals reversed, holding that the inclusion of a deceased incorporator did not constitute fraud as the minimum number of incorporators (five) was still met without her, making her inclusion a mere surplusage. The SEC and Locsin-Garcia elevated the case to the Supreme Court via petitions for review.
ISSUE
Whether the inclusion of a deceased person as an incorporator in the Articles of Incorporation constitutes fraud warranting the revocation of the corporation’s certificate of registration.
RULING
Yes. The Supreme Court granted the petitions, reversed the Court of Appeals, and reinstated the SEC En Banc’s order revoking the certificate of registration of AZ 17/31 Realty, Inc. The legal logic is anchored on the nature of incorporation as a contract among the incorporators and the state, requiring all parties to possess legal capacity at the time of incorporation. A deceased person lacks juridical capacity and cannot be a party to any contract, including the social contract that creates a corporation. The misrepresentation that Pacita Javier was a living, consenting incorporator was a deliberate falsehood material to the SEC’s approval process.
The Court rejected the argument that her inclusion was a harmless surplusage because the minimum number of incorporators was otherwise satisfied. Fraud is not negated by technical compliance with numerical requirements. The fraud lies in the submission of a sworn document containing a fundamental falsehood regarding the identity and capacity of a purported incorporator, which impaired the integrity of the incorporation process. The corporation’s subsequent good standing and compliance with reportorial requirements do not cure this initial fraud in its very creation. The power of the SEC to revoke a certificate obtained through fraud is both a regulatory duty and a protective measure for the public interest.