G.R. No. L-11321; November 28, 1958
RIO GRANDE RUBBER ESTATE COMPANY INC., plaintiff-appellant, vs. BOARD OF LIQUIDATORS, ET AL., defendants-appellees.

FACTS

The plaintiff, Rio Grande Rubber Estate Company Inc., a Philippine corporation, owned a rubber plantation on two parcels of land in Kabacan, Cotabato. In October 1943, its stockholders sold their entire stockholding to Ohta Development Co., a Japanese corporation, for P370,000. Of this amount, P93,928.56 was used to pay the corporation’s prewar debt to the Agricultural & Industrial Bank, and the balance was distributed to the stockholders. Following this sale, Ohta Development Co. took possession and operated the plantation until June 1945, when the United States Army’s Alien Property Custodian took over the plantation’s custody. Through Vesting Order No. P-3 (January 7, 1946), the Custodian took over the assets of Ohta Development Co., including those of the plaintiff corporation. Control and ownership were later transferred to the Republic of the Philippines under the Philippine Property Act of 1946 and Republic Act No. 8 . The plaintiff corporation was abolished by Executive Order No. 372 (November 24, 1950) under Republic Act No. 422 , though continued corporately for three years for litigation and settlement of affairs by the Board of Liquidators. Subsequently, Republic Act No. 763 (approved June 20, 1952) transferred the two parcels of land to the Mindanao Institute of Technology. After unsuccessful efforts to recover their shareholding, the former stockholders initiated an action on June 17, 1953, in the name of the plaintiff corporation against the Board of Liquidators (as the Board of Directors of NAFCO) and the Mindanao Institute of Technology. They sought recovery of possession and ownership of the lands, arguing that the certificates of title remained in the plaintiff corporation’s name and that Section 11 of Republic Act No. 763 was unconstitutional. The lower court, after a hearing on the defendants’ motion to dismiss, issued an order on May 25, 1954, dismissing the complaint on the ground that the plaintiff lacked the character and representation it claimed to possess.

ISSUE

Whether the plaintiff corporation, through its former stockholders who had sold all their shares, had the legal capacity or authority to institute the present action for recovery of the properties.

RULING

The Supreme Court affirmed the lower court’s order of dismissal. The Court held that the plaintiff corporation did not have the legal capacity to sue because the former stockholders who initiated the action no longer had any standing. The sale of the entire stockholding to Ohta Development Co. in October 1943, for valuable consideration (part of which paid corporate debt and the rest distributed to stockholders), meant the sellers ceased to be stockholders. They could not validly organize themselves to act for the corporation. The plaintiff’s intimation that the sale was made under force, duress, and intimidation was a mere unproven claim. Even if true, such a contract is not void ab initio but merely voidable under Article 1330 of the New Civil Code, and it remains binding unless annulled by a proper judicial action. The act of applying the sale proceeds to pay corporate debt and distribute the balance indicated the sale was merely voidable, not inexistent. The Court also noted that the new stock certificates obtained by the former stockholders from the Securities and Exchange Commission, based on a claim that the originals were lost or destroyed during the war, were secured through misrepresentation and could not be considered valid. Therefore, the plaintiff corporation lacked the necessary authority to bring the action.