TRANSFREEZE LOGISTICS CORP., PETROLHEADS TRADING CO., MARIDETH L. ANSALDO, DOING BUSINESS UNDER THE NAME AND STYLE, TRACTOR HUB TRADING, SPOUSES ARIEL L. ANSALDO AND GINA B. ANS…

Transfreeze Logistics versus Ansuico

The Case

This is a petition for certiorari under Rule 65 brought by Transfreeze Logistics Corporation, Petrolheads Trading Company, Marideth Ansaldo doing business as Tractor Hub Trading, Ariel Ansaldo and several other former employees of Ansuico, Inc., against Ansuico, Inc. The petitioners ask the Supreme Court to annul two orders of the Regional Trial Court of Davao City which refused to dismiss a replevin, accounting and damages suit that Ansuico filed against them. The petitioners' central claim is that Ansuico had no validly constituted board of directors and therefore no capacity to sue, and that its accounting manager, Elmor Basadre, was never validly authorized to file the complaint in its name. The case matters because it draws a clean line between the capacity of a corporation to sue, which the law confers on every domestic corporation, and the authority of the particular person who signs and files the complaint, which must come from the board of directors.

Procedural History

Ansuico, Inc. filed a complaint for replevin, accounting, sum of money, damages and attorney's fees with a prayer for a writ of replevin and attachment before the Regional Trial Court, Branch 11, of Davao City. The petitioners answered and raised, among their affirmative defenses, the lack of legal capacity of Ansuico's board of directors to sue and the lack of authority of Basadre to file the case. The trial court denied the affirmative defenses and the prayer to dismiss in its order of 14 August 2012, holding that the affirmative defenses had been adequately met and that the remaining corporate questions belonged to the special commercial court, Branch 10. The petitioners moved for reconsideration, which the trial court denied in its order of 15 November 2012. The petitioners then went directly to the Supreme Court by petition for certiorari under Rule 65, imputing grave abuse of discretion amounting to lack or excess of jurisdiction to the trial court.

Facts

Ansuico, Inc. is a domestic corporation engaged in freight trucking and hauling. Its amended articles of incorporation named five directors: Ireneo Ansaldo, Pedro Suico, Manuel Ansaldo, Ruperto Ansaldo and Paz Suico. Over the years four of them died, leaving Paz Suico as the only surviving incorporator. The general information sheet Ansuico filed with the Securities and Exchange Commission in April 2011 showed Felix Ansaldo and Alex Ansaldo added to the board alongside Paz Suico, without any indication of how they became directors.

In March 2012 Ansuico filed a replevin suit against the petitioners. It accused Ariel Ansaldo, its former Luzon operations manager and the son of one of its original incorporators, of secretly setting up competing businesses and using Ansuico's container yard, crane, equipment and vehicles, with the other petitioners allegedly conspiring with him. The complaint stated that Ansuico was represented by its accounting manager, Elmor Basadre, whose corporate authority was attached, and Basadre executed the verification and certification of non-forum shopping as the corporation's authorized representative.

The petitioners answered that the board was illegally constituted because no elections had been held to replace the deceased directors, that only three directors remained, and that Basadre therefore had no authority to sue. Ansuico replied that the 2010 information sheet was premature as a basis for the objection, that its 2012 filing would show two new directors, Ma. Elena Neubauer and Lina Sola, and that three of five directors already formed a majority, with Board Resolution Number 6, Series of 2012, authorizing Basadre. Meanwhile, Ariel Ansaldo filed a separate intra-corporate case before the special commercial court, Branch 10, attacking the same board composition.

Issues

• Whether or not the trial court gravely abused its discretion in refusing to dismiss the complaint on the ground that Ansuico, Inc. lacked legal capacity to sue and that its board had no authority to institute the case.
• Whether or not the trial court gravely abused its discretion in referring the remaining corporate issues raised in the answer to the special commercial court, instead of resolving them itself or abating the replevin suit.
• Whether or not the trial court gravely abused its discretion in ordering the seizure of personal property despite the alleged lack of capacity to sue and the alleged flaws in the complaint.

Applicable Provisions

Section 26 of the Corporation Code, on the report of election of directors, trustees and officers, provides:

Sec. 26. Report of election of directors, trustees and officers. — Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary shall submit to the Securities and Exchange Commission the names, nationalities and residences of the elected directors, trustees and officers, and, in case of a vacancy in the board of directors or trustees, the same shall be reported to the Commission within seven (7) days from the occurrence of such vacancy.

The petitioners invoked this provision to argue that Ansuico's failure to report the deaths of its directors and the election of new ones left it without a legally constituted board; the Court held that this is a mere reporting requirement whose breach does not invalidate the board.

Section 1, paragraph (a), of the Interim Rules of Procedure Governing Intra-corporate Controversies under Republic Act Number 8799 provides:

SECTION 1. (a) Cases Covered – These Rules shall govern the procedure to be observed in civil cases involving the following: (1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; (3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations; (4) Derivative suits; and (5) Inspection of corporate books.

This definition, read with the relationship test and the nature of the controversy test, is what led the Court to sustain the referral of the board composition dispute to the special commercial court.

Ruling

On the first issue, the Court held that there was no grave abuse of discretion. A complaint must aver the capacity of a party to sue, and Ansuico's allegation that it is a domestic corporation represented by its accounting manager sufficiently pleaded that capacity, because a domestic corporation has the express statutory power to sue and be sued. The real question, the Court said, is not the corporation's capacity but Basadre's authority, and that authority was supported by a board resolution. The Court rejected the argument that the corporation's failure to report the deaths of directors and the election of new ones under Section 26 destroyed the board, reasoning that directors' mandates flow from the will of the stockholders who elect them, and that the reporting duty is a requirement of the corporate regulator, breach of which exposes the corporation to sanctions but does not invalidate the election of any director. The Court also held that the petitioners could not treat the new matters in their answer as admitted for want of a reply, since under the rules all new matters alleged in an answer are deemed controverted even without a reply.

On the second issue, the Court sustained the referral. Applying the relationship test and the nature of the controversy test, it found that the attack on the composition of the board was rooted in intra-corporate relations and pertained to the enforcement of rights and obligations under the Corporation Code and the corporation's internal rules, which is the province of the special commercial court. Ariel Ansaldo's own intra-corporate complaint raising the same grounds confirmed this.

On the third issue, the Court found no basis to disturb the seizure, since the premises of the petitioners' objections, the lack of capacity and the lack of authority, had not been established.

Doctrine

First, capacity to sue and authority to sue are distinct. A domestic corporation need only allege that it is organized under Philippine law, and the law then vests it with the express power to sue and be sued. Second, that power is exercised by the board of directors, and a suit brought by a person not authorized by the board is not a suit by the corporation. Third, the failure to comply with the reporting duty in Section 26 of the Corporation Code does not prevent the valid constitution of the board and is not a ground to invalidate the election of any director; it is a reporting requirement enforceable through sanctions. Fourth, a controversy over the composition of the board is intra-corporate and belongs to the special commercial court, tested by the relationship of the parties and the nature of the question raised.

Disposition

The petition was denied, and the orders of the trial court refusing to dismiss the replevin case and referring the corporate issues to the special commercial court were upheld.

Remember This

Memorize the line that capacity to sue belongs to the corporation by law, but authority to sue must come from the board. Examiners use this case to test the distinction between lack of capacity to sue and lack of authority of the representative, and to test whether a Section 26 reporting violation invalidates a board.