Case Digest: Lozano v. De Los Santos, 274 SCRA 452, G.R. No. 125221, June 19, 1997

Corporation Law | Corporation by Estoppel

  • Reynaldo Lozano filed a damages case against Antonio Anda due to a dispute between their associations, Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) and Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA), intending to merge into Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. (UMAJODA).
  • They agreed to consolidate their associations and elect a single set of officers authorized to collect dues. 
  • Lozano won the presidential election.
  • Anda protested, alleging fraud, and refused to acknowledge the election results, persisting in collecting dues despite requests to stop.
  • Lozano filed a complaint in the MCTC to restrain Anda from collecting dues.
  • Anda moved to dismiss the case, arguing that SEC, not the MCTC, had jurisdiction over the matter.
  • MCTC: Denied the motion twice.
  • RTC: Held the dispute intra-corporate which is under SEC's jurisdiction and ordered the MCTC to dismiss the case. 

WoN there is an intra-corporate dispute falling within the SEC jurisdiction. NO

The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law.  This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. 

The first element requires that the controversy must arise out of intra-corporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association. After all, the principal function of the SEC is the supervision and control of corporations, partnership and associations with the end in view that investments in these entities may be encouraged and protected, and their entities may be encouraged and protected, and their activities pursued for the promotion of economic development.

There is no intra-corporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC.  When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. The new consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist. 

The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.

The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court. 

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third person. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel. 


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