The Supreme Court ruled that a foreign stockholder in a dissolved Philippine corporation can have an equitable interest in land allocated as liquidating dividends, even though direct land ownership is constitutionally prohibited. This equitable interest can be levied upon to satisfy the stockholder’s judgment obligations, ensuring foreign investors aren’t unfairly deprived of their investment returns. The decision balances constitutional restrictions on foreign land ownership with protections for foreign investors’ property rights and due process.

Dividing Assets: Can a Foreign Investor’s Dividend Include Land?

The case of Khoo Boo Boon v. Belle Corporation (G.R. No. 204778, December 6, 2021) revolves around the intersection of corporate liquidation, foreign land ownership restrictions, and the rights of judgment creditors. The central question is whether a foreign stockholder, specifically Legend International Resorts, Ltd. (LIRL), can acquire a leviable interest in Philippine land as part of its liquidating dividends from a dissolved corporation, Belle Bay City Corporation (BBCC). The situation arose when Khoo Boo Boon, LIRL’s former CEO, sought to enforce a judgment against LIRL by levying a parcel of land in Parañaque City, arguing it was effectively owned by LIRL despite being registered in the name of Manila Bay Landholdings, Inc. (MBLI), a subsidiary of BBCC.

Belle Corporation, claiming ownership of the Parañaque property through a contract to sell and a deed of absolute sale, contested the levy. The Labor Arbiter (LA) initially upheld the levy, a decision affirmed by the National Labor Relations Commission (NLRC), but the Court of Appeals (CA) reversed, stating LIRL never acquired a real right to the property, thus making it non-leviable. This disagreement led to the Supreme Court resolving complex issues about property rights, corporate dissolution, and constitutional limitations on foreign land ownership.

The Supreme Court systematically addressed five key issues, beginning with the leviability of liquidating dividends. It established that a judgment creditor can indeed levy liquidating dividends in a corporation. The ruling emphasized that it is sufficient for the judgment creditor to have a valuable interest in the property; absolute ownership isn’t a prerequisite. Both the 2002 and 2012 versions of Section 3, Rule V of the NLRC Sheriff’s Manual on Execution of Judgment clearly state that “real property or any interest” therein may be levied.

Building on this principle, the Court clarified the legal relationships between MBLI, BBCC, and LIRL. Following Section 80(4) of Batas Pambansa Bilang (B.P.) 68, BBCC, as the surviving corporation in the merger with MBLI, acquired title to the Parañaque property, even if the land remained registered under MBLI’s name. The Court also noted that after BBCC dissolved and allocated the Parañaque property to LIRL, an “implied trust” was created, with BBCC’s directors holding the property for LIRL’s benefit. This trust arrangement conferred upon LIRL an equitable interest in the property.

The Supreme Court emphasized that this equitable interest, while not constituting absolute ownership, was still a leviable interest. Citing Fernando v. Spouses Lim, the Court clarified that while liquidating dividends don’t represent a sale of property for tax purposes, they do grant the stockholder an interest in the corporation’s remaining assets. This position aligns with Section 122 of B.P. 68, which explicitly provides for stockholders to acquire an interest in corporate assets through liquidating dividends.

Despite recognizing LIRL’s equitable interest, the Court addressed the constitutional prohibition against foreign ownership of private lands, as enshrined in Section 7, Article XII of the 1987 Constitution. The Court acknowledged the prohibition on “transfer” or “conveyance” of private lands to foreigners, but also referenced Republic v. Register of Deeds of Roxas City, which established that constitutional disqualification is disregarded if the land is later transferred to a qualified party. The court emphasized that LIRL’s acquisition of interest was not a transfer or conveyance but an implied trust created by operation of law due to BBCC’s liquidation.

Recognizing the importance of protecting foreign investments, the Supreme Court reasoned that the constitutional prohibition should not automatically lead to the forfeiture of a foreign stockholder’s liquidating dividends. Instead, the Court balanced the constitutional restriction with the constitutional rights to property, due process, and equal protection. The Court drew parallels with Parcon-Song v. Parcon & Maybank Philippines, which concerned foreign banks’ interests in mortgaged land. It extrapolated that just as foreign banks can possess mortgaged properties for a limited time for foreclosure purposes, foreign stockholders can have an equitable interest in land as liquidating dividends.

The Court declared that in situations where a dissolving corporation’s only remaining asset is private land, the foreign stockholder’s liquidating dividend is considered equivalent to the land’s value in cash, personal property, or non-land realty. This interpretation aligns with the trustees’ obligation to convert the land into money (or permissible property) and deliver it to the foreign stockholder. Until such conversion, the foreign stockholder holds an equitable, but not registrable, title in the land.

Turning to the issue of precedence, the Court emphasized the well-established doctrine that a duly registered levy on execution takes preference over a prior unregistered sale. Referencing Sections 51 and 52 of the Property Registration Decree (Presidential Decree No. 1529), the Court reiterated that registration is the operative act that conveys and binds lands covered by Torrens titles concerning third parties. The contract to sell between BBCC, LIRL, and Belle Corporation had not been registered at the time the LA’s sheriff registered the notice of levy on August 17, 2010.

Addressing the NLRC’s authority in third-party claims, the Court clarified that the sole issue is whether the judgment debtor has any remaining leviable title interest in the subject property. While the LA and NLRC cannot determine if the third-party claimant is a purchaser in good faith under Article 1387 of the Civil Code, such a determination falls under the jurisdiction of regular courts in separate proceedings. The Supreme Court also noted that Khoo Boo Boon’s death did not extinguish his claim, as his heirs could be substituted and the judgment enforced either on the surety bond posted by Belle Corporation or through a public auction sale of the property.

FAQs

What was the key issue in this case?	The central issue was whether a foreign stockholder could acquire a leviable interest in Philippine land as part of its liquidating dividends, considering the constitutional prohibition on foreign land ownership.
What did the Supreme Court rule?	The Supreme Court ruled that while direct land ownership by foreigners is prohibited, a foreign stockholder can have an equitable interest in land allocated as liquidating dividends. This equitable interest is leviable to satisfy the stockholder’s judgment obligations.
What is a liquidating dividend?	A liquidating dividend is a distribution of a corporation’s assets to its stockholders when the corporation is dissolved. It represents a return of the stockholders’ investment.
What is an equitable interest?	An equitable interest is a beneficial ownership of property, even though the legal title is held by another party (in this case, the trustee). It gives the beneficiary the right to benefit from the property.
What is a notice of levy?	A notice of levy is a legal document that informs the public that a property has been seized for the purpose of satisfying a debt or judgment. It creates a lien on the property.
What does “nemo dat quod non habet” mean?	“Nemo dat quod non habet” is a Latin legal principle that means “one cannot give what one does not have.” In this case, it means Belle Corporation could not purchase any right or title to the Parañaque property if LIRL had no such right or title to begin with.
What happens to the land if it’s sold at public auction?	The proceeds from the public auction sale will be used to satisfy the judgment against LIRL. If there are any remaining funds after the judgment is paid, those funds would be remitted to the proper party.
What is a third-party claim?	A third-party claim is a claim made by someone who is not directly involved in a lawsuit but asserts an interest in the property being levied. In this case, Belle Corporation filed a third-party claim asserting ownership of the Parañaque property.

This case clarifies the extent to which foreign investors can benefit from corporate liquidations involving land assets in the Philippines, offering significant guidance for both investors and legal practitioners. It balances protecting foreign investors’ rights with upholding constitutional restrictions. The ruling will likely influence future cases involving similar issues of property rights, corporate dissolution, and foreign investment.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: KHOO BOO BOON v. BELLE CORPORATION, G.R. No. 204778, December 06, 2021