STOCKHOLDERS AND MEMBERS

Fundamental rights of a stockholder

Right to dividends

Republic Planters Bank v. Agana

269 SCRA 1 March 3, 1997

FACTS: On September 18, 1961, private respondent Corporation secured a loan from petitioner. As
part of the proceeds of the loan, preferred shares of stocks were issued to private respondent
Corporation, through its officers then, private respondent Adalia F. Robes and one Carlos F. Robes.
In other words, instead of giving the legal tender totaling to the full amount of the loan, petitioner
lent such amount partially in the form of money and partially in the form of stock certificates. Said
stock certificates were in the name of private respondent Adalia F. Robes and Carlos F. Robes, who
subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have
the following rights, preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating.
2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after
two (2) years from the date of issue at the option of the Corporation.
Private respondents proceeded against petitioner and filed a Complaint anchored on private
respondents' alleged rights to collect dividends under the preferred shares in question and to have
petitioner redeem the same under the terms and conditions of the stock certificates.
The trial court rendered the herein assailed decision in favor of private respondents. From a further
perusal of the pleadings, it appears that the provision of the stock certificates in question to the
effect that the plaintiffs shall have the right to receive a quarterly dividend of One Per Centum (1%),
cumulative and participating, clearly and unequivocably indicates that the same are 'interest bearing
stocks' which are stocks issued by a corporation under an agreement to pay a certain rate of interest
thereon. As such, private respondent become entitled to the payment thereof as a matter of right
without necessity of a prior declaration of dividend.
Before the Court, the petitioner argues that it cannot be compelled to redeem the preferred shares
issued to the private respondent.

ISSUE: Should the petitioner be compelled to redeem the preferred shares issued to the private
respondent?

RULING: No. The redemption of said shares cannot be allowed. As pointed out by the petitioner, the
Central Bank made a finding that said petitioner has been suffering from chronic reserve
deficiency, and that such finding resulted in a directive, issued by then Gov. G. S. Licaros of the
Central Bank, to the President and Acting Chairman of the Board of the petitioner bank prohibiting
the latter from redeeming any preferred share, on the ground that said redemption would reduce
the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred
shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor
was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its depositors and
creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right

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granted by law to a corporate entity, may thus be considered as an exercise of police power. The
respondent judge insists that the directive constitutes an impairment of the obligation of contracts.
It has, however, been settled that the Constitutional guaranty of non-impairment of obligations of
contract is limited by the exercise of the police power of the state, the reason being that public
welfare is superior to private rights.
Clearly, the respondent judge, in compelling the petitioner to redeem the shares in question and to
pay the corresponding dividends, committed grave abuse of discretion amounting to lack or excess
of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as
the clear mandate of the law.

Cojuangco vs. Sandiganbayan

G.R. No. 183278, April 24, 2009

FACTS: Republic of the Philippines (Republic) filed before the Sandiganbayan a Complaint for
Reconveyance, Reversion, Accounting, Restitution and Damages, praying for the recovery of alleged
ill-gotten wealth from the late President Marcos and former First Lady Imelda Marcos and their
cronies, including some 2.4 million shares of stock in the Philippine Long Distance Telephone
Company (PLDT). The complaint, which was later amended to implead herein petitioners Ramon and
Imelda Cojuangco (the Cojuangcos), alleged that the Marcoses ill-gotten wealth included shares in
the PLDT covered by shares of stock in the Philippine Telecommunications Investment Corporation
(PTIC), registered in the name of Prime Holdings, Inc. (Prime Holdings). The Sandiganbayan
dismissed the complaint with respect to the recovery of the PLDT shares, hence, the Republic
appealed to this Court. By Decision, this Court ruled in favor of the Republic, declaring it to be the
owner of 111,415 PTIC shares registered in the name of Prime Holdings. The Republic thereafter filed
with the Sandiganbayan a Motion for the Issuance of a Writ of Execution, praying for the
cancellation of the shares of stock registered in the name of Prime Holdings and the annotation of
the change of ownership on PTIC‘s Stock and Transfer Book. The Republic further prayed for the
issuance of an order for PTIC to account for all cash and stock dividends declared by PLDT in favor of
PTIC from 1986 up to the present including compounded interests. The Sandiganbayan granted the
same, except its prayer for accounting of dividends. The Republic moved for reconsideration with
respect to the denial of accounting of dividends, which the Sandiganbayan granted. The Cojuangcos
protested, alleging that the court‘s decision did not include in its dispositive portion the grant of
dividends and interests accruing to the shares adjudicated in favor of the Republic.

ISSUES: (1) Did the Sandiganbayan gravely abused its discretion in ordering the accounting, delivery,
and remittance to the Republic of the stock, cash, and property dividends pertaining to the 111,415
PTIC shares of Prime Holdings, this Court’s Decision not having even discussed the same?
(2) Is the Republic, having transferred the shares to a third party, is entitled to the dividends,
interests, and earnings thereof?

RULING: Yes on both queries. In this case, the petitioners insist on a literal reading of the dispositive
portion of this Court’s Decision as excluding the dividends, interests, and earnings accruing to the
shares of stock from being accounted for and remitted. The term dividend in its technical sense and
ordinary acceptation is that part or portion of the profits of the enterprise which the corporation, by
its governing agents, sets apart for ratable division among the holders of the capital stock. It is a
payment to the stockholders of a corporation as a return upon their investment, and the right
thereto is an incident of ownership of stock. The Court, in directing the reconveyance to the Republic
of the 111,415 shares of PLDT stock owned by PTIC in the name of Prime Holdings, declared the

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Republic as the owner of said shares and, necessarily, the dividends and interests accruing thereto.
Ownership is a relation in law by virtue of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law or the concurrence with the rights of
another. Its traditional elements or attributes include jus utendi or the right to receive from the thing
what it produces.

Contrary to petitioners contention, while the general rule is that the portion of a decision that
becomes the subject of execution is that ordained or decreed in the dispositive part thereof, there
are recognized exceptions to this rule, viz: (a).where there is ambiguity or uncertainty, the body of
the opinion may be referred to for purposes of construing the judgment, because the dispositive
part of a decision must find support from the decisions ratio decidendi; and (b).where extensive and
explicit discussion and settlement of the issue is found in the body of the decision.

In this case, although the inclusion of the dividends, interests, and earnings of the 111,415 PTIC shares
as belonging to the Republic was not mentioned in the dispositive portion of the Court’s Decision, it
is clear from its body that what was being adjudicated in favor of the Republic was the whole block
of shares and the fruits thereof, said shares having been found to be part of the Marcoses ill-gotten
wealth, and therefore, public money. In respecting petitioners’ argument that the Republic has
yielded its right to the fruits of the shares when it sold them to Metro Pacific Assets Holdings, Inc.,
(Metro Pacific), the same does not lie. Dividends are payable to the stockholders of record as of the
date of the declaration of dividends or holders of record on a certain future date, as the case may be,
unless the parties have agreed otherwise. And a transfer of shares which is not recorded in the
books of the corporation is valid only as between the parties, hence, the transferor has the right to
dividends as against the corporation without notice of transfer but it serves as trustee of the real
owner of the dividends, subject to the contract between the transferor and transferee as to who is
entitled to receive the dividends. It is thus clear that the Republic is entitled to the dividends accruing
from the subject 111,415 shares since 1986 when they were sequestered up to the time they were
transferred to Metro Pacific via the Sale and Purchase Agreement; and that the Republic has since
the latter date been serving as trustee of those dividends for the Metro Pacific up to the present,
subject to the terms and conditions of the said agreement they entered into.

Right to inspect

MA. BELEN FLORDELIZA C. ANG-ABAYA, FRANCIS JASON A. ANG, HANNAH ZORAYDA A.

ANG, and VICENTE G. GENATO, petitioners, vs. EDUARDO G. ANG, respondent.
G.R. No. 178511 December 4, 2008

FACTS: Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) (collectively
referred to as "the corporations") are family-owned corporations, where petitioners Ma. Belen
Flordeliza C. Ang-Abaya (Flordeliza), Francis Jason A. Ang (Jason), Vincent G. Genato (Vincent),
Hanna Zorayda A. Ang (Hanna) and private respondent Eduardo G. Ang (Eduardo) are shareholders,
officers and members of the board of directors.

In July, 2004, Eduardo sought permission to inspect the corporate books of VMC and Genato on
account of petitioners’ alleged failure and/or refusal to update him on the financial and business
activities of these family corporations. Petitioners denied the request claiming that Eduardo would
use the information obtained from said inspection for purposes inimical to the corporations’

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interests, considering that: "a) he is harassing and/or bullying the Corporation[s] into writing off
P165,071,586.55 worth of personal advances which he had unlawfully obtained in the past; b) he is
unjustly demanding that he be given the office currently occupied by Mr. Francis Jason Ang, the Vice-
President for Finance and Corporate Secretary; c) he is usurping the rights belonging exclusively to
the Corporation; and d) he is coercing and/or trying to inveigle the Directors and/or Officers of the
Corporation to give in to his baseless demands involving specific corporate assets."

Eduardo filed an Affidavit-Complaint against petitioners Flordeliza and Jason, charging them with
violation (two counts) of Section 74, in relation to Section 144, of the Corporation Code of the
Philippines.9 Ma. Belinda G. Sandejas (Belinda), Vincent, and Hanna were subsequently impleaded
for likewise denying respondent’s request to inspect the corporate books.

ISSUE: Whether or not the honorable justice secretary committed grave abuse of discretion
amounting to lack or excess of jurisdiction in finding that petitioners acted in good faith when they
denied private respondent’s demand for inspection of corporate books

RULING: In order for the penal provision under Section 144 of the Corporation Code to apply in a case
of violation of a stockholder or member’s right to inspect the corporate books/records as provided
for under Section 74 of the Corporation Code, the following elements must be present:

First. A director, trustee, stockholder or member has made a prior demand in writing for a copy of
excerpts from the corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
Third. If such refusal is made pursuant to a resolution or order of the board of directors or trustees,
the liability under this section for such action shall be imposed upon the directors or trustees who
voted for such refusal; and,
Fourth. Where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior examination of the records or minutes of
such corporation or of any other corporation, or was not acting in good faith or for a legitimate
purpose in making his demand, the contrary must be shown or proved.

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of
improper use or motive is in the nature of a justifying circumstance that would exonerate those who
raise and are able to prove the same. Accordingly, where the corporation denies inspection on the
ground of improper motive or purpose, the burden of proof is taken from the shareholder and
placed on the corporation.

In the instant case, the Court finds that the Court of Appeals erred in declaring that the Secretary of
Justice exceeded his authority when he conducted an inquiry on the petitioners’ defense of
improper use and motive on Eduardo’s part. As a necessary element in the offense of refusal to
honor a stockholder/member’s right to inspect the corporate books/records, it was incumbent upon
the Secretary of Justice to determine that all the elements which constitute said offense are present.
The serious allegations against Eduardo are supported by official and other documents, such as
board resolutions, treasurer’s affidavits and written communication from the respondent himself,
who appears to have withheld his objections to these charges. His silence virtually amounts to an
acquiescence. Taken together, all these serve to justify petitioners’ allegation that Eduardo was not

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acting in good faith and for a legitimate purpose in making his demand for inspection of the
corporate books. Otherwise stated, there is lack of probable cause to support the allegation that
petitioners violated Section 74 of the Corporation Code in refusing respondent’s request for
examination of the corporation books.

The Petition for Review on Certiorari is GRANTED. The resolutions of the Court of Appeals are
REVERSED and SET ASIDE. The resolutions of the Secretary of Justice directing the withdrawal of the
information filed against petitioners for violation of Section 74 of the Corporation Code are
accordingly REINSTATED and AFFIRMED.

Preemptive right

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION v. MIGUEL LIM et al.,

G.R. No. 165887 June 7, 2011

FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass

manufacturing. Reeling from severe liquidity problems beginning in 1980, RUBY filed on December
13, 1983 a petition for suspension of payments with the Securities and Exchange Commission (SEC)
docketed as SEC Case No. 2556. The SEC issued an order declaring RUBY under suspension of
payments and enjoining the disposition of its properties pending hearing of the petition, except
insofar as necessary in its ordinary operations, and making payments outside of the necessary or
legitimate expenses of its business.

Over ninety percent (90%) of RUBYs creditors objected to the Revised BENHAR/RUBY Plan and the
creation of a new management committee. Instead, they endorsed the minority stockholders
Alternative Plan. Notwithstanding the objections of 90% of RUBYs creditors and three members of
the MANCOM, the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY
Plan and dissolved the existing management committee. It also created a new management
committee and appointed BENHAR as one of its members. In addition to the powers originally
conferred to the management committee under Presidential Decree (P.D.) No. 902-A, the new
management committee was tasked to oversee the implementation by the Board of Directors of the
revised rehabilitation plan for RUBY.

ISSUE: Is the minority’s pre-emptive rights were violated?

RULING: Yes. Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a
stockholder of a stock corporation to subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings. The right may be restricted or denied under the articles
of incorporation, and subject to certain exceptions and limitations. The stockholder must be given a
reasonable time within which to exercise their preemptive rights. Upon the expiration of said period,
any stockholder who has not exercised such right will be deemed to have waived it. The validity of
issuance of additional shares may be questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does not exist, either because the issue comes
within the exceptions in Section 39 or because it is denied or limited in the articles of incorporation,
an issue of shares may still be objectionable if the directors acted in breach of trust and their primary
purpose is to perpetuate or shift control of the corporation, or to "freeze out" the minority interest.

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In this case, the following relevant observations should have signaled greater circumspection on the
part of the SEC -- upon the third and last remand to it pursuant to our January 20, 1998 decision -- to
demand transparency and accountability from the majority stockholders, in view of the illegal
assignments and objectionable features of the Revised BENHAR/RUBY Plan, as found by the CA and
as affirmed by this Court: There can be no gainsaying the well-established rule in corporate practice
and procedure that the will of the majority shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws not proscribed by law.

DATU TAGORANAO BENITO, PETITIONER, VS. SECURITIES AND EXCHANGE COMMISSION

AND JAMIATUL PHILIPPINE-AL ISLAMIA, INC., RESPONDENTS
G.R. No. 56655, July 25, 1983

FACTS: Respondent Jamiatul Philippine-Al Islamia, Inc. (originally Kamilol Islam Institute, Inc.) had an
authorized capital stock of P200,000.00 divided into 20,000 shares at a par value of P10.00 each. Of
the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for.
Herein petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00.
On October 28, 1975, the respondent corporation filed a certificate of increase of its capital stock
from P200,000.00 to P1,000,000.00. It was shown in said certificate that P191,560.00 worth of shares
were represented in the stockholders' meeting held on November 25, 1975 at which time the
increase was approved. Thus, P110,980.00 worth of shares were subsequently issued by the
corporation from the unissued portion of the authorized capital stock of P200,000.00. Of the
increased capital stock of P1,000,000.00, P160,000.00 worth of shares were subscribed by Mrs.
Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.

On November 18, 1976, petitioner Datu Tagoranao filed with respondent Securities and Exchange
Commission a petition alleging that the additional issue (worth P110,980.00) of previously subscribed
shares of the corporation was made in violation of his pre-emptive right to said additional issue and
that the increase in the authorized capital stock of the corporation from P200,000.00 to
P1,000,000.00 was illegal considering that the stockholders of record were not notified of the
meeting wherein the proposed increase was in the agenda. Petitioner prayed that the additional
issue of shares of previously authorized capital stock as well as the shares issued from the increase in
capital stock of respondent corporation be cancelled; that the secretary of respondent corporation
be ordered to register the 2,540 shares acquired by him (petitioner) from Domocao Alonto and Moki-
in Alonto; and that the corporation be ordered to render an accounting of funds to the stockholders.
In their answer, respondents denied the material allegations of the petition and, by way of special
defense, claimed that petitioner has no cause of action and that the stock certificates covering the
shares alleged to have been sold to petitioner were only given to him as collateral for the loan of
Domocao Alonto and Moki-in Alonto.

ISSUES: Whether or not the issuance of the 11,098 shares without the consent of the stockholders or
of the Board of Directors, and in the absence of consideration, is null and void
Whether or not the increase in the authorized capital stock from P200,000.00 to P1,000,000.00
without the consent or express waiver of the stockholders, is null and void

RULING: Both no.

As aptly stated by the Securities and Exchange Commission in its decision:

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xxx xxx xxx
... the questioned issuance of the unsubscribed portion of the capital stock worth P110,980.00 is ' not
invalid even if assuming that it was made without notice to the stockholders as claimed by
petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors
and no stockholders' meeting is necessary to consider it because additional issuance of shares of
stocks does not need approval of the stockholders. The by-laws of the corporation itself states that
'the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of
stock of the Institute and shall prescribe the form of the certificate of stock of the Institute. (Art. V,
Sec. 1).

Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he
was not able to exercise his right of pre-emption over the unissued shares. However, the general rule
is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect
to additional issues of originally authorized shares. This is on the theory that when a corporation at
its inception offers its first shares, it is presumed to have offered all of those which it is authorized to
issue. An original subscriber is deemed to have taken his shares knowing that they form a definite
proportionate part of the whole number of authorized shares. When the shares left unsubscribed
are later re-offered, he cannot therefore claim a dilution of interest. (Campos and Lopez-Campos
Selected Notes and Cases on Corporation Law, p. 855, citing Yasik V. Wachtel 25 Del. Ch. 247,17A. 2d
308 (1941).

With respect to the claim that the increase in the authorized capital stock was without the consent,
expressed or implied, of the stockholders, it was the finding of the Securities and Exchange
Commission that a stockholders' meeting was held on November 25,1975 among the many items
taken up then were the change of name of the corporation from Kamilol Islam Institute Inc. to
Jamiatul Philippine-Al Islamia, Inc., the increase of its capital stock from P200,000.00 to
P1,000,000.00, and the increase of the number of its Board of Trustees from five to nine. "Despite
the insistence of petitioner, this Commission is inclined to believe that there was a stockholders'
meeting on November 25, 1975 which approved the increase. The petitioner had not sufficiently
overcome the evidence of respondents that such meeting was in fact held. What petitioner
successfully proved, however, was the fact that he was not notified of said meeting and that he
never attended the same as he was out of the country at the time. While petitioner doubts the
authenticity of the alleged minutes of the proceedings, the Commission notes with significance that
said minutes contain numerous details of various items taken up therein that would negate any claim
that it was not authentic. Another thing that petitioner was able to disprove was the allegation in the
certificate of increase that all stockholders who did not subscribe to the increase of capital stock
have waived their pre-emptive right to do so. As far as the petitioner is concerned, he had not
waived his pre-emptive right to subscribe as he could not have done so for the reason that he was
not present at the meeting and had not executed a waiver, thereof. Not having waived such right
and for reasons of equity, he may still be allowed to subscribe to the increased capital stock
proportionate to his present shareholdings."

Right to vote

REPUBLIC OF THE PHILIPPINES vs. COCOFED, ET AL.

G.R. No. 147062-64 December 14, 2001

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FACTS: On the explicit premise that 'vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad,' the Presidential Commission on Good Government (PCGG) was created by Executive Order
No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether
located in the Philippines or abroad. Several executive orders were then issued describing the
properties to be recovered.Among the properties sequestered by the Commission were shares of
stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged "one million
coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF companies) and
Private Respondent Eduardo Cojuangco Jr.

Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law
Office a letter written on behalf of the COCOFED and the alleged nameless one million coconut
farmers, demanding the holding of a stockholders' meeting for the purpose of, among others,
electing the board of directors. In response, the board approved a Resolution calling for a
stockholders' meeting on March 6, 2001 at three o'clock in the afternoon. However, the same was
meted by a Class Action Omnibus Motion seeking to enjoin PCGG from voting the UCPB shares of
stock registered in the respective names of the more than one million coconut farmers; and to enjoin
the PCGG from voting the SMC shares registered in the names of the 14 CIF holding companies
including those registered in the name of the PCGG.

ISSUE: May PCGG vote the sequestered UCPB shares while the main case for their reversion to the
State is pending in the Sandiganbayan.

RULING: Yes. The SC holds that the government should be allowed to continue voting those shares
inasmuch as they were purchased with coconut levy funds since those are prima facie public in
character or, at the very least, are "clearly affected with public interest."

The general rule is that the registered owner of the shares of a corporation exercises the right and
the privilege of voting. This principle applies even to shares that are sequestered by the government,
over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On
the other hand, it is authorized to vote these sequestered shares registered in the names of private
persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test.
Unfortunately, this test is not applicable under the circumstances of this case. Hence, the Court
granted PCGG the right to vote the sequestered shares because they appeared to be assets
belonging to the government itself.

Republic of the Philippines (Presidential Commission on Good Government) vs.

Sandiganbayan
GR 107789 30 April 2003

FACTS: On 7 August 1991, the PCGG conducted an Eastern Telecommunications, Philippines, Inc.
(ETPI) stockholders meeting during which a PCGG controlled board of directors was elected. A
special stockholders meeting was later convened by the registered ETPI stockholders wherein
another set of board of directors was elected, as a result of which two sets of such board and
officers were elected. Victor Africa, a stockholder of ETPI, alleging that the PCGG had since been
"illegally 'exercising' the rights of stockholders of ETPI," especially in the election of the members of

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the board of directors, filed a motion before the Sandiganbayan, prayed that said court order the
"calling and holding of the ETPI annual stockholders meeting for 1992 under the court's control and
supervision and prescribed guidelines." The PCGG did not object to Africa's motion provided that "(1)
An Order be issued upholding the right of PCGG to vote all the Class "A" shares of ETPI; (2) In the
alternative, in the remote event that PCGG's right to vote the sequestered shares be not upheld, an
Order be issued (a) disregarding the Stock and Transfer Book and Booklet of Stock Certificates of
ETPI in determining who can vote the shares in an Annual Stockholders Meeting of ETPI, (b) allowing
PCGG to vote 23.9% of the total subscription in ETPI, and (c) directing the amendment of the Articles
of Incorporation and By-laws of ETPI providing for the minimum safeguards for the conservation of
assets prior to the calling of a stockholders meeting. The Sandiganbayan resolved Africa's motion,
ordering the conduct of an annual stockholders meeting of ETPI, for 1992. Assailing the foregoing
resolution, the PCGG filed before the Supreme Court a petition for Certiorari, Mandamus and
Prohibition.

ISSUE: Whether or notthe PCGG can vote the sequestered ETPI Class "A" shares in the stockholders
meeting for the election of the board of directors.

RULING: Yes. The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to
amend the Articles of Incorporation for the purpose of increasing the authorized capital stock unless
there is a prima facie evidence showing that said shares are ill-gotten and there is an imminent
danger of dissipation. (2)The ETPI Stock and Transfer Book should be the basis for determining
which persons have the right to vote in the stockholders meeting for the election of the ETPI Board
of Directors. (3) The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his
controlled corporations under the Compromise Agreement, provided that the shares are first
registered in the name of the PCGG. The PCGG may not register the transfer of the Malacañang and
the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote the same as conservator
provided that the PCGG satisfies the two-tiered test devised by the Court in Cojuangco v. Calpo. (4)
The safeguards laid down in the case of Cojuangco v. Roxas shall be incorporated in the ETPI Articles
of Incorporation substantially contemporaneous to, but not before, the election of the ETPI Board of
Directors. (5) Members of the Sandiganbayan shall not participate in the stockholders meeting for
the election of the ETPI Board of Directors.

Transmiddle East (Phils) vs. Sandiganbayan, et. al.,

GR No. 172556, June 9 2006

FACTS: Petitioner, Trans Middle East (Phil.) Equities Inc.TMEE is the registered owner of 6,119,067
common shares of stock in the then PCBank, now Equitable-PCI Bank. These shares were
sequestered by the Presidential Commission on Good Government (PCGG) on the theory that as they
actually belong to Benjamin Romualdez they constitute illegally acquired wealth. Thereafter, a
complaint was filed against Romualdez by the PCGG before the Sandiganbayan for the recovery of
these shares. Upon motion, TMEE was allowed to intervene by the Sandiganbayan, and it sought to
enjoin the PCGG from voting these shares.

In 2006, a modified resolution was issued by the Sandiganbayan, disqualifying both the PCGG
nominees, TMEE, PAH and PAR, from voting the sequestered shares in the Equitable PCI Bank and
Benguet Corporation, respectively.

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In the absence of an injunctive order restraining the holding of the stockholders’ meeting, a meeting
was held. Over the objections of TMEE, the election of a new Board of Directors of EPCIB was held.
Since TMEE was not allowed to vote its shares, it was unable to elect any representative to the Board
of Directors despite the fact that it maintained enough shares to be entitled to at least one board
seat.

ISSUES: Can PCGG exercise the right to vote over the sequestered shares? Is TMEE barred from
voting its shares due to the writ of sequestration?

RULING: Yes. It is settled that as a general rule, the registered owner of the shares of a corporation,
even if they are sequestered by the government through the PCGG, exercises the right and the
privilege of voting on them. The PCGG as a mere conservator cannot, as a rule, exercise acts of
dominion by voting these shares. The registered owner of sequestered shares may only be deprived
of these voting rights, and the PCGG authorized to exercise the same, only if it is able to establish
that (1) there is prima facie evidence showing that the said shares are ill-gotten and thus belong to
the State; and (2) there is an imminent danger of dissipation, thus necessitating the continued
sequestration of the shares and authority to vote thereupon by the PCGG while the main issue is
pending before the Sandiganbayan.

No. The Court held that the existence of the writ of sequestration alone would not legally justify
barring TMEE from voting its shares. Such preclusion may only occur if there is prima facie evidence
showing that the said shares are ill-gotten and there is an imminent danger of dissipation. The
Sandiganbayan or any other court has yet to pronounce any findings to those effects. In fact, the
Sandiganbayan, in its 1998 Resolution, instead declared that TMEE possessed "a prima facie right" as
owner of the registered owner of the sequestered shares, and that there appeared to be "no strong
grounds for apprehension of dissipation or loss of assets of TMEE."

Tan vs Sycip
G.R. No. 153468; August 17, 2006

FACTS: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of trustees. During the
annual members meeting held on April 6, 1998, there were only eleven (11) living member-trustees,
as four (4) had already died. Out of the eleven, seven (7) attended the meeting through their
respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the
objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right to
vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of
quorum. She held that the basis for determining the quorum in a meeting of members should be
their number as specified in the articles of incorporation, not simply the number of living members.

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ISSUE: Whether or not in NON-STOCK corporations, dead members should still be counted in
determination of quorum for purpose of conducting the Annual Members Meeting.

RULING: The Right to Vote in Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold that
when the principle for determining the quorum for stock corporations is applied by analogy to
nonstock corporations, only those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members representing the actual
number of voting rights, not the number or numerical constant that may originally be specified in the
articles of incorporation, constitutes the quorum.

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the
articles of incorporation, shall constitute a quorum for the transaction of corporate business (unless
the articles of incorporation or the bylaws provide for a greater majority). If the intention of the
lawmakers was to base the quorum in the meetings of stockholders or members on their absolute
number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the
only logical conclusion is that the legislature did not have that intention.

BERNAS vs. CINCO

G.R. Nos. 163356-57, July 10, 2015

FACTS: Makati Sports Club (MSC) is a domestic corporation for the primary purpose of establishing,
maintaining, and providing social, cultural, recreational and athletic activities among its members.
Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T.
Macrohon and Paulino T. Lim (Bernas Group) were among the Members of the Board of Directors
and Officers of the corporation whose terms were to expire either in 1998 or 1999.

Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC) demanded from the Bernas Group to resign from their respective positions to pave the way
for the election of new set of officers. Bernas Group failed to secure an injunction before the
Securities Commission (SEC) the new officers were elected. Aggrieved, the Bernas Group initiated an
action before the Securities Investigation and Clearing Department (SICD) of the SEC seeking for the
nullification of the election. Citing Section 28 of the Corporation Code, the Bernas Group argued that
the authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which
functions merely as an oversight body and is not vested with the power to call corporate meetings.

ISSUE: Is the removal of Bernas group valid under the corporation code?

RULING: The Supreme Court ruled in the negative. It held that the removal of Bernas group is invalid.
In the instant case, there is no dispute that the Special Stockholders' Meeting was called neither by
the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name
suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere in the by-

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laws does it state that it is authorized to exercise corporate powers, such as the power to call a
special meeting, solely vested by law and the MSC bylaws on the President or the Board of Directors.
Moreover, the board of directors is the directing and controlling body of the corporation. It is a
creation of the stockholders and derives its power to control and direct the affairs of the corporation
from them. The board of directors, in drawing to itself the power of the corporation, occupies a
position of trusteeship in relation to the stockholders, in the sense that the board should exercise
not only care and diligence, but utmost good faith in the management of the corporate affairs. The
underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually
been elected by the stockholders, on an annual basis. Only in that way can the continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise
of power by the directors or officers over the properties that they do not own.

Lastly, a distinction should be made between corporate acts or contracts which are illegal and those
which are merely ultra vires. The former contemplates the doing of an act which are contrary to law,
morals or public policy or public duty, and are, like similar transactions between individuals, void:
They cannot serve as basis of a court action nor acquire validity by performance, ratification or
estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but
are not merely within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders. The Meeting belongs to the
category of the latter, that is, it is void ab initio and cannot be validated.

Demand accounting

Chateau De Bale Condominium Corp. vs. Sps. Raymond and Ma. Rosario Moreno
GR No. 186271 February 23, 2011

FACTS: Mrs. Moreno is the registered owner of a penthouse unit and two parking slots in Chateau de
Baie Condominium (Chateau Condominium). As a registered owner in Chateau Condominium, Mrs.
Moreno is a member/stockholder of the condominium corporation. Mrs. Moreno obtained a loan
of P16,600,000.00 from Oscar Salvacion, and she mortgaged the Moreno properties as security; the
mortgage was annotated on the CCTs.

The petitioner caused the annotation of a Notice of Assessment on the CCTs of

the Moreno properties for unpaid association dues. It also sent a demand letter to
the Moreno spouses who offered to settle their obligation, but the petitioner declined the offer.
Under the Condominium Act when a unit owner fails to pay the association dues the condominium
corporation may enforce a lien on the condominium unit by selling the unit in an extrajudicial
foreclosure sale.

The president of the petitioner wrote the Clerk of Court/Ex-Officio Sheriff of Paranaque City for the
extrajudicial public auction sale of the Moreno properties. To stop the extrajudicial sale, Salvacion, as
mortgagee, filed, a petition for certiorari and prohibition with prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction before the RTC. The petition sought to prohibit

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the scheduled extrajudicial sale for lack of a special power to sell from the registered owner as
mandated by Act No. 3135, and to declare the lien to be excessive.
RTC dismissed Salvacions petition and denied the injunctive relief for lack of merit. The extrajudicial
sale proceeded as scheduled, and the Moreno properties were sold to the petitioner, the lone
bidder. The CA upheld the validity of the extrajudicial sale. The Moreno spouses filed before the RTC
a complaint for intra-corporate dispute against the petitioner to question how it calculated the dues
assessed against them, and to ask an accounting of the association dues.

The petitioner moved to dismiss the complaint on the ground of lack of jurisdiction, alleging that
since the complaint was against the owner/developer of a condominium whose condominium
project was registered with and licensed by the Housing and Land Use Regulatory Board (HLURB),
the HLURB has the exclusive jurisdiction. RTC denied the motion to dismiss. Upon appeal the CA
denied the petition and found no grave abuse of discretion on the part of the RTC because the
complaint involved an intra-corporate dispute.

ISSUE: Does an action to demand accounting on association dues an intra-corporate controversy?

RULING: Yes. The case before the RTC involved an intra-corporate dispute the Moreno spouses were
asking for an accounting of the association dues and were questioning the manner the petitioner
calculated the dues assessed against them. These issues are alien to the first case that was initiated
by Salvacion a third party to the petitioner-Moreno relationship to stop the extrajudicial sale on the
basis of the lack of the requirements for a valid foreclosure sale. Although the extrajudicial sale of
the Moreno properties to the petitioner has been fully effected and the Salvacion petition has been
dismissed with finality, the completion of the sale does not bar the Moreno spouses from
questioning the amount of the unpaid dues that gave rise to the foreclosure and to the subsequent
sale of their properties. The propriety and legality of the sale of the condominium unit and the
parking spaces questioned by Salvacion are different from the propriety and legality of the unpaid
assessment dues that the Moreno spouses are questioning in the present case.

Individual Suit

MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO and RAUL A. MUYCOvs. ROGELIO
M. FLORETE, IMELDA C. FLORETE, DIAMEL CORPORATION, ROGELIO C. FLORETE JR., and
MARGARET RUTH C. FLORETE
January 20, 2016 GR. No. 174909

A stockholder may suffer from a wrong done to or involving a corporation, but this does not vest in
the aggrieved stockholder a sweeping license to sue in his or her own capacity. The determination of
the stockholder’s appropriate remedy—whether it is an individual suit, a class suit, or a derivative
suit—hinges on the object of the wrong done. When the object of the wrong done is the corporation
itself or "the whole body of its stock and property without any severance or distribution among
individual holders," it is a derivative suit, not an individual suit or class/representative suit, that a
stockholder must resort to.

FACTS: This resolves consolidated cases involving a Complaint for Declaration of Nullity of Issuances,
Transfers and Sale of Shares in People’s Broadcasting Service, Inc. and All Posterior Subscriptions

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and Increases thereto with Damages. The Complaint did not implead as parties the concerned
corporation, some of the transferees, transferors and other parties involved in the assailed
transactions. People’s Broadcasting Service, Inc. (People’s Broadcasting) is a private corporation
authorized to operate, own, maintain, install, and construct radio and television stations in the
Philippines. People’s Broadcasting sought the services of the accounting and auditing firm Sycip
Gorres Velayo and Co. in order to determine the ownership of equity in the corporation. Sycip Gorres
Velayo and Co. submitted a report detailing the movements of the corporation’s shares from
November 23, 1967 to December 8, 1989.

Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a
categorical statement on equity ownership as People’s Broadcasting’s corporate records were
incomplete. The report contained the following disclaimer on the findings regarding the
corporation’s capital structure. The Board of Directors of People’s Broadcasting approved Sycip
Gorres Velayo and Co.’s report. In the meantime, Rogelio Florente, Sr. transferred a portion of his
shareholdings to the members of his immediate family, namely: Imelda Florete, Rogelio Florete, Jr.,
and Margaret Ruth Florete, as well as to Diamel Corporation, a corporation owned by Rogelio, Sr.’s
family. In 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before the RTC
a Complaint for Declaration of Nullity of Issuances, Transfers and Sale of Shares in People’s
Broadcasting Service, Inc. and All Posterior Subscriptions and Increases thereto with Damages
against Diamel Corporation, Rogelio, Sr., Imelda Florete, Margaret Florete, and Rogelio Florete, Jr.
(Rogelio, Sr. Group).

On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory counterclaim. The RTC
issued a Decision (which it called a "Placitum") dismissing the Marcelino, Jr. Group’s Complaint. It
ruled that the Marcelino, Jr. Group did not have a cause of action against the Rogelio, Sr. Group and
that the former is estopped from questioning the assailed movement of shares of People’s
Broadcasting. It also ruled that indispensible parties were not joined in their Complaint.

The Court of Appeals denied the Marcelino, Jr. Group’s Petition for Review and affirmed the trial
court Decision. The Court of Appeals ruled that the Marcelino, Jr. Group did not have a cause of
action against those whom they have impleaded as defendants. It also noted that the principal
obligors in or perpetrators of the assailed transactions were persons other than those in the Rogelio,
Sr. Group who have not been impleaded as parties. Thus, the Court of Appeals emphasized that the
following parties were indispensable to the case: People’s Broadcasting; Marcelino, Sr.; Consolidated
Broadcasting System, Inc.; Salome; Divinagracia; Teresita; and "other stockholders of [People’s
Broadcasting] to whom the shares were transferred or the nominees of the stockholders." Hence
this Petition.

ISSUE: Was the filing of the Complaint for the Declaration of Nullity of Issuances of the Shares of
People’s Broadcasting Services proper?

RULING: NO. A stockholder suing on account of wrongful or fraudulent corporate actions

(undertaken through directors, associates, officers, or other persons) may sue in any of three (3)
capacities:
1. as an individual;
2. as part of a group or specific class of stockholders; or
3. as a representative of the corporation.

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Villamor v. Umale distinguished individual suits from class or representative suits:
Individual suits are filed when the cause of action belongs to the individual stockholder personally,
and not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder. If the cause of action belongs to a group of stockholders, such
as when the rights violated belong to preferred stockholders, a class or representative suit may be
filed to protect the stockholders in the group.

A derivative suit "is an action filed by stockholders to enforce a corporate action." A derivative suit,
therefore, concerns "a wrong to the corporation itself." The real party in interest is the corporation,
not the stockholders filing the suit. The stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for and on behalf of the corporation.

In cases of mismanagement where the wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no redress because the former are vested
by law with the right to decide whether or not the corporation should sue, and they will never be
willing to sue themselves. The corporation would thus be helpless to seek remedy. Because of the
frequent occurrence of such a situation, the common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in what eventually became known as a "derivative
suit." It has been proven to be an effective remedy of the minority against the abuses of
management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the nominal party, with the
corporation as the party in interest.

The distinction between individual and class/representative suits on one hand and derivative suits on
the other is crucial. These are not discretionary alternatives. The fact that stockholders suffer from a
wrong done to or involving a corporation does not vest in them a sweeping license to sue in their
own capacity. The recognition of derivative suits as a vehicle for redress distinct from individual and
representative suits is an acknowledgment that certain wrongs may be addressed only through acts
brought for the corporation.

The avenues for relief are, thus, mutually exclusive. The determination of the appropriate remedy
hinges on the object of the wrong done. When the object is a specific stockholder or a definite class
of stockholders, an individual suit or class/representative suit must be resorted to. When the object
of the wrong done is the corporation itself or "the whole body of its stock and property without any
severance or distribution among individual holders," it is a derivative suit that a stockholder must
resort to.

Villamor recalls the requisites for filing derivative suits:

Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies (Interim Rules)
provides the five (5) requisites for filing derivative suits:
SECTION 1. Derivative action.—A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:
1. He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;

15 | P a g e
2. He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the
first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or
member must be "in the name of the corporation or association. . . ." This requirement has already
been settled in jurisprudence.

What the Marcelino, Jr. Group asks is the complete reversal of a number of corporate acts
undertaken by People’ Broadcasting’s different boards of directors. These boards supposedly
engaged in outright fraud or, at the very least, acted in such a manner that amounts to wanton
mismanagement of People’s Broadcasting’s affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People’s Broadcasting’s capital structure.

The remedies that the Marcelino, Jr. Group seeks are for People’s Broadcasting itself to avail.
Ordinarily, these reliefs may be unavailing because objecting stockholders such as those in the
Marcelino, Jr. Group do not hold the controlling interest in People’s Broadcasting. This is precisely
the situation that the rule permitting derivative suits contemplates: minority shareholders having no
other recourse "whenever the directors or officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are in control of the corporation."

The Marcelino, Jr. Group points to violations of specific provisions of the Corporation Code that
supposedly attest to how their rights as stockholders have been besmirched. However, this is not
enough to sustain a claim that the Marcelino, Jr. Group initiated a valid individual or class suit. To
reiterate, whether stockholders suffer from a wrong done to or involving a corporation does not
readily vest in them a sweeping license to sue in their own capacity.

A violation of Sections 23 and 25 of the Corporation Code—on how decision-making is vested in the
board of directors and on the board’s quorum requirement—implies that a decision was wrongly
made for the entire corporation, not just with respect to a handful of stockholders. Section 65
specifically mentions that a director’s or officer’s liability for the issuance of watered stocks in
violation of Section 62 is solidary "to the corporation and its creditors," not to any specific
stockholder. Transfers of shares made in violation of the registration requirement in Section 63 are
invalid and, thus, enable the corporation to impugn the transfer. Notably, those in the Marcelino, Jr.
Group have not shown any specific interest in, or unique entitlement or right to, the shares
supposedly transferred in violation of Section 63.

Also, the damage inflicted upon People’s Broadcasting’s individual stockholders, if any, was
indiscriminate. It was not unique to those in the Marcelino, Jr. Group. It pertained to "the whole
body of [People’s Broadcasting’s] stock." Accordingly, it was upon People’s Broadcasting itself that
the causes of action now claimed by the Marcelino Jr. Group accrued. While stockholders in the
Marcelino, Jr. Group were permitted to seek relief, they should have done so not in their unique
capacity as individuals or as a group of stockholders but in place of the corporation itself through a
derivative suit.

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Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. Group
lacked a cause of action; it also meant that they failed to implead an indispensable party. In
derivative suits, the corporation concerned must be impleaded as a party.

As explained in Asset Privatization Trust:

Not only is the corporation an indispensible party, but it is also the present rule that it must be
served with process. The reason given is that the judgment must be made binding upon the
corporation in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
corporation must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata against it.

Representative Suit
ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES AND S. ADOR DIONISIO, VS. THE
CONSOLIDATED BANK AND TRUST COMPANY, ET AL
G.R. No. L-23136, August 26, 1974

FACTS: Samuel Mathay, et.al. were former stockholders of Consolidated Mines Inc. (CMI).Petitioners
filed a case for a class suit against CMI containing six causes of action. Petitioners alleged that in
violation of the Board resolution, the defendants unlawfully acquiredstockholdings in the defendant
Bank in excess of what they were lawfully entitled,hence depriving the petitioners of their right to
subscribe at par value, in proportionto their equities established under their respective "Pre-
Incorporation Agreementsto Subscribe" to the capital stock and that the Articles of Incorporation
were fraudulentl yamended by the defendants. The complaint was dismissed by the Trial Court on
the ground thatthe class suit could not be maintained because of the absence of a showing in the
complaint thatthe plaintiffs-appellants were sufficiently numerous and representative, and that the
complaintfailed to state a cause of action. The CA affirmed the ruling, hence, the appeal.

ISSUE: Whether or not the instant action is a class suit.

RULING: The action at bar is not a class suit. It’s a representative suit. The necessary elements for the
maintenance of a class suit are accordingly: (1) that the subject matter of the controversy is one of
common or general interest to many persons, and (2) that such persons be so numerous as to make
it impracticable to bring them all to the court. The statute requires that the complaint should allege
the existence of the necessary facts, the existence of a class and the number of members in the said
class so as to enablethe court to determine whether the members of the said class are so numerous
as to make it impractical to bring them all to court. The complaint in the instant case failed to state
the number of said CMI subscribing stockholders that the trial court could not infer nor make sure
that the parties are indeed so numerous that they cannot practically appear in court and that the
plaintiffs are representative of the other stockholders. The statute also requires that the subject-
matter of thecontroversy be of common interest to numerous persons. In the instant case, the
interest that appellants, plaintiffs and intervenors, and the CMI stockholders had inthe subject
matter of this suit was several, not common or general in the sense required by the statute. Each one
of the appellants and the CMI stockholders had determinable interest; each one had a right, if any,

17 | P a g e
only to his respective portion of the stocks. No one of them had any right to, or any interest in, the
stock to which another was entitled.

Derivative Suit

JUAN D. EVANGELISTA ET AL., vs.RAFAEL SANTOS

G.R. No. L-1721 May 19, 1950

FACTS: Plaintiffs are minority stockholders of the Vitali Lumber Company, Inc., a Philippine
corporation organized for the exploitation of a lumber concession in Zamboanga, Philippines; that
defendant holds more than 50 per cent of the stocks of said corporation and also is and always has
been the president, manager, and treasurer thereof; and that defendant, in such triple capacity,
through fault, neglect, and abandonment allowed its lumber concession to lapse and its properties
and assets to disappear, thus causing the complete ruin of the corporation and total depreciation of
its stocks. Their complaint therefore prays for judgment requiring defendant: (1) to render an
account of his administration of the corporate affairs and assets: (2) to pay plaintiffs the value of
their respective participation in said assets on the basis of the value of the stocks held by each of
them; and (3) to pay the costs of suit.

The complaint does not give plaintiffs’ residence, but, for purposes of venue, alleges that defendant
resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay, province of Rizal. Having been served
with summons at that place, defendant filed a motion for the dismissal of the complaint on the
ground of improper venue and also on the ground that the complaint did not state a cause of action
in favor of plaintiffs. In support of the objection to the venue, defendant states that he is a resident
of Iloilo City and not of Pasay, defendant also presented further affidavit to the effect that while he
has a house in Pasay, where members of his family who are studying in Manila live and where he
himself is sojourning for the purpose of attending to his interests in Manila, yet he has his permanent
residence in the City of Iloilo where he is registered as a voter for election purposes and has been
paying his residence certificate.

ISSUE: Whether or not defendant is a resident of Iloilo, therefore, there was no proper venue when
he was served with summons in Pasay.

RULING: NO. The facts in this case show that the objection to the venue is well-founded. Where the
plaintiff is a nonresident and the contract upon which suit is brought was made in the Philippine
Islands it may safely be asserted that the convenience of the defendant would be best served by a
trial in the province where he resides. The fact that defendant was sojourning in Pasay at the time he
was served with summons does not make him a resident of that place for purposes of venue.
Residence is “the permanent home, the place to which, whenever absent for business or pleasure,
one intends to return.

NORA A. BITONG Vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A.
APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA
G.R. No. 123553. July 13, 1998

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FACTS: Bitong alleged that she was the treasurer and member of the BoD of Mr. & Mrs.
Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol liable for fraud,
misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing
the affairs of the corporation to the prejudice of the stockholders. She alleges that certain
transactions entered into by the corporation were not supported by any stockholder’s resolution.
The complaint sought to enjoin Apostol from further acting as president-director of the corporation
and from disbursing any money or funds.

Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares of the corporation,
hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ enjoining Apostol.
After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the complaint filed
by Bitong. Bitong appealed to the SEC en banc which reversed SEC Hearing Panel decision. Apostol
filed petition for review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the
owner of any share of stock in the corporation and therefore, not a real party in interest to
prosecute the complaint.

ISSUE: Was Bitong the real party in interest?

RULING: No. It could be gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the true party in interest was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book of the corporation,
and as provided by Sec. 63 of the Corp Code that no transfer shall be valid except as between the
parties until the transfer is recorded in the books of the corporation, and upon its recording the
corporation is bound by it and is estopped to deny the fact of transfer of said shares, this provision is
not conclusive even against the corporation but are prima facie evidence only. Parol evidence may
be admitted to supply the omissions in the records, explain ambiguities, or show what transpired
where no records were kept, or in some cases where such records were contradicted.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock
described therein is valid and genuine and is at least prima facie evidence that it was legally issued in
the absence of evidence to the contrary. However, this presumption may be rebutted. However, the
books and records of a corporation are not conclusive even against the corporation but are prima
facie evidence only. The effect of entries in the books of the corporation which purport to be regular
records of the proceedings of its board of directors or stockholders can be destroyed by testimony
of a more conclusive character than mere suspicion that there was an irregularity in the manner in
which the books were kept.

FILIPINAS PORT SERVICES, INC. vs. VICTORIANO S. GO et. al.

G.R. No. 161886, March 16, 2007

FACTS: On September 4, 1992, petitioner Eliodoro C. Cruz, former president of Filport wrote a
letter to the corporation’s Board of Directors questioning the boards creation of a new positions
with a monthly remuneration of P13,050.00 each. In his aforesaid letter, Cruz requested the board to
take necessary action to recover from those elected the salaries they have received. On 15
September 1992, however, the board did not make any action with the letter of Cruz.

19 | P a g e
On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders filed with the SEC
a petition which he describes as a derivative suit against the respondents who were then the
incumbent members of Filports Board of Directors, for alleged acts of mismanagement detrimental
to the interest of the corporation and its shareholders at large.

In the same petition, Cruz alleged that despite demands made upon the respondent members of the
board of directors to desist from creating the positions in question and to account for the amounts
incurred in creating the same, the demands were unheeded. In their common Answer with
Counterclaim, the respondents denied the allegations of mismanagement. In the same Answer,
respondents further averred that Cruz and his co-petitioner Minterbro, while admittedly
stockholders of Filport, have no authority nor standing to bring the so-called derivative suit for and in
behalf of the corporation.

On 10 December 2001, RTC-Davao City rendered its decision in favor of the petitioners. However, on
appeal it was reversed.

ISSUE: Was the case filed by Cruz, on behalf of Filipinas Port Services Inc., a derivative suit?

RULING: Yes. Under the Corporation Code, where a corporation is an injured party, its power to sue
is lodged with its board of directors or trustees. But an individual stockholder may be permitted to
institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or when a demand upon them to file the
necessary action would be futile because they are the ones to be sued, or because they hold control
of the corporation. In such actions, the corporation is the real party-in-interest while the suing
stockholder, in behalf of the corporation, is only a nominal party.

Here, the action below is principally for damages resulting from alleged mismanagement of the
affairs of Filport by its directors/officers, it being alleged that the acts of mismanagement are
detrimental to the interests of Filport. Thus, the injury complained of primarily pertains to the
corporation so that the suit for relief should be by the corporation. However, since the ones to be
sued are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may
validly institute a derivative suit to vindicate the alleged corporate injury, in which case Cruz is only a
nominal party while Filport is the real party-in-interest. For sure, in the prayer portion of petitioners
petition before the SEC, the reliefs prayed were asked to be made in favor of Filport.

Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case,
to wit:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained
of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular stockholder bringing the suit.

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Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its
board of directors remedy what he perceived as wrong when he wrote a letter requesting the board
to do the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against
the stockholders of the corporation generally, and not against Cruz or Minterbro, in particular. In the
end, it is Filport, not Cruz which directly stands to benefit from the suit. And while it is true that the
complaining stockholder must show to the satisfaction of the court that he has exhausted all the
means within his reach to attain within the corporation itself the redress for his grievances, or
actions in conformity to his wishes, nonetheless, where the corporation is under the complete
control of the principal defendants, as here, there is no necessity of making a demand upon the
directors.

Hi-Yield Realty, Incorporated vs. Court of Appeals

GR No. 168863, June 23, 2009

FACTS: Roberto, for and on behalf of Honorio Torres & Sons, Inc. (HTSI), filed a Petition for
Annulment of Real Estate Mortgage and Foreclosure Sale over two parcels of land located in
Marikina and Quezon City. The suit was filed against Leonora, Ma. Theresa, Glenn and Stephanie, all
surnamed Torres, the Register of Deeds of Marikina and Quezon City, and petitioner Hi-Yield Realty,
Inc. (Hi-Yield). Petitioner moved to dismiss the petition on grounds of improper venue and payment
of insufficient docket fees. The RTC denied said motion and held that the case was, in nature, a real
action in the form of a derivative suit cognizable by a special commercial court. The appellate court
agreed with the RTC that the case was a derivative suit. It further ruled that the prayer for annulment
of mortgage and foreclosure proceedings was merely incidental to the main action.

Petitioner argues that the appellate court erred in ruling that the action is mainly a derivative suit and
the annulment of real estate mortgage and foreclosure sale is merely incidental thereto. It points out
that the caption of the case, substance of the allegations, and relief prayed for revealed that the
main thrust of the action is to recover the lands. Respondents maintain that the action is primarily a
derivative suit to redress the alleged unauthorized acts of its corporate officers and major
stockholders in connection with the lands. They postulate that the nullification of the mortgage and
foreclosure sale would just be a logical consequence of a decision adverse to said officers and
stockholders.

ISSUE: Whether the action to annul the real estate mortgage and foreclosure sale is a mere incident
of the derivative suit

RULING: The petition must be dismissed.

A derivative action is a suit by a shareholder to enforce a corporate cause of action. Under the
Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board
of directors or trustees. But an individual stockholder may be permitted to institute a derivative suit
on behalf of the corporation in order to protect or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or are the ones to be sued, or hold control of the corporation. In
such actions, the corporation is the real party-in-interest while the suing stockholder, on behalf of
the corporation, is only a nominal party.

21 | P a g e
In the case of Filipinas Port Services, Inc. v. Go, the court enumerated the foregoing requisites before
a stockholder can file a derivative suit:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained
of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular stockholder bringing the suit.

Even then, not every suit filed on behalf of the corporation is a derivative suit. For a derivative suit to
prosper, the minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit.

Further, while it is true that the complaining stockholder must satisfactorily show that he has
exhausted all means to redress his grievances within the corporation; such remedy is no longer
necessary where the corporation itself is under the complete control of the person against whom
the suit is being filed. The reason is obvious: a demand upon the board to institute an action and
prosecute the same effectively would have been useless and an exercise in futility.

Here, Roberto alleged in his petition that earnest efforts were made to reach a compromise among
family members/stockholders before he filed the case. He also maintained that Leonora Torres held
55% of the outstanding shares while Ma. Theresa, Glenn and Stephanie excluded him from the affairs
of the corporation. Even more glaring was the fact that from June 10, 1992, when the first mortgage
deed was executed until July 23, 2002, when the properties mortgaged were foreclosed, the Board
of Directors of HTSI did nothing to rectify the alleged unauthorized transactions of Leonora. Clearly,
Roberto could not expect relief from the board.

ALFREDO L. VILLAMOR, JR. v. JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F. BALMORES

G.R. No. 172843 September 24, 2014
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M. PANGILINAN v. HERNANDO F. BALMORES
G.R. NO. 172881

FACTS: MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part
of the area owned by Mid-Pasig Development Corporation (Mid-Pasig). PPC obtained an option to
lease portions of Mid-Pasig's property, including the Rockland area. PPC's board of directors issued a
resolution waiving all its rights, interests, and participation in the option to lease contract in favor
o£ the law firm of Atty. Alfredo Villamor, Jr. (Villamor).PPC received no consideration for this waiver
in favor of Villamor's law firm.

PPC, represented by Villamor, entered into a memorandum of agreement (MOA) with MC Home
Depot. Under the MO A, MC Home Depot would continue to occupy the area as PPC's sublessee for
four (4) years, renewable for another four (4) years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00. In compliance with the terms of the MOA, MC Home Depot issued 20

22 | P a g e
post-dated checks representing rental payments for one year and the goodwill money. The checks
were given to Villamor who did not turn these or the equivalent amount over to PPC, upon
encashment. Hernando Balmores, wrote a letter addressed to PPJC's directors. He informed them
that Villamor should be made to deliver to PPC and account for MC Home Depot's checks or their
equivalent value.wlawlibrary

Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial Court
an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-
Corporate Controversies (Interim Rules) against petitioners for their alleged devices or schemes
amounting to fraud or misrepresentation "detrimental to the interest of the Corporation and its
stockholders." The Regional Trial Court denied respondent Balmores' prayer for the appointment of
a receiver or the creation of a management committee. The Court of Appeals reversed the trial
court's decision, and issued a new order placing PPC under receivership and creating an interim
management committee.

ISSUE: Whether the Court of Appeals correctly characterized respondent Balmores' action as a
derivative suit

RULING: No. Respondent Balmores' action in the trial court is not a derivative suit. A derivative suit
is an action filed by stockholders to enforce a corporate action. It is an exception to the general rule
that the corporation's power to sue is exercised only by the board of directors or
trustees.ralawlawlibrary

Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors
or officers of the corporation refuse to sue to vindicate the rights of the corporation or are the ones
to be sued and are in control of the corporation. It is allowed when the "directors [or officers] are
guilty of breach of . . . trust, [and] not of mere error of judgment." In derivative suits, the real party
in interest is the corporation, and the suing stockholder is a mere nominal party. Thus, this court
noted:c

The Court has recognized that a stockholder's right to institute a derivative suit is not based on any
express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers liable for damages suffered by
the corporation and its stockholders for violation of their fiduciary duties. In effect, the suit is an
action for specific performance of an obligation, owed by the corporation to the stockholders, to
assist its rights of action when the corporation has been put in default by the wrongful refusal of the
directors or management to adopt suitable measures for its protection.chanrobleslaw

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules)
provides the five (5) requisites for filing derivative suits:chanRoblesvirtualLawlibrary

SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:chanRoblesvirtualLawlibrary
He was a stockholder or member at the time the acts or transactions subject of the action
(1)
occurred and at the time the action was filed;
He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
(2) exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;

23 | P a g e
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the
first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or
member must be "in the name of [the] corporation or association. ..." This requirement has already
been settled in jurisprudence.

Respondent Balmores' action in the trial court failed to satisfy all the requisites of a derivative suit.
Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for.
Though he tried to communicate with PPC's directors about the checks in Villamor's possession
before he filed an action with the trial court, respondent Balmores was not able to show that this
comprised -all the remedies available under the articles of incorporation, bylaws, laws, or rules
governing PPC.

An allegation that appraisal rights were not available for the acts complained of is another requisite
for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules. Section 82 of the Corporation
Code provides that the stockholder may exercise the right if he or she voted against the proposed
corporate action and if he made a written demand for payment on the corporation within thirty (30)
days after the date of voting. Respondent Balmores complained about the alleged inaction of PPC's
directors in his letter informing them that Villamor should be made to deliver to PPC and account for
MC Home Depot's checks or their equivalent value. He alleged that these are devices or schemes
amounting to fraud or misrepresentation detrimental to the corporation's and the stockholders'
interests. He also alleged that the directors' inaction placed PPC's assets in imminent and/or actual
dissipation, loss, wastage, and destruction.

Granting that (a) respondent Balmores' attempt to communicate with the other PPC directors
already comprised all the available remedies that he could have exhausted and (b) the corporation
was under full- control of petitioners that exhaustion of remedies became impossible or
futile, respondent Balmores failed to allege that appraisal rights were not available for the acts
complained of here.

Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was filing
on behalf of the corporation. The non-derivative character of respondent Balmores' action may also
be gleaned from his allegations in the trial court complaint. In the complaint, he described the nature
of his action as an action under Rule 1, Section l(a)(l) of the Interim Rules, and not an action under
Rule 1, Section l(a)(4) of the Interim Rules, which refers to derivative suits.

In this case, respondent Balmores filed an individual suit. His intent was very clear from his manner of
describing the nature of his action. Respondent Balmores did not bring the action for the benefit of
the corporation. Instead, he was alleging that the acts of PPC's directors, specifically the waiver of
rights in favor of Villamor's law firm and their failure to take back the MC Home Depot checks from
Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore,
his intention was to vindicate his individual interest and not PPC's or a group of stockholders'. The
essence of a derivative suit is that it must be filed on behalf of the corporation. This is because the
cause of action belongs, primarily, to the corporation. The stockholder who sues on behalf of a

24 | P a g e
corporation is merely a nominal party. Respondent Balmores' intent to file an individual suit removes
it from the coverage of derivative suits.

Ang vs. Ang

G.R. No. 201675, June 19, 2013

FACTS: Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang
family. Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang (Anecita)
is Juanito’s wife and Jeannevie is their daughter. Roberto was elected President of SMBI, while
Juanito was elected as its Vice President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s Corporate
Secretary and Treasurer, respectively. On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and
Roberto, and her husband, Theodore Ang (Theodore), agreed to extend a loan to settle the
obligations of SMBI and other corporations owned by the Ang family, specifically Bayshore Aqua
Culture Corporation, Oceanside Marine Resources and JR Aqua Venture. The spuoses then issued a
check in the amount of $1,000,000.00 payable to "Juanito Ang and/or Anecita Ang and/or Roberto
Ang and/or Rachel Ang."

On 22 December 2005, SMBI increased its authorized capital stock to ₱10,000,000.00. The
Certificate of Increase of Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as
directors of SMBI. Juanito claimed, however, that the increase of SMBI’s capital stock was done in
contravention of the Corporation Code. According to Juanito, when he and Anecita left for Canada:
Sps. Roberto and Rachel Ang took over the active management of [SMBI]. Through the employment
of sugar coated words, they were able to successfully manipulate the stocks sharings between
themselves at 50-50 under the condition that the procedures mandated by the Corporation Code on
increase of capital stock be strictly observed (valid Board Meeting). No such meeting of the Board to
increase capital stock materialized. It was more of an accommodation to buy peace x x x.

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. On 24
November 2008, Nancy and Theodore, through their counsel here in the Philippines, sent a demand
letter to "Spouses Juanito L. Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L. Ang" for
payment of the principal amounting to $1,000,000.00 plus interest at ten percent (10%) per annum,
for a total of $2,585,577.37 within ten days from receipt of the letter. Roberto and Rachel then sent a
letter to Nancy and Theodore’s counsel on 5 January 2009, saying that they are not complying with
the demand letter because they have not personally contracted a loan from Nancy and Theodore.
Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte Writ of
Attachment/Receivership" (Complaint) before the RTC Bacolod on 29 January 2009. He alleged that
"the intentional and malicious refusal of defendant Sps. Roberto and Rachel Ang to settle their 50%
share x x x of the total obligation x x x will definitely affect the financial viability of plaintiff SMBI.”
Juanito also claimed that he has been "illegally excluded from the management and participation in
the business of [SMBI through] force, violence and intimidation" and that Rachel and Roberto have
seized and carted away SMBI’s records from its office.

ISSUE: Is the nature of the case one of a derivative suit?

RULING: No. the Complaint is not a derivative suit. A derivative suit is an action brought by a
stockholder on behalf of the corporation to enforce corporate rights against the corporation’s

25 | P a g e
directors, officers or other insiders. The directors or officers, as provided under the by-laws, have the
right to decide whether or not a corporation should sue. Since these directors or officers will never
be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are
permitted by law to bring an action in the name of the corporation to hold these directors and
officers accountable. In derivative suits, the real party ininterest is the corporation, while the
stockholder is a mere nominal party.

The Complaint failed to show how the acts of Rachel and Roberto resulted in any detriment to SMBI.
The loan was not a corporate obligation, but a personal debt of the Ang brothers and their spouses.
The check was issued to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang"
and not SMBI. The proceeds of the loan were used for payment of the obligations of the other
corporations owned by the Angs as well as the purchase of real properties for the Ang brothers.
SMBI was never a party to the Settlement Agreement or the Mortgage. It was never named as a co-
debtor or guarantor of the loan. Both instruments were executed by Juanito and Anecita in their
personal capacity, and not in their capacity as directors or officers of SMBI. Thus, SMBI is under no
legal obligation to satisfy the obligation.

Nestor Ching v. Andrew Wellington

G.R No. 174353 September 10, 2014

FACTS: Nestor Ching and Andrew Wellington filed a Complaint on behalf of the members of Subic
Bay Golf and Country Club, Inc. (SBGCCI) against the said country club and its Board of Directors and
officers under the provisions of Presidential Decree No. 902-A in relation to Section 5.2 of the
Securities Regulation Code. The Subic Bay Golfers and Shareholders Incorporated (SBGSI), a
corporation composed of shareholders of the defendant corporation, was also named as plaintiff.
The complaint alleged that the defendant corporation sold shares to plaintiffs at US$22,000.00 per
share, presenting to them the Articles of Incorporation which contained the following provision:No
profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall be
declared in their favor. Shareholders shall be entitled only to a pro-rata share of the assets of the
Club at the time of its dissolution or liquidation.

However, an amendment to the Articles of Incorporation was approved by the Securities and
Exchange Commission (SEC), wherein the above provision was changed. Petitioners claimed in the
Complaint that defendant corporation did not disclose to them the above amendment which
allegedly makes the shares non-proprietary, as it takes away the right of the shareholders to
participate in the pro-rata distribution of the assets of the corporation after its dissolution. According
to petitioners, this is in fraud of the stockholders who only discovered the amendment when they
filed a case for injunction to restrain the corporation from suspending their rights to use all the
facilities of the club. Furthermore, petitioners alleged that the Board of Directors and officers of the
corporation did not call any stockholders’ meeting from the time of the incorporation, in violation of
Section 50 of the Corporation Code and the By-Laws of the corporation.

The Complaint furthermore enumerated several instances of fraud in the management of the
corporation allegedly committed by the Board of Directors and officers of the corporation,
Respondents claimed by way of defense that petitioners failed (a) to show that it was authorized by
SBGSI to file the Complaint on the said corporation’s behalf; (b) to comply with the requisites for
filing a derivative suit and an action for receivership; and (c) to justify their prayer for injunctive relief

26 | P a g e
since the Complaint may be considered a nuisance or harassment suit under Section 1(b), Rule1 of the
Interim Rules of Procedure for Intra-Corporate Controversies. RTC issued an Order dismissing the
Complaint.

ISSUE: Was the complaint filed by the petitioners constitutes a derivative suit?

RULING: No. At the outset, it should be noted that the Complaint in question appears to have been
filed only by the two petitioners, namely Nestor Ching and Andrew Wellington, who each own one
stock in the respondent corporation SBGCCI. While the caption of the Complaint also names the
"Subic Bay Golfers and Shareholders Inc. for and in behalf of all its members," petitioners did not
attach any authorization from said alleged corporation or its members to file the Complaint. Thus,
the Complaint is deemed filed only by petitioners and not by SBGSI.

Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies imposes
the following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The RTC dismissed the Complaint for failure to comply with the second and fourth requisites above.
Upon a careful examination of the Complaint, the Court finds that the same should not have been
dismissed on the ground that it is a nuisance or harassment suit. Although the shareholdings of
petitioners are indeed only two out of the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of stockholders file a derivative suit for and in
behalf of a corporation.

With regard, however, to the second requisite, we find that petitioners failed to state with
particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, and laws or rules governing the corporation to
obtain the relief they desire. The Complaint contained no allegation whatsoever of any effort to avail
of intra-corporate remedies. Indeed, even if petitioners thought it was futile to exhaust intra-
corporate remedies, they should have stated the same in the Complaint and specified the reasons for
such opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in
accordance with the Interim Rules. The requirement of this allegation in the Complaint is not a
useless formality which may be disregarded at will.

Intra-corporate dispute

People vs. Fernandez and Jajime Umezawa

G.R. No. 149403, March 4, 2005

27 | P a g e
FACTS: Umezawa, then the President and General Manager of MPI, organized another company with
his wife Kimiko, and his sister, Mitsuyo Yaguchi, to be known as Astem Philippines Corporation,
without knowledge of the Board of Directors of MPI. The said company would be engaged in the
same business as Mobilia. Umezawa stole products from MPI amounting to P3, 219,875.00.MPI and
public prosecutor filed criminal complaints against Umezawa. The trial court asserted that the
controversy involving the criminal cases was between Umezawa and the other stockholders of MPI.
It also held that the SEC, not the trial court, had jurisdiction over intra-corporate controversies.CA
affirmed the ruling of the RTC that the dispute between Umezawa and the other stockholders and
officers over the implementation of the MPI’s standard procedure is intra-corporate in nature; hence,
within the exclusive jurisdiction of the SEC. The petitioner MPI filed the instant petition for review on
certiorari.

ISSUE: Does the Security and Exchange Commission have jurisdiction over the criminal cases against
Umezawa?

RULING: Yes. Based on the material allegations of the Information, the court a quo has exclusive
jurisdiction over the crimes charged. CA erred in holding that the dispute between it and the
respondent is intra-corporate in nature; hence, within the exclusive jurisdiction of the SEC. As
gleaned from the material allegations of the information, the RTC had exclusive jurisdiction over the
crimes charged. According to Section 20 of B.P. Blg. 129 Regional Trial Courts shall exercise exclusive
original jurisdiction in all criminal cases not within the exclusive jurisdiction of any court, tribunal or
body, except those now falling under the exclusive and concurrent jurisdiction of the Sandiganbayan
which shall hereafter be exclusively taken cognizance of by the latter. Case law has it that in order to
determine the jurisdiction of the court in criminal cases, the complaint or Information must be
examined for the purpose of ascertaining whether or not the facts set out therein and the prescribed
period provided for by law are within the jurisdiction of the court, and where the said Information or
complaint is filed. It is settled that the jurisdiction of the court in criminal cases is determined by the
allegations of the complaint or Information and not by the findings based on the evidence of the
court after trial. Jurisdiction is conferred only by the Constitution or by the law in force at the time of
the filing of the Information or complaint. Once jurisdiction is vested in the court, it is retained up to
the end of the litigation.

EDITO GULFO and EMMANUELA GULFO, Petitioners, vs. JOSE P. ANCHETA, Respondent.
G.R. No. 175301 August 15, 2012

FACTS: The petitioners are the neighbors of Jose Ancheta (respondent). The parties occupy a duplex
residential unit on Zodiac Street, Veraville Homes, Almanza Uno, Las Piñas City. The petitioners live in
unit 9-B, while the respondent occupies unit 9-A of the duplex. Sometime in 1998, respondent’s
septic tank overflowed; human wastes and other offensive materials spread throughout his entire
property. As a result, respondent and his family lived through a very unsanitary environment,
suffering foul odor and filthy premises for several months.

The respondent narrated that the petitioners had just recently renovated their duplex unit and, in
the process, had made some diggings in the same portion where the drainage pipe had been
cemented. The respondent added that the closing of the drainage pipe with cement could not have
been the result of an accident, but was the malicious act by the petitioners. On May 19, 1999, the
respondent filed a complaint for damages against the petitioners with the RTC.
The petitioners moved to dismiss the complaint on the ground of lack of jurisdiction.

28 | P a g e
The RTC viewed the case as one involving an intra-corporate dispute falling under the jurisdiction of
the Home Insurance and Guaranty Corporation (HIGC). The CA noted that although the case involves
a dispute between members of the homeowners’ association, it is not an intra-corporate matter as it
does not concern the right of the corporation to exist as an entity.

ISSUE: Whether or not the case involve an intra-corporate dispute

RULING: In Union Glass & Container Corp., et al. v. SEC, et al., the Court declared that the relationship
test determines whether the relationship is: "[a] between the corporation, partnership or
association and the public; [b] between the corporation, partnership or association and its
stockholders, partners, members, or officers; [c] between the corporation, partnership or
association and the State [insofar] as its franchise, permit or license to operate is concerned; and [d]
among the stockholders, partners or associates themselves."

Under this test, no doubt exists that the parties were members of the same association, but this
conclusion must still be supplemented by the controversy test before it may be considered as an
intra-corporate dispute. Relationship alone does not ipso facto make the dispute intra-corporate; the
mere existence of an intra-corporate relationship does not always give rise to an intra-corporate
controversy. The incidents of that relationship must be considered to ascertain whether the
controversy itself is intra-corporate. This is where the controversy test becomes material.

Under the controversy test, the dispute must be rooted in the existence of an intra-corporate
relationship, and must refer to the enforcement of the parties' correlative rights and obligations
under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the
corporation, in order to be an intra-corporate dispute. These are essentially determined through the
allegations in the complaint which determine the nature of the action.

We found from the allegations in the complaint that the respondent did not question the status of
the petitioners as members of the association. There were no allegations assailing the petitioners'
rights or obligations on the basis of the association's rules and by-laws, or regarding the petitioners'
relationships with the association. What were alleged were only demands for civil indemnity and
damages. The intent to seek indemnification only (and not the petitioners' status, membership, or
their rights in the association) is clear from paragraphs 7, 8 and 9 of the complaint. In light of these,
the case involves a simple civil action -the petitioners' liability for civil indemnity or damages- that
could only be determined through a full-blown hearing for the purpose before the RTC.

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION and PHILCOMSAT HOLDINGS

CORPORATION v. SANDIGANBAYAN
G.R. No. 203023 June 17, 2015

FACTS: PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). It was previously
known as Liberty Mines, Inc. (LMI) and had been previously engaged in the discovery, exploitation,
development and exploration of oils. Oliverio G.Laperal (Laperal), then Chairman of the Board and
President of LMI, and Honorio Poblador III, then President of PHILCOMSAT, signed a Memorandum
of Agreement for the latter to gain controlling interest in LMI through an increase in its authorized
capital stock.

29 | P a g e
Laperal and PHILCOMSAT executed a Supplemental Memorandum of Agreement reiterating the
increase in capital stock of LMI from six billion shares to100 billion shares with par value of P0.01 per
share equivalent to ₱1 billion. Pending the PSE’s final approval of PHC’s application for listing of the
shares, the PCGG on 1 March 2005, through its then Chairman Camilo L. Sabio (Chairman Sabio),
made a written request to suspend the listing of the increase in PHC’s capital stock citing as reason
the need to settle the conflicting claims of the two sets of board of directors of the Philippine
Overseas Telecommunication Corporation (POTC) and PHILCOMSAT. In a special stockholders’
meeting attended by POTC’s private stockholders and Presidential Management Staff
Undersecretary Enrique D. Perez, as representative and proxy of the Republic of the Philippines, and
observed by Securities and Exchange Commission (SEC) representatives, the certain persons were
elected as directors. The PCGG issued a Resolution recognizing the validity of the POTC’s and
PHILCOMSAT’s respective stockholders’ meetings and elections.

ISSUE: Does the case involved an intra-coporate controversy?

RULING: Yes. Under the relationship test, the existence of any of the following relationships makes
the conflict intra-corporate: (1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the State insofar as its franchise, permit
or license to operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or associates
themselves.37
On the other hand, the nature of the controversy test dictates that "the controversy must not only
be rooted in the existence of an intra-corporate relationship, but must as well pertain to the
enforcement of the parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation."

The controversy in the present case stems from the act of Chairman Sabio in requesting the PSE to
suspend the listing of PHC’s increase in capital stock because of still unresolved issues on the election
of the POTC’s and PHILCOMSAT’s respective boards of directors. The act of Chairman Sabio in asking
the SEC to suspend the listing of PHC’s shares was done in pursuit of protecting the interest of the
Republic of the Philippines, a legitimate stockholder in PHC’s controlling parent company, POTC. The
character of the shares held by the PCGG/Republic, on whose behalf the PCGG Chairman is presumed
to be acting, is irrelevant to Chairman Sabio’s actions. Any shareholder, harboring any apprehensions
or concerns, could have done the same or posed the same objection. It was an act that had no
relation to any proceeding or question of ill-gotten wealth or sequestration. The PCGG was merely
protecting the rights and interest of the Republic of the Philippines. From the foregoing, it is clear
that the dispute in the present case is an intra-corporate controversy.

CONCORDE CONDOMINIUM, INC., BY ITSELF AND COMPRISING THE UNIT OWNERS OF

CONCORDE CONDOMINIUM BUILDING vs. AUGUSTO H. BACULIO; NEW PPI CORPORATION;
ASIAN SECURITY AND INVESTIGATION AGENCY AND ITS SECURITY GUARDS; ENGR.
NELSON B. MORALES, IN HIS CAPACITY AS BUILDING OFFICIAL OF THE MAKATI CITY
ENGINEERING DEPARTMENT; SUPT. RICARDO C. PERDIGON, IN HIS CAPACITY AS CITY FIRE
MARSHAL OF THE MAKATI CITY FIRE STATION; F/C SUPT. SANTIAGO E. LAGUNA, IN HIS

30 | P a g e
 CAPACITY AS REGIONAL DIRECTOR OF THE BUREAU OF FIRE PROTECTION-NCR, AND ANY
AND ALL PERSONS ACTING WITH OR UNDER THEM
G.R. No. 203678, February 17, 2016

FACTS: On April 16, 2012, petitioner Concorde Condominium, Inc., by itself and comprising the Unit
Owners of Concorde Condominium Building, filed with the Regional Trial Court (RTC) a Petition for
Injunction against respondents New PPI Corporation and its President Augusto H. Baculio; Asian
Security and Investigation Agency and its security guards, Engr. Nelson B. Morales in his capacity as
Building Official of the Makati City Engineering Department; Supt. Ricardo C. Perdigon in his capacity
as City Fire Marshal of the Makati City Fire Station; F/C Supt. Santiago E. Laguna, in his capacity as
Regional Director of the Bureau of Fire Protection - NCR, and any and all persons acting with or under
the respondents.

Petitioner seeks (1) to enjoin respondents Baculio and New PPI Corporation from misrepresenting to
the public, as well as to private and government offices/agencies, that they are the owners of the
disputed lots and Concorde Condominium Building, and from pushing for the demolition of the
building which they do not even own; (2) to prevent respondent Asian Security and Investigation
Agency from deploying its security guards within the perimeter of the said building; and (3) to
restrain respondents Engr. Morales, Supt. Perdigon and F/C Supt. Laguna from responding to and
acting upon the letters being sent by Baculio, who is a mere impostor and has no legal personality
with regard to matters concerning the revocation of building and occupancy permits, and the fire
safety issues of the same building. It also prays to hold respondents solidarily liable for actual
damages, moral damages, exemplary damages, attorney's fees, litigation expenses and costs of suit.
Meanwhile, respondents Baculio and New PPI Corporation filed an Urgent Motion to Re-Raffle dated
April 25, 2012, claiming that it is a regular court, not a Special Commercial Court, which has
jurisdiction over the case.

In their Motion to Vacate Order and Motion to Dismiss dated May 8, 2012, respondents Baculio and
New PP1 Corporation assailed the RTC Order dated April 24, 2012, stating that the case is beyond its
jurisdiction as a Special Commercial Court. Respondents claimed that the petition seeks to restrain or
compel certain individuals and government officials to stop doing or performing particular acts, and
that there is no showing that the case involves a matter embraced in Section 5 of Presidential Decree
(P.D.) No. 902-A, which enumerates the cases over which the SEC [now the RTC acting as Special
Commercial Court pursuant to Republic Act (R.A.) No. 8799] exercises exclusive jurisdiction. They
added that petitioner failed to exhaust administrative remedies, which is a condition precedent
before filing the said petition.

ISSUE: Whether or not the RTC has jurisdiction over the dispute

RULING: In resolving the issue of whether Branch 149 of the Makati RTC, a designated Special
Commercial Court, erred in dismissing the petition for injunction with damages for lack of jurisdiction
over the subject matter, the Court is guided by the rule "that jurisdiction over the subject matter of a
case is conferred by law and determined by the allegations in the complaint which comprise a
concise statement of the ultimate facts constituting the plaintiffs cause of action. The nature of an
action, as well as which court or body has jurisdiction over it, is determined based on the allegations
contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein. The averments in the complaint and the

31 | P a g e
character of the relief sought are the ones to be consulted. Once vested by the allegations in the
complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein."
As a rule, actions for injunction and damages lie within the jurisdiction of the RTC, pursuant to
Section 19 of Batas Pambansa Blg. 129, otherwise known as the judiciary Reorganization Act of 1980,
as amended by R.A. 7691:
Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:

(1) In all civil actions in which the subject of the litigations is incapable of pecuniary estimation;

xxxx

(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising x
x x judicial or quasi-judicial functions;

xxxx

(8) In all other cases in which the demand, exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses, and costs or the value of the property in controversy exceeds
Three hundred thousand pesos (P300,000.00) or, in such other cases in Metro Manila, where the
demand exclusive of the above-mentioned items exceeds Four hundred thousand pesos
(P400,000.00).

Meanwhile, Section 6 (a) of P.D. No. 902-A empowered the SEC to issue preliminary or permanent
injunctions, whether prohibitory or mandatory, in all cases in which it exercises original and exclusive
jurisdiction,10 to wit:

(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its
officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members of associations or organizations
registered with the Commission;

(b) Controversies arising 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 insofar as it concerns their individual franchise
or right to exist as such entity; and

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.

However, jurisdiction of the SEC over intra-corporate cases was transferred to Courts of general
jurisdiction or the appropriate Regional Trial Court when R.A. No. 8799 took effect on August 8,
2000.

Having clearly settled that as courts of general jurisdiction, the designated Special Commercial
Courts and the regular RTCs are both conferred by law the power to hear and decide civil cases in
which the subject of the litigation is incapable of pecuniary estimation, such as an action for

32 | P a g e
injunction, the Court will now examine the material allegations in the petition for injunction with
damages, in order to determine whether Branch 149 of the Makati RTC has jurisdiction over the
subject matter of the case.

There is no doubt that the petition filed before the RTC is an action for injunction, as can be gleaned
from the allegations made and reliefs sought by petitioner, namely: (1) to enjoin respondents Baculio
and New PPI Corporation from misrepresenting to the public, as well as to private and government
offices/agencies, that they are the owners of the disputed lots and Concorde Condominium Building,
and from pushing for the demolition of the building which they do not even own; (2) to prevent
respondent Asian Security and Investigation Agency from deploying its security guards within the
perimeter of the said building; and (3) to restrain respondents Engr. Morales, Supt. Perdigon and F/C
Supt. Laguna from responding to and acting upon the letters being sent by Baculio, who is a mere
impostor and has no legal personality with regard to matters concerning the revocation of building
and occupancy permits, and the fire safety issues of the same building.

Applying the relationship test and the nature of the controversy test in determining whether a
dispute constitutes an intra-corporate controversy, as enunciated in Medical Plaza Makati
Condominium Corporation v. Cullen, the Court agrees with Branch 149 that Civil Case No. 12-309 for
injunction with damages is an ordinary civil case, and not an intra-corporate controversy.

A careful review of the allegations in the petition for injunction with damages indicates no intra-
corporate relations exists between the opposing parties, namely (1) petitioner condominium
corporation, by itself and comprising all its unit owners, on the one hand, and (2) respondent New
PP1 Corporation which Baculio claims to be the owner of the subject properties, together with the
respondents Building Official and City Fire Marshal of Makati City, the Regional Director of the
Bureau of Fire Protection, and the private security agency, on the other hand. Moreover, the petition
deals with the conflicting claims of ownership over the lots where Concorde Condominium Building
stands and the parking lot for unit owners, which were developed by Pulp and Paper Distributors,
Inc. (now claimed by respondent Baculio as the New PPI Corporation), as well as the purported
violations of the National Building Code which resulted in the revocation of the building and
occupancy permits by the Building Official of Makati City. Clearly, as the suit between petitioner and
respondents neither arises from an intra-corporate relationship nor does it pertain to the
enforcement of their correlative rights and obligations under the Corporation Code, and the internal
and intra-corporate regulatory rules of the corporation, Branch 149 correctly found that the subject
matter of the petition is in the nature of an ordinary civil action.

It is apt to note, however, that the foregoing guideline applies only in a situation where the ordinary
civil case filed before the proper RTCs was "wrongly raffled" to its branches designated as Special
Commercial Courts, which situation does not obtain in this case. Here, no clear and convincing
evidence is shown to overturn the legal presumption that official duty has been regularly performed
when the Clerk of Court of the Makati RTC docketed the petition for injunction with damages as an
ordinary civil case -not as a commercial case - and, consequently, raffled it among all branches of the
same RTC, and eventually assigned it to Branch 149. To recall, the designation of the said branch as a
Special Commercial Court by no means diminished its power as a court of general jurisdiction to hear
and decide cases of all nature, whether civil, criminal or special proceedings. There is no question,
therefore, that the Makati RTC, Branch 149 erred in dismissing the petition for injunction with
damages, which is clearly an ordinary civil case. As a court of general jurisdiction, it still has
jurisdiction over the subject matter thereof.

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Participation in management
Voting trust

RAMON C. LEE and ANTONIO DM. LACDAO vs.

THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and
THOMAS GONZALES
G.R. No. 93695 February 4, 1992

FACTS: In 1985, a complaint for sum of money was filed by the International Corporate Bank, Inc.
against the private respondents who, in turn, filed a third party complaint against Alfa Integrated
Textile Mills (ALFA) and the petitionersRamon C. Lee and Antonio Dm. Lacdao who were officers of
ALFA. Meanwhile, in 1988, the trial court issued an order requiring the issuance of an alias summons
upon ALFA through the DBP as a consequence of the petitioners' letter informing the court that the
summons for ALFA was erroneously served upon them considering that the management of ALFA
had been transferred to the Development Bank of the Philippines (DBP).

In a manifestation, the DBP claimed that it was not authorized to receive summons on behalf of
ALFA since the DBP had not taken over the company which has a separate and distinct corporate
personality and existence.

ISSUE: Is the execution of the Voting Trust Agreement, the summons be served upon the petitioners
who were officers and directors of ALFA (the trustor).

RULING: NO. There is no dispute as to the most immediate effect of a voting trust agreement on the
status of a stockholder who is a party to its execution from legal titleholder or owner of the shares
subject of the voting trust agreement, he becomes the equitable or beneficial owner. Note that in
order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the
stock as appearing on the books of the corporation. Considering that the voting trust agreement
between ALFA and the DBP transferred legal ownership of the stocks covered by the agreement to
the DBP as trustee, the latter became the stockholder of record with respect to the said shares of
stocks. In the absence of a showing that the DBP had caused to be transferred in their names one
share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be
deemed to have retained their status as officers of ALFA which was the case before the execution of
the subject voting trust agreement. There appears to be no dispute from the records that DBP has
taken over full control and management of the firm.

Meetings
Regular or Special

ROSITA PEÑA vs. COURT OF APPEALS

G.R. No. 91478 February 7, 1991

FACTS: Pampanga Bus Co. (PAMBUSCO), original owners of the lots in question, mortgaged
the same to the Development Bank of the Philippines (DBP) in consideration of

34 | P a g e
P935,000.00. This mortgage was foreclosed. In the foreclosure, the said properties were
awarded to Peña as highest bidder. Thereafter, the board of directors of PAMBUSCO,
through (3) out of its (5) directors, resolved to assign its right of redemption over the
aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and
sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party.
Consequently, Briones executed a Deed of Assignment of PAMBUSCO's redemption right
over the subject lots in favor of Enriquez. Thereafter, Enriquez executed a deed of absolute
sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and
Catalina Lugue, for the sum of P140,000.00.

Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered
owners of the lots in question. In the complaint filed, appellants sought to recover
possession over the subject lands from defendants Rosita Peña and Washington Distillery on
the ground that being registered owners, they have to enforce their right to possession
against defendants who have been allegedly in unlawful possession thereof since October
1974 "when the previous owners assigned (their) right to collect rentals in favor of plaintiffs.
After trial, a decision was rendered by the court in favor of the defendants.

ISSUE: Whether or not the board resolution of PAMBUSCO is valid.

RULING: NO. Under Section 25 of the Corporation Code of the Philippines, the articles of
incorporation or by-laws of the corporation may fix a greater number than the majority of
the number of board members to constitute the quorum necessary for the valid transaction
of business. Any number less than the number provided cannot constitute a quorum and any
act therein would not bind the corporation; all that the attending directors could do is to
adjourn.

Records show that PAMBUSCO ceased to operate as of November 15, 1949. Being a
dormant corporation for several years, it was highly irregular, if not anomalous, for a group
of three (3) individuals representing themselves to be the directors of PAMBUSCO to pass a
resolution disposing of the only remaining asset of the corporation in favor of a former
corporate officer. As a matter of fact, the three (3) alleged directors who attended the said
meeting were not listed as directors of respondent PAMBUSCO. Furthermore, PAMBUSCO
was insolvent and its only remaining asset was its right of redemption over the subject
properties. Since the disposition of said redemption right of respondent PAMBUSCO by
virtue of the questioned resolution was not approved by the required number of
stockholders under the law, the said resolution, as well as the subsequent assignment to
respondent Enriquez should be struck down as null and void.

Board of Liquidators vs. Tan

GR No. L-12282, March 31, 1959

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FACTS: John de Castillo et al., commenced a suit in the Court of First Instance of Manila to
declare null and void the election of the members of the board of directors of the SMB
Workers Savings and Loan Association, Inc. and of the members of the Election Committee
for the year 1957 held on January 11 and 12. They also asked to restrain the defendants who
had been illegally elected as members of the board of directors from exercising the
functions of their office and to compel the board of directors of the association to call for
and hold another election in accordance with its constitution and by-laws and the
Corporation Law. Such was granted by the court, however, another suit was filed alleging
that the subsequent meeting for the elections would not be in accordance with the
constitution and by-laws regarding notice to the stockholders.

ISSUE: Whether or not proper notice was given as regards the new meeting for the elections
of the board of directors.

RULING: No. There was no proper notice. Notice of a special meeting of members should be
given at least five days before the date of the meeting. It appears that the notice was posted
on 26 March and the election was set for 28 March. Therefore, the five days previous notice
required would not be complied with.

Who calls the meetings

Bernas vs. Cinco

G.R. Nos. 163356-57, July 1 2015

FACTS: Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight
Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas
Group, who were then incumbent officers of the corporation, to resign from their respective
positions to pave the way for the election of new set of officers. Resonating this clamor were the
stockholders of the corporation representing at least 100 shares who sought the assistance of the
MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers and
electing new ones. Pursuant to such request, the MSCOC called a Special Stockholders' Meeting and
sent out notices to all stockholders and members stating therein the time, place and purpose of the
meeting. Puruant to the meeting, Bernas et al were removed from the board.

ISSUE: Whether the election conducted on December 17, 1997 is valid.

RULING: A special meeting of the stockholders or members of a corporation for the purpose of
removal of directors or trustees, or any of them, must be called by the secretary on order of the
president or on the written demand of the stockholders representing or holding at least a majority of
the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a
majority of the members entitled to vote. Should the secretary fail or refuse to call the special

36 | P a g e
meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for
the meeting may be addressed directly to the stockholders or members by any stockholder or
member of the corporation signing the demand.

Textually, only the President and the Board of Directors are authorized by the by-laws to call a special
meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least 100 shares, upon written request, may file a
petition to call a special stockholder's meeting. In the instant case, there is no dispute that the 17
December 1997 Special Stockholders' Meeting was called neither by the President nor by the Board
of Directors but by the MSCOC. While the MSCOC, as its name suggests, is created for the purpose of
overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to
exercise corporate powers, such as the power to call a special meeting, solely vested by law and the
MSC by-laws on the President or the Board of Directors.

YUJUICO vs. QUIAMBAO

G.R. No. 168639, January 29, 2007

FACTS: On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment of
Strategic Alliance Development Corporation’s (STRADEC) Articles of Incorporation authorizing the
change of its principal office from Pasig City Pangasinan.

On March 1, 2004, STRADEC held its annual stockholders meeting in Pasig City its office as
indicated in the notices sent to the stockholders. Herein petitioners and respondents were elected
members of the Board of Directors.

Five months thereafter, respondents filed with the RTC in Pangasinan a complaint against
STRADEC. The complaint seeks for the nullification of the election on the ground of improper venue,
pursuant to Section 51 of the Corporation Code, next is the nullification of all subsequent
transactions conducted by the elected directors and lastly that a special stockholder’s meeting be
held once again. The RTC under pairing Judge Emuslan issued an Order for granting respondents
application for preliminary injunction ordering (1) the holding of a special stockholders meeting of
STRADEC on December 10, 2004 in the principal office of the corporation in Bayambang, Pangasinan;
and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the duplicate key of the safety
deposit box in Export Industry Bank, Shaw Boulevard, Pasig City where the original Stock and
Transfer Book of STRADEC was deposited. The plaintiff filed with the Court of Appeals (CA) a
Petition for Certiorari. CA dismissed such petition and upheld the jurisdiction of the RTC.

ISSUE: Does the RTC has the power to call a special stockholder’s meeting involving an intra-
corporate controversy?

RULING: The Supreme Court ruled in the affirmative. In ruling so, the Court held that upon the
enactment of R.A. No. 8799, otherwise known as The Securities Regulation Code which took effect
on August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction,
or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides: 5.2. The Commissions jurisdiction over
all cases enumerated in Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts
of general jurisdiction or the appropriate Regional Trial Court, Provided, That the Supreme Court in

37 | P a g e
the exercise of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving
intracorporate disputes submitted for final resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension
of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. The RTC has the
power to hear and decide the intra-corporate controversy of the parties herein. Concomitant to said
power is the authority to issue orders necessary or incidental to the carrying out of the powers
expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special
meeting of stockholders or members of a corporation involving an intra-corporate dispute under its
supervision.

Who could attend and vote

JULIO E. T. SALES and GEORGE V. AGONIAS and SMEC vs.

SEC, SIHI and ATCO, represented by its President, ANSELMO TRINIDAD; VIMC, represented by its
President, et al.
G.R. No. 54330 January 13, 1989

FACTS: SMEC sold 200M common shares of its capital stock in the amount of P2.6M to SIHI under a
Sales Agreement providing that the sale shall be only up to 5m shares per buyer. SIHI requested for
the transfer of the 200M shares to ATCO to which SMEC complied. During the time that ATCO held
the shares, it voted them in the SHs' meetings of SMEC. ATCO in turn sold 198,500,000 of the shares
to respondent VIMC. Upon request, SMEC BOD issued a resolution directing its President to sign the
certificate of stock that would effect the transfer. Before the 1979 annual SH meeting of SMEC,
petitioners sought to nullify the sales of the shares to VIMC with the SEC and to enjoin VIMC from
voting the said shares. VIMC was temporarily restrained and the meeting was held without the
participation of VIMC’s shares and BODs were elected only from the group of petitioners. In VIMC’s
answer, it questioned the said election. SEC denied the petition as well as motion to dismiss and
lifted the Restraining it issued earlier and allowed the shares of VIMC to be counted in determining
the quorum of the 1980 annual SHs meeting, which was already near, and the same shares were
allowed to vote and be voted for. Before the SC, petitioners contended that the SEC gravely abused
its discretion in not enjoining the participation of VIMC in the 1980 election considering that the sale
of the shares to VIMC was null and void as it was done in violation of the Sales Agreement on the
limit of shares to be sold to each buyer and that VIMC’s ownership of the shares is contrary to Sec. 13
(5-A) of the old corporation law.

ISSUE: Whether or not SEC acted with grave abuse of discretion in not permanently enjoining VIMC
in voting.

HELD: NO. SC found no grave abuse of discretion on the part of the SEC in not restraining VIMC. It
adopted the SEC resolution stating that the sale of the shares of stock had long been perfected and
is presumed valid until declared otherwise. As against this presumption, petitioners' prayer for
injunction cannot prevail as the issue of the validity of the sale is still to be resolved by the SEC.

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Considering that the shares constitute the majority, it is more equitable that the same be allowed to
vote rather than be enjoined. As it has been ruled the removal of a majority SH from the
management of the corporation and/or the dissolution of a corporation in a suit filed by a minority
SH is a drastic measure. It should be resorted to only when the necessity is clear. With more reason,
the Court will not deprive a SH of his right to vote his shares in the annual SHs' meeting, except upon
a clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation,
as it is a right inherent in stock ownership.

DOMINGO PONCE AND BUHAY L. PONCE Vs. DEMETRIO B. ENCARNACION, Judge of the Court of
First Instance of Manila, Branch I, and POTENCIANO GAPOL
G.R. No. L-5883 November 28, 1953

FACTS: The petitioners Domingo and Buhay Ponce aver that the Daguhoy Enterprises, Inc. On 16 April
1951 at a meeting duly called, the voluntary dissolution of the corporation and the appointment of
Potenciano Gapol as receiver were agreed upon and to that end a petitioner Domingo Ponce. Instead
of filing the petition for voluntary dissolution of the of the corporation as agreed upon, the
respondent Potenciano Gapol, who is the largest stockholder, charged his mind and filed a complaint
in the CFI to compel the petitioners to render an accounting of the funds and assets of the
corporation, to reimburse it, jointly and severally for a total sum of P18,690, plus interest, or such
sum as may be found after the accounting shall have been rendered to have been misspent,
misapplied, missappropriated and converted by the petitioner Domingo Ponce to his own use and
benefit.

The plaintiff in that case, the respondent Potenciano Gapol in this case, filed a motion praying that
the petitioners be removed as members of the board of directors which was denied by the court. In
1952 respondent Potenciano Gapol filed a petition, praying for an order directing him to a call a
meeting of the stockholders of the corporation and to preside at such meeting in accordance with
section 26 of the Corporation law. Such Petition was granted without the knowledge of the Ponces.
The Ponces allege that they only knew about this order when the Bank of America refused to
recognize the new board of directors elected at such meeting and returned the checks drawn upon it
by the said board of directors. According to the Ponces, the Rules of Court was not properly
complied with when they were not given the 3 day notice before the hearing of the Petition.

During the meeting, Juanito R. Tianzon was elected as a member of the board of directors of the
corporation but the Ponces allege that he did not comply with the requirement to be a member of
the Board- that he must be a member of the Legionarios del Trabajo, as required and provided for in
article 7 of the by-laws of the corporation.

ISSUE: Was the meeting validly called?

RULING: YES. The only question to determine in this case is whether under and pursuant to section
26 of Act No. 1459, known as the Corporation law, the respondent court may issue the order
complained of. Said section provides: —
Whenever, from any cause, there is no person authorized to call a meeting, or when the
officer authorized to do so refuses, fails or neglects to call a meeting, any judge of a Court of
First Instance on the showing of good cause therefor, may issue an order to any stockholder
or member of a corporation, directing him to call a meeting of the corporation by giving the

39 | P a g e
 proper notice required by this Act or by-laws; and if there be no person legally authorized to
preside at such meeting, the judge of the Court of First Instance may direct the person calling
the meeting to preside at the same until a majority of the members or stockholders
representing a majority of the stock members or stockholders presenting a majority of the
stock present and permitted by law to be voted have chosen one of their number to act as
presiding officer for the purposes of the meeting.

On the showing of good cause therefor, the court may authorize a stockholder to call a meeting and to
preside threat until the majority stockholders representing a majority of the stock present and
permitted to be voted shall have chosen one among them to preside it. And this showing of good cause
therefor exists when the court is apprised of the fact that the by-laws of the corporation require the
calling of a general meeting of the stockholders to elect the board of directors but call for such meeting
has not been done.

The requirement that "on the showing of good cause therefor," the court may grant to a stockholder
the authority to call such meeting and to preside thereat does not mean that the petition must be
set for hearing with notice served upon the board of directors. The respondent court was satisfied
that there was a showing of good cause for authorizing the respondent Potenciano Gapol to call a
meeting of the stockholders for the purpose of electing the board of directors as required and
provided for in the by-laws, because the chairman of the board of directors called upon to do so had
failed, neglected, or refused to perform his duty. It may be likened to a writ of preliminary injunction
or of attachment which may be issued ex-parte upon compliance with the requirements of the rules
and upon the court being satisfied that the same should be issue. Such provisional reliefs have not
been deemed and held as violative of the due process of law clause of the Constitution.

With persistency petitioners claim that they have been deprived of their right without due process of
law. They had no right to continue as directors of the corporation unless reflected by the stockholders in
a meeting called for that purpose every even year. They had no right to a hold-over brought about by
the failure to perform the duty incumbent upon one of them. If they felt that they were sure to be
reelected, why did they fail, neglect, or refuse to call the meeting to elect the members of the board? Or,
why did they not seek their reelection at the meeting called to elect the directors pursuant to the
order of the respondent court.

The alleged illegality of the election of one member of the board of directors at the meeting called
by the respondent Potenciano Gapol as authorized by the court being subsequent to the order
complained of cannot affect the validity and legality of the order. If it be true that one of the
directors elected at the meeting called by the respondent Potenciano Gapol, as authorized by the
order of the court complained of, was not qualified in accordance with the provisions of the by-laws,
the remedy of an aggrieved party would be quo a warranto. Also, the alleged previous agreement to
dissolve the corporation does not affect or render illegal the order issued by the respondent court.

The petition is denied, with costs against the petitioners.

SALVADOR P. LOPEZ vs. ERICTA

G.R. No. L-32991 June 29, 1972

FACTS: The first such appointment was extended on April 27, 1970, "effective May 1, 1970 until April
30, 1971, unless sooner terminated and subject to the appproval of the Board of Regents and to

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pertinent University regulations." Pursuant thereto Dr. Blanco assumed office as ad interim Dean on
May 1, 1970. The Board of Regents met on May 26, 1970, and President Lopez submitted to it the ad
interim appointment of Dr. Blanco for reconsideration. The minutes of that meeting disclose that
"the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw
based on the petition against the appointment, addressed to the Board, from a majority of the
faculty and from a number of alumni Dr. Blanco's appointment had lapsed. On May 26, 1970,
President Lopez extended another ad interim appointment to her, effective from May 26, 1970 to
April 30, 1971, with the same conditions as the first.However, such ad interim appointment had not
been confirmed by the Board of Regents. Due to the following votes: 5-yes, 3-no and 4-abstain. On
August 18, 1970 Dr. Blanco wrote the President of the University, protesting the appointment of
Oseas A. del Rosario as Officer-in-Charge of the College of Education. Neither communication having
elicited any official reply, Dr. Blanco went to the Court of First Instance of Quezon City on a petition
for certiorari and prohibition with preliminary injunction.

ISSUE: Whether or not respondent Dr. Consuelo S. Blanco was duly elected Dean of the College of
Education, University of the Philippines, in the meeting of the Board of Regents on July 9, 1970.

RULING: NO. The votes of abstention, viewed in their setting, can in no way be construed as votes
for confirmation of the appointment. There can be no doubt whatsoever as to the decision and
recommendation of the three members of the Personnel Committee: it was for rejection of the
appointment. No inference can be drawn from this that the members of the Personnel Committee,
by their abstention, intended to acquiesce in the action taken by those who voted affirmatively.
Neither, for that matter, can such inference be drawn from the abstention that he was abstaining
because he was not then ready to make a decision. Dr. Blanco was clearly not the choice of a
majority of the members of the Board of Regents, as unequivocally demonstrated by the transcript
of the proceedings. This fact cannot be ignored simply because the Chairman, in submitting the
question to the actual vote, did not frame it as accurately as the preceding discussion called for, such
that two of the Regents present (Silva and Kalaw) had to make some kind of clarification.

Quorum
PAUL LEE TAN, et al, vs. PAUL SYCIP and MERRITTO LIM
G.R. No. 153468 August 17, 2006

FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit educational

corporation with fifteen regular members, who also constitute the board of trustees. During
the annual members’ meeting only 11 living member-trustees, as 4 had already died.
Seven attended the meeting through their respective proxies. The meeting was convened
and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who
argued that there was no quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo,
Virginia Khoo, and Judith Tan were voted to replace the 4 deceased member-trustees. The
SEC ruled that the meeting was void due to lack of quorum

ISSUE: Whether or not dead members should still be counted in the quorum

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RULING: NO. The remaining members of the board of trustees of GCHS may convene and fill
up the vacancies in the board. Except as provided, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all
of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance with
this Code; and
8. Dissolution of the corporation.

Quorum in a members’ meeting is to be reckoned as the actual number of members of

the corporation. In stock corporations - shareholders may generally transfer their shares and
on the death of a shareholder, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it. Until a settlement and division
of the estate is effected, the stocks of the decedent are held by the administrator or
executor
For nonstock corporations, shares are personal and non-transferable unless the articles of
incorporation or the bylaws of the corporation provide otherwise. Section 91 of the
Corporation Code states: termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the bylaws.
Whether or not "dead members" are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of incorporation or bylaws. In this
case, the By-Laws of GCHS states: membership in the corporation shall be terminated by the
death of the member. Thus, with 11 remaining members, the quorum is 6.

Furthermore:
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the
board of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
office.

Thus the filling of vacancies in the board by the remaining directors or trustees constituting
a quorum is merely permissive, not mandatory either by the remaining directors constituting
a quorum, or by the stockholders or members in a regular or special meeting called for the
purpose. By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its

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board of directors; that is, by a majority vote of the remaining members of the board. The
remaining member-trustees must sit as a board (as a body in a lawful meeting) in order to
validly elect the new ones.

ABELARDO JAVELLANA, TOMAS JONCO, et al., in their capacities as Councilors of the Municipal
Municipality of Buenavista, Province of Iloilo vs. SUSANO TAYO, as Mayor of the Municipal
Municipality of Buenavista, Iloilo
G.R. No. L-18919 December 29, 1962

FACTS: Petitioners were members of the municipal council. On several sessions, the mayor, herein
defendant, was absent prompting the council to decide emong themselves as to who to appoint as
presiding officers. The mayor refused to act on the resulting minutes also refused to sign the payrolls
of the council covering the per diems of the petitioners, alleging that the proceedings were illegal
due to his absence. Despite the Provincial Fiscal and the Provincial Board upholding the controverted
sessions of the Municipal Council, the Mayor refused and still refuses to recognize the validity of the
acts of the Municipal Council and the legality of its regular session held in his absence.

The trial court ruled that attendance of the Mayor is not essential to the validity of the session as
long as there is quorum constituted in accordance with law. To declare that the proceedings of the
petitioners were null and void, is to encourage recalcitrant public officials who would frustrate valid
sessions for political end or consideration.

ISSUE: Were the sessions held by petitioners valid and legal, having constituted a quorum, and
despite the absence of the defendant?

RULING: Yes. The term "quorum" has been defined as "that number of members of the body which,
when legally assembled in their proper places, will enable the body to transact its proper business,
or, in other words, that number that makes a lawful body and gives it power to pass a law or
ordinance or do any other valid corporate act. The Revised Administrative Code states that for the
majority of the members of the council to constitute a quorum to do business, the council "shall be
presided by the Mayor and no one else.

The procedure, as provided in the Administrative Code, provides that in case of temporary incapacity
of the mayor, the council member having the highest number of votes can sit as presiding officer.
This rule on incapacity was declared as valid by the court in the case. Thus, the quorum requirement
was satisfied despite the continuous absence of the mayor on those scheduled sessions. Thus, the
questioned sessions and the resulting resolutions were declared valid.

Voting; who may excercise

WILSON P. GAMBOA vs. FINANCE SECRETARY MARGARITO B. TEVES et. al
G.R. No. 176579, June 28, 2011

FACTS: This is a petition to nullify the sale of shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through

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the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an
affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management
and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million
shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First
Pacific. With this sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to
37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a public utility to not more than 40%,
thus: Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years.

Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.

ISSUE: Whether or not the term “capital” in Section 11, Article XII of the Constitution refer to the
total common shares only, or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility.

RULING: Yes. Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11,
Article XII of the Constitution refers only to common shares. However, if the preferred shares also
have the right to vote in the election of directors, then the term “capital” shall include such
preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term “capital” in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the election of
directors.

To construe broadly the term “capital” as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors.
PLDT’s Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not
be entitled to vote at any meeting of the stockholders for the election of directors or for any other
purpose or otherwise participate in any action taken by the corporation or its stockholders, or to
receive notice of any meeting of stockholders.” On the other hand, holders of common shares are
granted the exclusive right to vote in the election of directors. PLDT’s Articles of Incorporation state

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that “each holder of Common Capital Stock shall have one vote in respect of each share of such
stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital
Stock shall have the exclusive right to vote for the election of directors and for all other purposes.”

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common
shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document
required to be submitted annually to the Securities and Exchange Commission, foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In
other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that
foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable
40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII
of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00
per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred
shares have twice the par value of common shares but cannot elect directors and have only 1/70 of
the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only
22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership in a public utility.

COCOFED vs. Republic of the Philippines

GR No. 177857-58, February 11,2010

FACTS: On March 26, 1986, the Coconut Industry Investment Fund Holding Companies ("CIIF") sold
33,133,266 SMC common shares to Andres Soriano III of the SMC Group. On April 1, 1986, the SMC
Group paid the initial purchase price of P500 million to the UCPB as administrator of the CIIF. On April
7, 1986, the Presidential Commission on Good Government (PCGG) sequestered the shares of stock.

In September 2009, the Court approved the Motion of Philippine Coconut Producers Federation, Inc.,
et al. (collectively, COCOFED), for the conversion of Class A and Class B common shares of San
Miguel Corporation (SMC) registered in the names of Coconut Industry Investment Fund and the so-
called 14 Holding Companies (CIIF companies) into SMC Series 1 Preferred.

In the present case, Oppositors-intervenors Salonga, et al. seek the reconsideration of the 2009
decision, on the ground that the conversion of the shares is patently patently disadvantageous to
the government and the coconut farmers, and the PCGG and the OSG have no authority to alter the
nature of the sequestered shares.

ISSUE: Who may vote on the shares of stocks held by the government?

RULING: As the Court aptly held in Springer v. Government of the Philippine Islands, resolving the
issue as to which between the Governor-General, as head of the executive branch, and the
Legislature may vote the shares of stock held by the government:

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It is clear that they are not legislative in character, and still more clear that they are not judicial. The
fact that they do not fall within the authority of either of these two constitutes legal ground for
concluding that they do fall within that of the remaining one among which the powers of the
government are divided.

The executive branch, through the PCGG, has given its assent to the conversion and such decision
may be deemed to be the decision of the government. The notion suggested by oppositors-
intervenors that the current administration, thru the PCGG, is without power to decide and act on
the conversion on the theory that the head of the current administration is not government, cannot
be sustained for lack of legal basis.

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG) vs. COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR.
and the SANDIGANBAYAN (First Division)
G.R. No. 147062-64 December 14, 2001

FACTS: Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued
Executive Order (EO) Nos. 1, 2 and 14.
"On the explicit premise that 'vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad,' the Presidential Commission on Good Government (PCGG) was created by Executive Order
No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether
located in the Philippines or abroad."

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders
and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the United Coconut
Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-
called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent
Eduardo Cojuangco Jr. (hereinafter "Cojuangco"). In connection with the sequestration of the said
UCPB shares, the PCGG, instituted an action for reconveyance, reversion, accounting, restitution and
damages in the Sandiganbayan.

Upon Motion11 of Private Respondent COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the subject UCPB shares on the ground that herein private respondents – in
particular, COCOFED and the so-called CIIF companies – had not been impleaded by the PCGG as
parties-defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution
and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission
was automatically lifted for PCGG's failure to commence the corresponding judicial action within the
six-month period ending on August 2, 1987 provided under Section 26, Article XVIII of the 1987
Constitution. The anti-graft court noted that though these entities were listed in an annex appended
to the Complaint, they had not been named as parties-respondents.

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Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections for the
Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court a
Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the
Restraining Order and ordered the UCPB to proceed with the election of its board of directors.
Furthermore, it allowed the sequestered shares to be voted by their registered owners. The victory
of the registered shareholders was fleeting because the Court, acting on the solicitor general's
Motion for Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that "the
right of petitioners [herein private respondents] to vote stock in their names at the meetings of the
UCPB cannot be conceded at this time. That right still has to be established by them before the
Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and
cannot be accorded the right to vote them."1

ISSUE: Who May Vote the Sequestered Shares of Stock

RULING: At the outset, it is necessary to restate the general rule that the registered owner of the
shares of a corporation exercises the right and the privilege of voting. This principle applies even to
shares that are sequestered by the government, over which the PCGG as a mere conservator cannot,
as a general rule, exercise acts of dominion. On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten
wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v. Calpo and PCGG v.
Cojuangco Jr., as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the
State?
(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and
voting by the PCGG, while the main issue is pending with the Sandiganbayan?

From the foregoing general principle, the Court in Baseco v. PCGG (hereinafter "Baseco")
and Cojuangco Jr. v. Roxas ("Cojuangco-Roxas") has provided two clear "public character" exceptions
under which the government is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered
them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds somehow landed in
private hands.

The exceptions are based on the common-sense principle that legal fiction must yield to truth; that
public property registered in the names of non-owners is affected with trust relations; and that
the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from
the prima facie fact of ownership. In Baseco, a private corporation known as the Bataan Shipyard and
Engineering Co. was placed under sequestration by the PCGG. Explained the Court:
"The facts show that the corporation known as BASECO was owned and controlled by President
Marcos 'during his administration, through nominees, by taking undue advantage of his public office
and/or using his powers, authority, or influence,' and that it was by and through the same means,
that BASECO had taken over the business and/or assets of the National Shipyard and Engineering

47 | P a g e
Co., Inc., and other government-owned or controlled entities." Given this factual background, the
Court discussed PCGG's right over BASECO in the following manner:
"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over
by the government of the Marcos Administration or by entities or persons close to former President
Marcos,' the PCGG is given power and authority, as already adverted to, to 'provisionally take (it)
over in the public interest or to prevent * * (its) disposal or dissipation;' and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something
more than mere physical custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself."

The exception was cited again by the Court in Cojuangco-Roxas in this wise:
"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect
the members of the board of directors. The only conceivable exception is in a case of a takeover of a
business belonging to the government or whose capitalization comes from public funds, but which
landed in private hands as in BASECO."
The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda v.
Sandiganbayan.37 Expressly citing Conjuangco-Roxas,38 this Court said that in determining the issue of
whether the PCGG should be allowed to vote sequestered shares, it was crucial to find out first
whether these were purchased with public funds, as follows:
"It is thus important to determine first if the sequestered corporate shares came from public funds
that landed in private hands." In short, when sequestered shares registered in the names of private
individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered
test is applied. However, when the sequestered shares in the name of private individuals or entities
are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public
funds or those affected with public interest, then the two-tiered test does not apply. Rather, the
public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the
government shall vote the shares.

RAMON C. LEE and ANTONIO DM. LACDAO vs. THE HON. COURT OF APPEALS, SACOBA
MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES

G.R. No. 93695 February 4, 1992

FACTS: In 1985, a complaint for sum of money was filed by the International Corporate
Bank, Inc. against the private respondents who, in turn, filed a third party complaint against
Alfa Integrated Textile Mills (ALFA) and the petitionersRamon C. Lee and Antonio Dm.
Lacdao who were officers of ALFA. Meanwhile, in 1988, the trial court issued an order
requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of
the petitioners' letter informing the court that the summons for ALFA was erroneously
served upon them considering that the management of ALFA had been transferred to the
Development Bank of the Philippines (DBP). In a manifestation, the DBP claimed that it was

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not authorized to receive summons on behalf of ALFA since the DBP had not taken over the
company which has a separate and distinct corporate personality and existence.

ISSUE: Should the summons be served upon the petitioners who were officers and directors
of ALFA (the trustor), despite the execution of the Voting Trust Agreement?

RULING: NO. There is no dispute as to the most immediate effect of a voting trust
agreement on the status of a stockholder who is a party to its execution from legal
titleholder or owner of the shares subject of the voting trust agreement, he becomes the
equitable or beneficial owner. Note that in order to be eligible as a director, what is material
is the legal title to, not beneficial ownership of, the stock as appearing on the books of the
corporation . Considering that the voting trust agreement between ALFA and the DBP
transferred legal ownership of the stocks covered by the agreement to the DBP as trustee,
the latter became the stockholder of record with respect to the said shares of stocks. In the
absence of a showing that the DBP had caused to be transferred in their names one share of
stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be
deemed to have retained their status as officers of ALFA which was the case before the
execution of the subject voting trust agreement. There appears to be no dispute from the
records that DBP has taken over full control and management of the firm.

Republic v. Sandiganbayan
402 SCRA 84
FACTS: There are two sets of board and officers of Eastern Telecommunications, Philippines,
Inc. (ETPI) were elected, one by the PCGG and the other by the registered ETPI stockholders.
Africa, a stockholder of ETPI, filed a petition for Certiorari before the Sandiganbayan alleging
that the PCGG had been illegally exercising the rights of stockholders of ETPI, especially in
the election of the members of the board of directors.

The Sandiganbayan held that only registered owners, their duly authorized representatives
or their proxies may vote their corresponding shares and ordered that an annual
stockholders meeting of the ETPI for 1992 be held on November 27, 1992. The Court enjoined
the Sandiganbayan from holding the stockholders meeting of ETPI. The PCGG filed a very
urgent petition for authority to hold special stockholders meeting for the sole purpose of
increasing ETPI’s authorized capital stock which was referred to the Sandiganbayan. The
Sandiganbayan issued a Resolution granting the PCGG authority to cause the holding of a
special stockholders meeting of ETPI and to vote the sequestered Class A shares of stock.
The PCGG controlled ETPI board of directors and held a meeting to increase in ETPI’s
authorized capital stock was unanimously approved.

Africa filed before the Supreme Court a motion to cite PCGG and its accomplices in contempt
to nullify the stockholders meeting conducted by PCGG contending that only the Supreme
Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a

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stockholders meeting and vote the sequestered shares; he was not given notice of the
meeting; and the PCGG had no right to vote the sequestered Class A shares.

ISSUES:

1) Can the PCGG vote the sequestered ETPI Class A shares in the stockholders meeting
for the election of the board of directors?
2) Will the transfer of the Benedicto shares be first recorded in ETPI’s Stock and Transfer
Book before the PCGG may vote them?

RULING: 1..No. The PCGG cannot thus vote sequestered shares, except when there are
demonstrably weighty and defensible grounds or when essential to prevent disappearance
or wastage of corporate property. The principle laid down in Baseco vs. PCGG was further
enhanced in the subsequent cases of Cojuangco v. Calpo and Presidential Commission on
Good Government v. Cojuangco, Jr., where the Court developed a “two-tiered” test in
determining whether the PCGG may vote sequestered shares. The issue of whether PCGG
may vote the sequestered shares in SMC necessitates a determination of at least two factual
matters:

a.) whether there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the state; and
b.) whether there is an immediate danger of dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of “public character.”

In such cases, the government is granted the authority to vote said shares, namely: (1)
Where government shares are taken over by private persons or entities who/ which
registered them in their own names, and (2) Where the capitalization or shares that were
acquired with public funds somehow landed in private hands. In short, when sequestered
shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are shown, prima facie, to
have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply. The rule in the
jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation
and elect members of the board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose capitalization comes from
public funds, but which landed in private hands as in BASECO. In short, the Sandiganbayan
held that the public character exception does not apply, in which case it should have
proceeded to apply the two-tiered test. This it failed to do. The questions thus remain if
there is prima facie evidence showing that the subject shares are ill- gotten and if there is
imminent danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in

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a position to rule on the correctness of the PCGG’s contention. Consequently, the issue must
be remanded to the Sandiganbayan for resolution.

2..Yes. The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his
controlled corporations under the Compromise Agreement, provided that the shares are
first registered in the name of the PCGG. The PCGG may not register the transfer of the
Malacanang and the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote
the same as conservator provided that the PCGG satisfies the two-tiered test devised by the
Court.

In requiring that the transfer of the Benedicto shares be first recorded in ETPIs Stock
and Transfer Book before the PCGG may vote them, the Sandiganbayan committed no grave
abuse of discretion.

Voting Trust Agreement

Cordon vs. Balicanta

A.C. No. 2797, October 4, 2002

FACTS: Complainant Rosaura Cordon filed a complaint for disbarment against Atty. Jesus Balicanta.
When her husband Felixberto C. Jaldon died, Rosaura Cordon and her daughter Rosemarie inherited
21 parcels of land. Sometime in the early part of 1981, respondent Atty. Jesus Balicanta enticed
complainant to organize a corporation that would develop their 21 parcels of land into a high-scale
commercial complex with a beautiful penthouse for complainant. Relying on these apparently
sincere proposals, complainant and her daughter assigned 19 parcels of land to Rosaura Enterprises,
Incorporated, a newly-formed and duly registered corporation in which they assumed majority
ownership. The subject parcels of land were then registered in the name of the corporation.

Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as Chairman
of the Board, President, General Manager and Treasurer. The respondent also made complainant
sign a document which turned out to be a voting trust agreement. Respondent likewise succeeded in
making complainant sign a special power of attorney to sell and mortgage some of the parcels of
land. It was later discovered that respondent transferred the titles of the properties to a certain Tion
Suy Ong who became the new registered owner thereof. Thereafter, respondent, using a spurious
board resolution, contracted a loan from the Land Bank of the Philippines (LBP) in the amount of
Two Million Two Hundred Twenty Pesos (P2,220,000) using as collateral 9 of the real properties that
the complainant and her daughter contributed to the corporation. Only Respondent Balicanta who
owned 109 shares, Vicente Maalac (1 share), Daihan Graciano (1 share) signed their conformity
thereto. The respondent intended to use the money to construct the Baliwasan Commercial Center
(BCC). Later on, it was discovered that the structure was made of poor materials which could not
have cost the corporation anything close to the amount of the loan secured. The LBP foreclosed on
the 9 mortgaged properties due to nonpayment of the loan while the respondent started to earn
revenues from the rentals of BCCs tenants since it commenced its operations. The respondent also
sold the corporation’s right to redeem the mortgaged properties to a certain Hadji Mahmud
Jammang through a fake board resolution dated January 14, 1989 which clothed him with the

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authority to do so. Complainant and her daughter, the majority stockholders, were never informed
of the alleged meeting held on that date. Rosemarie thereafter discovered that her mother was
being detained in a small nipa shack in a place called Culianan. Respondent demolished their
ancestral home and sold the lot to Tion Suy Ong, using another spurious board resolution designated
as Board Resolution No. 1, series of 1992. The resolution contained the minutes of an alleged
organizational meeting of the directors of the corporation and was signed by Alexander Wee, Angel
Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her daughter did not know how
these persons became stockholders and directors of the corporation. Respondent never accounted
for the proceeds of the said transfers or sale.

ISSUE: Can the respondent take refuge in the contested voting trust agreement to justify a quorum
for a valid meeting for the discussion and approval of the transactions?

RULING: The respondent cannot take refuge in the contested voting trust agreement supposedly
executed by complainant and her daughter for the reason that it authorized respondent to represent
complainant for only 266 shares. The complainant and her daughter own 1,711 out of 1,750 shares of
the outstanding capital stock of the corporation, based on the Articles of Incorporation and deeds of
transfer of the properties. But respondent’s evidence showed that complainant had only 266 shares
of stock in the corporation while her daughter had none, notwithstanding the fact that there was
nothing to indicate that complainant and her daughter ever conveyed their shares to others.
Respondent likewise did not explain why he did not return the certificates representing the 266
shares after the lapse of 5 years from the time the voting trust certificate was executed in 1981. The
mortgage of 9 of the properties of the corporation previously belonging to complainant and her
daughter was not ratified by the stockholders allegedly owning two-thirds or 67% of the outstanding
capital stock; in fact only three stockholders owning 111 out of 1,750 outstanding shares or 6.3%
assented thereto. The alleged authorization granting him the power to contract the LBP loan for
Two Million Two Hundred Twenty Pesos (P2, 220,000) was also not approved by the required
minimum of two-thirds of the outstanding capital stock. In all these transactions, complainant and
her daughter who both owned 1,711 out of the 1,750 outstanding shares of the corporation or 97.7%
never had any participation. Neither were they informed thereof. Clearly, there was no quorum for a
valid meeting for the discussion and approval of these transactions. Respondent Attorney Jesus T.
Balicanta is held by the court to be disbarred for his grave and serious misconduct that casts
dishonor on the legal profession. His misdemeanors reveal a deceitful scheme to use the corporation
as a means to convert for his own personal benefit properties left to him in trust by complainant and
her daughter, in violation of the Code of Professional Responsibility.

NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, EUSEBIO VILLATUYA MARIO Y.

CONSING and ROBERTO S. BENEDICTO vs. HON. BENJAMIN AQUINO, et al.
G.R. No. L-34192 June 30, 1988

FACTS: Batjak, is a Filipino-American corporation which has indebtedness to Philippine National Bank
(PNB) amounted to P11,915,000.00, As security for the payment of its obligations and advances
against shipments, Batjak mortgaged its three (3) coco-processing oil mills to Manila Bank, Republic
Bank , and PCIB, respectively. In need for additional operating capital to place the three (3) coco-
processing mills at their optimum capacity and maximum efficiency and to settle, pay or otherwise
liquidate pending financial obligations with the different private banks, Batjak applied to PNB for
additional financial assistance. A Financial Agreement was submitted by PNB to Batjak for

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acceptance which was duly accepted by Batjak. Upon receiving payment, RB, PCIB, and MBTC
released in favor of PNB the first and any mortgages they held on the properties of Batjak. Batjak
executed a first mortgage in favor of PNB on all its properties A Voting Trust Agreement was
executed in favor of NIDC by the stockholders representing 60% of the outstanding paid-up and
subscribed shares of Batjak. This agreement was for a period of five (5) years and, upon its
expiration, was to be subject to negotiation between the parties. Forced by the insolvency of Batjak,
PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak. The properties
were sold to PNB as the highest bidder. Three years thereafter, Batjak wrote a letter to NIDC
inquiring if the latter was still interested in negotiating the renewal of the Voting Trust Agreement.
Batjak wrote another letter to NIDC informing the latter that Batjak would now safely assume that
NIDC was no longer interested in the renewal of said Voting Trust Agreement.

ISSUE: Whether or not the NIDC and PNB acquired ownership over the assets of Batjak despite a
voting trust agreement between Batjak’s stockholders and NIDC

RULING: Yes. It is clear that what was assigned to NIDC was the power to vote the shares of stock
of the stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are the
signatories to the agreement. The power entrusted to NIDC also included the authority to execute
any agreement or document that may be necessary to express the consent or assent to any matter,
by the stockholders. Nowhere in the said provisions or in any other part of the Voting Trust
Agreement is mention made of any transfer or assignment to NIDC of Batjak's assets, operations,
and management. NIDC was constituted as trustee only of the voting rights of 60% of the paid-up
and outstanding shares of stock in Batjak. This is confirmed by paragraph No. 9 of the Voting Trust
Agreement, thus:

9. TERMINATION — Upon termination of this Agreement as heretofore provided, the certificates

delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned
stockholders as the absolute owners thereof, upon surrender of their respective voting trust
certificates, and the duties of the TRUSTEE shall cease and terminate.
Under the aforecited provision, what was to be returned by NIDC as trustee to Batjak's stockholders,
upon the termination of the agreement, are the certificates of shares of stock belonging to Batjak's
stockholders, not the properties or assets of Batjak itself which were never delivered, in the first
place to NIDC, under the terms of said Voting Trust Agreement.

In any event, a voting trust transfers only voting or other rights pertaining to the shares subject of
the agreement or control over the stock. The law on the matter is Section 59, Paragraph 1 of the
Corporation Code (BP 68) which provides:
Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust
for the purpose of confering upon a trustee or trusties the right to vote and other rights pertaining
to the shares for a period not exceeding five (5) years at any one time…

The acquisition by PNB-NIDC of the properties in question was not made or effected under the
capacity of a trustee but as a foreclosing creditor for the purpose of recovering on a just and valid
obligation of Batjak.

Moreover, the prevention of imminent danger to property is the guiding principle that governs
courts in the matter of appointing receivers. Under Sec. 1 (b), Rule 59 of the Rules of Court, it is

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necessary in granting the relief of receivership that the property or fired be in danger of loss,
removal or material injury.
In the case at bar, Batjak in its petition for receivership, or in its amended petition therefor, failed to
present any evidence, to establish the requisite condition that the property is in danger of being lost,
removed or materially injured unless a receiver is appointed to guard and preserve it.

Lambert v. Fox
January 29, 1914 G.R. No. 7991

FACTS: Due to financial crisis, the petitioner and the defendant were able to acquire the bulk of the
stocks of John R. Edgar & Co. as the latter‘s creditors. Hence, upon incorporating said company, the
parties entered into an agreement that either of them will not sell or transfer their respective shares
till after one year from the date of agreement. However, less than a year, defendant Fox sold his
stock in the said corporation to E. D. McCullough of the firm of E. C. McCullough & Co. of Manila, a
strong competitor of the said John R. Edgar & Co., Inc. This sale was made by the defendant against
the protest of the plaintiff and with the warning that he would be held liable under the contract
hereinabove set forth and in accordance with its terms. In fact, the defendant Fox offered to sell his
shares of stock to the plaintiff for the same sum that McCullough was paying for them less P1, 000,
the penalty specified in the contract. The trial Court rendered judgment in favor of defendant.

ISSUE: Is the stipulation not to sell valid?

RULING: Yes. The suspension of the power to sell has a beneficial purpose, it results in the
protection of the corporation as well as of the individual parties to the contract, and is reasonable as
to the length of time of the suspension. The intention of parties to a contract must be determined, in
the first instance, from the words of the contract itself. It is to be presumed that persons mean what
they say when they speak plain English. Interpretation and construction should by the instruments
last resorted to by a court in determining what the parties agreed to. Where the language used by
the parties is plain, then construction and interpretation are unnecessary and, if used, result in
making a contract for the parties. Therefore, Fox ceased to be a member of the Board for selling all
his shares.

Capital Affairs
Acquisition and ownership of shares in a Corporation; Extent of proprietary
right

FOREST HILLS GOLF & COUNTRY CLUB vs. VERTEX SALES AND TRADING, INC.

G.R. No. 202205, March 6, 2013

FACTS: Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock
corporation that operates and maintains a golf and country club facility in Antipolo City. Forest Hills
was created as a result of a joint venture agreement between Kings Properties Corporation (Kings)

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and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the shares of
stock of Forest Hills, holding 40% and 60% of the shares, respectively.

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to the full payment of the purchase price, RSACC
transferred its interests over FEGDI's Class "C" common share to respondent Vertex Sales and
Trading, Inc. (Vertex). RSACC advised FEGDI of the transfer and FEGDI, in turn, requested Forest Hills
to recognize Vertex as a shareholder. Forest Hills acceded to the request, and Vertex was able to
enjoy membership privileges in the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name of
FEGDI, prompting Vertex to demand for the issuance of a stock certificate in its name.

As its demand went unheeded, Vertex filed a complaint for rescission with damages against
defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the developer of the Forest Hills golf
course. Vertex averred that the defendants defaulted in their obligation as sellers when they failed
and refused to issue the stock certificate covering the Class "C" common share. It prayed for the
rescission of the sale and the return of the sums it paid; it also claimed payment of actual damages
for the defendants’ unjustified refusal to issue the stock certificate.

Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of
the share; FELI claimed the same defense. While admitting that no stock certificate was issued,
FEGDI alleged that Vertex nonetheless was recognized as a stockholder of Forest Hills and, as such, it
exercised rights and privileges of one. FEGDI added that during the pendency of Vertex's action for
rescission, a stock certificate was issued in Vertex's name, but Vertex refused to accept it.

ISSUE: Whether or not Forest hills should be liable to return the amount paid by Vertex for the sale

RULING: At the outset, the Court declare that the question of rescission of the sale of the share is a
settled matter that the Court can no longer review in this petition. While Forest Hills questioned and
presented its arguments against the CA ruling rescinding the sale of the share in its petition, it is not
the proper party to appeal this ruling.

As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject of the
sale was its share of stock. The corporation whose shares of stock are the subject of a transfer
transaction (through sale, assignment, donation, or any other mode of conveyance) need not be a
party to the transaction, as may be inferred from the terms of Section 63 of the Corporation Code.
However, to bind the corporation as well as third parties, it is necessary that the transfer is recorded
in the books of the corporation. In the present case, the parties to the sale of the share were FEGDI
as the seller and Vertex as the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the
one who may appeal the ruling rescinding the sale. The remedy of appeal is available to a party who
has "a present interest in the subject matter of the litigation and is aggrieved or prejudiced by the
judgment. A party, in turn, is deemed aggrieved or prejudiced when his interest, recognized by law in
the subject matter of the lawsuit, is injuriously affected by the judgment, order or decree."

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The rescission of the sale does not in any way prejudice Forest Hills in such a manner that its interest
in the subject matter – the share of stock – is injuriously affected. Thus, Forest Hills is in no position
to appeal the ruling rescinding the sale of the share. Since FEGDI, as party to the sale, filed no appeal
against its rescission, we consider as final the CA’s ruling on this matter.

The CA’s ruling ordering the "return to [Vertex] the amount it paid by reason of the sale" did not
specify in detail what the amount to be returned consists of and it did not also state the extent of
Forest Hills, FEGDI, and FELI’s liability with regard to the amount to be returned. The records,
however, show that the amounts were paid by Vertex to Forest Hills, FEGDI, and FELI by reason of
the sale.

A necessary consequence of rescission is restitution: the parties to a rescinded contract must be

brought back to their original situation prior to the inception of the contract; hence, they must
return what they received pursuant to the contract.24 Not being a party to the rescinded contract,
however, Forest Hills is under no obligation to return the amount paid by Vertex by reason of the
sale. Indeed, Vertex failed to present sufficient evidence showing that Forest Hills received the
purchase price for the share or any other fee paid on account of the sale (other than the membership
fee which we will deal with after) to make Forest Hills jointly or solidarily liable with FEGDI for
restitution.

Although Forest Hills received ₱150,000.00 from Vertex as membership fee, it should be allowed to
retain this amount. For three years prior to the rescission of the sale, the nominees of Vertex enjoyed
membership privileges and used the golf course and the amenities of Forest Hills.

The Court consider the amount paid as sufficient consideration for the privileges enjoyed by Vertex's
nominees as members of Forest Hills.

REPUBLIC OF THE PHILIPPINES vs. EDUARDO CONJUANGCO

GR 166859, 12 April 2011

FACTS: Danding Cojuangco is being accused of using public funds to finance his acquisition of shares
in the San Miguel Corporation. Through the coconut levy fund, was is being accused of buying out
shareholders in the corporation in order to become a substantial shareholder himself. To carry out
his scheme, he used dummy shareholders who shall be trustors of the shares on his behalf.

Contention rises on his culpability as a public official during the time that he bought the shares. It is
claimed by the Sandiganbayan that he was able to amass vast shares of the corporation through the
use of the coconut levy fund, which is public in nature. Therefore, it but apparent that he be held
liable for his actions in taking control of the corporation.

ISSUE: Whether or not Conjuangco illegally used ill-gotten wealth to buy shares of SMC.

RULING: NO.

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The funds are in fact loaned from UCPB, which was organized as a depositary of the coconut levy
funds of the corporation. Also, the Government failed to adduce substantial evidence linking
Cojuangco to the use of Marcos ill-gotten wealth.

All these judicial pronouncements demand two concurring elements to be present before assets or
properties were considered as ill-gotten wealth, namely: (a) they must have “originated from the
government itself,” and (b) they must have been taken by former President Marcos, his immediate
family, relatives, and close associates by illegal means.

But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related
issuances did not complete the definition of ill-gotten wealth. The further requirement was that the
assets and property should have been amassed by former President Marcos, his immediate family,
relatives, and close associates both here and abroad. In this regard, identifying former President
Marcos, his immediate family, and relatives was not difficult, but identifying other persons who
might be the close associates of former President Marcos presented an inherent difficulty, because it
was not fair and just to include within the term close associates everyone who had had any
association with President Marcos, his immediate family, and relatives.

It does not suffice, as in this case, that the respondent is or was a government official or employee
during the administration of former Pres. Marcos. There must be a prima facie showing that the
respondent unlawfully accumulated wealth by virtue of his close association or relation with former
Pres. Marcos and/or his wife. This is so because otherwise the respondent’s case will fall under
existing general laws and procedures on the matter.

CRISOSTOMO vs. S.E.C.

G.R. Nos. 89095 & 89555 November 6, 1989

FACTS: Sixto Crisostomo, Felipe Crisostomo (deceased), Veronica Palanca, Juanito

Crisostomo, Carlos Crisostomo, Ricardo Alfonso, Regino Crisostomo and Ernesto Crisostomo
(known as the Crisostomo group) were the original stockholders of the United Doctors
Medical Center (UDMC) which was organized in 1968 with an authorized capital stock of
P1,000,000 (later increased to P15,000,000 in 1972). They owned approximately 40% of
UDMC's outstanding capital stock, while the 60% majority belonged to the members of the
United Medical Staff Association (UMSA), numbering approximately 150 doctors and
medical personnel of UDMC.

In 1988, UDMC defaulted in paying its loan obligation of approximately P55 million to the
DBP. In the last quarter of 1987, UDMC's assets (principally its hospital) and those of the
Crisostomos which had been given as collateral to the DBP, faced foreclosure by the Asset
Privatization' rust (APT), which had taken over UDMC's loan obligation to the DBP.

To stave off the threatened foreclosure, UDMC, through its principal officers, Ricardo
Alfonso and Juanito Crisostomo, persuaded the Yamadas and Enatsu (Shoji Yamada and
Tomotada Enatsu are Japanese doctors) to invest fresh capital in UDMC. The wife of

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Tomotada Enatsu, Edita Enatsu, is a Filipina. They invested approximately P57 million in
UDMC.

The investment was effected by means of: (1) a Stock Purchase Agreement; and (2) an
Amended Memorandum of Agreement whereby the group subscribed to 82.09% of the
outstanding shares of UDMC. Upon the completion of the governmental approval process,
shares of stock, duly signed by UDMC's authorized officers, were issued to the Yamadas and
Enatsus. As it had been agreed in the Amended Memorandum of Agreement between
UDMC and the Japanese group that upon the latter's acquisition of the controlling interest
in UDMC, the corporation would be reorganized, a special stockholders' meeting and board
of directors' meeting were scheduled to be held on August 20, 1988.

ISSUE: Whether or not the investment of the Japanese group in UDMC is unconstitutional.

RULING: NO. While 82% of UDMC's capital stock is indeed subscribed by the Japanese group,
only 30% (equivalent to 171,721 shares or P17,172.00) is owned by the Japanese citizens,
namely, the Yamada spouses and Tomotada Enatsu. 52% is owned by Edita Enatsu, who is a
Filipino. Accordingly, in its application for approval/registration of the foreign equity
investments of these investors, UDMC declared that 70% of its capital stock is owned by
Filipino citizens, including Edita Enatsu. That application was approved by the Central Bank
on August 3, 1988.

The investments in UDMC of Doctors Yamada and Enatsu do not violate the Constitutional
prohibition against foreigners practising a profession in the Philippines (Section 14, Article
XII, 1987 Constitution) for they do not practice their profession (medicine) in the Philippines,
neither have they applied for a license to do so. They only own shares of stock in a
corporation that operates a hospital. No law limits the sale of hospital shares of stock to
doctors only. The ownership of such shares does not amount to engaging (illegally,) in the
practice of medicine, or, nursing. If it were otherwise, the petitioner's stockholding in UDMC
would also be illegal.

Garcia vs. Lim

GR No. L-39427, February 24, 1934

FACTS: Defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank of
China promissory note for the sum of P19,605.17. One of the conditions stipulated in said
promissory note is that in case of defendant's default in the payment of any of the monthly
installments, as they become due, the entire amount or the unpaid balance thereof together
with interest thereon shall become due and payable on demand. The defendant had been,
making several partial payments thereon, leaving an unpaid balance of P9,105.17. However,

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he defaulted in the payment of several installments by reason of which the unpaid balance
of P9,105.17 on the promissory note has ipso facto become due and demandable.

It was found that the debt which is the subject matter of the complaint was not really an
indebtedness of the defendant but of Lim Cuan Sy, who had an account with the plaintiff
bank in the form of "trust receipts" guaranteed by the defendant as surety and with chattel
mortgage securities. The plaintiff bank, without the knowledge and consent of the
defendant, foreclosed the chattel mortgage and privately sold the property covered
thereby. Inasmuch as Lim Cuan Sy failed to comply with his obligations, the plaintiff required
the defendant, as surety, to sign a promissory note for the sum of P19,105.17 payable in the
manner hereinbefore. The defendant had been paying the corresponding installments until
the debt was reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the
owner of shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. The
plaintiff bank is now under liquidation.

ISSUE: Is it proper to compensate the defendant-appellant's indebtedness of P9,105.17,

which is claimed in the complaint, with the sum of P10,000 representing the value of his
shares of stock with the plaintiff entity, the Mercantile Bank of China.

RULING: No. According to the weight of authority, a share of stock or the certificate thereof is not
indebtedness to the owner or evidence of indebtedness and, therefore, it is not a credit.
Stockholders, as such, are not creditors of the corporation. It is the prevailing doctrine of the
American courts, repeatedly asserted in the broadest terms, that the capital stock of a corporation is
a trust fund to be used more particularly for the security of creditors of the corporation, who
presumably deal with it on the credit of its capital stock. Therefore, the defendant-appellant Lim Chu
Sing not being a creditor of the Mercantile Bank of China, although the latter is a creditor of the
former, there is no sufficient ground to justify compensation.

Magsaysay-Labrador, et. al. vs. Court of Appeals

G.R. No. 58168, December 19, 1989

FACTS: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix

of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First
Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of
Zambales, for the annulment of the Deed of Assignment executed by the late Senator in
favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the
name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of
FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and cancellation of TCT
22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March

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1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-
Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed
a motion for intervention on the ground that on 20 June 1978, their brother conveyed to
them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of
around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial
and legal interest in the subject matter of litigation and that they have a legal interest in the
success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion
for intervention, and ruled that petitioners have no legal interest whatsoever in the matter
in litigation and their being alleged assignees or transferees of certain shares in SUBIC
cannot legally entitle them to intervene because SUBIC has a personality separate and
distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the findings
of the lower court. The appellate court further stated that whatever claims the Magsaysay
sisters have against the late Senator or against SUBIC for that matter can be ventilated in a
separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied.
Hence, the petition for review on certiorari.

ISSUE: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested
parties in a case where corporate properties are in dispute.

RULING: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the
Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle
them to intervene in the proceedings. To be permitted to intervene in a pending action, the
party must have a legal interest in the matter in litigation, or in the success of either of the
parties or an interest against both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of the court or an officer
thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation and to
share in the profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations. While a share of stock represents a
proportionate or aliquot interest in the property of the corporation, it does not vest the
owner thereof with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct
legal person.

NICOLAS VS. CA

G.R. No. 122857. March 27, 1998

FACTS:

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 On February 19, 1987, petitioner Roy Nicolas and private respondent Blesito Buan entered
into a Portfolio Management Agreement, wherein the former was to manage the stock transactions
of the latter for a period of three months with an automatic renewal clause. However, upon the
initiative of the private respondent the agreement was terminated on August 19, 1987, and
thereafter he requested for an accounting of all transactions made by the petitioner.

Three weeks after the termination of the agreement, petitioner demanded from the private
respondent the amount of P68,263.67 representing his alleged management fees covering the
periods of June 30, July 31 and August 19, 1987 as provided for in the Portfolio Management
Agreement. But the demands went unheeded, much to the chagrin of the petitioner.

Rebuffed, petitioner filed a complaint for collection of sum of money against the private respondent
before the trial court. In his answer, private respondent contended that petitioner mismanaged his
transactions resulting in losses, thus, he was not entitled to any management fees.

ISSUE:

Can the broker may sell securities in the absence of registration or license from the SEC.

RULING:

The Supreme Court ruled that petitioner has not proven the amounts indicated adequately. His
testimony explaining the bases for the management fees demanded by him are nothing more than a
self-serving exercise which lacks probative value. There was no credible documentary evidence (e.g.
receipts of the transactions, order ticket, certificate of deposit; whether the stock certificates were
deposited in a bank or professional custodian, and others) to support his claim that profits were
indeed realized. At best, his assertions are founded on mere inferences and generalities. There must
be more convincing proof which in this case is wanting.

Moreover, petitioner’s complaint is similar to an action for damages, wherein the general rule is that
for the same to be recoverable it must not only be capable of proof but must actually be proved with
a reasonable degree of certainty, and courts, in making the awards, must posit specific facts which
could afford sufficient basis for measuring compensatory or actual damages. Since petitioner could
not present any credible evidence to substantiate his claims, the Court of Appeals was correct in
ordering the dismissal of his complaint.

Further, the futility of petitioner’s action became more pronounced by the fact that he traded
securities for the account of others without the necessary license from the Securities and Exchange
Commission (SEC). Clearly, such omission was in violation of Section 19 of the Revised Securities Act
which provides that no broker shall sell any securities unless he is registered with the SEC. The
purpose of the statute requiring the registration of brokers selling securities and the filing of data
regarding securities which they propose to sell, is to protect the public and strengthen the securities
mechanism.

American jurisprudence emphasizes the principle that:

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 “an unlicensed person may not recover compensation for services as a broker where
a statute or ordinance requiring a license is applicable and such statute or ordinance is of a
regulatory nature, was enacted in the exercise of the police power for the purpose of
protecting the public, requires a license as evidence of qualification and fitness, and
expressly precludes an unlicensed person from recovering compensation by suit, or at least
manifests an intent to prohibit and render unlawful the transaction of business by an
unlicensed person.”

We see no reason not to apply the same rule in our jurisdiction. Stock market trading, a technical
and highly specialized institution in the Philippines, must be entrusted to individuals with proven
integrity, competence and knowledge, who have due regard to the requirements of the law.

RAMOS vs. COURT OF APPEALS

G.R. No. L-41295 December 4, 1989

FACTS: On August 14 and 26, 1969, CMS Stock Brokerage, Inc. (or CMS) sold to Lopez,
Locsin, Ledesma & Co., Inc. (or LLL) on the floor of the Makati Stock Exchange (or MSE)
2,650 shares of Benguet Consolidated Corporation for P297,650 on a delayed delivery basis
of 10 to 20 days, evidenced by Exchange Contracts Nos. B-11807 and B-11814 both dated
August 14, 1969 and B-13084 dated August 26, 1969. LLL bought the shares for the account
of its clients, the third-party defendants, Rene Ledesma, Jose Maria Lopez, Cesar A. Lopez,
Jr. and Alfredo Ramos. CMS failed to deliver the shares of stocks within the agreed period,
but LLL did not demand delivery.

On January 6, 1970, CMS informed LLL that it would deliver the shares the next day. LLL
wrote CMS that it would not accept the shares because its principals had cancelled their
orders. In its reply, CMS insisted that LLL take delivery of the Benguet shares. In CMS's
Clearing House Report of January 9, 1970, the disposition of the shares in favor of LLL
appeared, but the latter refused to acknowledge receipt of the covering disposal letter. CMS
then deposited the letter in the Office of the Exchange Executive, Secretary with the
notation "Refused acceptance pending decision of the Exchange".

When the controversy was submitted to the Board of Governors of the Exchange for
determination, the Board issued Resolution No. 523 on August 10, 1970 advising the parties
to litigate the matter in court. Accordingly, CMS filed in the Court of First Instance of Rizal a
complaint to compel LLL to accept the Benguet shares, to pay the price of P297,650, as well
as P25,000 as attorney's fees and costs. LLL's motion to dismiss the complaint was denied.

ISSUE: Whether or not appellate court erred in rendering a summary judgment, in failing to
find that CMS has no right to damages against the petitioner there being no privity of
contract between them, and in refusing to exonerate the petitioner from personal liability
for the orders he placed with LLL for the account of the Alakor Corporation.

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RULING: NO. In the case at bar, the stock purchases of LLL were on a 10-20 day delayed
delivery basis. Accordingly, after that period lapsed, the Buying Member (LLL) should have
advised the Selling Member CMS in writing.
As observed by the trial court, Section 1, Article V of the Exchange Rules does not vest on
the buyer, respondent LLL, a right to rescind its contract with CMS upon the latter's default.
The Exchange Rules obligate the buyer to make a demand, and if the selling member fails to
deliver the ordered shares despite the demand, the buyer is further obligated to deliver a
copy of his demand letter to the Chairman of the Floor Trading and Arbitration Committee
so that the latter may purchase the shares for the selling member's account. Said rules were
held binding on members of the Exchange. Inasmuch as petitioner placed his order for
Benguet shares through a member of the Exchange (LLL), he is indirectly bound by the rules
of the Exchange.

The defendants' lack of knowledge regarding the truth of the allegation in the complaint,
that the failure of CMS to deliver the Benguet shares on time was due to oversight, did not
constitute an obstacle to the rendition of a summary judgment by the trial court, for
although an averment of lack of knowledge has the effect of a denial, it does not raise a
genuine issue.

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional
Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION, EQUITABLE
BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO LIAN, THE REGISTER OF DEEDS
OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA
G.R. No. 90580 April 8, 1991.

FACTS: A collection suit with preliminary attachment was filed by Equitable Banking Corporation
against Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved
to intervene, alleging that:
1. the loan transactions between Saw Chiao Lian and Equitable Banking Corp. were not
approved by the stockholders representing at least 2/3 of corporate capital;
2. Saw Chiao Lian had no authority to contract such loans; and
3. there was collusion between the officials of Freeman, Inc. and Equitable Banking Corp. in
securing the loans.
The motion to intervene was denied, and the petitioners appealed to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with, Equitable
secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at
public auction to Freeman Management and Development Corp.

The Court of Appeals sustained the denial of the petitioners' motion for intervention

ISSUE: Are the petitioners entitled to intervene in the case?

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 No. The lower courts ruled correctly in denying the Motion for Intervention.

RULING: The petitioners base their right to intervene for the protection of their interests as
stockholders on Everett v. Asia Banking Corp.2 where it was held:
The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the
corporation, but that the action must be brought by the Board of Directors, . . . has its exceptions. (If
the corporation [were] under the complete control of the principal defendants, . . . it is obvious that
a demand upon the Board of Directors to institute action and prosecute the same effectively would
have been useless, and the law does not require litigants to perform useless acts.

After examining the issues and arguments of the parties, the Court finds that the respondent court
committed no reversible error in sustaining the denial by the trial court of the petitioners' motion for
intervention.

To allow intervention:
a. it must be shown that the movant has legal interest in the matter in litigation, or otherwise
qualified; and
b. consideration must be given as to whether the adjudication of the rights of the original
parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in
a separate proceeding or not.

Both requirements must concur as the first is not more important than the second.

The interest which entitles a person to intervene in a suit between other parties must be in the
matter in litigation and of such direct and immediate character that the intervenor will either gain or
lose by the direct legal operation and effect of the judgment.

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and
which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without
the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct legal
person.

The petitioners also cannot appeal the order granting the issuance of a writ of execution against
Freeman Inc. because they are not party to the case since their Motion for Intervention was already
denied. They could only appeal the denial of their motion for intervention as they were never recognized
by the trial court as party litigants in the main case.

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Intervention is "an act or proceeding by which a third person is permitted to become a party to an
action or proceeding between other persons, and which results merely in the addition of a new party
or parties to an original action, for the purpose of hearing and determining at the same time all
conflicting claims which may be made to the subject matter in litigation.

It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by the statute or Rules of Court, must be in subordination to
the main proceeding. It may be laid down as a general rule that an intervenor is limited to the field of
litigation open to the original parties.

In the case at bar, there is no more principal action to be resolved as a writ of execution had already
been issued by the lower court and the claim of Equitable had already been satisfied.

Consideration for Stocks

APODACA V. NATIONAL LABOR RELATIONS COMMISSION (NLRC)

G.R. No. 80039. April 18, 1989

FACTS: Petitioner Apodaca was employed by respondent corporation Intrans Phils Inc.
Subsequently, Jose Mirasol, herein respondent convinced him to subscribe to 1500 shares,
which is valued at 100 pesos per share or a total of 150,000 pesos. He made an initial
payment of 37.5 thousand pesos . Sometime, Apodaca became the President and the
General Manager of the corporation, a year after, he then resigned. Apodaca filed a case to
the NLRC against respondent corporation for unpaid wages and other unpaid
compensation. Private respondents, admitted in its position paper that there is due to
petitioner an amount of 17,000 pesos but the same was applied to the unpaid balance of his
subscript in the amount of 95,000 pesos Apodaca questioned the set-off alleging that there
was no call or notice for the payment of unpaid subscription and that, accordingly the
alleged obligation is not enforceable.
Hence this case.

ISSUE: Are the unpaid subscriptions due and payable?

RULING: No. Assuming that the NLRC has jurisdiction over the issue, the unpaid
subscriptions are not due and payable until a call is made by the corporation for payment.
Private respondents have not presented a resolution of the board of directors of respondent
corporation calling for the payment of the unpaid subscriptions. It does not even appear
that a notice of such call has been sent to petitioner by respondent corporation. The
respondent corporation deducted the amount due to petitioner from the amount receivable
from him for the unpaid subscriptions. Such set-off is without legal basis as there was no
notice or call for the payment of unpaid subscriptions, hence the same is not yet due and
demandable.

FUA CUN vs. SUMMERS

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 G.R. No. L-19441 March 27, 1923

FACTS: It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for
five hundred shares of stock of the defendant Banking Corporation at a par value of P100
per share, paying the sum of P25,000, one-half of the subscription price, in cash, for which a
receipt was issued. On May 18, 1921, Chua Soco executed a promissory note in favor of the
plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at the
rate of 1 per cent per month, securing the note with a chattel mortgage on the shares of
stock subscribed for by Chua Soco, who also endorsed the receipt above mentioned and
delivered it to the mortgagee. The plaintiff thereupon took the receipt to the manager of
the defendant Bank and informed him of the transaction with Chua Soco, but was told to
await action upon the matter by the Board of Directors.

In the meantime Chua Soco appears to have become indebted to the China Banking
Corporation in the sum of P37,731.68 for dishonored acceptances of commercial paper and
in an action brought against him to recover this amount, Chua Soco's interest in the five
hundred shares subscribed for was attached and the receipt seized by the sheriff. The
attachment was levied after the defendant bank had received notice of the facts that the
receipt had been endorsed over to the plaintiff. Fua Cun thereupon brought the present
action maintaining that by virtue of the payment of the one-half of the subscription price of
five hundred shares Chua Soco in effect became the owner of two hundred and fifty shares
and praying that his, the plaintiff's, lien on said shares, by virtue of the chattel mortgage, be
declared to hold priority over the claim of the defendant Banking Corporation; that the
defendants be ordered to deliver the receipt in question to him; and that he be awarded the
sum of P5,000 in damages for wrongful attachment.

ISSUE: Whether or not the trial court erred in declaring that Chua Soco, through the
payment of the P25,000, acquired the right to two hundred and fifty shares fully paid up,
upon which shares the plaintiff holds a lien superior to that of the defendant Banking
Corporation and ordering that the receipt be returned to said plaintiff.

RULING: YES. The claim of the defendant Banking Corporation upon which it brought the
action in which the writ of attachment was issued, was for the non-payment of drafts
accepted by Chua Soco and had no direct connection with the shares of stock in question. At
common law a corporation has no lien upon the shares of stockholders for any indebtedness
to the corporation and our attention has not been called to any statute creating such lien
here. On the contrary, section 120 of the Corporation Act provides that "no bank organized
under this Act shall make any loan or discount on the security of the shares of its own capital
stock, nor be the purchaser or holder of any such shares, unless such security or purchase
shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock
so purchased or acquired shall, within six months from the time of its purchase, be sold or
disposed of at public or private sale, or, in default thereof, a receiver may be appointed to
close up the business of the bank in accordance with law." The reasons for this doctrine are
obvious; if banking corporations were given a lien on their own stock for the indebtedness

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of the stockholders, the prohibition against granting loans or discounts upon the security of
the stock would become largely ineffective.

NATIONAL EXCHANGE CO., INC. vs. I.B. DEXTER

G.R. No. L-27872 February 25, 1928

FACTS: This action was instituted in the Court of First Instance of Manila by the National Exchange
Co., Inc., as assignee (through the Philippine National Bank) of C. S. Salmon & Co., for the purpose of
recovering from I. B. Dexter a balance of P15,000, the par value of one hundred fifty shares of the
capital stock of C. S. Salmon & co., with interest and costs. Upon hearing the cause the trial judge
gave judgment for the plaintiff to recover the amount claimed, with lawful interest from January 1,
1920, and with costs. From this judgment the defendant appealed.

It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a written subscription to the
corporate stock of C. S. Salmon & Co. in the following form: I hereby subscribe for three hundred
(300) shares of the capital stock of C. S. Salmon and Company, payable from the first dividends declared
on any and all shares of said company owned by me at the time dividends are declared, until the full
amount of this subscription has been paid.

Upon this subscription the sum of P15,000 was paid in January, 1920, from a dividend declared at
about that time by the company, supplemented by money supplied personally by the subscriber.
Beyond this nothing has been paid on the shares and no further dividend has been declared by the
corporation. There is therefore a balance of P15,000 still paid upon the subscription.

ISSUE: Was the stipulation contained in the subscription to the effect that the subscription is payable
from the first dividends declared on the shares has the effect of relieving the subscriber from
personal liability in an action to recover the value of the shares?

RULING: No. In discussing this problem we accept as sound law the proposition propounded by the
appellant's attorneys and taken from Fletcher's Cyclopedia as follows: In the absence of restrictions in
its character, a corporation, under its general power to contract, has the power to accept subscriptions
upon any special terms not prohibited by positive law or contrary to public policy, provided they are not
such as to require the performance of acts which are beyond the powers conferred upon the
corporation by its character, and provided they do not constitute a fraud upon other subscribers or
stockholders, or upon persons who are or may become creditors of the corporation.

Pursuant to such, we find that the Philippine Commission inserted in the Corporation Law, enacted
March 1, 1906, the following provision: "no corporation shall issue stock or bonds except in exchange
for actual cash paid to the corporation or for property actually received by it at a fair valuation equal
to the par value of the stock or bonds so issued."

The prohibition against the issuance of shares by corporations except for actual cash to the par value
of the stock to its full equivalent in property is thus enshrined in both the organic and statutory law
of the Philippine; Islands; and it would seem that our lawmakers could scarely have chosen language
more directly suited to secure absolute equality stockholders with respect to their liability upon
stock subscriptions. Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that
a stipulation such as that now under consideration, in a stock subcription, is illegal, for this

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stipulation obligates the subcriber to pay nothing for the shares except as dividends may accrue
upon the stock. In the contingency that dividends are not paid, there is no liability at all. This is
discrimination in favor of the particular subcriber, and hence the stipulation is unlawful.

NIELSON & COMPANY, INC. vs. LEPANTO CONSOLIDATED MINING COMPANY

G.R. No. L-21601, December 28, 1968

FACTS: An operating agreement was executed before World War II (on 30 January 1937) between
Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. whereby the former operated and
managed the mining properties owned by the latter for a management fee of P2,500.00 a month and
a 10% participation in the net profits resulting from the operation of the mining properties, for a
period of 5 years. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in
the profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract was
unfair to Nielson, authorized its President to enter into an agreement with Nielson modifying the
pertinent provision of the contract effective January 1, 1940 in such a way that Nielson shall receive
(1) 10% of the dividends declared and paid, when and as paid, during the period of the contract and at
the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any amount
expended during the year out of surplus earnings for capital account. In the latter part of 1941, the
parties agreed to renew the contract for another period of 5 years, but in the meantime, the Pacific
War broke out in December 1941.

In January 1942 operation of the mining properties was disrupted on account of the war. In February
1942, the mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were
destroyed upon orders of the United States Army, to prevent their utilization by the invading
Japanese Army. The Japanese forces thereafter occupied the mining properties, operated the mines
during the continuance of the war, and who were ousted from the mining properties only in August
1945. Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement
arose between NIELSON and LEPANTO over the status of the operating contract which as renewed
expired in 1947.

ISSUE: Whether or not Nielson is entitled to receive shares of stock forming part of the stock
dividend of Lepanto in lieu of the cash value of the dividends declared by Lepanto during the
Japanese occupation.

RULING: No. Stock dividends cannot be issued to a person who is not a stockholder in payment of
services rendered.

Section 16 of the Corporation Law, in part, provides as follows:

No corporation organized under this Act shall create or issue bills, notes or other
evidence of debt, for circulation as money, and no corporation shall issue stock or bonds
except in exchange for actual cash paid to the corporation or for: (1) property actually
received by it at a fair valuation equal to the par or issued value of the stock or bonds so
issued; and in case of disagreement as to their value, the same shall be presumed to be
the assessed value or the value appearing in invoices or other commercial documents, as
the case may be; and the burden or proof that the real present value of the property is
greater than the assessed value or value appearing in invoices or other commercial

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 documents, as the case may be, shall be upon the corporation, or for (2) profits earned by
it but not distributed among its stockholders or members; Provided, however, That no
stock or bond dividend shall be issued without the approval of stockholders representing
not less than two-thirds of all stock then outstanding and entitled to vote at a general
meeting of the corporation or at a special meeting duly called for the purpose.

Shares of stock are given the special name "stock dividends" only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash or property then those
shares do not fall under the category of "stock dividends".

A corporation may legally issue shares of stock in consideration of services rendered to it by a person
not a stockholder, or in payment of its indebtedness. A share of stock issued to pay for services
rendered is equivalent to a stock issued in exchange of property, because services are equivalent to
property. Likewise, a share of stock issued in payment of indebtedness is equivalent to issuing a
stock in exchange for cash.

In other words, it is the shares of stock that are originally issued by the corporation and forming part
of the capital that can be exchanged for cash or services rendered, or property; that is, if the
corporation has original shares of stock unsold or unsubscribed, either coming from the original
capitalization or from the increased capitalization. Those shares of stock may be issued to a person
who is not a stockholder, or to a person already a stockholder in exchange for services rendered or
for cash or property. But a share of stock coming from stock dividends declared cannot be issued to
one who is not a stockholder of a corporation.

Thus, stock dividends cannot be issued to a person who is not a stockholder in payment of services
rendered. And so, in the case at bar, Nielson cannot be paid in shares of stock which form part of the
stock dividends of Lepanto for services it rendered under the management contract.

In the case at bar Nielson cannot be paid in shares of stock which form part of the stock dividends of
Lepanto for services it rendered under the management contract. We sustain the contention of
Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of
the stock dividends declared as the basis for determining the amount of compensation that should
be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. In
other words, Nielson must still be paid his 10% fee using as the basis for computation the cash value
of the stock dividends declared.

Trillana vs. Quezon College Inc.

93 Phil 383, June 27, 1953

FACTS: Damasa Crisostomo sent a letter to the Board of Trustees of the Quezon College requesting
that her subscription of shares be entered, including an initial payment and the balance to follow.
Damasa Crisostomo died but no payment appears to have been made on the subscription. The
Quezon College, Inc. presented a claim before the Court in her testate proceeding, for the collection
the value of the subscription to the capital stock of the Quezon College, Inc.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written
on a general form indicating that an applicant will enclose an amount as initial payment and will pay

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the balance in accordance with law and the regulations of the College. On the other hand, in the
letter actually sent by Damasa Crisostomo, the latter did not enclose any initial payment and also
stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda.”

ISSUE: Whether there was valid consideration for the stocks

RULING: No. As the application of Damasa Crisostomo is obviously at variance with the terms
evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the
part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely,
said acceptance was essential, because it would be unfair to immediately obligate the Quezon
College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to
be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc.
had only thus reached the preliminary stage whereby the latter offered its stock for subscription on
the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of
payment, — a relation, in the absence as in the present case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more
imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after
she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative
in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as
follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the
conditional obligation shall be void. If it should depend upon chance, or upon the will of a third
person, the obligation shall produce all its effects in accordance with the provisions of this code."

Certificate of stock
Nature of the certificate

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE INSURANCE CO.
INC.) vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE
G.R. No. 118043. July 23, 1998

FACTS: Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic corporation
engaged in the life insurance business. In 1984, it issued 50,000 shares of stock as stock dividends,
with a par value of P100 or a total of P5 million. Petitioner paid documentary stamp taxes on each
certificate on the basis of its par value. The pertinent provision of law, as it stood at the time of the
questioned transaction, reads as follows:
SEC. 224. Stamp tax on original issues of certificates of stock. -- On every original issue, whether on
organization, reorganization or for any lawful purpose, of certificates of stock by any association,
company or corporation, there shall be collected a documentary stamp tax of one peso and ten
centavos on each two hundred pesos, or fractional part thereof, of the par value of such
certificates: Provided, That in the case of the original issue of stock without par value the amount of
the documentary stamp tax herein prescribed shall be based upon the actual consideration received

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by the association, company, or corporation for the issuance of such stock, and in the case of stock
dividends on the actual value represented by each share.

The Commissioner of Internal Revenue took the view that the book value of the shares, amounting
to P19,307,500.00, should be used as basis for determining the amount of the documentary stamp
tax. Accordingly, respondent Internal Revenue Commissioner issued a deficiency documentary
stamp tax assessment in the amount of P78,991.25 in excess of the par value of the stock dividends.
Together with another documentary stamp tax assessment which it also questioned, petitioner
appealed the Commissioners ruling to the Court of Tax Appeals. On March 30, 1993, the CTA
rendered its decision holding that the amount of the documentary stamp tax should be based on the
par value stated on each certificate of stock. In turn, respondent Commissioner of Internal Revenue
appealed to the Court of Appeals which, on November 18, 1994, reversed the CTAs decision and held
that, in assessing the tax in question, the basis should be the actual value represented by the subject
shares on the assumption that stock dividends, being a distinct class of shares, are not subject to the
qualification in the law as to the type of certificate of stock used (with or without par value).

ISSUE: What is the nature of a stock certificate?

RULING: A reading of the then 224 of the NIRC as quoted earlier, starting from its heading, will show
that the documentary stamp tax is not levied upon the shares of stock per se but rather on the
privilege of issuing certificates of stock.
A stock certificate is merely evidence of a share of stock and not the share itself. This distinction is
clear in the Corporation Code, to wit:
SEC. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by
the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred. No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books of the corporation.

Stock dividends are in the nature of shares of stock, the consideration for which is the amount of
unrestricted retained earnings converted into equity in the corporations books. Thus,
A stock dividend is any dividend payable in shares of stock of the corporation declaring or
authorizing such dividend. It is, what the term itself implies, a distribution of the shares of stock of
the corporation among the stockholders as dividends. A stock dividend of a corporation is a dividend
paid in shares of stock instead of cash, and is properly payable only out of surplus profits. So, a stock
dividend is actually two things: (1) a dividend and (2) the enforced use of the dividend money to
purchase additional shares of stock at par.

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From the foregoing, it is clear that stock dividends are shares of stock and not certificates of stock
which merely represent them. There is, therefore, no reason for determining the actual value of such
dividends for purposes of the documentary stamp tax if the certificates representing them indicate a
par value.

NORA A. BITONG vs. COURT OF APPEALS

G.R. No. 123553. July 13, 1998

FACTS: Bitong alleged that she was the treasurer and member of the BoD of Mr. & Mrs.
Corporation. She filed a complaint with the SEC to hold respondent spouses Apostol liable
for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and
mismanagement in directing the affairs of the corporation to the prejudice of the
stockholders. She alleges that certain transactions entered into by the corporation were not
supported by any stockholder’s resolution. The complaint sought to enjoin Apostol from
further acting as president-director of the corporation and from disbursing any money or
funds.

Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares of the
corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel issued a writ
enjoining Apostol. After hearing the evidence, SEC Hearing Panel dissolved the writ and
dismissed the complaint filed by Bitong. Bitong appealed to the SEC en banc which reversed
SEC Hearing Panel decision. Apostol filed petition for review with the CA. CA reversed SEC
en banc ruling holding that Bitong was not the owner of any share of stock in the
corporation and therefore, not a real party in interest to prosecute the complaint.

ISSUE: Is Bitong the real party in interest?

RULING: NO. It could be gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the true party in interest was JAKA.
Although her buying of the shares were recorded in the Stock and Transfer Book of the
corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid
except as between the parties until the transfer is recorded in the books of the corporation,
and upon its recording the corporation is bound by it and is estopped to deny the fact of
transfer of said shares, this provision is not conclusive even against the corporation but are
prima facie evidence only.

Parol evidence may be admitted to supply the omissions in the records, explain ambiguities,
or show what transpired where no records were kept, or in some cases where such records
were contradicted. The certificate of stock itself once issued is a continuing affirmation or
representation that the stock described therein is valid and genuine and is at least prima
facie evidence that it was legally issued in the absence of evidence to the contrary. However,
this presumption may be rebutted. However, the books and records of a corporation are not
conclusive even against the corporation but are prima facie evidence only. The effect of
entries in the books of the corporation which purport to be regular records of the
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proceedings of its board of directors or stockholders can be destroyed by testimony of a
more conclusive character than mere suspicion that there was an irregularity in the manner
in which the books were kept.

Makati Sports Club, Inc. v. Cheng

G.R No. 178523 June 16, 2010

FACTS: Makati Sports Club (MSCI) sued Cheng et. Al. for damages in the amount of P1
Million representing the profit they gained from the sale of shares of stock they purchased
from MCSI in the amount of P1,8000,000.00 and sold the same to spouses Hodreal for
P2,8000,000.00.

MSCI insists that Cheng, in collaboration with Mc Foods, committed fraud in transacting the
transfers involving a Stock Certificate. Based on the recorded incidents, MSCI asserts that
Mc Foods never intended to become a legitimate holder of its purchased Class "A" share but
did so only for the purpose of realizing a profit in the amount of P1,000,000.00 at the
expense of the former. MSCI further claims that Cheng confabulated with Mc Foods by
providing it with an insider’s information as to the status of the shares of stock of MSCI and
even, allegedly with unusual interest, facilitated the transfer of ownership of the subject
share of stock from Mc Foods to Hodreal, instead of an original, unissued share of stock.
According to MSCI, Cheng’s fraudulent participation was clearly and overwhelmingly proven
by the following circumstances: (1) sometime in October 1995, Lolita Hodreal, wife of
Hodreal, talked to Cheng about the purchase of one Class "A" share of stock and the latter
assured her that there was already an available share for P2,800,000.00; (2) the second
installment payment of P1,400,000.00 of spouses Hodreal to Mc Foods was received by
Cheng on the latter’s behalf; (3) Marian N. Punzalan (Punzalan), head of MSCI’s membership
sec=on, informed Cheng about Hodreal’s intention to purchase a share of stock and Cheng
asked her if there was a quoted price for it, and for Hodreal’s contact number; and (4) on
January 29, 1996, Cheng claimed Certificate A on behalf of Mc Foods, per letter of authority
dated January 26, 1996, executed by Mc Foods in favor of Cheng.

ISSUE: Was the purchase of shares of stock from MSCI to Mc Foods and the latter’s sale of
the same shares to Hodreal valid?

RULING: Yes. The court found that there is nothing illegal that was committed by the
respondents in the said transactions. Evidence shows that the acted within their right. MSCI’
claimed that Mc Foods violated MSCI’s pre-emptive rights as provided by their By-Laws.
However, such claim cannot be appreciated because Mc Foods observed such right. On
December 27, 1995, Mc Foods offered for sale one Class "A" share of stock to MSCI for the
price of P2,800,000.00 for the laQer to exercise its pre-emptive right as required by MSCI’s
Amended By-Laws (It legally had the right to do so since it was already an owner of a Class

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"A" share by virtue of its payment on November 28, 1995. The certificate is not a stock in the
corporation but is merely evidence of the holder’s interest and status in the corporation, his
ownership of the share represented thereby) but MSCI failed to repurchase Mc Foods’ Class
"A" share within the thirty (30) day pre-emptive period as provided by the Amended By-
Laws. It was only on January 29, 1996, or 32 days after December 28, 1995, when MSCI
received Mc Foods’ letter of offer to sell the share, that Mc Foods and Hodreal executed the
Deed of Absolute Sale over the said share of stock. Neither can MSCI argue that Mc Foods
was not yet a registered owner of the share of stock when the latter offered it for resale, in
order to void the transfer from Mc Foods to Hodreal. The corp oration’s obligation to
register is ministerial upon the buyer’s acquisition of ownership of the share of stock. The
corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers

Moreover, fraud was also not proven in this case. In fact the transfer of shares pass thru the
membership committee. The Membership Committee, charged with ascertaining the
compliance of all the requirements for the purchase of MSCI’s shares of stock, failed to
question the alleged irregularities attending Mc Foods’ purchase of one Class "A" share at
P1,800,000.00.

Lao and Lao vs. Lao

G.R. No. 170585, October 6, 2008

FACTS: Petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission
(SEC) against respondent Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC).
Petitioners prayed for a declaration as stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate books of PFSC. Petitioners claimed
that they are stockholders of PFSC based on the General Information Sheet filed with the SEC, in
which they are named as stockholders and directors of the corporation. Petitioner David Lao alleged
that he acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously
purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he
acquired 333 shares from respondent Dionisio Lao himself. Respondent denied the claims. He alleged
that the inclusion of their names in the corporations General Information Sheet was inadvertently
made. He also claimed that petitioners did not acquire any shares in PFSC by any of the modes
recognized by law, namely subscription, purchase, or transfer. Since they were neither stockholders
nor directors of PFSC, petitioners had no right to be issued certificates or stocks or to inspect its
corporate books.

On June 19, 2000, Republic Act 8799, otherwise known as the Securities Regulation Code, was
enacted, transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. Pursuant
to the law, the petition with the SEC was transferred to the RTC in Cebu City and docketed as Civil
Case No. CEB-25916-SRC. The case was consolidated with another intra-corporate dispute, Civil Case
No. CEB-25910-SRC, filed by the Heirs of Uy Lam Tiong against respondent Dionisio Lao.

ISSUE: Are petitioners stockholders of PFSC?

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RULING: No. Petitioners failed to prove that they are shareholders of PSFC. They insist that they are
shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner David Lao alleges that he
acquired 446 shares in the corporation from his father, Lao Pong Bao, which shares were previously
purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that he
acquired 333 shares from respondent Dionisio Lao. Records, however, disclose that petitioners have
no certificates of shares in their name. A certificate of stock is the evidence of a holder’s interest and
status in a corporation. It is a written instrument signed by the proper officer of a corporation stating
or acknowledging that the person named in the document is the owner of a designated number of
shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation. Nor is
there any written document that there was a sale of shares, as claimed by petitioners. Petitioners did
not present any deed of assignment, or any similar instrument, between Lao Pong Bao and Hipolito
Lao; or between Lao Pong Bao and petitioner David Lao. There is likewise no deed of assignment
between petitioner Jose Lao and private respondent Dionisio Lao. Absent a written document,
petitioners must prove, at the very least, possession of the certificates of shares in the name of the
alleged seller. Again, they failed to prove possession. They failed to prove the due delivery of the
certificates of shares of the sellers to them. While it may be true that petitioners were named as
shareholders in the General Information Sheet submitted to the SEC, that document alone does not
conclusively prove that they are shareholders of PFSC. The information in the document will still have
to be correlated with the corporate books of PFSC. As between the General Information Sheet and
the corporate books, it is the latter that is controlling.

Negotiability

APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLOvs. J. HOWARD MCGRATH ATTORNEY

GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN PROPERTY
ADMINISTRATION OF THE UNITED STATES
G.R. No. L-4818 February 28, 1955

FACTS: De los Santos bought 55,000 shares from Juan Campos, in Manila. He bought 300,000 shares
from Carl Hess several days later and he bought 800,000 shares from Carl Hess, this time for the
account and benefit of Astraquillo. By virtue of vesting P-12, title to the 1,600,000 shares of stock in
dispute was, however, vested in the Alien Property Custodian of the U. S. as Japanese property.
Hence, plaintiffs filed their respective claims with the Property Custodian.

In due course, the Vested Property Claims Committee of the Philippine Alien Property Administration
made a "determination," allowing said claims, which were considered and heard jointly as Claim No.
535, but, upon personal review, the Philippine Alien Property Administration made by said
Committee and decreed that "title to the shares in question shall remain in the name of the
Philippine Alien Property Administrator." Consequently, plaintiffs instituted the present action to
establish title to the aforementioned shares of stock. In their complaint, they pray that judgment be
rendered declaring them lawful owners of said shares of stock, with such dividends, profits and
rights as may have accrued thereto; requiring the defendant to render accounts and to transfer said
shares of stock to plaintiffs' names; and sentencing the former to pay the costs.

The defendant herein is the Attorney General of the U. S., successor to the "Administrator". He
contends, substantially, that, prior to the outbreak of the war in the Pacific, said shares of stock were

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bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha, a
corporation organized in accordance with the laws of Japan, the true owner thereof, with branch
office in the Philippines; that Madrigal delivered the corresponding stock certificates, with his blank
indorsement thereon, to the Mitsuis, which kept said certificates, in the files of its office in Manila,
until the liberation of the latter by the American forces early in 1945; that the Mitsuis had never sold,
or otherwise disposed of, said shares of stock; and that the stock certificates aforementioned must
have been stolen or looted, therefore, during the emergency resulting from said liberation.

Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States, or any
of its officials, under the Trading with the Enemy Act, as amended, located in the Philippines at the
time of such vesting, or the proceeds thereof, shall be transferred to the Republic of the Philippines,
the latter sought permission, and was allowed, to intervene in this case and filed an answer adopting
in substance the theory of the defendant. The CFI rendered in favor of the plaintiffs. The transfer of
said shares of stock in favor of the Alien Property Custodian of the U. S. of America, now Philippine
Alien Property Administration, is hereby declared null and void and of no effect.

ISSUE: Whether or not a certificate of stock is negotiable

RULING: The status of quasi-negotiability generally accorded to, and at present enjoyed by,
certificates of stock, under the Philippine law, is in itself a recognition of the fact that the certificates
are non-negotiable. Instead of sustaining appellees' claim, section 5 of the uniform Stock Transfer
Act, which "gives full negotiability to certificates of stock," refutes said claim and confirms the non-
negotiable character of stock certificates in the absence of said Unifrom Act, for, obviously, the same
could not have given, negotiability to an instrument already possessing this attribute prior thereto.
Again, apart from being distinct from the general Corporation Law, the aforementioned Uniform Act
is not in force in the Philippines. In this connection, it should be noted that this special piece of
legislation was adopted in some states of the union as early as the year 1910. The failure of the
Philippine government to incorporate its provisions in our statute books, for a period of almost 45
years, is, to our mind, clear proof of the unwillingness of our department to change the policy set
forth in section 35 of Act No. 1459. Needless to say, this fact negates our authority — which is limited
to the interpretation of the law, and its application, with all its imperfections — to abandon what the
dissenting opinion characterizes as the "civil law standpoint," and substitute, in lieu thereof, the
commercial viewpoint, by applying said section 5 of the Uniform Stock Transfer Act, although not a
part of the law of the land. Indeed, even in matters generally considered as falling within
"commercial territory", the Roman Law concept has not given way in the Philippines to the Common
Law approach, except when there is explicit statutory provision to the contrary.

In the case at bar, neither madrigal nor the Mitsuis had alienated shares of stock in question. It is not
even claimed that either had, through negligence, given — occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely argue without any evidence
whatsoever thereon — that Kitajima might have, or must have, assigned the certificates on or before
December 1942, although, as above stated, this is, not only, improbable, under the conditions, then
obtaining, but, also., impossible, considering that, in April 1943, Kitajima delivered the instruments to
Miwa, who kept them in its possession until 1945. At any rate, such assignment by Miwa — granting
for the sake of argument the accuracy of the surmise of plaintiffs herein — was unauthorized by the
mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock
certificates in question for his personal benefit, as claimed by the plaintiffs, the title of his assignees

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and successors in interest would still be subject to the rights of the registered owner, namely,
Madrigal, and consequently, of the party for whose benefit and account the latter held the
corresponding shares of stock, that is to say, the Mitsuis.

RURAL BANK OF SALINAS, INC., v. COURT OF APPEALS

G.R. No. 96674, June 26, 1992

FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power
of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the
Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign receipts for the dispositions. On
February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).Almost four months later, or two (2) days before the death of Clemente
Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant to the same Special
Power of Attorney, executed a Deed of Assignmentfor the remaining one (1) share of stock in favor
of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas
the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock
and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the
name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof. However, petitioner Bank denied the
request of respondent Melania Guerrero.

ISSUE: Is the Mandamus lie against the Rural Bank of Salinas to register in its stock and transfer book
the transfer of 473 shares of stock to private respondents?

RULING: YES. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction
to hear and decide cases involving intracorporate controversies. An intra-corporate controversy has
been defined as one which arises between a stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The case at bar involves shares of stock,
their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in
stock transfers, because: Restrictions in the traffic of stock must have their source in legislative
enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for
the protection of the corporation, and prescribe regulation, not restriction; they are always subject
to the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily
inquire into or pass upon the legality of the transactions by which its stock passes from one person
to another, nor can it question the consideration upon which a sale is based. Whenever a corporation
refuses to transfer and register stock in cases like the present, mandamus will lie to compel the
officers of the corporation to transfer said stock in the books of the corporation.

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 REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT) vs. THE
HONORABLE SANDIGANBAYAN (THIRD DIVISION) and VICTOR AFRICA

EROCOM INVESTORS AND MANAGERS, INC., BENITO NIETO, CARLOS NIETO, MANUEL NIETO III,
RAMON NIETO, ROSARIO ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT, MA. RITA DE LOS
REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors.

G. R. No. 107789. April 30, 2003

VICTOR AFRICA, petitioner, vs. THE HONORABLE SANDIGANBAYAN and THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT, respondents.

G. R. No. 147214. April 30, 2003

FACTS: Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI) were
elected, one by the Presidential Commission on Good Government (PCGG) and the other by
the registered ETPI stockholders.

Victor Africa, a stockholder of ETPI filed a petition for Certiorari before the Sandiganbayan alleging
that the PCGG had been “illegally exercising the rights of stockholders of ETPI,” in the election of the
members of the board of directors. The Sandiganbayan ruled that only the registered owners, their
duly authorized representatives or their proxies may vote their corresponding shares. The PCGG filed
a petition for certiorari, mandamus and prohibition before the Court which was granted. The Court
referred the PCGG’s petition to hold the special stockholders’ meeting to the Sandiganbayan for
reception of evidence and resolution. The Sandiganbayan granted the PCGG “authority to cause the
holding of a special stockholders’ meeting of ETPI and held that there was an urgent necessity to
increase ETPI’s authorized capital stock; there existed a prima facie factual foundation for the
issuance of the writ of sequestration covering the Class “A” shares of stock; and the PCGG was
entitled to vote the sequestered shares of stock. The PCGG-controlled ETPI board of directors held a
meeting and the increase in ETPI’s authorized capital stock from P250 Million to P2.6 Billion was
“unanimously approved”.

Africa filed a motion to nullify the stockholders meeting, contending that only the Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the
sequestered shares. The Sandiganbayan denied the motions for reconsideration of prompting Africa
to file before the Court a second petition, challenging the Sandiganbayan Resolutions authorizing
the holding of a stockholders meeting and the one denying the motion for reconsideration.

ISSUES: 1. Whether or not the Sandiganbayan gravely abused its discretion in ordering the holding of
a stockholders meeting to elect the ETPI board of directors without first setting in place, through the
amendment of the articles of incorporation and the by-laws of ETPI

2. Whether the PCGG can vote the sequestered ETPI Class “A” shares in the stockholders meeting for
the election of the board of directors

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RULING:1. On the PCGG’s imputation of grave abuse of discretion upon the Sandiganbayan for
ordering the holding of a stockholders meeting to elect the ETPI board of directors without first
setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI, the
safeguards prescribed in Cojuangco, Jr. v. Roxas.

The Court laid down those safeguards because of the obvious need to reconcile the rights of the
stockholder whose shares have been sequestered and the duty of the conservator to preserve what
could be ill-gotten wealth. There is nothing in the Cojuangco case that would suggest that the above
measures should be incorporated in the articles and by-laws before a stockholders meeting for the
election of the board of directors is held. The PCGG nonetheless insists that those measures should
be written in the articles and by-laws before such meeting, “otherwise, the {Marcos] cronies will
elect themselves or their representatives, control the corporation, and for an appreciable period of
time, have every opportunity to disburse funds, destroy or alter corporate records, and dissipate
assets.” That could be a possibility, but the peculiar circumstances of the case require that the
election of the board of directors first be held before the articles of incorporation are amended.
Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the
articles of incorporation. At the time Africa filed his motion for the holding of
the annual stockholders meeting, there were two sets of ETPI directors, one controlled by the PCGG
and the other by the registered stockholders. Which of them is the legitimate board of directors?
Which of them may rightfully vote to amend the articles of incorporation and integrate the
safeguards laid down in Cojuangco? It is essential, therefore, to cure the aberration of two boards of
directors sitting in a single corporation before the articles of incorporation are amended to set in
place the Cojuangco safeguards. The danger of the so-called Marcos cronies taking control of the
corporation and dissipating its assets is, of course, a legitimate concern of the PCGG, charged as it is
with the duties of a conservator. Nevertheless, such danger may be averted by the “substantially
contemporaneous” amendment of the articles after the election of the board.

2. The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent cases of
Cojuangco v. Calpo and Presidential Commission on Good Government v. Cojuangco, Jr., where the
Court developed a “two-tiered” test in determining whether the PCGG may vote sequestered shares.
The issue of whether PCGG may vote the sequestered shares in SMC necessitates a determination of
at least two factual matters:

a.) whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong
to the state; and

b.) whether there is an immediate danger of dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan. The two-
tiered test, however, does not apply in cases involving funds of “public character.”

In such cases, the government is granted the authority to vote said shares, namely:

(1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and

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(2) Where the capitalization or shares that were acquired with public funds somehow landed in
private hands. In short, when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied.

However, when the sequestered shares in the name of private individuals or entities are shown,
prima facie, to have been (1) originally government shares, or (2) purchased with public funds or
those affected with public interest, then the two-tiered test does not apply. The rule in the
jurisdiction is, therefore, clear.

The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator.
It may not vote the shares in a corporation and elect members of the board of directors. The only
conceivable exception is in a case of a takeover of a business belonging to the government or
whose capitalization comes from public funds, but which landed in private hands as in BASECO. In
short, the Sandiganbayan held that the public character exception does not apply, in which case it
should have proceeded to apply the two-tiered test. This it failed to do. The questions thus remain if
there is prima facie evidence showing that the subject shares are ill- gotten and if there is
imminent danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in a
position to rule on the correctness of the PCGG’s contention. Consequently, the issue must be
remanded to the Sandiganbayan for resolution.

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and the HEIRS OF THE LATE GRACE G. CHEU, vs.
GILBERT G. GUY
G.R. No. 189486 September 5, 2012

FACTS: Gilbert G. Guy (Gilbert) practically owned almost 80 percent of the 650,000 subscribed
capital stock of GoodGold Realty & Development Corporation (GoodGold). GoodGold’s remaining
shares were divided among Francisco Guy (Francisco) with 130,000 shares, Simny Guy (Simny),
Benjamin Lim and Paulino Delfin Pe, with one share each, respectively. Gilbert is the son of spouses
Francisco and Simny. Simny, one of the petitioners, however, alleged that it was she and her
husband who established GoodGold, putting the bulk of its shares under Gilbert’s name. She claimed
that with their eldest son, Gaspar G. Guy (Gaspar), having entered the Focolare Missionary in 1970s,
renouncing worldly possessions, she and Francisco put the future of the Guy group of companies in
Gilbert’s hands. Gilbert was expected to bring to new heights their family multi-million businesses
and they, his parents, had high hopes in him.

Simny further claimed that upon the advice of their lawyers, upon the incorporation of GoodGold,
they issued stock certificates reflecting the shares held by each stockholder duly signed by Francisco
as President and Atty. Emmanuel Paras as Corporate Secretary, with corresponding blank
endorsements at the back of each certificate – including Stock Certificate Nos. 004-014 under
Gilbert’s name. These certificates were all with Gilbert’s irrevocable endorsement and power of
attorney to have these stocks transferred in the books of corporation.All of these certificates were
always in the undisturbed possession of the spouses Francisco and Simny, including Stock Certificate
Nos. 004-014.

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In 1999, the aging Francisco instructed Benjamin Lim, a nominal shareholder of GoodGold and his
trusted employee, to collaborate with Atty. Emmanuel Paras, to redistribute GoodGold’s
shareholdings evenly among his children, namely, Gilbert, Grace Guy-Cheu (Grace), Geraldine Guy
(Geraldine), and Gladys Guy (Gladys), while maintaining a proportionate share for himself and his
wife, Simny.

Gilbert filed with the Regional Trial Court (RTC) of Manila, a Complaint for the "Declaration of Nullity
of Transfers of Shares in GoodGold and of General Information Sheets and Minutes of Meeting, and
for Damages with Application for a Preliminary Injunctive Relief," against his mother, Simny, and his
sisters, Geraldine, Grace, and Gladys.Gilbert alleged, among others, that no stock certificate ever
existed; that his signature at the back of the spurious Stock Certificate Nos. 004-014 which
purportedly endorsed the same and that of the corporate secretary, Emmanuel Paras, at the obverse
side of the certificates were forged, and, hence, should be nullified.

Gilbert alleged that he never signed any document which would justify and support the transfer of
his shares to his siblings and that he has in no way, disposed, alienated, encumbered, assigned or
sold any or part of his shares in GoodGold. He also denied the existence of the certificates of stocks.
According to him, "there were no certificates of stocks under his name for the shares of stock
subscribed by him were never issued nor delivered to him from the time of the inception of the
corporation.

Meanwhile, Gilbert’s siblings filed a manifestation claiming that the complaint is a nuisance and
harassment suit under Section 1(b), Rule 1 of the Interim Rules of Procedure on Intra-Corporate
Controversies. The RTC denied the motion for inhibition. The RTC also dismissed the case, declaring it
a nuisance and harassment suit. The CA found merit on Gilbert’s petition. Hence, this case.

ISSUE: Was there a valid transfer of stocks.

RULING: pronounces, as a consequence thereof, that the signatures appearing on the stock
certificates, including his blank endorsement thereon were authentic. With the stock certificates
having been endorsed in blank by Gilbert, which he himself delivered to his parents, the same can be
cancelled and transferred in the names of herein petitioners.

In Santamaria v. Hongkong and Shanghai Banking Corp.,this Court held that when a stock certificate
is endorsed in blank by the owner thereof, it constitutes what is termed as "street certificate," so
that upon its face, the holder is entitled to demand its transfer into his name from the issuing
corporation. Such certificate is deemed quasi-negotiable, and as such the transferee thereof is
justified in believing that it belongs to the holder and transferor.1âwphi1

While there is a contrary ruling, as an exception to the general rule enunciated above, what the Court
held in Neugene Marketing Inc., et al., v CA, where stock certificates endorsed in blank were stolen
from the possession of the beneficial owners thereof constraining this Court to declare the transfer
void for lack of delivery and want of value, the same cannot apply to Gilbert because the stock
certificates which Gilbert endorsed in blank were in the undisturbed possession of his parents who
were the beneficial owners thereof and who themselves as such owners caused the transfer in their
names. Indeed, even if Gilbert’s parents were not the beneficial owners, an endorsement in blank of

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the stock certificates coupled with its delivery, entitles the holder thereof to demand the transfer of
said stock certificates in his name from the issuing corporation.

FIL-ESTATE GOLF AND DEVELOPMENT, INC vs. VERTEX SALES AND TRADING, INC

G.R. No. 202079 June 10, 2013

FACTS: FEGDI is a stock corporation whose primary business is the development of golf
courses. FELI is also a stock corporation, but is engaged in real estate development. FEGDI
was the developer of the Forest Hills Golf and Country Club and, in consideration for its
financing support and construction efforts, was issued several shares of stock of Forest Hills.
In August 1997, FEGDI sold, on installment, to RS Asuncion Construction Corporation one
Class "C" Common Share of Forest Hills for ₱1,100,000.00. Prior to the full payment of the
purchase price, RSACC sold, on February 11, 1999, the Class "C" Common Share to
respondent Vertex Sales and Trading, Inc. RSACC advised FEGDI of the sale to Vertex and
FEGDI, in turn, instructed Forest Hills to recognize Vertex as a shareholder. For this reason,
Vertex enjoyed membership privileges in Forest Hills.

However, despite Vertex’s full payment, the share remained in the name of FEGDI.
Seventeen (17) months after the sale or on July 28, 2000, Vertex wrote FEDGI a letter
demanding the issuance of a stock certificate in its name. FELI replied, initially requested
Vertex to first pay the necessary fees for the transfer. Although Vertex complied with the
request, no certificate was issued. This prompted Vertex to make a final demand on March
17, 2001. As the demand went unheeded, Vertex filed on January 7, 2002 a Complaint for
Rescission with Damages and Attachment against FEGDI, FELI and Forest Hills. It averred
that the petitioners defaulted in their obligation as sellers when they failed and refused to
issue the stock certificate covering the subject share despite repeated demands. On the
basis of its rights under Article 1191 of the Civil Code, Vertex prayed for the rescission of the
sale and demanded the reimbursement of the amount it paid or ₱1,100,000.00, plus interest.
During the pendency of the rescission action or on January 23, 2002, a certificate of stock
was issued in Vertex’s name, but Vertex refused to accept it.

ISSUE: does the delay in the issuance of a stock certificate can be considered a substantial
breach as to warrant rescission of the contract of sale?

RULING: The Supreme Court held that physical delivery is necessary to transfer ownership of
stocks. The factual backdrop of this case is similar to that of Raquel-Santos v. Court of
Appeals, where the Court held that in "a sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the transfer of ownership of the stocks
purchased."

Section 63 of the Corporation Code provides: the capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the

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corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer.1âwphi1 No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred. No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.

In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate
was only delivered on January 23, 2002 after Vertex filed an action for rescission against
FEGDI.

Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver
the stock certificates, representing the shares of stock purchased by Vertex, within a
reasonable time from the point the shares should have been delivered. This was a
substantial breach of their contract that entitles Vertex the right to rescind the sale under
Article 1191 of the Civil Code. It is not entirely correct to say that a sale had already been
consummated as Vertex already enjoyed the rights a shareholder can exercise. The
enjoyment of these rights cannot suffice where the law, by its express terms, requires a
specific form to transfer ownership.

"Mutual restitution is required in cases involving rescission under Article 1191" of the Civil
Code; such restitution is necessary to bring back the parties to their original situation prior
to the inception of the contract. Accordingly, the amount paid to FEGDI by reason of the sale
should be returned to Vertex. On the amount of damages, the CA is correct in not awarding
damages since Vertex failed to prove by sufficient evidence that it suffered actual damage
due to the delay in the issuance of the certificate of stock.

Regarding the involvement of FELI in this case, no privity of contract exists between Vertex
and FELI. "As a general rule, a contract is a meeting of minds between two persons. The Civil
Code upholds the spirit over the form; thus, it deems an agreement to exist, provided the
essential requisites are present. A contract is upheld as long as there is proof of consent,
subject matter and cause. Moreover, it is generally obligatory in whatever form it may have
been entered into. From the moment there is a meeting of minds between the parties, [the
contract] is perfected."

In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller, and Vertex,
as buyer. As can be seen from the records, FELl was only dragged into the action when its
staff used the wrong letterhead in replying to Vertex and issued the wrong receipt for the
payment of transfer taxes. Thus FELl should be absolved from any liability.

Issuance of Certificates of Stock

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 Nava vs. Peers Mktg Corp.
GR No. L-28120, November 25, 1976

FACTS: Teofilo Po is an incorporator subscribed to eighty shares of Peers Marketing

Corporation at one hundred pesos a share or a total par value of eight thousand pesos. Po
paid two thousand pesos or twenty-five percent of the amount of his subscription. No
certificate of stock was issued to him or, for that matter, to any incorporator, subscriber or
stockholder. Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty shares.
In the deed of sale Po represented that he was "the absolute and registered owner of
twenty shares" of Peers Marketing Corporation.

Nava requested the officers of the corporation to register the sale in the books of the
corporation. The request was denied because Po has not paid fully the amount of his
subscription. Nava was informed that Po was delinquent in the payment of the balance due
on his subscription and that the corporation had a claim on his entire subscription of eighty
shares which included the twenty shares that had been sold to Nava. Nava filed
this mandamus action in court to compel the corporation and Renato R. Cusi and Amparo
Cusi, its executive vice-president and secretary, respectively, to register the said twenty
shares in Nava's name in the corporation's transfer book.

ISSUE: Can the officers of Peers Marketing Corporation be compelled by mandamus to enter
in its stock and transfer book the sale made by Po to Nava, it being admitted that the
corporation has an unpaid claim on Po's subscription and that the twenty shares are not
covered by any stock certificate.

RULING: No. The Court hold that the transfer made by Po to Nava is not the "alienation, sale,
or transfer of stock" that is supposed to be recorded in the stock and transfer book, as
contemplated in section 52 of the Corporation Law. As a rule, the shares which may be
alienated are those which are covered by certificates of stock.

The usual practice is for the stockholder to sign the form on the back of the stock certificate.
The certificate may thereafter be transferred from one person to another. If the holder of
the certificate desires to assume the legal rights of a shareholder to enable him to vote at
corporate elections and to receive dividends, he fills up the blanks in the form by inserting
his own name as transferee. Then he delivers the certificate to the secretary of the

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corporation so that the transfer may be entered in the corporation's books. The certificate is
then surrendered and a new one issued to the transferee.

That procedure cannot be followed in the instant case because, as already noted, the twenty
shares in question are not covered by any certificate of stock in Po's name. Moreover, the
corporation has a claim on the said shares for the unpaid balance of Po's subscription. A
stock subscription is a subsisting liability from the time the subscription is made. The
subscriber is as much bound to pay his subscription as he would be to pay any other debt.
The right of the corporation to demand payment is no less incontestable.

Baltazar vs Lingayen Gulf Electric Power Corporation

G.R. No. L-16236, June 30, 1965

FACTS: The Lingayen Gulf Electric Power Co.(Corporation) was doing business in the
Philippines, with principal offices at Lingayen, Pangasinan, and with an authorized capital
stock of P300.000.00 divided into 3,000 shares of voting stock at P100.00 par value, per
share.

The Corporation, through a resolution by its board, which had been in complete control of
the management and property of the Corporation, was threatening and procuring to expel
and oust some members of the board and their companion stockholders, for the ultimate
purpose of depriving them of their right to vote in a stockholder meeting by passing, among
others, a resolution declaring as having no value shares of stocks issued to any stockholder
who failed to pay accrued interest brought about by non-payment of unpaid subscriptions.
The resolution directed that any payments made should be first applied to accrued and
collectible interest before applying it to the payment of the unpaid subscriptions. Thus,

ISSUE:Whether payments made should first be applied to interest accrued and collectible.

RULING: No. Art. 1253 NCC (Art. 1173 of the Old Civil Code) which provides that "if the debt
produces interest, payment of the principal shall not be deemed to have been made until
the interests have been covered," only applies in the absence of verbal or written
agreement, to the contrary (8 Manresa, p. 317); it is likewise merely directory, and not
mandatory. (Art. 1252 NCC).

In the present case, the defendant-corporation had applied the payments made by the
stockholders to the full par value of the shares of stock subscribed by them, instead of the
accepted interest, as shown by the capital stock shares certificate issued for the payments
made, and the stockholders had accepted such certificates issued for such payments. This
being the case, the said application of payments must be deemed to have been agreed upon

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by the Corporation and the stockholders, and the same cannot now be changed without the
consent of the stockholders concerned.

TAN vs. SEC

G.R. No. 95696, March 3, 1992

FACTS: Alfonso Tan was the president of Visayan Educational Supply Corporation when it was
incorporated. Initially, 400 shares of stock was in his name, represented by Stock Certificate Number
2. But when two other incorporators, Young and Ong assigned to the corporation their shares,
Alfonso sold 50 shares to his brother Angelo, and another incorporator, Alfredo Uy, sold 50 shares to
Teodora S. Tan. The above sale was necessary in order to complete the membership requirement of
the Board of Directors. Because of the mentioned transactions, Stock Certificate Number 2 was
cancelled, and the corresponding stock certificates 6 and 8 were issued, with certificate 6
representing 50 shares sold to Angelo, and certificate 8 representing the 350 shares for the
petitioner Alfonso Tan. A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask that Alfonso
Tan endorse the cancelled Stock Certificate Number 2. However, Alfonso did not sign Stock
Certificate Number 2 and only returned Stock Certificate Number 8.

Later on, Alfonso Tan withdrew from the corporation because he was dislodged by respondent Tan
Su Ching as president. Part of the condition of his withdrawal was that he be paid with stocks-in-
trade equivalent to 33% in lieu of stock value of his shares in the amount of P35,000.00. Due to the
withdrawal, the cancellation of Stock Certificate 2 and 8 was effected and recorded in the stock and
transfer book. Alfonso then filed a case with Cebu SEC, questioning the cancellation of his aforesaid
Stock Certificates 2 and 8. Petitioner argues that he was deprived of his shares despite the non-
endorsement or surrender of Stock Certificates 2 and 8 which is contrary to Section 63 of the
Corporation Code which requires:

“No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded to the books of the corporation so as to show the names of the parties
to the transaction, the date of the transfer, and the number of the certificates and the
number of shares transferred.”

ISSUE: Is the cancellation of Stock Certificate and the subsequent issuance of Stock Certificate
Number 8 was null and void because of the non-endorsement of Stock Certificate Number 2 by
Alfonso Tan.

RULING: The Supreme Court ruled in the negative. The Court held that the cancellation and the
transfers of stock were valid. There was a delivery of Stock Certificate No. 2 made by Alfonso Tan to
the corporation before it was replaced with Stock Certificate No. 6 for 50 shares to Angel Tan and
Stock Certificate No. 8 for 350 shares to the Alfonso.

From the facts deduced in the case, there was already delivery of the unendorsed Stock Certificate
No. 2, which made the issuance of Stock Certificate Nos. 6 and 8 valid. All the acts required for the

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transferee to exercise its rights over the acquired stocks were attendant and even the corporation
was protected from other parties, considering that the said transfer was earlier recorded or
registered in the corporate stock and transfer book.

Furthermore, it is necessary to delineate the function of the stock itself form the actual delivery or
endorsement of the certificate of stock itself because a certificate of stock is not necessary to render
one a stockholder in a corporation. The certificate is not stock in the corporation but is merely
evidence of the holder’s interest and status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share in stock
or the nation of the relation of the shareholder to the corporation.

Lastly, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights and
prerogatives as stockholder and was even elected as member of the board of directors in the
respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer
of 50 shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent
corporation when he was elected as officer thereof

EMBASSY FARMS, INC. vs. COURT OF APPEALS

G.R. No. 80682 August 13, 1990

FACTS: It appears on record that sometime on August 2, 1984, Alexander G. Asuncion (AGA for short)
and Eduardo B. Evangelists (EBE for short) entered into a Memorandum of Agreement (Annex "A" of
the petition). Under said agreement EBE obligated himself to transfer to AGA 19 parcels of
agricultural land registered in his name with an aggregate area of 104,447 square meters located in
Loma de Gato, Marilao, Bulacan, together with the stocks, equipment and facilities of a piggery farm
owned by Embassy Farms, Inc., a registered corporation wherein ninety (90) per cent of its shares of
stock is owned by EBE. EBE also obligated himself to cede, transfer and convey "in a manner
absolute and irrevocable any and all of his shares of stocks" in Embassy Farins Inc. to AGA or his
nominees "until the total of said shares of stock so transferred shall constitute 90% of the paid-in-
equity of said corporation" within a reasonable time from signing of the document. Likewise, EBE
obligated to turnover to AGA the effective control and management of the piggery upon the signing
of the agreement.

On the other hand, AGA obligated himself, upon signing of the agreement to pay to EBE the total
sum of close to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated
himself to organize and register a new corporation with an authorized capital stock of
P10,000,000.00 which upon registration will take over all the rights and liabilities of AGA.

ISSUE: Whether or not there has been an effective transfer of shares of stock from AGA to other
persons.

RULING: NO. There being no delivery of the indorsed shares of stock AGA cannot therefore
effectively transfer to other person or his nominees the undelivered shares of stock. For an effective
transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed
(Navea v. Peers Marketing Corp., 74 SCRA 65). As provided under Section 3 of Batas Pambansa Bilang

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68, otherwise known as the Corporation Code of the Philippines, shares of stock may be transferred
by delivery to the transferree of the certificate properly indorsed. Title may be vested in the
transferree by the delivery of the duly indorsed certificate of stock (18 C.J.S. 928, cited in Rivera v.
Florendo, 144 SCRA 643). However, no transfer shall be valid, except as between the parties until the
transfer is properly recorded in the books of the corporation.

In the case at bar the indorsed certificate of stock was not actually delivered to AGA so that EBE is
still the controlling stockholder of Embassy Farms despite the execution of the memorandum of
agreement and the turn over of control and management of the Embassy Farms to AGA on August 2,
1984.

When AGA filed on April 10, 1986 an action for the rescission of contracts with damages the Pasig
Court merely restored and established the status quo prior to the execution of the memorandum of
agreement by the issuance of a restraining order on July 10, 1987 and the writ of preliminary
injunction on July 30, 1987. It would be unjust and unfair to allow AGA and his nominees to control
and manage the Embassy Farms despite the fact that AGA who is the source of their supposed
shares of stock in the corporation is not asking for the delivery of the indorsed certificate of stock
but for the rescission of the memorandum of agreement. Rescission would result in mutual
restitution (Magdalena Estate v. Myrick, 71 Phil. 344) so it is but proper to allow EBE to manage the
farm.

Right to Transfer Shares

MAKATI SPORTS CLUB, INC. - versus - CECILE H. CHENG, MC FOODS, INC., and RAMON SABARRE
G.R. No. 178523 June 16, 2010

FACTS: Plaintiffs Board of Directors adopted a Resolution authorizing the sale of 19 unissued shares
at a floor price of P400,000 and P450,000 per share for Class A and B, respectively. Defendant Cheng
was a Treasurer and Director of plaintiff. Hodreal expressed his interest to buy a share, for this
purpose he sent a letter. In said letter, he requested that his name be included in the waiting list.

It appears that sometime in November 1995, McFoods expressed interest in acquiring a share of the
Makati Sports Club, and one was acquired with the payment to the Makati Sports Club by McFoods.
The Deed of Absolute Sale was executed by Makati Sports Club and McFoods, Stock Certificate No. A
2243 was issued to McFoods. McFoods sent a letter to the plaintiff giving advise (sic) of its offer to
resell the share.

It appears that while the sale between the Makati Sports Club and McFoods was still under
negotiations, there were negotiations between McFoods and Hodreal for the purchase by the latter
of a share of Makati Sports Club. On November 24, 1995, Hodreal paid McFoods P1,400,000. Another
payment of P1,400,000 was made by Hodreal to McFoods on December 27, 1995, to complete the
purchase price of P2,800,000.

Makati Sports Club was advised of the sale by McFoods to Hodreal of the share evidenced by
Certificate No. 2243 for P2.8 Million. Upon request, a new certificate was issued. In 1997, an

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investigation was conducted and the committee held that there is prima facie evidence to show
that defendant Cheng profited from the transaction because of her knowledge.

Plaintiffs evidence of fraud are

a. letter of Hodreal where he expressed interest in buying one (1) share from the plaintiff with
the request that he be included in the waiting list of buyers;
b. declaration of Lolita Hodreal in her Affidavit that she talked to Cheng who assured her that
there was one (1) available share at the price of P2,800,000. The purchase to be validated by
paying 50% immediately and the balance after thirty (30) days;
c. Marian Punzalan, Head, Membership Section of the plaintiff declared that she informed
Cheng of the intention of Hodreal to purchase one (1) share and she gave to Cheng the
contact telephone number of Hodreal; and
d. the authorization from Sabarre to claim the stock certificate.

Thus, petitioner Makati Sports Club sought judgment that would order respondents to pay the sum
of P1,000,000.00, representing the amount allegedly defrauded, together with interest and
damages.

After trial on the merits, the RTC rendered its decision, dismissing the complaint, including all
counterclaims. The CA affirmed.

ISSUE: Was the transfer of MCSI’s shares from McFoods to Hordeal valid?

RULING: YES. MSCI insists that Cheng, in collaboration with Mc Foods, committed fraud in
transacting the transfers involving Stock Certificate No. A 2243 (Certificate A 2243) because McFoods
subsequently sold the shares to Hordeal at P2.8 million while McFoods only bought the same shares
for P1.8 million from MCSI.

MSCI asserts that Mc Foods never intended to become a legitimate holder of its purchased Class A
share but did so only for the purpose of realizing a profit in the amount of P1,000,000.00 at the
expense of the former. The Court is not convinced.

It is noteworthy that, as early as July 7, 1995, Hodreal already expressed to the MSCI Membership
Committee his intent to purchase one Class A share and even requested if he could be included in the
waiting list of buyers. However, there is no evidence on record that the Membership Committee
acted on this letter by replying to Hodreal if there still were original, unissued shares then or if he
would indeed be included in the waiting list of buyers. All that Punzalan did was to inform Cheng of
Hodreals intent and nothing more, even as Cheng asked for Hodreals contact number. It may also be
observed that, although established by Punzalan’s affidavit that she informed Cheng about Hodreal’s
desire to purchase a Class A share and that Cheng asked for Hodreal’s contact number, it is not clear
when Punzalan relayed the information to Cheng or if Cheng indeed initiated contact with Hodreal to
peddle Mc Foods purchased share.

Also in point are the powers and duties of the MSCIs Membership Committee. Charged with
ascertaining the compliance of all the requirements for the purchase of MSCIs shares of stock, the
Membership Committee failed to question the alleged irregularities attending Mc Foods purchase of
one Class A share at P1,800,000.00. If there was really any irregularity in the transaction, this inaction

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of the Management Committee belies MSCIs cry of foul play on Mc Foods purchase of the subject
share of stock. In fact, the purchase price of P1,800,000.00 cannot be said to be detrimental to MSCI,
considering that it is the same price paid for a Class A share in the last sale of an original share to
Land Bank of the Philippines on September 25, 1995, and in the sale by Marina Properties
Corporation to Xanland Properties, Inc. on October 23, 1995. These circumstances have not been
denied by MSCI. What is more, the purchase price of P1,800,000.00 is P1,400,000.00 more than the
floor price set by the MSCI Board of Directors for a Class A share in its resolution dated October 20,
1994.

Further, considering that Mc Foods tendered its payment of P1,800,000.00 to MSCI on November 28,
1995, even assuming arguendo that it was driven solely by the intent to speculate on the price of the
share of stock, it had all the right to negotiate and transact, at least on the anticipated and expected
ownership of the share, with Hodreal. In other words, there is nothing wrong with the fact that the
first installment paid by Hodreal preceded the payment of Mc Foods for the same share of stock to
MSCI because eventually Mc Foods became the owner of a Class A share covered by Certificate A
2243. Upon payment by Mc Foods of P1,800,000.00 to MSCI and the execution of the Deed of
Absolute Sale, it then had the right to demand the delivery of the stock certificate in its name. The
right of a transferee to have stocks transferred to its name is an inherent right flowing from its
ownership of the stocks.

FLEISCHER vs. BOTICA NOLASCO CO., INC

G.R. No. L-23241 March 14, 1925

FACTS: Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17,
18, 19 and 20 of the Botica Nolasco, Inc.; that on March 11, 1923, he assigned and delivered said five
shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the
back thereof, together with other credits, in consideration of a large sum of money owed by
Gonzalez to Fleischer; that on March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer
of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of
stock, at their par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica
Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares;
that the plaintiff refused to sell them to the defendant; that the plaintiff requested Doctor Miciano
to register said shares in his name; that Doctor Miciano refused to do so, saying that it would be in
contravention of the by-laws of the corporation. It also appears from the record that on the 13th day
of March, 1923, two days after the assignment of the shares to the plaintiff, Manuel Gonzales made a
written statement to the Botica Nolasco, Inc., requesting that the five shares of stock sold by him to
Henry Fleischer be noted transferred to Fleischer's name. He also acknowledged in said written
statement the preferential right of the corporation to buy said five shares.

ISSUE: Whether or not article 12 of the by-laws of the Botica Nolasco, Inc., is in conflict with the
provisions of the Corporation Law (Act No. 1459).

RULING: NO. It does not suggest that any discrimination may be created by the corporation in favor
or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty,
under said section, to dispose of them in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions of law. Therefore, a stock corporation in
adopting a by-law governing transfer of shares of stock should take into consideration the specific

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provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said
provisions. It should not be inconsistent therewith. The only restraint imposed by the Corporation
Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No
transfer, however, shall be valid, except as between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate, and the number of shares transferred." This
restriction is necessary in order that the officers of the corporation may know who are the
stockholders, which is essential in conducting elections of officers, in calling meeting of
stockholders, and for other purposes. but any restriction of the nature of that imposed in the by-law
now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of
trade. And moreover, the by-laws now in question cannot have any effect on the appellee. He had
no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith
and for a valuable consideration. He was not a privy to the contract created by said by-law between
the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat
his rights as a purchaser.

CYRUS PADGETT vs. BABCOCK & TEMPLETON, INC., and W. R. BABCOCK

G.R. No. L-38684 December 21, 1933

FACTS: The appellee was an employee of the Appellant Corporation and rendered services
as such from January 1, 1923, to April 15, 1929. During that period he bought 35 shares
thereof at P100 a share at the suggestion of the president of said corporation. He was also
the recipient of 9 shares by way of bonus during Christmas seasons. In this way the said
appellee became the owner of 44 shares for which the 12 certificates, Exhibits F to F-11, were
issued in his favor. The word "nontransferable" appears on each and every one of these
certificates. Before severing his connections with the said corporation, the appellee
proposed to the president that the said corporation buy his 44 shares at par value plus the
interest thereon, or that he be authorized to sell them to other persons. The corporation
bought similar shares belonging to other employees, at par value. Sometime later, the said
president offered to buy the appellee's shares first at P85 each and then at P80. The
appellee did not agree thereto.

ISSUE: Whether or not the defendant obliged to buy his shares of stock at par value.

RULING: NO. A restriction imposed upon a certificate of shares, similar to the ones under
consideration, is null and void on the ground that it constitutes and unreasonable limitation
of the right of ownership and is in restraint of trade. Shares of corporate stock being
regarded as property, the owner of such shares may, as a general rule, dispose of them as he
sees fit, unless the corporation has been dissolved, or unless the right to do so is properly
restricted, or the owner's privilege of disposing of his shares has been hampered by his own
action.

Any restriction on a stockholder's right to dispose of his shares must be construed strictly;
and any attempt to restrain a transfer of shares is regarded as being in restraint of trade, in

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the absence of a valid lien upon its shares, and except to the extent that valid restrictive
regulations and agreements exist and are applicable. Subject only to such restrictions, a
stockholder cannot be controlled in or restrained from exercising his right to transfer by the
corporation or its officers or by other stockholders, even though the sale is to a competitor
of the company, or to an insolvent person, or even though a controlling interest is sold to
one purchaser.

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ
ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , SR.
G.R. No. 96674, June 26, 1992

FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power
of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the
Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign receipts for the dispositions. On
February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).Almost four months later, or two (2) days before the death of Clemente
Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant to the same Special
Power of Attorney, executed a Deed of Assignmentfor the remaining one (1) share of stock in favor of
private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas
the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock
and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the
name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof. However, petitioner Bank denied the
request of respondent Melania Guerrero.

ISSUE: Will a Mandamus lie against the Rural Bank of Salinas to register in its stock and transfer book
the transfer of 473 shares of stock to private respondents?

RULING: Yes. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction
to hear and decide cases involving intracorporate controversies. An intra-corporate controversy has
been defined as one which arises between a stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The case at bar involves shares of stock,
their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in
stock transfers, because: Restrictions in the traffic of stock must have their source in legislative
enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for
the protection of the corporation, and prescribe regulation, not restriction; they are always subject
to the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily

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inquire into or pass upon the legality of the transactions by which its stock passes from one person
to another, nor can it question the consideration upon which a sale is based.
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus
will lie to compel the officers of the corporation to transfer said stock in the books of the
corporation.

MARSH THOMSON vs. COURT OF APPEALS and THE AMERICAN CHAMBER OF COMMERCE OF THE
PHILIPPINES, INC.
G.R. No. 116631, October 28, 1998

FACTS: A. Lewis Burridge, retired as AmCham's President while petitioner was still working
with private respondent, his superior. Before Burridge decided to return to his home
country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to
petitioner. However, through the intercession of Burridge, private respondent paid for the
share but had it listed in petitioner's name. This was made clear in an employment advice
dated January 13, 1986, wherein petitioner was informed by private respondent.

Burridge transferred said proprietary share to petitioner, as confirmed in a letter of notification to

the Manila Polo Club. Upon his admission as a new member of the MPC, petitioner paid the transfer
fee of P40,000.00 from his own funds; but private respondent subsequently reimbursed this
amount.

MPC issued Proprietary Membership Certificate Number 3398 in favor of petitioner. But petitioner,
however, failed to execute a document recognizing private respondent's beneficial ownership over
said share.

When petitioner's contract of employment was up for renewal in 1989, he notified private
respondent that he would no longer be available as Executive Vice President after September 30,
1989. Still, the private respondent asked the petitioner to stay on for another six (6) months.

ISSUE: Whether or not private respondent is the beneficial owner of the disputed share.

RULING: Yes. Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt
to respondent when the latter advanced the funds for the purchase of the share. On the other hand,
private respondent asserts beneficial ownership whereby petitioner only holds the share in his name,
but the beneficial title belongs to private respondent. To resolve the first issue, we must clearly
distinguish a debt from a trust.

The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely a
personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a
beneficiary, but there is no such relation between a debtor and creditor. While a debt implies merely
an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific property
for the benefit of another. If a creditor-debtor relationship exists, but not a fiduciary relationship
between the parties, there is no express trust. However, it is understood that when the purported
trustee of funds is entitled to use them as his or her own (and commingle them with his or her own
money), a debtor-creditor relationship exists, not a trust.

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In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary
position in the business of Amcham. AmCham released the funds to acquire a share in the Club for
the use of petitioner but obliged him to execute such document as necessary to acknowledge
beneficial ownership thereof by the Chamber. A trust relationship is, therefore, manifestly indicated.

Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor
when the private respondent paid the purchase price of the MPC share. Applicable here is the rule
that a trust arises in favor of one who pays the purchase money of property in the name of another,
because of the presumption that he who pays for a thing intends a beneficial interest therein for
himself.

Although petitioner initiated the acquisition of the share, evidence on record shows that private
respondent acquired said share with its funds. Petitioner did not pay for said share, although he later
wanted to, but according to his own terms, particularly the price thereof.

Yuchengco vs. Court of Appeals

115 SCRA 307, July 20, 1982

FACTS: Defendant-appellant Conrado M. Velayo offered to sell to the plaintiffs-appellees shares of

common stock of the RIC Tours Philippines, Inc. constituting 70% of the subscribed and outstanding
capital stock of the said corporation. Appellees paid the entire purchase price to appellant Velayo,
and the latter delivered to the former all the 2,265 shares of stock of Ric Tours Phil. Appellees
eventually took possession of all the assets of Ric Tours Phil.

Appellant received a letter from the Department of Tourism directing him to explain why the
Department of tourism should not cancel the Local Tour Operator's License of Ric Tours Phil. for
having sold to another group the shares of stock of Ric Tours Phil. without prior notice and approval
from the Department. Appellant claims that the shares of stock of Ric Tours Phil. were sold to
another group without previous clearance from the Department of Tourism because he really was
not aware of the rule requiring prior approval. Subsequently, appellant received a letter informing
him that the license to operate the business as Tour Operator of the Ric Tours Phil. is cancelled.

ISSUE: Whether or not the "Stock Purchase Agreement" entered into by the appellees and appellant
Velayo should be annulled, or in the alternative, declared void ab initio

RULING: The provision governing the Agreement sought to be annuled is Sec 4, Part IV of the Rules
and Regulations Governing the Business of Tour Operators and Tour Guides, which recites as follows:

Sec. 4. No transfer of rights to a license of a tour operator or ownership of shares or interests in the
agency shall be valid unless made with the prior approval of the Department.

The above-quoted rule is clear and mandatory. It requires the prior approval of the Department of
Tourism for the validity of any transfer of rights to a license of a tour operator or ownership of
shares or interests in any tour agency. In the case at bar, it was admitted by both parties, that the
Stock Purchase Agreement was made without the prior approval of the Department of Tourism.

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Pursuant to paragraph 7, article 1409 of the New Civil Code, such agreement would be inexistent and
null and void from the beginning.

In the case at bar, there is no question that contracts and agreements concerning the transfer of
rights or ownership of shares of stock in a tour operator or agency should be as would assure the
best protection of the public, for as admitted by the appellant himself, the "Department of Tourism
would like to assure itself that the shares of stock would not be sold to persons unfit to engage in
the business of tour operation," in line with the policy of the Government to make the tourist
industry a positive instrument towards accelerated national development. Pursuant thereto,
Presidential Decree No. 189, creating the Department of Tourism, expressly confers upon it the
function of licensing, regulating and supervising travel agents, tour operators and tour guides, 5 to
see to it that only those persons and entities who are fit and responsible should engage in tour
operation business. Accordingly, the Department of Tourism promulgated its "Rules and Regulations
Governing the Business of Tour Operators and Tour Guides," providing, among others, that prior
approval of the Department of Tourism is a requisite for the validity of transfers of rights, of
ownership of shares of stock in a tour operator or agency, and that a violation of this rule and
regulation is a ground for suspension/cancellation of license and/or forfeiture of bond.

It is a familiar doctrine in administrative law, that the "Rules and Regulations Governing the Business
of Tour Operators and Tour Guides" issued by the Ministry of Tourism, promulgated pursuant to the
authority vested upon it by P.D. Nos. 189 and 259, to accomplish the objectives of the statute of
making the tourist industry a positive instrument towards accelerated national development, have
the force and effect of law, are binding on all persons subject to them and compliance therewith may
be enforced by a penal sanction provided in the law.

LIM TAY vs. COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF ALFONSO
LIM
G.R. No. 126891. August 5, 1998

FACTS: Respondent-Appellee Sy Guiok secured a loan from the petitioner in the amount of P40,000
payable within six (6) months. To secure the payment of the aforesaid loan and interest thereon,
Respondent Guiok executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his
three hundred (300) shares of stock in the Go Fay & Company Inc., Respondent Corporation, for
brevitys sake. Respondent Guiok obliged himself to pay interest on said loan at the rate of 10% per
annum from the date of said contract of pledge. On the same date, Alfonso Sy Lim secured a loan
from the [p]etitioner in the amount of P40,000 payable in six (6) months. To secure the payment of
his loan, Sy Lim executed a Contract of Pledge covering his three hundred (300) shares of stock in
Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest on his loan at
the rate of 10% per annum from the date of the execution of said contract.
Under said Contracts of Pledge, Respondent[s] Guiok and Sy Lim covenanted, inter alia, that:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months
from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said
shares of stock hereby created by selling the same at public or private sale with or without notice to
the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is
hereby authorized and empowered at his option to transfer the said shares of stock on the books of

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the corporation to his own name and to hold the certificate issued in lieu thereof under the terms of
this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the
payment of the said sum and interest, in the manner hereinabove provided;
4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus
remaining in the hands of the PLEDGEE after the payment of the said sum and interest, and the
expenses, if any, connected with the foreclosure sale, shall be paid by the PLEDGEE to the PLEDGOR;
5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the
PLEDGOR, redeliver to him the said shares of stock by surrendering the certificate delivered to him
by the PLEDGOR or by retransferring each share to the PLEDGOR, in the event that the PLEDGEE,
under the option hereby granted, shall have caused such shares to be transferred to him upon the
books of the issuing company. (

Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered
the same to the [p]etitioner. However, Respondent Guiok and Sy Lim failed to pay their respective
loans and the accrued interests thereon to the petitioner. In October, 1990, the petitioner filed a
Petition for Mandamus against Respondent Corporation, with the SEC .

ISSUE: Whether or not the petitioner has acquired ownership of the shares

RULING: At the outset, it must be underscored that petitioner did not acquire ownership of the
shares by virtue of the contracts of pledge. Article 2112 of the Civil Code states:
The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall be made at a public auction, and with
notification to the debtor and the owner of the thing pledged in a proper case, stating the amount
for which the public sale is to be held. If at the first auction the thing is not sold, a second one with
the same formalities shall be held; and if at the second auction there is no sale either, the creditor
may appropriate the thing pledged. In this case he shall be obliged to give an acquaintance for his
entire claim.
There is no showing that petitioner made any attempt to foreclose or sell the shares through public
or private auction, as stipulated in the contracts of pledge and as required by Article 2112 of the Civil
Code. Therefore, ownership of the shares could not have passed to him. The pledgor remains the
owner during the pendency of the pledge and prior to foreclosure and sale, as explicitly provided by
Article 2103 of the same Code.
Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge. Novation
is defined as the extinguishment of an obligation by a subsequent one which terminates it, either by
changing its object or principal conditions, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.]Novation of a contract must not be
presumed. In the absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point.

In the present case, novation cannot be presumed by (a) respondents indorsement and delivery of
the certificates of stock covering the 600 shares, (b) petitioners receipt of dividends from 1980 to
1983, and (c) the fact that respondents have not instituted any action to recover the shares since

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1980. Respondents indorsement and delivery of the certificates of stock were pursuant to paragraph
2 of the contract of pledge which reads:
2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be held by the
PLEDGEE under the pledge as security for the payment of the aforementioned sum and interest
thereon accruing.
This stipulation did not effect the transfer of ownership to petitioner. It was merely in compliance
with Article 2093 of the Civil Code, which requires that the thing pledged be placed in the possession
of the creditor or a third person of common agreement; and Article 2095, which states that if the
thing pledged are shares of stock, then the instrument proving the right pledged must be delivered
to the creditor.

Transfer of Shares of Stock and Registration

JOSELITO MUSNI PUNO (as heir of the late Carlos Puno) vs. PUNO ENTERPRISES, INC.,
represented by JESUSA PUNO
G.R. No. 177066, September 11, 2009

FACTS: Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno
Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of
Carlos L. Puno, initiated a complaint for specific performance against respondent. Petitioner
averred that he is the son of the deceased with the latter’s common-law wife, Amelia Puno.
As surviving heir, he claimed entitlement to the rights and privileges of his late father as
stockholder of respondent. The complaint thus prayed that respondent allow petitioner to
inspect its corporate book, render an accounting of all the transactions it entered into from
1962, and give petitioner all the profits, earnings, dividends, or income pertaining to the
shares of Carlos L. Puno. Respondent filed a motion to dismiss on the ground that petitioner
did not have the legal personality to sue because his birth certificate names him as "Joselito
Musni Muno." Apropos, there was yet a need for a judicial declaration that "Joselito Musni
Puno" and "Joselito Musni Muno" were one and the same.

ISSUE: Was there an automatic transfer of shares of stock?

RULING: NO. Upon the death of a shareholder, the heirs do not automatically become
stockholders of the corporation and acquire the rights and privileges of the deceased as
shareholder of the corporation. The stocks must be distributed first to the heirs in estate
proceedings, and the transfer of the stocks must be recorded in the books of the
corporation. Section 63 of the Corporation Code provides that no transfer shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation.
During such interim period, the heirs stand as the equitable owners of the stocks, the
executor or administrator duly appointed by the court being vested with the legal title to
the stock. Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. Consequently, during such time, it is the

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administrator or executor who is entitled to exercise the rights of the deceased as
stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish that he is the
son of Carlos L. Puno, he would still not be allowed to inspect respondent’s books and be
entitled to receive dividends from respondent, absent any showing in its transfer book that
some of the shares owned by Carlos L. Puno were transferred to him. This would only be
possible if petitioner has been recognized as an heir and has participated in the settlement
of the estate of the deceased.

Corollary to this is the doctrine that a determination of whether a person, claiming

proprietary rights over the estate of a deceased person, is an heir of the deceased must be
ventilated in a special proceeding instituted precisely for the purpose of settling the estate
of the latter. The status of an illegitimate child who claims to be an heir to a decedent’s
estate cannot be adjudicated in an ordinary civil action, as in a case for the recovery of
property. The doctrine applies to the instant case, which is one for specific performance —
to direct Respondent Corporation to allow petitioner to exercise rights that pertain only to
the deceased and his representatives.

Cojuangco vs. Sandiganbayan

April 24, 2009

FACTS: In 1987, respondent Republic of the Philippines (Republic) filed before the
Sandiganbayan a Complaint for Reconveyance, Reversion, Accounting, Restitution and
Damages praying for the recovery of alleged ill-gotten wealth from the late President
Marcos and former First Lady Imelda Marcos and their cronies, including some 2.4 million
shares of stock in the Philippine Long Distance Telephone Company (PLDT). The complaint,
which was later amended to implead herein petitioners Cojuangcos, alleged that the
Marcoses ill-gotten wealth included shares in the PLDT covered by shares of stock in the
Philippine Telecommunications Investment Corporation (PTIC), registered in the name of
Prime Holdings, Inc. (Prime Holdings).

The Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT
shares, hence, the Republic appealed to the Court. In a Court decision, it ruled in favor of the
Republic, declaring it to be the owner of 111,415 PTIC shares registered in the name of Prime
Holdings. Then, the Republic filed a Motion for Execution praying for the cancellation of the
111,415 shares/certificates of stock registered in the name of Prime Holdings and the
annotation of the change of ownership on PTICs Stock and Transfer Book. It also prayed for
the issuance of an order for PTIC to account for all cash and stock dividends declared and/or
issued by PLDT in favor of PTIC from 1986 up to the present including compounded interests
appurtenant thereto. The Sandiganbayan granted the Motion for the Issuance of a Writ of
Execution with respect to the reconveyance of the shares, but denied the prayer for
accounting of dividends.

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The Sandiganbayan, by the first assailed Resolution dated November 7, 2007, directed PTIC
to deliver the cash and stock dividends pertaining to the 111,415 shares, including
compounded interests, ratiocinating that the same were covered by this Courts Decision
in G.R. No. 153459, since the Republic was therein adjudged the owner of the shares and,
therefore, entitled to the fruits thereof. The Cojuangcos moved to reconsider the November
7, 2007 Sandiganbayan Resolution, alleging that this Courts Decision in G.R. No. 153459 did
not include a disposition of the dividends and interests accruing to the shares adjudicated in
favor of the Republic. By the other challenged Resolution dated June 13, 2008, the
Sandiganbayan partly granted petitioners Motion for Reconsideration by including legal
interests, but not compounding the same, from the accounting and remittance to the
Republic.

ISSUE: Is the Republic, having transferred the shares to a third party, entitled to the
dividends, interests, and earnings thereof?

RULING: Yes. The term dividend in its technical sense and ordinary acceptation is that part or
portion of the profits of the enterprise which the corporation, by its governing agents, sets
apart for ratable division among the holders of the capital stock. It is a payment to the
stockholders of a corporation as a return upon their investment, and the right thereto is an
incident of ownership of stock.

The Court, in directing the reconveyance to the Republic of the 111,415 shares of PLDT stock
owned by PTIC in the name of Prime Holdings, declared the Republic as the owner of said
shares and, necessarily, the dividends and interests accruing thereto. In G.R. No. 153459,
although the inclusion of the dividends, interests, and earnings of the 111,415 PTIC shares as
belonging to the Republic was not mentioned in the dispositive portion of the Courts
Decision, it is clear from its body that what was being adjudicated in favor of the Republic
was the whole block of shares and the fruits thereof, said shares having been found to be
part of the Marcoses ill-gotten wealth, and therefore, public money. It would be absurd to
award the shares to the Republic as their owner and not include the dividends and interests
accruing thereto.

Respecting petitioners argument that the Republic has yielded its right to the fruits of the
shares when it sold them to Metro Pacific Assets Holdings, Inc., the same does not lie.
Dividends are payable to the stockholders of record as of the date of the declaration of
dividends or holders of record on a certain future date, as the case may be, unless the
parties have agreed otherwise. And a transfer of shares which is not recorded in the books
of the corporation is valid only as between the parties, hence, the transferor has the right to
dividends as against the corporation without notice of transfer but it serves as trustee of the
real owner of the dividends, subject to the contract between the transferor and transferee
as to who is entitled to receive the dividends.

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It is thus clear that the Republic is entitled to the dividends accruing from the subject 111,415
shares since 1986 when they were sequestered up to the time they were transferred to
Metro Pacific via the Sale and Purchase Agreement of February 28, 2007.

Republic vs. Sandiganbayan

402 SCRA 84, 2003

FACTS: Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI) were
elected, one by the Presidential Commission on Good Government (PCGG) and the other by the
registered ETPI stockholders. Africa, a stockholder of ETPI, filed a petition for Certiorari before the
Sandiganbayan alleging that the PCGG had been illegally exercising the rights of stockholders of
ETPI, especially in the election of the members of the board of directors. The Sandiganbayan held
that only registered owners, their duly authorized representatives or their proxies may vote their
corresponding shares and ordered that an annual stockholders meeting of the ETPI for 1992 be held
on November 27, 1992 at 2 o’clock in the afternoon, at the ETPI Board Room, Telecoms Plaza in
Makati, Metro Manila. The Court enjoined the Sandiganbayan from holding the stockholders meeting
of ETPI. The PCGG filed a very urgent petition for authority to hold special stockholders meeting for
the sole purpose of increasing ETPI’s authorized capital stock which was referred to the
Sandiganbayan. The Sandiganbayan issued a Resolution granting the PCGG authority to cause the
holding of a special stockholders meeting of ETPI and to vote the sequestered Class A shares of
stock. The PCGG controlled ETPI board of directors and held a meeting to increase in ETPI’s
authorized capital stock from Php 250 Million to Php 2.6 Billion was unanimously approved. Africa
filed before the Supreme Court a motion to cite PCGG and its accomplices in contempt to nullify the
stockholders meeting conducted by PCGG contending that only the Supreme Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the
sequestered shares; he was not given notice of the meeting; and the PCGG had no right to vote the
sequestered Class A shares.

ISSUE: Is the transfer of the Benedicto shares be first recorded in ETPI’s Stock and Transfer Book
before the PCGG may vote them?

RULING: Yes. The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his
controlled corporations under the Compromise Agreement, provided that the shares are first
registered in the name of the PCGG. The PCGG may not register the transfer of the Malacaang and
the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote the same as conservator
provided that the PCGG satisfies the two-tiered test devised by the Court in Cojuangco v. Calpo,
supra. In requiring that the transfer of the Benedicto shares be first recorded in ETPIs Stock and
Transfer Book before the PCGG may vote them, the Sandiganbayan committed no grave abuse of
discretion. For Section 63 of the Corporation Code provides: Sec. 63. Certificate of stock and transfer
of shares. The capital stock of stock corporations shall be divided into shares for which the
certificates signed by the president or vice president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property and may be transferred by the delivery of the
certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties

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to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS, BERNARDO BAUTISTA, JAIME
CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE RURAL
BANK OF LIPA CITY, INC., petitioners, vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES AND
EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES, JR., in his capacity as Hearing Officer,
REYNALDO VILLANUEVA, SR, AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and
ELENA USI, respondents.
G.R. No. 124535 September 28, 2001

FACTS: Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as well as those of eight other
shareholders under his control with a total of 10,467 shares, in favor of the stockholders of the Bank
represented by its directors Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime
thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they
acknowledged their indebtedness to the Bank in the amount of Four Million Pesos, and stipulated
that said debt will be paid out of the proceeds of the sale of their real property described in the
Agreement.

At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses
assured the Board that their debt would be paid on or before December 31 of that same year;
otherwise, the Bank would be entitled to liquidate their shareholdings, including those under their
control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the
obligation, the unpaid balance shall be secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board
sent them a demand letter. The Villanuevas ignored the bank's demands, whereupon their shares of
stock were converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned
the legality of the conversion of their shares.

On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers
for the year 1994. The Villanuevas were not notified of said meeting. The Villanueva spouses,
questioned the legality of the said stockholders' meeting and the validity of all the proceedings
therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were
no longer entitled to notice of the said meeting since they had relinquished their rights as
stockholders in favor of the Bank.

ISSUE: Whether or not respondents are still presumed to be the owners of the shares and to be
stockholders of the Rural Bank for the reason that title to such shares will not be effective unless the
duly indorsed certificate of stock is delivered to them.

RULING: The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en
banc.

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The Corporation Code specifically provides:
SECTION 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation
shall be issued in accordance with the by-laws. Shares of stocks so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation. While it may be true that there was an assignment of private respondents'
shares to the petitioners, said assignment was not sufficient to effect the transfer of shares since
there was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or any
other person legally authorized to make the transfer. Moreover, petitioners admit that the
assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule
is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer
of shares from the lawful owner to the transferee. Thus, title may be vested in the transferee only by
delivery of the duly indorsed certificate of stock.

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock
certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance with any of these requisites has not
been clearly and sufficiently shown.

BLTB v. BENJAMIN M. BITANGA, et. al.,

G.R. No. 137934 August 10, 2001

FACTS: Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro,
and Maya Industries, Inc., entered into a Sale and Purchase Agreement, whereby they sold to BMB
Property Holdings, Inc., represented by its President, Benjamin Bitanga, their 21,071,114 shares of
stock in BLTB. The said shares represented 47.98% of the total outstanding capital stock of BLTB. The
contracting parties stipulated that the downpayment was conditioned upon receipt by the buyer of
certain documents upon signing of the Agreement, namely, the Secretary's Certificate stating that
the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and the
execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact; the
Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano for
purposes of the Agreement; the undated written resignation letters of the Directors of BLTB, except
Henry John A. Potenciano, Michael A. Potericiano and Candido A. Potenciano); a revocable proxy to
vote the subject shares made by the sellers in favor of the buyer; a Declaration of Trust made by the
sellers in favor of the buyer acknowledging that the subject shares shall be held in trust by the sellers
for the buyer pending their transfer to the latter's name; and the duly executed capital gains tax
return forms covering the sale, indicating no taxable gain on the same.

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ISSUE: Are the Bitanga group vote or be voted upon.

RULING: NO. We are in full accord with the SEC En Banc on this matter. Indeed, until registration is
accomplished, the transfer, though valid between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee, the Bitanga group in this case, cannot vote nor be
voted for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all
the rights of a stockholder, including the right to vote and to be voted for, and to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to the
rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can be properly counted to
determine whether a stockholders' resolution was approved, despite the claim of the alleged
transferee. On the other hand, a person who has purchased stock, and who desires to be recognized
as a stockholder for the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder
but an outsider.

The Court finds no error either in jurisdiction or judgment on the part of the SEC En Banc, since its
conclusions of law were anchored on established principles and jurisprudence. The petition is denied.

SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC. TRONIC SYSTEMS, INC. vs. HON.
RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL
JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA,
VIRGILIO BRAGA AND NORBERTO BRAGA
G.R. No. L-63558 May 19, 1987

FACTS: Principal stockholders of the corporation Pocket Bell Philippines, Inc. (Pocket Bell), a "tone
and voice paging corporation", namely, the spouses Jose Abejo and Aurora Abejo (hereinafter
referred to as the Abejos) sold to purchaser, Telectronic Systems, Inc. (hereinafter referred to as
Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares registered
in the name of Virginia Braga and covered by five stock certificates endorsed in blank by her (for
P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as the
Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the
majority stockholder, holding 56% of the outstanding stock and voting power of the corporation
Pocket Bell.

With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation,
Norberto Braga, to register and transfer to its name, and those of its nominees the total 196,000
Pocket Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock
and issue the corresponding new certificates of stock in its name and those of its nominees.

Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid
transfer of shares in the corporate books, asserting that the Bragas claim pre-emptive rights over the
133,000 Abejo shares and that Virginia Braga never transferred her 63,000 shares to Telectronic but
had lost the five stock certificates representing those shares.

This triggered off the series of intertwined actions between the protagonists, all centered on the
question of jurisdiction over the dispute, which were to culminate in the filing of the two cases at

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bar. The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the
Securities and Exchange Commission, while the Abejos claim the contrary.

ISSUE: Whether or not the refusal of the (corporation) to effect the same is valid or not is still subject
to the outcome of the hearing on the merits of the case

RULING: The Court rules that the SEC has original and exclusive jurisdiction over the dispute between
the principal stockholders of the corporation Pocket Bell, namely, the Abejos and Telectronics, the
purchasers of the 56% majority stock on the one hand, and the Bragas, erstwhile majority
stockholders, on the other, and that the SEC, through its en banc Resolution of May 15, 1984
correctly ruled in dismissing the Bragas' petition questioning its jurisdiction, that "the issue is not the
ownership of shares but rather the non-performance by the Corporate Secretary of the ministerial
duty of recording transfers of shares of stock of the Corporation of which he is secretary."

There can be no question that the dispute between the Abejos and the Bragas as to the sale and
transfer of the former's shares to Telectronics for P5 million is an intracorporate one under section
5(b), prescinding from the applicability of section 5(a) and (c). It is the SEC which must resolve the
Bragas' claim in their own complaint in the court case filed by them of an alleged pre-emptive right to
buy the Abejos' shares by virtue of "on-going negotiations", which they may submit as their defense
to the mandamus petition to register the sale of the shares to Telectronics. But asserting such pre-
emptive rights and asking that the same be enforced is a far cry from the Bragas' claim that "the case
relates to questions of ownership" over the shares in question. Not to mention, as pointed out by
the Abejos, that the corporation is not a close corporation, and no restriction over the free trans-
ferability of the shares appears in the Articles of Incorporation, as well as in the by-laws and the
certificates of stock themselves, as required by law for the enforcement of such restriction.

The dispute between the Bragas and Telectronics as to the sale and transfer for P1,674,450.00 of
Virginia Braga's 63,000 shares covered by street certificates duly endorsed in blank by her is within
the special competence and jurisdiction of the SEC, dealing as it does with the free transferability of
corporate shares, particularly street certificates, as guaranteed by the Corporation Code and its
proclaimed policy of encouraging foreign and domestic investments in Philippine private
corporations and more active public participation therein for the promotion of economic
development. Here again, Virginia Braga's claim of loss of her street certificates or theft thereof
(denounced by Telectronics as "perjurious" ) must be pleaded by her as a defense against
Telectronics' petition for mandamus and recognition now as the controlling stockholder of the
corporation in the light of the joint affidavit of General Ceferino S. Carreon of the National
Telecommunications Commission and private respondent Jose Luis Santiago of Telectronics
narrating the facts and circumstances of how the former sold and delivered to Telectronics on behalf
of his compadres, the Bragas, Virginia Braga's street certificates for 63,000 shares equivalent to 18%
of the corporation's outstanding stock and received the cash price thereof.

But as to the sale and transfer of the Abejos' shares, the Bragas cannot oust the SEC of its original
and exclusive jurisdiction to hear and decide the case, by blocking through the corporate secretary,
their son, the due recording of the transfer and sale of the shares in question and claiming that Telec-
tronics is not a stockholder of the corporation which is the very issue that the SEC is called upon to
resolve. As the SEC maintains, "There is no requirement that a stockholder of a corporation must be

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a registered one in order that the Securities and Exchange Commission may take cognizance of a suit
seeking to enforce his rights as such stockholder."

BATONG BUHAY GOLD MINES, INC. vs.

THE COURT OF APPEALS and INC. MINING CORPORATION
G.R. No. L-45048 January 7, 1987

FACTS: The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering
62,495 shares with a par value of P0.01 per share to Francisco Aguac who was then legally married to
Paula G. Aguac, but the said spouses had lived separately for more than fourteen (14) years prior to
the said date.

Later, Francisco Aguac sold his shares covered by Stock Certificate No. 16807 for the sum of
P9,374.70 in favor of the plaintiff, the said transaction being evidenced by a deed of sale (Exhibit D).
The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G.
Aguac.

On the same date of the sale, Paula G. Aguac wrote a letter to the president of defendant Batong
Buhay Gold Mines, Inc. asking that the transfer of the shares sold by her husband be withheld,
inasmuch as the same constituted conjugal property and her share of proceeds of the sale was not
given to her (Exhibit 1).

ISSUE: Whether or not the Court of Appeals may award damages by way of unrealized profits
despite the absence of supporting evidence, or merely on the basis of pure assumption, speculation
or conjecture; or can the respondent recover damages by way of unrealized profits when it has not
shown that it was damaged in any manner by the act of petitioner.

RULING: NO. The stipulation of facts of the parties does not at all show that private respondent
intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is
true that shares of stock may go up or down in value (as in fact the concerned shares here really rose
from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to
about two (2) centavos per share, still whatever profits could have been made are purely
SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value
of the shares. Thus this Court has ruled that speculative damages cannot be recovered.

It is easy to say now that had private respondent gained legal title to the shares, it could have sold
the same and reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to
transfer the stocks in the former's name at the time demand was made, but then it is also true that
human nature, being what it is, private respondent's officials could also have refused to sell and
instead wait for expected further increases in value.

CHEMPHIL EXPORT AND IMPORT CORPORATION vs. THE HON. COURT OF APPEALS
(Former Twelfth Division), PHILIPPINE INVESTMENTS SYSTEMS ORGANIZATION (PISO),
BANK OF THE PHILIPPINE ISLANDS (BPI), PHILIPPINE COMMERCIAL INDUSTRIAL BANK
(PCIB), RIZALCOMMERCIAL BANKING CORPORATION (RCBC) and LAND BANK OF THE
PHILIPPINES (LBP)

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 G.R. No. 97217 April 10, 1992

FACTS: Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief and/or
injunction against the PISO, BPI, LBP, PCIB and RCBC or the consortium with the Regional
Trial Court of Makati, Branch 45 (Civil Case No. 8527), seeking judicial declaration,
construction and interpretation of the validity of the surety agreement that Dynetics and
Garcia had entered into with the consortium and to perpetually enjoin the latter from
claiming, collecting and enforcing any purported obligations which Dynetics and Garcia
might have undertaken in said agreement. The consortium filed their respective answers
with counterclaims alleging that the surety agreement in question was valid and binding and
that Dynetics and Garcia were liable under the terms of the said agreement. It likewise
applied for the issuance of a writ of preliminary attachment against Dynetics and Garcia.

ISSUE: Whether or not the attachment of shares of stock, in order to bind third persons,
must be recorded in the stock and transfer book of the corporation.

RULING: NO. Section 7(d), Rule 57 of the Rules of Court was complied with by the
consortium (through the Sheriff of the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president of Chemphil on July 19, 1985. Indeed,
to bind third persons, no law requires that an attachment of shares of stock be recorded in
the stock and transfer book of a corporation. The statement attributed by the Regional Trial
Court to the Supreme Court in Samahang Magsasaka, Inc. vs. Gonzalo Chua Guan, G.R. No. L-
7252, February 25, 1955 (unreported), to the effect that "as between two attaching
creditors, the one whose claim was registered first on the books of the corporation enjoys
priority," is an obiter dictum that does not modify the procedure laid down in Section 7(d),
Rule 57 of the Rules of Court.

Therefore, ruled the Court of Appeals, the attachment made over the Chemphil shares in the
name of Garcia on July 19, 1985 was made in accordance with law and the lien created
thereby remained valid and subsisting at the time Garcia sold those shares to FCI
(predecessor-in-interest of appellee CEIC) in 1988.

GONZALO CHUA GUAN vs. SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G.
SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively of the same G.R.
No. L-42091 November 2, 1935

FACTS: Samahang Magsasaka, Inc., is a corporation duly organized under the laws of the Philippine
Islands with principal office in Cabanatuan, Nueva Ecija, and that the individual defendants are the
president, secretary and treasurer respectively of the same; that on June 18, 1931, Gonzalo H. Co
Toco was the owner of 5,894 shares of the capital stock of the said corporation represented by nine
certificates having a par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of
Manila, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of P20,000
due on or before June 19, 1932. The said certificates of stock were delivered with the mortgage to
the mortgagee, Chua Chiu. The said mortgage was duly registered in the office of the register of

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deeds of Manila on June 23, 1931, and in the office of the said corporation on September 30, 1931. On
November 28, 1931, Chua Chiu assigned all his right and interest in the said mortgage to the plaintiff
and the assignment was registered in the office of the register of deeds in the City of Manila on
December 28, 1931, and in the office of the said corporation on January 4, 1932. The debtor, Gonzalo
H. Co Toco, having defaulted in the payment of said debt at maturity, the plaintiff foreclosed said
mortgage and delivered the certificates of stock and copies of the mortgage and assignment to the
sheriff of the City of Manila in order to sell the said shares at public auction. The sheriff auctioned
said 5,894 shares of stock on December 22, 1932, and the plaintiff having been the highest bidder for
the sum of P14,390, the sheriff executed in his favor a certificate of sale of said shares. The plaintiff
tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers
of the corporation for cancellation and demanded that they issue new certificates in the name of the
plaintiff. The said officers (the individual defendants) refused and still refuse to issue said new shares
in the name of the plaintiff.

ISSUE: Whether or not the mortgage registered considered the certificate of registration in the
corporation.

RULING: YES. By analogy with the foregoing and considering the ownership of shares in a
corporation as property distinct from the certificates which are merely the evidence of such
ownership, it seems to us a reasonable construction of section 4 of Act No. 1508 to hold that the
property in the shares may be deemed to be situated in the province in which the corporation has its
principal office or place of business. If this province is also the province of the owner's domicile, a
single registration sufficient. If not, the chattel mortgage should be registered both at the owner's
domicile and in the province where the corporation has its principal office or place of business. In this
sense the property mortgaged is not the certificate but the participation and share of the owner in
the assets of the corporation.

Collector of Internal Revenue vs Anglo California National Bank

G.R. No. L-12476, January 29, 1960

FACTS: Calamba Sugar Estate, Inc., represented by its trustee, the Anglo California National
Bank, is a foreign corporation organized and existing under the laws of the State of
California, U.S.A., duly licensed to do business in the Philippines. It transferred to the Pasumil
Planters, Inc. P250,000 shares of the capital stock of the Pampanga Sugar Mills (a domestic
corporation) without having said transfer entered and noted upon the books of the
corporation.

ISSUE: Whether the transfer of shares is valid.

RULING: Yes. Section 35 which states in part that "No transfer, however, shall be valid,
except as between the parties, until the transfer is entered and noted upon the books of the
corporation as to show the names of the parties to the transaction, the date of the transfer,
the number of the certificate, and the number of shares transferred." does not invalidate
the transfer between the parties nor is it essential to vest title upon the vendee. The capital
gains, now sought to be taxed, arose from the severance of gain, from the investment

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occasioned by the transfer of title abroad and not on account of any registration that might
be effected later.

DELOS SANTOS vs. REPUBLIC

G.R. No. L-4818 February 28, 1955

FACTS: Six Hundred Thousand (600,000) shares of stock of the Lepanto Consolidated Mining Co.,
Inc., (Lepanto), a corporation duly organized and existing under the laws of the Philippines.
Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo
Astraquillo. During the pendency of this case, the Astraquillo has allegedly conveyed and assigned his
interest in and to de los Santos. Vicente Madrigal is registered in the books of the Lepanto as owner
of said stocks and whose indorsement in blank appears on the back of said certificates contend that
De los Santos bought: a.) 55,000 shares from Juan Campos; b.) 300,000 shares from Carl Hess; and c.
)800,000 shares from Carl Hess for the benefit of Astraquill delivered to stock broker Leonardo Recio
stock certificate No. 2279 55,000 shares to see Mr. DeWitt, who, probably, would be interested in
purchasing the shares. DeWitt retained the shares reasoning that it was blocked by the US and
receipt was burned at Recio's dwelling.

By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute
was, however, vested in the Alien Property Custodian of the U. S. Plaintiffs filed their respective
claims with the Property Custodian. Defendant Attorney General of the U. S., successor to the
Administrator contends, substantially, that, prior to the outbreak of the war in the Pacific, shares of
stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha a
corporation organized in accordance with the laws of Japan, the true owner thereof, with branch
office in the Philippines.

On March, 1942, Madrigal delivered stock certificates, with his blank indorsement thereon, to the
Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter
by the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said
shares of stock; and that the stock certificates aforementioned must have been stolen or looted,
therefore, during the emergency resulting from said liberation.

Hess, on appeal, operate as broker, for being American, he was under Japanese surveillance, and
that Hess had made, during the occupation, no transaction involving mining shares, except when he
sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943.

ISSUE: Are the plaintiffs are entitled to the shares

RULING: The Supreme Court ruled in the negative. In ruling so, the Court held that the burden of
proof is upon the plaintiff.

Section 35 of the Corporation Law reads:

The capital stock corporations shall be divided into shares for which certificates
signed by the president or the vice-president, countersigned by the secretary or clerk and
sealed with the seal of the corporation, shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property and may be transferred by delivery of the

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 certificate endorsed by the owner or his attorney in fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is entered and noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer, the number of the
certificate, and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.

Moreover, certificates of stock are not negotiable instruments (post, Par. 102), consequently, a
transferee under a forged assignment acquires no title which can be asserted against the true
owner, unless his own negligence has been such as to create an estoppel against him (Clarke on
Corporations, Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is stolen
from him, no title is acquired by an innocent purchaser for value.

Further, neither the absence of blame on the part of the officers of the company in allowing an
unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an
answer to the demand of the true owner.

The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires
no title as against the true owner does not apply where the circumstances are such as to estop the
latter from asserting his title. One of two innocent parties must suffer by reason of a wrongful or
unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands
the means of inflicting such loss. Negligence which will work an estoppel of this kind must be a
proximate cause of the purchase or advancement of money by the holder of the property and must
enter into the transaction itself. The negligence must be in or immediately connected with the
transfer itself. to establish this estoppel it must appear that the true owner had conferred upon the
person who has diverted the security the indicia of ownership, or an apparent title or authority to
transfer the title. So, the owner is not guilty of negligence in merely entrusting another with the
possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the
apparent title.

Nor is he deprived of his title or his remedy against the corporation because he intrusts a third
person with the key of a box in which the certificate is kept, where the latter takes them from the
box and by forging the owner's name to a power of attorney procures their transfer on the
corporate books.

Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of
stock, which is afterwards lost or stolen, such negligence as will estopped the owner from asserting
his title as against a bona fide purchaser from the finder or thief, or from holding the corporation
liable for allowing a transfer on its books, where the loss or theft of the certificate was not due to
any negligence on the part of the owner.

Stock pledged to a bank is endorsed in blank by the owner does not estopped him from asserting
title thereto as against a bona fide purchaser for value who derives his title from one who stole the
certificate from the pledgee. And this has also been held to be true though the thief was an officer of
the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a

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misappropriation by the bank to whose custody the certificate was entrusted by the owner, even
though the bank may be liable to the pledgor.

Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may
claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged title is not
derived either from madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights.
madrigal and the Mitsuis are notprivies to the alleged sales by Campos and Hess to the plaintiffs,
contrary to the latter's pretense.

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON.
FELICIANO S. GONZALES vs. HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES
V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA
REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO

G.R. No. 47206 September 27, 1989

FACTS: Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga
Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). He
entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or 100%) of
Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed in
the contract but not later than November 30, 1968.

Because Reynoso failed to pay the second and third installments on time, the total price of the sale
was later increased to P971,371.70 payable on or before December 17, 1969. The difference of
P71,371.70 represented brokers' commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo). As of
December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon
transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso, as
well as the possession of the Hacienda San Jose, the only asset of the corporation However, as
provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in
favor of Erquiaga as security for the balance of his obligation. Reynoso failed to pay the balance of
P561,321.70 on or before December 17, 1969, as provided in the promissory notes he delivered to
Erquiaga.

ISSUE: Whether or not the Corporation Code Applicable.

HELD: YES. We find no reversible error in the Court of Appeals' decision directing the clerk of court of
the trial court to execute a deed of conveyance to Erquiaga of the 1,600 shares of stock of the
Erquiaga Development Corporation still in Reynoso's name and/or possession, in accordance with
the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling the trial
court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development Corporation
without having effected the transfer of those shares in his name in the corporate books; and (2)
authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga Development
Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his
name. It is a fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting
rights only when the shares of stock to be voted are registered in his name in the corporate books.

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The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000
after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the
shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with
the fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San
Jose) is in full accord with Art. 1385 of the Civil Code.

The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore,
upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to
Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission
decreed in the final judgment, there should be simultaneous mutual restitution of the principal
object of the contract to sell (3,100 shares) and of the consideration paid (P410,000).

NEMESIO GARCIA vs. NICOLAS JOMOUAD, Ex-Officio Provincial Sheriff of Cebu, and SPOUSES JOSE
ATINON & SALLY ATINON
G.R. No. 133969. January 26, 2000

FACTS: Spouses Atinon filed a collection suit against Jaime Dico. In that case, the trial court rendered
judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After said
judgment became final and executory, respondent sheriff proceeded with its execution. In the
course thereof, the Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club,
which was in the name of Dico, was levied on and scheduled for public auction. Claiming ownership
over the subject certificate, petitioner Nemesio Garcia filed the aforesaid action for injunction with
prayer for preliminary injunction to enjoin respondents from proceeding with the auction.

Petitioner Garcia avers that Dico, the judgment debtor of the spouses Atinon, was employed as
manager of Garcia’s Young Auto Supply. In order to assist him in entertaining clients, Garcia "lent"
his POC in the Cebu Country Club to Dico so the latter could enjoy the "signing" privileges of its
members. The Club issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as manager
of petitioner's business. Upon demand of petitioner, Dico returned POC No. 0668 to him. Dico then
executed a Deed of Transfer covering the subject certificate in favor of petitioner. The Club was
furnished with a copy of said deed but the transfer was not recorded in the books of the Club
because petitioner failed to present proof of payment of the requisite capital gains tax.

The RTC dismissed the injunction suit. The CA affirmed. Hence, this petition.

ISSUE: Was the levy on the POC proper?

RULING: YES. The petition is without merit.

Section 63 of the Corporation Code reads:
Sec. 63 Certificate of stock and transfer of shares. - The capital stock of corporations shall be
divided into shares for which certificates signed by the president or vice- president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the

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 transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable
in the books of the corporation.

The sole issue in this case is similar to that raised in Uson vs. Diosomito, i.e., "whether a bona
fide transfer of the shares of a corporation, not registered or noted in the books of the corporation,
is valid as against a subsequent lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not." In that case, we held that the
attachment prevails over the unrecorded transfer stating thus -

"we think that the true meaning of the language is, and the obvious intention of the
legislature in using it was, that all transfers of shares should be entered, as here required, on
the books of the corporation. And it is equally clear to us that all transfers of shares not so
entered are invalid as to attaching or execution creditors of the assignors, as well as to the
corporation and to subsequent purchasers in good faith, and, indeed, as to all persons
interested, except the parties to such transfers. All transfers not so entered on the books of
the corporation are absolutely void; not because they are without notice or fraudulent in law
or fact, but because they are made so void by statute."

Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate
made by Dico to Garcia was not valid as to the spouses Atinon, the judgment creditors, as the same
still stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In addition,
as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors
noting the resignation of Dico as proprietary member thereof does not constitute compliance with
Section 63 of the Corporation Code. Said provision of law strictly requires the recording of the
transfer in the books of the corporation, and not elsewhere, to be valid as against third parties.
Accordingly, the CA committed no reversible error in rendering the assailed decision.

BENITO H. LOPEZ vs. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC. G.R. No. L-33157 June 29, 1982

FACTS: Petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the Prudential
Bank and Trust Company. Also, he executed a promissory note for the same amount, in favor of the
said Bank, binding himself to repay the said sum one (1) year after the said date, with interest at the
rate of 10% per annum. In addition to said promissory note, he executed Surety Bond No. 14164 in
which he, as principal, and Philippine American General Insurance Co., Inc. (PHILAMGEN) as surety,
bound themselves jointly and severally in favor of Prudential Bank for the payment of the sum of
P20,000.00. On the same occasion, Lopez also executed in favor of Philamgen an indemnity
agreement whereby he agreed "to indemnify the Company and keep it indemnified and hold the
same harmless from and against any and all damages, losses, costs, stamps, taxes, penalties, charges
and expenses of whatever kind and nature which the Company shall or may at any time sustain or
incur in consequence of having become surety upon the bond." 1 At the same time, Lopez executed
a deed of assignment of 4,000 shares of the Baguio Military Institution entitled "Stock Assignment

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Separate from Certificate". With the execution of this deed of assignment, Lopez endorsed the stock
certificate and delivered it to Philamgen.

ISSUE: Whether or not where, as in this case, a party "sells, assigns and transfers" and delivers
shares of stock to another, duly endorsed in blank, in consideration of a contingent obligation of the
former to the latter, and, the obligations having arisen, the latter causes the shares of stock to be
transferred in its name, hass the juridical nature of the transaction-a dation in payment or a pledge.

RULING: YES. Considering the explicit terms of the deed denominated "Stock Assignment Separate
from Certificate", hereinbefore copied verbatim, Lopez sold, assigned and transferred unto
Philamgen the stocks involved "for and in consideration of the obligations undertaken" by
Philamgen "under the terms and conditions of the surety bond executed by it in favor of the
Prudential Bank" and "for value received". On its face, it is neither pledge nor dation in payment. The
document speaks of an outright sale as there is a complete and unconditional divestiture of the
incorporeal property consisting of stocks from Lopez to Philamgen. The transfer appears to have
been an absolute conveyance of the stocks to Philamgen whether or not Lopez defaults in the
payment of P20,000.00 to Prudential Bank. While it is a conveyance in consideration of a contingent
obligation, it is not itself a conditional conveyance. It is true that if Lopez should "well and truly
perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated" in
his promissory note to Prudential Bank, the obligation of Philamgen under the surety bond would
become null and void. Corollarily, the stock assignment, which is predicated on the obligation of
Philamgen under the surety bond, would necessarily become null and void likewise, for want of
cause or consideration under Article 1352 of the New Civil Code. But this is not the case here because
aside from the obligations undertaken by Philamgen under the surety bond, the stock assignment
had other considerations referred to therein as "value received". Hence, based on the manifest
terms thereof, it is an absolute transfer.

ENRIQUE MONSERRAT vs. CARLOS G. CERON, ET AL. ERMA, INC., and, THE SHERIFF OF MANILA G.R.
No. 37078 September 27, 1933

FACTS: Enrique Monserrat, was the president and manager of the Manila Yellow Taxicab Co., Inc.,
and the owner of P1,200 common shares of stock thereof. On March 25, 1930, in consideration of the
interest shown and the financial aid extended him in the organization of the corporation by Carlos G.
Ceron, one of the defendants herein, Enrique Monserrat assigned to the former the usufruct of half
of the aforesaid common shares of stock, the corresponding certificate of stock No. 7, having been
issued in the name of said Carlos G, Ceron to that effect on March 24, 1930. (Exhibit 1.) Said
assignment or transfer only gave the transferee the right to enjoy, during his lifetime, the profits
which might be derived from the shares assigned him, prohibiting him from selling, mortgaging,
encumbering, alienating or otherwise exercising any act implying absolute ownership of all or any of
the shares in question, the transferor having reserved for himself and his heirs the right to vote
derived from said shares of stock and to recover the ownership thereof at the termination of the
usufruct (Exhibit A). Stock certificate No. 7 was recorded in the name of Carlos G. Ceron and the
aforesaid deed of transfer Exhibit A, was noted by himself as secretary, on page 22 of the Stock and
Transfer Book of the Manila Yellow Taxicab Co., Inc.

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ISSUE: Whether or not it is necessary to enter upon the books of the corporation a mortgage
constituted on common shares of stock in order that such mortgage may be valid and may have
force and effect as against third persons.

RULING: YES. A "transfer" is the act by which owner of a thing delivers it to another with the intent
of passing the rights which he has in it to the latter, and a chattel mortgage is not within the meaning
of such term. Therefore, the chattel mortgage is not the transfer referred to in section 35 of Act No.
1459 commonly known as the Corporation law, which transfer should be entered and noted upon the
books of a corporation in order to be valid, and which, as has already been said, means the absolute
and unconditional conveyance of the title and ownership of a share of stock. If, in accordance with
said section 35 of the Corporation Law, only the transfer or absolute conveyance of the ownership of
the title to a share need be entered and noted upon the books of the corporation in order that such
transfer may ba valid, therefore, inasmuch as a chattel mortgage of the aforesaid title is not a
complete and absolute alienation of the dominion and ownership thereof, its entry and notation
upon the books of the corporation is not necessary requisite to its validity.

VELASCO vs. POIZAT

G.R. No. L-11528 March 15, 1918

FACTS: From the amended complaint filed in this cause upon February 5, 1915, it appears
that the plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company"
(Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a
subscription made by him to the corporate stock of said company. It appears that the
corporation in question was originally organized by several residents of the city of Manila,
where the company had its principal place of business, with a capital of P50,000, divided
into 500 shares. The defendant subscribed for 20 shares of the stock of the company, an
paid in upon his subscription the sum of P500, the par value of 5 shares . The action was
brought to recover the amount subscribed upon the remaining shares.

It appears that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager. While serving in this
capacity he called in and collected all subscriptions to the capital stock of the company,
except the aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R.
Infante.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which a
majority of the stock was presented. Upon this occasion two resolutions, important to be
here noted, were adopted. The first was a proposal that the directors, or shareholders, of
the company should make good by new subscriptions, in proportion to their respective
holdings, 15 shares which had been surrendered by Infante.

ISSUE: Whether or not Poizat is liable for his unpaid subscription.

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RULING: YES. A stock subscription is a contract between the corporation on one side, and
the subscriber on the other, and courts will enforce it for or against either. It is a rule,
accepted by the Supreme Court of the United States that a subscription for shares of stock
does not require an express promise to pay the amount subscribed, as the law implies a
promise to pay on the part of the subscriber. Section 36 of the Corporation Law clearly
recognizes that a stock subscription is subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest quarterly from that date unless he is
relieved from such liability by the by-laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable.

The provisions of the Corporation Law (Act No. 1459) give recognition of two remedies for
the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and
dispose of it for the account of the delinquent subscriber. In this case the provisions of
section 38 to 48, inclusive, of the Corporation Law are applicable and must be followed.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is
merely a remedy in addition to that which proceeds by action in court; and it has been held
that the ordinary legal remedy by action exists even though no express mention thereof is
made in the statute.

ENRIQUE RAZON vs. INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity
as Administrator of the Estate of the Deceased JUAN T. CHUIDIAN
G .R. No. 74306 March 16, 1992

FACTS: In his complaint filed on June 29, 1971, and amended on November 16, 1971, Vicente B.
Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo Velasco, Francisco de
Borja, Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de Razon be ordered to
deliver certificates of stocks representing the shareholdings of the deceased Juan T. Chuidian in the
E. Razon, Inc. with a prayer for an order to restrain the defendants from disposing of the said shares
of stock, for a writ of preliminary attachment v. properties of defendants having possession of
shares of stock and for receivership of the properties of defendant corporation.
In their answer filed on June 18, 1973, defendants alleged that all the shares of stock in the
name of stockholders of record of the corporation were fully paid for by defendant, Razon; that said
shares are subject to the agreement between defendants and incorporators; that the shares of stock
were actually owned and remained in the possession of Razon. Appellees also alleged . . . that
neither the late Juan T. Chuidian nor the appellant had paid any amount whatsoever for the 1,500
shares of stock in question

ISSUE: Does petitioner have right over the ownership of the 1,500 shares of stock in E. Razon, Inc?

RULING: No. In the instant case, there is no dispute that the questioned 1,500 shares of stock of E.
Razon, Inc. are in the name of the late Juan Chuidian in the books of the corporation. Moreover, the
records show that during his lifetime Chuidian was ellected member of the Board of Directors of the
corporation which clearly shows that he was a stockholder of the corporation. From the point of
view of the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a

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case, the petitioner who claims ownership over the questioned shares of stock must show that the
same were transferred to him by proving that all the requirements for the effective transfer of
shares of stock in accordance with the corporation's by laws, if any, were followed or in accordance
with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws which could show
that the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's
by-laws or rules governing effective transfer of shares of stock, the provisions of the Corporation
Law are made applicable to the instant case.

The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery
of the duly indorsed certificate of stock. Since the certificate of stock covering the questioned 1,500
shares of stock registered in the name of the late Juan Chuidian was never indorsed to the
petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an indorsement of the certificate of stock in view of
his intimate friendship with the late Juan Chuidian cannot overcome the failure to follow the
procedure required by law or the proper conduct of business even among friends. To reiterate,
indorsement of the certificate of stock is a mandatory.

AQUILINO RIVERA vs. ALFREDO C. FLORENDO

GR No. L-57586, Oct 08, 1986

FACTS: Petitioner corporation was organized and register under Philippine laws with a capital stock
of P1,000,000.00 divided into 10,000 shares of P100.00 par value each by the herein petitioner Rivera
and four (4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription
from the original 1,250 to a total of 4899 shares.

Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner
of the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to
private respondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that
Milagros Tsuchiya will be made the President and Lourdes Jureidini a director after the purchase.
Aquilino Rivera who was in Japan also assured private respondents by overseas call that he will sign
the stock certificates because Isamu Akasako is the real owner. However, after the sale was
consummated and the consideration was paid with a receipt of payment therefor shown, Aquilino
Rivera refused to make the indorsement unless he is also paid.

ISSUE: Whether or not it is the regular court or the Securities and Exchange Commission that has
jurisdiction over the present controversy.

RULING: Yes. Presidential Decree No. 902-A provides:

"Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving:

(a) xxx xxx xxx

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 (b) Controversies arising out of intra-corporate or partnership relations 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 corporations, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such entity."

It has already been settled that an intra-corporate controversy would call for the jurisdiction of the
Securities and Exchange Commission. On the other hand, an intra-corporate controversy has been
defined as "one which arises between a stockholder and the corporation. There is no distinction,
qualification, nor any exemption whatsoever.". This Court has also ruled that cases of private
respondents who are not shareholders of the corporation, cannot be a "controversy arising 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."

Under Batas Pambansa Blg. 68 otherwise known as "The Corporation Code of the Philippines",
shares of stock are transferred as follows:

"SEC. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the book of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred: xxx."

As confirmed by this Court, "shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. 'Title may be vested in the transferee by delivery of the certificate with
a written assignment or indorsement thereof'. There should be compliance with the mode of
transfer prescribed by law.

As the bone of contention in this case, is the refusal of petitioner Rivera to indorse the shares of
stock in question and the refusal of the Corporation to register private respondents' shares in its
books, there is merit in the findings of the lower court that the present controversy is not an intra-
corporate controversy; private respondents are not yet stockholders; they are only seeking to be
registered as stockholders because of an alleged sale of shares of stock to them.

Santamaria vs. HSBC

89 Phil 781, August 31, 1951

FACTS: Josefa T. Santamaria bought shares of the Batangas Minerals, Inc., through the offices of
Woo, Uy-Tioco & Naftaly, a stock brokerage firm. The buyer received Stock Certificates No. 517,
issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in bank by this firm. Mrs. Santamaria
placed an order for the purchase of shares of the Crown Mines, Inc. with R.J. Campos & Co., a

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brokerage firm, and delivered Certificate No. 517 to the latter as security therefor with the
understanding that said certificate would be returned to her upon payment of the Crown Mines, Inc.
shares. Her name was written in lead pencil on the upper right hand corner of the certificate. Mrs.
Santamaria went to R.J. Campos & Co., Inc. to pay for her order of Crown Mines shares and to get
back Certificate No. 517. Cosculluela then informed her that R.J. Campos & Co., Inc. was no longer
allowed to transact business due to a prohibition order from Securities and Exchange Commission.
She was also informed that her Stock certificate was in the possession of the Hongkong and
Shanghai Banking Corporation.

Certificate No. 517 came into possession of the Hongkong and Shanghai Banking Corporation
because R.J. Campos & Co., Inc. had opened an overdraft account with the bank and by the term of
which it pledged to the said bank all stocks, shares and securities.

ISSUES: (1)Whether plaintiff-appellee was chargeable with negligence in the transaction

(2)Whether the bank had the obligation to inquire into the ownership of the certificate when it
received it from R.J. Campos & Company

RULING: (1)Yes. Certificate of stock No. 517 was made out in the name of Wo, Uy-Tioco & Naftaly,
brokers, and was duly indorsed in bank by said brokers. This certificate of stock was delivered by
plaintiff to R.J. Campos & Co., Inc. to comply with a requirement that she deposit something on
account if she wanted to buy 10,000 shares of Crown Mines Inc. In making said deposit, plaintiff did
not take any precaution to protect herself against the possible misuse of the shares represented by
the certificate of stock. Plaintiff could have asked the corporation that had issued said certificate to
cancel it and issue another in lieu thereof in her name to apprise the holder that she was the owner
of said certificate. This she failed to do, and instead she delivered said certificate, as it was, to R.J.
Campos & Co., Inc., thereby clothing the latter with apparent title to the shares represented by said
certificate including apparent authority to negotiate it by delivering it to said company while it was
indorsed in blank by the person or firm appearing on its face as the owner thereof. The defendant
Bank had no knowledge of the circumstances under which the certificate of stock was delivered to
R.J. Campos & Co., Inc., and had a perfect right to assume that R.J. Campos & Co., Inc. was lawfully in
possession of the certificate in view of the fact that it was a street certificate, and was in such form
as would entitle any possessor thereof to a transfer of the stock on the books of the corporation
concerned. There is no question that, in this case, plaintiff made the negotiation of the certificate of
stock to other parties possible and the confidence she placed in R.J. Campos & Co., Inc. made the
wrong done possible. This was the proximate cause of the damage suffered by her. She is, therefore,
estopped from claiming further title to or interest therein as against a bona fide pledge or transferee
thereof, for it is a well-known rule that a bona fide pledgee or transferee of a stock from the
apparent owner is not chargeable with knowledge of the limitations placed on it by the real owner,
or of any secret agreement relating to the use which might be made of the stock by the holder.

(2) No. The only evidence in the record would not necessarily place the Bank in the position to
inquire as to the real basis of her claim, nor would it place the Bank in the obligation to recognize her
claim and return to her the certificate outright. A mere claim and of ownership does not establish the
fact of ownership. The right of the plaintiff in such a case would be against the transferor. The fact
that on the right margin of the said certificate the name of the plaintiff appeared written, granting it
to be true, cannot be considered sufficient reason to indicate that its owner was the plaintiff
considering that said certificate was indorsed in blank by her brokers Woo, Uy-Tioco & Naftaly, was
guaranteed by indorsement in blank by R.J. Campos & Co., Inc., and was transferred in due course by

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the latter to the Bank under their letter of hypothecation. Said indicium could at best give the
impression that the plaintiff was the original holder of the certificate.

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN vs. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT
CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T.
MORALES, and DANTE D. MORALES
G.R. No. 120138. September 5, 1997

FACTS: The late Manuel A. Torres, Jr. (Judge) was the majority stockholder of Tormil Realty &
Development Corporation while private respondents who are the children of Judge Torres deceased
brother Antonio A. Torres, constituted the minority stockholders. In 1984, Judge Torres, in order to
make substantial savings in taxes, adopted an estate planning scheme under which he assigned to
Tormil Realty & Development Corporation (Tormil) various real properties he owned and his shares
of stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates
in July and August of 1984, ten (10) deeds of assignment were executed by the late Judge Torres.

Consequently, the properties were duly recorded in the inventory of assets of Tormil Realty and the
revenues generated by the said properties were correspondingly entered in the corporations books
of account and financial records. At the time of the assignments and exchange, however, only
225,000 Tormil Realty shares remained unsubscribed, all of which were duly issued to and received
by Judge Torres. Due to the insufficient number of shares of stock issued to Judge Torres and the
alleged refusal of private respondents to approve the needed increase in the corporations
authorized capital stock (to cover the shortage of 972 shares due to Judge Torres under the estate
planning scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds of assignment
covering the properties in Makati and Pasay City.

Noting the disappearance of the Makati and Pasay City properties from the corporations inventory of
assets and financial records private respondents, on 31 March 1987, were constrained to file a
complaint with the Securities and Exchange Commission (SEC) to compel Judge Torres to deliver to
Tormil Corporation the two (2) deeds of assignment covering the aforementioned Makati and Pasay
City properties which he had unilaterally revoked and to cause the registration of the corresponding
titles in the name of Tormil. Private respondents alleged that following the disappearance of the
properties from the corporations inventory of assets, they found that on October 24, 1986, Judge
Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal
counsel, respectively, of Tormil, formed and organized a corporation named Torres-Pabalan Realty
and Development Corporation and that as part of Judge Torres contribution to the new corporation,
he executed in its favor a Deed of Assignment conveying the same Makati and Pasay City properties
he had earlier transferred to Tormil.

ISSUE: Whether or not the Deed of Assignment can be revoked

RULING: The shortage of 972 shares would not be valid ground for respondent Torres to unilaterally
revoke the deeds of assignment he had executed on July 13, 1984 and July 24, 1984 wherein he
voluntarily assigned to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively. A comparison of the number of shares that respondent

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Torres received from TORMIL by virtue of the deeds of assignment and the stock certificates issued
by the latter to the former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the properties being revoked by
respondent Torres. Hence, the shortage of 972 shares would never be a valid ground for the
revocation of the deeds covering Pasay and Quezon City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in
making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the
very object of the parties in entering into contract. Art. 1355 of the Civil Code also provides: Except in
cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has
been fraud, mistake or undue influences. There being no fraud, mistake or undue influence exerted
on respondent Torres by TORMIL and the latter having already issued to the former of its 225,000
unissued shares, the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres.

The shortage of shares should not have affected the assignment of the Makati and Pasay City
properties which were executed in 13 and 24 July 1984 and the consideration for which have been
duly paid or fulfilled but should have been applied logically to the last assignment of property --
Judge Torres Ayala Fund shares--which was executed on 29 August 1984.

LEE E. WON alias RAMON LEE vs. WACK WACK GOLF and COUNTRY CLUB, INC.
G.R. No. L-10122, August 30, 1958

FACTS: The defendant (a non-stock corporation) issued to Iwao Teruyama Membership

Certificate No. 201 which was assigned to M. T. Reyes on April 22, 1944. Subsequently in the
same year 1944, M. T. Reyes transferred and assigned said certificate to the plaintiff. On
April 26, 1955, the plaintiff filed an action in the Court of First Instance of Manila against the
defendant, alleging that shortly after the rehabilitation of the defendant after the war, the
plaintiff asked the defendant to register in its books the assignment in favor of the plaintiff
and to issue to the latter a new certificate, but that the defendant had refused and still
refuses to do so unlawfully; and praying that the plaintiff be declared the owner of one
share of stock of the defendant and that the latter be ordered to issue a correspondent new
certificate. On June 6, 1955, the defendant filed a motion to dismiss, alleging that from 1944,
when the plaintiff's right of action had accrued, to April 26, 1955, when the complaint was
filed, eleven years have elapsed, and that therefore the complaint was filed beyond the 5-
year period fixed in Article 1149 of the Civil Code. On July 30, 1955, the Court of First Instance
of Manila issued an order dismissing the complaint. As plaintiff's motion for reconsideration
filed on August 27, 1955 and second motion for reconsideration filed on September 13, 1955,
were both denied, the plaintiff has taken the present appeal.

ISSUE: Is plaintiff is entitled to the registration of the transferred share of stock?

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RULING: NO. The certificate in question contains a condition to the effect that no
assignment thereof "shall be effective with respect to the club until such assignment is
registered in the books of the club, as provided in the By-Laws." The decisive question that
arises is whether the plaintiff was bound, under said condition and By-Laws of the defendant
or any statutory rule for that matter, to present and register the certificate assigned to him
in 1944 within any definite or fixed period. The defendant has not made herein any pretense
to that effect; but it contends that from the moment the certificate was assigned to the
plaintiff, the latter's right to have the assignment registered commenced to exist. This
contention is correct, but it would not follow that said right should be exercised immediately
or within a definite period. The existence of a right is one thing, and the duration of said
right is another.

On the other hand, it is stated in the appealed order of dismissal that the plaintiff sought to
register the assignment on April 13, 1955; whereas in plaintiff's brief it is alleged that it was
only in February, 1955, when the defendant refused to recognize the plaintiff. If, as already
observed, there is no fixed period for registering an assignment, how can the complaint be
considered as already barred by the Statute of Limitations when it was filed on April 26,
1955, or barely a few days (according to the lower court) and two months (according to the
plaintiff), after the demand for registration and its denial by the defendant. Plaintiff's right
was violated only sometime in 1955, and it could not accordingly have asserted any cause of
action against the defendant before that.

Lost or destroyed cerificates

Philex Mining vs. Reyes

G.R. No. L-57707 November 19, 1982

FACTS: Richard Huenefeld, is a stockholder of petitioner Philex Mining Corporation (Philex,

for short). He originally owned 800,000 shares of stock. On February 6, 1980, First Asian
wrote Huenefeld informing him that the stock certificate had been delivered to him at his
address at Michelle Apartment, 2030 A. Mabini Street, Manila; and that if the certificate
could not be located that Huenefeld execute an Affidavit of Loss, with the notice of loss to
be published once a week for three (3) consecutive weeks in a newspaper of general
circulation in accordance with the procedure prescribed by Republic Act No. 201. Huenefeld,
through counsel, replied that RA 201 is not applicable because the stock certificate was not
lost in the possession of the stockholder; that assuming it was, the expenses of publication
and premiums for the bond should be at Philex's expense; and demanded the issuance of a
replacement stock certificate. Huenefeld also submitted an Affidavit of Loss but did not
comply with the other requirements on publication.

ISSUE: Does Court of First Instance have jurisdiction over the present controversy, which
Philex contends is an intra-corporate one?

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RULING: Evident from the foregoing is that an intra-corporate controversy is one which
arises between a stockholder and the corporation. There is no distinction, qualification, nor
any exemption whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations. The issue of whether or not a corporation is bound
to replace a stockholder's lost certificate of stock is a matter purely between a stockholder
and the corporation. It is a typical intra-corporate dispute. The question of damages raised is
merely incidental to that main issue.

Section 5 of Presidential Decree No. 902-A provides:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees; it shall have original
and exclusive jurisdiction to hear and decide cases involving: Controversies arising 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 insofar as it concerns their individual
franchise or right to exist as such entity.

Watered stocks
Trust fund doctrine for liability of watered stocks

Velasco vs. Poizat

G.R. No. L-11528, March 15, 1918

FACTS: Plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is
seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by
him to the corporate stock of said company. It appears that the corporation in question was
originally organized by several residents of the city of Manila, where the company had its principal
place of business, with a capital of P50, 000, divided into 500 shares. The defendant subscriber for 20
shares of the stock of the company, and paid in upon his subscription the sum of P500, the par value
of 5 shares. The action was brought to recover the amount subscribed upon the remaining shares. It
appears that the defendant was a stockholder in the company from the inception of the enterprise,
and for some time acted as its treasurer and manager. While serving in this capacity he called in and
collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares
subscribed by him and another 15 shares owned by Jose R. Infante. A meeting of the board of
directors of the company was held at which a majority of the stock was represented. Upon this
occasion two resolutions, important to be here noted, were adopted. The first was a proposal that
the directors, or shareholders, of the company should make good by new subscription, in proportion
to their respective holdings, 15 shares which had been surrendered in Infante. It seems that this
shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid
for, and an understanding had been reached by him and the management by which he was to be
released from the obligation of his subscription, it being understood that what he had already paid

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should not be refunded. Accordingly the directors present at this meeting subscribed P1, 200 toward
taking up his shares, leaving a deficiency of P300 to be recovered by voluntary subscription from
stockholders not present at the meeting. The other proposition was to the effect that Juan [Jean] M.
Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares
for which he was still indebted to the company. The resolution further provided: in case he should
refuse to make such payment, the management of the corporation should be authorized to
undertake judicial proceedings against him. When notification of this resolution reached Poizat
through the mail it evoked from him a manifestation of surprise and pain, which found expression in
a letter written by him a reply and addressed to Velasco, as treasurer and administrator. Within a
short while the unfavorable opinion entertained by Poizat as to the prospect of the company was
found to be fully justified, as the company soon went into voluntary insolvency, Velasco being named
as the assignee. He qualified at once by giving bond, and was duly inducted into the office of
assignee upon November 25, by virtue of a formal transfer executed by the clerk in pursuance of
section 32 of Act No. 1956.

ISSUE: Is Poizat liable upon the subscription?

RULING: The Supreme Court held that Poizat is liable upon this subscription. A stock subscription is a
contract between the corporation on one side, and the subscriber on the other, and courts will
enforce it for or against either. It is a rule, accepted by the Supreme Court of the United States that a
subscription for shares of stock does not require an express promise to pay the amount subscribed,
as the law implies a promise to pay on the part of the subscriber. Section 36 of the Corporation Law
clearly recognizes that a stock subscription is a subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved
from such liability by the by-laws of the corporation. The subscriber is a much bound to pay the
amount of the share subscriber by him as he would be to pay any other debt, and the right of the
company to demand payment is no less incontestable.

The provisions of the Corporation Law give recognition to two remedies for the enforcement of
stock subscriptions. It is generally accepted doctrine that the statutory right to sell the subscriber’s
stock is merely a remedy in addition to that which proceeds by action in court; and it has been held
that the ordinary legal remedy by action exists even though no express mention thereof is made in
the statute.

No attempt is made in the Corporation Law to define the precise conditions under which an action
may be maintained upon a stock subscription, as such conditions should be determined with
reference to the rules governing contract liability in general; and where it appears as in this case that
a matured stock subscription is unpaid, none of the provisions contained in sections 38 to 48,
inclusive, of Act No. 1459 can be permitted to obstruct or impede the action to recover thereon. By
virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956) the assignee of the
insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to
its insolvency; and the assignee therefore has the same freedom with respect to suing upon a stock
subscription as the directors themselves would have had under section 49.

It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason
of the failure of the officers of the corporation to perform their duty in making a call; and when the
original mode of making the call becomes impracticable, the obligation must be treated as due upon
demand. If the corporation were still an active entity, and this action should be dismissed for

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irregularity in the making of the call, other steps could be taken by the board to cure the defect and
another action taken by the board to cure the defect and another action could be brought; but
where the company is being wound up, no such procedure would be practicable. The better doctrine
is that when insolvency supervenes all unpaid subscription become at once due and enforceable.

The printed bill of exceptions in this cause does not contain the original complaint, nor does it state
who was plaintiff therein or the date when the action was instituted. It may, however, be gathered
from the papers transmitted to this court that the action was originally instituted in the name of the
Philippine Chemical Product Co. (Ltd.) , prior to its insolvency, and that later the assignee was
substituted as plaintiff and then filed the amended complaint, with the permission of the court. Now,
if we concede that no right of action existed when the original complaint was filed, a right of action
certainly existed when the assignee filed his amended complaint; and as the bill of exceptions fails to
show that any exception was taken to the action of the court in allowing the amended complaint to
be filled, no objection would be here entertained on the ground that the action was prematurely
brought.

The circumstance that the board of directors in their meeting resolved to release Infante from his
obligation upon a subscription for 15 shares is in no wise prejudicial to the right of the corporation or
its assignee to recover from Poizat upon a subscription made by him. In releasing Infante the board
transcended its powers, and he no doubt still remained liable on such of his shares as were not taken
up and paid for by other persons.

The suggestion contained in Poizat’s letter, to the effect that he understood that he was to be
relieved upon the same terms as Infante is, for the same reason, of no merit as matter of defense,
even if an agreement to that effect had been duly proved.

From what has been said it is manifest that the defendant is liable for P1,500, the amount of his
subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for
interest at the lawful rate from the date of his subscription, unless relieved from this liability by the
by-laws of the company. These by-laws showing the exact date upon which the subscription was
made, though it is alleged in the original complaint that the company was organized upon March 23,
1914. This allegation is not admitted in the agreed statement of facts. The defendant, however,
inferentially admits in his letter of July 27, 1914, that this subscription had been made prior to July 13,
1914. It results that in our opinion he should be held liable for interest from that date.

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval Filipina," plaintiff-
appellee, vs. MARCIANO RIVERA, defendant-appellant.
G.R. No. L-19761 January 29, 1923

FACTS: Among the incorporators of Cooperativa Naval Filipina was the defendant Mariano Rivera,
who subscribed for 450 shares representing a value of P45,000. In the course of time the company
became insolvent and went into the hands of the Philippine Trust Company, as assignee in
bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the
defendant, which admittedly has never been paid.
The reason given for the failure of the defendant to pay the entire subscription is, that not long after
the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at
which a resolution was adopted to the effect that the capital should be reduced by 50 per centum

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and the subscribers released from the obligation to pay any unpaid balance of their subscription in
excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed
that the subscription of the various shareholders had been cancelled to the extent stated; and fully
paid certificate were issued to each shareholders for one-half of his subscription.

ISSUE: Whether or not defendant is still liable for the unpaid balance of his subscription

RULING: Yes. It is established doctrine that subscription to the capital of a corporation constitute a
find to which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts. A corporation has no power to release an original subscriber to its capital
stock from the obligation of paying for his shares, without a valuable consideration for such release;
and as against creditors a reduction of the capital stock can take place only in the manner an under
the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is necessary.
In the case before us the resolution releasing the shareholders from their obligation to pay 50 per
centum of their respective subscriptions was an attempted withdrawal of so much capital from the
fund upon which the company's creditors were entitled ultimately to rely and, having been effected
without compliance with the statutory requirements, was wholly ineffectual.

LUMANLAN v. CURA, et al.,

G.R. No. L-39861 March 21, 1934

FACTS: The appellant is a corporation duly organized under the laws of the Philippine Islands with its
central office in the City of Manila. The plaintiff-appellee Bonifacio Lumanlan, on July 31, 1922,
subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of P15, 000.
Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this corporation, filed suit against it
in the Court of First Instance of Manila, case No. 37007, praying that a receiver be appointed, as it
appeared that the corporation at that time had no assets except credits against those who had
subscribed for shares of stock. The court named Tayag as receiver for the purpose of collecting, said
subscriptions. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value of the stock for
which he subscribed, the receiver on August 30, 1930, filed a suit against him in the Court of First
Instance of Manila, civil case No. 37492, for the collection of P15,109, P13,500 of which was the
amount he owed for unpaid stock and P1,609 for loans and advances by the corporation to
Lumanlan. In that case Lumanlan was sentenced to pay the corporation the above-mentioned sum of
P15,109 with legal interest thereon from August 30, 1930, and costs. Lumanlan appealed from this
decision.

ISSUE: Is Bonifacio Lumanlan entitled to a credit against the judgment in case No. 37492 for P11,
840and an additional sum of P2, 000, which is 25 per cent on the principal debt, as he had to file this
suit to collect, or receive credit for the sum which he had paid Valenzuela for and in place of the
corporation, or a total of P13,840.

RULING: YES. It appears from the record that during the trial of the case now under consideration,
the Bank of the Philippine Islands appeared in this case as assignee in the "Involuntary Insolvency of
Dizon & Co., Inc. That bank was appointed assignee in case No. 43065 of the Court of First Instance
of the City of Manila on November 28, 1932. It is therefore evident that there are still other creditors

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of Dizon & Co., Inc. This being the case that corporation has a right to collect all unpaid stock
subscriptions and any other amounts which may be due it.

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
the creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the payment
of its debts. The Corporation Law clearly recognizes that a stock subscription is a subsisting liability
from the time the subscription is made, since it requires the subscriber to pay interest quarterly from
that date unless he is relieved from such liability by the by-laws of the corporation. The subscriber is
as much bound to pay the amount of the share subscribed by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable.

CENTRAL TEXTILE MILLS, INC. vs. NATIONAL WAGES AND PRODUCTIVITY COMMISSION, REGIONAL
TRIPARTITE WAGES AND PRODUCTIVITY BOARD - NATIONAL CAPITAL REGION, and UNITED CMC
TEXTILE WORKERS UNION

G.R. No. 104102. August 7, 1996

FACTS: On December 20, 1990, respondent Regional Tripartite Wages and Productivity Board -
National Capital Region (the Board) issued Wage Order No. NCR-02 (WO No. NCR-02), which took
effect on January 9, 1991. Said wage order mandated a P12.00 increase in the minimum daily wage of
all employees and workers in the private sector in the NCR, but exempted from its application
distressed employers whose capital has been impaired by at least twenty-five percent (25%) in the
preceding year.

The Guidelines on Exemption from Compliance With the Prescribed Wage/Cost of Living Allowance
Increase Granted by the Regional Tripartite Wage and Productivity Boards, issued on February 25,
1991, defined capital as the paid-up capital at the end of the last full accounting period (in case of
corporations). Under said guidelines, an applicant firm may be granted exemption from payment of
the prescribed increase in wage/cost-of-living allowance for a period not to exceed one (1) year from
effectivity of the Order x x x when accumulated losses at the end of the period under review have
impaired by at least 25 percent the paid-up capital at the end of the last full accounting period
preceding the application.

By virtue of these provisions, petitioner filed on April 11, 1991 its application for exemption from
compliance with WO No. NCR-02 due to financial losses.

In an order dated October 22, 1991, the Boards Vice-Chairman, Ernesto Gorospe, disapproved
petitioners’ application for exemption after concluding from the documents submitted that
petitioner sustained an impairment of only 22.41%.

On February 4, 1992, petitioners’ motion for reconsideration was dismissed by the Board for lack of
merit. The Board, except for Vice-Chairman Gorospe who took no part in resolving the said motion
for reconsideration, opined that according to the audited financial statements submitted by
petitioner to them, to the Securities and Exchange Commission and to the Bureau of Internal
Revenue, petitioner had a total paid-up capital of P305,767,900.00 as of December 31, 1990, which

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amount should be the basis for determining the capital impairment of petitioner, instead of the
authorized capital stock of P128,000,000.00 which it insists should be the basis of computation.

The Board also noted that petitioner did not file with the SEC the August 15, 1990 resolution of its
Board of Directors, concurred in by its stockholders representing at least two-thirds of its
outstanding capital stock, approving an increase in petitioners authorized capital stock from
P128,000,000.00 to P640,000,000.00. Neither did it file any petition to amend its Articles of
Incorporation brought about by such increase in its capitalization.

Petitioner maintains in the instant action that its authorized capital stock, not its unauthorized paid-
up capital, should be used in arriving at its capital impairment for 1990. Citing two SEC Opinions
dated August 10, 1971, and July 28, 1978, interpreting Section 38 of the Corporation Code, it claims
that the capital stock of a corporation stand(s) increased or decreased only from and after approval
and the issuance of the certificate of filing of increase of capital stock.

ISSUE: Whether or not

RULING: The guidelines on exemption specifically refer to paid-up capital, not authorized capital
stock, as the basis of capital impairment for exemption from WO. No. NCR-02. The records reveal,
however, that petitioner included in its total paid-up capital payments on advance subscriptions,
although the proposed increase in its capitalization had not yet been approved by, let alone
presented for the approval of, the SEC. As observed by the Board in its order of February 4, 1992, the
aforementioned resolution (of August 15, 1990) has not been filed by the corporation with the SEC,
nor was a petition to amend its Articles of Incorporation by reason of the increase in its capitalization
filed by the same.

It is undisputed that petitioner incurred a net loss of P68,844,222.49 in 1990, and its authorized
capital stock as of that time stood at P128,000,000.00. On August 15, 1990, a Board resolution
increasing the capital stock of the corporation was affirmed by the requisite number of stockholders.
Although no petition to that effect was ever submitted to the SEC for its approval, petitioner already
started receiving subscriptions and payments on the proposed increase, which it allegedly held
conditionally, that is, pending approval of the same by the SEC. In its Memorandum, however,
petitioner admitted, without giving any reason therefor, that it indeed received subscriptions and
payments to the said proposed increase in capital stock, even in the absence of SEC approval of the
increase as required by the Corporation Code. Thus, by the end of 1990, the corporation had a
subscribed capital stock of P482,748,900.00 and, after deducting P176,981,000.00 in subscriptions
receivables, a total paid-up capital of P305,767,900.00. P177,767,900.00 of this sum constituted the
unauthorized increase in its subscribed capital stock, which are actually payments on future issues of
shares.

These payments cannot as yet be deemed part of petitioners paid-up capital, technically speaking,
because its capital stock has not yet been legally increased. Thus, its authorized capital stock in the
year when exemption from WO No. NCR-02 was sought stood at P128,000,000.00, which was
impaired by losses of nearly 50%. Such payments constitute deposits on future subscriptions, money
which the corporation will hold in trust for the subscribers until it files a petition to increase its
capitalization and a certificate of filing of increase of capital stock is approved and issued by the SEC.
As a trust fund, this money is still withdrawable by any of the subscribers at any time before the
issuance of the corresponding shares of stock, unless there is a pre-subscription agreement to the

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contrary, which apparently is not present in the instant case. Consequently, if a certificate of increase
has not yet been issued by the SEC, the subscribers to the unauthorized issuance are not to be
deemed as stockholders possessed of such legal rights as the rights to vote and dividends.

COMMISSIONER OF INTERNAL REVENUE vs. THE COURT OF APPEALS, COURT OF TAX APPEALS
AND A. SORIANO CORPORATION
G.R. NO. 108576; JANUARY 20, 1999

FACTS: Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States,
formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00
capitalization divided into 10,000 common shares at a par value of P100/share. In 1937, Don Andres
subscribed to 4,963 shares of the 5,000 shares originally issued. On September 12, 1945, ANSCOR's
authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with
the same par value of the additional 15,000 shares, only 10,000 was issued which were all subscribed
by Don Andres. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and
Andres, Jr., as their initial investments in ANSCOR. Both sons are foreigners. By 1947, ANSCOR
declared stock dividends.

As of that date, the records revealed that he has total shareholdings of 185,154 shares, 50,495 of
which are original issues and the balance of 134.659 shares as stock dividend declarations.
Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña
Carmen Soriano, as her conjugal share. The other half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and 46,287
shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR.
Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.

ISSUE: Whether or not ANSCOR's redemption of stocks from its stockholder as well as the exchange
of common with preferred shares can be considered as "essentially equivalent to the distribution of
taxable dividend" making the proceeds thereof taxable.

RULING: YES. Stock dividends, strictly speaking, represent capital and do not constitute income to its
recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but
enrichment through increase in value of capital investment." As capital, the stock dividends
postpone the realization of profits because the "fund represented by the new stock has been
transferred from surplus to capital and no longer available for actual distribution." In a loose sense,
stock dividends issued by the corporation, are considered unrealized gain, and cannot be subjected
to income tax until that gain has been realized. Before the realization, stock dividends are nothing
but a representation of an interest in the corporate properties. As capital, it is not yet subject to
income tax.

However, if a corporation cancels or redeems stock issued as a dividend at such time and in such
manner as to make the distribution and cancellation or redemption, in whole or in part, essentially
equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or
cancellation of the stock shall be considered as taxable income to the extent it represents a
distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen.

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It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable
dividends.

ONG YONG, et al., vs. TIU, et al.,

G.R. No. 144476 8 April 2003

FACTS: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with
stoppage and incompletion when its owner, the First Landlink Asia Development
Corporation (FLADC), which was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See
Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius), encountered dire financial
difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To
stave off foreclosure of the mortgage on the two lots where the mall was being built, the
Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia
Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they
entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius
were to subscribe to an additional 549,800 shares at P100.00 each in addition to their
already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were
entitled to nominate the Vice-President and the Treasurer plus 5 directors while the Ongs
were entitled to nominate the President, the Secretary and 6 directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to
manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for their
subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a
four-storey building and two parcels of land respectively valued at P20 million (for 200,000
shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their
additional 549,800 stock subscription therein. The Ongs paid in another P70 million 3 to
FLADC and P20 million to the Tius over and above their P100 million investment, the total
sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of
FLADC to PNB.

ISSUE: Whether or not the pre-Subscription Agreement executed by the Ongs is actually a
subscription contract.

RULING: YES. FLADC was originally incorporated with an authorized capital stock of 500,000
shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius
invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital
stock became necessary to give each group equal (50-50) shareholdings as agreed upon in
the Pre-Subscription Agreement. The authorized capital stock was thus increased from
500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing
to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares
to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000
unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the
parties' Pre-Subscription Agreement was in fact a subscription contract as defined under
Section 60, Title VII of the Corporation Code. A subscription contract necessarily involves the

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corporation as one of the contracting parties since the subject matter of the transaction is
property owned by the corporation — its shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested
P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between
the Ongs and FLADC, not between the Ongs and the Tius.
479

Payment of balance of subscriptions

China Banking Corporation vs. Court of Appeals

G.R. No. 117604, 26 March 1997

FACTS: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country
Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation (CBC). On
16 September 1974, CBC wrote VGCCI requesting that the pledge agreement be recorded in
its books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge
executed by Calapatia in CBC's favor was duly noted in its corporate books. On 3 August
1983, Calapatia obtained a loan of P20,000.00 from CBC, payment of which was secured by
the pledge agreement still existing between Calapatia and CBC. Due to Calapatia's failure to
pay his obligation, CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before
Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction
sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure
proceedings and requested that the pledged stock be transferred to its name and the same
be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote CBC expressing
its inability to accede to CBC's request in view of Calapatia's unsettled accounts with the
club. Despite the foregoing, Notary Public de Vera held a public auction on 17 September
1985 and CBC emerged as the highest bidder at P20,000.00 for the pledged stock.
Consequently, CBC was issued the corresponding certificate of sale.

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue
account in the amount of P18,783.24. Said notice was followed by a demand letter dated 12
December 1985 for the same amount and another notice dated 22 November 1986 for
P23,483.24. On 4 December 1986, VGCCI caused to be published in the newspaper Daily
Express a notice of auction sale of a number of its stock certificates, to be held on 10
December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock
Certificate 1219). Through a letter dated 15 December 1986, VGCCI informed Calapatia of the
termination of his membership due to the sale of his share of stock in the 10 December 1986
auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of Calapatia's Stock
Certificate 1219 by virtue of being the highest bidder in the 17 September 1985 auction and
requested that a new certificate of stock be issued in its name. On 2 March 1990, VGCCI
replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held
on 10 December 1986 for P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of
the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati
for the nullification of the 10 December 1986 auction and for the issuance of a new stock
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certificate in its name. On 18 June 1990, the Regional Trial Court of Makati dismissed the
complaint for lack of jurisdiction over the subject matter on the theory that it involves an
intra-corporate dispute and on 27 August 1990 denied CBC's motion for reconsideration. On
20 September 1990, CBC filed a complaint with the Securities and Exchange Commission
(SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any
new stock certificate issued pursuant thereto; for the issuance of a new certificate in
petitioner's name; and for damages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of
VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had valid
reason not to transfer the share in the name of CBC in the books of VGCCI until liquidation of
delinquency. Consequently, the case was dismissed. On 14 April 1992, Hearing Officer Perea
denied CBC's motion for reconsideration. CBC appealed to the SEC en banc and on 4 June
1993, the Commission issued an order reversing the decision of its hearing officer; holding
that CBC has a prior right over the pledged share and because of pledgor's failure to pay the
principal debt upon maturity, CBC can proceed with the foreclosure of the pledged share;
declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL
and VOID; and ordering VGCCI to issue another membership certificate in the name of CBC.
VGCCI sought reconsideration of the order. However, the SEC denied the same in its
resolution dated 7 December 1993. The sudden turn of events sent VGCCI to seek redress
from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision
nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of
jurisdiction over the subject matter and, consequently, dismissed CBC's original complaint.
The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-
corporate; nullifying the SEC orders and dismissing CBC’s complaint. CBC moved for
reconsideration but the same was denied by the Court of Appeals in its resolution dated 5
October 1994. CBC filed the petition for review on certiorari.

ISSUE: Whether CBC is bound by VGCCI's by-laws.

RULING: In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third party and the
shareholder was entered into. Herein, at the time the pledge agreement was executed.
VGCCI could have easily informed CBC of its by-laws when it sent notice formally recognizing
CBC as pledgee of one of its shares registered in Calapatia's name. CBC's belated notice of
said by-laws at the time of foreclosure will not suffice. By-laws signifies the rules and
regulations or private laws enacted by the corporation to regulate, govern and control its
own actions, affairs and concerns and its stockholders or members and directors and
officers with relation thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action adopted by the
corporation for its own government and that of the individuals composing it and having the
direction, management and control of its affairs, in whole or in part, in the management and
control of its affairs and activities. The purpose of a by-law is to regulate the conduct and
define the duties of the members towards the corporation and among themselves. They are

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self-imposed and, although adopted pursuant to statutory authority, have no status as
public law. Therefore, it is the generally accepted rule that third persons are not bound by
by-laws, except when they have knowledge of the provisions either actually or
constructively. For the exception to the general accepted rule that third persons are not
bound by by-laws to be applicable and binding upon the pledgee, knowledge of the
provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was
contracted. Knowledge of said provisions, either actual or constructive, at the time of
foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil
Code provides that it is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists maybe
alienated for the payment to the creditor. Further, VGCCI's contention that CBC is duty-
bound to know its by-laws because of Article 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of a good father of a family,
fails to convince. CBC was never informed of Calapatia's unpaid accounts and the restrictive
provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation Code which
provides that "no shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation" cannot be utilized by VGCCI. The term
"unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any
indebtedness which a subscriber or stockholder may owe the corporation arising from any
other transaction." Herein, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certificate 1219. What Calapatia owed the
corporation were merely the monthly dues. Hence, Section 63 does not apply.

IRINEO S. BALTAZAR vs. LINGAYEN GULF ELECTRIC POWER, CO.

G.R. No. L-16236 June 30, 1965

FACTS: Plaintiffs Baltazar and Rose were among the incorporators of Lingayen Gulf, the corporation.
It is alleged that it has always been the practice and procedure of the Corporation to issue
certificates of stock to its individual subscribers for unpaid shares of stock. Of the 600 shares of
capital stock subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued
to him several fully paid up and non-assessable certificates of stock, corresponding to the 535 shares.

Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover seven-
member Board of Directors of the Corporation. Let the first group be called the Ungson group and
the second, the Baltazar group.

Annual stockholders' meeting of the Corporation had been fixed, principally for the purpose of
electing new officers and Board of Directors for the calendar year 1955. the fight for control of the
management and property of the corporation was close and keen.

The Ungson group (specially defendant Acena), in order to continue retaining control management
and property of the corp, in the regular meeting of the Board of Directors, held on January 30, 1955,
passed three (3) resolutions (Exhs. A, B, C).

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Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and Jubenville,
"of no value and consequently cancelled from the books of the Corporation. Resolution No. 3 (Exh.
B) resolved that "... all unpaid subscriptions should bear interest annually from the year of
subscription..

Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf Electric
Power Co., Inc., issued as fully paid-up to stockholders whose subscription to a number of shares
have been declared are hereby incapacitated to utilize or avail of the voting power until such
delinquency interest is fully paid up.

On the authority of these resolutions, the Ungson group was threatening and procuring to expel and
oust the plaintiffs and their companion stockholders, for the ultimate purpose of depriving them of
their right to vote in the said annual stockholders' meeting scheduled for May 1, 1955. Baltazar and
Rose prayed that a writ of preliminary injunction be issued, which was granted. Defendants set up
counterclaims. praying that the resolutions be declared legal and valid. Plaintiffs filed their answer to
defendants' counterclaims. On August 8, 1955, the lower dismissed plaintiffs' counterclaims.

The following tentative amicable settlement, dated September 13, 1958, formulated and entered into
by some of the parties:

1. As to the so-called water stocks P30,000.00 each of the holders of said stock, namely, Irineo
Baltazar, Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each, thereby
retaining P6,500 worth of stocks;

2. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly representing, his profit,
he will return to the corporation P3,500 of said share of stock and retain P7,500 worth thereof.

On February 20, 1959, the lower court rendered a decision, approving the agreement and dissolved
the writ of preliminary injunction, with costs. Defendants on March 14, 1959 filed a motion for
reconsideration, asking that the agreement be amended in the sense that delinquent stocks cannot
be voted until fully paid in accordance with the agreement.

On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212, filed a petition for immediate execution
and for preliminary injunction and/or mandamus, praying that a writ be issued, ordering the
defendants, as controlling majority of hold-over board of directors, to hold immediately the long
delayed stockholders' meeting, and to allow the plaintiffs and all the stockholders, with still unpaid
subscriptions, to vote all their stocks and subscriptions at said stockholders' meeting, as directed in
the decision.

On March 25, 1959, the Court issued an amending decision, pertinent portions of which are
hereunder reproduced regarding the right to vote, this Court likewise agrees that the facts
considered during the negotiations do not warrant repeal of the declaration of delinquency and
complete restoration of voting rights until full payment of the unpaid stock subscriptions and.

ISSUE: Does a stockholder, in a stock corporation, who subscribes to a certain number of shares of
stock, and he pays only partially, for which he is issued certificates of stock, is entitled to vote,
notwithstanding the fact that he has not paid the balance of his subscription, which has been
declared delinquent

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RULING: The Supreme Court held that defendants-appellants claim that resolution No. 4 (Exh. C-2),
withdrawing or nullifying the voting power of all the aforesaid shares of stock is valid,
notwithstanding the existence of partial payments, evidenced by certificates duly issued therefor.
They invoke the ruling laid down by the Court in the Fua Cun v. Summers case.

The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v. Summers
case, because it was the practice and procedure, since the inception of the corporation, to issue
certificates of stock to its individual subscribers for unpaid shares of stock and gave voting power to
shares of stock fully paid. And even though no agreement existed, the ruling in said case, does not
now reflect the correct view on the matter, for better than an agreement or practice, there is the
law, which renders the said case of Fua Cun-Summers, obsolescent.

Section 37 of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929, six (6)
years afterthe promulgation of the Fua-Summers case (decided in 1923), provides:

No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof,
or the full subscription in the case of no par stock, has been paid by him to the corporation.
Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent.

Stated in another way, the present law requires as a condition before a shareholder can vote his
shares, that his full subscription be paid in the case of no par value stock; and in case of stock
corporation with par value, the stockholder can vote the shares fully paid by him only, irrespective of
the unpaid delinquent shares. As well-observed by the trial court, a corporation may now, in the
absence of provisions in their by-laws to the contrary, apply payment made by , subscribers-
stockholders, either as: "(a) full payment for the corresponding number of shares of stock, the par
value of each of which is covered by such payment; or (b) as payment pro-rata to each and all the
entire number of shares subscribed for" (amended decision). In the cases at bar, the defendant-
corporation had chosen to apply payments by its stockholders to definite shares of the capital stock
of the corporation and had fully paid capital stock shares certificates for said payments; its call for
payment of unpaid subscription and its declaration of delinquency for non-payment of said call
affecting only the remaining number of shares of its capital stock for which no fully paid capital stock
shares certificates have been issued, "and only these have been legally shorn of their voting rights by
said declaration of delinquency."

It is finally argued by defendants-appellants that the plaintiffs-appellees waived, under the

agreement heretofore quoted, the right to enforce the voting power they were claiming to exercise,
and upon the principle of estoppel, they are now prohibited from insisting on the existence of such
power, ending with the exhortation, that "they should lie upon the bed they helped built, for a
lasting peace in the interest of the corporation." It should, however, be stated as heretofore
exposed, that certain clauses of the agreement are contrary to law and public policy and would
cause injury to plaintiffs-appellees and other stockholders similarly situated. Estoppel cannot be
predicated on acts which are prohibited by law or are against public policy.

DONNINA C. HALLEY, vs PRINTWELL, INC.

G.R. No. 157549 May 30, 2011

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FACTS: The petitioner was an incorporator and original director of Business Media Philippines, Inc.
(BMPI), with an initial authorized capital stock of P3,000,000.00 divided into 300,000 shares each
with a par value of P10.00,of which 75,000 were initially subscribed by Halley and 4 others. Printwell
engaged in commercial and industrial printing. BMPI commissioned Printwell for the printing of the
magazine Philippines, Inc. that BMPI published and sold. For that purpose, Printwell extended 30-day
credit accommodations to BMPI. In the period from October 11, 1988 until July 12, 1989, BMPI
placedwith Printwell several orders on credit, evidenced by invoices and delivery receipts
totalingP316,342.76. Considering that BMPI paid only P25,000.00,Printwell sued BMPI on January 26,
1990 for the collection of the unpaid balance of P291,342.76 in the RTC. On February 8, 1990,Printwell
amended the complaint in order to implead as defendants all the original stockholders and
incorporators to recover on their unpaid subscriptions.

ISSUE: Are the stockholders liable?

HELD: Yes. The trust fund doctrine enunciates rule that the property of a corporation is a trust fund
for the payment of creditors, but such property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between
its creditors and stockholders its assets are in equity a fund for the payment of its debts.

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer, was adopted in
our jurisdiction in Philippine Trust Co. v. Rivera where thisCourt declared that: It is established
doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the payment of its debts.

We clarify that the trust fund doctrine is not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.[36]All assets and property belonging to the corporation held in trust
for the benefit of creditors that were distributed or in the possession of the stockholders, regardless
of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.

Under the trust fund doctrine, a corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation of paying for his shares, in whole or in part, without a valuable
consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an
action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt. To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the stockholders have not in
good faith paid the par value of the stocks of the corporation.

GERARDO GARCIA vs. ANGEL SUAREZ

G.R. No. L-45493 April 21, 1939

FACTS: On October 4, 1924, the appellant Angel Suarez subscribed to 16 shares of the capital stock of
the Compañia Hispano-Filipina, Inc., a corporation which is duly formed and organized. Of the 16

135 | P a g e
subscribed shares, at the par value of P100 each, the appellant only paid P400, the value of four
shares. The plaintiff-appellee Gerardo Garcia was appointed by the court receiver of the Compañia
Hispano-Filipina, Inc., to collect all the credits of said corporation, pay its debts and dispose of the
remainder of its assets and of its properties. Gerardo Garcia, in vain, made demand upon Angel
Suarez to pay the balance of his subscription. Hence, Garcia, as receiver, brought an action in the CFI
to recover from Suarez and other shareholders the balance of their subscriptions, but the complaint
was dismissed for lack of prosecution. On October 10, 1935, a similar complaint was filed against the
appellant, and after trial, judgment was rendered therein ordering the said Suarez to pay to Garcia, as
receiver of Compañia Hispano-Filipina, Inc., the sum of P1,200, with legal interest thereon. Suarez
appealed alleging Prescription. Suarez also claims to be released from his obligation to pay the
balance of his subscription.

ISSUE: Is Suarez liable to pay the balance of his subscription? (Yes.)

RULING: Suarez alleges that he was released from the obligation to pay the balance of his
subscription. In support of his connection, the appellant adduced as evidence a letter, allegedly
signed by R. Pando, acting president of the corporation Compañia Hispano-Filipina, Inc., wherein
Suarez was released by Pando from all obligation with respect to the payment of his subscription in
consideration of his transfer of his shares to the corporation.

The very citation of authorities made by the appellant in his brief destroys his contention. It says:
Released of subscribers by the corporation. — There can be no doubt that a corporation may
effectually release a subscriber from liability on his subscription, in whole or in part, or allow
him to modify his contract, if all the stockholders expressly or impliedly consent . . . .

The agents or officers of the corporation have no such power, however, unless it is expressly
conferred upon them by the charter or statute, or by the stockholders by a by-law or otherwise.
...

It has not been established that the stockholders of the Compañia Hispano-Filipina, Inc., have in any
wise consented to release the appellant from his obligation, or that the acting president, R. Pando,
was expressly authorized by the stockholders, or was authorized by the by-laws of the corporation,
to release the appellant from his obligation. A corporation has no legal capacity to release a
subscriber to its capital stock from the obligation to pay for his shares; and any agreement to this
effect is invalid.

PHILIPPINE NATIONAL BANK vs. BITULOK SAWMILL, INC., ET AL

G.R. Nos. L-24177-85 June 29, 1968

FACTS: Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by
the lower court to substitute the receiver of the Philippine Lumber Distributing Agency in actions for
the recovery from defendant lumber producers the balance of their stock subscriptions. The amount
sought to be collected from defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc.,
and Sierra Madre Lumber Co., Inc., having made a partial payment of their total subscription worth.

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized
sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel
Roxas of the Republic of the Philippines who for the purpose, had called several conferences

136 | P a g e
between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc."
They aim to insure a steady supply of lumber, which could be sold at reasonable prices to enable the
war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the
lumber producers to form a lumber cooperative and to pool their sources together in order to wrest,
particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber.
At the beginning, the lumber producers were reluctant to organize the cooperative agency as they
believed that it would not be easy to eliminate from the retail trade the alien middlemen who had
been in this business from time immemorial, but because the late President Roxas made it clear that
such a cooperative agency would not be successful without a substantial working capital which the
lumber producers could not entirely shoulder, and as an inducement he promised and agreed to
finance the agency by making the Government invest P9.00 by way of counterpart for every peso
that the members would invest therein”.

There was no any appropriation by the legislature of the counterpart fund to be put up by the
Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly,
"the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman
of the Board of Directors of the Philippine National Bank, for the latter to grant said agency an
overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was
approved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or
before April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel
mortgages on the stock of lumber of said agency." The Philippine Government did not invest the
P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine
Lumber Distributing Agency by the Philippine National Bank was not paid. Hence, these suits.

ISSUE: Whether the lumber company be held liable to pay unpaid subscription.

RULING: Yes. Even with the case for defendant lumber producers being put forth in its strongest
possible light in the appealed decision, the plaintiff creditor, the Philippine National Bank, should
have been the prevailing party.

In Philippine Trust Co. v. Rivera, citing the leading case of Velasco v. Poizat, this Court held: "It is
established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of
its debt. A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and as against
creditors a reduction of the capital stock can take place only in the manner and under the conditions
prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance
with the statutory regulations is necessary...." The Poizat doctrine found acceptance in later cases.
One of the latest cases, Lingayen Gulf Electric Power v. Baltazar, Speaks to this effect: "In the case
of Velasco v. Poizat, the corporation involved was insolvent, in which case all unpaid stock
subscriptions become payable on demand and are immediately recoverable in an action instituted by
the assignee."

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CORPORATE BOOKS AND RECORDS
Right To Financial Statements
Lanuza vs. Court of Appeals
G.R. No. 131394, March 28, 2005

FACTS: In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven
hundred (700) founder’s shares and seventy-six (76) common shares as its initial capital stock
subscription reflected in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company’s stock and transfer book for
the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding
shares of PMMSI. Sometime in 1979, a special stockholders meeting was called and held on the basis
of what was considered as a quorum of twenty-seven (27) common shares, representing more than
two-thirds (2/3) of the common shares issued and outstanding. In 1982, the heirs of one of the
original incorporators, Juan Acayan, filed a petition with the Securities and Exchange Commission
(SEC) for the registration of their property rights over one hundred (120) founders shares and twelve
(12) common shares owned by their father. The SEC hearing officer held that the heirs of Acayan
were entitled to the claimed shares and called for a special stockholders meeting to elect a new set
of officers. The SEC En Banc affirmed the decision. As a result, the shares of Acayan were recorded in
the stock and transfer book.

On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed
capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation.

ISSUE: What should be the basis in determining the quorum in the stockholders’ meeting?

RULING: The initial subscribed capital stock as reflected in the articles of incorporation should be
made the basis in the determination of a quorum. The articles of incorporation define the charter of
the corporation and its contractual relations with the state and the stockholders. The contents
thereof are binding not only on the corporation but also on its shareholders. In the instant case, the
articles of incorporation indicate that the company had 776 issued and outstanding shares. On the
other hand, the stock and transfer book is not in any sense a public record and only constitutes prima
facie evidence. Hence, it may be impeached by other competent evidence. Therefore, the same
cannot be used as the sole basis for determining the quorum as it does not reflect the totality of
shares which have been subscribed, more so when the articles of incorporation show a significantly
larger amount of shares issued and outstanding.


VELASCO vs. POIZAT

G.R. No. L-11528 March 15, 1918

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FACTS: From the amended complaint filed in this cause upon February 5, 1915, it appears
that the plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company"
(Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a
subscription made by him to the corporate stock of said company. It appears that the
corporation in question was originally organized by several residents of the city of Manila,
where the company had its principal place of business, with a capital of P50,000, divided
into 500 shares. The defendant subscribed for 20 shares of the stock of the company, an
paid in upon his subscription the sum of P500, the par value of 5 shares . The action was
brought to recover the amount subscribed upon the remaining shares.

It appears that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager. While serving in this
capacity he called in and collected all subscriptions to the capital stock of the company,
except the aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R.
Infante.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which a
majority of the stock was presented. Upon this occasion two resolutions, important to be
here noted, were adopted. The first was a proposal that the directors, or shareholders, of
the company should make good by new subscriptions, in proportion to their respective
holdings, 15 shares which had been surrendered by Infante.

ISSUE: Whether or not Poizat is liable for his unpaid subscription.

RULING: YES. A stock subscription is a contract between the corporation on one side, and
the subscriber on the other, and courts will enforce it for or against either. It is a rule,
accepted by the Supreme Court of the United States that a subscription for shares of stock
does not require an express promise to pay the amount subscribed, as the law implies a
promise to pay on the part of the subscriber. Section 36 of the Corporation Law clearly
recognizes that a stock subscription is subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest quarterly from that date unless he is
relieved from such liability by the by-laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable.

The provisions of the Corporation Law (Act No. 1459) give recognition of two remedies for
the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and
dispose of it for the account of the delinquent subscriber. In this case the provisions of
section 38 to 48, inclusive, of the Corporation Law are applicable and must be followed.

It is generally accepted doctrine that the statutory right to sell the subscriber's stock is
merely a remedy in addition to that which proceeds by action in court; and it has been held

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that the ordinary legal remedy by action exists even though no express mention thereof is
made in the statute.

EDWARD A. KELLER & CO., LTD. vs. COB GROUP MARKETING, INC., et. Al.
G.R. No. L-68097, January 16, 1986

FACTS: Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as exclusive
distributor of its household products, Brite and Nuvan in Panay and Negros, as shown in the
sales agreement dated March 14, 1970. Under that agreement Keller sold on credit its
products to COB Group Marketing.

As security for COB Group Marketing's credit purchases up to the amount of P35,000, one Asuncion
Manahan mortgaged her land to Keller. Manahan assumed solidarily with COB Group Marketing the
faithful performance of all the terms and conditions of the sales agreement.

In July 1970 the parties executed a second sales agreement whereby COB Group Marketing's
territory was extended to Northern and Southern Luzon. As security for the credit purchases up to
P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr. and his father Tomas, Sr. (now
deceased) executed a mortgage on their land in Nueva Ecija. Like Manahan, the Lorenzos were
solidarily liable with COB Group Marketing for its obligations under the sales agreement.

The credit purchases of COB Group Marketing, which started on October 15, 1969, limited up to
January 22, 1971. On May 8, the board of directors of COB Group Marketing were apprised by Jose E.
Bax the firm's president and general manager, that the firm owed Keller about P179,000. Bax was
authorized to negotiate with Keller for the settlement of his firm's liability. On the same day, May 8,
Bax and R. Oefeli of Keller signed the conditions for the settlement of COB Group Marketing's
liability. Twelve days later, or on May 20, COB Group Marketing, through Bax executed two second
chattel mortgages over its 12 trucks (already mortgaged to Northern Motors, Inc.) as security for its
obligation to Keller amounting to P179,185.16 as of April 30, 1971.

ISSUE: Whether or not the lower courts erred in nullifying the admissions of liability made in 1971 by
Bax as president and general manager of COB Group Marketing and in giving credence to the alleged
overpayment computed by Bax.

RULING: Yes. The lower courts not only allowed Bax to nullify his admissions as to the liability of COB
Group Marketing but they also erroneously rendered judgment in its favor in the amount of its
supposed overpayment in the sum of P100,596.72, in spite of the fact that COB Group Marketing was
declared in default and did not file any counterclaim for the supposed overpayment. The lower
courts harped on Keller's alleged failure to thresh out with representatives of COB Group Marketing
their "diverse statements of credits and payments". This contention has no factual basis. That means
that there was a conference on the COB Group Marketing's liability. Bax in that discussion did not
present his reconciliation statements to show overpayment.

Bax admitted that Keller sent his company monthly statements of accounts but he could not
produce any formal protest against the supposed inaccuracy of the said statements. He lamely

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explained that he would have to dig up his company's records for the formal protest. He did not
make any written demand for reconciliation of accounts.

As to the liability of the stockholders, it is settled that a stockholder is personally liable for the
financial obligations of a corporation to the extent of his unpaid subscription.

Sale of Delinquent Shares

Valley Gold and Country Club vs. Vda. De Caram
GR No 158805, April 16,2009

FACTS: Valley Golf sold the golf membership share (the “Golf Share”) of Congressman Caram at a
public auction sometime June 1987 after Caram allegedly stop paying his monthly dues beginning
January 1980 and after Valley Golf allegedly sent 5 letters to Caram concerning his delinquent
account during the period January 1986 to May 1987. However, Caram died on 6 October 1986. His
wife initiated intestate proceedings before the RTC, to settle her husband’s estate. Unaware of the
pending controversy over the Golf Share, the Caram family and the RTC included the Golf Share as
part of Caram’s estate. The RTC approved a project of partition of Caram’s estate on 29 August 1989.
The Golf Share was adjudicated to the wife, who paid the corresponding estate tax due, including
that on the golf Share.

It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale of the Golf
Share following their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed that they were entitled to the refund ofP11,066.52 out
of the proceeds of the sale of the Golf Share, which amount had been in the custody of Valley Golf
since 11 June 1987.

Caram’s wife filed an action for reconveyance of the Golf Share with damages before the Securities
and Exchange Commission (SEC) against Valley Golf. The SEC hearing officer ruled that under Section
67, paragraph 2 of the Corporation Code, a share stock could only be deemed delinquent and sold in
an extrajudicial sale at public auction only upon the failure of the stockholder to pay the unpaid
subscription or balance for the share. However, the section could not have applied in Caram’s case
since he had fully paid for the Golf Share and he had been assessed not for the share itself but for his
delinquent club dues. Proceeding from the foregoing premises, the SEC hearing officer concluded
that the auction sale had no basis in law and was thus a nullity.

ISSUE: Whether a corporation may seize and dispose of the membership share of a fully-paid
member on account of its unpaid membership to the country club when it is authorized to do so
under the corporate by-laws but not by the Articles of Incorporation

RULING: The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such Valley Golf. Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for the
causes provided in the articles of incorporation or the by-laws. Termination of membership shall have
the effect of extinguishing all rights of a member in the corporation or in its property, unless
otherwise provided in the articles of incorporation or the by-laws.

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On the basis of Section 91, the Supreme Court ruled that the right of a non-stock corporation such as
Valley Golf to expel a member through the forfeiture of the Golf Share may be established in the by-
laws alone, as is the situation in this case. However, the Supreme Court proceeded to declare the
sale as invalid. The Supreme Court found that Valley Golf acted in bad faith when it sent the final
notice to Caram under the pretense they believed him to be still alive, when in fact they had very well
known that he had already died.

CALATAGAN GOLF CLUB, INC. Vs. SIXTO CLEMENTE, JR.,

G.R. No. 165443April 16, 2009

FACTS: Clemente applied to purchase one share of stock of Calatagan, indicating in his application
for membership his mailing address at Phimco Industries, Inc. P.O. Box 240, MCC, complete
residential address, office and residence telephone numbers, as well as the company (Phimco) with
which he was connected, Calatagan issued to him Certificate of Stock. Calatagan charges monthly
dues on its members to meet expenses for general operations, as well as costs for upkeep and
improvement of the grounds and facilities. The provision on monthly dues is incorporated in
Calatagans Articles of Incorporation and By-Laws. It is also reproduced at the back of each certificate
of stock. When Clemente became a member the monthly charge stood at P400.00. He
paid P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9 December 1991.
Then he ceased paying the dues. At that point, his balance amounted to P400.00.

Ten (10) months later, Calatagan made the initial step to collect Clementes back accounts by sending
a demand letter. It was followed by a second letter. Both letters were sent to Clementes mailing
address as indicated in his membership application but were sent back to sender with the postal
note that the address had been closed. Calatagan declared Clemente delinquent for having failed to
pay his monthly dues for more than sixty (60) days, specifically P5,600.00 as of 31 October 1992.
Calatagan also included Clementes name in the list of delinquent members posted on the clubs
bulletin board. On 1 December 1992, Calatagans board of directors adopted a resolution authorizing
the foreclosure of shares of delinquent members, including Clementes; and the public auction of
these shares. Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent shares to be sold at public
auction. The auction sale took place as scheduled on 15 January 1993, and Clementes share sold
for P64,000. Clemente learned of the sale of his share only in November of 1997. He filed a claim with
the Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in
Calatagan with damages.

The SEC rendered a decision dismissing Clementes complaint. Citing Section 69 of the Corporation
Code which provides that the sale of shares at an auction sale can only be questioned within six (6)
months from the date of sale, the SEC concluded that Clementes claim, filed four (4) years after the
sale, had already prescribed. The SEC further held that Calatagan had complied with all the
requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan that
the address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in
bad faith in assuming as he claimed that his non-payment of monthly dues would merely render his
share inactive. On appeal, the Court of Appeals promulgated a decision reversing the SEC.

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ISSUE: Whether or not the action of Clemente had prescribed pursuant to Section 69 of the
Corporation Code

RULING: Section 69 of the Code provides that an action to recover delinquent stock sold must be
commenced by the filing of a complaint within six (6) months from the date of sale. As correctly
pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled Stocks and
Stockholders and refers specifically to unpaid subscriptions to capital stock, the sale of which is
governed by the immediately preceding Section 68.

There are fundamental differences that defy equivalence or even analogy between the sale of
delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of
delinquent stock is the non-payment of the subscription price for the share of stock itself. The
stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this
case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding
obligation to deprive him of full title to his share. Perhaps the analogy could have been made if
Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or
by-law provision designed to address that situation, decided to sell such share as a consequence. But
that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar.

Calatagans advertence to the fact that the constitution of a lien on the members share by virtue of
the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no
help to its cause. Calatagans Articles of Incorporation states that the dues, together with all other
obligations of members to the club, shall constitute a first lien on the shares, second only to any lien
in favor of the national or local government, and in the event of delinquency such shares may be
ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or
other obligations of the stockholders. In turn, there are several provisions in the By-laws that govern
the payment of dues, the lapse into delinquency of the member, and the constitution and execution
on the lien.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern
the payment of monthly dues, the declaration of a member as delinquent, and the constitution of a
lien on the shares and its eventual public sale to answer for the members debts. Under Section 91 of
the Corporation Code, membership in a non-stock corporation shall be terminated in the manner and
for the causes provided in the articles of incorporation or the by-laws. The By-law provisions are
elaborate in explaining the manner and the causes for the termination of membership in Calatagan,
through the execution on the lien of the share. The Court is satisfied that the By-Laws, as written,
affords due protection to the member by assuring that
the member should be notified by the Secretary of the looming execution sale that would terminate
membership in the club. In addition, the By-Laws guarantees that after the execution sale, the
proceeds of the sale would be returned to the former member after deducting the outstanding
obligations. If followed to the letter, the termination of membership under this procedure outlined in
the By-Laws would accord with substantial justice.

Alienantion of Shares

RICARDO NAVA vs. PEERS MARKETING CORP., RENATO CUSI and AMPARO CUSI
143 | P a g e
 GR L-28120, 25 November 1976

FACTS: Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing

Corporation at one hundred pesos a share or a total par value of eight thousand pesos. Po
paid two thousand pesos or twenty-five percent of the amount of his subscription. No
certificate of stock was issued to him or, for that matter, to any incorporator, subscriber or
stockholder. On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of
his eighty shares. In the deed of sale Po represented that he was "the absolute and
registered owner of twenty shares" of Peers Marketing Corporation. Nava requested the
officers of the corporation to register the sale in the books of the corporation. The request
was denied because Po has not paid fully the amount of his subscription. Nava was informed
that Po was delinquent in the payment of the balance due on his subscription and that the
corporation had a claim on his entire subscription of eighty shares which included the
twenty shares that had been sold to Nava.

ISSUE: Can Peers may be compelled by mandamus to register the stocks in Nava’s name?

RULING: NO. There’s no certificate of stock issued in favor of Po. Shares of stock may be
transferred by delivery to the transferee of the certificate properly indorsed. "Title may be
vested in the transferee by delivery of the certificate with a written assignment or
indorsement thereof" There should be compliance with the mode of transfer prescribed by
law.

The usual practice is for the stockholder to sign the form on the back of the stock certificate.
The certificate may thereafter be transferred from one person to another. If the holder of
the certificate desires to assume the legal rights of a shareholder to enable him to vote at
corporate elections and to receive dividends, he fills up the blanks in the form by inserting
his own name as transferee. Then he delivers the certificate to the secretary of the
corporation so that the transfer may be entered in the corporation's books. The certificate is
then surrendered and a new one issued to the transferee.

That procedure cannot be followed in the instant case because, as already noted, the twenty
shares in question are not covered by any certificate of stock in Po's name. Moreover, the
corporation has a claim on the said shares for the unpaid balance of Po's subscription. A
stock subscription is a subsisting liability from the time the subscription is made. The
subscriber is as much bound to pay his subscription as he would be to pay any other debt.
The right of the corporation to demand payment is no less incontestable. In this case no
stock certificate was issued to Po. Without the stock certificate, which is the evidence of
ownership of corporate stock, the assignment of corporate shares is effective only between
the parties to the transaction.

Baltazar vs. Lingayen Gulf

14 SCRA 522; 1965

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FACTS: Baltazar, et al. subscribed to a certain number of shares of Lingayen Gulf Electric
Power.They had made only partial payment of the subscription but the corporation issued
them certificates corresponding to shares covered by the partial payments. Corporation
wanted to deny voting rights to all subscribed shares until total subscription is paid.

ISSUE: Can corporation nullify the certificates issued?

RULING: The Court held that shares of stock covered by fully paid capital stock shares
certificates are entitled to vote. Corporation may choose to apply payments to subscription
either as: (a) full payment for corresponding number of stock the par value of which is
covered by such payment;or (b) as payment pro-rata to each subscribed share. The
corporation chose the first option, and, having done so, it cannot unilaterally nullify the
certificates issued.


Corporate books and records

Right to Financial Statements

Lanuza vs. Court of Appeals

G.R. No. 131394, March 28, 2005

FACTS: In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven
hundred (700) founder’s shares and seventy-six (76) common shares as its initial capital stock
subscription reflected in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company’s stock and transfer book for
the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding
shares of PMMSI. Sometime in 1979, a special stockholders meeting was called and held on the basis
of what was considered as a quorum of twenty-seven (27) common shares, representing more than
two-thirds (2/3) of the common shares issued and outstanding. In 1982, the heirs of one of the
original incorporators, Juan Acayan, filed a petition with the Securities and Exchange Commission
(SEC) for the registration of their property rights over one hundred (120) founders shares and twelve
(12) common shares owned by their father. The SEC hearing officer held that the heirs of Acayan
were entitled to the claimed shares and called for a special stockholders meeting to elect a new set
of officers. The SEC En Banc affirmed the decision. As a result, the shares of Acayan were recorded in
the stock and transfer book.

On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed
capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation.

ISSUE: What should be the basis in determining the quorum in the stockholders’ meeting?

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RULING: The initial subscribed capital stock as reflected in the articles of incorporation should be
made the basis in the determination of a quorum. The articles of incorporation define the charter of
the corporation and its contractual relations with the state and the stockholders. The contents
thereof are binding not only on the corporation but also on its shareholders. In the instant case, the
articles of incorporation indicate that the company had 776 issued and outstanding shares. On the
other hand, the stock and transfer book is not in any sense a public record and only constitutes prima
facie evidence. Hence, it may be impeached by other competent evidence. Therefore, the same
cannot be used as the sole basis for determining the quorum as it does not reflect the totality of
shares which have been subscribed, more so when the articles of incorporation show a significantly
larger amount of shares issued and outstanding.


JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M.
SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE
B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.

G.R. No. L-45911 April 11, 1979

FACTS: On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with
the SEC a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing
of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the
majority of the members of the Board of Directors and San Miguel Corporation as an unwilling
petitioner. As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano,
Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel
Ortigas, and Antonio Prieto amended the bylaws of the corporation, basing their authority to do so
on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital stock of
the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share
and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding
and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00.

On 28 October 1976, in connection with the same case, Gokongwei filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging
that the Secretary of the corporation refused to allow him to inspect its records despite request
made by Gokongwei for production of certain documents enumerated in the request, and that the
corporation had been attempting to suppress information from its stockholders despite a negative
reply by the SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and
their opposition to the petition, respectively.

Gokongwei alleged that, having discovered that the corporation has been investing corporate funds
in other corporations and businesses outside of the primary purpose clause of the corporation, in
violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petition
seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty
of such violation, and ordered to account for such investments and to answer for damages.

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ISSUE: Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation

RULING: Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the inspection
of any director, member or stockholder of the corporation at reasonable hours."

The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of
the corporate property, whether this ownership or interest be termed an equitable ownership, a
beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of self-
protection. It is generally held by majority of the courts that where the right is granted by statute to
the stockholder, it is given to him as such and must be exercised by him with respect to his interest
as a stockholder and for some purpose germane thereto or in the interest of the corporation. In
other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has
to be proper and lawful in character and not inimical to the interest of the corporation.

The "general rule that stockholders are entitled to full information as to the management of the
corporation and the manner of expenditure of its funds, and to inspection to obtain such
information, especially where it appears that the company is being mismanaged or that it is being
managed for the personal benefit of officers or directors or certain of the stockholders to the
exclusion of others."

While the right of a stockholder to examine the books and records of a corporation for a lawful
purpose is a matter of law, the right of such stockholder to examine the books and records of a
wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.
Stockholders are entitled to inspect the books and records of a corporation in order to investigate
the conduct of the management, determine the financial condition of the corporation, and generally
take an account of the stewardship of the officers and directors. herein, considering that the foreign
subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it would be
more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as
stockholder to inspect the books and records of the corporation as extending to books and records
of such wholly owned subsidiary which are in the corporation's possession and control.

NORA A. BITONG v. COURT OF APPEALS

G.R. No. 123553 July 13, 1998

FACTS: Petitioner Alleged before the SEC that she had been the Treasurer and a Member of the
Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April
1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding
shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol,
President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of
the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and

147 | P a g e
agreements entered into by Mr.& Ms. with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash
advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI
paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were
booked as advances to an affiliate, there existed no board or stockholders' resolution, contract nor
any other document which could legally authorize the creation of and support to an affiliate.

Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors
and officers in both Mr. & Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia
J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total
of P150,000.00.

ISSUE: Is the petitioner is the holder of the proper certificates of share of stock.

RULING: NO.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock
described therein is valid and genuine and is at least prima facie evidence that it was legally issued in
the absence of evidence to the contrary. However, this presumption may be rebutted. 13 Similarly,
books and records of a corporation which include even the stock and transfer book are generally
admissible in evidence in favor of or against the corporation and its members to prove the corporate
acts, its financial status and other matters including one's status as a stockholder. They are ordinarily
the best evidence of corporate acts and proceedings.

However, the books and records of a corporation are not conclusive even against the corporation
but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the
records, explain ambiguities, or show what transpired where no records were kept, or in some cases
where such records were contradicted. The effect of entries in the books of the corporation which
purport to be regular records of the proceedings of its board of directors or stockholders can be
destroyed by testimony of a more conclusive character than mere suspicion that there was an
irregularity in the manner in which the books were kept.

Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was
issued in her name, private respondents argue that this certificate was signed by respondent Eugenia
D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had
possession of the Certificate Book and the Stock and Transfer Book.

VICENTE C. PONCE vs. ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR.
G.R. NO. 139802. December 10, 2002

FACTS: On 25 January 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus and
damages against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his
complaint, Ponce alleged, among others, that "the late Fausto G. Gaid was an incorporator of Victory
Cement Corporation (VCC), having subscribed to and fully paid 239,500 shares of said corporation;
that on 8 February 1968, Ponce and Fausto Gaid executed a "Deed of Undertaking" and
"Indorsement" whereby the latter acknowledges that the former is the owner of said shares and he

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was therefore assigning/endorsing the same to Ponce; that on 10 April 1968, VCC was renamed Floro
Cement Corporation (FCC); that on 22 October 1990, FCC was renamed Alsons Cement Corporation
(ACC); that from the time of incorporation of VCC up to the present, no certificates of stock
corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of
Fausto G. Gaid and/or Ponce; and that despite repeated demands, ACC and Giron refused and
continue to refuse without any justifiable reason to issue to Ponce the certificates of stocks
corresponding to the 239,500 shares of Gaid, in violation of Ponce's right to secure the
corresponding certificate of stock in his name. ACC and Giron moved to dismiss. SEC Hearing Officer
Enrique L. Flores, Jr. granted the motion to dismiss in an Order dated 29 February 1996. Ponce
appealed the Order of dismissal.

On 6 January 1997, the Commission En Banc reversed the appealed Order and directed the Hearing
Officer to proceed with the case. In ruling that a transfer or assignment of stocks need not be
registered first before it can take cognizance of the case to enforce Ponce's rights as a stockholder,
the Commission En Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz, 149 SCRA 654
(1987). Their motion for reconsideration having been denied, ACC and Giron appealed the decision of
the SEC En Banc and the resolution denying their motion for reconsideration to the Court of Appeals.
In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the
shares between Gaid and Ponce was registered in the stock and transfer book of ACC, Ponce failed
to state a cause of action. Thus, said the appellate court, "the complaint for mandamus should be
dismissed for failure to state a cause of action." Ponce's motion for reconsideration was denied in a
resolution dated 10 August 1999. Ponce filed the petition for review on certiorari.

ISSUE: Whether Ponce can require the corporate secretary, Giron, to register Gaid’s shares in his
name.

RULING: Fausto Gaid was an original subscriber of ACC's 239,500 shares. From the Amended Articles
of Incorporation approved on 9 April 1995, each share had a par value of P1.00 per share. Ponce had
not made a previous request upon the corporate secretary of ACC, Francisco M. Giron Jr., to record
the alleged transfer of stocks. Pursuant to Section 63 of the Corporation Code, a transfer of shares of
stock not recorded in the stock and transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the one hand, and its shareholders and
third persons on the other, the corporation looks only to its books for the purpose of determining
who its shareholders are. It is only when the transfer has been recorded in the stock and transfer
book that a corporation may rightfully regard the transferee as one of its stockholders. From this
time, the consequent obligation on the part of the corporation to recognize such rights as it is
mandated by law to recognize arises. Hence, without such recording, the transferee may not be
regarded by the corporation as one among its stockholders and the corporation may legally refuse
the issuance of stock certificates in the name of the transferee even when there has been
compliance with the requirements of Section 64 of the Corporation Code. The stock and transfer
book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the transferee's name. A petition for mandamus fails
to state a cause of action where it appears that the petitioner is not the registered stockholder and
there is no allegation that he holds any power of attorney from the registered stockholder, from
whom he obtained the stocks, to make the transfer. The deed of undertaking with indorsement

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presented by Ponce does not establish, on its face, his right to demand for the registration of the
transfer and the issuance of certificates of stocks. Under the provisions of our statute touching the
transfer of stock, the mere indorsement of stock certificates does not in itself give to the indorsee
such a right to have a transfer of the shares of stock on the books of the company as will entitle him
to the writ of mandamus to compel the company and its officers to make such transfer at his
demand, because, under such circumstances the duty, the legal obligation, is not so clear and
indisputable as to justify the issuance of the writ. As a general rule, as between the corporation on
the one hand, and its shareholders and third persons on the other, the corporation looks only to its
books for the purpose of determining who its shareholders are, so that a mere indorsee of a stock
certificate, claiming to be the owner, will not necessarily be recognized as such by the corporation
and its officers, in the absence of express instructions of the registered owner to make such transfer
to the indorsee, or a power of attorney authorizing such transfer. Thus, absent an allegation that the
transfer of shares is recorded in the stock and transfer book of ACC, there appears no basis for a
clear and indisputable duty or clear legal obligation that can be imposed upon the corporate
secretary, so as to justify the issuance of the writ of mandamus to compel him to perform the
transfer of the shares to Ponce.

OSCAR C. REYES vs. HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH
INSURANCE CORPORATION and RODRIGO C. REYES
G.R. No. 165744. August 11, 2008

FACTS: Petitioner and private respondent were siblings together with two others, namely Pedro and
Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from which they
owned shares of stocks. The Pedro and Anastacia subsequently died. The former had his estate
judicially partitioned among his heirs, but the latter had not made the same in her shareholding in
Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange Commission (SEC)
against petitioner (1) a derivative suit to obtain accounting of funds and assets of Zenith, and (2) to
determine the shares of stock of deceased Pedro and Anastacia that were arbitrarily and fraudulently
appropriated [by Oscar, and were unaccounted for]. In his answer with counterclaim, petitioner
denied the illegality of the acquisition of shares of Anastacia and questioned the jurisdiction of SEC to
entertain the complaint because it pertains to settlement of [Anastacia’s] estate. The case was
transferred to. Petitioner filed Motion to Declare Complaint as Nuisance or Harassment Suit and
must be dismissed. RTC denied the motion. The motion was elevated to the Court of Appeals by way
of petition for certiorari, prohibition and mandamus, but was again denied.

ISSUE: Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the
shareholdings originally belonging to Anastacia.

RULING: No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of
Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must prove that
there are shareholdings that will be left to him and his co-heirs, and this can be determined only in a
settlement of the decedent’s estate. No such proceeding has been commenced to date. Second, he
must register the transfer of the shares allotted to him to make it binding against the corporation.
He cannot demand that this be done unless and until he has established his specific allotment (and
prima facie ownership) of the shares. Without the settlement of Anastacia’s estate, there can be no
definite partition and distribution of the estate to the heirs. Without the partition and distribution,

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there can be no registration of the transfer. And without the registration, we cannot consider the
transferee-heir a stockholder who may invoke the existence of an intra-corporate relationship as
premise for an intra-corporate controversy within the jurisdiction of a special commercial court. The
subject shares of stock (i.e., Anastacia’s shares) are concerned – Rodrigo cannot be considered a
stockholder of Zenith.

ERIC L. LEE vs. HON. HENRY J. TROCINO

G.R. No. 164648 June 19, 2009

FACTS: Three petitions were consolidated in this case. In G.R. No. 145817 (Urban Bank, Inc. v. Peña),
where the First Division of the Court resolved, on November 13, 2002, to suspend or stay the running
of Urban Bank’s one-year period to redeem its properties sold at the public auction held on October
4, 11 and 25, 2001, as well as the consolidation of the titles thereto in favor of the buyers at auction. In
said case, Makati Sports Club, Inc. was prohibited from transferring Urban Bank’s club shares therein
to the winning bidders in the October 11, 2001 execution sale; In G.R. No. 145822 (Gonzales, Jr. v.
Peña), which is a petition for review of the decision in CA-G.R. SP No. 55667, and which specifically
assails the validity of the October 29, 1999 Special Order and Writ of Execution, and prays to set aside
the levies, garnishments and auction sales conducted pursuant to said order and writ. The November
13, 2002 Resolution of the First Division of the Court covers this case as well; and in G.R. No. 162562
(Peña v. Urban Bank), which is a petition for review on certiorari of the November 6, 2003 Decision in
CA-G.R. CV No. 65756 declaring the absence of an agency relationship between Urban Bank and
Peña, but granting to the latter – on equitable considerations – damages in the amount of
P3,000,000.00 for his efforts at settling the ejectment case.

Petitioner argues that there are good and compelling grounds to allow the consolidation of the
instant case with the above-mentioned cases because they involve the same material facts and
circumstances; consolidation would prevent any unwitting or unwarranted interference by one
Division with the issues pending in or being resolved by the others; it would forestall "chaos that
results from conflicting or divergent appreciation of facts, application of law and pronouncements
by the different divisions" of the Court; and certain pronouncements in the August 6, 2008 Decision
pre-empt the result of the other pending petitions. The Supreme Court’s pronouncement that there
was good ground to allow execution pending appeal. Petitioner asserts that the propriety of the trial
court’s grant of execution pending appeal is the issue sought to be resolved in the petition in G.R.
No. 145822. According to petitioner, the above Resolution of the First Division suspended or stayed
the transfer or consolidation of titles in favor of buyers "at any prior execution sale," which includes
buyers of petitioner’s shares of stock at the execution proceedings in issue here.

ISSUE: Whether or not the resolution suspended or stayed the transfer or consolidation of titles in
favor of buyers "at any prior execution sale," which includes buyers of petitioner’s shares of stock at
the execution proceedings?

RULING: There is a difference between an amended judgment and a supplemental judgment. In an

amended and clarified judgment, the lower court makes a thorough study of the original judgment
and renders the amended and clarified judgment only after considering all the factual and legal
issues. The amended and clarified decision is an entirely new decision which supersedes the original
decision. Following the Court's differentiation of a supplemental pleading from an amending
pleading, it can be said that a supplemental decision does not take the place or extinguish the

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existence of the original. As its very name denotes, it only serves to bolster or adds something to the
primary decision. A supplement exists side by side with the original. It does not replace that which it
supplements. Next, petitioner argues that execution pending appeal is not possible in the absence of
an indemnity bond that was subsequently required of the judgment creditor. This argument is
without basis, because the Rules do not require the posting of an indemnity bond before execution
pending appeal may be made.

Moreover, petitioner’s argument that a bond must first be posted before the writ of execution
pending appeal may issue, is without merit because there may be good reasons allowing execution
pending appeal that have a direct bearing on the prevailing party’s ability and capacity to post a
bond. Petitioner’s posture would limit the courts’ ability to determine what are good and compelling
reasons that would allow a writ of execution pending appeal, since the prevailing party’s ability to
post a bond would be the primary consideration in the grant or denial of the writ, and not the good
and compelling reasons attendant to the case. Finally, just as we have held that the mere filing of a
bond alone does not constitute the "good reason" envisioned by the Rules, then neither may the
failure of the court to require the posting of a bond automatically render the execution pending
appeal irregular.

What petitioner appears to do is to attempt to evade the effects of the sale of his shares of stock to
the buyers at the execution sale, which sale immediately transferred title thereto to the buyers. It
should be restated that since there is no right to redeem personal property, the rights of ownership
are vested to the purchaser at the foreclosure (or execution) sale and are not entangled in any
suspensive condition that is implicit in a redemptive period. Besides, the Resolution of the First
Division of the Court dated November 13, 2002 refers to or affects only real and personal property,
specifically, the Makati Sports Club, Inc. shares of stock belonging to Urban Bank; it cannot extend to
the property or shares of stock subject of the present petition, which are nowhere mentioned in the
said Resolution. Thus said, the court finds no valid reason why the buyers at execution sale of
petitioner’s shares of stock should be prevented from obtaining title to the same. The pendency of a
case involving the petitioner and Peña does not affect the registrability of the shares of stock bought
at execution sale, although the registration is without prejudice to the proceedings to determine the
liability of the parties as against each other, specifically between Urban Bank, its directors and
officers (which includes petitioner), and Peña.

FOREST HILLS GOLF & COUNTRY CLUB VS. VERTEX SALES AND TRADING
G.R. No. 202205. March 6, 2013

FACTS: Petitioner is Forest Hills, a non-profit stock corporation. It operates and maintains golf and
country club in Antipolo. It was created as a result of a joint venture of Kings corporation and FEGDI.
Kings corporation owned 40 percent of the shares of stocks, whereas FEGDI owned 60 percent
thereof. FEGDI sold RSACC one Class C common share for 1.1 million pesos. Prior to the full payment
thereof, RSACC transferred its interests to Vertex, where RSACC advised FEGDI of such transfer, and
requested that Vertex be recognized as a shareholder. Forest Hills acceded the same, thus vertex
enjoyed the privileges in the golf and country club. Despite the sale, the name of the stocks still
remained in FEGDI, which prompted Vertex to demand for the issuance of a stock certificate in its
name. Still unsatisfied, Vertex filed a case for the cancellation of the sale and damages. Hence this
case.

ISSUE: Should the transfer of shares be cancelled?

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RULING: No. Forest Hills is not a party to the sale even the share subject to sale was its share of
stock. The corporation whose shares of stock are the subject of a transfer transaction (through sale,
assignment, donation, or any other mode of conveyance) need not be a party to the transaction, as
may be inferred from the terms of Section 63 of the Corporation Code. However, to bind the
corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation. In the present case, the parties to the sale of the share were FEGDI as the seller and
Vertex as the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the one who may
appeal the ruling rescinding the sale.

The rescission of the sale does not in any way prejudice Forest Hills in such a manner that its interest
in the subject matter — the share of stock — is injuriously affected. Thus, Forest Hills is in no position
to appeal the ruling rescinding the sale of the share. Since FEGDI, as party to the sale, filed no appeal
against its rescission

Teng vs SEC
G.R. No. 184332, February 17, 2016

FACTS: Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu
(Chiu), 1,400 shares from his brother Teng Ching Lay (Teng Ching),and 1,440 shares from
Ismaelita Maluto (Maluto).

Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took over the management of
TCL. To protect his shareholdings with TCL, Ting Ping requested TCL's Corporate Secretary,
herein petitioner Anna Teng, to enter the transfer in the Stock and Transfer Book of TCL for
the proper recording of his acquisition. He also demanded the issuance of new certificates
of stock in his favor. TCL and Teng, however, refused despite repeated demands. Because of
their refusal, Ting Ping filed a petition for mandamus with the SEC against TCL and Teng. The
SEC granted Ting Ping's petition.The SEC en bank affirmed the Sec decision. The CA
dismissed Teng and TCL's petition for review. Thereafter, the case became final. The
execution, however, was not pushed through by reason of a complaint for interpleader filed
by Anna. Upon resolution of said case, Ting Ping sought partial satisfaction ofthe judgment
in his favor. This was again opposed by Teng and TCL. Teng and TCL argued that in order for
them to register the transfers in favor of Ting Ping in corporate books, Ting Ping should first
surrender the certificates of stock.

ISSUE: Whether the surrender of the certificates of stock is a requisite before registration of
the transfer may be made in the corporate books and for the issuance of new certificates in
its stead.

RULING: The surrender of the original certificate of stock is necessary before the issuance of
a new one so that the old certificate may be cancelled. A corporation is not bound and
cannot be required to issue a new certificate unless the original certificate is produced and
surrendered. Surrender and cancellation of the old certificates serve to protect not only the

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corporation but the legitimate shareholder and the public as well, as it ensures that there is
only one document covering a particular share of stock.

In the case at bench, Ting Ping manifested from the start his intention to surrender the
subject certificates of stock to facilitate the registration of the transfer and for the issuance
of new certificates in his name. It would be sacrificing substantial justice if the Court were to
grant the petition simply because Ting Ping is yet to surrender the subject certificates for
cancellation instead of ordering in this case such surrender and cancellation, and the
issuance of new ones in his name.

WHEREFORE, the petition is DENIED. Respondent Ting Ping Lay is hereby ordered to
surrender the certificates of stock covering the shares respectively transferred by Ismaelita
Maluto and Peter Chiu.

PROVIDENT INTERNATIONAL RESOURCES CORPORATION vs. VENUS

554 SCRA 540

FACTS: Petitioner Provident International Resources Corporation (PIRC) registered with the
Securities and Exchange Commission (SEC) in 1979. Edward T. Marcelo, Constancio D. Francisco,
Lydia J. Chuanico, Daniel T. Pascual, and Jose A.Lazaro (Marcelo Group) were its incorporators,
original stockholders, and directors. The Asistio group (composed of Luis A. Asistio, and respondents
Joaquin T. Venus, Lazaro L. Madara, Alfredo D. Roa III, and Jose Ma. Carlos L. Zumel), claiming that
the members of the Marcelo group were mere trustees of the Asistio Group, registered PIRC’s stock
and transfer book (STB) on August 2002.

Marcelo group’s assistant corporate secretary petitioner Celedonio Escano, Jr., showed the SEC that
the group’s STB was issued in 1979. The SEC decided that the STB registered on September 1979 by
the Marcelo group was valid. On appeal, the SEC ruling was annulled and set aside on the ground
that the STB in issue is intra-corporate and is, thus, within the Regional Trial Court’s decision. Hence,
this petition.

ISSUE: Does the SEC have jurisdiction to recall and cancel an STB which it issued in 2002 because of
its mistaken assumption that no STB had been previously issued in 1979?

RULING: The Supreme Court ruled in the affirmative. In ruling so, the Court held that under the
Securities Regulation Code (Republic Act No. 8799) provides that the Commission shall act with
transparency and shall have the powers and functions provided by this Code, Presidential Decree No.
902-A, the Corporation Code, Pursuant thereto the Commission shall have, among others, the
following powers and functions:

a.) Have jurisdiction and supervision over all corporations, partnerships or association who are
grantees of primary franchises and/or a license or permit issued by the Government;
d.) Regulate, investigate or supervise the activities of persons to ensure compliance;

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 n.) Exercise such other powers as may be provided by law as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express powers granted the
Commission to achieve the objectives and purposes of these laws.

Form the above, the Court said that SEC’s regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporation’s concerns. This authority
more vividly springs from the fact that a corporation owes its existence to the concession of its
corporate franchise from the state. Under its regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice and hearing), certificates of registration
of corporations, partnerships and associations (excluding cooperatives, homeowners’ association,
and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines
or other penalties for violations of the Revised Securities Act, as well as implementing rules and
directives of the SEC, such as may be warranted.

Considering that SEC, after due notice and hearing, has the regulatory power to revoke the
corporate franchise from which a corporation owes its legal existence, the SEC must likewise have
the lesser power of merely recalling and cancelling a STB that was erroneously registered.

Going to the particular fact of the instant case, the Court finds that the SEC has the primary
competence and means to determine and verify whether the subject 1979 STB presented by the
incumbent assistant corporate secretary was indeed authentic, and duly registered by SEC as early as
September 1979. As the administrative agency responsible for the registration procedures, and in
possession of the pertinent files, records and specimen signatures of authorized officers relating to
the registration of STBs. The evaluation of whether a STB was authorized by the SEC primarily
requires an examination of the STB itself and the SEC filed. This function necessarily belongs to the
SEC as part of its regulatory jurisdiction. Contrary to the allegations of respondents, the issues
involved in this case can be resolved without going into the intra-corporate controversies brought up
by respondents.

As a regulatory body, it is SEC’s duty to ensure that there is only one set of STB for each corporation.
The determination of whether or not the 1979-registered STB is valid and of whether to cancel or
revoke the August 6, 2002 certification and the registration of the 2002 STB on the ground that there
is already an existing STB is impliedly and necessarily within the regulatory jurisdiction of the SEC

SY TIONG SHIOU et. al. vs. SY CHIM et. al.

G.R. No. 174168 March 30, 2009

FACTS: In these complaints, the Spouses Sy averred that they are stockholders and directors of Sy Siy
Ho & Sons, Inc. (the corporation) who asked Sy Tiong Shiou, et al., officers of the corporation, to
allow them to inspect the books and records of the business on three occasions to no avail. Sy Tiong
Shiou, et al. denied the request, citing civil and intra-corporate cases pending in court.

They also argued that the Spouses Sy’s request for inspection was premature as the latters concern
may be properly addressed once an answer is filed in the civil case. Sy Tiong Shiou, on the other
hand, denied the accusations against him, alleging that before the 2003 GIS was submitted to the
Securities and Exchange Commission (SEC), the same was shown to respondents, who at that time

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were the President/Chairman of the Board and Assistant Treasurer of the corporation, and that they
did not object to the entries in the GIS. Sy Tiong Shiou also argued that the issues raised in the
pending civil case for accounting presented a prejudicial question that necessitated the suspension
of criminal proceedings.

ISSUE: Whether or not the suspension of the hearing of the charges for violation of the Corporation
Code on the ground of prejudicial question is proper.

HELD: DOJ gravely abused its discretion when it suspended the hearing of the charges for violation
of the Corporation Code on the ground of prejudicial question and when it dismissed the criminal
complaints. The civil action and the criminal cases do not involve any prejudicial question. The civil
action for accounting and damages, Civil Case No. 03-106456 pending before the RTC Manila, Branch
46, seeks the issuance of an order compelling the Spouses Sy to render a full, complete and true
accounting of all the amounts, proceeds and fund paid to, received and earned by the corporation
since 1993 and to restitute it such amounts, proceeds and funds which the Spouses Sy have
misappropriated. The criminal cases, on the other hand, charge that the Spouses Sy were illegally
prevented from getting inside company premises and from inspecting company records, and that Sy
Tiong Shiou falsified the entries in the GIS, specifically the Spouses Sys shares in the
corporation. Surely, the civil case presents no prejudicial question to the criminal cases since a
finding that the Spouses Sy mishandled the funds will have no effect on the determination of guilt in
the complaint for violation of Section 74 in relation to Section 144 of the Corporation Code; the civil
case concerns the validity of Sy Tiong Shious refusal to allow inspection of the records, while in
thefalsification and perjury cases, what is material is the veracity of the entries made by Sy Tiong
Shiou in the sworn GIS.

VICTOR AFRICA vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, JOSE LAURETA,

MELQUIADES GUTIERREZ, EDUARDO M. VILLANUEVA, EDUARDO DE LOS ANGELES and ROMAN
MABANTA, JR.
G.R. No. 83831 January 9, 1992

FACTS: These four cases separately filed before this Court were consolidated since they involve
issues arising from, incidental or related to the sequestration of Eastern Telecommunications
Philippines, Inc. (ETPI) by the PCGG and the consequent filing by the PCGG of an action for
reconveyance, reversion, accounting and restitution of the alleged ill-gotten ETPI shares and
damages in the Sandiganbayan.

Shortly after the PCGG sequestered ETPI, the sequestration order was partially lifted when 40% of
the shares of stock (Class "B") owned by Cable and Wireless, Ltd. were freed from the effects of
sequestration. The remaining 60% of the shares (Class "A"), however, remained under sequestration.
Thereafter, the PCGG filed with the Sandiganbayan action for reconveyance, reversion, accounting
and restitution of the alleged ill-gotten ETPI shares and damages.

Subsequently, during the annual stockholders meeting convened on January 29, 1988, Eduardo M.
Villanueva, as PCGG nominee, Roman Mabanta, Jr. and Eduardo de los Angeles as nominees of the
foreign investors, Cable and Wireless Ltd., and Jose L. Africa (who was absent) were elected as
members of the board of directors.

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An organizational meeting was later held where Eduardo Villanueva was elected as president and
general manager, while Ramon Desuasido, Almario Velasco and Ranulfo Payos were elected as acting
corporate secretary, acting treasurer, and acting assistant corporate secretary, respectively.

The nomination and election of PCGG nominees/designees to the ETPI Board of Directors, as well as
the election of its new officers, triggered a chain of contentious proceedings before the
Sandiganbayan and this Court between the members of the ETPI Board and its stockholders, on the
one hand, and the PCGG's nominees/designees elected ETPI Board, on the other hand.

The issue raised in the original petition was in relation to the validity of the issuance by the
Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its
representative to testify and produce the stock and transfer book, all stubs of the outstanding stock
certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of ETPI
held from January 29, 1988 to date.

ISSUE: Was it proper for the Sandiganbayan to order the testimony and production of ETPI’s books?

RULING: YES. The issue raised in the original petition relating to the validity of the issuance by the
Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its
representative to testify and produce the stock and transfer book, all stubs of the outstanding stock
certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of
ETPI held from January 29, 1988 to date was laid to rest by our joint resolution in two cases, both
entitled Republic vs. Sandiganbayan and Eduardo Cojuangco, Jr., which applies squarely in the instant
petitions.

In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine
the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found
nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an implied amendment
of the Corporation Code, much less an implied modification of a stockholder's right of inspection as
guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to
the Court, is that
1. the right of inspection should be exercised at reasonable hours on business days;
2. the person demanding the right to examine and copy excerpts from the corporate records
and minutes has not improperly used any information secured through any previous
examination of the records of such corporation; and
3. the demand is made in good faith or for a legitimate purpose.

REPUBLIC V. COJUANGCO ET.AL AND SANDIGANBAYAN G.R. No. 166859, G.R. No. 169203,
G.R. No. 180702, April 12, 2011

FACTS: The Republic commenced a civil case in the Sandiganbayan impleading as defendants
respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. Cojuangco
allegedly purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies
owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be
referred to as the CIIF block of shares. That Cojuangco is the undisputed "coconut king" with
unlimited powers to deal with the coconut levy funds, who took undue advantage of his association,
influence and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos, misused

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coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation.
Defendants Eduardo Cojuangco, Jr., and ACCRA law offices plotted, devised, schemed, conspired
and confederated with each other in setting up, through the use of coconut levy funds, the financial
and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE,
COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the
acquisition of San Miguel Corporation shares and its institutionalization through presidential
directives of the coconut monopoly. In the Sandiganbayan level, the amended Complaint in Civil Case
No. 0033-F was dismissed for failure of plaintiff to prove by preponderance of evidence its causes of
action against defendants with respect to the twenty percent (20%) outstanding shares of stock of
San Miguel Corporation registered in defendants’ names .

ISSUE: Whether Respondent Cojuangco Jr. used the coconut levy funds to acquire SMC shares.

RULING: NO. Republic’s burden to establish by preponderance of evidence that respondents’ SMC
shares had been illegally acquired with coconut-levy funds was not discharged. The conditions for
the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to
purchase, or a person acquiring property through mistake or fraud), and Section 31 of the
Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to
patently unlawful acts of the corporation, among others) require factual foundations to be first laid
out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties
as an officer and member of the Board of Directors of the UCPB without competent evidence
thereon would be unwarranted and unreasonable. The thrust of the Republic that the funds were
borrowed or lent might even preclude any consequent trust implication but is more inclined to be a
contract of loan. To say that a relationship is fiduciary when existing laws do not provide for such
requires evidence that confidence is reposed by one party in another who exercises dominion and
influence. Absent any special facts and circumstances proving a higher degree of responsibility, any
dealings between a lender and borrower are not fiduciary in nature.

RAMON A. GONZALES vs. THE PHILIPPINE NATIONAL BANK

G.R. No. L-33320 May 30, 1983

FACTS: Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of
Manila a special civil action for mandamus against the herein respondent praying that the
latter be ordered to allow him to look into the books and records of the respondent bank in
order to satisfy himself as to the truth of the published reports that the respondent has
guaranteed the obligation of Southern Negros Development Corporation in the purchase of
a US$ 23 million sugar-mill to be financed by Japanese suppliers and financiers; that the
respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the
Honiron Philippines, Inc., as well as to inquire into the validity of Id transactions. The
petitioner has alleged hat his written request for such examination was denied by the
respondent. The trial court having dismissed the petition for mandamus, the instant appeal
to review the said dismissal was filed.

ISSUE: Whether or not the denial for the request of petitioner for inspection valid.

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RULING: YES. Although the petitioner has claimed that he has justifiable motives in seeking
the inspection of the books of the respondent bank, he has not set forth the reasons and
the purposes for which he desires such inspection, except to satisfy himself as to the truth
of published reports regarding certain transactions entered into by the respondent bank and
to inquire into their validity. The circumstances under which he acquired one share of stock
in the respondent bank purposely to exercise the right of inspection do not argue in favor of
his good faith and proper motivation. Admittedly he sought to be a stockholder in order to
pry into transactions entered into by the respondent bank even before he became a
stockholder. His obvious purpose was to arm himself with materials which he can use
against the respondent bank for acts done by the latter when the petitioner was a total
stranger to the same. He could have been impelled by a laudable sense of civic
consciousness, but it could not be said that his purpose is germane to his interest as a
stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to
be exercised by the petitioner would be violative of the provisions of its charter. The
Superintendent of Banks and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall not reveal to any person
other than the President of the Philippines, the Secretary of Finance, and the Board of
Directors the details of the inspection or investigation, nor shall they give any information
relative to the funds in its custody, its current accounts or deposits belonging to private
individuals, corporations, or any other entity, except by order of a Court of competent
jurisdiction. Any director, officer, employee, or agent of the Bank, who violates or permits
the violation of any of the provisions of this Act, or any person aiding or abetting the
violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten
thousand pesos or by imprisonment of not more than five years, or both such fine and
imprisonment.

The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is
not governed, as a rule, by the Corporation Code of the Philippines. The provision of Section
74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a
stockholder to demand an inspection or examination of the books of the corporation may
not be reconciled with the abovequoted provisions of the charter of the respondent bank.

ANTONIO PARDO vs. THE HERCULES LUMBER CO., INC., and IGNACIO FERRER
G.R. No. L-22442 August 1, 1924

FACTS: The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one of
the respondents herein, seeks by this original proceeding in the Supreme Court to obtain a writ
of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and
representative to examine the records and business transactions of said company. To this petition
the respondents interposed an answer, in which, after admitting certain allegations of the petition,
the respondents set forth the facts upon which they mainly rely as a defense to the petition. To this

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answer the petitioner in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.

ISSUE: Does the respondent have the right to deny inspection request by petitioner?

RULING: Yes. The general right given by the statute may not be lawfully abridged to the extent
attempted in this resolution. It may be admitted that the officials in charge of a corporation may
deny inspection when sought at unusual hours or under other improper conditions; but neither the
executive officers nor the board of directors have the power to deprive a stockholder of the right
altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities to
this effect are too numerous and direct to require extended comment. Under a statute similar to our
own it has been held that the statutory right of inspection is not affected by the adoption by the
board of directors of a resolution providing for the closing of transfer books thirty days before an
election.

It will be noted that our statute declares that the right of inspection can be exercised "at reasonable
hours." This means at reasonable hours on business days throughout the year, and not merely during
some arbitrary period of a few days chosen by the directors. In addition to relying upon the by-law,
to which reference is above made, the answer of the respondents calls in question the motive which
is supposed to prompt the petitioner to make inspection; and in this connection it is alleged that the
information which the petitioner seeks is desired for ulterior purposes in connection with a
competitive firm with which the petitioner is alleged to be connected. It is also insisted that one of
the purposes of the petitioner is to obtain evidence preparatory to the institution of an action which
he means to bring against the corporation by reason of a contract of employment which once
existed between the corporation and himself. These suggestions are entirely apart from the issue,
as, generally speaking, the motive of the shareholder exercising the right is immaterial.

W. G. PHILPOTTS vs. PHILIPPINE MANUFACTURING COMPANY AND F. N. BERRY

G.R. No. 15568, November 08, 1919

FACTS: W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the

respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the
respondents to permit the plaintiff, in person or by some authorized agent or attorney, to inspect
and examine the records of the business transacted by said company since January 1, 1918. The
petition is filed originally in this court under the authority of section 515 of the Code of Civil
Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in
cases, among others, where any corporation or person unlawfully excludes the plaintiff from the use
and enjoyment of some right to which he is entitled. The respondents interposed a demurrer, and
the controversy is now before us for the determination of the questions thus presented.

ISSUE: Whether or not the right to inspect records and transactions of the corporation is permitted.

RULING: Yes. Now it is our opinion, and we accordingly hold, that the right of inspection given to a
stockholder in the provision above quoted can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without the attendance of the stockholder. This
is in conformity with the general rule that what a man may do in person he may do through another;

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and we find nothing in the statute that would justify us in qualifying the right in the manner
suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it is
generally held that the provisions of law conceding the right of inspection to stockholders of
corporations are to be liberally construed and that said right may be exercised through any other
properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be
regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and
examination may be made by another.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable
to say that there are some things which a corporation may undoubtedly keep secret,
notwithstanding the right of inspection given by law to the stockholder; as for instance, where a
corporation, engaged in the business of manufacture, has acquired a formula or process, not
generally known, which has proved of utility to it in the manufacture of its products. It is not our
intention to declare that the authorities of the corporation, and more particularly the Board of
Directors, might not adopt measures for the protection of such process form publicity. There is,
however, nothing in the petition which would indicate that the petitioner in this case is seeking to
discover anything which the corporation is entitled to keep secret; and if anything of the sort is
involved in the case it may be brought out at a more advanced stage of the proceeding.

MERGER AND CONSOLIDATION

SME Bank, Inc. vs. De Guzman

707 SCRA 35, October 8, 2013

FACTS: SME Bank experienced financial difficulties. To remedy the situation, the bank officials
proposed its sale to Abelardo Samson. Negotiations ensued, Letter Agreements were sent to
Agustin and De Guzman, the principal shareholders and corporate directors of the bank, conditioning
that it shall guarantee the peaceful turnover of all assets as well as the peaceful transition of
management of the bank and shall terminate/retire the employees they mutually agree upon, upon
transfer of shares in favor of groups nominees; and all retirement benefits, if any of the above
officers/ stockholders/ board of directors are waived upon consummation of the sale. The retirement
benefits of the rank and file employees including the managers are to be honored by the new
management. Thereafter, the Letter Agreement was accepted.

Agustin and De Guzman signified their conformity to the Letter Agreements and sold 86.365% of the
shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson then became
the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president. As
it turned out, respondent employees, except for Simeon, Jr., were not rehired.

Respondent-employees demanded the payment of their respective separation pays, but their
requests were denied. The labor arbiter ruled that the buyer of an enterprise is not bound to absorb
its employees, unless there is an express stipulation to the contrary. However, he also found that
respondent employees were illegally dismissed, because they had involuntarily executed their
resignation letters after relying on representations that they would be given their separation

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benefits and rehired by the new management. The NLRC found that there was only a mere transfer
of shares and therefore, a mere change of management. As the change of management was not a
valid ground to terminate respondent bank employees, the NLRC ruled that they had indeed been
illegally dismissed.

ISSUE: Whether there was a transfer of business establishment

RULING: No. Contrary to petitioner bank’s argument, there was no transfer of the business
establishment to speak of, but merely a change in the new majority shareholders of the corporation.

There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the
corporate entity sells all or substantially all of its assets60 to another entity. In stock sales, the
individual or corporate shareholders61 sell a controlling block of stock to new or existing
shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees,
but is liable for the payment of separation pay under the law. The buyer in good faith, on the other
hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment of
their claims. The most that it may do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling firm.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity. Thus, notwithstanding the stock sale,
the corporation continues to be the employer of its people and continues to be liable for the
payment of their just claims. Furthermore, the corporation or its new majority shareholders are not
entitled to lawfully dismiss corporate employees absent a just or authorized cause.

In the case at bar, the Letter Agreements show that their main object is the acquisition by the
Samson Group of 86.365% of the shares of stock of SME Bank. Hence, this case involves a stock sale,
whereby the transferee acquires the controlling shares of stock of the corporation. Thus, following
the rule in stock sales, respondent employees may not be dismissed except for just or authorized
causes under the Labor Code.

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION vs. ANDRADA
ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936. April 17, 2002

FACTS: In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and principal place
of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant [herein
petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government corporation
duly organized, existing and operating under the laws of the Philippines, with office and principal
place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National
Sugar Development Corporation (NASUDECO in brief), is also a semi-government corporation and
the sugar arm of the PNB, with office and principal place of business at the 2 nd Floor, Sampaguita

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Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a
corporation organized, existing and operating under the 1975 laws of the Philippines, and had its
business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in
the business of general construction for the repairs and/or construction of different kinds of
machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP)
under LOI No. 311; that the defendant PNB organized the defendant NASUDECO in September, 1975,
to take ownership and possession of the assets and ultimately to nationalize and consolidate its
interest in other PNB controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL
engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid
by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on
October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract, that aside from
the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra
work, and provide electrical equipment and spare parts, that out of the total obligation
of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of
June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the
PNB, a machine copy of which is appended as Annex C of the complaint; that out of said unpaid
balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff
of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974,
leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and
now the defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and
demandable obligation; that the President of the NASUDECO is also the Vice-President of the PNB,
and this official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this
official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant
PNB and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these
defendants all benefited from the works, and the electrical, as well as the engineering and repairs,
performed by the plaintiff; that because of the failure and refusal of the defendants to pay their just,
valid, and demandable obligations, plaintiff suffered actual damages in the total amount
of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to engage the
professional services of counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the
amount of the obligation due by way of attorneys fees.

ISSUE: Whether or not PNB should be held liable for the corporate debts of PASUMIL

RULING: As a rule, a corporation that purchases the assets of another will not be liable for the debts
of the selling corporation, provided the former acted in good faith and paid adequate consideration
for such assets, except when any of the following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in

A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation. A merger, on the other hand, is a union whereby one or more existing
corporations are absorbed by another corporation that survives and continues the combined
business. The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express provision
of law authorizing them. For a valid merger or consolidation, the approval by the Securities and

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Exchange Commission (SEC) of the articles of merger or consolidation is required. These articles
must likewise be duly approved by a majority of the respective stockholders of the constituent
corporations.

In the case at bar, there is no merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code was not followed. In fact, PASUMILs
corporate existence, as correctly found by the CA, had not been legally extinguished or terminated.
Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to respondent for the formers obligation in the amount of P777,263.80. As of June 27,
1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974,
another P14,000. Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL
to respondent. LOI No. 11 explicitly provides that PNB shall study and submit recommendations on
the claims of PASUMILs creditors. Clearly, the corporate separateness between PASUMIL and PNB
remains, despite respondents insistence to the contrary.

POLIAND INDUSTRIAL LIMITED vs. NATIONAL DEVELOPMENT COMPANY

G.R. No. 143866. August 22, 2005

FACTS: Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a
Hong Kong corporation, extended credit accommodations in favor of GALLEON totaling
US$3,317,747.32.2 At that time, GALLEON, a domestic corporation organized in 1977 and
headed by its president, Roberto Cuenca, was engaged in the maritime transport of goods.
The advances were utilized to augment GALLEON’s working capital depleted as a result of
the purchase of five new vessels and two second-hand vessels in 1979 and competitiveness
of the shipping industry. GALLEON had incurred an obligation in the total amount of
US$3,391,084.91 in favor of Asian Hardwood.

To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders,
namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979,
GALLEON, through Cuenca, and DBP executed a Deed of Undertaking3 whereby DBP
guaranteed the prompt and punctual payment of GALLEON’s borrowings from the Japanese
lenders. To secure DBP’s guarantee under the Deed of Undertaking, GALLEON promised,
among others, to secure a first mortgage on the five new vessels and on the second-hand
vessels. Thus, GALLEON executed on January 25, 1982 a mortgage contract over five of its
vessels namely, M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon Dignity," M/V
"Galleon Pride," and M/V "Galleon Trust" in favor of DBP.4

Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction
(LOI) No. 1155, directing NDC to acquire the entire shareholdings of GALLEON for the
amount originally contributed by its shareholders payable in five (5) years without interest
cost to the government. In the same LOI, DBP was to advance to GALLEON within three
years from its effectivity the principal amount and the interest thereon of GALLEON’s
maturing obligations.

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On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented
by Minister of Trade Roberto Ongpin, forged a Memorandum of Agreement,5 whereby NDC
and GALLEON agreed to execute a share purchase agreement within sixty days for the
transfer of GALLEON’s shareholdings. Thereafter, NDC assumed the management and
operations of GALLEON although Cuenca remained president until May 9, 1982.6 Using its
own funds, NDC paid Asian Hardwood on January 15, 1982 the amount of US$1,000,000.00
as partial settlement of GALLEON’s obligations.7

On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on
the five vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP,
the vessels were extrajudicially foreclosed on various dates and acquired by DBP for the
total amount of ₱539,000,000.00. DBP subsequently sold the vessels to NDC for the same
amount. The Board of Directors of GALLEON amended the Articles of Incorporation
changing the corporate name from Galleon Shipping Corporation to National Galleon
Shipping Corporation and increasing the number of directors from seven to nine.

Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of
US$2,315,747.32 to World Universal Trading and Investment Company, S.A. (World
Universal), embodied in a Deed of Assignment executed on April 29, 1989. World Universal, in
turn, assigned the credit to petitioner POLIAND sometime in July 1989.

On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC
and Philippine Export and Foreign Loan Guarantee Corporation (now Trade and Investment
Development Corporation of the Philippines) to transfer some of their assets to the National
Government, through the Asset Privatization Trust (APT) for disposition. Among those
transferred to the APT were the five GALLEON vessels sold at the foreclosure proceedings.

On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for
the satisfaction of the outstanding balance in the amount of US$2,315,747.32. For failure to
heed the demand, POLIAND instituted a collection suit against NDC, DBP and GALLEON filed
on October 10, 1991 with the Regional Trial Court, Branch 61, Makati City. POLIAND claimed
that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and NDC,
defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the
rights of the credit advances/loan accommodations to GALLEON. POLIAND also claimed that
it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of
GALLEON’s vessels mortgaged by NDC to DBP. The complaint prayed for judgment ordering
NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance of the credit
advances/loan accommodations in the amount of US$2,315,747.32 and attorney’s fees of
₱100,000.00 plus 20% of the amount recovered. By way of an alternative cause of action,
POLIAND sought reimbursement from NDC and DBP for the preferred maritime lien of
US$1,193,298.56.

In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any
of the alleged loan transactions. Accordingly, DBP argued that POLIAND’s complaint stated

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no cause of action against DBP or was barred by the Statute of Frauds because DBP did not
sign any memorandum to act as guarantor for the alleged credit advances/loan
accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155,
which it described as immoral and unconstitutional, since it was rescinded by LOI No. 1195.
By way of its Affirmative Allegations and Defenses, DBP countered that it was unaware of the
maritime lien on the five vessels mortgaged in its favor and that as far as GALLEON’s foreign
borrowings are concerned, DBP agreed to act as guarantor thereof only under the
conditions laid down under the Deed of Undertaking. DBP prayed for the award of actual,
moral and exemplary damages and attorney’s fees against POLIAND as compulsory
counterclaim. In the event that it be adjudged liable for the payment of the loan
accommodations and the maritime liens, DBP prayed that its co-defendant GALLEON be
ordered to indemnify DBP for the full amount.

For its part, NDC denied any participation in the execution of the loan
accommodations/credit advances and acquisition of ownership of GALLEON, asserting that
it acted only as manager of GALLEON. NDC specifically denied having agreed to the
assumption of GALLEON’s liabilities because no purchase and sale agreement was executed
and the delivery of the required shares of stock of GALLEON did not take place.

ISSUE: Is the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in GALLEON
without disregarding applicable statutory requirements governing the acquisition of a
corporation.

RULING: Ordinarily, in the merger of two or more existing corporations, one of the
combining corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are acquired by the surviving
corporation. The merger shall only be effective upon the issuance of a certificate of merger
by the Securities and Exchange Commission (SEC), subject to its prior determination that the
merger is not inconsistent with Corporation Code. The Court cannot accept POLIAND’s
theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in
GALLEON without disregarding applicable statutory requirements governing the acquisition
of a corporation. Ordinarily, in the merger of two or more existing corporations, one of the
combining corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are acquired by the surviving
corporation. The merger, however, does not become effective upon the mere agreement of
the constituent corporations. As specifically provided under Section 79 of said Code, the
merger shall only be effective upon the issuance of a certificate of merger by the Securities
and Exchange Commission (SEC), subject to its prior determination that the merger is not
inconsistent with the Code or existing laws. Where a party to the merger is a special
corporation governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained. The
issuance of the certificate of merger is crucial because not only does it bear out SEC’s
approval but also marks the moment whereupon the consequences of a merger take place.
By operation of law, upon the effectivity of the merger, the absorbed 4 corporation ceases

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to exist but its rights, and properties as well as liabilities shall be taken and deemed
transferred to and vested in the surviving corporation.

BPI vs. BPI Employees

G.R. No. 164301 October 19, 2011

FACTS: In 2000, Far East Bank and trust Company (FEBTC) merged with Bank of the
Philippine Islands. Petitioner had a Union Shop agreement with respondent BPI Employees
Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).Pursuant to the
merger, respondent requested BPI to terminate the employment of those new employees
from FEBTC who did not join the union.

BPI refused to undertake such action and brought the controversy before a voluntary
arbitrator. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position
was rejected by the Court of Appeals which ruled that the Voluntary Arbitrators
interpretation of the Union Shop Clause was at war with the spirit and rationale why the
Labor Code allows the existence of such provision.

This was followed and affirmation by the Supreme Court of the CA decision holding that
former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI
pursuant to the two banks merger. The absorbed employees were covered by the Union
Shop Clause in the then existing collective bargaining agreement (CBA)of BPI with
respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the
Union). Petitioners, despite the August 2010 decision moved for a Motion for
reconsideration of the decision.

ISSUE: Should the "absorbed" FEBTC employees fall within the definition of "new
employees" under the Union Shop Clause, such that they may be required to join
respondent union or suffer termination upon request by the union?

RULING: The court agreed with Justice Brions view that it is more in keeping with the
dictates of social justice and the State policy of according full protection to labor to deem
employment contracts as automatically assumed by the surviving corporation in a merger,
without break in the continuity of their employment, and even in the absence of an express
stipulation in the articles of merger or the merger plan.

Bank of Commerce vs. RPN

G.R. No. 195615, April 21, 2004

FACTS: The Traders Royal Bank proposed to sell to petitioner Bank of Commerce for P10.4 billion its
banking business consisting of specified assets and liabilities. Bank of commerce agreed subject to
prior Bangko Sentral ng Pilipinas' approval of their Purchase and Assumption Agreement. On
November 8, 2001 the BSP approved that agreement subject to the condition that Bank of

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commerce and TRB would set up an escrow fund of PSO million with another bank to cover TRB
liabilities for contingent claims that may subsequently be adjudged against it, which liabilities were
excluded from the purchase. Bank of commerce entered into a P & A Agreement with TRB and
acquired its specified assets and liabilities, excluding liabilities arising from judicial actions which
were to be covered by the BSP-mandated escrow of P50 million. To comply with the BSP mandate,
on December 6, 2001 TRB placed P50 million in escrow with Metropolitan Bank and Trust Co. to
answer for those claims and liabilities that were excluded from the P & A Agreement and remained
with TRB. In 2002, acting in G.R. 138510, Traders Royal Bank v. Radio Philippines Network, Inc., this
Court ordered TRB to pay respondents RPN, Intercontinental Broadcasting Corporation, and
Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual damages of P9,790,716.87 plus
12% legal interest and some amounts. Based on this decision, RPN, et al. filed a motion for execution
against TRB before the Regional Trial Court of Quezon City. But rather than pursue a levy in
execution of the corresponding amounts on escrow with Metrobank, RPN, et al. filed a Supplemental
Motion for Execution where they described TRB as "now Bank of Commerce" based on the
assumption that TRB had been merged into Bank of commerce. Bank of commerce filed its Special
Appearance with Opposition to the same questioning the jurisdiction of the RTC over Bank of
commerce and denying that there was a merger between TRB and Bank of commerce.

ISSUE: Did a merger or de facto merger exist?

RULING: Merger is a re-organization of two or more corporations that results in their consolidating
into a single corporation, which is one of the constituent corporations, one disappearing or
dissolving and the other surviving. To put it another way, merger is the absorption of one or more
corporations by another existing corporation, which retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s).
The absorbing corporation continues its existence while the life or lives of the other corporation(s) is
or are terminated. The Corporation Code requires the following steps for merger or consolidation:

(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must
include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or
in case of consolidation, all the statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting
must be called and at least two (2) weeks’ notice must be sent to all stockholders or members,
personally or by registered mail. A summary of the plan must be attached to the notice. Vote of two-
thirds of the members or of stockholders representing two thirds of the outstanding capital stock
will be needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by
the corporate officers of each constituent corporation. These take the place of the articles of
incorporation of the consolidated corporation, or amend the articles of incorporation of the
surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation. Indubitably, it is clear that no merger took
place between Bank of commerce and TRB as the requirements and procedures for a merger were
absent.

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A merger does not become effective upon the mere agreement of the constituent corporations. All
the requirements specified in the law must be complied with in order for merger to take effect.
Section 79 of the Corporation Code further provides that the merger shall be effective only upon the
issuance by the Securities and Exchange Commission (SEC) of a certificate of merger. Here, Bank of
commerce and TRB remained separate corporations with distinct corporate personalities. What
happened is that TRB sold and Bank of commerce purchased identified recorded assets of TRB in
consideration of Bank of commerce’s assumption of identified recorded liabilities of TRB including
booked contingent accounts. There is no law that prohibits this kind of transaction especially when it
is done openly and with appropriate government approval. Indeed, the dissenting opinions of
Justices Jose Catral Mendoza and Marvic Mario Victor F. Leonen are of the same opinion. In strict
sense, no merger or consolidation took place as the records do not show any plan or articles of
merger or consolidation. More importantly, the SEC did not issue any certificate of merger or
consolidation.

The idea of a de facto merger came about because, prior to the present Corporation Code, no law
authorized the merger or consolidation of Philippine Corporations, except insurance companies,
railway corporations, and public utilities. And, except in the case of insurance corporations, no
procedure existed for bringing about a merger. Still, the Supreme Court held in Reyes v. Blouse, that
authority to merge or consolidate can be derived from Section 28½ (now Section 40) of the former
Corpora=on Law which provides, among others, that a corporation may "sell, exchange, lease or
otherwise dispose of all or substantially all of its property and assets" if the board of directors is so
authorized by the affirmative vote of the stockholders holding at least two-thirds of the voting
power. The words "or otherwise dispose of," according to the Supreme Court, is very broad and in a
sense, covers a merger or consolidation. No de facto merger took place in the present case simply
because the TRB owners did not get in exchange for the bank’s assets and liabilities an equivalent
value in Bank of commerce shares of stock. Bank of commerce and TRB agreed with BSP approval to
exclude from the sale the TRB’s contingent judicial liabilities, including those owing to RPN, et al.

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION, vs. EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO
BANTUAS, in his capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the
REGISTER OF DEEDS of Cagayan de Oro City
G.R. No. 178618 October 11, 2010

FACTS: Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation. The articles of merger were not registered with the SEC due to incomplete
documentation. The business of MSLAI, however, failed. Hence, the Monetary Board of the Central
Bank of the Philippines ordered its closure and placed it under receivership per Monetary Board
Resolution No. 922 dated August 31, 1990.

It appears that prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an action for
collection of sum of money against FISLAI.. A writ of execution was thereafter issued. On April 28,
1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro
City. During the public auction, Willkom was the highest bidder. Upon the expiration of the
redemption period, sheriff Bantuas issued the sheriff’s definite deed of sale. On September 20, 1994,
Willkom sold one of the subject parcels of land to Go.

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On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC of Cagayan de Oro City, a
complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties
against respondents. MSLAI alleged that the execution of the RTC decision was illegal and contrary
to law and jurisprudence, not only because PDIC was not notified of the execution sale, but also
because the assets of an institution placed under receivership or liquidation such as MSLAI should be
deemed in custodia legis and should be exempt from any order of garnishment, levy, attachment, or
execution.

In answer, respondents averred that MSLAI had no cause of action against them or the right to
recover the subject properties because MSLAI is a separate and distinct entity from FISLAI. They
further contended that the "unofficial merger" between FISLAI and DSLAI did not take effect
considering that the merging companies did not comply with the formalities and procedure for
merger or consolidation as prescribed by the Corporation Code of the Philippines.

ISSUE: Whether or not the merger between FISLAI and DSLAI (now MSLAI) valid and effective

RULING: NO. The steps necessary to accomplish a merger or consolidation, as provided for in
Sections 76, 77, 78, and 79 of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must
include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or
in case of consolidation, all the statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting
must be called and at least two (2) weeks’ notice must be sent to all stockholders or members,
personally or by registered mail. A summary of the plan must be attached to the notice. Vote of two-
thirds of the members or of stockholders representing two-thirds of the outstanding capital stock
will be needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by
the corporate officers of each constituent corporation. These take the place of the articles of
incorporation of the consolidated corporation, or amend the articles of incorporation of the
surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC,
subject to its prior determination that the merger is not inconsistent with the Corporation Code or
existing laws.

In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not
registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue the
required certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the
Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such
merger is still incomplete without the certification.

The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval
but it also marks the moment when the consequences of a merger take place. By operation of law,
upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and

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properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation.

COMMISSIONER OF INTERNAL REVENUE v. LA TONDENA DISTILLERS, INC.

G.R. No. 175188 July 15, 2015

FACTS: La Tondeña Distillers, Inc. entered into a Plan of Merger with Sugarland Beverage
Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation (MBWC). As a
result of the merger, the assets and liabilities of the absorbed corporations were transferred to
respondent, the surviving corporation. Respondent later changed its corporate name to Ginebra San
Miguel, Inc. (GSMI).

Respondent requested for a confirmation of the tax-free nature of the said merger from the Bureau
of Internal Revenue (BIR). BIR issued a ruling stating that pursuant to Section 40(C)(2) and (6)(b) of
the 1997 National Internal Revenue Code (NIRC), no gain or loss shall be recognized by the absorbed
corporations as transferors of all assets and liabilities. However, the transfer of assets, such as real
properties, shall be subject to DST imposed under Section 196 of the NIRC.

Claming that it is exempt from paying DST, respondent filed with petitioner Commissioner of Internal
Revenue (CIR) an administrative claim for tax refund or tax credit. The CTA 2nd division rendered a
Decision finding respondent entitled to its claim for tax refund or tax credit Unfazed, petitioner
elevated the matter to the CTA En Banc via a Petition for Review. In its decision, it finds that no
reversible error on the part of the 2nd Division of the CTA in granting respondent’s claim for tax
refund or tax credit.

ISSUE: Is the respondent liable for DST?

RULING: NO. It should be emphasized that in the instant case, the transfer of SPPC’s real property to
respondent was pursuant to their approved plan of merger. In a merger of two existing
corporations, one of the corporations survives and continues the business, while the other is
dissolved, and all its rights, properties, and liabilities are acquired by the surviving corporation.
Although there is a dissolution of the absorbed or merged corporations, there is no winding up of
their affairs or liquidation of their assets because the surviving corporation automatically acquires all
their rights, privileges, and powers, as well as their liabilities. Here, SPPC ceased to have any legal
personality and respondent PSPC stepped into everything that was SPPC’s, pursuant to the law and
the terms of their Plan of Merger.

Pertinently, a merger of two corporations produces the following effects, among others: Sec. 80.
Effects of merger or consolidation: 4. The surviving or the consolidated corporation shall thereupon
and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever account,
including subscriptions to shares and other choses in action, and all and every other interest of, or
belonging to, or due to each constituent corporations, shall be taken and deemed to be transferred
to and vested in such surviving or consolidated corporation without further act or deed;

In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter
could not be considered as "purchaser" of realty since the real properties subject of the merger were

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merely absorbed by the surviving corporation by operation of law and these properties are deemed
automatically transferred to and vested in the surviving corporation without further act or deed.
Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger is not
subject to documentary stamp tax. As stated at the outset, documentary stamp tax is imposed only
on all conveyances, deeds, instruments or writing where realty sold shall be conveyed to a purchaser
or purchasers. The transfer of SPPC’s real property to respondent was neither a sale nor was it a
conveyance of real property for a consideration contracted to be paid as contemplated under
Section 196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and respondent is not
liable for documentary stamp tax.

THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION v. UNOCAL PHILIPPINES, INC.

(NOW KNOWN AS CHEVRON GEOTHERMAL PHILIPPINES HOLDINGS, INC.)
G.R. No. 190187, September 28, 2016

FACTS: Philippine Geothermal, Inc. Employees Union is a legitimate labor union that stands as the
bargaining agent of the rank-and-file employees of Unocal Philippines.

On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger
Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger).
Blue Merger is a wholly owned subsidiary of Chevron. Under the Merger Agreement, Unocal
Corporation merged with Blue Merger, and Blue Merger became the surviving corporation. Chevron
then became the parent corporation of the merged corporations. After the merger, Blue Merger, as
the surviving corporation, changed its name to Unocal Corporation. On January 31, 2006, Unocal
Philippines executed a Collective Bargaining Agreement with the Union.

However, on October 20, 2006, the Union wrote Unocal Philippines asking for the separation
benefits provided for under the Collective Bargaining Agreement. According to the Union, the
Merger Agreement of Unocal Corporation, Blue Merger, and Chevron resulted in the closure and
cessation of operations of Unocal Philippines and the implied dismissal of its employees. Unocal
Philippines refused the Union's request and asserted that the employee-members were not
terminated and that the merger did not result in its closure or the cessation of its operations.

As Unocal Philippines and the Union were unable to agree, they decided to submit the matter to the
Department of Labor and Employment's Administrative Intervention for Dispute Avoidance
Program.17 However, they were unable to arrive at "a mutually acceptable agreement."

ISSUE: What are the effects of this merger on respondent's employees

RULING: The Court finds that, whether or not respondent is a party to the Merger Agreement, there
is no implied dismissal of its employees as a consequence of the merger.

A merger is a consolidation of two or more corporations, which results in one or more corporations
being absorbed into one surviving corporation. The separate existence of the absorbed corporation
ceases, and the surviving corporation "retains its identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and obligations of the absorbed corporation(s)."

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If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal
Corporation, then the merger of Unocal Corporation with Blue Merger and Chevron does not affect
respondent or any of its employees. Respondent has a separate and distinct personality from its
parent corporation. Nonetheless, if respondent is indeed a party to the merger, the merger still does
not result in the dismissal of its employees.

The effects of a merger are provided under Section 80 of the Corporation Code.

Although this provision does not explicitly state the merger's effect on the employees of the
absorbed corporation, Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-
Federation of Unions in BPI Unibank has ruled that the surviving corporation automatically assumes
the employment contracts of the absorbed corporation, such that the absorbed corporation's
employees become part of the manpower complement of the surviving corporation. The rationale
for this ruling is anchored on the nature and effects of a merger as provided under Section 80 of the
Corporation Code, as well as the policies on work and labor enshrined in the Constitution. To
reiterate, Section 80 of the Corporation Code provides that the surviving corporation shall possess
all the rights, privileges, properties, and receivables due of the absorbed corporation. Moreover, all
interests of, belonging to, or due to the absorbed corporation "shall be taken and deemed to be
transferred to and vested in such surviving or consolidated corporation without further act or deed."
The surviving corporation likewise acquires all the liabilities and obligations of the absorbed
corporation as if it had itself incurred these liabilities or obligations.

This acquisition of all assets, interests, and liabilities of the absorbed corporation necessarily includes
the rights and obligations of the absorbed corporation under its employment contracts.
Consequently, the surviving corporation becomes bound by the employment contracts entered into
by the absorbed corporation. These employment contracts are not terminated. They subsist unless
their termination is allowed by law.

The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied
termination of the employment of petitioner's members. Assuming respondent is a party to the
merger, its employment contracts are deemed to subsist and continue by "the combined operation
of the Corporation Code and the Labor Code under the backdrop of the labor and social justice
provisions of the Constitution." Hence, assuming respondent is a party to the merger, the merger
still does not operate to effect a termination of the employment of respondent's employees. Should
they be unhappy with the surviving corporation, the employees may retire or resign from
employment.

In this case, there is no dismissal of the employees on account of the merger. Petitioner does not
deny that respondent actually continued its normal course of operations after the merger, and that
its members, as employees, resumed their work with their tenure, salaries, wages, and other
benefits intact. Petitioner was even able to execute with respondent, after the merger, the Collective
Bargaining Agreement from which it anchors its claims. Given these circumstances, petitioner is not
entitled to separation pay. Although the policy of the state is to rule in favor of labor in light of the
social justice provisions under the Constitution, this Court cannot unduly trample upon the rights of
management, which are likewise entitled to respect in the interest of fair play.

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 CHESTER BABST vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL
CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL CORPORATION
G.R. No. 99398 & 104625 January 26, 2001

FACTS: The complaint was commenced principally to enforce payment of a promissory note and
three domestic letters of credit which Elizalde Steel Consolidated, Inc. (ELISCON) executed and
opened with the Commercial Bank and Trust Company (CBTC). On June 8, 1973, ELISCON obtained
from CBTC a loan in the amount of P 8,015,900.84, with interest at the rate of 14% per annum,
evidenced by a promissory note. ELISCON defaulted in its payments, leaving an outstanding
indebtedness in the amount of P2,795,240.67 as of October 31, 1982.

The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities
of Pacific Multi-Commercial Corporation (MULTI) with the said bank, pursuant to the Resolution of
the Board of Directors of MULTI adopted on August 31, 1977. Subsequently, on September 26, 1978,
Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, whereby they bound
themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the
extent of P8,000,000.00 each.

ISSUE: Whether or not BPI consent to the assumption by DBP of the obligations of ELISCON.

RULING: YES. Indeed, there exist clear indications that BPI was aware of the assumption by DBP of
the obligations of ELISCON. In fact, BPI admits that the Development Bank of the Philippines (DBP),
for a time, had proposed a formula for the settlement of Eliscon's past obligations to its creditors,
including the plaintiff [BPI], but the formula was expressly rejected by the plaintiff as not acceptable
(long before the filing of the complaint at bar).

Indeed, the authority granted by BPI to its account officer to attend the creditors' meeting was an
authority to represent the bank, such that when he failed to object to the substitution of debtors, he
did so on behalf of and for the bank. Even granting arguendo that the said account officer was not so
empowered, BPI could have subsequently registered its objection to the substitution, especially after
it had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its
failure to do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations.
As repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment
formula, not to the substitution itself.

BPI gives no cogent reason in withholding its consent to the substitution, other than its desire to
preserve its causes of action and legal recourse against the sureties of ELISCON. It must be
remembered, however, that while a surety is solidarily liable with the principal debtor, his obligation
to pay only arises upon the principal debtor's failure or refusal to pay.

In the case at bar, there was no indication that the principal debtor will default in payment. In fact,
DBP, which had stepped into the shoes of ELISCON, was capable of payment. Its authorized capital
stock was increased by the government. More importantly, the National Development Company
took over the business of ELISCON and undertook to pay ELISCON's creditors, and earmarked for
that purpose the amount of P4,015,534.54 for payment to BPI. The original obligation having been
extinguished, the contracts of suretyship executed separately by Babst and MULTI, being accessory
obligations, are likewise extinguished.

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ASSOCIATED BANK vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL
BANK
G.R. No. 107382/G.R. No. 107612 January 31, 1996

FACTS: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB)
Tarlac Branch where the provincial funds are deposited. Checks issued by the Province are signed by
the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the
Sangguniang Bayan. A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital. The allotment checks for said government hospital are drawn to the order of "Concepcion
Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital,
Concepcion, Tarlac." The checks are released by the Office of the Provincial Treasurer and received
for the hospital by its administrative officer and cashier.

In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial
Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by
the Province. On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to
return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of
their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks
amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting
as collecting bank.

It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee
hospital until his retirement on February 28, 1978, collected the questioned checks from the office of
the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of
the checks and had official receipts. Pangilinan sought to encash the first check with Associated
Bank.

ISSUE: Whether or not there is merger in this case.

RULING: YES. Ordinarily, in the merger of two or more existing corporations, one of the combining
corporations survives and continues the combined business, while the rest are dissolved and all their
rights, properties and liabilities are acquired by the surviving corporation. Although there is
dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their
assets, because the surviving corporation automatically acquires all their rights, privileges and
powers, as well as their liabilities.

The merger, however, does not become effective upon the mere agreement of the constituent
corporations. The procedure to be followed is prescribed under the Corporation Code. Section 79 of
said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of
merger which, in turn, must have been duly approved by a majority of the respective stockholders of
the constituent corporations. The effectivity date of the merger is crucial for determining when the
merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as
liabilities pass on to the surviving corporation.

Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger,
which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered
into, provided that its effectivity "shall, for all intents and purposes, be the date when the necessary

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papers to carry out this merger shall have been approved by the Securities and Exchange
Commission."

Alger Electric vs. Court of Appeals

GR No. L-34298, February 28, 1985

FACTS: Petitioner Alger Electric, Inc., was granted a legislative franchise for a period of fifty
(50) years from June 22, 1963 with the right, privilege, and authority to construct, maintain
and operate an electric light, heat, and power system for the generation and/or distribution
of electric light, heat, and/or power for sale within the municipalities of Sto. Tomas,
Damortis and Rosario, province of La Union, and in the municipality of Sison, province of
Pangasinan.

Respondent Northern Cement Corporation (Northern) and the National Power Corporation
(NPC) executed a contract for NPC to directly supply electric power to Northern's cement
plant located in Labayog, Sison, Pangasinan. As a result, the petitioner filed a petition for
prohibition with preliminary injunction against Northern and NPC in the Court of First
Instance of Manila. The petition alleged that the contract was patently illegal.

The appellate court sustained the position of respondent Northern and set aside the
questioned October 24, 1969 order of the trial court. It also ordered the trial court to act on
the respondent's motion to dismiss the case. The appellate court ruled that the Court of
First Instance of Manila did not have jurisdiction over the original complaint considering that
the act sought to be enjoined was to be performed in Sison, Pangasinan which is outside of
the court's territorial jurisdiction. It, therefore, held that the original "petition" could no
longer be amended otherwise it would be in violation of the legal prohibition of a complaint
not amendable in order to confer jurisdiction on the court in which it is filed, if the cause of
action originally set forth was not within The court's jurisdiction. This decision is now
challenged in this petition.

ISSUE: Whether or not Northern commit illegal acts when it entered into a contract with
NPC.

RULING: No. The Court have interpreted monopolistic claims of corporations, which want to
protect themselves through the exclusion of competitors and antagonistic parties, as
necessarily yielding to the higher claims of public interest. This interpretation is even more
called for when the exclusiveness is claimed on the basis of a public franchise.

Section 2 of Republic Act No. 3826 was obviously enacted to prevent the NPC from
distributing or selling electric power where petitioner Alger is already selling or is able to sell
its own self-generated electricity. In this case, Northern is a bulk purchaser of power. It had
never purchase's Alger's electricity before the suit was filed. It is not the usual consumer —
residential or commercial — for whom retail sales are Ideal. Exclusivity is given by law with

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the understanding that the company enjoying it is self-sufficient and capable of supplying
the needed service or product at moderate or reasonable prices. It would be against public
interest where the firm granted a monopoly is merely ail unnecessary conduit of electric
power, jacking up prices as a superfluous middleman or an inefficient producer which
cannot supply cheap electricity to power intensive industries. It is in the public interest when
industries dependent on the heavy use of electricity are given reliable and direct power at
the lowest costs thus enabling the sale of nationally marketed products at prices within the
reach of the masses. Applying the above principles to the specific facts of this case,
Northern cannot be said to have committed an act void ab initio when it concluded the
questioned contract with NPC. Accordingly, the respondent corporation is not liable for
damages to the petitioner.

CIR vs. Norton and Harrison

G.R. No. L-17618. August 31, 1964

FACTS: Norton and Harrison is a corporation organized to buy and sell at wholesale and
retail all kinds of goods and merchandise. Jackbilt is also a corporation organized on for
producing concrete blocks. On 1948, the corporations entered into an agreement whereby
Norton was made the sole and exclusive distributor of concrete blocks manufactured by
Jackbilt. On 1949, Norton purchased all the outstanding shares of stock of Jackbilt. This
prompted the CIR to investigate and eventually asses Norton and Harrison for deficiency
sales tax and surcharges.

ISSUE: Whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co.,
merged the two corporations into a single corporation

RULING: The Court did not rule whether a merger took place but it ruled that Norton and
Jackbilt should be considered as one. Jackbilt's outstanding stocks, board of directors,
finance of operations, employees, and compensation are all controlled by Norton and
Harrison. Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison
and that the fiction of corporate entities, separate and distinct from each, should be
disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should
be made to apply.

By being separate entities, the corporations would have to pay lesser income tax. The
combined taxable Norton-Jackbilt income would subject Norton to a higher tax.

CIR vs RUFINO

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 G.R. Nos. L-33665-68 February 27, 1987

FACTS: Private respondents were majority stockholders of the defunct Eastern Theatrical INC Co., a
corporation organized in 1934 for a period of 25 years termination on Ja. 25, 1959. It had an original
capital stock of P 500K which was increased in 1949 to P 2 million and was organized to engage in the
business of operating theaters, opera houses, places of amusement and other related business and
enterprises, more particularly the Lyric and Capitol Theaters in Manila. The president of the
corportation (OLD CORP) during the year in question was Ernesto Rufino.

The same private respondents are also the majority and controlling stockholders of another
corporation, the Eastern Theatrical Co which was organized on Dec. 8, 1958, for a term of 50 years,
with authorized capital stock of P200K. The corporation is engaged in the same kind of business as
the OLD corporation.

In a special meeting of stockholders of the OLD corporation in Dec. 1958, a resolution was passed
authorizing the OLD corporation to merge with NEW corporation by transferring its business, assets,
good will and liabilities to the latter, which in exchange would issue and distribute to shareholders of
the OLD corporation one share for each share held by them in said corporation. It was expressly
declaring that the merger of the OLD CORP and NEW CORP was necessary to continue the exhibition
of moving pictures at the Lyric and Capitol even after expiration of the corporate existence of the
OLD CORP., in view of its pending booking contracts, not to mention its collecting bargaining
agreements with its employees.

Pursuant to said resolution, a deed of assignment providing the conveyance and transfer of the OLD
to the NEW CORP in exchange of the latter’s shares of stock to be distributed among the
shareholders on the basis of one stock for each stockholder held in the OLD corp. Thereafter, the
resolution was duly approved by the stockholders of the NEW CORP in special meeting in 1959. The
deed of assignment has retroactive effect on Jan. 1, 1959.

BIR examined later the series of transactions made by the private respondents. BIR averred that the
merger was not undertaken for a bonafide business purpose but merely to avoid liability for capital
gains tax on the exchange of the OLD CORP for the new shares of stock. Accordingly, CIR imposed
the deficiency assessments against the private respondents. Private respondents requested for
reconsideration, but it was denied.

Petitioner further posited that the deed of assignment concluded was intended merely to evade the
burden of taxation, the petitioner pointed out that the NEW CORP did not actually issue stocks in
exchange of the properties of the OLD CORP and that the exchange was only on the paper.
Consequently, as there was no merger, the automatic dissolution of the OLD CORP on its expiry date
resulted in its liquidation, for which the respondents are now liable in taxes on their capital gains.

ISSUE: Is the merger valid?

RULING: The Supreme Court ruled in the affirmative. In ruling so, the Court held that there was a
valid merger although the actual transfer of the properties subject of the deed of assignment was
not made on the date of the merger. In the nature of things, this was not possible. It was necessary
for the OLD Corporation to surrender its net assets first to the NEW CORP before the latter could
issue its own stock to the shareholders of the OLD CORP because the NEW CORP had to increase its

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capitalization for this purpose. The required adoption of the resolution to this effect at the special
meeting in 1959, the registration of such issuance with the SEC and approval by the body. All these
took place after the date of the merger, but they were deemed part and parcel of and indispensable
to the validity and enforceability of the deed of assignment. Thus, there was no impediment to the
exchange of of property for stock between the 2 corporations being considered to have been
effected on the date of merger and that in fact, was the intention and the reason why the deed of
assignment was made retroactive on Ja. 1, 1959. Such retroaction provided in effect all transactions
set forth in the merger agreement shall be deemed to be taking place simultaneously on Jan 1, 1959,
when the deed of assignment became operative.

Additionally, there was no indication that the scheme adopted by private respondents was to evade
tax burdens because it is clear that the purpose of the merger was to continue the business of the
OLD corp, whose corporate life was about to expire, thru the NEW corp. to which all assets and
obligations of the former had been transferred. The NEW CORP continues to do so today after taking
over the business of the OLD corp 27 years ago.

SOLID MANILA CORP. vs. BIO HONG TRADING CO.

G.R. No. 90596 April 8, 1991

FACTS: Solid Manila Corp. is the owner of a parcel of land located in Ermita. The same lies in the
vicinity of another parcel registered under Bio Hong Trading whose title came from a prior owner. In
the deed of sale between Bio Hong and the vendor, 900 sqm of the lot was reserved as an easement
of way. The construction of the private alley was annotated on Bio Hong’s title stating among other
things "(6) That the alley shall remain open at all times, and no obstructions whatsoever shall be
placed thereon; and (7) that the owner of the lot on which the alley has been constructed shall allow
the public to use the same, and allow the City to lay pipes for sewer and drainage purposes, and shall
not act (sic) for any indemnity for the use thereof”
The petitioner claims that ever since, it (along with other residents of neighboring estates) made use
of the above private alley and maintained and contributed to its upkeep, until sometime in 1983,
when, and over its protests, the private respondent constructed steel gates that precluded
unhampered use. On December 6, 1984, the petitioner commenced suit for injunction against the
private respondent, to have the gates removed and to allow full access to the easement.
The trial court ordered Bi Hong to open the gates but the latter argued that the easement has been
extinguished by merger in the same person of the dominant and servient estates upon the purchase
of the property from its former owner. CA reversed holding that an easement is a mere limitation on
ownership and that it does not impair the private respondent's title, and that since the private
respondent had acquired title to the property, "merger" brought about an extinguishment of the
easement.
Thus, Solid went to the SC alleging that the very deed of sale executed between the Bio Hong and
the previous owner of the property "excluded" the alley in question, and that in any event, the intent
of the parties was to retain the "alley" as an easement notwithstanding the sale. [While the case was
pending, Bio Hong asked the RTC to cancel the annotation in question, which it granted subject to
the final outcome of the prior case.]

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ISSUES: Whether or not easements may be alienated (sold) from the tenement or mortgaged
separately. Whether or not the easement had been extinguished by merger.
RULING: NO to both.
1) The sale included the alley. The court rejected Solid’s contention that the alley was not
included in the sale. It was included but there was a limitation on its use-the easement. As a mere
right of way, it cannot be separated from the tenement and maintain an independent existence. (Art.
617) Even though Bio Hong acquired ownership over the property –– including the disputed alley ––
as a result of the conveyance, it did not acquire the right to close that alley or otherwise put up
obstructions thereon and thus prevent the public from using it, because as a servitude, the alley is
supposed to be open to the public.
2) No genuine merger took place as a consequence of the sale in favor of the private
respondent corporation. According to the Civil Code, a merger exists when ownership of the
dominant and servient estates is consolidated in the same person. Merger requires full ownership of
both estates.
Note that The servitude in question is a personal servitude (established for the benefit of a
community, or of one or more persons to whom the encumbered estate does not belong). In a
personal servitude, there is therefore no "owner of a dominant tenement" to speak of, and the
easement pertains to persons without a dominant estate, in this case, the public at large. Thus,
merger could not have been possible.

DISSOLUTION AND LIQUIDATION

Modes of Dissolution

TEODORO B. VESAGAS et.al v The Honorable COURT OF APPEALS et.al

G.R. No. 142924 December 5, 2001

FACTS: The respondent spouses Delfino and Helenda Raniel are members in good standing of the
Luz Villaga Tennis Clud, Inc. They alleged that petitioner Teodoro Vesagas, who claims to be the
club's duly elected president, in conspiracy with petitioner Wilfred D. Asis, who, in turn, claims to be
its duly elected vice-president and legal counsel, summarily stripped them of their lawful
membership, without due process of law. Thereafter, respondent spouses filed a Complaint with the
Securities and Exchange Commission (SEC) against the petitioners. Before the hearing officer could
start proceeding with the case, however, petitioners filed a motion to dismiss on the ground that the
SEC lacks jurisdiction over the subject matter of the case because there is no intra corporate dispute.
The motion and a motion for reconsideration was denied. Unperturbed, they filed a petition for
certiorari with the SEC En Banc seeking a review of the hearing officer's orders. The petition was
again denied for lack of merit, and so was the motion for its reconsideration in separate orders.
Dissatisfied with the verdict, petitioners promptly sought relief with the Court of Appeals contesting
the ruling of the Commission en banc. The appellate court, however, dismissed the petition for lack
of merit in a Decision promulgated on July 30, 1999. Then, in a resolution rendered on March 16,
2000, it similarly denied their motion for reconsideration. Petitioners contend that since its inception
in the 1970's, the club in practice has not been a corporation. They add that it was only the
respondent spouses, motivated by their own personal agenda to make money from the club, who
surreptitiously caused its registration with the SEC. They then assert that, at any rate, the club has

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already ceased to be a corporate body. They also claim in gratia argumenti that while the club may
have been considered a corporation during a brief spell, still, at the time of the institution of this case
with the SEC, the club was already dissolved by virtue of a Board resolution.

ISSUE: Was the Luz Villaga Tennis Clud, Inc. validly dissolved by virtue of a Board Resolution?

RULING: No, it was not validly dissolved. The Corporation Code establishes the procedure and other
formal requirements a corporation needs to follow in case it elects to dissolve and terminate its
structure voluntarily and where no rights of creditors may possibly be prejudiced, thus: "Sec. 118.
Voluntary dissolution where no creditors are affected. - If dissolution of a corporation does not
prejudice the rights of any creditor having a claim against it, the dissolution may be effected by
majority vote of the board of directors or trustees and by a resolution duly adopted by the
affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock
or at least two-thirds (2/3) of the members at a meeting to be held upon call of the directors or
trustees after publication of the notice of time, place and object of the meeting for three (3)
consecutive weeks in a newspaper published in the place where the principal office of said
corporation is located; and if no newspaper is published in such place, then in a newspaper of
general circulation in the Philippines, after sending such notice to each stockholder or member either
by registered mail or by personal delivery at least 30 days prior to said meeting. A copy of the
resolution authorizing the dissolution shall be certified by a majority of the board of directors or
trustees and countersigned by the secretary of the corporation. The Securities and Exchange
Commission shall thereupon issue the certificate of dissolution." The Court noted that to
substantiate their claim of dissolution, petitioners submitted only two relevant documents: the
Minutes of the First Board Meeting held on January 5, 1997, and the board resolution issued on April
14, 1997 which declared "to continue to consider the club as a non-registered or a non-corporate
entity and just a social association of respectable and respecting individual members who have
associated themselves, since the 1970's, for the purpose of playing the sports of tennis x x x."
Obviously, these two documents will not suffice. The requirements mandated by the Corporation
Code should have been strictly complied with by the members of the club. The records reveal that no
proof was offered by the petitioners with regard to the notice and publication requirements.
Similarly wanting is the proof of the board members' certification. Lastly, and most important of all,
the SEC Order of Dissolution was never submitted as evidence. Hence the club was not validly
dissolved.

PHILIPPINE NATIONAL BANK vs.THE COURT OF FIRST INSTANCE OF RIZAL, PASIG

G.R. No. 63201 May 27, 1992

FACTS: Private respondents are the registered owners of three parcels of land in Pasig,
Metro Manila covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of
Rizal. On March 1, 1954, private respondents entered into a contract of lease with Philippine
Blooming Mills, Co., Inc., (PBM for brevity) whereby the latter shall lease the
aforementioned parcels of land as factory site. PBM was duly organized and incorporated on
January 19, 1952 with a corporate term of twenty-five (25) years. This leasehold right of PBM
covering the parcels of land was duly annotated at the back of the above stated certificates
of title. The contract of lease provides that the term of the lease is for twenty years. In
accordance with the contract, PBM introduced on the land, buildings, machineries and other

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useful improvements. These constructions and improvements were registered with the
Registry of Deeds of Rizal and annotated at the back of the respondents' certificates of title.

On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB for brevity)
petitioner herein, a deed of assignment, conveying and transferring all its rights and
interests under the contract of lease which it executed with private respondents. The
assignment was for and in consideration of the loans granted by PNB to PBM. The deed of
assignment was registered and annotated at the back of the private respondents'
certificates of title. On November 6, 1963 and December 23, 1963 respectively, PBM
executed in favor of PNB a real estate mortgage for a loan ofP100,000.00 and an addendum
to real estate mortgage for another loan of P1,590,000.00, covering all the improvements
constructed by PBM on the leased premises. These mortgages were registered and
annotated at the back of respondents' certificates. PBM filed a petition for registration of
improvements in the titles of real property owned by private respondents docketed as Case
No. 6530.
On October 7, 1981, private respondents filed a motion in the same proceedings. The motion
sought to cancel the annotations on respondents' certificates of title pertaining to the
assignment by PBM to PNB of the former's leasehold rights, inclusion of improvements and
the real estate mortgages made by PBM in favor of PNB, on the ground that the contract of
lease entered into between PBM and respondents-movants had already expired by the
failure of PBM and/or its assignee to exercise the option to renew the second 20-year lease.
The motion also states that since PBM failed to remove its improvements on the leased
premises before the expiration of the contract of lease, such improvements shall accrue to
respondents as owners of the land.
On April 22, 1982, respondent court issued an order directing the cancellation of the
inscriptions on respondents' certificates of title. Hence, this petition. Petitioner alleges that
it is not the respondent court but the Securities and Exchange Commission which has
jurisdiction over the private respondents' motion, which raised as issue the corporate
existence of PBM.

ISSUE: Whether or not the SEC has jurisdiction over the motion
RULING: NO. Private respondent's motion with the respondent court was for the
cancellation of the entries on their titles on the ground that the contract of lease executed
between them and PBM had expired. This action is civil in nature and is within the
jurisdiction of the respondent court.The circumstance that PBM as one of the contracting
parties is a corporation whose corporate term had expired and which fact was made the
basis for the termination of the lease is not sufficient to confer jurisdiction on the Securities
and Exchange Commission over the case. Presidential Decree No. 902-A, as amended,
enumerates the cases over which the SEC has exclusive jurisdiction and authority to resolve.
The case at bar is not covered by the enumeration.

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REPUBLIC OF THE PHILIPPINES vs. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO
T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA,
PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR.
G.R. No. L-20583. January 23, 1967

FACTS: The Articles of Incorporation of defendant corporation were registered with the Securities
and Exchange Commission on March 27, 1961. Thereafter, the Board of Directors of the corporation
adopted a set of by-laws which were filed with said Commission on April 5, 1961 On September 19,
1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an
opinion on whether or not said corporation is a banking institution, within the purview of Republic
Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an
opinion resolving the query in the affirmative. On March 9, 1961, the corporation had applied with
the Securities and Exchange Commission for the registration and licensing of its securities under the
Securities Act. However, SCAC’s registration of its Articles of Incorporation was denied on the
ground that it has not complied with the requirements under the General Banking Act (RA No. 337).
Later, a Search Warrant was issued against SCAC where documents and records relative to its
business operation were seized. Even when SCAC was duly advised of the findings, SCAC and its BOD
and Officers still continued operations prompting the Solicitor General to file a quo warranto
proceedings for the dissolution of SCAC.

ISSUE: Was SCAC illegally engaged in the business of banking?

RULING: Yes. In dissolving SCAC, the Court held that the corporation was indeed engaged in the
business of banking without first securing the administrative authority required by RA No. 337.
Although, admittedly, SCAC has not secured the requisite authority to engage in banking, defendants
deny that its transactions partake of the nature of banking operations. Note however that, in
consequence of their propaganda campaign, a total of 59,463 savings account deposits have been
made by the public with SCAC and its 74 branches, with an aggregate deposit of P1,689,136.74, which
has been lent out to such persons as SCAC deemed suitable. It is clear that these transactions
partake of the nature of banking, as the term is used in Section 2 of RA No. 337. Indeed, a bank has
been defined as: A moneyed institute founded to facilitate the borrowing, lending, and safe-keeping
of money and to deal in notes, bills of exchange, and credits; an investment company which loans
out the money of its customers, collects the interests, and charges a commission to both lender and
borrower is a bank; any person engaged in the business carried on by banks of deposit, of discount,
or of circulation is doing a banking business, although but one of these functions is exercised. The
illegal transactions thus undertaken by SCAC to warrant its dissolution is apparent from the fact that
the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it
is willful and has been repeated 59,643 times, and that its continuance inflicts injury upon the public,
owing to the number of persons affected thereby.

IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL BANK OF BOKOD
(BENGUET), INC., PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. BUREAU OF INTERNAL
REVENUE
G.R. NO. 158261, December 18, 2006
FACTS: In 1986, a special examination of RBBI was conducted by the Supervision and Examination
Sector (SES) of what is now the Bangko Sentral ng Pilipinas(BSP), wherein various loan irregularities
were uncovered. In a letter, the SES Department III required the RBBI management to infuse fresh
capital into the bank, within 30 days from date of the advice, and to correct all the exceptions noted.

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However, up to the termination of the subsequent general examination conducted by the SES
Department III, no concrete action was taken by the RBBI management. In view of the irregularities
noted and the insolvent condition of RBBI, the members of the RBBI Board of Directors were called
for a conference at the BSP on August 4, 1986. Only one RBBI Director, Mr. Wakit, attended the
conference, and the examination findings and related recommendations were discussed with him. In
a letter, dated 4 August 1986, receipt of which was acknowledged by Mr. Wakit, the SES Department
III warned the RBBI Board of Directors that, unless substantial remedial measures are taken to
rehabilitate the bank, it will recommend that the bank be placed under receivership. In a subsequent
letter, a copy of which was sent to every member of the RBBI Board of Directors via registered mail,
the SES Department III reiterated its warning that it would recommend the closure of the bank,
unless the needed fresh capital was immediately infused. Despite these notices, the SES Department
III received no word from RBBI or from any of its Directors as of 28 November 1986.

In a meeting held on 9 January 1987, the Monetary Board of the BSP decided that Rural Bank of
Bokod is place under receivership. A memorandum and report, dated 28 August 1990, were
submitted by the Director of the SES Department III concluding that the RBBI remained in insolvent
financial condition and it can no longer safely resume business with the depositors, creditors, and
the general public. On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with the
RTC of a Petition for Assistance in the Liquidation of RBBI.

ISSUE:

Whether or not RBBI, as represented by its liquidator, PDIC, still needs to secure a tax clearance from
the BIR before the RTC could approve the Project of Distribution of the assets of RBBI.

RULING: No. Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 regulate the
relations only as between the SEC and the BIR, making a certificate of tax clearance a prior
requirement before the SEC could approve the dissolution of a corporation. In Spec. Proc. No. 91-SP-
0060 pending before the RTC, RBBI was placed under receivership and ordered liquidated by the
BSP, not the SEC; and the SEC is not even a party in the said case, although the BIR is. This Court
cannot find any basis to extend the SEC requirements for dissolution of a corporation to the
liquidation proceedings of RBBI before the RTC when the SEC is not even involved therein.
It is conceded that the SEC has the authority to order the dissolution of a corporation pursuant to
Section 121 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines,
which reads

Sec. 121. Involuntary dissolution. A corporation may be dissolved by the Securities and
Exchange Commission upon filing of a verified complaint and after proper notice and hearing
on the grounds provided by existing laws, rules and regulations.

The Corporation Code, however, is a general law applying to all types of corporations, while the New
Central Bank Act regulates specifically banks and other financial institutions, including the dissolution
and liquidation thereof. As between a general and special law, the latter shall prevail generalia
specialibus non derogant.

The liquidation of RBBI is undertaken according to Sections 30 of the New Central Bank Act, viz

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 Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-
bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or
creditors; or

(d) has wilfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.

It should be noted that there are substantial differences in the procedure for involuntary dissolution
and liquidation of a corporation under the Corporation Code, and that of a banking corporation
under the New Central Bank Act, so that the requirements in one cannot simply be imposed in the
other.

Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of a verified
complaint and after proper notice and hearing, on grounds provided by existing laws, rules, and
regulations. Upon receipt by the corporation of the order of suspension from the SEC, it is required
to notify and submit a copy of the said order, together with its final tax return, to the BIR. The SEC is
also required to furnish the BIR a copy of its order of suspension. The BIR is supposed to issue a tax
clearance to the corporation within 30 days from receipt of the foregoing documentary
requirements. The SEC shall issue the final order of dissolution only after the corporation has
submitted its tax clearance; or in case of involuntary dissolution, the SEC may proceed with the
dissolution after 30 days from receipt by the BIR of the documentary requirements without a tax
clearance having been issued. The corporation is allowed to continue as a body corporate forthree
years after its dissolution, for the purpose of prosecuting and defending suits by or against it, to
settle and close its affairs, and to dispose of and convey its property and distribute its assets, but not
for the purpose of continuing its business. The corporation may undertake its own liquidation, or at
any time during the said three years, it may convey all of its property to trustees for the benefit of its
stockholders, members, creditors, and other persons in interest.

In contrast, the Monetary Board may summarily and without need for prior hearing, forbid the
banking corporation from doing business in the Philippines, for causes enumerated in Section 30 of
the New Central Bank Act; and appoint the PDIC as receiver of the bank. PDIC shall immediately
gather and take charge of all the assets and liabilities of the closed bank and administer the same for
the benefit of its creditors. The summary nature of the procedure for the involuntary closure of a
bank is especially stressed in Section 30 of the New Central Bank Act, which explicitly states that the
actions of the Monetary Board under the said Section or Section 29 shall be final and executory, and

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may not be restrained or set aside by the court except on a Petition for Certiorari filed by the
stockholders of record of the bank representing a majority of the capital stock. PDIC, as the
appointed receiver, shall file ex parte with the proper RTC, and without requirement of prior notice
or any other action, a petition for assistance in the liquidation of the bank. The bank is not given the
option to undertake its own liquidation.

Liquidation
Clemente vs. Court of Appeals
242 SCRA 717, March 27, 1995

FACTS: The "Sociedad Popular Calambeña" organization conceived as a "Sociedad Anonima," was
organized on or about the advent of the early American occupation of the Philippines. The
"sociedad" did business and held itself out as a corporation. Its principal business was cockfighting
or the operation and management of a cockpit. The "Sociedad" acquired by installments the parcel
of land from the Friar Lands Estate of Calamba, Laguna and a patent was issued in the name of the
'Sociedad Popular Calambeña'.

Plaintiff’s evidence also shows that Mariano Elepaño and Pablo Clemente, now both deceased, were
original stockholders of the aforesaid "sociedad." In accordance a prjoct of partition, the "sociedad"
issued stock certificates to the heirs of Pablo Clemente.

On the basis of their stocks certificates, present plaintiffs the heirs of Clemente and the heirs of
Mariano Elepaño, jointly claim ownership over the property, asserting that their fathers being the
only known stockholders of the "sociedad" known as the "Sociedad Popular Calamba," they, to the
exclusion of all others, are entitled to be declared owners of the lot.

ISSUE: Whether or not petitioners can be held to have succeeded in establishing for themselves a
firm title to the property in question

RULING: Sociedad is the legal owner of the land in dispute. The Supreme Court has held that: “The
"Sociedad Popular Calambeña," believed to be a "sociedad anonima" and for a while engaged in the
operation and management of a cockpit, has existed sometime in the past; that it has acquired the
parcel of land here involved; and that the plaintiffs' predecessors, Mariano Elepaño and Pablo
Clemente, had been original stockholders of the sociedad. Except in showing that they are the
successors-in-interest of Elepaño and Clemente, petitioners have been unable to come up with any
evidence to substantiate their claim of ownership of the corporate asset.

If, indeed, the sociedad has long become defunct, it should behoove petitioners, or anyone else who
may have any interest in the corporation, to take appropriate measures before a proper forum for a
peremptory settlement of its affairs. We might invite attention to the various modes provided by the
Corporation Code for dissolving, liquidating or winding up, and terminating the life of the
corporation. Among the causes for such dissolution are when the corporate term has expired or
when, upon a verified complaint and after notice and hearing, the Securities and Exchange
Commission orders the dissolution of a corporation for its continuous inactivity for at least five (5)
years. The corporation continues to be a body corporate for three (3) years after its dissolution for

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purposes of prosecuting and defending suits by and against it and for enabling it to settle and close
its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the
three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of
the life of a juridical entity does not by itself cause the extinction or diminution of the rights and
liabilities of such entity nor those of its owners and creditors. If the three-year extended life has
expired without a trustee or receiver. Having been expressly designated by the corporation within
that period, the board of directors (or trustees) itself, following the rationale of the Supreme Court's
decision in Gelano vs. Court of Appeals may be permitted to so continue as "trustees" by legal
implication to complete the corporate liquidation. Still in the absence of a board of directors or
trustees, those having any pecuniary interest in the assets, including not only the shareholders but
likewise the creditors of the corporation, acting for and in its behalf, might make proper
representations with the Securities and Exchange commission, which has primary and sufficiently
broad jurisdiction in matters of this nature, for working out a final settlement of the corporate
concerns.

JAMES REBURIANO and URBANO REBURIANO vs. HONORABLE COURT OF APPEALS, and PEPSI
COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.
G.R. No. 102965. January 21, 1999

FACTS: In a Civil Case entitled Pepsi Cola Bottling Company of the Philippines, Inc. v. Urbano (Ben)
Reburiano and James Reburiano, the Regional Trial Court, rendered a decision, ordering the
defendants Urbano (Ben) Reburiano and James Reburiano to pay jointly and severally the plaintiff
the sum of P55,000.00, less whatever empties (cases and bottles) may be returned by said
defendants valued at the rate of P55.00 per empty case with bottles. Private respondent Pepsi Cola
Bottling Company of the Philippines, Inc. appealed to the Court of Appeals seeking the modification
of the portion of the decision, which stated the value of the cases with empty bottles as P55.00 per
case, and obtained a favorable decision. Such judgment was set aside by the court.

After the case had been remanded to it and the judgment had become final and executory, the trial
court issued on February 5, 1991 a writ of execution. It appears that prior to the promulgation of the
decision of the trial court, private respondent amended its articles of incorporation to shorten its
term of existence to July 8, 1983. The amended articles of incorporation was approved by the
Securities and Exchange Commission on March 2, 1984. The trial court was not notified of this fact.
On February 13, 1991, petitioners moved to quash the writ of execution.

ISSUE: Whether or not a dissolved and non-existing corporation could no longer be represented by a
lawyer

RULING: Section 122 of the Corporation Code provides in part:

122. Corporate Liquidation. - Every Corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated
in any other manner, shall nevertheless be continued as a body corporate for three (3) years after
the time when it would have been so dissolved, for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for which it was
established.

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At any time during said three (3) years, said corporation is authorized and empowered to convey all
of its property to trustees for the benefit of stockholders, members, creditors, and other persons in
interest.From and after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interests, all interests which the
corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in interest.

Indeed, in Gelano vs. Court of Appeals, a case having substantially similar facts as the instant case, this
Court held:
However, a corporation that has a pending action and which cannot be terminated within the three-
year period after its dissolution is authorized under Sec. 78 [now 122] of the Corporation Law to
convey all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the three-year period. Although private respondent did not appoint any trustee,
yet the counsel who prosecuted and defended the interest of the corporation in the instant case and
who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at
least with respect to the matter in litigation only. Said counsel had been handling the case when the
same was pending before the trial court until it was appealed before the Court of Appeals and finally
to this Court. We therefore hold that there was substantial compliance with Sec. 78 [now 122] of the
Corporation Law and such private respondent Insular Sawmill, Inc. could still continue prosecuting
the present case even beyond the period of three (3) years from the time of dissolution. The trustee
may commence a suit which can proceed to final judgment even beyond the three-year period. No
reason can be conceived why a suit already commenced by the corporation itself during its
existence, not by a mere trustee who, by fiction, merely continues the legal personality of the
dissolved corporation should not be accorded similar treatment allowed to proceed to final
judgment and execution thereof.

It is to be noted that the time during which the corporation, through its own officers, may conduct
the liquidation of its assets and sue and be sued as a corporation is limited to three years from the
time the period of dissolution commences; but there is no time limit within which the trustees must
complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees
must be made within the three-year period. It may be found impossible to complete the work of
liquidation within the three-year period or to reduce disputed claims to judgment.The authorities are
to the effect that suits by or against a corporation abate when it ceased to be an entity capable of
suing or being sued; but trustees to whom the corporate assets have been conveyed pursuant to the
authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the
liquidation. There is, therefore, no reason why the suit filed by private respondent should not be
allowed to proceed to execution.

RENE KNECHT AND KNECHT INC. vs. UNITED CIGARETTE INC.

GR NO. 139370, JULY 4, 2002

FACTS: Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns parcels of
land one of which is covered by TCT No. 73620 which was mortgaged with the Philippine
Commercial and Industrial Bank (PCIB). Said parcels of land were later sold to United
Cigarette Corporation (UCC), through its President Rene Knecht, where Rose Packing made
a warranty that the lots are free from all liens and encumbrances, except the real estate
mortgage constituted over the area covered by TCT No. 73620.

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Before the deed of sale could be executed, the parties found that Rose Packing’s actual
obligation with the PCIB far exceeded the P250,000.00 which UCC assumed to pay under
their agreement. So the PCIB demanded additional collateral from UCC as a condition
precedent for the approval of the sale of the mortgaged property. However, UCC did not
comply.

Meanwhile, Rose Packing again offered to sell the same lots to other prospective buyers
without the knowledge of UCC and without returning to the latter the earnest money it
earlier paid.

ISSUE: Would the execution of the judgment still lie against a dissolved corporation?

RULING: YES. In Reburiano vs. Court of Appeals, a case with similar facts, this Court held that
“the trustee (of a dissolved corporation) may commence a suit which can proceed to final
judgment even beyond the three-year period (of liquidation), no reason can be conceived
why a suit already commenced by the corporation itself during its existence, not by a mere
trustee who, by fiction, merely continues the legal personality of the dissolved corporation,
should not be accorded similar treatment – to proceed to final judgment and execution
thereof.”

The dissolution of UCC itself, or the expiration of its three-year liquidation period, should not
be a bar to the enforcement of its rights as a corporation. One of these rights, to be sure,
includes the UCC’s right to seek from the court the execution of a valid and final judgment in
Civil Case No. 9165 – through its trustee/liquidator Encarnacion Gonzales Wong – for the
benefit of its stockholders, creditors and any other person who may have legal claims
against it. To hold otherwise would be to allow petitioners to unjustly enrich themselves at
the expense of UCC. This, in effect, renders nugatory all the efforts and expenses of UCC in
its quest to secure justice, not to mention the undue delay in disposing of this case
prejudicial to the administration of justice.

LIQUIDATION AFTER THREE YEARS

Republic of the Philippines v. Marsman Development Company

G.R. No. L-18956, April 27, 1972

FACTS: Marsman Development was a timber licensee holding Timber Licensee Agreement
No. 37-A, with concessions in the Municipality of Basud and Mondazo, Camarines Norte.
Sometime before October 15, 1953 an investigation was conducted on the business
operation and activities of the corporation leading to the discovery that certain taxes were
due (from) it on logs produced from its concession. On October 15, 1953, the Deputy
Collector of Internal Revenue demanded the payment of P13,136.00 representing forest

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charges due from May 18, 1950 to September 30, 1953, and a surcharge of 25%. On
September 13, 1954, after further investigation another assessment was sent to the
defendant corporation by the Bureau of Internal Revenue demanding from it the total sum
of P45,541.66 representing deTiciency sales tax, forest charges, surcharges and penalties.
On November 8, 1954 another assessment was addressed to the defendant corporation for
the payment of P456.12 as 25% surcharge for discharging lumber without permit. The three
assessments totalling P59,133.78 are the subject matter of the instant case for collection.

ISSUE: Does the right of the government to collect the sums has already prescribed?

RULING: No. The stress given by appellants to the extinction of the corporate and juridical
personality as such of appellant corporation by virtue of its extra-judicial dissolution which
admittedly took place on April 23, 1954 is misdirected. At any time during said three years
said corporation is authorized and empowered to convey all of its property to trustees for
the benefit of members, stock-holders, creditors, and others interested. From and after any
such conveyance by the corporation of its property in trust for the benefit of its members,
stockholders, creditors, and others in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustee, and the beneficial interest in the
members, stockholders, creditors, or other persons in interest. Thus, in whatever way the
matter may be viewed, the Government became the creditor of the corporation before the
completion of its dissolution by the liquidation of its assets.

Appellant F.H. Burgess, whom it chose as liquidator, became in law the trustee of all its
assets for the beneTit of all persons enumerated in Section 78, including its creditors, among
whom is the Government, for the taxes herein involved. To assume otherwise would render
the extra-judicial dissolution illegal and void, since, according to Section 62 of the
Corporation Law, such kind of dissolution is permitted only when it "does not affect the
rights of any creditor having a claim against the corporation."

Gelano vs. Court of Appeals

G.R. No. L-39050 February 24, 1981

FACTS: Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945
with a corporate life of fifty (50) years, or up to September 17, 1995, with the primary purpose of
carrying on a general lumber and sawmill business. To carry on this business, private respondent
leased the paraphernal property of petitioner-wife Guillermina M. Gelano for P1, 200.00 a month. It
was while private respondent was leasing the aforesaid property that its officers and directors had
come to know petitioner-husband Carlos Gelano who received from the corporation cash advances
on account of rentals to be paid by the corporation on the land out of the cash advances in the total
sum of P25, 950.00, petitioner Carlos Gelano was able to pay only P5,950.00 thereby leaving an
unpaid balance of P20,000.00 which he refused to pay despite repeated demands by private
respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for
the personal account of her husband asked for by, and given to him, without her knowledge and
consent and did not benefit the family.

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ISSUE: Could a dissolved corporation still continue prosecuting and defending suits after its
dissolution and beyond the period of three years?

RULING: Yes. For this reason, Section 78 of the same law authorizes the corporation, "at any time
during said three years to convey all of its property to trustees for the benefit of members,
Stockholders, creditors and other interested," evidently for the purpose, among others, of enabling
said trustees to prosecute and defend suits by or against the corporation begun before the
expiration of said period. In the case at bar, when Insular Sawmill, Inc. was dissolved on December
31, 1960, under Section 77 of the Corporation Law, it still has the right until December 31, 1963 to
prosecute in its name the present case. After the expiration of said period, the corporation ceased to
exist for all purposes and it can no longer sue or be sued. However, a corporation that has a pending
action and which cannot be terminated within the three-year period after its dissolution is authorized
under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by
or against the corporation beyond the Three-year period although private respondent (did not
appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in
the instant case and who in fact appeared in behalf of the corporation may be considered a trustee
of the corporation at least with respect to the matter in litigation only. Said counsel had been
handling the case when the same was pending before the trial court until it was appealed before the
Court of Appeals and finally to this Court. It was therefore held by the Supreme Court that there
was a substantial compliance with Section 78 of the Corporation Law and as such, private
respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the
period of three (3) years from the time of its dissolution. The trustee may commence a suit which
can proceed to final judgment even beyond the three-year period. No reason can be conceived why a
suit already commenced By the corporation itself during its existence, not by a mere trustee who, by
fiction, merely continues the legal personality of the dissolved corporation should not be accorded
similar treatment allowed to proceed to final judgment and execution thereof.

JAMES REBURIANO and URBANO REBURIANO vs. HONORABLE COURT OF APPEALS AND
PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES INC.,
G.R. No. 102965 January 21, 1999

FACTS: On June 1, 1987 in a case between Pepsi Cola and the petitioners, a decision was rendered in
favor of the company. The trial court issued on February 5, 1991 a writ of execution. It appears that
prior to the promulgation of the decision of the trial court, private respondent amended its articles
of incorporation to shorten its term of existence to July 8, 1983. Petitioners moved to quash the writ
of execution alleging that when the trial of this case was conducted, when the decision was
rendered by this Honorable Court, when the said decision was appealed to the Court of Appeals, and
when the Court of Appeals rendered its decision, the private respondent was no longer in existence
and had no more juridical personality and so, as such, it no longer had the capacity to sue and be
sued.

Private respondent opposed petitioners' motion. It argued that the jurisdiction of the court as well
as the respective parties capacity to sue had already been established during the initial stages of the
case; and that when the complaint was filed in 1982, private respondent was still an existing
corporation so that the mere fact that it was dissolved at the time the case was yet to be resolved

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did not warrant the dismissal of the case or oust the trial court of its jurisdiction. Private respondent
further claimed that its dissolution was effected in order to transfer its assets to a new firm of almost
the same name and was thus only for convenience.

ISSUE: Whether or not a dissolved and non-existing corporation could no longer be represented by a
lawyer and concomitantly a lawyer could not appear as counsel for a non-existing judicial person

RULING: Sec. 122 of the Corporation Code provides in part:

Sec.122. Corporate Liquidation. — Every Corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated
in any other manner, shall nevertheless be continued as a body corporate for three (3) years after
the time when it would have been so dissolved, for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for which it was
established.

At any time during said three (3) years, said corporation is authorized the empowered to convey all
of its property to trustees for the benefit of stockholders, members, creditors, and other persons in
interest. From and after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interests, all interests which the
corporation had in the property in terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other persons in interest.
In Gelano vs. Court of Appeals, a case having substantially similar facts as the instant case, the Court
held:

However, a corporation that has a pending action and which cannot be terminated within the three-
year period after its dissolution is authorized under Sec. 78 [now §122] of the Corporation Law to
convey all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the three-year period. Although private respondent did not appoint any trustee,
yet the counsel who prosecuted and defended the interest of the corporation in the instant case and
who in fact appeared in behalf of the may be considered a trustee of the corporation at least with
respect to the matter in litigation only. Said counsel had been handling the case when the same was
pending before the trial court until it was appealed before the Court of Appeals and finally to this
Court. We therefore hold that there was substantial compliance with Sec. 78 [now §122] of the
Corporation Law and such private respondent Insular Sawmill, Inc. could still continue prosecuting
the present case even beyond the period of three (3) years from the time of dissolution.
. . . [T]he trustee may commence a suit which can proceed to final judgment even beyond the three-
year period. No reason can be conceived why a suit already commenced by the corporation itself
during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of
the dissolved corporation should not be accorded similar treatment allowed — to proceed to final
judgment and execution thereof.

Alabang Development v. Alabang Hills

G.R. No. 187456 June 2, 2014

FACTS: ADC filed a case against AHVAI and Rafael Tinio (Tinio), President of AHVAI. The Complaint
alleged that ADC is the developer of Alabang Hills Village and still owns certain parcels of land therein

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that are yet to be sold, as well as those considered open spaces that have not yet been donated to
the local government of Muntinlupa City or the Homeowner's Association. Sometime in September
[2006], ADC learned that AHVAI started the construction of a multi-purpose hall and a swimming
pool on one of the parcels of land still owned by ADC without the latter's consent and approval, and
that despite demand, AHVAI failed to desist from constructing the said improvements. ADC thus
prayed that an injunction be issued enjoining defendants from constructing the multi-purpose hall
and the swimming pool at the Alabang Hills Village. AHVAI denied ADC's asseverations and claimed
that the latter has no legal capacity to sue since its existence as a registered corporate entity was
revoked by the Securities and Exchange Commission (SEC) on May 26, 2003; that ADC has no cause
of action because by law it is no longer the absolute owner but is merely holding the property in
question in trust for the benefit of AHVAI as beneficial owner thereof; and that the subject lot is part
of the open space required by law to be provided in the subdivision.

ISSUE: Does ADC have the capacity to sue?

RULING: None. The time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to three years from the time
the period of dissolution commences; but there is no time limit within which the trustees must
complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees
must be made within the three-year period. It may be found impossible to complete the work of
liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are
to the effect that suits by or against a corporation abate when it ceased to be an entity capable of
suing or being sued; but trustees to whom the corporate assets have been conveyed pursuant to the
authority of Sec. 78 may sue and be sued as such in all matters connected with the liquidation. In the
present case, petitioner filed its complaint not only after its corporate existence was terminated but
also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear
that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a
corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment,
on the ground that such complaint was filed for the sole purpose of liquidating its assets, would be
to circumvent the provisions of Section 122 of the Corporation Code.


ANTHONY S. YU, ROSITA G. YU and JASON G. YU - versus - JOSEPH S. YUKAYGUAN, NANCY

L. YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on their
own behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC.
G.R. No. 177549 June 18, 2009

FACTS: Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc.
On 15 October 2002, respondents filed against petitioners a verified Complaint for Accounting,
Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate
Records and Accounts [6] before the RTC of Cebu. The said Complaint was filed by respondents, in
their own behalf and as a derivative suit on behalf of Winchester, Inc., and was docketed as SRC Case
No. 022-CEB. The factual background of the Complaint was stated in the attached Affidavit executed
by respondent Joseph.

According to respondents, Winchester, Inc. was established and incorporated on 12 September 1977,
with petitioner Anthony as one of the incorporators, holding 1,000 shares of stock worth

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P100,000.00. Petitioner Anthony paid for the said shares of stock with respondent Joseph’s money,
thus, making the former a mere trustee of the shares for the latter.

The case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf
and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for and
reimburse to the said corporation the corporate assets and funds which the latter allegedly
misappropriated for their personal benefit.

ISSUE: Whether or not the derivative suit is valid

RULING: The general rule is that where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees. Nonetheless, an individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks
in order to protect or vindicate corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest. A derivative action is a suit by a shareholder to enforce a corporate
cause of action. The corporation is a necessary party to the suit. And the relief which is
granted is a judgment against a third person in favor of the corporation.

Glaringly, a derivative suit is fundamentally distinct and independent from liquidation proceedings.
They are neither part of each other nor the necessary consequence of the other. There is totally no
justification for the Court of Appeals to convert what was supposedly a derivative suit instituted by
respondents, on their own behalf and on behalf of Winchester, Inc. against petitioners, to a
proceeding for the liquidation of Winchester, Inc.

While it may be true that the parties earlier reached an amicable settlement, in which they agreed to
already distribute the assets of Winchester, Inc., and in effect liquidate said corporation, it must be
pointed out that respondents themselves repudiated said amicable settlement before the RTC, even
after the same had been partially implemented; and moved that their case be set for pre-trial.
Attempts to again amicably settle the dispute between the parties before the Court of Appeals were
unsuccessful.

MANUEL D. YNGSON, JR. (in his capacity as the Liquidator of ARCAM & COMPANY, INC.), vs.
PHILIPPINE NATIONAL BANK

G.R. No. 171132 August 15, 2012

FACTS: ARCAM & Company, Inc. is engaged in the operation of a sugar mill in Pampanga. ARCAM
applied for and was granted a loan by respondent Philippine National Bank (PNB). To secure the loan,
ARCAM executed a Real Estate Mortgage over a 350,004-square meter parcel of land and a Chattel
Mortgage over various personal properties consisting of machinery, generators, field transportation
and heavy equipment.

ARCAM, however, defaulted on its obligations to PNB. PNB initiated extrajudicial foreclosure
proceedings in the Office of the Clerk of Court/Ex Officio Sheriff of the Regional Trial. ARCAM filed

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before the SEC a Petition for Suspension of Payments, Appointment of a Management or
Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance of a
temporary restraining order (TRO) and writ of preliminary injunction. The SEC issued a TRO and
subsequently a writ of preliminary injunction, enjoining PNB and the Sheriff of the RTC of Guagua,
Pampanga from proceeding with the foreclosure sale of the mortgaged properties.

SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted that the petition for suspension
of payment was filed in December 1993 and six years had passed but the potential white knight"
investor had not infused the much needed capital to bail out ARCAM from its financial difficulties.
Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation. With this
development, PNB revived the foreclosure case and requested the RTC Clerk of Court to re-schedule
the sale at public auction of the mortgaged properties.

Contending that foreclosure during liquidation was improper, petitioner filed with the SEC a Motion
for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin the
foreclosure sale of ARCAM’s assets. The SEC en banc issued a TRO effective for seventy-two (72)
hours. Consequently, PNB resumed the proceedings for the extrajudicial foreclosure sale of the
mortgaged properties. PNB emerged as the highest winning bidder in the auction sale, and
certificates of sale were issued in its favor.

Petitioner filed with the SEC a motion to nullify the auction sale. Petitioner posited that all actions
against companies which are under liquidation, like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings. Moreover, petitioner asserted that the
mortgaged assets should be included in the liquidation and the proceeds shared with the unsecured
creditors.

In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules
prohibits secured creditors from foreclosing on their mortgages to satisfy the mortgagor’s debt after
the termination of the rehabilitation proceedings and during liquidation proceedings.

The SEC issued a Resolution denying petitioner’s motion to nullify the auction sale. It held that PNB
was not legally barred from foreclosing on the mortgages. Aggrieved, petitioner filed a petition for
review in the CA which was dismissed. Hence, this case.

ISSUE: Whether PNB, as a secured creditor, can foreclose on the mortgaged properties of a
corporation under liquidation without the knowledge and prior approval of the liquidator or the SEC.

RULING: Yes. It is worth mentioning that under Republic Act No. 10142, otherwise known as the
Financial Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce
his lien during liquidation proceedings is retained. Section 114 of said law thus provides:

SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured
creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and share
in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien;

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If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may convey
the property to the secured creditor and the latter will be admitted in the liquidation proceedings as
a creditor for the balance; if its value exceeds the claim secured, the liquidator may convey the
property to the creditor and waive the debtor’s right of redemption upon receiving the excess from
the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the
proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable
laws.

In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose
the mortgaged properties should be respected, in line with our pronouncement in Consuelo Metal
Corporation.

VITALIANO N. AGUIRRES II and FIDEL N. AGUIRRE

vs. FQB+7, INC., NATHANIEL D. BOCOBO, PRISCILA BOCOBO and ANTONIO DE VILLA
G.R. No. 170770 January 9, 2013

FACTS: On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc., a
Complaint for intra-corporate dispute, injunction, inspection of corporate books and records, and
damages, against respondents Nathaniel D. Bocobo, Priscila D. Bocobo and Antonio De Villa. The
Complaint alleged that FQB+7 was established in 1985 with the following directors and subscribers,
as reflected in its Articles of Incorporation.

The substantive changes found in the GIS, respecting the composition of directors and subscribers of
FQB+7, prompted Vitaliano to write to the "real" Board of Directors (the directors reflected in the
Articles of Incorporation), represented by Fidel N. Aguirre. In this letter dated April 29, 2004,
Vitaliano questioned the validity and truthfulness of the alleged stockholders meeting held on
September 3, 2002. He asked the "real" Board to rectify what he perceived as erroneous entries in
the GIS, and to allow him to inspect the corporate books and records. The "real" Board allegedly
ignored Vitaliano’s request.

ISSUE: Whether or not dissolved corporation may continue as a body corporate for the limited
purpose of liquidating the corporate assets and distributing them to its creditors, stockholders, and
others in interest.

RULING: YES. A corporation’s board of directors is not rendered functus officio by its dissolution.
Since Section 122 allows a corporation to continue its existence for a limited purpose, necessarily
there must be a board that will continue acting for and on behalf of the dissolved corporation for
that purpose. In fact, Section 122 authorizes the dissolved corporation’s board of directors to
conduct its liquidation within three years from its dissolution. Jurisprudence has even recognized the
board’s authority to act as trustee for persons in interest beyond the said three-year period. Thus,
the determination of which group is the bona fide or rightful board of the dissolved corporation will
still provide practical relief to the parties involved.The same is true with regard to Vitaliano’s
shareholdings in the dissolved corporation. A party’s stockholdings in a corporation, whether

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existing or dissolved, is a property right which he may vindicate against another party who has
deprived him thereof. The corporation’s dissolution does not extinguish such property
right. Further, Intra-corporate disputes remain even when the corporation is dissolved.

Vigilla vs. Phil. College of Criminology

GR No. 200094, June 10, 2013

FACTS: Philippine College of Criminology Inc. (PCCr) is a non-stock educational institution,

while the petitioners were janitors, janitresses and supervisor in the Maintenance
Department of PCCr under the supervision and control of Atty. Florante A. Seril (Atty. Seril),
PCCr’s Senior Vice President for Administration. The petitioners, however, were made to
understand, upon application with respondent school, that they were under MBMSI, a
corporation engaged in providing janitorial services to clients. Atty. Seril is also the President
and General Manager of MBMSI.

Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been
revoked as of July 2, 2003. On March 16, 2009, PCCr, through its President, respondent
Gregory Alan F. Bautista (Bautista), citing the revocation, terminated the school’s
relationship with MBMSI, resulting in the dismissal of the employees or maintenance
personnel under MBMSI, except Alfonso Bongot (Bongot) who was retired.

The dismissed employees, led by their supervisor, Benigno Vigilla (Vigilla), filed their
respective complaints for illegal dismissal, reinstatement, back wages, separation pay (for
Bongot), underpayment of salaries, overtime pay, holiday pay, service incentive leave, and
13th month pay against MBMSI, Atty. Seril, PCCr, and Bautista.

PCCr submitted several documents before LA Ronaldo Hernandez, including releases,

waivers and quitclaims in favor of MBMSI executed by the complainants to prove that they
were employees of MBMSI and not PCCr.

ISSUE: Can a dissolved corporation enter into an agreement such as releases, waivers and
quitclaims beyond the 3-year winding up period under Section 122 of the Corporation Code?

RULING: Yes. The executed releases, waivers and quitclaims are valid and binding
notwithstanding the revocation of MBMSI’s Certificate of Incorporation. The revocation
does not result in the termination of its liabilities. Section 122 of the Corporation Code
provides for a three-year winding up period for a corporation whose charter is annulled by

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forfeiture or otherwise to continue as a body corporate for the purpose, among others, of
settling and closing its affairs.

Even if said documents were executed in 2009, six (6) years after MBMSI’s dissolution in
2003, the same are still valid and binding upon the parties and the dissolution will not
terminate the liabilities incurred by the dissolved corporation pursuant to Sections 122 and
145 of the Corporation Code.

Although the time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to three years from
the time the period of dissolution commences, there is no time limit within which the
trustees must complete a liquidation placed in their hands. What is provided in Section 122 of
the Corporation Code is that the conveyance to the trustees must be made within the three-
year period. But it may be found impossible to complete the work of liquidation within the
three-year period or to reduce disputed claims to judgment. The trustees to whom the
corporate assets have been conveyed pursuant to the authority of Section 122 may sue and
be sued as such in all matters connected with the liquidation.

Furthermore, Section 145 of the Corporation Code clearly provides that "no right or remedy
in favor of or against any corporation, its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent dissolution of
said corporation." Even if no trustee is appointed or designated during the three-year period
of the liquidation of the corporation, the Court has held that the board of directors may be
permitted to complete the corporate liquidation by continuing as "trustees" by legal
implication.

Metropolitan Bank vs Board of Trustees of Riverside

GR No. 176959, Sep 08, 2010

FACTS: On November 1, 1973, RMC established a Provident and Retirement Plan[4] (Plan) for its
regular employees.

Under the Plan, RMC and its employees shall each contribute 2% of the employee's current basic
monthly salary, with RMC's contribution to... increase by 1% every five (5) years up to a maximum of
5%. The contributions shall form part of the provident fund (the Fund) which shall be held, invested
and distributed by the Commercial Bank and Trust Company. Paragraph 13 of the Plan likewise
provided that the Plan "may be amended or terminated by the Company at any time on account of
business conditions, but no such action shall operate to permit any part of the assets of the Fund to
be used for, or diverted to purposes other than for the exclusive benefit of the members of the Plan

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and their beneficiaries. In no event shall any part of the assets of the Fund revert to [RMC] before all
liabilities of the Plan have been satisfied."

On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into an Investment
Management Agreement (Agreement) with Philbank (now, petitioner Metropolitan Bank and Trust
Company). Pursuant to the Agreement, petitioner shall act as an agent of the Board and shall hold,
manage, invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall be
in force for one (1) year and shall be deemed automatically renewed unless sooner terminated either
by petitioner bank or by the Board.

In 1984, RMC ceased business operations. Nonetheless, petitioner continued to render investment
services to respondent Board. In a letterdated September 27, 1995, petitioner informed respondent
Board that Philbank's Board of Directors had decided to apply the remaining trust assets held by it in
the name of RMCPRF against part of the outstanding obligations of RMC. This was opposed by
respondents herein.

ISSUE: Whether or not RMCPRFceased to exist upon the dissolution of RMC.

RULING: No. Under Section 122[27] of the Corporation Code, a dissolved corporation shall
nevertheless continue as a body corporate for three (3) years for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs,... to dispose and convey
its property and to distribute its assets, but not for the purpose of continuing the business for which
it was established. Within those three (3) years, the corporation may appoint a trustee or receiver
who shall carry out the said purposes beyond... the three (3)-year winding-up period. Thus, a trustee
of a dissolved corporation may commence a suit which can proceed to final judgment even beyond
the three (3)-year period of liquidation.

In the same manner, during and beyond the three (3)-year winding-up period of RMC, the Board of
Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. The Board retains
its authority to act on behalf of its members, albeit, in a limited... capacity. It may commence suits on
behalf of its members but not continue managing the Fund for purposes of maximizing profits. Here,
the Board's act of issuing the Resolution authorizing petitioner to release the Fund to its
beneficiaries is still part of the liquidation... process, that is, satisfaction of the liabilities of the Plan,
and does not amount to doing business. Hence, it was properly within the Board's power to
promulgate.

Anent the award of attorney's fees to respondents, we find the same to be in order. Article 2208(2)
of the Civil Code allows the award of attorney's fees in cases where the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur... expenses to protect his
interest. Attorney's fees may be awarded by a court to one (1) who was compelled to litigate with
third persons or to incur expenses to protect his or her interest by reason of an unjustified act or
omission of the party from whom it is sought.

Here, petitioner applied the Fund in satisfaction of the obligation of RMC without authority and
without bothering to inquire regarding unpaid claims from the Board of Trustees of RMCPRF. It
wrote the members of the Board only after it had decided to revert the Fund to RMC. Upon being
met with objections, petitioner insisted on the reversion of the Fund to RMC, despite the clause in

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the Plan that prohibits such reversion before all liabilities shall have been satisfied, thereby leaving
respondents with no choice but to seek judicial relief.

YAM vs. CA
303 SCRA 1

FACTS: Petitioners Victor Yam and Yek Sun obtained an IGLF loan from respondent Manphil Invest
Corporation in the amount of Php 300,000 with interest. It was secured by chattel mortgage. On
April 2, 1985, respondent was placed under receivership of Central Bank. Petitioners paid on July 31,
1986 which was received by Central Bank. It contained a notation on the voucher that there was
already a full payment of IGLF loan. However, respondent filed a collection case against petitioner
after it failed to pay the remaining balance. Petitioner contended that through respondent’s
president, Carlos Sobrepeñas, it was agreed to condone or waive the penalties and service charges
as well as a voucher showing the full payment of the petitioners. The trial court rendered a decision
in favor of respondents which was sustained by CA.

ISSUE: Is there condonation on petitioner’s loan?

RULING: The Supreme Court ruled in the negative. It held that the appointment of a receiver
operates to suspend the authority of a corporation and of its directors and officers over its property
and effects, such authority being reposed in the receiver. Sobrepeñas has no authority to condone
the debt. The notation on the voucher covering the check payment that a “full payment of IGLF
loan” was made does not bind respondent. It would have been different if the notated appeared in
the receipt issued by the corporation through its receiver, which would be an admission against
interest. Express condonation must comply the forms of donation. Where the value exceeds Php
5,000, the donation and acceptance must be made in writing; otherwise, void.

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC. vs. SECURITIES & EXCHANGE
COMMISSION
G.R. No. L-23606 July 29, 1968

FACTS: Incorporated under Philippine laws on January 15, 1912, petitioner Alhambra Cigars Mfg. Co
(ACCMI) was to exist for fifty (50) years from incorporation. Its term of existence expired on January
15, 1962. On that date, it ceased transacting business and entered into a state of liquidation.

Thereafter, a new corporation — Alhambra Industries, Inc. was formed to carry on the business of
Alhambra. On May 1, 1962, Alhambra's stockholders, by resolution, named Angel S. Gamboa trustee
to take charge of its liquidation. On June 20, 1963,within Alhambra's three-year statutory period for
liquidation — Republic Act 3531 was enacted into law amending Section 18 of the Corporation Law
and enabling domestic private corporations to extend their corporate life beyond the period fixed by
the articles of incorporation for a term not to exceed fifty years in any one instance.

On July 15, 1963 Alhambra's board of directors resolved to amend paragraph "Fourth" of its articles
of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from
its incorporation. Its stockholders, representing more than two-thirds of its subscribed capital stock,
voted to approve the foregoing resolution. SEC, however, returned said amended articles of
incorporation with the ruling that RA 3531 which took effect only on June 20, 1963, cannot be availed

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of by the said corporation, for the reason that its term of existence had already expired when the
said law took effect; in short, said law has no retroactive effect."

ISSUE: Whether or not a corporation may extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for liquidation when its original term of
existence had already expired.

RULING: NO. Provided by Section 77 of the Corporation Law, the continuance of a "dissolved"
corporation as a body corporate for three years has for its purpose the final closure of its affairs, and
no other; the corporation is specifically enjoined from continuing the business for which it was
established. The liquidation of the corporation's affairs set forth in Section 77 became necessary
precisely because its life had ended. For this reason alone, the corporate existence and juridical
personality of that corporation to do business may no longer be extended. The provisions of RA 3531
merely empower a corporation to act in liquidation, and not to extend its corporate existence.

CHUNG KA BIO, ET AL vs. INTERMEDIATE APPELLATE COURT

G.R. No. 71837 July 26, 1988

FACTS: The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, for a term
of 25 years which expired on January 19,1977. On May 14, 1977, the members of its board of directors
executed a deed of assignment of all of the accounts receivables, properties, obligations and
liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM,
then in the process of reincorporation. On June 14, 1977, the new PMB was issued a certificate of
incorporation by the SEC.

On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed
with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new
PBM. The allegation was that the former had become legally non-existent for failure to extend its
corporate life and that the latter had likewise been ipso facto dissolved for non-use of the charter
and continuous failure to operate within 2 years from incorporation.

The petitioners Chung Ka Bio et al insist that they have never given their consent to the creation of
the new corporation nor have they indicated their agreement to transfer their respective stocks in
the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the
assets of the old corporation was not within the powers of the board of directors of the latter as it
was authorized only to wind up the affairs of such company and not in any case to continue its
business. Moreover, no stockholders' meeting had been convened to discuss the deed of assignment
and the 2/3 vote required by the Corporation Law to authorize such conveyance had not been
obtained.

ISSUE: Is the board of directors permitted to undertake any activity outside of the usual liquidation
of the business of the dissolved corporation?

RULING: NO. The contention is based on the negative averment that no stockholders' meeting was
held and the 2/3 consent vote was not obtained, there is no need for affirmative proof. Even so,
there is the presumption of regularity which must operate in favor of the private respondents PBM,

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who insist that the proper authorization as required by the Corporation Law was duly obtained at a
meeting called for the purpose. (That authorization was embodied in a unanimous resolution dated
March 19, 1977, which was reproduced verbatim in the deed of assignment.) Otherwise, the new
PBM would not have been issued a certificate of incorporation, which should also be presumed to
have been done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did
not vote to authorize the action of the board of directors may, within forty days after the date upon
which such action was authorized, object thereto in writing and demand payment for his shares." The
record does not show, nor have the petitioners alleged or proven, that they filed a written objection
and demanded payment of their shares during the reglementary forty-day period. This circumstance
should bolster the private respondents' claim that the authorization was unanimous.

While we agree that the board of directors is not normally permitted to undertake any activity
outside of the usual liquidation of the business of the dissolved corporation, there is nothing to
prevent the stockholders from conveying their respective shareholdings toward the creation of a
new corporation to continue the business of the old. Winding up is the sole activity of a dissolved
corporation that does not intend to incorporate anew. If it does, however, it is not unlawful for the
old board of directors to negotiate and transfer the assets of the dissolved corporation to the new
corporation intended to be created as long as the stockholders have given their consent. This was
not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-1/2.

What the Court finds especially intriguing in this case is the fact that although the deed of
assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to question its
validity. All of four years had elapsed before the petitioners filed their action for liquidation of both
the old and the new corporations, and during this period, the new PBM was in full operation, openly
and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. The
petitioners and the private respondents are not strangers but relatives and close business
associates. The PBM office is in the heart of Metro Manila. The new corporation, like the old,
employs as many as 2,000 persons, the same personnel who worked for the old PBM. Additionally,
one of the petitioners, Chung Siong Pek was one of the directors who executed the deed of
assignment in favor of the old PBM and it was he also who received the deeded assets on behalf and
as treasurer of the new PBM. Surely, these circumstances must operate to bar the petitioners now
from questioning the deed of assignment after this long period of inaction in the protection of the
rights they are now belatedly asserting. Laches has operated against them.

We have said in a number of cases that laches, in a general sense, means the failure or neglect, for an
unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or
should have been done earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned or declined to
assert it.

TAN TIONG BIO VS CIR

G.R. No. L-15778 April 23, 1962

FACTS: Central Syndicate (syndicate for short) a corporation, sent a letter to the Collector of
Internal Revenue advising the latter that it purchased from Dee Hong Lue the surplus
properties which the said Dee Hong Lue had bought from the ForeignLiquidation
Commission and it assumed Dee Hong Lue's obligation and would pay a portion of the sales
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tax on saidsurplus goods and it was paying P43,750.00 in behalf of Dee Hong Lue as deposit
to answer for the payment of said salestax. The syndicate again wrote the Collector
requesting a refund for the purchase price of goods obtained from Dee HongLue was
adjusted and reduced. The CIR investigated the matter and the Collector decided that the
Central Syndicate wasthe importer and original seller of the surplus goods in question and,
therefore, the one liable to pay the sales tax. The Collector denied the request of the
syndicate for the refund. The Central Syndicate elevated the case to the Court of Tax
Appeals which denied CIR’s motion. On the ground that cannot be legally done it appearing
that the syndicate is already a non-existing entity due to the expiration of its corporate
existence dismissing syndicate’s appeal primarily on the ground that the Central Syndicate
has no personality to maintain the action the pending before it. From this order the
syndicate appealed to the Supreme Court wherein it intimated that the appeal shouldnot be
dismissed because it could be substituted by its successors-in-interest. The syndicate was
later substituted by its officers and directors (petitioners herein). Court of Tax Appeals
proceed to hear the case finding petitioners ordered to pay jointly and severally, to the
Collector of InternalRevenue deficiency sales tax and surcharge on the surplus goods
purchased by them from the Foreign LiquidationCommission. Petitioners filed appeal.

ISSUE: Is the sales tax in question can be enforced against the corporation’s successors -in-
interest who are the present petitioners since the Central Syndicate has already been
dissolved because of the expiration of its corporate existence.

RULING: The creditor of a dissolved corporation may follow its assets once they passed into
the hands of thestockholders. Net profit of the corporation (from the sale of the surplus
goods) and was distributed among the stockholders whenthe corporation liquidated and
distributed its assets immediately after the sale of the said surplus goods. Petitionersare
therefore the beneficiaries of the defunct corporation and as such should be held liable to
pay the taxes inquestion. The dissolution of a corporation does not extinguish the debts due
or owing to it because a creditor of a dissolvedcorporation may follow its assets, as in
the nature of a trust fund, into the hands of its stockholders. With reference to the effect of
dissolution upon taxes due from a corporation, "that the hands of the governmentcannot,
of course, collect taxes from a defunct corporation, it loses thereby none of its rights to
assess taxes whichhad been due from the corporation, and to collect them from persons,
who by reason of transactions with thecorporation, hold property against which the tax can
be enforced and that the legal death of the corporation nomore prevents such action than
would the physical death of an individual prevent the government from assessingtaxes
against him and collecting them from his administrator, who holds the property which the
decedent hadformerly possessed"

REYNOLDS PHILIPPINE CORPORATION vs. COURT OF APPEALS

G.R. NO. L-36187 JANUARY 17, 1989

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FACTS: In its complaint of June 2, 1966, the petitioner sought to recover from the private
respondent Serg's Products, Inc. the sum of P32,565.62 representing the unpaid price of
aluminum foils and cores sold and delivered by it to the latter. The private respondent
denied liability for payment of the account on the ground that the aluminum foils and cores
were ordered or purchased by Serg's Chocolate Products, a partnership of Antonio
Goquiolay and Luis Sequia Mendoza, not Serg's Products, Inc., a corporation managed and
controlled by Antonio Goquiolay and his wife Conchita Goquiolay, as majority stockholders
and principal officers.

ISSUE: Whether or not the real debtor of the petitioner were the Private Respondents.

RULING: YES. Although the commercial documents were indeed in the name of "Serg's
Chocolate Products," the following facts proved that the true purchaser of the aluminum
foils and cores from the petitioner, was "Serg's Products, Inc." not the partnership
denominated "Serg's Chocolate Products." The attempt to make the two factories appear
as two separate businesses, when in reality they are but one, is but a devise to defeat the
ends of the law and should not be permitted to prevail. Although the coffee factory is a
corporation and, by legal fiction, an entity existing separate and apart from persons
composing it, T and his family, it is settled that this fiction of law, which had been introduced
as a matter of convenience and to subserve the ends of justice cannot be invoked to further
an end subversive of that purpose.

MAMBULAO LUMBER COMPANY vs. PHILIPPINE NATIONAL BANK

GR No. L-22973 30 January 1968

FACTS: The plaintiff applied for an industrial loan with interest with the PNB. To secure the payment
of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings
and improvements existing thereon as well as various sawmill equipment, rolling unit and other fixed
assets of the plaintiff. However, the plaintiff failed to pay the amortizations on the amounts
released to and received by it.

Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise
refused to do so. Upon inspection and verification made by employees of the PNB, it was found that
the plaintiff had already stopped operation about the end of 1957 or early part of 1958. Thus, PNB
requested for the foreclosure of the real estate mortgage as well as the chattel mortgage.

ISSUE: Was petitioner’s foreclosure of the mortgage tenable?

RULING: No. It is clear that there was no further necessity to foreclose the mortgage of herein
appellant's chattels since the obligation has already been paid for. On this ground alone, it may be
declared that the sale of appellant's chattels, illegal and void. The Court took into consideration the
fact that the PNB must have been led to believe that the stipulated 10% of the unpaid loan for
attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such
belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was
deficient to liquidate the latter's total indebtedness. Be that as it may, however, still the subsequent

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sale of herein appellant's chattels illegal and objectionable on other grounds. The parties have
agreed that in case of foreclosure, the sale should be made elsewhere not necessarily where the
properties are located. This stipulation is allowed under the law which provides for the general rule.
However, the sale was made in the place where the properties are situated. A clear violation of the
agreement of the parties. Thus, the foreclosure is not tenable.

CATMON SALES INTERNATIONAL CORPORATION vs. ATTY. MANUEL D. YNGSON, JR., AS

LIQUIDATOR OF CATMON SALES INTERNATIONAL CORPORATION
G.R. No. 179761, January 15, 2010

FACTS: On February 8, 1999, petitioner Catmon Sales International Corporation filed a Petition for
Declaration in a State of Suspension of Payments with the SEC. On May 10, 2000, the SEC declared
petitioner technically insolvent considering that there was no settlement reached with its creditors
and that its inability to pay its creditors had lasted for a period longer than one year from the filing of
the petition. In the same Order, the SEC appointed respondent Manuel D. Yngson, Jr. of Receivers
and Liquidators, Inc. as petitioner’s liquidator.

On May 31, 2001, the SEC terminated the services of respondent. Respondent, in turn, submitted his
Accomplishment Report summarizing all the activities he had undertaken and billed the SEC the total
sum of P623,214.35, representing his liquidator’s fee and reimbursement of out-of-pocket expenses.
On December 18, 2001, the SEC ordered that an audit be conducted to determine the proper amount
to be paid to respondent. The Corporation Finance Department noted a slight difference in the
liquidator’s computation. On September 23, 2004, respondent manifested to the SEC that he was
willing to reduce his liquidator’s fee provided that his request for administrative expenses be settled
in full. On June 23, 2005, the SEC, through its General Counsel, ordered the members of the Board of
Directors of petitioner to pay respondent his claim for reimbursement of the expenses incurred in
the performance of his duties as liquidator, together with his liquidator’s fee, for a total amount of
P398,284.40

ISSUE: Whether or not the Securities and Exchange Commission has the power to fix the amount of
the liquidator’s fee.

RULING: Yes. However, to countenance petitioner’s posturing would be to unduly delimit the broad
powers granted to the SEC under Presidential Decree No. 902-A, specifically the all-encompassing
provision in Section 3 that the SEC has "absolute jurisdiction, supervision and control" over all
corporations who are the grantees of primary franchises and/or license or permit issued by the
government to operate in the Philippines. There is no gainsaying, therefore, that the SEC is
authorized to determine the fees of receivers and liquidators not only when there is "failure of
agreement" between the parties but also in the absence thereof. A contrary ruling would give
license to corporations under liquidation or receivership to refuse to participate in negotiations for
the fixing of the compensation of their liquidators or receivers so as to evade their obligation to pay
the same.

Petitioner may not have been given the chance to meet face to face with respondent for the purpose
of determining the latter’s fee. But this fact alone should not invalidate the amount fixed by the SEC.
What matters is the reasonableness of the fee in light of the services rendered by the liquidator. It is
the policy of the SEC to provide uniform/fair and reasonable compensation or fees for the

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comparable services rendered by the duly designated members of the Management Committee
(MANCOM), rehabilitation receivers and liquidators in corporations or partnerships placed under
MANCOM/receivership or liquidation, pursuant to Section 6(d) of Presidential Decree No. 902-A, the
SEC Rules on Corporate Recovery, the Corporation Code of the Philippines, the Securities Regulation
Code, and other related laws enforced by the SEC.

Clearly, the fee fixed by the SEC was not without basis. Besides, as correctly held by the CA,
"respondent actually rendered services in accordance with his oath of office as liquidator for which
he is entitled to be compensated by petitioner."

Chua vs. NLRC

190 SCRA 558, October 17, 1990

FACTS: Stanford Microsystems, Inc. was declared to be in a state of suspension of payments by the
SEC and an order was issued appointing SGV as the rehabilitation receiver. In view of these
developments, the former employees of Stanford filed with the DOLE cases for money claims.

The SEC eventually disapproved the Rehabilitation Plan submitted by SGV and dismissed Stanford's
Petition for Suspension of Payments and Appointment of a Rehabilitation Receiver. Subsequently,
the SEC ordered Stanford's liquidation.

At the time Stanford filed a petition for suspension of payments and appointment of rehabilitation
receiver with SEC, Stanford had seven secured creditor banks and approximately 7,124 employees.
The seven secured creditor banks of Stanford and 6,341 former employees executed a Memorandum
of Agreement to speed up the orderly liquidation of Stanford. All the creditor banks and the said
employees were represented by their respective counsel in the negotiations. The SEC issued an
Omnibus Order approving the MOA and confirming the appointment of the members of the MOA
Liquidation Committee as members of the Stanford Liquidation Committee. The NLRC, pursuant to a
petition for prohibition filed by the petitioners, issued an Injunction Order enjoining the
implementation of a prior NLRC order which restrained SEC Appointed liquidation Committee of
Stanford Microsystems Inc., from implementing the Memorandum of Agreement. The NLRC then
issued a 2nd resolution to hold in abeyance and/or defer the payment of the P6,000,000.00 to the
former employees of the company. A 3rd resolution was issued by the NLRC against the SEC
Liquidation Committee of Stanford Microsystems, Inc., to answer a petition to cite it in contempt.

At the time the three questioned NLRC resolutions were issued, the MOA Liquidation Committee
was already in the process of distributing money claims to the former employees of Stanford.

ISSUE: Whether the SEC or the NLRC has jurisdiction over the liquidation of Stanford Microsystems,
Inc., including the procedures for settling the money claims of former workers and employees

RULING: An insolvency proceeding is similar to the settlement of a decedent's estate in that it is a

proceeding in rem and is binding against the whole world. Therefore, all persons which have interest
in the subject matter involved, whether or not they are given notice are equally bound. Thus, "a
liquidation of similar import or other equivalent general liquidation must also necessarily be a
proceeding in rem so that all other interested persons whether known to the parties or not may be
bound by such proceedings."

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The rule is that a declaration of bankruptcy or a judicial liquidation must be present before
preferences over various money claims may be enforced. Since a liquidation proceeding is a
proceeding in rem, all claims of creditors whether preferred or non-preferred, the Identification of
the preferred ones and the totality of the employer's asset should be brought into the picture. There
can then be an authoritative, fair and binding adjudication.

The money claims of workers pose a special problem of jurisdiction when liquidation proceedings are
on-going because of the highly preferred nature given by law to said claims.

In these cases, however, the problem poses no particular difficulty because the workers themselves
have voluntarily opted to participate in the liquidation proceedings. Their representatives in the MOA
Liquidation Committee participated in the discussions and proceedings which led to the orders to
distribute payments to the various claimants. The workers themselves oppose the orders of the
NLRC which have denied them to speedy receipt of funds they urgently need. It is a grave abuse of
discretion on the part of NLRC to raise a technical question of its own jurisdiction when the workers
over whom it is raised reject the assertion of that jurisdiction. The NLRC has allowed only 25 out of
7,124 employees and a former counsel trying to claim alleged unpaid fees to delay the immediate
payment of the worker's claims.

Apparently, the employees filed the cases to enforce money claims which they might not collect in
view of Stanford's financial crisis and impending closure. Under these circumstances, and bearing in
mind the welfare of the workers and their voluntary choices as to how their claims may be equitably
settled to their satisfaction, the Court ruled that such money claims were correctly submitted in the
course of the liquidation proceedings at the SEC.

REPUBLIC PLANTERS BANK vs. COURT OF APPEALS and FERMIN CANLAS

G.R. No. 93073 December 21, 1992

FACTS: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue
of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank
in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank
issued nine promissory notes. On the right bottom margin of the promissory notes appeared the
signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and
(in) his personal capacity" typewritten below.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing,
Inc. was apparently rubber stamped above the signatures of defendant and private respondent. On
December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to
Pinch Manufacturing Corporation. On February 5, 1982, petitioner bank filed a complaint for the
recovery of sums of money covered among others, by the nine promissory notes with interest
thereon, plus attorney's fees and penalty charges. The complainant was originally brought against
Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its place.

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Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer
and failed to appear at the scheduled pre-trial conference despite due notice. Only private
respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the
promissory notes in question since according to him, he was not an officer of Pinch Manufacturing
Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the time he affixed his signature.

ISSUE: Whether or not the amendment in a corporation’s Articles of Incorporation effecting a

change in the corporate name extinguished the personality of the original corporation

RULING: The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and its
character is in no respect changed. A change in the corporate name does not make a new
corporation, and whether effected by special act or under a general law, has no affect on the identity
of the corporation, or on its property, rights, or liabilities. The corporation continues, as before,
responsible in its new name for all debts or other liabilities which it had previously contracted or
incurred.

As a general rule, officers or directors under the old corporate name bear no personal liability for
acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as
such officers acted in their capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the same name is still bound
by the acts of its agents if authorized by the Board.

OTHER CORPORATIONS
Close Corporations

MANUEL R. DULAY ENTERPRISES, INC vs. THE HONORABLE COURT OF APPEALS

G.R. No. 91889, August 27, 1993

FACTS: Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as
members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as
president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and
designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10
shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a
property covered by TCT No. 17880 and known as Dulay Apartment consisting of sixteen (16)
apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located
at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.

Petitioner corporation through its president, Manuel Dulay, obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had

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to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a
result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the
subject property since property since 1973 while at the same time managing the Dulay
Apartment at his shareholdings in the corporation was subsequently increased by his father.

Manuel Dulay by virtue of Board Resolution petitioner corporation sold the subject property
to private respondents spouses Maria Theresa and Castrense Veloso in the amount of
P300,000.00 as evidenced by the Deed of Absolute Sale.Subsequently, private respondent
Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to
private respondent Manuel A. Torres for a loan of P250,000.00 which was duly
annotated.Upon the failure of private respondent Maria Veloso to pay private respondent
Torres, the subject property was sold on April 5, 1978 to private respondent Torres as the
highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's
Sale issued on April 20, 1978.

ISSUE: Is the doctrine of piercing the veil of corporate entity applicable?

RULING: NO. Petitioner Corporation is classified as a close corporation and consequently a

board resolution authorizing the sale or mortgage of the subject property is not necessary
to bind the corporation for the action of its president. At any rate, corporate action taken at
a board meeting without proper call or notice in a close corporation is deemed ratified by
the absent director unless the latter promptly files his written objection with the secretary
of the corporation after having knowledge of the meeting which, in his case, petitioner
Virgilio Dulay failed to do.

It is relevant to note that although a corporation is an entity which has a personality distinct
and separate from its individual stockholders or members,the veil of corporate fiction may
be pierced when it is used to defeat public convenience justify wrong, protect fraud or
defend crime. The privilege of being treated as an entity distinct and separate from its
stockholder or members is therefore confined to its legitimate uses and is subject to certain
limitations to prevent the commission of fraud or other illegal or unfair act. When the
corporation is used merely as an alter ego or business conduit of a person, the law will
regard the corporation as the act of that person.

San Juan Structural and Steel Fabricators, Inc. vs CA

GR No. 129459 September 29, 1998

FACTS: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s alleged that on
February 14, 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land identified as lot 30, Block
1 of the Acropolis Greens Subdivision located in the district of Murphy, Quezon City, Metro
Manila containing an area of 414 sqm.

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Plaintiff-appellant paid the down payment in the sum of P100, 000, the balance to be paid on
or before March 2, 19889; that on March 2, 1989, plaintiff-appellant was ready with the
amount corresponding to the balance, covered by Metrobank cashier’s check no. 004223
payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee were supposed to meet in the plaintiff-appellant’s office but defendant-
appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that defendant-appelle despite
repeated demands and in utter disregard of its commitments had refused to execute the
transfer of rights/deed of assignment which is necessary to transfer the certificate of title;

On April 6, 1989 defendant ACL Development Corporation and Motorich Sales Corporation
entered into a deed of absolute sale whereby the former transferred to the latter the
subject property; that by reason of said transfer; the registry of deeds of Quezon City issued
a new title in the name of Motorich Sales Corporation, represented by defendant-appellee
Nenita Lee Gruenbeg and Reynaldo L. Gruenbeg;

That as a result of defendants-appellees Nenita and Motorich’s bad faith in refusing to

execute a formal transfer of rights/deed of assignment, plaintiff-appellant suffered moral
and nominal damages which may be assessed against defendant-appellees in the sum of
P500,000; that as a result of an unjustified and unwarranted failure to execute the required
transfer or formal deed of sale in favor of plaintiff-appellant, defendant-appellees suffered
damages.

ISSUE: Can the corporation’s treasurer act bind the corporation?

RULING: No. Such contract cannot bind Motorich, because it never authorized or ratified
such sale. A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of the
corporation is not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the corporation’s board of
directors.

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided

in this code, the corporate powers of all corporations formed under this code shall be
exercised, all business conducted, and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the stockholders of stocks,
or where there is no stock, from among the members of the corporations, who shall hold
office for 1 year and until their successors are elected and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed their authority, their actions,
cannot bind the corporation, unless it has ratified such acts as is estopped from disclaiming
them.

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 Gala vs. Ellice Agro-Industrial Corporation
G.R. No. 156819, December 11, 2003

FACTS: The spouses Manuel and Alicia Gala and their children Guia Domingo, Ofelia Gala, Raul Gala
and Rita Benson, and their encargados (rough translation; representatives) VirgilioGaleon and Julian
Jader, formed and organized Ellice Agro Industrial Corporation (Ellice). As payment for their
subscriptions the Spouses Gala transferred several parcles of land to Ellice. Subsequently, the
children and the encargados formed and organized another corporation, Margo Management and
Development Corporation (Margo). The father, Manuel Gala, sold his shares in Ellice to Margo.
Subsequently, Alicia transferred her shares to Margo. In 1990, a special stockholder’s meeting of
Margo was held where a new board of directors was elected. Raul Gala was elected as chairman,
president, and general manager. During the meeting, the board approved the commencement of
proceeding to annul the dispositions of Margos’s property made by Alicia Gala. Similarity, a special
stockholder’s meeting was held in Ellice. A new board was elected and Raul Gala also became
chairman, president and GM of Ellice, Raul Gala along with the respondents filed a case against the
petitiones in the SEC for accounting and restitution for alleged mismanagement of funds of Ellice. In
turn the petitioners filed in the SEC a petition for the nullification of the election of directors of
officers of both Margo and Ellice. Essentially, petitioners sought to disregard the separate juridical
personalities of two corporations, namely, Ellice Agro-Industrial Corporation and Margo
Management and Development Corporation, for the purpose of treating all property purportedly
owned by said corporations as properly solely owned by the Gala Spouses. Among their arguments
were: (1) said corporations were organized for purpose of exempting the property the property of
the Gala Spouses from the coverage of land reform laws, and (2) the two corporations were meant
to be used as mere tools for the avoidance of estate taxes.

ISSUE: What is the concept of a close corporation?

RULING: The concept of a close corporation organized for the purpose of running a family business
or managing family property has formed the backbone of Philippine commerce and industry.
Through this device, Filipino families have been able to turn their humble, hard-earned life savings
into going concerns capable of providing them and their families with a modicum of material comfort
and financial security as a reward for years of hard work. A family corporation should serve as a
rallying point for family unity and prosperity, not as a flashpoint for familial strife. It is hoped that
people reacquaint themselves with the concepts of mutual aid and security that are the original
driving forces behind the formation of family corporations and use these tenets in order to facilitate
more civil, if not more amicable, settlements of family corporate disputes.

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, ,

vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES,
JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO,
G.R. No. 91889 August 27, 1993

FACTS: Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of
its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer
and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E.
Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares
and designated as secretary, owned a property covered by TCT No. 17880 and known as Dulay

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Apartment consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square
meters lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street,
Pasay City.

Petitioner corporation through its president, Manuel Dulay, obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to
borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of
said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since
property since 1973 while at the same time managing the Dulay Apartment at his shareholdings in
the corporation was subsequently increased by his father.

Manuel Dulay by virtue of Board Resolution petitioner corporation sold the subject property to
private respondents spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as
evidenced by the Deed of Absolute Sale.Subsequently, private respondent Maria Veloso, without the
knowledge of Manuel Dulay, mortgaged the subject property to private respondent Manuel A.
Torres for a loan of P250,000.00 which was duly annotated.Upon the failure of private respondent
Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to
private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by
the Certificate of Sheriff's Sale issued on April 20, 1978.

ISSUE: Whether or not the doctrine of piercing the veil of corporate entity is applicable

RULING: Section 101 of the Corporation Code of the Philippines provides:

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be
deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of
all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.

If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject property is not necessary to bind
the corporation for the action of its president. At any rate, corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified by the absent director
unless the latter promptly files his written objection with the secretary of the corporation after
having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and
separate from its individual stockholders or members, the veil of corporate fiction may be pierced
when it is used to defeat public convenience justify wrong, protect fraud or defend crime. The
privilege of being treated as an entity distinct and separate from its stockholder or members is

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therefore confined to its legitimate uses and is subject to certain limitations to prevent the
commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation as the act of that person.
The Supreme Court had repeatedly disregarded the separate personality of the corporation where
the corporate entity was used to annul a valid contract executed by one of its members.

SERGIO NAGUIAT v. CLARK FIELD TAXI, INC.

GR No. 116123 March 13, 1997

FACTS: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services
("AAFES") for the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's
president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises,
Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned corporation.

Individual respondents were previously employed by CFTI as taxicab drivers. Due to the phase-out of
the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was
dissolved, and the services of individual respondents were officially terminated on November 26,
1991. The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo
Castillo, and CFTI held negotiations as regards separation benefits that should be awarded in favor of
the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every
year of service as severance pay. Most of the drivers accepted said amount in December 1991 and
January 1992. However, individual respondents herein refused to accept theirs.

Instead, after disaffiliating themselves from the drivers' union and filed a complaint against "Sergio
F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., and CFTI with
Antolin T. Naguiat as vice president and general manager, as party respondent.

ISSUE: Is Sergio Naguiat liable for the claims instituted by the taxi drivers against his company?

RULING: YES.

As provided for under the fifth paragraph of Section 100 of the Corporation Code specifically
imposes personal liability upon the stockholder actively managing or operating the business and
affairs of the close corporation. In fact, in posting the surety bond required by this Court for the
issuance of a temporary restraining order enjoining the execution of the assailed NLRC Resolutions,
only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply
with the obligation thereunder, i.e., "to guarantee the payment to private respondents of any
damages which they may incur by reason of the issuance of a temporary restraining order sought, if
it should be finally adjudged that said principals were not entitled thereto.The Court here finds no
application to the rule that a corporate officer cannot be held solidarily liable with a corporation in
the absence of evidence that he had acted in bad faith or with malice. In the present case, Sergio
Naguiat is held solidarily liable for corporate tort because he had actively engaged in the
management and operation of CFTI, a close corporation.

Antolin Naguiat, however, could not be held liable. Although he carried the title of "general
manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no
evidence on the extent of his participation in the management or operation of the business was

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preferred. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio
Naguiat to the private respondents.

Non-stock corporations

REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV.
EDWINO MERCADO, REV. DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN
GALAPIA versus HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO BASALONG, AUGUSTO
CATANGI, PAUL GARCIA, QUIDO RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA

G.R. No. 128464, June 20, 2006

FACTS: The Lutheran Church in the Philippines (hereinafter referred to as the LCP) is a religious
organization duly registered with the Securities and Exchange Commission on May 8, 1967. Its
members are comprised of the Lutheran clergymen and the local Lutheran congregations in
the Philippines which, at the time of its incorporation, was divided into three districts.

The governing body of the LCP is its national board of directors (hereinafter referred to as the LCP
Board) which was originally composed of seven (7) members serving a term of two years. Six
members of the LCP Board are elected separately in district conferences held in each district, with
two members representing each district the elected district president becomes the clergy
representative to the LCP Board and the other is a lay representative to the LCP Board. The seventh
member of the Board is the National President of the LCP who is elected at large in a national
convention held in October of every even-numbered year.

During the 1976 LCP national convention, a resolution was passed dividing the North Luzon district
(NLD) into two districts: the NLD Highland District (NLHD) and the NLD Lowland District (NLLD) --
thereby increasing the number of directors from seven (7) to nine (9). Again in the 1984 LCP national
convention, a resolution was passed creating another district, namely, the Visayan Islands District
(VID) thereby increasing further the number of directors to eleven (11). Both resolutions were passed
pursuant to Section 2 of Article 7 of the LCP By-Laws which provides that: LCP in convention may
form additional districts as it sees fit.

The members of the Batong group are the duly elected board of directors of the LCP at the time of
the filing of SEC-SICD Case No. 3857. On the other hand, the Ao-As group have served in various
capacities as directors or officers of the LCP.

On August 17, 1990, the Ao-As group filed SEC-SICD Case No. 3857 for accounting and damages with
prayer for preliminary injunction and appointment of a management committee.

During the hearings on the application for creation of a management committee, [the Batong group]
filed an Urgent Motion to Suspend the Proceedings of the Case in view of an amicable settlement

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agreed upon by the parties entitled A FORMULA FOR CONCORD.However, notwithstanding the
FORMULA FOR CONCORD, the SEC-SICD denied [the Batonggroups] motion to suspend
proceedings.

On January 23, 1992, petitioners filed a Motion to Dismiss alleging again the FORMULA OF
CONCORD. Again, the SEC-SICD denied [the Batong groups] motion.

Subsequently, on September 3, 1992, the SEC-SICD Hearing Officer after the presentation of
the parties respective evidence, issued an Order creating a management committee.

On October 6, 1992, [the Ao-As group] filed a motion for issuance of a writ of preliminary injunction
seeking to enjoin [the Batong group] not only from continuing to act as LCP board of directors but
also from calling a national convention to elect new set of officers and members of the Board as
provided in the LCP Constitution and By-Laws.

On October 16, 1992, the SEC-SIDC ordered the issuance of a writ of preliminary injunction prohibiting
[the Batong group] from acting as a board of directors or officers of Lutheran Church in the
Philippines, Inc. (LCP) and from holding any convention or general or special membership meeting as
well as election of the members of the LCP board of directors, until further orders.

The Batong group allege that the SEC-SIDC management committee used the Order dated October
16, 1992 to carry out ultra vires acts, more specifically: (i) to take control of and closing down church
buildings; (ii) to evict LCP clergymen from their church parsonages; (iii) to ordain and appoint new
clergymen to replace incumbent members of the church hierarchy. In at least one case which has
reached the Court.

Batong group then filed a Petition for Review with the Court of Appeals seeking to annul the
Decision of the Securities and Exchange Commission En Banc. In said Petition, the Batong group
alleged that the Ao-As group persisted in carrying out ultra vires and illegal acts.

ISSUE: Whether or not the manner of elections of the Board of Directors of the Lutheran Church in
the Philippines as provided for in its By-Laws is invalid

RULING: As argued by the Ao-As group, however, the validity of the LCP By-Laws providing for a
special procedure in the election of the LCP Board of Directors was never put in issue, either by
the Ao-As group or the Batong group. The Court of Appeals, therefore, should have refrained from
passing upon such issue, motu propio.

The ruling of the SEC En Banc setting aside the SEC-SICD determination that LCP Board of Directors
was illegally constituted has therefore become final and executory, subject to the determination by
the SEC-SICD of the seven members that should comprise the Board, as likewise provided in said
Decision.

Even the Batong group agrees with the Ao-As group on the validity of the by-laws provision
concerning the election of the directors by districts.

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In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the
Corporation Code pertaining to non-stock corporations provides that (t)he right of the members of
any class or classes (of a non-stock corporation) to vote may be limited, broadened or denied to the
extent specified in the articles of incorporation or the by-laws. This is an exception to Section 6 of
the same code where it is provided that no share may be deprived of voting rights except those
classified and issued as preferred or redeemable shares, unless otherwise provided in this Code. The
stipulation in the By-Laws providing for the election of the Board of Directors by districts is a form of
limitation on the voting rights of the members of a non-stock corporation as recognized under the
aforesaid Section 89. Section 24, which requires the presence of a majority of the members entitled
to vote in the election of the board of directors, applies only when the directors are elected by the
members at large, such as is always the case in stock corporations by virtue of Section 6.

PAUL LEE TAN, ET.AL. vs. PAUL SYCIP and MERRITTO LIM
G.R. No. 153468 August 17, 2006

ISSUE: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of trustees. During the
annual members’ meeting held on April 6, 1998, there were only eleven (11) living member-trustees,
as four (4) had already died. Out of the eleven, seven (7) attended the meeting through their
respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the
objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right to
vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of
quorum. She held that the basis for determining the quorum in a meeting of members should be
their number as specified in the articles of incorporation, not simply the number of living members.

The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing officer in
toto. It found to be untenable their contention that the word "members," as used in Section 52 of
the Corporation Code, referred only to the living members of a nonstock corporation. Hence, this
Petition.

ISSUE: Whether or not in NON-STOCK corporations, dead members should still be counted in
determination of quorum for purposed of conducting the Annual Members’ Meeting.

RULING: Generally, stockholders’ or members’ meetings are called for the purpose of electing
directors or trustees and transacting some other business calling for or requiring the action or
consent of the shareholders or members, such as the amendment of the articles of incorporation

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and bylaws, sale or disposition of all or substantially all corporate assets, consolidation and merger
and the like, or any other business that may properly come before the meeting.

Under the Corporation Code, stockholders or members periodically elect the board of directors or
trustees, who are charged with the management of the corporation. The board, in turn, periodically
elects officers to carry out management functions on a day-to-day basis. As owners, though, the
stockholders or members have residual powers over fundamental and major corporate changes.

Conformably with the foregoing principles, one of the most important rights of a qualified
shareholder or member is the right to vote -- either personally or by proxy -- for the directors or
trustees who are to manage the corporate affairs. In nonstock corporations, the voting rights attach
to membership. Members vote as persons, in accordance with the law and the bylaws of the
corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in
the articles of incorporation or bylaws. We hold that when the principle for determining the quorum
for stock corporations is applied by analogy to nonstock corporations, only those who are actual
members with voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual
number of voting rights, not the number or numerical constant that may originally be specified in the
articles of incorporation, constitutes the quorum. Section 25 of the Code specifically provides that a
majority of the directors or trustees, as fixed in the articles of incorporation, shall constitute a
quorum for the transaction of corporate business (unless the articles of incorporation or the bylaws
provide for a greater majority).

Having thus determined that the quorum in a members’ meeting is to be reckoned as the actual
number of members of the corporation, the next question to resolve is what happens in the event of
the death of one of them.

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a
shareholder, the executor or administrator duly appointed by the Court is vested with the legal title
to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor. On the other hand, membership in
and all rights arising from a nonstock corporation are personal and non-transferable, unless the
articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the
determination of whether or not "dead members" are entitled to exercise their voting rights
(through their executor or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by
the death of the member. Section 91 of the Corporation Code further provides that termination
extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles
of incorporation or the bylaws. Applying Section 91 to the present case, we hold that dead members
who are dropped from the membership roster in the manner and for the cause provided for in the
By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the
requisite quorum for the annual members’ meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual members’ meeting,
conducted with six members present, was valid.

VALLEY GOLF & COUNTRY CLUB, Inc., petitioner vs. VDA. DE CARAM, respondent
G.R. No. 158805 April 16, 2009
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FACTS: Valley Golf & Country Club (Valley Golf) is a duly constituted non-stock, non-profit
corporation which operates a golf course. The members and their guests are entitled to play golf on
the said course and otherwise avail of the facilities and privileges provided by Valley Golf. The
shareholders are likewise assessed monthly membership dues. In 1961, the late Congressman Fermin
Z. Caram, Jr. (Caram), the husband of the present respondent, subscribed to purchased and paid for
in full one share (Golf Share) in the capital stock of Valley Golf. He was issued Stock Certificate No.
389 dated 26 January 1961 for the Golf Share. The Stock Certificate likewise indicates a par value
of P9,000.00.

Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped paying his
monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims to have sent five
(5) letters to Caram concerning his delinquent account within the period from 27 January 1986 until 3
May 1987, all forwarded to P.O. Box No. 1566, Makati Commercial Center Post Office, the mailing
address which Caram allegedly furnished Valley Golf.

The Golf Share was sold at public auction on 11 June 1987 for P25,000.00 after the Board of Directors
had authorized the sale in a meeting on 11 April 1987, and the Notice of Auction Sale was published in
the 6 June 1987 edition of the Philippine Daily Inquirer.

ISSUE: Whether or not a non-stock corporation seize and dispose of the membership share of a fully-
paid member on account of its unpaid debts to the corporation when it is authorized to do so under
the corporate by-laws but not by the Articles of Incorporation.

RULING: NO. It may be conceded that the actions of Valley Golf were, technically speaking, in accord
with the provisions of its by-laws on termination of membership, vaguely defined as these are. Yet
especially since the termination of membership in Valley Golf is inextricably linked to the deprivation
of property rights over the Golf Share, the emergence of such adverse consequences make legal and
equitable standards come to fore.

The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we can cite
with approval. Lopez cites: In order that the action of a corporation in expelling a member for cause
may be valid, it is essential, in the absence of a waiver, that there shall be a hearing or trial of the
charge against him, with reasonable notice to him and a fair opportunity to be heard in his defense. If
the method of trial is not regulated by the by-laws of the association, it should at least permit
substantial justice. The hearing must be conducted fairly and openly and the body of persons before
whom it is heard or who are to decide the case must be unprejudiced.

It is unmistakably wise public policy to require that the termination of membership in a non-stock
corporation be done in accordance with substantial justice. No matter how one may precisely define
such term, it is evident in this case that the termination of Caram’s membership betrayed the
dictates of substantial justice.

Calatagan Golf & Country Club, Inc vs Clemente, Jr.

GR No. 165443, April 16, 2009

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FACTS: Clemente applied to purchase one share of stock of Calatagan, indicating in his
application for membership his mailing address at "Phimco Industries, Inc. – P.O. Box 240,
MCC," complete residential address, office and residence telephone numbers, as well as the
company (Phimco) with which he was connected, Calatagan issued to him Certificate of
Stock No. A-01295 on 2 May 1990 after paying P120,000.00 for the share.

Calatagan charges monthly dues on its members to meet expenses for general operations,
as well as costs for upkeep and improvement of the grounds and facilities. The provision on
monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. It is also
reproduced at the back of each certificate of stock.

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more
than sixty (60) days, specifically P5,600.00 as of 31 October 1992. Calatagan also included
Clemente’s name in the list of delinquent members posted on the club’s bulletin board. On 1
December 1992, Calatagan’s board of directors adopted a resolution authorizing the
foreclosure of shares of delinquent members, including Clemente’s; and the public auction
of these shares.

ISSUE: Whether or not the action of Clemente had prescribed pursuant to Section 69 of the
Corporation Code, and that the requisite notices under both the law and the by-laws had
been rendered to Clemente.

RULING: Yes. There are fundamental differences that defy equivalence or even analogy
between the sale of delinquent stock under Section 68 and the sale that occurred in this
case. At the root of the sale of delinquent stock is the non-payment of the subscription price
for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value
of the share or shares subscribed. In this case, Clemente had already fully paid for the share
in Calatagan and no longer had any outstanding obligation to deprive him of full title to his
share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his
share and the non-stock corporation, pursuant to an article or by-law provision designed to
address that situation, decided to sell such share as a consequence. But that is not the case
here, and there is no purpose for us to apply Section 69 to the case at bar.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to
govern the payment of monthly dues, the declaration of a member as delinquent, and the
constitution of a lien on the shares and its eventual public sale to answer for the member’s
debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation
"shall be terminated in the manner and for the causes provided in the articles of

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incorporation or the by-laws." The By-law provisions are elaborate in explaining the manner
and the causes for the termination of membership in Calatagan, through the execution on
the lien of the share. The Court is satisfied that the By-Laws, as written, affords due
protection to the member by assuring that the member should be notified by the Secretary
of the looming execution sale that would terminate membership in the club. In addition, the
By-Laws guarantees that after the execution sale, the proceeds of the sale would be
returned to the former member after deducting the outstanding obligations. If followed to
the letter, the termination of membership under this procedure outlined in the By-Laws
would accord with substantial justice.

Lim vs Moldex Lance, Inc.

G.R. No. 206038, January 25, 2017

FACTS: Lim is a unit owner pf Golden Empire Tower, a condominium project of Moldex
Lance, Inc.(Moldex). Concodor, on the other hand, is a non-stock,non-profit corporation,
which is the registered corporation for the Golden Empire Tower. Lim, being a unit owner of
Golden Empire Tower, is a member of Condocor. On the other hand, Moldex became a
member of Condocor on the basis of its ownership of the 220 unsold units in the Golden
Empire Tower. When Condocor held its annual general membership meeting. Its Corporate
secretary certified, and Jaminola, as Chairman, declared the existence of a quorum even
though only 29 of the 108 unit buyers were present. The declaration of quorum was based
on the presence of the majority of the voting rights, including those pertaining to the 220
unsold units held by Moldex through its representatives. Lim, through her attorney-in-fact,
objected to the validity of the meeting. The objection was denied. Thus, Lim and all the unit
owners present, except for one, walked out and left the meeting. Despite the walkout, the
individual respondents and the other unit owner proceeded with the annual general
membership meeting and elected the new members of the Board of Directors for 2012-2013.
All four (4) individual respondents were voted as members of the board, together with three
(3) others whose election was conditioned on their subsequent confirmation. Lim then filed
an election protest before the RTC. The said court dismissed the complaint holding that
there was a quorum.Thus, lim filed the present petition.

ISSUE: Whether the election held during the general membership meeting is valid.

RULING: A stockholders' or members' meeting must comply with the following requisites to
be valid:

1. The meeting must be held on the date fixed in the By- Laws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record;
3. It must be called by the proper party;

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4. It must be held at the proper place; and
5. Quorum and voting requirements must be met.

Of these five (5) requirements, the existence of a quorum is crucial. Any act or transaction
made during a meeting without quorum is rendered of no force and effect, thus, not binding
on the corporation or parties concerned. Under Section 52 of the Corporation Code, a
quorum shall consist of the stockholders representing a majority of the outstanding capital
stock or a majority of the members in the case of non-stock corporations. Thus, for stock
corporations, the quorum is based on the number of outstanding voting stocks while for
non-stock corporations, only those who are actual, living members with voting rights shall
be counted in determining the existence of a quorum. The qualification "with voting rights"
simply recognizes the power of a non-stock corporation to limit or deny the right to vote of
any of its members. Condocor's By-Laws provides that attendance of the majority of the
members who are in good standing shall constitute a quorum for the meeting. The By-Laws
do not provide that majority of the total voting rights, without qualification, will constitute a
quorm. The By-Laws of Condocor has no rule different from that provided in the Corporation
Code with respect the determination of the existence of a quorum. The quorum during the
July 21, 2012 meeting should have been majority of Condocor's members in good standing.
Accordingly, there was no quorum during the July 21,2012 meeting considering that only 29
of the 108 unit buyers were present. As there was no quorum, any resolution passed during
the July 21, 2012 annual membership meeting was null and void and, therefore, not binding
upon the corporation or its members. The meeting being null and void, the resolution and
disposition of other legal issues emanating from the null and void July 21, 2012 membership
meeting has been rendered unnecessary.

FUNA vs. MANILA ECONOMIC AND CULTURAL OFFICE AND COA

G.R. No. 193264, February 4, 2014

FACTS: After the Chinese civil war, two (2) governments in a stalemate espousing competing
assertions of sovereignty. On one hand is the communist People’s Republic of China (PROC) which
controls the mainland territories, and on the other hand is the nationalist Republic of China (ROC)
which controls the island of Taiwan. For a better part of the past century, both the PROC and ROC
adhered to a policy of “One China.” Subsequently, he Philippines formally ended its official
diplomatic relations with the government in Taiwan on 9 June 1975, when the country and the PROC
expressed mutual recognition thru the Joint Communiqué of the Government of the Republic of the
Philippines and the Government of the People’s Republic of China (Joint Communiqué). The
Philippines’ commitment to the One China policy of the PROC, however, did not preclude the country
from keeping unofficial relations with Taiwan on a “people–to–people” basis.

Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines maintained
an unofficial relationship facilitated by the offices of the Taipei Economic and Cultural Office, for the
former, and the MECO, for the latter. The MECO was organized on 16 December 1997 as a non–
stock, non–profit corporation under Batas Pambansa Blg. 68 or the Corporation Code.13 The
purposes underlying the incorporation of MECO, as stated in its articles of incorporation.

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From the moment it was incorporated, the MECO became the corporate entity “entrusted” by the
Philippine government with the responsibility of fostering “friendly” and “unofficial” relations with
the people of Taiwan, particularly in the areas of trade, economic cooperation, investment, cultural,
scientific and educational exchanges. To enable it to carry out such responsibility, the MECO was
“authorized” by the government to perform certain “consular and other functions” that relates to
the promotion, protection and facilitation of Philippine interests in Taiwan.

Petitioner sent a letter to the COA requesting for a “copy of the latest financial and audit report” of
the MECO invoking, for that purpose, his “constitutional right to information on matters of public
concern.” The petitioner made the request on the belief that the MECO, being under the
“operational supervision” of the Department of Trade and Industry (DTI), is a government owned
and controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA. Assistant
Commissioner Naranjo revealed that the MECO was “not among the agencies audited by any of the
three Clusters of the Corporate Government Sector.”

Petitioner file a petition for mandamus and posits that by failing to audit the accounts of the MECO,
the COA is neglecting its duty under Section 2(1), Article IX–D of the Constitution to audit the
accounts of an otherwise bona fide GOCC or government instrumentality. It is the adamant claim of
the petitioner that the MECO is a GOCC without an original charter or, at least, a government
instrumentality, the funds of which partake the nature of public funds.2

On the petition’s merits, the MECO denies the petitioner’s claim that it is a GOCC or a government
instrumentality. While performing public functions, the MECO maintains that it is not owned or
controlled by the government, and its funds are private funds. The COA, on the other hand, advances
that the mandamus petition ought to be dismissed on procedural grounds and on the ground of
mootness.

ISSUE: Is MECO a GOCC or Government Instrumentality?

RULING: MECO is not a GOCC or government instrumentality. The Supreme Court ruled that
government instrumentalities are agencies of the national government that, by reason of some
“special function or jurisdiction” they perform or exercise, are allotted “operational autonomy” and
are “not integrated within the department framework.” Subsumed under the rubric “government
instrumentality” are the following entities: a.) regulatory agencies, b.) chartered institutions, c.)
government corporate entities or government instrumentalities with corporate powers (GCE/GICP);
and d.) GOCCs

GOCCs, therefore, are “stock or non–stock” corporations “vested with functions relating to public
needs” that are “owned by the Government directly or through its instrumentalities.” By definition,
three attributes thus make an entity a GOCC: first, its organization as stock or non–stock corporation;
second, the public character of its function; and third, government ownership over the same.

Possession of all three attributes is necessary to deem an entity a GOCC. In this case, there is not
much dispute that the MECO possesses the first and second attributes. It is the third attribute, which
the MECO lacks.

Moreover, the MECO is organized as a non–stock corporation. The purposes for which the MECO
was organized are somewhat analogous to those of a trade, business or industry chamber, but only

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on a much larger scale i.e., instead of furthering the interests of a particular line of business or
industry within a local sphere, the MECO seeks to promote the general interests of the Filipino
people in a foreign land. And, it is not disputed that none of the income derived by the MECO is
distributable as dividends to any of its members, directors or officers.

Furthermore, MECO Is Not Owned or Controlled by the Government. Organization as a non–stock

corporation and the mere performance of functions with a public aspect, however, are not by
themselves sufficient to consider the MECO as a GOCC. The fact of the incorporation of the MECO
under the Corporation Code is key. The MECO was correct in postulating that, as a corporation
organized under the Corporation Code, it is governed by the appropriate provisions of the said code,
its articles of incorporation and its by–laws. In this case, it is the by–laws of the MECO that stipulates
that its directors are elected by its members; its officers are elected by its directors; and its members,
other than the original incorporators, are admitted by way of a unanimous board resolution.

It is significant to note that none of the original incorporators of the MECO were shown to be
government officials at the time of the corporation’s organization. Indeed, none of the members,
officers or board of directors of the MECO, from its incorporation up to the present day, were
established as government appointees or public officers designated by reason of their office. There
is, in fact, no law or executive order that authorizes such an appointment or designation. Hence,
from a strictly legal perspective, it appears that the presidential “desire letters” pointed out by
petitioner if such letters even exist outside of the case of Mr. Basilio are, no matter how strong its
persuasive effect may be, merely recommendatory.

Lastly, MECO Is Not a Government Instrumentality, it is a Sui Generis Entity. The categorical exclusion
of the MECO from a GOCC makes it easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the regulatory agencies, chartered
institutions and GCE/GICP are all, by explicit or implicit definition, creatures of the law.110 The MECO
cannot be any other instrumentality because it was, as mentioned earlier, merely incorporated under
the Corporation Code.

Hence, unless its legality is questioned, and in this case, it was not, the fact that the MECO is
operating under the policy supervision of the DTI is no longer a relevant issue to be reckoned with
for purposes of this case.

Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other private
corporations. From its over–reaching corporate objectives, its special duty and authority to exercise
certain consular functions, up to the oversight by the executive department over its operations all
the while maintaining its legal status as a non–governmental entity the MECO is, for all intents and
purposes, sui generis.

CHINESE YOUNG MEN’S CHRISTIAN ASSOCIATION OF THE PHILIPPINE ISLANDS, ET AL. vs. VICTOR
CHING AND COURT OF APPEALS
G.R. NO. L-36929 JUNE 18, 1976

FACTS: Respondent Victor Ching filed an action for mandamus with preliminary injunction against
the herein petitioners. He anchored his action upon the claim that the Membership Campaign of the

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Chinese YMCA for 1966 held, only 175 applications for membership were submitted, canvassed and
accepted on the last day of the membership campaign. Not more than 240 membership
applications, as reported, issue of the Chinese Commercial News, were filed.

It is to be noted that respondent Victor Ching is a member of the Board of Directors of the Chinese
YMCA, while herein petitioners, William Golangco and Juanito K. Tan, are its president and recording
secretary, respectively. In the campaign for membership for the year 1966, a rivalry had developed
between two groups in the association, one headed by respondent Ching and the other by petitioner
Golangco.

On the last day of the membership campaign, respondent Ching and herein petitioner Golangco
were in the office of the Chinese YMCA. Respondent Ching, after it was agreed upon that there was
going to be no extension of the membership campaign. After trial, a decision was rendered
annulling the 1966 annual membership campaign of the respondent. On appeal, the appealed
decision was affirmed.

ISSUE: Whether or not the membership campaign is valid.

RULING: YES. 175 membership applications were undisputedly filed within the deadline (including the
75 withdrawn by respondent) and yet the 100 remaining unquestioned memberships were nullified
by the questioned decision without the individuals concerned ever having been impleaded or heard
(except the individual petitioner’s president and secretary).

The appealed decision thus contravened the established principle that the courts cannot strip a
member of a non-stock non-profit corporation of his membership therein without cause. Otherwise,
that would be an unwarranted and undue interference with the well-established right of a
corporation to determine its membership. In order that membership may be acquired in a non-stock
corporation and valid by-laws must be complied with, except in so far as they may be and are waived.
But provisions in the by-laws as to formal steps to be taken to acquire membership may be waived by
the corporation, or it may be estopped to assert that they have not been taken.

Finally, the appealed decision did not give due importance to the undisputed fact therein stated that
"at the board meeting of the association held on December 7, 1965, a list of 174 applications for
membership, old and new, was submitted to the board and approved by the latter, over the
objection of the petitioner who was present at said meeting." Such action of the petitioner
association's board of directors approving the 174 membership applications of old and new members
constituting its active membership as duly processed and screened by the authorized committee just
be deemed a waiver on its part of any technicality or requirement of form.

THE COLLECTOR OF INTERNAL REVENUE, vs. THE CLUB FILIPINO, INC. DE CEBU
G.R. No. L-12719 May 31, 1962

FACTS: As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a
civic corporation organized under the laws of the Philippines with an original authorized capital stock
of P22,000.00, which was subsequently increased to P200,000.00. Neither in the articles or by-laws is
there a provision relative to dividends and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu.

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The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short
orders to its members and their guests. The bar-restaurant was a necessary incident to the operation
of the club and its golf-course. The club is operated mainly with funds derived from membership fees
and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its
golf-course. In 1951, as a result of a capital surplus, arising from the re-valuation of its real properties,
the value or price of which increased, the Club declared stock dividends; but no actual cash dividends
were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant. The CIR assessed against the Club
taxes from 1946-1951.

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having
been denied, the Club filed the instant petition for review.

ISSUE: For purposes of determining the Club’s tax liability, is the Club a stock or non-stock
corporation? (The Club is a non-stock corporation.)

RULING: It is claimed that the appellee Club is a stock corporation. This is unmeritorious. The facts
that the capital stock of the respondent Club is divided into shares, does not detract from the finding
of the trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as
stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence
adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and
restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit:
1. a capital stock divided into shares and
2. an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held.
In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for
the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be
considered a stock corporation, within the contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit,
nonstock organizations, unless the intent to the contrary is manifest and patent, which is not the
case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a
bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not
liable for any penalty, much less of a compromise penalty.

It has been held that the liability for fixed and percentage taxes, as provided in the Tax Code does
not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to
attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The
plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose

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or livelihood is the motive, and the term business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to activities for profit or livelihood.

Having found as a fact that

 the Club was organized to develop and cultivate sports of all class and denomination, for the
healthful recreation and entertainment of its stockholders and members;
 upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu; that it is operated mainly with funds derived from membership
fees and dues;
 the Club's bar and restaurant catered only to its members and their guests; that there was in
fact no cash dividend distribution to its stockholders and that whatever was derived on retail
from its bar and restaurant was used to defray its overall overhead expenses and to improve
its golf-course (cost-plus-expenses-basis),
it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact
does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary
adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the healthful recreation and
entertainment of the stockholders and members. That a Club makes some profit, does not make it a
profit-making Club. As has been remarked a club should always strive, whenever possible, to have
surplus.

ANTONIO LITONJUA and ARNOLD LITONJUA vs. THE HON. COURT OF APPEALS, ET. AL. G.R.
No. 120294 February 10, 1998

FACTS: Wack Wack Golf and Country Club is a non-profit corporation which offers sports,
recreational and social activities to its members. Petitioner Antonio Litonjua is an Associate Member
of said corporation and his son, co-petitioner Arnold Litonjua, is a Junior Member thereof. The
individual respondents are the members of the Board of Directors and Membership Committee of
Wack Wack. On 10 January 1985, pursuant to its by-laws, respondent club posted the monthly list of
delinquent members on its premises. Included therein was petitioner Antonio Litonjua. After
Antonio Litonjua discovered that his name was on the January 1985 delinquent list, he proceeded to
the Cashier's Office of the club and was informed therein that the reason behind his delinquency was
his failure to pay his November 1984 dues (which should have been paid before the end of December
1984 as provided in the corporate by-laws). Antonio Litonjua alleged that he was not able to pay his
monthly bill on time because he has not received his statement of account for November 1984. As
proof, he presented a sealed envelope which he allegedly presumed to be the November 1984 bill
(but was actually the December 1984 statement of account) and explained that he received it only on
12 January 1985. A check with the accounting office, however, revealed that the November 1984
statement of account had already been delivered to Antonio Litonjua's office and was received by his
employee allegedly named "Aquino." Petitioner asserted that, he did not receive said account and
had no employee by the name of "Aquino." Based on the foregoing, Antonio Litonjua was able to
convince the auxiliary clerks in the Cashier's Office to delete his name from the list of delinquent
members. Consequently, Antonio Litonjua continued to avail of the club facilities. Later, Antonio
Litonjua was advised of another outstanding balance in the amount of P9,414.00. Again, he issued a

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check in payment thereof. As a result, his name was deleted from the February 1985 list of
delinquent members.

ISSUE: Whether or not the statement of account for November 1984 was duly delivered to and
received by Antonio Litonjua's office on 12 December 1984.

RULING: NO. According to Mr. Limbo's testimony on record, the Court failed to find therein any
statement that he delivered the November 1984 account to Antonio Litonjua himself. Mr. Limbo was
consistent in his testimony to the effect that on 12 December 1984 he delivered the November 1984
statement of account at the office of Antonio Litonjua and it was received by an employee of the
latter who signed the Special Delivery Receipt. On cross-examination, Mr. Limbo did not waver from
his testimony that Antonio Litonjua's November 1984 bill was duly received by the latter's
employee.Against the testimony of Mr. Victor Limbo, coupled with documentary evidence in the
form of the signed Special Delivery Receipt, petitioners presented no proof other than the bare
denial of Antonio Litonjua that he never received his statement of account for November 1984 and
that he has no "Aquino" in his employ. Petitioners could have readily offered in evidence a record or
list of Antonio Litonjua's employees to prove that he has no employee by the name of "Aquino" but,
strangely, beyond his mere say-so no such evidence was adduced

THE PHILIPPINE PUBLIC SCHOOL TEACHERS ASSOCIATION (PPSTA) COMMISSION ON

ELECTIONS vs. Honorable SERGIO A. F. APOSTOL
G.R. No. L-36966 February 28, 1974

FACTS: On July 20, 1972, private respondent Eufemia M. San Luis as a member of the
Philippine Public School Teachers Association (PPSTA), a fraternal non-stock association of
public school teachers throughout the country, filed with respondent court of first instance
at Quezon City a complaint with preliminary injunction for the annulment of the 1972 annual
elections of the PPSTA board of directors held on June 26-28, 1972 at Teachers Camp in
Baguio City for having been held outside its principal office at Quezon City against herein
petitioners as defendants.

ISSUE: Whether or not the elections of the Board of Directors are null and void.

RULING: NO. The Court finds it unnecessary to rule upon the parties' above conflicting
contentions, since it finds to be decisive petitioners' contention that respondent has no
personality and standing as a single individual member out of thousands of members of the
PPSTA to bring the action below for annulment of the PPSTA 1972 annual convention and
elections, as she was not even a chapter delegate to the said convention and she was duly
represented thereat in accordance with the PPSTA's by-laws by her duly authorized chapter
delegates who have raised no question as to the proceedings. Article IX, section 5 of the by-
laws expressly provides that "only official delegates to the representative assembly are
entitled to take part in the discussions and to vote."

Respondent's action below was in essence one of quo warranto which is governed by Rule
66 of the Rules of Court Section 6 thereof provides that in order that an individual may

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directly bring the action, he or she must claim to entitled to the public office or position
allegedly unlawfully held or usurped. Otherwise, the action must be brought by the Solicitor
General or fiscal with leave of the court upon the complaint of the realtor under section 4 of
the Rule.

The general rule is that actions for quo warranto should be brought by the Solicitor General
or a fiscal in cases of usurpation of an office established by law or by the Constitution under
color of an executive appointment, or the abuse of a public franchise under color of a
legislative grant, for these are public wrongs and not private injuries. Since, under our
system all power emanates from the people, who constitute the sovereignty, the right to
inquire into the authority by which a person assumes to exercise the functions of a public
office or franchise is regarded as inherent in the people on the right their sovereignty.
Hence, the action should be brought by the Solicitor General or the fiscal who represents
the sovereign power.
Respondent manifestly lays no claim herself to the office of PPSTA director nor has the
present action been filed with leave of court by the Solicitor General or fiscal upon her
relation as a party having an interest injuriously affected, as required by the cited Rule. Her
action must therefore fail on this score and the judgment erroneously rendered by
respondent court shall be set aside.

Religious corporations

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC. vs THE LAND REGISTRATION
COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY,
G.R. No. L-8451 December 20, 1957

FACTS: On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land located in the same city covered by Transfer Certificate
No. 2263, in favor of the Roman Catholic Apostolic Administrator of Davao Inc.,(RCADI) is
corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. Registry of Deeds Davao (RD) required RCADI to
submit affidavit declaring that 60% of its members were Filipino Citizens. As the RD entertained some
doubts as to the registerability of the deed of sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that pursuant to provisions of sections 1 and
5 of Article XII of the Philippine Constitution, RCADI is not qualified to acquire land in the Philippines
in the absence of proof that at leat 60% of the capital, properties or assets of the RCADI is actually
owned or controlled by Filipino citizens. LRC also denied the registration of the Deed of Sale in the
absence of proof of compliance with such requisite. RCADI’s Motion for Reconsideration was denied.
Aggrieved, the latter filed a petition for mandamus.

ISSUE: Was the Universal Roman Catholic Apostolic Church in the Philippines qualified to acquire
private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the
Constitution?

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RULING: Yes. RCADI is qualified. While it is true and We have to concede that in the profession of
their faith, the Roman Pontiff is the supreme head; that in the religious matters, in the exercise of
their belief, the Catholic congregation of the faithful throughout the world seeks the guidance and
direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of
personalities resultant therein. Neither can it be said that the political and civil rights of the faithful,
inherent or acquired under the laws of their country, are affected by that relationship with the Pope.
The fact that the Roman Catholic Church in almost every country springs from that society that saw
its beginning in Europe and the fact that the clergy of this faith derive their authorities and receive
orders from the Holy See do not give or bestow the citizenship of the Pope upon these branches. To
allow theory that the Roman Catholic Churches all over the world follow the citizenship of their
Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country
who embrace the Catholic faith and become members of that religious society, likewise citizens of
the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an Italian or
national of any other country of the world. The same thing be said with regards to the nationality or
citizenship of the corporation sole created under the laws of the Philippines, which is not altered by
the change of citizenship of the incumbent bishops or head of said corporation sole.

Although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic Church
in different countries, if it exercises its mission and is lawfully incorporated in accordance with the
laws of the country where it is located, is considered an entity or person with all the rights and
privileges granted to such artificial being under the laws of that country, separate and distinct from
the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with
the latter which are governed by the Canon Law or their rules and regulations.

It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are
formed by no less than 5 incorporators, is composed of only one persons, usually the head or bishop
of the diocese, a unit which is not subject to expansion for the purpose of determining any
percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of the
temporalities located in the territory comprised by said corporation sole; (3) such temporalities are
administered for and on behalf of the faithful residing in the diocese or territory of the corporation
sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has
nothing to do with the operation, management or administration of the corporation sole, nor effects
the citizenship of the faithful connected with their respective dioceses or corporation sole.

EXALTACION CAÑETE, SOFIA CAVITE and FATHER MANUEL V. GOMEZ vs. COURT OF APPEALS
G.R. No. 45330, March 7, 1989

FACTS: Inocenta de Veyra from Tanauan, Leyte founded the "Cofradia de Nuestra Senora de Belen",
a voluntary religious group of hermanas mayores. In 1919 and 1930, Inocenta donated to the Cofradia
the disputed images of the Holy Infant Jesus and of the Blessed Virgin (de Belen), respectively. Said
religious group has been largely governed through the years by customs and traditions. It is not
known if there are by-laws within the association. It was the unbroken practice in the Cofradia that
the hermana mayor, during her incumbency, would keep in her custody as trustee, the two images,
the investments, garments and standarte, including the cash contributions of its members, with the
tacit understanding that the said religious images and the unspent funds would be turned over to
the next hermana mayoron the first day of the succeeding year.

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In January of 1972, petitioner Exaltacion Canete was elected as the hermana mayor and as such she
took possession of the subject religious articles and funds of the Cofradia. Because of the quarrel
between the parish priest of Tanauan, Fr. Manuel Gomez and Bishop Salvador of the Diocese,
resulting in the suspension and relief of the former, the Cofradia, an erstwhile cohesive group of
women devotees, had been drawn into the controversy and was now split into two camps: one loyal
to the ex-parish priest Fr. Gomez, and the other, identified with the newly-designated parish priest
Fr. Parilla. The Cofradia members with Fr. Gomez elected Sofia Cavite as the hermana mayor for 1973,
replacing Exaltacion Canete, while the group with Fr. Parilla chose Bienvenida Casas. Exaltacion
Canete surrendered the images to Sofia Cavite.

Claiming to be members of the Cofradia and owners in common of its properties including the
disputed images of the Blessed Virgin (de Belen) and the Holy Infant Jesus, respondents brought an
action against Exaltacion Cañete and Sofia Cavite for the "Recovery of Personal Properties with Writ
of Attachment and Damages" before the Court of First Instance of Leyte.

ISSUE: Whether or not Cofradia de Nuestra Senora de Belen is governed by the Corporation Code.

RULING: No. As correctly ruled by the trial court, the question which came before it concerns rights
of property held by a religious society, strictly independent of the church. Hence, the rights of such
an organization to the use of its property must accordingly be determined by the ordinary principles
which govern voluntary association.

Citing Watson v. Jones , in a similar case, this Court ruled that the use of properties of a "religious
congregation" in case of schism, is controlled by the numerical majority of the members. The
minority in choosing to separate themselves into a distinct body and refusing to recognize the
authority of the government body, can claim no rights in the property from the fact that they once
had been members.

Republic vs. Iglesia ni Kristo, cited in the case of Rafael Albano, Et al. vs. Court of Appeals, et al.
GR No. 144708, August 10, 2001

FACTS: In 1933, private respondent, a corporation sole duly existing under Philippine laws, acquired
two lots with a total area of 313 square meters from Andres Perez, who had possessed the property
since 1933 and had declared the same for tax purposes. On September 13, 1977, private respondent
filed an application for registration of the two lots pursuant to Section 48(b) of the Public Land Law
alleging that it and its predecessor-in-interest had possessed the land for more than 30 years. The
Republic of the Philippines opposed the application on the ground that the Iglesia Ni Cristo, as a
corporation sole, is disqualified under the Constitution to hold alienable lands of the public domain
and that the land applied for is a public land. After hearing, the trial court ordered the registration of
the two lots in the name of private Respondent. Hence, this appeal by the Republic.

ISSUE: Whether Iglesia Ni Cristo, a corporation sole, may acquire private land

RULING: The Iglesia Ni Cristo, as a corporation sole or a juridical person, is disqualified to acquire or
hold alienable lands of the public domain, like the two lots in question, because of the constitutional
prohibition and because the said church is not entitled to avail of the benefits of Section 48(b) of the
Public Land Law which applies only to Filipino citizens or natural persons. A corporation sole has no
nationality.

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 IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (Corporation Sole), INC., ,
v.BISHOP NATHANAEL LAZARO ET AL
G.R. No. 184088 July 6, 2010

FACTS: In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las
Islas FIlipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its General
Superintendent. Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that
established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who were
to serve for four years. The by-laws empowered the Consistory to elect a General Superintendent, a
General Secretary, a General Evangelist, and a Treasurer General who would manage the affairs of
the organization. For all intents and purposes, the Consistory served as the IEMELIFs board of
directors.Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate
powers theoretically lodged in the hands of one member, the General Superintendent), it had always
acted like a corporation aggregate. The Consistory exercised IEMELIFs decision-making powers
without ever being challenged. Subsequently, during its 1973 General Conference, the general
membership voted to put things right by changing IEMELIFs organizational structure from a
corporation sole to a corporation aggregate. On May 7, 1973 the Securities and Exchange
Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the
IEMELIF remained unaltered as a corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF, the
SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the
conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried
out and documented. The SEC said that the IEMELIF needed to amend its articles of incorporation for
that purpose.

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation
aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their
congregations to take up the matter with their respective members for resolution. Subsequently, the
general membership approved the conversion, prompting the IEMELIF to file amended articles of
incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion.

ISSUE: Whether or not a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

RULING: The Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the general provisions governing non-stock
corporations. For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an amendment.
Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board
of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such
approval mechanism is made to operate in a corporation sole, its one member in whom all the
powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership.

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There is no point to dissolving the corporation sole of one member to enable the corporation
aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be their number. The increase in the
number of its corporate membership does not change the complexion of its corporate responsibility
to third parties. The one member, with the concurrence of two-thirds of the membership of the
organization for whom he acts as trustee, can self-will the amendment. He can, with membership
concurrence, increase the technical number of the members of the corporation from sole or one to
the greater number authorized by its amended articles.

Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop Lazaro,
who embodied the corporation sole, had obtained, not only the approval of the Consistory that drew
up corporate policies, but also that of the required two-thirds vote of its membership.

IEMELIF, INC., vs. NATANAEL B. JUANE

G.R. No. 172447, September 18, 2009

FACTS: IEMELIF is a religious corporation existing and duly organized under Philippine laws.
[Juane] is a former minister or pastor of IEMELIF. He was elected as one of the members of
the Highest Consistory of Elders (or Board of Trustees) of IEMELIF in the February 2000
IEMELIF General Conference. During the concluding Anniversary Service of said General
Conference, IEMELIF Bishop Nathanael P. Lazaro, the General Superintendent of the whole
IEMELIF Church and the General Administrator of the IEMELIF Cathedral in Tondo, Manila,
during the reading of the "IEMELIF Workers’ Assignment", announced the appointment and
assignment of Juane as Resident Pastor of the Cathedral Congregation in Tondo, Manila. By
virtue and as a consequence of such appointment, Defendant Rev. Juane was authorized to
stay at and occupy the Resident Pastor’s residence inside the Cathedral complex. By the
same reason, he also took charge of the Cathedral facilities and other property of the church
in said premises.

ISSUE: Is the transformation of IEMELF from corporation sole to an aggregate one valid?

RULING: YES. Juane maintains that the "IEMELIF" that filed the Complaint before the MeTC
had no personality to eject him from the subject property. The Church has remained a
corporation sole, since its transformation to a corporation aggregate was legally defective.
Juane, thus, claims that he is now the corporation sole, who is entitled to the physical
possession of the subject property as owner thereof. In fact, on the basis of these same
arguments.

Even if the transformation of IEMELIF from a corporation sole to a corporation aggregate

was legally defective, its head or governing body, i.e., Bishop Lazaro, whose acts were
approved by the Highest Consistory of Elders, still did not change. A corporation sole is one
formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a

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religious denomination, sect, or church, for the purpose of administering or managing, as
trustee, the affairs, properties and temporalities of such religious denomination, sect or
church. As opposed to a corporation aggregate, a corporation sole consists of a single
member, while a corporation aggregate consists of two or more persons. If the
transformation did not materialize, the corporation sole would still be Bishop Lazaro, who
himself performed the questioned acts of removing Juane as Resident Pastor of the Tondo
Congregation. If the transformation did materialize, the corporation aggregate would be
composed of the Highest Consistory of Elders, which nevertheless approved the very same
acts. As either Bishop Lazaro or the Highest Consistory of Elders had the authority to
appoint Juane as Resident Pastor of the IEMELIF Tondo Congregation, it also had the power
to remove him as such or transfer him to another congregation.

Alfredo Long vs. Lydia Basa

G.R No. 134963-64 September 27, 2001

FACTS: These are consolidated cases involving a religious corporation whose Board of
Directors had expelled certain members thereof on purely spiritual or religious grounds
since they refused to follow its teachings and doctrines. The controversy here centers on the
legality of the expulsion.

In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated" was organized as an entity of the brotherhood in Christ. It was registered in
the same year with the SEC as a non-stock, non-profit religious corporation for the
administration of its temporalities or the management of its properties. The Articles of
Incorporation and By-laws of the CHURCH decree that its affairs and operation shall be
managed by a Board of Directors consisting of six (6) members, who shall be members of
the CHURCH.

Zealous in upholding and guarding their Christian faith, the members of the CHURCH vested
upon the Board of Directors the absolute power to admit and expel a member of the
CHURCH. The procedure for the expulsion of an erring or dissident member is prescribed in
Article VII (paragraph 4) of the CHURCH By-laws, which provides that "If it is brought to the
notice of the Board of Directors that any member has failed to observe any regulations and
By-laws of the Institution (CHURCH) or the conduct of any member has been dishonorable
or improper or otherwise injurious to the character and interest of the Institution, the Board
of Directors may by resolution without assigning any reason therefor expel such
member from such Institution and he shall then forfeit his interest, rights and privileges in
the Institution."

The respondents, as members of the Board of Directors, and some responsible members of
the CHURCH, advised the petitioners to correct their but these exhortations and warnings to
the erring members were ignored by the petitioners. Alarmed that petitioners' conduct will
continue to undermine the integrity of the Principles of Faith of the CHURCH, the Board of
Directors, during its August 30, 1993 regular meeting held for the purpose of reviewing and

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updating the membership list of the CHURCH, removed from the said list certain names of
members, including the names of herein petitioners.

Petitioners questioned their expulsion It sought mainly the annulment of the August 30,
1993 membership list and the reinstatement of the original list on the ground that the
expulsion was made without prior notice and hearing. After conducting a hearing, SEC
Hearing Officer Manuel Perea denied the same in an order dated February 22, 1994. Perea
ruled inter alia that the expulsion was in accordance with the aforequoted provisions of
paragraph 4, Article VII of the CHURCH By-laws, reasoning that "the notice referred to (in
par. 4) is notice to the Board of Directors of the grounds for expulsion enumerated therein
and not notice to the (erring) members.

ISSUE: Was the expulsion of petitioners from the membership of the CHURCH by its Board
of Directors in accordance with law?

RULING: Yes. The Court ruled against the petitioners. It must be emphasized that the issue
of the validity of the expulsion had long been resolved and declared valid by the SEC en
banc in its decision dated July 11, 1994 in SEC EB Case No. 389. The decision affirmed the
order dated February 22, 1994 of SEC Hearing Officer Manuel Perea. The petitioners
themselves admitted in their present petition that they did not appeal anymore from the
July 11, 1994 decision of the SEC en banc, thereby rendering the same final and conclusive. As
such, the expulsion order is now inextricably binding on the parties concerned and can no
longer be modified, much less reversed.

The Court finds baseless petitioners’ claim that their expulsion was executed without prior
notice or due process.In the first place, the By-laws of the CHURCH, which the members
have expressly adhered to, does not require the Board of Directors to give prior notice to
the erring or dissident members in cases of expulsion. This is evident from the procedure for
expulsion prescribed in Article VII (paragraph 4) of the By-laws, which reads:

"4. If it is brought to the notice of the Board of Directors that any member has failed
to observe any regulations and By-laws of the Institution (CHURCH) or the conduct of
any member has been dishonorable or improper or otherwise injurious to the
character and interest of the Institution, the Board of Directors may b(y) resolution
without assigning any reason therefor expel such member from such Institution and
he shall then forfeit his interest, rights and privileges in the Institution." (Emphasis
ours)

From the above-quoted By-law provision, the only requirements before a member can be
expelled or removed from the membership of the CHURCH are: (a) the Board of Directors
has been notified that a member has failed to observe any regulations and By-laws of the
CHURCH, or the conduct of any member has been dishonorable or improper or otherwise
injurious to the character and interest of the CHURCH, and (b) a resolution is passed by the
Board expelling the member concerned, without assigning any reason therefor.

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It is thus clear that a member who commits any of the causes for expulsion enumerated in
paragraph 4 of Article VII may be expelled by the Board of Directors, through a resolution,
without giving that erring member any notice prior to his expulsion. The resolution need not
even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and
objectionable to petitioners as there is no requirement of prior notice to be given to an
erring member before he can be expelled. But that is how peculiar the nature of a religious
corporation is vis-à-vis an ordinary corporation organized for profit. It must be stressed that
the basis of the relationship between a religious corporation and its members is the latter’s
absolute adherence to a common religious or spiritual belief. Once this basis ceases,
membership in the religious corporation must also cease. Thus, generally, there is no room
for dissension in a religious corporation. And where, as here, any member of a religious
corporation is expelled from the membership for espousing doctrines and teachings
contrary to that of his church, the established doctrine in this jurisdiction is that such action
from the church authorities is conclusive upon the civil courts

Paul Rogerio Gonzales vs. The Roman Archbishop of Manila

G.R. No. L-27619, February 4, 1928

FACTS: This action was instituted in the Court of First Instance of Manila by Raul Rogerio Gonzalez,
through his guardian ad litem, Adelaida Gonzalez, against the Roman Catholic Archbishop of Manila,
a corporation sole, represented by His Grace, M. J. O’Doherty, Apostolic Archbishop, for the purpose
of obtaining a writ of mandamus requiring the respondent to appoint the plaintiff to a vacant
chaplaincy, to enforce an accounting for the income of the chaplaincy for the period during which it.
has been vacant, and to secure other relief. Upon hearing the cause the trial court entered judgment
which, as subsequently amended, embraces three features, namely: First, ordering the defendant,
the Roman Catholic Archbishop of Manila, as a corporation sole, and His Grace, Michael J. O’Doherty,
Roman Catholic Apostolic Archbishop of Manila, its sole representative, forthwith to appoint
plaintiff, Raul Rogerio Gonzalez, as chaplain of the said chaplaincy founded by Doña Petronila de
Guzman; secondly, ordering the defendant to pay to the plaintiff, through his guardian ad litem, the
sum of one hundred seventy-three thousand, seven hundred and twenty-five pesos (P173,725) as the
rents and income of the property of said chaplaincy from January 1, 1911, to December 31, 1925, plus
the rents and income accrued since December 31, 1925, from the total of which should be deducted
the expenses allowed by the court as legitimate charges against the fund, and requiring the
defendant, furthermore, to pay to the plaintiff, through his guardian or guardian ad litem, from the
date of plaintiff’s appointment as chaplain, the net income of said property from time to time as
collected; thirdly, reserving to plaintiff any legal rights that he may have with reference to the
cancellation of the transfer certificate of title No. 17603 in a proper proceeding before the fourth
branch of this court, which branch has exclusive jurisdiction of all cases relative to the registration of
real estate in the City of Manila (Act No. 2347, sec. 11). From this judgment the defendant appealed.

On March 13, 1816, Doña Petronila de Guzman, a resident of what is now the district of Binondo, in
the City of Manila, executed a will in which she instructed her executor to take the steps necessary to

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the foundation of a collative chaplaincy upon certain real property adjacent to her residence in
Binondo. The property intended as the foundation of the chaplaincy consists of the lots now known
as Nos. 210-212 and 214, Rosario Street, Manila, with the improvements thereon. After the death of
the testatrix her executor, Don Jose Telesforo de Guzman addressed a petition to the Archbishop,
informing him of the wishes of the testatrix and praying that the property be declared sufficient and
that the chaplaincy be created, with the petitioner’s son as chaplain and the petitioner himself as
administrator of the property during the minority of the son. In support of this petition the executor
of the will of the foundress executed a formal document of endowment, setting aside for pious uses
the property intended for the foundation and transferring it to the spiritual properties of the
archbishopric. The two documents from which we have just quoted appear to have been passed to
the procurator fiscal for comment; and this official made indorsement to the effect that no reason
occurred to him for opposing the project and that he accordingly recommended that the
establishment be effected. The matter was then brought to the attention of the Archbishop who
gave the necessary formal approval to the foundation and an appropriate decree to this effect was
entered. Since the foundation of this chaplaincy, five chaplains have been appointed thereto by the
Archbishop of Manila. The first and second chaplains were great grandsons of the foundress, the
third was a great great grandson, and the fourth and fifth great great great grandsons. At the time
of their appointments they were respectively more than 13, 21, 22, 27 and 19 years old. The fifth and
last chaplain or beneficiary of the chaplaincy in question was Angel Gonzalez, father of the present
plaintiff. This individual resigned the office of chaplain, effective December 6, 1910, since which date
the chaplaincy has remained vacant. The function of administering the property pertaining to the
foundation appears to have been exercised, at least since about 1863, by the Archbishop; and for this
service a commission has been charged against the incumbent whenever a chaplain has been in
office. In September, 1914, a Torrens title in fee simple was issued for the property in the name of the
Archbishop. During vacancies the duty of causing sixty masses to be said per annum, as provided in
the will, devolves upon the Archbishop; and this obligation has been performed by the present
respondent, at an expense of not more than P300 per year.

Raul Rogerio Gonzalez, the plaintiff in this action, was born on September 16, 1912. He was therefore
nearly 12 years of age when this action was instituted on July 31, 1924. He is a son of Angel Gonzalez,
the last incumbent of the chaplaincy in question. At the trial the young man testified that he was
then a student in the sixth grade of the public school and that his inclinations and desires are
towards an ecclesiastical career. More than two years prior to the institution of this action he was
presented to the Archbishop of Manila, with the request that he be appointed to the chaplaincy in
question, he being at that time 10 years of age. The application was turned down by the Archbishop
in a letter, addressed to the boy’s father, and dated March 20, 1922, on the ground that the youth did
not have the necessary qualifications under existing canon law. His Grace, the Archbishop of Manila,
testified that although he could not appoint plaintiff as chaplain of the chaplaincy in question, he had
made an offer at his expense to educate the plaintiff so that he might obtain the necessary
preparations to qualify himself as a cleric and might later be appointed as chaplain. He added,
however, that although he did not consider himself in duty bound to make such an offer, the same
was made for equitable motives in view of the claim of the child as the nearest relative of the
foundress of the said chaplaincy.

ISSUE: Is there a restriction imposed with respect to the requirement of ecclesiastical qualifications
for the chaplains to be appointed to the benefice?

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RULING: None. When the foundress caused this property to be originally conveyed to the Church as a
foundation for the chaplaincy in question, no restriction was imposed with respect to the
requirement of ecclesiastical qualifications for the chaplains to be appointed to the benefice; and in
submitting the appointment of the chaplains to the ecclesiastical authority, as resulted from the
creation of a collative chaplaincy, it must be considered as an implied term of the agreement that the
ecclesiastical qualifications for the spiritual office should be such as might be required by the Church.
As was said by Mr. Justice Miller in Watson v. Jones, all who unite themselves to an ecclesiastical
body do so with an implied consent to submit to the Church government and they are bound to
submit to it. The trial court appears to have been of the opinion that the new canon of 1918 cannot
be given effect as regards the chaplaincy in question for the reason that to do so would impair the
obligation of the trust involved in the acceptance by the Archbishop of the provisions for the
establishment of the chaplaincy, with the result of impairing the obligation of a contract in violation
of our Organic Act. This idea is in our opinion fallacious. It is undeniable that under Spanish law an
acclesiastical canon such as we are now considering could have been adopted regardless of its effect
upon the foundation or the persons interested therein, and it cannot be admitted that an obligation
which could be changed under Spanish law has become immutable from the promulgation by
Congress of the constitutional provision forbidding the impairment of contracts by legislative Acts.
Under said constitutional provision obligations are to be respected as they stand, and it was not
intended that, by virtue of this provision, obligations should be made more onerous to either party. If
the proposition maintained by the plaintiff’s attorneys be true, then we are confronted with the
spectacle of a chaplaincy which is a perpetual sinecure for a chaplain without ecclesiastical
qualifications. Perpetuities of any sort are objectionable, but one of this character would be
intolerable. As is justly said by the attorney for the appellant, "It is unthinkable that qualifications for
chaplains should remain stagnant and the same forever." In passing upon a question of this
character the court is not at liberty to ignore the effects upon human society which would result
from adopting the proposition upon which the case for the plaintiff here rests.

It follows from what has been said that the plaintiff has not the requisite qualifications for the office
of chaplain and the defendant, the Roman Catholic Archbishop of Manila, acted within the limits of
his proper ecclesiastical authority in excluding the plaintiff from the chaplaincy in question. The trial
court was therefore in error in ordering the said defendant to appoint the plaintiff as chaplain of the
chaplaincy founded by Doña Petronila de Guzman. As corollary of this, there was also error on the
part of the trial court in ordering the defendant to pay to the plaintiff, through his guardian ad litem,
the amount awarded in paragraph (b) of the dispositive part of the appealed decision.

In paragraph (c) of the dispositive part of the appealed decision the trial court reserved to the
plaintiff any legal rights that he may have with reference to the cancellation of transfer certificate of
title No. 17603, in a proper proceeding before the fourth branch of the Court of First Instance of
Manila. The plaintiff did not appeal from this disposition, and the appellant has not assigned error
against said feature of the decision. We shall therefore not interfere with the decision on this point,
but we should perhaps observe that if relief should be sought in the direction indicated the
contention will probably in the end resolve itself into the question whether the Torrens certificate of
title now held by the defendant should be annotated so as to show that the property covered by the
certificate is held by the defendant subject to the conditions stated in the documents constituting
the chaplaincy in question; and of course such proceeding ought also to be brought as a class-suit.
The judgment appealed from is therefore reversed and the defendant, the Roman Catholic
Archbishop of Manila, is hereby absolved from the complaint, without prejudice to the right of

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proper persons in interest to proceed for independent relief in either of the directions above
indicated.

REPUBLIC OF THE PHILIPPINES, , vs. THE HONORABLE INTERMEDIATE APPELLATE COURT (now
Court of Appeals), and PRINCESS EMME ATIK KIRAM
G.R. No. L-68303 January 15, 1988

FACTS: The properties in dispute number three undivided lots and Lot No. 2410-B, Psd-864 (Lot 2461
Cad 99)] altogether consisting of a total of 1,024 hectares of ricelands. They are all located in
Tiptipon, Panamao, Sulu. The title thereto stood allegedly in the name of Sultan Jamalul Kiram, who
died in 1936. The private respondent, a niece of the late Sultan, now claims that the original
certificate of title thereto was destroyed as a consequence of a fire that gutted the office of the
Register of Deeds of Sulu sometime in February, 1974. She likewise alleges that the owner's copy
thereof was lost on account of the same misfortune. On October 18,1979, she went to the then Court
of First Instance of Sulu, Branch I, at Jolo, now Regional Trial Court, the Honorable Jainal D. Rasul,
District Judge, presiding, for reconstitution.
The Solicitor General presented in the trial court no opposition to the application, and based on the
evidence of the private respondent, the assailed order was issued on June 4, 1980. The Solicitor
General appealed to the then Intermediate Appellate Court, now Court of Appeals, which however
affirmed in toto, on May 24, 1984, the order of the trial court.

ISSUE: Whether or not the Petition be granted

RULING: YES. It is not disputed, to begin with, that the notices (of hearing) were not posted on the
main entrances of the provincial and municipal halls of the locality in which the lands are located.
Under Section 13, of Republic Act No. 26: The court shall cause a notice of the petition, filed under
the preceding section, to be published, at the expense of the petitioner, twice issues of the Official
Gazette, and to be posted on the main of the municipality or city in which the land is situated, at the
provincial building and of the municipal building at least thirty days prior to the date of hearing. The
court shall likewise cause a copy of the notice to be sent, by registered mail or otherwise, at the
expense of the petitioner, to every person named therein whose address is known, at least thirty
days prior to the date of hearing. Said notice shall state, among other things, the number of the lost
or destroyed certificate of title, if known, the name of the registered owner, the names of the
occupants or persons in possession of the property, the owners of the adjoining properties and all
other interested parties, the location, area and boundaries of the property, and the date on which all
persons having any interest therein must appear and file their claim or objections to the petition. The
petitioner shall, at the hearing, submit proof of the publication, posting and service of the notice as
directed by the court.

We have held that such a mode of publication is a jurisdictional requirement. The failure on the part
of the applicant to comply with it confers no jurisdiction upon the court. Neither is there any
showing that the adjacent owners or other interested parties were actually notified of the pending
application. This too taints the petition with a jurisdictional defect. It is not enough that there is
publication in the Official Gazette. Publication of the notice in the Official. The Republic cannot be
faulted for nursing doubts about the private respondent's assertions. In the first place, the private
respondent claims that two deeds have been lost.

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 THE DIRECTOR OF LANDS v. THE HONORABLE COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. L-56613 March 14, 1988

FACTS: On November 28, 1973, private respondent Iglesia ni Cristo filed an application for
registration in its name of a parcel of land with an area of 379 square meters located at Poblacion,
Municipality of Amadeo, Cavite. In its application, private respondent alleged inter alia that it was the
owner in fee simple of the land afore-described, having acquired title thereto by virtue of a Deed of
Absolute Sale executed in 1947 by Aquelina de la Cruz in its favor and that applicant. Private
respondent prayed that should the Land Registration Act not be applicable, the provisions of
Chapter VIII of Commonwealth Act No. 141, as amended by Republic Act No. 6236 be applied as
applicant and its predecessors-in-interest had been in possession of the land for more than thirty 30
years and had introduced improvements thereon.

The Republic of the Philippines, represented by the Director of Lands, opposed the application on
the following grounds: 1] the applicant and its predecessors-in-interest did not possess sufficient title
to acquire ownership in fee simple of the parcel of land applied for; 2] neither the applicant nor its
predecessors-in-interest have been in open, continuous, exclusive and notorious possession and
occupation of the land in question; and, 3] the subject parcel of land is a portion of the public domain
not subject to private appropriation.

ISSUE: Is the respondent prohibited from acquiring private land as provided under the Constitution.

RULING: YES. Taking the year 1936 as the reckoning point, the 30-year period of open, continuous,
exclusive and notorious possession and occupation required by law was completed in 1966. The
completion by private respondent of this statutory 30-year period has dual significance in the light of
Section 48[b] of Commonwealth Act No. 141, as amended and prevailing jurisprudence: [1] at this
point, the land in question ceased by operation of law to be part of the public domain; and [2] private
respondent could have its title thereto confirmed through the appropriate proceedings as under the
Constitution then in force, private corporations or associations were not prohibited from acquiring
public lands, but merely prohibited from acquiring, holding or leasing such type of land in excess of
1,024 hectares.

If in 1966, the land in question was converted ipso jure into private land, it remained so in 1974 when
the registration proceedings were commenced. This being the case, the prohibition under the 1973
Constitution would have no application. Otherwise construed, if in 1966, private respondent could
have its title to the land confirmed, then it had acquired a vested right thereto, which the 1973
Constitution can neither impair nor defeat.

Educational corporations

PETRONILO J. BARAYUGA VS. ADVENTIST UNIVERSITY OF THE PHILIPPINES, THROUGH ITS BOARD
OF TRUSTEES, REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON

G.R. No. 168008, August 17, 2011

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FACTS: AUP, a non-stock and non-profit domestic educational institution incorporated under
Philippine laws on March 3, 1932, was directly under the North Philippine Union Mission (NPUM) of
the Southern Asia Pacific Division of the Seventh Day Adventists. During the 3rd Quinquennial
Session of the General Conference of Seventh Day Adventists held from November 27, 2000 to
December 1, 2000, the NPUM Executive Committee elected the members of the Board of Trustees of
AUP, including the Chairman and the Secretary. Respondent Nestor D. Dayson was elected Chairman
while the petitioner was chosen Secretary.

On January 23, 2001, almost two months following the conclusion of the 3rd Quinquennial Session,
the Board of Trustees appointed the petitioner President of AUP. During his tenure, or from
November 11 to November 13, 2002, a group from the NPUM conducted an external performance
audit. The audit revealed the petitioner's autocratic management style, like making major decisions
without the approval or recommendation of the proper committees, including the Finance
Committee; and that he had himself done the canvassing and purchasing of materials and made
withdrawals and reimbursements for expenses without valid supporting receipts and without the
approval of the Finance Committee. The audit concluded that he had committed serious violations of
fundamental rules and procedure in the disbursement and use of funds.

In the January 27, 2003 special meeting, the petitioner sent a letter to the Board of Trustees. The
members, by secret ballot, voted to remove him as President because of his serious violations of
fundamental rules and procedures in the disbursement and use of funds as revealed by the special
audit.

On February 4, 2003, the petitioner brought his suit for injunction and damages in the RTC, with
prayer for the issuance of a temporary restraining order (TRO), impleading AUP and its Board of
Trustees, represented by Chairman Dayson, and the interim committee. His complaint alleged that
the Board of Trustees had relieved him as President without valid grounds despite his five-year term;
that the Board of Trustees had thereby acted in bad faith; and that his being denied ample and
reasonable time to present his evidence deprived him of his right to due process.

ISSUE: Whether the removal of the petitioner as President of respondent Adventist University of the
Philippines (AUP) was valid, and whether his term in that office was five years, as he insists, or only
two years, as AUP insists

RULING: The petitioner rested his claim for injunction mainly upon his representation that he was
entitled to serve for five years as President of AUP under the Constitution, By-Laws and Working
Policy of the General Conference of the Seventh Day Adventists (otherwise called the Bluebook). All
that he presented in that regard, however, were mere photocopies of pages 225-226 of the Bluebook.

Yet, the document had no evidentiary value. It had not been officially adopted for submission to and
approval of the Securities and Exchange Commission. It was nothing but an unfilled model form. As
such, it was, at best, only a private document that could not be admitted as evidence in judicial
proceedings until it was first properly authenticated in court.

Even assuming that the petitioner had properly authenticated the photocopies of the Bluebook, the
provisions contained therein did not vest the right to an office in him. An unfilled model form creates
or establishes no rights in favor of anyone.

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Thirdly, the petitioners assertion of a five-year duration for his term of office lacked legal basis.

Section 108 of the Corporation Code determines the membership and number of trustees in an
educational corporation, viz:

Section 108. Board of trustees. Trustees of educational institutions organized as

educational corporations shall not be less than five (5) nor more than fifteen (15):
Provided, however, That the number of trustees shall be in multiples of five (5).

Unless otherwise provided in the articles of incorporation or the by-laws, the

board of trustees of incorporated schools, colleges, or other institutions of learning
shall, as soon as organized, so classify themselves that the term of office of one-fifth
(1/5) of their number shall expire every year. Trustees thereafter elected to fill
vacancies, occurring before the expiration of a particular term, shall hold office only
for the unexpired period. Trustees elected thereafter to fill vacancies caused by
expiration of term shall hold office for five (5) years. A majority of the trustees shall
constitute a quorum for the transaction of business. The powers and authority of
trustees shall be defined in the by-laws.

For institutions organized as stock corporations, the number and term of

directors shall be governed by the provisions on stock corporations.
The second paragraph of the provision, although setting the term of the members of the Board of
Trustees at five years, contains a proviso expressly subjecting the duration to what is otherwise
provided in the articles of incorporation or by-laws of the educational corporation. That contrary
provision controls on the term of office.

In AUPs case, its amended By-Laws provided the term of the members of the Board of Trustees, and
the period within which to elect the officers.

In light of foregoing, the members of the Board of Trustees were to serve a term of office of only
two years; and the officers, who included the President, were to be elected from among the
members of the Board of Trustees during their organizational meeting, which was held during the
election of the Board of Trustees every two years. Naturally, the officers, including the President,
were to exercise the powers vested by Section 2 of the amended By-Laws for a term of only two
years, not five years.

Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for
only two years, or until January 22, 2003. By the time of his removal for cause as President on January
27, 2003, he was already occupying the office in a hold-over capacity, and could be removed at any
time, without cause, upon the election or appointment of his successor. His insistence on holding on
to the office was untenable, therefore, and with more reason when one considers that his removal
was due to the loss of confidence on the part of the Board of Trustees.

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Foreign corporations

AVON vs. COURT OF APPEALS et. al.

G.R. No. 97642 August 29, 1997

FACTS: Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., a
foreign corporation not doing business in the Philippines with no office, place of business or agents
in the Philippines, several of its properties for the periods July 6, 1979 to July 6, 1980 and from
October 1, 1980 to October 1, 1981, under separate insurance policies for the same amount. Both
contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and
several foreign reinsurance companies, including the petitioners.

On December 16, 1979 and May 2, 1981, within the respective effectivity periods of the policies, the
properties therein insured were razed by fire, thereby giving rise to the obligation of the insurer to
indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and
Insurance and some of the reinsurance companies.

On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a

remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all
reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest
as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the
petitioners.

ISSUE: Whether or not a foreign corporation has rights under Philippine law.

RULING: YES. A foreign corporation, is one which owes its existence to the laws of another state,
and generally, has no legal existence within the state in which it is foreign. It was also held that
corporations have no legal status beyond the bounds of the sovereignty by which they are created.

Nevertheless, it is widely accepted that foreign corporations are, by reason of state comity, allowed
to transact business in other states and to sue in the courts of such fora. In the Philippines foreign
corporations are allowed such privileges, subject to certain restrictions, arising from the state's
sovereign right of regulation. Before a foreign corporation can transact business in the country, it
must first obtain a license to transact business here and secure the proper authorizations under
existing law.

If a foreign corporation engages in business activities without the necessary requirements, it opens
itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit
or proceeding for its own account in any court or tribunal or agency in the Philippines.
The purpose of the law in requiring that foreign corporations doing business in the country be
licensed to do so, is to subject them to the jurisdiction of the Philippine courts, otherwise, a foreign
corporation illegally doing business here because of its refusal or neglect to obtain the required
license and authority to do business may successfully though unfairly plead such neglect or illegal act
so as to avoid service and thereby impugn the jurisdiction of the local courts.

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The same danger does not exist among foreign corporations that are indubitably not doing business
in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no
reason for it to be subject to the State's regulation.

GLOBAL BUSINESS HOLDINGS, INC. (formerly Global Business Bank, Inc.), vs. SURECOMP
SOFTWARE, B.V.
G.R. No. 173463 October 13, 2010

FACTS: Surecomp Software, B.V. (Surecomp), a foreign corporation duly organized and existing
under the laws of the Netherlands, entered into a software license agreement with Asian Bank
Corporation (ABC), a domestic corporation, for the use of its IMEX Software System (System) in the
bank’s computer system for a period of twenty (20) years.

ABC merged with petitioner Global Business Holdings, Inc., with Global as the surviving corporation.
When Global took over the operations of ABC, it found the System unworkable for its operations,
and informed Surecomp of its decision to discontinue with the agreement and to stop further
payments thereon. Consequently, for failure of Global to pay its obligations under the agreement
despite demands, Surecomp filed a complaint for breach of contract with damages before the RTC.

Surecomp alleged that it is a foreign corporation not doing business in the Philippines and is suing on
an isolated transaction. Global filed a motion to dismiss based on two grounds: (1) that Surecomp
had no capacity to sue because it was doing business in the Philippines without a license; and (2) that
the claim on which the action was founded was unenforceable under the Intellectual Property Code
of the Philippines.

ISSUE: Whether Global is estopped from questioning Surecomp’s capacity to sue.

RULING: As a rule, unlicensed foreign non-resident corporations doing business in the Philippines
cannot file suits in the Philippines. This is mandated under Section 133 of the Corporation Code,
which reads:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines, but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.

A corporation has a legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines.
In order to subject a foreign corporation doing business in the country to the jurisdiction of our
courts, it must acquire a license from the Securities and Exchange Commission and appoint an agent
for service of process. Without such license, it cannot institute a suit in the Philippines.

The exception to this rule is the doctrine of estoppel. Global is estopped from challenging
Surecomp’s capacity to sue.

A foreign corporation doing business in the Philippines without license may sue in Philippine courts a
Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is
estopped from challenging the personality of a corporation after having acknowledged the same by

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entering into a contract with it. The principle is applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the contract.

Due to Global’s merger with ABC and because it is the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the merger of two existing corporations, one of the
corporations survives and continues the business, while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the surviving corporation

San Jose Petroleum vs. Court of Appeals

GR No. L-14441, December 17, 1966

FACTS: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is
owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest
of which is owned by OIL INVESTMENTS, INC., another foreign (Panamanian) company. This latter
corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C. A., and PANCOASTAL
PETROLEUM COMPANY, C. A., both organized and existing under the laws of Venezuela. As of
September 30, 1956, there were 9,979 stockholders of PANCOASTAL PETROLEUM found in 49 American
states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956,
PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49
American states.

In the two lists of stockholders, there is no indication of the citizenship of these stockholders, or of the
total number of authorized stocks of each corporation for the purpose of determining the corresponding
percentage of these listed stockholders in relation to the respective capital stock of said corporation.

ISSUE: Is the "tie-up" between the two corporations violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949, and the Corporation Law?

RULING: Yes. The privilege to utilize, exploit, and develop the natural resources of this country was
granted, by Article III of the Constitution, to Filipino citizens or to corporations or associations 60% of
the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the same
right was extended to citizens of the United States and business enterprises owned or controlled,
directly or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned
provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or
American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and
business enterprises owned or controlled directly or indirectly, by citizens of the United States). In
American law, "citizen" has been defined as "one who, under the constitution and laws of the United
States, has a right to vote for representatives in congress and other public officers, and who is qualified
to fill offices in the gift of the people."

SAN JOSE PETROLEUM an American business is not entitled to parity rights in the Philippines. In the
circumstances, the Court have to hold that the respondent SAN JOSE PETROLEUM, as presently
constituted, is not a business enterprise that is authorized to exercise the parity privileges under the
Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE
OIL is, consequently, illegal.

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 Pennoyer vs Neff
95 U.S. 714 (1878)

FACTS: Mitchell, a lawyer, sued Defendant, his client, in Oregon state court for unpaid legal
fees. At the time Defendant was a non-resident of the state who was not personally served
with process. Constructive service was issued upon Defendant by publication. Defendant did
not come to court or otherwise resist the lawsuit, and default judgment was entered against
him. After the default judgment, Defendant acquired 300 acres of land in Oregon. To satisfy
his judgment against Defendant, Mitchell had the sheriff seize and sell Defendant’s land. The
land was purchased by Plaintiff, who received a sheriff’s deed as evidence of title. The sheriff
then turned the sale proceeds over to Mitchell. Shortly after the sheriff’s sale, Defendant
discovered what had happened to his land and brought suit against Plaintiff to recover the
land. This appeal followed after Defendant lost his suit against Plaintiff.

ISSUE: Can judgments obtained against non-residents who fail to appear in court be
sustained by default judgments where service of process is accomplished solely through
publication (i.e. constructive service)?

RULING: No. The personal judgment recovered in the state court of Oregon against Plaintiff
was without validity, and the decision of the Court of Appeals overturning that judgment
was affirmed. When a suit is merely in personam (i.e. against a person), constructive service
through publication upon a non-resident is ineffective. No state can exercise direct
jurisdiction and authority over persons or property without its territory.

INTERNATIONAL SHOE CO. vs. WASHINGTON

326 U.S. 310

FACTS: International Shoe Co., Defendant, was a company based in Delaware with an office in St.
Louis, Missouri. Defendant employed salesmen that resided in Washington to sell their product in the
state of Washington. Defendant regularly shipped orders to the salesmen who accepted them, the
salesmen would display the products at places in Washington, and the salesmen were compensated
by commission for sale of the products. The salesmen were also reimbursed for the cost of renting
the places of business in Washington. Washington sued Defendant after Defendant failed to make
contributions to an unemployment compensation fund exacted by state statutes. The Washington
statute said that the commissioner could issue personal service if Defendant was found within the
state, or by mailing it to Defendant if Defendant was not in the state. The notice of assessment was
served upon Defendant’s salesperson and a copy of the notice was mailed to Defendant. Defendant
appeared specially, moving to set aside the order that service upon the salesperson was proper
service. Defendant also argued that it did not “do business” in the state, that there was no agent
upon which service could be made, and that Defendant did not furnish employment within the
meaning of the statute. Defendant also argued that the statute violated the Due Process Clause of

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the Fourteenth Amendment and imposed a prohibitive burden of interstate commerce. The trial
court found for Washington and the Supreme Court of Washington affirmed, reasoning that the
continuous flow of Defendant’s product into Washington was sufficient to establish personal
jurisdiction. Defendant appealed.

ISSUE: Is service of process upon Defendant’s agent sufficient notice when the corporation’s
activities result in a large volume of interstate business so that the corporation receives the
protection of the laws of the state and the suit is related to the activities which make the corporation
present?

RULING: The US Supreme Court ruled in the affirmative. it held that the general rule is that in order
to have jurisdiction with someone outside the state, the person must have certain minimum contacts
with it such that the maintenance of the suit does not offend “traditional notions of fair play and
substantial justice. For a corporation, the “minimum contacts” required are not just continuous and
systematic activities but also those that give rise to the liabilities sued on. Defendant could have sued
someone in Washington. It was afforded the protection of the laws of that state, and therefore it
should be subject to suit.

This decision articulates the rule for determining whether a state has personal jurisdiction over an
absent defendant via the “minimum contacts” test. In general, International Shoe demonstrates that
contacts with a state should be evaluated in terms of how “fair” it would be to exercise jurisdiction
over an absent defendant.

Lastly, in order for a state to exercise personal jurisdiction over a defendant, the defendant must
have such minimum contacts with the state so that exercising jurisdiction over the defendant would
not offend “traditional notions of fair play and substantial justice.”

NEW YORK MARINE MANAGERS, INC. vs. COURT OF APPEALS

G.R. No. 111837 October 24, 1995

FACTS: Petitioner is a foreign corporation organized under the laws of the United States while
defendant is a local domestic corporation organized under Philippine law. On 25 July 1990 American
Natural Soda Ash Corporation (ANSAC) loaded in Portland , U.S.A., a shipment of soda ash on board
the vessel "MS Abu Hanna" for delivery to Manila . The supplier/shipper insured the shipment with
petitioner. Upon arrival in Manila the shipment was unloaded and transferred to the vessel "MV
Biyayang Ginto" owned by private respondent. Since the shipment allegedly sustained wettage,
hardening and contamination, it was rejected as total loss by the consignees. When the supplier
sought to recover the value of the cargo loss from petitioner the latter paid the claim in the amount
of US$58,323.96.

On 20 November 1991 petitioner as subrogee filed with the RTC Manila a complaint for damages
against private respondent. Thereafter, private respondent filed a motion to dismiss the complaint
one of its grounds cited being plaintiff having no legal capacity to sue. Such was denied by the trial
court upon opposition of the petitioner.

ISSUE: Whether or not petitioner can seek for relief from our courts.

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HELD: NO. A foreign corporation not engaged in business in the Philippines may exercise the right to
file an action in Philippine courts for an isolated transaction. When the allegations in the complaint
have a bearing on the plaintiff's capacity to sue and merely state that the plaintiff is a foreign
corporation existing under the laws of the United States, such averment conjures two alternative
possibilities: either the corporation is engaged in business in the Philippines, or it is not so engaged.

In the first, the corporation must have been duly licensed in order to maintain the suit; in the second,
and the transaction sued upon is singular and isolated, no such license is required. In either case,
compliance with the requirement of license, or the fact that the suing corporation is exempt
therefrom, as the case may be, cannot be inferred from the mere fact that the party suing is a
foreign corporation.

The qualifying circumstance being an essential part of the plaintiff's capacity to sue must be
affirmatively pleaded. Hence, the ultimate fact that a foreign corporation is not doing business in the
Philippines must first be disclosed for it to be allowed to sue in Philippine courts under the isolated
transaction rule. Failing in this requirement, the complaint filed by petitioner with the trial court, it
must be said, fails to show its legal capacity to sue.

In the case at bar, petitioner's complaint is fatally defective for failing to allege its duly authorized
representative or resident agent in this jurisdiction. The pleadings filed by counsel for petitioner do
not suffice. True, a lawyer is generally presumed to be properly authorized to represent any cause in
which he appears, and no written power of attorney is required to authorize him to appear in court
for his client, but such is disputable. Where said authority has been challenged or attacked by the
adverse party the lawyer is required to show proof of such authority or representation in order to
bind his client.

The requirement of the production of authority is essential because the client will be bound by his
acquiescence resulting from his knowledge that he was being represented by said attorney.

EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN AIRLINES
G.R. No. 152392. May 26, 2005

FACTS: Expertravel and Tours, Inc. (ETI). Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do business in the Philippines. Its general
manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo
and his law firm.

In 1999, KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the RTC, for the collection
of the principal amount of P260,150.00, plus attorneys fees and exemplary damages. The verification
and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that
he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.

ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping as required by the Rules of Court. KAL
opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as

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such with the SEC as required by the Corporation Code of the Philippines. It was further alleged that
Atty. Aguinaldo was also the corporate secretary of KAL.

The trial court denied. ETI then filed a petition for certiorari and mandamus, assailing the orders of
the RTC. The CA dismissed the Petition. Hence, this case.

ISSUE: Is the resident agent of a foreign corporation authorized to sign the Verification and CNFS in
the Complaint filed by the corporation?.

RULING : NONE unless otherwise authorized. The petition is meritorious. It is settled that the
requirement to file a certificate of non-forum shopping is mandatory and that the failure to comply
with this requirement cannot be excused. The certification is a peculiar and personal responsibility of
the party, an assurance given to the court or other tribunal that there are no other pending cases
involving basically the same parties, issues and causes of action. Hence, the certification must be
accomplished by the party himself because he has actual knowledge of whether or not he has
initiated similar actions or proceedings in different courts or tribunals. Even his counsel may be
unaware of such facts. Hence, the requisite certification executed by the plaintiff’s counsel will not
suffice.

The verification and certificate of non-forum shopping was incorporated in the complaint and signed
by Atty. Aguinaldo. In the certification, there was no allegation that Atty. Aguinaldo had been
authorized to execute the certificate of non-forum shopping by the respondents Board of Directors;
moreover, no such board resolution was appended thereto or incorporated therein.

While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean
that he is authorized to execute the requisite certification against forum shopping. Under Section
127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a
foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the
foreign corporation, services and other legal processes in all actions and other legal proceedings
against such corporation.

Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum
shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent
may be aware of actions filed against his principal (a foreign corporation doing business in the
Philippines), such resident may not be aware of actions initiated by its principal, whether in the
Philippines against a domestic corporation or private individual, or in the country where such
corporation was organized and registered, against a Philippine registered corporation or a Filipino
citizen.

The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically
authorized to execute the said certification. It attempted to show its compliance with the rule
subsequent to the filing of its complaint by submitting a resolution purporting to have been
approved by its Board of Directors during a teleconference, allegedly with Atty. Aguinaldo and Suk
Kyoo Kim in attendance. However, such attempt of the respondent casts veritable doubt not only on
its claim that such a teleconference was held, but also on the approval by the Board of Directors of
the resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.

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Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference
along with the respondents Board of Directors, the Court is not convinced that one was conducted;
even if there had been one, the Court is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required
certification against forum shopping.

Respondent submitted an affidavit of its general manager Suk Kyoo Kim, stating, inter alia, that he
and Atty. Aguinaldo attended the said teleconference on June 25, 1999, where the Board of Directors
supposedly approved the resolution.

But then, in the same affidavit, Suk Kyoo Kim declared that the respondent does not keep a written
copy of the aforesaid Resolution because no records of board resolutions approved during
teleconferences were kept. This belied the respondent’s earlier allegation that the Resolution was in
the custody of its main office in Korea. The respondent gave the trial court the impression that it
needed time to secure a copy of the resolution kept in Korea, only to allege later (via the affidavit of
Suk Kyoo Kim) that it had no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that
the resolution was embodied in the Secretarys/Resident Agents Certificate signed by Atty.
Aguinaldo. However, no such resolution was appended to the said certificate.

AETNA CASUALTY & SURETY Co. vs. PACIFIC STAR LINE et al

G.R. No.L-26809 December 29, 1977

FACTS: Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee,
instituted a case to recover the amount of US$2,300.00 representing the value of the stolen and
damaged cargo plus litigation expenses and exemplary damages against Pacific Star Line, The
Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. alleging that Pacific Star
Line, as a common carrier, was operating the vessel SS Ampal on a commercial run between United
States and Philippine Ports including Manila; that the defendant, The Bradman Co. Inc., was the ship
agent in the Philippines for the SS Ampal and/or Pacific Star Line; that the Manila Railroad Co. Inc.
and Manila Port Service were the arrastre operators in the port of Manila and were authorized to
delivery cargoes discharged into their custody on presentation of release papers from the Bureau of
Customs and the steamship carrier and/or its agents; that plaintiff sustained losses due to the
negligence of Pacific Star Line prior to delivery of the cargo to Manila or, in the alternative, due to
the negligence of Manila Port Service after delivery of the cargo to it by the SS Ampal. The
defendants alleged that the plaintiff, Aetna Casualty & Surety Company, is a foreign corporation not
duly licensed to do business in the Philippines and, therefore, without capacity to sue and be sued.

ISSUE: Whether or not Aetna Casualty & Surety Company, a foreign corporation not doing business
in the Philippines, can claim damages against defendant.

RULING: YES. It is settled that if a foreign corporation is not engaged in business in the Philippines,
it may not be denied the right to file an action in Philippine courts for isolated transactions. The
object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation
from performing single acts, but to prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the local courts. It was never the
purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated

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order for business from the Philippines, from securing redress in the Philippine courts. Aetna
Casualty & Surety Company is not transacting business of insurance in the Philippines for which it
must have a license. The contract of insurance was entered into in New York, U.S.A., and payment
was made to the consignee in its New York branch. Since, Aetna Casualty & Surety Company is not
engaged in the business of insurance in the Philippines but is merely collecting a claim assigned to it
by the consignee, it is not barred from filing the instant case although it has not secured a license to
transact insurance business in the Philippines. The case is remanded to the trial court for further
proceedings to determine the liability of the defendants-appellees.

HATHIBHAI BULAKHIDAS vs HONORABLE PEDRO L. NAVARRO

L-49695 April 7, 1986

FACTS: Petitioner, a foreign partnership, filed a complaint against a domestic corporation,

DSC, before the CFI of Rizal for the recovery of damages allegedly caused by the failure of
the said shipping corporation to deliver the goods shipped to it by petitioner to their proper
destination. Paragraph 1 of said complaint alleged that plaintiff is "a foreign partnership firm
not doing business in the Philippines" and that it is "suing under an isolated transaction."
Defendant filed a motion to dismiss the complaint on the ground that plaintiff has no
capacity to sue and that the complaint does not state a valid cause of action against
defendant.

Acting on said motion to dismiss, the CFI dismissed the complaint on the ground that
plaintiff being "a foreign corporation or partnership not doing business in the Philippines it
cannot exercise the right to maintain suits before our Courts."

ISSUE: Whether a foreign corporation “not engaged in business in the Philippines” can
institute an action before Philippine courts.

RULING: YES. It is settled that if a foreign corporation is not engaged in business in the
Philippines, it may not be denied the right to file an action in Philippine courts for isolated
transactions. The object of Sections 68 and 69 of the Corporation law was not to prevent
the foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking the steps necessary to render it
amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts.

No general rule or governing principle can be laid down as to what constitutes 'doing' or
'engaging' in or 'transacting' business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it and turned it over to
another. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of
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the functions normally incident to, and in progressive prosecution of, the purpose and
object of its organization.

While plaintiff is a foreign corporation without license to transact business in the Philippines,
it does not follow that it has no capacity to bring the present action. Such license is not
necessary because it is not engaged in business in the Philippines. A foreign corporation not
engaged in business in the Philippines is not barred from seeking redress from the courts of
the Philippines.

SCHMID & OBERLY, INC. vs. RJL MARTINEZ FISHING CORPORATION

G.R. No. 75198 October 18, 1988

FACTS: RJL MARTINEZ is engaged in the business of deep-sea fishing. The transaction, which gave
rise to the present controversy, involves twelve (12) "Nagata"-brand generators. Schmid gave RJL its
Quotation dated August 19, 1975 stipulating that payment would be made by confirming an
irrevocable letter of credit in favor of NAGATA CO . Agreeing with the terms of the Quotation, RJL
opened a letter of credit. SCHMID transmitted to NAGATA CO. an order for the twelve (12)
generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the
bill of lading and its own invoice and, in accordance with the order, shipped the generators directly
to RJL MARTINEZ.

All generators subject of the two transactions burned out after continuous use. SCHMID, upon
information from RJL, brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO.
sent two technical representatives who made an ocular inspection and conducted tests on some of
the burned out generators. The tests revealed that the generators were overrated.

As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to
be 5 KVA, however, it turned out that the actual capacity was only 4 KVA. The Japanese technicians
advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did.

ISSUE: Was the transaction between the parties an indent, not sale?

RULING: Yes. There is no statutory definition of "indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 states that foreign firm which does business
through the middlemen acting in their own names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing business in the Philippines. But such indentors,
commercial brokers or commission merchants shall be the ones deemed to be doing business in the
Philippines.

Therefore, an indentor is a middleman in the same class as commercial brokers and commission
merchants. It would appear that there are three parties to an indent transaction, namely, the buyer,
the indentor, and the supplier who is usually a non-resident manufacturer residing in the country
where the goods are to be bought. An indentor may therefore be best described as one who, for
compensation, acts as a middleman in bringing about a purchase and sale of goods between a
foreign supplier and a local purchaser.

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 In the case at bar, the admissions of the parties and the facts appearing on record more than suffice
to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the
questioned transaction. The afore-quoted penal provision in the Corporation Law finds no
application to SCHMID and its officers and employees relative to the transactions in the instant case.

An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In
fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code
quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the
distinct role of an indentor, such that when a foreign corporation does business through such
indentor, the foreign corporation is not deemed doing business in the Philippines. Not being the
vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil
Code.

THE MENTHOLATUM CO., INC., ET AL. vs. ANACLETO MANGALIMAN ET AL.

G.R. No. 47701, June 27, 1941

FACTS: On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc.
instituted an action in the Court of First Instance of Manila against Anacleto Mangaliman, Florencio
Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair
competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio
Mangaliman from selling their product "Mentholiman," and directing them to render an accounting
of their sales and profits and to pay damages. The complaint stated, among other particulars, that
the Mentholatum Co., Inc., is a Kansas corporation which manufactures "Mentholiman," a
medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect
bites, rectal irritation and other external ailments of the body and that the Philippine-American Drug
Co., Inc. is its exclusive distributing agent in the Philippines authorized by it to look, alter and protect
its interests.

On June 26, 1919 and on January 21, 1921, the Mentholatum Co., inc., registered with the Bureau of
Commerce and Industry the word, "Mentholatum," as trade mark for its products and that the
Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold to
the public packed in a container of the same size, color and shape as "Mentholatum". As a
consequence of these acts of the defendants, plaintiffs suffered damages from the diminution of
their sales and the loss of goodwill and reputation of their product in the market.

ISSUES:

(1) Is Mentholatum Co. Inc. “doing business” in the Philippines?

(2) Is Mentholatum Co. Inc. allowed to prosecute its action?

RULING:

1.) Yes. No general rule or governing principle can be laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another. The term
implies a continuity of commercial dealings and arrangements, and contemplates, to that extent,

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 the performance of acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of, the purpose and object of its organization.

Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippine Islands of
the Mentholatum Co., Inc., in the sale and distribution of its product known as the
Mentholatum." The object of the pleadings being to draw the lines of battle between litigants
and to indicate fairly the nature of the claims or defenses of both. A party cannot subsequently
take a position contradictory to, or inconsistent with, his pleadings, as the facts therein admitted
are to be taken as true for the purpose of the action. It follows that whatever transactions the
Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc.,
did it itself.

2.) No. Section 69 of Act No. 1459 reads:

"Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws
other than those of the Philippine Islands shall be permitted to transact business in the Philippine
Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand
whatever, unless it shall have the license prescribed in the section immediately preceding. Xxx”

The Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without
the license required by section 68 of the Corporation Law, it may not prosecute this action for
violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co.,
Inc., maintain the action here for the reason that the distinguishing features of the agent being
his representative character and derivative authority, it cannot now, to the advantage of its
principal, claim an independent standing in court.

Antam Consolidated, Inc. vs. Court of Appeals

143 SCRA 534, July 31, 1986

FACTS: Respondent Stokely Van Camp. Inc., a US Corporation not licensed to do business in the
Philippines and one its subdivisions “Capital City Product Company”, entered into a contract with
Capital City and Coconut Oil Manufacturing (Comphil) acting in through its broker, wherein Comphil
undertook to sell and deliver and Capital City agreed to buy 500 long tons of crude coconut oil.
Comphil failed to deliver the coconut oil so that Capital City covered its coconut oil needs in the open
market at a price substantially in excess of the contract and sustained a loss of US$103,600. To settle
Capital City's loss under the contract, the parties entered into a second contract wherein Comphil
undertook to buy and Capital City agreed to sell 500 long tons of coconut crude oil under the same
terms and conditions but at an increased price. Comphil again failed to pay said amount resulting in
a third contract, which Comphil again failed to pay.

Respondent alleges that: 1) After demands were made by respondent on Comphil, the Tambuntings
ceased to be directors and officers of Comphil and were replaced by their five employees, who were
managers of Tambunting's pawnshops and said employees caused the name of Comphil to be
changed to "Banahaw Milling Corporation" and authorized one of the Tambuntings, Antonio P.
Tambunting, Jr., who was at that time neither a director nor officer of Banahaw to sell its oil mill; 2)
Unicom has taken over the entire operations and assets of Banahaw because the entire and
outstanding capital stock of the latter was sold to the former; 3) ALL of the issued and outstanding

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capital stock of Comphil are owned by the Tambuntings who were the directors and officers of
Comphil and who were the ones who benefited from the sale of Banahaw's assets or shares to
Unicorn; 4) ALL of the petitioners evaded their obligation to respondent by the devious scheme of
using Tambunting employees to replace the Tambuntings in the management of Banahaw and
disposing of the oil mill of Banahaw or their entire interests to Unicorn; and 5) Respondent has
reasonable cause to believe and does believe that the coconut oil milk which is the only substantial
asset of Banahaw is about to be sold or removed so that unless prevented by the Court there will
probably be no assets of Banahaw to satisfy its claim.

Petitioners argue that to maintain the suit filed with the trial court, the respondent should have
secured the requisite license to do business in the Philippines because, in fact, it is doing business
here. Petitioners anchor their argument that the respondent is a foreign corporation doing business
in the Philippines on the fact that by the respondent's own allegations, it has participated in three
transactions, either as a seller or buyer, which are by their nature, in the pursuit of the purpose and
object for which it was organized. Petitioners further argue that the test of whether one is doing
business or not is "whether there is continuity of transactions which are in the pursuance of the
normal business of the corporation" and that the transactions entered into by respondent
undoubtedly fall within this category.

ISSUE: Whether respondent has personality to sue

RULING: Yes. There is no general rule or governing principle laid down as to what constitutes 'doing'
or 'engaging in' or 'transacting business in the Philippines. Each case must be judged in the Light of
its peculiar circumstance. The acts of corporations should be distinguished from a single or isolated
business transaction or occasional, incidental and casual transactions which do not come within the
meaning of the law. Where a single act or transaction , however, is not merely incidental or casual
but indicates the foreign corporation's intention to do other business in the Philippines, said single
act or transaction constitutes 'doing' or 'engaging in' or 'transacting' business in the Philippines.

The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it warning-organized or whether it has
substantially was retired from it and turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of acts
or workers or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.

In the case at bar, the transactions entered into by the respondent with the petitioners are not a
series of commercial dealings which signify an intent on the part of the respondent to do business in
the Philippines but constitute an isolated one which does not fall under the category of "doing
business." The records show that the only reason why the respondent entered into the second and
third transactions with the petitioners was because it wanted to recover the loss it sustained from
the failure of the petitioners to deliver the crude coconut oil under the transactions and in order to
give the latter a chance to make good on their obligation.

From these facts alone, it can be deduced that in reality, there was only one agreement between the
petitioners and the respondent and that was the delivery by the former of 500 long tons of crude
coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three
seemingly different transactions were entered into by the parties only in an effort to fulfill the basic

254 | P a g e
agreement and in no way indicate an intent on the part of the respondent to engage in a continuity
of transactions with petitioners which will categorize it as a foreign corporation doing business in the
Philippines. Thus, the trial court, and the appellate court did not err in denying the petitioners'
motion to dismiss not only because the ground thereof does not appear to be indubitable but
because the respondent, being a foreign corporation not doing business in the Philippines, does not
need to obtain a license to do business in order to have the capacity to sue.

The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on
considerations of sound public policy. It intended to favor domestic corporations who enter was
never into solitary transactions with unwary foreign firms and then repudiate their obligations simply
because the latter are not licensed to do business in this country. The petitioners in this case are
engaged in the exportation of coconut oil, an export item so vital in our country's economy. They
filed this petition on the ground that Stokely is an unlicensed foreign corporation without a bare
allegation or showing that their defenses in the collection case are valid and meritorious.

WANG LABORATORIES, INC. vs. THE HONORABLE RAFAEL T. MENDOZA, ET AL

G.R. No. 72147 December 1, 1987

FACTS: Petitioner is a corporation duly organized under the laws of the United States with principal
address at One Industrial Avenue, Lowell, Massachusetts, U.S.A., engaged in the business of
manufacturing and selling computers worldwide. In the Philippines, petitioner sells its products to
EXXBYTE TECHNOLOGIES CORPORATION, hereinafter referred to as EXXBYTE, its exclusive
distributor. EXXBYTE is a domestic corporation engaged in the business of selling computer products
to the public in its own name for its own account. Angara, Concepcion, Regala & Cruz Law Offices is
a duly registered professional partnership.

On September 10, 1980, respondent ACCRALAW entered into a contract with EXXBYTE for
acquisition and installation of a Wang 2200 US Integrated Information System at the former's office.
As stipulated in the above-said contract, a letter of credit for US$ 86,142.55 was thereafter opened by
ACCRALAW in favor of petitioner herein to pay for the Wang 2200 US System. Sometime in May 1981,
the hardware was delivered and installed by EXXBYTE in ACCRALAW's office. On June 10, 1981,
ACCRALAW and EXXBYTE entered into another contract for the development of a data processing
software program needed to computerize the ACCRALAW office.

Subsequent thereto and for one reason or the other, the contract for the development of a data
processing software program or ISLA was not implemented. On May 7, 1984, ACCRALAW filed a
complaint for breach of contract with damages, replevin and attachment against herein petitioner.

ISSUE: Whether or not respondent Court has acquired jurisdiction over the person of the petitioner,
a foreign corporation.

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RULING: In the cases of Mentholatum Co., Inc. v. Mangaliman, it was held that no general rule or
governing principle can be laid down as to what constitutes doing or "engaging" or "trading" in
business. Indeed each case must be judged in the light of its peculiar environmental circumstances;
upon peculiar facts and upon the language of the Statute applicable.

Under the circumstances; petitioner cannot unilaterally declare that it is not doing business in the
Philippines. In fact, it has installed, at least 26 different products in several corporations in the
Philippines since 1976 . It has registered its trade name with the Philippine Patents Office (ibid) and
Mr. Yeoh who is petitioner's controller in Asia has visited the office of its distributor for at least four
times where he conducted training programs in the Philippines. Wang has allowed its registered logo
and trademark to be used by EXXBYTE (Pran Deposition, p. 23, Rollo, p. 342) and made it known that
there exists a designated distributor in the Philippines as published in its advertisements. Indeed it
has been held that "where a single act or transaction of a foreign corporation is not merely incidental
or casual but is of such character as distinctly to indicate a purpose to do other business in the State,
such act constitutes doing business within the meaning of statutes prescribing the conditions under
which a foreign corporation may be served with summons. Be that as it may, the issue on the
suability of foreign corporation whether or not doing business in the Philippines has already been
laid to rest. The Court has categorically stated that although a foreign corporation is not doing
business in the Philippines, it may be sued for acts done against persons in the Philippines.

In fact, it is well settled that "A voluntary appearance is a waiver of the necessity of formal notice."
Thus, it has been held that when the appearance is by motion for the purpose of objecting to the
jurisdiction of the court over the person it must be for the sole and separate purpose of objecting to
the jurisdiction of the Court. If the appearance is for any other purpose, the defendant is deemed to
have submitted himself to the jurisdiction of the court. Such an appearance gives the court
jurisdiction over the person. Clarifying further, the Court has likewise ruled that even though the
defendant objects to the jurisdiction of the Court, if at the same time he alleges any non-jurisdictional
ground for dismissing the action, the Court acquires jurisdiction over him.

N.V. REEDERIJ "AMSTERDAM” vs. CIR

G.R. No. L-46029, June 23, 1988

FACTS: From March 27 to April 30, 1963, M.V. Amstelmeer and from September 24 to
October 28, 1964, MV "Amstelkroon, " both of which are vessels of petitioner N.B. Reederij
"AMSTERDAM," called on Philippine ports to load cargoes for foreign destination. The
freight fees for these transactions were paid abroad in the amount of US $98,175.00 in 1963
and US $137,193.00 in 1964. In these two instances, petitioner Royal Interocean Lines acted
as husbanding agent for a fee or commission on said vessels. No income tax appears to have
been paid by petitioner N.V. Reederij "AMSTERDAM" on the freight receipts.

CIR, through his examiners, filed the corresponding income tax returns for and in behalf of
the former. Applying the then prevailing market conversion rate of P3.90 to the US $1.00,
the gross receipts of petitioner N.V. Reederij "Amsterdam" for 1963 and 1964 amounted to
P382,882.50 and P535,052.00, respectively. On June 30, 1967, respondent Commissioner
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assessed said petitioner in the amounts of P193,973.20 and P262,904.94 as deficiency
income tax for 1963 and 1964, respectively, as "a non-resident foreign corporation not
engaged in trade or business in the Philippines under Section 24 (b) (1) of the Tax Code.

On the assumption that the said petitioner is a foreign corporation engaged in trade or
business in the Philippines, on August 28, 1967, petitioner Royal Interocean Lines filed an
income tax return of the aforementioned vessels computed at the exchange rate of P2.00 to
USs1.00 1 and paid the tax thereon in the amount of P1,835.52 and P9,448.94, respectively,
pursuant to Section 24 (b) (2) in relation to Section 37 (B) (e) of the National Internal
Revenue Code and Section 163 of Revenue Regulations No. 2. On the same two dates,
petitioner Royal Interocean Lines as the husbanding agent of petitioner N.V. Reederij
"AMSTERDAM" filed a written protest against the abovementioned assessment made by the
respondent Commissioner which protest was denied by said respondent in a letter dated
March 3, 1969: On March 31, 1969, petitioners filed a petition for review with the respondent
Court of Tax Appeals praying for the cancellation of the subject assessment. After due
hearing, the respondent court, on December 1, 1976, rendered a decision modifying said
assessments by eliminating the 50% fraud compromise penalties imposed upon petitioners.
Petitioners filed a motion for reconsideration of said decision but this was denied by the
respondent court.

Petitioners contend that respondent court erred in holding that petitioner N.V. Reederij
"AMSTERDAM" is a non-resident foreign corporation because it allegedly disregarded
Section 163 of Revenue Regulations No. 2 (providing for the determination of the net
income of foreign corporations doing business in the Philippines) and in holding that the
foreign exchange and e receipts of said petitioner for purposes of computing its income tax
should be converted into Philippine pesos at the rate of P3.90 to US $1.00 instead of P2.00 to
US $1.00.

ISSUE: Whether N.V. Reederij “Amsterdam” not having any office or place of business in the
Philippines, whose vessels called on the Philippine ports for the purpose of loading cargoes
only twice (1963 and in 1964) should be taxed as a foreign corporation not engaged in trade
or business in the Philippines under Sec 24 (b) (1) or as a foreign corporation engaged in
trade or business in the Philippines under Sec 24 (b) (2) in relation to Sec 37 (e) of the Tax
Code.

RULING: Petitioner N.V. Reederij "AMSTERDAM" is a foreign corporation not authorized or

licensed to do business in the Philippines. It does not have a branch office in the Philippines
and it made only two calls in Philippine ports, one in 1963 and the other in 1964. In order that
a foreign corporation may be considered engaged in trade or business, its business
transactions must be continuous. A casual business activity in the Philippines by a foreign
corporation, as in the present case, does not amount to engaging in trade or business in the
Philippines for income tax purposes.

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A foreign corporation engaged in trade or business within the Philippines, or which has an
office or place of business therein, is taxed on its total net income received from all sources
within the Philippines at the rate of 25% upon the amount but which taxable net income does
not exceed P100,000.00, and 35% upon the amount but which taxable net income exceeds
P100,000.00. 2 On the other hand, a foreign corporation not engaged in trade or business
within the Philippines and which does not have any office or place of business therein is
taxed on income received from all sources within the Philippines at the rate of 35% of the
gross income.

Petitioner relies on Section 24 (b) (2) and Section 37 (B) (e) of the Tax Code and
implementing Section 163 of the Income Tax Regulations but these provisions refer to a
foreign corporation engaged in trade or business in the Philippines and not to a foreign
corporation not engaged in trade or business in the Philippines like petitioner-ship-owner
herein.

Gonzales vs. Raquiza

180 SCRA 254

FACTS: Commissioner of Public Highways in behalf of the Republic of the Philippines entered
into two separate contracts with Continental Ore (Phil.), Inc., the latter acting as
representative of Huber Corporation in the first contract and as agent of Allis-Chalmers
International and General Motors Corporation in the second.

In the first contract, the Republic obligated itself to pay the Huber Corporation in the form
of irrevocable, confirmed and divisible letters of credit in favor of Continental Ore
Corporation, or its nominees, for the purchase of road construction equipment and spare
parts. The second contract provided that for and in consideration of US$ 21,077,314.84,
which the Republic obligated itself to pay to Continental Ore Corp. in the form of
irrevocable, confirmed and divisible letters of credit, Allis-Chalmers International and
General Motors Corporation would sell, transfer and convey to the Republic road
construction equipment and spare parts under the same terms and conditions stated in the
first contract.

Both contracts were duly approved by the Secretary of Public Works and Communications
and the Auditor General.

Then, the Secretary of Finance requested the Office of the President for approval of the
guaranty of the letters of credit in favor of Huber Corporation, which request was favorably
acted upon the following day.

As in the first application, the Executive Secretary, by authority of the President, directed
the Secretary of Finance to extend the necessary guaranty for the letters of credit in favor of
General Motors Corporation and Allis-Chalmers International. In 1967, plaintiff Ramon A.
Gonzales, as taxpayer and later as stockholder of the PNB, filed before the CFI praying for

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the annulment of the contracts of sale on the ground that these contracts of sale,
accommodation and letters of credit are illegal for being violative of Sections 606, 607 and
608 of the Revised Administrative Code for want of appropriation by law and certification as
to the availability of funds by the Auditor General and for being violative of the PNB Charter
since the accommodation or loan to the Republic is beyond the lending capacity of the bank.

The lower court dismissed the complaint. Hence, this appeal.

ISSUE: Were the said contracts valid inspite of the fact that the three American corporations
which entered into said contracts are not licensed to do business in the Philippines?

RULING: Yes. The Court re-states the generally accepted rule that one single or isolated
business transaction does not constitute "doing business" within the meaning of the law.
Transactions which are occasional, incidental, and casual-not of a character to indicate a
purpose to engage in business-do not constitute the doing or engaging in business as
contemplated by law. Where the three transactions indicate no intent by the foreign
corporation to engage in a continuity of transactions, they do not constitute doing business
in the Philippines.

Since the third assigned error is premised on the supposed invalidity of the contracts under
consideration, our ruling sustaining their validity, renders a discussion of the third issue
raised unnecessary.

Section 23 of R.A. 337 as approved on July 24, 1948 reads: Sec. 23. Except as the Monetary
Board may otherwise prescribe, the total liabilities of any person, company, corporation or
firm, to a commercial banking corporation for money borrowed with the exception of
money borrowed against obligations of the Central Bank, Philippine Government, or
borrowed with the full guarantee by the Government of payment of principal and interest,
shall at no time exceed fifteen per cent (15%) of the unimpaired capital and surplus of such
bank. (Emphasis supplied.)

Even assuming that the accommodation given by the PNB was in legal contemplation, a
loan, the fact that the same was fully guaranteed by the Republic of the Philippines removes
said accomodation from the statutory limits set under Section 5(e) of R.A. 1300 by reason of
Section 23 of R.A. 337 above-quoted which is applicable to the PNB as a commercial bank
authorized to exercise the general powers mentioned in the General Banking Act (Sec. 2(j),
R.A. 1300).

Marubeni Nederland B.V. vs. Tensuan

G.R. No. 61950, September 28, 1990

FACTS: Marubeni Nederland B.V. and D.B. Teodoro Development Corporation (DBT for short)
entered into a contract in Tokyo, Japan whereby petitioner agreed to supply all the necessary

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equipment, machinery, materials, technical know-how and the general design of the construction of
DBT's lime plant at the Guimaras Islands in Iloilo. Simultaneously with the supply contract, the parties
entered into two financing contracts. The obligation of DBT to pay the loan amortizations on their
due dates under the three (3) contracts were absolutely and unconditionally guaranteed by the
National Investment and Development Corporation (NIDC). On May 14, 1982, DBT through counsel,
informed petitioner that it was rejecting the lime plant on the ground that it has not been
constructed in accordance with their agreement. DBT made a formal demand for indemnification in
the total amount of P95,150,000. 3 In its letter dated June 1, 1982, petitioner refused to accept DBT's
unilateral rejection of the plant and reasoned that the alleged operation and technical problems
were "totally unrelated to the guaranteed capacity and specifications of the plant and definitely are
not attributable to any fault or omission on the part of Marubeni." 4 Before the first installment
under the "Settlement Agreement" could be paid, private respondent Artemio Gatchalian, a
stockholder of DBT sued petitioner Marubeni for contractual breach On July 5, 1982, petitioner
Marubeni entered a limited and special appearance and sought the dismissal of the complaint on the
ground that the court a quo had no jurisdiction over the person of petitioner since it is a foreign
corporation neither doing nor licensed to do business in the Philippines.

ISSUE: Can petitioner Marubeni Nederland B.V. be considered as "doing business" in the Philippines
and therefore subject to the jurisdiction of our courts?

RULING: In resolving the issue, the court held that there is no general rule or principle that can be laid
down to determine what constitutes doing or engaging in business. Each case must be judged in the
light of its peculiar factual milieu and upon the language of the statute applicable. 10 Contrary to
petitioner's allegations, petitioner can be sued in the regular courts because it is doing business in
the Philippines. Even assuming for the sake of argument that Marubeni Nederland B.V. is a different
and separate business entity from Marubeni Japan and its Manila branch, in this particular
transaction, at least, Marubeni Nederland B.V. through the foregoing acts, had effectively solicited
"orders, purchases (sales) or service contracts" as well as constituted Marubeni Corporation, Tokyo,
Japan and its Manila Branch as its representative in the Philippines to transact business for its
account as principal. These circumstances, taken singly or in combination, constitute "doing business
in the Philippines" within the contemplation of the law. At this juncture it must be emphasized that a
foreign corporation doing business in the Philippines with or without license is subject to process
and jurisdiction of the local courts. If such corporation is properly licensed, well and good. But it shall
not be allowed, under any circumstances, to invoke its lack of license to impugn the jurisdiction of
our courts.

LITTON MILLS; INC., vs. COURT OF APPEALS and GELHAAR UNIFORM COMPANY, INC.,
G.R. No. 94980 May 15,1996

FACTS: Litton entered into an agreement with Empire Sales Philippines Corporation, as local agent of
private respondent Gelhaar Uniform Company, a corporation organized under the laws of the United
States, whereby Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys. The agreement
stipulated that before it could collect from the bank on the letter of credit, Litton must present an
inspection certificate issued by Gelhaar's agent in the Philippines, Empire Sales, that the goods were
in satisfactory condition. Litton sent four shipments totaling 4,770 dozens of the soccer jerseys
between December 2 and December 30, 1983. A fifth shipment, consisting of 2,110 dozens of the

260 | P a g e
jerseys, was inspected by Empire from January 9 to January 19, 1984, but Empire refused to issue the
required certificate of inspection. Alleging that Empire's refusal to issue a certificate was without
valid reason, Litton filed a complaint with the RTC of Pasig on January 23,1984, for specific
performance. Litton also sought the issuance of a writ of preliminary mandatory injunction to
compel Empire to issue the inspection certificate covering the 2,110 dozen jerseys and the recovery
of compensatory and exemplary damages, costs, attorney's fees and other just and equitable relief.

The trial court issued the writ on January 25, 1984. The next day, Empire issued the inspection
certificate, so that the cargo was shipped on time. On February 8, 1984, Atty. Remie Noval filed in
behalf of the defendants a "Motion For Extension of Time To File An Answer/Responsive Pleading.
The court admitted the answer of the defendants. The law firm of Sycip, Salazar, Feliciano and
Hernandez entered a special appearance for the purpose of objecting to the jurisdiction of the court
over Gelhaar. On February 4, 1985, it moved to dismiss the case and to quash the summons on the
ground that Gelhaar was a foreign corporation not doing business in the Philippines, and as such,
was beyond the reach of the local courts. It likewise denied the authority of Atty. Noval to appear for
Gelhaar and contended that the answer filed by Atty. Noval on June 15, 1984 could not bind Gelhaar
and its filing did not amount to Gelhaar's submission to the jurisdiction of the court.

On September24, 1986, the trial court issued an order denying for lack of merit Gelhaar's motion to
dismiss and to quash the summons. It held that Gelhaar was doing business in the Philippines, and
that the service of summons on Gelhaar was therefore valid. Gelhaar filed a motion for
reconsideration, but its motion was denied. Gelhaar then filed a special civil action of certiorari with
the CA to set aside the orders of the trial court. The CA ordered the trial court to issue anew
summons to be served on Empire Sales Philippines Corporation, after the allegation in the complaint
that Gelhaar was doing business in the Philippines had been established.

ISSUE: Whether or not the RTC acquired jurisdiction over Gelhaar, a foreign corporation

RULING: It should be recalled that jurisdiction and venue of actions are, as they should so be, initially
determined by the allegations of the complaint. Jurisdiction cannot be made to depend on
independent pleas set up in a mere motion to dismiss, otherwise jurisdiction would become
dependent almost entirely upon the defendant. The fact of doing business must then, in the first
place, be established by appropriate allegations in the complaint. This is what the Court should be
seen to have meant in the Pacific Micronisian case. The complaint, it is true, may have been vaguely
structured but, taken correlatively, not disjunctively as the petitioner would rather suggest, it is not
really so weak as to be fatally deficient in the above requirement. . . .

Hence, a court need not go beyond the allegations in the complaint to determine whether or not a
defendant foreign corporation is doing business for the purpose of Rule 14, 14. In the case at bar, the
allegation that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from
Litton and for this purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of
Litton is a sufficient allegation that Gelhaar was doing business in the Philippines.

Gelhaar contends that the contract with Litton was a single, isolated transaction and that it did not
constitute doing business. Reference is made to Pacific Micronisian in which the only act done by the
foreign company was to employ a Filipino as a member of the crew on one of its ships. This court
held that the act was an isolated, incidental or casual transaction, not sufficient to indicate a purpose
to engage in business.

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It is not really the fact that there is only a single act done that is material. The other circumstances of
the case must be considered. Thus, in Wang Laboratories, Inc. v. Mendoza, it was held that where a
single act or transaction of a foreign corporation is not merely incidental or casual but is of such
character as distinctly to indicate a purpose on the part of the foreign corporation to do other
business in the state, such act will be considered as constituting doing business. This Court referred
to acts which were in the ordinary course of business of the foreign corporation.

In the case at bar, the trial court was certainly correct in holding that Gelhaars act in purchasing
soccer jerseys to be within the ordinary course of business of the company considering that it was
engaged in the manufacture of uniforms. The acts noted above are of such a character as to indicate
a purpose to do business.

HAHN v. CA
G.R. No. 113074 January 22, 1997

FACTS: Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-
Manila". On the other hand, private respondent (BMW) is a nonresident foreign corporation existing
under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with
Special Power of Attorney. Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez,
petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and
products to CMC, which had expressed interest in acquiring the same. On February 24, 1993,
petitioner received confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline
in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's
alleged failure to comply with the standards for an exclusive BMW dealer.
On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and
parts.Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific
performance and damages against BMW to compel it to continue the exclusive dealership.

ISSUE: Is Alfred Hahn the agent or distributor in the Philippines of private respondent BMW?

RULING: Yes.

Alfred Hahn is an agent of BMW. The Supreme Court held that agency is shown when Hahn claimed
he took orders for BMW cars and transmits them to BMW. Then BMW fixes the down payment and
pricing charges and will notify Hahn of the scheduled production month for the orders, and
reconfirm the orders by signing and returning to Hahn the acceptance sheets.

The payment is made by the buyer directly to BMW. Title to cars purchased passed directly to the
buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order

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by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and
serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale
services, including, warranty services for which he received reimbursement from BMW. All orders
were on invoices and forms of BMW. Moreover, the Court distinguished an agent from a broker. The
court ruled that an agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no
sale is eventually made.

MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M.

JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MINING CORPORATION
G.R. No. 138104. April 11, 2002

FACTS: ADB extended a loan to Marcopper under a Principal Loan Agreement and Complementary
Loan Agreement. A Support and Standby Credit Agreement was also executed between ADB and
Placer Dome (owner of 40% of Marcopper), whereby the latter agreed to provide with a cash flow
support for the payment of its obligations to ADB. Marcopper also executed a Deed of Real Estate
and Chattel Mortgage in favor of ADB covering all its assets in Marinduque. Marcopper defaulted in
its payment. Thus, MR Holding, LTD (placer Dome’s subsidiary corporation) assumed Marcopper’s
obligation to ADB. Marcopper likewise executed a Deed of assignment in favor of petitioner. It
appeared that SolidBank Corporation obtained a partial judgment against Marcopper in a case filed
with the RTC. A writ of execution was issued and then an auction sale was scheduled. This event
prompted petitioner to serve an "Affidavit of Third-Party Claim" upon respondent sheriffs, asserting
ownership over all the assets of Marcopper by virtue of the Deed of Assignment. The RTC of Manila
denied the affidavit. Petitioner filed with the RTC of Boac, Marinduque a complaint for reivindication
of properties with prayer for preliminary injunction and temporary restraining order against
respondents. The application for writ of preliminary injunction was denied.

ISSUE: Whether or not petitioner is doing business in the Philippines

RULING: There are other statutes defining the term "doing business" in the same tenor as those
above-quoted, and as may be observed, one common denominator among them all is the concept of
"continuity."

The expression "doing business" should not be given such a strict and literal construction as to make
it apply to any corporate dealing whatever. At this early stage and with petitioner’s acts or
transactions limited to the assignment contracts, it cannot be said that it had performed acts
intended to continue the business for which it was organized. It may not be amiss to point out that
the purpose or business for which petitioner was organized is not discernible in the records. No
effort was exerted by the Court of Appeals to establish the nexus between petitioner’s business and
the acts supposed to constitute "doing business." Thus, whether the assignment contracts were
incidental to petitioner’s business or were continuation thereof is beyond determination.

Significantly, a view subscribed upon by many authorities is that the mere ownership by a foreign
corporation of a property in a certain state, unaccompanied by its active use in furtherance of the
business for which it was formed, is insufficient in itself to constitute doing business.

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In the final analysis, we are convinced that petitioner was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical examples of these are the making of a single
contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do
any other business within the country.

LORENZO SHIPPING CORP. vs. CHUBB and SONS, Inc. et al

G.R. No. 147724 June 8, 2004

FACTS: Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping.

Gearbulk ltd. is a foreign corporation licensed as a common carrier under the laws of Norway and
doing business in the Philippines through its agent Philippine Transmarine Carrier Inc. Philippine
Transmarine Carrier (PTC) is the agent of Gearbulk in the Philippines. Sumitomo Corporation (SC), a
foreign corporation organized under the laws of the USA is the consignee. It insured the shipment
with Chubb and Sons, Inc., a foreign corporation organized and licensed to engage in insurance
business under the laws of the United States of America.

On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of black
steel on board one of the vessels of LS for shipment to Davao City from Manila. Upon reaching the
Sasa Wharf in Davao on Dec.2, PTC discovered that the steels were submerged in seawater. An
inspector made a finding that the steel pipes were no longer in good condition for rust were already
forming.

Gearbulk noted the damage and shipped the pipes on its vessel to the USA . Due to its heavily rusted
condition, the consignee Sumitomo rejected the damaged steel pipes and declared them unfit for
the purpose they were intended. It then filed a marine insurance claim with respondent Chubb and
Sons, Inc.

ISSUE: Whether or not Chubb and Sons, as a mere assignee of a foreign corporation which has no
authority to sue in the Philippines, has capacity to sue before the Philippine courts.

RULING: YES. Subrogration contemplates full substitution such that it places the party subrogated in
the shoes of the creditor, and he may use all means which the creditor could employ to enforce
payment. The rights to which the subrogee succeeds are the same as, but not greater than, those of
the person for whom he is substituted. The law on corporations is clear in depriving foreign
corporations which are doing business in the Philippines without a license from bringing or
maintaining actions before, or intervening in Philippine courts but a foreign corporation needs no
license to sue before Philippine courts on an isolated transaction.

For "doing business" is not really the number or the quantity of the transactions, but more
importantly, the intention of an entity to continue the body of its business in the country. The phrase
"isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set
apart from the common business of a foreign enterprise in the sense that there is no intention to
engage in a progressive pursuit of the purpose and object of the business organization. Whether a
foreign corporation is "doing business" does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the transactions. Furthermore, respondent

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insurer Chubb and Sons, by virtue of the right of subrogation provided for in the policy of insurance,
is the real party in interest in the action for damages before the court a quo against the carrier
Lorenzo Shipping to recover for the loss sustained by its insured.

It then, thus possesses the right to enforce the claim and the significant interest in the litigation. In
the case at bar, it is clear that respondent insurer was suing on its own behalf in order to enforce its
right of subrogation.

HUTCHISON PORTS PHILIPPINES LIMITE vs. SBMA

G.R. No. 131367 August 31, 2000

FACTS: The Subic Bay Metropolitan Authority (or SBMA) advertised in leading national daily
newspapers and in one international publication, an invitation offering to the private sector the
opportunity to develop and operate a modern marine container terminal within the Subic Bay
Freeport Zone. Out of seven bidders who responded to the published invitation, three were declared
by the SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the
SBMA’s Technical Evaluation Committee (or SBMA-TEC). Among these is the petitioner.

Thereafter, the services of three (3) international consultants recommended by the World Bank for
their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders,
and to ensure that there would be a transparent and comprehensive review of the submitted bids.
The SBMA also hired the firm of Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation
of the bids and in the negotiation process after the winning bidder is chosen. All the consultants,
after such review and evaluation unanimously concluded that HPPL’s Business Plan was “far superior
to that of the two other bidders.”

However, even before the sealed envelopes containing the bidders’ proposed royalty fees could be
opened at the appointed time and place, RPSI formally protested that ICTSI is legally barred from
operating a second port in the Philippines based on Executive Order No. 212 and Department of
Transportation and Communication (DOTC) Order 95-863.

ISSUE: Whether or not petitioner HPPL has the legal capacity to even seek redress from the Court.

RULING: YES. Admittedly, petitioner HPPL is a foreign corporation, organized and existing under the
laws of the British Virgin Islands. While the actual bidder was a consortium composed of petitioner,
and two other corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management Services,
Inc., it is only petitioner HPPL that has brought the controversy before the Court, arguing that it is
suing only on an isolated transaction to evade the legal requirement that foreign corporations must
be licensed to do business in the Philippines to be able to file and prosecute an action before
Philippines courts.

There is no general rule or governing principle laid down as to what constitutes “doing” or
“engaging in” or “transacting” business in the Philippines. Each case must be judged in the light of
its peculiar circumstances. Thus, it has often been held that a single act or transaction may be
considered as “doing business” when a corporation performs acts for which it was created or
exercises some of the functions for which it was organized. The amount or volume of the business is

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of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign
corporation’s intention to do business.
Participating in the bidding process constitutes “doing business” because it shows the foreign
corporation’s intention to engage in business here. The bidding for the concession contract is but an
exercise of the corporation’s reason for creation or existence. Thus, it has been held that “a foreign
company invited to bid for IBRD and ADB international projects in the Philippines will be considered
as doing business in the Philippines for which a license is required.”

AGILENT TECHNOLOGIES

European Resources and Technologies, Inc., et. al. vs Ingenieuburo Birkham, et. al.
G.R. No. 15986, July 26 2004

FACTS: European Resources and Technologies Inc. (hereinafter “ERTI”), a corporation

organized and existing under the laws of the Republic of the Philippines , is joined by Delfin
J. Wenceslao as petitioner in this case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh
and Heers & Brockstedt Gmbh & Co. are German corporations who are respondents in this
case and shall be collectively referred to as the “German Consortium”.

The German Consortium tendered and submitted its bid to the Clark Development
Corporation (“CDC”) to construct, operate and manage the Integrated Waste Management
Center at the Clark Special Economic Zone (“CSEZ”). CDC accepted the German
Consortium’s bid and awarded the contract to it. On October 6, 1999, CDC and the German
Consortium executed the Contract for Services which embodies the terms and conditions of
their agreement.The Contract for Services provides that the German Consortium shall be
empowered to enter into a contract or agreement for the use of the integrated waste
management center by corporations, local government units, entities, and persons not only
within the CSEZ but also outside.

Article VIII, Section 7 of the Contract for Services provides that the German Consortium shall
undertake to organize a local corporation as its representative for this project. On April 18,
2000 , the German Consortium entered into a Joint Venture with D.M. Wenceslao and
Associates, Inc. (“DMWAI”) and Ma. Elena B. Villarama (doing business as LBV and
Associates), embodied in a Memorandum of Understanding (“MOU”) signed by the parties.

Under the MOU, the parties agreed to jointly form a local corporation to which the German
Consortium shall assign its rights under the Contract for Services. Pursuant to this
agreement, petitioner European Resources and Technologies, Inc. was incorporated. The
parties likewise agreed to prepare and finalize a Shareholders’ Agreement within one (1)
month from the execution of the MOU,which shall provide that the German Consortium
shall own fifteen percent (15%) of the equity in the joint venture corporation, DMWAI shall
own seventy percent (70%) and LBV&A shall own fifteen percent (15%). In the event that the

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parties fail to execute the Shareholders’ Agreement, the MOU shall be considered null and
void.On August 1, 2000, without the Shareholders’ Agreement having been executed, the
German Consortium and petitioner ERTI entered into a Memorandum of Agreement (MOA)
whereby the German Consortium ceded its rights and obligations under the Contract for
Services in favor of ERTI and assigned unto ERTI, among others, “its license from CDC to
engage in the business of providing environmental services needed in the CSEZ in
connection with the waste management within the CSEZ and other areas.” On December 11,
2000, ERTI received a letter from BN Consultants Philippines, Inc., signed by Mr. Holger Holst
for and on behalf of the German Consortium, stating that the German Consortium’s contract
with DMWAI, LBV&A and ERTI has been terminated or extinguished on the following
grounds: (a) the CDC did not give its approval to the Consortium’s request for the approval
of the assignment or transfer by the German Consortium in favor of ERTI of its rights and
interests under the Contract for Services; (b) the parties failed to prepare and finalize the
Shareholders’ Agreement pursuant to the provision of the MOU; (c) there is no more factual
or legal basis for the joint venture to continue; and (d) with the termination of the MOU, the
MOA is also deemed terminated or extinguished.

ISSUE: Whether or not the Consortium has legal personality to file action.

RULING: There is no general rule or governing principle laid down as to what constitutes
“doing” or “engaging in” or “transacting” business in the Philippines . Thus, it has often
been held that a single act or transaction may be considered as “doing business” when a
corporation performs acts for which it was created or exercises some of the functions for
which it was organized. We have held that the act of participating in a bidding process
constitutes “doing business” because it shows the foreign corporation’s intention to engage
in business in the Philippines . In this regard, it is the performance by a foreign corporation
of the acts for which it was created, regardless of volume of business, that determines
whether a foreign corporation needs a license or not.Consequently, the German Consortium
is doing business in the Philippines without the appropriate license as required by our laws.
By participating in the bidding conducted by the CDC for the operation of the waste
management center, the German Consortium exhibited its intent to transact business in the
Philippines . Although the Contract for Services provided for the establishment of a local
corporation to serve as respondents’ representative, it is clear from the other provisions of
the Contract for Services as well as the letter by the CDC containing the disapproval that it
will be the German Consortium which shall manage and conduct the operations of the waste
management center for at least twenty-five years. Moreover, the German Consortium was
allowed to transact with other entities outside the CSEZ for solid waste collection. Thus, it is
clear that the local corporation to be established will merely act as a conduit or extension of
the German Consortium.As a general rule, unlicensed foreign non-resident corporations
cannot file suits in the Philippines . A corporation has legal status only within the state or
territory in which it was organized. For this reason, a corporation organized in another
country has no personality to file suits in the Philippines . In order to subject a foreign
corporation doing business in the country to the jurisdiction of our courts, it must acquire a
license from the Securities and Exchange Commission (SEC) and appoint an agent for service

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of process. Hence, the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained benefits from its
dealings with such foreign corporation and thereafter committed a breach of or sought to
renege on its obligations.

VAN ZUIDEN BROS., LTD. vs. GTVL MANUFACTURING INDUSTRIES, INC.

G.R. No. 147905, May 28, 2007

FACTS: Petitioner, B.Van Zuiden (Zuiden, for brevity) is a corporation, incorporated under the laws of
Hong Kong, and engaged in the importation and exportation of several products, including lace
products. On 13 July 1999, petitioner filed a complaint for sum of money against respondent GTVL
Mfg. (GTVL for brevity).

It appears that on several occasions, GTVL purchased lace products from Petitioner. In their
transaction, the agreement was that ZUIDEN delivers the products purchased by GTVL, to a certain
Hong Kong corporation, known as Kenzar Ltd. (KENZAR), and the products are then considered as
sold, upon receipt by KENZAR of the goods purchased by GTVL. Thereafter, KENZAR had the
obligation to deliver the products to the Philippines and/or to follow whatever instructions GTVL had
on the matter.

However, commencing October 31, 1994 until the filing of the complaint, GTVL has failed and refused
to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, the
obligation amounts to U.S.$32,088.02 inclusive of interest.

Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner has
no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines
without securing the required license. Accordingly, petitioner cannot sue before Philippine courts.

On 10 November 1999, the trial court dismissed the complaint; the decision which the Court of
Appeals sustained. The Court of Appeals found that the parties entered into a contract of sale
whereby petitioner sold lace products to respondent in a series of transactions. While petitioner
delivered the goods in Hong Kong to Kenzar, another Hong Kong company, the party with whom
petitioner transacted was actually respondent, a Philippine corporation, and not Kenzar. The Court
of Appeals believed Kenzar is merely a shipping company. The Court of Appeals concluded that the
delivery of the goods in Hong Kong did not exempt petitioner from being considered as doing
business in the Philippines.

In the present controversy, petitioner is a foreign corporation which claims that it is not doing
business in the Philippines. As such, it needs no license to institute a collection suit against
respondent before Philippine courts. Respondent argues otherwise.

ISSUE: Does the petitioner, an unlicensed foreign corporation, has the legal capacity to sue before
the Philippine courts?

RULING: The Supreme Court ruled in the affirmative. In ruling so, the Court cited Section 133 of the
Corporation Code which provides that:

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 Doing business without license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue
before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in
the Philippines can sue before Philippine courts.

Likewise, under Section 3(d) of Republic Act No. 7042 (RA 7042) or “The Foreign Investments Act of
1991,” the phrase “doing business” includes:

soliciting orders, service contracts, opening offices, whether called “liaison” offices
or branches; appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totalling one hundred eighty
(180) days or more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase “doing business” shall not be
deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such investor;
nor having a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account.

The series of transactions between petitioner and respondent cannot be classified as “doing
business” in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as
“doing business” in the Philippines is the actual performance of specific commercial acts within the
territory of the Philippines for the plain reason that the Philippines has no jurisdiction over
commercial acts performed in foreign territories.

In this case, there is no showing that petitioner performed within the Philippine territory the specific
acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office
here in the Philippines, appoint a representative or distributor, or manage, supervise or control a
local business. While petitioner and respondent entered into a series of transactions implying a
continuity of commercial dealings, the perfection and consummation of these transactions were
done outside the Philippines. Considering the given facts, it is worthy to note that the sale of lace
products was consummated in Hong Kong.

The Court also finds no single activity which petitioner performed here in the Philippines pursuant to
its purpose and object as a business organization. Moreover, petitioner’s desire to do business within
the Philippines is not discernible from the allegations of the complaint or from its attachments.
Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.

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The Court of Appeals’ ruling is not proper that the proponents to the transaction determine whether
a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place
where the transaction took place.

For example, in exporting. An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries specific commercial acts that
would constitute doing business in the importing countries. The mere act of exporting from one’s
own country, without doing any specific commercial act within the territory of the importing
country, cannot be deemed as doing business in the importing country. Otherwise exporters, by the
mere act alone of exporting their products, could be considered by the importing countries to be
doing business in those countries and will require them to secure a business license in every foreign
country where they usually export their products. Such a legal concept will have a deleterious effect
not only on Philippine exports, but also on global trade.

Considering that petitioner is not doing business in the Philippines, it does not need a license in order
to initiate and maintain a collection suit against respondent for the unpaid balance of respondent’s
purchases.

PIONEER CONCRETE PHILIPPINES INC V. ANTONIO D. TODARO

G.R. NO. 154830 October 11, 2007

FACTS: Pioneer International Limited (PIL), an Australian company engaged in the ready-mix
concrete business, established herein petitioner PCPI to undertake its business in the Philippines. PIL
contacted respondent Todaro and asked if the latter is available to join them in their intention to
establish plant operations in the country to which the latter agreed. Subsequently, PIL and Todaro
came to an agreement wherein the former consented to engage the services of the latter as
consultant for 2-3 months, after which he would be employed as manager of concrete operations
should PIL decide to invest in the Philippines. PIL started its operation however it refused to comply
with its undertaking to employ Todaro on a permanent basis. Respondent thus filed a complaint for
sum of money and damages against petitioner. Petitioner meanwhile contends that the case should
fall with the NLRC as the damages arose from an alleged breach of employment contract. Both the
trial court and CA ruled in favor of respondent.

ISSUE: Whether or not there is employer-employee relationship between PIL and respondent.

RULING: NO. In the present case, no employer-employee relationship exists between petitioners and
respondent. In fact, in his complaint, private respondent is not seeking any relief under the Labor
Code, but seeks payment of damages on account of petitioners’ alleged breach of their obligation
under their agreement to employ him. It is settled that an action for breach of contractual obligation
is intrinsically a civil dispute. In the alternative, respondent seeks redress on the basis of the
provisions of Articles 19 and 21 of the Civil Code. Hence, it is clear that the present action is within the
realm of civil law, and jurisdiction over it belongs to the regular courts.

This Court has consistently held that where no employer-employee relationship exists between the
parties and no issue is involved which may be resolved by reference to the Labor Code, other labor
statutes or any collective bargaining agreement, it is the Regional Trial Court that has jurisdiction.

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 NATIONAL SUGAR TRADING CORPORATION and SUGAR REGULATORY
ADMINISTRATION, petitioners, vs. HON. COURT OF APPEALS and EASTERN SUGAR
CORPORATION, respondents.
G.R. No. 110910 July 17, 1995

FACTS: Petitioner National Sugar Trading Corporation (NASUTRA) was a domestic corporation
created for the purpose of engaging in the trading of sugar, and was a subsidiary of the Philippine
Sugar Commission (PSC), an entity owned and controlled by the Philippine government. The
NASUTRA and PSC were phased out respectively by P.D. No. 1971 in 1985 and E.O. No. 18 in 1986,
which at the same time created petitioner Sugar Regulatory Administration (SRA) to administer over
the sugar industry. Respondent Eastern Sugar Corporation (ESC) is a corporation organized and
existing under the laws of Hongkong.

ESC alleged that it is a foreign corporation doing business in the Philippines. ESC and NASUTRA
entered into a Contract for the Purchase and Sale of Sugar where ESC purchased from NASUTRA a
total of 40,000 long tons of raw sugar at 10,000 long tons per year from the sugar cane crops of 1981
to 1984 at a price of U.S. $0.25 per pound. As stipulated, payment for the sugar was made. NASUTRA,
however, was able to deliver only 20,569.89 long tons of sugar, leaving a balance of 19,430.11 long
tons due and demandable.

In 1986, NASUTRA was dissolved and SRA was created to liquidate and succeed it. The Board of
Directors of SRA passed Resolution No. 68-87-A assuming NASUTRA's obligation to deliver to ESC
the remaining sugar. The SRA made a partial delivery and reduced the balance to 15,843.66 long
tons. The SRA, however, failed to make further deliveries despite repeated demands therefor, to the
prejudice of ESC. ESC thus prayed for specific performance of the remaining obligation in the contract,
and in the event of non-compliance, for partial rescission thereof with damages.

The trial court dismissed the complaint on the ground of lack of capacity to sue by ESC. Upon motion
for reconsideration of private respondent the trial court reversed and set aside the previous order
and directed petitioners to file their answer to the complaint.

Petitioners questioned this order before the Court of Appeals in a petition under Rule 65 of the
Revised Rules of Court. The Court of Appeals rendered a decision, dismissing the petition.

Petitioners filed the petition before this Court under Rule 45 of the Revised Rules of Court.

ISSUE: As an unlicensed foreign corporation, does ESC have the capacity to sue in the Philippines?

RULING: YES. License is not necessary as ESC cannot be considered as doing business in the
Philippines. Whether a foreign corporation is doing business in the Philippines must be determined in
the light of the peculiar circumstances of each case. This is essentially a question of fact.

Petitioners do not dispute private respondent's claim that NASUTRA entered into the Contract of
Purchase and Sale of Sugar with the latter in 1980. In fact, in its Motion to Dismiss filed below,
petitioner SRA admits the partial delivery of the sugar and the issuance of SRA Resolution No. 68-87-

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A recognizing payment and receipt by NASUTRA of the purchase price for the said sugar, and
NASUTRA's existing obligation over the undelivered portion.

Given these preliminary facts and assuming that petitioner NASUTRA was aware from the outset
that private respondent had no license to do business in this country, it would appear quite
inequitable for NASUTRA, a state-owned corporation, to evade payment of an otherwise legitimate
indebtedness due and owing to private respondent upon the plea that the latter should have
obtained a license first before perfecting a contract with the Philippine government. (Merrill Lynch
Futures, Inc. v. Court of Appeals, 211 SCRA 824 [1992]).

Furthermore, private respondents did not, under the subject transaction, sell sugar and derive
income from the Philippines. Private respondent specifically purchased sugar from the Philippine
government and allegedly paid for it in full.

Antam Consolidated, Inc. v. Court of Appeals, 143 SCRA 288 (1986):

The doctrine of lack of capacity to sue based on failure to acquire a local license is based on
considerations of sound public policy. The license requirement was imposed to subject the
foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was
never intended to favor domestic corporations who enter into solitary transactions with
unwary foreign firms and then repudiate their obligations simply because the latter are not
licensed to do business in this country.

CARGILL, INC. vs. INTRA STRATA ASSURANCE CORPORATION

G.R. No. 168266 March 15, 2010

FACTS: Cargill (foreign) is a corporation organized and existing under the laws of theState of
Delaware. Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic),
whereby NMC agreed to sell to petitioner 20,000 to 24,000 metrictons of molasses to be delivered
from Jan 1 to 30 1990 for $44 per metric ton. The contract provided that CARGILL was to open a
Letter of Credit with theBPI. NMC was permitted to draw up 500,000 representing the minimum
priceof the contract. The contract was amended 3 times (in relation to the amount and the price).But
the third amendment required NMC to put up a performance bond whichwas intended to guarantee
NMC‘s performance to deliver the molasses duringthe prescribed shipment periods. In compliance,
INTRA STRATA issued a performance bond to guaranteeNMC‘s delivery. NMC was only able to
deliver 219551 metric tons out of the agreed 10,500.Thus CARGILL sent demand letters to INTRA
claiming payment under theperformance and surety bonds. When INTRA failed to pay, CARGILL filed
acomplaint. CARGILL NMC and INTRA entered into a compromise agreement approvedby the court,
such provided that NMC would pay CARGILL 3 million uponsigning and would deliver to CARGILL
6,991 metric tons of molasses. ButNMC still failed to comply.

ISSUE: Whether or not petitioner is doing or transacting business in the Philippines in contemplation
of the law and established jurisprudence.

RULING: NO. The determination of whether a foreign corporation is doing business in the Philippines
must be based on the facts of each case. In the case at bar, the transactions entered into by the

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respondent with the petitioners are not a series of commercial dealings which signify an intent on
the part of the respondent to do business in the Philippines but constitute an isolated one which
does not fall under the category of "doing business." The records show that the only reason why the
respondent entered into the second and third transactions with the petitioners was because it
wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude
coconut oil under the first transaction and in order to give the latter a chance to make good on their
obligation. In the present case, petitioner is a foreign company merely importing molasses from a
Philipine exporter. A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the Philippines.

STEEL CASE, INC. vs. DESIGN INTERNATIONAL SELECTIONS

GR. NO. 171995 APRIL 18, 2012

FACTS: Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the
right to market, sell, distribute, install, and service its products to end-user customers within
the Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign
Investments Act of 1991 (FIA) expressly states that the phrase doing business excludes the
appointment by a foreign corporation of a local distributor domiciled in the Philippines
which transacts business in its own name and for its own account. On the other hand, DISI
argues that it was appointed by Steelcase as the latter’s exclusive distributor of Steelcase
products. The dealership agreement between Steelcase and DISI had been described by the
owner himself as basically a buy and sell arrangement.

ISSUE: Whether Steelcase had been doing business in the Philippines.

RULING: NO. The appointment of a distributor in the Philippines is not sufficient to

constitute doing business unless it is under the full control of the foreign corporation. On
the other hand, if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines. Here, DISI
was an independent contractor which sold Steelcase products in its own name and for its
own account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under one of the exceptions under
R.A. No. 7042.

ERIKS PTE. LTD. vs. COURT OF APPEALS

G.R. No. 118843 February 6, 1997

FACTS: Petitioner is a non-resident foreign corporation engaged in the manufacture and sale of
elements used in sealing pumps, valves and pipes for industrial purposes, valves and control
equipment used for industrial fluid control and PVC pipes and fittings for industrial uses. On various
dates, private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene

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EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various
elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The
transfers of goods were perfected in Singapore, for private respondent's account, F.O.B. Singapore,
with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent
to settle his account, but the latter failed/refused to do so.

ISSUE: May Petitioner Corporation maintain an action in Philippine courts considering that it has no
license to do business in the country?

RULING: Yes. The resolution of this issue depends on whether petitioner's business with private
respondent may be treated as isolated transactions. Granting that there is no distributorship
agreement between herein parties, yet by the mere fact that plaintiff, each time that the defendant
posts an order delivers the items as evidenced by the several invoices and receipts of various dates
only indicates that plaintiff has the intention and desire to repeat the said transaction in the future in
pursuit of its ordinary business. Furthermore, "and if the corporation is doing that for which it was
created, the amount or volume of the business done is immaterial and a single act of that character
may constitute doing business.

More than the sheer number of transactions entered into, a clear and unmistakable intention on the
part of petitioner to continue the body of its business in the Philippines is more than apparent. As
alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps,
valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid
control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered
by the receipts, which are part and parcel of its main product line, was actually carried out in the
progressive prosecution of commercial gain and the pursuit of the purpose and object of its
business, pure and simple.

Further, its grant and extension of 90-day credit terms to private respondent for every purchase
made, unarguably shows an intention to continue transacting with private respondent, since in the
usual course of commercial transactions, credit is extended only to customers in good standing or to
those on whom there is an intention to maintain long-term relationship.

This being so, the existence of a distributorship agreement between the parties, as alleged but not
proven by private respondent, would, if duly established by competent evidence, be merely
corroborative, and failure to sufficiently prove said allegation will not significantly affect the finding
of the courts below.

Thus, the court holds that the series of transactions in question could not have been isolated or
casual transactions. What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an entity to continue the body of
its business in the country. The number and quantity are merely evidence of such intention.

Columbia Pictures, Inc., vs. Court of Appeals, et al.

GR No. 11038, August 28, 1996

FACTS: Complainants thru counsel lodged a formal complaint with the National Bureau of
Investigation and sought its assistance in their anti-film piracy drive. Pursuant to a search warrant,

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the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films
owned or exclusively distributed by private complainants, and machines, equipment, television sets,
paraphernalia, materials, accessories all of which were included in the receipt for properties
accomplished by the raiding team. A Motion to Lift the Order of Seach Warrant was filed and was
granted by the trial court.

Private respondents aver that being foreign corporations, petitioners should have such license to be
able to maintain an action in Philippine courts. In so challenging petitioners personality to sue,
private respondents point to the fact that petitioners are the copyright owners or owners of
exclusive rights of distribution in the Philippines of copyrighted motion pictures or films as being
constitutive of doing business in the Philippines. As foreign corporations doing business in the
Philippines the Corporation Code of the Philippines denies them the right to maintain a suit in
Philippine courts in the absence of a license to do business. Consequently, they have no right to ask
for the issuance of a search warrant.

ISSUE: Whether petitioners have personality to sue despite not being licensed to do business in the
Philippines

RULING: Yes. The Corporation Code provides:

Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.

The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition
precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation.
However, under the aforequoted provision, no foreign corporation shall be permitted to transact
business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall
have the license required by law, and until it complies with the law in transacting business here, it
shall not be permitted to maintain any suit in local courts. As thus interpreted, any foreign
corporation not doing business in the Philippines may maintain an action in our courts upon any
cause of action, provided that the subject matter and the defendant are within the jurisdiction of the
court. It is not the absence of the prescribed license but doing business in the Philippines without
such license which debars the foreign corporation from access to our courts. In other words,
although a foreign corporation is without license to transact business in the Philippines, it does not
follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in
business in the Philippines.

Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners
are not barred from maintaining the present action. There is no showing that, under our statutory or
case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as
would require obtention of a license before they can seek redress from our courts. No evidence has
been offered to show that petitioners have performed any of the enumerated acts or any other
specific act indicative of an intention to conduct or transact business in the Philippines.

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 LORENZO SHIPPING CORP. vs. CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE
TRANSMARINE CARRIERS, INC.
G.R. No. 147724. June 8, 2004

FACTS: On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles
of ERW black steel pipes worth US$137,912.84 on board the vessel M/V Lorcon IV, owned by
petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner Lorenzo Shipping issued a clean
bill of lading designated as Bill of Lading No. T-3 for the account of the consignee, Sumitomo
Corporation of San Francisco, California, USA, which in turn, insured the goods with respondent
Chubb and Sons, Inc.

Respondent Transmarine Carriers received the subject shipment which was discharged on December
4, 1987, evidenced by Delivery Cargo Receipt No. 115090. It discovered seawater in the hatch of M/V
Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then hired the
services of R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to
discharge. After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San
Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to
7, covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos.
DAV/SEA 1 to 6, covering 217 bundles of steel pipes to be discharged
at Vancouver,Washington, U.S.A. All bills of lading were marked ALL UNITS HEAVILY RUSTED.

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter of
intent dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received
on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim
based on the damaged cargo once such damage had been ascertained.

Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and
declared them unfit for the purpose they were intended. It then filed a marine insurance claim with
respondent Chubb and Sons, Inc. which the latter settled in the amount of US$104,151.00. Chubb and
Sons, Inc. filed a complaint for collection of a sum of money, against respondents Lorenzo Shipping,
Gearbulk, and Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not doing business in
the Philippines, and that it is suing under an isolated transaction.

ISSUE: Whether respondent Chubb and Sons has capacity to sue before the Philippine courts

RULING: Yes. Subrogation is the substitution of one person in the place of another with reference to
a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to
a debt or claim, including its remedies or securities. The principle covers the situation under which an
insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means which the creditor could employ to enforce payment. The rights to which
the subrogee succeeds are the same as, but not greater than, those of the person for whom he is

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substituted he cannot acquire any claim, security, or remedy the subrogor did not have. In other
words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only if insured likewise could have recovered.

However, when the insurer succeeds to the rights of the insured, he does so only in relation to the
debt. The person substituted (the insurer) will succeed to all the rights of the creditor (the insured),
having reference to the debt due the latter. In the instant case, the rights inherited by the
insurer, respondent Chubb and Sons, pertain only to the payment it made to the insured Sumitomo
as stipulated in the insurance contract between them, and which amount it now seeks to recover
from petitioner Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The
capacity to sue of respondent Chubb and Sons could not perchance belong to the group of rights,
remedies or securities pertaining to the payment respondent insurer made for the loss which was
sustained by the insured Sumitomo and covered by the contract of insurance. Capacity to sue is a
right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to sue
means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary
qualification to appear in the case, or does not have the character or representation he claims. It
refers to a plaintiffs general disability to sue, such as on account of minority, insanity, incompetence,
lack of juridical personality, or any other disqualifications of a party. Respondent Chubb and Sons
who was plaintiff in the trial court does not possess any of these disabilities. On the contrary,
respondent Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it is
not doing business in the Philippines, but is suing only under an isolated transaction, i.e., under the
one (1) marine insurance policy issued in favor of the consignee Sumitomo covering the damaged
steel pipes.

The law on corporations is clear in depriving foreign corporations which are doing business in
the Philippines without a license from bringing or maintaining actions before, or intervening in
Philippine courts. Art. 133 of the Corporation Code states:
Doing business without a license. No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws. The law does not prohibit foreign
corporations from performing single acts of business. A foreign corporation needs no license to sue
before Philippine courts on an isolated transaction.

What is determinative of "doing business" is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in
the country. The number and quantity are merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from
the common business of a foreign enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the frequency of its transactions,
but more upon the nature and character of the transactions. In the case at bar, it is clear that
respondent insurer was suing on its own behalf in order to enforce its right of subrogation.

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 Top-Weld Manufacturing v. ECED

138 SCRA 118

FACTS: ECED, a foreign corporation, wanted to procure business with Top-Weld, a domestic
corporation. When ECED was about to breach its contract with Top- Weld by negotiating with
another local group to replace Top-Weld as their licensee or distributor, the latter sued the ECED
enjoining it from negotiating with third persons. Top-weld argued that aliens are prohibited from
terminating any franchise, licensing or other agreements that they have with a resident of the
Philippines, except for violation thereof or other just cause.

ISSUE: Whether the suit Top-Weld prosper.

RULING: No. The legal implication of this case is that a contract or transaction between a local and
foreign corporation would qualify the latter to be doing business in the Philippines without obtaining
the requisite license would not be actionable at all before the Philippine courts or administrative
bodies. If the foreign corporation brings an action on said contract or transaction, it will be dismissed
as a consequence of not obtaining the license. On the other hand, if the local counterpart brings an
action on the contract, it would also be dismissed on the grounds of pari delicto.

Home Insurance Company vs. Eastern Shipping Lines

GR L-34382 and GR L-34383, July 20, 1988

FACTS: On or about 13 January 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining &
Development Corporation, shipped on board the SS Eastern Jupiter from Osaka, Japan, 2,361 coils of
Black Hot Rolled Copper Wire Rods. The said vessel is owned and operated by Eastern Shipping
Lines. The shipment was covered by Bill of Lading O-MA-9, with arrival notice to Phelps Dodge
Copper Products Corporation of the Philippines at Manila. The shipment was insured with the Home
Insurance Company against all risks in the amount of P1, 580,105.06 under its Insurance Policy AS-
73633. The coils discharged from the vessel numbered 2,361, of which 53 were in bad order. What the
Phelps Dodge ultimately received at its warehouse was the same number of 2,361 coils, with 73 coils
loose and partly cut and 28 coils entangled, partly cut, and which had to be considered as scrap.
Upon weighing at Phelps Dodge's warehouse, the 2,361 coils were found to weight 263,940.85 kilos
as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, or 1, 209,56
lbs., according to the claims presented by the Phelps Dodge against Home Insurance, the Eastern
Shipping, and Angel Jose Transportation Inc. For the loss/damage suffered by the cargo, Home
Insurance paid the Phelps Dodge under its insurance policy the amount of P3, 260.44, by virtue of
which Home Insurance became subrogated to the rights and actions of the Phelps Dodge. Home
Insurance made demands for payment against the Eastern Shipping and the Angel Jose
Transportation for reimbursement of the aforesaid amount but each refused to pay the same." (GR
L-34382)

On or about 22 December 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30
packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS 'NEDER RIJN'
owned by N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the Columbian

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Philippines, Inc.. The shipment was covered by Bill of Lading No. 22 for transportation to, and
delivery at, Manila, in favor of International Harvester Macleod, Inc. The shipment was insured with
Home Insurance company under its Cargo Policy AS-73735 'with average terms' for P98,567.79. The
packages discharged from the VESSEL numbered 29, of which seven packages were found to be in
bad order. What International Harvester ultimately received at its warehouse was the same number
of 29 packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by
International Harvester in good order due to the negligible damages sustained. Upon inspection at
International Harvester's warehouse, the contents of 3 out of the 8 cases were also found to be
complete and intact, leaving 5 cases in bad order. The contents of these 5 packages showed several
items missing in the total amount of $131.14; while the contents of the undelivered 1 package were
valued at $394.66, or a total of $525.80 or P2,426.98. For the short-delivery of 1 package and the
missing items in 5 other packages, Home Insurance paid International Harvester under its Insurance
Cargo Policy the amount of P2,426.98, by virtue of which Home Insurance became subrogated to the
rights and actions of International Harvester. Demands were made on N.V. Nedlloyd Lijnen and
International Harvester for reimbursement thereof but they failed and refused to pay the same." (GR
L-34383)

When the insurance contracts which formed the basis of these cases were executed, Home
Insurance had not yet secured the necessary licenses and authority; but when the complaints in
these two cases were filed, Home Insurance had already secured the necessary license to conduct its
insurance business in the Philippines. In both cases, Home Insurance made the averment regarding
its capacity to sue, as that it "is a foreign insurance company duly authorized to do business in the
Philippines through its agent, Mr. Victor H. Bello, of legal age and with office address at Oledan
Building, Ayala Avenue, Makati, Rizal." The Court of First Instance of Manila, Branch XVII, however,
dismissed the complaints in both cases, on the ground that Home Insurance had failed to prove its
capacity to sue. Home Insurance filed the petitions for review on certiorari, which was consolidated.

ISSUE: Does Home Insurance, a foreign corporation licensed to do business at the time of the filing
of the case, have the capacity to sue for claims on contracts made when it has no license yet to do
business in the Philippines?

RULING: The Supreme Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co.
that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation
doing business in the Philippines to the jurisdiction of Philippine courts. The Corporation Law must
be given a reasonable, not an unduly harsh, interpretation which does not hamper the development
of trade relations and which fosters friendly commercial intercourse among countries. The objectives
enunciated in the 1924 decision are even more relevant today when we commercial relations are
viewed in terms of a world economy, when the tendency is to re-examine the political boundaries
separating one nation from another insofar as they define business requirements or restrict
marketing conditions. The court distinguished between the denial of a right to take remedial action
and the penal sanction for non-registration. Insofar as transacting business without a license is
concerned, Section 69 of the Corporation Law imposed a penal sanction — imprisonment for not
less than 6 months nor more than 2 years or payment of a fine not less than P200.00 nor more than
P1,000.00 or both in the discretion of the court. There is a penalty for transacting business without
registration. And insofar as litigation is concerned, the foreign corporation or its assignee may not
maintain any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is
silent on whether or not the contract executed by a foreign corporation with no capacity to sue is
null and void ab initio. Still, there is no question that the contracts are enforceable. The requirement

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of registration affects only the remedy. Significantly, Batas Pambansa 68, the Corporation Code of
the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old
Corporation Law. Section 133 of the present Corporation Code provides that "No foreign corporation
transacting business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or administrative
agency in the Philippines; but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized under Philippine laws." The
old Section 69 has been reworded in terms of non-access to courts and administrative agencies in
order to maintain or intervene in any action or proceeding. The prohibition against doing business
without first securing a license is now given penal sanction which is also applicable to other
violations of the Corporation Code under the general provisions of Section 144 of the Code. It is,
therefore, not necessary to declare the contract null and void even as against the erring foreign
corporation. The penal sanction for the violation and the denial of access to Philippine courts and
administrative bodies are sufficient from the viewpoint of legislative policy. Herein, the lack of
capacity at the time of the execution of the contracts was cured by the subsequent registration is
also strengthened by the procedural aspects of these cases. Home Insurance averred in its
complaints that it is a foreign insurance company, that it is authorized to do business in the
Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at
Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of
Court. Home Insurance sufficiently alleged its capacity to sue.

STEELCASE, INC. vs. DESIGN INTERNATIONAL SELECTIONS, INC.,

G.R. No. 171995 April 18, 2012

FACTS: Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan, United
States of America (U.S.A.), and engaged in the manufacture of office furniture with dealers
worldwide. Respondent Design International Selections, Inc. ("DISI") is a corporation existing under
Philippine Laws and engaged in the furniture business, including the distribution of furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby
Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-
user customers within the Philippines. The business relationship continued smoothly until it was
terminated sometime in January 1999 after the agreement was breached with neither party
admitting any fault. Steelcase filed a complaint for sum of money against DISI alleging, among
others, that DISI had an unpaid account of US$600,000.00.

ISSUE: Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue
RULING: The rule that an unlicensed foreign corporations doing business in the Philippine do not
have the capacity to sue before the local courts is well-established. Section 133 of the Corporation
Code of the Philippines explicitly states:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.

If indeed Steelcase had been doing business in the Philippines without a license, DISI would
nonetheless be estopped from challenging the former’s legal capacity to sue. Unquestionably,

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entering into a dealership agreement with Steelcase charged DISI with the knowledge that Steelcase
was not licensed to engage in business activities in the Philippines. This Court has carefully combed
the records and found no proof that, from the inception of the dealership agreement in 1986 until
September 1998, DISI even brought to Steelcase’s attention that it was improperly doing business in
the Philippines without a license. It was only towards the latter part of 1998 that DISI deemed it
necessary to inform Steelcase of the impropriety of the conduct of its business without the requisite
Philippine license. It should, however, be noted that DISI only raised the issue of the absence of a
license with Steelcase after it was informed that it owed the latter US$600,000.00 for the sale and
delivery of its products under their special credit arrangement.

By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it
and even benefiting from it, DISI is estopped from questioning Steelcase’s existence and capacity to
sue.

As held in cases such as Merril Lynch Futures v. Court of Appeals, is apropos:

The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the ‘doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations;’ "one who has dealt with
a corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity."
The principle "will be applied to prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes, chiefly in cases where such person has
received the benefits of the contract . . ."

All things considered, respondent can no longer invoke petitioner’s lack of capacity to sue in this
jurisdiction.1âwphi1 Considerations of fair play dictate that after having contracted and benefitted
from its business transaction with Rimbunan, respondent should be barred from questioning the
latter’s lack of license to transact business in the Philippines.

COMMUNICATION MATERIALS and DESIGN, INC. v. COURT OF APPEALS

G.R. No. 102223 August 22, 1996

FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity) and ASPAC
MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while petitioner Francisco
S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC. and/or ITEC,
INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and existing under the laws
of the State of Alabama, United States of America. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines.

ITEC entered into a contract with petitioner ASPAC referred to as "Representative Agreement". ITEC
engaged ASPAC as its "exclusive representative" in the Philippines for the sale of ITEC's products, in
consideration of which, ASPAC was paid a stipulated commission. ASPAC was able to incorporate
and use the name "ITEC" in its own name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly
known as ASPAC-ITEC (Philippines). ASPAC sold electronic products, exported by ITEC, to their sole
customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity). ITEC charges the
petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL,
for brevity), the President of which is likewise petitioner Aguirre, of using knowledge and
information of ITEC's products specifications to develop their own line of equipment and product

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support, which are similar, if not identical to ITEC's own, and offering them to ITEC's former
customer.

ISSUE: Is the private respondent ITEC an unlicensed corporation doing business in the Philippines,
and if it is, whether or not this fact bars it from invoking the injunctive authority of our courts?

RULING: YES. Generally, a "foreign corporation" has no legal existence within the state in which it is
foreign. This proceeds from the principle that juridical existence of a corporation is confined within
the territory of the state under whose laws it was incorporated and organized, and it has no legal
status beyond such territory. Such foreign corporation may be excluded by any other state from
doing business within its limits, or conditions may be imposed on the exercise of such privileges.

The purpose of the law in requiring that foreign corporations doing business in the Philippines be
licensed to do so and that they appoint an agent for service of process is to subject the foreign
corporation doing business in the Philippines to the jurisdiction of its courts. The object is not to
prevent the foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking steps necessary to render it amenable to suit in
the local courts.

The implication of the law is that it was never the purpose of the legislature to exclude a foreign
corporation which happens to obtain an isolated order for business from the Philippines, and thus, in
effect, to permit persons to avoid their contracts made with such foreign corporations.

With the abovestated precedents in mind, we are persuaded to conclude that private respondent
had been "engaged in" or "doing business" in the Philippines for some time now. This is the
inevitable result after a scrutiny of the different contracts and agreements entered into by ITEC with
its various business contacts in the country, particularly ASPAC and Telephone Equipment Sales and
Services, Inc.

THE COMMISSIONER OF CUSTOMS vs. K.M.K. GANI, INDRAPAL & CO., and the HONORABLE
COURT OF TAX APPEALS
G.R. No. 73722February 26, 1990

FACTS: Two containers loaded with 103 cartons of merchandise covered by eleven (11) airway bills of
several supposedly Singapore-based consignees arrived at the Manila International Airport on board
Philippine Air Lines (PAL) from Hongkong. The cargoes were consigned to these different entities:
K.M.K Gani (hereafter referred to as K.M.K.) and Indrapal and Company (hereafter referred to as
INDRAPAL), the private respondents in the petition before us; and Sin Hong Lee Trading Co., Ltd.,
AAR TEE Enterprises, and C. Ratilal, all purportedly based in Singapore.

The Bureau's agency on such matters, the Suspected Cargo and Anti-Narcotics (SCAN), dispatched an
agent to verify the information. The SCAN agent saw an empty PAL van parked directly alongside the
plane's belly from which cargoes were being unloaded. When the SCAN agent asked the van's driver
why he was at the site, the driver drove away in his vehicle. The SCAN agent then sequestered the
unloaded cargoes.

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These goods were transferred to the International Cargo Terminal under Warrant of Seizure and
Detention and thereafter subjected to Seizure and Forfeiture proceedings for "technical smuggling.

ISSUE: Whether or not the private respondents failed to establish their personality to sue in a
representative capacity, hence making their action dismissible.

RULING: The law is clear: "No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of
action recognized under Philippine laws."

However, the Court in a long line of cases has held that a foreign corporation not engaged in
business in the Philippines may not be denied the right to file an action in the Philippine courts for an
isolated transaction. The fact that a foreign corporation is not doing business in the Philippines must
be disclosed if it desires to sue in Philippine courts under the "isolated transaction rule." Without this
disclosure, the court may choose to deny it the right to sue.

In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are "suing upon a
singular and isolated transaction." But they failed to prove their legal existence or juridical
personality as foreign corporations. Under the "isolated transaction rule," only foreign corporations
and not just any business organization or entity can avail themselves of the privilege of suing before
Philippine courts even without a license. The first paragraph of their petition before the Court,
containing the allegation of their identities, does not even aver their corporate character. On the
contrary, K.M.K. alleges that it is a "single proprietorship" while INDRAPAL hides under the vague
identification as a "firm," although both describe themselves with the phrase "doing business in
accordance with the laws of Singapore."

Absent such proof that the private respondents are corporations (foreign or not), the respondent
Court of Tax Appeals should have barred their invocation of the right to sue within Philippine
jurisdiction under the "isolated transaction rule" since they do not qualify for the availment of such
right.

ERIKS PTE. LTD. vs. COURT OF APPEALS

G.R. No. 118843 February 6, 1997

FACTS: Petitioner is a non-resident foreign corporation engaged in the manufacture and sale of
elements used in sealing pumps, valves and pipes for industrial purposes, valves and control
equipment used for industrial fluid control and PVC pipes and fittings for industrial uses.

On various dates, private respondent Delfin Enriquez, Jr., doing business under the name and style of
Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner
various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings.

The transfers of goods were perfected in Singapore, for private respondent's account, F.O.B.
Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon private
respondent to settle his account, but the latter failed/refused to do so.

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ISSUE: Whether Petitioner Corporation may maintain an action in Philippine courts considering that it
has no license to do business in the country.

RULING: YES.

The resolution of this issue depends on whether petitioner's business with private respondent may
be treated as isolated transactions. Granting that there is no distributorship agreement between
herein parties, yet by the mere fact that plaintiff, each time that the defendant posts an order
delivers the items as evidenced by the several invoices and receipts of various dates only indicates
that plaintiff has the intention and desire to repeat the said transaction in the future in pursuit of its
ordinary business. Furthermore, "and if the corporation is doing that for which it was created, the
amount or volume of the business done is immaterial and a single act of that character may
constitute doing business.

More than the sheer number of transactions entered into, a clear and unmistakable intention on the
part of petitioner to continue the body of its business in the Philippines is more than apparent. As
alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps,
valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid
control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered
by the receipts, which are part and parcel of its main product line, was actually carried out in the
progressive prosecution of commercial gain and the pursuit of the purpose and object of its
business, pure and simple.

Further, its grant and extension of 90-day credit terms to private respondent for every purchase
made, unarguably shows an intention to continue transacting with private respondent, since in the
usual course of commercial transactions, credit is extended only to customers in good standing or to
those on whom there is an intention to maintain long-term relationship.

This being so, the existence of a distributorship agreement between the parties, as alleged but not
proven by private respondent, would, if duly established by competent evidence, be merely
corroborative, and failure to sufficiently prove said allegation will not significantly affect the finding
of the courts below.

Thus, the court holds that the series of transactions in question could not have been isolated or
casual transactions. What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an entity to continue the body of
its business in the country. The number and quantity are merely evidence of such intention.

MELBAROSE R. SASOT AND ALLANDALE R. SASOT vs. PEOPLE OF THE PHILIPPINES

G.R. No. 143193. June 29, 2005

FACTS: Sometime in May 1997, the NBI conducted an investigation pursuant to a complaint by the
NBA Properties, Inc., against petitioners for possible violation of Article 189 of the Revised Penal
Code on unfair competition. In its Report dated June 4, 1997, the NBI stated that NBA Properties,
Inc., is a foreign corporation organized under the laws of the United States of America, and is the
registered owner of NBA trademarks and names of NBA basketball teams such as USA BASKETBALL,
CHICAGO BULLS, ORLANDO MAGIC, LOS ANGELES LAKERS, ROCKETS, PHOENIX SUNS, BULLETS,

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PACERS, CHARLOTTE HORNETS, BLAZERS, DENVER NUGGETS, SACRAMENTO KINGS, MIAMI HEAT,
UTAH JAZZ, DETROIT PISTONS, MILWAUKEE BUCKS, SEATTLE SONICS, TORONTO RAPTORS,
ATLANTA HAWKS, CAVS, DALLAS MAVERICKS, MINNESOTA TIMBERWOLVES, and LOS ANGELES
CLIPPERS. These names are used on hosiery, footwear, t-shirts, sweatshirts, tank tops, pajamas,
sport shirts, and other garment products, which are allegedly registered with the Bureau of Patents,
Trademarks and Technology Transfer. The Report further stated that during the investigation, it was
discovered that petitioners are engaged in the manufacture, printing, sale, and distribution of
counterfeit NBA garment products. Hence, it recommended petitioners prosecution for unfair
competition under Article 189 of the Revised Penal Code. In a Special Power of Attorney dated
October 7, 1997, Rick Welts, as President of NBA Properties, Inc., constituted the law firm of Ortega,
Del Castillo, Bacorro, Odulio, Calma & Carbonell, as the companys attorney-in-fact, and to act for and
on behalf of the company, in the filing of criminal, civil and administrative complaints, among
others.[3] The Special Power of Attorney was notarized by Nicole Brown of New York County and
certified by Norman Goodman, County Clerk and Clerk of the Supreme Court of the State of New
York. Consul Cecilia B. Rebong of the Consulate General of the Philippines, New York, authenticated
the certification. Welts also executed a Complaint-Affidavit on February 12, 1998, before Notary
Public Nicole J. Brown of the State of New York.

Thereafter, in a Resolution dated July 15, 1998, Prosecution Attorney Aileen Marie S. Gutierrez
recommended the filing of an Information against petitioners for violation of Article 189 of the
Revised Penal Code.

ISSUE: Can a foreign corporation not engaged and licensed in the Philippines maintain an action for
unfair competition?

RULING: Yes. Consequently, if the information is valid on its face, and there is no showing of manifest
error, grave abuse of discretion and prejudice on the part of public prosecutor, as in the present
case, the trial court should respect such determination. More importantly, the crime of Unfair
Competition punishable under Article 189 of the Revised Penal Code is a public crime. It is essentially
an act against the State and it is the latter which principally stands as the injured party. The
complainants capacity to sue in such case becomes immaterial.

In upholding the right of the petitioner to maintain the present suit before our courts for unfair
competition or infringement of trademarks of a foreign corporation, we are moreover recognizing
our duties and the rights of foreign states under the Paris Convention for the Protection of Industrial
Property to which the Philippines and France are parties. We are simply interpreting and enforcing a
solemn international commitment of the Philippines embodied in a multilateral treaty to which we
are a party and which we entered into because it is in our national interest to do so.

Lastly, with regard to petitioners arguments that the NBA Properties, Inc., is not entitled to
protection under Philippine patent laws since it is not a registered patentee, that they have not
committed acts amounting to unfair competition for the reason that their designs are original and do
not appear to be similar to complainants, and they do not use complainants logo or design, the Court
finds that these are matters of defense that are better ventilated and resolved during trial on the
merits of the case.

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 Rimbunan Hijau Group of Companies vs. Oriental Wood Processing Corporation
GR No. 152228, September 23, 2005

FACTS: This case stemmed from a complaint for sum of money filed by Rimbunan Hijau
Group of Companies ("Rimbunan") and Niugini Lumber Merchants Pty., Ltd. ("Niugini")
against Oriental Wood Processing Corporation (respondent). Rimbunan and Niugini
(petitioners) are foreign corporations duly organized and existing under the laws of Papua
New Guinea ("PNG") while respondent is a private domestic corporation organized and
existing under Philippine laws.

On 27 December 1999, petitioners filed an amended complaint with application for

preliminary attachment against respondent, seeking to recover the amount of Three
Hundred Forty Three Thousand Seven Hundred Forty One Dollars and Fifty Two Cents
(US$343,741.52) or its equivalent in Philippine currency. The amount represented the alleged
remaining balance on the total purchase price of Five Hundred Forty Three Thousand Six
Hundred Ninety Nine Dollars and Fifty Two Cents (US$543,699.52) for the mixed species of
PNG logs which petitioners sold and exported to respondent sometime in July 1998.

Respondent filed a Motion to Dismiss on the grounds that petitioners have no legal capacity
to sue in this jurisdiction and that Niugini has no legal personality to sue.

ISSUE: Can petitioners bring bring an action in Philippine courts?

RULING: Yes. Estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere
debet—no person ought to derive any advantage from his own wrong. In this case, the
existence of the transaction giving rise to the complaint was categorically admitted by
respondent. In its Answer with Compulsory Counterlaim (Ad Cautelam). Respondent’s
unequivocal admission of the transaction which gave rise to the complaint establishes the
applicability of estoppel against it.

The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the ‘doctrine of estoppel to
deny corporate existence applies to foreign as well as to domestic corporations;’ "one who
has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its
existence and capacity." The principle "will be applied to prevent a person contracting with
a foreign corporation from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the contract . . ."

All things considered, respondent can no longer invoke petitioner’s lack of capacity to sue in
this jurisdiction. Considerations of fair play dictate that after having contracted and
benefited from its business transaction with Rimbunan, respondent should be barred from
questioning the latter’s lack of license to transact business in the Philippines.

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 Sehwani vs. In and Out Burger
G.R. No. 171053, October 15 2007

FACTS: Petitioners alleged that the Respondent lack the legal capacity to sue because it was
not doing business in the Philippines and that it has no cause of action because its mark is
not registered or used in the Philippines. Sehwani, Inc. also claimed that as the registered
owner of the “IN N OUT” mark, it enjoys the presumption that the same was validly acquired
and that it has the exclusive right to use the mark. Moreover, petitioners argued that other
than the bare allegation of fraud in the registration of the mark, respondent failed to show
the existence of any grounds of cancellation thereof under Section 151 of the IP Code of the
Philippines. It also alleged that the action is barred by laches.

Respondent, In-n-out Burger, Inc., alleged that it is the owner of the tradename “IN-N-OUT”
and trademarks “IN-N-OUT,” “IN-N-OUT Burger & Arrow Design” and “IN-N-OUT Burger
Logo” which are used in its business since 1948 up to the present. These tradename and
trademarks were registered in the United States as well as in other parts of the world.
Petitioner Sehwani allegedly had obtained a trademark registration for the mark “IN N OUT”
(with the inside letter O formed like a star) without its authority.

ISSUE: Whether or not the Respondent has the legal capacity to sue for the protection of its
trademarks albeit it is not doing business in the Philippines

RULING: Yes. Section 160 RA No. 8293 provides for the right of foreign corporations to sue in
trademark or service mark enforcement action, provided that it meets the requirements
under Section 3 thereof, which are:

a. Any convention, treaty or agreement relation to intellectual property right or the

repression of unfair competition wherein Philippines is also a party; and

b. An extension therein of reciprocal rights.

Moreoever, Article 6bis of The Paris Convention, which governs the protection of well-
known trademarks, is a self-executing provision and does not require legislative enactment
to give it effect in the member country. The essential requirement therein is that the
trademark must be well-known in the country where protection is sought. In this case,
Director Beltran-Abelardo found that In-n-out Burger and Arrow Design is an internationally
well0known mark as evidenced by its trademark registrations around the world and its
comprehensive advertisements therein.

MR HOLDINGS LTD. Vs. SHERIFF CARLOS P. BAJAR

G.R. No. 138104 April 11, 2002

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FACTS: ADB extended a loan to Marcopper under a Principal Loan Agreement and Complementary
Loan Agreement. A Support and Standby Credit Agreement was also executed between ADB and
Placer Dome (owner of 40% of Marcopper), whereby the latter agreed to provide with a cash flow
support for the payment of its obligations to ADB. Marcopper also executed a Deed of Real Estate
and Chattel Mortgage in favor of ADB covering all its assets in Marinduque. Marcopper defaulted in
its payment. Thus, MR Holding, LTD (placer Dome’s subsidiary corporation) assumed Marcopper’s
obligation to ADB. Marcopper likewise executed a Deed of assignment in favor of petitioner.

It appeared that SolidBank Corporation obtained a partial judgment against Marcopper in a case filed
with the RTC. A writ of execution was issued and then an auction sale was scheduled. This event
prompted petitioner to serve an "Affidavit of Third-Party Claim" upon respondent sheriffs, asserting
ownership over all the assets of Marcopper by virtue of the Deed of Assignment. The RTC of Manila
denied the affidavit. Petitioner filed with the RTC of Boac, Marinduque a complaint for
reivindication of properties with prayer for preliminary injunction and temporary restraining order
against respondents. The application for writ of preliminary injunction was denied.

ISSUE: Is the petitioner doing business in the Philippines.

RULING: The Supreme Court ruled in the negative. It held that there are other statutes defining the
term "doing business" in the same tenor as those above quoted, and as may be observed, one
common denominator among them all is the concept of "continuity." The expression "doing
business" should not be given such a strict and literal construction as to make it apply to any
corporate dealing whatever. At this early stage and with petitioner’s acts or transactions limited to
the assignment contracts, it cannot be said that it had performed acts intended to continue the
business for which it was organized. It may not be amiss to point out that the purpose or business
for which petitioner was organized is not discernible in the records. No effort was exerted by the
Court of Appeals to establish the nexus between petitioner’s business and the acts supposed to
constitute "doing business." Thus, whether the assignment contracts were incidental to petitioner’s
business or were continuation thereof is beyond determination. Significantly, a view subscribed
upon by many authorities is that the mere ownership by a foreign corporation of a property in a
certain state, unaccompanied by its active use in furtherance of the business for which it was
formed, is insufficient in itself to constitute doing business.

In the final analysis, we are convinced that petitioner was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical examples of these are the making of a single
contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do
any other business within the country.

FAR EAST INTERNATIONAL vs. NANKAI KOGYO

L- 13525 NOVEMBER 3, 1962

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FACTS: Far East entered into a contract of sale of steel scrap with Nankai , a foreign corporation
incorporated under Japanese laws. Nankai opened a letter of credit with the China Banking
Corporation issued by Nippon Kangyo. Four days before the expiration of the Far East license, three
boats of Nankai arrived. Upon the expiration of the export license, only 1, 058.6 metric tons of steel
scrap was loaded on the SS Mina. The license was never renewed.

On April 27, 1957, Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel
scrap, but asked for damages amounting to $148,135.00 consisting of dead freight charges, damages,
bank charges, phone and cable expenses.

On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting the issuance of a
complete set of the Bill of Lading for the shipment, in order that payment thereof be effected
against the Letter of Credit. Under date of May 7, 1957, the Everett informed Far East that they were
not in a position to comply because the Bill of Lading was issued and signed in Tokyo by the Master
of the boat, upon request of the Charterer, defendant herein.

As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of
the of Bill Lading were ignored, Far East filed on May 16, 1957, the present complaint for Specific
Performance, damages, a writ of preliminiry mandatory injunction directed against Nankai and the
shipping company, to issue and deliver to the plaintiff, a complete set of negotiable of Lading for the
1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking
Corporation and the Nankai to maintain the Letter Credit.

Far East filed for the issuance of a complete set of Bill of Lading in order that payment be effected
against the Letter of Credit. The respondent refused.

ISSUE: Whether or not the court had jurisdiction over the subject matter and the person of the
defendant.

RULING: YES. Mr. Ishida who personally signed the contract for the purpose of selling scrap in
question in behalf on Nankai Kogyo is the Trade Manager of the said corporation. Mr. Tominaga was
the Chief of the Petroleum Section of the same company and Mr. Yoshida was the man- in- charge of
the Import Section of the company’s Tokyo branch. All of these officers are served with summons.

The testimony of Atty. Pablo Ocampo that appellant was doing business in the Philippines was
corroborated by no less than Nabuo Yoshida, one of the appellant’s officers, that he was sent to the
Philippines by his company to look into the operation of mines, thereby revealing the defendant’s
desire to continue engaging business in the Philippines, after receiving the shipment of the scrap iron
under consideration, making the Philippines a base thereof.

That a single act may bring the corporation within the purview of the statute where it is an act of the
ordinary business of the corporation. The single act or transaction is not merely incidental or casual,
but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to
do other business in the state, and to make the state a basis of operations for the conduct of a part
of the corporation’s ordinary business.

FACILITIES MANAGEMENT CORPORATION vs. DE LA OSA

G.R. No. L-38649 March 26, 1979
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FACTS: Leonardo dela Osa sought his reinstatement with full backwages, as well as the recovery of
his overtime compensation, swing shift and graveyard shift differentials. Petitioner alleged that he
was employed by respondents as follows: (1) painter (2) houseboy with an hourly rate of $1.26 from
December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of $1.33 from
December, 1965 to August, 1966, inclusive; and (4) cashier with an hourly rate of $1.40 from August,
1966 to March 27, 1967, inclusive. He further averred that from December, 1965 to August, 1966,
inclusive, he rendered overtime services daily, and that this entire period was divided into swing and
graveyard shifts to which he was assigned, but he was not paid both overtime and night shift
premiums despite his repeated demands from respondents. Respondents filed on August 7, 1967
their letter- answer without substantially denying the material allegations of the basic petition but
interposed the following special defenses, namely: That respondents Facilities Management
Corporation and J. S. Dreyer are domiciled in Wake Island which is beyond the territorial jurisdiction
of the Philippine Government; that respondent J. V. Catuira, though an employee of respondent
corporation presently stationed in Manila, is without power and authority of legal representation;
and that the employment contract between petitioner and respondent corporation carries -the
approval of the Department of Labor of the Philippines.

ISSUE: Whether or not the mere act by a non-resident foreign corporation of recruiting Filipino
workers for its own use abroad is in law doing business in the Philippines.

RULING: YES. "Under the rules and regulations promulgated by the Board of Investments which
took effect Feb. 3, 1969, implementing Rep. Act No. 5455, which took effect Sept. 30, 1968, the
phrase 'doing business' has been exemplified with illustrations, among them being as follows: "the
performance within the Philippines of any act or combination of acts enumerated in section 1(1) of
the Act shall constitute 'doing business' therein. In particular, 'doing business' includes: "(1)Soliciting
orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm,
not acting independently of the foreign firm, amounting to negotiation or fixing of the terms and
conditions of sales or service contracts, regardless of whether the contracts are actually reduced to
writing, shall constitute doing business even if the enterprise has no office or fixed place of business
in the Philippines. "(2)Appointing a representative or distributor who is domiciled in the Philippines,
unless said representative or distributor has an independent status, i.e., it transacts business in its
name and for its own account, and not in the name or for the account of the principal. "(4)Opening
offices, whether called 'liaison' offices, agencies or branches, unless proved otherwise. "(10)Any
other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the exercise of some of the functions normally
incident to, or in the progressive prosecution of, commercial gain or of the purpose and objective of
the business organization."

H.B. ZACHRY COMPANY INTERNATIONAL vs. COURT OF APPEALS

G.R. No. 106989 May 10, 1994

FACTS: VBC entered into a written Subcontract Agreement with Zachry, a foreign corporation. The
latter had been engaged by the United States Navy to design and construct 264 Family Housing Units
at the US Naval Base at Subic, Zambales. Under the agreement, specifically under Section 3 on
Payment, VBC was to perform all the construction work on the housing project and would be paid
"for the performance of the work the sum (U.S.$6,468,000.00) When VBC had almost completed

290 | P a g e
the project, Zachry complained of the quality of work, making it a reason for its decision to take over
the management of the project, which paragraph c, Section 7 of the Subcontract Agreement
authorized. However, prior to such take-over, the parties executed an agreement, in accordance
with which, VBC submitted to Zachry a detailed computation of the cost to complete the subcontract
on the housing project. According to VBC's computation, there remains a balance of $1,103,000.00
due in its favor as of 18 January 1990. Zachry, however, not only refused to acknowledge the
indebtedness but continually failed to submit to VBC a statement of accumulated costs, as a result of
which VBC was prevented from cheking the accuracy of the said costs. On 2 March 1990, VBC wrote
Zachry a letter demanding compliance with its obligations. Zachry still failed to do so. VBC made
representations to pursue its claim, including a formal claim with the Officer-in-Charge of
Construction, NAVFAC Contracts, Southwest Pacific, which also failed.

ISSUE: Whether or not a writ of preliminary attachment may issue ex parte against a defendant
before acquisition of jurisdiction of the latter's person by service of summons or his voluntary
submission to the Court's authority.

RULING: NO. The Court rules that the question must be answered in the affirmative and that
consequently, the petition for review will have to be granted. It is incorrect to theorize that after an
action or proceeding has been commenced and jurisdiction over the person of the plaintiff has been
vested in the court, but before the acquisition of jurisdiction over the person of the defendant
(either by service of summons or his voluntary submission to the court's authority), nothing can be
validly done by the plaintiff or the court. It is wrong to assume that the validity of acts done during
this period should be dependent on, or held in suspension until, the actual obtention of jurisdiction
over the defendant's person. The obtention by the court of jurisdiction over the person of the
defendant is one thing; quite another is the acquisition of jurisdiction over the person of the plaintiff
or over the subject-matter or nature of the action, or the res or object thereof. For the guidance of
all concerned, the Court reiterates and reaffirms the proposition that writs of attachment may
properly issue ex parte provided that the Court is satisfied that the relevant requisites therefore have
been fulfilled by the applicant, although it may, in its discretion, require prior hearing on the
application with notice to the defendant; but that levy on property pursuant to the writ thus issued
may not be validly effected unless preceded, or contemporaneously accompanied, by service on the
defendant of summons, a copy of the complaint (and of the appointment of guardian ad litem, if
any), the application for attachment (if not incorporated in but submitted separately from the
complaint), the order of attachment, and the plaintiff's attachment bond.

LA CHEMISE LACOSTE, S. A. vs. FERNANDEZ

G.R. No. L-65659 May 21, 1984

FACTS: The petitioner is a foreign corporation, organized and existing under the laws of
France and not doing business in the Philippines. It is the actual owner of the
abovementioned trademarks used on clothings and other goods specifically sporting
apparels sold in many parts of the world and which have been marketed in the Philippines
since 1964. The main basis of the private respondent's case is its claim of alleged prior
registration.

In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg. No.
SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE &

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CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and
other garment products of the company. Two years later, it applied for the registration of
the same trademark under the Principal Register. The Patent Office eventually issued an
order which granted the application."Thereafter, Hemandas & Co. assigned to respondent
Gobindram Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE &
DEVICE".

The petitioner filed its application for registration of the trademark "Crocodile Device" and
"Lacoste". The former was approved for publication while the latter was opposed by Games
and Garments. The petitioner filed with the National Bureau of Investigation (NBI) a letter-
complaint alleging therein the acts of unfair competition being committed by Hemandas and
requesting their assistance in his apprehension and prosecution.

ISSUE: Whether or not petitioner has the capacity to sue.

RULING: YES. The petitioner is a foreign corporation not doing business in the Philippines.
The marketing of its products in the Philippines is done through an exclusive distributor,
Rustan Commercial Corporation. The latter is an independent entity which buys and then
markets not only products of the petitioner but also many other products bearing equally
well-known and established trademarks and tradenames. In other words, Rustan is not a
mere agent or conduit of the petitioner.

The court finds and concludes that the petitioner is not doing business in the Philippines.
Rustan is actually a middleman acting and transacting business in its own name and or its
own account and not in the name or for the account of the petitioner. More important is the
nature of the case which led to this petition. What preceded this petition for certiorari was a
letter-complaint filed before the NBI charging Hemandas with a criminal offense, i.e.,
violation of Article 189 of the Revised Penal Code. If prosecution follows after the
completion of the preliminary investigation being conducted by the Special Prosecutor the
information shall be in the name of the People of the Philippines and no longer the
petitioner which is only an aggrieved party since a criminal offense is essentially an act
against the State.

It is the latter which is principally the injured party although there is a private right violated.
Petitioner's capacity to sue would become, therefore, of not much significance in the main
case. We cannot allow a possible violator of our criminal statutes to escape prosecution
upon a far-fetched contention that the aggrieved party or victim of a crime has no standing
to sue. In upholding the right of the petitioner to maintain the present suit before our courts
for unfair competition or infringement of trademarks of a foreign corporation, we are
moreover recognizing our duties and the rights of foreign states under the Paris Convention
for the Protection of Industrial Property to which the Philippines and France are parties.

PHILIPPINE COLUMBIA ENTERPRISES CO. vs. LANTIN

G.R. No.L-29072 June 7, 1971

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FACTS: Private respondent Katoh & Co.,Ltd, alleged in its civil complaint that it is a corporation duly
organized under the laws of Japan, with head office in Tokyo, Japan. The complaint alleged ten (10)
causes of action against the defendants Philippines Columbia Enterprises Co., with principal place of
business in Manila, and the general partners, thereof, Rufino Dy Chin and Fermin Sy, who reside in
Manila. These ten(10) causes of action are for the collection of payment of ten(10) different
shipments of angle bars, mild steel bars, and cold rolled steel sheets allegedly ordered in May, July,
October and November, 1966 by the defendants from the plaintiff which plaintiff had duly shipped
and defendants duly received but which defendant refused to pay. The complaint does not allege
that plaintiff has secured a license to transact business in the Philippines but its alleges that it” has
not been and is not engaged in business in the Philippines and that the transactions averred in this
complaint were exports made and consummated in Tokyo, Japan in pursuance of international
trade.”

ISSUE: Were plaintiff’s allegations in its complaint constitute by themselves an admission that it is
transacting business in the Philippines?

RULING: No. An examination of complaint will show that the same expressly avers that the
transactions upon which respondent plaintiff is suing were” consummated in Tokyo” and hence, not
in the Philippines. Petitioners- defendant’s assertion that the contracts were made in the Philippines
squarely contradicts the averments in the complaint. And the basic and well-known rule is that
whether a cause of action is pleaded or not must be ascertained solely upon the face of the
complaint.

Since the petitioner’s averment that the plaintiff’s transactions were made in the Philippines, being
contradictory of the complaint, cannot be set up in motion to dismiss for lack of cause of action, but
must be pleaded in an answer, any reception of evidence on the point would merely duplicate the
trial on the merits, and should be deferred. Therefore, the court below committed no abuse of
discretion amounting to excess of jurisdiction in resolving to defer action on motion to dismiss. The
last objection of the petitioners to the deferment order is that if they file a counterclaim in their
answer against respondent foreign corporation, they would be recognizing the legal capacity of said
corporation which they are precisely questioning. This fear is without legal basis, for actions by
foreign corporations are governed by rules different from those in actions against them.

A counterclaim partakes of the nature of a complaint and/or cause of action against the plaintiff, so
that if the petitioner’s-defendants should file a counterclaim, the private respondent-plaintiff Katoh
& Co.,Ltd., would not be maintaining a suit and, consequently, Section 69 of the Corporation Law
would not apply.

PHILIP MORRIS, INC. vs. FORTUNE TOBACCO CORPORATION

G.R. No. 158589, June 27, 2006

FACTS: Petitioner Philip Morris, Inc., a corporation organized under the laws of the State of Virginia,
United States of America, is, per Certificate of Registration No. 18723 issued on April 26, 1973 by the
Philippine Patents Office (PPO), the registered owner of the trademark “MARK VII” for cigarettes.
Similarly, petitioner Benson & Hedges (Canada), Inc., a subsidiary of Philip Morris, Inc., is the

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registered owner of the trademark “MARK TEN” for cigarettes as evidenced by PPO Certificate of
Registration No. 11147. And as can be seen in Trademark Certificate of Registration No. 19053,
another subsidiary of Philip Morris, Inc., the Swiss company Fabriques de Tabac Reunies, S.A., is the
assignee of the trademark “LARK,” which was originally registered in 1964 by Ligget and Myers
Tobacco Company.

On the other hand, respondent Fortune Tobacco Corporation, a company organized in the
Philippines, manufactures and sells cigarettes using the trademark “MARK.” Petitioners then filed a
Complaint for Infringement of Trademark and Damages against respondent Fortune Tobacco
Corporation. In the Complaint with prayer for the issuance of a preliminary injunction, petitioners
alleged that they are foreign corporations not doing business in the Philippines and are suing on an
isolated transaction.

They averred that the countries in which they are domiciled grant to corporate or juristic persons of
the Philippines the privilege to bring action for infringement, without need of a license to do
business in those countries. Petitioners likewise manifested being registered owners of the
trademark “MARK VII” and “MARK TEN” for cigarettes as evidenced by the corresponding
certificates of registration and an applicant for the registration of the trademark “LARK MILDS”.

ISSUE: Whether or not Petitioner has the legal capacity to sue the respondent for alleged
infringement.

RULING: Yes. A “trademark” is any distinctive word, name, symbol, emblem, sign, or device, or any
combination thereof adopted and used by a manufacturer or merchant on his goods to identify and
distinguish them from those manufactured, sold, or dealt in by others. Inarguably, a trademark
deserves protection. A foreign corporation may have the capacity to sue for infringement but the
question of whether they have an exclusive right over their symbol as to justify issuance of the
controversial writ will depend on actual use of their trademarks in the Philippines in line with
Sections 2 and 2-A of RA116.

It is thus incongruous for petitioners to claim that when a foreign corporation not licensed to do
business in the Philippines files a complaint for infringement, the entity need not be actually using its
trademark in commerce in the Philippines. Such a foreign corporation may have the personality to
file a suit for infringement but it may not necessarily be entitled to protection due to absence of
actual use of the emblem in the local market.

Hence, it may be stated right off that the registration of a trademark unaccompanied by actual use
thereof in the country accords the registrant only the standing to sue for infringement in Philippine
courts. Entitlement to protection of such trademark in the country is entirely a different matter.

Puma vs. IAC

158 SCRA 233, February 26, 1988

FACTS: Petitioner, a German corporation and the manufacturer and producer of "PUMA
PRODUCTS," filed a complaint for infringement of patent or trademark with a prayer for the issuance
of a writ of preliminary injunction against the private respondent. Prior to this complaint, there were
3 other pending cases before the Philippine Patent Office filed by Puma.

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Private respondent filed a motion to dismiss on the grounds that the petitioners' complaint states no
cause of action and petitioner had no legal personality to sue. The trial court granted denied the
Motion to Dismiss and granted the petitioner’s application for a writ of injunction.

The Court of Appeals reversed the order and ordered the dismissal of the case. The appellate court
stated that petitioner had no legal capacity to sue because it failed to allege reciprocity in its
complaint. As to private respondent's having no legal personality to sue, the record discloses that
private respondent was suing under Sec. 21-A of Republic Act No. 166. This is the exception to the
general rule that a foreign corporation doing business in the Philippines must secure a license to do
business before said foreign corporation could maintain a court or administrative suit. However,
there are some conditions which must be met before that exception could be made to apply,
namely: (a) the trademark of the suing corporation must be registered in the Philippines, or that it be
the assignee thereof: and (b) that there exists a reciprocal treatment to Philippine Corporations
either by law or convention by the country of origin of the foreign corporation.

Petitioner maintains that it has substantially complied with the requirements of Section 21-A. Its
complaint specifically alleged that it is not doing business in the Philippines and is suing under the
said Republic Act; that Section 21-A thereof provides that "the country of which the said corporation
or juristic person is a citizen, or in which it is domiciled, by treaty, convention or law, grants a similar
privilege to corporate or juristic persons of the Philippines" but does not mandatorily require that
such reciprocity between the Federal Republic of Germany and the Philippines be pleaded; that such
reciprocity arrangement is embodied in and supplied by the Union Convention for the Protection of
Industrial Property Paris Convention to which both the Philippines and Federal Republic of Germany
are signatories and that since the Paris 'Convention is a treaty which, pursuant to our Constitution,
forms part of the law of the land, our courts are bound to take judicial notice of such treaty, and,
consequently, this fact need not be averred in the complaint.

ISSUE: Whether petitioner has legal capacity to sue

RULING: It has legal capacity to sue.

As early as 1927, the Court was, and it still is, of the view that a foreign corporation not doing
business in the Philippines needs no license to sue before Philippine courts for infringement of
trademark and unfair competition. Thus, in Western Equipment and Supply Co. v. Reyes, the Court
held that a foreign corporation which has never done any business in the Philippines and which is
unlicensed and unregistered to do business here, but is widely and favorably known in the
Philippines through the use therein of its products bearing its corporate and trade name, has a legal
right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from
organizing a corporation therein bearing the same name as the foreign corporation, when it appears
that they have personal knowledge of the existence of such a foreign corporation, and it is apparent
that the purpose of the proposed domestic corporation is to deal and trade in the same goods as
those of the foreign corporation.

The Court re-affirmed the adherence to the Paris Convention: the Union of Paris for the Protection of
Industrial Property to which the Philippines became a party on September 27, 1965. Article 8 thereof
provides that 'a trade name shall be protected in all the countries of the Union without the
obligation of filing or registration, whether or not it forms part of the trademark.'

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 SUBIC BAY METROPOLITAN AUTHORITY, RICHARD J. GORDON, FERDINAND M. ARISTORENAS,
MANUEL W. QUIJANO and RAYMOND P. VENTURA vs. UNIVERSAL INTERNATIONAL GROUP OF
TAIWAN, UIG INTERNATIONAL DEVELOPMENT CORPORATION and SUBIC BAY GOLF AND COUNTRY
CLUB, Inc.
G.R. No. 131680. September 14, 2000

FACTS: On 25 May 1995, a Lease and Development Agreement was executed by respondent UIG and
petitioner SBMA under which respondent UIG shall lease from petitioner SBMA the Binictican Golf
Course and appurtenant facilities thereto to be transformed into a world class 18-hole golf course,
golf club/resort, commercial tourism and residential center. The contract in pertinent part contains
pre-termination clauses.

On 4 February 1997, Petitioner SBMA sent a letter to private respondent UIG calling its attention to
its alleged several contractual violations in view of private respondent UIGs failure to deliver its
various contractual obligations, primarily its failure to complete the rehabilitation of the Golf Course
in time for the APEC Leaders Summit, and to pay accumulated lease rentals and utilities, and to post
the required performance bond. Respondent UIG, in its letter of 7 February 1997, interposed as an
excuse the alleged default of its main contractor FF Cruz, resulting in their filing of suit against the
latter, and committed itself to comply with its obligations within a few days. Private respondent UIG,
however, failed to comply with its undertakings. On 7 March 1997, petitioner SBMA sent a letter to
private respondent UIG declaring the latter in default of its contractual obligations to SBMA under
Section 22.1 of the Lease and Development Agreement and required it to show cause why petitioner
SBMA should not pre-terminate the agreement. Private respondents paid the rental arrearages but
the other obligations remained unsatisfied.

On 8 September 1997, a letter of pre-termination was served by petitioner SBMA requiring private
respondent UIG to vacate the premises. On 12 September 1997, petitioner served the formal notice
of closure of Subic Bay Golf Course and took over possession of the subject premises. On even date,
private respondent filed a complaint against petitioner SBMA for Injunction and Damages with
prayer for a writ of temporary restraining order and writ of preliminary injunction. On 3 October
1997, respondent court issued the two assailed orders subject of the petition.

ISSUE: Whether Respondent UIG has the capacity to sue

RULING: As a general rule, unlicensed foreign non-resident corporations cannot file suits in the
Philippines. Section 133 of the Corporation Code specifically provides:
Sec. 133. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines, but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.

A corporation has legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the
Philippines. In order to subject a foreign corporation doing business in the country to the jurisdiction

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of our courts, it must acquire a license from the SEC and appoint an agent for service of process.
Without such license, it cannot institute a suit in the Philippines.
It should be stressed, however, that the licensing requirement was never intended to favor domestic
corporations who enter into solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in this country. [16] After
contracting with a foreign corporation, a domestic firm is estopped from denying the formers
capacity to sue. Hence, in Merril Lynch Futures v. CA, the Court ruled:
The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations; one who has dealt with a
corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity. The
principle will be applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where such person has received
the benefits of the contract x x x.

In this case, SBMA is estopped from questioning the capacity to sue of UIG. In entering into the LDA
with UIG, SBMA effectively recognized its personality and capacity to institute the suit before the
trial court.

TIME, INC. vs. REYES

G.R. No.L-28882, May 31, 1971

FACTS: This is a petition by Time, Inc. for certiorari and prohibition, with preliminary
injunctions, to annul certain orders of the respondent CFI of Rizal, issued in its Civil Case No.
10403, entitled “ Antonio J. Villegas and Juan Ponce Enrile vs. Time, Inc.,” and to prohibit the
said Rizal court from further proceeding with the said civil case contending that it is the
Manila CFI which has the jurisdiction. The petition alleges that the petitioner time, Inc., is an
American Corporation with principal offices at Rockefeller Center, New York City, N.Y., and is
the publisher of “Time”, a weekly magazine; the petition, however, does not alleged the
petitioner’s legal capacity to sue in the courts of the Philippines. In said civil case, therein
plaintiffs Antonio J. Villegas and Juan Ponce Enrile seek to recover from the therein
petitioner damages upon an alleged of libel arising from a publication of time(Asia Edition)
magazine, in its issue of 18 August 1967, of an essay, entitled “Corruption in Asia”.

ISSUE: Will the petition prosper?

RULING: YES. The dismissal of the present petition is asked on the ground that the petitioner
foreign corporation failed to allege its capacity to sue in the courts of the Philippines. The
Court failed to see how these doctrines can be a propos in the case at bar, since the
petitioner is not maintaining any suit” but is merely defending one against itself; it did not
file any complaint but only a corollary defensive petition to prohibit the lower court from
further proceeding with a suit that it had no jurisdiction to entertain.

Petitioner’s failure to aver its legal capacity to institute the present petition is not fatal, for a
foreign corporation may by writ of prohibition, seek relief against the wrongful assumption

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of jurisdiction. And a foreign corporation seeking a writ of prohibition against further
maintenance a suit, on the ground of want jurisdiction, is not bound by the ruling of the
court in which the suit was brought, on the motion to quash service of summons, that it has
jurisdiction”.

The writs applied for are granted: the respondent Court of First Instance of Rizal is declared
without jurisdiction to take cognizance of its Civil Case No. 10403; and its orders issued in
connection therewith are hereby annulled and set aside. Respondent court is further
commanded to desist from further proceedings in Civil case No. 10403 aforesaid.

Universal Rubber vs. CA

G.R. No. L-30266 29 June 1984

FACTS: The two respondent corporations sued petitioner before the CFI for unfair
competition with damages where the former requested the Hon. Navarro to issue a
subpoena duces tecum to ascertain the amount of damages against the treasurer of the
petitioner, which the judge did. Petitioner moved to quash the subpoenas on the ground
that it is unreasonable and oppressive, irrelevant and there was no showing of good cause
but said motion was denied. A motion for reconsideration was also denied hence the appeal
by certiorari with the CA, which in turn denied the certiorari.

Petitioner now comes to this Court arguing amongst others that respondent Converse is a
foreign corporation not licensed to do business in the Philippines and that Edwardson is
merely its licensee hence, the former has no right sue before Philippine Courts.

ISSUE: Can Converse Rubber Co., as an unlicensed foreign corporation sue before Philippine
Courts?

RULING: YES. The disability of a foreign corporation from suing in the Philippines is limited to
suits to enforce any legal or contract rights arising from, or growing out, of any business
which it has transacted in the Philippine Islands. On the other hand, where the purpose of
the suit is to protect its reputation, its corporate name, its goodwill, whenever that
reputation, corporate name or goodwill have, through the natural development of its trade,
established themselves, an unlicensed foreign corporation may sue in the Philippines.

So interpreted by the Supreme Court, it is clear that Section 29 (now 133) of the Corporation
Law does not disqualify plaintiff-appellee Converse Rubber, which does not have a branch
ofTice in any part of the Philippines and is not "doing business" in the Philippines, from Tiling
and prosecuting this action for unfair competition.

SECURITIES AND EXCHANGE COMMISSION LAW

Abacus Securities Corporation vs. Ampil

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 GR L-34382 and GR L-34383, July 20, 1988

FACTS: Petitioner Corporation was engaged in business as a broker and dealer of securities of listed
companies at the Philippine Stock Exchange Center. On April 8, 1997, respondent opened a cash
account with petitioner for his transactions in securities and, on April 10, started trading on that
account. As a result of his trading activities, he accumulated an outstanding obligation in favor of the
corporation in the principal sum of P6, 617,036.22 as of April 30, 1997. Respondent failed to settle his
account upon the lapse of the required period and the extension given by petitioner, prompting it to
sell his securities on May 6, 1997, to offset his unsettled obligations. After the sale of his securities
and the application of the proceeds against his account, his remaining accountabilities to petitioner
totaled P3, 364,313.56. This obligation he failed to settle despite its demands.

ISSUE: Is the in pari delicto rule applicable to the present case?

RULING: Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out rule,”
clearly vested an obligation, not just a right, to the petitioner. That obligation was to cancel or
otherwise liquidate a customer’s order, if payment was not received within three days from the date
of purchase. Subsequent to an unpaid order, the broker should require its customer to deposit funds
in the account sufficient to cover each purchase, prior to the execution of the transaction. These
duties were imposed upon the broker to ensure faithful compliance with the margin requirements of
the law, which forbade the broker from extending undue credit to a “cash” customer. Respondent
Liable for the First Respondent Liable for the First But Not for the Subsequent Trade But Not for the
Subsequent Trade. Nonetheless, these margin requirements were applicable only to transaction
centered into by the parties subsequent to the initial trades of April 10 and 11, 1997. Thus, petitioner
could still collect from respondent to the extent of the difference between his outstanding
obligation as of April 11, 1997, less the proceeds from the mandatory sellout of the shares pursuant to
the RSA Rules. Its right to collect was justified under the general law on obligations and contracts.


Power and Functions of the SEC

SECURITIES AND EXCHANGE COMMISSIONvs. PERFORMANCE FOREIGN EXCHANGE CORPORATION
G.R. No. 154131 July 20, 2006

FACTS: On January 16, 2001, Emilio B. Aquino, Director of CED, issued a Cease and Desist Order,
stating that his department conducted an inquiry on respondent’s business operations for possible
violation of Republic Act No. 8799 (otherwise known as The Securities Regulation Code); that the
outcome of the inquiry shows that respondent is engaged in the trading of foreign currency futures
contracts in behalf of its clients without the necessary license; that such transaction can be deemed
as a direct violation of Section 11 of R.A. No. 87994 and the related provisions of its Implementing
Rules and Regulations; and that it is imperative to enjoin respondent from further operating as such
to protect the interest of the public.

On February 8, 2001, then SEC Chairman, in her desire to know with certainty the nature of
respondent’s business, sent a letter to the Bangko Sentral ng Pilipinas, requesting a definitive
statement that respondent’s business transactions are a form of financial derivatives and, therefore,

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can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking
functions.

Without waiting for BSP’s determination of the matter, petitioner, the following day, issued an Order
denying respondent’s motion for the lifting of the Cease and Desist Order and directing that the
same stays until respondent shall have submitted the appropriate "endorsement" from the BSP that
it can engage in financial derivative transactions. On April 23, 2001, petitioner issued an Order making
the Cease and Desist Order permanent.

ISSUE: Whether petitioner SEC acted with grave abuse of discretion in issuing the Cease and Desist
Order and its subsequent Order making it permanent

RULING: Section 64 of R.A. No. 8799, provides:

Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification,
motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order
without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.

Under the above provision, there are two essential requirements that must be complied with by the
SEC before it may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.

Here, the first requirement is not present. Petitioner did not conduct proper investigation or
verification before it issued the challenged orders. The clarificatory conference undertaken by
petitioner regarding respondent’s business operations cannot be considered a proper investigation
or verification process to justify the issuance of the Cease and Desist Order. It was merely an initial
stage of such process, considering that after it issued the said order following the clarificatory
conference, petitioner still sought verification from the BSP on the nature of respondent’s business
activity.
Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and
verification process. In fact, such referral indicates that petitioner concedes to the BSP’s expertise in
determining the nature of respondent’s business. It bears stressing, however, that such investigation
and verification, to be proper, must be conducted by petitioner before, not after, issuing the Cease
and Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even
before it could finish its investigation and verification on respondent’s business activity obviously
contravenes Section 64 of R.A. No. 8799 earlier quoted.

And worst, without waiting for BSP’s action, petitioner proceeded to issue its Order dated April 23,
2001 making the Cease and Desist Order permanent. In the same Order, petitioner further directed
respondent "to show cause x x x why its certificate of registration should not be revoked for alleged
violation of the Securities Regulation Code and/or Presidential Decree No. 902-A, specifically on the
ground of serious misrepresentation as to what the corporation can do or is doing to the great
prejudice or damage to the general public." Obviously, without BSP’s determination of the nature of
respondent’s business, there was no factual and legal basis to justify the issuance of such order.

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Which brings us to the second requirement. Before a cease and desist order may be issued by the
SEC, there must be a showing that the act or practice sought to be restrained will operate as a fraud
on investors or is likely to cause grave, irreparable injury or prejudice to the investing public. Such
requirement implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be determined
after the BSP shall have submitted its findings to petitioner. However, there is nothing in the
questioned Orders that shows how the public is greatly prejudiced or damaged by respondent’s
business operation.

ARRANZA et al., v. B. F. HOMES, INC

G.R. NO. 131683 JUNE 19, 2000

FACTS: Respondent BF Homes, Inc. (BFHI), is a domestic corporation engaged in developing

subdivisions and selling residential lots. One of the subdivisions that respondent developed was the
BF Homes Parañaque Subdivision, which now sprawls across not only a portion of the City of
Parañaque but also those of the adjoining cities of Las Piñas and Muntinlupa.

When the Central Bank ordered the closure of Banco Filipino, which had substantial investments in
respondent BFHI, respondent filed with the SEC a petition for rehabilitation and a declaration that it
was in a state of suspension of payments. On 18 March 1985, the SEC placed respondent under a
management committee. Upon that committee’s dissolution on 2 February 1988, the SEC appointed
Atty. Florencio B. Orendain as a Receiver, and approved a Revised Rehabilitation Plan. As a Receiver,
Orendain instituted a central security system and unified the sixty-five homeowners’ associations
into an umbrella homeowners’ association called United BF Homeowners’ Associations, Inc.
(UBFHAI), which was thereafter incorporated with the Home Insurance and Guaranty Corporation
(HIGC). In 1989, respondent, through Orendain, turned over to UBFHAI control and administration of
security in the subdivision, the Clubhouse and the open spaces along Concha Cruz Drive.

Through the Philippine Waterworks and Construction Corporation (PWCC), respondent’s managing
company for waterworks in the various BF Homes subdivisions, respondent entered into an
agreement with UBFHAI for the annual collection of community assessment fund and for the
purchase of eight new pumps to replace the over-capacitated pumps in the old wells.

ISSUE: Does the Securities and Exchange Commission has jurisdiction to resolve the present
controversy?

RULING: YES. The fact that respondent is under receivership does not divest the HLURB of that
jurisdiction. A receiver is a person appointed by the court, or in this instance, by a quasi-judicial
administrative agency, in behalf of all the parties for the purpose of preserving and conserving the
property and preventing its possible destruction or dissipation, if it were left in the possession of any
of the parties.

The appointment of a receiver does not dissolve a corporation, nor does it interfere with the exercise
of its corporate rights. In this case where there appears to be no restraints imposed upon
respondent as it undergoes rehabilitation receivership, respondent continues to exist as a
corporation and hence, continues or should continue to perform its contractual and statutory
responsibilities to petitioners as homeowners. No violation of the SEC order suspending payments to

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creditors would result as far as petitioners’ complaint before the HLURB is concerned. Since what
petitioners seek to enforce are respondent’s obligations as a subdivision developer. Such claims are
basically not pecuniary in nature although it could incidentally involve monetary considerations. All
that petitioners’ claims entail is the exercise of proper subdivision management on the part of the
SEC-appointed Board of Receivers towards the end that homeowners shall enjoy the ideal
community living that respondent portrayed they would have when they bought real estate from it.
It cannot also be considered as having claims against respondent.

WILLIAM H. QUASHA vs. SECURITIES AND EXCHANGE COMMISSION and MANILA POLO
CLUB. INC.
G.R. No. L-47536, May 31, 1978

FACTS: Petitioner had filed on October 10, 1977 and October 17, 1977 his complaints and continuing
opposition with respondent commission against the filing of respondent Manila Polo Club, Inc.'s
Amended Articles of Incorporation and Amended By-Laws which would convert said club into a
proprietary club, assailing the amendments as illegal, inequitable and immoral, alleging inter alia that
the amendments have the effect of enabling the members to appropriate the club's property and to
use it as their contribution to the new club; the real estate assets of Manila Polo Club consist of 25
hectares, more or less, of prime real estate in 'he middle of Forbes lark Makati, Metro Manila. which
are conservatively valued at present market valuation of P200 Million and its buildings,
improvements, facilities and other equipments at about P20 Million.

The more or less 2,000 actual members who will become proprietary owners of the Club's assets
under the proposed conversion will inequitably enrich themselves if this Honorable Commission will
allow the comparatively paltry of P12,500.00 to be paid for each proprietary membership;" "the
value which the Club now commands results from the accrued contribution of past (and present)
members' money, time, effort and foresight; and the conversion plan does not in any way
compensate the predecessors of the present membership (and also those of the present
membership who do not opt for conversion) who substantially contributed to making the Club what
it is today" and further claiming that the amendments had not been duly adopted by the required
two-thirds vote.

Petitioner prayed for the disapproval and cancellation of respondent club's amended articles and by-
laws and denial of its application to register its proprietary shares, and prayed for a restraining order
meanwhile enjoining it from selling and/or accepting any payments for the questioned proprietary
shares.

ISSUE: Whether or not the hearing officer of the SEC is empowered to issue the questioned order
denying the injunctive relief

RULING: The Court ruled that in view of the extremely limited time, with the commission's hearing
officer having issued his questioned order denying injunctive relief only on December 22, 1977 at the
height of the Christmas holiday with just a few days before The scheduled deadline of December 28,
1977, petitioner properly filed the present petition directly with this Court without going through the
prescribed procedure of filing an appeal with respondent Commission en banc within the 30-day
reglementary period since such recourse was obviously not a plain, speedy and adequate remedy.

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The questions raised by petitioner in his pending complaints with respondent commission warrant a
full-blowing trial' on the merits" after which the main issues may be duly adjudicated as contended
by him, and since respondents likewise concur in this stand, the case will be remanded to respondent
commission for such trial and determination on the merits.

Finally, petitioner has not satisfactorily established his right to the restraining order prayed for.
Considering that petitioner submitted the incident on the basis of his memorandum without
presentation of evidence, the Court holds that respondent commission did not act with grave abuse
of discretion in denying the restraining order prayed for. The case is ordered remanded to
respondent commission for a full trial and hearing and determination on the merits.

TRADER’S ROYAL BANK vs. COURT OF APPEALS

G.R. No. L-78412 September 26, 1989

FACTS: On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly
submitted to the Securities and Exchange Commission a petition for suspension of payments (SEC
No. 2250) where Alfredo Ching was joined as co-petitioner because under the law, he was allegedly
entitled, as surety, to avail of the defenses of PBM and he was expected to raise most of the
stockholders' equity of Pl00 million being required under the plan for the rehabilitation of PBM.
Traders Royal Bank was included among PBM's creditors named in Schedule A accompanying PBM's
petition for suspension of payments.

On May 13, 1983, the petitioner bank filed a case against PBM and Alfredo Ching, to collect
P22,227,794.05 exclusive of interests, penalties and other bank charges representing PBM's
outstanding obligation to the bank. Alfredo Ching, a stockholder of PBM, was impleaded as co-
defendant for having signed as a surety for PBM's obligations to the extent of ten million pesos
(Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision, the SEC declared that it had assumed jurisdiction over petitioner Alfredo
Ching pursuant to Section 6, Rule 3 of the new Rules of Procedure of the SEC providing that "parties
in interest without whom no final determination can be had of an action shall be joined either as
complainant, petitioner or respondent" to prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities,
under rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the
petition pending before any court or tribunal are hereby suspended in whatever stage the same may
be, until further orders from the Commission". As directed by the SEC, said order was published once
a week for three consecutive weeks in the Bulletin Today, Philippine Daily Express and Times Journal
at the expense of PBM and Alfredo Ching.

ISSUE: Whether or not the court a quo could acquire jurisdiction over Ching in his personal and
individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that
PBM's obligation to the bank had been placed under receivership by the SEC.

RULING: YES. Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC
could not assume jurisdiction over his person and properties. The Securities and Exchange
Commission was empowered, as rehabilitation receiver, to take custody and control of the assets
and properties of PBM only, for the SEC has jurisdiction over corporations only not over private

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individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D.
1758). Being a nominal party in SEC Case No. 2250, Ching's properties were not included in the
rehabilitation receivership that the SEC constituted to take custody of PBM's assets.

Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM.
An anomalous situation would arise if individual sureties for debtor corporations may escape liability
by simply co- filing with the corporation a petition for suspension of payments in the SEC whose
jurisdiction is limited only to corporations and their corporate assets.

VICMAR DEVELOPMENT vs. COURT OF APPEALS

G.R. No. 81547 May 21, 1990

FACTS: Sometime in August, 1982, a conflict arose between petitioner Vicente Angliongto and
private respondent Rufino T. Nasser on the matter of exclusive control and management of
Petitioner Corporation. On July 7, 1983, petitioner Corporation by petitioner Angliongto, filed a
verified petition in the public respondent SEC against private respondent Nasser, alleging, that
private respondent Nasser was a Director, Executive Vice-President and General Manager of
petitioner Corporation from 1974 to August 26, 1982 but during the annual meeting of stockholders
of petitioner corporation held on August 26, 1982, private respondent Nasser was not re-elected as
member of the Board of Directors or to his previous management positions.

In view of the result of the annual stockholders' meeting, private respondent Nasser was then
advised by the incoming president, herein petitioner Angliong to that the latter would actively
manage the corporate affairs of Petitioner Corporation.

In view thereof, private respondent Nasser was asked to turn over all corporate books and records in
his possession to the duly elected officers, among others, which demand remained (un)heeded by
private respondent Nasser as the latter continued to hold office as Executive Vice-President and
General Manager of petitioner Corporation, performing acts and entering into transactions inimical
to the interests of the petitioner Corporation and its stockholders.

Said petition also prayed for the issuance of a restraining order and thereafter, a permanent
injunction to enjoin private respondent Nasser from representing himself as an officer of petitioner
Corporation, among other things, and for him, to surrender all corporate books and records to the
duly elected officers of said Corporation.

ISSUE: Whether or not the Securities and Exchange Commission has abused its discretion in recalling
its Order to enforce a writ of preliminary injunction.

RULING: NO. The facts reveal that the writ of preliminary injunction issued on September 19, 1983
enjoined private respondent Nasser from acting as, and/or representing himself to be, the Executive
Vice-President and/or General Manager and/or officer in any capacity of petitioner Corporation. Upon
presentment of the Agreement dated November 10, 1983 showing a transfer of ownership, control
and management of Vicmar Corporation by Vicente Angliongto unto Nasser, the SEC correctly
recalled the order of March 5, 1986 directing the implementation of the aforesaid writ, pending
hearing on the motion dated March 17, 1986.

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To allow execution of the writ of preliminary injunction in favor of the petitioners despite having
transferred their rights of ownership, control and management over said corporation to respondent
Nasser would be baseless, the contract having shown prima facie that the latter is entitled to remain
as Vice-President and General Manager of petitioner Corporation.

Thus, no grave abuse of discretion can be attributed to the SEC in recalling the order to enforce a
writ of preliminary injunction in this wise. After all, the issuance or recall of preliminary writ of
injunction is an interlocutory matter that remains at all times within the control of the court (Alvaro
v. Zapata, 118 SCRA 728 [1982]). The grant or denial of an injunction rests upon the sound discretion
of the lower tribunal, in the exercise of which the Supreme Court will not interfere except in a clear
case of abuse.

Pineda vs. Lantin

GR No. L-15350, November 30, 1962

FACTS: In a letter dated July 9, 1958, addressed to the Securities and Exchange Commission,
Teresa Cuaycong La and Apeles H. Lopez, thru counsel, complained of maintain actions of
the respondent corporation, the Bacolod-Murcia Milling Co., Inc. and its President and
General Manager, J. Amado Araneta. They claimed that the named respondents had
committed various acts in violation of the Articles of Incorporation of the respondent
corporation petition, the pertinent provisions of the corporation law, the rules and
regulations promulgated by the Security and Exchange Commission. They represented that
conduct of the said J. Amado Araneta was one series acts prejudicial to the interests of the
minority stockholders. The complainants were two such stockholders.

Acting on the letter-complaint, petitioner Mariano Pineda, in his official capacity as Securities
and Exchange Commissioner, ordered the investigation of the character and, for that
purpose, designated the other petition Arcadio E. Yabyabin and Maximino Pizarro, as
investigators. These last two petitioners were the Chief Counsel and Chief Examiner,
respectively, of the Commission.

Herein respondent corporation and J. Amado Araneta, thru court filed a "Petition to
Reconsider Order and to Set Aside Subpoena Duces Tecum." They contended that with
approval of Republic Act No. 1143 on June 17, 1954, "the power given by law to the Securities
and Exchange Commission to conduct investigations has been qualified and made subject to
the condition that such investigations must be conducted in accordance with the rules
adopted by the Commission." (Sec. 1 [d], Republic Act No. 1143.) And, since the Securities
and Exchange Commission had not till then adopted such rules, it could not proceed with
the investigation.

Petitioner Mariano G. Pineda denied the above petition filed by the respondent. Hence, the
respondent corporation and J. Amado Araneta filed a special civil action for prohibition

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against the herein petitioners Yabyabin and Pizarro, and, for the first time, joined Lacson and
Lopez as respondents.

ISSUE: Is the filing of the Civil action against petitioners proper?

RULING: No. The role of the Securities and Exchange Commission in our national economy cannot be
minimized. The legislature has entrusted to it the serious responsibility of enforcing all laws affecting
corporations and other forms of associations not otherwise vested in some other government
offices. Being charged, therefore, with overseeing the operations of those various corporate
enterprises from which our government derives great revenues and income, it cannot afford to be
impeded or restrained in the performance of its functions by writs of injunction emanating from
tribunals subordinate to this Court. If every Court of First Instance can enjoin the Commission from
pursuing its objectives, and, in the premises, substitute its judgment for that of the Commission on
what should or should not be done, then, no one will suffer thereby but the economy of our body
politic and, eventually, this country's citizenry. Certainly, the legislature could never have intended
that.
Securities and Exchange Commission vs Court of Appeals
G.R. Nos. 106425 & 106431-32 July 21, 1995

FACTS: Cualoping Securities Corporation (CUALOPING for brevity) is a stockbroker, Fidelity

Stock Transfer, Inc. (FIDELITY for brevity), on the other hand, is the stock transfer agent of
Philex Mining Corporation (PHILEX for brevity).

The case came about when certificates of stock owned by PHILEX representing 1,400,000
shares of stock dividends were stolen from the premises of FIDELITY. Said stolen stock
certificates later ened in the hands of Agustin Lopez who then forged the signatures and
was indorsed in blank of the owners.

FIDELITY, thereafter, found that two of its employees were involved and signed the
certificates. Thereafter, FIDELITY sought an opinion on the matter from the SEC which
ultimately found both CUALOPING and FIDELITY negligent. Thus, it (a) ordered the
replacement of the certificates of stock of Philex and (b) imposed fines on both FIDELITY
and CUALOPING. The CA reversed SEC’s decision.

ISSUE: Whether the SEC properly exercised its powers in this case.

RULING: The Securities and Exchange Commission ("SEC") has both regulatory and
adjudicative functions.

Under its regulatory responsibilities, the SEC may pass upon applications for, or may
suspend or revoke (after due notice and hearing), certificates of registration of
corporations, partnerships and associations (excluding cooperatives, homeowners'
associations, and labor unions); compel legal and regulatory compliances; conduct
inspections; and impose fines or other penalties for violations of the Revised Securities Act,
as well as implementing rules and directives of the SEC, such as may be warranted.

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Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear
and decide controversies and cases involving —

a. Intra-corporate and partnership relations between or among the

corporation, officers and stockholders and partners, including their elections
or appointments;

b. State and corporate affairs in relation to the legal existence of

corporations, partnerships and associations or to their franchises; and

c. Investors and corporate affairs, particularly in respect of devices and

schemes, such as fraudulent practices, employed by directors, officers,
business associates, and/or other stockholders, partners, or members of
registered firms; as well as

d. Petitions for suspension of payments filed by corporations, partnerships or

associations possessing sufficient property to cover all their debts but which
foresee the impossibility of meeting them when they respectively fall due, or
possessing insufficient assets to cover their liabilities and said entities are
upon petition or motu proprio, placed under the management of a
Rehabilitation Receiver or Management Committee.

The first aspect of the SEC decision appealed to the Court of Appeals, i.e., that portion which
orders the two stock transfer agencies to "jointly replace the subject shares and for
FIDELITY to cause the transfer thereof in the names of the buyers" clearly calls for an
exercise of SEC's adjudicative jurisdiction. This case, it might be recalled, has started only on
the basis of a request by FIDELITY for an opinion from the SEC. The stockholders who have
been deprived of their certificates of stock or the persons to whom the forged certificates
have ultimately been transferred by the supposed indorsee thereof are yet to initiate, if
minded, an appropriate adversarial action. Neither have they been made parties to the
proceedings now at bench. A justiciable controversy such as can occasion an exercise of
SEC's exclusive jurisdiction would require an assertion of a right by a proper party against
another who, in turn, contests it.5 It is one instituted by and against parties having interest in
the subject matter appropriate for judicial determination predicated on a given state of
facts. That controversy must be raised by the party entitled to maintain the action. He is the
person to whom the right to seek judicial redress or relief belongs which can be enforced
against the party correspondingly charged with having been responsible for, or to have
given rise to, the cause of action. A person or entity tasked with the power to adjudicate
stands neutral and impartial and acts on the basis of the admissible representations of the
contending parties.

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In the case at bench, the proper parties that can bring the controversy and can cause an
exercise by the SEC of its original and exclusive jurisdiction would be all or any of those who
are adversely affected by the transfer of the pilfered certificates of stock. Any peremptory
judgment by the SEC, without such proceedings having first been initiated, would be
precipitate. We thus see nothing erroneous in the decision of the Court of
Appeals, albeit not for the reason given by it, to set aside the SEC's adjudication "without
prejudice" to the right of persons injured to file the necessary proceedings for appropriate
relief

The other issue, i.e., the question on the legal propriety of the imposition by the SEC of a
P50,000 fine on each of FIDELITY and CUALOPING, is an entirely different matter. This time,
it is the regulatory power of the SEC which is involved. When, on appeal to the Court of
Appeals, the latter set aside the fines imposed by the SEC, the latter, in its instant petition,
can no longer be deemed just a nominal party but a real party in interest sufficient to pursue
an appeal to this Court.

PSE vs. CA
GR No. 125469 October 27, 1997

FACTS: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its loans with
several banking institutions. In January 1995, PALI was issued a permit to sell its shares to the public
by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among
investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange Inc.
(PSEi), for which purpose it filed with the said stock exchange an application to list its shares, with
supporting documents attached pending the approval of the PALI’s listing application, a letter was
received by PSE from the heirs of Ferdinand Marcos to which the latter claims to be the legal and
beneficial owner of some of the properties forming part of PALI’s assets. As a result, PSE denied
PALI’s application which caused the latter to file a complaint before the SEC. The SEC issued an order
to PSE to grant listing application of PALI on the ground that PALI have certificate of title over its
assets and properties and that PALI have complied with all the requirements to enlist with PSE.

ISSUE: Is the denial of PALI’s application proper?

RULING: The Supreme Court ruled in the affirmative. This is in accord with the “Business Judgement
Rule” whereby the SEC and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule precludes the reversal of the
decision of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to
accept of reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules
and requirements, PSE retains the discretion to accept or reject the issuer’s listing application if the
PSE determines that the listing shall not serve the interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions as the primary channel through which the
vessels of capital trade ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such that government

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intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys monopoly of securities transactions, and as such it
yields a monopoly of securities transactions, and as such, it yields an immerse influence upon the
country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the supervision and control
over corporations, partnerships and associations with the end in view that investment in these
entities may be encouraged and protected and their activities for the promotion of economic
development.

A corporation is but an association of individuals, allowed to transact under an assumed corporate

name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate to such a body as to its corporate and
management decisions, therefore, the state will generally not interfere with the same. Questions of
policy and management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgements for the judgement of the board
of directors. The board is the business manager of the corporation and so long as it acts in good
faith, its orders are not reviewable by the courts.

In matters of application for listing in the market the SEC may exercise such power only if the PSE’s
judgement is attended by bad faith. The petitioner was in the right when it refused application of
PALI, for a contrary ruling was not to the best interest of the general public.

CEMCO HOLDINGS, INC. v. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.,
G.R. No. 171815, August 7, 2007
FACTS: Union Cement Corporation (UCC) has two principal stockholders UCHC with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs stocks were owned by
BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. BCI
informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to
sell to Cemco the BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC equivalent to
29.69%. as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners total
beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53%
of the shares of UCC.
As a consequence the PSE, inquired to SEC as to whether the Tender Offer Rule under Rule 19 of the
Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner
of the majority of shares of UCC.The SECs Corporate Finance Department responded to the query of
the PSE that while it was the stance of the department that the tender offer rule was not applicable,
the matter must still have to be confirmed by the SEC en banc. Thereafter, SEC confirmed that the
SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule.
Feeling aggrieved by the transaction, respondent National Life Insurance Company of the
Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to

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comply with the rule on mandatory tender offer. Cemco, however, refused. Respondent filed a
complaint with the SEC asking it to reverse its Resolution and to declare the purchase agreement of
Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares.
In a Decision the SEC ruled in favor of the respondent by reversing and setting aside its Resolution
and directed petitioner Cemco to make a tender offer for UCC shares to respondent and other
holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of
the Securities Regulation Code.
Petitioner filed a petition with the Court of Appeals challenging the SECs jurisdiction to take
cognizance of respondents complaint and its authority to require Cemco to make a tender offer for
UCC shares, and arguing that the tender offer rule does not apply. The Court of Appeals rendered a
decision affirming the ruling of the SEC.
ISSUE: Whether or not, the SEC has jurisdiction over respondent’s complaint.
RULING: Yes, The Court affirmed the decision of the CA. SEC was acting pursuant to Rule 19(13) of
the Amended Implementing Rules and Regulations of the Securities Regulation Code. Another
provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules
and Regulations of the Securities Regulation Code, is Section 5.1(n), viz:
The Commission shall have, among others, the following powers and functions: x x x (n) Exercise
such other powers as may be provided by law as well as those which may be implied from, or which
are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.
The foregoing provision bestows upon the SEC the general adjudicative power which is implied from
the express powers of the Commission or which is incidental to, or reasonably necessary to carry out,
the performance of the administrative duties entrusted to it. As a regulatory agency, it has the
incidental power to conduct hearings and render decisions fixing the rights and obligations of the
parties.
And as held by the Court of Appeals:
We must bear in mind in interpreting the powers and functions of the SEC that the law has made the
SEC primarily a regulatory body with the incidental power to conduct administrative hearings and
make decisions. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory
powers, and if the case involves violations or conflicts in connection with the performance of its
regulatory functions, it will have the duty and authority to resolve the dispute for the best interests
of the public.

SECURITIES AND EXCHANGE COMMISSION vs. GMA NETWORK, INC.,

G.R. No. 164026 December 23, 2008

FACTS: The petitioner, GMA NETWORK, INC., a domestic corporation, filed an application for
collective approval of various amendments to its Articles of Incorporation and By-Laws with the
respondent SEC. The amendments applied for include, among others, the change in the corporate
name of petitioner from "Republic Broadcasting System, Inc." to "GMA Network, Inc." as well as the
extension of the corporate term for another fifty (50) years from and after June 16, 2000.

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Upon such filing, the petitioner had been assessed by the SEC’s Corporate and Legal Department a
separate filing fee for the application for extension of corporate term equivalent to 1/10 of 1% of its
authorized capital stock plus 20% thereof or an amount of P1,212,200.00.

GMA informed the SEC of its intention to contest the legality and propriety of the said assessment.
However, the petitioner requested the SEC to approve the other amendments being requested by
the petitioner without being deemed to have withdrawn its application for extension of corporate
term. In 1995, GMA formally protested the assessment amounting to P1,212,200.00 for its application
for extension of corporate term.

In 1996, the SEC approved the other amendments to the petitioner’s Articles of Incorporation,
specifically Article 1 thereof referring to the corporate name of the petitioner as well as Article 2
thereof referring to the principal purpose for which the petitioner was formed. GMA requested for
an official opinion/ruling from the SEC on the validity and propriety of the assessment for application
for extension of its corporate term. Consequently, the respondent SEC, through Associate
Commissioner Fe Eloisa C. Gloria, issued its ruling upholding the validity of the questioned
assessment.

In its petition for review with the Court of Appeals, GMA argued that its application for the extension
of its corporate term is akin to an amendment and not to a filing of new articles of incorporation. It
further averred that SEC Memorandum Circular No. 2, Series of 1994, which the SEC used as basis for
assessing P1,212,200.00 as filing fee for the extension of GMA’s corporate term, is not valid.

The appellate court agreed with the SEC’s submission that an extension of the corporate term is a
grant of a fresh license for a corporation to act as a juridical being endowed with the powers
expressly bestowed by the State. As such, it is not an ordinary amendment but is analogous to the
filing of new articles of incorporation. However, the Court of Appeals ruled that Memorandum
Circular No. 2, Series of 1994 is legally invalid and ineffective for not having been published in
accordance with law. The challenged memorandum circular, according to the appellate court, is not
merely an internal or interpretative rule, but affects the public in general. Hence, its publication is
required for its effectivity.

ISSUE: Does the SEC have the authority to assess GMA for the amendment to its AOI regarding the
extension of Corporate term?

RULING: NO. SEC Memo No.2 (1994) is not valid because it was not published. However, the
authority of the SEC to collect fees is emphasized. Since SEC Memo No.2, which imposes a filing fee
of 1/10 of 1% of the OCS plus 20% thereof, is invalid, the SEC cannot collect that amount from GMA.
However, SEC may collect from GMA the amount of 1/10 of 1% of the OCS under the authority of SEC
Memo No. 1which was the one supposed to be superseded by SEC Memo No. 2 had the latter been
valid.

It should be mentioned at the outset that the authority of the SEC to collect and receive fees as
authorized by law is not in question.

Republic Act No. 3531 (R.A. No. 3531) provides that where the amendment consists in extending the
term of corporate existence, the SEC "shall be entitled to collect and receive for the filing of the

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amended articles of incorporation the same fees collectible under existing law as the filing of articles of
incorporation." As is clearly the import of this law, the SEC shall be entitled to collect and receive the
same fees it assesses and collects both for the filing of articles of incorporation and the filing of an
amended articles of incorporation for purposes of extending the term of corporate existence.

What the Law says…

SEC Memorandum Circular No. 1, Series of 1986: for the filing of amended articles of incorporation
where the amendment consists of extending the term of corporate existence.
 filing fee of 1/10 of 1% of the authorized capital stock but not less than P300.00 nor more
than P100,000.00 for stock corporations, and
 1/10 of 1% of the authorized capital stock but not less than P200.00 nor more
than P100,000.00 for stock corporations without par value,

Several years after, the SEC issued Memorandum Circular No. 2, Series of 1994, imposing new fees
and charges and deleting the maximum filing fee set forth in SEC Circular No. 1, Series of 1986, such
that
 the fee for the filing of articles of incorporation became 1/10 of 1% of the authorized capital stock
plus 20% thereof but not less than P500.00.

The clear directive of R.A. No. 3531 was to impose the same fees for the filing of articles of
incorporation and the filing of amended articles of incorporation to reflect an extension of corporate
term. R.A. No. 3531 provides an unmistakable standard which should guide the SEC in fixing and
imposing its rates and fees. If such mandate were the only consideration, the Court would have been
inclined to rule that the SEC was correct in imposing the filing fees as outlined in the questioned
memorandum circular, GMA’s argument notwithstanding.

However, we agree with the Court of Appeals that the questioned memorandum circular is invalid as
it does not appear from the records that it has been published in the Official Gazette or in a
newspaper of general circulation.

Original and Exclusive Jurisidiction of the Regional Trial Court

Orendain vs. BF Homes, Inc.

G.R. No. 146313 October 31, 2006

FACTS: BF Homes, Inc. availed financial assistance from various sources to buy properties and
convert them into residential subdivisions. Despite its solvent status, it filed a Petition for
Rehabilitation and for Declaration in a State of Suspension of Payments. SEC ordered the
appointment of a rehabilitation receiver, FBO Management Networks, Inc., with Orendain as
Chairman to prevent paralyzation of BF Homes‘ business operations. Deed of Absolute Sale was
executed by and between BF Homes— represented by Orendain—as absolute and registered owner,
and the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI) over a parcel
of land. BF Homes filed a Complaint with the RTC against LSFSIPI and Orendain for reconveyance of
the property alleging that the LSFSIPI transacted with Orendain in his individual capacity and
therefore, neither FBO Management, Inc. nor Orendain had title to the property transferred.

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Moreover, it averred that the selling price was grossly inadequate or insufficient amounting to fraud
and conspiracy with the LSFSIPI.

ISSUE: Whether or not a simple reconveyance suit is within the jurisdiction of the RTC.

RULING: YES. It is the RTC which has jurisdiction. Clearly, the controversy involves matters purely
civil in character and is beyond the ambit of the limited jurisdiction of the SEC. The better policy in
determining which body has jurisdiction over a case would be to consider not only [1] the status or
relationship of the parties but also [2] the nature of the question that is the subject of their
controversy.‖ More so, the first element requires that the controversy must arise out of
intracorporate or partnership relations between any or all of the parties and the corporation,
partnership or association of which they are 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
insofar 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. If the nature of
the controversy involves matters that are purely civil in character, necessarily, the case does not
involve an intra-corporate controversy. The determination of whether a contract is simulated or not
is an issue that could be resolved by applying pertinent provisions of the Civil Code. Section 5 of PD
No. 902-A does not apply in the instant case. The LSFSIPI is neither an officer nor a stockholder of
BF Homes, and this case does not involve intra-corporate proceedings. In addition, the seller
Orendain, is being sued in his individual capacity for the unauthorized sale of the property in
controversy. In addition, jurisdiction over the case for reconveyance is clearly vested in the RTC as
provided in paragraph (2), Section 19, B.P. Blg. 129.

ALFREDO P. PASCUAL and LORETA S. PASCUA vs.

COURT OF APPEALS (former Seventh Division), ERNESTO P. PASCUAL and HON.
ADORACION ANGELES, in her capacity as Presiding Judge, RTC, Kaloocan City, Branch 121
G.R. No. 138542 August 25, 2000

FACTS: Ernesto P. Pascual filed a complaint in the Regional Trial Court for "accounting,
reconveyance of real property based on implied trust resulting from fraud, declaration of
nullity of TCT, recovery of sums of money, and damages" against his brother, petitioner
Alfredo, and the latter’s wife Loreta Pascual. Petitioners filed a motion to dismiss on the
ground that the complaint raises an intra-corporate controversy between the parties over
which original and exclusive jurisdiction is vested in the Securities and Exchange Commission
(SEC).

ISSUE: Whether or not complaint against the Petitioners involves an intra-corporate dispute
cognizable by the SEC and, therefore, the Regional Trial Court should have dismissed the
complaint.

RULING: NO. The regular courts, not the SEC, have jurisdiction over this
case.1âwphi1 Petitioners and private respondent never had any corporate relations in
Phillens. It appears that private respondent was never a stockholder in Phillens, of which the
parties’ predecessor-in-interest, Luciano Pascual, Sr., was a stockholder and whose

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properties are being litigated. Private respondent’s allegation is that, upon the death of their
father, he became co-owner in the estate left by him, and part of this estate includes the
corporate interests in Phillens. He also alleges that petitioners repudiated the trust
relationship created between them and appropriated to themselves even the property that
should have belonged to respondent. It is thus clear that there is no corporate relationship
involved here. That petitioner Alfredo Pascual was a corporate officer holding in trust for his
brother their father’s corporate interests did not create an intra-corporate relationship
between them.

Nor is the controversy corporate in nature. As we have stated before, the grant of
jurisdiction must be viewed in the light of the nature and function of the SEC under the law.
In the case at bar, the corporation whose properties are being contested no longer exists, it
having been completely dissolved in 1993; consequently, the supervisory authority of the
SEC over the corporation has likewise come to an end.

HERNANI N. FABIA vs. COURT OF APPEALS

G.R. No. 132684 20 August 2000

FACTS: Fabia was the President of private respondent MTCP, a domestic corporation engaged in
providing maritime courses and seminars to prospective overseas contract workers and seamen. He
was likewise a Director and stockholder thereof. MTCP filed an affidavit-complaint for estafa against
Hernani N. Fabia alleging that on various occasions Fabia drew cash advances from MTCP, covered
by cash vouchers which he failed to liquidate despite repeated demands. Fabia’s defense is that such
were in the nature of simple loans that had already been liquidated and paid. The Office of the City
Prosecutor of Manila dismissed the complaint for lack of jurisdiction for the reason that the
controversy pertained to the relationship between a corporation and a former officer it was the
Securities and Exchange Commission (SEC) which had original and exclusive jurisdiction over the
case.

ISSUE: Does SEC have jurisdiction over the case?

RULING: Yes. The jurisdiction of the SEC to "intra-corporate disputes" defined as any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of
their stockholders, officers, or partners, including any fraudulent devices, schemes or
representations, in violation of any law or rules and regulations administered and enforced by the
Commission. Petitioner was the President as well as a Director and stockholder in private respondent
MTCP, who was charged with the misappropriation or diversion of corporate funds after having
failed to liquidate the amount he had received as cash advances from the company. The charge
against petitioner is for estafa, an offense punishable under The Revised Penal Code (RPC), and
prosecution for the offense is presently before the regular courts. However, jurisdiction is
determined not from the law upon which the cause of action is based, nor the type of proceedings
initiated, but rather, it is gleaned from the allegations stated in the complaint. It is evident from the
complaint that the acts charged are in the nature of an intra-corporate dispute as they involve fraud
committed by virtue of the office assumed by petitioner as President, Director, and stockholder in
MTCP, and committed against the MTCP corporation. This sufficiently removes the action from the
jurisdiction of the regular courts, and transposes it into an intra-corporate controversy within the

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jurisdiction of the SEC. The fact that a complaint for estafa, a felony punishable under the RPC, has
been filed against petitioner does not negate and nullify the intra-corporate nature of the cause of
action, nor does it transform the controversy from intra-corporate to a criminal one. However, in
conformity with RA 8799, The Securities Regulation Code, amending PD 902-A, which has effectively
transferred the jurisdiction of the Securities and Exchange Commission over all cases enumerated
under Sec. 5 of PD 902-A to the courts of general jurisdiction or the appropriate Regional Trial Courts.

Devices or Schemes amounting to fraud or missrepresentation

A & A CONTINENTAL COMMODITIES PHILIPPINES, INC. vs. SEC and ROLANDO G. AGUILA
G.R. No. L-55343, August 16, 1993

FACTS: Petitioner is a domestic corporation engaged in the commodities brokerage business. On

August 3, 1979, petitioner and private respondent entered into a contract for the purchase or sale of
commodities. On January 21, 1980, private respondent bought, through petitioner, 7 contracts of
copper. The margin requirement: for the 7 contracts was P18,750 per contract or a total amount of
P131,250.00, which amount was earmarked from private respondent's cash deposit with petitioner of
P306,326.46. On January 23, 1980, petitioner, allegedly "without valid and justifiable cause,
maliciously, arbitrarily, wantonly, fraudulently, and recklessly" ordered private respondent to
increase his margin requirements per contract and gave private respondent up to 5 P.M. of the same
day w/in which to deposit with petitioner the additional amount of.

Private respondent requested additional time within which to raise the amount, but petitioner
informed him that it would immediately sell his 7 copper contracts should he fail to deposit the
additional amount by 5 P.M. that same day. Private respondent then requested that should
petitioner proceed with the sale, the same be not effected immediately upon the opening of trading
if prices were low but at a later time. However, petitioner did not accede to the request and sold 5
contracts immediately upon the opening of trading on January 24, 1980 and the other two at a later
time.

ISSUE: Whether or not the Securities and Exchange Commission has jurisdiction over the case.

RULING: Yes. Poring over the complaint filed by private respondent, the court find that the
complaint is praying for two reliefs based on the same set of facts. One is for the revocation of the
certificate of registration of petitioner; the other is for a sum of money.
On the action to revoke the certificate of registration of petitioner, there is no doubt that the SEC
has jurisdiction over the same. Section 6(L) of Presidential Decree No. 902-A clearly provides that the
SEC shall possess the power to suspend or revoke, after proper notice and hearing, the franchise or
certificate registration of corporations, partnerships or associations.

On the other aspect of the SEC's jurisdiction over the action for a sum of money, we likewise rule
that the Commission has the legal competence to decide said issue. It is axiomatic that jurisdiction
over the subject matter of a case is conferred by law and is determined by the allegations of the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.

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Considering that Petitioners' Complaints sufficiently allege acts amounting to fraud and
misrepresentation committed by Respondent Corporation, the SEC must be held to retain its original
and exclusive jurisdiction over these five (5) cases notwithstanding the revocation by the Central
Bank of Respondent Corporation's license or permit to operate as a financing company and despite
the fact that the suits involve collections of sums of money paid to said corporation, the recovery of
which would ordinarily fall within the jurisdiction of regular Courts. The fraud committed is
detrimental to the interest of the public and, therefore, encompasses a category of relationship
within the SEC jurisdiction.

Alleje vs. Court of Appeals

240 SCRA 495, January 25, 1995

FACTS: Petitioner Manuel M. Alegre was the Executive Vice President of SPORTS HEALTH AND
PHYSICAL EDUCATION (SHAPE) CENTER, INC. until his termination. SHAPE filed a complaint with the
trial court against petitioner alleging that Alegre directed that the entries in the books of account be
reversed to reflect that SHAPE-QUEZON City is not a property/subsidiary or branch of plaintiff but a
property of defendant created through advances from the plaintiff; and defendant registered in his
own name the service name of plaintiff "SHAPE Centre," appropriating the same as his personal
property; withdrew funds from plaintiff purportedly as "advances for liquidation"; took as "personal
advances" the amount of P760,505.12 as reflected in plaintiff's books of accounts; solicited "pledges"
or personal loans from plaintiff's clients and used the amount to set up a fitness center which health
center was registered as a single proprietorship business; encashed a check representing the
payment of deposit and advance rentals by plaintiff's concessionaire for its health bar and failed to
remit the proceeds; he removed three "nautilus" machines owned by plaintiff from the latter's gym
and is using said equipment on his business.

Instead of filing an answer, Alleje filed a motion to dismiss contending that the Regional Trial Court
has no jurisdiction over the present action which partakes of an intracorporate controversy solely
cognizable by the SEC.

ISSUE: Whether there is fraud in this case, thus falling under the jurisdiction of the Securities and
Exchange Commission

RULING: The applicable law is PD 902-A. Sec. 5 of the law states:

In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered with it as expressly
granted under the existing laws and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving: (a) Devises or schemes employed by or any acts of the Board of
Directors, business associates, its officers and partners, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public and/or to the stockholders, partners,
members of associations or organizations registered with the Commission.

The averments in the original complaint as well as the supplemental complaint of SHAPE sufficiently
show the alleged acts committed by Alleje, an officer, against SHAPE which amount to fraud and
misrepresentation and thus detrimental to the interest of the public. "Fraud" is defined as a generic
term embracing all multifarious means which human ingenuity can devise, and which are resorted to
by one individual to secure an advantage over another by false suggestions or by suppression of

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truth and includes all surprise, trick, cunning, dissembling and any unfair way by which another is
cheated.

Clearly, the complaint alleges that as an officer of SHAPE Alleje employed devises or schemes
tantamount to fraud and misrepresentation in order to divert corporate funds and assets for his
personal use. This has transposed an otherwise ordinary action for recovery of certain properties and
sum of money with damages into an intracorporate controversy which calls for the adjudicative
powers of the SEC pursuant to Sec. 5, par. (a), of PD 902-A. In other words, the complaint filed
SHAPE before the Pasig trial court imputes unmistakable acts of fraud to Alleje as an officer of
SHAPE which have supposedly resulted in its heavy financial losses. The fraud committed is
detrimental to the interest not only of the corporation itself but also of its members who have
unselfishly agreed among themselves that no part of the net income of the corporation shall inure to
any of them.

RAMON GIL ABAD and CONSUELO R. ABAD vs. COURT OF FIRST INSTANCE OF PANGASINAN,
BRANCH VIII, Presided over by HONORABLE JUDGE MODESTO S. BASCOS, and DIMENSIONAL
CONSTRUCTION, TRADE AND DEVELOPMENT CORPORATION
G.R. Nos. L-58507-08 February 26, 1992

FACTS: Respondent corporation, hereinafter referred to as DIMCONTRAD, is a domestic corporation

duly organized and existing under and by virtue of the laws of the Philippines with principal office in
Baguio City. In response to a call for investors, petitioner Ramon Gil Abad invested various sums with
DIMCONTRAD on different dates. Upon receipt of the amount for each investment, DIMCONTRAD
delivered to Ramon an official receipt, an instruction slip and a promissory note. Upon the other
hand, Consuelo R. Abad, wife of Ramon, also invested money in DIMCONTRAD. The said
investments, totalling P17,000.00, were subject to the same terms and conditions as those of her
husband's. Upon receipt of every investment, DIMCONTRAD delivered to Consuelo an official
receipt, instruction slip and a promissory note.

As for the investment of Ramon, DIMCONTRAD was only able to pay Ramon his share in the profits
for the months of January, February, March and April 1980. For the 15 January 1980 investment, it
likewise failed to pay the shares in profit for the months of May, June and July 1980. It completely
failed to pay Ramon's shares in the profits for his March and May 1980 investments. Upon maturity
of his P21,000.00 investment, Ramon tried to collect the said amount together with the
corresponding unpaid monthly shares in profit but DIMCONTRAD prevailed upon him to extend the
date of maturity to 5 July 1980. He agreed thereto. When again he attempted to collect the matured
investment together with the unpaid monthly shares in the profit as agreed upon on 5 July 1980,
DIMCONTRAD refused. On 15 July 1980, upon maturity of the 15 January investment, Ramon tried to
collect the same together with the unpaid guaranteed monthly shares, but respondent corporation
again failed and refused to repay the investment. The latter also refused to return the sums invested
in March and May. Subsequently, due to loss of confidence and in the exercise of his contractual
rights, Ramon tried to collect all his investments in the total sum of' P24,000.00 together with all the
unpaid monthly shares in the profits amounting to P2,850.00, but DIMCONTRAD refused to pay the
same.

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As for Consuelo's monthly shares in the profits, DIMCONTRAD was able to pay her only for the
months of March, April and May for her 8 February 1980 investment; for the months of April and May
1980 for her 8 March 1980 investment; and for the month of May 1980 insofar as her 8 April 1980
investment is concerned. DIMCONTRAD failed to pay any share in profits on her 8 May 1980
investment. She then demanded the return of all her matured investments amounting to P17,200.00.
Notwithstanding repeated demands, DIMCONTRAD failed and refused to return the same together
with the guaranteed shares in the profits amounting to P2,975.00. Thus, on 4 September 1980,
Ramon filed a complaint for "Sum of Money and Damages" against DIMCONTRAD.

ISSUE: Whether or not the acts committed constitutes fraud

RULING: Section 5, Rule 8 of the Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity. In the case at bar,
while there are allegations of fraud in the above quoted complaints, the same are not particular
enough to bring the controversy within the SEC's jurisdiction. The said allegations are not statement
of ultimate facts but are mere conclusions of law. A pleading should state the ultimate facts essential
to the rights of action or defense asserted, as distinguished from mere conclusions of fact, or
conclusions of law. General allegations that a contract is valid or legal, or is just, fair and reasonable,
are mere conclusions of law. Likewise, allegations that a contract is void, voidable, invalid,
illegal, ultra vires, or against public policy, without stating facts showing its invalidity, are mere
conclusions of law.

Clearly, therefore, the allegations in the complaint do not bring the cases within the jurisdiction of
the SEC. Shorn of unnecessary details, it is evident that the actions are simple money claims. It is in
aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly
specified and delimited its jurisdiction to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with the internal affairs of such
corporations, partnerships or associations. Otherwise stated, in order that the SEC can take
cognizance of a case, the controversy must pertain to any of the following relationships: [a] between
the corporation, partnership or association, and the public; [b] between the corporation, partnership
or association and its stockholders, partners, members, or officers; [c] between the corporation,
partnership or association and the state in so far as its franchise, permit or license to operate is
concerned; and [d] among the stockholders, partners or associates themselves.

RAUL SESBREÑO vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND
PILIPINAS BANK
G.R. No. 89252, May 24, 1993

FACTS: Hermilo Rodis, Sr. et.al. was charged with estafa before the Regional Trial Court of
Cebu. Respondents moved to quash the information on the ground that the Securities and
Exchange Commission (SEC), not the regular courts, had jurisdiction over the offense
charged and that the facts stated herein did not constitute an offense The trial court denied
the motion and private respondent elevated the case to the then Intermediate Appellate
Court . On August 16, 1983, the appellate court dismissed the petition. Hence, trial ensued in
the criminal case. However, after the prosecution had rested its case, private respondent
filed a motion to dismiss on demurrer to evidence based on the core proposition that there
was no criminal offense of estafa from the non-payment of a money market placement.
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ISSUE: Should the private respondent be held liable for estafa?

RULING: YES. In money market placement, the investor is a lender who loans his money to a
borrower through a middleman or dealer. Petitioner here loaned his money to a borrower
through Philfinance. When the latter failed to deliver back petitioner's placement with the
corresponding interest earned at the maturity date, the liability incurred by Philfinance was a
civil one. As such, petitioner could have instituted against Philfinance before the ordinary
courts a simple action for recovery of the amount he had invested and he could have prayed
therein for damages. It appears, however, that petitioner did not even implead Philfinance in
the complaint for damages arising from the no return of investment with respect to the
same money market placement involved herein, which he eventually filed against Delta
Motors Corporation and Pilipinas Bank before the Regional Trial Court of Cebu City .What is
involved here in a money market transaction. As defined by Lawrence Smith, 'the money
market is a market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in the open market. It involves 'commercial papers' which are
instruments 'evidencing indebtedness of any person or entity . . . which are issued,
endorsed, sold or transferred or in any manner conveyed to another person or entity, with
or without recourse.' The fundamental function of the money market device in its operation
is to match and bring together in a most impersonal manner both the 'fund users and the
'fund suppliers.' The money market is an 'impersonal market', free from personal
considerations. The market mechanism is intended 'to provide quick mobility of money and
securities. The Court of Appeals, therefore, correctly ruled that a money market transaction
partakes of the nature of a loan and therefore nonpayment thereof would not give rise to
criminal liability for estafa through misappropriation or conversion.

Controversies arising out of Intra-Corporate or partnership relations

Aguirre vs. FQb7

G.R No. 170770 January 9, 2013

FACTS: On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7,
Inc. (FQB+7), a Complaint for intra-corporate dispute, injunction, inspection of corporate
books and records, and damages, against respondents Nathaniel D. Bocobo (Nathaniel),
Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio). The Complaint alleged that
FQB+7 was established in 1985 with the following directors and subscribers, as reflected in
its Articles of Incorporation:

Further, the GIS reported that FQB+7’s stockholders held their annual meeting on
September 3, 2002. The substantive changes found in the GIS, respecting the composition of
directors and subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of
Directors (the directors reflected in the Articles of Incorporation), represented by Fidel N.
Aguirre (Fidel). In this letter dated April 29, 2004, Vitaliano questioned the validity and

319 | P a g e
truthfulness of the alleged stockholders meeting held on September 3, 2002. He asked the
"real" Board to rectify what he perceived as erroneous entries in the GIS, and to allow him to
inspect the corporate books and records. The "real" Board allegedly ignored Vitaliano’s
request.

On September 27, 2004, Nathaniel, in the exercise of his power as FQB+7’s president,
appointed Antonio as the corporation’s attorney-in-fact, with power of administration over
the corporation’s farm in Quezon Province. Pursuant thereto, Antonio attempted to take
over the farm, but was allegedly prevented by Fidel and his men.

Characterizing Nathaniel’s, Priscila’s, and Antonio’s continuous representation of the

corporation as a usurpation of the management powers and prerogatives of the "real"
Board of Directors, the Complaint asked for an injunction against them and for the
nullification of all their previous actions as purported directors, including the GIS they had
filed with the SEC. The Complaint also sought damages for the plaintiffs and a declaration of
Vitaliano’s right to inspect the corporate records.

The respondents sought, in their certiorari petition, the annulment of all the procedings and
issuances in SEC Case No. 04-111077 on the ground that Branch 24 of the Manila RTC has no
jurisdiction over the subject matter, which they defined as being an agrarian dispute. They
theorized that Vitaliano’s real goal in filing the Complaint was to maintain custody of the
corporate farm in Quezon Province. Since this land is agricultural in nature, they claimed that
jurisdiction belongs to the Department of Agrarian Reform (DAR), not to the Manila RTC.
They also raised the grounds of improper venue (alleging that the real corporate address is
different from that stated in the Articles of Incorporation) and forum-shopping (there being
a pending case between the parties before the DAR regarding the inclusion of the corporate
property in the agrarian reform program). Respondents also raised their defenses to
Vitaliano’s suit, particularly the alleged disloyalty and fraud committed by the "real" Board of
Directors, and respondents’ "preferential right to possess the corporate property" as the
heirs of the majority stockholder Francisco Q. Bocobo.

ISSUES:1. Is the Complaint a continuation of business?

2. Does the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
corporation?

RULING: 1. Section 122 of the Corporation Code prohibits a dissolved corporation from
continuing its business, but allows it to continue with a limited personality in order to settle
and close its affairs, including its complete liquidation, thus:

Sec. 122. Corporate liquidation. – Every corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be continued as a body
corporate for three (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and

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close its affairs, to dispose of and convey its property and to distribute its assets, but not for
the purpose of continuing the business for which it was established.

Upon learning of the corporation’s dissolution by revocation of its corporate franchise, the
CA held that the intra-corporate Complaint, which aims to continue the corporation’s
business, must now be dismissed under Section 122.

2.. Yes. Intra-corporate disputes remain even when the corporation is dissolved. Jurisdiction
over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction over intra-
corporate controversies on courts of general jurisdiction or RTCs, to be designated by the
Supreme Court. Thus, as long as the nature of the controversy is intra-corporate, the
designated RTCs have the authority to exercise jurisdiction over such cases. So what are
intra-corporate controversies? R.A. No. 8799 refers to Section 5 of Presidential Decree (P.D.)
No. 902-A (or The SEC Reorganization Act) for a description of such controversies:

The dissolution of the corporation simply prohibits it from continuing its business. However,
despite such dissolution, the parties involved in the litigation are still corporate actors. The
dissolution does not automatically convert the parties into total strangers or change their
intra-corporate relationships. Neither does it change or terminate existing causes of action,
which arose because of the corporate ties between the parties. Thus, a cause of action
involving an intra-corporate controversy remains and must be filed as an intra-corporate
dispute despite the subsequent dissolution of the corporation.

Go, Lim, et. al. vs. Distinction Properties

G.R. No. 194024, April 25, 2012

FATS: In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of
DPDCI, executed a Master Deed and Declaration of Restrictions (MDDR) of Phoenix Heights
Condominium, which was filed with the Registry of Deeds. As the developer, DPDCI undertook,
among others, the marketing aspect of the project, the sale of the units and the release of flyers and
brochures. Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized
and incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of
the condominium units, except for the two saleable commercial units/spaces. In August 2008,
petitioners, as condominium unit-owners, filed a complaint before the HLURB against DPDCI for
unsound business practices and violation of the MDDR.

ISSUE: Does the HLURB have jurisdiction?

RULING: No. The HLURB is given wide latitude in characterizing or categorizing acts which may
constitute unsound business practice or breach of contractual obligations in the real estate trade.
This grant of expansive jurisdiction to the HLURB does not mean, however, that all cases involving
subdivision lots or condominium units automatically fall under its jurisdiction. In this case, the
complaint filed by petitioner’s alleged causes of action that apparently are not cognizable by the
HLURB considering the nature of the action and the reliefs sought. A perusal of the complaint
discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of
PHCC - the April 29, 2005 Agreement entered into by PHCC with DPDCI and its Board Resolution

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which authorized the acceptance of the proposed offsetting/settlement of DPDCIs indebtedness and
approval of the conversion of certain units from saleable to common areas. As it is clear that the acts
being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party,
PHCC.


STRATEGIC ALLIANCE DEVELOPMENT CORPORATION vs. STAR INFRASTRUCTURE DEVELOPMENT

CORPORATION ET AL.
G.R. No. 187872 November 17, 2010

FACTS: Respondents Aderito Z. Yujuico and Bonifacio C. Sumbilla, in their respective capacities as
then President and Treasurer of STRADEC, executed a Promissory Note for and in consideration of a
loan in the sum of P10,000,000.00 ostensibly extended in favor of said corporation by respondent
Robert L. Wong, one of the incorporators of SIDC. As security for the payment of the principal as well
as the stipulated interests thereon, a pledge constituted over STRADEC’s entire shareholdings in
SIDC was executed by respondent Yujuico on 1 April 2005. In view of STRADEC’s repeated default on
its obligations, however, the shares thus pledged were sold by way of the 26 April 2005 notarial sale
conducted in Makati City by respondent Raymond M. Caraos. Having tendered the sole bid of
P11,800,000.00, respondent Wong was issued the corresponding certificates of stocks by
respondent Bede S. Tabalingcos, SIDC’s Corporate Secretary for the years 2004 and 2005, after the
transfer was recorded in the corporation’s stock and transfer book.

On 17 July 2006, Cezar T. Quiambao, in his capacity as President and Chairman of the Board of
Directors of STRADEC, commenced the instant suit with the filing of the petition which was docketed
as Civil Case No. 7956 before Branch 2 of the Regional Trial Court of Batangas City, sitting as a Special
Commercial Court (SCC).

ISSUE: Whether or not the CA erred in not characterizing the case as intra-corporate dispute and in
not placing its venue and jurisdiction in the RTC

RULING: An intra-corporate dispute is understood as a suit arising from intra-corporate relations or

between or among stockholders or between any or all of them and the corporation. Applying what
has come to be known as the relationship test, it has been held that the types of actions embraced
by the foregoing definition include the following suits: (a) between the corporation, partnership or
association and the public; (b) between the corporation, partnership or association and its
stockholders, partners, members, or officers; (c) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate is concerned; and, (d)
among the stockholders, partners or associates themselves. As the definition is broad enough to
cover all kinds of controversies between stockholders and corporations, the traditional
interpretation was to the effect that the relationship test brooked no distinction, qualification or any
exemption whatsoever.

Under the nature of the controversy test, the dispute must not only be rooted in the existence of an
intra-corporate relationship, but must also refer to the enforcement of the parties' correlative rights
and obligations under the Corporation Code as well as the internal and intra-corporate regulatory
rules of the corporation. The combined application of the relationship test and the nature of the

322 | P a g e
controversy test has, consequently, become the norm in determining whether a case is an intra-
corporate controversy or is purely civil in character.

In the case at bench, STRADEC’s first and second causes of action seek the nullification of the loan
and pledge over its SIDC shareholding contracted by respondents Yujuico, Sumbilla and Wong as well
the avoidance of the notarial sale of said shares conducted by respondent Caraos.

Applying the relationship test, we find that STRADEC’s first and second causes of action qualify as
intra-corporate disputes since said corporation and respondent Wong are incorporators and/or
stockholders of SIDC. Having acquired STRADEC’s shares thru the impugned notarial sale conducted
by respondent Caraos, respondent Wong appears to have further transferred said shares in favor of
CTCII, a corporation he allegedly formed with members of his own family. By reason of said transfer,
CTCII became a stockholder of SIDC and was, in fact, alleged to have been recognized as such by the
latter and its corporate officers. To our mind, these relationships were erroneously disregarded by
the RTC when it ruled that venue was improperly laid for STRADEC’s first and second causes of action
which, applying Section 2, Rule 4 of the 1997 Rules of Civil Procedure, should have been filed either at
the place where it maintained its principal place of business or where respondents Yujuico, Sumbilla
and Wong resided.

Considering that they fundamentally relate to STRADEC’s status as a stockholder and the alleged
fraudulent divestment of its stockholding in SIDC, the same causes of action also qualify as intra-
corporate disputes under the nature of the controversy test. As part of the fraud which attended the
transfer of its shares, STRADEC distinctly averred, among other matters, that respondents Yujuico
and Sumbilla had no authority to contract a loan with respondent Wong; that the pledge executed
by respondent Yujuico was simulated since it did not receive the proceeds of the loan for which its
shares in SIDC were set up as security; that irregularities attended the notarial sale conducted by
respondent Caraos who sold said shares to respondent Wong; that the latter unlawfully transferred
the same shares in favor of CTCII; and, that SIDC and its officers recognized and validated said
transfers despite being alerted about their defects. Ultimately, the foregoing circumstances were
alleged to have combined to rid STRADEC of its shares in SIDC and its right as a stockholder to
participate in the latter’s corporate affairs.

GD EXPRESS WORLDWIDE N.V. and AMIHAN MANAGEMENT SERVICES, INC. v. HON. COURT
OF APPEALS
G.R. No. 136978 May 8, 2009

FACTS: Petitioner GD Express Worldwide N.V. (GD Express) is a corporation duly organized and
existing under the laws of the Netherlands. On 27 September 1990, its predecessor-in-interest, TNT
Limited (TNT) entered into a joint venture agreement with Philippine Aerospace Development
Corporation (PADC) for the establishment of a domestic corporation as their corporate vehicle to
operate as an international air freight carrier. The joint venture agreements stipulated that PADC
would own 80% of the shares of stock of the corporate vehicle while TNT would own the remaining
20%.

The agreements essentially laid down the relationship between TNT and PADC and the management,
control and existence of the corporation. Also, pursuant to the joint venture agreements, PADC and

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TNT registered with the SEC a corporation to be known as Air Philippines Corporation (APC).
Subsequently, on 11 December 1992, APC amended its articles of incorporation to change its
corporate name to Pacific East Asia Cargo Airlines, Inc. (PEAC). On 02 April 1993, TNT transferred all
its shares in PEAC to petitioner GD Express. PEAC immediately commenced operations. Herein
petitioner Amihan Management Services, Inc. (Amihan), a domestic corporation, was contracted to
undertake the daily operations in PEAC pursuant to the joint venture agreement.

Sometime in 1994, the Office of the President mandated the Committee on Privatization to require
the Asset Privatization Trust (APT) to dispose of PADC’s 80% share in PEAC. Thus, petitioner GD
Express and PADC executed the Terms of Reference that would govern the disposition of PADC’s
equity comprising 12,800 subscribed shares of stock in PEAC.

ISSUE: Is an intra-corporate dispute exclusively cognizable by the SEC.

RULING: NO. The designation of certain RTC branches to handle specific cases is nothing new. For
instance, pursuant to the provisions of the R.A. No. 6657 or the Comprehensive Agrarian Reform
Law, the Supreme Court has assigned certain RTC branches to hear and decide cases under Sections
56 and 57 of R.A. No. 6657. The RTC exercising jurisdiction over an intra-corporate dispute can be
likened to an RTC exercising its probate jurisdiction or sitting as a special agrarian court. The
designation of the SCCs as such has not in any way limited their jurisdiction to hear and decide cases
of all nature, whether civil, criminal or special proceedings.

Incidentally, not all the prayers and reliefs sought by respondent Filchart in SEC Case No. 08-97-5746
can be characterized as intra-corporate in nature. For instance, respondent Filchart’s petition does
not allege that the cause of action for the nullification of the management contract between PEAC
and petitioner Amihan is being instituted as a derivative suit. It is an ordinary action for the
nullification of a contract, which is cognizable by courts of general jurisdiction.

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF), INC. vs. NATANAEL B.
JUANE
G.R. No. 172447, September 18, 2009
NATANAEL B. JUANE vs. IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS
(IEMELIF), INC.
G.R. No. 179404

FACTS: IEMELIF is a religious corporation existing and duly organized under Philippine laws. IEMELIF
is the absolute and registered owner of a parcel of land with Transfer Certificate of Title No. 62080
particularly described as a parcel of land with Lot No. 77-B-2. Likewise it is the absolute and
registered owner of a parcel of land with TCT No. 14366 and situated on the SE line of Calle Sande
Nos. 1462-1466, District of Tondo, Manila. On these lots the Cathedral of the Iglesia Evangelica
Metodista en las Islas Filipinas is located together with other improvements including the Pastor’s
residence and the church’s school.

Juane is a former minister or pastor of IEMELIF. He was elected as one of the members of the
Highest Consistory of Elders (or Board of Trustees) of IEMELIF in the February 2000 IEMELIF General
Conference. During the concluding Anniversary Service of said General Conference, IEMELIF Bishop
Nathanael P. Lazaro, the General Superintendent of the whole IEMELIF Church and the General

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Administrator of the IEMELIF Cathedral in Tondo, Manila, during the reading of the "IEMELIF
Workers’ Assignment", announced the appointment and assignment of Juane as Resident Pastor of
the Cathedral Congregation in Tondo, Manila. By virtue and as a consequence of such appointment,
Defendant Rev. Juane was authorized to stay at and occupy the Resident Pastor’s residence inside
the Cathedral complex. By the same reason, he also took charge of the Cathedral facilities and other
property of the church in said premises. One year thereafter, during the traditional concluding
IEMELIF Anniversary Service of the February 2001 General Conference, Juane was re-assigned and re-
appointed by Bishop Lazaro to the same position.

ISSUE: Whether or not the transformation of IEMELIF from corporation sole to corporation
aggregate would change its head or governing body

RULING: As opposed to a corporation aggregate, a corporation sole consists of a single member,

while a corporation aggregate consists of two or more persons. If the transformation did not
materialize, the corporation sole would still be Bishop Lazaro, who himself performed the
questioned acts of removing Juane as Resident Pastor of the Tondo Congregation. If the
transformation did materialize, the corporation aggregate would be composed of the Highest
Consistory of Elders, which nevertheless approved the very same acts. As either Bishop Lazaro or the
Highest Consistory of Elders had the authority to appoint Juane as Resident Pastor of the IEMELIF
Tondo Congregation, it also had the power to remove him as such or transfer him to another
congregation.

THE INTESTATE ESTATE OF ALEXANDER T. TY vs. COURT OF APPEALS

G.R. No. 114672 19 April 2001

FACTS: Sylvia S. Ty was married to Alexander T. Ty. Son of private respondent Alejandro B. Ty. When
Alexander died, petitioner was appointed administratrix of her late husband’s intestate estate.
Thereafter, petitioner filed a motion for leave to sell or mortgage estate property in order to
generate funds for the payment of deficiency estate taxes. Private respondent Alejandro Ty then
filed two complaints for the the recovery of the pieces of property that were placed in the name of
deceased Alexander by private respondent, the same property being sought to be sold out,
mortgaged, or disposed of by petitioner. recovery of the above-mentioned property, praying for the
declaration for nullity of the deed of absolute sale of the shares of stock executed by private
respondent in favor of the deceased Alexander, and for Private respondent claimed in both cases
that even if said property were placed in the name of deceased Alexander, they were acquired
through private respondent’s money, without any cause or consideration from deceased Alexander.

ISSUE: Whether or not the case is under the jurisdiction of the RTC.

RULING: YES. The proper forum for such a dispute is a regular trial court since in the cases at bar, the
relationship of private respondent when he sold his shares of stock to his son was one of vendor and
vendee, nothing else. The Court agrees with the ruling of the Court of appeals that no special
corporate skill is necessary in resolving the issue of the validity of the transfer of shares from one
stockholder to another of the same corporation. Both actions, although involving different
property, sought to declare the nullity of the transfers of said property to the decedent on the
ground that they were not supported by any cause or consideration, and thus, are considered void
ab initio for being absolutely simulated or fictitious. The determination whether a contract is
simulated or not is an issue that could be resolved by applying pertinent provisions of the Civil Code

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particularly those relative to obligations and contracts. Disputes concerning the application of the
Civil Code are properly cognizable by courts of general jurisdiction.

HERNANI N. FABIA vs. COURT OF APPEALS

G.R. No. 132684 20 August 2000

FACTS: Fabia was the President of private respondent MTCP, a domestic corporation engaged in
providing maritime courses and seminars to prospective overseas contract workers and seamen. He
was likewise a Director and stockholder thereof. MTCP filed an affidavit-complaint for estafa against
Hernani N. Fabia alleging that on various occasions Fabia drew cash advances from MTCP, covered
by cash vouchers which he failed to liquidate despite repeated demands. Fabia’s defense is that such
were in the nature of simple loans that had already been liquidated and paid. The Office of the City
Prosecutor of Manila dismissed the complaint for lack of jurisdiction for the reason that the
controversy pertained to the relationship between a corporation and a former officer it was the
Securities and Exchange Commission (SEC) which had original and exclusive jurisdiction over the
case.

ISSUE: Whether or not SEC have jurisdiction over the case?

RULING: YES. The jurisdiction of the SEC to "intra-corporate disputes" defined as any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of
their stockholders, officers, or partners, including any fraudulent devices, schemes or
representations, in violation of any law or rules and regulations administered and enforced by the
Commission. Petitioner was the President as well as a Director and stockholder in private respondent
MTCP, who was charged with the misappropriation or diversion of corporate funds after having
failed to liquidate the amount he had received as cash advances from the company. The charge
against petitioner is for estafa, an offense punishable under The Revised Penal Code (RPC), and
prosecution for the offense is presently before the regular courts. However, jurisdiction is
determined not from the law upon which the cause of action is based, nor the type of proceedings
initiated, but rather, it is gleaned from the allegations stated in the complaint. It is evident from the
complaint that the acts charged are in the nature of an intra-corporate dispute as they involve fraud
committed by virtue of the office assumed by petitioner as President, Director, and stockholder in
MTCP, and committed against the MTCP corporation. This sufficiently removes the action from the
jurisdiction of the regular courts, and transposes it into an intra-corporate controversy within the
jurisdiction of the SEC. The fact that a complaint for estafa, a felony punishable under the RPC, has
been filed against petitioner does not negate and nullify the intra-corporate nature of the cause of
action, nor does it transform the controversy from intra-corporate to a criminal one. Accordingly, as
the matter involves an intra-corporate dispute within the jurisdiction of the SEC, the issue of whether
prior non-accounting precludes a finding of probable cause for the charge of estafa no longer finds
relevance.

However, in conformity with RA 8799, The Securities Regulation Code, amending PD 902-A, which
has effectively transferred the jurisdiction of the Securities and Exchange Commission over all cases
enumerated under Sec. 5 of PD 902-A to the courts of general jurisdiction or the appropriate
Regional Trial Courts.

HERNANI N. FABIA vs. COURT OF APPEALS

G.R. No. 132684 20 August 2000

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FACTS: Fabia was the President of private respondent MTCP, a domestic corporation engaged in
providing maritime courses and seminars to prospective overseas contract workers and seamen. He
was likewise a Director and stockholder thereof. MTCP filed an affidavit-complaint for estafa against
Hernani N. Fabia alleging that on various occasions Fabia drew cash advances from MTCP, covered
by cash vouchers which he failed to liquidate despite repeated demands. Fabia’s defense is that such
were in the nature of simple loans that had already been liquidated and paid. The Office of the City
Prosecutor of Manila dismissed the complaint for lack of jurisdiction for the reason that the
controversy pertained to the relationship between a corporation and a former officer it was the
Securities and Exchange Commission (SEC) which had original and exclusive jurisdiction over the
case.

ISSUE: Whether or not SEC have jurisdiction over the case?

RULING: YES. The jurisdiction of the SEC to "intra-corporate disputes" defined as any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of
their stockholders, officers, or partners, including any fraudulent devices, schemes or
representations, in violation of any law or rules and regulations administered and enforced by the
Commission. Petitioner was the President as well as a Director and stockholder in private respondent
MTCP, who was charged with the misappropriation or diversion of corporate funds after having
failed to liquidate the amount he had received as cash advances from the company. The charge
against petitioner is for estafa, an offense punishable under The Revised Penal Code (RPC), and
prosecution for the offense is presently before the regular courts. However, jurisdiction is
determined not from the law upon which the cause of action is based, nor the type of proceedings
initiated, but rather, it is gleaned from the allegations stated in the complaint. It is evident from the
complaint that the acts charged are in the nature of an intra-corporate dispute as they involve fraud
committed by virtue of the office assumed by petitioner as President, Director, and stockholder in
MTCP, and committed against the MTCP corporation. This sufficiently removes the action from the
jurisdiction of the regular courts, and transposes it into an intra-corporate controversy within the
jurisdiction of the SEC. The fact that a complaint for estafa, a felony punishable under the RPC, has
been filed against petitioner does not negate and nullify the intra-corporate nature of the cause of
action, nor does it transform the controversy from intra-corporate to a criminal one. Accordingly, as
the matter involves an intra-corporate dispute within the jurisdiction of the SEC, the issue of whether
prior non-accounting precludes a finding of probable cause for the charge of estafa no longer finds
relevance.

However, in conformity with RA 8799, The Securities Regulation Code, amending PD 902-A, which
has effectively transferred the jurisdiction of the Securities and Exchange Commission over all cases
enumerated under Sec. 5 of PD 902-A to the courts of general jurisdiction or the appropriate
Regional Trial Courts.

Vesagas vs. Court of Appeals

GR No. 142924, December 5, 2001

FACTS: The respondent spouses Delfino and Helenda Raniel are members in good standing
of the Luz Villaga Tennis Clud, Inc. (club). They alleged that petitioner Teodoro B. Vesagas,
who claims to be the club's duly elected president, in conspiracy with petitioner Wilfred D.

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Asis, who, in turn, claims to be its duly elected vice-president and legal counsel, summarily
stripped them of their lawful membership, without due process of law. Thus, plaintiffs
moved to declare as illegal their expulsion from the club in utter disregard of the provisions
of the club’s by laws. Respondents, on the other hand, moved to dismiss the complaint on
the ground that the SEC lacked the jurisdiction over the subject matter. They contend that
since its inception in the 1970’s, the club in practice has not been a corporation, and that it
was only the plaintiffs who surreptitiously caused the club’s registration with the SEC.
Further, they argued that the club has ceased to be a corporate body at any rates thus, no
intra-corpoarate relationship as between the parties.

ISSUE: Does the SEC have jurisdiction over the case?

RULING: Yes. The case falls within the SEC jurisdiction. Petitioners are estopped from denying the
personality of the corporation by their very own acts. The dispute was considered as intra-corporate
in character because the parties involved are officers and members of the club; the conflict arose
from this relation between the parties, and the subject of complaint involved expulsions from the
club membership, validity of amendments of by laws.

Abejo vs Dela Cruz

G.R. No. L-63558, May 19, 1987

FACTS: Telectronic Sysms, Inc. (Telectronics) bought shares from the Pocket Bell
corporation which, as a result, made Telectronic the major stockholder of the Pocket Bell.
The controversy came about when Norberto Braga, the son of the Spouses Braga who were
formerly the major stockholders of Pocket Bell, refused to register the transfer of share in
the corporation. Braga asserted that the shares bought by telectronics were subject to the
exercise by his family of their preemptive rights over the shares transferred to Telectronic.
Among the issues subject of the controversy is the issue of jurisdiction of the SEC. The
Bragas contend that it is the Regional Trial Court which has jurisdiction over the case and not
the SEC because the case does not involve an intracorporate controversy. Telectronic, on
the other hand, argues that the controversy is within the jurisdiction of the SEC.

ISSUE: Whether the SEC has jurisdiction over the controversy.

RULING: Yes. The very complaint of the Bragas for annulment of the sales and transfers as
filed by them in the regular court questions the validity of the transfer and endorsement of
the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos' shares
and alleged loss of thio certificates and lack of consent and consideration in the case of
Virginia Braga's shares. Such dispute c learly involve's controversies "between and among
stockholders, " as to the Abej os' right to sell and dispose of their shares to Telectronics, the
validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and the
Abejos' transferee should be recognized as the controlling shareholders of the corporation,
with the right to elect the corporate officers and the management and control of its
operations. Such a dispute and case clearly fag within the original and exclusive jurisdiction

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of the SEC to decide, under Section 5 of P.D. 902-A, above-quoted. The restraining order
issued by the Regional Trial Court restraining Telectronics agents and representatives from
enforcing their resolution constituting themselves as the new set of officers of Pocket Bell
and from assuming control of the corporation and discharging their functions patently
encroached upon the SEC's exclusive jurisdiction over such specialized corporate
controversies calling for its special competence. As stressed by the Solicitor General on
behalf of the SEC, the Court has held that "Nowhere does the law [PD 902-A] empower any
Court of First Instance [now Regional Trial Court] to interfere with the orders of the
Commission," 5 and consequently "any ruling by the trial court on the issue of ownership of
the shares of stock is not binding on the Commission for want of jurisdiction.

AGUINALDO vs. SEC

163 SCRA 262

FACTS: Private respondents claim that NADECOR has a total outstanding capital stock of 30,000
shares. Out of these 30,000 shares, 7,000 shares, representing 23% of the outstanding capital stock,
are owned by a U.S. Corporation, the Sawyer Adecor International, Inc. (SAICOR), 42% of which is
owned by NADECOR which in turn is owned and controlled by private respondents to the extent of
at least 93% of the voting stock. Thus, private respondents claim that, together with SAICOR, they
constitute an absolute majority of NADECOR.

Petitioners Dominador Aytona and Daniel Aguinaldo, together with private respondents Conrado T.
Calalang and Jose G. Ricafort, and five others were elected as directors of the NADECOR by the
stockholders at a meeting where petitioners Aytona and Aguinaldo, and one R.H. Borsoto were
elected Chairman of the Board, President, and Corporate Secretary, respectively, of the NADECOR.

Private respondents claim that petitioners did not comply with their fiduciary duties of loyalty,
diligence and care to NADECOR and, worse, committed fraudulent machinations to exclude private
respondents from their rightful participation in the management of the NADECOR, which culminated
in the unlawful and malicious refusal to perform their ministerial duty to issue notices of the annual
stockholders' meeting for the year 1981 in breach of the law as set forth in the Corporation Code and
the Amended By-Laws of the NADECOR.

Subsequently, an election was held and despite the election of the above-named new set of directors
and the appointment of new corporate officers, private respondents claim that petitioners
continued to exclude the former from the valid exercise of their rights by refusing to honor and
respect the said election, and fraudulently continue to represent themselves as officers of the
NADECOR and illegally usurp the functions of the officers of the NADECOR which now rightfully
pertain to herein private respondents and the other new corporate officers.

Private respondents filed a petition for mandamus with prayer for preliminary injunction and/or
restraining order against herein petitioners with the respondent SEC praying that petitioners herein
be directed to respect and recognize the results of the annual stockholders' meeting and
organizational meeting of the newly-elected Board of Directors; to recognize the individual private
respondents as the lawful and duly elected directors and officers of the corporation; to remove all
barriers or impediments to the individual private respondents' free and untrammelled use,

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enjoyment and exercise of their respective offices; and to order the surrender and transfer of the
corporate books and records of NADECOR to private respondent Aritao

ISSUE: Is the issuance of the temporary restraining order by the SEC proper?

RULING: The Supreme Court ruled that under Section 6 of P.D. No. 902-A, further grants the SEC "in
order to effectively exercise such jurisdiction," the power, inter alia, "to issue preliminary or
permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and
in which cases the pertinent provisions of the Rules of Court shall apply."

Moreover, the SEC is at least a co-equal body of the Regional Trial Court when it adjudicates
controversies over which it has jurisdiction, it follows that the temporary restraining order issued by
SEC must have the same life-span as that issued by the trial court. It is a well-settled rule that a
temporary restraining order issued by a trial court has a life of only twenty (20) days.

Furthermore, under Section 5, Batas Pambansa Blg. 224, a judge may issue a temporary restraining
order with a limited life of twenty (20) days from date of issue. If before the expiration of the 20-day
period the application for preliminary injunction is denied, the temporarily restraining order would
thereby be deemed automatically vacated. If no action is taken by the judge on the application for
preliminary injunction within the said 20 days, the temporary restraining order would automatically
expire on the 20th day by the sheer force of law, no judicial declaration to that effect being
necessary. A temporary restraining order can no longer exist indefinitely for it has become truly
temporary .

To the extent, therefore, that the enforcement of the temporary restraining order issued by the
respondent SEC exceeded twenty (20) days, this Court rules that the said respondent committed
grave abuse of discretion. However, although the questioned order no longer has any force and
effect, the respondent SEC still has the jurisdiction and obligation to proceed with the hearing of the
case on the merits and to issue the appropriate orders pursuant thereto subject to review by the
Court of Appeals and eventually this Court.

As of the filing of the petition and the memoranda by both parties, the petitioners have not yet
finished the presentation of their evidence. The issues raised such as validity of proxy votes,
usurpation of corporate powers, claims of majority status, and regularity in issuance of requisite
notices call for the presentation and evaluation of evidence. It is, therefore, premature at this time
for this Court to pass upon the rights of the petitioners and the private respondents over NADECOR,
the determination of the same being primarily lodged with the public respondent.

JOSE PENEYRA vs. HON. INTERMEDIATE APPELLATE COURT

G.R. No. L-68935 January 22, 1990

FACTS: On May 7, 1976, the Board of Trustees of the Corregidor College Inc. awarded the
management and operation of its canteen at a monthly rental of P80.00 to petitioners herein who
are stockholders of the said College. Subsequently, upon instructions of Eulogio Dizon, Chairman of
the Board of Trustees of Corregidor College, Inc., the rental payments of petitioners were refused,
and subsequently partial demolition of the canteen was effected. Consequently, petitioners filed in
the then Court of First Instance an action against Eulogio R. Dizon for damages with preliminary

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mandatory injunction. Petitioners filed their motion for reconsideration of the order denying the
admission of their amended complaint. Two days later, Eulogio Dizon died. Thereafter, his counsel
moved to dismiss the complaint by reason thereof which was granted. Petitioners filed a special civil
action of certiorariand mandamus against respondent judge before the IAC which later on dismissed
the petition holding that the Securities and Exchange Commission (SEC) has jurisdiction over the
case, the same being an intracorporate dispute, that the amendment to include Corregidor College,
Inc. cannot be allowed and that the action for damages against Eulogio Dizon was extinguished by
his death.

ISSUE: Whether or not the Securities and Exchange Commission has jurisdiction over the case.

HELD: NO. While it is true that petitioners herein are stockholders of Corregidor College, Inc., the.
complaint in Civil Case No. 774-G did not stem directly from such relationship, but rather from the
award to petitioners of the management and operation of its canteen at a monthly rental of P80.00.
The management of a canteen, even if awarded to a stockholder, is outside or merely incidental to
the central operations of an educational institution. Petitioners thus convincingly argue that "the
controversy is not one where petitioners are bringing the action as stockholders but rather as
operators of the canteen under an agreement with said Board. In short, the cause of action here is
for damages arising from a violation of a contract of management operation of the College canteen
by defendant Dizon. Certainly, the present controversy cannot qualify as an intra-controversy, its
root being a contractual breach separate and distinct from the corporate relationship between
petitioners and Corregidor College, Inc., which, it must be noted, was not even named as a
defendant in the original complaint. It was therefore patent error for the Court of Appeals to
immediately rule that the present case belongs to the SEC just because petitioners alleged that they
are stockholders of Corregidor College, Inc.

Under Section 3 of Presidential Decree 902-A, the jurisdiction of the SEC is limited to matters
intrinsically connected with the regulation of corporations, partnerships and associations and those
dealing with the internal affairs of such entities. P.D. 902-A does not confer in the SEC absolute
jurisdiction and control over all matters affecting corporations. To uphold the appellate court's ruling
would remove without legal imprimatur from the regular courts all controversies over matters
involving or affecting corporations.

MAINLAND CONSTRUCTION, CO., INC., vs. MILA MOVILLA,

G.R. No. 118088 November 23, 1995

FACTS: Mainland Construction Co., Inc. is a domestic corporation, duly organized and existing under
Philippine laws, having been issued a certificate of registration by the SEC. Its principal line of
business is the general construction of roads and bridges and the operation of a service shop for the
maintenance of equipment. Respondents on the other hand, are the surviving heirs of complainant,
Ernesto Movilla, who died during the pendency of the action with the Labor Arbiter.

Records show that Ernesto Movilla, who was a Certified Public Accountant during his lifetime, was
hired as such by Mainland in 1977. Thereafter, he was promoted to the position of Administrative
Officer with a monthly salary of P4,700.00. Ernesto Movilla, recorded as receiving a fixed salary of
P4,700.00 a month, was registered with the SSS as an employee of petitioner Corporation. His
contributions to the SSS, Medicare and Employees Compensation Commission (ECC) were deducted
from his monthly earnings by his said employer.

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During petitioner corporation's annual meeting of stockholders, the following were elected
members of the Board of Directors, viz.: Robert L. Carabuena, Ellen L. Carabuena, Lucita Lu
Carabuena, Martin G. Lu and Ernesto L. Movilla.

On the same day, an organizational meeting was held and the Board of Directors elected Ernesto
Movilla as Administrative Manager. He occupied the said position up to the time of his death. The
DOLE conducted a routine inspection on petitioner corporation and found that it committed such
irregularities in the conduct of its business as:
1. Underpayment of wages under R.A. 6727 and RTWPB-XI-01;
2. Non-implementation of Wage Order No. RTWPB-XI-02;
3. Unpaid wages for 1989 and 1990;
4. Non-payment of holiday pay and service incentive leave pay; and
5. Unpaid 13th month pay (remaining balance for 1990).4

On the basis of this finding, petitioner corporation was ordered by DOLE to pay to its thirteen
employees, which included Movilla, the total amount of P309,435.89, representing their salaries,
holiday pay, service incentive leave pay differentials, unpaid wages and 13th month pay. All the
employees listed in the DOLE's order were paid by petitioner corporation, except Ernesto Movilla.

Ernesto Movilla filed a case against petitioner corporation for unpaid wages, separation pay and
attorney's fees, with the DOLE, Regional Arbitration.
Ernesto Movilla died while the case was being tried by the Labor Arbiter and was promptly
substituted by his heirs, private respondents herein, with the consent of the Labor Arbiter.

The Labor Arbiter rendered judgment dismissing the complaint on the ground of lack of jurisdiction.
The DOLE found that the controversy presented is intra-corporate in nature and is within the
jurisdiction of the SEC, pursuant to P.D. 902-A.

The NLRC ruled that the issue in the case was one which involved a labor dispute between an
employee and petitioner corporation and, thus, the NLRC had jurisdiction to resolve the case.

ISSUE: Which government agency has jurisdiction over the case?

RULING: The NLRC has jurisdiction.

In order that the SEC can take cognizance of a case, the controversy must pertain to any of the
following relationships:
a. between the corporation, partnership or association and the public;
b. between the corporation, partnership or association and its stockholders, partners, members
or officers;
c. between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and
d. among the stockholders, partners or associates themselves.

The fact that the parties involved in the controversy are all stockholders or that the parties involved
are the stockholders and the corporation does not necessarily place the dispute within the ambit of
the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should

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be to consider concurrent factors such as the status or relationship of the parties or the nature of
the question that is the subject of their controversy. In the absence of any one of these factors, the
SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between
the corporation and its stockholders would involve such corporate matters as only the SEC can
resolve in the exercise of its adjudicatory or quasi-judicial powers.

In the case at bench, the claim for unpaid wages and separation pay filed by the complainant against
petitioner corporation involves a labor dispute. It does not involve an intra-corporate matter, even
when it is between a stockholder and a corporation. It relates to an employer-employee relationship
which is distinct from the corporate relationship of one with the other. Moreover, there was no
showing of any change in the duties being performed by complainant as an Administrative Officer
and as an Administrative Manager after his election by the Board of Directors. What comes to the
fore is whether there was a change in the nature of his functions and not merely the nomenclature
or title given to his job.

Indeed, Ernesto Movilla worked as an administrative officer of the company for several years and
was given a fixed salary every month. A Premium Certification issued by an authorized
representative of petitioners was also presented to show his actual monthly earnings as well as his
monthly contributions to the SSS, Medicare and ECC. Movilla's registration in the SSS by petitioner
corporation added strength to the conclusion that he was petitioner corporation's employee as
coverage by the said law is predicated on the existence of an employer-employee
relationship. Furthermore, petitioner corporation failed to present evidence which showed that,
after his election as Administrative Manager, he was excluded from the coverage of the SSS,
Medicare and ECC.

The existence of an employer-employee relationship is a factual question and public respondent's

findings are accorded great weight and respect as the same are supported by substantial
evidence. Hence, we uphold the conclusion of public respondent that Ernesto Movilla was an
employee of petitioner corporation.

It is pertinent to note that petitioner corporation is not prohibited from hiring its corporate officers
to perform services under a circumstance which will make him an employee. Moreover, although a
director of a corporation is not, merely by virtue of his position, its employee, said director may act
as an employee or accept duties that make him also an employee. Since Ernesto Movilla's complaint
involves a labor dispute, it is the NLRC, under Article 217 of the Labor Code of the Philippines, which
has jurisdiction over the case at bench.

SECURITIES AND EXCHANGE COMMISSION vs. COURT OF APPEALS

G.R. No. 93832 August 23, 1991

FACTS: Petitioner Johnny K.H. Uy and private respondents Ban Hua Uy-Flores and Ban Ha Uy-Chua
are brother and sisters. They own several corporations, including LTBS Marketing Corporation and
the Soon Kee Commercial, Inc. All the three (3) abovenamed individuals, including other members of
the Uy family, were interlocking stockholders and officers of the two aforementioned corporations.
Thus, private respondents Ban Hua Uy-Flores and Ban Ha Uy-Chua were the managing directors of
the said corporations and were in custody of the corporate accounting and tax records as well as the
funds of UBS Marketing Corporation and Soon Kee Commercial, Inc. Private respondent Roland King
is the accountant of the said corporations and other allied Uy family enterprises. Due to serious

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disagreements and conflicts, the members of the Uy family, through several conciliation meetings
held before their selected Board of Mediators, agreed to divide the family business so that the UBS
Marketing Corporation would go to petitioner Johnny K.H. Uy while the Soon Kee Commercial, Inc.
would go to the rest of the Uy family, including herein private respondents Ban Hua Uy-Flores and
Ban Ha Uy-Chua. Petitioners Johnny K.H. Uy and UBS Marketing Corporation filed with the Securities
and Exchange Commission a complaint against the private respondents for the recovery of UBS
Marketing Corporation's corporate books, books of account, and the accounting and turn over of
the funds and properties belonging to UBS Marketing Corporation. Instead of filing an answer, the
private respondents moved to dismiss the complaint 5 on the ground that the SEC had no jurisdiction
over their person and over the nature of the action because there was no intra-corporate
relationship between the parties to the suit.

ISSUE: Whether or not the SEC has jurisdiction over the dispute.

RULING: YES. Under Section 5 of PD No. 902-A, as amended by PD No. 1653, the SEC has original and
exclusive jurisdiction to hear and decide cases involving controversies arising 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
of associates, respectively; and between such corporations, partnership or association and the state
insofar as it concerns their individual franchise or right to exist as such entity. In the case at bar, at
the time of the execution of the Deed of Assignment wherein the petitioner Johnny K-H. Uy and his
wife, Magdalena Uy, assigned all their stockholdings in Soon Kee Commercial, Inc. to the private
respondents Ban Hua Uy Flores and Ban Ha Uy-Chua and other members of the UY family, and the
Deed of Assignment wherein the private respondents Ban Hua Uy-Flores and Ban Ha UyChua,
assigned all their stockholdings in UBS Marketing Corporation to the petitioner Johnny K.H. Uy or to
his wife, the petitioner Johnny KH. Uy and the private respondents Ban Hua Uy-Flores and Ban Ha
Uy-Chua were all interlocking stockholders and officers of the two (2) corporations owned by the Uy
family. Hence, the deeds of assignment were intra-corporate transactions which arose from
intracorporate relations or between and among the stockholders of the two (2) family corporations.
The controversy subject of SEC Case No. 03328 is, therefore, an intracorporate controversy which
falls within the original and exclusive jurisdiction of the SEC under Section 5(b) of PD No. 902-A, as
amended.

SUNSET VIEW CONDOMINIUM CORPORATION vs. JOSE C. CAMPOS, JR

G.R. No. L-52361 April 27, 1981

FACTS: The private respondent, Aguilar-Bernares Realty, a sole proprietorship with business
name registered with the Bureau of Commerce, owned and operated by the spouses
Emmanuel G. Aguilar and Zenaida B. Aguilar, is the assignee of a unit, "Solana", in the Sunset
View Condominium Project with La Perla Commercial, Incorporated, as assignor. The La
Perla Commercial, Incorporated bought the "Solana" unit on installment from the Tower
Builders, Inc. The petitioner, Sunset View Condominium Corporation, filed for the collection
of assessments levied on the unit against Aguilar-Bernares Realty, private respondent. The
petitioner filed its amended complaint for the collection of overdue accounts on
assessments and insurance premiums and the interest against the private respondent Lim
Siu Leng to whom was assigned a unit called "Alegria" of the Sunset View Condominium

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Project by Alfonso Uy who had entered into a "Contract to Buy and Sell" with Tower
Builders, Inc. over the said unit on installment basis. The private respondent filed a motion
to dismiss on the ground of lack of jurisdiction, alleging that the amount sought to be
collected is an assessment. The correctness and validity of which is certain to involve a
dispute between her and the petitioner corporation; that she has automatically become, as
a purchaser of the condominium unit, a stockholder of the petitioner pursuant to Section 2
of the Condominium Act, Republic Act No. 4726; that the dispute is intra-corporate and is
consequently under the exclusive jurisdiction of the Securities & Exchange Commission as
provided in Section 5 of P.D. No. 902-A.

ISSUE: Whether or not the Securities & Exchange Commission has jurisdiction over cases for
collection of assessments assessed by the Condominium Corporation on condominium units
the full purchase price of which has not been paid.

RULING: NO. Section 5 of the Condominium Act expressly provides that the shareholding in
the Condominium Corporation will be conveyed only in a proper case. It provides that any
transfer or conveyance of a unit or an apartment, office or other space therein, shall include
the transfer or conveyance of the undivided interests in the common areas or, in a proper
case, the membership or shareholding in the condominium corporation. It is clear then that
not every purchaser of a condominium unit is a shareholder of the condominium
corporation. The Condominium Act leaves to the Master Deed the determination of when
the shareholding will be transferred to the purchaser of a unit.

Pursuant to the above statutory provision, ownership of a unit is a condition sine qua nonto
being a shareholder in the condominium corporation. The private respondents, therefore,
who have not fully paid the purchase price of their units and are consequently not owners of
their units are not members or shareholders of the petitioner condominium corporation.

Inasmuch as the private respondents are not shareholders of the petitioner condominium
corporation, the instant case for collection cannot be a controversy arising 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" which controversies are
under the original and exclusive jurisdiction of the Securities & Exchange Commission,
pursuant to Section 5 (b) of P.D. No. 902- A. The subject matters of the instant cases
according to the allegations of the complaints are under the jurisdiction of the regular
courts.

WESTERN INSTITUTE OF TECHNOLOGY, INC. vs. SALAS

G.R. No. 113032 August 21, 1997

FACTS: Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.
Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members
of the Board of Trustees of Western Institute of Technology, Inc., a stock corporation engaged in the

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operation, among others, of an educational institution. According to petitioners, the minority
stockholders of WIT, a Special Board Meeting was held. In attendance were other members of the
Board including one of the petitioners Reginald Villasis. In said meeting, the Board of Trustees passed
Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate
officers retroactive June 1, 1985. A few years later, petitioners Homero Villasis, Prestod Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before
the Office of the City Prosecutor, as a result of which two (2) separate criminal informations, one for
falsification of a public document and the other for estafa, were filed before the Regional Trial Court.
The charge for falsification of public document was anchored on the private respondents'
submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission reflecting therein the disbursement of corporate funds for the compensation of private
respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed
by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date
not covered by the corporation's fiscal year 1985-1986. Thereafter, trial for the two criminal cases,
was consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of
acquittal on both counts without imposing any civil liability against the accused therein. Petitioners
filed a Motion for Reconsideration of the civil aspect of the RTC Decision which was, however,
denied in an Order.

ISSUE: Was the case for derivative suit correctly filed in the Regional Trial Court?

RULING: No. Granting, for purposes of discussion, that this is a derivative suit as insisted by
petitioners, which it is not, the same is outrightly dismissible for having been wrongfully filed in the
regular court devoid of any jurisdiction to entertain the complaint. The ease should have been filed
with the Securities and Exchange Commission (SEC) which exercises original and exclusive
jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No.
902-A: “In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving: Controversies arising 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 insofar as it
concerns their individual franchise or right to exist as such entity.

RENATO REAL vs. SANGU PHILIPPINES

GR No. 168757, January 19, 2011

FACTS: Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines, Inc., a
corporation engaged in the business of providing manpower for general services, like janitors,
janitresses and other maintenance personnel, to various clients. In 2001, petitioner, together with 29
others who were either janitors, janitresses, leadmen and maintenance men, all employed by
respondent corporation, filed their respective Complaints for illegal dismissal against the latter and
respondent Kiichi Abe, the corporation’s Vice-President and General Manager. These complaints
were later on consolidated.

With regard to petitioner, he was removed from his position as Manager through Board Resolution
2001-033 adopted by respondent corporation’s Board of Directors. Petitioner complained that he was

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neither notified of the Board Meeting during which said board resolution was passed nor formally
charged with any infraction. He just received from respondents a letter4 dated March 26, 2001 stating
that he has been terminated from service effective March 25, 2001 for the following reasons: (1)
continuous absences at his post at Ogino Philippines Inc. for several months which was detrimental
to the corporation’s operation; (2) loss of trust and confidence; and, (3) to cut down operational
expenses to reduce further losses being experienced by respondent corporation.

ISSUE: Whether or not petitioner’s complaint for illegal dismissal constitutes an intra-corporate
controversy and thus, beyond the jurisdiction of the Labor Arbiter.

RULING: No. With the elements of intra-corporate controversy being absent in this case, we thus
hold that petitioner’s complaint for illegal dismissal against respondents is not intra-corporate.
Rather, it is a termination dispute and, consequently, falls under the jurisdiction of the Labor Arbiter
pursuant to Section 217 of the Labor Code.

With the foregoing, it is clear that the CA erred in affirming the decision of the NLRC which dismissed
petitioner’s complaint for lack of jurisdiction. In cases such as this, the Court normally remands the
case to the NLRC and directs it to properly dispose of the case on the merits. "However, when there
is enough bases on which a proper evaluation of the merits of petitioner’s case may be had, the
Court may dispense with the time-consuming procedure of remand in order to prevent further delays
in the disposition of the case." ‘It is already an accepted rule of procedure for us to strive to settle
the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of
litigation. If, based on the records, the pleadings, and other evidence, the dispute can be resolved by
us, we will do so to serve the ends of justice instead of remanding the case to the lower court for
further proceedings." We have gone over the records before us and we are convinced that we can
now altogether resolve the issue of the validity of petitioner’s dismissal and hence, we shall proceed
to do so.

A review of relevant jurisprudence shows a development in the Court's approach in classifying what
constitutes an intra-corporate controversy. Initially, the main consideration in determining whether
a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-
corporate relationship existing between or among the parties. The types of relationships embraced
under Section 5(b) x x x were as follows:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners, members
or officers;
c) between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves.

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the
SEC (now the RTC), regardless of the subject matter of the dispute. This came to be known as the
relationship test.

Marc II Marketing vs. Joson

G.R. No. 171993, December 12, 2001

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FACTS: Petitioner Marc II Marketing, Inc. took over the business operations of Marc Marketing, Inc.
which was made non-operational following its incorporation and registration with the Securities and
Exchange Commission (SEC).

Alfredo Joson was the General Manager, incorporator, director and stockholder of Marc II
Marketing. Before Marc II was officially incorporated, respondent has already been engaged by
Lucila Joson, as the President of Marc, to work as the general manager of the corporation through a
management contract. It was explicitly provided therein that respondent shall be entitled to 30% of
its net income for his work as General Manager. Respondent will also be granted 30% of its net profit
to compensate for the possible loss of opportunity to work overseas.

Pending incorporation of Petitioner Corporation, respondent was designated as the General

Manager of Marc Marketing, Inc., which was then in the process of winding up its business. For
occupying the said position, respondent was among its corporate officers.

When Marc ceased its operations, Respondent’s services were terminated. Feeling aggrieved,
respondent filed a petition for reinstatement which was ruled in his favor. The NLRC reversed the
decision but the Court of Appeals upheld the ruling of the Labor Arbiter.

ISSUES: (1)Which between the Labor Arbiter or the RTC has jurisdiction over respondent’s dismissal
as General Manager of petitioner corporation

(2) Whether respondent as General Manager of petitioner corporation is a corporate officer or a

mere employee of the latter

RULING: Under Section 5 of Presidential Decree No. 902-A, intra-corporate controversies are those
controversies arising 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 insofar as it concerns their individual franchise
or right to exist as such entity. It also includes controversies in the election or appointments of
directors, trustees, officers or managers of such corporations, partnerships or associations.

Under Presidential Decree No. 902-A, corporate officers are those officers of a corporation who are
given that character either by the Corporation Code or by the corporations by-laws. Section 25of the
Corporation Code specifically enumerated who are these corporate officers, to wit: (1) president; (2)
secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-laws.

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV

would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President;
(3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of General Manager
was not among those enumerated.

Respondent was not a corporate officer of petitioner corporation because his position as General
Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws.
The enabling clause in petitioner corporation’s by-laws empowering its Board of Directors to create
additional officers, i.e., General Manager, and the alleged subsequent passage of a board resolution
to that effect cannot make such position a corporate office.

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That respondent was also a director and a stockholder of petitioner corporation will not
automatically make the case fall within the ambit of intra-corporate controversy and be subjected to
RTCs jurisdiction. To reiterate, not all conflicts between the stockholders and the corporation are
classified as intra-corporate. Other factors such as the status or relationship of the parties and the
nature of the question that is the subject of the controversy must be considered in determining
whether the dispute involves corporate matters so as to regard them as intra-corporate
controversies. As previously discussed, respondent was not a corporate officer of petitioner
corporation but a mere employee thereof so there was no intra-corporate relationship between
them. With regard to the subject of the controversy or issue involved herein, i.e., respondents
dismissal as petitioner corporations General Manager, the same did not present or relate to an intra-
corporate dispute.

In addition, it was not shown by petitioners that the position of General Manager was offered to
respondent on account of his being petitioner corporations director and stockholder. Also, in
contrast to NLRCs findings, neither petitioner corporation’s by-laws nor the Management Contract
stated that respondent’s appointment and termination from the position of General Manager was
subject to the approval of petitioner corporations Board of Directors.

With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the
General Manager position, was not a corporate officer of Petitioner Corporation rather he was
merely its employee occupying a high-ranking position.

Accordingly, respondent’s dismissal as petitioner corporations General Manager did not amount to
an intra-corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not
with the RTC.

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE

SPENCER, AND ALEX MANCILLA, vs. RICARDO R. COROS
G.R. No. 157802 October 13, 2010

FACTS: After his dismissal by Matling as its Vice President for Finance and Administration, the
respondent filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against
Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch
XII, Iligan City. The petitioners moved to dismiss the complaint, raising the ground, among others,
that the complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC)
due to the controversy being intra-corporate inasmuch as the respondent was a member of Matlings
Board of Directors aside from being its Vice-President for Finance and Administration prior to his
termination.

The respondent opposed the petitioners motion to dismiss, insisting that his status as a member of
Matlings Board of Directors was doubtful, considering that he had not been formally elected as such;
that he did not own a single share of stock in Matling, considering that he had been made to sign in
blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had
taken back and retained the certificate of stock in its custody; and that even assuming that he had
been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000
showed.

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ISSUE: Whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

RULING: Conformably with Section 25, a position must be expressly mentioned in the By-Laws in
order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a
By-Law enabling provision is not enough to make a position a corporate office. Guerrea v.
Lezama,[19] the first ruling on the matter, held that the only officers of a corporation were those given
that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers
could be considered only as employees or subordinate officials. In this case, respondent was
appointed vice president for nationwide expansion by Malonzo, petitioner's general manager, not by
the board of directors of petitioner. It was also Malonzo who determined the compensation package
of respondent. Thus, respondent was an employee, not a corporate officer. The CA was therefore
correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC (now the
RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other officers as
may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-
A are exclusively those who are given that character either by the Corporation Code or by the
corporations By-Laws. A different interpretation can easily leave the way open for the Board of
Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the
expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer
position. It is relevant to state in this connection that the SEC, the primary agency administering
the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993, to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate By-laws. However,
the Board may create appointive positions other than the positions of corporate Officers, but the
persons occupying such positions are not considered as corporate officers within the meaning of
Section 25 of the Corporation Code and are not empowered to exercise the functions of the
corporate Officers, except those functions lawfully delegated to them. Their functions and duties are
to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create
a corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was
a discretionary power that the law exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents. The office of Vice President for Finance and
Administration created by Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office. To emphasize, the power to create new offices and the power to appoint the
officers to occupy them vested by By-Law No. V merely allowed Matlings President to create non-
corporate offices to be occupied by ordinary employees of Matling. Such powers were incidental to
the Presidents duties as the executive head of Matling to assist him in the daily operations of the
business.

GARCIA vs. EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.

G.R. No. 173115, April 16, 2009

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FACTS: Atty. Virgilio R. Garcia was the Vice President and Head of Business Support Services
and Human Resource Departments of the Eastern Telecommunications Philippines, Inc.
(ETPI) while Atty. Salvador C. Hizon is the President/Chief Executive Officer. On 16 January
2000, Atty. Garcia was placed under preventive suspension based on three complaints for
sexual harassment and was eventually dismissed though a letter by the Atty. Hizon. A
complaint-affidavit for illegal dismissal with prayer for full backwages and recovery of moral
and exemplary damages was filed by Atty. Virgilio R. Garcia against ETPI and Atty. Salvador
C. Hizon. Atty. Garcia filed a Motions to Inhibit, praying that Labor Arbiter Libo-on inhibit
himself from further proceeding with the case, on the ground that he was a fraternity
brother of Atty. Hizon but said motions were denied. Upon appeal to the NLRC, the motion
to inhibit was granted and the case was re raffled to another Labor Arbiter who found the
preventive suspension and subsequent dismissal of Atty. Garcia illegal. An Alias writ of
execution was issued for the garnishment of the amount representing his monthly salaries
for two months and thirteenth month pay which was satisfied. Upon appeal, The
Commission ruled that the dismissal of Atty. Garcia, being ETPI’s Vice President, partook of
the nature of an intra-corporate dispute cognizable by Regional Trial Courts and not by
Labor Arbiters.

ISSUE: Whether or not the question of legality or illegality of the removal or termination of
employment of an officer of a corporation is an intra corporate controversy that falls under
the original exclusive jurisdiction of the Regional Trial Courts.

RULING: YES. A corporate officer’s dismissal or removal is always a corporate act and/or an
intra-corporate controversy, over which the Regional Trial Court has original and exclusive
jurisdiction. Before a dismissal or removal could properly fall within the jurisdiction of the
SEC, it has to be first established that the person removed or dismissed was a corporate
officer. In the case the by-laws of ETPI.

Atty. Garcia tries to deny he is an officer of ETPI. Not being a corporate officer, he argues
that the Labor Arbiter has jurisdiction over the case. One of the corporate officers provided
for in the by-laws of ETPI is the Vice-President. It is therefore clear from the by-laws and
from Atty. Garcia himself that he is a corporate officer. One who is included in the by-laws of
a corporation in its roster of corporate officers is an officer of said corporation and not a
mere employee. Being a corporate officer, his removal is deemed to be an intra-corporate
dispute cognizable by the SEC and not by the Labor Arbiter.

Atty. Garcia’s ouster as Vice-President, who is a corporate officer of ETPI, partakes of the
nature of an intra-corporate controversy, jurisdiction over which is vested in the SEC now
the RTC. The Labor Arbiter thus erred in assuming jurisdiction over the case filed by Atty.
Garcia, because he had no jurisdiction over the subject matter of the controversy.

De Rossi vs. National Labor Relations Commission

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 G.R. No. 108710 September 14, 1999

FACTS: An Italian citizen, petitioner was the Executive Vice-President and General Manager
of private respondent, Matling Industrial and Commercial Corporation (MICC). He started
work on July 1, 1985. On August 10, 1988, MICC terminated his employment. Aggrieved,
petitioner filed with the NLRC, National Capital Region on September 21, 1989, a complaint
for illegal dismissal with corresponding damages. MICC based petitioner's dismissal on the
ground that the petitioner failed to secure his employment permit, grossly mismanaged the
business affairs of the company, and misused corporate funds. However, petitioner argued
that it was the duty of the company to secure his work permit during the term of his office,
and that his termination was illegal for lack of just cause. On November 27 1991, Labor
Arbiter Asuncion rendered a decision in favor of petitioner where a writ of execution was
issued to collect the back wages of petitioner and giving MICC the option to reinstate
petitioner physically or constructively through payroll reinstatement. Upon appeal, the NLRC
dismissed the case for lack of jurisdiction.

ISSUE: Does the NLRC has jurisdiction over the dismissal case?

RULING: The SEC, and not the NLRC, has original and exclusive jurisdiction over cases
involving the removal of corporate officers. Section 5, paragraph (c) of P.D. 902-A
unequivocally provides that SEC has jurisdiction over intra-corporate affairs regarding the
election or appointment of officers of a corporation, to wit: Sec. 5. In addition to the
regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly
granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving: (c) Controversies in the election or appointments of
directors, trustees, officersor managers of such corporation, partnership or association.

An "office" is created by the charter of the corporation under which a corporation is

organized, and the officer is elected by the directors or stockholders. In the present case,
private respondents aver that the officers and their terms of office are prescribed by the
corporation's by-laws.The by-laws being in force, clearly petitioner is considered an officer of
MICC, elected and/or designated by its board of directors. Following Section 5(c) of P.D. No.
902-A, the SEC exercises exclusive jurisdiction over controversies regarding the election
and/or designation of directors, trustees, officers or managers of a corporation, partnership
or association. This provision is indubitably applicable to the petitioner's case. Jurisdiction
here is not with the Labor Arbiter nor the NLRC, but with the SEC. A corporate officer's
removal from his office is a corporate act. If such removal occasions an intra-corporate
controversy, its nature is not altered by the reason or wisdom, or lack thereof, with which
the Board of Directors might have in taking such action. Whenpetitioner, as Executive Vice-
President allegedly diverted company funds for his personal use resulting in heavy financial
losses to the company, this matter would amount to fraud. Such fraud would be detrimental
to the interest not only of the corporation but also of its members. This type of fraud
encompasses controversies in a relationship within the corporation covered by SEC

342 | P a g e
jurisdiction. Perforce, the matter would come within the area of corporate affairs and
management, and such a corporate controversy would call for the adjudicative expertise of
the SEC, not the Labor Arbiter or the NLRC.

Espino vs. NLRC

G.R. Nos. 109642-43, January 5, 1995

FACTS: Leslie W. Espino was the Executive Vice President-Chief Operating Officer of private
respondent Philippine Airlines (PAL) when his services were terminated sometime in December 1990
by the Board of Directors of PAL as a result of the findings of the panels created by then President
Corazon C. Aquino to investigate the administrative charges filed against him and other senior
officers for their purported involvement in four, denominated "Goldair," "Robelle," "Kasbah/La
Primavera," and "Middle East" which allegedly prejudiced the interests of both PAL and the
Philippine Government. As a result of his termination, petitioner Espino filed a complaint for illegal
dismissal against PAL with the National Labor Relations Commission, Arbitration Branch, NCR,
praying, among others, for reinstatement with back wages, recovery of P50 Million as moral
damages, P10 Million as exemplary damages and attorney's fees. PAL justified the legality of
petitioner Espino's dismissal from the service before the Labor Arbiter but questioned the
jurisdiction of the NLRC contending that, because the investigating panels were created by President
Corazon C. Aquino, it became, together with the PAL Board of Directors, a "parallel arbitration unit"
which substituted the NLRC. As such, PAL argued that since the Board resolutions of the aforesaid
cases; cannot be reviewed by the NLRC, the recourse of petitioner Espino should have been
addressed, by way of an appeal, to the Office of the President of the Republic of the Philippines. The
labor arbiter held in favor of Espino. PAL argued on appeal to the NLRC that the Labor Arbiter's
decision is null and void for lack of jurisdiction over the subject matter as it is the Securities and
Exchange Commission, and not the NLRC, which has original and exclusive jurisdiction over cases
involving dismissal or removal of corporate officers. NLRC ruled in favor of PAL, thus, this petition.

ISSUE: Whether or not it is NLRC, not SEC that has jurisdiction.

RULING: SEC has jurisdiction. The Supreme Court laid down the rule in the case of Philippine School
of Business Administration v. Leano, that it is the Securities and Exchange Commission (SEC) and not
the NLRC which has original and exclusive jurisdiction over cases involving the removal from
employment of corporate officers. Sec. 5. of Presidential Decree No. 902-A regarding the jurisdiction
of the Securities and Exchange Commission provides, as follows: Sec. 5. In addition to the regulatory
and adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing
laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
xxx xxx xxx (c) Controversies in the election or appointments of directors, trustees, officers or
managers of such corporations, partnerships or associations. Indisputably, the position of Executive
Vice President-Chief Operating Officer from which petitioner Espino claims to have been illegally
dismissed, is an elective office under Section 7, Article III is an elective corporate office under Section
1, Article IV of the Amended by-Laws of PAL. The said corporate office has a fixed term of one (1) year
and the one elected shall hold office until a successor shall have been elected and qualified. He lost
that position when his appointment or election as Executive Vice President-Chief Operating Officer,
together with other senior officers who were similarly charged administratively, were deferred by
the Board of Directors in its organizational meeting on October 19, 1990. He was later considered by

343 | P a g e
the Board as resigned from the service, for reasons earlier stated, and the said position was later
abolished.

A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and
that nature is not altered by the reason or wisdom which the Board of Directors may have in taking
such action. Furthermore, it must be noted that the reason behind the non-election of petitioner to
the position of Executive Vice President-Chief Operating Officer arose from, or is closely connected
with, his involvement in the alleged irregularities in the aforementioned cases which, upon
investigation and recommendation, were resolved by the PAL Board of Directors against him and
other senior officers. Evidently, this intra-corporate ruling places the instant case under the
specialized competence and expertise of the SEC. The fact that petitioner sought payment of his
back wages, other benefits, as well as moral and exemplary damages and attorney's fees in his
complaint for illegal dismissal will not operate to prevent the SEC from exercising its jurisdiction
under PD 902-A. While the affirmative reliefs and monetary claims sought by petitioner in his
complaint may, at first glance, mislead one into placing the case under the jurisdiction of the Labor
Arbiter, a closer examination reveals that they are actually part of the perquisites of his elective
position; hence, intimately linked with his relations with the corporation. Petitioner's reliance on the
principle of estoppel to justify the exercise or jurisdiction by the NLRC over the instant complaint is
misplaced. it is not accurate for petitioner to conclude that PAL did not raise the issue of jurisdiction
at the initial stages of the case, for, while it may be predicated on a different ground, i.e., that appeal
from the resolution of the Board of Directors of PAL as regards termination of his services, is to the
Office of the President, PAL did in fact question the jurisdiction of the Labor Arbiter. An error of this
nature, under the circumstances, could not justify petitioner's insistence that PAL did not raise the
issue of jurisdiction at the outset, but only before the NLRC. It is well-settled that jurisdiction over
the subject matter is conferred by law and the question of lack of jurisdiction may be raised at any
time even on appeal. The principle of estoppel cannot be invoked to prevent this Court from taking
up the question, which has been apparent on the face of the pleadings since the start of the
litigation before the Labor Arbiter.

ISLAMIC DIRECTORATE OF THE PHILIPPINES v. COURT OF APPEALS

G.R. No. 117897 May 14, 1997

FACTS: Petitioner IDP-Tamano Group alleges that Islamic leaders of all Muslim major tribal groups in
the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC
DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic
Center in Quezon City for the construction of a Mosque, Madrasah, and other religious
infrastructures so as to facilitate the effective practice of Islamic faith in the area. The Libyan
government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be
used as a Center for the Islamic populace. After the purchase of the land by the Libyan government
in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the
members of the 1971 Board of Trustees flew to the Middle East to escape political persecution. Two
Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group,
led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP.
Significantly, on October 3, 1986, the SEC, in a suit between these two contending groups, came out
with a Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group and the Abbas
Group as IDP board members to be null and void. Neither group, however, took the necessary steps
prescribed by the SEC in its October 3, 1986 Decision, and, thus, no valid election of the members of
the Board of Trustees of IDP was ever called. Although the Carpizo Group attempted to submit a set

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of by-laws, the SEC found that, aside from Engineer Farouk Carpizo and Atty. Musib Buat, those who
prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the
adoption of the by-laws likewise null and void. without having been properly elected as new
members of the Board of Trustee of IDP.

ISSUE: Is the sale of two (2) parcels of land between the IDP-Carpizo Group and private respondent
INC null and void?

RULING: YES. There can be no question as to the authority of the SEC to pass upon the issue as to
who among the different contending groups is the legitimate Board of Trustees of the IDP since this
is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of
Sections 3 and 5(c) of Presidential Decree No. 902-A. If the SEC can declare who is the legitimate IDP
Board, then by parity of reasoning, it can also declare who is not the legitimate IDP Board. This is
precisely what the SEC did in SEC Case No. 4012 when it adjudged the election of the Carpizo Group
to the IDP Board of Trustees to be null and void. By this ruling, the SEC in effect made the
unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the
Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including
the sale or disposition of ID property.

The SEC already declared the election of the Carpizo Group as well as the Abbas Group)to the IDP
Board as null and void for being violative of the Articles of Incorporation. In this case, the IDP, owner
of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the
disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated
consent, but one where consent on the part of one of the supposed contracting parties is totally
wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

BIENVENIDO ONGKINGCO, as President and GALERIA DE MAGALLANES CONDOMINIUM

ASSOCIATION, INC. vs. NATIONAL LABOR RELATIONS COMMISSION and FEDERICO B. GUILAS

G.R. No. 119877 March 31, 1997

FACTS: Petitioner Galeria de Magallanes Condominium Association, Inc. is a non-stock, non-profit

corporation formed with a primary purpose to hold title to the common areas of the Galeria de
Magallanes Condominium Project and to manage and administer the same for the use and
convenience of the residents and/or owners. Petitioner Bienvenido Ongkingco was the president of
Galeria at the time private respondent filed his complaint. On 1 September 1990, Galeria's Board of
Directors appointed private respondent Federico B. Guilas as Administrator/Superintendent. He was
given a "monthly salary of P10,000.00 subject to review after five (5) months and subsequently
thereafter as Galeria's finances improved.

As Administrator, private respondent was tasked with the maintenance of the performance and
elegance of the common areas of the condominium and external appearance of the compound
thereof for the convenience and comfort of the residents as well as to keep up the quality image,
and hence the value of the investment for the owners thereof. However, through a resolution
passed by the Board of Directors of Galeria, private respondent was not re-appointed as

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Administrator. As a result, private respondent instituted a complaint against petitioners for illegal
dismissal and non-payment of salaries with the NLRC.

ISSUE: Whether or not private respondent was illegally dismissed

RULING: While it may be true that the termination of the complainant was effected allegedly by a
resolution of the Board of Directors of the respondent association, this did not make the dispute
intracorporate in nature. The complainant is neither a member of the association nor an officer
thereof. He is an employee of the respondent association occupying the position of administrator
who is in charge with the function of managing and administering the building or condominium
owned by the members. Indeed, there is a whale of difference between a member of the association
who is a part owner of the building and a mere employee performing managerial and administrative
functions which are necessary in the usual undertaking of the respondent Association. The
complainant falls under the second category.

It needs to be stressed that the fact that the complainant was removed by the Board of Directors did
not change the issue from an illegal dismissal case to an intracorporate one. For, what remains to be
resolved here is whether or not the complainant's removal from his position as Administrator was
for a just and valid cause and in compliance with due process. And, as the facts now stand, the issue
is within the scope of authority of the National Labor Relations Commission to resolve. As obtaining
in this case, no intracorporate controversy exists, hence, the jurisdiction of the NLRC should be
sustained.

EFREN P. PAGUIO vs. NATIONAL LABOR RELATIONS COMMISSION

G.R. No. 147816 May 9, 2003

FACTS: On 22 June 1992, respondent Metromedia Times Corporation entered, for the fifth time, into
an agreement with petitioner Efren P. Paguio, appointing the latter to be an account executive of the
firm.1 Again, petitioner was to solicit advertisements for "The Manila Times," a newspaper of general
circulation, published by respondent company. Petitioner, for his efforts, was to receive
compensation consisting of a 15% commission on direct advertisements less withholding tax and a
10% commission on agency advertisements based on gross revenues less agency commission and the
corresponding withholding tax. The commissions, released every fifteen days of each month, were
to be given to petitioner only after the clients would have paid for the advertisements. Apart from
commissions, petitioner was also entitled to a monthly allowance of P2,000.00 as long as he met the
P30,000.00-monthly quota. When his services were terminated, petitioner filed for illegal dismissal.

ISSUE: Whether or not petitioner’s contractual relationship with respondent company was one of a
regular employment and whether his dismissal was valid.

RULING: YES.

A regular employee is one who is engaged to perform activities which are necessary and desirable in
the usual business or trade of the employer as against those which are undertaken for a specific
project or are seasonal. Even in these latter cases, where such person has rendered at least one year
of service, regardless of the nature of the activity performed or of whether it is continuous or
intermittent, the employment is considered regular as long as the activity exists, it not being

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indispensable that he be first issued a regular appointment or be formally declared as such before
acquiring a regular status.

That petitioner performed activities which were necessary and desirable to the business of the
employer, and that the same went on for more than a year, could hardly be denied. Petitioner was an
account executive in soliciting advertisements, clearly necessary and desirable, for the survival and
continued operation of the business of respondent corporation. Robina Gokongwei, its President,
herself admitted that the income generated from paid advertisements was the lifeblood of the
newspaper's existence. Implicitly, respondent corporation recognized petitioner's invaluable
contribution to the business when it renewed, not just once but five times, its contract with
petitioner.

A lawful dismissal must meet both substantive and procedural requirements; in fine, the dismissal
must be for a just or authorized cause and must comply with the rudimentary due process of notice
and hearing. It is not shown that respondent company has fully bothered itself with either of these
requirements in terminating the services of petitioner. The notice of termination recites no valid or
just cause for the dismissal of petitioner nor does it appear that he has been given an opportunity to
be heard in his defense.

PEARSON & GEORGE, (S.E. ASIA), INC. vs. NLRC

G.R. No. 113928 February 1, 1996

FACTS: The petitioner insists that the Labor Arbiter and the NLRC do not have jurisdiction over the
private respondent’s complaint for illegal dismissal arising out of his removal as Managing Director of
the petitioner due to his non-reelection and the abolition of the said position. It claims that the
matter is intra-corporate and thus falls within the exclusive jurisdiction of the Securities and
Exchange Commission pursuant to Section 5(c) of P.D. No. 902-A.

Private respondent Leopoldo Llorente was a member of the Board of Directors of the petitioner and
was elected as Vice-Chairman of the Board and as Managing Director for a term of one year and until
his successor should have been duly elected pursuant to the petitioner’s by-laws. On 29 January
1990, Llorente was preventively suspended, with pay, by reason of alleged anomalous transactions
entered by him, which were prejudicial to the interest of the petitioner. Llorente, protested his
suspension and requested an examination of the supporting documents to enable him to explain the
accusations leveled against him, but to no avail.

At the regular stockholders’ meeting on 5 March 1990, the stockholders of the petitioner elected a
new set of directors. Llorente was not reelected. On the same day, the new Board of Directors held
a meeting wherein it elected a new set of officers and abolished the position of Managing Director.
The petitioner’s counsel informed Llorente of his non-reelection, the abolition of the position of
Managing Director, and his termination for cause. Llorente filed with the Labor Arbiter a complaint
for unfair labor practice, illegal dismissal, and illegal suspension alleging therein that he was
dismissed without due process of law.

ISSUE: Whether or not it is the NLRC which has jurisdiction over the complaint for illegal dismissal
which the private respondent had filed with the NLRC.

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RULING: NO. The removal of Llorente as Managing Director is purely an intra-corporate dispute
which falls within the exclusive jurisdiction of the SEC and not of the NLRC. In reality, Llorente was
not dismissed. If he lost the position of Managing Director, it was primarily because he was not
reelected as Director during the regular stockholders’ meeting. The office of Managing Director
presupposes that its occupant is a Director; hence, one who is not a Director of the petitioner or who
has ceased to be a Director cannot be elected or appointed as a Managing Director. The holding of
the position of Director is a prerequisite for the election, appointment, or designation of Managing
Director. If a Managing Director should lose his position because he ceased to be a Director for any
reason, such as non-reelection as in the case of Liorente, such loss is not dismissal but failure to
qualify or to maintain a prerequisite for that position. Then too, the position of Managing Director
was abolished.

Any question relating or incident to the election of the new Board of Directors, the non-reelection of
Liorente as a Director, his loss of the position of Managing Director, or the abolition of the said office
are intra-corporate matters. Disputes arising therefrom are intra-corporate disputes which, if
unresolved within the corporate structure of the petitioner, may be resolved in an appropriate action
only by the SEC pursuant to its authority under paragraphs (b) and (c), Section 5 of P.D. No. 902-A.

PEARSON & GEORGE, (S.E. ASIA), INC vs. NLRC

G.R. No. 113928 February 1, 1996

FACTS: The petitioner insists that the Labor Arbiter and the NLRC do not have jurisdiction over the
private respondent’s complaint for illegal dismissal arising out of his removal as Managing Director of
the petitioner due to his non-reelection and the abolition of the said position. It claims that the
matter is intra-corporate and thus falls within the exclusive jurisdiction of the Securities and
Exchange Commission pursuant to Section 5(c) of P.D. No. 902-A.

Private respondent Leopoldo Llorente was a member of the Board of Directors of the petitioner and
was elected as Vice-Chairman of the Board and as Managing Director for a term of one year and until
his successor should have been duly elected pursuant to the petitioner’s by-laws. On 29 January
1990, Llorente was preventively suspended, with pay, by reason of alleged anomalous transactions
entered by him, which were prejudicial to the interest of the petitioner. Llorente, protested his
suspension and requested an examination of the supporting documents to enable him to explain the
accusations leveled against him, but to no avail.

At the regular stockholders’ meeting on 5 March 1990, the stockholders of the petitioner elected a
new set of directors. Llorente was not reelected. On the same day, the new Board of Directors held
a meeting wherein it elected a new set of officers and abolished the position of Managing Director.
The petitioner’s counsel informed Llorente of his non-reelection, the abolition of the position of
Managing Director, and his termination for cause. Llorente filed with the Labor Arbiter a complaint
for unfair labor practice, illegal dismissal, and illegal suspension alleging therein that he was
dismissed without due process of law.

ISSUE: Whether or not it is the NLRC which has jurisdiction over the complaint for illegal dismissal
which the private respondent had filed with the NLRC.

RULING: NO. The removal of Llorente as Managing Director is purely an intra-corporate dispute
which falls within the exclusive jurisdiction of the SEC and not of the NLRC. In reality, Llorente was

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not dismissed. If he lost the position of Managing Director, it was primarily because he was not
reelected as Director during the regular stockholders’ meeting. The office of Managing Director
presupposes that its occupant is a Director; hence, one who is not a Director of the petitioner or who
has ceased to be a Director cannot be elected or appointed as a Managing Director. The holding of
the position of Director is a prerequisite for the election, appointment, or designation of Managing
Director. If a Managing Director should lose his position because he ceased to be a Director for any
reason, such as non-reelection as in the case of Liorente, such loss is not dismissal but failure to
qualify or to maintain a prerequisite for that position. Then too, the position of Managing Director
was abolished.

Any question relating or incident to the election of the new Board of Directors, the non-reelection of
Liorente as a Director, his loss of the position of Managing Director, or the abolition of the said office
are intra-corporate matters. Disputes arising therefrom are intra-corporate disputes which, if
unresolved within the corporate structure of the petitioner, may be resolved in an appropriate action
only by the SEC pursuant to its authority under paragraphs (b) and (c), Section 5 of P.D.
No. 902-A.

Apodaca vs. NLRC

GR No. 80039, April 18, 1989

FACTS: Petitioner was employed in respondent corporation. On August 28, 1985, respondent
Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation
at P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On
September 1, 1975, petitioner was appointed President and General Manager of the
respondent corporation. However, on January 2, 1986, he resigned.

On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the balance
of his gasoline and representation expenses and his bonus compensation for 1986.
Petitioner and private respondents submitted their position papers to the labor arbiter.
Private respondents admitted that there is due to petitioner the amount of P17,060.07 but
this was applied to the unpaid balance of his subscription in the amount of P95,439.93.
Petitioner questioned the set-off alleging that there was no call or notice for the payment of
the unpaid subscription and that, accordingly, the alleged obligation is not enforceable.

In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for
P17,060.07 on the ground that the employer has no right to withhold payment of wages
already earned under Article 103 of the Labor Code. Upon the appeal of the private
respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a
decision dated September 18, 1987. The NLRC held that a stockholder who fails to pay his
unpaid subscription on call becomes a debtor of the corporation and that the set-off of said
obligation against the wages and others due to petitioner is not contrary to law, morals and
public policy.

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ISSUE: May an obligation arising from non-payment of stock subscriptions to a corporation
be offset against a money claim of an employee against the employer?

RULING: No. The unpaid subscriptions are not due and payable until a call is made by the
corporation for payment. Private respondents have not presented a resolution of the board
of directors of Respondent Corporation calling for the payment of the unpaid subscriptions.
It does not even appear that a notice of such call has been sent to petitioner by the
respondent corporation.

What the records show is that the respondent corporation deducted the amount due to
petitioner from the amount receivable from him for the unpaid subscriptions. No doubt
such set-off was without lawful basis, if not premature. As there was no notice or call for the
payment of unpaid subscriptions, the same is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC
cannot validly set it off against the wages and other benefits due petitioner. Article 113 of the Labor
Code allows such a deduction from the wages of the employees by the employer, only in three
instances, to wit: Wage Deduction. — No employer, in his own behalf or in behalf of any person, shall
make any deduction from the wages of his employees, except for certain instances.

PSBA vs Leano
G.R. No. L-58468, February 24, 1984

FACTS: Tan is one of the principal stockholder of PSBA. He was a Director and the Executive
Vice President of PSBA. He was, however, replaced pursuant to an election held during a
regular meeting after the Board of PSBA declared all positions to be vacant. He then
responded by filing a complaint with the NLRC for illegal dismissal. He also filed another
complaint with the SEC essentially questioning the validity of the PSBA elections which
resulted to his ouster as Vice President.Before the NLRC, PSBA moved that the case be
dismissed invoking the principle against split jurisdiction. Petitioner claimed that since the
case involves an intra-corporate controversy, it is the SEC which has jurisdiction.

ISSUE: Whether SEC has jurisdiction.

RULING: Yes.In his position paper with the NLRC,TAN alleged that the election on August 1,
1981 of the three directors was in contravention of the PSBA By-Laws providing that any
vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting
specially called for the purpose. Thus, he concludes, the Board meeting on September 5,
1981 was tainted with irregularity on account of the presence of illegally elected directors
without whom the results could have been different.

TAN invoked the same allegations in his complaint filed with the SEC. So much so, that on
December 17, 1981, the SEC (Case No. 2145) rendered a Partial Decision annulling the election
of the three directors and ordered the convening of a stockholders' meeting for the purpose

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of electing new members of the Board.The foregoing indubitably show that, fundamentally,
the controversy is intra-corporate in nature. It revolves around the election of directors,
officers or managers of the PSBA, the relation between and among its stockholders, and
between them and the corporation.

This is not a case of dismissal. The situation is that of a corporate office having been
declared vacant, and of TAN's not having been elected thereafter. The matter of whom to
elect is a prerogative that belongs to the Board, and involves the exercise of deliberate
choice and the faculty of discriminative selection. Generally speaking, the relationship of a
person to a corporation, whether as officer or as agent or employee, is not determined by
the nature of the services performed, but by the incidents of the relationship as they actually
exist.

TABANG vs. NLRC

266 SCRA 462

FACTS: The records show that petitioner Purificacion Tabang was a founding member, a member of
the Board of Trustees, and the corporate secretary of private respondent Pamana Golden Care
Medical Center Foundation, Inc., a non-stock corporation engaged in extending medical and surgical
services.

The Board issued a memorandum appointing petitioner as Medical Director and Hospital
Administrator of private respondents Pamana Golden Care Medical Center in Calamba, Laguna.
Although the memorandum was silent as to the amount of remuneration for the position, petitioner
claims that she received a monthly retainer fee of five thousand pesos (P5,000.00) from private
respondent, but the payment thereof was allegedly stopped in November 1991.

Petitioner was tasked to run the affairs of the aforesaid medical center and perform all acts of
administration relative to its daily operations. Thereafter, petitioner was allegedly informed
personally by Dr. Ernesto Naval that in a special meeting, the Board passed a resolution relieving her
of her position as Medical Director and Hospital Administrator, and appointing the latter and Dr.
Benjamin Donasco as acting Medical Director and acting Hospital Administrator, respectively.

On June 6, 1993, petitioner filed a complaint for illegal dismissal and non-payment of wages,
allowances and 13th month pay before the labor arbiter. Respondent corporation moved for the
dismissal of the complaint on the ground of lack of jurisdiction over the subject matter. It argued
that petitioners position as Medical Director and Hospital Administrator was interlinked with her
position as member of the Board of Trustees, hence, her dismissal is an intra-corporate controversy
which falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC).

ISSUE: Does the SEC have jurisdiction over the compliant for illegal dismissal?

RULING: The Court ruled in the affirmative. It held that it is the SEC which has jurisdiction over the
case at bar. The charges against herein private respondent partake of the nature of an intra-
corporate controversy. Similarly, the determination of the rights of petitioner and the concomitant
liability of private respondent arising from her ouster as a medical director and/or hospital

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administrator, which are corporate offices, is an intra-corporate controversy subject to the
jurisdiction of the SEC.

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by
respondent corporations Board of Trustees in its memorandum of October 30, 1990, she is deemed
an officer of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which provides
that the SEC exercises exclusive jurisdiction over controversies in the election or appointment of
directors, trustees, officers or managers of corporations, partnerships or associations, applies in the
present dispute. Accordingly, jurisdiction over the same is vested in the SEC, and not in the Labor
Arbiter or the NLRC.

A corporate officers dismissal is always a corporate act, or an intra-corporate controversy, and the
nature is not altered by the reason or wisdom with which the Board of Directors may have in taking
such action. Also, an intra-corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and corporations.

On a final note, with regard to the amount of P5,000.00 formerly received by herein petitioner every
month, the same cannot be considered as compensation for her services rendered as Medical
Director and Hospital Administrator. The vouchers submitted by petitioner show that the said
amount was paid to her by PAMANA, Inc., a stock corporation which is separate and distinct from
herein private respondent. Although the payments were considered advances to Pamana Golden
Care, Calamba branch, there is no evidence to show that the Pamana Golden Care stated in the
vouchers refers to herein respondent Pamana Golden Care Medical Center Foundation, Inc.

UNION MOTOR CORPORATION vs. NATIONAL LABOR RELATIONS COMMISSION

G.R. No. 159738 December 9, 2004

FACTS: Alejandro Etis was hired by the petitioner as an automotive mechanic at the service
department where his latest monthly salary was P6,330.00.During his employment, he was awarded
the Top Technician for the month of May in 1995 and Technician of the Year (1995).He also became a
member of the Exclusive P40,000.00 Club and received the Model Employee Award in the same year.
On September 22, 1997, the respondent made a phone call to Rosita dela Cruz, the company nurse,
and informed her that he had to take a sick leave as he had a painful and unbearable toothache.
Finding that the respondents ailment was due to a tooth inflammation, the doctor referred him to a
dentist for further management where he was scheduled to have a tooth extraction but the date
was extended because there was still inflammation. Upon instructions from the management, Mr.
Dumagan, a company security guard, visited the respondent in his house and confirmed that the
latter was ill. The petitioner issued an Inter Office Memorandum through the manager of its Human
Resources Department, terminating the services of the respondent for having incurred more than
five (5) consecutive absences without proper notification. The petitioner considered the consecutive
absences of the respondent as abandonment of office under Section 6.1.1, Article III of the Company
Rules. On October 4, 1997, Dr. Pamor successfully extracted the respondents tooth. As soon as he
had recovered, the respondent reported for work, but was denied entry into the company’s
premises. He was also informed that his employment had already been terminated.

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ISSUE: Whether or not private respondent was illegally dismissed.

RULING: YES. The company rules do not require that the notice of an employee’s absence and the
reasons therefore be in writing and for such notice to be given to any specific office and/or employee
of the petitioner. Hence, the notice may be verbal; it is enough then that an officer or employee of
the petitioner, competent and responsible enough to receive such notice for and in behalf of the
petitioner, was informed of such absence and the corresponding reason. The evidence on record
shows that the respondent informed the petitioner of his illness through the company nurse. The
security guard who was dispatched by the petitioner to verify the information received by the
company nurse, confirmed the respondents illness. Respondent complied with the requisite of
giving notice of his illness and the reason for his absences to the petitioner.

From these disquisitions, it is clear that the absences of private respondent are justifiable. The
petitioner, likewise, failed to prove the factual basis for its dismissal of the respondent on the ground
of gross and habitual negligence under Article 282(b) of the Labor Code of the Philippines, or even
under Section 6.1.1, Rule III of the Company Rules. Dismissal is the ultimate penalty that can be
meted to an employee. Thus, it must be based on just cause and must be supported by clear and
convincing evidence. To effect a valid dismissal, the law requires not only that there be just and valid
cause for termination; it, likewise, enjoins the employer to afford the employee the opportunity to
be heard and to defend himself.

Petitions for Declaration in the State of Suspension of payments

EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT CANADA, vs.
BAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR THE HOLDERS
OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN TELECOMMUNICATIONS, INC.) AND ATTY.
REMIGIO A. NOVAL (AS THE COURT-APPOINTED REHABILITATION RECEIVER OF BAYANTEL),
G.R. NOS. 174457-59

FACTS: Respondent Bayantel is a duly organized domestic corporation engaged in the business of
providing telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings
Corporation (BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and Benpres
Holdings Corporation.

On various dates between the years 1995 and 2001, Bayantel entered into several credit agreements
with Express Investments III Private Ltd. and Export Development Canada, among others. To secure
said loans, Bayantel executed an Omnibus Agreement dated September 19, 1995 and an EVTELCO
Mortgage Trust Indenture.

Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an Indenture that it entered
into with The Bank of New York as trustee for the holders of said notes. Bayantel managed to make
two interest payments before it defaulted on its obligation.

Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying the
Holders of Notes. Bayantel’s total indebtedness had reached US$674 million or P35.928 billion in
unpaid principal and interest, based on the prevailing conversion rate of US$1 = P53.282. Out of its

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total liabilities, Bayantel allegedly owes 43.2% or US$291 million (P15.539 billion) to the Holders of the
Notes.

The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel an Acceleration Letter
declaring immediately due and payable the principal, premium interest, and other monetary
obligations on all outstanding Notes. Then, The Bank of New York filed a petition for the corporate
rehabilitation of Bayantel upon the instructions of the Informal Steering Committee.

The Pasig RTC issued a Stay Order which directed, among others, the suspension of all claims against
Bayantel and required the latter’s creditors and other interested parties to file a comment or
opposition to the petition. The court appointed Atty. Remigio A. Noval (Atty. Noval) as receiver

The Rehabilitation Court gave due course to the petition and directed the Rehabilitation Receiver to
submit his recommendations to the court within 120 days from the initial hearing. Atty. Noval filed a
Compliance and Submission of the Report as Compelling Evidence that Bayantel may be
Successfully Rehabilitated.

In his report, Atty. Noval classified Bayantel’s debts into three:

1.
those owed to secured Bank Creditors pursuant to the Omnibus Agreements (Omnibus
Creditors) in the total amount of US$334 million or P17.781 billion;
2.
those owed to Holders of the Senior Notes and Bank Creditors combined (Chattel Creditors),
comprising US$625 million, of which US$473 million (P25.214 billion) is principal and US$152
million (P8.106 billion) is accrued unpaid interest; and
3.
those that Bayantel owed to persons other than Financial Creditors/unsecured creditors in
the amount of US$49 million or P2.608 billion.

Dissatisfied, The Bank of New York filed a Notice of Appeal.

The Rehabilitation Court issued an Order directing the creation of a Monitoring Committee to be
composed of one member each from the group of Omnibus Creditors and unsecured creditors, and a
third member to be chosen by the unanimous vote of the first two members. In the same Order, the
court defined the scope of the Monitoring Committee’s authority

The Bank of New York filed a Petition for Review before the Court of Appeals. The petition contest
the Rehabilitation Court’s Decision for, among others, fixing the level of Bayantel’s sustainable debt
at US$325 million to be paid in 19 years.

ISSUES: May the preferred creditors of a corporation under Rehabilitation be paid in preference over
the other creditors?
 May a debtor submit a rehabilitation plan in a creditor-initiated rehabilitation?

RULING: Rehabilitation is an attempt to conserve and administer the assets of an insolvent

corporation in the hope of its eventual return from financial stress to solvency. It contemplates the
continuance of corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and liquidity. The purpose of rehabilitation proceedings is
precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid
their claims from its earnings.

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Rehabilitation shall be undertaken when it is shown that the continued operation o the corporation is
economically feasible and its creditors can recover, by way of present value of payments projected in
the plan, more, if the corporation continues as a going concern than if it is immediately liquidated.

The law governing rehabilitation and suspension of actions for claims against corporations is PD 902-
A, as amended. On December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC or the Interim
Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation filed by
corporations, partnerships and associations pursuant to PD 902-A.

NOTES:
 The stay order shall be effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings.
 Under the Interim Rules, the petition shall be dismissed if no rehabilitation plan is approved
by the court upon the lapse of 180 days from the date of the initial hearing. The court may
grant an extension beyond this period only if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated. In no instance, however, shall the
period for approving or disapproving a rehabilitation plan exceed 18 months from the date of
filing of the petition.

ADVENT CAPITAL AND FINANCE CORPORATION vs. NICASIO I. ALCANTARA and EDITHA I.
ALCANTARA G.R. No. 183050 January 25, 2012

FACTS: Petitioner Advent Capital and Finance Corporation (Advent Capital) filed a petition
for rehabilitation withthe Regional Trial Court (RTC) of Makati City and the RTC named Atty.
Danilo L. Concepcion as rehabilitation receiver. Upon audit of Advent Capital‘s books, Atty.
Concepcion found that respondents Nicasio and Editha Alcantara (collectively, the
Alcantaras) owed Advent Capital representing trust feesthat it supposedly earned for
managing their several trust accounts. Then, Atty. Concepcion requested Belson Securities,
Inc. (Belson) to deliver to him, as Advent Capital‘s rehabilitation receiver, the cash dividends
that Belson held under the Alcantaras‘ Trust Account. Belson refused, however, citing the
Alcantara‘ objections as well as the absence of an appropriate order from the rehabilitation
Court. Thus, Atty. Concepcion filed a motion before the rehabilitation court to direct Belson
to release the money to him and thereafter the rehabilitation court granted Atty.
Concepcion‘s motion and in compliance to the order, Belson turned over the subject
dividends to him.Thereafter, the Alcantaras filed a special civil action of certiorari before the
Court of Appeals (CA), seeking to annul the rehabilitation court‘s order and the CA granted
the petition and directing Atty. Concepcion to account for the dividends and deliver them to
the Alcantaras.

ISSUE: Whether or not the cash dividends held by Belson and claimed by both the
petitioner and therespondents, could be claimed by the Advent Capital upon the order of
the rehabilitation court.

RULING: NO. The rehabilitation court has no jurisdiction to hear and adjudicate the
conflicting claims of theparties over the dividends that Belson held in trust for their owners.

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The rehabilitation court has notbeen given the power to resolve ownership disputes
between Advent Capital and third parties. Neither Belson nor the Alcantaras are its debtors
or creditors with interest in the rehabilitation. Advent Capital must file a separate action for
collection to recover the trust fees that it allegedly earned and, with the trial court‘s
authorization if warranted, put the money in escrow for payment towhoever it rightly
belongs. Having failed to collect the trust fees at the end of each calendar quarter asstated
in the contract, all it had against the Alcantaras was a claim for payment which is a proper
subject for an ordinary action for collection. It cannot enforce its money claim by simply
filing a motionin the rehabilitation case for delivery of money belonging to the Alcantaras
but in the possession of athird party. Rehabilitation proceedings are summary and non-
adversarial in nature, and do not contemplateadjudication of claims that must be threshed
out in ordinary court proceedings. Adversarial proceedingssimilar to that in ordinary courts
are inconsistent with the commercial nature of a rehabilitation case.The latter must be
resolved quickly and expeditiously for the sake of the corporate debtor, its creditorsand
other interested parties. Thus, the "incorporate the concept of prohibited
pleadings,affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the
traditional approach of receiving evidence, and the grant of authority to the court to decide
the case, or any incident, on thebasis of affidavits and documentary evidence." Here,
Advent Capital‘s claim is disputed and requires a full trial on the merits. It must be resolvedin
a separate action where the Alcantaras‘ claim and defenses may also be presented and
heard.

SIOCHI FISHERY ENTERPRISES, INC., JUN-JUN FISHING CORPORATION, DEDE FISHING

CORPORATION, BLUE CREST AQUA-FARMS, INC., and ILOILO PROPERTY VENTURES, INC.,
vs. BANK OF THE PHILIPPINE ISLANDS
G.R. No. 193872 October 19, 2011

FACTS: Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing
Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are
domestic corporations of the Siochi family. Petitioners are engaged in various businesses
and have interlocking stockholders and directors. Their principal office is located at 31 Don B.
Bautista Boulevard, Dampalit, Malabon City. In the course of their business, petitioners
borrowed from respondent Bank of the Philippine Islands (BPI) and from Ayala Life
Assurance, Inc. As of 30 June 2004, petitioners’ total obligation amounted
to P85,362,262.05. On 15 July 2004, petitioners filed with the RTC a petition for corporate
rehabilitation. Petitioners prayed that the RTC (1) issue a stay order; (2) declare petitioners in
a state of suspension of payments; (3) approve petitioners’ proposed rehabilitation plan;
and (4) appoint a rehabilitation receiver.

ISSUE: Whether or not the Court of Appeals erred in setting aside the RTC’s Order because it
is within the RTC’s discretion to disregard the procedural formalities, and the lower court
has factual basis in its finding that [petitioners] are capable of rehabilitation.

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RULING: NO. The rehabilitation plan is an indispensable requirement in corporate
rehabilitation proceedings. Section 5 of the Rules enumerates the essential requisites of a
rehabilitation plan: The rehabilitation plan shall include (a) the desired business targets or
goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of
such rehabilitation which shall include the manner of its implementation, giving due regard
to the interests of secured creditors; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may
include conversion of the debts or any portion thereof to equity, restructuring of the
debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis
that estimates the proportion of the claims that the creditors and shareholders would
receive if the debtor’s properties were liquidated; and (f) such other relevant information to
enable a reasonable investor to make an informed decision on the feasibility of the
rehabilitation plan.

With respect to the Appraisal Report, it bears to stress that the same was commissioned by
respondent corporations and petitioner was not afforded the opportunity to contest the
same. Also, it is extant from the records that some of the properties included therein do not
belong to respondent corporations but to their officers, namely, Ferdinand Siochi, Mario
Siochi, Jr., Gerald Siochi and Jose Patrick Siochi. Thus, these properties should not be
considered as part of respondent corporations’ assets as their officers have a separate
personality from the corporation itself. In turn, this renders doubtful their declaration in
their Rehabilitation Plan that they have "sufficient collaterals to back-up their bank loans.

JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T. CRISTOBAL vs.
REGIONAL TRIAL COURT, BRANCH 51, CITY OF MANILA,
G.R. No. 173846. February 2, 2011

FACTS: On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal
(petitioners), as corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional
Trial Court (RTC) of Manila, Branch 24, a petition for Suspension of Payments and Rehabilitation 4 in
SEC Corp. Case No. 04-111180. On October 18, 2004, the RTC of Manila, Branch 24, issued an
Orderstaying all claims against SIHI upon finding the petition sufficient in form and substance. The
Court shares the view of the private complainants and the SSS that the said stay order does not
include the prosecution of criminal offenses. Precisely, the law "criminalizes" the non-remittance of
SSS contributions by an employer to protect the employees from unscrupulous employers. Clearly, in
these cases, public interest requires that the said criminal acts be immediately investigated and
prosecuted for the protection of society.

ISSUE: Was the suspension of "all claims" as an incident to a corporate rehabilitation also
contemplate the suspension of criminal charges filed against the corporate officers of the distressed
corporation?

RULING: No. The prosecution of the officers of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are charged in their individual capacities. Such
being the case, the purpose of the law for the issuance of the stay order is not compromised, since

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the appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It
bears to stress that the rehabilitation receiver is not charged to defend the officers of the
corporation. If there is anything that the rehabilitation receiver might be remotely interested in is
whether the court also rules that petitioners are civilly liable. Such a scenario, however, is not a
reason to suspend the criminal proceedings, because as aptly discussed in Rosario, should the court
prosecuting the officers of the corporation find that an award or indemnification is warranted, such
award would fall under the category of claims, the execution of which would be subject to the stay
order issued by the rehabilitation court. The penal sanctions as a consequence of violation of the SSS
law, in relation to the revised penal code can therefore be implemented if petitioners are found
guilty after trial.

However, any civil indemnity awarded as a result of their conviction would be subject to the stay
order issued by the rehabilitation court. Only to this extent can the order of suspension be
considered obligatory upon any court, tribunal, branch or body where there are pending actions for
claims against the distressed corporation.

RICARDO V. CASTILLO vs. UNIWIDE WAREHOUSE CLUB, INC. AND/OR JIMMY GOW
G.R. No. 169725, April 30, 2010

FACTS: Petitioner filed for illegal dismissal against respondents Uniwide Warehouse Club, Inc. and its
president, Jimmy N. Gow. The complaint contained a prayer for the payment of worked Saturdays
for the year 2001; holiday pay; separation pay; actual, moral and exemplary damages; and attorney's
fees. However, almost two months from the filing of the Complaint, respondents submitted a
Motion to Suspend Proceedings on the ground that in June 1999, the Uniwide Group of Companies
had petitioned the Securities and Exchange Commission for suspension of payments and for
approval of its proposed rehabilitation plan. It appears that on June 29, 1999, the SEC had ruled
favorably on the petition and ordered that all claims, actions and proceedings against herein
respondents pending before any court, tribunal, board, office, body or commission be suspended,
and that following the appointment of an interim receiver, the suspension order had been extended
to until February 7, 2000. On April 11, 2000, the SEC declared the Uniwide Group of Companies to be
in a state of suspension of payments and approved its rehabilitation plan. Labor Arbiter Lilia S. Savari
denied the Motion to Suspend Proceedings in the present case. Respondents lodged an appeal with
the NLRC which sustained the Labor Arbiter and held that as early as February 7, 2000 the
suspension order of the SEC should be considered lifted already and that with the approval of the
rehabilitation plan, the suspension of the proceedings in the instant labor case would no longer be
necessary.

ISSUE: Whether or not the illegal dismissal case proceedings should be suspended.

RULING: No. Corporate rehabilitation connotes the restoration of the debtor to a position of
successful operation and solvency, if it is shown that its continued operation is economically feasible
and its creditors can recover by way of the present value of payments projected in the rehabilitation
plan, more if the corporation continues as a going concern than if it is immediately liquidated. It
contemplates a continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency, the purpose being to enable
the company to gain a new lease on life and allow its creditors to be paid their claims out of its
earnings.

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An essential function of corporate rehabilitation is the mechanism of suspension of all actions and
claims against the distressed corporation, which operates upon the due appointment of a
management committee or rehabilitation receiver. Jurisprudence is settled that the suspension of
proceedings referred to in the law uniformly applies to "all actions for claims" filed against a
corporation, partnership or association under management or receivership, without distinction,
except only those expenses incurred in the ordinary course of business. The reason behind the
imperative nature of a suspension or stay order in relation to the creditors' claims cannot be
downplayed, for indeed the indiscriminate suspension of actions for claims intends to expedite the
rehabilitation of the distressed corporation by enabling the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the rescue of the debtor company. To allow such
other actions to continue would only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources would be wasted in defending claims
against the corporation, instead of being directed toward its restructuring and rehabilitation.

Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies
to "all actions for claims" filed against a corporation, partnership or association under management
or receivership, without distinction, except only those expenses incurred in the ordinary course of
business. In the oft-cited case of Rubberworld (Phils.) Inc. v. NLRC, the Court noted that aside from
the given exception, the law is clear and makes no distinction as to the claims that are suspended
once a management committee is created or a rehabilitation receiver is appointed. Since the law
makes no distinction or exemptions, neither should this Court.

Pacific Wide vs. Puerto Azul

G.R. No. 178768, November 25, 2009

FACTS: Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto Azul Complex situated
in Ternate, Cavite. In order to finance its operations, it obtained loans from various banks, the
principal amount of which amounted to P640,225,324.00. The loans were secured by PALI and its
accommodation mortgagors.

Due to business losses, one of its creditors, the Export and Industry Bank (EIB), later substituted by
Pacific Wide Realty and Development Corporation (PWRDC), filed foreclosure proceedings on PALI’s
mortgaged properties. PALI eventually filed a petition for suspension of payments and rehabilitation,
accompanied by a proposed rehabilitation. The RTC issued a Stay Order and appointed Patrick V.
Caoile as rehabilitation receiver. The rehabilitation receiver proposed that PALI should be
rehabilitated rather than be dissolved and liquidated. PALI filed a revised rehabilitation plan which
the RTC approved.

EIB filed an urgent motion to order PALI and/or the mortgagor TUI/rehabilitation receiver to pay all
the taxes due on a parcel of land which EIB claimed was one of the properties used to secure PALIs
loan from EIB. The said property was subject to a public auction by the Treasurer’s Office of Pasay
City for non-payment of realty taxes. PALI opposed the motion, arguing that the rehabilitation
court’s stay order stopped the enforcement of all claims, whether for money or otherwise, against a
debtor, its guarantors, and its sureties not solidarily liable to the debtor; thus, was covered by the
stay order.

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ISSUE: Whether the terms of the rehabilitation plan are unreasonable

RULING: Under the Rules of Procedure on Corporate Rehabilitation, rehabilitation is defined as the
restoration of the debtor to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way of the present
value of payments projected in the plan, more if the corporation continues as a going concern than if
it is immediately liquidated.

An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation

plan.

The rehabilitation plan is contested on the ground that the same is unreasonable and results in the
impairment of the obligations of contract. PWRDC contests the following stipulations in PALIs
rehabilitation plan: fifty percent (50%) reduction of the principal obligation; condonation of the
accrued and substantial interests and penalty charges; repayment over a period of ten years, with
minimal interest of two percent (2%) for the first five years and five percent (5%) for the next five
years until fully paid, and only upon availability of cash flow for debt service.

The Court found nothing onerous in the terms of PALIs rehabilitation plan. The Interim Rules on
Corporate Rehabilitation provides for means of execution of the rehabilitation plan, which may
include, among others, the conversion of the debts or any portion thereof to equity, restructuring of
the debts, dacion en pago, or sale of assets or of the controlling interest.

The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover, per findings
of fact of the RTC and as affirmed by the CA, the restructuring of the debts of PALI would not be
prejudicial to the interest of PWRDC as a secured creditor.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees,
and the economy in general. The court may approve a rehabilitation plan even over the opposition of
creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation
of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The
rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected
by it, including the creditors, whether or not such persons have participated in the proceedings or
have opposed the plan or whether or not their claims have been scheduled.

PHILIPPINE NATIONAL BANK and EQUITABLE PCI BANK, vs HONORABLE COURT OF APPEALS

G.R. No. 165571 January 20, 2009

FACTS: Petitioners Philippine National Bank (PNB) and Equitable PCI Bank are members of the
consortium of creditor banks constituted pursuant to the Mortgage Trust Indenture (MTI) dated
May 29, 1989, as amended, by and between Rizal Commercial Banking Corporation-Trust and
Investments Division, acting as trustee for the consortium, and ASB Development Corporation
(ASBDC, formerly Tiffany Tower Realty Corporation). Other members of the consortium include
Metropolitan Bank and Trust Company (Metrobank), Prudential Bank, Union Bank of the Philippines,
and United Coconut Planters Bank. Private respondents ASB Holdings, Inc., ASBDC, ASB Land, Inc.,
ASB Finance, Inc., Makati Hope Christian School, Inc., Bel-Air Holdings Corporation, Winchester

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Trading, Inc., VYL Holdings Corporation, and Neighborhood Holdings, Inc. (ASB Group) are
corporations engaged in real estate development. The ASB Group is owned by Luke C. Roxas. Under
the MTI, petitioners granted a loan of PhP 1,081,000,000 to ASBDC secured by a mortgage of five
parcels of land with improvements.

On May 2, 2000, private respondents filed with the SEC a verified petition for rehabilitation with
prayer for suspension of actions and proceedings pending rehabilitation pursuant to Presidential
Decree No. (PD) 902-A, as amended. The case was docketed as SEC Case No. 05-00-6609. Private
respondents stated that they possess sufficient properties to cover their obligations but foresee
inability to pay them within a period of one year. They cited the sudden non-renewal and/or massive
withdrawal by creditors of their loans to ASB Holdings, the glut in the real estate market, severe drop
in the sale of real properties, peso devaluation, and decreased investor confidence in the economy
which resulted in the non-completion of and failure to sell their projects and default in the servicing
of their credits as they fell due. The ASB Group had assets worth PhP 19,410,000,000 and liabilities
worth PhP 12,700,000,000. Faced with at least 712 creditors, 317 contractors/suppliers, and 492
condominium unit buyers, and the prospect of having secured and non-secured creditors press for
payments and threaten to initiate foreclosure proceedings, the ASB Group pleaded for suspension of
payments while working for rehabilitation with the help of the SEC.

Private respondents mentioned that in March 2000 and immediately after ASB Holdings incurred
financial problems, they agreed to constitute a Creditors Committee composed of representatives of
individual creditors, and to appoint a Comptroller. Private respondents stated that the Comptroller,
upon instruction from the Creditors Committee, withheld approval of payments of obligations in the
ordinary course of business such as those due to contractors, unless Roxas agrees to the payment of
interest and other arrangements. Private respondents believed that said conditions would eventually
harm the general body of their creditors. Private respondents prayed for the suspension of
payments to creditors while working out the final terms of a rehabilitation plan with all the parties
concerned. Private respondents petition to the SEC was accompanied by documentary requirements
in accordance with Section 4-2 in relation to Sec. 3-2 of the Rules of Procedure on Corporate
Recovery

ISSUE: Whether or not a solvent corporation or debtor may file a petition for rehabilitation instead of
just a petition for suspension of payments

RULING: A reading of Sec. 4-1 shows that there are two kinds of insolvency contemplated in it: (1)
actual insolvency, i.e., the corporations assets are not enough to cover its liabilities; and (2) technical
insolvency defined under Sec. 3-12, i.e., the corporation has enough assets but it foresees its inability
to pay its obligations for more than one year.

In the case at bar, the ASB Group filed with the SEC a petition for rehabilitation with prayer for
suspension of actions and proceedings pending rehabilitation. Contrary to petitioners arguments,
the mere fact that the ASB Group averred that it has sufficient assets to cover its obligations does
not make it solvent enough to prevent it from filing a petition for rehabilitation. A corporation may
have considerable assets but if it foresees the impossibility of meeting its obligations for more than
one year, it is considered as technically insolvent. Thus, at the first instance, a corporation may file a
petition for rehabilitationa remedy provided under Sec. 4-1. When Sec. 4-1 mentioned technical
insolvency under Sec. 3-12, it was referring to the definition of technical insolvency in the said
section; it was not requiring a previous filing of a petition for suspension of payments which
petitioners would have us believe.

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The period mentioned under Sec. 3-12, longer than one year from the filing of the petition, does not
refer to a year-long waiting period when the SEC can finally say that the ailing corporation is
technically insolvent to qualify for rehabilitation. The period referred to the corporations inability to
pay its obligations; when such inability extends beyond one year, the corporation is considered
technically insolvent. Said inability may be established from the start by way of a petition for
rehabilitation, or it may be proved during the proceedings for suspension of payments, if the latter
was the first remedy chosen by the ailing corporation. If the corporation opts for a direct petition for
rehabilitation on the ground of technical insolvency, it should show in its petition and later prove
during the proceedings that it will not be able to meet its obligations for longer than one year from
the filing of the petition.

As regards the status of the Repayment Schedule required to be attached to the petition for
rehabilitation (Sec. 4-2[g]), this requirement is conditioned on whether one was approved by the SEC
in the first place. If there is none, as in the case of a petition for rehabilitation due to technical
insolvency directly filed under Rule IV, Sec. 4-1, then there is no status report to submit with the
petition.

PRYCE CORPORATION vs. COURT OF APPEALS

G.R. No. 172302, February 04, 2008

FACTS: Pryce Corporation has its primary purpose to develop real estate in Mindanao. It
engaged in the development of memorial parks, operated a major hotel in Cagayan de Oro
City, and produced industrial gases. Asian financial crisis, however, badly affected
petitioner’s operations, resulting in heavy losses. It could not meet its obligations as they
became due. It incurred losses of P943.09 million in 2001, P479.05 million in 2002, and
P125.86 million in 2003. Thus petitioner filed a petition for rehabilitation where it prayed for
the appointment of a Rehabilitation Receiver from among the nominees named therein and
the staying of the enforcement of all claims, monetary or otherwise against it. Petitioner
also prayed that after due hearing, its proposed Rehabilitation Plan be approved. Some of
the proposed rehabilitation plans were that the bank creditors will be paid through dacion
en pago of assets already mortgaged to them, in case of insufficiency, the deficiency shall be
settled by way of dacion of memorial park lots owned by the petitioner, and that all
penalties shall be waived by the creditors. The creditors opposed the petition.

ISSUE: Whether or not the petition for rehabilitation of petitioner Pryce Corporation be
granted.

RULING: YES. Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation

provides among others that if the court finds the petition to be sufficient in form and
substance, it shall, not later than five days from the filing of the petition, issue an Order
fixing the initial hearing on the petition not earlier than forty five days but not later than
sixty days from the filing thereof; directing all creditors and all interested parties to file and
serve on the debtor a verified comment on or opposition to the petition, with supporting
affidavits and documents, not later than ten days before the date of the initial hearing and
putting them on notice that their failure to do so will bar them from participating in the
proceedings; and directing the creditors and interested parties to secure from the court

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copies of the petition and its annexes within such time as to enable themselves to file their
comment on or opposition to the petition and to prepare for the initial hearing of the
petition.

In the case at bench, when the commercial court appointed a rehabilitation receiver, the
very next day after the filing of the Petition for Rehabilitation, it is highly doubtful and well-
nigh impossible, that, without any hearing yet held, the commercial court could have already
gathered enough evidence before it to determine whether there was any imminent danger
of dissipation of assets or of paralization of business operations to warrant the appointment
of a rehabilitation receiver.In determining whether petitioner’s financial situation is serious
and whether there is a clear and imminent danger that it will lose its corporate assets, the
RTC, acting as commercial court, should conduct a hearing wherein both parties can present
their respective evidence. Hence, a remand of the records of this case to the RTC is
imperative.

Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc.

G.R. No. 168522, December 19, 2007

FACTS: In January 1997, petitioner and respondent Jandecs Transportation Co., Inc. entered
into a contract of Assignment of Leasehold Rights under which the latter was to operate
food and snack stalls at petitioner's Uniwide Coastal Mall in Paraaque City. The contract was
for a period of 18 years, commencing October 1, 1997 up to September 30, 2015, for a
consideration of P2,460,630.15. The parties also agreed that respondent's stalls would be
located near the movie houses and would be the only stalls to sell food and beverages in
that area.

On February 7, 1997, respondent paid the contract price in full. Petitioner, however, failed to
turn over the stall units on October 1, 1997 as agreed upon. Respondent sought the
rescission of the contract and the refund of its payment. Petitioner refused both.
Respondent Tiled a complaint for breach of contract, rescission of contract, damages and
issuance of a writ of preliminary attachment before the RTC. RTC ruled in favor of the
respondent. In its motion to suspend the proceedings, petitioner prays that the action in the
Court be held in abeyance in view of the SEC's order of suspension of payments and
approval of its rehabilitation plan.

ISSUE: Will the proceedings be suspended?

RULING: No. In the case of BF Homes, Inc. v. CA, the Court explained that the reason for
suspending actions for claims against the corporation should not be difficult to discover. It is
not really to enable the management committee or the rehabilitation receiver to substitute
the [corporation] in any pending action against it before any court, tribunal, board or body.
Obviously, the real justification is to enable the management committee or the rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the debtor [corporation]. To
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allow such other action to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its restructuring
and rehabilitation.

Further, Article 1191 of the Civil Code provides that “the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he had chosen fulfillment, if the latter should become impossible.”

Certainly, petitioner's failure to deliver the units on the commencement date of the lease on
October 1, 1997 gave respondent the right to rescind the contract after the latter had
already paid the contract price in full. Furthermore, respondent's right to rescind the
contract cannot be prevented by the fact that petitioner had the option to substitute the
stalls. Even if petitioner had that option, it did not, however, mean that it could insist on the
continuance of the contract by forcing respondent to accept the substitution. Neither did it
mean that its previous default had been obliterated completely by the exercise of that
option.

BPI vs. SEC

G.R. Nos. 109642-43, January 5, 1995

FACTS: The Bank of the Philippine Islands through its predecessor-in- interest, Far East Bank and
Trust Company extended credit accommodations to the ASB Group with an outstanding aggregate
principal amount of P86, 800,000.00, secured by a real estate mortgage over two properties. The
ASB Group thereafter filed a petition for rehabilitation and suspension of payments before the SEC.
The Rehabilitation Plan provides, among others, a dacion en pago by the ASB Group to BPI of one of
the properties mortgaged to the latter at the ASB Group as selling value of P84, 000,000.00 against
the total amount of the ASB Group’s exposure to the bank. In turn, ASB Group would require the
release of the other property mortgaged to BPI, to be thereafter placed in the asset pool. BPI
opposed the Rehabilitation Plan and moved for the dismissal of the ASB Group’s petition for
rehabilitation as it violates its rights as creditor. However, the SEC hearing panel issued an order
approving ASB Group’s proposed rehabilitation plan and appointed Mr. Fortunato Cruz as
rehabilitation receiver.

ISSUE: Does the Rehabilitation plan violate the rights of BPI as creditor?

RULING: Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United
States, have equitable and rehabilitative purposes. On the one hand, they attempt to provide for the
efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors; and on
the other, to provide debtors with a "fresh start" by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs. It is to effect a feasible and viable
rehabilitation by preserving a foundering business as going concern, because the assets of a business
are often more valuable when so maintained than they would be when liquidated.

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The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to
contract. Besides, the mere fact that the Rehabilitation Plan proposes a dacion en pago approach
does not render it defective on the ground of impairment of the right to contract. Dacion en pago is
a special mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in a sense of the
nature of sale, that is, the creditor is really buying the thing or property of the debtor, the payment
for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of
sale, namely; consent, object certain, and cause or consideration must be present. Being a form of
contract, the dacion en pago agreement cannot be perfected without the consent of the parties
involved.

Thus, if BPI does not find the dacion en pago modality acceptable, the ASB Group can propose to
settle its debts at such amount as is equivalent to the selling price of the mortgaged properties. If
BPI still refuses this op=on, it can assert its rights in the liquidation and distribution of the ASB
Group’s assets. It will not lose its status as a secured creditor, retaining its preference over the other
creditors.

PHILIPPINE AIRLINES vs. HEIRS of ZAMORA

G.R. No. 164267 November 23, 2007

FACTS: Zamora was a cargo representative assigned at the International Cargo Operations - Import
Operations Division of petitioner Philippine Airlines, Inc. Zamora received a Memorandum informing
him of his temporary transfer to the Domestic Cargo Operations (DCO) Zamora refused to follow the
directive because: first, there was no valid and legal reason for his transfer; second, the transfer
violated the collective bargaining agreement between the management and the employees union
that no employee shall be transferred without just and proper cause; and third, the transfer did not
comply with the 15-day prior notice rule. The transfer was for the purpose of diffusing the tension
between him and his immediate superior. The management issued several directives informing
Zamora of his transfer. However, Zamora refused to receive these and continued reporting to the
ICO-IOD. Consequently, he was reported absent at the DCO. His salaries were subsequently
withheld. He also ignored the management’s directive requiring him to explain in writing his
continued absence. He was informed of his termination due to Insubordination/Neglect of Customer,
Disrespect to Authority, and AWOL.

ISSUE: Whether or not the proceedings should be suspended for the rehabilitation of the petitioner.

RULING: YES. Petitioner had been placed by the Securities and Exchange Commission under a
Permanent Rehabilitation Receiver. Such being the case, a suspension of all actions for claims against
petitioner pending before any court, tribunal or board was, ipso jure, in order. The suspension of all
actions for claims against a corporation embraces all phases of the suit, be it before the trial court or
any tribunal or before this Court. No other action may be taken, including the rendition of judgment
during the state of suspension. It must be stressed that what are automatically stayed or suspended
are the proceedings of a suit and not just the payment of claims during the execution stage after the
case had become final and executory. Once the process of rehabilitation, however, is completed, this
Court will proceed to complete the proceedings on the suspended actions. Furthermore, the actions
that are suspended cover all claims against the corporation whether for damages founded on a
breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature.
No exception in favor of labor claims is mentioned in the law.

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 ALEMAR'S SIBAL & SONS, INC. v. JESUS M. ELBINIAS
G.R. No. 75414 June 4, 1990

FACTS: Private respondent G.A. Yupangco and Co. Inc. filed an action for collection of a sum of
money with prayer for damages and preliminary attachment against Alemar's Bookstore, a business
entity owned and managed by petitioner Alemar's Sibal & Sons, Inc. Subsequently Ledesma, Saludo
and Associates, as intervenor-movant, filed an omnibus motion informing the respondent trial court
that the petitioner Alemar's has been placed under rehabilitation receivership by the Securities and
Exchange Commission and that movant has been appointed as its receiver. In its opposition, G.A.
Yupangco maintained that it received notice of the receivership only on January 10, 1985 or after one
month after the collection suit. It further averred that the motion to intervene by the receiver was
not seasonably made. G.A. Yupangco urged the issuance of a writ of execution to implement the
default judgment which had become final and executory, there being no motion for reconsideration
or appeal. The corresponding writ was issued on January. Petitioner Alemar's moved for the
discharge of the writ on the ground that its issuance was improper since the proceedings have been
suspended pursuant to the court order.

ISSUE: Is the respondent court can validly proceed with the execution of a final decision for the
payment of a sum of money despite the fact that the judgment debtor has been placed under
receivership?

RULING: YES. It is the general rule that once a decision becomes final and executory, its enforcement
becomes the ministerial duty of the court. Equally settled is that the rule admits of certain
exceptions, one of which is where it becomes imperative in the higher interest of justice to direct the
deferment of execution. In the instant case, the stay of execution is warranted by the fact that
petitioner has been placed under rehabilitation receivership. It must be stressed that the SEC had
earlier ordered the suspension of all actions for claims against Alemar's in order that all the assets of
said petitioner could be inventoried and kept intact for the purpose of ascertaining an equitable
scheme of distribution among its creditors.

During rehabilitation receivership, the assets are held in trust for the equal benefit of all creditors to
preclude one from obtaining an advantage or preference over another by the expediency of an
attachment, execution or otherwise. As between creditors, the key phrase is equality is equity. When
a corporation threatened by bankruptcy is taken over by a receiver, all the creditors should stand on
an equal footing. Not anyone of them should be given any preference by paying one or some of
them ahead of the others. This is precisely the reason for the suspension of all pending claims against
the corporation under receivership. Instead of creditors vexing the courts with suits against the
distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer
of the SEC.

BAROTAC SUGAR MILLS, INC. vs. COURT OF APPEALS and PITTSBURGH TRADE CENTER, CO., INC.

G.R. No. 123379. July 15, 1997

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FACTS: Private respondent Pittsburgh Trade Center Co., Inc., filed a complaint for a sum of money
against BAROTAC. Instead of filing an answer, BAROTAC filed a Motion to Suspend Proceedings on
the ground that a Petition for Suspension of Payments With Prayer for the Appointment of a
Management or Rehabilitation Committee had been filed with the Securities and Exchange
Commission. This motion met opposition from PITTSBURGH. The court issued an Order denying
petitioner’s motion ruling that upon the filing of the petition, the SEC has not yet placed it under
receivership. At the time the Complaint in the instant case was filed with the respondent court, there
was no order yet from the SEC for the appointment of a management or rehabilitation committee or
that which will indicate that petitioner had been placed under management or receivership.

ISSUE: Whether or not the mere filing with the SEC of such petition suspends the proceedings in the
RTC

RULING: The appointment of a management committee or rehabilitation receiver may only take
place after the filing with the SEC of an appropriate petition for suspension of payments. This is clear
from a reading of sub-paragraph (d) of Section 5 and sub-paragraph (d) of Section 6 of P.D. No. 902-
A, as amended by P.D. Nos. 1653 and 1758.

The conclusion then is inevitable that pursuant to the underscored proviso in sub-paragraph (c) of
the aforementioned Section 6, taken together with sub-paragraph (d) of Section 5 and sub-
paragraph (d) of Section 6, a court is ipso jure suspended only upon the appointment of a
management committee or a rehabilitation receiver. Since there is no showing at all that a
management committee or rehabilitation receiver for BAROTAC has been appointed by the SEC,
suspension of the proceedings before the RTC of Quezon City is not warranted.

BF HOMES, INCORPORATED vs. COURT OF APPEALS

G.R.No. 77143 October 3, 1990

FACTS: BF Homes, Inc. is a domestic corporation previously engaged in the business of developing
and selling residential lots and houses and other related realty matters. On July 19, 1984, BF
contracted a loan from Rosalinda R. Roa and Vicente Mendoza in the amount of P250,000.00 with
interest at the rate of 33% per annum payable after 32 days. The obligation was embodied in a
promissory note and secured by two post-dated checks issued by BF in favor of the lenders. On
September 25, 1984, BF filed a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments under Sec. 5(d) of P.D. No. 902-A with a prayer that upon the filing of the
petition and in the meantime, all claims against it for any and all accounts or indebtedness be
suspended, but allowing petitioner to continue with its normal operations. It also asked for the
approval of the proposed rehabilitation plan. Roa and Mendoza filed a complaint against BF for the
recovery of the loan of P250,000.00, with interest and attorney's fees. The complaint also prayed for
the issuance of a writ of preliminary attachment against the properties of BF. The trial court issued
the writ against properties of BF sufficient to satisfy the principal claim in the amount of P257,333.33.
The SEC, finding an urgent need to rehabilitate BF issued an order creating a management
committee and suspending all actions for claims against BF pending before any court, tribunal or
board.

ISSUE: Whether or not the action for collection be suspended pending the outcome of the
rehabilitation proceedings.

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RULING: YES.

Under Sec. 6(d) of P.D. No. 902-A, the management committee or rehabilitation receiver is
empowered to take custody and control of all existing assets and properties of such corporations
under management; to evaluate the existing assets and liabilities, earnings and operations of such
corporations; to determine the best way to salvage and protect the interest of investors and
creditors; to study, review and evaluate the feasibility of continuing operations and restructure and
rehabilitate such entities if determined to be feasible by the SEC.

In light of these powers, the reason for suspending actions for claims against the corporation should
not be difficult to discover. It is not really to enable the management committee or the rehabilitation
receiver to substitute the defendant in any pending action against it before any court, tribunal, board
or body. Obviously, the real justification is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that
might unduly hinder or prevent the "rescue" of the debtor company. To allow such other action to
continue would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.

BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS and BENJAMIN C. NAPIZA
G.R. No. 112392. February 29, 2000

FACTS: On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit
Savings Account which he maintained in petitioner banks Buendia Avenue Extension Branch,
Continental Bank Managers Check No. 00014757 dated August 17, 1984, payable to "cash" in the
amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent
on its dorsal side. It appears that the check belonged to a certain Henry Chan who went to the office
of private respondent and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed
to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the check upon private
respondents presentation to the bank of his passbook. Using the blank withdrawal slip given by
private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the
amount of $2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal slip shows
that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly
initialed by the branch assistant manager, Teresita Lindo.

On November 20, 1984, petitioner received communication from the Wells Fargo Bank International
of New York that the said check deposited by private respondent was a counterfeit check because it
was "not of the type or style of checks issued by Continental Bank International." Consequently, Mr.
Ariel Reyes, the manager of petitioners Buendia Avenue Extension Branch, instructed one of its
employees, Benjamin D. Napiza IV, who is private respondent’s son, to inform his father that the
check bounced. Reyes himself sent a telegram to private respondent regarding the dishonor of the
check. In turn, private respondents son wrote to Reyes stating that the check had been assigned "for
encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared
upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town.

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Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On
December 18, 1984, Reyes reminded private respondent of his sons promise and warned that should
he fail to return that amount within seven (7) days, the matter would be referred to the banks
lawyers for appropriate action to protect the banks interest. This was followed by a letter of the
banks lawyer dated April 8, 1985 demanding the return of the $2,500.00.

In reply, private respondent wrote petitioners counsel on April 20, 1985] stating that he deposited
the check "for clearing purposes" only to accommodate Chan. On August 12, 1986, petitioner filed a
complaint against private respondent, praying for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus legal interest from date of demand to date of full payment, a sum
equivalent to 20% of the total amount due as attorney's fees, and litigation and/or costs of suit.

ISSUE: whether or not the bank was negligent in allowing the withdrawal?

RULING: Yes. Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondent’s dollar deposits that had yet
to be cleared. From the facts on record, it is at once apparent that petitioners personnel allowed the
withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check
deposited in the amount of $2,500.00 although they had not yet received notice from the clearing
bank in the United States on whether or not the check was funded. Reyes contention that after the
lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence
of a clearance thereon, otherwise it could take a long time before a depositor could make a
withdrawal, is untenable. Said practice amounts to a disregard of the clearance requirement of the
banking system.

While it is true that private respondents having signed a blank withdrawal slip set in motion the
events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of
petitioners personnel was the proximate cause of the loss that petitioner sustained. Proximate
cause, which is determined by a mixed consideration of logic, common sense, policy and precedent,
is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result would not have occurred." The proximate
cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its
personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing
requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on
account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.

Ching vs. Landbank

GR No. 73123, September 2, 1991

FACTS: On September 19, 1980, private respondents Filand Manufacturing and Estate
Development Co., Inc. and Emilio Ching obtained from petitioner Land Bank of the
Philippines a loan in the amount of Ten Million Pesos (P10,000,000.00). Private respondents
having failed to pay the loan on its due date, petitioner instituted a complaint for recovery
thereof. During the pendency of the collection suit, private respondents filed a petition for
declaration of insolvency. Cited as ground therefore was their inability to pay the various
debts and liabilities incurred by them, either jointly or solidarily or guaranteed by one for the

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other, in the course of their businesses, such inability being due to business reserves
brought about by the fire on January 2, 1984 which gutted the old Holiday Plaza Building
then owned and operated by Filand Manufacturing, as well as the economic crisis which
gripped the country following the assassination of former Senator Benigno S. Aquino in
1983.

ISSUE: Does the SEC which has jurisdiction over proceedings for suspension of payments
and voluntary and involuntary insolvency?

RULING: Yes. Section 5, par. (d) should be construed as vesting upon the SEC original and
exclusive jurisdiction only over petitions to be declared in a state of suspension of payments.
This qualification effectively circumscribes the jurisdiction of the SEC over insolvent
corporations, partnerships and associations, and consequently, over proceedings for the
declaration of insolvency. It demonstrates beyond doubt that jurisdiction over insolvency
proceedings pertains neither in the first instance nor exclusively to the SEC but only in
continuation of or as an incident to the exercise of its jurisdiction over petitions to be
declared in a state of suspension of payments wherein the petitioning corporation,
partnership or association had previously been placed under a rehabilitation receiver or
management committee by the SEC itself.

Viewed differently, where the petition filed is one for declaration of a state of suspension of
payments due to a recognition of the inability to pay one's debts and liabilities, and where
the petitioning corporation either: (a) has sufficient property to cover all its debts but
foresees the impossibility of meeting them when they fall due. However, if the petitioning
corporation has no sufficient assets to cover its liabilities and is not under a rehabilitation
receiver or a management committee created under P.D. No. 902-A and does not seek
merely to have the payments of its debts suspended, but seeks a declaration of insolvency,
as in this case.

As declared by the law itself, these are merely ancillary powers to enable the SEC to
effectively exercise its jurisdiction. These additional ancillary powers can be exercised only in
connection with an action pending before the SEC and therefore had to be viewed in
relation to Section 5 which defines the SEC's original and exclusive jurisdiction. Section 6
does not enlarge or add to the exclusive and original jurisdiction of the SEC as particularly
enumerated under Section 5 of said Presidential Decree, as amended. Construing P.D. 902-A,
as amended, in relation to Act 1956, the court ruled that insofar as petitions for declaration
of insolvency of private corporations are concerned, it is the regular court that has exclusive
and original jurisdiction thereon. The SEC may entertain such petitions only as an incident of
and in continuation of its already acquired jurisdiction over petitions to be declared in the
state of suspension of payments in the two cases provided in Section 5 (d) of P.D. 902-A, as
amended.

PCIB vs CA

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 G.R. No. L-76853 April 18, 1989

FACTS: Philippine Underwriters Finance Corporation (Philfinance, for brevity) executed a

pledge agreement involving certain shares of stocks and bonds in favor of Insular Bank of
Asia and America (now Philippine Commercial International Bank, PCIB for brevity, the
petitioner herein) as a security for its outstanding obligation.

Thereafter, the Securities and Exchange Commission (SEC for brevity) placed Philfinance
under suspension of payments upon "the directive of the President of the Philippines to
conserve the assets of the Corporation and obtain an equitable payment to all its
creditors.Upon the basis of the findings of the Receivership Committee and on its own, the
SEC ordered the dissolution and liquidation of Philfinance.However, whhen Philfinance failed
to satisfy its outstanding obligation with PCIB the latter posted a Notice of Auction Sale of
the pledged shares of stocks and bonds.Thus, the receiver filed a petition for a writ of
preliminary injunction. The RTC denied the petition. The CA reversed.

ISSUE: Whether the CA committed grave abuse of discretion for issuing a writ of preliminary
injunction.

RULING: Yes.SEC's order for suspension of payments of Philfinance as well as for all actions
of claims against Philfinance could only be applied to claims of unsecured creditors. Such
order cannot extend to creditors holding a mortgage, pledge or any lien on the property
unless they give up the property, security or lien in favor of all the creditors of Philfinance
This ruling finds support in Chartered Bank vs. Imperial and National Bank (48 Phil. 931).
where We held:

It is, therefore, clear and evident that the law recognizes and respects the right of a creditor
holding a mortgage, pledge or lien of any kind, attachment or execution on the property of
the debtor, recorded and not dissolved under said Act, to refrain from voting at the election
of an assignee, and consequently, to preserve said right; to refrain from taking part or
intervening in the insolvency proceedings and to retain the property mortgaged to him and
the respective security or lien the court having no power, even if the debtor is adjudged
insolvent, to dispose of said property, security or lien and cede or transfer them to the
sheriff or assignee by virtue of said adjudication ... as long as the creditor does not
voluntarily deliver or assign said property, security or lien for the benefit of all the creditors
of the insolvent.

It is true that the aforequoted ruling deals with insolvency but by analogy the same could be
adopted in this case considering that the rights of a preferred creditor remain to be
respected and recognized in every existing situation. To hold otherwise would render the
said rights inutile and illusory. Besides, We find no substantial difference between the
suspension of actions in the instant case and that under the Insolvency Law. Consequently,
the herein order of suspension, could not have a different interpretation as regards secured
credits than that already given by this Court. The records show that PCIB neither

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surrendered the pledged shares of stock and bonds nor participated in the proceedings
before the SEC regarding the suspension of payments or actions of claims against
Philfinance or in the latter's subsequent dissolution and liquidation. The pledged properties
being still in PCIB's possession, the Receiver could not possess the same for equitable
distribution to the creditors of Philfinance.

RADIOLA TOSHIBA PHILIPPINES INC. vs. IAC

G.R. No. 75222, July 18, 1991

FACTS: The petitioner obtained a levy on the attachment against the properties of Carlos Gatmaytan
and Teresita Gatmaytan un Civil case o. 35946 for collection of sum of money before the Court of
First Instance of Rizal, Branch II, Pasig, Metro Manila. A few months later three creditors filed
another petition against Gatmaytan and Teresita Gatmaytan for involuntary insolvency, docketed as
special proceedings No. 1548 of the Court of First Instance of Pampanga and Angeles city. A
favorable judgment was obtained of by the petitioner in Civil case No. 35946. The court ordered for
the consolidation of ownership of petitioner over said property but respondent sheriff of Angeles
City refused to issue a final ceritificate of sale because of the pending insolvency proceedings. The
Court of First Instance of Angeles City and Intermediate Appellate Court rules against petitioner.

ISSUE: Is the levy on attachment in favor of petitioner in dissolved by the insolvency proceedings
against respondents commenced for months after the said attachment?

RULING: The Supreme Court ruled that under Section 32 of the Insolvency Law, as soon as an
assignee is elected or appointed and qualified, the clerk of court shall, by an instrument under his
hand and seal of the court, assign and convey to the assignee all the real and personal property,
estate and effects of the debtor with all his deeds, books and papers relating thereto, and such
assignment shall relate back to the commencement of the proceedings in insolvency, and shall relate
back to the acts upon the adjudication was founded, and by operation of law shall vest the title to all
such property, estate and effects in the assignee, although the same is then attached in mesne
process, as the property of debtor. Such assignment shall operate to vest in the assignee all of the
estate of the insolvent debtor not exempt by law from execution. It shall dissolve any attachment
levied within one month next preceding the commencement of the insolvency proceedings and
vacate and set aside any judgment entered in any action commenced within thirty days immediately
prior to the commencement of insolvency proceedings and shall set aside any judgment entered by
default or consent of the debtor within thirty days immediately prior to the commencement of
insolvency proceedings.

Moreover, Section 79 of the said law provides that When an attachment has been made and is not
dissolved before the commencement of proceedings in insolvency, or is dissolved by an undertaking
given by the defendant, if the claim upon which attachment suit was commenced is proved against
the estate of the debtor, the plaintiff may prove the legal costs and disbursements of the suit, and in
keeping of the property, and the amount thereof shall be a preferred debt.

There are no conflicts between the two provisions. It is well-settled that where a statute is
susceptible of more than one interpretation, court should adopt such reasonable and beneficial
construction as will render the provision thereof operative and effective and harmonious with each

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other. – but even granting that such conflicts exists, it may be stated that in construing a statute,
courts should adopt a construction that will give effect to every part of the statute, if at all possible.
This rule is expressed in the maxim, ut magis valeat quam pereat or that construction is to be sought
which gives effect to the whole of the statute – its every word, hence when a statute is susceptible
of more than one interpretation, the court should adopt such reasonable and beneficial construction
as will render the provision thereof operative and effective and harmonious with each other.

RIZAL COMMERCIAL BANKING CORPORATION vs. INTERMEDIATE APPELLATE COURT

G.R. No. 74851 December 9, 1999

FACTS: On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of
Suspension of Payments with the SEC. One of the creditors listed in its inventory of creditors and
liabilities was RCBC. On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-
judicially foreclose its real estate mortgage on some properties of BF Homes. A notice of extra-
judicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on November 29,
1984, copies furnished both BF Homes as mortgagor and RCBC as mortgagee. On motion of BF
Homes, the SEC a temporary restraining order effective for 20 days, enjoining RCBC and the sheriff
from proceeding with the public auction sale. The sale was rescheduled to January 29, 1985. On
January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioners
filing of a bond. However, petitioner did not file a bond until January 29, 1985, the very day of the
auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably, unaware of the
filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which
RCBC was the highest bidder for the properties auctioned. On February 5, 1985, BF Homes filed in the
SEC a consolidated motion to annul the auction sale and to cite RCBC and the sheriff for contempt.
RCBC opposed the motion.

Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of
sale covering the auctioned properties. On February 13, 1985, the SEC belatedly issued a writ of
preliminary injunction stopping the auction sale which had been conducted by the sheriff two weeks
earlier.

ISSUE: Whether or not preferred creditors of distressed corporations stand on the same footing with
all other creditors.

RULING: YES. The issue of whether or not preferred creditors of distressed corporations stand on
equal footing with all other creditors gains relevance and materiality only upon the appointment of a
management committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is
concerned, the provisions of Presidential Decree No. 902-A are not yet applicable and it may still be
allowed to assert its preferred status because it foreclosed on the mortgage prior to the
appointment of the management committee on March 18, 1985. Paragraph (c), Section 6 of
Presidential Decree 902-A, providesthat upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly. It is thus adequately clear that
suspension of claims against a corporation under rehabilitation is counted or figured up only upon
the appointment of a management committee or a rehabilitation receiver.

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In other words, once a management committee, rehabilitation receiver, board or body is appointed
pursuant to P.D. 902-A, all actions for claims against a distressed corporation pending before any
court, tribunal, board or body shall be suspended accordingly. This suspension shall not prejudice or
render ineffective the status of a secured creditor as compared to a totally unsecured creditor. P.D.
902-A does not state anything to this effect. What it merely provides is that all actions for claims
against the corporation, partnership or association shall be suspended. This should give the receiver
a chance to rehabilitate the corporation if there should still be a possibility for doing so.

RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG vs. NATIONAL LABOR RELATIONS COMMISSION,.
G.R. No. 126773. April 14, 1999

FACTS: Petitioner Rubberworld is a domestic corporation which used to be in the business of

manufacturing footwear, bags and garments. It filed with the SEC a petition for suspension of
payments praying that it be declared in a state of suspension of payments and that the SEC
accordingly issue an order restraining its creditors from enforcing their claims against petitioner
corporation. It further prayed for the creation of a management committee as well as for the
approval of the proposed rehabilitation plan and memorandum of agreement between petitioner
corporation and its creditors.

The SEC favorably ruled on the petition for suspension of payments thusly:
'Accordingly, with the creation of the Management Committee, all actions for claims against
Rubberworld Philippines, Inc. pending before any court, tribunal, office, board, body Commission of
Sheriff are hereby deemed SUSPENDED.

'Consequently, all pending incidents for preliminary injunctions, writ of attachments (sic),
foreclosures' and the like are hereby rendered moot and academic.'

Private respondents, who claim to be employees of petitioner corporation, filed against petitioners
their respective complaints for illegal dismissal, unfair labor practice, damages and payment of
separation pay, retirement benefits, 13th month pay and service incentive pay.

Petitioner Rubberworld moved to suspend the proceedings in the above labor cases on the strength
of the SEC Order dated December 28, 1994.

The Labor Arbiter denied the aforesaid motion holding that the injunction contained in the SEC Order
applied only to the enforcement of established rights and did not include the suspension of
proceedings involving claims against petitioner which have yet to be ascertained. The Labor Arbiter
further held that the order of the SEC suspending all actions for claims against petitioners does not
cover the claims of private respondents in the labor cases because said claims and the concomitant
liability of petitioners still had to be determined, thus carrying no dissipation of the assets of
petitioners.

ISSUES:1. Is Rubberworld entitled to the suspension of payments that it seeks? (YES.)

2. Will the proceedings in the suspension of payment affect the preference of credit of the
employees in the labor case under the Civil Code? (NO. The corporation is not yet
insolvent. It is Solvent but illiquid. Rehabilitation is not the same as insolvency.)

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RULING: Where the petition filed is one for declaration of a state of suspension of payments due to a
recognition of the inability to pay one's debts and liabilities, and where the petitioning corporation
either:
a. has sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due (solvent but illiquid) or
b. has no sufficient property (insolvent) but is under the management of a
rehabilitation receiver or a management committee, the applicable law is P.D.
902-A pursuant to Sec. 5 par. (d) thereof.
However, if the petitioning corporation has no sufficient assets to cover its liabilities and is not under
a rehabilitation receiver or a management committee created under P.D. 902-A and does not seek
merely to have the payments of its debts suspended, but seeks a declaration of insolvency xxx the
applicable law is Act 1956 [The Insolvency Law] on voluntary insolvency,

In the case at bar, Petitioner Rubberworld filed before the SEC a Petition for Declaration of
Suspension of Payments, as well as a propose rehabilitation plan. On December 28, 1994, the SEC
ordered the creation of a management committee and the suspension of all actions for claim against
Rubberworld. Clearly, the applicable law is PD 902-A, as amended, the relevant provision of which
read:
SECTION 5. In addition to the regulatory adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with
it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
xxxxxxxxx
d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when
they respectively fall due or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver
or management committee created pursuant to this Decree.

It is plain from the foregoing that upon the appointment, by the SEC, of a management committee
or a rehabilitation receiver, all actions for claims against the corporation pending before any court,
tribunal or board shall ipso jure be suspended. The justification for the automatic stay of all pending
actions for claims is to enable the management committee or the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the 'rescue' of the debtor company. To allow such other actions to
continue would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.
Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees,
creditors, stockholders and, in a larger sense, the general public. And in considering whether to
rehabilitate or not, the SEC gives preference to the interest of creditors, including employees. The
reason that shareholders can recover their investments only upon liquidation of' the corporation,
and only if there are assets remaining after all corporate creditors are paid.

Preference in Favor of Workers in Case of Bankruptcy or Liquidation

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The private respondents contend that automatic stay under PD 902-A is not applicable to the instant
case; otherwise, the preference granted to workers by Article 110 of the Labor Code would be
rendered ineffective. This contention is misleading.

The preferential right of workers and employees under Article 110 of the Labor Code may be invoked
only upon the institution of insolvency or judicial liquidation proceeding. Indeed, it is well-settled that
"a declaration of bankruptcy or a judicial liquidation must be present before preferences over various
money claims may be enforced." But debtors resort to preference of credit -- giving preferred
creditors the right to have their claims paid ahead of those of other claimants -- only when their
assets are insufficient to pay their debts fully. The purpose of rehabilitation proceedings is precisely
to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims
from its earnings. In insolvency proceedings, on the other hand, the company stops operating, and
the claims of creditors are satisfied from the assets of the insolvent corporation. The present case
involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the preference of
credit granted to workers or employees under Article 110 of the Labor Code is not applicable.

UNION BANK OF THE PHILIPPINES vs. HONORABLE COURT OF APPEALS

G.R. No. 131729 May 19, 1998

FACTS: Private respondents EYCO Group of Companies filed with the SEC a Petition for the
Declaration of Suspension of Payment, Formation and Appointment of Rehabilitation
Receiver/Committee, Approval of Rehabilitation Plan with Alternative Prayer for Liquidation and
Dissolution of Corporations alleging, among other things, that the present combined financial
condition of the petitioners clearly indicates that their assets are more than enough to pay off the
credits but that due to factors beyond the control and anticipation of the management the inability
of the EYCO Group of Companies to meet the obligations as they fall due on the schedule agreed
with the creditors has now become a stark reality. The SEC Hearing Panel then issued an order
setting its hearing. At the same time, said panel also directed the suspension of all actions, claims
and proceedings against private respondents pending before any court, tribunal, office, board and/or
commission.Without notifying the members of the consortium, petitioner, however, decided to
break away from the group by suing private respondents in the regular courts. Aggrieved, petitioner
immediately took recourse to the Court of Appeals by filing therewith a Petition for Certiorari with
Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction.

ISSUE: Whether or not the SEC can validly acquire jurisdiction over a petition for suspension of
payments filed pursuant to Section 5 (d) of P.D. No. 902- A, as amended, when such petition joins as
co-petitioners the petitioning corporate entities and individual stockholders thereof.

RULING: NO. The SEC's jurisdiction on matters of suspension of payments is confined only to those
initiated by corporations, partnerships or associations. Administrative agencies like the SEC are
tribunals of limited jurisdiction and, as such, can exercise only those powers which are specifically
granted to them by their enabling statutes. Consequently, where no authority is granted to hear
petitions of individuals for suspension of payments, such petitions are beyond the competence of
the SEC. In a case of misjoinder of parties which in this case is the co-filing of the petition for
suspension of payments by both the Yutingcos and the EYCO group, the remedy has never been to
dismiss the petition in its entirety but to dismiss it only as against the party upon whom the tribunal

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or body cannot acquire jurisdiction. The result, therefore, is that the petition with respect to EYCO
shall subsist and may be validly acted upon by the SEC. The Yutingcos, on the other hand, shall be
dropped from the petition and be required to pursue their remedies in the regular courts of
competent jurisdiction. Aside from the fact that these allegations are evidentiary in nature and still
remains to be proved, we have likewise consistently ruled that what determines the nature of an
action, as well as which court or body has jurisdiction over it, are the allegations of the complaint, or
a petition as in this case, and the character of the relief sought. That the merits of the case after due
proceedings are later found to veer away from the claims asserted by EYCO in its petition, as when it
is shown later that it is actually insolvent and may not be entitled to suspension of payments, does
not divest the SEC at all of its jurisdiction already acquired at its inception through the allegations
made in the petition.

Registration of Securities

HIKOI SUZUKI, RAMON DEL ROSARIO and TAKAYUKI SATO vs. DIANA DE GUZMAN
G.R. No. 146979 July 27, 2006

FACTS: On January 10, 1996, the Suzuki Beach Hotel, Inc. (SBHI) located at 1 Samar Street,
Bo. Barretto, Olongapo City was registered with the Securities and Exchange Commission
(SEC), with Diana de Guzman (respondent) and Editha Taborda (Taborda) as two of the
incorporators. Respondent subscribed to 29,800 shares with a total par value
of P2,980,000.00 and paid her subscription in the amount of P745,000.00. Taborda
subscribed to 100 shares with a total par value of P10,000.00 and paid P2,500.00 on her
subscription. On December 12, 1997, Hikoi Suzuki, Ramon del Rosario, Takayuki Sato
(petitioners), acting as Board of Directors of SBHI, issued a Resolution declaring due and
demandable all unpaid shares of stock and gave the stockholders until December 30, 1997 to
pay their unpaid subscription. Notice of the call for payment was sent to respondent and
Taborda but they failed to pay their respective unpaid subscriptions. Petitioners scheduled a
meeting of the Board on January 12, 1998 to discuss the sale of delinquent shares of stocks.
On January 10, 1998, notice of the meeting was sent to respondent and Taborda.On January
12, 1998, petitioners approved a Resolution to sell all delinquent shares of stock at a public
auction set on January 30, 1998.

On March 4, 1998, respondent and Taborda filed with the SEC a Petition for Calling Special
Stockholders Meetings and for Election of Directors and Officers, Declaration of Nullity of
the Call of Sale of Unpaid Stock Subscription with Writ of Preliminary Injunction and
Temporary Restraining Order, docketed as SEC Case No. 03-98-5924. On March 23, 1998,
petitioners filed a Motion to Dismiss on the ground of lack of jurisdiction, alleging that
jurisdiction over the case was lodged with the civil courts.

ISSUE: Whether or not SEC has jurisdiction.

RULING: YES. The CA promulgated the assailed Decision on January 26, 2000, the SEC was
still empowered, under Section 5 of P.D. 902-A, to hear and decide cases involving intra-
corporate disputes, thus:

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 SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
association registered with it as expressly granted under existing laws and decrees, it
shall have original and exclusive jurisdiction to hear and decide cases involving:…

b) Controversies arising 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 the stockholders, members
or associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity; x x x

However, on August 9, 2000, during the pendency of petitioners' Motion for

Reconsideration of the CA Decision, R.A. No. 8799 took effect. Section 5.2 of R.A. No. 8799,
provides:

5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that
shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
(Emphasis supplied)

Thus, original and exclusive jurisdiction to hear and decide cases involving intra-corporate
controversies have been transferred to courts of general jurisdiction or the appropriate
Regional Trial Court. The case involving herein parties has not been submitted for final
resolution on the merits in the SEC. Only the issue on jurisdiction was dealt with by the SEC
which is the subject of herein petition. Thus, herein case does not fall within the exception
adverted to in the aforequoted Section 5.2.

All the foregoing considered, the CA should have noted that R.A. No. 8799 was already in
force and effect, for more than five months, and therefore applicable at the time of the
promulgation of the herein assailed Resolution on February 2, 2001. Although the petition
filed with the CA was procedurally deficient for non-compliance with the rules on material
date and certification of non-forum shopping, the CA should have reconsidered its Decision
on the question of jurisdiction in view of the advent of R.A. No. 8799 transferring cases
originally cognizable by the SEC to the Regional Trial Courts. Technicalities must give way to
the realities of the situation. It is elementary that jurisdiction over the subject matter, or the
jurisdiction to hear and decide a case, is conferred by law and it is not within the courts, let
alone the parties, to themselves determine and conveniently set aside.

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 PEOPLE OF THE PHILIPPINES, vs. ELVIRA PETRALBA,
RAYMOND HOUSCHT, JEFF GONZALES, and RICHARD ALCANTARA
G.R. No. 137512 September 27, 2004

FACTS: Appellant and her co-accused Raymond Houscht, Jeff Gonzales and Richard Alcantara are
charged in three separate Informations. Elvira Petralba introduced herself as a representative of
Lansdale Enterprises Limited showing the doctor her brochures (Exhibit B) and told her the Lansdale
has an office in Hongkong with its principal office in Tokyo. Accused gave Dr. Bailey some documents
one of which is the customers agreement (Exhibit C). Dr. Bailey gave the accused a check worth
$6,000.00 as her starting capital for foreign exchange trading to be handled by Mr. Richard
Alcantara, the manager of Lansdale.
Further, it was the accused Petralba assured Bailey that the business was protected by a foreign
company in the amount of $4,000,000.00. Four (4) persons, namely, Petralba, the manager, the
assistant manager and another person were present. Petralba signed a receipt (Exhibit A) wherein
her confirmatory signature (Exhibit A-2) appears. Then Bailey demanded partial return of her
investment from accused Petralba but the latter failed to do so. Bailey contacted the office of
Lansdale, its officers including the manager and Petralba several times but these persons were
always out. Finally, Bailey went to the Securities and Exchange Commission (SEC), filed a complaint
and executed an affidavit (Exhibit D, D-1) before Atty. Cunanan (Exhibit D-2), the director, the original
copy of which is with the SEC. She likewise submitted the original copy of the receipt with the SEC. In
addition, Dr. Bailey and Elvira Petralba knew each other as early as the first week of June 1991. Since
accused wanted to see her about foreign currency trading, Bailey invited her to her office in July
1991. Petralba told her that she represents REATA, an investment company in foreign exchange.

Dr. Bailey was in this business before in the United States. The company also assumed the
responsibility in case of loss, hence the investment was protected. Bailey gave the accused the check
although the payee was Lansdale which traded her money without her consent. Out of the amount
in the check only $300 was returned to her by the cashier of Lansdale.
During the first week of trading or on July 8, 1991, Bailey signed the instruction of purchase because
she was asked to sign it. Bailey also signed other instructions of purchase but before she signed
them she read all of them. She also signed a form letter dated August 15, 1991 which she was asked
to fill up as the company was changing its name to Tokyo Commonwealth Limited.

Bailey read the contract and the trading rules of Lansdale before she signed it. She understood all
the stipulations contained therein. There is a provision in paragraph ten (10) thereof stating the risk
of loss in trading but accused assured her that the company had a reserve fund in the amount of $14
million as investors protection fund.

When Bailey signed the check for investment, the persons present were Alcantara, Petralba and two
others. Alcantara introduced himself as the Assistant Vice-President of Lansdale. The customers
agreement was signed by Bailey marked as Exhibit A and the receipt as Exhibit E.
It was Atty. Rosalinda San Fontanosas of SECs legal department who investigated Lansdale
Enterprises in connection with the complaint of Dr. Leoni Bailey after a certain Felix Chan in their
office resigned.

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On July 2, 1991, all the accused were not yet licensed as traders when they presented to Dr. Bailey the
investment proposal except Mr. Alcantara who has a license for the period from January 15, 1991 to
December 31, 1991. Lansdale Enterprises Ltd. has not been registered with the Securities and
Exchange Commission (SEC) per first indorsement dated July 25, 1994 (Exhibits F, F-1 and F-2) and
another indorsement dated July 20, 1994. During the date of the hearing, it was only the appellant
who was arraigned where she pleaded not guilty to the charges against her under the informations,
and joint trial ensued thereafter. However, all her co-accused remain at large.

ISSUE: Was Elvira guilty of the crime charged?

RULING: No. The transaction that transpired between complainant and her employer
Lansdale was a mere foreign exchange trading which is not covered by the term securities of
B.P. Blg. 178, the prevailing law at the time of the commission of the alleged crimes.

The foreign exchange trading transaction that transpired between complainant and
Lansdale appears to be an investment contract or participation in a profit sharing agreement
that falls within the definition of the law. When the investor is relatively uninformed and
turns over his money to others, essentially depending upon their representations and their
honesty and skill in managing it, the transaction generally is considered to be an investment
contract. The touchtone is the presence of an investment in a common venture premised on
a reasonable expectation of profits to be derived from the entrepreneurial or managerial
efforts of others. Dr. Bailey testified on this matter but no contract was submitted by the
prosecution. The prosecution failed to prove by sufficient evidence that indeed, the amount
delivered by Dr. Bailey to Lansdale, through appellant, is an investment contemplated by the
Revised Securities Act and not a mere act of buying and selling foreign exchange. The
Customers Agreement, marked as Exhibit C during the hearing of the case, was not offered
in evidence by the prosecution. The fundamental rule is that upon him who alleges rests the
burden of proof.

No less than the Constitution mandates that an accused shall be presumed innocent until the
contrary is proved. Section 14 (2), Article III of the Constitution provides that in criminal cases, the
quantum of evidence required to overturn this presumption is proof beyond reasonable doubt,
which, under Section 2, Rule 133 of the Revised Rules of Court, is that proof which produces moral
certainty in an unprejudiced mind.

Hence, the prosecution failed to prove the guilt of the accused.

MANUEL V. BAVIERA vs. ESPERANZA PAGLINAWAN et. al

G.R. No. 168380, February 8, 2007

FACTS: Manuel Baviera was the former head of the HR Service Delivery and Industrial Relations of
Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign banking
corporation duly licensed to engage in banking, trust, and other fiduciary business in the Philippines
which is subject conditions under Resolution No. 1142. Apparently, SCB did not comply with the
above conditions. Instead, as early as 1996, it acted as a stock broker, soliciting from local residents
foreign securities called GLOBAL THIRD PARTY MUTUAL FUNDS (GTPMF), denominated in US

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dollars. These securities were not registered with the Securities and Exchange Commission (SEC).
These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore.

SCBs counsel advised the bank to proceed with the selling of the foreign securities although
unregistered with the SEC, under the guise of a custodianship agreement; and should it be
questioned, it shall invoke Section 72 of the General Banking Act (Republic Act No.337). In sum, SCB
was able to sell GTPMF securities worth around P6 billion to some 645 investors.

However, SCBs operations did not remain unchallenged. On July 18, 1997, the Investment Capital
Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the
Revised Securities Act, particularly the provision prohibiting the selling of securities without prior
registration with the SEC; and that its actions are potentially damaging to the local mutual fund
industry.

On September 2, 1997, the SEC issued a Cease and Desist Order against SCB, holding that its services
violated the Revised Securities Act. on August 17, 1998, the BSP directed SCB not to include
investments in global mutual funds issued abroad in its trust investments portfolio without prior
registration with the SEC and it was confirmed by SCB. However, notwithstanding its commitment
and the BSP directive, SCB continued to offer and sell GTPMF securities in this country. This
prompted petitioner to enter into an Investment Trust Agreement with SCB.

The trend in the securities market, however, was bearish and the worth of petitioners investment
went down further to only US$3,000.00. On October 26, 2001, petitioner learned from Marivel
Gonzales, head of the SCB Legal and Compliance Department, that the latter had been prohibited by
the BSP to sell GPTMF securities. Petitioner then filed with the BSP a letter-complaint demanding
compensation for his lost investment. But SCB denied his demand on the ground that his investment
is regular.

On July 15, 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its
prosecutors, public respondents, a complaint charging the above-named officers and members of
the SCB Board of Directors and other SCB officials, private respondents, with syndicated estafa.

ISSUE: Whether or not criminal complaint for violation of any law or rule administered by the SEC
must first be filed with the latter.

RULING: Yes. Section 53.1 of the Securities Regulation Code provides:

SEC. 53. Investigations, Injunctions and Prosecution of Offenses.

53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to
determine whether any person has violated or is about to violate any provision of this Code,
any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit
any person to file with it a statement in writing, under oath or otherwise, as the Commission
shall determine, as to all facts and circumstances concerning the matter to be investigated.
The Commission may publish information concerning any such violations and to investigate
any fact, condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and regulations

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 thereunder, or in securing information to serve as a basis for recommending further
legislation concerning the matters to which this Code relates: Provided, however, That any
person requested or subpoenaed to produce documents or testify in any investigation shall
simultaneously be notified in writing of the purpose of such investigation: Provided,
further,That all criminal complaints for violations of this Code and the implementing rules and
regulations enforced or administered by the Commission shall be referred to the Department
of Justice for preliminary investigation and prosecution before the proper court: Provided,
furthermore, That in instances where the law allows independent civil or criminal
proceedings of violations arising from the act, the Commission shall take appropriate action
to implement the same: Provided, finally; That the investigation, prosecution, and trial of such
cases shall be given priority.

The Court of Appeals held that under the above provision, a criminal complaint for violation of any
law or rule administered by the SEC must first be filed with the latter. If the Commission finds that
there is probable cause, then it should refer the case to the DOJ.

A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it
must first be referred to an administrative agency of special competence, i.e., the SEC. Under the
doctrine of primary jurisdiction, courts will not determine a controversy involving a question within
the jurisdiction of the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact. The Securities Regulation Code is a
special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation
of the Code and its implementing rules and regulations should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary
investigation and prosecution as provided in Section 53.1 earlier quoted.

Securities and Exchange Commission vs. Performance Foreign Exchange, Corp.

GR No 154131, July 20, 2006

FACTS: Performance Foreign Exchange Corporation, respondent, is a domestic corporation duly

registered with the SEC and engaged as its primary purpose to operate as a broker/agent between
market participants in transactions involving, but not limited to, foreign exchange, deposits, interest
rate instruments, and similar or derivative products, other than acting as a broker for the trading of
securities pursuant to the Revised Securities Act of the Philippines. The respondent’s secondary
purpose is to engage in money changer or exchanging foreign currencies. The respondent received a
letter from SEC requiring it to appear before the Compliance and Enforcement Department (CED) for
a clarificatory conference regarding its business operations. The Director of CED issued a Cease and
Desist Order for possible violations of The Securities Regulation Code and that the outcome of the
inquiry shows that respondent is engaged in the trading of foreign currency futures contracts in
behalf of its clients without the necessary license; that such transaction can be deemed as a direct
violation of Section 11 of R.A. No. 8799. The respondent filed a motion to SEC to lift the said order.

SEC Chairman Bautista sent a letter to the BSP, requesting a definitive statement that respondent’s
business transactions are a form of financial derivatives and, therefore, can only be undertaken by
banks or non-bank financial intermediaries performing quasi-banking functions. However, SEC issued
an Order denying respondent’s motion for the lifting of the Cease and Desist Order without waiting

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for BSP’s determination of the matter. Thereafter, SEC issued an order making the Cease and Desist
Order permanent.

Respondent filed with the Court of Appeals a Petition for Certiorari. It alleged that SEC grave abuse
of discretion when it issued the Cease and Desist Order and its subsequent Order making the same
permanent without waiting for the BSP’s determination of the real nature of its business operations;
and that petitioner’s Orders, issued without any factual basis, violated its (respondent’s)
fundamental right to due process. BSP, in answer to SEC Chairman letter-request stated that
respondent’s business activity " does not fall under the category of futures trading "and "cannot be
classified as financial derivatives transactions, "CA ruled that SEC acted with grave abuse of
discretion when it issued its challenged Orders without a positive factual finding that respondent
violated the Securities Regulation Code.

ISSUE: Whether petitioner SEC acted with grave abuse of discretion in issuing the Cease and Desist
Order and its subsequent Order making it permanent

RULING: Section 64 of R.A. No. 8799, provides:

Sec. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification,
motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order
without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.

Under the above provision, there are two essential requirements that must be complied with by the
SEC before it may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.

Here, the first requirement is not present. Petitioner did not conduct proper investigation or
verification before it issued the challenged orders. The clarificatory conference undertaken by
petitioner regarding respondent’s business operations cannot be considered a proper investigation
or verification process to justify the issuance of the Cease and Desist Order. It was merely an initial
stage of such process, considering that after it issued the said order following the clarificatory
conference, petitioner still sought verification from the BSP on the nature of respondent’s business
activity.

Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and
verification process. In fact, such referral indicates that petitioner concedes to the BSPs expertise in
determining the nature of respondents business. It bears stressing, however, that such investigation
and verification, to be proper, must be conducted by petitioner before, not after, issuing the Cease
and Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even
before it could finish its investigation and verification on respondent’s business activity obviously
contravenes Section 64 of R.A. No. 8799 earlier quoted.

Which brings us to the second requirement. Before a cease and desist order may be issued by the
SEC, there must be a showing that the act or practice sought to be restrained will operate as a fraud

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on investors or is likely to cause grave, irreparable injury or prejudice to the investing public. Such
requirement implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be determined
after the BSP shall have submitted its findings to petitioner. However, there is nothing in the
questioned Orders that shows how the public is greatly prejudiced or damaged by respondent’s
business operation.

POWER HOMES UNLIMITED CORPORATION vs SECURITIES AND EXCHANGE COMMISSION AND

NOEL MANERO

G.R. No. 164182 February 26, 2008

FACTS: On October 27, 2000, respondent Noel Manero requested public respondent SEC to
investigate petitioners business. He claimed that he attended a seminar conducted by petitioner
where the latter claimed to sell properties that were inexistent and without any brokers license.
On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether
petitioners business involves legitimate network marketing.

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a
conference on December 13, 2000 that was attended by petitioners incorporators John Lim, Paul
Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioners
marketing scheme and list of its members with addresses. The following day or on December 14,
2000, petitioner submitted to public respondent SEC copies of its marketing course module and
letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer
29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it
gathered documents such as certificates of accreditation to several real estate companies, list of
members with web sites, sample of member mail box, webpages of two (2) members, and lists of
Business Center Owners who are qualified to acquire real estate properties and materials on
computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of
investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No.
8799 (The Securities Regulation Code),[5] but failed to register them in violation of Sec. 8.1 of the
same Act, public respondent SEC issued a CDO.

ISSUE: Whether the business of petitioner involves an investment contract that is considered
security and thus, must be registered prior to sale or offer for sale or distribution to the public

RULING: An investment contract is defined in the Amended Implementing Rules and Regulations of
R.A. No. 8799 as a contract, transaction or scheme (collectively contract) whereby a person invests
his money in a common enterprise and is led to expect profits primarily from the efforts of others.

In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a company
offering to sell to the public contracts characterized as self-improvement courses. On appeal from a
grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held that self-improvement
contracts which primarily offered the buyer the opportunity of earning commissions on the sale of
contracts to others were investment contracts and thus were securities within the meaning of the
federal securities laws. This is regardless of the fact that buyers, in addition to investing money

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needed to purchase the contract, were obliged to contribute their own efforts in finding prospects
and bringing them to sales meetings. The appellate court held: It is apparent from the record that
what is sold is not of the usual business motivation type of courses. Rather, the purchaser is really
buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the
purchaser has brought to Dare. The promotional aspects of the plan, such as seminars, films, and
records, are aimed at interesting others in the Plans. Their value for any other purpose is, to put it
mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing others into the
organization, for which he will receive a part of what they pay. His task is to bring prospective
purchasers to Adventure Meetings. The business scheme of petitioner in the case at bar is essentially
similar. An investor enrolls in petitioners program by paying US$234. This entitles him to recruit two
(2) investors who pay US$234 each and out of which amount he receives US$92. A minimum
recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2) each,
entitles the principal investor to US$184 and the pyramid goes on.

Securities and Exchange Commission v. W. J. Howey Co.

328 US 293, 1946

FACTS: Howey owned a large citrus grove and solicited investors to participate in his
business venture. Howey would implement a land sale contract for a small portion of the
grove to the investor while also having them enter into a service contract for cultivation of
that land. The service contract granted Howey the complete right to possession due to the
investor not taking part in cultivation of any sort. Once harvested, the investor would get an
account for the produce yielded by the strip they invested in, however the fruit was
marketed exclusively by Howey. Howey utilized various agencies of interstate commerce
when endorsing this arrangement but failed to register the contracts and “securities” with
the SEC. This led to the SEC bringing an action seeking an injunction against the use of
interstate commerce on the grounds that Howey established sales of unregistered
securities, violating § 5(a) of Securities Act of 1933. Trial court denied the injunction, saying
that the contract arrangement did not provide sales of securities. The court of appeals
affirmed. The SEC sought certiorari.

ISSUE: Is the term security referencing any document(s) that provide evidence of a
monetary investment in a common enterprise whose profits come only through the labors
of others?

RULING: Yes. As defined by § 2(a)(1) of the Act, a “security” includes the documents traded
for investment or conjecture, having substance over form, regulating the type of a specific
document or agreement. Howey is offering an arrangement to invest money in and obtain a
portion of the profits of a large citrus fruit operation. Therefore, the documents in this case
are representative of shares in the company. The court rejects the court of appeals’ idea that
due to the business being unpredictable and promotional in nature, that this deal did not
represent the sale of securities. Transference of something with tangible value is not
enough to exclude the agreement from the 1933 Act. Reversed.

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 SEC vs. Prosperity.Com, Inc
GR 164197, January 25, 2012

FACTS: Prosperity.Com, Inc. (PCI) sold computer software and hosted websites. To make a
profit, PCI devised a scheme in which for the price of US$234.00, a buyer would acquire from
it an internet website of a 15-mega byte (MB) capacity. At the same time, by referring to PCI
his own down-line buyers, a first-time buyer could earn commission, interest in real estate,
and insurance coverage. To benefit from this scheme, a PCI buyer must enlist and sponsor at
least two other buyers as his own downlines. These second tier of buyers could in turn build
up their own downlines. For each pair of downlines, the buyer-sponsor receives at US$92.00
commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to the buyer-sponsor. SEC ruled that
PCI's scheme constitutes an investment contract and, following the Securities Regulation
Code, it should have first registered such contract or securities with the SEC.

ISSUE: Does the PCI's scheme constitutes an investment contract?

RULING: No. An investment contract is a contract, transaction, or scheme where a person

invests his money in a common enterprise and is led to expect profits primarily from the
efforts of others. The United States Supreme Court held in Securities and Exchange
Commission v. W.J. Howey Co. that, for an investment contract to exist, the following
elements, referred to as the Howey test must concur: (a) a contract, transaction, or scheme;
(b) an investment of money; (c) investment is made in a common enterprise; (d) expectation
of profits; and (e) profits arising primarily from the efforts of others.

In this case, PCI's clients do not make such investments. They buy a product of some value
to them: an internet website of a 15-MB capacity. The client can use this website to enable
people to have internet access to what he has to offer to them. The buyers of the website
do not invest money in PCI that it could use for running some business that would generate
profits for the investors. The price of US$234 is what the buyer pays for the use of the
website, a tangible asset that PCI creates, using the computer facilities and technical skills.

The commission, interest in real estate, and insurance coverage are incentives to downline
sellers to bring in other customers. These can hardly be regarded as profits from investment
of money under the Howey test.

SEC vs. Oudine Santos

G.R. Nos. 195542, March 19, 2014

FACTS: Sometime in 2007, yet another investment scam was exposed with the disappearance of its
primary perpetrator Liew, a self–styled financial guru and Chairman of the Board of Directors of
Performance Investment Products Corporation (PIPC–BVI), a foreign corporation registered in the

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British Virgin Islands.To do business in the Philippines, PIPC–BVI incorporated herein as Philippine
International Planning Center Corporation (PIPC Corporation). Because the head of PIPC Corporation
had gone missing and with it the monies and investment of a significant number of investors, the SEC
was flooded with complaints from 31 individuals against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation of certain provisions of the SRC, including
Section 28 thereof. Santos was charged in the complaints in her capacity as investment consultant
of PIPC Corporation, who supposedly induced private complainants Lorenzo and Sy, to invest their
monies in PIPC Corporation. In her defense, Santos alleged that she was merely an employee of PIPC
thus should not be personally liable.

ISSUE: Did Santos violate Sec. 28 of SRC which punishes unregistered broker or dealer who engage in
business of buying or selling securities?

RULING: YES. The Court held that Santos acted as an agent or salesman of PIPC Corporation making
her liable under Sec. 28 of SRC. There is no question that Santos was in the employ of PIPC
Corporation and/or PIPC–BVI, a corporation which sold or offered for sale unregistered securities in
the Philippines. To escape probable culpability, Santos claims that she was a mere clerical employee
of PIPC Corporation and/or PIPC–BVI and was never an agent or salesman who actually solicited the
sale of or sold unregistered securities issued by PIPC Corporation and/or PIPC–BVI. Solicitation is the
act of seeking or asking for business or information; it is not a commitment to an agreement. Santos,
by the very nature of her function as what she now unaffectedly calls an information provider,
brought about the sale of securities made by PIPC Corporation and/or PIPC–BVI to certain individuals,
specifically private complainants Sy and Lorenzo by providing information on the investment
products of PIPC Corporation and/or PIPC–BVI with the end in view of PIPC Corporation closing a
sale. While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments, Santos
procured the sale of these unregistered securities to the 2 complainants by providing information on
the investment products being offered for sale by PIPC Corporation and/or PIPC–BVI and convincing
them to invest therein. Thus, Santos violated Sec. 28 of SRC. Its elements are as follows: Engaging in
the business of buying or selling securities in the Philippines as a broker or dealer; Acting as a
salesman; or Acting as an associated person of any broker or dealer, unless registered as such with
the SEC.

THE SECURITIES AND EXCHANGE COMMISSION (SEC) v. CJH DEVELOPMENT

CORPORATION
G.R. No. 210316, November 28, 2016

FACTS: On October 19, 1996, CJHDC entered into a Lease Agreement (Agreement) with the Bases
Conversion and Development Authority (BCDA) for the development into a public tourism complex,
multiple-use forest watershed and human resource development center, of a 247-hectare property
within the John Hay Special Economic Zone in Baguio City. CJHDC came up with a development plan
and put it into effect. Part of such development plan was the construction of two (2) condominium-
hotels (condotels) which it named as "The Manor" and "The Suites". Subject to CJHDC's leasehold
rights under the Agreement, the residential units in these condotels were then offered for sale to the
general public by means of two schemes. The first is a straight purchase and sale contract where the
buyer pays the purchase price for the unit bought, either in lump sum or on installment basis and,
thereafter, enjoys the benefits of full ownership, subject to payment of maintenance dues and utility
fees. The second scheme involved the sale of the unit with an added option to avail of a "leaseback"

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or a "money-back" arrangement. Under this added option, the buyer pays for the unit bought and,
subsequently, surrenders its possession to the management of CJHDC or CJHSC. These corporations
would then create a pool of these units and, in tum, will offer them for billeting under the
management of the hotel operated by the Camp John Hay Leisure, Inc. (CJHLI). This arrangement
lasts for a period of fifteen (15) years with a renewal option for the same period until 2046. The
buyers who opt for the "leaseback" arrangement will receive either a proportionate share in seventy
percent (70%) of the annual income derived from the hotel operation of the pooled rooms or a
guaranteed eight percent (8%) return on their investment. On the other hand, those who choose to
avail of the "money-back" arrangement are entitled to a return of the purchase price they paid for
the units by expiration of the Lease Agreement in 2046. The buyers are given the right to use their
units for thirty (30) days within a year and they are exempted from paying the monthly dues and
utility fees.

Subsequently, the BCDA acquired information regarding CJHDC and CJHSC's scheme of selling "The
Manor" and "The Suites" units through "leaseback" or "money-back" terms. Hence, the BCDA
requested the SEC to conduct an investigation into the operations of CJHDC and CJHSC on the belief
that the "leaseback" or "money-back" arrangements they are offering to the public is, in essence,
investment contracts which are considered as securities under Republic Act No. 8799, otherwise
known as the Securities Regulation Code (SRC).

Subsequently, on April 23, 2012, the SEC's Corporation Finance Department (CFD) issued a
Memorandum indicating its opinion that the "leaseback" arrangements offered by respondents to
the public are investment contracts.

On May 16, 2012, the EPD filed a Motion for Issuance of Cease and Desist Order with the SEC En Banc
praying that CJHDC and CJHSC, their respective officers, directors, representatives, salesmen,
agents, and any and all persons claiming and acting for and in their behalf be directed to immediately
cease and desist "from further engaging in activities of selling and/or offering for sale investment
contracts covering the condotel units on "leaseback" and/or "money-back" arrangements until the
requisite registration statement is duly filed with and approved by the Commission and the
corresponding permit to offer/sell securities is issued. The SEC En Banc issued a CDO. The CA issued a
writ of preliminary injunction which then became permanent.

ISSUE: Whether or not the respondents failed to exhaust all administrative remedies available to
them

RULING: The main issue, as to whether or not the sale of "The Manor" or "The Suites" units to the
general public under the "leaseback" or "money-back" scheme is a form of investment contract or
sale of securities, is not a pure question of law. On the contrary, it involves a question of fact that
falls under the primary jurisdiction of the SEC. Under the doctrine of primary administrative
jurisdiction, courts will not determine a controversy where the issues for resolution demand the
exercise of sound administrative discretion requiring the special knowledge, experience, and services
of the administrative tribunal to determine technical and intricate matters of fact, which under a
regulatory scheme have been placed within the special competence of such tribunal or agency.

In other words, if a case is such that its determination requires the expertise, specialized training,
and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the court is had even if the matter may well be within the latter's proper

388 | P a g e
jurisdiction. The objective of the doctrine of primary jurisdiction is to guide the court in determining
whether it should refrain from exercising its jurisdiction until after an administrative agency has
determined some question or some aspect of some question arising in the proceeding before the
court.

In the instant case, the resolution of the issue as to whether respondents' scheme of selling the
subject condotel units is tantamount to an investment contract and/or sale of securities, as defined
under the SRC, requires the expertise and technical knowledge of the SEC being the government
agency which is tasked to enforce and implement the provisions of the said Code as well as its
implementing rules and regulations. In fact, after the issuance of the CDO, the SEC is yet to hear from
respondents and receive evidence from them regarding this issue. Nonetheless, respondents
prematurely filed an appeal with the CA, which erroneously gave due course to it in disregard of the
doctrines of exhaustion of administrative remedies and primary jurisdiction.
Securities required to be registered

Timeshare Realty v. Lao

G.R. No. 158941 February 11, 2008

FACTS: On October 6, 1996, herein petitioner, Timeshare Realty, sold to Ceasar M. Lao and Cynthia V.
Cortez (respondents), one timeshare of Laguna de Boracay for US$7,500.00 payable in eight months
and fully paid by the respondents. Sometime in February 1998, the SEC issued a resolution to the
effect that petitioner was without authority to sell securities, like timeshares, prior to February 11,
1998. It further stated in the resolution/order that the Registration Statement of petitioner became
effective only on February 11, 1998. It also held that the 30 days within which a purchaser may
exercise the option to unilaterally rescind the purchase agreement and receive the refund of money
paid applies to all purchase agreements entered into by petitioner prior to the effectivity of the
Registration Statement. Petitioner sought a reconsideration of the aforesaid order but the SEC
denied the same in a letter dated March 9, 1998. On March 30, 1998, respondents wrote petitioner
demanding their right and option to cancel their Contract, as it appears that Laguna de Boracay is
selling said shares without license or authority from the SEC. For failure to get an answer to the said
letter, respondents this time, through counsel, reiterated their demand through another letter dated
June 29, 1998. But despite repeated demands, petitioner failed and refused to refund or pay
respondents.

ISSUE: Is the issuance by the SEC of an authority to sell securities in favor of Timeshare Realty, at a
later date, will have the effect of ratifying those transactions entered into, at an earlier date, without
such license to sell said securities?

RULING: NO.

The provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration
as a corporation already authorizes it to deal with unregistered timeshares. Corporate registration is
just one of several requirements before it may deal with timeshares: Section 8. Procedure for
registration. - (a) All securities required to be registered under subsection (a) of Section four of this
Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in
the sale thereof, in the office of the Commission, of a sworn registration statement with respect to
such securities, containing or having attached thereto, the following: x x x x (36) Unless previously
filed and registered with the Commission and brought up to date: (a) A copy of its articles of

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incorporation with all amendments thereof and its existing by-laws or instruments corresponding
thereto, whatever the name, if the issuer be a corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed
under Section 4 from dealing with unregistered timeshares, thus: Section 4. Requirement of
registration of securities. - (a) No securities, except of a class exempt under any of the provisions of
Section five hereof or unless sold in any transaction exempt under any of the provisions of Section
six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless
such securities shall have been registered and permitted to be sold as hereinafter provided.


MAKATI STOCK EXCHANGE, INC. vs. SECURITIES AND EXCHANGE COMMISSION and
MANILA STOCK EXCHANGE
G.R. No. L-23004, June 30, 1965

FACTS: Petitioners filed a petition for review of the resolution of the Securities and Exchange
Commission which would deny the Makati Stock Exchange, Inc., permission to operate a stock
exchange unless it agreed not to list for trading on its board, securities already listed in the Manila
Stock Exchange.

Objecting to the requirement, Makati Stock Exchange, Inc. contends that the Commission has no
power to impose it and that, anyway, it is illegal, discriminatory and unjust.

Under the law, a stock exchange can only do a business in the Philippines when it is previously
registered with the Commission by filing a statement containing the information required by law
(Sec. 17, Securities Act/ Commonwealth Act 83). It is assumed that the Commission may permit
registration if this is complied with; if not, it may refuse.

Petitoner is challenging this particular requirement of the Commission (rule against double listing)
may deemed to have shown inability or refusal to abide by its rules, and thereby given ground for
denying registration

ISSUE: Whether or not the Commission has authority to promulgate and implement rules
prohibiting another exchange to operate on the ground that it is of the protection of “public
interest”

RULING: It is fundamental that an administrative officer has only such powers as are
expressly granted to him by the statute, and those necessarily implied in the exercise
thereof.

The test is not whether the Act forbids the Commission from imposing a prohibition, but whether it
empowers the Commission to prohibit. No specific portion of the statute has been cited to uphold
this power. The general power to “regulate” which the Commission has (Sec. 33) does not imply
authority to prohibit.

Petitioner contends that the power may be inferred from the express power of the Commission to
suspend trading in a security, under said sec. 28: And if in its opinion, the public interest so requires,

390 | P a g e
summarily to suspend trading in any registered security on any securities exchange (Sec. 28[3],
Securities Act.)

The Commission has not acted in pursuance of such authority, for the simple reason that suspension
under it may only be for ten days. Besides, the suspension of trading in the security should not be on
one exchange only, but on all exchanges; bearing in mind that suspension should be ordered “for the
protection of investors” (first par., sec. 28) in all exchanges, naturally, and if “the public interest so
requires” [sec. 28(3)].

LA ORDEN DE PP. BENEDICTINOS DE LAS ISLAS FILIPINAS, vs.

J. A. STIVER and THE PHILIPPINE TRUST COMPANY
G.R. No. L-4568 June 16, 1953

FACTS: In 1928, "La Orden" floated a bond issue, maturing from two to fifteen years, in the total sum
of P450,000 with the "Philippine Trust," as trustee. As security for the bonds, the former corporation
executed a first mortgage and deed of trust over certain parcels of land in the City of Manila, in favor
of the latter company, for the benefit of the bondholders. In 1941, most of the bonds having matured
and unpaid, the "Philippine Trust" instituted an action in the Court of First Instance of Manila, for the
purpose of selling the property mortgaged, or portions thereof, and applying the proceeds to the
redemption of the matured bonds plus accrued interests. The court placed the property mortgaged
under receivership, and the receivers appointed subdivided a portion of the property and sold the
same during the Japanese occupation. An amount in Japanese occupation currency, sufficient to
redeem the entire bond issue, together with all accrued interests, was then turned over by the
receivers to the "Philippine Trust" and the mortgage and deed of trust was cancelled with the
approval of the court. In its order closing the receivership, the Court also released "La Orden" from
all obligations it contracted with respect to the bonds. After receipt of the redemption money, the
"Philippine Trust" notified the bondholders, by publication, of its readiness to redeem the bonds.
Some of the bondholders surrendered their bonds and were paid the value thereof, in the currency
then existing. Others failed to do so, however, and as the redemption money became worthless
after the liberation of the Philippines by the American Forces, their bonds have not been redeemed
up to this date. The petitioner contends that the Securities and Exchange Commission erred in
ordering it to issue a replacement bond when the obligation represented by the bond no longer
exists because the bond had been paid and the issuer thereof was discharged from its obligation.

ISSUE: WHO HAS THE POWER TO PASS UPON QUESTION OF SUCH EXTINCTION?

RULING: The cessation or extinction of the obligation of the issuer of the securities or bonds to issue
replacement securities or bonds upon proof of their loss or destruction is not provided in Republic
Act No. 62. The determination as to whether or not the issuer of the securities or bonds had
discharged its obligation, until otherwise provided by law lies within the province of the courts and
the Securities and Exchange Commission is powerless to pass upon it. Whether the payment made
by the issuer of the bonds of the whole amount of the mortgage obligation or bonded indebtedness
to the trustee bank which is still in possession of part of the said amount has discharged the issuer
from its obligation to pay the bondholders, and whether the trustee after calling upon the
bondholders to receive the amount due them upon their bonds has been discharged from liability to
the bondholders who have not been paid because of their failure to call upon, and receive from, the
trustee what is due them upon their bonds, are matters foreign to the functions of the Securities and
Exchange Commission because they fall within the field of judicial determination and adjudication.

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 Phil Stock Exchange Inc. vs. CA
GR No. 125469 October 27 1997

FACTS: Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was
granted permission by the Securities and Exchange Commission (SEC) to sell its shares to the public
in order for PALI to develop its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to facilitate
exchange. The PSE Board of Governors denied PALI’s application on the ground that there were
multiple claims on the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the
Marcoses), and some other corporations were claiming assets if not ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC reversed PSE’s
decisions and ordered the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

RULING: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to
the Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE,
as a corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control.
In order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC
has the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say
as to whether or not securities, including shares of stock of a corporation, may be traded or not in
the stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse
decisions issued by the PSE if such are tainted with bad faith. In this case, there was no showing that
PSE acted with bad faith when it denied the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALI’s application will only be contrary to the
best interest of the general public. It was reasonable for the PSE to exercise its judgment in the
manner it deems appropriate for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.

Nestle Phils. vs. Court of Appeals

GR No. 86738, November 13, 1991

FACTS: San Miguel Corporation and Nestle S.A. are the two major stockholders of Nestle.
Nestle increased its authorized capital stock and was approved by SEC. Thereafter, some
unissued stocks were sold to San Miguel and Nestle. Nestle filed a complaint with the SEC,
seeking to exempt its firm from the registration requirement of Section 4 of the Revised
Securities Act and from the payment of the fee referred to in Section 6(c). The Provision
states that a corporation may be exempted from the requirement of registration it its issues
additional capital stock among its own stockholders exclusively. Nestle argued that issuance
of additional capital stock means issuance of increased authorized capital stock. SEC held
that for purposes of granting a general or particular exemption from the registration
requirements, a request for exemption and fee equivalent to 0.1% of issued value or
securities or stocks are required.

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ISSUE: Is Nestle entitled to exemption?

RULING: No. The Court held that both the SEC and the Court of Appeals resolved the
ambiguity by construing Section 6 (a) (4) as referring only to the issuance of shares of stock
as part of and in the course of increasing the authorized capital stock of Nestle.

Consideration of the underlying statutory purpose of Section 6(a) (4) compels the Court to sustain
the view taken by the SEC and the Court of Appeals. The reading by the SEC of the scope of
application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory
objective of protecting the investing public by requiring proposed issuers of capital stock to inform
such public of the true financial conditions and prospects of the corporation. By limiting the class of
exempt transactions contemplated by the last clause of Section 6(a) (4) to issuances of stock done in
the course of and as part of the process of increasing the authorized capital stock of a corporation,
the SEC is enabled to examine issuances by a corporation of previously authorized but theretofore
unissued capital stock, on a case-to-case basis, under Section 6(b); and thereunder, to grant or
withhold exemption from the normal registration requirements depending upon the perceived level
of need for protection by the investing public in particular cases.

Gabionza vs CA
G.R. No. 161057, September 12, 2008

FACTS: Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed a complaint charging respondents
Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with several criminal acts. Roxas was the
president of ASB Holdings, Inc. (ASBHI) while Nolasco was the senior vice president and treasurer of
the same corporation. Gabionza and Tan had previously placed monetary investment with the Bank
of Southeast Asia (BSA).

They alleged that they were convinced by the officers of ASBHI to lend or deposit money with the
corporation. They were issued receipts reflecting the name “ASB Realty Development” which they
were told was the same entity as BSA or was connected therewith but beginning in March 1998, the
receipts were issued in the name of ASBHI. DBS Bank started to refuse to pay for the checks
purportedly by virtue of “stop payment” orders from ASBHI. ASBHI filed apetition for rehabilitation
and receivership with the Securities and Exchange Commission (SEC), and it was able to obtain an
order enjoining it from paying its outstanding liabilities.

This led to the filing of complaints by the petitioners and others against ASBHI. The complaints were
for estafa under Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa under Presidential
Decree No. 1689, violation of the Revised Securities Act and violation of the General Banking Act.
Task Force on Financial Fraud (Task Force), was created by the Department of Justice (DOJ) which
dismissed the said complaints. Such dismissal was concurred by the in by the assistant chief state
prosecutor and approved by the chief state prosecutor. Petitioners filed a motion for
reconsideration but it was denied.

With respect to the charges of estafa under Article 315(2) of the Revised Penal Code and of violation
of the Revised Securities Act the Task Force concluded that the subject transactions were loans
which gave rise only to civil liability; that petitioners were satisfied with the arrangement x x x; that
petitioners never directly dealt with Nolasco and Roxas; and that a check was not a security as

393 | P a g e
contemplated by the Revised Securities Act. However, the DOJ made a Resolution alleging that it
also made it clear that the false representations have been made to petitioners prior to or
simultaneously with the commission of the fraud. The assurance given to them by ASBHI that it is a
worthy credit partner occurred before they parted with their money. Relevantly, ASBHI is not the
entity with whom petitioners initially transacted with, and they averred that they had to be
convinced with such representations that Roxas and the same group behind BSA were also involved
with ASBHI.

ISSUE: Whether the checks issued by the corporation to its lenders constitutes securities required to
be registered under Section 4 of Batas Pambansa Bilang 176.

RULING: Yes. Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act, generally requires
the registration of securities and prohibits the sale or distribution of unregistered securities. The DOJ
extensively concluded that private respondents are liable for violating such prohibition against the
sale of unregistered securities:

Respondents Roxas and Nolasco do not dispute that in 1998, ASB borrowed funds about 700
individual investors amounting to close to P4 billion, on recurring, short-term basis, usually 30 or 45
days, promising high interest yields, issuing therefore mere postdate checks. Under the
circumstances, the checks assumed the character of evidences of indebtedness, which are among
the securities mentioned under the Revised Securities Act. The term securities embodies a flexible
rather than static principle, one that is capable of adaptation to meet the countless and variable
schemes devised by those who seek to use the money of others on the promise of profits (69 Am Jur
2d, p. 604). Thus, it has been held that checks of a debtor received and held by the lender also are
evidences of indebtedness and therefore securities under the Act, where the debtor agreed to pay
interest on a monthly basis so long as the principal checks remained uncashed, it being said that such
principal extent as would have promissory notes payable on demand (Id., p. 606, citing Untied States
v. Attaway (DC La) 211 F Supp 682). In the instant case, the checks were issued by ASB in lieu of the
securities enumerated under the Revised Securities Act in a clever attempt, or so they thought, to
take the case out of the purview of the law, which requires prior license to sell or deal in securities
and registration thereof. The scheme was to designed to circumvent the law. Checks constitute mere
substitutes for cash if so issued in payment of obligations in the ordinary course of business
transactions. But when they are issued in exchange for a big number of individual non-personalized
loans solicited from the public, numbering about 700 in this case, the checks cease to be such. In
such a circumstance, the checks assume the character of evidences of indebtedness. This is
especially so where the individual loans were not evidenced by appropriate debt instruments, such
as promissory notes, loan agreements, etc., as in this case. Purportedly, the postdated checks
themselves serve as the evidences of the indebtedness. A different rule would open the floodgates
for a similar scheme, whereby companies without prior license or authority from the SEC. This cannot
be countenanced. The subsequent repeal of the Revised Securities Act does not spare respondents
Roxas and Nolasco from prosecution thereunder, since the repealing law, Republic Act No. 8799
known as the Securities Regulation Code, continues to punish the same offense (see Section 8 in
relation to Section 73, R.A. No. 8799)

Public Companies

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 PHILIPPINE VETERANS BANK vs. JUSTINA CALLANGAN

G.R. No. 191995 August 3, 2011

FACTS: Respondent Justina F. Callangan, the Director of the Corporation Finance Department of the
Securities and Exchange Commission (SEC), sent Philippine Veterans Bank (the Bank) a letter,
informing it that it qualifies as a "public company" under Section 17.2 of the Securities Regulation
Code (SRC) in relation with Rule 3(1) (m) of the Amended Implementing Rules and Regulations of the
SRC. The Bank is thus required to comply with the reportorial requirements set forth in Section 17.1
of the SRC and The Bank responded by explaining that it should not be considered a "public
company" because it is a private company whose shares of stock are available only to a limited class
or sector, i.e., to World War II veterans, and not to the general public but Director Callangan rejected
the Bank’s explanation and assessed it a penalty for failing to comply with the SRC reportorial
requirements from 2001 to 2003. The Bank moved for the reconsideration of the assessment, but
Director Callangan denied the motion. The Bank then filed a petition for review with the Court of
Appeals (CA) but the CA dismissed the petition and affirmed the assailed SEC ruling. The CA also
denied the Bank’s motion for reconsideration, opening the way for the Bank’s petition for review on
certiorari filed with the Supreme Court but the Supreme Court denied the Bank’s petition for failure
to show any reversible error in the assailed CA decision and resolution. Now the Supreme Court
resolves the motion for reconsideration filed by petitioner Philippine Veterans Bank (the Bank).

ISSUE: Is the petitioner Philippines Veteran’s Bank a “Public Company” under the Securities
Regulation Code (SRC).

RULING: The Supreme Court rule in the affirmative. it held that the bank is a public company under
the SRC. Moreover, under the Rule 3(1)(m) of the Amended Implementing Rules and Regulations of
the SRC, which defines a "public company" as "any corporation with a class of equity securities listed
on an Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two
hundred (200) or more holders, at least two hundred (200) of which are holding at least one hundred
(100) shares of a class of its equity securities."

From these provisions, it is clear that a "public company," as contemplated by the SRC, is not limited
to a company whose shares of stock are publicly listed; even companies like the Bank, whose shares
are offered only to a specific group of people, are considered a public company, provided they meet
the requirements enumerated above.

The records establish, and the Bank does not dispute, that the Bank has assets exceeding
P50,000,000.00 and has 395,998 shareholders. It is thus considered a public company that must
comply with the reportorial requirements set forth in Section 17.1 of the SRC.

Trading in Securities
CAROLINA INDUSTRIES, INC. vs. CMS STOCK BROKERAGE, INC.
G.R. No L-46908 May 17, 1980
FACTS: The plaintiff Carolina Industries Inc. filed a case against the defendant CMS Stock brokerage,
Inc., which is engaged in the business of buying and selling of stocks and securities for and in behalf
of investors. The defendant made a stock purchases in favor of plaintiff notwithstanding that the

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plaintiff’s account was under margin or above the 50% ceiling required under Section 18 (a) (1) of the
Securities Act.
ISSUE: Whether or not the defendant’s excessive extension of credit in favor of plaintiff violates the
Security Act.
RULING: Yes. The Supreme Court generally follow American interpretations of laws adopted from
the United States like the Securities. They have previously stated that in case of laws patterned after
or adopted from those of the United States, decisions of United States courts construing similar laws
are entitled to great weight. Generally speaking, when a statute has been adopted from another
State and such statute has previously been construed by the courts of such State or country, this
statute is deemed to have been adopted with the construction so given it. It has been uniformly held
that if a broker extends credit to a customer in violation of the Securities Act or the regulations
promulgated pursuant thereto, all to induce a customer to purchase securities, then the broker
has violated the law and the customer may recover from him any loss proximately
resulting therefrom. The customer’s right of action is not affected by his participation in
the transaction “Since the legislation regarded him as incapable of protecting himself.” It has been
held that such protection was intended to apply only to innocent investors as distinguished from
those who lose their innocence and wait to see how their investments turn out before deciding to
invoke the act. The acts of protecting of investors extends to corporations as well as to individuals.

ROY NICOLAS vs. THE HONORABLE COURT OF APPEALS (Sixth Division) and BLESILO F.B. BUAN,
G.R. No. 122857. March 27, 1998

FACTS: Petitioner Roy Nicolas and private respondent Blesito Buan entered into a Portfolio
Management Agreement, wherein Nicolas was to manage the stock transactions of Blesito Buan for
a period of three months with an automatic renewal clause. However, upon the initiative of Buan the
agreement was terminated on August 19, 1987, and thereafter he requested for an accounting of all
transactions made by the Nicolas.

Three weeks after the termination of the agreement, Nicolas demanded from Buan the amount
of P68,263.67 representing his alleged management fees covering the periods of June 30, July 31 and
August 19, 1987 as provided for in the Portfolio Management Agreement. But the demands went
unheeded, much to the chagrin of Nicolas.

Rebuffed, Nicolas filed a complaint for collection of sum of money against Buan before the trial
court. In his answer,Buan contended that Nicolas mismanaged his transactions resulting in losses,
thus, he was not entitled to any management fees.

After hearing, the trial court rendered its decision in favor of Nicolas. The appellate court reversed
the trial courts finding and ruled against Nicolas.

ISSUE: Is Nicolas entitled to receive compensation or his management of Buan’s business? No.

RULING: We affirm the ruling of the Court of Appeals.

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Under the Portfolio Management Agreement, it was agreed that private respondent would pay the
petitioner 20% of all realized profits every end of the month as his management fees. The exact
wording of the provision reads:
3. For his services, the INVESTOR agrees to pay the PORTFOLIO MANAGER 20% of all realized
profits every end of the month.

Evidently, the key word in the provision is profits. Simply put, profit has been defined as the excess
of return over expenditure in a transaction or series of transactions or the series of an amount
received over the amount paid for goods and services.

To begin with, petitioner has the burden to prove that the transaction realized gains or profits to
entitle him to said management fees, as provided in the Agreement. Accordingly, petitioner
submitted the profit and loss statements for the period of June 30, July 31 and August 19, 1987,
showing a total profit of P341,318.34, of which 20% would represent his management fees amounting
to P68,263.70.

Admittedly, like any services rendered or performed, stock brokers are entitled to commercial fees
or compensation pursuant to the Revised Securities Act Rule 19-13, which reads:
RSA Rule 19-13. Charges for Services Performed.
Charges by brokers or dealers, if any, for service performed, including miscellaneous
services such as collection of monies due for principal, dividends, interests, exchange
or transfer of securities, appeals, safekeeping or custody of securities, and other
services, shall be reasonable and not unfairly discriminatory between customers.

Moreover, the same law provides that any fee or commission must be with due regard to relevant
circumstances.

Unfortunately, the profit and loss statements presented by the petitioner are nothing but bare
assertions, devoid of any concrete basis or specifics as to the method of arriving at the amounts
indicated in the documents. In fact, it did not even state when the stocks were purchased, the type
of stocks (whether Class A or B or common or preferred) bought, when the stocks were sold, the
acquisition and selling price of each stock, when the profits, if any, were delivered to the private
respondent, the cost of safekeeping or custody of the stocks, as well as the taxes paid for each
transaction. With respect to the alleged losses, it has been held that where a profit or loss statement
shows a loss, the statement must show income and items of expense to explain the method of
determining such loss. However, in the instant petition, petitioner hardly elucidated the reasons and
the factors behind the losses incurred in the course of the transactions.

In short, no evidentiary value can be attributed to the profit and loss statements submitted by the
petitioner. These documents can hardly be considered a credible or true reflection of the
transactions. It is an incomplete record yielding easily to the inclusion or deletion of certain
matters. The contents are subject to suspicion since they are not reflective of all pertinent and
relevant data. Thus, even assuming the admissibility of these alleged profit and loss statements, they
are devoid of any evidentiary weight, for the amounts are conclusions without premises, its bases
left to speculation, conjectures, assertions and guesswork.

In sum, we find that petitioner has not proven the amounts indicated adequately. His testimony
explaining the bases for the management fees demanded by him are nothing more than a self-

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serving exercise which lacks probative value. There were no credible documentary evidence (e.g.
receipts of the transactions, order ticket, certificate of deposit; whether the stock certificates were
deposited in a bank or professional custodian, and others) to support his claim that profits were
indeed realized. At best, his assertions are founded on mere inferences and generalities. There must
be more convincing proof which in this case is wanting.

To our mind, petitioners complaint is similar to an action for damages, wherein the general rule is
that for the same to be recoverable it must not only be capable of proof but must actually be proved
with a reasonable degree of certainty, and courts, in making the awards, must posit specific facts
which could afford sufficient basis for measuring compensatory or actual damages. Since petitioner
could not present any credible evidence to substantiate his claims, the Court of Appeals was correct
in ordering the dismissal of his complaint.

Lastly, the futility of petitioners action became more pronounced by the fact that he traded
securities for the account of others without the necessary license from the Securities and Exchange
Commission (SEC). Clearly, such omission was in violation of Section 19 of the Revised Securities Act
which provides that no broker shall sell any securities unless he is registered with the SEC. The
purpose of the statute requiring the registration of brokers selling securities and the filing of data
regarding securities which they propose to sell, is to protect the public and strengthen the securities
mechanism.

American jurisprudence emphasizes the principle that:

x x x, an unlicensed person may not recover compensation for services as a broker where a
statute or ordinance requiring a license is applicable and such statute or ordinance is of a
regulatory nature, was enacted in the exercise of the police power for the purpose of
protecting the public, requires a license as evidence of qualification and fitness, and
expressly precludes an unlicensed person from recovering compensation by suit, or at least
manifests an intent to prohibit and render unlawful the transaction of business by an
unlicensed person.

We see no reason not to apply the same rule in our jurisdiction. Stock market trading, a technical and
highly specialized institution in the Philippines, must be entrusted to individuals with proven
integrity, competence and knowledge, who have due regard to the requirements of the law.

LOPEZ, LOCSIN, LEDESMA & CO. INC. VS COURT OFAPPEALS

168 SCRA 307

FACTS: CMS Stock Brokerage, Inc. (CMS) sold to Lopez,Locsin, Ledesma & Co., Inc. (LLL) on the floor
of the MakatiStock Exchange, 7650 Benquet Consolidated sharesamounting to Php 297,650.00 and
to be delivered within 10-20days from date of execution of the contratct.However, CMS failed to
deliver to LLL the said sharewithin the period agreed upon because of the oversight of thehuge
volume of their transactions .On the other hand, LLL refuse to accept the delivery ofthe shares since
their clients whom the purchases were made, “elected to cancel” the same. CMS filed a civil case
against LLL to compel the latter toaccept the delivery of the said shares. They are contendingthat
LLL cannot just refuse to accept the delivery pursuant tothe rules and regulation of the Makati Stock
Exchange.LLL moved to dismiss the complaint on the followinggrounmds:1. that there is a LACK OF

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CAUSE OF ACTION,2. it is NOT the rules and regulation of the StockExchange that will affect the
contractual relationbetween the parties but rather the provisions of theCivil Code.

ISSUE: What will govern the sale of the said shares of stocks,the rules and regulation and the by-laws
of the Makati StockExchange or the provisions of the Civil Code?

RULING: There is no dispute that the contract was draw on thefloor of the Makati Stock Exchange
between two memberstockholders. CMS as the seller and LLL as the buyer. Asmembers of the Stock
Exchange, the rules and regulation aswell as the by-laws of the said stock exchange will govern
theirrelationship with regards to the sale of the said shares ofstocks. According to their by-laws,
in the event that the sellerfails to make the delivery, the buyer shall send thae former aletter of
demand and give him one full business day to makethe delivery.If despite demand by the buyer, the
seller still fails todeliver the same, the buyer can notify the seller that he iscancelling the delivery.In
the case at bar, LLL failed to follow the processaccording to the rule and regulation and the by laws
of theMakati Stock Exchange and also it failed to notify CMS thatthe former is cancelling the delivery
due to the delay.Therefore, LLL is still liable to accept and pay the delivery ofthe shares.It is safe to
say that if the buyer fails to notify the sellerthat he is cancelling his orders, then the orders placed
stillstand

ONAPAL PHILIPPINES COMMODITIES vs., CA

GR No. 90707 Feb 01, 1993

FACTS: The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized and
existing corporation, was licensed as commission merchant/broker by the SEC, to engage in
commodity futures trading in Cebu City under Certificate of Registration No. CEB-182. On April 27,
1983, petitioner and private respondent concluded a "Trading Contract". Like all customers of the
petitioner, private respondent was furnished regularly with "Commodities Daily Quotations"
showing daily movements of prices of commodity futures traded and of market reports indicating
the volume of trade in different future exchanges in Hongkong, Tokyo and other centers. Every time
a customer enters into a trading transaction with petitioner as broker, the trading order is
communicated by telex to its principal, Frankwell Enterprises of Hongkong. If the transaction, either
buying or selling commodity futures, is consummated by the principal, the petitioner issues a
document known as "Confirmation of Contract and Balance Sheet" to the customer. An order of a
customer of the petitioner is supposed to be transmitted from Cebu to petitioner's office in Manila.
From Manila, it should be forwarded to Hongkong and from there, transmitted to the Commodity
Futures Exchange in Japan.

There were only two parties involved as far as the transactions covered by the Trading
Contract are concerned — the petitioner and the private respondents. A case was filed in
court for alleged illegal commodity futures contract. Petitioner contends that the SEC allows
this.

ISSUE: Whether or not the SEC allows commodity futures contracts

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RULING: The written trading contract in question is not illegal but the transaction between the
petitioner and the private respondent purportedly to implement the contract is in the nature of a
gambling agreement and falls within the ambit of Article 2018 of the New Civil Code, which is quoted
hereunder: If a contract which purports to be for the delivery of goods, securities or shares of stock
is entered into with the intention that the difference between the price stipulated and the exchange
or market price at the time of the pretended delivery shall be paid by the loser to the winner, the
transaction is null and void. The loser may recover what he has paid.

The facts clearly establish that the petitioner is a direct participant in the transaction, acting
through its authorized agents. It received the customer's orders and private respondent's
money. As per terms of the trading contract, customer's orders shall be directly transmitted
by the petitioner as broker to its principal, Frankwell Enterprises Ltd. of Hongkong, being a
registered member of the International Commodity Clearing House, which in turn must place
the customer's orders with the Tokyo Exchange. There is no evidence that the orders and
money were transmitted to its principal Frankwell Enterprises Ltd. in Hongkong nor were
the orders forwarded to the Tokyo Exchange. We draw the conclusion that no actual
delivery of goods and commodity was intended and ever made by the parties. In the realities
of the transaction, the parties merely speculated on the rise and fall in the price of the
goods/commodity subject matter of the transaction. If private respondent's speculation was
correct, she would be the winner and the petitioner, the loser, so petitioner would have to
pay private respondent the "margin". But if private respondent was wrong in her
speculation then she would emerge as the loser and the petitioner, the winner. The
petitioner would keep the money or collect the difference from the private respondent. This
is clearly a form of gambling provided for with unmistakeable certainty under Article 2018
abovestated. It would thus be governed by the New Civil Code and not by the Revised
Securities Act nor the Rules and Regulations on Commodity Futures Trading laid down by
the SEC. Article 1462 of the New Civil Code does not govern this case because the said
provision contemplates a contract of sale of specific goods where one of the contracting
parties binds himself to transfer the ownership of and deliver a determinate thing and the
other to pay therefore a price certain in money or its equivalent. The said article requires
that there be delivery of goods, actual or constructive, to be applicable. In the transaction in
question, there was no such delivery; neither was there any intention to deliver a
determinate thing. The transaction is not what the parties call it but what the law defines it
to be.

It appears that petitioner and private respondent did not intend, in the deals of purchasing
and selling for future delivery, the actual or constructive delivery of the goods/commodity,
despite the payment of the full price therefor. The contract between them falls under the
definition of what is called "futures". The payments made under said contract were
payments of difference in prices arising out of the rise or fall in the market price above or
below the contract price thus making it purely gambling and declared null and void by law.
In England and America where contracts commonly called futures originated, such contracts
were at first held valid and could be enforced by resort to courts. Later these contracts were
held invalid for being speculative, and in some states in America, it was unlawful to make

400 | P a g e
contracts commonly called "futures". Such contracts were found to be mere gambling or
wagering agreements covered and protected by the rules and regulations of exchange in
which they were transacted under devices which rendered it impossible for the courts to
discover their true character. The evil sought to be suppressed by legislation is the
speculative dealings by means of such trading contracts, which degenerated into mere
gambling in the future price of goods/commodities ostensibly but not actually, bought or
sold.

Under Article 2018, the private respondent is entitled to refund from the petitioner what she
paid. There is no evidence that the orders of private respondent were actually transmitted
to the petitioner's principal in Hongkong and Tokyo. There was no arrangement made by
petitioner with the Central Bank for the purpose of remitting the money of its customers
abroad. The money which was supposed to be remitted to Frankwell Enterprises of
Hongkong was kept by petitioner in a separate account in a local bank. Having received the
money and orders of private respondent under the trading contract, petitioner has the
burden of proving that said orders and money of private respondent had been transmitted.
But petitioner failed to prove this point.

PHILIPPINE ASSOCIATION OF STOCK TRANSFER AND REGISTRY AGENCIES, INC., vs.

THE HONORABLE COURT OF APPEALS; THE HONORABLE SECURITIES AND EXCHANGE COMMISSION; AND SEC
CHAIRMAN PERFECTO R. YASAY, JR.
G.R. No. 137321 October 15, 2007

FACTS: Petitioner Philippine Association of Stock Transfer and Registry Agencies, Inc.(PASTRA) is an
association of stock transfer agents principally engaged in the registration of stock transfers in the
stock-and-transfer book of corporations. On May 10, 1996, petitioner’s Board of Directors
unanimously approved a resolution allowing its members to increase the transfer processing fee
they charge their clients.

After a dialogue with petitioner, public respondent Securities and Exchange Commission (SEC)
allowed petitioner to impose the P75 per certificate transfer fee and P20 per certificate cancellation
fee effective July 1, 1996. But, approval of the additional increase of the transfer fees to P100 per
certificate effective October 1, 1996, was withheld until after a public hearing. The SEC issued a letter-
authorization to this effect. The Philippine Association of Securities Brokers and Dealers, Inc.
registered its objection to the measure advanced by petitioner and requested the SEC to defer its
implementation. On June 27, 1996, the SEC advised petitioner to hold in abeyance the
implementation of the increases until the matter was cleared with all the parties concerned.
Petitioner nonetheless proceeded with the implementation of the increased fees. Petitioner’s
Contention: that the SEC cannot restrict petitioner’s members from increasing the transfer and
processing fees they charge their clients because there is no specific law, rule or regulation
authorizing it. Section 40 of the then Revised Securities Act, according to petitioner, only lays down
the general powers of the SEC to regulate and supervise the corporate activities of organizations
related to or connected with the securities market like petitioner. It could not be interpreted to
justify the SEC’s unjustified interference with petitioner’s decision to increase its transfer fees and
impose processing fees, especially since the decision involved a management prerogative and was
intended to protect the viability of petitioner’s members.

401 | P a g e
On July 8, 1996, the SEC issued Order No. 104, series of 1996, enjoining petitioner from imposing the
new fees (pursuant to Sec. 40 of the Revised Securities Act) and to show a cause why no
administrative sanctions should be imposed upon the board and officers of PASTRA. Subsequently
on July 11, 1996, after hearing SEC ordered petitioner to pay a basic fine of P5,000 and a daily fine
of P500 for continuing violations; it is hereby ordered to immediately cease and desist from imposing
the new rates for issuance and cancellation of stock certificates, until further orders from this
Commission.
The Court of Appeals affirmed such decision. Hence this petition.

ISSUE: Did the SEC acted with grave abuse of discretion or lack or excess of jurisdiction in issuing the
controverted Orders of July 8 and 11, 1996?

RULING: No. The Court notes that before its repeal, Section 47 of The Revised Securities Act clearly
gave the SEC the power to enjoin the acts or practices of securities-related organizations even
without first conducting a hearing if, upon proper investigation or verification, the SEC is of the
opinion that there exists the possibility that the act or practice may cause grave or irreparable injury
to the investing public, if left unrestrained. Section 47 clearly provided, Hence, the section enforces
the power of general supervision of the SEC under Section 40 of the then Revised Securities Act.

As a securities-related organization under the jurisdiction and supervision of the SEC by virtue of
Section 40 of The Revised Securities Act and Section 3 of Presidential Decree No. 902-A,10 petitioner
was under the obligation to comply with the July 8, 1996 Order. Defiance of the order was subject to
administrative sanctions provided in Section 4611 of The Revised Securities Act. Petitioner was fined
for violating the SEC’s cease-and-desist order which the SEC had issued to protect the interest of the
investing public, and not simply for exercising its judgment in the manner it deems appropriate for its
business.

The regulatory and supervisory powers of the Commission under Section 40 of the then Revised
Securities Act, in our view, were broad enough to include the power to regulate petitioner’s
fees. Indeed, Section 47 gave the Commission the power to enjoin motu proprio any act or practice
of petitioner which could cause grave or irreparable injury or prejudice to the investing public. The
intentional omission in the law of any qualification as to what acts or practices are subject to the
control and supervision of the SEC under Section 47 confirms the broad extent of the SEC’s
regulatory powers over the operations of securities-related organizations like petitioner.

SECURITIES AND EXCHANGE COMMISSION vs. COURT OF APPEALS

GR No. 106425 & 106431-32, July 21, 1995

FACTS: On or about the first half of 1988, certificates of stock of PHILEX representing 1,400,000
shares were stolen from the premises of FIDELITY. These stock certificates consisting of stock
dividends of certain PHILEX shareholders had been returned to FIDELITY for lack of forwarding
addresses of the shareholders concerned. Later, the stolen stock certificates ended in the hands of a
certain Agustin Lopez, a messenger of New World Security, Inc., an entirely different stock
brokerage firm. In the first half of 1989, Agustin Lopez brought the stolen stock certificates to
CUALOPING for trading and sale with the stock exchange. When the said stocks were brought to
CUALOPING, all of the said stock certificates bore the 'apparent' indorsement (signature) in blank of

402 | P a g e
the owners thereof. At the side of these indorsements (signatures), the words ‘Signature Verified'
apparently of FIDELITY were stamped on each and every certificate. Further, on the words
'Signature Verified' showed the usual initials of the officers of FIDELITY.

Upon receipt of the said certificates from Agustin Lopez, CUALOPING stamped each and every
certificate with the words `Indorsement Guaranteed,' and thereafter, traded the same with the stock
exchange. After the stock exchange awarded and confirmed the sale of the stocks represented by
said certificates to different buyers, the same were delivered to FIDELITY for the cancellation of the
stocks certificates and for issuance of new certificates in the name of the new buyers. Agustin Lopez
on the other hand was paid by CUALOPING with several checks for P400,000.00 for the value of the
stocks.

After acquiring knowledge of the pilferage, FIDELITY conducted an investigation with assistance of
the National Bureau of Investigation (NBI) and found that two of its employees were involved and
signed the certificates. After two (2) months from receipt of said stock certificates, FIDELITY rejected
the issuance of new certificates in favor of the buyers for reasons that the signatures of the owners
of the certificates were allegedly forged and thus the cancellation and new issuance thereof cannot
be effected. On 11 August 1988, FIDELITY sought an opinion on the matter from SEC, which, on 06
October 1988, summoned FIDELITY and CUALOPING to a conference.

ISSUE: Whether or not the question on the legal propriety of the imposition by the SEC of a P50,000
fine on each of FIDELITY and CUALOPING, is an entirely different matter.

RULING: Yes. It is the regulatory power of the SEC which is involved. When, on appeal to the Court
of Appeals, the latter set aside the fines imposed by the SEC, the latter, in its instant petition, can no
longer be deemed just a nominal party but a real party in interest sufficient to pursue an appeal to
this Court.

The Revised Securities Act (Batas Pambansa Blg. 178) is designed, in main, to protect public investors
from fraudulent schemes by regulating the sale and disposition of securities, creating, for this
purpose, a Securities and Exchange Commission to ensure proper compliance with the law. Here,
the SEC has aptly invoked the provisions of Section 29, in relation to Section 46, of the Revised
Securities Act. This law provides:

"Sec. 29. Fraudulent transactions. - (a) It shall be unlawful for any person, directly or
indirectly, in connection with the purchase or sale of any securities?

"x x x xxx xxx

"(3) To engage in any act, transaction, practice, or course of business which operates or
would operate as a fraud or deceit upon any person."

"Sec. 46. Administrative sanctions. If, after proper notice and hearing, the Commission finds
that there is a violation of this Act, its rules, or its orders or that any registrant has, in a
registration statement and its supporting papers and other reports required by law or rules
to be filed with the Commission, made any untrue statement of a material fact, or omitted to
state any material fact required to be stated therein or necessary to make the statements

403 | P a g e
 therein not misleading, or refused to permit any unlawful examination into its affairs, it shall,
in its discretion, impose any or all of the following sanctions:

"(a) Suspension, or revocation of its certificate of registration and permit to offer

securities;

"(b) A fine of no less than two hundred (P200.00) pesos nor more than fifty thousand
(P50,000.00) pesos plus not more than five hundred (P500.00) pesos for each day of
continuing violation." (Italics supplied.)

There is, to our mind, no question that both FIDELITY and CUALOPING have been guilty of
negligence in the conduct of their affairs involving the questioned certificates of stock. To
constitute, however, a violation of the Revised Securities Act that can warrant an imposition of a fine
under Section 29(3), in relation to Section 46 of the Act, fraud or deceit, not mere negligence, on the
part of the offender must be established. Fraud here is akin to bad faith which implies a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is unlike
that of the negative idea of negligence in that fraud or bad faith contemplates a state of mind
affirmatively operating with furtive objectives. Given the factual circumstances found by the
appellate court, neither, FIDELITY nor CUALOPING, albeit indeed remiss in the observance of due
diligence, can be held liable under the above provisions of the Revised Securities Act. We do not
imply, however, that the negligence committed by private respondents would not at all be
actionable; upon the other hand, as we have earlier intimated, such an action belongs not to the SEC
but to those whose rights have been injured.

Strong vs. Repide

41 Phil 947, May 3, 1909

FACTS: Eleanor Strong was the owner of 800 shares of stock of the Philippine Sugar Estate
Development Company, Limited. She sought to recover such shares from defendant on the ground
that the shares had been sold by plaintiff's agent to the agent of defendant without authority from
plaintiff; and also on the ground that defendant fraudulently concealed from plaintiff's agent, one F.
Stuart Jones, facts affecting the value of the stock so sold and delivered. The stock was of the par
value of $100 per share, Mexican currency.

The plaintiff never had any negotiations for the sale of the stock herself, and was ignorant that it was
sold until sometime after the sale, the negotiations for which took place between an agent of the
plaintiff and an agent of defendant, the name of the defendant being undisclosed. In addition to his
ownership of almost three fourths of the shares of the stock of the company, the defendant was one
of the five directors of the company, and was elected by the board the agent and administrator
general of such company, 'with exclusive intervention in the management' of its general business.

The defendant put in issue the lack of authority of the agent of the plaintiff, denied all fraud, and
alleged that the purchase of the stock from plaintiff's agent was made by one Albert Kauffman, who
afterwards sold and conveyed the same to the defendant, and that the defendant, prior to the
commencement of the suit, and prior to any demand made upon him by the plaintiff in error herein,
had sold, transferred, and delivered the stock to Luis Gutierrez, a citizen and resident of Spain.

ISSUE: Whether the sale of the shares were valid

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RULING: Where a sale made through an agent of the vendor has been effected by the fraud and
deceit of the vendee, the sale cannot stand whether or not the vendor's agent had power to sell. A
director upon whose action the value of the shares depends cannot avail of his knowledge of what
his own action will be to acquire shares from those whom he intentionally keeps in ignorance of his
expected action and the resulting value of the shares.

This is a rule of common law, and also of the Spanish law before the adoption of the Philippine Civil
Code; and, under §§ 1261-1269 of that code, a contract obtained under such circumstances can be
avoided by the party whose consent would not have been given had he known the facts within the
knowledge of the other party. Even though a director may not be under the obligation of a fiduciary
nature to disclose to a shareholder his knowledge affecting the value of the shares, that duty may
exist in special cases, and did exist upon the facts in this case.

In this case, the facts clearly indicate that a director of a corporation owning friar lands in the
Philippine Islands, and who controlled the action of the corporation, had so concealed his exclusive
knowledge of the impending sale to the government from a shareholder from whom he purchased,
through an agent, shares in the corporation, that the concealment was in violation of his duty as a
director to disclose such knowledge, and amounted to deceit sufficient to avoid the sale; and, under
such circumstances, it was immaterial whether the shareholder's agent did or did not have power to
sell the stock.

While the method of payment cannot have induced the vendor's consent to a sale, where that
method tended to conceal the identity of the purchaser and was part of a scheme to conceal facts,
the knowledge of which would have resulted in vendor's refusal to sell, evidence as to the payment
is admissible to show the fraudulent intent and scheme of the purchaser. The expressed prohibitions
in § 1459 of the Spanish Civil Code against directors of corporations acquiring shares of stock
entrusted to them do not apply to purchases from others.

An expressed prohibition against directors acquiring shares held by themselves in a fiduciary capacity
does not refer to purchases by directors of shares from others, or so limit the prohibitions against
purchases of stock by directors that a sale to one cannot be avoided by his deceit in not disclosing
material facts within his exclusive knowledge.

UNION BANK OF THE PHILIPPINES, vs. SECURITIES and EXCHANGE COMMISSION

G.R. No. 138949. June 6, 2001

FACTS: Petitioner, through its General Counsel and Corporate Secretary, sought the opinion of
Chairman Perfecto Yasay, Jr. of respondent Commission as to the applicability and coverage of the
Full Material Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3)
of the Revised Securities Act which exempts securities issued or guaranteed by banking institutions
from the registration requirement provided by Section 4 of the same Act. In reply thereto, Chairman
Yasay, in a letter dated April 8, 1997, informed petitioner that while the requirements of registration
do not apply to securities of banks which are exempt under Section 5(a) (3) of the Revised Securities

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Act, however, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc.
are covered by certain Revised Securities Act Rules governing the filing of various reports with
respondent Commission, i.e., (1) Rule 11(a)-1 requiring the filing of Annual, Quarterly, Current,
Predecessor and Successor Reports; (2) Rule 34-(a)-1 requiring submission of Proxy Statements; and
(3) Rule 34-(c)-1 requiring submission of Information Statements, among others. Not satisfied,
petitioner, per letter dated April 30, 1997, informed Chairman Yasay that they will refer the matter to
the Philippine Stock Exchange for clarification.

On May 9, 1997, respondent Commission, through its Money Market Operations Department
Director, wrote petitioner, reiterating its previous position that petitioner is not exempt from the
filing of certain reports. The letter further stated that the Revised Securities Act Rule 11(a) requires
the submission of reports necessary for full, fair and accurate disclosure to the investing public,
and not the registration of its shares. On July 17, 1997, respondent Commission wrote petitioner,
enjoining the latter to show cause why it should not be penalized for its failure to submit a
Proxy/Information Statement in connection with its annual meeting held on May 23, 1997, in violation
of respondent Commissions Full Material Disclosure Rule.

Failing to respond to the aforesaid communication, petitioner was given a 2 nd Show Cause with
Assessment by respondent Commission on July 21, 1997. Petitioner was then assessed a fine
of P50,000.00 plus P500.00 for every day that the report was not filed, or a total of P91, 000.00 as of
July 21, 1997. Petitioner was likewise advised by respondent Commission to submit the required
reports and settle the assessment, or submit the case to a formal hearing. On August 18, 1997,
petitioner wrote respondent Commission disputing the assessment.

ISSUE: Is the RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 applicable in this case

RULING: It must be emphasized that petitioner is a commercial banking corporation listed in the
stock exchange. Thus, it must adhere not only to banking and other allied special laws, but also to
the rules promulgated by Respondent SEC, the government entity tasked not only with the
enforcement of the Revised Securities Act, but also with the supervision of all corporations,
partnerships or associations which are grantees of government-issued primary franchises and/or
licenses or permits to operate in the Philippines.

RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to ensure full, fair and
accurate disclosure of information for the protection of the investing public. These Rules were issued
by respondent pursuant to the authority conferred upon it by Section 3 of the RSA.

The said Rules do not amend Section 5(a)(3) of the Revised Securities Act, because they do
not revoke or amend the exemption from registration of the securities enumerated thereunder. They
are reasonable regulations imposed upon petitioner as a banking corporation trading its securities in
the stock market.

That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine
Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure
requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control
of the BSP; and as a corporation trading its securities in the stock market, it is under the supervision
of the SEC. It must be pointed out that even the PSE is under the control and supervision of
respondent. There is no over-supervision here. Each regulating authority operates within the sphere

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of its powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public.

Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already subject
to the supervision of the BSP does not exempt the former from reasonable disclosure regulations
issued by the SEC. These regulations are meant to assure full, fair and accurate disclosure of
information for the protection of investors in the stock market. Imposing such regulations is a
function within the jurisdiction of the SEC. Since petitioner opted to trade its shares in the exchange,
then it must abide by the reasonable rules imposed by the SEC.

Protetciton of Shareholder’s Interest

CEMCO vs. National Life

G.R. No. 171815, August 7, 2007

FACTS: Union Cement Corporation (UCC), a publicly-listed company, has two principal
stockholders – UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner
Cemco with 17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with
29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter dated 5
July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC
had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to 21.31% and ACC’s
stocks in UCHC equivalent to 29.69%.

In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result
of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC, petitioner’s total
beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at
least 53% of the shares of UCC. As a consequence of this disclosure, the PSE, in a letter to the
SEC dated 15 July 2004, inquired as to whether the Tender Offer Rule under Rule 19 of the
Implementing Rules of the Securities Regulation Code is not applicable to the purchase by
petitioner of the majority of shares of UCC. Director Justina Callangan of the SEC’s Corporate
Finance Department responded to the query of the PSE that while it was the stance of the
department that the tender offer rule was not applicable, the matter must still have to be
confirmed by the SEC en banc.

Feeling aggrieved by the transaction, respondent National Life Insurance Company of the
Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter
to comply with the rule on mandatory tender offer. Cemco, however, refused. Later, a Share
Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as buyer.
Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with
the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase
agreement of Cemco void and praying that the mandatory tender offer rule be applied to its
UCC shares. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were
then required by the SEC to file their respective comment on the complaint. In their
comments, they were uniform in arguing that the tender offer rule applied only to a direct

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acquisition of the shares of the listed company and did not extend to an indirect acquisition
arising from the purchase of the shares of a holding company of the listed firm.

ISSUE: Is the rule on mandatory tender offer applicable to the indirect acquisition of shares
in a listed company?

RULING: Yes. The SEC and the CA accurately pointed out that the coverage of the mandatory
tender offer rule covers not only direct acquisition but also indirect acquisition or “any type
of acquisition.” This is clear from the discussions of the Bicameral Conference on the
Securities Act of 2000.

Section 19 of Republic Act No. 8799 states that:

Tender Offers. 191. (a) Any person or group of persons acting in concert who intends to
acquire at least fifteen percent (15%) of any class of any equity security of a listed
corporation or of any class of any equity security of a corporation with assets of at least Fifty
million pesos (₱50,000,000.00) and having two hundred (200) or more stockholders with at
least one hundred (100) shares each or who intends to acquire at least thirty percent (30%)
of such equity over a period of twelve (12) months shall make a tender offer to stockholders
by filing with the Commission a declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of this Code as the Commission
may prescribe. Such person or group of persons shall publish all requests or invitations for
tender, or materials making a tender offer or requesting or inviting letters of such a security.
Copies of any additional material soliciting or requesting such tender offers subsequent to
the initial solicitation or request shall contain such information as the Commission may
prescribe, and shall be filed with the Commission and sent to the issuer not later than the
time copies of such materials are first published or sent or given to security holders.

The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition
of control of the listed company and for the purpose of protecting the minority stockholders
of a listed corporation. Whatever may be the method by which control of a public company
is obtained, either through the direct purcahse of its stocks or through an indirect means,
mandatory tender offer applies.

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 Osmena III vs. SSS of the Philippines
533 SCRA 313

FACTS: SSS took steps to liquefy its long-term investments and diversify them into higher-
yielding and less volatile investment products. Among its assets determined as needing to
be liquefied were its shareholdings in EPCIB. Albeit there were other interested parties, only
BDO and its investment subsidiary, respondent BDO Capital, appeared in earnest to acquire
the shares in question. Following talks between them, BDO and SSS signed a Letter-
Agreement for the sale and purchase of some EPCIB common shares. At about this time, the
Shares were trading at an average of P34.50 @ share.

After some negotiations, the parties mutually agreed to the purchase by the BDO Capital
and the sale by SSS of all the latter’s EPCIB shares at the closing date at the specified price
of P43.50 per share. Then, SSC approved the sale of the EPCIB shares through the Swiss
Challenge method. SSS advertised an Invitation to Bid for the block purchase of the Shares.
The Invitation to Bid expressly provided that the result of the bidding is subject to the right of
BDO Capital to match the highest bid. The records do not show whether or not any interested
group/s submitted bids. In other words, even before the bid envelopes, if any, could be
opened, the herein petitioners commenced action setting their sights primarily on the
legality of the Swiss Challenge angle and a provision in the Instruction to Bidders under which
the SSS undertakes to offer the Shares to BDO should no bidder or prospective bidder
qualifies.

Petitioners assert, in gist, that a public bidding with a Swiss Challengecomponent is

contrary to COA Circular No. 89-296 and public policy which requires adherence to
competitive public bidding in a government-contract award to assure the best price possible
for government assets. Accordingly, the petitioners urge that the planned disposition of the
Shares through a Swiss Challenge method be scrapped. Against the petitioners stance, public
respondents inter alia submit that the sale of subject Shares is exempt from the tedious
public bidding requirement of COA. Pending consideration of the petition, supervening
events and corporate movements transpired which are detailed in the petitioners
separate Manifestation. That on August 31, 2006, SM Investments Corporation, an affiliate of
BDO and BDO Capital commenced, through the facilities of the PSE and pursuant to R.A. No.
8799, a mandatory tender offer (Tender Offer) covering the purchase of the entire
outstanding capital stock of EPCIB at P92.00 per share. Pursuant to the terms of the Tender
Offer, which was to start on August 31, 2006 and end on September 28, 2006 the Tender
Offer Period all shares validly tendered under it by EPCIB shareholders of record shall be
deemed accepted for payment on closing date subject to certain conditions. Among those
who accepted the Tender Offer of the SM Group was EBC Investments, Inc., a subsidiary of
EPCIB.

ISSUE: Was the SM-BDO Group Tender Offer at the price stated had rendered the case moot
and academic?

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RULING: Yes. For perspective, a tender offer is a publicly announced intention by a person
acting alone or in concert with other persons to acquire equity securities of a public
company, i.e., one listed on an exchange, among others. The term is also defined as an offer
by the acquiring person to stockholders of a public company for them to tender their shares
therein on the terms specified in the offer.

As may be noted, the Letter-Agreement, the SPA, the SSC resolutions assailed in this
recourse, and the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be overemphasized,
however, that the Shares, as a necessary consequence of the BDO-EPCIB merger which saw
EPCIB being absorbed by the surviving BDO, have been transferred to
BDO and converted into BDO common shares under the exchange ratio set forth in the BDO-
EPCIB Plan of Merger. As thus converted, the subject Shares are no longer equity security
issuances of the now defunct EPCIB, but those of BDO-EPCI, whichis a totally separate and
distinct entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million EPCIB
common shares are now lost or inexistent. And in this regard, the Court takes judicial notice
of the disappearance of EPCIB stocks from the local bourse listing. Instead, BDO-EPCI Stocks
are presently listed and being traded in the PSE.

Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the issuer of what
were once the subject Shares. Consequently, should SSS opt to exit from BDO and BDO
Capital, or BDO Capital, in turn, opt to pursue SSSs shareholdings in EPCIB, as thus converted
into BDO shares, the sale-purchase ought to be via an Issuer Tender Offer -- a phrase which
means a publicly announced intention by an issuer to acquire any of its own class of equity
securities or by an affiliate of such issuer to acquire such securities. In that eventuality, BDO
or BDO Capital cannot possibly exercise the right to match under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding. The
offeror or buyer in an issue tender offer transaction proposes to buy or acquire, at the
stated price and given terms, its own shares of stocks held by its own stockholder who in
turn simply have to accept the tender to effect the sale. No bidding is involved in the
process.

PSE, Inc. vs. CA

G.R. No. 125469. October 27, 1997

FACTS: Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was
granted permission by the Securities and Exchange Commission (SEC) to sell its shares to the public
in order for PALI to develop its properties. PALI then asked the Philippine Stock Exchange (PSE) to
list PALI’s stocks/shares to facilitate exchange. The PSE Board of Governors denied PALI’s application
on the ground that there were multiple claims on the assets of PALI. Apparently, the Marcoses,
Rebecco Panlilio (trustee of the Marcoses), and some other corporations were claiming assets if not
ownership over PALI. PALI then wrote a letter to the SEC asking the latter to review PSE’s decision.
The SEC reversed PSE’s decisions and ordered the latter to cause the listing of PALI shares in the
Exchange.

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ISSUE: Is it within the power of the SEC to reverse actions done by the PSE?

RULING: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to
the Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE,
as a corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control.
In order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC
has the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say
as to whether or not securities, including shares of stock of a corporation, may be traded or not in
the stock exchange. However, in the case at bar, the Supreme Court emphasized that the SEC may
only reverse decisions issued by the PSE if such are tainted with bad faith. In this case, there was no
showing that PSE acted with bad faith when it denied the application of PALI. Based on the multiple
adverse claims against the assets of PALI, PSE deemed that granting PALI’s application will only be
contrary to the best interest of the general public. It was reasonable for the PSE to exercise its
judgment in the manner it deems appropriate for its business identity, as long as no rights are
trampled upon, and public welfare is safeguarded.

ABACUS SECURITIES CORPORATION, vs. RUBEN U. AMPIL

G.R. No. 160016 February 27, 2006

FACTS: In April 1997, respondent opened a cash or regular account with petitioner for buying and
selling securities as evidenced by the Account Application Form. The parties’ business relationship
was governed by the terms and conditions stated therein.

Since April 10, 1997, respondent actively traded his account, and as a result of such trading activities,
he accumulated an outstanding obligation in favor of petitioner in the sum of P6,617,036.22 as of
April 30, 1997. Respondent failed to pay petitioner his liabilities. Petitioner sold respondent’s
securities to set off against his unsettled obligations. After the sale of respondent’s securities and
application of the proceeds thereof against his account, respondent’s remaining unsettled obligation
to petitioner was P3,364,313.56.

Petitioner demanded that respondent settle his obligation plus the agreed penalty charges accruing
thereon equivalent to the average 90-day Treasury Bill rate plus 2% per annum. Despite said demand
and the lapse of said requested extension, respondent failed and/or refused to pay his
accountabilities to petitioner. Respondent claims that he was induced to trade in a stock security
with petitioner because the latter allowed offset settlements wherein he is not obliged to pay the
purchase price. Rather, it waits for the customer to sell. And if there is a loss, petitioner only requires
the payment of the deficiency (i.e., the difference between the higher buying price and the lower
selling price). In addition, it charges a commission for brokering the sale. However, if the customer
sells and there is a profit, petitioner deducts the purchase price and delivers only the surplus – after
charging its commission.

The RTC Makati City held that petitioner and respondent were in pari delicto and therefore without
recourse against each other. CA upheld the lower court’s finding that the parties were in pari delicto.
It castigated petitioner for allowing respondent to keep on trading despite the latter’s failure to pay
his outstanding obligations. It explained that “the reason behind petitioner’s act is because whether
respondent’s trading transaction would result in a surplus or deficit, he would still be liable to pay
petitioner its commission.

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ISSUE: Whether or not the pari delicto rule was applicable to the present case

RULING: Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out rule,”
clearly vested an obligation, not just a right, to petitioner. That obligation was to cancel or otherwise
liquidate a customer’s order, if payment was not received within three days from the date of
purchase. Subsequent to an unpaid order, the broker should require its customer to deposit funds in
the account sufficient to cover each purchase, prior to the execution of the transaction. These duties
were imposed upon the broker to ensure faithful compliance with the margin requirements of the
law, which forbade the broker from extending undue credit to a “cash” customer.

Nonetheless, these margin requirements were applicable only to transactions entered into by the
parties subsequent to the initial trades of April 10 and 11, 1997. Thus, petitioner could still collect
from respondent to the extent of the difference between his outstanding obligation as of April 11,
1997, less the proceeds from the mandatory sellout of the shares pursuant to the RSA Rules. Its right
to collect was justified under the general law on obligations and contracts.

Petitioner could not be denied the right to collect, as the initial transactions had been entered into
pursuant to the instructions of respondent. His obligation for stock transactions made and entered
into on April 10 and 11, 1997, remained outstanding. Those transactions were valid, and the
obligations he incurred in regard to his stock purchases on those dates subsisted. At the time, there
was yet no violation of the RSA. Petitioner committed a fault only when it failed 1) to liquidate the
transactions on April 14 and 15, 1997, or the fourth day following the stock purchases; and 2) to
complete its liquidation no later than ten days after, by applying the proceeds as payment for his
outstanding obligation.

Elucidating further, since the buyer was not able to pay for the transactions that had taken place on
April 10 and 11 -- that is, at T+4 -- the broker was duty-bound to advance the payment to the
settlement banks, without prejudice to its right to collect from the client later on.

It should be clear that Congress had imposed the margin requirements to protect the general
economy, not to give the customer a free ride at the expense of the broker. Not to require
respondent to pay for his April 10 and 11 trades would put a premium on his circumvention of the
laws and would enable him to enrich himself unjustly at the expense of petitioner.

By failing to ensure his payment of his first purchase transactions within the period prescribed by
law, thereby allowing him to make subsequent purchases, petitioner effectively converted his cash
account into a credit account. The extension or maintenance of credits on nonmargin transactions,
however, were specifically prohibited under Section 23(b). Thus, petitioner was remiss in its duty and
could not be said to have come to court with “clean hands,” insofar as it intended to collect on
transactions subsequent to the initial trades of April 10 and 11, 1997.

On the other hand, respondent was found to be equally guilty of entering into transactions in
violation of the RSA and RSA Rules. The Court was not prepared to accept his self-serving assertions
of being an “innocent victim” in all the transactions. Obviously, he knowingly speculated on the
market by taking advantage of the “nocash-out” arrangement extended to him by petitioner.
It was respondent’s privilege to gamble or speculate, as he apparently did by asking for extensions
of time and refraining from giving orders to his broker to sell, in the hope that the prices would rise.

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Sustaining his argument would have amounted to relieving him of the risks of his own speculation
and saddling petitioner with the consequences after the result turned out to be unfavorable.[6] His
conduct as an investor was precisely the sort deplored by the law. Thus, with respect to his
counterclaim for damages for having been allegedly induced by petitioner to generate additional
purchases despite his outstanding obligations, the Court held that he deserved no legal or equitable
relief.

In the final analysis, both parties had acted in violation of the law and did not come to court with
clean hands as regards the transactions subsequent to the initial one made on April 10 and 11, 1997. In
this case, the pari delicto rule applied only to transactions entered into after those initial trades.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the transactions (sold the stocks) on
the fourth day after (at T+4) and completed its liquidation not later than ten days following the last
day for the customer to pay (effectively at T+14). Respondent’s outstanding obligation, therefore,
was to be determined on the basis of the closing prices -- at T+14 -- of the stocks purchased.

YUJUICO V. QUIAMBAO
G.R. No. 180416 June 2, 2014

FACTS: Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating

as a business development and investment company. On 1 March 2004, during the annual
stockholder's meeting of STRADEC, petitioner Aderito Z. Yujuico was elected as president and
chairman of the company. Yujuico replaced respondent Cezar T. Quiambao. With Yujuico at the helm,
STRADEC appointed petitioner Bonifacio C. Sumbilla as treasurer and one Joselito John G. Blando as
corporate secretary. Blando replaced respondent Eric C. Pilapil, the previous corporate secretary of
STRADEC. Petitioners filed a criminal complaint against respondents and one Giovanni T. Casanova
for allegedly violating Section 74 in relation to Section 144 of the Corporation Code. Allegedly,
Yujuico demanded Quiambao for the turnover of the corporate records of the company, particularly
the accounting files, ledgers, journals and other records of the corporation's business but Quiambao
refused. As it turns out, the corporate records of STRADEC were in the possession of Casanova, the
accountant of STRADEC. Casanova was keeping custody of the said records on behalf of Quiambao,
who allegedly needed the same as part of his defense in a pending case in court. Quiambao and
Casanova also allegedly caused the removal of the corporate records of STRADEC from the
company's offices in Pasig City. Blando likewise demanded Pilapil for the turnover of the stock and
transfer book of STRADEC but Pilapil refused. Blando and Pilapil later agreed to deposit the stock
and transfer book in a safety deposit box with the Equitable PCI Bank and agreed that the deposit
box may only be opened in the presence of both Quiambao and Blando. Later however, Quiambao
and Pilapil withdrew the stock and transfer book from the safety deposit box and brought it to the
offices of STRADCOM in Quezon City. Quiambao thereafter asked Blando to proceed to the
STRADCOM offices. Upon arriving thereat, Quiambao pressured Blando to make certain entries in
the stock and transfer books. After making such entries, Blando again demanded that he be given
possession of the stock and transfer book. Quiambao refused. Petitioners theorize that the refusal
by the respondents and Casanova to turnover STRADEC's corporate records and stock and transfer
book violates their right, as stockholders, directors and officers of the corporation, to inspect such
records and book.

ISSUE: Is the act of refusing to allow inspection of the stock and transfer book of a corporation,
when done in violation of Section 74(4) of the Corporation Code, is punishable as an Offense?

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RULING: YES. The act of refusing to allow inspection of the stock and transfer book is not a
punishable offense under the Corporation Code. Such refusal, when done in violation of Section
74(4) of the Corporation Code, properly falls within the purview of Section 144 of the same code and
thus may be penalized as an offense. There is no cogent reason why Section 144 of the Corporation
Code cannot be made to apply to violations of the right of a stockholder to inspect the stock and
transfer book of a corporation under Section 74(4) given the already unequivocal intent of the
legislature to penalize violations of a parallel right, i.e., the right of a stockholder or member to
examine the other records and minutes of a corporation under Section 74(2). Certainly, all the rights
guaranteed to corporators under Section 7 4 of the Corporation Code are mandatory for the
corporation to respect. All such rights are just the same underpinned by the same policy
consideration of keeping public confidence in the corporate vehicle thru an assurance of
transparency in the corporation's operations. However, even if violation of Section 74 is punishable,
it is not so in the case at bar. A criminal action based on the violation of the second or fourth
paragraphs of Section 74 can only be maintained against corporate officers or such other persons
that are acting on behalf of the corporation. Violations of the second and fourth paragraphs of
Section 74 contemplates a situation wherein a corporation, acting thru one of its officers or agents,
denies the right of any of its stockholders to inspect the records, minutes and the stock and transfer
book of such corporation. Petitioners' complaint and the evidence that they submitted do not
establish that respondents were acting on behalf of STRADEC. On the contrary, it appears that
respondents are merely outgoing officers of STRADEC who withheld and refused to turn-over the
company records of STRADEC; that it is the petitioners who are actually acting on behalf of
STRADEC; and that STRADEC is actually merely trying to recover custody of the withheld records.
Petitioners are not actually invoking their right to inspect the records and the stock and transfer
book of STRADEC but are seeking to enforce the proprietary right of STRADEC to be in possession of
such records and book. Such right, though certainly legally enforceable by other means, cannot be
enforced by a criminal prosecution based on a violation of the second and fourth paragraphs of
Section 74. That is simply not the situation contemplated by the second and fourth paragraphs of
Section 74 of the Corporation Code.

CEMCO HOLDINGS, INC. - versus - NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.

G.R. No. 171815 August 7, 2007

FACTS: Union Cement Corporation (UCC) has two principal stockholders UCHC with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs stocks were owned by
BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. BCI
informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to
sell to Cemco the BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC equivalent to
29.69%. as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners total
beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53%
of the shares of UCC.

As a consequence the PSE, inquired to SEC as to whether the Tender Offer Rule under Rule 19 of the
Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner
of the majority of shares of UCC.The SECs Corporate Finance Department responded to the query of

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the PSE that while it was the stance of the department that the tender offer rule was not applicable,
the matter must still have to be confirmed by the SEC en banc. Thereafter, SEC confirmed that the
SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule.

Feeling aggrieved by the transaction, respondent National Life Insurance Company of the
Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to
comply with the rule on mandatory tender offer. Cemco, however, refused. Respondent filed a
complaint with the SEC asking it to reverse its Resolution and to declare the purchase agreement of
Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares.

In a Decision the SEC ruled in favor of the respondent by reversing and setting aside its Resolution
and directed petitioner Cemco to make a tender offer for UCC shares to respondent and other
holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of
the Securities Regulation Code.

Petitioner filed a petition with the Court of Appeals challenging the SECs jurisdiction to take
cognizance of respondent’s complaint and its authority to require Cemco to make a tender offer for
UCC shares, and arguing that the tender offer rule does not apply. The Court of Appeals rendered a
decision affirming the ruling of the SEC.

ISSUE: Whether or not, the SEC has jurisdiction over respondent’s complaint

RULING: The Court affirmed the decision of the CA. SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities Regulation Code

Another provision of the statute, which provides the basis of Rule 19(13) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz:

[T]he Commission shall have, among others, the following powers and functions: x x x
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied from
the express powers of the Commission or which is incidental to, or reasonably necessary to carry out,
the performance of the administrative duties entrusted to it. As a regulatory agency, it has the
incidental power to conduct hearings and render decisions fixing the rights and obligations of the
parties.

And as held by the Court of Appeals:

We must bear in mind in interpreting the powers and functions of the SEC that the law
has made the SEC primarily a regulatory body with the incidental power to conduct
administrative hearings and make decisions. A regulatory body like the SEC may
conduct hearings in the exercise of its regulatory powers, and if the case involves
violations or conflicts in connection with the performance of its regulatory functions,
it will have the duty and authority to resolve the dispute for the best interests of the
public

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 CONSUELO METAL CORPORATION
vs. PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADO-MANINGAS
G.R. No. 152580 June 26, 2008

FACTS: On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of
payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management
committee under Section 5(d) of Presidential Decree No. 902-A. On 2 April 1996, the SEC, finding the
petition sufficient in form and substance, declared that "all actions for claims against CMC pending
before any court, tribunal, office, board, body and/or commission are deemed suspended
immediately until further order" from the SEC.

In an Order dated 13 September 1999, the SEC directed the creation of a management committee to
undertake CMC’s rehabilitation and reiterated the suspension of all actions for claims against CMC.
On 29 November 2000, upon the management committee’s recommendation,the SEC issued an
Omnibus Order directing the dissolution and liquidation of CMC. The SEC also directed that "the
proceedings on and implementation of the order of liquidation be commenced at the Regional Trial
Court to which this case shall be transferred." Thereafter, respondent Planters Development Bank
(Planters Bank), one of CMC’s creditors, commenced the extra-judicial foreclosure of CMC’s real
estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001. CMC filed
a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with
the SEC to enjoin the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a
temporary restraining order to maintain the status quo and ordered the immediate transfer of the
case records to the trial court.

ISSUE: Whether the present case falls under Section 121 of the Corporation Code, which refers to the
SEC’s jurisdiction over CMC’s dissolution and liquidation, or is only a continuation of the SEC’s
jurisdiction over CMC’s petition for suspension of payment.

RULING: While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over
CMC’s dissolution and liquidation, CMC argues that the Court of Appeals remanded the case to the
SEC on the wrong premise that the applicable law is Section 121 of the Corporation Code. On the
other hand, Planters Bank insists that the trial court has jurisdiction over CMC’s dissolution and
liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for
the termination of the existence of the corporation which are incompatible with a petition for
suspension of payment which seeks to preserve corporate existence.

Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SEC’s
jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799
provides:

The Commission’s jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases.
The Commission shall retain jurisdiction over pending cases involving intra-corporate

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 disputes submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending suspension
of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis
supplied)

SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction
to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November
2000 Omnibus Order, directed that "the proceedings on and implementation of the order of
liquidation be commenced at the Regional Trial Court to which this case shall be transferred." This is
the correct procedure because the liquidation of a corporation requires the settlement of claims for
and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial
court is in the best position to convene all the creditors of the corporation, ascertain their claims, and
determine their preferences.

SEC vs. Interport Resources Corporation

GR No. 135808 October 6, 2008

FACTS: On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement
with Ganda Holdings Berhad(GHB). Under the Memorandum of Agreement, IRC acquired 100% or the
entire capital stock of Ganda Energy Holdings, Inc. (GEHI), which would own and operate a 102
megawatt (MW) gas turbine power-generating barge. The agreement also stipulates that GEHI
would assume a five-year power purchase contract with National Power Corporation. At that
time, GEHIs power-generating barge was 97% complete and would go on-line by mid-September of
1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to 40.88
billion shares which had a total par value of P488.44 million. On the side, IRC would acquire 67% of
the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real
estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by
IRC of PRCI.

IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was
sent through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the
facsimile machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press
release on the morning of 9 August 1994.

The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares
utilizing this material insider information. On 16 August 1994, the SEC Chairman issued a directive
requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. In
compliance with the SEC Chairmans directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto,
Rene Villarica and Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRCs
alleged failure to immediately disclose material information as required under the Rules on
Disclosure of Material Facts.

On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make

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timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the
officers and directors of IRC entered into transactions involving IRC shares in violation of Section 30,
in relation to Section 36, of the Revised Securities Act.

ISSUE: Is there authority of the SEC to initiate and file a suit against the corporation and its directors
with respect to insiders duty to disclose when trading?

RULING: Yes. Section 53 of the Securities Regulations Code clearly provides that criminal complaints
for violations of rules and regulations enforced or administered by the SEC shall be referred to the
Department of Justice (DOJ) for preliminary investigation, while the SEC nevertheless retains limited
investigatory powers.[70] Additionally, the SEC may still impose the appropriate administrative
sanctions under Section 54 of the aforementioned law.

In Morato v. Court of Appeals, the cases therein were still pending before the PED for investigation
and the SEC for resolution when the Securities Regulations Code was enacted. The case before the
SEC involved an intra-corporate dispute, while the subject matter of the other case investigated by
the PED involved the schemes, devices, and violations of pertinent rules and laws of the companys
board of directors. The enactment of the Securities Regulations Code did not result in the dismissal
of the cases; rather, this Court ordered the transfer of one case to the proper regional trial court and
the SEC to continue with the investigation of the other case.

The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the
investigative proceedings against respondents as early as 1994. Respondents were called to appear
before the SEC and explain their failure to disclose pertinent information on 14 August
1994. Thereafter, the SEC Chairman, having already made initial findings that respondents failed to
make timely disclosures of their negotiations with GHB, ordered a special investigating panel to hear
the case. The investigative proceedings were interrupted only by the writ of preliminary injunction
issued by the Court of Appeals, which became permanent by virtue of the Decision, dated 20 August
1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the Securities Regulations Code
repealed the Revised Securities Act. As in Morato v. Court of Appeals, the repeal cannot deprive SEC
of its jurisdiction to continue investigating the case; or the regional trial court, to hear any case which
may later be filed against the respondents. The Supreme Court declared that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken
by the proper authorities in accordance with the Securities Regulations Code.

SEC vs. GMA Network, Inc.,

GR No. 164026, December 23, 2008

FACTS: Petitioner, GMA NETWORK, INC., (GMA, for brevity), a domestic corporation, filed
an application for collective approval of various amendments to its Articles of Incorporation
and By-Laws with the respondent Securities and Exchange Commission, (SEC, for brevity).
The amendments applied for include, among others, the change in the corporate name of
petitioner from "Republic Broadcasting System, Inc." to "GMA Network, Inc." as well as the
extension of the corporate term for another fifty (50) years from and after June 16, 2000.

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Upon such filing, the petitioner had been assessed by the SEC’s Corporate and Legal
Department a separate filing fee for the application for extension of corporate term
equivalent to 1/10 of 1% of its authorized capital stock plus 20% thereof or an amount
of P1,212,200.00.

Petitioner contested the legality and propriety of the said assessment and that argued that
its application for the extension of its corporate term is akin to an amendment and not to a
filing of new articles of incorporation.

The SEC approved the other amendments to the petitioner’s Articles of Incorporation but
upholds the validity of the questioned assessment.

ISSUE: Is the assessment of filing fees proper?

RULING: Yes. A filing fee, by legal definition, is that charged by a public official to accept a
document for processing. The fee should be just, fair, and proportionate to the service for
which the fee is being collected, in this case, the examination and verification of the
documents submitted by GMA to warrant an extension of its corporate term.

Rate-fixing is a legislative function which concededly has been delegated to the SEC by R.A.
No. 3531 and other pertinent laws. The due process clause, however, permits the courts to
determine whether the regulation issued by the SEC is reasonable and within the bounds of
its rate-fixing authority and to strike it down when it arbitrarily infringes on a person’s right
to property.

GSIS V. CA
G.R. NO. 183905, April 16, 2009

FACTS: GSIS, a major shareholder in Meralco, was distressed over the proxy validation
proceedings and the resulting certification of proxies in favor of the Meralco Management.
The proceedings were presided over by Meralco’s assistant corporate secretary and chief
legal counsel instead of the person duly designated by Meralco’s Board of Directors. Thus,
GSIS moved before the SEC to declare certain proxies, those issued to herein private
respondents, as invalid. Private respondents contend that dispute in the validity of proxies is
an election contest which falls under the trial court’s jurisdiction. GSIS argues there was no
election yet at the time it filed its petition with the SEC, hence no proper election contest
over which the regular courts may have jurisdiction.

ISSUE: Whether the proxy challenge is an election contest cognizable by the regular courts.

RULING: Yes. Section 2, Rule 6 of the Interim Rules broadly defines the term “election
contest” as encompassing all plausible incidents arising from the election of corporate
directors, including: (1) any controversy or dispute involving title or claim to any elective
office in a stock or non-stock corporation, (2) the validation of proxies, (3) the manner and

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validity of elections and (4) the qualifications of candidates, including the proclamation of
winners.

Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of
the regular trial courts with respect to election-related controversies is specifically confined
to “controversies in the election or appointment of directors, trustees, officers or managers
of corporations, partnerships, or associations.” Evidently, the jurisdiction of the regular
courts over so-called election contests or controversies under Section 5(c) does not extend
to every potential subject that may be voted on by shareholders, but only to the election of
directors or trustees, in which stockholders are authorized to participate under Section 24 of
the Corporation Code.

The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases
enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are
solicited in relation to the election of corporate directors, the resulting controversy, even if
it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly
seen as an election controversy within the original and exclusive jurisdiction of the trial
courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree
No. 902-A.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is
undisputed. The controversy was engendered by the looming annual meeting, during which
the stockholders of Meralco were to elect the directors of the corporation. GSIS very well
knew of that fact.

PHILIPPINE VETERANS BANK, vs. JUSTINA CALLANGAN, in her capacity as Director of the
Corporation Finance Department of the Securities and Exchange Commission and/or the
SECURITIES AND EXCHANGE COMMISSION
G.R. No. 191995 August 3, 2011

FACTS: On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation
Finance Department of the Securities and Exchange Commission (SEC), sent the Bank a
letter, informing it that it qualifies as a “public company” under Section 17.2 of the Securities
Regulation Code (SRC) in relation with Rule 3(1)(m) of the Amended Implementing Rules
and Regulations of the SRC. The Bank is thus required to comply with the reportorial
requirements set forth in Section 17.1 of the SRC. The Bank responded by explaining that it
should not be considered a “public company” because it is a private company whose shares
of stock are available only to a limited class or sector, i.e., to World War II veterans, and not
to the general public. In a letter dated April 20, 2004, Director Callangan rejected the Bank’s
explanation and assessed it a total penalty of One Million Nine Hundred Thirty-Seven
Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for failing to comply
with the SRC reportorial requirements from 2001 to 2003. The Bank moved for the

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reconsideration of the assessment, but Director Callangan denied the motion in SEC-CFD
Order No. 085, Series of 2005 dated July 26, 2005. When the SEC En Banc also dismissed the
Bank’s appeal for lack of merit in its Order dated August 31, 2006, prompting the Bank to file
a petition for review with the Court of Appeals (CA). On March 6, 2008, the CA dismissed
the petition and affirmed the assailed SEC ruling, with the modification that the assessment
of the penalty be recomputed from May 31, 2004. The CA also denied the Bank’s motion for
reconsideration, opening the way for the Bank’s petition for review on certiorari filed with
this Court. On June 16, 2010, the Court denied the Bank’s petition for failure to show any
reversible error in the assailed CA decision and resolution.

ISSUE: Are the reportorial requirements of the SEC are applicable to Veterans Bank?

RULING: Yes. To determine whether the Bank is a "public company" burdened with the
reportorial requirements ordered by the SEC, we look to Subsections 17.1 and 17.2 of the
SRC. We also consider Rule 3 (1) (m) of the Amended Implementing Rules and Regulations of
the SRC, which deems a "public company" as "any corporation with a class of equity
securities listed on an Exchange or with assets in excess of Fifty Million Pesos
(P50,000,000.00) and having two hundred (200) or more holders, at least two hundred
(200) of which are holding at least one hundred (100) shares of a class of its equity
securities."

From these provisions, it is clear that a "public company," as contemplated by the SRC, is not
limited to a company whose shares of stock are publicly listed; even companies like the
Bank, whose shares are offered only to a specic group of people, are considered a public
company, provided they meet the requirements under the law. The records establish, and
the Bank does not dispute, that the Bank has assets exceeding P50,000,000.00 and has
395,998 shareholders. It is thus considered a public company that must comply with the
reportorial requirements set forth in Section 17.1 of the SRC. The Bank also argues that even
assuming it is considered a "public company" pursuant to Section 17 of the SRC, the Court
should interpret the pertinent SRC provisions in such a way that no financial prejudice is
done to the thousands of veterans who are stockholders of the Bank. Given that the
legislature intended the SRC to apply only to publicly traded companies, the Court should
exempt the Bank from complying with the reportorial requirements. On this point, the Bank
is apparently referring to the obligation set forth in Subsections 17.5 and 17.6 of the SRC. In
making this argument, the Bank ignores the fact that the trust and fundamental duty of the
Court is to apply the law. Construction and interpretation come only after a demonstration
that the application of the law is impossible or inadequate unless interpretation is resorted
to. In this case, we see the law to be very clear and free from any doubt or ambiguity; thus,
no room exists for construction or interpretation. Additionally, and contrary to the Bank's
claim, the Bank's obligation to provide its stockholders with copies of its annual report is
actually for the benefit of the veterans stockholders, as it gives these stockholders access to
information on the Bank's financial status and operations, resulting in greater transparency
on the part of the Bank. While compliance with this requirement will undoubtedly cost the
Bank money, the benefit provided to the shareholders clearly outweighs the expense. For

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many stockholders, these annual reports are the only means of keeping in touch with the
state of health of their investments; to them, these are invaluable and continuing links with
the Bank that immeasurably contribute to the transparency in public companies that the law
envisions.

QUEENSLAND-TOKYO COMMODITIES et al. vs. THOMAS GEORGE

GR 172727, 08 September 2010

FACTS:

QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo
Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George
(respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendoza's prodding,
respondent finally invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent
signed the Customer's Agreement. Forming part of the agreement was the Special Power of
Attorney executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to
trade and manage his account.

On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order
against QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return of
his investment, but it was not heeded. QTCI claimed that they were not aware of, nor were they
privy to, any arrangement which resulted in the account of respondent being handled by unlicensed
brokers. They pointed out that respondent transacted business with QTCI for almost a year, without
questioning the license or the authority of the traders handling his account, rendering him
estopped. It was only after it became apparent that QTCI could no longer resume its business
transactions by reason of the CDO that respondent raised the alleged lack of authority of the brokers
or traders handling his account.

ISSUE: Whether or not QTCI should be held liable for the loss incurred by George in the investment
he made with the corporation.

RULING: YES. It recognized Mendoza and Collado as its brokers. Petitioners did not object to, and in
fact recognized, Mendoza's appointment as respondent's attorney-in-fact. Collado, in behalf of QTCI,
concluded the Customer's Agreement despite the fact that the appointed attorney-in-fact was not a
licensed dealer. Worse, petitioners permitted Mendoza to handle respondent's account.

Doctrine dictates that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities
of the latter. Personal liability of a corporate director, trustee, or officer, along (although not
necessarily) with the corporation, may validly attach, as a rule, only when - (1) he assents to a
patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in
directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its
stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who,
having knowledge thereof, does not forthwith file with the corporate secretary his written objection

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thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is
made by a specific provision of law personally answerable for his corporate action.

Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of these
unlawful activities within the company, especially so that Collado, himself a ranking officer of QTCI, is
involved in the unlawful execution of customers orders. Lau, being the chief operating officer,
cannot escape the fact that had he exercised a modicum of care and discretion in supervising the
operations of QTCI, he could have detected and prevented the unlawful acts of Collado and
Mendoza.

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