1.) HI-YIELD REALTY, G.R. No.

168863 June 23, 2009

INCORPORATED, vs HON.
COURT OF APPEALS

This is a special civil action for certiorari seeking to nullify and set aside the Decision [1] dated March 10, 2005 and
Resolution[2] dated May 26, 2005 of the Court of Appeals in CA-G.R. SP. No. 83919. The appellate court had dismissed
the petition for certiorari and prohibition filed by petitioner and denied its reconsideration.
The antecedent facts of the case are undisputed.
On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & Sons, Inc. (HTSI), filed a Petition
for Annulment of Real Estate Mortgage and Foreclosure Sale [3] 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). It was docketed as Civil Case No. 03-892 with
Branch 148 of the Regional Trial Court (RTC) of Makati City.
On September 15, 2003, petitioner moved to dismiss the petition on grounds of improper venue and payment of
insufficient docket fees. The RTC denied said motion in an Order[4] dated January 22, 2004. The trial court held that the
case was, in nature, a real action in the form of a derivative suit cognizable by a special commercial court pursuant to
Administrative Matter No. 00-11-03-SC.[5] Petitioner sought reconsideration, but its motion was denied in an
Order[6] dated April 27, 2004.
Thereafter, petitioner filed a petition for certiorari and prohibition before the Court of Appeals. In a Decision dated March
10, 2005, 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. The dispositive portion of
said decision reads:
WHEREFORE, premises considered, this Petition is hereby DISMISSED. However, public
respondent is hereby DIRECTED to instruct his Clerk of Court to compute the properdocket fees and
thereafter, to order the private respondent to pay the same IMMEDIATELY.
SO ORDERED.[7]
Petitioners motion for reconsideration[8] was denied in a Resolution dated May 26, 2005.
Hence, this petition which raises the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN
NOT DISMISSING THE CASE AGAINST HI-YIELD FOR IMPROPER VENUE DESPITE
FINDINGS BY THE TRIAL COURT THAT THE ACTION IS A REAL ACTION.
II.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE
COMPLAINT AS AGAINST HI-YIELD EVEN IF THE JOINDER OF PARTIES IN THE
COMPLAINT VIOLATED THE RULES ON VENUE.
III.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
ANNULMENT OF REAL ESTATE MORTGAGE AND FORECLOSURE SALE IN THE
COMPLAINT IS MERELY INCIDENTAL [TO] THE DERIVATIVE SUIT.[9]
The pivotal issues for resolution are as follows: (1) whether venue was properly laid; (2) whether there was proper joinder
of parties; and (3) whether the action to annul the real estate mortgage and foreclosure sale is a mere incident of the
derivative suit.
Petitioner imputes grave abuse of discretion on the Court of Appeals for not dismissing the case against it even as the trial
court found the same to be a real action. It explains that the rule on venue under the Rules of Court prevails over the rule
prescribing the venue for intra-corporate controversies; hence, HTSI erred when it filed its suit only in Makatiwhen the
lands subjects of the case are in Marikina and Quezon City. Further, 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. Lastly, petitioner asserts that it should be dropped as a party to the
case for it has been wrongly impleaded as a non-stockholder defendant in the intra-corporate dispute.
On the other hand, 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.
After careful consideration, we are in agreement that the petition must be dismissed.
A petition for certiorari is proper if a tribunal, board or officer exercising judicial or quasi-judicial functions acted without
or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction and there is no
appeal, or any plain, speedy and adequate remedy in the ordinary course of law.[10]
Petitioner sought a review of the trial courts Orders dated January 22, 2004 and April 27, 2004 via a petition for
certiorari before the Court of Appeals. In rendering the assailed decision and resolution, the Court of Appeals was acting
under its concurrent jurisdiction to entertain petitions for certiorari under paragraph 2,[11] Section 4 of Rule 65 of the Rules of
Court. Thus, if erroneous, the decision and resolution of the appellate court should properly be assailed by means of a
petition for review on certiorari under Rule 45 of the Rules of Court. The distinction is clear: a petition for certiorari seeks to
correct errors of jurisdiction while a petition for review on certiorari seeks to correct errors of judgment committed by the
court a quo.[12] Indeed, this Court has often reminded members of the bench and bar that a special civil action for certiorari
under Rule 65 lies only when there is no appeal nor plain, speedy and adequate remedy in the ordinary course of law.[13] In
the case at hand, petitioner impetuously filed a petition for certiorari before us when a petition for review was available as a
speedy and adequate remedy. Notably, petitioner filed the present petition 58[14] days after it received a copy of the assailed
resolution dated May 26, 2005. To our mind, this belated action evidences petitioners effort to substitute for a lost appeal this
petition for certiorari.
For the extraordinary remedy of certiorari to lie by reason of grave abuse of discretion, the abuse of discretion
must be so patent and gross as to amount to an evasion of positive duty, or a virtual refusal to perform the duty enjoined or
to act in contemplation of law, or where the power is exercised in an arbitrary and despotic manner by reason of passion
and personal hostility.[15] We find no grave abuse of discretion on the part of the appellate court in this case.
Simply, the resolution of the issues posed by petitioner rests on a determination of the nature of the petition filed by
respondents in the RTC. Both the RTC and Court of Appeals ruled that the action is in the form of a derivative suit
although captioned as a petition for annulment of real estate mortgage and foreclosure sale.
A derivative action is a suit by a shareholder to enforce a corporate cause of action.[16] 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.[17]
In the case of Filipinas Port Services, Inc. v. Go,[18] we 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.[19]
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.[20] The Court finds that Roberto had satisfied this requirement in paragraph five (5) of his petition which
reads:
5. Individual petitioner, being a minority stockholder, is instituting the instant proceeding by way
of a derivative suit to redress wrongs done to petitioner corporation and vindicate corporate rights due to
the mismanagement and abuses committed against it by its officers and controlling stockholders,
especially by respondent Leonora H. Torres (Leonora, for brevity) who, without authority from the Board
of Directors, arrogated upon herself the power to bind petitioner corporation from incurring loan
obligations and later allow company properties to be foreclosed as hereinafter set forth;[21]
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. [22]
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.
Derivative suits are governed by a special set of rules under A.M. No. 01-2-04-SC[23] otherwise known as the Interim
Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799.[24] Section 1,[25] Rule 1
thereof expressly lists derivative suits among the cases covered by it.
As regards the venue of derivative suits, Section 5, Rule 1 of A.M. No. 01-2-04-SC states:
SEC. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the
Regional Trial Court which has jurisdiction over the principal office of the corporation, partnership, or
association concerned. Where the principal office of the corporation, partnership or association is
registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the
city or municipality where the head office is located.
Thus, the Court of Appeals did not commit grave abuse of discretion when it found that respondents correctly filed the
derivative suit before the Makati RTC where HTSI had its principal office.
There being no showing of any grave abuse of discretion on the part of the Court of Appeals the other alleged errors will
no longer be passed upon as mere errors of judgment are not proper subjects of a petition for certiorari.
WHEREFORE, the instant petition is hereby DISMISSED. The Decision dated March 10, 2005 and the Resolution
dated May 26, 2005 of the Court of Appeals in CA-G.R. SP. No. 83919 are AFFIRMED.
No pronouncement as to costs.

SO ORDERED.
2.) G.R. No. 161886 March 16, 2007

FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and MINDANAO
TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,
vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS
SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE JESUS,
Respondents.

Lessons Applicable: Rationale for "Centralized Management" Doctrine

FACTS: Sept 4 1992: Eliodoro C. Cruz, Filport’s president from 1968-1991, wrote a letter to the corporation’s
BOD questioning the creation and election of the following positions with a monthly remuneration of
P13,050.00 each. Cruz requested the board to take necessary action/actions to recover from those elected to
the aforementioned positions the salaries they have received.

Jun 4 1993: Cruz, purportedly in representation of Filport and its stockholders, among which is herein co-
petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a derivative suit
against Filport's BOD for acts of mismanagement detrimental to the interest of the corporation and its
shareholders at large.

Cruz prayed that the BOD be made to pay Filport, jointly and severally, the sums of money variedly
representing the damages incurred as a result of the creation of the offices/positions complained of and the
aggregate amount of the questioned increased salaries.

RTC: BOD have the power to create positions not in the by-laws and can increase salaries. But Edgar C.
Trinidad under the third and fourth causes of action to restore to the corporation the total amount of salaries
he received as assistant vice president for corporate planning; and likewise ordering Fortunato V. de Castro
and Arsenio Lopez Chua under the fourth cause of action to restore to the corporation the salaries they each
received as special assistants respectively to the president and board chairman. In case of insolvency of any or
all of them, the members of the board who created their positions are subsidiarily liable.
Appealed: creation of the positions merely for accommodation purposes - GRANTED

ISSUES: W/N there was mismanagement - NO

W/N there is a proper derivative suit - YES

HELD: Section 35 of the Corporation Code, the creation of an executive committee (as powerful as the BOD)
must be provided for in the bylaws of the corporation
 Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the
executive committee by the board of directors is illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of executive committee
 But even assuming there was mismanagement resulting to corporate damages and/or business losses,
respondents may not be held liable in the absence of a showing of bad faith in doing the acts
complained of. ("dishonest purpose","some moral obliquity","conscious doing of a wrong", "partakes
of the nature of fraud")
 determination of the necessity for additional offices and/or positions in a corporation is a management
prerogative which courts are not wont to review in the absence of any proof that such prerogative was
exercised in bad faith or with malice
2. YES
Besides, the requisites before a derivative suit can be filed by a stockholder: - present
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; - a stockholder of Filport
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
- he wrote a letter
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. - wrong against the
stockholders of the corporation generally.
3.) Commart vs. Securities & Exchange Commission
Gr. No. 85318, June 3, 1991

FACTS: Commart (Phils.), Inc., is a corporation engaged in the brokerage business for the
importation of fertilizers and other products/commodities which was organized by two brothers, Jesus
and Mariano Maglutac.

Sometime in June 1984, the two brothers agreed to go their separate ways with Mariano being
persuaded to sell Jesus his shareholdings in Commart
amounting to 25% of the outstanding capital stock. As part of the deal, a “Cooperative Agreement”
was signed, between Commart (represented by Jesus) and Mariano, in which, among others,
Commart ceded to Mariano or to an “acceptable entity” he may create, a portion of its business, with
a pledge of mutual cooperation for a certain period so as to enable Mariano to get his own
corporation off the ground, so to speak.

M a r i a n o ’ s w i f e , A l i c e M . M a g l u t a c , h a s b e e n f o r y e a r s a s t o c k h o l d e r a n d director
of Commart, did not dispose of her shareholdings, and thus continued as such even after the sale of
Mariano’s equity. As broker and indentor, Commart’s principal income came from commissions paid to
it in U.S. dollars by foreign suppliers of fertilizers and other commodities imported by Planters Products,
Inc. and other local importers.

ISSUE: Whether Alice has the legal standing to File the derivative suit.

HELD: Yes.

d e r i v a t i v e s u i t h a s b e e n t h e p r i n c i p a l d e f e n s e o f t h e m i n o r i t y shareholder
against abuses by the majority. It is a remedy designed by equity for those situations where the
management, through fraud, neglect of duty, or other cause, declines to take the proper and
necessary steps to assert the corporation’s rights.

Indeed, to grant to Commart the light of withdrawing or dismissing the suit, at the instance of
majority stockholders and directors w h o t h e m s e l v e s a r e t h e persons alleged to have
committed breaches of trust against the interest of the corporation,
would be to emasculate the right of minority stockholders to seek redress for
the corporation. 5o consider the 6otice of 7ismissal 2led by Commart as quashing the complaint filed
by Alice Maglutac in favor of the corporation would be to defeat the very nature and function of
a derivative suit and render the right to institute the action illusory.
4.) WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON
F. VILLASIS & REGINALD F. VILLASIS, petitioners,

vs. RICARDO T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON.
JUDGE PORFIRIO PARIAN, respondents.

[G.R. No. 113032. August 21, 1997]

FACTS: Private respondents are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc. a stock corporation engaged in the operation, among others, of
an educational institution. Then, the board of directors amended their by laws giving the members of
board of directors a compensation. The ten per centum of the net profits shall be distributed equally
among the ten members of the Board of Trustees. Few years later, the private respondents were
charged of falsification of public documents and estafa. 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 (SEC) reflecting therein the
disbursement of corporate funds 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. After a full-blown hearing TC handed down a verdict of acquittal
on both counts without imposing any civil liability against the accused therein.

Issue: WON the compensation of the board of directors as stated in their by laws violates the
corporation code?

Held: NO. There is no argument that directors or trustees, as the case may be, are not entitled to
salary or other compensation when they perform nothing more than the usual and ordinary duties of
their office. This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives for service,
without compensation.

Under the foregoing section, there are only two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws
fixing their compensation; and (2) when the stockholders representing a majority of the outstanding
capital stock at a regular or special stockholders’ meeting agree to give it to them. In the case at
bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their
capacity as members of the board, but rather as officers of the corporation, more particularly as
Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. Clearly,
therefore, the prohibition with respect to granting compensation to corporate directors/trustees as
such under Section 30 is not violated in this particular case.
5.) GILDA C. LIM, WILHELMINA V. JOVEN and DITAS A. LERIOS, petitioners,

vs. PATRICIA LIM-YU, in her capacity as a minority stockholder of LIMPAN INVESTMENT

CORPORATION, respondent.

[G.R. No. 138343. February 19, 2001]

FACTS: The Board of Directors of Limpan Corporation issued a resolution authorizing the partial
payment for the legal services rendered by petitioner Lim to be in form of shares of stock there being
no available funds to pay the same. As a result, the unsubscribed shares of LIMPAN were issued and
all of its authorized capital stock became fully subscribed with petitioner Lim ending up controlling
62.5% of the shares. Respondent Yu filed a complaint against the members who approved the
resolution. Petitioners moved to dismiss alleging Yu had no legal capacity to sue on the basis of a TRO
issued by the SC on her guardianship case and thus incapacitated from filing a derivative suit. The SEC
Hearing Officer held in abeyance the motion but the SEC En Banc ordered the case to proceed. CA
affirmed the SEC En Banc.

Issue:

Whether or not the suit brought by the respondent is a derivative suit that the TRO restricts her from
doing.

Ruling: NO.

There appears to be a confusion on the nature of the suit initiated before the SEC. Petitioners
describe it as a derivative suit, which has been defined as “an action brought by minority shareholders
in the name of the corporation to redress wrongs committed against it, for which the directors refuse
to sue. It is a remedy designed by equity and has been the principal defense of the minority
shareholders against abuses by the majority.” In a derivative action, the real party in interest is the
corporation itself, not the shareholder(s) who actually instituted it. “If the suit filed by respondent
was indeed derivative in character, then respondent may not have the capacity to sue. The reason is
that she would be acting in representation of the corporation, an act which the TRO enjoins her from
doing.

We hold, however, that the suit of respondent cannot be characterized as derivative, because she was
complaining only of the violation of her preemptive right under Section 39 of the Corporation Code.
She was merely praying that she be allowed to subscribe to the additional issuances of stocks in
proportion to her shareholdings to enable her to preserve her percentage of ownership in the
corporation. She was therefore not acting for the benefit of the corporation. Quite the contrary, she
was suing on her own behalf, out of a desire to protect and preserve her preemptive rights.
Unquestionably, the TRO did not prevent her from pursuing that action.

The TRO allows Respondent Patricia Lim-Yu to act for herself and to enter into any contract on her
own behalf. However, she cannot transact in representation of or for the benefit of her parents,
brothers or sisters, or the Limpan Investment Corporation. Contrary to what petitioners suggest, all
that is prohibited is any action that will bind them. In short, she can act only on and in her own behalf,
not that of petitioners or the Corporation.
6.) PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT)
-vs-
NATIONAL TELECOMMUNICATIONS COMMISSION (NTC)
G.R. No. 152685 December 4, 2007

FACTS: This case pertains to Section 40 (e) of the Public Service Act (PSA), as amended on March 15, 1984,
pursuant to Batas Pambansa Blg. 325, which authorized the NTC to collect from public telecommunications
companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the capital and
stock subscribed or paid for of a stock corporation, partnership or single proprietorship of the capital invested,
or of the property and equipment, whichever is higher.

Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long Distance
Telephone Company (PLDT) starting sometime in 1988. The SRF assessments were based on the market value
of the outstanding capital stock, including stock dividends, of PLDT. PLDT protested the assessments
contending that the SRF ought to be based on the par value of its outstanding capital stock. Its protest was
denied by the NTC and likewise, its motion for reconsideration.

PLDT appealed before the CA. The CA modified the disposition of the NTC by holding that the SRF should be
assessed at par value of the outstanding capital stock of PLDT, excluding stock dividends.

ISSUE:

Whether or not the value transferred from the unrestricted retained earnings of PLDT to the capital stock
account pursuant to the issuance of stock dividends is the proper basis for the assessment of the SRF?

RULING:

NO.

In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to
its capital account. It is the same amount that can be loosely termed as the trust fund of the corporation. The
Trust Fund doctrine considers this subscribed capital as a trust fund for the payment of the debts of the
corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part
of the subscribed capital may be returned or released to the stockholder (except in the redemption of
redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital;
subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using
the subscribed capital as the considerations therefor.

When stock dividends are distributed, the amount declared ceases to belong to the corporation but is
distributed among the shareholders. Consequently, the unrestricted retained earnings of the corporation are
diminished by the amount of the declared dividend while the stockholders equity is increased. Furthermore,
the actual payment is the cash value from the unrestricted retained earnings that each shareholder foregoes
for additional stocks/shares which he would otherwise receive as required by the Corporation Code to be
given to the stockholders subject to the availability and conditioned on a certain level of retained earnings.

In essence, therefore, the stockholders by receiving stock dividends are forced to exchange the monetary
value of their dividend for capital stock, and the monetary value they forego is considered the actual payment
for the original issuance of the stocks given as dividends. Therefore, stock dividends acquired by shareholders
for the monetary value they forego are under the coverage of the SRF and the basis for the latter is such
monetary value as declared by the board of directors.
7.) RICARDO A. NAVA, petitioner-appellant.
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and AMPARO CUSI, respondents-appellees.

G.R. No. L-28120 November 25, 1976

FACTS: Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing Corporation. 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 the CFI 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.

The respondents in their answer pleaded the defense that no shares of stock against which the corporation
holds an unpaid claim are transferable in the books of the corporation.

The trial court dismissed the petition.

ISSUE:

Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter in its stock and
transfer book the sale made by Po to Nava of the twenty shares forming part of Po’s subscription of eighty
shares, with a total par value of P8,000 and for which Po had paid only P2,000, it being admitted that the
corporation has an unpaid claim of P6,000 as the balance due on Po’s subscription and that the twenty shares
are not covered by any stock certificate

RULING:

No.

The corporation can include in its by-laws rules, not inconsistent with law, governing the transfer of its shares
of stock. As prescribed in section 35, 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” (18 C.J.S. 928). There should be compliance with the mode of transfer
prescribed by law.

A corporation cannot release an original subscriber from paying for his shares without a valuable
consideration or without the unanimous consent of the stockholders.

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.

As already stressed, in this case no stock certificate was issued to Po. Without 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.

The delivery of the stock certificate, which represents the shares to be alienated , is essential for the
protection of both the corporation and its stockholders.
8.) CALATAGAN GOLF CLUB, INC.
Vs
SIXTO CLEMENTE, JR.
GR. NO. 165443 APRIL16, 2009

FACTS: Petitioner charges monthly dues on its members to meet expenses for general operations as
provided in its BL and AOI. Respondent who is a member eventually ceased paying the dues.
Petitioner then considered his share as inactive and delinquent. Consequently, Petitioner’s BoD
adopted a resolution authorizing the foreclosure of shares of delinquent members and the public
auction of these shares. Respondent only learned of the sale of his share four years after and filed a
claim with the SEC seeking the restoration of his shareholding. SEC claimed that it had already
prescribed citing Sec. 69 of the Corporation Code which provides that the sale of shares at an auction
sale can only be questioned within six months from the date of sale.

ISSUE: Has the action of respondent prescribed pursuant to Sec. 69 of Corporation Code?

HELD: Section 69 of the Corporation Code not applicable in this case because it specifically refers to
unpaid subscriptions to capital stock, and not to any other debt of stockholders. Respondent had
already fully paid for the share in petitioner and no longer had any outstanding obligation to deprive
him of full title to his share. Further, the procedure for stock corporation’s recourse on unpaid
subscription is not applicable in member’s shares in a non-stock corporation.
9.) PHILEX MINING CORPORATION, petitioner,
vs.
HON. DOMINGO CORONEL REYES, Presiding Judge, Court of First Instance of Albay, 10th Judicial District,
Branch IV, and RICHARD HUENEFELD, respondents.

G.R. No. L-57707 November 19, 1982

FACTS: Private respondent, Richard Huenefeld, is a stockholder of petitioner Philex Mining Corporation. He
originally owned 800,000 shares of stock.

Philex declared a 10% stock dividend. Stock Certificate No. 190579 for 80,000 shares was issued by Philex in
favor of Huenefeld. On April 18, 1979, Philex sent the stock certificate to Huenefeld through its transfer agent,
First Asian, Stock Transfer, Inc. Huenefeld claims that he never received the stock certificate.

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 3 consecutive
weeks in a newspaper of general circulation in accordance with the procedure prescribed BY Republic Act No.
201 (now Section 73, Corporation Code).

Huenefeld, 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 commenced suit for Specific Performance with Damages before the CFI of Albay, presided by
respondent Judge, to compel the issuance of a replacement for the Stock Certificate, plus damages.

Philex filed a Motion to Dismiss on the ground that the Court of First Instance has no jurisdiction over the case,
the issue being one of intra-corporate relationship between a stockholder and a corporation, which under
Presidential Decree No. 902-A, falls within the original and exclusive jurisdiction of the SEC.

Huenefeld filed an Opposition claiming that the refusal of Philex to issue a replacement certificate resulted in
actual damages to him, and thus, it is no longer a case of intra-corporate conflict, but one which is civil or
tortious in nature.

CFI: held in abeyance resolution of the incident as the grounds alleged did not appear to be indubitable. Philex
moved for reconsideration.

In the interim, Philex filed a Petition with the SEC praying that the Commission hear the controversy; that
Huenefeld be held to have received Stock Certificate No. 190579 and had subsequently lost the same; and
that the provisions of RA 201, or Section 73 of the new Corporation Code, be followed for the issuance of a
replacement certificate, at Huenefeld's expense.

CFI: denied Philex's Motion for Reconsideration for lack of merit..

SC issued a TRO enjoining respondent Judge from further proceeding with the case..

ISSUE: Whether respondent CFI has jurisdiction over the present controversy, which Philex contends is an
intra-corporate one, but which Huenefeld denies.

HELD: NO.

RATIO: The controversy between the parties being clearly an intra-corporate one, it is the SEC, and not
respondent CFI, that has original and exclusive jurisdiction, by express mandate of the law.

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:

a) ...

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

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.

Huenefeld's attempt to limit intra-corporate controversies is not well taken.

The phrase 'controversies, arising out of intra-corporate relations' would seem to refer to
controversies, cases or intramurals among or between stockholders and the corporation
involving the exercise of stockholders' privileges, rights, benefits and their duties in a
corporation, and the existence in law of a corporation.

Like, for instance, an example of 'controversies arising out of an intra- corporate relation' are
cases between stockholders in 1) contesting or vying for a seat in the Board of Directors, 2)
questions on voting by proxy, 3) election and tenure of office and qualification of directors, 4)
removal and resignation of Directors, 5) repeal and amendment of corporate charter and by-
laws, 6) questions on corporation meetings and increase of capital stocks, etc. (pp. 70, 80,
Rollo).

The foregoing interpretation does not square with the intent of the law, which is to segregate from the
general jurisdiction of regular Courts controversies involving corporations and their stockholders and to bring
them to the SEC for exclusive resolution, in much the same way that labor disputes are now brought to the
Ministry of Labor and Employment (MOLE) and the National Labor Relations Commission (NLRC), and not to
the Courts.
10.) ASSET PRIVATIZATION TRUST vs., COURT OF APPEALS

[G.R. No. 121171. December 29, 1998]

Facts: The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by the Republic Act No. 1528, as amended by Republic Act No. 2077 and
Republic Act No. 4167, by virtue of which laws, a memorandum of agreement was drawn on July 3, 1968,
whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the
exclusive right to explore, develop and exploit nickel, cobalt, and other minerals in the Surigao Mineral
Reservation. MMIC is a domestic corporation engaged in mining with respondent Jesus S. Cabarrus Sr. as
president and among its original stockholders.

The Philippine government undertook to support the financing of MMIC by purchase of MMIC debenture
bonds and extension of guarantees. Further, from the DBP and/or the government financing institutions to
subscribe in MMIC and issue guarantee/s of foreign loans or deferred payment arrangements secured from
the US Eximbank, Asian Development Bank (ADB), Kobe steel of amount not exceeding US$100 million. On
July 13, 1981, MMIC, PNB, and DBP executed a mortgage trust agreement whereby MMIC as mortgagor,
agreed to constitute a mortgage in favor of PNB and DBP as mortgages, over all MMIC assets; subject of real
estate and chattel mortgage executed by the mortgagor, and additional assets described and identified,
including assets of whatever kind, nature or description, which the mortgagor may acquire whether in
substitution of, in replenishment or in addition thereto. Due to the unsettled obligations, a financial
restructuring plan (FRP) was suggested, however not finalized.

The obligations matured and the mortgage was foreclosed. The foreclosed assets were sold to PNB as the lone
bidder and were assigned to the newly formed corporations namely Nonoc Mining Corporation, Maricalum
Mining and Industrial Corporation and Island Cement Corporation. In 1986, these assets were transferred to
the asset privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr. together with the other stockholders
of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati branch 62, for annulment of
foreclosures, specific performance and damages. The suit docketed as civil case no. 9900, prayed that the
court: 1.) Annul the foreclosures, restore the foreclosed assets to MMIC, and require the banks to account for
their use and operation in the interim; 2.) Direct the banks to honor and perform their commitments under
the alleged FRP; 3.) Pay moral and exemplary damages, attorney’s fees, litigation expenses and costs. A
compromise and arbitration agreement was entered by the parties to which committee awarded damages in
favor of Cabarrus.

Issue: Whether or not the award granted to Cabarrus was proper.

Held: No. Civil case no. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded
as a party. It was not joined as a part plaintiff or party defendant at any stage before of the proceedings as it
is, the award for damages to MMIC, which was not party before the arbitration committee is a complete
nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is only a nominal party. The corporation should be included
s a party in the suit.

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 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 part in interest.

It is a condition sine qua non that the corporation be impleaded as a party because – not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process. The
reason given is that the judgement 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 a party because it is its cause of action that
is being litigated and because judgement must be a res judicata against it.

The reasons given for not allowing direct individual suit are:

1. That the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of
Evangelista vs Santos that the “Stockholders may not directly claim those damages for themselves for
that would result in the appropriation by, and the distribution among them of part of the corporate
assets before the
2. The universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to
the corporate property; that both of these are in the corporation itself for the benefit of the
stockholders. In other words, to allow shareholders to sue separately would conflict with the separate
corporate entity principle.
3. dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot
be legally done in view of section 16 of the corporation law.
4. The filing of such suits would conflict with the duty of the management to sue for the protection of all
concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act.