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10. Inspect Corporate Records Sec. 74. Books to be kept; stock transfer agent.

- Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on his demand. The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, writing, for a copy of excerpts from said records or minutes, at his expense. Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That 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 Provided, further, That it shall be a defense to any action under this section 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. Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days. No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission, which shall be renewable annually: Provided, That a stock corporation is not precluded from performing or making transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be applicable. (51a and 32a; B. P. No. 268.) Afirca v PCGG FACTS: These cases were consolidated since they are related to the sequestration of the eastern Telecommunications Philippines, Inc. (ETPI) in 1986 by the Presidential Commission on Good Government (PCGG) and the consequent filing by the PCGG in 1987 of an action for reconveyance. Reversion, accounting and restitution of the alleged ill-gotten ETPI shares and damages in the Sandiganbayan. Subsequently, during the annual stockholders meeting in 1988, Eduardo Villanueva as PCGG nominee, Roman Mabanta, Jr and Eduardo de los Angeles as nominees of the foreign investors, Cable and Wireless Ltd, and Jose Africa (who was absent) were elected as members of the board of directors (BOD). Villanueva, in an organizational meeting was elected as president and general manager while Desuasido, Velasco and Payos were elected as acting corporate officers. 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 the Supreme 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. GR No. 83831

Victor Africa, who claims to be an employee of ETPi as VP, general counsel, corporate secretary and special assistant to the chairman and president filed a petition for injunction seeking to enjoin the PCGG and its nominees to the board of directors and the newly-installed officers of ETPI from implementing their alleged illegal, invalid and immoral act of ousting him from his offices and positions at the ETPi pending determination of whether they have validly, legally and morally assumed their supposed positions and offices as directors and/or officers of ETPI. He claims he was forcibly taken out of his office. GR Nos. 85597 and 85621 Jose Africa, Nieto, and Valdez, allegedly the registered stockholders of the ETPI instituted before the Sandiganbayan a complaint for injunction and damages with prayer for a TRO seeking to enjoin Villanueva from acting as Director, President and/or General Manager of ETPI as well as to stop the PCGG from directly or indirectly interfering with the management of ETPI. GR No. 85594 The same plaintiffs above as erstwhile members of the BOD of ETPI instituted before the Sandiganbayan another action for injunction and damages where they questioned the acts and orders of the PCGG leading to the election of therein defendants Gutierrez, Javier, Payos, Roxas, Velasco, and Cable and Wireless representatives Mabanta and de los Angeles to the ETPI BOD. Claiming to tbe the duly elected members of the ETPI BOD, plaintiffs prayed that defendants be removed from their ETPI positions, and that an inunction be issued perpetually restraining the PCGG from electing and supporting the defendants in their ETPI roles While motions to dismiss were pending and prior to the hearing set for the issuance of a TRO, the Clerk of Court of the Sandiganbayan issued upon the request of the counsel of Jose L. Africa date October 18, 1988, a subpoena duces tecum and ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan during the hearing on November 3, 1988 at 2pm and to produce the stock and transfer book and all stubs of the outstanding stock certificates of ETPI. Three days later, another subpoena duces tecum was issued upon an amended request for subpoena by the same counsel ordering Asst. SolGen Desuasido or his representative to appear before the Sandiganbayan and to produce the minutes of all meetings of the Board of Directors and Stockholders of ETPI held from January 29, 1988 to date. The motion to quash by both the subpoenae was denied. The PCGG and its nominees and designees filed a petition for certiorari alleging that the SB had no jurisdiction over the main action for damages since it was a suit against the State without its consent. TOPICAL ISSUE: WON the issuance by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its representative to tesify and produce the stock and transger book, all stubs of the outstanding stock certificates of ETPi and the minutes of all meetings of the BOD and the stockholders of ETPI held from January 29, 1988 to date was valid. HELD. YES. 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. Side Issues: 1. WON the deferment of the resolution of the motions to dismiss was tainted with grave abuse of discretion. YES. While the court has the discretion to defer the hearing and determination of a motion to dismiss if the ground therefor is not indubitable, such deferment is in excess of jurisdiction if the ground for the motion to dismiss is lack of jurisdiction or lack of cause of action, since the allegations of the complaint are deemed admitted and the motion do

dismiss can be resolved without waiting for trial on the merits. Villanueva is correct in asserting that his MTD must first be resolved before trial on the merits may be had but the SC noted that this is a mere technical victory as it will be rendered moot and academic by the following ruling on the merits of the grounds raised in his MTD. 2. WON the Sandiganbayan has jurisdiction. YES The Sandiganbayan has exclusive and original jurisdiction in civil or criminal cases involving ill-gotten wealth under Executive Order No. 14, as well as incidents arising from, incidental or related to such cases, subject to review on certiorari exclusively by the Supreme Court. Since the injunctive suits filed by Jose L. Africa, et al. before the Sandiganbayan stemmed from incidents arising from, incidental and related to the partial sequestration of ETPI, the directive enunciated in the Pea case that "those who wish to question or challenge the Commission's acts or orders in such cases must seek recourse in the same court, the Sandiganbayan, which is vested with exclusive and original jurisdiction," applies to the instant case. Neither would the principle of immunity of the State from suit invoked by the PCGG divest the Sandiganbayan of its jurisdiction as while there were claims for damages alleged in the complaints in both cases, the same are, however, directed against the individual defendants in their personal capacities for having allegedly acted without legal authority and in a manner adverse to the interests of ETPI. The doctrine of state immunity from suit applies only in actions resulting in adverse consequences on the public treasury, whether in the disbursement of funds or loss of property. 3. WON the actions are barred by res judicata because of the prior judgment in PCGG v. SEC and PCGG v. Sandiganbayan. NO.

Res judicata does not apply because what was obviously raised and resolved by the Court was the scope and extent of the authority of the Sandiganbayan to issue injunctive writs on matters involving the exercise and performance of the powers and functions of the PCGG as conservator in accordance with the ruling in BAS ECO vs. PCGG, et al. to prevent the disposal and dissipation of the assets of sequestered companies or businesses. On PCGG's insistence on the rule of bar by prior judgment, it is readily apparent that one fundamental requisite for the application of that doctrine of res judicata is absent in the instant case, that is, the prior judgment or order must be a judgment on the merits of the case. For a prior judgment to constitute a bar to a subsequent case, (1) it must be a final judgment or order, (2) the court rendering the same must have jurisdiction over the subject matter and over the parties, (3) it must be a judgment or order on the merits, and (4) there must be between the two cases identity of parties, subject matter, and causes of action. There is no dispute that, substantially, the acts or orders of the PCGG which led to the election of the members of the board of directors and officers of ETPI, as well as all acts done thereafter by the said board, are the incidents which gave rise to the causes of action involved in the injunction suit in SEC Case No. 3297 and the motion for injunction in Civil Case No. 0009, both of which gave rise to G.R. No. 82188. There is, accordingly, identity of the incidents upon which the causes of action in Civil Cases Nos. 0048 and 0050 are based and those of the two cases which gave rise to G.R. No. 82188. However, there is nothing, in the pronouncements of the Court in G.R. No. 82188 which finally resolved the merits of the factual issues raised therein by the opposing parties which included, among others, the alleged illegal manner by which the meeting to elect the new board of directors was called and held on January 29, 1988; the qualification, experience and probity of those elected to the board contrary to the caveat in BASECO vs. PCGG, et al., supra, on the substitution of directors of the board of sequestered corporations; and the alleged mismanagement of the operations of ETPI by those elected to the board and the corporate offices by the PCGG. Veraguth v Isabela Sugar Co. FACTS: Eugenio Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., filed this petition for mandamus directly with the Supreme Court against the Isabela Sugar Company, Inc., Gil Montilla, acting president of the company, and Agustin B. Montilla, secretary of the company. Veraguth prays that: - the corporation and its officers be required within five days from receipt of notice of the petition to show cause why they refuse to notify Veraguth as director, of the regular and special meetings of the board of directors,

a final and absolute writ of mandamus be issued to the corporations and its officers to notify immediately the petitioner within the reglamentary period, of all regular and special meetings of the board of directors of the Isabela Sugar Central Company, Inc., to place at his disposal at reasonable hours the minutes, documents, and books of the corporation for his inspection as director and stockholder, and to issue immediately, upon payment of the fees, certified copies of any documentation in connection with said minutes, documents, and the books of the corporation.

ISSUE: WHETHER there was a malicious attempt to keep Director Veraguth from attending a special meeting of the board of directors at which the compensation of the attorneys of the company was fixed, or WHETHER Director Veraguth, in a spirit of antagonism, has made the petition merely a pretext to cause trouble. UNDETERMINED WHETHER a director has the unqualified right to inspect the books and records of the corporation. YES RATIO: The corporation had by-laws, together with a resolution of the board of directors, providing for the holding of ordinary and special meetings. At the time of the petition, it cannot yet be determined whether there was a malicious attempt to keep Director Veraguth from attending a special meeting of the board of the board of directors at which the compensation of the attorneys of the company was fixed, or whether Director Veraguth, in a spirit of antogonism, has made this merely a pretext to cause trouble. However, what is clear and decisive is that: - the meeting in question is in the past and has become a purely academic question; - no damage was caused to Veraguth by the action taken at the special meeting which he did not attend, since his interests were fully protected by the Philippine National Bank; and - as to meetings in the future it is to be presumed that the secretary of the company will fulfill the requirements of the resolutions of the company pertaining to regular and special meetings. It is, however, Veraguths duty to give formal notice to the secretary of his post -office address if he desires notice sent to a particular residence. The Corporation Law, section 51, provides that: All business corporations shall keep and carefully preserve a record of all business transactions, and a minute of all meetings of directors, members, or stockholders, in which shall be set forth in detail the time and place of holding the meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the meeting. . . . The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member, or stockholder of the corporation at reasonable hours. Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times. Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation, and the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. A director or stockholder can make copies, abstracts, and memoranda of documents, books, and papers as an incident to the right of inspection, but cannot, without an order of a court, be permitted to take books from the office of the corporation. But a director or stockholder does not have any absolute right to secure certified copies of the minutes of the corporation until these minutes have been written up and approved by the directors. Nothing improper occurred when the secretary declined to furnish certified copies of minutes which had not been approved by the board of directors. While the last resolution of the board of directors providing for prior approval of the president of the corporation before the books of the corporation can be inspected is an illegal

obstacle in the way of a stockholder or director, that resolution, so far as we are aware, has not been enforced to the detriment of anyone. In addition, the case seems to be a family dispute (Veraguth and the officers are of the same family) that has yet to develop into one of serious litigation. DISSENTING Opinion of VICKERS: An extraordinary meeting of the directors of the corporation was held at Isabela, Occidental Negros. A notice of this meeting was sent to Veraguth by registered letter, but the notice was not received by him until a later date, because the letter was addressed to the plaintiff at Isabela. The post-office address of the plaintiff at that time was Pulupandan, Occidental Negros, and this fact was known to the defendant officers of the corporation, as shown by the notices, because these notices were not mailed until the day of the respective meetings, although the notice were dated three days prior to the dates when they were mailed. It is clear, therefore, that no notice of the meeting was given to Veraguth, because the notice of said meeting was sent to Isabela instead of Pulupandan. Taking into consideration the relations existing between the parties, I am satisfied that this notice was addressed to Isabela instead of Pulupandan for the purpose of depriving the plaintiff of an opportunity of attending the meeting. Veraguth seeks the protection of his right to a notice of all meetings of the board of directors, and prays that the officers impleaded be required to perform their duties in accordance with the law. It is obvious that if the officers should again fail to notify Veraguth of any meeting of the board of directors, he would be in no better position than he is at the present time. Under the theory of the majority opinion Veraguth would have no redress. The refusal of the secretary of the corporation to allow Veraguth to read the resolution during the meeting on the ground that it had not been signed by the directors, Veraguth was clearly within his rights in demanding that he be given an opportunity to examine said resolution. It does not appear that there was any necessity for the directors to sign the resolution in question. Such a resolution was a part of the secretary's minutes of the meeting, which would ordinarily be reported for approval at the next meeting. In any event the directors had adopted the resolution, and whether it was to be signed or not, Veraguth as a director of the corporation had a right to see it. Gonzales v PNB FACTS: Ramon A. Gonzalez bought a share of stock from the PNB, and as a stockholder, Gonzalez sought to look over the books and records of PNB. It was admitted that Gonzalezs purpose in doing so was to verify the truth on certain transactions which the bank entered into as well as to inquire into the validity of said transactions. These include the undertaking of the bank to finance Southern Negros Development Bank in the latters purchase of a sugar mill, the financing of the Cebu-Mactan Bridge and the construction of Passi Sugar Mill at Iloilo. In fact, Gonzalez previously instituted several cases against the bank questioning the propriety of these transactions. It was also found that Gonzalez procured a share from the bank precisely to pry into its records and use the information against the latter. Gonzalez was subsequently denied by the officers of the bank in his attempt to be furnished once again of its records. The bank contended that his request was not germane to his interest as one-stock shareholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. Thus, Gonzalez instituted an action for mandamus against PNB praying that the latter be ordered to allow him to look into the books and record of PNB in order to satisfy himself as to the truth of the published reports regarding the abovementioned undertakings. ISSUE: Whether or not the officers of PNB can be compelled to allow Gonzalez to inspect the records of the former NO. HELD: The Supreme Court denied the petition.

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. While seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information secured through a prior examination, and that the person asking for such examination must be acting in good faith and for a legitimate purpose in making his demand. Finally, the inspection would run counter to the express mandate of PNBs charter. Its charter limits the inspection of the banks records to certain qualified officials. Having its own charter, PNB is not governed by the Corp Code and the right of inspection could not be made to apply given the express restriction in its charter. 11. Financial Statements Sec. 75. Right to financial statements. - Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable year, showing in reasonable detail its assets and liabilities and the result of its operations. At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed and certified by an independent certified public accountant. However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certified under oath by the treasurer or any responsible officer of the corporation. (n) 12. Appraisal Right Sec. 81. Instances of appraisal right.- Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; 2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code; and 3. In case of merger or consolidation. (n) Sec. 82. How right is exercised. - The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment

shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer his shares to the corporation. (n) Sec. 83. Effect of demand and termination of right. - From the time of demand for payment of the fair value of a stockholder's shares until either the abandonment of the corporate action involved or the purchase of the said shares by the corporation, all rights accruing to such shares, including voting and dividend rights, shall be suspended in accordance with the provisions of this Code, except the right of such stockholder to receive payment of the fair value thereof: Provided, That if the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored. (n) Sec. 84. When right to payment ceases. - No demand for payment under this Title may be withdrawn unless the corporation consents thereto. If, however, such demand for payment is withdrawn with the consent of the corporation, or if the proposed corporate action is abandoned or rescinded by the corporation or disapproved by the Securities and Exchange Commission where such approval is necessary, or if the Securities and Exchange Commission determines that such stockholder is not entitled to the appraisal right, then the right of said stockholder to be paid the fair value of his shares shall cease, his status as a stockholder shall thereupon be restored, and all dividend distributions which would have accrued on his shares shall be paid to him. (n) Sec. 85. Who bears costs of appraisal. - The costs and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained by the appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder, in which case they shall be borne by the latter. In the case of an action to recover such fair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stockholder to receive payment was unjustified. (n) Sec. 86. Notation on certificates; rights of transferee. - Within ten (10) days after demanding payment for his shares, a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for notation thereon that such shares are dissenting shares. His failure to do so shall, at the option of the corporation, terminate his rights under this Title. If shares represented by the certificates bearing such notation are transferred, and the certificates consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder; and all dividend distributions which would have accrued on such shares shall be paid to the transferee. (n) Sec. 105. Withdrawal of stockholder or dissolution of corporation. - In addition and without prejudice to other rights and remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted. 13. Derivative Suit INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES Rule I GENERAL PROVISIONS Section 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases involving the following: (1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; (3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;

(4) Derivative suits; and (5) Inspection of corporate books. (b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following: (1) The extent of the shareholding or interest of the initiating stockholder or member; (2) Subject matter of the suit; (3) Legal and factual basis of the complaint; (4) Availability of appraisal rights for the act or acts complained of; and (5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought. In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case. Sec. 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules. Sec. 3. Construction. - These Rules shall be liberally construed in order to promote their objective of securing a just, summary, speedy and inexpensive determination of every action or proceeding. Sec. 4. Executory nature of decisions and orders. - All decisions and orders issued under these Rules shall immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal. 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. Sec. 6. Service of pleadings. - When so authorized by the court, any pleading and/or document required by these Rules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to be prima facie the date of service. Sec. 7. Signing of pleadings, motions and other papers. - Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paper and state his address. The signature of an attorney or party constitutes a certification by the signer that he ha read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing jurisprudence; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly signed by the pleader or movant, after he is notified of the omission. Sec. 8. Prohibited pleadings. - The following pleadings are prohibited: (1) Motion to dismiss; (2) Motion for a bill of particulars; (3) Motion for new trial, or for reconsideration of judgment or order, or for re-opening of trial; (4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly compelling reasons. Such motion must be verified and under oath; and (5) Motion for postponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motion must be verified and under oath. Sec. 9. Assignment of cases. - All cases filed under these Rules shall be tried by judges designated by the Supreme Court to hear and decide cases transferred from the Securities and Exchange Commission to the Regional Trial Courts and filed directly with said courts pursuant to Republic Act No. 8799, otherwise known as the Securities Regulation Code.

Rule 2 COMMENCEMENT OF ACTION AND PLEADINGS Section 1. Commencement of action. - An action under these Rules is commenced by the filing of a verified complaint with the proper Regional Trial Court. Sec. 2. Pleadings allowed. - The only pleadings allowed to be filed under these Rules are the complaint, answer, compulsory counterclaims or cross-claims pleaded in the answer, and the answer to the counterclaims or cross-claims. Sec. 3. Verification. - The complaint and the answer shall be verified by an affidavit stating that the affiant has read the pleading and the allegations therein are true and correct based on his own personal knowledge or on authentic records. Sec. 4. Complaint. - The complaint shall state or contain: (1) the names, addresses, and other relevant personal or judicial circumstances of the parties; (2) all facts material and relevant to the plaintiff's cause or causes of action, which shall be supported by affidavits of the plaintiff or his witnesses and copies of documentary and other evidence supportive of such cause or causes of action; (3) the law, rule, or regulation relied upon, violated, or sought to be enforced; (4) a certification that (a) the plaintiff has not therefore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency, and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other action or claim, a complete statement of the present status thereof; and ( c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court; and (5) the relief sought. Sec. 5. Summons. - The summons and the complaint shall be served together not later than five (5) days from the date of filing of the complaint. (a) Service upon domestic private juridical entities. - If the defendant is a domestic corporation, service shall be deemed adequate is made upon any of the statutory or corporate officers as fixed by the by-laws or their respective secretaries. If the defendant is a partnership, service shall be deemed adequate if made upon any of the managing or general partners or upon their respective secretaries. If the defendant is an association service shall be deemed adequate if made upon any of its officers or their respective secretaries. (b) Service upon foreign private juridical entity. - When the defendant is a foreign private juridical entity which is transacting or has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. Sec. 6. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within fifteen (15) days from service of summons. In the answer, the defendant shall: (1) Specify each material allegation of fact the truth of which he admits; (2) Specify each material allegation of fact the truth of which he does not admit. Where the defendant desires to deny only a part of an averment, he shall specify so much of it as true and material and shall deny only the remainder; (3) Specify each material allegation of facts as to which truth he has no knowledge or information sufficient to form a belief, and this shall have the effect of a denial; (4) State the defenses, including grounds for a motion to dismiss under the Rules of Court; (5) State the law, rule, or regulation relied upon; (6) Address each of the causes of action stated in the complaint; (7) State the facts upon which he relied for his defense, including affidavits of witnesses and copies of documentary and other evidence supportive of such cause or causes of action; (8) State any compulsory counterclaim/s and cross-claim/s; and (9) State the relief sought.

The answer to counterclaims or cross-claims shall be filed within ten (10) days from service of the answer in which they are pleaded. Sec. 7. Effect of failure to answer. - If the defendant fails to answer within the period above provided, he shall be considered in default. Upon motion or motu proprio, the court shall render judgment either dismissing the complaint or granting the relief prayed for as the records may warrant. In no case shall the court award a relief beyond or different from that prayed for. Sec. 8. Affidavits, documentary and other evidence. - Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence. Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading: Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases: (1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor; (2) If the failure to submit the evidence is for meritorious and compelling reasons; and (3) Newly discovered evidence. In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. Rule 3 MODES OF DISCOVERY Section 1. In general. - A party can only avail of any of the modes of discovery not later than fifteen (15) days from the joinder of issues. Sec. 2. Objections. - Any mode of discovery such as interrogatories, request for admission, production or inspection of documents or things, may be objected to within ten (10) days from receipt of the discovery device and only on the ground that the matter requested is patently incompetent, immaterial, irrelevant or privileged in nature. The court shall rule on the objections not later than fifteen (15) days from the filing thereof. Sec. 3. Compliance. - Compliance with any mode of discovery shall be made within ten (10) days from receipt of the discovery device, or if there are objections, from receipt of the ruling of the court. Sec. 4. Sanctions. - The sanctions prescribed in the Rules of Court for failure to avail of, or refusal to comply with, the modes of discovery shall apply. In addition, the court may, upon motion, declare a party non-suited or as in default, as the case may be, if the refusal to comply with a mode of discovery is patently unjustified. Rule 4 PRE-TRIAL Section 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial. The parties shall set forth in their pre-trial briefs, among other matters, the following: (1) Brief statement of the nature of the case, which shall summarize the theory or theories of the party in clear and concise language; (2) Allegations expressly admitted by either or both parties; (3) Allegations deemed admittedly by either or both parties;

(4) Documents not specifically denied under oath by either or both parties; (5) Amendments to the pleadings; (6) Statement of the issues, which shall separately summarize the factual and legal issues involved in the case; (7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues; (8) All other pieces of evidence, whether documentary of otherwise and their respective purposes; (9) Specific proposals for an amicable settlement; (10) Possibility of referral to mediation or other alternative modes of dispute resolution; (11) Proposed schedule of hearings; and (12) Such other matters as may aid in the just and speedy disposition of the case. Sec. 2. Nature and purpose of pre-trial conference. - During the pre-trial conference, the court shall, with its active participation, ensure that the parties consider in detail all of the following: (1) The possibility of an amicable settlement; (2) Referral of the dispute to mediation or other forms of dispute resolution; (3) Facts that need not be proven, either because they are matters of judicial notice or expressly or deemed admitted; (4) Amendments to the pleadings; (5) The possibility of obtaining stipulations and admission of facts and documents; (6) Objections to the admissibility of testimonial, documentary and other evidence; (7) Objections to the form or substance of any affidavit, or part thereof; (8) Simplification of the issues; (9) The possibility of submitting the case for decision on the basis of position papers, affidavits, documentary and real evidence; (10) A complete schedule of hearing dates; and (11) Such other matters as may aid in the speedy and summary disposition of the case. Sec. 3. Termination. - The preliminary conference shall be terminated not later than ten (10) days after its commencement, whether or not the parties have agreed to settle amicably. Sec. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda. Sec. 5. Pre-trial order; judgment after pre-trial. - The proceedings in the pre-trial shall be recorded. Within ten (10) days after the termination of the pre-trial, the court shall issue an order which shall recite in detail the matters taken up in the conference, the actions taken thereon, the amendments allowed in the pleadings, and the agreements or admissions made by the parties as to any of the matters considered. The court shall rule on all objections to or comments on the admissibility of any documentary or other evidence, including any affidavit or any part thereof. Should the action proceed to trial, the order shall explicit define and limit the issues to be tried and shall strictly follow the form set forth in Annex "A" of these Rules. The contents of the order shall control the subsequent course of the action, unless modified before trial to prevent manifest injustice. After the pre-trial, the court may render judgment, either full or partial, as the evidence presented during the pre-trial may warrant. Rule 5 TRIAL Section 1. Witnesses. - If the court deems necessary to hold hearings to determine specific factual matters before rendering judgment, it shall, in the pre-trial order set the case for trial on the dates agreed upon by the parties. Only persons whose affidavits were submitted may be presented as witnesses, except in cases specified in Section 8, Rule 2 of these Rules. The affidavits of the witnesses shall serve as their direct testimonies, subject to crossexamination in accordance with existing rules on evidence.

Sec. 2. Trial schedule. - Unless judgment is rendered pursuant to Rule 4 of these Rules, the initial hearing shall be held not later than thirty (30) days from the date of the pre-trial order. The hearings shall be completed not later than sixty (60) days from the date of the initial hearing, thirty (30) days of which shall be allotted to the plaintiffs and thirty (30) days to the defendants in the manner prescribed in the pre-trial order. The failure of a party to present a witness on a scheduled hearing date shall be deemed a waiver of such hearing date. However, a party may present such witness or witnesses within his remaining allotted hearing dates. Sec. 3. Written offer of evidence. - Evidence not otherwise admitted by the parties or ruled upon by the court during the pre-trial conference shall be offered in writing not later than five (5) days from the completion of the presentation of evidence of the party concerned. The opposing party shall have five (5) days from receipt of the offer to file his comments or objections. The court shall make its ruling on the offer within five (5) days from the expiration of the period to file comments or objections. Sec. 4. Memoranda. - Immediately after ruling on the last offer of evidence, the court shall order the parties to simultaneously file, within thirty (30) days from receipt of the order, their respective memoranda. The memoranda shall contain the following: (1) A "Statement of the Case," which is a clear and concise statement of the nature of the action and a summary of the proceedings; (2) A "Statement of the Facts," which is a clear and concise statement in narrative form of the established facts, with reference to the testimonial, documentary or other evidence in support thereof; (3) A "Statement of the Issues," which is a clear and concise statement of the issues presented to the court for resolution; (4) The "Arguments," which is a clear and concise presentation of the argument in support of each issue; and (5) The "Relief," which is a specification of the order or judgment which the party seeks to obtain. No reply memorandum shall be allowed. Sec. 5. Decision after trial. - The court shall render a decision not later than (90) days from the lapse of the period to file the memoranda, with or without said pleading having been filed. Rule 6 ELECTION CONTESTS Section 1. Cases covered. - The provisions of this rule shall apply to election contests in stock and non-stock corporations. Sec. 2. Definition. - An election contests refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the article of incorporation or by-laws so provide. Sec. 3. Complaint. - In addition to the requirements in Section 4, Rule 2 of these Rules, the complaint in an election contests must state the following: (1) The case was filed fifteen (15) days from the date of the election if the by-laws of the corporation do not provide for a procedure for resolution of the controversy, or within fifteen (15) days from the resolution of the controversy by the corporation as provided in its by-laws; and (2) The plaintiff has exhausted all intracorporate remedies in election cases as provided for in the by-laws of the corporation. Sec. 4. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance. Sec. 5. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from service of summons and the complaint. The answer shall contain the matters required in Section 6, Rule 2 of these Rules.

Sec. 6. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any. Sec. 7. Effect of failure to answer. - If the defendants fails to file an answer within the period above, the court shall, within ten (10) days from the lapse of said period, motu proprio or on motion, render judgments as may be warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for. Sec. 8. Trial. - If the court deems it necessary to hold a hearing to clarify specific factual matters before rendering judgment, it shall, within ten (10) days from the filling of the last pleading, issue an order setting the case for hearing for the purpose. The order shall, in clear and concise terms, specify the factual matters the court desires to be clarified and the witnesses, whose affidavits have been submitted, who will give the necessary clarification. The hearing shall be set on a date not later than ten (10) days from the date of the order, and shall be completed not later than fifteen (15) days from the date of the first hearing. The affidavit of a witness who fails to appear for clarificatory questions of the court shall be ordered stricken off the record. Sec. 9. Decision. - The Court shall render a decision with fifteen (15) days from receipt of the last pleading, or from the date of the last hearing as the case may be. The decision shall be based on the pleadings, affidavits, documentary and other evidence attached thereto and the answers of the witnesses to the clarificatory questions of the court given during the hearings. Rule 7 INSPECTION OF CORPORATE BOOKS AND RECORDS Section 1. Cases covered. - The provisions of this Rule shall apply to disputes exclusively involving the rights of stockholders or members to inspect the books and records and/or to be furnished with the financial statements of a corporation, under Sections 74 and 75 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines. Sec. 2. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the following: (1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines; (2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant; (3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any; and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof. Sec. 3. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance. Sec. 4. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from the service of summons and the complaint. In addition to the requirements in Section 6, Rule 2 of these Rules, the answer must state the following: (1) The grounds for the refusal of defendant to grant the demands of the plaintiff, stating the law and jurisprudence in support thereof; (2) The conditions or limitations on the exercise of the right to inspect which should be imposed by the court; and (3) The cost of inspection, including manpower and photocopying expenses, if the right to inspect is granted. Sec. 5. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any.

Sec. 6. Effect of failure to answer. - If the defendants fails to file an answer within the period above provided, the court, within ten (10) days from the lapse of the said period, motu proprio or upon motion, shall render judgment as warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for. Sec. 7. Decision. - The court shall render a decision based on the pleadings, affidavits and documentary and other evidence attached thereto within fifteen (15) days from receipt of the last pleading. A decision ordering defendants to allow the inspection of books and records and/or to furnish copies thereof shall also order the plaintiff to deposit the estimated cost of the manpower necessary to produce the books and records and the cost of copying, and state, in clear and categorical terms, the limitations and conditions to the exercise of the right allowed or enforced. Rule 8 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 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 acts or acts complained of; and (4) The suits is not a nuisance or harassment suit. In case of nuisance of harassment suit, the court shall forthwith dismiss the case. Sec. 2. Discontinuance. - A derivative action shall not be discontinued, compromised or settled without approval of the court. During the pendency of the action, any sale of shares of the complaining stockholders shall be approved by the court. If the court determines that the interest of the stockholders or members will be substantially affected by the discontinuance, compromise or settlement, the court may direct that notice, by publication or otherwise, be given to the stockholders or members whose interest it determines will be so affected. Rule 9 MANAGEMENT COMMITTEE Section 1. Creation of a management committee. - As an incident to any of the cases filed under these Rules or the Interim Rules Corporate Rehabilitation, a party may apply for the appointment of a management committee for the corporation, partnership or association, when there is imminent danger of: (1) Dissipation, loss, wastage or destruction of assets or other properties; and (2) Paralyzation of its business operations which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public. Sec. 2. Receiver. -- In the event the court finds the application to be sufficient in form and substance, the court shall issue an order; (a) appointing a receiver of known probity, integrity and competence and without any conflict of interest as hereunder defined to immediately take over the corporation, partnership or association, specifying such powers as it may deem appropriate under the circumstances, including any of the powers specified in Section 5 of this Rule; (b) fixing the bond of the receiver; (c) directing the receiver to make a report as to the affairs of the entity under receivership and on other relevant matters within sixty (60) days from the time he assumes office; (d) prohibiting the incumbent management of the company, partnership or association from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and (e) directing the payment in full of all administrative expenses incurred after the issuance of the order. Sec. 3. Receiver and management committee as officers of the court. - The receiver and the members of the management committee in the exercise of their powers and performance of

their duties are considered officers of the court and shall be under its control and supervision. Sec. 4. Composition of the management committee. - After due notice and hearing, the court may appoint a management committee composed of three (3) members chosen by the court. In the appointment of the members of the management committee, the following qualifications shall be taken into consideration by the court. (1) Expertise and acumen to manage and operate a business similar in size and completely as that the corporation, association or partnership sought to be put under management committee; (2) Knowledge in management and finance; (3) Good moral character, independence and integrity; (4) A lack of a conflict of interest as defined in these Rules; and (5) Willingness and ability to file a bond in such amount as may be determined by the court. Without limiting the generality of the following, a member of a management committee may be deemed to have a conflict of interest if: (1) He is engaged in a line of business which completes with the corporation, association or partnership sought to be placed under management; (2) He is a director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management; or (3) He is related by consanguinity or affinity within the fourth civil degree to any director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management. Sec. 5. Powers and functions of the management committee. - Upon assumption to office of the management committee, the receiver shall immediately render a report and turn over the management and control of the entity under his receivership to the management committee. The management committee shall have the power to take custody of and control all assets and properties owned or possessed by the entity under management. It shall take the place of the management and board of directors of the entity under management, assume their rights and responsibilities, and preserve the entity's assets and properties in its possession. Without limiting the generality of the foregoing, the management committee shall exercise the following powers and functions: (1) To investigate the acts, conduct, properties, liabilities, and financial condition of the corporation, association or partnership under management; (2) To examine under oath the directors and offices of the entity and any other witnesses that it may deem appropriate; (3) To report to the court any fact ascertained by it pertaining to the causes of the problems, fraud, misconduct, mismanagement and irregularities committed by the stockholders, directors, management or any other person; (4) To employ such person or persons such as lawyers, accountants, auditors, appraisers and staff as are necessary in performing its functions and duties as management committee; (5) To report to the court any material adverse change in the business of the corporation, association or partnership under management; (6) To evaluate the existing assets and liabilities, earnings and operations of the corporation, association or partnership under management; (7) To determine and recommended to the court the best way to salvage and protect the interest of the creditors, stockholders and the general public, including the rehabilitation of the corporation, association or partnership under management; (8) To prohibit and report to the court any encumbrance, transfer, or disposition of the debtor's property outside of the ordinary course of business or what is allowed by the court; (9) To prohibit and report to the court any payments made outside of the ordinary course of business;

(10) To have unlimited access to the employees, premises, books, records and financial documents during business hours; (11) To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the corporation, association or partnership or other persons; (12) To gain entry into any property for the purposes of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; (13) To bring to the attention of the court any material change affecting the entity's ability to meet its obligations; (14) To revoke resolutions passed by the Executive Committee or Board of Directors/Trustees or any governing body of the entity under management and pass resolution in substitution of the same to enable it to more effectively exercise its powers and functions; (15) To modify, nullify or revoke transactions coming to its knowledge which it deems detrimental or prejudicial to the interest of the entity under management; (16) To recommend the termination of the proceedings and the dissolution of the entity if determines that the continuance in business of such entry is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors or the general public; (17) To apply to the court for any order or directive that it may deem necessary or desirable to aid it in the exercise of its powers and performance of its duties and functions; and (18) To exercise such other powers as may, from time to time, be conferred upon it by the court. Sec. 6. Action by management committee. - A majority of its members shall be necessary for the management committee to act or make a decision. The chairman of the management committee shall be chosen by the members from among themselves. The committee may delegate its management functions as may be necessary to operate the business of the entity under management and preserve its assets. Sec. 7. Transactions deemed to be in bad faith. - All transactions made by the previous management and directors shall be deemed fraudulent and are rescissible if made within thirty (30) days prior to the appointment of the receiver or management committee or during their incumbency as receiver or management committee. Sec. 8. Fees and expenses. - The receiver or the management committee and the persons hired by it shall be entitled to reasonable professionals fees reimbursement of expenses which shall be considered as administrative expenses. Sec. 9. Immunity from suit. - The receiver and members of the management committee and the persons employed by them shall not be subject to any action, claim or demand in connection with any act done or omitted by them in good faith in the exercise of their functions and powers. All official acts and transactions of the receiver or management committee duly approved or ratified by the court shall render them immune from any suit in connection with such act or transaction. Sec. 10. Reports. - Within a period of sixty (60) days from the appointment of its members, the management committee shall make a report to the court on the state of the corporation, partnership or association under management. Thereafter, the management committee shall report every three (3) months to the court or as often as the court may require on the general condition of the entity under management. Sec. 11. Removal and replacement of a member of the management committee. - A member of the management is deemed removed upon appointment by the court of his replacement chosen in accordance with Section 4 of this Rule. Sec. 12. Discharge of the management committee. - The management committee shall be discharged and dissolved under the following circumstances: (1) Whenever the court, on motion of motu proprio, has determined that the necessity for the management committee no longer exist; (2) By agreement of the parties; and (3) Upon termination of the proceedings.

Upon its discharge and dissolution, the management committee shall submit its final report and render accounting of its management within such reasonable time as the court may allow. Rule 10 PROVISIONAL REMEDIES Section 1. Provisional remedies. - A party may apply for any of the provisional remedies provided in the Rules of Court as may be available for the purposes. However, no temporary restraining order or status quo order shall be issued save in exceptional cases and only after hearing the parties and the posting of bond. Rule 11 SANCTIONS Section 1. Sanctions of the parties or counsel. - In any of the following cases, the court may, upon motion motu proprio, impose appropriate sanctions: (1) In case the court determines in the course of the proceeding that the action is a nuisance or harassment suit; (2) In case a pleading, motion or other paper is filed in violation of Section 7, Rule 1 of these Rules; (3) In case a party omits or violates the certification required under Section 4, Rule 2 of these Rules; (4) In case or unwarranted denials in the answer to the complaint; (5) In case of willful concealment or non-disclosure of material facts or evidence; The sanctions may include an order to pay the other party of parties the amount of the reasonable expenses incurred because of the act complained of, including reasonable attorney's fees. Sec. 2. Disciplinary sanctions on the judge. - The presiding judge may, upon a verified complaint filed with the Office of the Court Administrator, be subject to disciplinary action under any of the following cases; (1) Failure to observe this special summary procedures prescribed in these Rules; or (2) Failure to issue a pre-trial order in form prescribed in these Rules. Rule 12 FINAL PROVISIONS Section. 1. Severability. - If any provision or section of these Rules is held invalid, the remaining provisions or sections shall not be affected thereby. Sec. 2. Effectivity. - These Rules shall take effect on 1 April 2001 following its publication in two (2) newspapers of general circulation in the Philippines. SMC v Kahn FACTS: On December 1983, 14 corporations initially acquired some 33 million shares of outstanding capital stock of San Miguel Corporation and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the latter died, Eduardo Cojuanco was elected as the substitute trustee. However, after the EDSA revolution, Cojuanco fled out of the country, and subsequently an agreement was entered into between the 14 corporations and Andres Soriano III (as an agent of several persons) for the purchase of the shares held by the former. Actually, according to Soriano and the other private respondents, the buyer of the shares was Neptunia Corporation, a foreign corporation and wholly-owned subsidiary of San Miguel International,another subsidiary wholly owned by San Miguel Corporation. Neptunia paid the downpayment from the proceeds of certain loans. PCGG then sequestered the shares subject of the sale so San Miguel suspended all the other installments of the price to the sellers. The 14 corporations then sued for rescission and damages. Meanwhile, PCGG directed San Miguel to issue qualifying shares to seven (7) individuals including Eduardo de los Angeles from the sequestered shares for them to hold in trust.

Then, the San Miguel board of directors passed a resolution assuming the loans incurred by Neptunia for the downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its delitorious effects on the corporations interest. When his efforts to obtain relief within the corporation proved futile, he filed this action with the SEC. Respondent directors alleged that de los Angeles has no legal standing having been merely imposed by the PCGG and that the twenty (20) shares owned by him personally cannot fairly and adequately represent the interest of the minority. They claim that de los Angeles did not come to court with clean hands. They also claim that the SEC has no jurisdiction over the controversy because the matter involved are exclusively within the business judgment of the BOD. The Court of Appeals ruled that de los Angeles had no legal capacity to institute the derivative suit. ISSUES: 1. WON the SEC has jurisdiction over the case. YES The dispute herein concerns acts of the BOD claimed to amount to fraud and misrepresentation which may be detrimental to the interest of the stockholders, or is one arising out of intra-corporate relations between and among stockholders, or between any or all of them and the corporation of which they are stockholders. His complaint does not involve any property illegally acquired or misappropriated by Marcos, et al, which would make it fall under the jurisdiction of the Sandiganbayan. Rather, the case involves assets indisputably belonging to SMC which were, in de los Angeles' view, being illicitly committed by a majority of its BOD to answer for loans assumed by a sister corporation, Neptunia. 2. WON de los Angeles has personality to bring suit. YES The requisites of a derivative suit are: 1. the party bringing the suit should be a stockholder as of the time of the act or transactions complained of, the number of shares not being material; 2. exhaustion of intra-corporate remedies (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 3. the cause of action actually devolves on the corporation and not to the particular stockholder bringing the suit. The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring a derivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed against him individually but in behalf and for the benefit of the corporation. It is undisputed that apart from the qualifying shares given to him by the PCGG, he owns 20 shares in his own right, as regards which he cannot from any aspect be deemed to be beholden to the PCGG, his ownership of his shares being precisely what he invokes as the source of his authority to bring the derivative suit. Furthermore, it was not necessary for de los Angeles to be a director in order to bring a derivative suit, all he had to be was a stockholder. De los Angeles complaint is confined to the issue of the validity of the assumption by the corporation of the indebtedness of Neptunia, allegedly for the benefit of certain of its officers and stockholders and is distinct from the ownership of the sequestered shares. Like mentioned above, the dispute concerns the acts of the board of directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest of the stockholders, or is one arising out of intra-corporate relations between and among stockholders, or between any or all of them and the corporation of which they are stockholders (meaning that the cause of action still belongs to the corporation). Chua v CA FACTS:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaintaffidavit with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public documents. She alleged that the Chuas prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial Registry and therefore, a public document, by making or causing it to appear in said Minutes of the Annual Stockholders Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in fact, as the said accused fully well knew that said Lydia C. Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed. Thereafter, the City Prosecutor filed the Information MeTC of Manila against Francis Chua but dismissed the accusation against Elsa Chua. Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter. During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors and presented Hao as their first witness. After Hao's testimony, Chua moved to exclude complainant's counsels as private prosecutors in the case on the ground that Hao failed to allege and prove any civil liability in the case. The MeTC granted Chua's motion and ordered the complainant's counsels to be excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied. Upon Hao's petition for certiorari in her own behalf and for the benefit of Siena Realty Corporation, the RTC in an order reversed the MeTC Order and allowed the intervention of the private prosecutors. Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. He argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in behalf of the Corporation since there was no Board Resolution authorizing her to file the suit. Hao claimed that the suit was brought under the concept of a derivative suit. She maintained that when the directors or trustees refused to file a suit even when there was a demand from stockholders, a derivative suit was allowed. The CA held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a director of the corporation. It held that the corporation was a necessary party to the petition filed with the RTC and even if private respondent filed the criminal case, her act should not divest the Corporation of its right to be a party and present its own claim for damages. ISSUE: 1. WON the criminal complaint is in the nature of a derivative suit. NO Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas, where the court said that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in this case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty Corporation was not the private complainant. The Court ruled that Chua misapprehended the ruling in that case. The case there was a mere appeal on the civil aspect of a criminal case for estafa and falsification of public document. A mere appeal in the civil aspect cannot be treated as a derivative suit because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is suing on a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join. Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. 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. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.

Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable. When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action, unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action. In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the corporate cause of action is deemed instituted in the criminal action. However, the board of directors of the corporation in this case did not institute the action against petitioner. Private respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that 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. 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 judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring 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 adjudicata against it. In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature of a derivative suit. 2. WON Siena Realty was a proper petitioner when Hao filed a petition for certiorari. YES

The SC found that the recourse of the complainant to the respondent Court of Appeals was proper. The petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a complainant in the criminal action, the subject of the falsification was the corporation's project and the falsified documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari because the proceedings in the criminal case directly and adversely affected the corporation. 3. WON private prosecutors should be allowed to actively participate in the trial of the criminal case. YES

Generally, the basis of civil liability arising from crime is the fundamental postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two entities namely (1) the society in which he lives in or the political entity called the State whose law he has violated; and (2) the individual member of the society whose person, right, honor, chastity or property has been actually or directly injured or damaged by the same punishable act or omission. An act or omission is felonious because it is punishable by law, it gives rise to civil liability not so much because it is a crime but because it caused damage to another. Additionally, what gives rise to the civil liability is really the obligation and the moral duty of everyone to repair or make whole the damage caused to another by reason of his own act or omission, whether done intentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of the penalty imposed by law for the commission of the crime.The civil action involves the civil liability arising from the offense charged which includes restitution, reparation of the damage caused, and indemnification for consequential damages. Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to Rule 111, the offended party may intervene by counsel in the prosecution of the offense. Rule 111(a) of the Rules of Criminal Procedure provides that, "[w]hen a criminal action is instituted, the civil action arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action."

Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute the civil action for damages arising from the offense charged. Thus, the SC found that the private prosecutors can intervene in the trial of the criminal action. Yu v Yukayguan FACTS: This is a case that stemmed from the petition of Anthony Yu against his younger half-brother Joseph Yukayguan and other who were all shareholders of Winchester Industrial Supply, Inc., a company engaged in hardware and industrial equipment business. Named respondents were members of the Yukayguan family, including patriarch Joseph, matriarch Nancy, and the couples children Jerald Nerwin and Jill Neslie. 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. During the pendency of the proceedings before the court a quo, the parties were able to reach an amicable settlement wherein they agreed to divide the assets of Winchester, Inc. among themselves. This amicable settlement was already partially implemented by the parties, when respondents repudiated the same, for which reason the RTC proceeded with the case on its merits. On 10 November 2004, the RTC promulgated its Decision dismissing respondents Complaint for failure to comply with essential prerequisites before they could avail themselves of the remedies under the Interim Rules of Procedure Governing Intra-Corporate Controversies; and for inadequate substantiation of respondents allegations in said Complaint after consideration of the pleadings and evidence on record. In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of the RTC that respondents did not abide by the requirements for a derivative suit, nor were they able to prove their case by a preponderance of evidence. Respondents filed a Motion for Reconsideration of said judgment of the appellate court, insisting that they were able to meet all the conditions for filing a derivative suit. Pending resolution of respondents Motion for Reconsideration, the Court of Appeals urged the parties to again strive to reach an amicable settlement of their dispute, but the parties were unable to do so. The parties were not able to submit to the appellate court, within the given period, any amicable settlement; and filed, instead, their Position Papers. This effectively meant that the parties opted to submit respondents Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, and petitioners opposition to the same, for resolution by the appellate court on the merits. In accordance with respondents allegation in their Position Paper that the parties subsequently filed with the SEC, and the SEC already approved, a petition for dissolution of Winchester, Inc., the Court of Appeals remanded the case to the RTC so that all the corporate concerns between the parties regarding Winchester, Inc. could be resolved towards final settlement. The petitioners herein contend that the CA committed error in reconsidering its Decision of February 2006 on the basis of extraneous matters, which had not been previously raised in respondents' Complaint before the RTC, in their Petition for Review and Motion for reconsideration. Remainding the case to the RTC, petitioners maintain will violate the very essence of the summary nature of the Interim Rules of Procedure Governing Intra-corporate Controversies, as this will just delay, protract litigation, and revert the case to square one. ISSUE: 1. WON it was proper for the CA to convert a supposedly derivative suit into a proceeding for liquidation of Winchester, Inc. NO 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. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation. In contrast, liquidation is a necessary consequence of the dissolution of a 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. Moreover, the decree of the Court of Appeals to remand the case to the RTC for the "final settlement of corporate concerns" was solely grounded on respondents allegation in its Position Paper that the parties had already filed before the SEC, and the SEC approved, the petition to dissolve Winchester, Inc. The Court notes, however, that there is absolute lack of evidence on record to prove said allegation. Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester, Inc. and the same was approved by the SEC, the Court of Appeals was still without jurisdiction to order the final settlement by the RTC of the remaining corporate concerns. It must be remembered that the Complaint filed by respondents before the RTC essentially prayed for the accounting and reimbursement by petitioners of the corporate funds and assets which they purportedly misappropriated for their personal use; surrender by the petitioners of the corporate books for the inspection of respondents; and payment by petitioners to respondents of damages. There was nothing in respondents Complaint which sought the dissolution and liquidation of Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc. could not have resulted in the conversion of respondents derivative suit to a proceeding for the liquidation of said corporation, but only in the dismissal of the derivative suit based on either compromise agreement or mootness of the issues. Despite the answer to the issue above, WON Yukayguan sufficiently followed and observed the essentials for filing of a derivative suit or action. NO In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently exhausted all remedies before filing the derivative suit; and (2) respondent Josephs Supplemental Affidavit and its annexes should have been taken into consideration, since the submission thereof was allowed by the rules of procedure, as well as by the RTC in its Order dated 26 August 2004. As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a derivative suit, the SC found that there was no such exhaustion. The Court has recognized that a stockholders 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. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. 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 make suitable measures for its protection. The basis of a stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the following requirements which a stockholder must comply with in filing a derivative suit: Sec. 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; 2.

(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. A perusal of respondents Complaint before the RTC would reveal that the same did not allege with particularity that respondents exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire. The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and clear. The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder, after all other remedies to obtain the relief sought had failed. The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies available." Respondents did not refer to or mention at all any other remedy under the articles of incorporation or bylaws of Winchester, Inc., available for dispute resolution among stockholders, which respondents unsuccessfully availed themselves of. And the Court is not prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely failed to provide for such remedies. The fact that Winchester, Inc. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules supporting the distinction between, and the difference in the requirements for, family corporations vis--vis other types of corporations, in the institution by a stockholder of a derivative suit. The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents Complaint failed to allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts of petitioners complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit. 3. WON respondent Joseph's Supplemental Affidavit and additional evidence were inadmissible since they were only appended by the respondents in their Memorandum before the RTC. YES

Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is crystal clear that: Sec. 8. Affidavits, documentary and other evidence. Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence. Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading, Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases: (1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor; (2) If the failure to submit the evidence is for meritorious and compelling reasons; and (3) Newly discovered evidence. In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. (Emphasis ours.)

According to the afore-quoted provision, the parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading, which generally should mean the complaint for the plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted must already be attached to the respective pre-trial briefs of the parties. That the parties should have already identified and submitted to the trial court the affidavits of their witnesses and documentary evidence by the time of pre-trial is strengthened by the fact that Section 1, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies require that the following matters should already be set forth in the parties pre-trial briefs: Section 1. Pre-trial conference, mandatory nature. Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference, and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial. The parties shall set forth in their pre-trial briefs, among other matters, the following: (4) Documents not specifically denied under oath by either or both parties; (7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues; All other pieces of evidence, whether documentary or otherwise and their respective purposes. Obviously, affidavits of witnesses and other documentary evidence are required to be attached to a partys pre-trial brief, at the very last instance, so that the opposite party is given the opportunity to object to the form and substance, or the admissibility thereof. This is, of course, to prevent unfair surprises and/or to avoid the granting of any undue advantage to the other party to the case. True, the parties in the present case agreed to submit the case for judgment by the RTC, even before pre-trial, in accordance with Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies: Sec. 4. Judgment before pre-trial. If after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a nonextendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda. Even then, the afore-quoted provision still requires, before the court makes a determination that it can render judgment before pre-trial, that the parties had submitted their pre-trial briefs and the court took into consideration the pleadings, affidavits and other evidence submitted by the parties. Hence, cases wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that affidavits of witnesses and documentary evidence should be s ubmitted, at the latest, with the parties pre-trial briefs. Taking further into account that under Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda simultaneously, the same would mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by the other party to its memorandum. To violate the above-quoted provision would, thus, irrefragably run afoul the former partys constitutional right to due process. In the instant case, therefore, respondent Josephs Supplemental Affidavit and the additional documentary evidence, appended by respondents only to their Memorandum submitted to the RTC, were correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006 Decision for having been belatedly submitted 14. Proportionate Share of Assets Upon Dissolution 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, the 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 interest, all interest 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. Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. (77a, 89a, 16a) D. Devices Affecting Control 1. Proxies Sec. 58. Proxies. - Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. Proxies shall in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time. (n) 2. Voting Trust Sec. 59. Voting trusts. - One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock. The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: Provided, That both the transferor and the trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the provisions of this Code. Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of said agreement. No voting trust agreement shall be entered into for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed canceled and new certificates of stock shall be reissued in the name of the transferors. The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. (36a) 3. Pooling and voting agreements Sec. 100. Agreements by stockholders. 1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation. 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. 3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to make them partners among themselves. 4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. 5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. 4. Cumulative Voting 5. Classification of Shares 6. Restrictions on Transfer of Shares Sec. 97. Articles of incorporation. - The articles of incorporation of a close corporation may provide: 1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein, subject to the provisions of the following section; 2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock; and 3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: 1. No meeting of stockholders need be called to elect directors; 2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code; and 3. The stockholders of the corporation shall be subject to all liabilities of directors.

The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors. Sec. 98. Validity of restrictions on transfer of shares. - Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person. Sec. 99. Effects of issuance or transfer of stock in breach of qualifying conditions. 1. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder. 2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number, and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. 3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction, if such acquisition violates the restriction. 4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer of stock in the name of the transferee. 5. The provisions of subsection (4) shall not applicable if the transfer of stock, though contrary to subsections (1), (2) of (3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with this Title. 6. The term "transfer", as used in this section, is not limited to a transfer for value. 7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover under any applicable warranty, express or implied. Right of first refusal, tag-along right, drag-along right Lim Tay v CA FACTS: On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount of P40,000 payable within 6 months. To secure the payment of the aforesaid loan and interest thereon, Guiok executed a Contract of Pledge in favor of Lim Tay whereby he pledged his 300 shares of stock in the Go Fay & Company Inc. 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 Lim Tay in the amount of P40,000 payable in 6 months. To secure the payment of his loan, Sy Lim executed a "Contract of Pledge" covering his 300 shares of stock in Go Fay & Co. 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. The contractual stipulation in the pledge showed that Lim Tay was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private sale. Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to Lim Tay. However, Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon to Lim Tay. In October 1990, Lim Tay filed a "Petition for Mandamus" against Go Fay & Co., with the SEC (SEC Case 03894), praying that an order be issued directing the corporate secretary of Go Fay & Co. to register the stock transfers and issue new certificates in favor of Lim Tay; and ordering Go Fay & Co. to pay all dividends due and unclaimed on the said certificates to Lim Tay. In the interim, Sy Lim died. Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita Lim, filed their Answer-In-Intervention with the SEC. After due proceedings, the SEC hearing officer promulgated a Decision dismissing Lim Tay's Complaint on the ground that although the SEC had jurisdiction over the action, pursuant to the Decision of the Supreme Court in the case of "Rural Bank of Salinas v. CA," he failed to prove the legal basis for the secretary of the Corporation to be compelled to register stock transfers in favor of Lim Tay and to issue new certificates of stock under his name. Lim Tay appealed the Decision of the hearing officer to the SEC, but, on 7 March 1996, the SEC promulgated a Decision, dismissing Lim Tay's appeal. On appeal to the Court of Appeals, the appellate court debunked Lim Tay's claim that he had acquired ownership over the shares by virtue of novation, holding that Guiok's and Sy Lim's indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that Lim Tay's receipt of dividends was in compliance with Article 2102 of the same Code. Lim Tay's claim that he had acquired ownership of the shares by virtue of prescription was likewise dismissed by the appellate court. Lim Tay brought before the Supreme Court a Petition for Review on Certiorari in accordance with Rule 45 of the Rules of Court. ISSUES: 1) WON the SEC had jurisdiction over the complaint filed by the petitioner. NO 2) WON the petitioner is entitled to the relief of mandamus against the respondent Go Fay &Co, Inc. NO 1. WON petitioner acquired the ownership of the shares through extraordinary prescription. NO 2. WON the respondents' acts amounted to novation of the contract of pledge. NO 3. WON there was a dacion en pago. NO 4. WON laches bars respondents from recovering the subject shares. HELD: 1) Claiming that the present controversy is intra-corporate and falls within the exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo v. De la Cruz, which upheld the jurisdiction of the SEC over a suit filed by an unregistered stockholder seeking to enforce his rights. He also seeks support from Rural Bank of Salinas, Inc. v. CA which ruled that the right of a transferee or an assignee to have stocks transferred to his name was an inherent right flowing from his ownership of the said stocks. The SC rules that his reliance on these cases are misplaced. Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima facie shareholders when the deeds of assignment were questioned. If the said deeds were to be annulled later on, respondents would still be considered shareholders of the corporation from the time of the assignment until the annulment of such contracts. Unlike Abejo, however, petitioner's ownership over the shares in this case was not yet perfected when the Complaint was filed. The contract of pledge certainly does not make him the owner of the shares pledged. Further, whether prescription effectively transferred ownership of the shares, whether there was a novation of the contracts of pledge, and whether laches had set in were difficult legal issues, which were unpleaded and unresolved when herein petitioner asked the corporate secretary of Go Fay to effect the transfer, in his favor, of the shares pledged to him.

The registration of shares in a stockholder's name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the above-mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts. According to Sec. 5 of Presidential Decree No. 902-A, a controversy "among stockholders, partners or associates themselves" is intra-corporate in nature and falls within the jurisdiction of the SEC. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the complaint. In the present case, however, petitioner's claim that he was the owner of the shares of stock in question has no prima facie basis. This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private sale. Nowhere did the Complaint mention that petitioner had in fact foreclosed the pledge and purchased the shares after such foreclosure. His status as a mere pledgee does not, under civil law, entitle him to ownership of the subject shares. It is also noteworthy that petitioner's Complaint did not aver that said shares were acquired through extraordinary prescription, novation or laches. Moreover, petitioner's claim, subsequent to the filing of the Complaint, that he acquired ownership of the said shares through these three modes is not indubitable and still has to be resolved. In fact, as will be shown, such allegation-has no merit. Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the owner of the shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed to lay down a sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the Complaint and its annexes negated the jurisdiction of the SEC. 2) Petitioner prays for the issuance of a writ of mandamus, directing the corporate secretary of respondent corporation to have the shares transferred to his name in the corporate books, to issue new certificates of stock and to deliver the corresponding dividends to him. In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal right to the thing demanded and that it is the imperative duty of the respondent to perform the act required. It neither confers powers nor imposes duties and is never issued in doubtful cases. It is simply a command to exercise a power already possessed and to perform a duty already imposed. In the present case, petitioner has failed to establish a clear legal right. Petitioner's contention that he is the owner of the said shares is completely without merit. Quite the contrary and as already shown, he does not have any ownership rights at all. At the time petitioner instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on. At best, his contention was disputable and uncertain Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly established. 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 acquittance 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, unless the thing pledged is expropriated, the debtor continues to be the owner thereof. RE: PRESCRIPTION Petitioner did not acquire the shares by prescription either. The period of prescription of any cause of action is reckoned only from the date the cause of action accrued. Under the contracts of pledge, private respondents would have a right to ask for the redelivery of their certificates of stock upon payment of their debts to petitioner, consonant with Article 2105 of the Civil Code,

which reads: The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest, with expenses in a proper case. Thus, the right to recover the shares based on the written contract of pledge between petitioner and respondents would arise only upon payment of their respective loans. Therefore, the prescriptive period within which to demand the return of the thing pledged should begin to run only after the payment of the loan and a demand for the thing has been made, because it is only then that respondents acquire a cause of action for the return of the thing pledged. Prescription should not begin to run on the action to demand the return of the thing pledged while the loan still exists. This is because the right to ask for the return of the thing pledged will not arise so long as the loan subsists. In the present case, the prescriptive period did not begin to run when the loan became due. On the other hand, it is petitioner's right to demand payment that may be in danger of prescription. In the present case, petitioner's possession of the stock certificates came about because they were delivered to him pursuant to the contracts of pledge. RE: NOVATION 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." 26 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." 27 In the present case, novation cannot be presumed by (a) respondents' indorsement and delivery of the certificates of stock covering the 600 shares, (b) petitioner's receipt of dividends from 1980 to 1983, and (c) the fact that respondents have not instituted any action to recover the shares since 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. Moreover, the fact that respondents allowed the petitioner to receive dividends pertaining to the shares was not meant to relinquish ownership thereof. Novation cannot be inferred from the mere fact that petitioner has not, since 1980, instituted any action to recover the shares. Such action is in fact premature, as the loan is still outstanding. Besides, as already pointed out, novation is never presumed or inferred. RE: DACION EN PAGO Neither can there be dacion en pago, in which the certificates of stock are deemed sold to petitioner, the consideration for which is the extinguishment of the loans and the accrued interests thereon. Dacion en pago is a form of novation in which a change takes place in the object involved in the original contract. Absent an explicit agreement, petitioner cannot simply presume dacion en pago. RE: LACHES In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand payment of the debt. More important, under the contracts of pledge, petitioner could have foreclosed the pledges as soon as the loans became due. But for still unknown or unexplained reasons, he failed to do so, preferring instead to pursue his baseless claim to ownership. PETITION DENIED. 7. Prescribing qualifications for directors; Founders Shares Sec. 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission.

8. Management Contracts Sec. 44. Power to enter into management contract. - No corporation shall conclude a management contract with another corporation unless such contract shall have been approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a non-stock corporation, of both the managing and the managed corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or (2) where a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation, then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock corporation. No management contract shall be entered into for a period longer than five years for any one term. The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating agreements which relate to the exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. (n) 9. Unusual voting and quorum requirements Sec. 97. Articles of incorporation. - The articles of incorporation of a close corporation may provide: 1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein, subject to the provisions of the following section; 2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock; and 3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: 1. No meeting of stockholders need be called to elect directors; 2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code; and 3. The stockholders of the corporation shall be subject to all liabilities of directors. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors. E. Meetings Sec. 49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may be regular or special. (n) Sec. 50. Regular and special meetings of stockholders or members. - Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws, or if not so fixed, on any date in April of every year as determined by the board of directors or trustees: Provided, That written notice of regular meetings shall be sent to all stockholders or members of record at least two (2) weeks prior to the meeting, unless a different period is required by the by-laws.

Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided, however, That at least one (1) week written notice shall be sent to all stockholders or members, unless otherwise provided in the by-laws. Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member. Whenever, for any cause, there is no person authorized to call a meeting, the Secretaries and Exchange Commission, upon petition of a stockholder or member on a showing of good cause therefor, may issue an order to the petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer. (24, 26) Sec. 51. Place and time of meetings of stockholders or members. - Stockholders' or members' meetings, whether regular or special, shall be held in the city or municipality where the principal office of the corporation is located, and if practicable in the principal office of the corporation: Provided, That Metro Manila shall, for purposes of this section, be considered a city or municipality. Notice of meetings shall be in writing, and the time and place thereof stated therein. All proceedings had and any business transacted at any meeting of the stockholders or members, if within the powers or authority of the corporation, shall be valid even if the meeting be improperly held or called, provided all the stockholders or members of the corporation are present or duly represented at the meeting. (24 and 25) Sec. 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, 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. (n) Sec. 54. Who shall preside at meetings. - The president shall preside at all meetings of the directors or trustee as well as of the stockholders or members, unless the by-laws provide otherwise. (n) Sec. 93. Place of meetings. - The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located: Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and Provided, further, That the place of meeting shall be within the Philippines. (n) VII. Merger and Consolidation Sec. 76. Plan or merger of consolidation. - Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following: 1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent corporations; 2. The terms of the merger or consolidation and the mode of carrying the same into effect; 3. A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of merger; and, with respect to the consolidated corporation in case of consolidation, all the statements required to be set forth in the articles of incorporation for corporations organized under this Code; and 4. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. (n)

Sec. 77. Stockholder's or member's approval. - Upon approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation, the same shall be submitted for approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for the purpose. Notice of such meetings shall be given to all stockholders or members of the respective corporations, at least two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least twothirds (2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with the Code: Provided, That if after the approval by the stockholders of such plan, the board of directors decides to abandon the plan, the appraisal right shall be extinguished. Any amendment to the plan of merger or consolidation may be made, provided such amendment is approved by majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent corporations. Such plan, together with any amendment, shall be considered as the agreement of merger or consolidation. (n) Sec. 78. Articles of merger or consolidation. - After the approval by the stockholders or members as required by the preceding section, articles of merger or articles of consolidation shall be executed by each of the constituent corporations, to be signed by the president or vice-president and certified by the secretary or assistant secretary of each corporation setting forth: 1. The plan of the merger or the plan of consolidation; 2. As to stock corporations, the number of shares outstanding, or in the case of non-stock corporations, the number of members; and 3. As to each corporation, the number of shares or members voting for and against such plan, respectively. (n) Sec. 79. Effectivity of merger or consolidation. - The articles of merger or of consolidation, signed and certified as herein above required, shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval: Provided, That in the case of merger or consolidation of banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, the favorable recommendation of the appropriate government agency shall first be obtained. If the Commission is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the provisions of this Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time the merger or consolidation shall be effective. If, upon investigation, the Securities and Exchange Commission has reason to believe that the proposed merger or consolidation is contrary to or inconsistent with the provisions of this Code or existing laws, it shall set a hearing to give the corporations concerned the opportunity to be heard. Written notice of the date, time and place of hearing shall be given to each constituent corporation at least two (2) weeks before said hearing. The Commission shall thereafter proceed as provided in this Code. (n) Sec. 80. Effects or merger or consolidation. - The merger or consolidation shall have the following effects:cralaw 1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation; 2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation; 3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

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 corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and 5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. (n) Sec. 132. Merger or consolidation involving a foreign corporation licensed in the Philippines. - One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided, That the requirements on merger or consolidation as provided in this Code are followed. Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation, such foreign corporation shall, within sixty (60) days after such merger or consolidation becomes effective, file with the Securities and Exchange Commission, and in proper cases with the appropriate government agency, a copy of the articles of merger or consolidation duly authenticated by the proper official or officials of the country or state under the laws of which merger or consolidation was effected: Provided, however, That if the absorbed corporation is the foreign corporation doing business in the Philippines, the latter shall at the same time file a petition for withdrawal of it license in accordance with this Title. (n) Mcleod v NLRC FACTS: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu. He alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a Manila-London-Manila itinerary every three years which is convertible to cash if unused. He claims that in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was short of funds but the same remain unpaid at present. In 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per agreement and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President. He claims that he worked for Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence; that when complainant reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87; that thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles.He said he wrote letters to Patricio Lim requesting for his retirement and other benefits. He was offered only 300,000 for compromise settlement which he rejected so he wrote another letter demanding his full payment of benefits.

Respondents meanwhile allege that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were acquired by Sta. Rosa Textile Corporation which was established in April 1992 but still remains non-operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses; that complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company; records show that he was either absent or worked at most two hours a day; that whatever amount complainant is entitled should be offset with the counterclaims of Peggy Mills and Sta.Rosa; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an employee by Sta. Rosa Textile. In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all respondents have the same offices and key personnel such as Patricio Lim and Eric Hu; that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; that the veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease proves that Sta. Rosa took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his job but applied for retirement as per letters ; that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities. In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them and complainant; that undersigned counsel does not represent Peggy Mills, Inc. The Labor Arbiter decided in favor of herein petitioner and held all respondents as jointly and solidarily liable for complainant's money. The NLRC reversed nd set aside the decision of the Labor Arbiter and ordered Peggy Mills to pay his retirement pay. The CA affirmed with modification the decision of the NLRC that showed that respondent Patricio Lim is jointly and solidarily liable with Peggy Mills, Inc. to pay the following amounts to petitioner John F. McLeod. ISSUE: WON an employee-employer relationship exists between the private respondents and the petitioner. NO HELD: McLeod failed to present evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI. Records disclose that McLeod was an employee only of PMI. PMI hired McLeod as its acting Vice President and General Manager on 20 June 1980. PMI confirmed McLeods appointment as Vi ce President/Plant Manager in the Special Meeting of its Board of Directors on 10 February 1981. McLeod himself testified during the hearing before the Labor Arbiter that his "regular employment" was with PMI. When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI incurred serious business losses. This prompted PMI to stop permanently plant operations and to send a notice of closure to the Department of Labor and Employment on 21 July 1992. PMI informed its employees, including McLeod, of the closure. PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave, vacation leave, prorated 13th month pay, and

separation pay. Under the compromise agreement between PMI and its employees, the employer-employee relationship between them ended on 25 November 1992. Records also disclose that PMI extended McLeods service up to 31 December 1992 "to wind up some affairs" of the company. McLeod testified on cross-examination that he received his last salary from PMI in December 1992. It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992. However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to work at the same plant with the same responsibilities" until 30 November 1993. McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, he asked all the respondents for the payment of his benefits. These assertions deserve scant consideration. What took place between PMI and SRTI was dation in payment with lease. 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 selling corporation fraudulently enters into the transaction to escape liability for those debts. None of the foregoing exceptions is present in this case. Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims. There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation. In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are 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) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objections; (3) they agree to hold themselves personally and solidarily liable with the corporation; (4) they are made by specific provision of law personally answerable for their corporate action. Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. PNB v Andrada Electric Engineering Co. FACTS: On 26 August 1975, the Philippine National Bank (PNB) acquired the assets of the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI 311. The PNB organized the National Sugar Development Corporation (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. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company (AEEC) for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of the NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by AEEC) Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC allegedly suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, AEEC was compelled to engage the professional services of counsel, to whom AEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is lack or want of privity of contract between the them and AEEC. Said motion was denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO filed the petition for review. ISSUE: Whether PNB and NASUDECO may be held liable for PASUMI's liability to AEEC. NO HELD: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control, not mere stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach

of duty must have proximately caused the injury or unjust loss complained of. The absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and PNB. Respondent claimed that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners contend that their takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its separate identity as a corporation. 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 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, we hold that 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. Filipinas Port Services v NLRC FACTS: Prior to February 16, 1977,stevedoring and arrastre services for coastwise or domestic cargoes loaded at the Sta. Ana Pier and Sasa Wharf of the Port of Davao were handled by several cargo handling operators, among whom were the following: Allied Stevedoring Corporation, Davao Maritime Stevedoring Corporation (DAMASTICOR), Davao Southern Stevedoring Corporation, Mt. Apo Stevedoring Corporation, United Stevedoring Corporation, Mindanao Terminal Brokerage Services, Inc., Bay United Stevedoring Corporation. During the existence of DAMASTICOR, private respondent Josefino Silva was employed by said company. Subsequently, the government adopted a policy that there should be only one cargo handling operator in every port. This policy was approved in Customs Memorandum Order 28075 which was later superseded by the General Port Regulations of the Philippine Ports Authority (PPA) which fully implemented the policy. Accordingly all the existing arrastre and stevedoring firms which were then operating individually in the Port of Davao were integrated into a single and unified service which resulted in the formation of a new corporation known as the Davao Dockhandlers, Inc. The name was later changed to Filipinas Port Services, Inc. (FILPORT), petitioner herein. Petitioner started its operation on February 16, 1977. By mandate, however, of the PPA's Administrative Order No. 13-77, petitioner drew its necessary labor force, together with its personnel complement, from the merging operators. Of the employees absorbed, private respondent was among them. He continued to work

until his retirement on June 29, 1987. Upon his retirement, private respondent was paid his retirement pay corresponding only to the period that he actually worked with petitioner. His length of service with DAMASTICOR was not included in the computation of his retirement pay. On July 8, 1987, private respondent lodged a complain against petitioner and/or DAMASTICOR with the DOLE demanding payment of separation pay covering the period of his employ with DAMASTICOR. Petitioner denied owing any monetary liability to private respondent, claiming that it could not be held liable for the payment of private respondent's separation pay corresponding to the period of the latter's employment with DAMASTICOR since it is not the successor-employer of the latter. On the other hand, private respondent's Position Paper will show that while his complaint prayed for the payment of his separation pay, he was actually demanding payment of his differential retirement pay. The Labor Arbiter ordered petitioner to pay. The complaint against DAMASTICOR is ordered Dismissed inasmuch as said corporation no longer exists. The NLRC affirmed. NLRC held in effect that a succession of employment rights and obligations took place between petitioner and DAMASTICOR. Petitioner now claims the NLRC committed a grave abuse of discretion. ISSUE: WON the successor-in-interest of an employer is liable for the differential retirement pay of an employee earned by him when he was still under the employment of the predecessor-in-interest. NO HELD: Petitioner's main contention is that the period of private respondent's employment with DAMASTICOR should not be considered in the computation of his retirement pay because petitioner is not the successor-employer of private respondent after DAMASTICOR. A close scrutiny of the record of this case inevitably and clearly shows that petitioner came into existence as a juridical person only as a direct result of the merger among different cargo handling operators. With that merger, Section 118, Article X of the General Guidelines on the Integration of Arrastre/ Stevedoring Services issued by the PPA mandated petitioner to draw its personnel complement from the merging operators to constitute its labor force, thus: Sec. 118. Absorption of labor - Subject to the provisions of the immediate preceding section, and consistent with the actual operational requirements of the new management, all labor force together with its necessary personnel complement, of the merging operators shall be absorbed by the merged or integrated organization to constitute its labor force. Petitioner claims that it cannot be considered a successor-in-interest of the merged operators because of the memorandum of the PPA Assistant General Manager dated November 21, 1978, which was supposed to be a clarification of Section 116 of PPA Administrative Order No. 13-77, to wit: xxx xxx xxx The new organization's liability shall be the payment of salaries, benefits and all other money due the employee as a result of his employment, starting on the date of his service in the newly integrated organization. . . . , the absorption of an employee into a (the) newly integrated organization does not include the carry over of his length of service. In Fernando vs. Angat Labor Union, the SC held that, unless expressly assumed, labor contracts are not enforceable against a transferee of an enterprise, labor contracts being in personam. On the other hand, a transferor in bad faith may be held responsible to employees discharged in violation of the Industrial Peace Act. Petitioner cannot be held liable for the payment of the retirement pay of private respondent while in the employ of DAMASTICOR. It is the latter who is responsible for the same as the labor contract of private respondent with DAMASTICOR is in personam and cannot be passed on to the petitioner. The adverted memorandum of the PPA Assistant General Manager to this effect is well taken. A. Definition Sec. 123. Definition and rights of foreign corporations. - For the purposes of this Code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. (n)

B. Requirement for license to do business Sec. 125. Application for a license. - A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following: 1. The date and term of incorporation; 2. The address, including the street number, of the principal office of the corporation in the country or state of incorporation; 3. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation; 4. The place in the Philippines where the corporation intends to operate; 5. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency; 6. The names and addresses of the present directors and officers of the corporation; 7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue, itemized by classes, par value of shares, shares without par value, and series, if any; 8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued, itemized by classes, par value of shares, shares without par value, and series, if any; 9. A statement of the amount actually paid in; and 10. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission to determine whether such corporation is entitled to a license to transact business in the Philippines, and to determine and assess the fees payable. Attached to the application for license shall be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that the laws of the country or state of the applicant allow Filipino citizens and corporations to do business therein, and that the applicant is an existing corporation in good standing. If such certificate is in a foreign language, a translation thereof in English under oath of the translator shall be attached thereto. The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under oath of the president or any other person authorized by the corporation, showing to the satisfaction of the Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is solvent and in sound financial condition, and setting forth the assets and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to the filing of the application. Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the provisions of existing laws applicable to them. In the case of all other foreign corporations, no application for license to transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous authority from the appropriate government agency, whenever required by law. (68a) Sec. 126. Issuance of a license. - If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation, unless such license is sooner surrendered, revoked, suspended or annulled in accordance with this Code or other special laws.

Within sixty (60) days after the issuance of the license to transact business in the Philippines, the license, except foreign banking or insurance corporation, shall deposit with the Securities and Exchange Commission for the benefit of present and future creditors of the licensee in the Philippines, securities satisfactory to the Securities and Exchange Commission, consisting of bonds or other evidence of indebtedness of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, shares of stock in "registered enterprises" as this term is defined in Republic Act No. 5186, shares of stock in domestic corporations registered in the stock exchange, or shares of stock in domestic insurance companies and banks, or any combination of these kinds of securities, with an actual market value of at least one hundred thousand (P100,000.) pesos; Provided, however, That within six (6) months after each fiscal year of the licensee, the Securities and Exchange Commission shall require the licensee to deposit additional securities equivalent in actual market value to two (2%) percent of the amount by which the licensee's gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the securities on deposit has decreased by at least ten (10%) percent of their actual market value at the time they were deposited. The Securities and Exchange Commission may at its discretion release part of the additional securities deposited with it if the gross income of the licensee has decreased, or if the actual market value of the total securities on deposit has increased, by more than ten (10%) percent of the actual market value of the securities at the time they were deposited. The Securities and Exchange Commission may, from time to time, allow the licensee to substitute other securities for those already on deposit as long as the licensee is solvent. Such licensee shall be entitled to collect the interest or dividends on the securities deposited. In the event the licensee ceases to do business in the Philippines, the securities deposited as aforesaid shall be returned, upon the licensee's application therefor and upon proof to the satisfaction of the Securities and Exchange Commission that the licensee has no liability to Philippine residents, including the Government of the Republic of the Philippines. (n) Sec. 129. Law applicable. - Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, except such only as provide for the creation, formation, organization or dissolution of corporations or those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation. (73a) Avon Insurance PLC v CA FACTS: on July 6, 1979 and on October 1, 1980. Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance. On December 16, 1979 and May 2, 1981, within the respective effectivity periods of Policies 20719 and 25896, 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. Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the Office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably

filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motions to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an Order dated April 30, 1990, respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In an order dated June 4, 1990, respondent court denied due course to the appeal. ISSUE: WON the reinsurers were doing business in the Philippines. NO HELD: There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. 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. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling 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 or 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. The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in the Philippines. There is no sufficient basis in the records which would merit the institution of this collection suit in the Philippines. There is nothing to substantiate the private respondent's submission that the petitioners had engaged in business activities in this country. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract of reinsurance. 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. In Marshall Wells Co. vs. Elser, it was 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 the foreign corporations doing business in the Philippines to the jurisdiction of the 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.

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. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty. In the alternative, private respondent submits that foreign corporations not doing business in the Philippines are not exempt from suits leveled against them in courts, citing the case of Facilities Management Corporation vs. Leonardo Dela Osa, et. al. where we ruled "that indeed, if a foreign corporation, not engaged in business in the Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine Courts for acts done against a person or persons in the Philippines." The Court disagreed. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The Court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign corporations not doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines. It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they cannot maintain the contrary at this juncture. This argument is at the most, flimsy. In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, 29 it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. In this instance, the petitioners from the time they filed their motions to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines. The SC ruled that the lower court did not and could not acquire jurisdiction over the petitioners. C. Resident Agent Sec. 127. Who may be a resident agent. - A resident agent may be either an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in the case of an individual, he must be of good moral character and of sound financial standing. (n) Sec. 128. Resident agent; service of process. - The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some person who must be a resident of the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office. Any such foreign corporation shall

likewise execute and file with the Securities and Exchange Commission an agreement or stipulation, executed by the proper authorities of said corporation, in form and substance as follows: "The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines, that if at any time said corporation shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any summons or other legal process may be made upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the duly-authorized officers of the corporation at its home office." Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission, the Commission shall, within ten (10) days thereafter, transmit by mail a copy of such summons or other legal process to the corporation at its home or principal office. The sending of such copy by the Commission shall be necessary part of and shall complete such service. All expenses incurred by the Commission for such service shall be paid in advance by the party at whose instance the service is made. In case of a change of address of the resident agent, it shall be his or its duty to immediately notify in writing the Securities and Exchange Commission of the new address. (72a; and n) Expertravel and Tours Inc. v CA FACTS: 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. On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the RTC of Manila, for the collection 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 Section 5, Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Appended to the said opposition was the identification card of Atty. Aguinaldo, showing that he was the lawyer of KAL. During the hearing, Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting held on June 25, 1999. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. The trial court granted the motion. Finally, KAL submitted, executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. The TC denied the motion to dismiss and held that the KAL Board of Directors indeed conducted a teleconference on June 25, 1999, during which it approved a resolution as quoted in the submitted affidavit. The TC denied ETI's motion for reconsideration. ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. In its comment on the petition, KAL appended a certificate signed by Atty. Aguinaldo dated January 10, 2000. On December 18, 2001, the CA rendered judgment dismissing the petition, ruling that the verification and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the appellate court, Atty. Aguinaldo had been duly authorized by the board resolution approved on June 25, 1999, and was the resident agent of KAL. As such, the RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors.

ISSUE: WON Atty. Aguinaldo as resident agent had the authroity to execute the requisite certification against forum shopping. NO. 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. In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents. The reason for this is because the corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly-authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly-authorized for the purpose by corporate by-laws or by specific act of the board of directors. In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf. The respondent, however, failed to do so. 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, thus: SEC. 127. Who may be a resident agent. A resident agent may either be an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in the case of an individual, he must be of good moral character and of sound financial standing. SEC. 128. Resident agent; service of process. The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some persons who must be a resident of the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly-authorized officers of the foreign corporation as its home office. 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, on March 6, 2000, a resolution purporting to have been approved by its Board of Directors during a teleconference held on June 25, 1999, 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. 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. The records show that the petitioner filed a motion to dismiss the complaint on the ground that the respondent failed to comply with Section 5, Rule 7 of the Rules of Court. The respondent opposed the motion

on December 1, 1999, on its contention that Atty. Aguinaldo, its resident agent, was duly authorized to sue in its behalf. The respondent, however, failed to establish its claim that Atty. Aguinaldo was its resident agent in the Philippines. Even the identification card of Atty. Aguinaldo which the respondent appended to its pleading merely showed that he is the company lawyer of the respondents Manila Regional Office. The respondent, through Atty. Aguinaldo, announced the holding of the teleconference only during the hearing of January 28, 2000; Atty. Aguinaldo then prayed for ten days, or until February 8, 2000, within which to submit the board resolution purportedly authorizing him to file the complaint and execute the required certification against forum shopping. It was only on March 6 that the 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. Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a Secretarys/Resident Agents Certificate alleging that the board of directors held a teleconference on June 25, 1999. No such certificate was appended to the complaint, which was filed on September 6, 1999. The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999 never took place, and that the resolution allegedly approved by the respondents Board of Dire ctors during the said teleconference was a mere concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its complaint against the petitioner. D. Concept of doing business RA 7042 Sec. 3(d) d) The praise "doing business" shall include 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; Mentolatum v Mangaliman FACTS: Mentholatum Co. is a Kansas based corp which manufactures Mentholatum, a medical salve adapted for treatment of colds, nasal irritations, and other external ailments. On 1921, the company registered Mentholatum as trademark for its products. Philippine-American Drug Co. is its exclusive distributing agent in the Philippines. October 1935 Both companies filed a case against the Mangaliman brothers for infringement of trademark and unfair competition, alleging that the latter sold Mentholiman in containers of the same size, color, and shape as Mentholatum, causing dimunition of sales and loss of goodwill to them. CFI rules for the petitioners. The CA reverses, holding that the activities were business transactions in the Philippines. By Sec. 69 of the corporation law, it may not maintain the present suit. Hence this petition for certiorari by petitioners contending that: (1) Mentholatum Co.s activities do not constitute transacting business as used in Sec. 69. (2) The issue of transacting business is an issue foreign to the case. (3) The case is filed by Mentholatum Co. and Phil-Am Drug Co. so if Mentholatum could not continue the case, Phil-Am Drug still had legal standing. Furthermore, petitioners contend that: Mentholatum has not personally sold any of its products in the Philippines.

Phil-Am Drug, like 15-20 other local entities, was merely an importer of the products, and its sales were its own and not Mentholatums.

Meanwhile, defendants counter: Phil-Am is the exclusive distributing agent of Mentholatum Co. merely acting for the latter Thus, Mentholatum is engaged in business in the Philippines and w/o having acquired the license required by Sec. 68 both companies cannot maintain the persent suit. ISSUE/HELD: W/n petitioners could prosecute the instant action w/o having secured the license required in Sec. 68 and 69? NO. RATIO: Section 69: No foreign corporation shall be permitted to transact business in the Philippines or maintain by itself or assignee any suit for recovery of debt, claim, or demand whatever. Unless it has the license prescribed in Sec. 68. The facts show that Mentholatum Co is a foreign corp and it does not have license to do business in the Philippines. No general rule exists as to what constitutes "doing" or "engaging in" or "transacting" business. Each case is judged on its own circumstances. The test is 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. Furthermore, there should be a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and object of its organization. The CAs finding that Mentholatum has been selling products here since 1929 through its agent is predicated upon the testimony of Mr. Springer of Phil-Am and the pleadings of the petitioners, as the complaint clearly states that Phil-Am is the exclusive distributing agent of Mentholatum Co in the sale of its product. It follows that whatever transactions Phil-Am did, Mentholatum did it itself. The latter being a foreign corp doing business in the Philippines w/o 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. Writ of certiorari denied. Moran, dissenting: Sec. 69 does not apply to suits for infringement of trade marks and unfair competition, the theory being that "the right to the use of the corporate and trade name of a foreign corporation is a property right, a right in rem, which it may assert and protect in any of the courts of the world even in countries where it does not personally transact any business," and that "trade mark does not acknowledge any territorial boundaries but extends to every mark where the traders' goods have become known and identified by the use of the mark." Agilent Technologies Singapore v Integrated Silicon Technology Phil. Corp. FACTS: Agilent is a foreign corporation, who admits that is not itself licensed to do business in the Philippines. Integrated Silicon is a domestic corp 100% foreign-owned, engaged in the business of manufacturing and

assembling electronic components. The other respondents are present and former board of director members of Integrated Silicon. A 5-year Value Added Assembly Services Agreement (VAASA) was entered into between Integrated Silicon and Hewlett-Packard Singapore. In it, Integrated Silicon was to manufacture fiber optics for export to HP. HP would consign raw materials to Silicon and pay for the finished products. The VAASA had a 5 year term starting April 1996 with a provision for annual renewal by mutual written consent. On 1999, HP assigned all its rights and obligations in the VAASA to Agilent. May 2001 Integrated Silicon files a complaint for specific performance and damages against Agilent for breaching the oral agreement to extend the VAASA. July 2001 Agilent files a separate complaint for a writ of replevin against Integrated and its officers for recovery and immediate return of equipment and materials to be used for fiber optic components left in Integrateds plant. Integrated Silicon filed a MTD on grounds of (1) Agilents lack of legal capacity to sue (2) litis pendentia (3) forum shopping (4) failure to state cause of action. TC denies and grants Agilents writ of replevin. Respondents immediately filed a petition for certiorari with the CA which is granted. Hence the instant petition. ISSUE/HELD: W/n Agilent has legal capacity to sue? YES. It is not considered to be doing business in the Philippines, hence does not need a license to access Philippine Courts. RATIO: Respondents argue that Agilent, being an unlicensed foreign corp, lacks capacity to file suit. The acts which allegedly show doing business include (1) entering into the VAASA, a service contract. (2) appointment of a full-time representative/overseer in Integrated Silicon. (3) appointment of 6 staff members permanently station in Integrated. (4) Participation in management, supervision and control of Integrated. A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine courts. A license is necessary only if a foreign corporation is transacting or doing business in the country. Corp Code Sec. 133. Doing business w/o a license: No foreign corp transacting business in the Philippines w/o a license shall be permitted to maintain or intervene in any action/suit/proceeding But such corporation may be sued or proceeded against The provision prevents unlicensed foreign corps doing business in the Philippines from accessing courts. However, the court has held that an unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and benefited from said corporation on the premise of the doctrine of estoppel. A party cannot challenge the personality of a corp after acknowledging it by entering into a contract with it. Court summarizes the principles on the right of a foreign corp (FC) to bring suit here: (1) If a FC does business without a license, it cannot sue (2) If NOT doing business, it needs no license to sue on an isolated transaction or on a cause of action entirely independent of any business transaction (3) If a FC does business w/o a license, a person/entity which has contracted with the FC may be estopped from assailing the FCs personality (4) If a FC does business WITH the required license, it can sue on any transaction. The Court quotes the Mentholatum case in that there is no definitive rule as to what constitutes doing business but there are two tests that aid such determination to wit:

Substance test: The true test [for doing business], however, seems to be whether the foreign corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. Continuity test: The term [doing business] 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 the functions normally incident to, and in the progressive prosecution of, the purpose and object of its organization.

Although each case must be judged in light of its attendant circumstances, jurisprudence has evolved several guiding principles for the application of these tests. Merrill Lynch v. CA: Doing business considering that it transacted with its Philippine counterpart for seven years, engaging in futures contracts. CIR v. Japan Airlines: Doing business despite no aircraft used the country, the airline still sold tickets in the country through a general sales agent and had a promotions office here. General Corp v. Union Insurance: Doing business the insurance company had a settling agent and issued 12 marine insurance policies, manifesting continuity and intent to establish business. Eriks PTE Ltd v. CA: Doing business selling products to a buyer 16 times w/in an 8 month period clear intent to continue the body of its business. Communication materials and design inc v. CA and Top-Weld Mfg v. ECED: Doing business - Both involved License and Distributor Agreements of FCs with their local counterparts. The highly restrictive nature of certain provisions in the agreements made the Philippine entities to be mere extension or instruments of the foreign corporation meaning that such companies were doing business here. Case law has evolved to statutory definition, having been adopted with some qualifications in various pieces of legislation. The Foreign Investments Act of 1991 (the FIA; Republic Act No. 7042, as amended) , defines doing business as follows: 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 totaling 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 the progressive prosecution of, commercial gain or of the purpose and object of the business organization. Analysis of the law would show that the VAASA does not constitute doing business in the Philippines. Sec 1 of the FIA enumerates examples of NOT doing business which include investing as a mere shareholder, having a nominee director to represent interest, advertising, maintain stock goods, collecting information, consigning of equipment to be used in products for exports, etc. Generally to constitute doing business, the activity to be undertaken in the Philippines is one that is for profit-making. In the VAASA, Agilents activities were confined to (1) maintain a stock of goods for the sole purpose of having them processed by Integrated and (2) consignment of equipment to Integrated to be used on products for export. Hence, the Court holds that Agilent cannot be deemed to be doing business in the Philippines. As a foreign corporation not doing business in the Philippines, it needed no license before it can sue before our courts. Writ of replevin granted. Side issues: On the CA ruling that the TC had no jurisdiction on Agilents case due to the pendency of the first case SC: Wrong. Pendency of another action does not strip a court of the jurisdiction granted by law.

On the CA ruling that a Motion for Reconsideration was not necessary in view of the urgency of the case SC: Wrong. There is no urgent circumstance which would necessitate the relaxation of the rule on a Motion for Reconsideration. CA shouldve dismissed the case outright. On Litis Pendentia SC: No. The righs asserted in each case are separate and distinct; there are two subjects of controversy presented for adjudication; and two causes of action are clearly involved. Furthermore, any judgment rendered in one of the actions will not amount to res judicata in the other action. On forum shopping SC: No. Since there is no litis pendentia nor res judicata possible here, there is no forum shopping. European Resources and Technologies Inc. v Ingenieuburo Birkanh and Nolte FACTS: Parties are: (Pet) European Resources and Technologies Inc. (ERTI) domestic Corp (Pet) Delfin Wenceslao (Resps) Ingenieuburo et al are German corporations (German Consortium/Germans) The Germans won its bid to the Clark Development Corporation (CDC) to construct and operate the Integrated Waste Management Center at the Clark Special Economic Zone (CSEZ). A Contract for Services was executed. It provides that the Germans shall be empowered to enter into contracts for the use of the waste center by entities both within and outside the CSEZ. The Germans shall earn by imposing tipping fees from the waste collected while paying a certain fee to CDC. The contract was for 25 years and it allows the Germans to manage the day to day operations of the center. As per the contract, the Germans shall organize a local corporation as its representative for this project. Hence a joint venture was entered into with DM Wenceslao and Associates Inc. (DMWAI) and LBV & Associates, embodied in a Memorandum of Understanding (MOU). In this memo, the parties agreed to form a local corporation to which the Germans shall assign its rights under the Contract for Services. Pursuant to this, ERTI was formed. A shareholders agreement was planned to follow which shall allocate equity in this manner: Germans owning 15%, DMWAI 70%, LBV 15%. Before the agreement was executed, the Germans and ERTI entered into a Memorandum of Agreement (MOA) where the former ceded its rights under the Contract for Services to the latter. The parties further agreed that should there be disagreement wrt to the MOA, the dispute shall be referred to arbitrators. BN Consultants, on behalf of the Germans, wrote to ERTI stating that the MOU has been terminated on the following grounds: (a) CDC did not approve the assignment to ERTI (b) the parties failed to finalize the shareholders agreement (c) no factual basis to continue the venture (d) the termination of the MOU means the MOA is terminated. ERTI requests for reconsideration from CDC. Meanwhile, the Germans file for injunction against the petitioners, claiming that ERTI should stop the misrepresentation of accepting solid wastes from third parties for processing at the center as continuing such would undermine customer confidence with the Germans. Petitioners file their opposition demanding that the dispute should be referred to arbitration as per the MOA. More importantly, they objected to the presentation of evidence on the ground that the TC had no jurisdiction since the German Consortium was composed of foreign corporations doing business in the country without a license. TC overrules the objection and after hearing grants the injunction. CA dismisses the petition for certiorari. Hence this petition. ISSUE/HELD: W/n the German Consortium had legal standing to file the case? NO. RATIO:

There is no general rule as to what constitutes doing business. 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. Further, it has been held that the act of participating in a bidding process constitutes doing business because it shows the foreign corporations intention to engage in business in the Philippines. 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. The Germans are 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 a local corporation was to be established, it is clear that the disapproval by the CDC shows that it is the Germans who shall conduct the operations. The fact that the Germans are allowed to transact with entities in and out the CSEZ shows that the local corporation will merely act as a conduit or extension of the foreigners. As a general rule, unlicensed foreign non-resident corporations cannot file suits in the Philippines (Sec. 133). But there are exceptions such as estoppel - A party may be 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. The rule relating to 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. Here however, the petitioners have not received any benefit from its transactions with the Germans. It was them who has spent effort and money to implement the MOA. They do not seek to escape their obligations. To rule that the Germans have capacity to sue even when the petitioners have not committed any breach of its obligation would be allowing an unlicensed foreign corporation to gain access to our courts. The object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts. Side Issue: On w/n the respondents are entitled to the writ SC: this should be tackled in a separate proceeding. The CDC must be made a proper party to the case. On w/n the case should be referred to arbitration: SC: NO. Even if there is an arbitration clause, there are instances when referral to arbitration does not appear to be the most prudent action. The object of arbitration is to allow the expeditious determination of a dispute. Since again, CDC is not a party, and it stands to be affected by any decision here, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding. On the petitioners claim that ordering injunction is tantamount to granting the respondents prayer w/o trial. SC: Moot and academic, fact is respondents do not have legal standing. But in any case - for the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.At the time of its application for an injunctive writ, respondents right to operate and manage the waste management center, to the exclusion of or without any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed between respondents and petitioner ERTI has not yet been judicially declared as rescinded when the complaint was lodged in court. Hence, a cloud of doubt exists over respondent German Consortiums exclusive right relating to the waste management center. Cargill v Intra-Strata Assurance Corporation FACTS: Petitioner Cargill, Inc. (Cargill) is a US based corporation. It executed a contract with Northern Mindanao Corporation (NMC) whereby NMC agreed to sell 20,000 to 24,000 metric tons of molasses at the price of $44

per metric ton. Further, the contract provides that Cargill would open a Letter of Credit with BPI. Under this credit, NMC could draw up to $500k, the minimum price of the contract. The contract was amended separate three times: (1) increased the price. (2) reduced the quantity of molassess (3) changing the delivery schedule and adding a requirement on NMC to put up a performance bond, intended to guarantee NMCs performance to. In compliance with the new terms, respondent Intra Strata Assurance Corporation (Strata) issued a performance bond in the sum of P11,287,500 to guarantee NMCs delivery of the 10,500 tons of molasses, and a surety bond 7 in the sum of P9,978,125 to guarantee the repayment of downpayment as provided in the contract. NMC was only able to deliver 219.55 out of the agreed 10,500 metric tons. Cargill then sent demand letters claiming payment of the bonds. Strata refused hence the complaint for sum of money against NMC and Strata. The parties entered into a compromise agreement which provided for another batch of orders, however NMC still failed to comply hence trial proceeded against Strata. Trial court ordered Strata to solidarily liable to Cargill. CA however reversed, ruling that Cargill does not have the capacity to file this suit since it is a foreign corporation doing business in the Philippines without the requisite license. It held that the purchases of molasses were in pursuance of its basic business and not just mere isolated and incidental transactions. Issues/Held: W/n Cargill is doing business in the Philippines? NO. Ratio: Under Article 123 of the Corp Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts as provided under Section 133 of the Corporation Code. The Corporation Code provides no definition for the phrase "doing business." Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991, enumerated not only the acts or activities which constitute "doing business" but also those activities which are not deemed "doing business" in Sec. 3(d)1 Strata in invoking Sec. 133 bears the burden of proof of proving that Cargills business activities were not just casual or occasional, but so systematic and regular as to manifest continuity and permanence of activity to constitute doing business in the Philippines. This burden it failed to discharge. The determination of doing business is based on the facts of each case. In Antam Conslidated v. CA, the court emphasized the element of continuity of commercial activities to constitute doing business in the Philippines. In that case, despite 3 seemingly different transactions, these were executed only in an effort to fulfill the basic agreement and in no way indicate an intent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines.

[T]he phrase "doing business" shall include "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.
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The 3 amendements in this case were to give change for NMC to deliver considering that it already received the minimum price for the contract. The activities enumerated in RA 7042 as not doing business: 1. 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; 2. Having a nominee director or officer to represent its interests in such corporation; 3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account; 4. The publication of a general advertisement through any print or broadcast media; 5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines; 6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export; 7. Collecting information in the Philippines; and 8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services. Most of these activities do not bring profits to the foreign corporation. This is the same ruling of the court in National Sugar Trading v. CA that activities w/c do no create profits do not constitute doing business. In this case, the contract involved the purchase of molasses from NMC hence it was NMC, the domestic corporation, which derived income from the transaction and not petitioner. Other factors which support the finding that petitioner is not doing business in the Philippines are: (1) petitioner does not have an office in the Philippines; (2) petitioner imports products from the Philippines through its non-exclusive local broker, whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade in the Philippines; and (3) the local broker is an independent contractor and not an agent of petitioner. Lastly, the mere act of exporting from ones own country, w/o a specific commercial act in the importing country is not doing business in the latter country. Theres no jurisdiction over the foreign exporter. Otherwise, every Philippine exporter would be required to secure a business license which may hamper trade. To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license. E. Effect of Doing Business without a license Eriks Ltd. V CA Facts: Petitioner Eriks Pte Ltd (Eriks) is a non-resident foreign corporation based in Singapore, engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes. It admits not having a license and alleges that it is suing respondent Delfin Enriquez (Enriquez) on an isolated transaction. On 17 instances between the dates January 17 - August 16, 1989, Enriquez under the business Delrene EB Controls Center, ordered various elements from Eriks. The transfers of goods were perfected in Singapore, for

Enriquez account, F.O.B. Singapore, with a 90-day credit term. Subsequently, despite demands, Enriquez failed to settle the account hence Eriks filed for recovery of $41,939.63. Enriquez files an MTD contending no legal capacity to sue. TC dismisses on such ground and CA affirms. Issue/Held: W/n the business transactions between the parties can be considered as an isolated transaction? NO. Ratio: Sec. 133 of the Corp Code prohibits, not merely absence of the prescribed license, but it also bars a foreign corporation doing business in the Philippines without such license access to our courts. Note that a foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license is necessary only if it is transacting or doing business in the country. Despite no clear definition of doing business in the Corp Code, jurisprudence has stated that the true test is 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,implying a continuity of commercial dealings. The Court agreed with the trial court which found that there was a continuing business relationship in that each time Enriquez posts an order, Eriks delivers the items on several invoices and receipts on various dates. Considering that there were 16 orders and deliveries over a 4 month period, the transactions did not consist of separate deliveries for one single order. Rather, the transactions were a series of commercial dealings which would signify an intent to do business in the Philippines and could not by any stretch of the imagination be considered an isolated one, thus would fall under the category of doing business. More than the number of transactions entered the intention to continue business is apparent. the sale by Eriks 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. The grant and extension of 90-day credit terms shows an intention to continue transacting, 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. 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 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. Doing business does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. Accordingly, Eriks must be held to be incapacitated to maintain the action a quo against private respondent. The law does not intend to bar court access for a foreign corporation. But the law cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfillment by such corporations of the necessary requisites to be subjected to our governments regulation and authority. By securing a license, the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it. There are other remedies available. Res judicata does not set in no determination on the merits. Furthermore, a subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract.

While we agree with petitioner that the country needs to develop trade relations and foster friendly commercial relations with other states, we also need to enforce our laws that regulate the conduct of foreigners who desire to do business here. Such strangers must follow our laws and must subject themselves to reasonable regulation by our government. Home Insurance Co. v Eastern Shipping Lines Facts: This is actually a consolidation of 2 cases where the petitioner Home Insurance Company (HIC) is suing to recover money. Home Insurance v. Eastern Shipping S. Kahita, on behalf of Atlas Consolidated Mining shipped on board of Eastern Jupiter, 2,361 wire rods from Japan. The vessel is owned by Eastern Shipping, The goods were insured by HIC against all risks. Upon delivery, there was a shortage of 593 kilos in the shipment, which caused the Company to pay the consignee. In turn, HIC made demands against Eastern Shipping and/or Jose Angel Transportaion Co. Both refused to pay. Home Insurance v. Nedlloyd Linjen Hansa Transport shipped from Germany 30 packages of Service Parts of Farm Equipment on board SS Neder Rijn, owned by Nedlloyd Linjen, represented in the Philippines by its local agent, Columbian Philippines. The shipment was insured by HIC. For the short-delivery of 1 package and the missing items in 5 other packages, HIC paid the Consignee P2.4k. In turn, demands were made on Nedlloyd Linjen and Columbian. Both refused to pay. In both cases, the petitioner-appellant made the following averment regarding its capacity to sue: The plaintiff 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 answers by the respondents in both cases commonly said that: They (respondents) deny the petitionerappellant's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. The CFI dismissed both cases on the same ground, in that HIC failed to prove its capacity to sue. A suing foreign corporation has to plead affirmatively and prove either that the transaction upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this country, failing to do will result in having no valid cause of action. In view of the number of cases filed by plaintiff before this Court, it has to be held that plaintiff is doing business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation Law before it can be allowed to sue. Furthermore, the court held that w/o compliance with Sec. 68 of the Corp Code, the contracts of such corporation void, or at least unenforceable, and prevents the maintenance by the corporation of any action on such contracts. Issue/Held: W/n the contracts were valid given HICs lack of capacity to sue? Voidable. Ratio: There is no question that the private respondents should pay the obligations found by the trial court as owing to the petitioner. The issue here is that when the cases were filed, HIC had already secured the necessary license to conduct its insurance business in the Philippines. It could already file suits. However, when the insurance contracts which formed the basis of these cases were executed, HIC had not yet secured the necessary licenses and authority. The lower court hence declared the insurance contracts void. The objective of the law, on the limitations on foreign corporations, is to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute 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. 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, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts The Court then makes a distinction between the denial of a right to take remedial action and the penal sanction for non-registration. 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 void. In transacting a business w/o a license, the law imposes a penal sanction-imprisonment for not less than six months nor more than two 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. The ambiguity however from the old Corporation Law, as to w/n the contracts are void or voidable has been cured by Batas Pambansa Blg. 68, the Corporation Code of the Philippines. 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. The contracts is enforceable, the requirement of registration affects only the remedy. 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 our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Furthermore, the lack of capacity which was cured by the subsequent registration is strengthened by the fact that HIC sufficiently alleged in its complaints its own capacity to sue. The private respondents countered either with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth of the averments. The general denials are inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial, which shag include such supporting particulars as are particularly within the pleader's knowledge. At the very least, the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. Respondents are ordered to pay. Merrill Lynch Futures Inc. v CA Facts: Merill Lynch Futures (ML Futures) filed a complaint against the Spouses Lara for recovery of debt and interest. It described itself as a US-based, non-resident foreign corporation, not doing business in the Philippines. Further, it is a futures commission merchant, acting as a broker to buy and sell future contracts from its customers on US future exchanges. Futures contracts - "contractual commitment to buy and sell a standardized quantity of a particular item at a specified future settlement date and at a price agreed upon, with the purchase or sale being executed on a regulated futures exchange." It alleged that it entered into a futures customer agreement w/ the s pouses to act as the latters broker to buy and sell of futures contracts in the US. Pursuant to this agreement, the orders of the spouses were transmitted to ML Futures through Merill Lynch Philippines Inc. (MLPI) a domestic corp and one servicing ML Futures customers. The spouses were alleged to have been advised that MLPI was not an SEC licensed futures contracts broker.

Through this contract, the spouses began actively trading futures contracts from 1983 to October 1987. Eventually, the spouses became indebted to ML Futures for $84k which they refused to pay, alleging that the transactions were null and void because MLPI was not licensed to act as a broker. They then filed an MTD alleging that (1) ML Futures had no legal capacity to sue and (2) the complaint states no cause of action. The spouses averred that although not licensed, ML Futures has been doing business in the Philippines for at least 4 years, hence it is prohibited by law to maintain any suit in any court in the Philippines. Also, they were never informed that MLPI was not licensed. Lastly, contrary to the allegations, they dealt with Merill Lynch Pierce Fenner & Smith, Inc. not ML Futures. It then presented 8 documents/forms/receipts bearing the name of ML Pierce Fenner & Smith. ML Futures filed an opposition to the MTD first, it emphasized the fact that it was trading future contracts in the US not in the Philippines. Second, it alleged that the printed form of ML Futures signed by defendant contained the information regarding MLPI not being licensed, that the legal relationship w/ customers shall be governed by laws outside the Philippines. TC sustains the MTD. CA affirms, ruling that MLPI was a mere conduit of ML Futures business in the Philippines to comply w/ Sec. 133. The evidence would show the acts of ML Futures constituted doing business as it falls under the definition as used in the Mentholatum case includes soliciting orders, purchases, service contracts, opening offices; appointing representatives who are domiciled in the Philippines; and any act constituting intent to continue dealings. Hence in doing business w/o a license, ML Futures had no legal capacity to sue. Issue/Held: W/n ML Futures had standing to sue the spouses? YES. The spouses are estopped from denying ML Futures lack if capacity to sue. Ratio: The facts establish that ML Futures has done business w/ the spouses over several years through MLPI, an agent domestic corp that had no license to act as a commodity futures trading advisor. The crucial question then is w/n ML futures may sue in Philippine courts to enforce its rights against the spouses despite the lack of license. If the spouses were aware of the lack of license do business, and still continued transacting with the corporation, the question is w/n the spouses are estopped from asserting the lack of capacity to sue. 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; 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. Clearly, the spouses received benefits generated by their business relations with ML futures. The business relations would not have continued for 7 years if they were not profitable. In fact, even as regards their last transaction, in which the spouses allegedly suffered a loss in the sum of US$160,749.69, they still received some monetary advantage, for ML Futures credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Applying the facts and assuming the spouses knew of such, it would be inequitable for the spouses to evade payment of an otherwise legitimate indebtedness due and owing to ML Futures upon the plea that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a "commodity and/or financial futures broker." Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable to ML Futures and if so in what amount, and whether they were so far aware of the absence of the requisite licenses

on the part of ML Futures and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by the proper trial court. Lower court reversed.