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Definitions and Attributes of Corporation
Concession Theory and Corporate Franchises
Section 2, Corporation Code
Tayag v. Benguet Consolidated, Inc.

FACTS:
Idonah Slade Perkins died in New York City on March 27, 1960. Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila. Lazaro A. Marquez was appointed ancillary administrator. He was
later on substituted by the Renato D. Tayag.
A dispute arose between the domiciliary administrator in New York and the ancillary administrator in the Philippines as
to which of them was entitled to the possession of the stock certificates owned by Perkins in Benguet Consolidated,
Inc.
CFI of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the
ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order.
Thereafter, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of
stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be
declared or considered as lost – granted
Benguet Consolidated, Inc. appealed opposing the CFI order alleging that the said stock certificates are in existence,
they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A.
ISSUE:
WON the Benguet Consolidated Inc’s appeal/ opposition to the CFI order was proper
HELD:
No. SC affirmed CFI.
A corporation is defined as an artificial being created by operation of law. It owes its life to the state, its birth being
purely dependent on its will. A corporation as known to Philippine jurisprudence is a creature without any existence
until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have
rights and privileges of a higher priority than that of its creator. It is not immune from judicial control where a duty
under the law as ascertained in an appropriate legal proceeding is cast upon it. Therefore, Benguet Consolidated Inc, a
corporation created under the Philippine laws may not adamantly oppose the CFI order.

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Topic:
Subtopic:
Provision:
Case Name:

Definitions and Attributes of Corporation
Concession Theory and Corporate Franchises
Section 2, Corporation Code
JRS Business Corp v Imperial Insurance Inc.

FACTS:
Imperial Insurance Inc., filed against JRS Business Corp, an establishment duly franchised by the Congress of the
Philippines to conduct a messenger and delivery express service, a complaint for sum of money. The parties entered
into a Compromise Agreement where defendants promised to pay their obligation in the amount of P 61,172.32 within
60 days and should they fail to pay, Imperial Insurance shall be entitled to move for the execution of the decision.
JRS failed to pay its judgment debt. Imperial Insurance Inc. then filed a motion for the issuance of a Writ of Execution.
A Writ of Execution was issued and Notices of Sale were sent out for the auction of the personal properties of J.R.S.
Business Corporation.
Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name, right of
operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., of
the petitioner corporation was, handed down.
JRS filed an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and Right
to Operate of Defendant JRS Business Corporation" stating that the judgment was for money only. Thus, Imperial
Insurance may not use the business name of JRS Business Corp and its right to operate under the franchise is not
transferable and could not be subject to levy and sale. CFI of Manila denied the petition for postponement.
Auction sale was conducted and all the properties of JRS Business Corporation, the business name, right of operation,
the whole assets, furnitures and equipments, the total liabilities and net worth, books of accounts and etc. were
bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. After the sale,
respondent Insurance Company took possession of the proper ties and started running the affairs and operating the
business of the JRS Business Corporation.
ISSUE:
Won the business name or trade name, franchise (right to operate) and capital stocks of the petitioner could be the
subject of levy, execution and sale.
SC RULING:
No. The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a
secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct a
messenger and express service)" and, as such, under our corporation law, is subject to levy and sale on execution
together and including all the property necessary for the enjoyment thereof. The law, however, indicates the procedure
under which the same (secondary franchise and the properties necessary for its enjoyment) may be sold under
execution. Said franchise can be sold under execution, when such sale is especially decreed and ordered in the
judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law).
The compromise agreement and the judgment based thereon, do not contain any special decree or order making the
franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's trade name or
business name and its capital stock. Incidentally, the trade name or business name corresponds to the initials of the
President of the petitioner corporation and there can be no serious dispute regarding the fact that a trade name or
business name and capital stock are necessarily included in the enjoyment of the franchise. Like that of a franchise,
the law mandates, that property necessary for the enjoyment of said franchise, can only be sold to satisfy a judgment
debt if the decision especially so provides. As we have stated heretofore, no such directive appears in the decision.
Moreover, a trade name or business name cannot be sold separately from the franchise, and the capital stock of the
petitioner corporation or any other corporation, for the matter, represents the interest and is the property of
stockholders in the corporation, who can only be deprived thereof in the manner provided by law

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3B-Corporation Law

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3B-Corporation Law

Topic:
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Provision:
Case Name:

Definitions and Attributes of Corporation
Doctrine of Separate Personality
Section 2, Corporation Code
Philippine National Bank v Merelo Aznar

FACTS:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs’ desire to rehabilitate RISCO, they contributed a
total amount of P212,720.00 which was used in the purchase of the three parcels of land (2 in Talisay and 1 in Cebu).
After the purchase of the above lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs
constituted as liens and encumbrances on the properties as annotated in the titles of said lots. Such annotation was
made pursuant to the Minutes of the Special Meeting of the Board Of Directors of RISCO on March 14, 1961, and a part
of it says: “And that the respective contributions above-mentioned (Aznar et al.) shall constitute as theirlien or interest
on the property described above, if and when said property are titled in the nameof RISCO, subject to registration as
their adverse claim in pursuance of the Provision of LandRegistration Act, until such time their respective contributions
are refunded to themcompletely”
Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ
of Execution both dated August 3, 1962 in favor of herein defendant PNB. Certificate of Sale was issued in favor of
Philippine National Bank, being the lone and highest bidder of the three (3) parcels of land. A new certificate of title
was issued in the name of PNB.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title to the
subject properties, declaratory relief, cancellation of TCT and reconveyance with temporary restraining order and
preliminary injunction. Plaintiffs alleged that the subsequent annotations on the titles are subject to the prior
annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes
annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders. They
argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28 years and
that any right which PNB may have over the properties had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the order of
the court directing the issuance of titles to PNB had already become final and executory. Defendant further asserted
that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over the properties of the
corporation. PNB posited that even if plaintiff’s monetary lien had not expired, their only recourse was to require the
reimbursement or refund of their contribution.51awphi1
TC ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO
was the trustee and the stockholders, Aznar, et al., were the beneficiaries.
CA- set aside the judgment of the trial court. Although the Court of Appeals agreed with the trial court that a judgment
on the pleadings was proper, the appellate court opined that the monetary contributions made by Aznar, et al., to
RISCO can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it
directed PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of
the property until finality of judgment.lawphil
Both parties filed an MR - denied. Hence, each party filed with this Court their respective petitions for review on
certiorari under Rule 45 of the Rules of Court.
ISSUE:
Whether or not there was a trust contract between RISCO and Aznar, et al
RULING:
No. Trust relations between parties may either be express or implied. An express trust is created by the intention of
the trustor or of the parties. An implied trust comes into being by operation of law. 21 Express trusts, sometimes
referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor - by
some writing, deed, or will or oral declaration. It is created not necessarily by some written words, but by the direct
and positive acts of the parties. In other words, the creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of
other interpretations.23
No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of
the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto
intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor.

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In the case at bar. much less any proof. While a share of stock represents a proportionate or aliquot interest in the property of the corporation. 68). having the right of succession and the powers. after payment of the corporate debts and obligations. have no right to ask for the quieting of title of the properties at issue because they have no legal and/or equitable rights over the properties that are derived from the previous registered owner which is RISCO. Aznar. Shareholders are in no legal sense the owners of corporate property. remote. which states that "[a] corporation is an artificial being created by operation of law. There is no indication or even a suggestion that the ownership of said properties were transferred to them which would require no less that the said properties be registered under their names. at most.Indeed. as per Securities and Exchange Commission (SEC) Certification 27 dated June 18. The records only indicate that. it does not vest the owner thereof with any legal right or title to any of the property. contingent. 1997. Verily. 1988 due to its non-submission of SEC required reports and its failure to operate for a continuous period of at least five years. At the very least. et al. is merely evidence of a loan agreement between them and the company. we find that Aznar. 5 3B-Corporation Law . the interest. Here.. or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution. that the corporate existence of RISCO has ceased and the corporate property has been liquidated and distributed to the stockholders.. consequential and collateral. For this reason. if it exists at all. et al. et al. attributes and properties expressly authorized by law or incident to its existence. his interest in the corporate property being equitable or beneficial in nature. a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.. conjectural. 24 Thus." As a consequence thereof. which is owned by the corporation as a distinct legal person. we had previously ruled in Magsaysay-Labrador v. cannot claim ownership over the properties at issue in this case on the strength of the Minutes which. of petitioners-movants is indirect. who are stockholders of RISCO. their interest is purely inchoate. the pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. the SEC merely suspended RISCO’s Certificate of Registration beginning on September 5. have no cause to seek a quieting of title over the subject properties. Court of Appeals25 that the interest of the stockholders over the properties of the corporation is merely inchoate and therefore does not entitle them to intervene in litigation involving corporate property. there is no allegation. the complaint should be dismissed since Aznar.

but such property can be called a trust fund ‘only by way of analogy or metaphor. holding that the defendants used BMPI’s corporate personality to perpetuate an injustice.It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. may be reached by the creditor in satisfaction of its claim. Creditors may go after the unpaid subscriptions. Inc. and that the stockholders resolved to dissolve BMPI in February 1990.000. FACTS:  Halley was an incorporator of Business Media Philippines.000 shares of which 87. Printwell thus sued BMPI for collection of sum of money.500.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Limited Liability Section 2. BMPI only paid for 25. BMPI commissioned Printwell to print its magazines. out of the 300.  In January 1990. ISSUE: Whether the Trust Fund doctrine is applicable..  RTC granted the petition. INC. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock. Halley has 35. We clarify that the trust fund doctrine is not limited to reaching the stockholder’s unpaid subscriptions. Trust Fund Doctrine .000-87. creditors can go after unpaid subscriptions for fulfillment of claims) HELD: Yes. (i. Halley for 350. regardless of full payment of their subscriptions.e. 6 3B-Corporation Law . whereby at par value of 10/share.500=262. with authorized capital stock of 3M. It is the rule that the property of a corporation is a trust fund for the payment of creditors. but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. All assets and property belonging to the corporation held in trust for the benefit of creditors that were distributed or in the possession of the stockholders. and that BMPI’s personality is separate. Corporation Code Donina Halley v Printwell DOCTRINE OF LIMITED LIABILITY DONNINA HALLEY vs PRINTWELL.’ As between the corporation itself and its creditors it is a simple debtor.  Apparently.  Defendants aver that they had all paid their subscriptions in full. and that the ORs for the paid subscription is irregular.  From 1988-1989.  Printwell amended the complaint to implead as defendants all the original stockholders and incorporators to recover on their unpaid subscriptions.500 was paid.  CA Affirmed the RTC.000 it owes Printwell due to the printing service. and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.

Control.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Concept Builders Inc. and The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. ISSUE: Whether the Piercing of the Corporate Veil Doctrine can be applied in the absence of proof that HPPI was created to evade its liabilities to the private respondent HELD: Yes. 2. v NLRC DOCTRINE OF PIERCING THE CORPORATE VEIL CONCEPT BUILDERS v NLRC FACTS:  Petitioner was the employer of private petitioners who filed with LA a case of illegal dismissal. Decision was made in favor of the private respondents and order petitioner to pay for their back wages and other financial claims." In applying the "instrumentality" or "alter ego" doctrine." alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. but complete domination. to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. Inc. NLRC reversed the decision. When the sheriff tried to serve the writ. will or existence of its own. Private respondents filed a "Motion for Issuance of a Break-Open Order. with how the corporation operated and the individual defendant's relationship to that operation. Hence the appeal. 7 3B-Corporation Law . It cannot be pierced in this case.  LA dismissed the motion. Such control must have been used by the defendant to commit fraud or wrong. The absence of any one of these elements prevents "piercing the corporate veil.). the courts are concerned with reality and not form. HPPI and that Concept Builders had already suspended its operation. a business conduit or an alter ego of another corporation. This is true likewise when the corporation is merely an adjunct. he was informed that the premises is now occupied by another company.  To satisfy the liability of petitioner.  A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils. a writ of execution was issued in order to levy personal properties of the petitioner. 3. petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. not mere majority or complete stock control. (HPPI) of which he is the Vice-President. Clearly.

 Apparently.000 shares of which 87. The corporate personality may be disregarded. unless and until sufficient reason to the contrary appears. and for that reason accord prime importance to the separate personality of the corporation. Printwell thus sued BMPI for collection of sum of money. BMPI commissioned Printwell to print its magazines.500=262..  Printwell amended the complaint to implead as defendants all the original stockholders and incorporators to recover on their unpaid subscriptions. While a corporation has a personality separate and distinct from those of its stockholders. Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege on its obligation to pay. 8 3B-Corporation Law .  In January 1990. such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. together with that of her co-defendants. disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established.500 was paid. the courts always presume good faith.  Defendants aver that they had all paid their subscriptions in full. or that she induced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI to Printwell. and that the ORs for the paid subscription is irregular. As a general rule. Thus. her personal liability.  RTC granted the petition.000-87. and that the stockholders resolved to dissolve BMPI in February 1990.  From 1988-1989.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Donina Halley v Printwell. ISSUE: Whether the veil of corporate fiction can be pierced. Inc. if the corporate entity is being used as a cloak or cover for fraud or illegality. Halley for 350. Halley has 35. Inc.000 it owes Printwell due to the printing service. whereby at par value of 10/share. remained because the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred. or a business conduit for the sole benefit of the stockholders. and the individuals composing the corporation will be treated as individuals. with authorized capital stock of 3M. FACTS:  Halley was an incorporator of Business Media Philippines.500. out of the 300. It can be pierced when the corporation is used as a clock for illegality. an adjunct. directors. and that BMPI’s personality is separate. holding that the defendants used BMPI’s corporate personality to perpetuate an injustice. DOCTRINE OF PIERCING THE CORPORATE VEIL DONNINA HALLEY vs PRINTWELL. BMPI only paid for 25. a corporation is looked upon as a legal entity. as a justification for a wrong.000. as an alter ego. or officers. HELD: Yes. INC.  CA affirmed the RTC.

The RTC recalled and set aside its previous order declaring the notarial foreclosure of the mortgaged properties as null and void. against any person who dealt in good faith as in the case of Cupertino. A corporation’s separate and distinct legal personality may be disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public convenience. In complete refutation.000.000.000. They have the same office address at 306 Jose Rizal St.00 and paying its obligation under the amended real estate mortgage..00 each for actual and exemplary damages. 5. Cupertino.That the checks. liable to Cupertino in her personal capacity. justify wrong. 170782 | June 22.000. v Cupertino Realty Corp SIAIN ENTERPRISES v. 9 3B-Corporation Law .  On appeal. obtained a loan of P37. Cua Leleng and Alberto Lim is of no moment. 2009 FACTS:  This is a is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals which affirmed the decision of the Regional Trial Court  Siain Enterprises. affirmed the RTC’s ruling. Cupertino maintained that petitioner had long obtained the proceeds of the aforesaid loan. Cupertino instituted extrajudicial foreclosure proceedings over the properties subject of the amended real estate mortgage. Inc. In relation to Siain Transport. Inc. Cua Le Leng signed the second promissory note as maker. on behalf of petitioner..000. No. debit memos and the pledges of the jewelries. the juridical personalities of the various corporations involved are disregarded and the ensuing liability of the corporation to attach directly to its responsible officers and stockholders These are as follows: 1.000. as previously adverted to.  As a general rule.00 from respondent Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by both petitioner’s and Cupertino’s respective presidents.000.000.000. 3.00 loan increase which was then made the consideration for the Amended Real Estate Mortgage.000. Cua Le Leng had the unlimited authority by and on herself.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Siain Enterprises. the CA.00 loan.  In this regard. Mandaluyong City.000.00 loan. a corporation will be deemed a separate legal entity until sufficient reason to the contrary appears.000. the lower courts applied the doctrine of “piercing the veil of corporate fiction” to preclude petitioner from disavowing receipt of the P160.  The amendment to promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on behalf of petitioner and Cupertino. As such. [petitioner] corporation is now estopped from denying the above apparent authorities of Cua Le Leng who holds herself to the public as possessing the power to do those acts.000. They have the same majority stockholder and president in the person of Cua Le Leng. and P500.  RTC rendered a decision dismissing petitioner’s complaint and ordering it to pay Cupertino P100.00. Inc. protect fraud. respectively  Another promissory note was signed by Cua Le Leng in favor of Cupertino for P160.00 loan. 2.000. wrote Cupertino and demanded the release of the P160. 7. CUPERTINO G.  However. through counsel. 4. without authority from the Board of Directors. on March 11. to use the funds of Siain Trucking to pay the obligation incurred by the [petitioner] corporation.  The facts established in the case at bar has convinced the Court of the propriety to apply the principle by virtue of which. But the rule is not absolute. or defend crime.R. They have the same internal bookkeeper and accountant in the person of Rosemarie Ragodon. With this.000. Is this valid? HELD:  Yes. Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had received the proceeds of the P160.000.000. condominium units and trucks were constituted not exclusively in the name of [petitioner] but also either in the name of Yuyek Manufacturing Corporation. and as co-maker. and 6. Siain Transport. Cua Le Leng and Wilfredo Lua. 1996. responded and denied that it had yet to release the P160.00 as attorney’s fees. likewise through counsel.  The parties then executed an amendment to promissory note which provided for a seventeen percent (17%) interest per annum on the P37. In this case.00 indebtedness of petitioner to Cupertino. stockholders and board of directors. ISSUE:  Petitioner asseverates that the lower courts erroneously applied the doctrine of “piercing the veil of corporate fiction” when both gave credence to Cupertino’s evidence showing that petitioner’s affiliates were the previous recipients of part of the P160.000. Siain and Yuyek have [a] common set of [incorporators].

10 3B-Corporation Law .

00 as moral damages. upon its incorporation be viewed as a badge of fraud. HELD:  The Supreme Court ruled that the doctrine of piercing the veil of corporate entity finds no application in this case. it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposely employed to evade a legitimate and binding comittment and perpetuate a fraud or like wrongdoings. Inc. ordering the latter to pay the sum of P1. it was declared in default and Morales presented his evidence ex-parte against petitioner. 2002. no compelling justification for disregarding the fiction of corporate entity separating Kukan. for sum of money with the RTC of Manila docketed as Civil Case No.  The counterclaimfiled by Kunkan. Inc. 2. 2008 denying KIC's petition. stopped participating in the proceedings in November 2000.371. Morales doing business under the name RM Morales Trophies and Plaques was awarded a P5 million contract for the supply and installation of signages in a building constructed in Makati sometime in March 1998.06 as litigation expenses. 2002. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation. both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. therefore. Inc.960. it could only assert its claim through the affidavits.. from KIC.. Kukan Inc.724. the Supreme Court ruled that KIC was not made a party defendant in Civil Case No. Inc. Hence. Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation. The decision became final and executory During the execution.00 with legal interest of 12% per annum until fully paid. In this case. 2007 and decreed that Kukan. and Michael Chan as jointly and severally liable to pay the award pursuant to the Decision dated November 28. Amor Reyes FACTS:  Private respondent Romeo M. Inc. which only requires a 11 3B-Corporation Law . the RTC rendered a decision in favor of Morales and against Kunkan. P50. 13 of the Corporation Code.  The contract price was later reduced to P3. He alleged that Kankun. Inc. The High Court stated that neither should the level of paid-up capital of Kukan. Inc.  It entered a special but not a voluntary appearance in the trial court to assert that it was a separate entity and has a separate legal personality from Kunkan. On Motion of Morales the presiding Judge of Branch 17 of RTC Manila inhibited himself from hearing the case. was dismissed.  The CA also denied its Motion for Reconsideration in the Resolution dated June 7.P20.00 as attorney's fees and P7. ISSUE/S:  One of the issues raised is whether or not the trial court and the appellate court correctly applied the principle of piercing the veil of corporate entity. the principle of piercing the veil of corporate entity and the resulting treatment of two related corporation as one and the same juridical person applies only to established liability and not to confer jurisdiction. comments and motions filed by special apperance before the RTC that it is a separate juridical entity..000. for it is in compliance with Sec.388. and 3. there was a confluence of the following factors: 1. To justify the piercing of the veil of corporate fiction.KIC brought the case to the Court of Appeals which rendered the Decision n January 23. Kukan International Corporation (KIC) fied an Affidavit of Third Party Claim..93. this case.  He filed a case against Kukan.502 because some items were deleted from the contract. and Kukan International Inc. Morales filed an Omnibus Motion praying to apply the principle of piercing the veil of corporate entity. The Supreme stated that the doctrine of piercing the veil of corporate entity comes to play during the trial of the case after the court has already acquired jurisdiction over the corporation. the second and third factors are conspicuously absent. Inc. 2007. In applying the principle.  In this case.976.000.07 leaving a balance of P1. There is.130. It was raffled to Branch 21 which granted the Motion filed by Morales on March 12. According to the Supreme Court. the sheriff levied the personal properties found at the office of Kukan. KIC was not impleaded nor served with summons. and ordering Kunkan International Corp.201.  Claiming it owned the properties levied. Morales complied with his contractual obligations but he was paid only the amount of P1.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Kukan International Corporation v Hon. A first corporation is dissolved. as one and the same corporation. that the levy made on the properties of KIC is valid.  In those instances when the Court pierced the veil of corporate fiction of two corporations. 99-93173. 9993173.  KIC filed a Motion for Reconsideration which was denied. Inc.412.  On November 28. and KIC are one and the same corporation His Motion was denied. hence.  Hence.

Chan Kai Kit. Petition granted 12 3B-Corporation Law . owns 40% of the outstanding capital stock of both corporations standing alone. Inc..000. owned and controlled as they are by the same stockholders. is insufficient to establish identity. There must be at least a substantial identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity. The suggestion that KIC is but a continuation and successor of Kukan. stands without factual basis.k. minimum paid-up capital of PhP 5. a. The fact that Michael Chan.a.

v Yatco Facts:  Koppel Philippines Inc.  The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of the total capital stock. (2) "KPI then cabled for the quotation desired from Koppel Industrial Car and Equipment Company"." Issues/Ruling:  WON KPI is a domestic corporation distinct and separate from.122. in the transactions involved herein. or defend crime. SC:   13 3B-Corporation Law . and. but in effect its conclusion was that. it immediately filled the orders of such local buyers and made delivery in the Philippines without the necessity of cabling its principal in America either for price quotations or confirmation or rejection of that agreed upon between it and the buyer  Whenever the deliveries made by KICEC were incomplete or insufficient to fill the local buyer's orders. The lower court did not hold that the corporate personality of KPI would also be disregarded in other cases or for other purposes. the documents necessary for clearance were sent directly to KPI  If the KPI had in stock the merchandise desired by local buyers. KPI used to make good the deficiencies by deliveries from its own local stock. Inc.403. KICEC is organized under US laws and not licensed to do business in the Philippines.51 payment – Paid tax  It appears that KICEC is the only foreign principal of KPI.30 KPI paid commercial broker’s tax (4% of KPI Share) Php 5.  Koppel (Philippines). unless resort is had to the doctrine of "disregard of the corporate fiction. the law will regard the corporation as an association of persons. They have no jurisdiction to do more peaches United States vs.201. cable expenses-not only those of its own cables but also those of its "principal" . machinery. and until sufficient reason to the contrary appears Exception: Wthe notion of legal entity is used to defeat public convenience. consular invoices. protect fraud.000) shares of P100 each. justify wrong. orders were placed by the local purchasers KPI paid under protest the P64.05 CIR demanded (1% of Total Profit) + 25% surcharge for late Php 64. it asked for price quotations from KPI". quoted to the purchaser a selling price above the figures quoted by Koppel Industrial Car and Equipment Company".51 demanded by the CIR.  They have the following business process: (1) "When a local buyer was interested in the purchase of railway materials. did not deny legal personality to Koppel (Philippines).as. Inc. in general. and not a mere branch of KICEC KPI:  Its corporate existence as cannot be collaterally attacked and that the Government is estopped from so doing. The remaining five (5) shares only were and are owned one each by officers of the KPI.288. the public interest and convenience would be defeated and what would amount to a tax evasion perpetrated. for instance. Milwaukee Refrigeration Transit General Rule: a corporation will be looked upon as a legal entity as a general rule.122. and supplies. (KPI) has a capital stock divided into thousand (1.772. The courts' action in this regard must be confined to the transactions involved in the case at bar "for the purpose of adjudging the rights and liabilities of the parties in the case. for any and all purposes. but in such cases it charged its principal only the actual cost of the merchandise thus delivered by it from its stock and in such transactionsKPI did not realize any profit CFI:  KPI is a mere dummy or branch ("hechura") of KICEC.  The KPI corporation bore alone incidental expenses . Total profit Php 3. (3) "KPI.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Koppel Phil Inc. (4) "On the basis of these quotations.82 KPI Share Php 132. It would have had no power to so hold. however. bill of lading. the local banks were instructed not to protest them but to refer them to KPI which was fully empowered by KICEC to instruct the banks with regards to disposition of the drafts and documents  Where the goods were European origin. was a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co.  The KPI's "share in the profits" realized from the transactions in which it intervened was left virtually in the hands of KICEC  Where drafts were not paid by the purchasers.

If KPI was intended to function as a bona fide separate corporation. agency. we cannot conceive how this arrangement could have been adopted. both law and equity will. A very numerous and growing class of cases wherein the corporate entity is disregarded is that (it is so organized and controlled. disregard the legal fiction that two corporations are distinct entities. that the amount of the so-called "share in the profits" of KPIwas ultimately left to the sole. the principle is the same whether the "person" be natural or artificial. unless indeed the former has previously been designed by the incorporators to serve as a mere subsidiary. among others. 14 3B-Corporation Law ." Where it appears that two business enterprises are owned. The fact that KPI is a mere branch is conclusively borne out by the fact. conduit or adjunct of another corporation).for merchandise allegedly of its own to complete deficiencies of shipments made by said parent corporation. when necessary to protect the rights of third persons. unbridled control of KICEC . as to make it merely an instrumentality. and its affairs are so conducted.without profit whatsoever . conducted and controlled by the same parties. branch or agency of the latter. KPI charged the parent corporation no more than actual cost . No group of businessmen could be expected to organize a mercantile corporation if the amount of that profit were to be subjected to such a unilateral control of another corporation. and treat them as identical.    Manifestly.

the circumvention of statutes. 1997 by Goldkey Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety Agreement7 signed by Chua and his wife.k. Uy.5 The loans were secured by a P 9 Million-Peso Real Estate Mortgage executed on July 1. or as a vehicle for the evasion of an existing obligation. or to confuse legitimate issues. both Hammer and Goldkey ceased to operate. The Court finds in favor of Uy. 1996. between iBank and Hammer.898. Manuel Chua Uy Po Tiong.177. both were family corporations of Chua and Uy. Following this principle. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and. represented by its President and General Manager. from the people comprising it. International Exchange Bank granted loan to Hammer Garments Incorporation covered by promissory notes for a total of P24. as an officer and stockholder of Hammer and Goldkey. officers and employees. in general.420. acting through its directors. As such. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation.08. Fe Tan Uy (Uy). 1996. obligations incurred by the corporation.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction Heirs of Fe Tan Uy v International Exchange Bank Facts:        June to September 1997. o (3) the assets of Hammer and Goldkey were co-mingled. and Goldkey Goldkey denies liability citing it only acted as 3rd party guarantor Chua and Hammer did not file response iBank wants to pierce to veil of corporate personality and was granted by RTC due to: o 1. and o (4) when Chua absconded. A director. o (2) both corporations shared the same office and transacted business from the same place. this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act.62. granting Hammer a P 25 Million-Peso Omnibus Line.938. The piercing of the veil of corporate fiction is not justified The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and Goldkey because it was not shown that she had committed any actionable wrong22 or that she had participated in the transaction between Hammer and iBank.4 dated March 23. Hammer and Goldkey for the deficiency of P13. with Chua as the President and Chief Operating Officer.25 This is consistent with the provisions of the Corporation Code of the Philippines 15 3B-Corporation Law .a. prompting iBank to foreclose on properties leaving an unpaid balance of Php 13Million iBank filed a complaint for collection for the deficiency against Chua. are its sole liabilities. They further claim that she had cut all ties with Hammer and her husband long before the execution of the loan. Issue: Whether or not there is guilt by association in those cases where the veil of corporate fiction may be pierced Whether or not the "alter ego" theory in disregarding the corporate personality of a corporation is applicable to Goldkey Ruling: Uy is not liable. the piercing of the veil of corporate fiction was warranted. Hammer defaulted.24 Nevertheless. Manuel Chua (Chua) a. on April 15. These were made pursuant to the Letter-Agreement. Uy. was found liable to iBank together with Chua.

since it is a mere alter ego or business conduit of a person. The absence of any of these elements prevents piercing the corporate veil. in general.876. will or existence of its own. or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality. 16 3B-Corporation Law .876. conduit or adjunct of Manlapaz.WPM.876. i. only P320.02 with 12% interest per annum and 20% of the amount recoverable as attorney’s fees. or defend a crime; or c) is used in alter ego cases. . agency. Manlapaz is not liable in his own personal capacity . the attendant circumstances do not establish that WPM is a mere alter ego of Manlapaz.CLN then filed a case for the collection of sum of money and damages against Labayen and Manlapaz.In the present case. agency.Labayen then engaged the services of CLN Engineering Services for the renovation of Quickbite. from the people comprising it.02 renovation cost. or that the Manlapaz’s residence is the registered principal office of WPM.Labayen was declared in default for her failure to file a responsive pleading. records do not show that WPM was organized and controlled. chairman and treasurer. a domestic corporation engaged in the restaurant business with Manlapaz as its President. However out of the P432. as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases. Aside from the fact that Manlapaz was the principal stockholder of WPM. and its affairs conducted in a manner that made it merely an instrumentality.. protect a fraud. Issue: Whether or not Manlapaz is liable in his own personal capacity Held: No.Labayen then instituted a complaint for damages against WPM and Manlapaz claiming that she only introduced Manlapaz to CLN’s general manager and they were the ones who agreed on the terms and conditions of the renovation agreement. not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind. . at the cost of P432. not mere majority or complete stock control. manage and rehabilitate Quickbite which is a restaurant owned and controlled by WPM.Likewise.000 was paid to CLN leaving a balance of P112. he claims that since WPM has a separate and distinct personality. Divisoria branch. Manlapaz cannot be made liable for Labayen’s claims. the RTC later found Labayen liable to pay CLN the amount of P112. . owner of HBO Systems consultants. entered into a management agreement with Labayen. or dishonest and unjust act in contravention of plaintiff’s legal right; and (3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of. .Among Manlapaz’s defense. v Labayen Facts: . but complete domination. to perpetuate the violation of a statutory or other positive legal duty. or when the corporate entity is used to justify a wrong.02.The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in its behalf and. with the latter being later on excluded by CLN through an amendment of the complaint. which authorizes the latter to operate. conduit or adjunct of another corporation. . where a corporation is essentially a farce.876.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Doctrine of Piercing the Veil of Corporate Fiction WPM International Trading Inc.Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements. . are insufficient considerations to prove that he had exercised absolute control over WPM. namely: a) when the separate and distinct corporate personality defeats public convenience. (2) Such control must have been used by the defendant to commit fraud or wrong. That Manlapaz concurrently held the positions of president. the records of the case do not support the lower courts’ finding that Manlapaz had control or domination over WPM or its finances.e.02. The doctrine of piercing the corporate veil applies in three (3) basic instances. namely: (1) Control. . .

the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. .In this connection. 17 3B-Corporation Law . the Supreme Court emphasized that the piercing of the veil of corporate fiction is frowned upon and thus. must be done with caution. the Supreme Court stress that the control necessary to invoke the instrumentality or alter ego rule is not majority or even complete stock control but such domination of finances. protect fraud. no separate mind. or perpetrate a deception. The control must be shown to have been exercised at the time the acts complained of took place. Moreover. policies and practices that the controlled corporation has. It can only be done if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong. in disregard of its rights; it cannot be presumed.. so to speak. or crime was committed against another. and is but a conduit for its principal. fraud. The court must be certain that the corporate fiction was misused to such an extent that injustice.Finally. will or existence of its own.

wherein BF Corporation will construct the Shangri-La mall and parking along EDSA. SC affirmed. RTC denied. as in this case. when the directors. in general. A consequence of a corporation’s separate personality is that consent by a corporation through its representatives is not consent of the representative. When there are allegations of bad faith or malice against corporate directors or representatives. The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in its behalf and. In cases alleging solidary liability with the corporation or praying for the piercing of the corporate veil. namely: when the separate and distinct corporate personality defeats public convenience. CA reversed. courts and tribunals have no basis for determining whether the veil of corporate fiction should be pierced. BF Corporation (GR No. v BF Corporation Name: Glenn Niño M. In that case. RTC issued the order directing the parties to proceed in accordance with RA 876. Hence. Without a trial. to determine the extent of their liabilities. Shangri-La at first was paying the fees diligently. Under the Rules of Court. parties who are normally treated as distinct individuals should be made to participate in the arbitration proceedings in order to determine if such distinction should indeed be disregarded and. Shangri-La proceeded to take control of the mall and building. vs. Shangri-La and the directors filed a motion to suspend proceedings. Sartillo Topic: Doctrine of Piercing the Veil of Corporate Fiction Name of Case: Lanuza. 174938. Jr. It provided for arbitration in the event of a dispute. October 1. and when used in alter ego cases. and whether Shangri-La’s directors should be included in the arbitration. BF Corp and Shangri-La initiated arbitration proceedings. alleging malice or bad faith on their part in directing the affairs of the corporation. and ordered the submission of the dispute to arbitration. complainants have no choice but to institute only one proceeding against the parties. in fraud cases. are its own. personally. Hence. ISSUE: Whether or not the directors can be compelled to submit to the arbitration clause in the contract. from the people comprising it. it becomes the duty of courts or tribunals to determine if these persons and the corporation should be treated as one. if so. and that such award by the recognized arbiter named therein will be binding to the parties. alleging that the arbitration was not done yet. incurred through official acts of its representatives. BF Corp filed a suit against Shangri-La and its directors. a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. filing of multiple suits for a single cause of action is prohibited. to clarify the “parties” referred to in the order. 18 3B-Corporation Law . complainants are effectively alleging that the directors and the corporation are not acting as separate entities. but eventually started to renege on the obligation. 2014) Corporation Code Provision: Section 2 FACTS: BF Corporation and Shangri-La entered into a contract. BF Corporation continued to build the mall and parking building until it was completed. Shangri-La and BF Corp filed motions for clarification.Topic: Definitions and Attributes of Corporation Subtopic: Doctrine of Piercing the Veil of Corporate Fiction Provision: Case Name: Lanuza Jr. Its obligations. are impleaded in a case against a corporation. The doctrine of piercing the corporate veil applies only in three (3) basic instances. while BF Corporation alleged that it remains unpaid to this day. despite being non-parties to the contract between BF Corp and Shangri-La HELD: Yes.

v BF Corporation 19 3B-Corporation Law .Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Rules of Attribution Lanuza Jr.

the petitioner’s counsel sent a letter to Respondent Wee. Despite such payment. informing him that Domingo lack the authority to represent the petitioner. RTC rendered a decision ordering petitioner to deliver the owner’s duplicate copy and execute a deed of sale in favor of the respondent. Petitioner represented by Gala filed a petition for relief from judgment premised on the alleged fraud committed by Domingo in concealing the existence of both the contract to sell and the civil case from the petitioner. Thus the decision by the RTC was null and void. asserting that Domingo was not its President.R. respondent through Domingo made a partial payment for the acquisition of the subject property. Cashier. No. 20 3B-Corporation Law . Pursuant to the contract to sell. The RTC did not validly acquire jurisdiction over the person of the Petitioner. seeking a conference for the execution of an absolute deed of sale pursuant to the contract to sell entered between the parties. Respondent filed a complaint for specific performance against Domingo and the Petitioner with the RTC While the case was pending Respondent Wee sent a letter to petitioner’s chairman and president. Agent or Director CA dismissed the petition for annulment of judgment Issue: W/N the action of Doming who represented as the Petitioner’s Corporate Secretary on the Civil Case for Specific Performance is attributable to the Petitioner? Ruling: No the action of Domingo cannot be imputed/attributed to the Petitioner     Domingo was not the corporate secretary of the petitioner as she claimed to be. 2012)             Private respondent and Petitioner through the petitioner’s alleged corporate secretary and attorney-in-fact Domingo. Young (G.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Rules of Attribution Ellice Agro-Industrial Corp v Rodel Young Rules of Attribution Ellice Agro-Industrial Corp Vs. Petitioner failed to deliver the owner’s duplicate certificate of title of the subject property and the corresponding deed of sale. 174077 November 21. In response. Domingo’s lack of authority to properly represent Petitioner resulted to a no valid service of summons binding the petitioner. Manager. Secretary. Rodel T. the respondent was allowed to present their evidence ex parte. RTC denied the petition for relief from judgment for being filed out of time A Petition for Annulment of judgment was initiated before the CA by the petitioner on the ground of lack of jurisdiction and intrinsic fraud committed by Domingo. Domingo was not an officer of the Petitioner. much less duly authorized by any board resolution or secretary’s certificate from petitioner to file an answer with counterclaim in behalf of the petitioner. Due to Petitioner’s failure to appear on the Pre-trial. In view of this petitioner was not validly served with summons and did not voluntarily appear in the civil case. entered to a contract to sell the respondent’s parcel of land located in Quezon. The decision became final and executor.

 GSIS cannot also deny that it has knowledge of the acceptance. L-18287. is within the apparent authority of Andal. Francisco v GSIS Rules of Attribution Trinidad Francisco VS.R. whether he communicates such knowledge or not. A corporation cannot see.  A third party transacting with a corporation cannot be expected to know what occurs within a corporation.  GSIS cannot now ask Francisco to suddenly pay off the debt.  In this case response by GSIS to Vicente Sotto by way of a telegram. GSIS (G.  Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment. or any other agent. GSIS is bounded by the compromised entered by its officer. responded with a letter which states that the GSIS Board had accepted Vicente’s offer. Trinidad incurred huge arrears. its meetings. is notice to the corporation. be estopped from denying his authority. anything except through its officers. This prompted GSIS to foreclose the property. 21 3B-Corporation Law . She secured the loan with a parcel of land. the corporation will. and in relation to matters within the scope of his authority.  Due to some difficulties.  Vicente Francisco assailed with GSIS the agreement in a form of compromise binding upon GSIS.  Vicente Francisco cannot therefore be faulted for relying on the telegramthat GSIS accepted his offer.  GSIS did not take over the property but the Francisco’s still collected rents and turned them over to GSIS. If a corporation knowingly permits one of its officers. Vicente Francisco. 1963)  Trinidad Francisco obtained a P400k loan from the Government Service Insurance System (GSIS).  Trinidad’s father. and where it is said “if the corporation permits” this means the same as “if the thing is permitted by the directing power of the corporation. without any external manifestations from the corporation. March 30.  GSIS averred that the letter sent to Vicente Francisco in response to his offer was poorly worded and was not the actual intention of GSIS. wrote a letter to GSIS offering that he pay 30. No. or know. ISSUE: W/N GSIS is bound by the acts of its officers acting in their apparent authority? HELD: Yes. through its general manager Rodolfo Andal. to do acts within the scope of an apparent authorityand thus holds him out to the public as possessing power to do those acts. Atty.  GSIS demanded Francisco to pay off the loan.000 Pesos off the loan and allow GSIS to administer the mortgaged property instead of foreclosing it and GSIS shall receive rents from the tenants of the land until the arrears are paid and the account is made current or up to date  GSIS. as against anyone who has in good faith dealt with the corporation through such agent.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Rules of Attribution Trinidad J.

1941. Huenefeld is a German subject. Filipinas Compania de Seguros refused to pay alleging that the policy had ceased to be in force when the United States declared war against Germany. This being so. 1941. should be returned by the petitioner. 22 3B-Corporation Law . Andal is presumed to have knowledge of the acceptance because it was his office which sent it to Vicente. by the petitioner (a Philippine corporation) had ceased to be valid and enforcible. There is no question that majority of the stockholders of the respondent corporation were German subjects. as amended. Filipinas Compania contended that although organized and created under Philippine laws." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. and since the insured goods were burned after December 10. and hence. an officer of GSIS. a public enemy. On the other hand. Whether Whether the or fire not Christern insurance policy Huenefeld is is enforceable a against German an enemy subject. HELD: 1. the respondent was not entitled to any indemnity under said policy from the petitioner. is deemed knowledge of GSIS. Philippine Executive Commission ordered Filipinas Compania to pay. Filipinas Compania is under American jurisdiction. provides that "anyone except a public enemy may be insured. state. so Filipinas Compania did pay. During the Japanese military occupation. However. The respondent having become an enemy corporation on December 10. and Grandfather Rule) Filipinas Compania De Seguros v Christern. Huenefeld and Co FACTS: Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania de Seguros to cover merchandise contained in a building. However. and during the war. Knowledge of Andal. 1941.) in section 8. The Director of Bureau of Financing. Control Test.  Even if the compromise agreement is void. elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11. since majority of its stockholders are Germans. this same merchandise and the building were burned. ISSUES: 1. 1941. so Huenefeld filed a claim under the policy. Citizenship and Foreign Equity (Place of Incorporation Test. GSIS’s silence and acceptance of the subsequent remittances of the Franciscos ratified the compromise agreement. The case at bar is about the recovery of that sum paid. 2427. the insurance policy issued in its favor on October 1. 2. Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Nationality. 2. The Philippine Insurance Law (Act No.

23 3B-Corporation Law .

or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines.7 percent to 37 percent. which is a document required to be submitted annually to the Securities and Exchange Commission.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Nationality. With the this sale. preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. foreigners hold 64. it is clear that foreigners exercise control over PLDT.47%. and all the executive and managing officers of such corporation or association must be citizens of the Philippines.15%.” It was proven that: (1) foreigners own 64. thus: “Section 11. It must be stressed. The State shall encourage equity participation in public utilities by the general public. This kind of ownership and control of a public utility is a mockery of the Constitution. In other words. the par value of PLDT common shares is P5. First Pacific’s common shareholdings in PLDT increased from 30. and respondents do not dispute. violates Section 11.27% of the common shares of PLDT. Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%. thereby increasing the total common shareholdings of foreigners in PLDT to about 81.44% owned by Filipinos.622 common shares. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital.750. Article XII of the Constitution. while Filipinos hold only 35. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11. based on PLDT’s 2010 General Information Sheet (GIS). Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities. Since holding a majority of the common shares equates to control. which class of shares exercises the sole right to vote in the election of directors. Section 11.690 common shares of PLDT whereas Filipinos hold only 66. constituting a minority of the voting stock.046. or repeal by the Congress when the common good so requires. As shown in PLDT’s 2010 GIS. x x x” ISSUE: Whether or not PLDT is a Filipino corporation compliant with the requirements of the Consitution based on its composition.85% of the authorized capital stock of PLDT and common shares only 22. certificate.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. (MPAH). Moreover. foreigners hold 120.56% of the preferred 24 3B-Corporation Law . have no voting rights. alteration.27% of the total number of PLDT’s common shares.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0. according to the petitioner. or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines. certificate. and Grandfather Rule) Heirs of Wilson Gamboa v Teves FACTS: This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines. RULING: NO. In other words. acting through the Inter-Agency Privatization Council (IPC). 99.00 per share.73% of PLDT’s common shares. The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6. and thus exercise control over PLDT. an affiliate of First Pacific Company Limited (First Pacific). (3) preferred shares. This.00 per share. No franchise. (2) Filipinos own only 35. or authorization be exclusive in character or for a longer period than fifty years. Control Test. In fact. and (6) preferred shares constitute 77. and thus do not exercise control over PLDT. Citizenship and Foreign Equity (Place of Incorporation Test.73%. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment. to wit: “Section 11. (4) preferred shares earn only 1/70 of the dividends that common shares earn. as submitted to the SEC. (5) preferred shares have twice the par value of common shares. that foreigners hold a majority of the common shares of PLDT. at least sixty per centum of whose capital is owned by such citizens. Inc. to Metro Pacific Assets Holdings. a Hong Kongbased investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT). No franchise. at least sixty per centum of whose capital is owned by such citizens. 99. certificate. whereas the par value of preferred shares is P10. nor shall such franchise.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. at least sixty per centum of whose capital is owned by such citizens x x x. of PLDT. blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. Filipinos hold less than 60 percent of the voting stock. This directly contravenes the express command in Section 11. In short. preferred shares constitute 77. or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines.85% of the authorized capital stock of PLDT while common shares constitute only 22. The undisputed fact that the PLDT preferred shares. and earn less than 60 percent of the dividends. is constitutionally required for the State’s grant of authority to operate a public utility.shares.” 25 3B-Corporation Law . Full beneficial ownership of 60 percent of the outstanding capital stock. 99.44% owned by Filipinos. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares. grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility. coupled with 60 percent of the voting rights. certificate. Worse. are non-voting and earn only 1/70 of the dividends that PLDT common shares earn. Article XII of the Constitution that “[n]o franchise.15%.

the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals. Any other meaning of the term "capital" openly invites alien domination of economic activities reserved exclusively to Philippine nationals. Control Test. who are defined in the Foreign Investments Act of 1991 as Filipino citizens. Consistent with such State policy. reiterates and confirms the interpretation that the term "capital" in Section 11. respondents’ interpretation will ultimately result in handing over effective control of our national economy to foreigners in patent violation of the Constitution. 26 3B-Corporation Law . (GR No. or corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. making Filipinos second-class citizens in their own country. Any other construction of the term "capital" in Section 11. translates to effective control of a corporation. and Grandfather Rule) Provision: Case Name: Heirs of Wilson Gamboa v Teves (Ruling only." RULING: Yes. 176579. ISSUE: WHETHER OR NOT BOTH THE VOTING CONTROL TEST AND THE BENEFICIAL OWNERSHIP TEST MUST BE APPLIED TO DETERMINE WHETHER A CORPORATION IS A "PHILIPPINE NATIONAL.Topic: Subtopic: Definitions and Attributes of Corporation Nationality. coupled with appropriate voting rights is essential. Citizenship and Foreign Equity (Place of Incorporation Test. The FIA’s implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals. 2012) Name: Glenn Niño M. 9 October 2012) Corporation Code Provision: Sections 6 and 17 (4) FACTS: This resolves the motions for reconsideration of the 28 June 2011 Decision in the case Heirs of Wilson Gamboa vs. et al. coupled with full beneficial ownership of stocks.. The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos. Therefore. mere legal title is not enough to meet the required Filipino equity. the FIA clarifies. et al. Full beneficial ownership of the stocks. Article XII of the 1987 Constitution refers to shares with voting rights. Article XII of the Constitution contravenes the letter and intent of the Constitution. dated 28 June 2011. Citizenship and Foreign Equity Name of Case: Heirs of Wilson Gamboa vs. Teves. as well as with full beneficial ownership." In effect. Teves. Sartillo Topic: Nationality. This is precisely because the right to vote in the election of directors.

Fuentes). Accordingly. for the injuries suffered by Natividad when Dr. v CA Professional health Services. Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospital’s liability for the negligent acts of health practitioners. RTC held PSI solidarily liable with Dr. vs. Fuentes Held: Petition dismissed. Ampil and Dr. Topic: Subtopic: Provision: Case Name: UP vs. dictated the holding of an immediate inquiry into the events. Fuentes for damages. was impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs). PSI’s liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the count nurse. Unfortunately. "did not perform the necessary supervision nor exercise diligent efforts in the supervision of Drs. PSI was impleaded as owner. Fuentes neglected to remove from her body two gauzeswhich were used in the surgery they performed on her on April 11. Inc. if not for the benefit of the patient to whom the duty is primarily owed. together with Dr. Ampil and Fuentes in the performance of their duties as surgeons. in a complaintfor damages filed in the Regional Trial Court (RTC) of Quezon City. CA Facts: PSI. Branch 96. absent facts to support the application of responde at superior or apparent authority. operator and manager of Medical City Hospital. it has the duty to exercise reasonable care to protect from harm all patients admitted into its facility for medical treatment. PSI is solidarily liable. Ampil) and Dr. Such failure established PSI’s part in the dark conspiracy of silence and concealment about the gauzes. and their institutions like PSI’s hospital facility. resident doctors. the appeal Issue: Whether or not PSI can be held solidarily liable with Drs. PSI failed to perform such duty. Ampil and Dr. Miguel Ampil (Dr. Its formulation proceeds from the judiciary’s acknowledgment that in these modern times. the duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. In the present case. can callously turn their backs on and disregard even a mere probability of mistake or negligence by refusing or failing to investigate a report of such seriousness as the one in Natividad’s case. The modern hospitals have changed structure. Ratio: PSI as owner. Juan Fuentes (Dr. and medical interns who assisted Drs. if not also legal. Hospitals now tend to organize a highly professional medical staff whose competence and performance need to be monitored by the hospitals commensurate with their inherent responsibility to provide quality medical care.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Tort Liability and Doctrine of Corporate Responsibility Professional Health Services Inc. Dizon Definitions and Attributes of Corporation Right to Moral Damages University of the Philippines v Dizon Facts: 27 3B-Corporation Law . The Court cannot accept that the medical and the healing professions. 1984 at the Medical City General Hospital. it was duly established that PSI operates the Medical City Hospital for the purpose and under the concept of providing comprehensive medical services to the public. Thus. Ampil and Fuentes and its nursing staff. through their members like defendant surgeons. Ampil and Dr. Ethical considerations. then in the interest of arriving at the truth. operator and manager of the hospital.

namely: LDP and DBP. Stern Builders submitted three progress billings corresponding to the work accomplished. and subject to pertinent budgetary laws. rules and regulations. the UP failed to pay the billing. The third billing was not paid due to its disallowance by the COA. but the UP paid only two of the billings. prompting Stern Builders to sue the UP and officials to collect the unpaid billing and to recover various damages. again sought the release of garnished funds. the sheriff served notices of garnishment on the UP’s depository banks. Meanwhile. The UP assailed said garnishment of funds. 28 3B-Corporation Law . The CA and RTC thereby unjustifiably ignored the legal restriction imposed on the trust funds of the Government and its agencies and instrumentalities to be used exclusively to fulfill the purposes for which the trusts were created or for which the funds were received except upon express authorization by Congress or by the head of a government agency in control of funds. Despite the lifting of the disallowance. Held: Petition granted.UP entered into a General Construction Agreement with respondent Stern Builders Corporation for the construction of the extension building and the renovation of the College of Arts and Sciences Building the campus of UP in Los Banos. Issue: Whether or not Stern is entitled to moral damages. In the course of the implementation of the contract. Ratio: UP correctly submits here that the garnishments of its funds to satisfy the judgment awards of actual and moral damages was not validly made if there was no special appropriation by Congress to cover the liability. Stern Builders and dela Cruz. meanwhile.

Topic:
Subtopic:
Provision:
Case Name:

Definitions and Attributes of Corporation
Right to Moral Damages
ABS-CBN Broadcasting Corp v CA

ABS-CBN Broadcasting Corp v. CA
FACTS:

Viva, through Del Rosario, offered ABS-CBN through its vice-president Charo Santos-Concio, a list of 3 film
packages or 36 titles from which ABS-CBN may exercise its right of first refusal

Mrs. Concio informed Vic through a letter that they can only purchase 10 titles to be schedules on nonprimetime slots because they were very adult themes which the ruling of the MTRCB advises to be aired at
9:00 p.m

February 27, 1992: Del Rosario approached ABS-CBN's Ms. Concio with a list consisting of 52 original movie
titles as well as 104 re-runs proposing to sell to ABS-CBN airing rights for P60M (P30M cash and P30M worth of
television spots)

April 2, 1992: Del Rosario and ABS-CBN general manager, Eugenio Lopez III met wherein Del Rosario allegedly
agreed to grant rights for 14 films for P30M

April 06, 1992: Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the
terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN

April 07, 1992: Ms. Concio sent the proposal draft of 53 films for P35M which Viva's Board rejected since they
will not accept anything less than P60M

April 29, 1992: Viva granted RBS exclusive grants for P60M

RTC: Issued TRO against RBS in showing 14 films as filed by ABS-CBN.
o

RBS also set up a cross-claim against VIVA

RTC: ordered ABS-CBN to pay RBS P107,727 premium paid by RBS to the surety which issued their bond to lift
the injunction, P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various
newspapers, P1M attorney's fees, P5M moral damages, P5M exemplary damages and costs. Cross-claim to
VIVA was dismissed.

ABS-CBN appealed. VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional
attorney's fees.

CA: reduced the awards of moral damages to P2M, exemplary damages to P2M and attorney's fees to
P500,000. Denied VIVA and Del Rosario's appeal because it was RBS and not VIVA which was actually
prejudiced when the complaint was filed by ABS-CBN

ISSUE:
1. W/N RBS is entitled to damages. -YES
2. W/N VIVA is entitled to damages. - NO
HELD: REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.
1. YES.

One is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the

29
3B-Corporation Law

profits that the obligee failed to obtain. In contracts and quasi-contracts the damages which may be awarded
are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages
recoverable are those which are the natural and probable consequences of the breach of the obligation and
which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. In crimes and quasidelicts, the defendant shall be liable for all damages which are the natural and probable consequences of the
act or omission complained of, whether or not such damages has been foreseen or could have reasonably
been foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's business standing or
commercial credit.

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose
from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action.
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code.

In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond
and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary
for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the
counterbond

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient
legal basis.

Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases
where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of
contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly
fall only under item (10) of Article 2219
o

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be experienced only by one having a
nervous system. A corporation may recover moral damages if it "has a good reputation that is debased,
resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.

exemplary damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil
liability when the crime was committed with one or more aggravating circumstances in quasi-contracts, if the
defendant acted with gross negligence and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or
quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21
of the Civil Code.

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. If damages result from a
person's exercise of a right, it is damnum absque injuria.

30
3B-Corporation Law

Topic:
Subtopic:
Provision:
Case Name:

Definitions and Attributes of Corporation
Constitutional Rights
Bataan Shipyard and Engineering Co v PCGG

Facts:
President Corazon Aquino promulgated Executive Orders No. 1 and 2 addressed to the PCGG to sequester among
others, the properties and assets of petitioner BASECO. The PCGG took over BASECO, it terminated existing contracts
and ordered the officers to produce books and documents of the corporation. BASECO on the other hand alleged that
the sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and
2 before March 25, 1986 when the Freedom Constitution was promulgated however considering that the new
Constitution provides that "No person shall be deprived of life, liberty and property without due process of law."
(Const., Art. I V, Sec. 1)." Hence, it assailed the Constitutionality of the alleged Executive Orders, the Sequestration
and Takeover Order because First, no notice and hearing was accorded before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding,
process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has
been effected. It also asserted that by ordering the turnover of records and books, their right against selfincrimination was violated.
Issue: WON the acts of the PCGG infringe the Constitutional rights of BASECO.
Held:
It is elementary that the right against self-incrimination has no application to juridical persons. While an
individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged
with an abuse of such privileges. Corporations are not entitled to all of the constitutional protections which private
individuals have. It is also settled that an officer of the company cannot refuse to produce its records in its possession
upon the plea that they will either incriminate him or may incriminate it." The corporation is a creature of the state.
There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been
abused, and demand the production of the corporate books and papers for that purpose. Hence, PCGG did not infringe
any constitutional right of BASECO.

31
3B-Corporation Law

Topic:
Subtopic:
Provision:
Case Name:
Facts:

Definitions and Attributes of Corporation
Constitutional Rights
Bache and Co v Ruiz

Respondent Misael P. Vera, Commissioner of Internal Revenue, requested respondent Judge Vivencio M. Ruiz for the
issuance of a search warrant against bache & Co. et al. alleging that the corporation violated several provisions of the
Internal Revenue Code. The warrant was granted by the Judge even though he did not personally take the depositions
of the respondent-complainant. BIR agents served the search warrant at the offices of petitioner corporation.
Petitioners’ lawyers protested but the agents nevertheless proceeded with their search which yielded six boxes of
documents. The BIR then made tax assessments based on the said documents. Bache & Co filed a petition to nullify
the said warrant on the ground that their Constitutional right against unreasonable searches was violated.
Respondents on the other hand assert that a Corporation is not entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
Issue: WON the Constitutional Right of Bache & Co. was violated.
Held:
In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation,
the ground that it was not privileged from producing its books and papers. But the rights of a corporation against
unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way. The
Supreme Court has impliedly recognized the he right of a corporation to object against unreasonable searches and
seizures in the case of Stonehill, Et. Al. v. Diokno, Et Al. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the corporations in Stonehill where only the officers of the various
corporations in whose offices documents, papers and effects were searched and seized. Hence, yes the Corporation’s
Constitutional Right against Unreasonable Searches was violated.

32
3B-Corporation Law

mandamus and injunction. papers and cash money seized were not delivered to the courts that issued the warrants. were actually seized. if unlawful. Certainly. and things seized under the alleged authority of the warrants in question may be split into two (2) major groups. such a seizure. books and things to be seized. to be disposed of in accordance with law ISSUE: W/N the seizure is valid HELD: YES. Tariff and Customs Laws. and . prohibition. and have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof. could not affect the constitutional rights of defendants whose property had not been seized or the privacy of whose homes had not been disturbed    (b) those found and seized in the residences of petitioners herein. credit journals. typewriters. namely:   (a) those found and seized in the offices of the aforementioned corporations. 2 points must be stressed in connection with this constitutional mandate.  question of the lawfulness of a seizure can be raised only by one whose rights have been invaded. and whatever the offices they hold therein may be. not mentioned in the warrants. and to seize and take possession of their books of accounts. and prayed that. searches and seizures made are illegal. (3) the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases filed against them. separate and distinct from the personality of herein petitioners. financial records. 42 warrants were issued against petitioners or the corporation where they are officers to search the persons above-named and/or the premises of their offices. warehouses and/or residences. papers. balance sheets and profit and loss statements and Bobbins (cigarette wrappers) which are the subject of the offense. namely: (1) that no warrant shall issue but upon probable cause.Topic: Subtopic: Provision: Case Name: FACTS:  Definitions and Attributes of Corporation Constitutional Rights Stonehill v Diokno In violation of Central Bank Laws. vouchers. 33 3B-Corporation Law .  Petitioners filed with the Supreme Court this original action for certiorari. a writ of preliminary injunction be issued alleging the search warrants to be void since (1) they do not describe with particularity the documents. regardless of the amount of shares of stock or of the interest of each of them in said corporations. (4) the searches and seizures were made in an illegal manner. regardless of whether the transactions were legal or illegal.not met  (2) that the warrant shall particularly describe the things to be seized. portfolios. ledgers. and other documents and/or papers showing all business transactions including disbursements receipts. correspondence. to be determined by the judge in the manner set forth in said provision. pending final disposition of the present case. warrants for the search of 3 residences null and void. (2) cash money. Internal Revenue (Code) and the Revised Penal Code. journals. that the writ of preliminary injunction issued  the documents.not met  without reference to any determinate provision of said laws  the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein. . receipts. and (5) the documents. for the simple reason that said corporations have their respective personalities.

 Corporations are protected by Constitutional Rights as well such as the due process clause which was blatantly disregarded in this case – although there was no representative in this case of the corporation to assail such violation. for it would place the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the whims caprice or passion of peace officers. 34 3B-Corporation Law . To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights guaranteed in our Constitution.

Topic:
Definitions and Attributes of Corporation
Subtopic:
Criminal Liability
Provision:
Case Name:
Ching v Secretary of Justice
Criminal Liability
25) Ching v. Sec. of Justice
Facts:
Alfredo Ching was the Senior Vice President of Philippine Blooming Mills Inc. PBMi, through Ching, applied with
Rizal Commercial Banking Corporation, RCBC for issuance of commercial letters of credit. RCBC approved the
application. Goods were purchased and delivered in trust to PBMI. Ching signed 13 trust receipts as surety. Under the
receipts, Ching agreed to hold the goods in trust for the banks. In case the goods remained unsold within the specified
period, the goods were to be returned to the bank without need of any demand.
When the trust receipts matured, Ching failed to return the goods to RCBC despite demands. RCBC filed a
criminal complaint for Estafa against Ching. City Prosecutor found probable cause estafa. 13 Information of Estafa were
filed against Ching in RTC of Manila.
RTC ruled that there was no estafa. City prosecutor also ruled there was no probable cause. Secretary of Justice
reversed the ruling and assailed that Ching was responsible for the offense. Ching executed the trust receipts. The
execution of said receipts is enough to indict petitioner as official responsible for violation of PD 115. Ching bound
himself as corporate official of PBMI and also as its surety.
CA dismissed Chings petition on procedural grounds. CA stated that Ching failed to establish that Secretary of
Justice commited grave abuse of discretion in finding probable cause against petitioner for violation of estafa under
Article 315.
Issue:
Whether or not Ching is guilty of Estafa under PD No. 115?
Held:
The Court ruled that Ching is guilty of estafa. PD No. 115 is malum prohibitum but is classified as estafa under RPC
315. It may be committed by a corporation or other juridical entity or by natural persons.
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the
crime and the penalty therefor. A Corporation cannot be arrested and imprisoned hence cannot be penalized for a
crime punishable by imprisonment. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as a penalty, a corporation may
be prosecuted and if found guilty may be fined.
In this case, Ching signed the trust receipt in question. He is the actual, present and efficient actor. He cannot hide
behind the cloak of the separate corporate personality of PBMI.

Topic:
Subtopic:
Provision:
Case Name:

Definitions and Attributes of Corporation
Criminal Liability
Arnel U. Ty v NBI Supervising Agent Marvin E. Jemil

35
3B-Corporation Law

FACTS:
Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omnis General Information Sheet (GIS)
dated March 6, 2004 submitted to the Securities and Exchange Commission (SEC). Omni is in the business of trading
and refilling of Liquefied Petroleum Gas (LPG) cylinders and holds Pasig City Mayors Permit No. RET-04-001256 dated
February 3, 2004.
The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC Law Offices) sent a letter dated
March 22, 2004 to the NBI requesting, on behalf of their clients Shellane Dealers Association, Inc., Petron Gasul Dealers
Association, Inc., and Totalgaz Dealers Association, Inc., for the surveillance, investigation, and apprehension of
persons or establishments in Pasig City that are engaged in alleged illegal trading of petroleum products and
underfilling of branded LPG cylinders in violation ofBatas Pambansa Blg. (BP) 33, as amended by Presidential Decree
No. (PD) 1865.
Earlier, the JGAC Law Offices was furnished by several petroleum producers/brand owners their respective
certifications on the dealers/plants authorized to refill their respective branded LPG cylinders, to wit: (1) On October 3,
2003, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) issued a certification of the list of entities duly authorized
to refill Shellane LPG cylinders; (2) on December 4, 2003, Petron Corporation (Petron) issued a certification of their
dealers in Luzon, Visayas, and Mindanao authorized to refill Petron Gasul LPG cylinders; and (3) on January 5, 2004,
Total (Philippines) Corporation (Total) issued two certifications of the refilling stations and plants authorized to refill
their Totalgaz and Superkalan Gaz LPG cylinders.
Agents De Jemil and Kawada attested to conducting surveillance of Omni in the months of March and April
2004 and doing a test-buy on April 15, 2004. They brought eight branded LPG cylinders of Shellane, Petron
Gasul, Totalgaz, and Superkalan Gaz to Omni for refilling. The branded LPG cylinders were refilled, for which the
National Bureau of Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales Invoice No. 90040 issued by Omni
on April 15, 2004. The refilled LPG cylinders were without LPG valve seals and one of the cylinders was actually
underfilled, as found by LPG Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry Association (LPGIA) who
inspected the eight branded LPG cylinders on April 23, 2004 which were properly marked by the NBI after the test-buy.
The NBIs test-buy yielded positive results for violations of BP 33, Section 2(a) in relation to Secs. 3(c) and
4, i.e., refilling branded LPG cylinders without authority; and Sec. 2(c) in relation to Sec. 4, i.e., underdelivery or
underfilling of LPG cylinders. Thus, on April 28, 2004, Agent De Jemil filed an Application for Search Warrant (With
Request for Temporary Custody of the Seized Items) before the Regional Trial Court (RTC) in Pasig City, attaching,
among others, his affidavit and the affidavit of Edgardo C. Kawada, an NBI confidential agent.
On the same day of the filing of the application for search warrants on April 28, 2004, the RTC, Branch 167
in Pasig City issued Search Warrants No. 2624 and 2625. The NBI served the warrants the next day or on April 29,
2004 resulting in the seizure of several items from Omnis premises duly itemized in the NBIs Receipt/Inventory of
Property/Item Seized. On May 25, 2004, Agent De Jemil filed his Consolidated Return of Search Warrants with Ex-Parte
Motion to Retain Custody of the Seized Items before the RTC Pasig City.
Subsequently, Agent De Jemil filed before the Department of Justice (DOJ) his Complaint-Affidavits against
petitioners for: (1) Violation of Section 2(a), in relation to Sections 3(c) and 4, of B.P. Blg. 33, as amended by P.D.
1865; and (2) Violation of Section 2(c), in relation to Section 4, of B.P. Blg. 33, as amended by P.D. 1865, docketed as
I.S. Nos. 2004-616 and 2004-618, respectively.
During the preliminary investigation, petitioners submitted their Joint Counter-Affidavit, which was replied to by
Agent De Jemil with a corresponding rejoinder from petitioners.

ISSUE: WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE UNDER BATAS PAMBANSA BLG. 33, AS AMENDED, FOR
BEING MERE DIRECTORS, NOT ACTUALLY IN CHARGE OF THE MANAGEMENT OF THE BUSINESS AFFAIRS OF THE
CORPORATION.

HELD:
YES.

36
3B-Corporation Law

Sec. 4 of BP 33, as amended, provides for the penalties and persons who are criminally liable, thus:

Sec. 4.
Penalties. Any person who commits any act herein prohibited shall, upon conviction, be
punished with a fine of not less than twenty thousand pesos (P20,000) but not more than fifty
thousand pesos (P50,000), or imprisonment of at least two (2) years but not more than five (5) years,
or both, in the discretion of the court. In cases of second and subsequent conviction under this Act, the
penalty shall be both fine and imprisonment as provided herein. Furthermore, the petroleum and/or
petroleum products, subject matter of the illegal trading, adulteration, shortselling, hoarding,
overpricing or misuse, shall be forfeited in favor of the Government: Provided, That if the petroleum
and/or petroleum products have already been delivered and paid for, the offended party shall be
indemnified twice the amount paid, and if the seller who has not yet delivered has been fully paid, the
price received shall be returned to the buyer with an additional amount equivalent to such price; and
in addition, if the offender is an oil company, marketer, distributor, refiller, dealer, sub-dealer and other
retail outlets, or hauler, the cancellation of his license.
Trials of cases arising from this Act shall be terminated within thirty (30) days after arraignment.
When the offender is a corporation, partnership, or other juridical person, the president,
the general manager, managing partner, or such other officer charged with the management
of the business affairs thereof, or employee responsible for the violation shall be criminally
liable; in case the offender is an alien, he shall be subject to deportation after serving the sentence.
If the offender is a government official or employee, he shall be perpetually disqualified from
office. (Emphasis supplied.)

Relying on the third paragraph of the above statutory proviso, petitioners argue that they cannot be held liable
for any perceived violations of BP 33, as amended, since they are mere directors of Omni who are not in charge of the
management of its business affairs. Reasoning that criminal liability is personal, liability attaches to a person from his
personal act or omission but not from the criminal act or negligence of another. Since Sec. 4 of BP 33, as amended,
clearly provides and enumerates who are criminally liable, which do not include members of the board of directors of a
corporation, petitioners, as mere members of the board of directors who are not in charge of Omnis business affairs,
maintain that they cannot be held liable for any perceived violations of BP 33, as amended. To bolster their position,
they attest to being full-time employees of various firms as shown by the Certificates of Employment they submitted
tending to show that they are neither involved in the day-to-day business of Omni nor managing it. Consequently, they
posit that even if BP 33, as amended, had been violated by Omni they cannot be held criminally liable thereof not
being in any way connected with the commission of the alleged violations, and, consequently, the criminal complaints
filed against them based solely on their being members of the board of directors as per the GIS submitted by Omni to
SEC are grossly discriminatory.

On this point, we agree with petitioners except as to petitioner Arnel U. Ty who is indisputably the President of
Omni.

It may be noted that Sec. 4 above enumerates the persons who may be held liable for violations of the law,
viz: (1) the president, (2) general manager, (3) managing partner, (4) such other officer charged with the management
of the business affairs of the corporation or juridical entity, or (5) the employee responsible for such violation. A
common thread of the first four enumerated officers is the fact that they manage the business affairs of the

37
3B-Corporation Law

corporation or juridical entity. In short, they are operating officers of a business concern, while the last in the list is selfexplanatory.

It is undisputed that petitioners are members of the board of directors of Omni at the time pertinent. There can
be no quibble that the enumeration of persons who may be held liable for corporate violators of BP 33, as amended,
excludes the members of the board of directors. This stands to reason for the board of directors of a corporation is
generally a policy making body. Even if the corporate powers of a corporation are reposed in the board of directors
under the first paragraph of Sec. 23 of the Corporation Code, it is of common knowledge and practice that the board of
directors is not directly engaged or charged with the running of the recurring business affairs of the
corporation.Depending on the powers granted to them by the Articles of Incorporation, the members of the board
generally do not concern themselves with the day-to-day affairs of the corporation, except those corporate officers
who are charged with running the business of the corporation and are concomitantly members of the board, like the
President. Section 25 of the Corporation Code requires the president of a corporation to be also a member of the board
of directors.

Thus, the application of the legal maxim expressio unius est exclusio alterius, which means the mention of one
thing implies the exclusion of another thing not mentioned.If a statute enumerates the thing upon which it is to
operate, everything else must necessarily and by implication be excluded from its operation and effect. The fourth
officer in the enumerated list is the catch-all such other officer charged with the management of the business affairs of
the corporation or juridical entity which is a factual issue which must be alleged and supported by evidence.
A scrutiny of the GIS reveals that among the petitioners who are members of the board of directors are the
following who are likewise elected as corporate officers of Omni: (1) Petitioner Arnel U. Ty (Arnel) as President; (2)
petitioner Mari Antonette Ty as Treasurer; and (3) petitioner Jason Ong as Corporate Secretary. Sec. 4 of BP 33, as
amended, clearly indicated firstly the president of a corporation or juridical entity to be criminally liable for violations
of BP 33, as amended.
Evidently, petitioner Arnel, as President, who manages the business affairs of Omni, can be held liable for
probable violations by Omni of BP 33, as amended. The fact that petitioner Arnel is ostensibly the operations manager
of Multi-Gas Corporation, a family owned business, does not deter him from managing Omni as well. It is well-settled
that where the language of the law is clear and unequivocal, it must be taken to mean exactly what it says. As to the
other petitioners, unless otherwise shown that they are situated under the catch-all such other officer charged with the
management of the business affairs, they may not be held liable under BP 33, as amended, for probable
violations.Consequently, with the exception of petitioner Arnel, the charges against other petitioners must perforce be
dismissed or dropped.

38
3B-Corporation Law

Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Classes of Corporation Boy Scouts of the Philippines v COA Facts: COA issued Resolution No. as amended by PD No. It was stated that BSP is not subject to COA’s jurisdiction and the latest amendment to its charter (RA 7278) converted it to a private corporation. was a “government controlled corporation within the meaning of Art. 111) entitled “An Act to create a Public Corporation to be known as The Boy Scouts of the Philippines and to define its powers and purposes” created the BSP as a “public corporation”. 111. Funds of BSP came from donations or membership fees. 99-011 on Aug. BSP’s charter (Commonwealth Act No. Binay. The amendment of RA 7278 only reduced the government representation in its governing body. IX (B) (2) (1) of the Constitution” and that “the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code”. This resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 39 3B-Corporation Law . It cannot also be considered an “agency” as it is only an “attached-agency” to DECS. and in the case of BSP vs NLRC the Supreme Court held that the BSP. 19. Issue: WON BSP is considered a public corporation subject to COA’s jurisdiction? Held: Yes. 460 and RA 7278. 1999 with the subject “Defining the Commission’s policy with respect to the audit of the Boy Scouts of the Philippines”. BSP sought reconsideration from the COA resolution in a letter signed by the BSP president Jejomar C. under its charter. And being an “attached-agency” does not make it a private corporation. It does not receive special funds from the government nor was there any appropriation of special funds for it.

Also. Court of Appeals. religious. it remains a government instrumentality exercising not only governmental but also corporate powers. and 40 3B-Corporation Law . educational. fraternal. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges granted to or presently enjoyed by all persons. Sec. PRA’s very own charter (P.D. agriculture and like chambers as provided in Section 88 of the Corporation Code.D. including those located in Parañaque City.D. PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay. Paranaque City (RTC). 3 & 4. ISSUE: Whether or not petitioner is an incorporated instrumentality of the national government and is. like trade. it may not be classified as a stock corporation because it lacks the second requisite of a stock corporation: to distribute dividends and allotment of surplus and profits to its stockholders. 1084. while PRA is vested with corporate powers under P. scientific. Code. professional. In fact. Administrative Code of 1987. and.  By virtue of its mandate. Introductory Provisions of the Administrative Code of 1987 defines a GOCC as any agency organized as a stock or nonstock corporation. Article XII of the 1987 Constitution because it is not required to meet the test of economic viability. Corp.  The Public Estates Authority (PEA) is a government corporation created by virtue of P. Parañaque City Treasurer issued Warrants of Levy on PRA’s reclaimed properties based on the assessment for delinquent real property for tax years 2001 and 2002. PRA asserted that:  It is not a GOCC under the Administrative Code. exempt from payment of real property tax under sections 234(a) and 133(o) of Republic Act 7160 or the Local Government Code visà-vis Manila International Airport Authority v. which ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation (GOCC). it is not a GOCC. 1084) declared it to be a GOCC and that it has entered into several thousands of contracts where it represented itself to be a GOCC. cultural. therefore. No. Art. Unless the government instrumentality is organized as a stock or non-stock corporation. civil service. EO 525 issued by Marcos designated PEA to be the primary agency for coordinating all reclamation projects for the National Government. a taxable entity. 1987 Constitution) Republic of the Philippines vs City of Paranaque FACTS:  This is a petition for review on certiorari assailing the Order of the Regional Trial Court. When the law vests in a government instrumentality corporate powers. therefore. 2 par. literary. out of which 2 million shares have been subscribed and fully paid up. such circumstance does not make it a corporation but merely an incorporated instrumentality and that the mere fact that an incorporated instrumentality of the National Government holds title to real property does not make said instrumentality a GOCC. social. whether natural or juridical.  It argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no par value shares. recreational. Branch 195. the instrumentality does not necessarily become a corporation. 1084 to provide a coordinated. nor is it a GOCC under Section 16. Although it has a capital stock divided into shares. economical and efficient reclamation of lands.  It is a government instrumentality vested with corporate powers and performing an essential public service. 13.  It was not created to compete in the market place as there was no competing reclamation company operated by the private sector. However. 16. PRA admitted in its original and amended petitions and pre-trial brief filed with the RTC of Parañaque City that it was a GOCC. not exempt from payment of real property taxes. No. No. XII. including GOCCs. City of Parañaque (respondent) argued that:  PRA since its creation consistently represented itself to be a GOCC. EO 380 issued by Arroyo transformed PEA to PRA.  It may not be classified as a non-stock corporation because it has no members and it is not organized for charitable. vested with functions relating to public needs whether governmental or proprietary in nature. HELD: Yes it is a Government Instrumentality. industry. Sec.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Classes of Corporation Republic of the Philippines v City of Paranaque CLASSES OF CORPORATIONS (Sec. or similar purposes.

which is a necessary condition before an agency or instrumentality is deemed a GOCC. to the extent of at least fifty-one (51) percent of its capital stock: x x x. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16. In this case.economic viability. The facts. it is clear that a GOCC must be "organized as a stock or non-stock corporation" while an instrumentality is vested by law with corporate powers. and 2) the GOCC must meet the test of economic viability. services that every modern State must provide its citizens. it is exempt from payment of real property tax. PRA may have passed the first condition of common good but failed the second one . The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions: 1) the GOCC must be established for the common good. or. Neither was it created to compete in the market place considering that there were no other competing reclamation companies being operated by the private sector.owned by the Government directly or through its instrumentalities either wholly. when the law makes a government instrumentality operationally autonomous. the instrumentality remains part of the National Government machinery although not integrated with the department framework. Instead. Being an incorporated government instrumentality. the evidence on record and jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock corporation. Likewise. PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. where applicable as in the case of stock corporations. These instrumentalities perform essential public services for the common good. From the above definitions. 41 3B-Corporation Law . Undoubtedly. the purpose behind the creation of PRA was not for economic or commercial activities. Article XII of the 1987 Constitution. Neither was it created by Congress to operate commercially and compete in the private market. Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations.

). Estatutos del (Statutes of the) Club). 3. as stated in its articles and by-laws. Institution in Cebu (Art. Code) Collector of Internal Revenue vs Club Filipino FACTS:  The Club Filipino. For a stock corporation to exist.000. The actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted. From the extrinsic evidence adduced. the Collector filed the instant petition for review. after paying debts. it cannot.000 to operate and maintain a golf course. which was subsequently increased to P200. within the contemplation of the corpo law. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had. be considered a stock corporation. a bowling alley. although it secured licenses. the Collector assessed against and demanded from the Club P12. two requisites must be complied with: 1. 3 & 4. meals and short orders to its members and their guests. In 1951. Act No. Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. including the by-laws and the method of operation. and a bar-restaurant where it sells wines and liquors. dividends or allotments of the surplus profits on the basis of the shares held (sec. 42 3B-Corporation Law . therefore. and develop and nurture sports of any kind and any denomination for recreation and healthy training of its members and shareholders" (sec. surcharge and compromise penalty.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Classes of Corporation Collector of Internal Revenue v Club Filipino CLASSES OF CORPORATIONS (Sec. a golf course (on a lot leased from the government).84 as fixed and percentage taxes. There is no provision either in the articles or in the by-laws relative to dividends and their distribution. and all sorts of games not prohibited by general laws and general ordinances. is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22. a capital stock divided into shares and 2. ISSUE: WON the Club is a stock corporation HELD: NO.068. but may be shown by extrinsic evidence. but no actual cash dividends were distributed to the stockholders. arising from the re-valuation of its real properties. bowling alleys. soft drinks. What is determinative of whether or not the Club is engaged in such business is its object or purpose. the Club declared stock dividends. although it is covenanted that upon its dissolution. It is a non-stock corporation. an authority to distribute to the holders of such shares. gymnasiums. the value or price of which increased. billiard tables and pools. tennis. a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant. Hence. 1459). Inc. The facts that the capital stock of the Club is divided into shares.068. Escritura de Incorporacion (Deed of Incorporation) del Club Filipino. 2. In a letter. the Collector denied the Club’s request to cancel the assessment. were used to defray its overhead expenses and to improve its golf-course. the Club's remaining assets. 27. the CTA reversed the Collector and ruled that the Club is not liable for the assessed tax liabilities of P12. Strictly speaking. the CTA concluded that the Club is not engaged in the business as a barkeeper and restaurateur. shall be donated to a charitable Phil.  The Club owns and operates a club house. as a result of a capital surplus. does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant.  On appeal. Corp.  In 1952.84 allegedly due from it as a keeper of bar and restaurant as it is a non-stock corporation. Also. The bar-restaurant was a necessary incident to the operation of the club and its golf-course.

The PNRC does not have government assets and does not receive any appropriation from the Philippine Congress. PNRC is a Private Organization Performing Public Functions. The PNRC is a member National Society of the International Red Cross and Red Crescent Movement. Indeed. and independence. twenty-four members. Gordon. The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors. religion. Richard Gordon (GR No L-39841 June 20. 1988) Corporation Code Provision: Sections 3 and 4 FACTS: Richard J. donor-funded. the PNRC cannot be owned or controlled by the government. et al. otherwise known as the PNRC Charter. or instrumentality thereof. ARTICLE VI OF THE CONSTITUTION RULING: No.” ISSUE: WHETHER OR NOT PNRC IS A GOVERNMENT. during his term without forfeiting his seat. voluntary. provides that PNRC is a non-profit. Thus. The government does not control the PNRC. among others.Topic: Definitions and Attributes of Corporation Subtopic: Classes of Corporation Provision: Case Name: Dante Liban v Richard Gordon Name: Glenn Niño M. agency. 43 3B-Corporation Law . whose mission is to bring timely. including government-owned or controlled corporations or their subsidiaries. Gordon has ceased to be a member of the Senate following Section 13. social status. Citizenship and Foreign Equity Name of Case: Dante Liban. To ensure and maintain its autonomy. or political affiliation. neutrality. RA 95. or any subdivision. the Philippine government does not own the PNRC. 13. and compassionate humanitarian assistance for the most vulnerable without consideration of nationality. that no Senator “may hold any other office or employment in the Government. effective. vs. Sartillo Topic: Nationality. Article VI of the Constitution.OWNED OR CONTROLLED CORPORATION FOR PURPOSES OF THE PROHIBITION IN SEC. humanitarian organization. gender. the PNRC has to be autonomous. 2006 meeting of the PNRC Board of Governors. who are officers of the Board of Directors of the Quezon City Red Cross Chapter. was elected Chairman of the Philippine National Red Cross (PNRC) during the February 23. alleged that by accepting the chairmanship of the PNRC Board of Governors. Only six of the 30 members of the PNRC Board of Governors are appointed by the President of the Philippines. race. In order to be recognized as a National Society. Petitioners. The PNRC Chairman is not appointed by the President or by any subordinate government official. which provides. or four-fifths (4/5). while being an incumbent member of the Senate of the Philippines. of the PNRC Board of Governors are not appointed by the President.

Inc. being the lone and highest bidder of the 3  parcels of land  This prompted Aznar et al. et al. showed that their contributions shall constitute as “lien or interest on the property. Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim. including the Notice of Attachment and Writ of Execution both dated August 3.R.00 - This was used to purchase 3 parcels of land in Cebu - 2 in the Minicipality of Talisay and 1 in the District of Lahug. lahat sila kasama ni Aznar as defendants  After the purchase of the lots. and a part of it says: - “And that the respective contributions above-mentioned (Aznar et al. Aznar.720.. et al. if and when said property are titled in the name of RISCO. et al. various subsequent annotations were made on the same titles. were the beneficiaries  Court of Appeals opined that the monetary contributions made by Aznar. (RISCO) ceased operation due to business reverses  In plaintiffs’ (Anzar et al.) desire to rehabilitate RISCO. PNB  1958: Rural Insurance and Surety Company. to RISCO can only be  Characterized as a load secured by a lien on the subjected lots. Held: NO. Merelo and Matias Aznar v. 1961 was a loan by the therein named stockholders to RISCO. Aznar Facts:  This case is consolidated with G. subject to registration as their adverse claim in pursuance of the Provision of Land Registration Act. titles were issued in the name of RISCO  The amount contributed by plaintiffs constituted as liens and encumbrances on the properties as annotated in the titles of said lots  Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of  Directors of RISCO on March 14.1962 in favour of Philippine National Bank  (PNB)  As a result. Cebu City - Marami yung nag-contribute for the P212k. Hence. until such time their respective contributions are refunded to them completely”  Thereafter. to file the instant case seeking the quieting of their supposed title to the  subject properties  Trial court ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the stockholders. they contributed a total amount of P212.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Nature and Classes of Shares Philippine National Bank v Merelo B. 1961.” The term lien as used in the Minutes is defined as "a discharge on property usually for the payment of some debt or obligation. from the use of the word "lien" in 44 3B-Corporation Law . 172021. At the outset. a Certificate of Sale was issued in favor of PNB. the Court agrees with the Court of Appeals that the agreement contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14. rather than an expressed trust Issue: Whether or not there was a trust contract between RISCO and Aznar.) shall constitute as their lien or interest on the property described above.

but by the direct and positive acts of the parties. deed. Express trusts are intentionally created by the direct and positive acts of the settlor or the trustor .by some writing. At most. Unfortunately. The creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations. We find that the money contributed by plaintiffs-appellees was in the nature of a loan.the Minutes. secured by their liens and interests duly annotated on the titles. Trust is the right to the beneficial enjoyment of property. et al. It is created not necessarily by some written words. The annotation of their lien serves only as collateral and does not in any way vest ownership of property to plaintiffs. what Aznar. et al. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary.. the legal title to which is vested in another. the right to seek repayment or reimbursement of their contributions used to purchase the subject properties is already barred by prescription 10 Years because it was based on a written contract (the minutes by the Board of Directors) in 1961 and the quieting of the title suit was brought only in 1998 45 3B-Corporation Law . We are not persuaded by the contention of Aznar. or will or oral declaration. had was merely a right to be repaid the amount loaned to RISCO. that the language of the subject Minutes created an express trust..

acting through the Inter-Agency Privatization Council (IPC).15%. In other words. 99. No franchise.” It was proven that: (1) foreigners own 64. Inc. certificate. preferred shares constitute 77. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11. a Hong Kongbased investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).00 per share. alteration. and all the executive and managing officers of such corporation or association must be citizens of the Philippines. Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%. to wit: “Section 11. it is clear that foreigners exercise control over PLDT. thus: “Section 11.27% of the common shares of PLDT. This. (4) preferred shares earn only 1/70 of the dividends that common shares earn. Worse.750. at least sixty per centum of whose capital is owned by such citizens. This kind of ownership and control of a public utility is a mockery of the Constitution. In other words.73%. certificate. and (6) preferred shares constitute 77. As shown in PLDT’s 2010 GIS. preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. thereby increasing the total common shareholdings of foreigners in PLDT to about 81. that foreigners hold a majority of the common shares of PLDT. Section 11. Since holding a majority of the common shares equates to control. foreigners hold 64. RULING: NO. constituting a minority of the voting stock. (2) Filipinos own only 35. (MPAH). an affiliate of First Pacific Company Limited (First Pacific). or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines. It must be stressed.44% owned by Filipinos.27% of the total number of PLDT’s common shares. nor shall such franchise.85% of the authorized capital stock of PLDT and common shares only 22. or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment.7 percent to 37 percent. Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities. In fact.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. which class of shares exercises the sole right to vote in the election of directors. Article XII of the Constitution. to Metro Pacific Assets Holdings. and respondents do not dispute. (5) preferred shares have twice the par value of common shares. The State shall encourage equity participation in public utilities by the general public. First Pacific’s common shareholdings in PLDT increased from 30. The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6. at least sixty per centum of whose capital is owned by such citizens. or repeal by the Congress when the common good so requires.Topic: Subtopic: Provision: Case Name: Definitions and Attributes of Corporation Nature and Classes of Shares Heirs of Wilson Gamboa v Teves FACTS: This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines. x x x” ISSUE: Whether or not PLDT is a Filipino corporation compliant with the requirements of the Consitution based on its composition. according to the petitioner. which is a document required to be submitted annually to the Securities and Exchange Commission. as submitted to the SEC.622 common shares.85% of the authorized capital stock of PLDT while common shares 46 3B-Corporation Law . certificate. or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines. Moreover. and thus exercise control over PLDT.56% of the preferred shares. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0. the par value of PLDT common shares is P5. and thus do not exercise control over PLDT. foreigners hold 120. violates Section 11. (3) preferred shares.73% of PLDT’s common shares.00 per share.690 common shares of PLDT whereas Filipinos hold only 66. No franchise. With the this sale.47%. whereas the par value of preferred shares is P10. while Filipinos hold only 35. have no voting rights.046. based on PLDT’s 2010 General Information Sheet (GIS). 99.

15%. is constitutionally required for the State’s grant of authority to operate a public utility.constitute only 22. or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines. In short. Article XII of the Constitution that “[n]o franchise. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. of PLDT. certificate. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares.” 47 3B-Corporation Law . at least sixty per centum of whose capital is owned by such citizens x x x. Filipinos hold less than 60 percent of the voting stock. are non-voting and earn only 1/70 of the dividends that PLDT common shares earn. The undisputed fact that the PLDT preferred shares. Full beneficial ownership of 60 percent of the outstanding capital stock. grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility. 99. This directly contravenes the express command in Section 11. coupled with 60 percent of the voting rights.44% owned by Filipinos. and earn less than 60 percent of the dividends. blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

Of the right to receive a quarterly dividend of 1%. "interest bearing stocks".00 per share. On 7 September 1979. The bank filed the petition for certiorari with the Supreme Court.000.000. In other words. may thus be considered as an exercise of police power. essentially on pure questions of law. The bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. Issue [1]: Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. the option to do so was clearly vested in the bank. at any time after 2 years from the date of issue at the option of the Corporation. qualifications and limitations. and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions. Robes. Adalia F.00 each. That such preferred shares may be redeemed. the Bank lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205.000. by the system of drawing lots. The bank filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action. and cannot be construed as having a mandatory effect. Held [2]: Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders." On 31 January 1979. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo. not only to its depositors and creditors. Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights. the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Robes. but also to the banking industry as a whole. 1 concurs in result Facts: On 18 September 1961. The redemption therefore is clearly the type known as "optional".00. RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates. Held [1]: While the stock certificate does allow redemption. the trial court rendered the decision in favor of RFRDC and Robes. Furthermore. each for 400 shares with a par value of P10. (J): 3 concur. instead of giving the legal tender totaling to the full amount of the loan. who subsequently. Thus. the trial court gave the parties 10 days from 30 July 1979 to submit their respective memoranda after the submission of which the case would be deemed submitted for resolution. on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders. representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. for a total of P8. on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. preferences. Furthermore. As part of the proceeds of the loan. preferred shares of stocks were issued to RFRDC through its officers then. and that such finding resulted in a directive. (2) that the action was unenforceable under substantive law. xxx 2. the terms and conditions set forth therein use the word "may". Robes. The bank then filed its Answer on 2 May 1979. Robes and one Carlos F. in limiting the exercise of a right granted by law to a corporate entity. issued on 31 January 1973 by then Gov.00. Said stock certificates were in the name of Adalia F. G.00. It is a settled doctrine in statutory construction that the word "may" denotes discretion. Hermosisima Jr. however. and (3) that the action was barred by the statute of limitations and/or laches. Robes and Carlos F. 3 March 1997] First Division. In compelling the bank to redeem the shares and to pay the corresponding dividends. endorsed his shares in favor of Adalia F.Topic: Definitions and Attributes of Corporation Subtopic: Nature and Classes of Shares Provision: Case Name: Republic Planters Bank v Agana Republic Planters Bank vs. Licaros of the Central Bank.000. which is P120. Agana [GR 51765. to wit: 1. cumulative and participating. ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price. plus 1% quarterly interest thereon until full payment. The redemption of said shares cannot be allowed. S. Issue [2]: Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend. the Trial committed 48 3B-Corporation Law . The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency. is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share. Redemption of preferred shares was prohibited for a just and valid reason. or for P4. The directive. except as otherwise provided in the stock certificate. Thereafter. the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120.

49 3B-Corporation Law .grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate. as well as the clear mandate of the law.

Juan Acayan. . Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book Onrubia et al prepared 3. -On May 6. Inc. and the date of payment thereof. No.In 1952. and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein 50 3B-Corporation Law . Corporation Code Case Name: Lanuza v Court of Appeals Facts: . there being no identity of parties.Topic: Incorporation and Organization Subtopic: Corporate Contract Law Provision: Sections 10 – 18. with 700 founders’ shares and 76 common shares as its initial capital stock subscription reflected in the articles of incorporation -Onrubia et. 1992. as reflected in the 1952 Articles of Incorporation. al. but also on its shareholders. -SEC en banc: affirmed the decision -Acayan’s shares were recorded in the stock and transfer book. 131315. . (PMMSI) was incorporated. expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters -Not public record. not only on the corporation. and more importantly. the date thereof and by and to whom made.Defines the charter of the corporation and the contractual relationships between the State and the corporation. sale or transfer of stock made.Contents are binding. a special stockholders’ meeting was held to elect a new set of directors -Onrubia et al filed a petition with SEC questioning the validity of said meeting. the Philippine Merchant Marine School. the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation -Onrubia et al’s manifestation and motion: moved for the dismissal of the case Issue: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book? Held: WHEREFORE. but on the initial subscribed capital stock of 776 shares. Onrubia et al must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan -Onrubia et al’s contention. Incorporators have already proved their stockholdings through the provisions of the articles of incorporation. Costs against petitioners Articles of Incorporation . Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation -CA: 1) the quorum should be based on the outstanding capital stock as found in the articles of incorporation. representing more than 2/3 of the common shares issued and outstanding. the stockholders and the State. the installments paid and unpaid on all stock for which subscription has been made. Stock and transfer book . one of the heirs of the incorporators filed a petition for the registration of their property rights was filed before the SEC over 120 founders’ shares and 12 common shares owned by their father -SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers. who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978. a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares.In 1979. the petition is DENIED and the assailed Decision is AFFIRMED. -Lanuza et al’ contention: 1.In 1982. . They alleged that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book. based on the Memorandum: petition should be dismissed on the ground of res judicata -Lanuza et al’s contention: instant petition is separate and distinct from G. 1992 stockholders’ meeting was valid and legal 2. and such other entries as may be prescribed by law -necessary as a measure of precaution.Book which records the names and addresses of all stockholders arranged alphabetically.R. a statement of every alienation. recording 33 common shares as the only issued and outstanding shares of PMMSI. 2) To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. -Petition was dismissed -SC: shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. and between the corporation and its stockholders.

more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book. It is no less than the articles of incorporation that declare the incorporators to have in their name the founders and several common shares. 51 3B-Corporation Law . Hence.” As such. the incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares. the articles of incorporation indicate that at the time of incorporation. One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed to keep its records accurately. A corporation’s records are not the only evidence of the ownership of stock in a corporation. 52 of the Corp Code. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed. whether it be founders’ shares or common shares To base the computation of quorum solely on the obviously deficient. at that time. According to Sec. “a quorum shall consist of the stockholders representing a majority of the outstanding capital stock. to disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs. the corporation had 776 issued and outstanding shares. if not inaccurate stock and transfer book. quorum is based on the totality of the shares which have been subscribed and issued.In the case at bar. and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares. Thus.

. Inc. Petitioner filed a Review on Certiorari under Rule 65 questioning the jurisdiction of the RTC. CA dismissed the petition. 26. 27. is a corporation while Multi-Rich Builders is a sole proprietorship that has no separate juridical personality from its owner (in this case Chua). Inc. 52 3B-Corporation Law . and Multi-Rich Builders. Corporation Code Excellent Quality Apparrel Inc. It prayed for the issuance of writ of attachment claiming that Mr. Inc. Facts:        On March 26. 10. v Win Multi Rich Builders Inc. Petitioner denied the allegations. its President and General Manager.” Hence. (Win) was incorporated with the SEC on Feb.” to “Multi-Rich Builders. Win Multi-Rich Builders. Inc. 1997. 2004 Win moved that its name in the case be changed from “Win Multi-Rich Builders. Inc. 1997 with Wilson Chua as its President and General Manager. petitioner became aware of the variance in the name of the plaintiff. Inc. for the construction of a garment factory. 1996 petitioner Excellent Quality Apparel. On Jan. These two names in effect has a separate and distinct personality from each other and not just a mere alter-ego of each. The contract executed on May 26. The said project was completed on Nov. 2004 Win filed a complaint for a collection of sum of money against petitioner. It was not even a party to the contract. It then filed a motion to dismiss on the ground that Win Multi-Rich (plaintiff) was not the contractor and neither a party to the contract. 20. On Feb. was only registered on Feb. 1996 was between Excellent Quality Apparel.Topic: Subtopic: Provision: Case Name: Incorporation and Organization Corporate Contract Law Sections 10 – 18. thus it cannot institute the case. Ying was about to abscond and that petitioner was about to close. Orden entered into a contract with Multi Rich Builders represented by Wilson Chua. RTC dismissed the motion and proceeded with the trial. Inc. Inc. Changing the name of the case will not also hold since Win Multi-Rich Builders. 20. it claimed that it was neither about to close and owing anything to respondent. Issue: Does Win have a legal personality to institute the present case? Held: No.” It was admitted by Win that Multi Rich Builders is a sole proprietorship and was issued a business permit by Office of the Mayor of Manila. further it was not shown that it acquired assets and liabilities of Multi-Rich Builders that can at least prove that it was a predecessor-in-business and hold that the latter has a standing to institute the collection suit. represented by Max Ying Vice-President for Productions and Alfiero R. 1996 Respondent Win Multi-Rich Builders. Petitioner presented a Certificate of Non-Registration of Corporation/Partnership from the SEC which certified that the latter did not have any records of a “Multi Rich Builders.

on August 28. On July 20. Manuel Gala sold 13. 1982. where a new board of directors was elected.Topic: Subtopic: Provision: Case Name: Incorporation and Organization Purpose Clause Sections 10 – 18. Raul Gala. respectively. Alicia Gala transferred 1. the newly-elected board elected a new set of officers.299 shares.164 shares. a special stockholders’ meeting of Margo was held. amounting to 2. and the return of all titles to real property in the name of Margo and Ellice. Raul Gala. 3747. Raul Gala was elected as chairman. and (2) purportedly for “estate planning. 500 to Guia Domingo and 500 to Raul Gala. the spouses Manuel and Alicia Gala. That same day. 1990 to elect a new board of directors. 1990 up to the present and all board resolutions issued by Ellice from August 24. Held: No. Alicia Gala and Ofelia Gala subscribed to an additional 3. Raul Gala was elected as chairman.652. their children Guia Domingo. respectively. praying for.314 of his shares in Ellice to Margo. de Villa transferred said shares to Margo. the nullification of all board resolutions issued by Margo from June 23. On November 10. The two cases were consolidated in an Order dated November 23. On March 27. the Gala spouses transferred several parcels of land located in the provinces of Quezon and Laguna to Ellice. Issues: Whether or not the lower court erred in not declaring as illegal and contrary to public policy the purposes and manner in which respondent corporations were organized—which were. and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement. Years later. In 1982. financial losses and the dissipation of assets.3 of her shares to Ofelia Gala.5 shares. That same day. on September 16. 1991. As payment for their subscriptions. respondents filed against petitioners with the Securities and Exchange Commission (SEC) a petition for the appointment of a management committee or receiver. 1990. The petition was amended to delete the prayer for the appointment of a management committee or receiver and for the dissolution of Ellice. to (1) “prevent the gala estate from being brought under the coverage of the comprehensive agrarian reform program (CARP). 1990 up to the present. 1983. diversion of funds. as well as all corporate papers and records of both Margo and Ellice which are in the possession and control of the respondents. 1983. and Rita Benson. docketed as SEC Case No. Subsequently. petitioners initiated a complaint against the respondents on June 26. 10. a new set of corporate officers was elected. Additionally. a special stockholders’ meeting of Ellice was held on August 24. the nullification of the elections of directors and officers of both Margo Management and Development Corporation and Ellice Industrial Corporation. During the meeting.5 shares and 286.000 of her shares to Margo. president and general manager. 1988. In the ensuing organizational meeting later that day. Corporation Code Gala v Ellice Agro-Industrial Corp Facts: On March 28. Manuel Gala transferred all of his remaining holdings in Ellice. Alicia Gala transferred 10. 1982. Virgilio Galeon and Julian Jader incorporated the Margo Management and Development Corporation (Margo). On June 28. on February 8. 1979.000 of her shares in Ellice to a certain Victor de Villa on March 2. Manuel Gala and Alicia Gala acquired an additional 550 shares and 281 shares. A few months later. 4027. among others. 1993. including the commencement of proceedings to annul certain dispositions of Margo’s property made by Alicia Gala. Ofelia Gala. 1988. the board approved several actions. In turn. accounting and restitution by the directors and officers. Manuel Gala. docketed as SEC Case No. respondents prayed that they be allowed to inspect the corporate books and documents of Ellice. 53 3B-Corporation Law . Ofelia Gala. 1982. The board also resolved to change the name of the corporation to MRG Management and Development Corporation. president and general manager. Guia Domingo. to Raul Gala. On June 23. and their encargados Virgilio Galeon and Julian Jader formed and organized the Ellice AgroIndustrialCorporation. 1990. Similarly. Alicia Gala transferred 854. Likewise.

as stated in the Articles of Incorporation. The best proof of the purpose of a corporation is its articles of incorporation and by-laws. which. In the case at bar. It is well to note that. while the by-laws outline the administrative organization of the corporation. then the SEC has no authority to inquire whether the corporation has purposes other than those stated. as stated in the Articles of Incorporation. if a corporation’s purpose. a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal purposes that petitioners are complaining of. then the SEC has no authority to inquire whether the corporation has purposes other than those stated. is lawful. and mandamus will lie to compel it to issue the certificate of incorporation. is lawful. and mandamus will lie to compel it to issue the certificate of incorporation. The articles of incorporation must state the primary and secondary purposes of the corporation.If a corporation’s purpose. is supposed to insure or facilitate the accomplishment of said purpose. in turn. 54 3B-Corporation Law .

000 from Madrid Trading. it necessarily does not come within the ambit of retail business as defined by Republic Act No. Corporation Code.000. Marsman & Company. Madrid Trading assigned all its rights to Marsman & Company.. i. First Coconut Central Co Name: Glenn Niño M. and 3) The object of the sale is limited to merchandise. CA ruled that the sale violated RA 1180 or the Retail Trade Nationalization Law. Inc. In this case. the following elements should concur: 1) The seller should be habitually engaged in selling. and enclosing in said letter a check for P1. 55 3B-Corporation Law . After repeated failure by First Coconut to meet its obligation. Anti-Dummy Law Case Name: Marsman and Company Inc. 2) The sale must be direct to the general public. As down payment. First Coconut Central Co. the first two elements are present. vs. for a sale to be considered.000. The balance of P17.. may engage in the business of selling producer goods. First Coconut paid Marsman P2. commodities or goods for consumption. It necessarily follows that petitioner cannot be guilty of violating the Anti. 1988) Corporation Code Provision: Sections 3 and 4 FACTS: First Coconut Central Co. First Coconut paid the P4. First Coconut wrote Marsman appealing that they be given thirty (30) days to settle the obligation. Inc. (GR No L-39841 June 20." The article in controversy is a piece of industrial machinery—a diesel generating unit. The last element refers to the subject of the retailer's activities or what he is selling. 1180. instrumental goods. ISSUE: WHETHER OR NOT THE SALE OF A DIESEL GENERATING SET TO FIRST COCONUT WAS NULL AND VOID FOR HAVING BEEN MADE IN VIOLATION OF REPUBLIC ACT NO. leaving a balance of P15. Marsman brought an action to recover the balance. As security for the satisfaction of the said obligation.000. Citizenship and Foreign Equity Name of Case: Marsman & Company. Sartillo Topic: Nationality. used in the coconut central and as such may be classified as "production or producer goods. On appeal. Inc. Consumer goods may be defined as "goods which are used or bought for use primarily for personal. family or household purposes. It is the presence of the third element that must be determined. (First Coconut) purchased on installment one diesel generating unit worth P21. Later. (Marsman).Dummy Law or of using a dummy since it is not prohibited by the Retail Trade Nationalization Law from selling the diesel generating unit to herein respondent. consumption goods or consumer goods.e." Producer goods have been defined as "goods (as tools and raw material) that are factors in the production of other goods and that satisfy wants only indirectly. The Court of First Instance ruled in favor of Marsman. 1180. a chattel mortgage over the same diesel generating unit was constituted.000 will be paid in three (3) equal monthly installments. v. Inc.000. intermediate goods.Topic: Incorporation and Organization Subtopic: Nominees and Anti-Dummy Law Provision: Sections 10 – 18. Hence. Such goods are not intended for resale or further use in the production of other products.called also auxiliary goods. 1180 RULING: As per Section 4 of Republic Act No." Since the diesel generating unit is not a consumer item.

as mere promoters of a corporations on the other hand. v Sandiko Name: Glenn Niño M. titles. Among other things. Unquestionably. the law requires the filing of articles of incorporation. 1930 and the actual incorporation of said company was affected later on October 22. 1930. Tabora executed a public document. Corporate Team Provision: Section 19. 56 3B-Corporation Law . a third mortgage on the same lands was executed in favor of Severina Buzon. but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora. In other words. until organized. payable after one year from the date thereof. Cagayan filed its article incorporation with the Bureau of Commerce and Industry only on October. Inc. Sandiko (GR No. which absolved Sandiko. by virtue of which the four parcels of land was sold to the plaintiff company (Cagayan). In this case. But before a corporation may be said to be lawfully organized. L-43350. the transfer was made almost five months before the incorporation of the company. Cagayan was not yet incorporated when it entered into a contract of sale. Not being in legal existence then. said to be under process of incorporation. Sartillo Topic: Commencement of Corporate Existence. he executed in favor of PNB two mortgages over the four parcels of land. A corporation. Corporate Term Name of Case: Cagayan Fishing Development Co. ISSUE: Whether or not Cagayan has juridical capacity to enter into contract with Tabora HELD: No. ceded and transferred to Sandiko all its right. the board of directors of Cagayan adopted a resolution authorizing its president to sell the four parcels of lands in question to Teodoro Sandiko. Thereafter. These promoters could not have acted as agent for a projected corporation since that which has no legal existence could have no agent. it did not possess juridical capacity to enter into the contract. Later. Cagayan sold. Through a deed of sale. on May. has no life and therefore no faculties. 1937) Corporation Code Provision: Section 19 FACTS: Manuel Tabora is the registered owner of four parcels of land. his wife and others. a duly organized corporation has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. Corporation Code Case Name: Cagayan Fishing Development Co. A promissory note was drawn by the Sandiko in favor of Cagayan. To guarantee the payment of two loans. vs.Topic: Incorporation and Organization Subtopic: Commencement of Corporate Existence. 1930. A year later. Sandiko failed to pay. December 23. many things have to be done. Boiled down to its naked reality. 1930. Cagayan brought this action in the Court of First Instance. the contract was entered into not between Tabora and a non-existent corporation. and interest in and to the four parcels of land. The transfer made by Tabora to Cagayan was affected on May 31.

171993. For occupying the said position. Section 25 of the Corporation Code specifically enumerated these corporate officers: president. The Court held that in the context of PD 902-A. respondent was among the corporation’s corporate officers by the express provision of Section 1. Meanwhile. 2011) Corporation Code Provision: Section 19 FACTS: Marc II Marketing.. was officially incorporated. one/more vice president. Article IV of its by-laws. The position of general manager was not among those enumerated. treasurer and secretary. Inc. The said provision of the Corporation Code safeguards the constitutionally enshrined right of every employee to security of tenure and prevents the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the Board of Directors. Alfredo M. corporate officers are those officers of a corporation who are given that character either by the Corporation Code or by the corporation’s by-laws. Inc. Before Marc II Marketing. to work as General Manager of the corporation. vs. Section 1 of Article IV of the corporation’s by-laws empowered its Board of Directors to appoint such officers as it may determine necessary or proper. However. 57 3B-Corporation Law . the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. December 12. president. selling and distributing in retail or wholesale for export or import household appliances and products and other items. making this an enabling provision for approving a resolution to make the position of general manager a corporate officer. He filed action for reinstatement and money claim against petitioners. secretary. ISSUE: Whether or not Marc II’s Board of Directors could create a position for corporate officers through an enabling clause found in its corporate by-laws HELD: No. Alfredo was informed of the termination of his services as General Manager. Though the Board of Directors may create appointive positions other than the positions of corporate officers. A careful examination of Marc II Marketing Inc. Alfredo Joson (GR No. as Marc II was yet to be incorporated. Joson is the President and majority stockholder of the corporation.’s by-laws explicitly revealed that its corporate officers are composed only of chairman. paragraph 2. Inc.Topic: Incorporation and Organization Subtopic: Commencement of Corporate Existence. which was formalized through the execution of a Management Contract dated in 1994 under Marc Marketing. Corporate Term Name of Case: Marc II Marketing. in her capacity as President. All of these acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate officers. Petitioner Lucila V. marketing. treasurer and such other officers as may be provided for in the by-laws. Corporate Team Provision: Section 19. Marc II decided to stop and cease its operation due to poor sales collection. (Marc II) is primarily engaged in buying. Corporation Code Case Name: Marc II Marketing v Alfredo Joson Name: Glenn Niño M. Joson has already been engaged by Lucila. Sartillo Topic: Commencement of Corporate Existence. Alfredo was appointed General Manager. Inc.

two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim Giang. and (3) it was not approved by RUBYs stockholders in a meeting called for the purpose. In this case.The MANCOM was tasked to perform the following functions: (1) undertake the management of RUBY. review and evaluate the proposed rehabilitation plan for RUBY. 39 of the Corporation Code refers to the right of a stockholder of a stock corporation to subscribe to all issues or disposition of shares of any class. composed of representatives from Allied Leasing and Finance Corporation (ALFC). a total stranger. any stockholder who has not exercised such right will be deemed to have waived it. The stockholder must be given a reasonable time within which to exercise their preemptive rights.D. as found by the CA and as affirmed by this Court: 58 3B-Corporation Law . ALFC and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it would legitimize the entry of BENHAR. ISSUE: Whether the minority’s pre-emptive rights were violated RULING: Yes. the SEC Hearing Panel created the management committee (MANCOM) for RUBY. At the hearing of the petition for the creation of a new management committee. or to "freeze out" the minority interest.Topic: Subtopic: Provision: Case Name: Incorporation and Organization Commencement of Corporate Existence. in proportion to their respective shareholdings.Instead. earnings and operations. Reeling from severe liquidity problems beginning in 1980. to RUBY as BENHAR would become the biggest creditor of RUBY. the SEC Hearing Panel approved on September 18. Notwithstanding the objections of 90% of RUBYs creditors and three members of the MANCOM. On August 10. over ninety percent (90%) of RUBYs creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new management committee. an issue of shares may still be objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or shift control of the corporation.On December 20. 1984. Upon the expiration of said period. The right may be restricted or denied under the articles of incorporation. Subsequently. and (5) study. three (3) members of the original management committee (Lim. RUBY filed on December 13. Thus. Philippine Bank of Communications (PBCOM). Corporation Code Majority Stockholders of Ruby Industrial Corporation v Miguel Lim FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. 2556. they endorsed the minority stockholders Alternative Plan. In addition to the powers originally conferred to the management committee under Presidential Decree (P. 1998 decision -. Corporate Team Section 19. the SEC issued an order declaring RUBY under suspension of payments and enjoining the disposition of its properties pending hearing of the petition. 1991. and subject to certain exceptions and limitations. (2) take custody and control over all existing assets and liabilities of RUBY. Both plans were endorsed by the SEC to the MANCOM for evaluation. the following relevant observations should have signaled greater circumspection on the part of the SEC -.to demand transparency and accountability from the majority stockholders. even if the pre-emptive right does not exist. Pre-emptive right under Sec. in view of the illegal assignments and objectionable features of the Revised BENHAR/RUBY Plan. 1983. Yu Kim Giang. 1991the Revised BENHAR/RUBY Plan and dissolved the existing management committee. either because the issue comes within the exceptions in Section 39 or because it is denied or limited in the articles of incorporation. the new management committee was tasked to oversee the implementation by the Board of Directors of the revised rehabilitation plan for RUBY. and making payments outside of the necessary or legitimate expenses of its business. (4) determine the best way to salvage and protect the interest of its investors and creditors.) No. (3) evaluate RUBYs existing assets and liabilities. 1983 a petition for suspension of payments with the Securities and Exchange Commission (SEC) docketed as SEC Case No. It also created a new management committee and appointed BENHAR as one of its members. except insofar as necessary in its ordinary operations. China Banking Corporation (China Bank).upon the third and last remand to it pursuant to our January 20. Pilipinas Shell Petroleum Corporation (Pilipinas Shell). OnApril 26. 902-A.(2) it would put RUBYs assets beyond the reach of the unsecured creditors and the minority stockholders. The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling stockholders. and the Alternative Plan of the minority stockholders represented by Miguel Lim (Lim). and RUBY represented by Mr.

Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders meeting called for the purpose. Indeed.There can be no gainsaying the well-established rule in corporate practice and procedure that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws not proscribed by law. 4-9 of the Rules on Corporate Recovery. equity cannot deprive the minority of a remedy against the abuses of the majority. which is allowed under Sec. the voice of the majority of the stockholders is the law of the corporation. more so in this case. and the present action has been instituted precisely for the purpose of protecting the true and legitimate interests of Ruby against the Majority Stockholders. has ruled that: "Generally speaking. the minority stockholders and the unsecured creditors are given some measure of protection by the law from the abuses and impositions of the majority. Without such a limit the will of the majority will be absolute and irresistible and might easily degenerate into absolute tyranny.It is. the SEC simply stated that in the interim.) Lamentably. or in this case. and make full disclosure on the nullified credit assignments. and compelling the majority stockholders to account for all funds. the SEC had no basis for its ruling denying the motion of the minority stockholders to declare as without force and effect the extension of RUBY's corporate existence 59 3B-Corporation Law .when the majority stockholders allegedly ratified the board resolution approving the extension of RUBY's corporate life to another 25 years was seriously disputed by the minority stockholders. There must necessarily be a limit upon the power of the majority. Consequently. Certainly. and we find the evidence of compliance with the notice and quorum requirements submitted by the majority stockholders insufficient and doubtful. equally true that other stockholders are afforded the right to intervene especially during critical periods in the life of a corporation like reorganization. Oblivious to these pending incidents so crucial to the protection of the interest of the majority of creditors and minority shareholders. however. x x x" (Additional emphasis supplied. 1996 -. but there are exceptions to this rule. RUBYs corporate term was validly extended. Under the circumstances. On this score. more so. considering the give-away signs of private respondents perfidy strewn all over the factual landscape. attempt to siphon off Rubys valuable assets to the great prejudice of Ruby itself. the SEC refused to heed the plea of the minority stockholders and MANCOM for the SEC to order RUBY to commence liquidation proceedings. the Supreme Court. as if such extension would provide the solution to RUBYs myriad problems. The actual percentage of shareholdings in RUBY as of September 3.when the majority seek to impose their will and through fraudulent means. properties and documents in their possession. as well as the minority stockholders and the unsecured creditors. liquidation was the only hope of the minority stockholders for effecting an orderly and equitable settlement of RUBYs obligations. suspension of payments.

The deed was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. PIC-718. arrived in Manila on June 7. Maglana. But in this case.00 to be paid in installments.1965 while the other aircraft. This can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and not using the funds he got from Maglana et al. arrived in Manila on July 18. 1966. No.12. After trial on the merits. when co-investors agreed to do business through a corporation but failed to incorporate. at Tokyo. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. Lim. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The record shows that Lim was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. by way of counterclaim. Pioneer Insurance and Surety Corporation. 776). In their Answers. all must share in the losses and/or gains of the venture in proportion to their contribution. the Cervanteses. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109. for the balance price of the aircrafts and spare parts. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. One DC-3 Aircraft with Registry No.Topic: Incorporation and Organization Subtopic: Defectively Formed Corporations: De Facto and Corporation by Estoppel Provision: Section 20 & 21. Corporation Code Case Name: Pioneer Insurance and Surety Corp v Court of Appeals Topic: Defectively Formed Corporations: De Facto and Corporation by Estoppel Case: PIONEER INSURANCE & SURETY CORPORATION vs CA Name: Carmela Abergos FACTS: In 1965. The Cervanteses and Maglana. Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents. however. as surety executed and issued its Surety Bond No. in behalf of its principal. Japan. a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. 1965. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. On May 17. respectively. Jacob S. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. On May 22. 1965. a de facto partnership would have been formed. Bormaheco and Maglana. filed a third party claim alleging that they are co-owners of the aircrafts. 60 3B-Corporation Law . and as such. 6639 in favor of JDA. 1965. On June 10.1965. it was shown that Lim did not have the intent to form a corporation with Maglana et al.R. Lim (petitioner in G. ISSUES: What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form? RULING: No de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. On July 19.000. Pioneer paid a total sum of P298. Ordinarily.626. Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and.

— even its stockholders — may not probably claim "in good faith" to be a corporation. the article of incorporation of the Far Eastern Lumber and Commercial Co. Hipolita D. may file an action to cause the dissolution of the Far Eastern Lumber and Commercial Co. appointed Pedro A. al. Arnold Hall and Bradley P. operators and managers." Such a claim is compatible with the existence of errors and irregularities.. Hall. was an unregistered partnership. Attached to the article was an affidavit of the treasurer stating that 23. HELD: The Securities and Exchange Commission has not issued the corresponding certificate of incorporation. without the intervention of the state.. and Fred Brown. 61 3B-Corporation Law . the corporation proceeded to do business with the adoption of by-laws and the election of its officers. contesting the court's jurisdiction and the sufficiently of the cause of action. upon the Commercial Law . The personality of a corporation begins to exist only from the moment such certificate is issued — not before. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith. signed and acknowledged in Leyte. After hearing the parties. Not having obtained the certificate of incorporation. the Far Eastern Lumber and Commercial Co. that they wished to have it dissolved because of bitter dissension among the members. mismanagement and fraud by the managers and heavy financial losses. the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner. Inc. Immediately after the execution of said articles of incorporation. organized to engage in a general lumber business to carry on as general contractors. Under the statue it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. Edmund S. Abella.. Hall. et. Whereupon. Emma Brown. On 2 December 1947. Capuciong as the receiver of the properties thereof. Arnold Hall and Bradley P. Fred Brown. alleging among other things that the Far Eastern Lumber and Commercial Co. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders. Abella filed before the Court of First Instance of Leyte the civil case. but not with a total or substantial disregard of the law.000 bond. Piccio ordered the dissolution of the company.428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto. C.Corporation Law. without State intervention. filed a motion to dismiss. and at the request of Brown. Chapman and Ceferino S." This is not a suit in which the corporation is a party. Hall and Hall instituted the present special civil action with the Supreme Court. This is a litigation between stockholders of the alleged corporation.Topic: Incorporation and Organization Subtopic: Commencement of Corporate Existence. for the purpose of obtaining its dissolution. Piccio Name: Carmela Abergos FACTS: On 28 May 1947. C. but Judge Piccio refused to accept the offer and to discharge the receiver. 2005 filing of a P20. al. for the issuance of the corresponding certificate of incorporation. On 22 March 1948. ISSUE: Whether Brown. et. Corporation Code Case Name: Hall v Piccio Topic: Defectively Formed Corporations: De Facto and Corporation by Estoppel Case: Hall vs. Emma Brown. pending action on the articles of incorporation by the aforesaid governmental office. Corporate Team Provision: Section 20 & 21. etc. The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act. the Hon. Hipolita D. Hall and Hall offered to file a counter-bond for the discharge of the receiver.. Chapman and Ceferino S.

they were unable to pay PFGI and hence were sued in their own names as Ocean Quest Fishing Corporation is a non-existent corporation. they again borrowed money for the purchase of fishing nets and other fishing equipment. knowing it to be without valid existence are held liable as general partners. their Compromise Agreement had revealed their intention to pay the loan with the proceeds of the sale and to divide equally among them the excess or loss. The principle of corporation by estoppel cannot apply in the case as Lim Tong Lim also benefited from the use of the nets in the boat. the question as to whether such was legally formed for unknown reasons is immaterial to the case. The contribution to such fund need not be cash or fixed assets. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. ISSUE: Whether there exists a corporation by estoppel HELD: Yes.  The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim the brother of Lim Tong Lim. which was an asset of the partnership.  However. Under the law on estoppel. it could be an intangible like credit or industry. Hence.  Subsequently. those acting in behalf of a corporation and those benefited by it.  Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k.  Chua admitted his liability while Lim Tong Lim refused such liability alleging that Chua and Yao acted without his knowledge and consent in representing themselves as a corporation.Topic: Incorporation and Organization Subtopic: Commencement of Corporate Existence. Moreover. The boats and equipment used for their business entails their common fund. Corporate Team Provision: Section 20 & 21. Corporation Code Case Name: Lim v Philippine Fishing Gear Industries DEFECTIVELY FORMED CORPORATIONS LIM v PHILIPPINE FISHING GEAR INDUSTRIES FACTS:  Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. 62 3B-Corporation Law . It is apparent from the factual milieu that the three decided to engage in a fishing business.

The appellate court rendered a decision reversing the trial court. The same was denied by the appellate court. The complaint of IETTSI against the Philippine Football Federation and the counterclaims of Kahn were dismissed.  RTC ruled in favor of IETTSI and declared Henri Kahn personally liable for the unpaid obligation of the Federation. Corporation Code Case Name: International Express Travel and Tours v CA DEFECTIVELY FORMED CORPORATIONS INTERNATIONAL EXPRESS TRAVEL & TOURS v COURT OF APPEALS FACTS:  International Express Travel and Tour Services. through his personal check partial payment. through its managing director. through its president. IETTSI cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. through made partial payments through the following: o Project Gintong Alay. ISSUE: Whether the appellate court properly applied the doctrine of corporation by estoppel. Corporate Team Provision: Section 20 & 21.  IETTSI filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. IETTSI wrote the Federation.  After the Federation made two partial payments. IETTSI is not trying to escape liability from the contract but rather is the one claiming from the contract. HELD: Yes. IETTSI sought to hold Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Kahn allegedly guaranteed the said obligation. The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract from which he has benefited on the irrelevant ground of defective incorporation.  IETTSI secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane.Topic: Incorporation and Organization Subtopic: Commencement of Corporate Existence. which then prompted IETTSI to file a civil case before the RTC of Manila. The doctrine of corporation by estoppel is mistakenly applied by the appellate court to IETTSI. wherein the former offered its services as a travel agency to the latter. while the Federation failed to file its answer and was declared in default by the trial court. Inc. 63 3B-Corporation Law . no further payments were made despite repeated demands.  IETTSI sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Henri Kahn.  The Federation. wrote a letter to the Philippine Football Federation (Federation).  Only Kahn elevated the decision to the CA. (IETTSI). hence this petition.  Thereafter. through Kahn a demand letter requesting for the balance.  Kahn filed his answer with counterclaim. The Court cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated. In the instant case. The offer was accepted. and o Kahn.

obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM. 64 3B-Corporation Law . was incorporated for a term of 25 years.  The new PBM was issued a certificate of incorporation by the Securities and Exchange Commission. ISSUE: Whether the new corporation has not substantially complied with the two-year requirement of Section 22 of the new Corporation Code on non-user because its stockholders never adopted a set of by-laws HELD: No. the penalty is not necessarily revocation but may be only suspension of the charter. the SEC is empowered to “suspend or revoked. the franchise or certificate of registration of a corporation” on the ground inter alia of “failure to file by-laws within the required period.  The allegation was that the former had become legally non-existent for failure to extend its corporate life and that the latter had likewise beenipso facto dissolved for non-use of the charter and continuous failure to operate within 2 years from incorporation. after proper notice and hearing. assuming such finding. properties. all stockholders of the old PBM. Inc.” It is clear from this provision that there must first of all be a hearing to determine the existence of the ground. failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm. Non-filing of the by-laws will not result in automatic dissolution of the corporation. filed with the SEC a petition for liquidation of both the old PBM and the new PBM. then in the process of reincorporation. Corporation Code Case Name: Chung Ka Bio v Intermediate Appellate Court NON-USE OF CHARTER AND INOPERATION CHUNG KA BIO v IAC FACTS:  Philippine Blooming Mills Company.  Chung Ka Bio and the other petitioners herein.  The members of its board of directors executed a deed of assignment of all of the accounts receivables. under the rules and regulations of the SEC. and secondly. In fact.Topic: Incorporation and Organization Subtopic: Non-Use of Charter and Inoperation Provision: Section 22. Under Section 6(i) of PD 902-A.

private respondent and other instructors were compensated for services rendered during the first three periods of the abovementioned contract. However. that under petitioner’s by-laws only the Chairman is authorized to sign any contract and that private respondent.  Initially. Jr. pursuant to this engagement. for reasons unknown to private respondent. 1994. inter alia. in any event. ISSUE:  Whether the contract would be invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated petitioner’s by-laws? HELD:   No. clarifying the case of private respondent and stating therein. he stopped receiving payment for the succeeding rendition of services. failed to submit documents on the alleged shipyard and plant visits in Cavite Naval Base. an educational institution offering courses on basic seaman’s training and other marine-related courses. 65 3B-Corporation Law .Topic: By-Laws Subtopic: Binding Effect Provision: Sections 46-48..  PMI manifested that Mr. petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there is such a provision.  Then he filed a complaint 4 before the National Capital Region Arbitration Branch on September 14. Since by-laws operate merely as internal rules among the stockholders. Cloma. 1993 seeking payment for salaries earned including the shipyard and plant visits in Cavite Naval Base. a member of the petitioner’s Board of Trustees wrote a letter 5 to the Chairman of the Board on May 23. hired private respondent as contractual instructor. Corporation Code Case Name: PMI Colleges v NLRC FACTS:  PMI. private respondent then organized classes in marine engineering.” 11 No proof appears on record that private respondent ever knew anything about the provisions of said by-laws. unless they have knowledge of the same. they cannot affect or prejudice third persons who deal with the corporation. In fact. Tomas G.

Topic:
Subtopic:
Provision:
Case Name:

By-Laws
Binding Effect
Sections 46-48, Corporation Code
Government of Philippine Islands v El Hogar Filipino

The Government of the Philippine Islands vs. El Hogar Filipino G.R. No. L-26649 July 13, 1917
FACTS:

The Philippine Commission enacted Act No. 1459, also known as the Corporation Law, on March 1, 1906. El
Hogar Filipino, organized in 1911 under the laws of the Philippine Islands, was the first corporation organized
under Sec. 171-190 Act No. 1459, devoted to the subject of building and loan associations, their organization
and administration.

In the said law, the capital of the corporation was not permitted to exceed P3M, but Act No. 2092 amended the
statute, permitting capitalization to the amount of ten millions. El Hogar took advantage of the amendment of
Act No. 1459 and amended its AOI as a result thereof, stating that the amount of capital must not exceed what
has been stated in Act No. 2092. This resulted to El Hogar having 5,826 shareholders, 125,750 shares with
paid-up value of P8.7M.

The corporation paid P7.16M to its withdrawing stockholders. The Government of the Philippine Islands filed an
action against El Hogar due to the alleged illegal holding title to real property for a period exceeding five (5)
years after the same was bought in a foreclosure sale. Sec. 13(5) of the Corporation Law states that
corporations must dispose of real estate obtained within 5 years from receiving the title. The Philippine
Government also prays that El Hogar be excluded from all corporate rights and privileges and effecting a final
dissolution of said corporation.

It appears from the records that El Hogar was the holder of a recorded mortgage on the San Clemente land as
security for a P24K loan to El Hogar. However, shareholders and borrowers defaulted in payment so El Hogar
foreclosed the mortgage and purchased the land during the auction sale. A deed of conveyance in favor of El
Hogar was executed and sent to the Register of Deeds of Tralac with a request that the certificate of title be
cancelled and a new one be issued in favor of El Hogar from the Register of Deeds of Tarlac. However, no reply
was received. El Hogar filed a complaint with the Chief of the General Land Registration Office.

The certificate of title to the San Clemente land was received by El Hogar and a board resolution authorizing
Benzon to find a buyer was issued. Alcantara, the buyer of the land, was given extension of time to make
payment but defaulted so the contract treated rescinded. Efforts were made to find another buyer. Respondent
acquired title in December 1920 until the property was finally sold to Felipa Alberto in July 1926. The interval
exceeded 5 years but the period did not commence to run until May 7, 1921 when the register of deeds
delivered the new certificate of title.

It has been held that a purchaser of land registered under the Torrens system cannot acquire the status of an
innocent purchaser for value unless the vendor is able to place the owner’s duplicate in his hands showing the
title to be in the vendor. During the period before May 1921, El Hogar was not in a position to pass an
indefeasible title to any purchaser.

Therefore, El Hogar cannot be held accountable for this delay which was not due to its fault. Likewise, the
period from March 25, 1926 to April 20, 1926 must not be part of the five-year period because this was the
period where respondent was under the obligation to sell the property to Alcantara prior to the contract’s
rescission due to Alcantara’s non-payment.

Another circumstance causing the delay is the fact that El Hogar purchased the property in the full amount of
the loan made by the former owner which is nearly P24K when it was subsequently found that the property
was not salable and later sold for P6K notwithstanding El Hogar’s efforts to find a purchaser upon better terms.
ISSUE:

Whether the acts of respondent corporation merit its dissolution or deprivation of its corporate franchise and to
exclude it from all corporate rights and privileges
HELD:

SUSTAINED only as to administering of real property not owned by it and when permitted by contract. Causes
of action:

1) Alleged illegal holding of real property for a period exceeding five years from receipt of title-Cause of delay
is not respondent’s fault

2) That respondent is owning and holding a business lot with the structure thereon in excess of its reasonable
requirements and in contravention of Sec. 13(5) of Corpo. Law- WITHOUT MERIT Every corporation has the
power to purchase, hold and lease such real property as the transaction would of the lawful business may
reasonably and necessarily require.

3) That respondent is engaged in activities foreign to the purposes for which the corporation was created and
not reasonably necessary to its legitimate ends-VALID The administration of property, payment of real estate

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taxes, causing necessary repairs, managing real properties of nonborrowing shareholders is more befitting to
the business of a real estate agent or a trust company than a building and loan association.
4) That the by-laws of the association stating that, “the board of directors by the vote of an absolute majority
of its members is empowered to cancel shares and to return the balance to the owner by reason of their
conduct or any other motive or liquidation” is in direct conflict with Sec. 187 of the Corporation Law which
provides that the board of directors shall not have the power to force the surrender and withdrawal of
unmatured stock except in case of liquidation or forfeiture of stock for delinquency-WITHOUT MERIT There is no
provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a corporation;
and if there were such, the hazards incident to corporate effort would be largely increased.
5) Art. 61 of El Hogar’s by-laws which states that “ attendance in person or by proxy by shareholders owning
one-half plus one of the shareholders shall be necessary to constitute a quorum for the election of directors” is
contrary to Sec. 31 of the Corpo Law which provides that owners of the majority of the subscribed capital stock
entitled to vote must be present either in person or by proxy at all elections of directors- WITHOUT MERIT No
fault can be imputed to the corporation on account of the failure of the shareholders to attend the annual
meetings and their non-attendance in meetings is doubtless to be interpreted in part as expressing their
satisfaction of the way in which things have been conducted. Mere failure of a corporation to elect officers
does not terminate the terms of existing officers nor dissolve the corporation. The general rule is to allow the
officer to holdover until his successor is duly qualified.
6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have been receiving
large compensation, varying in amount from time to time, out of respondents’ profits- WITHOUT MERIT With
the growth of the corporation, the amount paid as compensation to the directors has increased beyond what
would probably be necessary is a matter that cannot be corrected in this action. Nor can it properly be made a
basis for depriving respondent of its franchise or enjoining it from compliance with the provisions of its own bylaws. If a mistake has been made, the remedy is to lie rather in publicity and competition.
7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early stages of the
organization of the association, the board of directors authorized the association to make a contract with him
and that the royalty given to him as founder is “unconscionable, excessive and out of proportion to the
services rendered”-NOT SUSTAINED The mere fact that compensation is in excess of what may be considered
appropriate is not a proper consideration for the court to resolve. That El Hogar is in contact with its promoter
did not affect the association’s legal character. The court is of the opinion that the traditional respect for the
sanctity of the contract obligation should prevail over the radical and innovating tendencies.
8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as board of directors to be holders of shares of
the paid up value of P5,000 which shall be held as security, is objectionable since a poor member or wage
earner cannot serve as a director irrespective of other qualifications- NOT SUSTAINED Corpo. Law expressly
gives the power to the corporation to provide in its by-laws for the qualification of its directors and the
requirement of security from them for the proper discharge of the duties of their pffice in the manner
prescribed in Art. 70 is highly prudent and in conformity with good practice.
9) That respondent abused its franchise in issuing “special” shares alleged to be illegal and inconsistent with
the plan and purposes of building and loan associations- WITHOUT MERIT The said special shares are generally
known as advance payment shares which were evidently created for the purpose of meeting the condition
caused by the prepayment of dues that is permitted. Sec. 178 of Corpo Law allows payment of dues or interest
to be paid in advance but the corporation shall not allow interest on advance payment grater than 6% per
annum nor for a period longer than one year. The amount is satisfied by applying a portion of the shareholder’s
participation in the annual earnings.The mission of special shares does not involve any violation of the
principle that the shares must be sold at par.
10) That in making purchases at foreclosure sales constituting as security for 54 of the loans, El Hogar bids the
full amount after deducting the withdrawal value, alleged to be pusuing a policy of depreciating at the rate of
10 percent per annum, the value of the real properties it acquired and that this rate is excessiveUNSUSTAINABLE The board of directors possess discretion in this matter. There is no provision of law
prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose
of determining its real profits. Art. 74 of its by-laws expressly authorizes the board of directors to determine
each year the amount to be written down upon the expenses for the installation and the property of the
corporation. The court cannot control the discretion of the board of directors about an administrative matter as
to which they have no legitimate power of action.
11) That respondent maintains excessive reserve funds-UNFOUNDED The function of this fund is to insure
stockholders against losses. When the reserves become excessive, the remedy is in the hands of the
Legislature. No prudent person would be inclined to take a policy in a company which had so improvidently
conducted its affairs that it only retained a fund barely sufficient to pay its present liabilities and therefore was
in a condition where any change by the reduction of interest upon or depreciation in the value of securities or
increase of mortality would render it insolvent and subject to be placed in the hands of a receiver.
12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10
percent per centum regardless of losses suffered and profits made by the corporation, in contravention with
the requirements of Sec. 188 of the Corpo law- UNFOUNDED As provided in the previous cause of action, the

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profits and losses shall be determined by the board of directors and this means that they shall exercise the
usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful of the
welfare of the association. The law contemplates distribution of earnings and losses after legitimate obligations
have been met.
13) That El Hogar has made loans to the knowledge of its officers which were intended to be used by the
borrowers for other purposes than the building of homes and no attempt has been made to control the
borrowers with respect to the use made of the borrowed funds- UNFOUNDED There is no statute expressly
declaring that loans may be made by these associations SOLELY for the purpose of building homes. The
building of himes in Sec. 171 of Corpo Law is only one among several ends which building and loan
associations are designed to promote and Sec. 181 authorizes the board of directors of the association to fix
the premium to be charged.
14) That the loans made by defendant for purposes other than building or acquiring homes have been
extended in extremely large amounts and to wealthy persons and large companies- WITHOUT MERIT The
question of whether the making of large loans constitutes a misuser of the franchise as would justify the court
in depriving the association of its corporate life is a matter confided to the discretion of the board of directors.
The law states no limit as to the size of the loans to be made by the association. Resort should be had to the
legislature because it is not a matter amenable to judicial control
15) That when the franchise expires, supposing the corporation is not reorganized, upon final liquidation of the
corporation, a reserve fund may exist which is out of all proportion to the requirements that may fall upon it in
the liquidation of the company-NO MERIT This matter may be left to the discretion of the board of directors or
to legislative action if it should be deemed expedient to require the gradual suppression of reserve funds as
the time for dissolution approaches. It is no matter for judicial interference and much less could the resumption
of the franchise be justified on this ground.
16) That various outstanding loans have been made by the respondent to corporations and partnerships and
such entities subscribed to respondents’ shares for the sole purpose of obtaining such loans-NO MERIT Sec.
173 of Corpo Law declares that “any person” may become a stockholder in building and loan associations. The
phrase ANY PERSON does not prevent a finding that the phrase may not be taken in its proper and broad sense
of either a natural or artificial person.
17) That in disposing real estate purchased by it, some of the properties were sold on credit and the persons
and entities to which it was sold are not members nor shareholders nor were they made members or
shareholders, contrary to the provision of Corpo Law requiring requiring loans to be stockholders only- NOT
SUSTAINED The law does not prescribe that the property must be sold for cash or that the purchaser shall be a
shareholder in the corporation. Such sales can be made upon the terms and conditions approved by the
parties. Respondent is enjoined in the future from administering real property not owned by itself, except as
may be permitted to it by contract when a borrowing shareholder defaults in his obligation. In all other
respects, the complaint is DISMISSED.

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3B-Corporation Law

Topic:
Subtopic:
Provision:
Case Name:

By-Laws
Effect of Non-Submission of By-Laws
Sections 48, Corporation Code
Sawadjaan v Court of Appeals

FACTS:

Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB) when it was
created by virtue of Presidential Decree No. 264 on 02 August 1973.

He started as a security guard and was eventually promoted to a loans analyst. In February 1988, while
designated as appraiser/investigator, Sawadjaan was assigned to inspect the properties offered as collaterals
by Compressed Air Machineries and Equipment Corporation (CAMEC) for a credit line of Five Million Pesos
(P5,000,000.00).

On the basis of his Inspection and Report, the PAB granted the loan application. When the loan matured on 17
May 1989, CAMEC requested an extension of 180 days, but was granted only 120 days to repay the loan.
Sawadjaan was then promoted to Loans Analyst I on 01 July 1989. In January 1990, Congress passed Republic
Act 6848 creating the AIIBP and repealing P.D. No. 264 (which created the PAB).

All assets, liabilities and capital accounts of the PAB were transferred to the AIIBP, and the existing personnel
of the PAB were to continue to discharge their functions unless discharged. In the reorganization, Sawadjaan
was among the personnel retained by the AIIBP. Upon failure of CAMEC to pay, the bank, now AIIBP, discovered
the ff: the TCT offered by CAMEC was spurious, the property described therein was inexistent, and that the
property covered by another TCT had a prior existing mortgage in favor of one Divina Pablico. On 08 June
1993, the Board of Directors of the AIIBP created an Investigating Committee to look into the CAMEC
transaction, which had cost the bank P6,000,000.00 in losses.

The Board eventually held Sawadjaan liable for the administrative offense of conduct prejudicial to the best
interest of the service and imposed on him the penalty from (originally) dismissal to suspension for 6 months.

Sawadjaan appealed the decision but the court affirmed the bank’s finding. Sawadjaan filed a motion for new
trial claiming that he had recently discovered that at the time his employment was terminated, the AIIBP had
not yet adopted its corporate by-laws.
ISSUE:

W/N the alleged Islamic Bank has no valid by-laws and has lost its juridical personality as a corporation on 16
April 1990 W/N Islamic Bank and its alleged Board of Directors have no jurisdiction to act in the manner they
did in the absence of a valid by-laws;
RULING:

AIIBP has a juridical personality to act as corporation! The AIIBP was created by Rep. Act No. 6848. It has a
main office where it conducts business, has shareholders, corporate officers, a board of directors, assets, and
personnel.

It is, in fact, here represented by the Office of the Government Corporate Counsel, "the principal law office of
government-owned corporations, one of which is respondent bank." At the very least, by its failure to submit
its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate
powers may not be inquired into collaterally in any private suit to which such corporations may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose
its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations,
details the procedures and remedies that may be availed of before an order of revocation can be issued. There
is no showing that such a procedure has been initiated in this case.

In any case, petitioner’s argument is irrelevant because this case is not a corporate controversy, but a labor
dispute; and it is an employer’s basic right to freely select or discharge its employees, if only as a measure of
self-protection against acts inimical to its interest. Regardless of whether AIIBP is a corporation, a partnership,
a sole proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is the petitioner’s employer.

AIIBP chose to retain his services during its reorganization, controlled the means and methods by which his
work was to be performed, paid his wages, and, eventually, terminated his services. SECTION 21 Sec. 21.
Corporation by Estoppel. – All persons who assume to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, that when any such ostensible corporation is sued on any transaction entered by it
as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.

69
3B-Corporation Law

Al. otherwise." PELA members remained in the property and introduced further improvements. which AlAmanah turned down for being far below its asking price. 70 3B-Corporation Law . the bank labelled the payments as "Partial deposit on sale of TCT No. if any.OIC Dalig.00. PELA wrote to Al-Amanah asking the latter to withdraw the amount consigned. through Atty.000. Dear Mr. Robern also requested for a definite statement from the bank on whether the official receipts being brandished by PELA are genuine or not. v People’s Landless Association Powers Of The Board Robern Development Corporation VS. Dalig. In the lower portion of the said letter. 173622. unless they are interested to buy the same. It insisted that as early as March 1993 it has a perfected contract of sale with Al-Amanah.000-square meter lot. For the first three receipts. half of which shall be paid as down payment and the remaining half to be paid within one year. Ututalum-Al Haj. of P150. Al-Amanah. 1993. petitioner Rodolfo Bernardo before the RTC of Davao City. informing him of the Head Office’s disapproval of PELA’s offer to buy the said 2.000.00 in the RTC of Davao City. To convince Robern that it has no existing contract with PELA. and the proof of consignment of PELA’s P150.00 on or before April 15. in an apparent act of bad faith and in cahoots with Robern. and in order to protect their rights as vendees. and. that it has already deposited 20% of the offered purchase price. PELA filed a suit for Annulment and Cancellation of Void Deed of Sale against Al-Amanah. thru Davao Branch Manager Abraham D. 2013)     Al-Amanah owned a 2000-square meter from which thru its officer-in-charge Febe O. 138914. The informal settlers thus expressed their interest to buy the lot at P100. In a letter Robern expressed to Al-Amanah its uncertainty on the status of the subject lot because PELA made a representation with their office bringing with them copies of official receipts issued by Al-Amanah. Castillo. March 11. indicating therein that Robern is interested to buy the lot for P400.00 deposit to the RTC of Davao City that PELA refused to withdraw. replied that it had already reached an agreement with AlAmanah regarding the sale of the subject lot based on their offered price. Sr. while it noted the 4th receipt as "Partial/Full payment on deposit on sale of A/asset TCT No. Corporation Code Case Name: Robern Development Corp. Al-Amanah stressed that it is Robern’s responsibility to eject the occupants in the subject lot.00 deposit shall be forfeited. the P80. In a letter of PELA.00 per square meter. No. However. Al-Amanah furnished it with copies of the Head Office’s rejection letter of PELA’s bid.00. Acting on Robern’s undated written offer. Three months later.000. A week later. that it is willing to shoulder the relocation of all informal settlers therein. its Director Engr. People’s Landless Association (G. Al-Amanah issued a Recommendation Sheet addressed to its Board Operations Committee. wrote then PELA President Bonifacio Cuizon.000.000. the demand letters to vacate. from which Robern was informed of the acceptance. asked some of the members of People's Landless Association to desist from building their houses on the lot and to vacate the. Al-Amanah requested for assistance for the removal of the houses not only from the Office of the City Engineer but also from Mayor Rodrigo Duterte.R. Farouk Carpizo . Al-Amanah reiterated its demand to the informal settlers to vacate the lot. and Robern’s President and General Manager. Pedro S. Consequently. Robern paid the balance of the purchase price.00 as evidenced by four bank receipts. AlAmanah proceeded with the sale of the lot despite the prior sale to PELA.                PELA had deposited P150. The Head Office informed the Davao Branch Manager that the Board Operations Committee had accepted Robern’s offer.000. Al-Amanah sent similarly worded letters to 19 PELA members demanding that they vacate the lot. that it is buying the lot on "as is" basis. The Deed of Sale over the realty was executed and Title was issued in Robern’s name the following day.Amanah made the following annotation: Note: Subject offer has been acknowledged/received but processing to take effect upon putting up of the partial amt. Through a letter the informal settlers together with other members comprising PELA offered to purchase the lot for P300. Robern.000. PELA consigned P150. as well as the payment of the remaining amount within 15 days. as its members were already facing eviction and possible demolition of their houses. 138914".Topic: Board of Directors/Trustees/Officers Subtopic: Powers of the Board Provision: Section 23.

Amanah’s Head Office. The transaction between Al-Ahmanah and PELA remained in the negotiation stage. RTC dismissed PELA’s Complaint. Unlike when it accepted Robern’s offered price. cannot bind the bank. and c) price certain in money or its equivalent. Thus. They asserted that PELA was properly apprised that its offer to buy was subject to the approval of Al.Amanah’s board of directors can bind the bank with third persons involving the sale of its property. They clarified that the P150. which as eventually Affirmed by CA Al-Amanah and Engr.     The trial court granted PELA’s prayer for a TRO. and PELA even acknowledge that OIC Dalig made it clear that the acceptance of the offer notwithstanding the deposit is subject to the approval of the Head Office. b) determinate subject matter. the purported offer made by AlAmanah’s OIC. CA Reversed RTC’s Decision ISSUE: W/N there was a perfected contract of sale between PELA and Al-Amanah? Ruling: No. who was never conferred authority by the board of directors to sell the lot. there is no perfected contract of sale between PELA and Al-Amanah      A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.000. all of the following essential elements must concur: "a) consent or meeting of the minds. only Al. 71 3B-Corporation Law . Carpizo claimed that the bank has every right to sell its lot to any interested buyer with the best offer and thus they chose Robern. No false representation on her part. In contrast.00 PELA handed to them is not part of the payment but merely a deposit in connection with its offer. The offer never materialized into a perfected sale. giving birth to a perfected contract of sale between Al-Amanah and Robern. For a contract of sale to be valid. It was stressed that Al." It is undisputed.Amanah never entered into a sale with PELA for there was no perfected agreement as to the price since the Head Office rejected. it was duly approved by the board of directors. It ruled that being a corporation. There was no approval from the Board Operations Committee that they accepted the sale of the lot to PELA but unlike in Robern’s case an approval was obtained through the Board Operations Committee for the sale of the said lot. Recognizing the corporate nature of the bank and that the power to sell its real properties is lodged in the higher authorities.

Topic: Board of Directors/Trustees/Officers Subtopic: Powers of the Board Provision: Section 23. the performance of authorized duties of such director. the rule is that the declarations of an individual director relating to the affairs of the corporation. Since the Bank did not accede to the counter proposal of Ignacio. the bank’s collecting agent sent Ignacio a letter which contained the terms of the repurchase. 177783. there was no valid acceptance of the offer. Ignacio defaulted in the payment of the loan. It countered that it did not approve the unilateral amendments placed by Ignacio. so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Corporation Code Case Name: Heirs of Fausto Ignacio v Home Bankers Savings and Trust Company Powers Of The Board Heirs Of Fausto C. No repurchase agreement was finalized between Ignacio and the Bank. Ignacio then filed an action for specific performance against the Bank for the reconveyance of the properties after payment of the balance of the purchase price. or connected with. RTC: Render decision in favor Ignacio. UPI. Ignacio Vs. Contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. The Bank denied that it gave its consent to the counter-offer of Ignacio. No. Universal Properties Inc. a contract of repurchase was not perfected        Bank as a corporation can only exercise its powers and transact business through its board of directors or officers and agents authorized by a board resolution or its by-laws.. Mere communication of modified terms to a bank agent who gave his assent has no effect on the corporation. Home Bankers Savings and Trust Company (G. He argued that there was implied acceptance of the counter-offer of the sale through the receipt of the terms by representatives of UPI. are held not binding on the corporation. Fajardo. A person representing the corporation in negotiations must be authorized by the corporation to accept the counter-offer to a sale. An agent cannot bind a corporation in any contract without delegation of powers from the board. 2013)          Fausto C. January 23. CA Reversed the RTC’s decision. Absent such valid delegation/authorization. Thereafter the Bank sold the property to third parties. 72 3B-Corporation Law . Ignacio mortgaged the properties to Home Bankers Savings and Trust Company as security for a loan extended by the Bank. Issue: W/N a contract for the repurchase of the foreclosed properties was perfected between petitioner and respondent bank. Ignacio annotated in the letter new terms and conditions. but not in the course of. Lazaro and Mr. Ruling: No. In the absence of conformity or acceptance by properly authorized bank officers of petitioner’s counterproposal.R. the property was foreclosed and subsequently sold to the Bank in a public auction Ignacio offered to repurchase the property. no perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf. He claimed that these were verbal agreements between himself and the Bank’s collection agent. A corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.

after which the petitioners were elected to the board of directors of the corporation. respectively. BENJAMIN LOPUE. the respondents. however. with a par value of P100.. in favor of the petitioners. The respondents claimed that the sale of the unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and pre-emptive rights and made without the approval of the board of directors representing 2/3 of the outstanding capital stock. as stockholders. and the HEIRS OF MERCEDES DE LA RAMA-BORROMEO vs. GAMBOA.00 per share. OSCAR R. is without merit. HONORIO DE 1A RAMA. ISSUES: Whether or not the issuance of a writ of preliminary attachment was proper. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental. The respondents prayed that a writ of preliminary injunction be issued restraining the defendants from committing. Gamboa and Honorio de la Rama as president and vicepresident of the corporation. 2. Inc. the suing stockholder is regarded as a nominal party. the defendants Mercedes R. are the owners of 1. LEONITO LOPUE. In the case at bar. Then President and Vice-President of the corporation. DACLES G.Topic: Board of Directors/Trustees/Officers Subtopic: Business Judgment Rule Provision: Section 23. respectively. transferring. surreptitiously met and elected Ricardo L. or are the ones to be sued or hold the control of the corporation. 1972. No. 1979 FACTS: The herein petitioners were sued by herein defendants to nullify the issuance of 823 shares of stock of the Inocentes de la Rama. the plaintiffs are alleging and vindicating their own individual interests or prejudice. a domestic corporation. L-40620. and from disposing. thus leaving 823 shares unissued. and LUISA U. Besides. GAMBOA. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. and Ricardo Gamboa. questioning the trial court's jurisdiction on matters affecting the management of the corporation. SR. Borromeo. May 5. LYDIA R. at par value. BENJAMIN LOPUE. with an authorized capital stock of 3. in their Addendum to the motion for reconsideration of the order denying the motion to dismiss the complaint.. Inc. At any rate. Branch II. On April 4. Honorio de la Rama. so that the trial court has jurisdiction over the case. in order to forestall the takeover by the plaintiffs of the aforenamed corporation. 73 3B-Corporation Law . EDUARDO DE LA RAMA. The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies available within the corporation. with the corporation as the real party in interest.177 of which were subscribed and issued. The respondent court granted the prayer. misjoinder of parties is not a ground to dismiss an action. the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the interests of the plaintiffs. whenever the officials of the corporation refuse to sue. and passed a resolution authorizing the sale of the 823 unissued shares of the corporation to the defendants. it is yet too early in the proceedings since the issues have not been joined. JR. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate power of. remaining members of the board of directors of the corporation. Corporation Code Case Name: Gamboa v Victoriano RICARDO L. In such actions. HON. selling. or continuing the performance of an act tending to prejudice. and is in disregard of the strictest relation of trust existing between the defendants. or otherwise impairing the value of the 823 shares of stock illegally issued. The claim of the petitioners.R. diminish or otherwise injure the plaintiffs' rights in the corporate properties and funds of the corporation..000 shares. action and contracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. and not that of the corporation.328 shares of stock of the Inocentes de la Rama. RULING: NO. In the instant case.

Inc. October 15.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Business Judgment Rule Section 23. According to petitioner. Corporation Code Philippine Association of Stock Transfer and Registry Agencies. No. The resolution also authorized the imposition of a processing fee for the cancellation of stock certificates at P20 per certificate. The SEC advised petitioner to hold in abeyance the implementation of the increases until the matter was cleared with all the parties concerned. 137321. Section 47 gave the Commission the power to enjoin motu proprio any act or practice of petitioner which could cause grave or irreparable injury or prejudice to the investing public.R. 74 3B-Corporation Law . Philippine Association of Securities Brokers and Dealers. Inc. the rates had to be increased since it had been over five years since the old rates were fixed and an increase of its fees was needed to sustain the financial viability of the association and upgrade facilities and services.    The regulatory and supervisory powers of the Commission under Section 40 of the then Revised Securities Act. The intentional omission in the law of any qualification as to what acts or practices are subject to the control and supervision of the SEC under Section 47 confirms the broad extent of the SEC’s regulatory powers over the operations of securities-related organizations like petitioner. Petitioner’s Board of Directors unanimously approved a resolution allowing its members to increase the transfer processing fee they charge their clients from P45 per certificate to P75 per certificate and eventually to P100 per certificate. v Court of Appeals Business Judgment Rule Philippine Association Of Stock Transfer And Registry Agencies VS. Petitioner nonetheless proceeded with the implementation of the increased fees. Inc. registered its objection to the measure advanced by petitioner and requested the SEC to defer its implementation. CA (G. is an association of stock transfer agents principally engaged in the registration of stock transfers in the stock-and-transfer book of corporations. were broad enough to include the power to regulate petitioner‟s fees. Issue: W/N the SEC has the power to regulate fees? Ruling: Yes the SEC has the power to regulate fees. 2007)        Petitioner Philippine Association of Stock Transfer and Registry Agencies.

besides other concessions. adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. As the resolution in question was passed in good faith by the board of directors. Inc.. 75 3B-Corporation Law . th ecourt has no authority to review them. had been and are sugar planters They adhered to the defendant’s sugar central mill under identical milling contracts. The appellants initiated the present action. under the terms of its Resolution and is duty bound to grant similar increases to plaintiffs-appellants herein. Alfredo Montelibano. The said contracts were stipulated to be in force for 30 years and provided that the resulting product should be divided in the ratio of 45% for the mill and 55%for the planters. and whether or not it will cause losses or decrease the profits of the central. but extending the operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee Bacolod-Murcia Milling Co. The appellee Bacolod-Murcia Milling Company is. is a purely business and economic problem to be determined by the directors of the corporation and not by the court. Corporation Code Case Name: Montelibano v Bacolod-Murcia Milling Business Judgment Rule Montelibano VS Bacolod-Murcia Milling       Petitioners-appellants. the resolution was not an ultra vires act     There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt. or close down at a smaller loss. had already granted increased participation (of 62. and that under the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. Whether the business of a corporation should be operated at a loss during depression. inc. resisted thec laim. it is valid and binding. and the Limited co-partnership Gonzaga and Company. Petitioner proposed to execute an amended milling contract. increasing the planters’ share to 60% of the manufactured sugar and resulting molasses. that the resolution in question was. therefore.Topic: Board of Directors/Trustees/Officers Subtopic: Business Judgment Rule Provision: Section 23. null and void abinitio. contending that three Negros sugar centrals with a total annual production exceeding one-third of the production of all the sugar central mills in the province. The appellee Bacolod-Murcia Milling Co. Issue: W/N the board resolution is an ultra vires act and in effect a donation from the board of directors? Ruling: No.. Alejandro Montelibano.. and defended by urging that the stipulations contained in the resolution were made without consideration.5%) to their planters..

Thus. 161886 March 16. and conduct the ordinary business of the corporation within the scope of its charter. unless more extensive power is expressly conferred.. joined by Mindanao Terminal and Brokerage Services. pursuant to the Corporation Code. GO (G. RTC found that Filport’s Board of Directors had the power to create positions not provided for in the by-laws and the increases in salaries are reasonable. was in accordance with the regular business operations of Filport as it is authorized to do so by the corporation’s by-laws. Stockholders are too numerous. scattered and unfamiliar with the business of a corporation to conduct its business directly. Cruz (Cruz) was president of Filipinas Port Services. operations. Cruz was unhappy with the Board’s action on the matter. in a derivative suit supposedly in representation of Filport and its stockholders. in case of non-stock corporations). the board of directors (or trustees. HELD: Yes it is within the powers of the Board of Directors       The governing body of a corporation is its board of directors. v Go Business Judgment Rule Filipinas Port Services VS. No. with the exception only of some powers expressly granted by law to stockholders (or members.Topic: Board of Directors/Trustees/Officers Subtopic: Business Judgment Rule Provision: Section 23. Inc as co-petitioner.e. finance and administration and additional positions where those holding said offices are not doing any work but earning compensation. In the present case. its articles of incorporation. These acts of mismanagement according to Cruz are detrimental to the corporation and its stockholders and so the board must account for the amounts incurred in creating these positions and made to pay damages. all business conducted and all property of the corporation shall be controlled and held by a board of directors. CA Reverse the decision of the RTC ISSUE: W/N the creation of an executive committee and other offices in the corporation with corresponding remunerations are within the powers of the Board of Directors.R. enter into contracts. The election of officers of a corporation is provided for under Section 25 of the Code 76 3B-Corporation Law . Section 23 of the Corporation C ode explicitly provides that unless otherwise provided therein. A year thereafter. by-laws and relevant provisions of law. The authority of the board of directors is restricted to the management of the regular business affairs of the corporation. for a year later he filed a petition with the SEC. Inc. nevertheless it ordered the directors holding the positions of Assistant Vice President for Corporate Planning. The concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization. 2007)          FilPort is a domestic corporation engaged in stevedoring services Eliodoro C. Inc. Cruz wrote a letter to the corporation’s Board of Directors questioning the creation of six (6) positions and the election of certain members of the board thereto. i. This intra-corporate case was transferred from the SEC to the Manila Regional Trial Court(RTC) and eventually landing in the Davao RTC. Corporation Code Case Name: Filipinas Port Services. Special Assistant to the President and Special Assistant to the Board Chairman to refund to the corporation the salaries they have received as such officers considering that Filipinas Port Services is not a big corporation requiring multiple executive positions and that said positions were just created for accommodation. He also questioned the re-creation of the positions of Assistant Vice President for corporate planning. Operations. the board’s creation of the positions of Assistant Vice Presidents for Corporate Planning. in case of non-stock corporations) has the sole authority to determine policies. Finance and Administration. and those of the Special Assistants to the President and the Board Chairman. the corporate powers of all corporations formed under the Code shall be exercised. He lost his bid for reelection in 1991. Cruz contented that the creation of an executive committee is not provided for in the by-laws and the increase in the emoluments of several members of the board is greatly disproportionate to the volume and character of work of said directors. (Filport) since 1968.

Notwithstanding the silence of Filport’s bylaws on the matter. One reason is the absence of a showing as to the true nature and functions of said executive committee considering that the “executive committee.  The amended Bylaws of Filport provides the following: Officers of the corporation. the creation of an executive committee must be provided for in the bylaws of the corporation. quorum. who shall be a director. Cruz is virtually precluded from suing to declare such acts of the board as invalid or illegal.Sec. a General Manager and such other officers as the Board of Directors may from time to time provide. clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation. as provided for by the by-laws. The officers of the corporation shall be a Chairman of the Board. a treasurer who may or may not be a director. it was during his incumbency as Filport president that the executive committee in question was created. and that he was even the one who moved for the creation of the positions of the AVPs for Operations. a secretary who shall be a resident and citizen of the Philippines. should be distinguished from other committees which are within the competency of the board to create at anytime and whose actions require ratification and confirmation by the board. a Vice-President. shall be elected by the board of directors at their first meeting after the election of Directors. President. a Treasurer. Another reason as held by the courts that the Board of Directors has the power to create positions not provided for in Filport’s bylaws since the board is the corporation’s governing body. 25. Finance and Administration. Under Section 35 of the Corporation Code. we cannot rule that the creation of the executive committee by the board of directors is illegal or unlawful. a Secretary.      The fixing of the corresponding remuneration for the positions in question is provided for in the same by-laws of the corporation. It was pointed out that as testified to and admitted by petitioner Cruz himself. 77 3B-Corporation Law .” referred to in Section 35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself. Immediately after their election. the directors of a corporation must formally organize by the election of a president. Corporate officers. By his acquiescence and/or ratification of the creation of the aforesaid offices. And it makes no difference that he sues in behalf of himself and of the other stockholders. and these officers shall be elected to hold office until their successors are elected and qualified. and such other officers as may be provided for in the by-laws.

an amendment to the Articles of Incorporation was approved by the Securities and Exchange Commission (SEC).Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Business Judgment and the Minority Stockholders Section 23. HU TSUNG CHIEH alias JACK HU. petitioners alleged that the Board of Directors and officers of the corporation did not call any stockholders’ meeting from the time of the incorporation. petitioners resort to the present Petition. No. Shareholders shall be entitled only to a pro-rata share of the assets of the Club at the time of its dissolution or liquidation. Petitioners claimed in the Complaint that defendant corporation did not disclose to them the above amendment which allegedly makes the shares non-proprietary. In accordance with the Lease and Development Agreement by and between Subic Bay Metropolitan Authority and The Universal International Group of Taiwan. The complaint alleged that the defendant corporation sold shares to plaintiffs at US$22. (SBGCCI) against the said country club and its Board of Directors and officers under the provisions of Presidential Decree No. HU HO HSIU LIEN alias SUSAN HU. in violation of Section 50 of the Corporation Code and the By-Laws of the corporation. presenting to them the Articles of Incorporation which contained the following provision: No profit shall inure to the exclusive benefit of any of its shareholders. Hu Tsung Chieh alias Jack Hu. Hence. as it takes away the right of the shareholders to participate in the pro-rata distribution of the assets of the corporation after its dissolution. Nestor Ching and Andrew Wellington filed a Complaint with the RTC of Olongapo City on behalf of the members of Subic Bay Golf and Country Club. 174353. Petitioners also claim that on August 15. According to the RTC. Said amendment was allegedly passed without any stockholders’ meeting or notices to the stockholders in violation of Section 48 of the Corporation Code. a corporation composed of shareholders of the defendant corporation. SUAREZ. The Subic Bay Golfers and Shareholders Incorporated (SBGSI). and therefore had no personality to file the same on behalf of the said shareholders’ corporation.. no dividends shall be declared in their favor. hence. 1997. a writ of preliminary injunction be issued enjoining defendants to act as Board of Directors and Officers of the Corporation. Inc. the shareholders shall not have proprietary rights or interests over the properties of the Club. Corporation Code Ching v Subic Bay Golf and Country Club. September 10. Respondents. this is in fraud of the stockholders who only discovered the amendment when they filed a case for injunction to restrain the corporation from suspending their rights to use all the facilities of the club. SBGCCI presented to the SEC an amendment to the By-Laws of the corporation suspending the voting rights of the shareholders except for the five founders’ shares. SUBIC BAY GOLF AND COUNTRY CLUB. wherein the above provision was changed as follows: No profit shall inure to the exclusive benefit of any of its shareholders. (2) its treasurer. Furthermore.R. Inc. 2003. 2014 FACTS: On February 26. INC. Neither did the defendant directors and officers furnish the stockholders with the financial statements of the corporation nor the financial report of the operation of the corporation in violation of Section 75 of the Corporation Code. no dividends shall be declared in their favor. The RTC held that petitioners failed to exhaust their remedies within the respondent corporation itself. (3) corporate secretary Reynald Suarez. According to petitioners.2 of the Securities Regulation Code. However. the Court of Appeals rendered the assailed Decision affirming that of the RTC.00 per share. Petitioners. was also named as plaintiff. Hu Ho Hsiu Lien alias Susan Hu. HU TSUNG TZU and REYNALD R. After hearing. The officers impleaded as defendants were the following: (1) its President. G. They furthermore enumerated several instances of fraud in the management of the corporation allegedly committed by the Board of Directors and officers of the corporation.000. where the golf course and clubhouse component thereof was assigned to the Club. to file the Complaint. vs. and (4) directors Hu Tsung Hui and Hu Tsung Tzu.24% is an indication that the action is a nuisance or harassment suit which may be dismissed either motu proprio or upon motion in accordance with Section 1(b) of the Interim Rules of Procedure for Intra-Corporate Controversies. Alleging that the stockholders suffered damages as a result of the fraudulent mismanagement of the corporation. NESTOR CHING and ANDREW WELLINGTON. 78 3B-Corporation Law . the shareholdings of petitioners comprised of two shares out of the 409 alleged outstanding shares or 0. Petitioners Ching and Wellington elevated the case to the Court of Appeals. The RTC further observed that petitioners Ching and Wellington were not authorized by their co-petitioner Subic Bay Golfers and Shareholders Inc. HU TSUNG HUI. hence. petitioners prayed that upon the filing of this case a temporary restraining order be issued enjoining the defendants from acting as Officers and Board of Directors of the Corporation. 902-A in relation to Section 5.

902-A. Although the shareholdings of petitioners are indeed only two out of the 409 alleged outstanding shares or 0. or even the Securities Regulation Code. 79 3B-Corporation Law . 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. but merely identifies the jurisdiction of the SEC over actions already authorized by law or jurisprudence. Contrary to the arguments of petitioners. does not grant minority stockholders a cause of action against waste and diversion by the Board of Directors. namely that of enjoining defendants from acting as officers and Board of Directors of the corporation. However. It is settled that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code. as minority stockholders.24%. HELD: Upon a careful examination of the Complaint. the appointment of a receiver. which is entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION WITH ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT. and the prayer for damages in the amount of the decrease in the value of the shares of stock. the Court has held that it is enough that a member or a minority of stockholders file a derivative suit for and in behalf of a corporation. clearly show that the Complaint was filed to curb the alleged mismanagement of SBGCCI. the Court found that the complaint should not have been dismissed on the ground that it is a nuisance or harassment suit.ISSUE: Whether or not the Complaint is a nuisance or harassment suit. petitioners do not have any statutory right to override the business judgments of SBGCCI’s officers and Board of Directors on the ground of the latter’s alleged lack of qualification to manage a golf course. Presidential Decree No. The reliefs sought in the Complaint. The causes of action pleaded by petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation itself.

No. questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court. not the remaining members of its board of directors. of the Corporation Code of the Philippines. Consequently. as Makalintal’s one-year term had already expired. Eduardo Makalintal. by the terms of Section 29 of the Corporation Code. Two of the said members resigned (Makalintal and Dinglasan). 1998. must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose. the above-named directors continued to serve in the VVCC Board in a hold-over capacity. 24. 80 3B-Corporation Law . vs.R. however. in relation to Section 23. 2009 FACTS: During the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club. however. the holdover period. Respondent Africa. September 4. 26.. (VVCC). VICTOR AFRICA G. et al. After the lapse of one year from his election as member of the VVCC Board in 1996. 2000. and the incumbent is holding the succeeding term. nor is it a new term. constitutes part of his tenure. which. the requisite quorum for the holding of the stockholders’ meeting could not be obtained. In the years 1997. Amado M. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term. Pursuant to law. had already expired. is not to be considered as part of his term. ISSUE: Whether or not the elections were valid. Jaime C. Africa alleged that the election of Roxas was contrary to Section 29. it implies that the office has a fixed term. This holdover period. which has expired. Victor Salta. 1999." we construe the provision to mean that the term of the members of the board of directors shall be only for one year. The respective trial courts ruled in favor of Africa. and Ray Gamboa. Corollary. however. Makalintal’s term of office is deemed to have already expired. After the resignation of Dinglasan. Augusto Sunico. a vacancy resulted which. INC. when remaining members of the VVCC Board elected Ramirez to replace Makalintal. the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna. when an incumbent member of the board of directors continues to serve in a holdover capacity.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Term of Directors: Hold-over Directors Section 23. 151969. a member of VVCC. Section 23 of the Corporation Code declares that "the board of directors shall hold office for one (1) year until their successors are elected and qualified. With the expiration of Makalintal’s term of office. and 2001. the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders.. Fortunato Dee. Dinglasan. Jr. Eric Roxas was elected. 27 Corporation Code Valle Verde Country Club v Africa VALLE VERDE COUNTRY CLUB. As correctly pointed out by the RTC. Makalintal was replaced by Jose Ramirez. as declared. RULING: YES. Santiago. Francisco Ortigas III. Inc. their term expires one year after election to the office. there was no more unexpired term to speak of. The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office.

including the Chairman and the Secretary. Election of officers. He was relieved as President without valid grounds despite his five-year term by the Board of Trustees. The respondents denied the allegations of the petitioner. Following the conclusion of the 3rd Quinquennial Session.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Term of Directors: Hold-over Directors Section 23. During the 3rd Quinquennial Session of the General Conference of Seventh Day Adventists held f. 2. a President. Respondent Nestor D. The audit concluded that he had committed serious violations of fundamental rules and procedure in the disbursement and use of funds. with prayer for the issuance of a temporary restraining order against the Board of Trustees. 24. a Secretary. 2002) a group from the NPUM conducted an external performance audit. The petitioner brought his suit for injunction and damages in the RTC. Trial Court: granted the TRO Court of Appeals: reversed the RTC decision Issue : Whether or not petitioner has a vested right in office Held: In AUP’s case. 81 3B-Corporation Law . – At their organization meeting. thusly: Board of Trustees Section 1. and the period within which to elect the officers. and claimed that petitioner had been validly removed for cause and was given the opportunity to be heard in his defense. and 3. its amended By-Laws provided the term of the members of the Board of Trustees. like making major decisions without the approval or recommendation of the proper committees. During his tenure ( November 11 to November 13. If a trustee ceases at any time to be a member in good and regular standing in the Seventh-day Adventist denomination. He alleged that: 1. a Board of Trustees shall be elected. That his being denied ample and reasonable time to present his evidence deprived him of his right to due process. Dayson was elected Chairman while the petitioner was chosen Secretary. 27 Corporation Code Barayuga v Adventist University of the Philippines BARAYUGA VS. NO. In the January 27. 26. 168008 Facts: AUP is a non-stock and non-profit domestic educational institution incorporated under Philippine laws was directly under the North Philippine Union Mission (NPUM) of the Southern Asia Pacific Division of the Seventh Day Adventists. The NPUM Upon receipt of the CGAS report that confirmed the initial findings of the auditors informed the petitioner of the findings and required him to explain. The audit revealed the petitioner’s autocratic management style. that the Board of Trustees had thereby acted in bad faith. Officers Section 1. and that he had himself done the canvassing and purchasing of materials and made withdrawals and reimbursements for expenses without valid supporting receipts and without the approval of the Finance Committee. the members of the Board of Trustees shall elect from among themselves a Chairman. and thereafter every two years. ADVENTIST UNIVERSITY OF THE PHILIPPINES G. 2003 special meeting. At the first meeting of the members of the corporation. It shall be composed of fifteen members in good and regular standing in the Seventh-day Adventist denomination. or until his successor has been elected and qualified. he shall thereby cease to be a trustee. the Board of Trustees appointed the petitioner President of AUP. the NPUM Executive Committee elected the members of the Board of Trustees of AUP. the members voted to remove him as President because of his serious violations of fundamental rules and procedures in the disbursement and use of funds as revealed by the special audit. each of whom shall hold his office for a term of two years. a Vice-Chairman.R. including the Finance Committee.

the members of the Board of Trustees were to serve a term of office of only two years. the officers. therefore. Naturally. 2001. 2003. 2003. His insistence on holding on to the office was untenable. By the time of his removal for cause as President on January 27. upon the election or appointment of his successor. The same persons may hold and perform the duties of more than one office. and the officers. without cause. and could be removed at any time. were to exercise the powers vested by Section 2 of the amended By-Laws for a term of only two years. who included the President. and a Treasurer. could serve for only two years. having assumed as President of AUP on January 23.a Business Manager. the petitioner. he was already occupying the office in a hold-over capacity. Ineluctably. not five years. were to be elected from among the members of the Board of Trustees during their organizational meeting. and with more reason when one considers that his removal was due to the loss of confidence on the part of the Board of Trustees. provided they are not incompatible with each other. 82 3B-Corporation Law . including the President. or until January 22. In light of foregoing. which was held during the election of the Board of Trustees every two years.

Adoption and amendment of by-laws. -.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Term of Directors: Removal and Replacement of Directors or Trustees Sections 28 and 29. Investment of corporate funds in another corporation or business in accordance with this Code. Petitioners Ernesto Tanchi. lease. 83 3B-Corporation Law . creating or increasing bonded indebtedness. exchange. Dissolution of the corporation. Sale. who also constitute the board of trustees. remaining members of the board of trustees of GCHS may convene and fill up the vacancies in the board Ratio: Except as provided. Amendment of the articles of incorporation. Sycip Grace Christian High School (GCHS) is a nonstock. Edwin Ngo. the quorum = 6. SEC: meeting void due to lack of quorum (NOT living but based on AIC) ISSUE: Whether or not dead members should still be counted in the quorum HELD: NO. Increase or decrease of capital stock. pledge or other disposition of all or substantially all of the corporation property. Quorum in a members’ meeting is to be reckoned as the actual number of members of the corporation. SECTION 29. o 2. o 5. The meeting was convened and chaired by Atty. said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. 7 attended the meeting through their respective proxies. Vacancies in the office of director or trustee. o 4. o 7. depends on those articles of incorporation or bylaws  By-Laws of GCHS: membership in the corporation shall be terminated by the death of the member  With 11 remaining members. Whether or not "dead members" are entitled to exercise their voting rights (through their executor or administrator). Pacis. Section 91 of the Corporation Code: termination extinguishes all the rights of a member of the corporation. o 3. over the objection of Atty. Incurring. During the annual members’ meeting only 11 living member-trustees. the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights: o 1. and Judith Tan were voted to replace the 4 deceased member-trustees. mortgage. Sabino Padilla Jr. Antonio C. Merger or consolidation of the corporation with another corporation or other corporations.Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term. may be filled by the vote of at least a majority of the remaining directors or trustees. o 6. Corporation Code Tan v Sycip Tan v. unless otherwise provided in the articles of incorporation or the bylaws. who argued that there was no quorum. Virginia Khoo. otherwise. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office. as 4 had already died. In the meeting. non-profit educational corporation w/ 15 regular members. and o 8. if still constituting a quorum.

The filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive. not mandatory either by the remaining directors constituting a quorum. that is. or by the stockholders or members in a regular or special meeting called for the purpose By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors. by a majority vote of the remaining members of the board 84 3B-Corporation Law .

who were mere corporate officers. justify wrong. and 34. and Loyalty Provision: Sections 31. Diligence. . on the other hand. protect fraud or defend a crime 85 3B-Corporation Law . 32. can be held liable in damages under Section 31 of the Corporation Code for gross neglect or bad faith in directing the corporation's affairs. Liability of directors. 31. is an equitable remedy resorted to only when the corporate fiction is used. its stockholders or members and other persons. Section 31 of the Corporation Code makes directors-officers of corporations jointly and severally liable even to third parties for their gross negligence or bad faith in directing the affairs of their corporations. a director and chief executive officer of ULFI. Ratio: Petitioner Sanchez claims that there is no ground for the courts below to pierce the veil of corporate identity and hold him and Kahn. Issue: Whether or not petitioner Sanchez. to defeat public convenience. net of all expenses. personally liable for ULFI's obligations to the DECS. The doctrine mentioned. Petitioners counter that they are mere employees and thus cannot be held personally liable. DECS demanded the payment of its arrears but petitioners failed to remit the same. among others. This promoted DECS to file a collection suit against petitioners. trustees or officers. Republic Facts: Petitioners Khan and Sanchez are key officers of University of Life Complex (ULFI). 33. (Emphasis supplied)cralawlibrary The DECS does not have to invoke the doctrine of piercing the veil of corporate fiction. andcralawlibrary Held: They can be held personally liable. Corporation Code Case Name: Sanchez v Republic Sanchez vs. Section 31 above expressly lays down petitioner Sanchez and Kahn's liability for damages arising from their gross negligence or bad faith in directing corporate affairs. which should not be confused with actions intended to pierce the corporate fiction. But this is not a case of piercing the veil of corporate fiction.Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. The DECS brought its action against Sanchez and Kahn under Section 31 of the Corporation Code. The complex was guilt using public fund and the management was given to ULFI on the condition that the latter would remit the revenue to the government through DECS. Thus: Sec.Topic: Board of Directors/Trustees/Officers Subtopic: Duties of Directors: Obedience.

All of these acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate officers. empowered its Board of Directors to appoint such other officers as it may determine necessary or proper. thereafter. Alfredo Joson Facts: Respondent Joson was appointed as General Manager of Marc II Marketing. because of poor sales. Matling clearly enunciated that the board of directors has no power to create other corporate offices without first amending the corporate by-laws so as to include therein the newly created corporate office. Corporation Code Marc II Marketing. respondent Joson was granted a 30% share in the profit of the company. v Alfredo Joson Mar II Marketing. appointed respondent thereto making him one of its corporate officers. General Manager. this Court rules that respondent was not a corporate officer of petitioner corporation because his position as General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws. (3) one or more Vice-President. Section 1. Inc. Held: Petition dismissed.. 86 3B-Corporation Law . Respondent filed a case against petitioner for illegal dismissal. Petitioner counters that there is no employer-employee relationship because as a General Manager. (2) President. he is a corporate officer thus Labor Arbiter has no jurisdiction on the case. Paragraph 2. Issue: Whether the position of General Manager is part of corporate officer divesting the LA from acquiring jurisdiction of the case. Coros. and (5) Secretary. such position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code. With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Ratio: A careful perusal of petitioner corporations by-laws. It is by virtue of this enabling provision that petitioner corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate office. Article IV of petitioner corporations by-laws. He is not a corporate officer. In view thereof. particularly paragraph 1. Section 1. the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. Inc v. this Court holds that unless and until petitioner corporations by-laws is amended for the inclusion of General Manager in the list of its corporate officers. i.e. Article IV. Thru their agreement. respondent company ceased operation and served termination notice to respondent. would explicitly reveal that its corporate officers are composed only of: (1) Chairman. and. The enabling clause in petitioner corporations by-laws empowering its Board of Directors to create additional officers. However. Though the board of directors may create appointive positions other than the positions of corporate officers.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Corporate Officers Section 25. The position of General Manager was not among those enumerated. and the alleged subsequent passage of a board resolution to that effect cannot make such position a corporate office. (4) Treasurer.

or relevant provisions of law. had long been recognized in this jurisdiction. bylaws. verbally agreed to their request hence they sold their property to Violeta Banate and used the proceeds to pay the loans. PCRB gave the owners duplicate certificate of title and Banate secured a title in her name. Before the maturity of their said loan. subject to the articles of incorporation. acting through its Branch Manager. with which it clothes him. with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof yet the power to modify or nullify corporate contracts remains generally in the board of directors. They then filed an action for specific performance. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board. PCRB. or 2) the acquiescence in his acts of a particular nature. Issue: WON the verbal agreement with the bank’s corporate officer binds PCRB. the spouses Cortel. The lower court ruled in favor of Banate but CA reversed the decision on the ground that It ruled that Mondigo cannot orally amend the mortgage contract hence it was not binding with PCRB. on the other hand. Pancrasio Mondigo. can validly bind a corporation. In the absence of authority from the board of directors. with actual or constructive knowledge thereof. or in other words. however the mortgage lien was carried over hence they requested PCRB to release the morthgaged which the bank refused. The existence of apparent authority may be ascertained through: 1) the general manner in which the corporation holds out an officer or agent as having the power to act. Corporation Code Violeta Tudtud Banate v Phil. The doctrine of apparent authority. Allegedly. no person. 87 3B-Corporation Law . with special reference to banks. Modrigo is not clothed with apparent authority to bind PCRB and the latter did not ratified the alleged acts of Modrigo. They also obtained 2 other loans secured by their other properties. Sps. In this case. Countryside Rural Bank Facts: Spouses Maglasang obtained a loan from PCRB and mortgaged the house and lot owned by their daughter and son-inlaw. is the general agent and is in general charge of the corporation. the apparent authority to act in general. within or beyond the scope of his ordinary powers.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Corporate Officers Section 25. not even its officers. Although a branch manager. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Held: Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Maglasang alleged that they requested PCRB to permit them to sell their subject properties if they will pay the full amount of the loans.

was a corporate officer. He was not allowed to go inside the premises of the corporation and was made to wait in the receiving area. Held: The mere fact that Cosare was a stockholder and an officer of Broadcom at the time the subject controversy developed failed to necessarily make the case an intra-corporate dispute. is correct. there are two circumstances which must concur in order for an individual to be considered a corporate officer. the vice-president. cashier. namely: (1) the creation of the position is under the corporation’s charter or by-laws. He then filed for illegal dismissal with the DOLE. A corporation may have such other officers as may be provided for by its by-laws like. instead of the LA since it involved a complaint against a corporation filed by a stockholder. Inc. NLRC reversed the decision stating e fact that Cosare was suspended from using the assets of Broadcom hence Cosare did not abandon his work. It is only when the officer claiming to have been illegally dismissed is classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the trial courts. The number of corporate officers is thus limited by law and by the corporation’s by-laws. as against an ordinary employee or officer. He became the AVP of Sales under Abiog. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. but not limited to. Cosare in this case is not a corporate officer since records and the GIS does not show he was a corporate officer. After sometime and he never got any feedback from the corporation. Issue: WON the contention of Bancom Asia Inc. he left the premises and asked the assistance of the Barangay Officers. The definition of corporate officers for the purpose of identifying an intra-corporate controversy provides that Corporate officers’ are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws. He was also given a show-cause memo. Facts: Cosare claimed he was employed as a salesman by Arevalo and incorporator of Broadcom Asian Inc.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Corporate Officers Section 25. Arevalo failed to act on Cosare’s accusations and instead was asked to tender his resignation charging him of serious misconduct and willful breach of trust. auditor or general manager. Corporation Code Cosare v Broadcom Asia. and (2) the election of the officer is by the directors or stockholders. 88 3B-Corporation Law . As may be deduced from the foregoing. The number of officers is not limited to these three. Cosare sent letters to Arevalo about the anomalies allegedly committed by Abiog against the company. These are the president. secretary and the treasurer. his superior. The LA ruled in favor of Bancom Inc. at the same time. who. Bancom then on appeal raised the issue that the issue is an intra-corporate controversy which was within the jurisdiction of the RTC.

Hence. to the sound discretion of NACOCO's general manager Maximo M. they approved 60 contracts with various corporations to deliver coconut products even though they were well aware that there was a decrease in copra productivity due to several typhoons that ravaged the country. NACOCO failed to deliover the said copra products and was sued by the other parties of the contracts. Issue: WON Kalaw and the other Board of Directors are personally liable. NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end. thought so. the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. They alleged that Kalaw et. Kalaw. including Kalaw himself. Held: Previous contracts signed by Kalaw reaped NACOCO tremendous profits. Kalaw and the other Board Mmebers are not liable as corporate officers considering he acted with implied authority. Our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted. approved the said contracts without authority. Kalaw had authority to execute the contracts without need of prior approval. These previous contract it should be stressed. Corporation Code Board of Liquidators v Heris of Maximo Kalaw Facts: Maximo M. As a consequence. Said contracts were known all along to the board members.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Authority of Officers: Implied Authority Section 25. The aforesaid contracts stand to prove one thing: Obviously. Together with other Board Members. and for a long time." By corporate confirmation. Kalaw was the General Manager and board chairman of NACOCO. NACOCO through the Board of Liquidators then sued Kalaw and the others for the damages incurred by the Corporation due to the acts of Kalaw et al. 89 3B-Corporation Law . Nothing was said by them. were signed by Kalaw without prior authority from the board. Al. Everybody.

be estopped from denying the agent’s authority. Arma Traders failed to settle its account with Advance Paper. Arma Traders purchased on credit notebooks and other paper products amounting to P7. Advance Paper. thus. the respondents countered that these were the personal obligations of Tan and Uy to Advance Paper. 90 3B-Corporation Law . Gui. the corporation will. Hence. Advance Paper should suffer the consequences.87.82.001. Further. As payment.000. Citing Lipat v.623. the CA explained that this is not sufficient because the authority to sign the checks is different from the required authority to contract a loan.636. v Arma Traders Corp Advance Paper is a domestic corporation engaged in the business of producing. distributing and selling of various paper products. However. and that the loan transactions were personal obligations of Tan and Uy.94 or a total of P7.” Despite repeated demands. Uy.49 from Advance Paper. Tan. Claims of the respondents: As to the loan transactions. Arma Traders also obtained three loans from Advance Paper in the amounts of P3. the respondents claimed that Advance Paper failed to verify Tan and Uy’s authority to transact business with them.000.796. the corporation is not liable for whatever acts that these officers committed in excess of their authority. the corporate officers are acting in excess of their authority or ultra vires. the petitioners said that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. Petitioner George Haw is the President. Upon the representation of Tan and Uy.380. P1.533. The RTC held that the respondents failed to present hard. the RTC dismissed the complaint against Tan.76. In fact. Petitioner Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain loans since the respondents left the active and sole management of the company to Tan and Uy since 1984. as against anyone who has in good faith dealt with it through such agent. printing. While respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribution of school and office supplies. with Arma Traders for the payment of its account.408. The petitioners filed a complaint for collection of sum of money with application for preliminary attachment against Arma Traders. Respondent Antonio Tan was formerly the President while respondent Uy Seng Kee Willy is the Treasurer of Arma Traders.788. RTC ordered Arma Traders to pay Advance Paper the sum of P15.798. Advance Paper presented the checks to the drawee bank but were dishonored either for “insufficiency of funds” or “account closed. Ting. manufacturing. and Ng.321. however. Ng testified that Arma Traders’ stockholders and board of directors never conducted a meeting from 1984 to 1995. for about 14 years. The CA acknowledged that Tan and Uy were Arma Traders’ authorized bank signatories.171.Topic: Subtopic: Provision: Case Name: Facts: Board of Directors/Trustees/Officers Agency by Estoppel and Doctrine of Apparent Authority Section 25. Nonetheless.130. Pacific Banking Corporation. and P3. Gui and Ng due to the lack of evidence showing that they bound themselves. Tan and Uy were Arma Traders’ authorized bank signatories who signed and issued these checks which had the aggregate amount of P15. CA held that the petitioners failed to prove by preponderance of evidence the existence of the purchases on credit and loans Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan and Uy to obtain the loan from Advance Paper. The respondents also claimed that the loan transactions were ultra vires because the board of directors of Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper. When the acts of the corporate officers are ultra vires. Ting. Uy. Arma Traders issued 82 postdated checks payable to cash or to Advance Paper. either jointly or solidarily. They represented Arma Traders when dealing with its supplier. admissible and credible evidence to prove that the sale invoices were forged or fictitious. Corporation Code Advance Paper Corp. These loans were never intended to benefit the respondents. They claimed that the borrowing of money must be done only with the prior approval of the board of directors because without the approval.00. it holds him out to the public as possessing the power to do those acts. and novelty products.

Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third persons without the necessary written authority from its non-performing board of directors. the respondents aver that these were Tan and Uy’s personal obligations with Advance Paper. In Inter-Asia Investment Industries v. or (2) the acquiescence in his acts of a particular nature. Likewise. As to the loans. the respondents claim that the petitioners are in bad faith because the petitioners connived with Tan and Uy to make Arma Traders liable for the non-existent deliveries of notebooks and other paper products. In the present case. He also confirmed that since 1984 up to the filing of the complaint against Arma Traders. incorporator. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or. It is not the quantity of similar acts which establishes apparent authority. thus "clothing" its president with the power to bind the corporation. promissory notes and other evidence of indebtedness. through its president Antonio Punsalan Jr. 91 3B-Corporation Law . It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. ISSUE: Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority. its stockholders and board of directors never had its meeting. To begin with. In the present petition. and it holds him out to the public as possessing the power to do those acts. testified that the sole management of Arma Traders was left to Tan and Uy and that he and the other officers never dealt with the business and management of Arma Traders for 14 years. it states that Tan and Uy are not just ordinary corporate officers and authorized bank signatories because they are also Arma Traders’ incorporators along with respondents Ng and Ting.. Furthermore. Despite such lack of board approval. Inc.. Arma Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance Paper. in People’s Aircargo and Warehousing Co. we ruled that the doctrine of apparent authority is applied when the petitioner. through Ng who is Arma Traders’ corporate secretary.78 we explained: Apparent authority is derived not merely from practice. in other words the apparent authority to act in general. Arma Traders’ Articles of Incorporation provides that the corporation may borrow or raise money to meet the financial requirements of its business by the issuance of bonds. Also.Respondents argue that while as a general rule. this is only true if the person dealing with the agent dealt in good faith. Thus. stockholder and director. with actual or constructive knowledge thereof. the respondents. within or beyond the scope of his ordinary powers. we do not agree with the CA’s findings that Arma Traders is not liable to pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. Arma Traders failed to take precautions to prevent its own corporate officers from abusing their powers. a corporation is estopped from denying the authority of its agents which it allowed to deal with the general public. Court of Appeals. HELD: The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. entered into the First Contract without first securing board approval. petitioner did not object to or repudiate said contract. Because of its own laxity in its business dealings. v. but the vesting of a corporate officer with the power to bind the corporation. and Pedro Chao. Court of Appeals. Held: Yes. with which it clothes him.

1993 as indicated in the promissory note. computed from the filing of the complaint to full payment.00 per month for six (6) months from December 8.000 under the following schedule of payments: January 8.772.. including the power to enter into a contract of loan ISSUE: Whether the parties agreed to the 4% monthly interest on the loan. CA Decision SET ASIDE...000. but denied the 4% monthly interest for not being provided in the promissory note.000. 1995……………. shall thereafter bear interest at 12% per annum.000 payable for 6 months or P1.000.000 per court appearance and costs of suit RTC: petitioners liable for payment of P3. but merely an authorization for Pantaleon to perform certain acts.000. CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest because the board resolution was not an evidence of a loan or forbearance of money.108. 1994 ……………………. unpaid as of the end of the six-month payment period. P40.000.151. 1994 …………………….00 June 8. P30. and Officers Section 31. Petitioners admitted the loan of P1.00 shall bear interest of P40. 1994 ………………… P1.00 January 4. but still has an outstanding balance of P1..240. 1994 ………………….000.00 March 8. petitioners’ loan of P1.000. P40.P600. 1994 ………………P320.00 April 8. Any portion of this loan.00 November 8. but modified the interest rate from 4% per month to 12% per annum.000..00 to Menchavez CA: affirmed RTC Decision.526.364. If so. Respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance.240. 1997: Petitioners had already paid a total of P1.000.00 January 4. Petitioners failed to completely pay the loan within the stipulated period and paid such amounts to respondent: September 8.00 Pantaleon signed the promissory note in his personal capacity and as duly authorized by the Board of Directors of PRISMA. P40.040.00 May 8.. Trustees. 1994 ………………. P40. with a monthly interest of P40.. plus 4% monthly interest. P1.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Liabilities of Directors. does the rate of interest apply to the 6-month payment period only or until full payment of the loan? HELD: Petition is meritorious. Corporation Code Prisma Construction and Development Corporation v Menchavez FACTS: Pantaleon.000.000. Case is REMANDED to RTC for proper computation. 1994 …………………. obtained a P1M loan from the respondent.P158.000.000 in attorney’s fees. President and Chairman of the Board of PRISMA..00 Total P1. applied a 4% monthly interest. 1997 ………………… P30.00.00 October 8. 1995…………………. Pantaleon also denied that he made himself personally liable and made representations that the loan would be repaid 6 months.772.000.000. Doctrine of Estoppel not applicable 92 3B-Corporation Law .00 February 8..117. P40.240.

where a corporation is essentially a farce. Under the promissory note. or c) is used in alter ego cases. This resolution merely embodies the extent of Pantaleon’s authority to contract and does not create any right or obligation except as between Pantaleon and the board. 93 3B-Corporation Law . what the petitioners agreed to was the payment of a specific sum of P40.000. b) in fraud cases. we see no occasion to consider piercing the corporate veil as material to the case. Piercing the corporate veil unfounded The Court finds it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.000. protect a fraud. or a specific provision of law making a corporate officer liable. for the total amount of P1. The board resolution simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. as established by the record.240. since it is a mere alter ego or business conduit of a person. In the present case.e.000. fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate veil. as when the corporate fiction is used as a vehicle for the evasion of an existing obligation.. there is no competent and convincing evidence of any wrongful. In the absence of malice. or when the corporate entity is used to justify a wrong.00 per month for six months – not a 4% rate of interest per month for six (6) months– on a loan whose principal is P1. or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality.00. such corporate officer cannot be made personally liable for corporate liabilities. or defend a crime. he made himself accountable in the promissory note “in his personal capacity and as authorized by the Board Resolution” of PRISMA. agency. Again. negate its application. While Pantaleon denied personal liability in his Answer.00. conduit or adjunct of another corporation. bad faith.We cannot apply the doctrine of estoppel in the present case since the facts and circumstances. i. no cause exists to place the petitioners in estoppel. The doctrine of piercing the corporate veil applies only in 3 basic instances: a) when the separate and distinct corporate personality defeats public convenience. With this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate corporate identity.000.

However. this petition. the Court absolved spouses from any obligation or liability. It is basic that the corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and. 94 3B-Corporation Law . that the promissory note was issued by the corporation and they are not signatories in the checks issued by the corporation.000. Ong appealed the case to the Court of appeal wherein the appellate Court reversed the RTC decision and declared spouses Magaling jointly and severally liable to Peter Ong for the corporation obligation of Thermo Loans. there are times when solidary liabilities may be incurred and the veil of corporate fiction may be pierced. Mr. that Ong's prayer for Preliminary Attachment was granted by the Court attaching the two parcel of land owned by the corporation. from the people comprising it. The complaint alleged among others that spouses Magaling is the controlling stockholders owners of Thermo Loans & Credit Corporation. However. Thus. acting through its directors. that despite demands. In the first decision of RTC. the officers of a corporation acted in bad faith or with gross negligence in directing the corporate affairs. and Officers Section 31. In their defense. it ruled in favor of Ong and against the Thermo Loans Corporation. spouses Magaling argued that Ong at his own risk invested the money with Thermo Loans Corporation. The Court of Appeals pierced the veil of corporate fiction and holds the spouses Magaling liable with Thermo Loans for the corporate obligations since Reynaldo Magaling was grossly negligent in managing the affairs of the corporation hence. that Reynaldo Magaling induced and obtained aloan from Mr. in appropriate case. officers and employees. Trustees. refused and neglected to pay. Reynaldo Magaling being the President of the corporation. Corporation Code Magaling et al v Ong Facts: Respondent Ong instituted with the RTC Lipa a complaint of Collection of Sum of Money in the amount of P 389.00 with interest of 2&1/2 a month. spouses Magaling and/or Thermo & Credit Loans failed.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Liabilities of Directors. are its sole liabilities and vice versa. in general. Issue: Whether or not Reynaldo Magaling personally liable for corporate liability of Thermo loans corporation? Held: Petition is not meritorious.000. The general rule is that obligations incurred by the corporation. Ong the amount of P350. in the second decision. that Reynaldo Magaling later on issued seven (7) post dated checks where only two checks were cleared by the bank and the rest were dishonored. One of the circumstances warranting the disregard of separate personality is that when directors and trustees or.00 against the herein petitioners. Considering that Reynaldo Magaling was grossly negligent in directing the affairs of Thermo Loans without due regard to the plight of its investors and thus should be held jointly and severally liable for the corporate obligation of Thermo Loans to Peter Ong.

 RTC ruled among others that while Uy’s signature was forged on the surety agreement. Piercing of the veil for Uy is not justified. A reading of the complaint reveals that with regard to Uy. Gross negligence is one that is characterized by the lack of the slightest care. or that the officer was guilty of gross negligence or bad faith. that Uy committed an act as an officer of Hammer that would permit the piercing of the corporate veil. as petitioners claim. iBank did not demand that she be held liable for the obligations of Hammer because she was a corporate officer who committed bad faith or gross negligence in the performance of her duties such that the lifting of the corporate mask would be merited. and Goldkey. iBank now brings suit against Hammer. The loans were signed by Hammer President Chua (Uy’s husband) and was secured by a 3 rd party REM by Goldkey Dev’t and a Peso Surety Agreement signed by Chua and Uy.  Hammer and Chua failed to file an Answer. however. Goldkey averred that its liability is only limited to the 3 rd party REM. Uy denied signing any surety agreement. granted loans to Hammer Garments Corporation (Hammer). if it was true. HELD: NO. Nonetheless. acted as surety of Hammer. and (2) the complainant must clearly and convincingly prove such unlawful acts. Chua. Uy. 95 3B-Corporation Law . In this case. the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation. At most. Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified document. and that it cannot be held liable for Hammer’s loan since it has a separate personality apart from Hammer. as evidenced by her signature on the Surety Agreement which was later found by the RTC to have been forged. TRUSTEES AND OFFICERS (Sec. Trustees. acting or failing to act in a situation where there is a duty to act. iBank foreclosed some the 3rd party mortgage but was however deficient. negligence or bad faith.  The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer because it was not shown that she had committed any actionable wrong or that she had participated in the transaction between Hammer and iBank. Uy could have been charged with negligence in the performance of her duties as treasurer of Hammer by allowing the company to contract a loan despite its precarious financial position. Before a director or officer of a corporation can be held personally liable for corporate obligations. Neither did the CA explain its affirmation of the RTC’s ruling against Uy. 31. Code) Heirs of Fe Tan Uy vs International Exchange Bank FACTS:  Respondent International Exchange Bank (iBank). and Officers Provision: Section 31.  CA affirmed the RTC without explaining its ruling on the liability of Uy. ISSUE: WON Uy should be held liable for the outstanding obligation. together with her errant husband Chua. What the complaint simply stated is that she. They further claim that she had cut all ties with Hammer and her husband long before the execution of the loan. Corp.  Hammer defaulted. wilfully and intentionally with a conscious indifference to the consequences insofar as other persons may be affected. petitioners are correct to argue that it was not alleged. then she should have formally resigned as treasurer to isolate herself from any liability that could result from her being an officer of the corporation. there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and severally liable to iBank for the unpaid loan of Hammer. that she no longer performed the functions of a treasurer. Corporation Code Case Name: Heirs of Fe Tan Uy v International Exchange Bank LIABILITIES OF DIRECTORS.Topic: Board of Directors/Trustees/Officers Subtopic: Liabilities of Directors. The Court cannot give credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer and stockholder of Hammer. she nonetheless should be held liable for the outstanding obligation of Hammer because she was an officer and stockholder of that corporation. these shortcomings of Uy are not sufficient to justify the piercing of the corporate veil which requires that the negligence of the officer must be so gross that it could amount to bad faith and must be established by clear and convincing evidence. much less proven. Furthermore.

Uy.There is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned requisites for making a corporate officer. 96 3B-Corporation Law . director or stockholder personally liable for the obligations of a corporation. cannot be made to answer for the unpaid debts of the corporation. as a treasurer and stockholder of Hammer.

Gregorio demanded in writing the payment of his commission. wife of Oscar de Leon. Vicente. or P109. Trustees.000 Vicente asked from him as earnest money.000 in total.  Oscar will vacate on or about September 15. So. xxx xxx xxx Art.477 sq. Gregorio did not see Oscar for several weeks thus sensing that something fishy might be going on. Gregorio did not disclose said gift or propina to Vicente. 1891. After several conferences between Gregorio and Oscar. which he communicated to Gregorio. and Officers Section 31. it was again amended to state that Oscar will vacate his house and lot on Dec. the real estate broker in this case. 97 3B-Corporation Law . Oscar told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for P104. which is part of the purchase price. Teofilo introduced Oscar de Leon to Gregorio as a prospective buyer. ISSUE: WON Gregorio’s act of accepting the gift or propina from Oscar constitutes a fraud which would cause the forfeiture of his 5% commission. advanced P300 to Gregorio. Gregorio is entitled to 5% commission on the total price if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or by Vicente within 3 months from the termination of the agency to a purchaser to whom it was submitted by Gregorio during the effectivity of the agency with notice to Vicente. over their house and lot in favor of Vicente. Later on. but to another buyer.  Subsequently. Moreover. price. according to whether the agency was or was not for a compensation.000 check to him as earnest money. a real estate broker.  In his reply. Oscar raised his offer to P1. m. Subsequently. The aforecited provisions demand the utmost good faith. candor and fairness on the part of the agent. then. 1956 his house and lot at Denver St. Gregorio authorized Teofilo Purisima to look for a buyer without notifying Vicente. even though it may not be owing to the principal. The duty of an agent is likened to that of a trustee. so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his principal of all his transactions and other material facts relevant to the agency. Oscar’s wife. Oscar issued a P1. Oscar did not pay Vicente the additional P1. According to the document. Every stipulation exempting the agent from the obligation to render an account shall be void. which shall be judged with more less rigor by the courts.. m. Vicente directed Gregorio to tell Oscar to raise his offer. m.  Oscar submitted a written offer which was very much lower than the P2 per sq. to his principal.  Upon Vicente’s demand. between the parties was amended. Oscar gave Gregorio P1. Gregorio promised Teofilo ½ of the 5% commission.20 per sq.000. the exclusive agency to sell his property in a document. said lot must be sold for P2 per sq.450. the vendor.  Thereafter.000 as a gift or propina for succeeding in persuading Vicente to sell his lot at P1. honesty. Gregorio went to the Register of Deeds of QC. 1909. Amparo Diaz. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice. Said lot has an area of 88. Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer. where he discovered that a Deed of sale was executed by Amparo de Leon. The agent is responsible not only for fraud but also for negligence.  The deed of sale was not executed since Oscar gave up on the negotiation when he did not receive his money from his brother in the US.Topic: Subtopic: Provision: Case Name: Board of Directors/Trustees/Officers Liabilities of Directors.  CA upheld. m. The pertinent New Civil Code provisions state that: Art. fidelity. which Oscar promised to deliver to Vicente. Corporation Code Domingo v Domingo FACTS:  Vicente Domingo granted to Gregorio Domingo. P5. 1. The written agreement. Oscar de Leon.000 as earnest money. m.  RTC held that Vicente should pay the commission to Gregorio. Vicente agreed to said offer. Vicente asked for an additional P1. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency. 1956 because his wife was pregnant at that time. After discovering that Vicente sold his lot to Oscar’s wife. QC. HELD: YES. he went to Vicente’s house where he read a portion of the agreement to the effect that Vicente was still willing to pay him 5% commission.20 per sq.  Gregorio also conferred with Oscar. Exhibit C.

98 3B-Corporation Law . Cubao. or that he obtained better results or that the agency is a gratuitous one. both in law and in fact. As a necessary consequence of such breach of trust. the vendor. gratuity or personal benefit from the vendee. not to remedy or repair an actual damage. who is the administrator of their conjugal assets including their house and lot at No. must necessarily be with the consent of the husband Oscar de Leon. or that usage or custom allows it. the purchase price of herein petitioner-appellant's lot No. is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal. because the rule is to prevent the possibility of any wrong. because the transaction. defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal. 883 of Piedad Estate. Hence. Quezon City. 40 Denver Street.Hence. The fact that the buyer appearing in the deed of sale is Amparo Diaz. an agent who takes a secret profit in the nature of a bonus. the wife of Oscar de Leon. does not materially alter the situation. it was still Oscar de Leon who was the buyer. even if the principal does not suffer any injury by reason of such breach of fidelity. without revealing the same to his principal. to be valid. which were given as part of and constituted the down payment on.

An amended resolution further granted the Members of the additional monthly RATA. 99 3B-Corporation Law . except for reasonable per diems.000. states: In the absence of any provision in the by-laws fixing their compensation. subject to the qualification that. the total yearly compensation of directors. except for reasonable per diems. Corp. However.00 per diem each for every meeting attended. Corporation Code Case Name: Singsong v COA COMPENSATION OF DIRECTORS (Sec.00 for every meeting attended. In no case shall the total yearly compensation of directors. Provided. the Court upholds the findings of respondent that petitioners’ right to compensation as members of the PICCI Board of Directors is limited only to per diem of P1. however. The two instances where the directors are to be entitled to compensation shall be when it is fixed by the corporation’s by-laws or when the stockholders. ISSUE: WON the grant of the compensation as well as the monthly RATA are valid. which authorizes the stockholders to grant compensation to its directors. that any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting. From this. as such directors. vote to grant the same at a regular or special stockholder’s meeting. 30.Topic: Board of Directors/Trustees/Officers Subtopic: Compensation of Directors Provision: Section 30. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.000. payment for such grants were denied. by virtue of the PICCI ByLaws. Inc. the directors shall not receive any compensation. representing at least a majority of the outstanding capital stock. in any of the two situations. in the amount of P1.00. HELD: NO. as such directors. In this regard. Section 30 of the Corporation Code. petitioners were authorized to receive P1. as such directors.  Hence this petition. Code) Singson vs COA FACTS:  Petitioners are the members of the Board of Philippine International Convention Center.  By virtue of the PICCI By-Laws.500. it is clear that the directors of a corporation shall not receive any compensation for being members of the board of directors.  The disallowance was questioned but it was upheld by herein respondent. to each of the petitioners. (PICCI). shall in no case exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

all surnamed Sy. Corporation Code 100 3B-Corporation Law . as they cannot steal properties which they claim to own. they took them openly and avowedly under that claim of ownership.Topic: Subtopic: Provision: Case Name: Facts: Powers of Corporations General Powers Section 36. even if we are to assume that private respondents took the said personal properties from the 10th floor of the Fortune Wealth Mansion. to relieve the accused of going through a trial once it is determined that there is no sufficient evidence to sustain a finding of probable cause to form a sufficient belief that the accused has committed a crime. Topic: Subtopic: Provision: Powers of Corporations General Powers Section 36. thus: - Indeed. nisi mens sit rea. Petitioner Lily Sy and respondents Merry. absent sufficient evidence to establish probable cause for the prosecution of respondents for the crime of robbery. Jennifer. We note that what is involved here is a dispute between and among members of a family corporation. it is a significant part of freedom and fair play which every individual is entitled to. We quote with approval the CA conclusion in their Amended Decision. The fact of coownership negates any intention to gain. Sec. Merry Sy. as the case may be. Jennifer Sy. the taking was made under a claim of ownership x x x57 - Respondents should not be held liable for the alleged unlawful act absent a felonious intent. but more importantly. petitioner had been staying in another unit because the electric service in the 10th floor was disconnected. as co-owners. be therefore charged with robbery. of Justice - Lily Sy. It is thus the duty of the prosecutor or the judge. Merry. - Hence. the Fortune Wealth Mansion Corporation.1âwphi1 "Actus non facit reum. it was shown that respondents believed in good faith that they and the corporation own not only the subject unit but also the properties found inside. Jennifer.56 This is bolstered by the fact that at the time of the alleged incident. In this case. and Glenn authorized their people to open the safe and take out items allegedly of personal property of Lily Sy. As part-owners of the entire building and of the articles allegedly stolen from the 10th floor of said building … the very same properties that are involved between the same parties in a pending estate proceeding. they cannot be charged with robbery because again. are the owners-incorporators of said corporation. Corporation Code Lily Sy v Hon. the filing of information against respondents constitute grave abuse of discretion. - The Court adheres to the view that a preliminary investigation serves not only the purposes of the State. which owns and manages the Fortune Wealth Mansion where petitioner allegedly resided and where the crime of robbery was allegedly committed. If at all. A crime is not committed if the mind of the person performing the act complained of is 58 innocent. and Glenn Sy are all incorporators and members of family corporation Fortune Wealth Mansion Corporation - Lily Sy alleges robbery against the said co-incorporators. and Glenn. on second look. - The defendants allege said property are owned by the corporation Issue: - WoN there is robbery considering that the items allegedly stolen are properties of the corporation and the alleged robbers are incorporators Held: - In this case. the respondents cannot.

just as a natural person may authorize another to do certain acts for and on his behalf.Case Name: Facts: Violeta Tudtud Banate v Phil Countryside Rural Bank Spouses Maglasang obtained a loan from PCRB and mortgaged the house and lot owned by their daughter and son-inlaw. Pancrasio Mondigo. They then filed an action for specific performance. Maglasang alleged that they requested PCRB to permit them to sell their subject properties if they will pay the full amount of the loans. PCRB. or their benefits accepted by his principal. Mondigo.17 The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. proof of the branch manager’s authority becomes indispensable to support the petitioners’ contention. verbally agreed to their request hence they sold their property to Violeta Banate and used the proceeds to pay the loans. Before the maturity of their said loan. the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when the power was exercised without any objection from its board or shareholders. or 2) the acquiescence in his acts of a particular nature. Actual authority is either express or implied. In light of our discussion above." on the other hand. The extent of an agent’s express authority is to be measured by the power delegated to him by the corporation. no person. Section 23 of the Corporation Code16 expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. the petitioners’ action for specific performance is premised on the supposed actual or apparent authority of the branch manager. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board. Issues: Whether or not the Branch Manager was validly Whether or not the doctrine of apparent authority applies clothed in authority to novate the contract or Held: No. acting through its Branch Manager. while the extent of his implied authority is measured by his prior acts which have been ratified or approved. custom or acquiescence in the general course of business. PCRB gave the owners duplicate certificate of title and Banate secured a title in her name. with which it clothes him. with special reference to banks. Allegedly. the petitioners posited that PCRB should be held liable for Mondigo’s commitment. However. subject to the articles of incorporation. The existence of apparent authority may be ascertained through: 1) the general manner in which the corporation holds out an officer or agent as having the power to act. committees or agents. The authority of these individuals to bind the corporation is generally derived from law. Rather. not even its officers. bylaws. or relevant provisions of law. or in other words. the spouses Cortel. had long been recognized in this jurisdiction. either expressly or impliedly by habit. The lower court ruled in favor of Banate but CA reversed the decision on the ground that It ruled that Mondigo cannot orally amend the mortgage contract hence it was not binding with PCRB. to release the subject properties from the mortgage. corporate bylaws or authorization from the board. In the absence of authority from the board of directors. We disagree with this position. on the basis of the latter’s apparent authority. the apparent authority to act in general. within or beyond the scope of his ordinary powers. with actual or constructive knowledge thereof. whether express or implied. although the other obligations remain unpaid. adopting the trial court’s observation. Sps. 101 3B-Corporation Law .19 Notably. They also obtained 2 other loans secured by their other properties. can validly bind a corporation.18 The doctrine of "apparent authority. however the mortgage lien was carried over hence they requested PCRB to release the morthgaged which the bank refused. the board of directors may validly delegate some of its functions and powers to its officers. The petitioners make no claim that Mondigo had actual authority from PCRB. Accordingly.

we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrine’s ambit. In other words. The subsequent purported agreement is of no moment. as it is beyond Mondigo’s actual or apparent authority. there can be no restitution of the amount paid 102 3B-Corporation Law . the petitioners are expected to abide by its terms.25 yet the power to modify or nullify corporate contracts remains generally in the board of directors. that PCRB ratified Mondigo’s act or is estopped to make a contrary claim. and such acts or conduct must have produced a change of position to the third party’s detriment.20 The principal’s liability. apparent authority is determined only by the acts of the principal and not by the acts of the agent. although no actual authority to do such acts or to make such contracts has been conferred. is the general agent and is in general charge of the corporation. has "clothed" or "held out" its branch manager as having the power to enter into an agreement. with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof. was ever adduced to establish the branch manager’s apparent authority to verbally alter the terms of mortgage contracts. however. Rescission has no legal basis. To put it simply. and in case either is controverted. the burden of proof is upon them to establish it.28 As parties to the mortgage contract. to ascertain not only the fact of agency but also the nature and extent of the agent’s authority.24 Further. acts and contracts of the agent. the decision of the trial court was utterly silent on the manner by which PCRB. especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract. as supposed principal. the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established. Although a branch manager.23 Neither was there any allegation. such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant. No proof of the course of business. as are within the apparent scope of the authority conferred on him.21 There can be no apparent authority of an agent without acts or conduct on the part of the principal. within his field and as to third persons.Under the doctrine of apparent authority. usages and practices of the bank about.27 It is a settled rule that persons dealing with an agent are bound at their peril. as claimed by petitioners. although none was given. the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties’ interests. much less proof. is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists. or knowledge that the board had or is presumed to have of. its responsible officers’ acts regarding bank branch affairs. and cannot prejudice PCRB. bind the principal.22 In the present case. and. PCRB’s vigorous denial that any agreement to release the mortgage was ever entered into by it. if they would hold the principal liable. as above discussed.26 Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent authority" to verbally alter terms of written contracts.

and that the termination of his employment was an intra-corporate matter. as the employee. LA ruled in favor of Petitioner. TimbolRoman and OGCC lawyer Roy Christian Mallari also executed on 17 March 2000 a Joint Affidavit of Declaration wherein they swore that they were the respective authorized representative and counsel of respondent corporation. The Memorandum of Appeal was verified and certified by Hilana TimbolRoman. Mallari. Sections 4 to 6 of the NLRC Rules of Procedure 103 3B-Corporation Law . can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. the parties-in-interest are petitioner Salenga. The Memorandum was accompanied by a UCPB General Insurance Co.Topic: Subtopic: Provision: Case Name: Facts: Powers of Corporations General Powers Section 36. neither Timbol-Roman nor Atty. The latter informed him that the Order had been issued as part of the reorganization scheme approved by the board of directors. In the case at bar. The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and have been filed in good faith. 1999: Petitioner filed a case for illegal dismissal. the executive vice president of respondent CDC. Thus.[41] Thus. we agree with petitioner that. The physical acts of the corporation. It is clear from the NLRC Rules of Procedure that appeals must be verified and certified against forum-shopping by the parties-in-interest themselves. supersedeas bond covering the amount due to petitioner as adjudged by LA Darlucio. The power of a corporation to sue and be sued is exercised by the board of directors. Mallari. Corporation Code Antonio P. an appeal was still filed by Colayco. Petitioner received a copy of the Order on the same day and immediately went to see Colayco. like the signing of documents. However. petitioners employment was to be terminated thirty (30) days from notice of the Order. may be considered as the appellant and employer referred to by Rule VI. the appeal is useless. A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its bylaws. and respondent Clark Development Corporation as the employer. The OGCC reiterated its allegation that petitioner was a corporate officer. 2000: CD was already under a different head who instructed not to file an appeal. Issue: Whether or not the lack of the board resolution removes the representation rights of the lawyer to appeal the case in the CA Held: Yes. Absent the board resolution. Salenga v Court of Appeals 1998: President/Chief Executive Officer (CEO) Rufo Colayco issued an Order informing petitioner that. who signed the Memorandum of Appeal and Joint Affidavit of Declaration allegedly on behalf of respondent corporation. the position of head executive assistant the position held by petitioner was declared redundant. Petitioner assails in the SC the said appeal stating that the lack of an accompanying Board Resolution from the CDC board makes the appeal useless. Inc. the Memorandum of Appeal and the Joint Affidavit of Declaration were not accompanied by a board resolution from respondents board of directors authorizing either Timbol-Roman or Atty. absent the requisite board resolution. However. to pursue the case or to file the appeal on behalf of respondent.. The lack of a board resolution is a fatal mistake. pursuant to the decision of the board of directors of respondent CDC. or both.

it holds him out to the public as possessing the power to do those acts. the corporation is not liable for whatever acts that these officers committed in excess of their authority. Ng testified that Arma Traders’ stockholders and board of directors never conducted a meeting from 1984 to 1995. the respondents countered that these were the personal obligations of Tan and Uy to Advance Paper. manufacturing. Petitioner: Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain loans since the respondents left the active and sole management of the company to Tan and Uy since 1984. the corporate officers are acting in excess of their authority or ultra vires.533.” Despite repeated demands. Tan and Uy were Arma Traders’ authorized bank signatories who signed and issued these checks which had the aggregate amount of P15.001.49 from Advance Paper. RTC ordered Arma Traders to pay Advance Paper the sum of P15.796. Arma Traders also obtained three loans from Advance Paper in the amounts of P3.798. with Arma Traders for the payment of its account. Ting.76.000. Hence. The CA acknowledged that Tan and Uy were Arma Traders’ authorized bank signatories. as against anyone who has in good faith dealt with it through such agent. Gui and Ng due to the lack of evidence showing that they bound themselves.94 or a total of P7. Respondents: argue that while as a general rule. Citing Lipat v. They claimed that the borrowing of money must be done only with the prior approval of the board of directors because without the approval. Advance Paper should suffer the consequences. either jointly or solidarily.321. distributing and selling of various paper products. CA held that the petitioners failed to prove by preponderance of evidence the existence of the purchases on credit and loans Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan and Uy to obtain the loan from Advance Paper. and P3. be estopped from denying the agent’s authority. the respondents claimed that Advance Paper failed to verify Tan and Uy’s authority to transact business with them. While respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribution of school and office supplies. for about 14 years. Corporation Code Advance Paper Corp v Arma Traders Corp Facts: Advance Paper is a domestic corporation engaged in the business of producing.00. a corporation is estopped from denying the authority of its agents which it allowed to deal with the general public. the respondents aver that these were Tan and Uy’s personal obligations with Advance Paper. The RTC held that the respondents failed to present hard. admissible and credible evidence to prove that the sale invoices were forged or fictitious.171. printing.380. P1. In fact. and novelty products. As to the loans.Topic: Subtopic: Provision: Case Name: Powers of Corporations General Powers Section 36.623. These loans were never intended to benefit the respondents. Gui. the CA explained that this is not sufficient because the authority to sign the checks is different from the required authority to contract a loan. In the present case. Claims of the respondents As to the loan transactions. The respondents also claimed that the loan transactions were ultra vires because the board of directors of Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper.408. thus.636. Arma Traders failed to settle its account with Advance Paper. When the acts of the corporate officers are ultra vires. Arma Traders purchased on credit notebooks and other paper products amounting to P7. ISSUE: Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority. Upon the representation of Tan and Uy. Uy. Advance Paper presented the checks to the drawee bank but were dishonored either for “insufficiency of funds” or “account closed. Petitioner George Haw is the President. Tan. Arma Traders issued 82 postdated checks payable to cash or to Advance Paper. They represented Arma Traders when dealing with its supplier. However.130.788. and that the loan transactions were personal obligations of Tan and Uy. Nonetheless. Advance Paper. the corporation will. Further. As payment. The petitioners filed a complaint for collection of sum of money with application for preliminary attachment against Arma Traders.87. 104 3B-Corporation Law . Ting. the respondents claim that the petitioners are in bad faith because the petitioners connived with Tan and Uy to make Arma Traders liable for the non-existent deliveries of notebooks and other paper products. and Ng. the petitioners said that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. Uy. Pacific Banking Corporation.82. this is only true if the person dealing with the agent dealt in good faith. the RTC dismissed the complaint against Tan. however.000. Respondent Antonio Tan was formerly the President while respondent Uy Seng Kee Willy is the Treasurer of Arma Traders.

with actual or constructive knowledge thereof. it states that Tan and Uy are not just ordinary corporate officers and authorized bank signatories because they are also Arma Traders’ incorporators along with respondents Ng and Ting. He also confirmed that since 1984 up to the filing of the complaint against Arma Traders. Court of Appeals. through Ng who is Arma Traders’ corporate secretary. promissory notes and other evidence of indebtedness. we do not agree with the CA’s findings that Arma Traders is not liable to pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. stockholder and director. Because of its own laxity in its business dealings. Despite such lack of board approval. Arma Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance Paper. Inc. In Inter-Asia Investment Industries v. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. and Pedro Chao. but the vesting of a corporate officer with the power to bind the corporation. the respondents. Arma Traders failed to take precautions to prevent its own corporate officers from abusing their powers.Held: Yes. 105 3B-Corporation Law . Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third persons without the necessary written authority from its non-performing board of directors. RATIO: The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. testified that the sole management of Arma Traders was left to Tan and Uy and that he and the other officers never dealt with the business and management of Arma Traders for 14 years..78 we explained: Apparent authority is derived not merely from practice. Thus. Furthermore. through its president Antonio Punsalan Jr. thus "clothing" its president with the power to bind the corporation. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or. in other words the apparent authority to act in general. To begin with. and it holds him out to the public as possessing the power to do those acts. within or beyond the scope of his ordinary powers.. In the present petition. its stockholders and board of directors never had its meeting. we ruled that the doctrine of apparent authority is applied when the petitioner. It is not the quantity of similar acts which establishes apparent authority. Likewise. Also. with which it clothes him. petitioner did not object to or repudiate said contract. entered into the First Contract without first securing board approval. incorporator. or (2) the acquiescence in his acts of a particular nature. v. in People’s Aircargo and Warehousing Co. Court of Appeals. Arma Traders’ Articles of Incorporation provides that the corporation may borrow or raise money to meet the financial requirements of its business by the issuance of bonds.

CA reversed he ruling and held the validity of the sale. Corporate powers and capacity. Riosa claimed that by means of fraud. 36. There was no evidence to show that Sia Ko Pio was clothed with authority to use his personal fund for the benefit of La Suerte. whose approval will finalize the transaction. Held: NO. the final say will have to be with the board. Thus. hold. including securities and bonds of other corporations. Issue: Whether or not there is a valid sale when there was no board resolution to approve of the sale. subject to his obligation to vacate the premises anytime upon demand and obtained a TCT over the property. It is. It repeatedly asked Riosa to vacate the premises but to no avail and Riosa’s complaint was barred by prescription. A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its by-laws. The sale is null and void. pledge. La Suerte averred that it was the actual and lawful owner of the commercial property. — Every corporation incorporated under this Code has the power and capacity: 7. receive. his daughter renovated the commercial building on the lot and introduced improvements. had no authority from its Board of Directors to enter into a contract of sale of Riosa’s property. he obtained loans from Sia Ko Pio in the total amount ofP50. 106 3B-Corporation Law . after purchasing it from Riosa on December 7. sell. Juan was presented as an officer of La Suerte. This disposition is without prejudice to any valid claim of the heirs of Sia Ko Pio against Riosa. the petition is GRANTED. he admitted that he could not find in the records of the corporation any board resolution authorizing his father to purchase disputed property. La Suerte was never in the picture.000. La Suerte on the other hand averred that the absence of a board resolution for the purchase of the property has no controlling consequence as La Suerte had ratified the act of Sia Ko Pio. Tabaco City. The Court notes that when Sia Ko Pio’s son. it was elevated to the SC. RTC ruled in favor of Riosa and found that there was really no sale that occurred. To purchase. thus. mortgage and otherwise deal with such real and personal property. subject to the limitations prescribed by the law and the Constitution. Under these provisions. Evidently. Corporation Code Riosa v Tabaco La Suerte Corporation Facts: Riosa alleged that he was the owner and in actual possession of a 52-square meter commercial lot situated in Barangay Quinale. only to find out later that it was a document of sale. that he declared the property in his name and had been religiously paying the realty tax on the said property. While a corporation may appoint agents to negotiate for the purchase of real property needed by the corporation. WHEREFORE. although an officer of La Suerte. In the case at bench. Subsequently. Albay.Topic: Subtopic: Provision: Case Name: Powers of Corporations General Powers Section 36.00. SEC. misrepresentation and deceit employed by Sia Ko Pio. that it allowed Riosa to remain in possession of the property to avoid the ire of his father from whom he had acquired property inter vivos. Riosa averred that he did not appear before the notary public to acknowledge the sale. take or grant. as the transaction of a lawful business of the corporation may reasonably and necessarily require. the power to purchase real property is vested in the board of directors or trustees. estoppel and indefeasibility of La Suerte’s title. that thereafter. In its Answer. He thus prayed for the nullification of the deed of sale and certificate of title in the name of La Suerte and the reconveyance of the subject property to him. clear that the loan obtained by Riosa from Sia Ko Pio was a personal loan from the latter. Riosa argued among others that there was no board resolution authorizing Sia Ko Pio to purchase the property. not a transaction between Riosa and La Suerte. he was made to sign the document which he thought was a receipt and undertaking to pay the loan. laches. 1990. lease. Sia Ko Pio. convey.

Olbes. Rufo B. Maximo G. . Ramos. We call this piercing the veil of corporate fiction. director. This means that while it is not a person. . . He or she is generally not considered a party to that agreement. there are instances when the distinction between personalities of directors. and of the corporation. . Ramos for the outstanding balance of the construction of Shangri-La mall and a multilevel parking structure along EDSA. Colayco. Antonio O. Rufo B. Antonio O. officers. a corporation's representative who did not personally bind himself or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to an agreement entered into by the corporation. Corporation Code Lanuza Jr. Ramos. a corporation's representatives are generally not bound by the terms of the contract executed by the corporation. A corporation cannot sue or enter into contracts without them. or representative does not become a party to a contract just because a corporation executed a contract through that stockholder.BF Corporation alleged that Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.Alfredo C.A corporation is an artificial entity created by fiction of law. A stockholder. 1991. or agents. powers. and representatives. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. .Hence. Rufo B. Ramos. is an individual with a personality that is distinct and separate from other persons including its stockholders. are disregarded. Ramos filed a motion to suspend the proceeding because BF Corporation failed to submit the dispute to arbitration in accordance with their contract.However. Licauco III and Benjamin C. therefore they should be held jointly and severally liable with the company. BF Corporation filed a complaint for collection of money against Shangri-La and the members of its board of directors: Alfredo C. in the legal sense. it can only exercise its rights and powers through its directors. director or representative. and other juridical entities. For instance. therefore. personally. incurred through official acts of its representatives. Maximo G. 107 3B-Corporation Law . Licauco III and Benjamin C. Which was later on denied by the RTC. naturally.In 1993. who are all natural persons.. they have the power to sue and enter into transactions or contracts. . directors. Gerardo Lanuza Jr. officers. A corporation. . Olbes.. are its own. Issue: W/N the petitioners should be made parties to the arbitration proceedings? Held: Yes. . Ramos filed an answer to BF Corporation’s complaint alleging that they had resigned as members of the Shangri-la board of directors as of July 15.The law vests in corporations rights. . the law gives it a distinct personality and treats it as such. Colayco. Gerardo Lanuza Jr.Topic: Subtopic: Provision: Case Name: Powers of Corporations General Powers Section 36.Thereafter.Because a corporation's existence is only by fiction of law.As a general rule. Colayco. officers.Shangri-La and Alfredo C. a controversy arose as to whether the board of directors impleaded in the complaint should be made parties to the arbitration proceeding. representatives. v BF Corporation Facts: . Maximo G. and attributes as if they were natural persons with physical existence and capabilities to act on their own. .A consequence of a corporation's separate personality is that consent by a corporation through its representatives is not consent of the representative. the petitioners should be made parties to the arbitration proceedings in order to determine if the distinction between Shangri-La's personality and their personalities should be disregarded. Licauco III and Benjamin C. Its obligations. .

. the corporate representatives are treated as the corporation itself and should be held liable for corporate acts. They are alleging that the acts or omissions by the corporation that violated their rights are also the directors' acts or omissions. Without a trial. courts and tribunals have no basis for determining whether the veil of corporate fiction should be pierced.Hence. the courts or tribunals must first determine whether circumstances exist to warrant the courts or tribunals to disregard the distinction between the corporation and the persons representing it. . Courts or tribunals do not have such prior knowledge.When there are allegations of bad faith or malice against corporate directors or representatives. Complainants effectively pray that the corporate veil be pierced because the cause of action between the corporation and the directors is the same. are impleaded in a case against a corporation. Thus. when the directors. including current representatives of the corporation. The corporation's distinct personality is disregarded. alleging malice or bad faith on their part in directing the affairs of the corporation. 108 3B-Corporation Law . and the corporation is seen as a mere aggregation of persons undertaking a business under the collective name of the corporation. The determination of these circumstances must be made by one tribunal or court in a proceeding participated in by all parties involved. They are alleging that contracts executed by the corporation are contracts executed by the directors. and those persons whose personalities are impliedly the same as the corporation. complainants are effectively alleging that the directors and the corporation are not acting as separate entities. This is because when the court or tribunal finds that circumstances exist warranting the piercing of the corporate veil. it becomes the duty of courts or tribunals to determine if these persons and the corporation should be treated as one. as in this case.

ISSUE: Whether the minority’s pre-emptive rights were violated HELD: Yes. 39 of the Corporation Code refers to the right of a stockholder of a stock corporation to subscribe to all issues or disposition of shares of any class. they endorsed the minority stockholders’ Alternative Plan. Thus. Oblivious to these pending incidents so crucial to the protection of the interest of the majority of creditors and minority shareholders. The right may be restricted or denied under the articles of incorporation.when the majority stockholders allegedly ratified the board resolution approving the extension of RUBY's corporate life to another 25 years was seriously disputed by the minority stockholders. There must necessarily be a limit upon the power of the majority. the voice of the majority of the stockholders is the law of the corporation. which is allowed under Sec. Instead. The actual percentage of shareholdings in RUBY as of September 3. Generally speaking. or in this case. equally true that other stockholders are afforded the right to intervene especially during critical periods in the life of a corporation like reorganization. properties and documents in their possession. Without such a limit the will of the majority will be absolute and irresistible and might easily degenerate into absolute tyranny. 109 3B-Corporation Law . Ruby Industrial Corporation (Ruby). and determine the best way to salvage and protect the interest of its investors and creditors. Pre-emptive right under Sec. the SEC simply stated that in the interim. The will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted bylaws not proscribed by law. the SEC Hearing Panel approved the Revised BENHAR/Ruby Plan and dissolved the existing Mancom. Ruby’s corporate term was validly extended. and the Alternative Plan of the minority stockholders represented by Miguel Lim (Lim). Under the circumstances. and making payments outside of the necessary or legitimate expenses of its business. V Lim FACTS: Reeling from severe liquidity problems beginning in 1980. and subject to certain exceptions and limitations. attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself. as if such extension would provide the solution to Ruby’s myriad problems. Over 90% of Ruby’s creditors objected to the Revised BENHAR/Ruby Plan and the creation of a new management committee. suspension of payments. The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling stockholders. or to "freeze out" the minority interest. and make full disclosure on the nullified credit assignments. even if the pre-emptive right does not exist. It is. as well as the minority stockholders and the unsecured creditors. In an order.Topic: Subtopic: Provision: Case Name: Powers of Corporations Specific Powers: Powert to Deny Pre-emptive Right Section 39. enjoining the disposition of its properties pending hearing of the petition. an issue of shares may still be objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or shift control of the corporation. among others. filed a petition for suspension of payments with the Securities and Exchange Commission (SEC). the SEC refused to heed the plea of the minority stockholders for the SEC to order Ruby to commence liquidation proceedings. liquidation was the only hope of the minority stockholders for effecting an orderly and equitable settlement of Ruby’s obligations. and we find the evidence of compliance with the notice and quorum requirements submitted by the majority stockholders insufficient and doubtful. Corporation Code Majority Stockholders of Ruby Ind. to take custody and control over all existing assets and liabilities of Ruby. except insofar as necessary in its ordinary operations. It also created a new Mancom and appointed BENHAR as one of its members. 4-9 of the Rules on Corporate Recovery. Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders meeting called for the purpose. when the majority seek to impose their will and through fraudulent means. more so. Two rehabilitation plans were submitted to the SEC: the BENHAR/Ruby Rehabilitation Plan of the majority stockholders led by Yu Kim Giang. SEC declared Ruby under suspension of payments. Lamentably. 1996 -. Consequently. however. The SEC Hearing Panel created the management committee (Mancom) for Ruby tasked. in proportion to their respective shareholdings. but there are exceptions to this rule. The stockholder must be given a reasonable time within which to exercise their preemptive rights. Notwithstanding the objections. the SEC had no basis for its ruling denying the motion of the minority stockholders to declare as without force and effect the extension of Ruby's corporate existence. and compelling the majority stockholders to account for all funds.

In 1991. which provides that: " . lease. when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. there can be no valid contract. most of the members of the 1971 Board of Trustees ("Tamano Group") flew to the Middle East to escape political persecution. vs. In 1992. SEC declared the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. mortgage. In a suit between the two groups. by the vote of at least two-thirds (2/3) of the members. and a Deed of Sale was eventually executed. pledge or otherwise dispose of all or substantially all of its property and assets. the primary purpose of which is to establish of a mosque. but one where consent on the part of one of the supposed contracting parties is totally wanting. v PNOC Shipping and Transport Corp Name: Glenn Niño M. SEC recommended that a new by-laws be approved and a new election be conducted upon the approval of the by-laws. never gave its consent. Therefore. Topic: Powers of Corporations Subtopic: Specific Powers: Power to Sell Al or Substantially all of the assets Provision: Section 40. its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP. exchange. Without a valid consent of a contracting party. the subject sale is void and produces no effect whatsoever. Corporation Code and Bulk Sales Law Case Name: Caltex Inc. Further. the majority vote of the legitimate Board of Trustees. In 1989. the Court subsequently ruled that the INC as the rightful owner of the land. Hence." The subject lot constitutes the only property of IDP. this is a case not only of vitiated consent.).. However. Corporation Code and Bulk Sales Law Islamic Directorate of the Phils v CA FACTS: In 1971. was incorporated. and ordered Ligon to surrender the titles for annotation. August 10. a corporation may. to compel a certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title. or in case of non-stock corporation. through a legitimate Board of Trustees. concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained..Topic: Subtopic: Provision: Case Name: Powers of Corporations Specific Powers: Power to Sell Al or Substantially all of the assets Section 40. which provides that PSTC shall assume all the obligations of LUSTEVECO 110 3B-Corporation Law . (GR No. When President Marcos declared martial law in 1972. PNOC Shipping and Transport Corp. the Carpizo group failed to comply with Section 40 of the Corporation Code. the SEC recommendation was not heeded. the Tamano Group filed a petition before the SEC questioning the sale. by a majority vote of its board of directors or trustees.. the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo (INC). two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and Abbas group. Since the SEC has declared the Carpizo group as a void Board of Trustees. Sartillo Topic: Specific Powers – Power to Sell All or Substantially all of the assets Name of Case: Caltex (Phil. sell.. For the sale to be valid. and other religious infrastructures in Quezon City.. 150711. IDP purchased a lot in Quezon City. but the intervention was denied. These twin requirements were not met in the case at bar. ISSUE: Whether or not the sale between the Carpizo group and INC is null and void HELD: Yes.. 2006) Corporation Code Provision: Section 40 FACTS: PNOC Shipping and Transport Corp (PSTC) and Luzon Stevedoring Corporation (LUSTEVECO) entered into an Agreement of Assumption of Obligations (Agreement). the sale it entered into with INC is void. Meanwhile. Ineluctably. The Tamano group sought to intervene. in a stockholders' or members' meeting duly called for the purpose. Inc. Thereafter. The IDP. INC filed a suit for specific performance before the RTC against the Carpizo group. school. the Islamic Directorate of the Philippines (IDP)..

PSTC agreed to take over. The writ of execution could not be satisfied because LUSTEVECO’s remaining properties had been foreclosed by lienholders. Inc. PSTC would not pay LUSTEVECO’s judgment debt. PSTC is still liable to Caltex. However. Such transfer. ISSUE: Whether or not PSTC is liable to Caltex HELD: Yes.with respect to the claims enumerated in Annexes of the Agreement. the transfer should not prejudice the creditors of the assignor. In its Decision. The Agreement also provides that PSTC shall control the conduct of any litigation pending or which may be filed with respect to the claims in the Annexes. Caltex filed a complaint for sum of money against PSTC. Caltex could not enforce the judgment debt against LUSTEVECO. all of LUSTEVECO’s business. unless the creditors who did not consent to the transfer choose to rescind the transfer on the ground of fraud. If PSTC refuses to honor its written commitment to assume the obligations of LUSTEVECO. While the disposition of all or substantially all of the assets of a corporation is allowed under Section 40 of The Corporation Code of the Philippines. and in fact took over. v. 111 3B-Corporation Law . Later. ordering PSTC to pay the sums due the latter in the decision rendered by the Court of Appeals. The assignment will place the assignor’s assets beyond the reach of its creditors. Caltex subsequently learned of the Agreement between PSTC and LUSTEVECO. To allow an assignor to transfer all its business. there will be fraud on the creditors of LUSTEVECO. Among the actions enumerated in the Annexes is Caltex (Phils. Here. properties and assets pertaining to its tanker and bulk business had been assigned to PSTC without the knowledge of its creditors. The trial court decided in favor of the Caltex. the judgment was not satisfied because of the prior foreclosure of LUSTEVECO’s properties. The only way the transfer can proceed without prejudice to the creditors is to hold the assignee liable for the obligations of the assignor. is fraudulent and rescissible. leaving the claims of creditors unenforceable against the debtor. Caltex sent successive demands to PSTC. the IAC ordered LUSTEVECO to pay Caltex. Luzon Stevedoring Corporation pending before the then Intermediate Appellate Court (IAC).). PSTC informed Caltex that it was not a party to the case and thus. Even without the Agreement. In addition. The acquisition by the assignee of all or substantially all of the assets of the assignor necessarily includes the assumption of the assignor’s liabilities. including specifically the claim of Caltex. PSTC advised Caltex to demand satisfaction of the judgment directly from LUSTEVECO. among others. all the assets of LUSTEVECO upon its express written commitment to pay all obligations of LUSTEVECO pertaining to those assets. Caltex now has no other means of enforcing the judgment debt except against PSTC. LUSTEVECO no longer informed its creditors of the transfer of all of its assets presumably because PSTC committed to pay all such creditors. properties and assets without the consent of its creditors and without requiring the assignee to assume the assignor’s obligations will defraud the creditors.

000. bringing the total obligation to ₱144 million.000 xxx and the selling price was credited as partial/full satisfaction of indebtedness secured by the mortgage. Centro and BPI again amended the MTI for another loan of ₱24 million. initiated foreclosure proceedings on the mortgaged properties.513. Corporation Code and Bulk Sales Law Case Name: Metropolitan Bank and Trust Co. Thus. It was only sometime in 1998 that respondents herein. a public auction sale was conducted and METROPOLITAN BANK & TRUST CO.000 xxx. Before the scheduled foreclosure. represented by Go Eng Uy. expressed its desire to obtain from time to time loans and other credit accommodations from certain creditors for corporate and other business purposes. While Civil Case No. Respondent Centro.Topic: Powers of Corporations Subtopic: Specific Powers: Power to Sell Al or Substantially all of the assets Provision: Section 40. and that the MTI that had been executed appointing petitioner as trustee. Because of this development.700. Then. It noted that the stocks of respondents Kehyeng constituted only 30% of the outstanding capital stock. 04-612 was pending. Chongking Kehyeng. v Centro Development Corp Topic: Powers of Corporations (Specific Powers: Powers to Sell All or Substantially all the assets) Case: Metropolitan Bank Trust & Co vs Centro Development Name: Carmela Abergos FACTS: On 20 March 1990. during which petitioner was adjudged as the highest bidder for ₱344. On June 2. 112 3B-Corporation Law . 04-612 at Branch 56 of the RTC of Makati City praying for the nullification of the foreclosure proceedings and prayed for the issuance of a TRO/injunction. They alleged that they were not aware of any board or stockholders meeting held on 12 August 1994. On 31 March 1993. approached petitioner Metropolitan Bank and Trust Company (Metrobank) sometime in 1994 and proposed that the latter assume the role of successor-trustee of the existing MTI. when petitioner was appointed as successor-trustee of BPI in the MTI. petitioner. which represented more than the 2/3 vote required by Section 40 of the Corporation Code. the clerk of court and the ex-officio sheriff of the RTC of Makati City held an auction sale of the disputed property. Respondent Centro. (San Carlos) as a borrower in addition to Centro.23 from petitioner Metrobank. executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands (BPI). 04-612 was amended. Centro and BPI amended the MTI to allow an additional loan of ₱36 million and to include San Carlos Milling Company. and Lucky Two Repacking. Inc. Thereafter petitioner and respondent Centro executed the assailed MTI. together with its affiliates Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy. 2004. Manuel Co Kehyeng and Quirino Kehyeng. in a special meeting of the board of directors of respondent Centro Development Corporation (Centro). It held that the evidence presented by respondents was insufficient to support their claim that there were no meetings held authorizing the mortgage of Centros properties.700. Lucky Two Corp. Under the MTI. It is worth noting that this MTI did not amend the amount of the total obligations covered by the previous MTIs. submitted a bid for the sale to him/it of the mortgaged property in the amount of ₱344. and Centro and San Carlos prayed for the issuance of a writ of injunction to prevent the registration of the Certificate of Sale and the subsequent transfer to petitioner of the title to the properties. respondents herein filed a Complaint for the annulment of the 27 September 1994 MTI with a prayer for a temporary restraining order. San Carlos failed to pay these outstanding obligations despite demand. However. respondent Centro. respondent Centro constituted a continuing mortgage on all or substantially all of its properties and assets enumerated above unto and in favor of BPI. Meanwhile. the trustee. its president Go Eng Uy was authorized to mortgage its properties and assets to secure the medium-term loan of ₱84 million of Lucky Two Corporation and Lucky Two Repacking.700. the Complaint in Civil Case No. This authorization was subsequently approved on the same day by the stockholders. on 28 July 1994. allegedly discovered that the properties of respondent Centro had been mortgaged. amending the previous agreements by appointing the former as the successor-trustee of BPI. San Carlos obtained loans in the total principal amount of ₱812. Centro and San Carlos filed a Complaint docketed as Civil Case No. represented by Go Eng Uy. as trustee of the MTI. while the Go family owned the majority 70%. To secure these obligations from different creditors. Branch 56 of the RTC of Makati City subsequently denied the application. RTC dismissed the Complaint.793. which was the highest bid hence declared as the winning bidder and being the creditor he/it did not delivery or pay cash/monies to the Clerk of Court and Ex-Officio Sheriff the bid price of ₱344.

ISSUE: Won the amendment of the MTI failed to meet the requirements of Section 40 of the Corporation Code on notice and voting requirements. Going through the original and the revised MTI.Respondent Centro thereafter filed before the CA a Petition for Certiorari . and not that a new mortgage was thereby constituted. There is no evidence that petitioner. we find no substantial amendments to the provisions of the contract. 80778. 80778. CA promulgated the assailed Decision in CA-G. it is clear that the main purpose of the directors’ Resolution was to appoint petitioner as the new trustee of the previously executed and amended MTI. The appointment necessitated only a decision of at least a majority of the directors present at the meeting in which there was a quorum. had a cause of action to move for the extrajudicial foreclosure of the subject properties mortgaged under the MTI. which involved the legality of the MTI. pursuant to Section 25 of the Corporation Code. After a careful review of the records of this case. while we uphold the validity of the stockholders’ Resolution appointing Metrobank as successor-trustee. it is worthy to note that respondents do not assail the previous MTI executed with BPI. During this time. considering that they had not been notified in writing of the meeting in which the corporate action was to be discussed. 005.R. Section 40 of the Corporation Code finds no application in the present case. Based on the 18 August 1994 Secretarys Certificate. The appellate court first determined whether the requirements of Section 40 of the Corporation Code on the sale of all or substantially all of the corporations property were complied with. we find that petitioner failed to establish its right to be entitled to the proceeds of the MTI. which empowered Go Eng Uy "to sign the Real Estate Mortgage and all documents/instruments with the said bank. Lucky Two Corporation. We agree with petitioner that the act of appointing a new trustee of the MTI was a regular business transaction. 1994. was still pending. CV No. CA-G.R. for and in behalf of the Company which are necessary and pertinent thereto. or the use of Centro’s properties as collateral for the loans of San Carlos. Nor do they question the additional loans increasing the value of the mortgage to P 144 million." must be construed to mean that such power was limited by the conditions of the existing mortgage. They do not question the validity of the mortgage constituted over all or substantially all of respondent Centro’s assets pursuant to the 21 March 1994 MTI in the amount of P 84 million. the CA found that only a quorum was present during the stockholders meeting. Nevertheless. Moreover. as there was no new mortgage to speak of under the assailed directors’ Resolution. The appellate court thus held that the 2/3 vote required by Section 40 was not met. Thus. as creditor or as trustee. s. and Lucky Two Repacking. It ruled that the minority stockholders were deprived of their right to dissent from or to approve the proposed mortgage. HELD: Reading carefully the Secretary’s Certificate. 113 3B-Corporation Law . CV No. this is not to say that we uphold the validity of the extrajudicial foreclosure of the mortgage. The second paragraph of the directors’ Resolution No.

not for the profit of anyone. on August 20. Insular Life Assurance Company. Second. Under the Tax Code although respondent is a cooperative.” Without a doubt.” Third. Ltd. For its failure to register. Since respondent is composed entirely of members who are also its policyholders. [CIR]. First. This pronouncement was later affirmed by this court in [CIR] v. the CIR argued that Sun Life ought to have registered.] being a mutual life insurance company. to the creation of a fund from which all losses and liabilities are paid. it was likewise exempt from the payment of premium tax and DST.Topic: Powers of Corporations Subtopic: Power to Invest in another purpose Provision: Section 40. and who. it is licensed for the mutual protection of its members. registration with the Cooperative Development Authority (CDA) is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums. with the Cooperative Development Authority before it could enjoy theexemptions from premium tax and DST extended to purely cooperative companies or associations under [S]ections 121 and 199 of the Tax Code. Ltd. who pay into its capital by way of premiums. the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Sun Life surmised that[. On the basis of its bylaws. it is managed by its members. Seeking reconsideration of the decision of the CTA. A mutual life insurance company is conducted for the benefit of its member-policyholders. which held that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. The Tax Code defines a cooperative as an association“conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire. foremost. 1997. under Section 121. Hence. The CTA denied the CIR’s motion for reconsideration. it could not avail of the exemptions prayed for. respondent is a cooperative engaged in a mutual life insurance business. Corporation Code and Bulk Sales Law Case Name: Republic v Sun Life Topic: Powers of Corporations (Specific Powers: Power to invest in another purpose) Case: Republic vs Sun life Name: Carmela Abergos FACTS: On December 29. by a system of premiums or assessments. Both the CA and the CTA found that the management and affairs of respondent were conducted by its member-policyholders. in turn. elect from among themselves the members of its board of trustees. SUNLIFE has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation pursuant to Section 266 of the Insurance Code of 1978. 114 3B-Corporation Law . its ownership has been vested in its member-policyholders who are each entitled to one vote. 1999. Sun Life filed with the CIR an administrativeclaim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods. ISSUE: Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax RULING: YES. all premiums collected obviously come only from them. The member-policyholders constitute “both insurer and insured” who “contribute. v. Sun Life filed with the CTA a petition for review. it is operated with money collected from its members. and documentary stamp taxes on policies of insurance or annuities it grants. under Section 199. The CTA found in favor of Sun Life.

is bound by the execution. in conscience he ought to speak. equity will debar him from speaking when. and to secure and guarantee the term loan and other credit facility of IDHI Prime Aggregates Corporation (Prime Aggregates) with IEB.000. Petitioner. He who remains silent when he ought to speak cannot be heard to 115 3B-Corporation Law .trial court committed no grave abuse of discretion in denying petitioner’s prayer for preliminary injunction. in approving the " Resolution. the present petition for review faulting the Court of Appeals ISSUE: Won the real estate mortgage was ultra vires HELD: The intention of the Members of the Board of Directors of the Petitioner. 2000. Given the factual milieu in the present recourse. As our Supreme Court declared. with actual or constructive thereof.000. there can be no equivocation that. (Zosa). drawing IEB to file a petition for extra-judicial foreclosure of mortgage before the RTC of Cebu City. Jr. Inc. or mortgage its properties as security for this credit line. and hurried off to the Respondent Court and prayed for injunctive relief. It brushed aside petitioner’s arguments that the real estate mortgage was ultra vires and that Amparo and Zosa were only authorized to mortgage petitioner’s properties to secure the P60.267." may be ascertained xxx also from the contemporaneous and subsequent acts of the Petitioner.Topic: Powers of Corporations Subtopic: Ultra Vires Acts Provision: Section 45. not binding on the Petitioner. We must take heed and pay obeisance to the equity rule that if one maintains silence when. he ought to remain silent. the Petitioner finally awoke from its slumber when the Private Respondent filed its "Petition" for the extrajudicial foreclosure of the "Real Estate Mortgage".547.denied.000.96 and US$211. The Board of Directors also authorized petitioner to assign. by its Treasurer and General Manager. the Private Respondent and Prime Aggregates. and hence. executed a real estate mortgage covering three parcels of land (the real estate mortgage) in favor of IEB to secure. CA . through its Treasurer Amparo Zosa (Amparo) and its General Manager Manuel Zosa. Prime Aggregates subsequently obtained several loans from IEB from September 1997 until September 1998. Before then. and that Amparo and Zosa were authorized to mortgage its properties to secure only a P60. Petitioner filed an MR . whether within or beyond the scope of his ordinary powers. We find the Petitioner’s stance grossly inequitable. As it was.000. in conscience. Hence. Petitioner assailed the trial court’s orders denying its prayer for the issuance of a writ of preliminary injunction before the CA via certiorari alleging that the real estate mortgage it executed was null and void for being ultra vires as it was not empowered to mortgage its properties as security for the payment of obligations of third parties.000 term loan and one credit facility of Prime Aggregates. ratification and/or approval by the corporation of the acts of its agents/officers may be ascertained through x x x the acquiescence in his acts of a particular nature. Prime Aggregates obtained a term loan from IEB in the amount of P60.000. Prime Aggregates failed to settle its outstanding obligation which stood at P90. as found and declared by the Respondent Court. the Petitioner maintained a stoic silence and adopted a "hands off" stance. with its properties used as securities for the payment of the credit and loan availments of Prime Aggregates from the Private Respondent on the basis of the "Resolution" approved by its Board of Directors. pledge.000 term loan and one credit facility of Prime Aggregates.12 as of September 15. with the Sheriff. Corporation Coe Case Name: Zomer Development Corp v International Exchange Bank Topic: Ultra Vires Acts Case: ZOMER DEVELOPMENT CORP VS INTERNATIONAL EXCHANGE BANK Name: Carmela Abergos FACTS: The Board of Directors of Zomer Development Company. indeed the Petitioner conformed to and ratified. of the "Real Estate Mortgage" in favor of the Private respondent. Petitioner filed a complaint8 for Injunction with application for writ of preliminary injunction/temporary restraining order alleging that the real estate mortgage was null and void because Amparo and Zosa were authorized to execute it to secure only one obligation of Prime Aggregates – denied. (petitioner) approved a resolution authorizing it to apply for and obtain a credit line with respondent International Exchange Bank (IEB) in the amount of P60.000 as well as temporary excesses or permanent increases thereon as may be approved by IEB from time to time. and assailed the authority of its Board of Directors to approve the said "Resolution" and of its Treasurer and General Manager to execute the deed and brand the said "Resolution" and the said deed as "ultra vires" and hence.854.

the Petitioner cannot hide behind the cloak of "ultra vires" for a defense. the transactions between the Petitioner and the Private Respondent over its properties are neither malum in se or malum prohibitum. when it will not advance justice but. The plea of "ultra vires" will not be allowed to prevail. on the contrary. 116 3B-Corporation Law . will accomplish a legal wrong to the prejudice of another who acted in good faith. whether interposed for or against a corporation.speak when he ought to be silent. Hence. More.

to file the instant case seeking the quieting of their supposed title to the subject properties. (RISCO) ceased operation due to business reverses  In plaintiffs’ (Anzar et al. At the outset. The Court was not persuaded by the contention of Aznar. et al. the Court agrees with the Court of Appeals that the agreement contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14. et al. The annotation of their lien serves only as collateral and does not in any way vest ownership of property to plaintiffs. various subsequent annotations were made on the same titles. We find that the money contributed by plaintiffs-appellees was in the nature of a loan. rather than an expressed trust ISSUE: Whether there was a trust contract between RISCO and Aznar. they contributed a total amount of P212. from the use of the word "lien" in the Minutes.1962 in favour of Philippine National Bank (PNB). showed that their contributions shall constitute as “lien or interest on the property. 1961. Inc. being the lone and highest bidder of the 3 parcels of land. were the beneficiaries. to RISCO can only be characterised as a load secured by a lien on the subjected lots.” The term lien as used in the Minutes is defined as "a discharge on property usually for the payment of some debt or obligation. if and when said property are titled in the name of RISCO. HELD: No. including the Notice of Attachment and Writ of Execution both dated August 3. titles were issued in the name of RISCO. a Certificate of Sale was issued in favor of PNB. until such time their respective contributions are refunded to them completely”  Thereafter. subject to registration as their adverse claim in pursuance of the Provision of Land Registration Act.  As a result. and a part of it says: “And that the respective contributions above-mentioned (Aznar et al.720. et al.00. This prompted Aznar et al. secured by their liens and interests duly annotated on the titles.. that the language of the subject Minutes created an express trust. Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim. This was used to purchase 3 parcels of land in Cebu (2 in the Minicipality of Talisay and 1 in the District of Lahug)  After the purchase of the lots. Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO on March 14.  CA opined that the monetary contributions made by Aznar. et al.  Trial court ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the stockholders.. 117 3B-Corporation Law .Topic: Subtopic: Provision: Case Name: MINUTES OF THE Meetings Minutes of Meetings Section 49 to 52 Philippine National Bank v MErelo Aznar MEETING PHILIPPINE NATIONAL BANK v AZNAR FACTS:  1958: Rural Insurance and Surety Company.) shall constitute as their lien or interest on the property described above. Aznar. 1961 was a loan by the therein named stockholders to RISCO. Hence.  The amount contributed by plaintiffs constituted as liens and encumbrances on the properties as annotated in the titles of said lots.) desire to rehabilitate RISCO.

RTC entertained the complaint and rendered a summary judgment and issued a writ of execution. There can be no distribution of assets among the stockholders without first paying corporate debts.  Respondent refused the petitioners’ demand.00. who are preferred in the distribution of corporate assets. Section 83 of the Corporation Code provides that if the dissenting stockholder is not paid the value of his shares within 30 days after the award. It insisted that the market value on the date before the action to remove the pre-emptive right was taken should be the value. The creditors of a corporation have the right to assume that the board of directors will not use the assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and liabilities. for an aggregate value of P2. his voting and dividend rights shall immediately be restored. In case the corporation has no available unrestricted retained earnings in its books. 82 of the Corporation Code.  The respondent found the fair value of the shares demanded to be unacceptable. as well as the reimbursement of the amounts advanced as professional fees to the appraisers. or a total of P2. a domestic corporation engaged primarily in cargo shipping activities. any disposition of corporate funds and assets to the prejudice of creditors is null and void. or P0.298. Under the doctrine.565. which was not the case.00  Subsequently.  In a nutshell. The committee reported its valuation of P2. In the instant case. and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors.54/share. The petitioners voted against the amendment and demanded payment of their shares at the rate of P2. Topic: Stocks and Stockholders Subtopic: Trust Fund Doctrine Provision: Case Name: Turner v Lorenzo TRUST FUND DOCTRINE 118 3B-Corporation Law . but that it had no retained earnings at the time of the petitioners’ demand. the petitioners demanded payment based on the valuation plus 2% month penalty from the date of their original demand for payment. as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72.  The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to Sec.Topic: Stocks and Stockholders Subtopic: Trust Fund Doctrine Provision: Case Name: Turner v Lorenzo TRUST FUND DOCTRINE TURNER v LORENZO SHIPPING FACTS:  The petitioners (Philip and Elnora Turner) held 1.400.  CA ruled otherwise holding that no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment. property.100. ISSUE: Whether CA correctly qualified petitioners’ appraisal right under the Trust Fund Doctrine HELD: Yes.). the dissenting stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted retained earnings to cover the fair value of the shares.000 shares of stock of the respondent (Lorenzo Shipping Corp.  Upon the respondent’s refusal to pay. the capital stock. explaining that pursuant to the Corporation Code.00.41/share (P414. Thus. the petitioners sued the respondent for collection and damages in the RTC.973.114. it was established that there were no unrestricted retained earnings when the Turners filed their complaint.760.276/share based on the book value of the shares.010. The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares of stocks of the withdrawing stockholders.00) and that the payment could be made only if the respondent had unrestricted retained earnings in its books to cover the value of the shares. The respondent decided to amend its articles of incorporation to remove the stockholders’ pre-emptive rights to newly issued shares of stock.

The mention of the real value of the shares of stock. which are owned by the corporation as a distinct legal person. 119 3B-Corporation Law .LU v LU YM SR FACTS:  The main purpose of the complaint filed before the RTC was the annulment of the issuance of the 600.  RTC ruled in favor of petitioners by annulling the issuance of the shares of stock subscribed and paid by respondent father and sons at less than par value. and collateral. a basic concept in corporate law is that a shareholder's interest in corporate property. it bears emphasis. which are the properties in litigation. and other assets of a corporation are regarded as held in trust for the corporate creditors. Under the trust fund doctrine. They do not claim to be the owners thereof entitled to be the transferees of the shares of stock. the correct docket fees were paid It bears noting. In the event of the dissolution of LLDC. remote. does not vest its holder with any legal right or title to any of the properties. the capital stock. conjectural. A share of stock. not the value of the 600. petitioners would get only the value of their minority number of shares. if it exists at all. such holder's interest in the properties being equitable or beneficial in nature. The appeal of the trial court's Decision remains pending with the appellate court. should be the basis for the computation of the filing fees.000 shares of stock. must first be paid before any corporate assets may be distributed among the stockholders.000 shares. who. The nature of the principal action/remedy sought by petitioner is to declare null and void the issuance of 600. however.000 LLDC shares of stocks because they had been allegedly issued for less than their par value. over which petitioners do not. and ordering the dissolution and asset liquidation of LLDC.000 unsubscribed and unissued shares to respondents and not to recover properties of LLDC. properties. Hence. Thus. is indirect. petitioners sought the dissolution of the corporation and the appointment of receivers/management committee. interpose a claim of right to recovery.  The value of the 600. is merely narrative or descriptive in order to emphasize the inequitable price at which the transfer was effected. being preferred in the distribution of the corporate assets. therefore. contingent. ISSUE: Whether petitioners paid the correct docket fees for the complaint HELD: Yes. A shareholder is in no legal sense the owner of corporate properties. Indeed. that petitioners are not claiming to own the subject shares. consequential. although representing a proportionate or aliquot interest in the properties of the corporation.

The creditor is allowed to maintain an action upon any unpaid subscriptions  and thereby steps into the shoes of the corporation for the satisfaction of its debt. It appears that BMPI has an authorized capital stock of 3M divided into 300. Halley contends that: 1.000 PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded BMPI’s original stockholders and incorporators to recover on their unpaid subscriptions. BOD and SH had resolved to dissolve BMPI RTC and CA o Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL) o Rejected allegations of full payment in view of irregularity in the issuance of ORs (Payment made on a later date was covered by an OR with a lower serial number than payment made on an earlier date. in whole or in part.000 was paid hence a balance of 291. On piercing the veil: Although the corporation has a personality separate and distinct from its SH. Only 75.000 shares worth P350. or fraudulently. to the prejudice of the creditors.000 but only paid P87. such personality is merely a legal fiction (for the convenience and to promote the ends of justice) which may be disregarded by the courts if it is used as a cloak or cover for fraud. the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares. BMPI commissioned PRINTWELL to print Philippines. that the stockholders personally benefited from the operations of the corporation even though they never paid their subscriptions in full. As to the Trust Fund Doctrine: The RTC and CA correctly applied the Trust Fund Doctrine Under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the creditors (by mere analogy) In reality. They all had already paid their subscriptions in full 2. The trust fund doctrine is not limited to reaching the SH’s unpaid subscriptions. only 25. BMPI placed several orders amounting to 316.Topic: Subtopic: Provision: Case Name: Facts:         Issue:  Held:      Stocks and Stockholders Trust Fund Doctrine Donina Halley v Printwell BMPI (Business Media Philippines Inc.000 shares with P10 par value.500 were paid up capital. justification of a wrong. 120 3B-Corporation Law . (a magazine published and distributed by BMPI) PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of 9 mos.000 shares worth P750. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. And. However.500.000 were originally subscribed of which P187. including Donnina Halley In the course of its business.) is a corporation under the control of its stockholders. or an alter ego for the sole benefit of the SH. corporation is a simple debtor. BMPI had a separate and distinct personality 3. Moreover. without valuable consideration. WON a stockholder who was in active management of the business of the corporation and still has unpaid subscriptions should be made liable for the debts of the corporation by piercing the veil of corporate fiction YES! Such stockholder should be made liable up to the extent of her unpaid subscription Ratio: It was found that at the time the obligation was incurred.000. BMPI was under the control of its stockholders who know fully well that the corporation was not in a position to pay its account (thinly capitalized). The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny creditors to collect from SH) it would create an injustice because creditors would be at a loss (limbo) against whom it would assert the right to collect. Halley subscribed to 35. Inc.

The Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement. they agreed that the Tius were entitled to nominate the Vice President and the Treasurer plus 5 directors while the Ongs were entitled to nominate the President.000 shares at a par value of P100. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer. affirming the 19 May 1997 decision of the Hearing Officer. P30 million (for 300.Topic: Subtopic: Provision: Case Name: Facts:           Stocks and Stockholders Subscription Contracts Sections 60 and 61 of Corporation Code Ong Yong et al v Tiu In 1994. Tiu. the Ongs paid P100 million in cash for their subscription to 1. After hearing. 2002 Decision)" on 15 March 2002. and that the Tius shall be credited with 49. On appeal. (2) preventing David S. on 23 February 1996. On 1 February 2002. the Supreme Court promulgated its Decision. respectively. The SEC en banc confirmed the rescission of the PreSubscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC. which was owned by David S. On motion of both parties. the SEC. m. Jr.000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200.800 stock subscription therein. Tiu. Aside from their opposition to the Tius' Motion for Issuance of Writ of Execution.00 each in addition to their already existing subscription of 450. the Ongs were given the right to manage and operate the mall. Tiu (the Tius). D. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions. Tiu.200 shares.. On 29 January 2003. Their motions for reconsideration having been denied. was shortlived because the Tius. The controversy finally came to a head when the case was commenced by the Tius on 27 February 1996 at the Securities and Exchange Commission (SEC). On 28 February 2003. the Tius submitted their memorandum.8 million (for 49. parcel of land. Ong and Julia Ong Alonzo (the Ongs). the Court of Appeals (CA) rendered a decision on 5 October 1999. the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1. Willie Ong filed a separate "Motion for Partial Reconsideration" dated 8 March 2002. Tiu and Cely Y. that the P70 million advanced by the Ongs to the FLADC shall earn interest at 10% per annum to be computed from the date of the FLADC Board Resolution which is 19 June 1996.800 shares at P100. The Ongs paid in another P70 million 3 to FLADC and P20 million to the Tius over and above their P100 million investment.800 shares) to cover their additional 549. among others. Ong. the Tius invited Ong Yong. Andaya. On 15 March 2002.800 shares in FLADC for their property contribution. the Ongs filed their own "Motion for Reconsideration. Anna L.00 each while the Tius were to subscribe to an additional 549. The business harmony between the Ongs and the Tius in FLADC. rescinded the Pre-Subscription Agreement. Dr. the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB. pointing out that there was no violation of the PreSubscription Agreement on the part of the Ongs. encountered dire financial difficulties. Terence Y. not entitled to earn interest. Willie Ong and the rest of the movants Ong filed their respective memoranda. William T. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. the Tius filed before the Court a Motion for Issuance of a Writ of Execution. Furthermore. Issue 121 3B-Corporation Law . Moreover. Juanita Tan Ong. affirming the assailed decision of the Court of Appeals but with the modifications that the P20 million loan extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed from the time of judicial demand which is from 23 April 1996. and (3) refusing to give them the office spaces agreed upon. the 151 sq.000. Accordingly. seeking confirmation of their rescission of the PreSubscription Agreement. To stave off foreclosure of the mortgage on the two lots where the mall was being built. John Yu and Lourdes C. hence. to invest in FLADC. Both parties appealed to the SEC en banc which rendered a decision on 11 September 1998. Wilson T. the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner. Cely Y. Belen See Yu. On 27 February 2003.000 shares). however. through then Hearing Officer Rolando G. the Special Second Division of this Court held oral arguments on the respective positions of the parties. issued a decision on 19 May 1997 confirming the rescission sought by the Tius. both parties filed separate petitions for review before the Supreme Court. the Secretary and 6 directors (including the chairman) to the board of directors of FLADC. Moly Yu Gow.000 shares) and P49. Ong. Motion for Modification (of the February 1. Alternatively. specifically. the above decision was partially reconsidered but only insofar as the Ongs' P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct. modifying the SEC order of 11 September 1998.000. the First Landlink Asia Development Corporation (FLADC). Under the Pre-Subscription Agreement they entered into.

the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. unless he shows that he has a real interest affected thereby." Therefore.200 shares to complete 1. a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof. Thus. the parties' Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60.000.000 shares of stock was. with the Ongs subscribing to 1.000 shares and the Tius to 549. The authorized capital stock was thus increased from 500. Title VII of the Corporation Code. Held      Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract.000 shares. Assuming it had valid reasons to do so.800 more shares in addition to their 450. only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein.200 shares representing the paid-up capital. 122 3B-Corporation Law .000. from the viewpoint of the law. a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. one between the Ongs and FLADC.000. Since these were unissued shares.000. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation — its shares of stock. . It was FLADC that did. Thus. Article 1311 of the Civil Code provides that "contracts take effect only between the parties. the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1. Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone.000 shares with a par value of P100 each.000 shares to 2. When the Tius invited the Ongs to invest in FLADC as stockholders. an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. FLADC was originally incorporated with an authorized capital stock of 500. . the subject matter of the contract was the 1. their assigns and heirs. Otherwise stated.000.000 shares with the Tius owning 450.000 unissued shares of FLADC stock allocated to the Ongs. not between the Ongs and the Tius.

on appeal. Negotiations subsequently ensued in light of a planned takeover by Nishino who would buy-out the shares of stock of Yamamoto who was advised through a letter that he may take all the equipment/ machinery he had contributed to the company (for his own use and sale) provided that the value of such machines is deducted from the capital contributions which will be paid to him. soonest”. but a mere offer. the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established.  To disregard the separate juridical personality of a corporation. However. remained part of the capital property of the corporation. a mere offer produces no obligation. However. Estoppel may arise from the making of a promise. to perpetuate the violation of a statutory or other positive legal duty. Without acceptance. Nishino claimed that the properties being recovered were owned by the corporation and the abovesaid letter was a mere proposal which was not yet authorized by the Board of Directors. Also. However. it does not apply. drawing him to file a Writ of Replevin. the letter requested that he give his “comments on all the above.” What was thus proffered to Yamamoto was not a promise. subject to his acceptance. which comprised Yamamoto’s investment. Nishino and his brother Yoshinobu Nishino acquired more than 70% of the authorized capital stock. Yamamoto attempted to recover the machineries but Nishino hindered him to do so. Without a demonstration that any of the evils sought to be prevented by the doctrine is present.Topic: Subtopic: Provision: Case Name: Facts       Stocks and Stockholders Trust Fund Doctrine Yamamoto v Nishino Leather Industries To disregard the separate juridical personality of a corporation. Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of the corporation. Thus. a mere offer produces no obligation. HELD:  One of the elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction is that control must have been used by the defendant to commit fraud or wrong. it bears noting that the letter was followed by a request for Yamamoto to give his “comments on all the above. soonest. it cannot be presumed. the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established. the machineries and equipment. However. 123 3B-Corporation Law . without acceptance. On the basis of the said letter. ISSUE:  Whether or not Yamamoto can recover the properties he contributed to the company in view of the Doctrine of Piercing the Veil of Corporate Fiction and Doctrine of Promissory Estoppel. Thus. or dishonest and unjust act in contravention of the plaintiff’s legal rights. the Court of Appeals reversed the trial court’s decision despite Yamamoto’s contention that the company is merely an instrumentality of the Nishinos. The Trial Court issued the writ.

Squabble later on ensued which prompted Tiu to rescind the pre-subscription agreement. the "corporate peace" laudably hoped for by the court will remain nothing but a dream because this time. in the final analysis. officers or directors of the corporation. regardless of the existence of unrestricted retained earnings.000. thus Tiu invited Tiu to invest in said mall. and (3) dissolution and eventual liquidation of the corporation. 119 and 120 of the Corporation Code. vs. rescission will. Issue: Whether or not the rescission of the pre-subscription agreement was proper. Otherwise. The Tius maintain that rescinding the subscription contract is not synonymous to corporate liquidation because all rescission will entail would be the simple restoration of the status quo ante and a return to the two groups of their cash and property contributions. 124 3B-Corporation Law . first enunciated by this Court in the 1923 case of Philippine Trust Co. inequitable and disastrous effect on the corporation. result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117. Very noticeable is the fact that the Tius do not explain why rescission in the instant case will not effectively result in liquidation. embodied in the Corporation Code. which allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock. for that matter. Rivera. In the instant case. Ratio: The Trust Fund Doctrine. thereby violating the Trust Fund Doctrine and the Corporation Code. Held: No. Furthermore.800 shares in addition to their already existing subscription of 450. it will be the creditors' turn to engage in "squabbles and litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine. A Pre-subscription agreement was made to the effect that Ongs would subscribe to 1. Its construction was threatened by financial constraints. since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. it was not proper.200 shares. Contrary to the Tius' allegation. Tiu Facts: Tiu is the owner/developer of Masagana Citimall. on the earnest desire of the court a quo "to prevent further squabbles and future litigations" unless the indispensable conditions and procedures for the protection of corporate creditors are followed. We wish it were that simple. The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders. The Tius merely refer in cavalier fashion to the end-result of rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair. (2) purchase of redeemable shares by the corporation.000 shares while the Tius will subscribe to an additional 549. 118. This doctrine is the underlying principle in the procedure for the distribution of capital assets. its creditors and the Ongs. under the First Landlink Asia Development Corporation (FLADC).Topic: Stocks and Stockholders Subtopic: Trust Fund Doctrine Provision: Case Name: Ong Yong v Tiu Ong Yong v. or even. provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation. the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares and in Section 122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor are complied with.

Issue: Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the death of a shareholder. who died on June 25. Until a settlement and division of the estate is effected. during such time. even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L. Consequently. This would only be possible if petitioner has been recognized as an heir and has participated in the settlement of the estate of the deceased. Corporation Code Case Name: Puno v Puno Enterprises RIGHTS TO INSPECT BOOKS AND RECORDS (Sec. The complaint thus prayed that respondent allow petitioner to inspect its corporate book. Section 63 of the Corporation Code provides that no transfer shall be valid. until the transfer is recorded in the books of the corporation. initiated a complaint for specific performance against respondent. and give petitioner all the profits. 2003. he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. As surviving heir. Puno. Thus. During such interim period. Held: NO. and the transfer of the stocks must be recorded in the books of the corporation. claiming to be an heir of Carlos L. earnings. except as between the parties. the stocks of the decedent are held by the administrator or executor. the executor or administrator duly appointed by the court being vested with the legal title to the stock. Puno.Topic: Stocks and Stockholders Subtopic: Certificate fo Stocks and Transfer of Shares Provision: Sections 63 and 64. the heirs stand as the equitable owners of the stocks. the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation. CA dismissed. Corp. a shareholder has the right to be intelligently informed about corporate affairs. 1963. Puno. On March 14. 63 & 74. 125 3B-Corporation Law . RTC ordered Puno Enterprises to let their records be inspected by plaintiff Joselito Puno. Amelia Puno. The stockholders right of inspection of the corporation’s books and records is based upon his ownership of shares in the corporation and the necessity for self-protection. Code) Puno vs Puno Enterprises FACTS:     Carlos L. petitioner Joselito Musni Puno. Such right rests upon the stockholders underlying ownership of the corporations assets and property Upon the death of a shareholder. Petitioner averred that he is the son of the deceased with the latter’s common-law wife. Inc. he would still not be allowed to inspect respondents books and be entitled to receive dividends from respondent. Puno. The stocks must be distributed first to the heirs in estate proceedings. render an accounting of all the transactions it entered into from 1962. absent any showing in its transfer book that some of the shares owned by Carlos L. dividends. or income pertaining to the shares of Carlos L. After all. it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder. Puno were transferred to him. was an incorporator of respondent Puno Enterprises.

Zenith Insurance. deemed co-owners thereof. RTC held that it will decide only on the first cause of action. Oscar Reyes had 8. Simply stated. Pedro’s estate. o RTC denied the motion.598 shares of stock. arguing that he acquired the shares by purchasing them with his own funds from the unissued stocks of Zenith. o CA affirmed. her children acquired legal title to her estate (which title includes her shareholdings in Zenith).598 shares registered in her name.250 shares registered in his name. though effective and valid between the parties involved (i. the controversy must not only be rooted in the existence of an intracorporate relationship. and (2) determination of the shares of stock of Anastacio and Pedro for distribution to the co-heirs which should be filed with the probate.  The case was transferred to the RTC acting as a Special Commercial Court (SCC) due to the passage of RA 8799 during the pendency of the case. the heirs do not become registered stockholders of the corporation. and that the action is primarily for the settlement of the estate. not the RTC as a SCC.e. types of relationships embraced under Section 5(b) of PD 902A). does not bind the corporation and 126 3B-Corporation Law . for the accounting of funds and assets of Zenith to determine the shares of stock of Pedro and Anastacia that were allegedly fraudulently and arbitrarily appropriated by Oscar without the requisite partition or settlement of estate of Anastacia. Rodrigo Reyes FACTS:  Rodrigo Reyes and Oscar Reyes are two of the four children of Pedro and Anastacia Reyes. however.  Rodrigo and Zenith filed suit with the SEC against Oscar Reyes. the transfer of title by means of succession. and as one of the heirs of Anastacia Reyes with respect to the 136. 63 & 64. a family corporation. and they are. ISSUE: Whether or not the suit is an intracorporate controversy properly within the jurisdiction of the RTC as a SCC. The Court combined two tests. holding that there are two causes of action. but also the nature of the question under controversy. and the nature of the controversy test (i. he holds them in two capacities: in his own right with respect to the 4. A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intra-corporate controversy. was partitioned. between the decedent’s estate and her heirs).  Pedro died in the 1970s and Anastacia died in 1993.715. They are all stockholders of Zenith Insurance. Rodrigo had 4. the main consideration in determining whether a dispute constitutes an intracorporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties..e. Initially. What is material in resolving the issues of this case under the allegations of the complaint is Rodrigo’s interest as an heir since the subject matter of the present controversy centers on the shares of stocks belonging to Anastacia.250 shares. but Anastacia’s was not. prior to the estate’s partition. presumably including his shares in Zenith.e. This status as co-owners. (1) a derivative suit for accounting of the funds and assets of Zenith. does not immediately and necessarily make them stockholders of the corporation. In 1990. Corporation Code Case Name: Reyes v RTC of Makati CERTIFICATE OF STOCKS AND TRANSFER OF SHARES (Sec. Code) Oscar Reyes vs Makati RTC. Unless and until there is compliance with Section 63 of the Corporation Code on the manner of transferring shares. and the deceased Anastacia still had 136.Topic: Stocks and Stockholders Subtopic: Certificate of Stocks and Transfer of Shares Provision: Sections 63 and 64. not on Rodrigo’s personally-owned shares nor on his personality as shareholder owning these shares. and as such should be with the probate court. to the detriment of his siblings. the relationship test (i. but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation) and thus declared that jurisdiction should be determined by considering not only the status or relationship of the parties. HELD: NO. Upon Anastacia’s death. Corp. UNDER THE RELATIONSHIP TEST While Rodrigo holds shares of stock in Zenith. o Oscar filed a MTD.637 shares of stock.

custody. Thus. and distributed. Second.third parties. It has the power to enforce an accounting as a necessary means to its authority to determine the properties included in the inventory of the estate to be administered. its accounting and the corresponding delivery of these shares to the parties’ brothers and sisters. And without the registration. there is only one cause of action alleged in the complaint. he cannot be considered a stockholder who may invoke the existence of an intra-corporate relationship as premise for an intra-corporate controversy within the jurisdiction of a special commercial court. No such proceeding has been commenced to date. Therfore. the determination of title or ownership over the subject shares (whether belonging to Anastacia or Oscar) may be conclusively settled by the probate court as a question of collation or advancement. and this can be determined only in a settlement of the decedent’s estate. UNDER THE NATURE OF CONTROVERSY TEST Contrary to the findings of both the trial and appellate courts. Without the partition and distribution. Beyond this. Thus. The transfer must be registered in the books of the corporation to make the transferee-heir a stockholder entitled to recognition as such both by the corporation and by third parties. divided up. he fails under the relationship test. That an accounting of the funds and assets of Zenith to determine the extent and value of Anastacia’s shareholdings will be undertaken by a probate court and not by a special commercial court is completely consistent with the probate court’s limited jurisdiction. there can be no definite partition and distribution of the estate to the heirs. there can be no registration of the transfer. as correctly claimed by Oscar. on this score. The "derivative suit for accounting of the funds and assets of the corporation which are in the control. only an incident to the "action for determination of the shares of stock of deceased spouses Pedro and Anastacia Reyes allegedly taken by respondent. and/or possession of the respondent [herein petitioner Oscar]" does not constitute a separate cause of action but is. 127 3B-Corporation Law . the complaint must necessarily fail as well. Without the settlement of Anastacia’s estate. he must register the transfer of the shares allotted to him to make it binding against the corporation." There can be no mistake of the relationship between the "accounting" mentioned in the complaint and the objective of partition and distribution. Rodrigo must first prove that there are shareholdings that will be left to him and his co-heirs. He cannot demand that this be done unless and until he has established his specific allotment (and prima facie ownership) of the shares.

upon the demand either of the person in whose name the stock is registered. however.R. upon appeal. filed a complaint with the SEC for mandamus but CA dismissed for failure to state a cause of action in the absence of any allegation that the transfer of the shares was registered in the stock and transfer book ISSUE: W/N the certificate of stocks of Gaid can be transferred to Ponce Ruling: NO. Corporation Code Case Name: Ponce v Alsons Cement Corp Certificate of Stock and Transfer of Shares Ponce v. the Commission En Banc reversed the decision of the Hearing Officer Ponce. (G. Jr. or of some person holding a power of attorney for that purpose from the registered owner of the stock. and sealed with the seal of the corporation shall be issued in accordance with the by-laws. a mandamus should not issue to compel the secretary of a corporation to make a transfer of the stock on the books of the company unless it affirmatively appears that he has failed or refused so to do. The certificate of stocks cannot be transferred to Ponce. or a power of attorney authorizing such transfer Topic: Stocks and Stockholders Subtopic: Certificate of Stocks and Transfer of Shares Provision: Sections 63 and 64. Alsons Cement Corp. Flores. Corporation Code Case Name: Makati Sports Club v Cheng Certificate of Stocks and Transfer of Shares 128 3B-Corporation Law . The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder Where a transferee is not yet recognized as a stockholder. no certificates of stock corresponding to the 239. Mere indorsee of a stock certificate. Certificate of stock and transfer of shares. NO. the date of the transfer. Gaid and/or the plaintiff. Despite repeated demands. Ponce and Fausto Gaid. claiming to be the owner. 63. countersigned by the secretary or assistant secretary. until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction. 2002)       Vicente C. No transfer. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. 139802. executed a “Deed of Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce is the owner of the shares and he was therefore assigning/endorsing it to Ponce VCC was renamed Floro Cement Corporation and then to Alsons Cement Corporation Up to the present. the ACC refused to issue the certificates of stocks SEC Hearing Officer Enrique L. will not necessarily be recognized as such by the corporation and its officers. incorporator of Victory Cement Corporation.      SEC. the corporation is under no specific legal duty to issue stock certificates in the transferee’s name. except as between the parties. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer.Topic: Stocks and Stockholders Subtopic: Certificate of Stocks and Transfer of Shares Provision: Sections 63 and 64. December 10. the number of the certificate or certificates and the number of shares transferred. shall be valid. granted the motion to dismiss.–The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president. in the absence of express instructions of the registered owner to make such transfer to the indorsee. In the current case.500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G.

000 per share for Class A and B.000 and P450. together with interest and damages ISSUE: W/N MSCI was defrauded by Cheng's collaboration with Mc Foods Ruling: NO.000 twice on different dates.Makati Sports Club Inc v. Hodreal paid McFoods P1.000.000 through Urban Bank. McFoods advised its offer to resell .00 is P1.800.000. his ownership of the share represented thereby MSCI failed to repurchase Mc Foods’ Class "A" share within the 30 day pre-emptive period and there was no proof that Cheng personally profited from the transaction 129 3B-Corporation Law . and exercise such other powers and perform such other functions as may be authorized by the Board. The right of a transferee to have stocks transferred to its name is an inherent right flowing from its ownership of the stocks Certificate of stock paper representative or tangible evidence of the stock itself and of the various interests therein not a stock in the corporation but is merely evidence of the holder’s interest and status in the corporation. representing the amount allegedly defrauded. Cheng did not defraud MSCI        No evidence on record that the Membership Committee acted on Hodreal's letter SEC.000. Membership Committee failed to question the alleged irregularities attending Mc Foods’ purchase Price of P1.00. 2010)         Makati Sports Club Inc (MSCI) Board of Directors adopted a resolution authorizing the sale of 19 unissued shares at a floor price of P400.400.800. 29. take charge of auction sales of shares of stock. 178523. ascertain that the requirements for stock ownership. submit to the Board its recommended on applicants for inclusion in the Waiting List. Stock certificate was issued to McFoods. No. are complied with.R. including citizenship.000. (a) The Membership Committee shall process applications for membership. Cheng advised sale by McFoods to Hodreal of the share evidenced by a new certificate that was issued Investigation showed that Cheng profited from the transaction because of her knowledge MSCI sought judgment that would order respondents to pay the sum of P1.00 more than the floor price which was not detrimental Upon payment and the execution of the Deed of Absolute Sale. for this purpose he sent the letter requesting to be wait listed McFoods acquired the shares of Makati Sports Club at P1. Respondent Cheng was a Treasurer and Director of Makati Sports Club in 1995 Hodreal expressed his interest to buy a share. it had the right to demand the delivery of the stock certificate in its name. June 16. Cecile Cheng (G. respectively.400.

Jr. No. the financial and corporate framework and structures that led to the establishment of UCPB. It was Petitioner’s burden to establish by preponderance of evidence that respondents’ SMC shares had been illegally acquired with coconut-levy funds was not discharged. Marcos. Absent any special facts and circumstances proving a higher degree of responsibility. who took undue advantage of his association. To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. as in this case. public in character and should be reconveyed to the government. The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication but is more inclined to be a contract of loan. COCOMARK. The SMC shares. acting in unlawful concert with Defendants Ferdinand E. 180702.Topic: Stocks and Stockholders Subtopic: Certificate of Stocks and Transfer of Shares Provision: Sections 63 and 64. Sandiganbayan dismissed the case for failure of plaintiff to prove by preponderance of evidence its causes of action against defendants with respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation registered in defendants’ names Petitioner appealed the case to the Supreme Court invoking that coconut levy funds are public funds. misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation.R. Although the trust relationship supposedly arose from Cojuangco’s being an officer and member of the Board of Directors of the UCPB.. Jr. the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and member of the Board of Directors of the UCPB. No.Thus. through the use of coconut levy funds. Concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasona le. conspired and confederated with each other in setting up. COCOLIFE. but must be alleged and proved. UNICOM. 2011)       The Republic commenced a Civil Case in the Sandiganbayan by complaint. schemed. and Section 31 of the Corporation Code. Jr. Corporation Code Case Name: Republic v Sandiganbayan Certificate of Stocks and Transfer of Shares Republic v. including the acquisition of San Miguel Corporation shares and its institutionalization through presidential directives of the coconut monopoly. G. used the coconut levy funds to acquire SMC shares in violation of his fiduciary obligation as a public officer? Ruling: No. devised.000 shares of SMC stock through the 14 holding companies owned by the CIIF Oil Mills. 169203. G. CIC. and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation. The Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code. and 59 individual defendants. necessarily. No. Petitioner contends that Cojuangco is the undisputed "coconut king" with unlimited powers to deal with the coconut levy funds.’s fiduciary obligation that are. Sandiganbayan (G. Marcos and/or his wife. for fraud or breach of trust is never presumed. There was no showing in the evidence. Respondent did not violate any fiduciary duties. the link between this alleged fact and the borrowings or advances was not established. and ACCRA law offices plotted. 166859. Marcos.R. impleading as defendants respondent Eduardo M. and more than twenty other coconut levy-funded corporations.000. Cojuangco allegedly purchased a block of 33.         It does not suffice. and the Cojuangco companies with the use of coconut levy funds is in violation of respondent Cojuangco. influence and connection. ISSUE: W/N Respondent Cojuangco Jr. The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee sing trust funds to purchase. that the respondent is or was a government official or employee during the administration of former Pres.R. among others) require factual foundations to be first laid out in appropriate judicial proceedings. Cojuangco. April 12. which were acquired by respondents Cojuangco. There must be a prima facie showing that the respondent unlawfully accumulated wealth by virtue of his close association or relation with former Pres. or a person acquiring property through mistake or fraud). Defendants Eduardo Cojuangco. Jr. 130 3B-Corporation Law . any dealings between a lender and borrower are not fiduciary in nature.

 The shares are declared to be exclusive property of Cojuangco. 131 3B-Corporation Law .

154670. Corporation Code Fontana Resort and Country Club v Spouses Tan FONTANA RESORT AND COUNTRY CLUB. worth P387. They requested that an FLP villa again be reserved for their free use on October 17. Tan bought from petitioner RN Development Corporation (RNDC) two class D shares of stock in petitioner Fontana Resort and Country Club.R. in their Complaint. TAN. it did not simply order petitioners to refund to respondents the purchase price of the FRCCI shares. Their reservation was confirmed by a certain Murphy Magtoto. enticed by the promises of petitioners sales agents that petitioner FRCCI would construct a park with first-class leisure facilities in Clark Field. In January 1999. but also directed respondents to comply with their correlative obligation of surrendering their certificates of shares of stock to petitioners. However. . the Articles of Incorporation. another Saturday. Fontana averred that when the spouses were first accommodated at FLP. TAN AND SUSAN C. that FLP would be fully developed and operational by the first quarter of 1998. 1999. 1999. Two years later. Lastly. and that FRCCI class D shareholders would be admitted to one membership in the country club. another country club employee named Shaye called respondents to say that their reservation for April 1.versus SPOUSES ROY S. but were refused by petitioners. According to respondents. G. 1999 was cancelled because the FLP was already fully booked. Sps Tan narrated that they were able to book and avail themselves of free accommodations at an FLP villa on September 5. Tan and Susana C.] and that respondents had already exhausted their free Saturday pass for the year. It further denied that they unjustly cancelled Sps Tan’s reservation for an FLP villa. 132 3B-Corporation Law . INC. 1998.300. a Saturday. AND RN DEVELOPMENT CORP. which entitled them to use park facilities and stay at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every year for free. FONTANA countered that Sps Tan had been duly informed of the privileges given to them as shareholders of FRCCI class D shares of stock since these were all explicitly provided in the promotional materials for the country club.00. without specifically mentioning the annulment or rescission of the sale of said shares. to be called Fontana Leisure Park (FLP). 2012 FACTS: Respondent spouses Roy S. they were not informed of said rule regarding their free accommodations at FLP. they would not have availed themselves of the free accommodations on September 5. one (1) Saturday and one (1) Sunday[. respondents filed before the SEC a Complaint for refund of the P387. January 30. (FRCCI). Inc. CA treated respondents Complaint as one for annulment/rescission of contract and. 1998. a Thursday. Respondents alleged that they had been deceived into buying FRCCI shares because of petitioners fraudulent misrepresentations. rules. Construction of FLP turned out to be still unfinished and the policies. ISSUE: Was the essence of the judgment of the SEC which ordered the return of the purchase price but not of the thing sold a declaration of rescission or annulment of the contract of sale between RNDC and respondents? HELD: It does not matter that the Spouses Tan. simply prayed for refund of the purchase price they had paid for their FRCCI shares. for the celebration of their daughters 18 th birthday. and had they known about it. 1998. respondents attempted once more to book and reserve an FLP villa for their free use on April 1.00 they spent to purchase FRCCI shares of stock from petitioners.300. accordingly. and regulations of the country club were obscure.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Certificate of Stocks and Transfer of Shares Sections 63 and 64. Petitioners clarified that respondents were only entitled to free accommodations at FLP for one week annually consisting of five (5) ordinary days. only minor or finishing construction works were left to be done and that facilities of the country club were already operational. Pampanga. on March 3. and the By-Laws of FRCCI. No.

but were later on disappointed with the actual FLP facilities and club membership benefits. without which. It can only be expected that petitioners presented the FLP and the country club in the most positive light in order to attract investor-members. who may not be so easily deceived into parting with a substantial amount of money. respondents have miserably failed to prove how petitioners employed fraud to induce respondents to buy FRCCI shares.In this case. What is apparent to us is that respondents knowingly and willingly consented to buying FRCCI shares. petitioners actually used insidious words or machinations. There is no showing that in their sales talk to respondents. respondents would not have bought the FRCCI shares. 133 3B-Corporation Law . Respondents appear to be literate and of above-average means.

(FEGDI). FEGDI. No. Inc. a stock certificate was issued in Vertex's name. as such. 4 RSACC advised FEGDI of the transfer and FEGDI. prompting Vertex to demand for the issuance of a stock certificate in its name. RSACC transferred its interests over FEGDI's Class "C" common share to respondent Vertex Sales and Trading. FEGDI alleged that Vertex nonetheless was recognized as a stockholder of Forest Hills and. It prayed for the rescission of the sale and the return of the sums it paid. Inc. In August 1997. Kings and FEGDI owned the shares of stock of Forest Hills. 202205. VERTEX SALES AND TRADING. FELI claimed the same defense. physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased. As its demand went unheeded. Vertex filed a complaint6 for rescission with damages against defendants Forest Hills.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Certificate of Stocks and Transfer of Shares Sections 63 and 64. Prior to the full payment of the purchase price. RTC dismissed Vertex's complaint after finding that the failure to issue a stock certificate did not constitute a violation of the essential terms of the contract of sale that would warrant its rescission. March 6. The RTC noted that the sale was already consummated notwithstanding the non-issuance of the stock certificate. While admitting that no stock certificate was issued.R. it also claimed payment of actual damages for the defendants’ unjustified refusal to issue the stock certificate. Inc. Forest Hills acceded to the request. 2013 FACTS Forest Hills is a domestic non-profit stock corporation that operates and maintains a golf and country club facility in Antipolo City. Despite the sale of FEGDI's Class "C" common share to Vertex. The issuance of a stock certificate is a collateral matter in the consummated sale of the share. the RTC ruled that the non-issuance of the stock certificate is a mere casual breach that would not entitle Vertex to rescind the sale. It declared that "in the sale of shares of stock. requested Forest Hills to recognize Vertex as a shareholder. the share remained in the name of FEGDI. FEGDI added that during the pendency of Vertex's action for rescission. FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C" common share of Forest Hills for P1. but Vertex refused to accept it. (FELI) – the developer of the Forest Hills golf course. and FELI to Vertex of the amount the latter paid by reason of the sale. it exercised rights and privileges of one.1 million. CA reversed the RTC. (Vertex). vs. FEGDI. Hence. ISSUE: Whether or not CA erred in declaring the rescission of the sale of one (1) Class "C" common share of Forest Hills to Vertex and ordering the return by Forest Hills. Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of the share. and Vertex was able to enjoy membership privileges in the golf and country club. and Fil-Estate Land. the stock certificate is not essential to the creation of the relation of a shareholder. holding 40% and 60% of the shares. Accordingly. INC. G. Forest Hills was created as a result of a joint venture agreement between Kings Properties Corporation (Kings) and Fil-Estate Golf and Development. respectively. in turn. Vertex averred that the defendants defaulted in their obligation as sellers when they failed and refused to issue the stock certificate covering the Class "C" common share. HELD: 134 3B-Corporation Law . Corporation Code Forest Hills Golf and Country Club v Vertex Sales and Trading FOREST HILLS GOLF & COUNTRY CLUB..

FEGDI is the one who may appeal the ruling rescinding the sale. we consider as final the CA’s ruling on this matter. or any other mode of conveyance) need not be a party to the transaction. While Forest Hills questioned and presented its arguments against the CA ruling rescinding the sale of the share in its petition. However.The Court found for Forest Hills. it is necessary that the transfer is recorded in the books of the corporation. Thus. is injuriously affected by the judgment. As correctly pointed out by Forest Hills. it was not a party to the sale even though the subject of the sale was its share of stock. as may be inferred from the terms of Section 63 of the Corporation Code. The question of rescission of the sale of the share is a settled matter that the Court can no longer review in this petition. As party to the sale." The rescission of the sale does not in any way prejudice Forest Hills in such a manner that its interest in the subject matter – the share of stock – is injuriously affected. assignment. in turn. it is not the proper party to appeal this ruling. the parties to the sale of the share were FEGDI as the seller and Vertex as the buyer (after it succeeded RSACC). 135 3B-Corporation Law . recognized by law in the subject matter of the lawsuit. The remedy of appeal is available to a party who has "a present interest in the subject matter of the litigation and is aggrieved or prejudiced by the judgment. filed no appeal against its rescission. is deemed aggrieved or prejudiced when his interest. as party to the sale. The corporation whose shares of stock are the subject of a transfer transaction (through sale. to bind the corporation as well as third parties. Forest Hills is in no position to appeal the ruling rescinding the sale of the share. donation. order or decree. In the present case. Since FEGDI. A party.

Petitioner Anthony paid for the said shares of stock with respondent Joseph’s money. Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts 1[6] before the RTC of Cebu. The general rule is that where a corporation is an injured party. On 15 October 2002. 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. Inc. The factual background of the Complaint was stated in the attached Affidavit executed by respondent Joseph. Inc. was established and incorporated on 12 September 1977.00.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. Inc. or are the ones to be sued. In such actions. and was docketed as SRC Case No.. on their own behalf and on behalf of Winchester. 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. in their own behalf and as a derivative suit on behalf of Winchester. A derivative action is a suit by a shareholder to enforce a corporate cause of action. on their own behalf and on behalf of Winchester. The said Complaint was filed by respondents. Attempts to again amicably settle the dispute between the parties before the Court of Appeals were unsuccessful. There is totally no justification for the Court of Appeals to convert what was supposedly a derivative suit instituted by respondents. The corporation is a necessary party to the suit. a derivative suit is fundamentally distinct and independent from liquidation proceedings. against petitioners. its power to sue is lodged with its board of directors or trustees. making the former a mere trustee of the shares for the latter. Inc. 022-CEB. to a proceeding for the liquidation of Winchester. And the relief which is granted is a judgment against a third person in favor of the corporation. vs. it must be pointed out that respondents themselves repudiated said amicable settlement before the RTC.. RULING: YES. Inc. and in effect liquidate said corporation. even after the same had been partially implemented. or hold the control of the corporation. Inc. JOSEPH YUKAYGUAN et al. and moved that their case be set for pre-trial. They are neither part of each other nor the necessary consequence of the other. According to respondents.. Inc. with the corporation as the real party in interest. Corporation Code Yu v Yugaykuan ANTHONY YU et al. thus. ISSUE: Whether or not the derivative suit is valid. 1 136 3B-Corporation Law . in which they agreed to already distribute the assets of Winchester.000 shares of stock worth P100. While it may be true that the parties earlier reached an amicable settlement. with petitioner Anthony as one of the incorporators. the suing stockholder is regarded as a nominal party. Glaringly. respondents filed against petitioners a verified Complaint forAccounting. Winchester. 18 June 2009 FACTS: Petitioners and the respondents were all stockholders of Winchester Industrial Supply. Nonetheless. The case at bar was initiated before the RTC by respondents as a derivative suit. holding 1.000. GR 177549.

for complete and adequate information relative to the disputed Board Resolutions. JTH Davies Holdings. 2. 07-610. Resolution of the PRCI Board of Directors on the property-for-shares exchange between PRCI and JTH was supposed to be presented for approval by the stockholders. denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary Injunction. the Court observes that only respondent Dulay actually made a demand for a copy of all the records. allege another cause of action.. maliciously refused and resisted the request of respondents Miguel. and agreements. 07-610) made similar demands for the inspection or copying of corporate books and records. which includes the right to inspect corporate books and records. Rule 7.In addition to the requirements in section 4.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. however. et al. i. letters. Rule 2 of these Rules. There is no allegation that his co-respondents (who are his co-plaintiffs in Civil Case No. the petitioner filed before the RTC a Complaint. Section 2(2) of IRPICC. Held: The petition is without merit. Section 2 of IRPICC enumerates the requirements particular to a complaint for inspection of corporate books and records: Sec. (Emphasis ours.) As has already been previously established herein. relative to the acquisition of JTH x x x. it opted to acquire another domestic corporation. stating the law and jurisprudence in support thereof. and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal. . Inc. contracts. 2 3 137 3B-Corporation Law . v Ocampo Facts: Petitioner is a minority stockholder of Philippine Racing Club Inc. Complaint. Only respondent Dulay complied then with the requirement under Rule 7. (PRCI). Jr. under Sections 74 2and 753 of the Corporation Code. the Resolutions dated 16 September 2006 and 11 May 2007 of the PRCI Board of Directors. the right to information. correspondences. (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.e. emails. Petitioner complained that respondent Solomon. Corporation Code Cua.. (JTH).. Issue: Whether or not the petitioner has cause of action. After a closer reading of the Complaint in Civil Case No.the violation of their right to information relative to the disputed Resolutions. (3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals. if any. with the acquiescence of the majority directors of PRCI. brazenly and unlawfully violating the rights of the minority stockholders to information and to inspect corporate books and records. Respondents Miguel. Rule 7 of the IRPICC 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. et al. 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. is a right personal to each stockholder. against the rest of the directors of PRCI and/or JTH. documents. other than the derivative suit -. as PRCI President. PRCI wanted to developed its property in Makati thus.

stock transfer agent. 138 3B-Corporation Law . as previously mentioned. respondent Dulays Complaint should be dismissed for lack of cause of action.Even so. That if such refusal is pursuant to a resolution or order of the Board of Directors or Trustees. Books to be kept. trustee. and in addition. for his demand for copies of pertinent documents relative to the acquisition of JTH shares was not denied by any of the defendants named in the Complaint in Civil Case No. states that: Sec. There is also utter lack of any allegation in the Complaint that Corporate Secretary Manalo denied respondent Dulays demand pursuant to a resolution or order of the PRCI Directors. stockholder or member of the corporation to examine and copy excerpts from its records or minutes.) Based on the foregoing. xxxx Any officer or agent of the corporation who shall refuse to allow any director. in a letter dated 17 January 2006. but by Atty. the substantive law on which respondent Dulays Complaint for inspection and copying of corporate books and records is based. Corporate Secretary Manalo is not among the defendants named in the Complaint in Civil Case No. trustees. 07-610. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: x x x (Emphasis ours. it is Corporate Secretary Manalo who should be held liable for the supposedly wrongful and unreasonable denial of respondent Dulays demand for inspection and copying of corporate books and records. 74. the Corporate Secretary of PRCI. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. in accordance with the provisions of this Code. Jesulito A. stockholder or member for damages. Section 74 of the Corporation Code. 07-610. Manalo (Manalo). but. so that the latter (who are actually named defendants in the Complaint) could also be held liable for the denial. shall be liable to such director.

a stockholder of HTSI. filed a case in RTC Makati against petitioner Hi-Yield Realty for the annulment of real estate mortgage and foreclosure sale of lands that belong to HTSI.M. 01-2-04 SC otherwise known as the Interim Rules of Procedure Governing Intra-Corporate Controversies under RA No. or are the ones to be sued. Issue: Whether or not the action is a real action or a derivative suit. But an individual stockholder may be permitted to institute a derivative suit on behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue. where a corporation is an injured party. Petitioner argues that the annulment of real estate mortgage and foreclosure sale is a real action and thus it should be filed in Marikina and Quezon City where the lands are located. is only a nominal party. v CA Facts: Respondent. Held: It is a derivative suit. 8799. the CA did not commit grave abuse of discretion when it found that respondents correctly filed the derivative suite before the Makati RTC where HTSI had its principal office.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. the corporation is the real party-in-interest while the suing stockholder. In such actions. RTC and CA dismissed the motion and appeal of the petitioner on ground that the action is primarily a derivative suit to redress the alleged unauthorized acts of HTSI officers and major stockholders in connection with the lands. its power to sue is lodged with its board of directors or trustees. No. Derivative suits are governed by a special set of rules under A. Under the Corporation Code. Thus. 139 3B-Corporation Law . on behalf of the coporation. Corporation Code Hi-Yield Realty. Inc. Petitioner moved for the dismissal of the case on ground of proper venue. Ratio: A derivative action is a suit by a shareholder to enforce a corporate cause of action. or hold control of the corporation.

and (3) assign to Radstock or its assignee 50% of PNCC’s 6% share. its power to sue is lodged with its board of directors or trustees. a foreign corporation. obtained loans from Marubeni Corporation of Japan(Marubeni). the Marubeni loans to CDCP Mining remained unpaid.968. where a corporation is an injured party. Strategic Alliance Development Corporation (STRADEC)moved for reconsideration. Under this agreement. Corp v Radstock Securities. Although there was no allegation that Sison filed the case as a derivative suit in the name of PNCC. It was granted a franchise to construct. an individual stockholder may file a derivative suit on behalf of the corporation to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue. the PNCC Board steadfastly defends the Compromise Agreement for allegedly being advantageous to PNCC. In such a situation. In this case. is only a nominal party. PNCC undertakes to (1) "assign to a third party assignee to be designated by Radstock all its rights and interests" to the listed real properties of PNCC. receivables. the PNCC Board of Directors (PNCC Board) passed Board Resolutions admitting PNCC’s liability to Marubeni. Sison. Issue : Whether or not Sison has standing to file the petition Held Sison has legal standing to challenge the Compromise Agreement. 4 [27] In such actions. STRADEC alleged that it has a claim against PNCC as a bidder of the National Government’s shares. Corporation Code Strategic Alliance Dev. CDCP’s name was changed to Philippine National Construction Corporation (PNCC) in order to reflect that the Government already owned 90.00 (judgment debt as of 31 July 2006). (2) issue to Radstock or its assignee common shares of the capital stock of PNCC issued at par value which shall comprise 20% of the outstanding capital stock of PNCC. In 1983. the corporation is the real party-in-interest while the suing stockholder. A CDCP official issued letters of guarantee for the loans although there was no CDCP Board Resolution authorizing the issuance of such letters of guarantee. a stockholder of PNCC can sue on behalf of PNCC to annul the Compromise Agreement. To satisfy its reduced obligation. SP No. Marubeni assigned its entire credit to Radstock Securities Limited (Radstock). 4 140 3B-Corporation Law . CDCP Mining secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and managed.000.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72.70% is under private ownership. In fact. Radstock immediately sent a notice and demand letter to PNCC. A derivative action is a suit by a stockholder to enforce a corporate cause of action. However. the PNCC Board cannot conceivably be expected to attack the validity of the Compromise Agreement since the PNCC Board itself approved the Compromise Agreement. Meanwhile. The case was docketed as CA-G. On 20 October 2000 and 22 November 2000. or are the ones to be sued. 97982. or hold control of the corporation. in the gross toll revenues of the Manila North Tollways Corporation. filed a Petition for Annulment of Judgment Approving Compromise Agreement before the Court of Appeals. an affiliate of CDCP. PNCC shall pay Radstock the reduced amount of P6. CDCP Mining Corporation (CDCP Mining). securities and interests in PNCC.00 in full settlement of PNCC’s guarantee of CDCP Mining’s debt allegedly totaling P17. for the next 27 years.3% of PNCC and only 9.185. for two decades the PNCC Board consistently refused to admit any liability for the Marubeni loans.000.R. operate and maintain toll facilities in the North and South Luzon Tollways and Metro Manila Expressway. a stockholder and former PNCC President and Board Chairman. Under the Corporation Code. Previously. on behalf of the corporation. In January 2001. it could be fairly deduced that Sison was assailing the Compromise Agreement as a stockholder of PNCC.843. LTD Facts Construction Development Corporation of the Philippines (CDCP) was incorporated in 1966.040.PNCC and Radstock entered into a Compromise Agreement.

management committee (MANCOM) was created and (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim Giang. the suing stockholder is regarded as the nominal party. with the corporation as the party in interest. including Lim. have the right to sue in behalf of the Corporation. Corporation Code Majority Stockholders of Ruby Inc v Lim Facts: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. This was opposed by 40% of the stockholders. For this purpose. In such actions. Lim et.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. yes. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. Hence. The BENHAR’RUBY Plan shall allow Yu family (BENHAR) to manage the company. There is no forum shopping in this case as each have distinct rights to protect. and the Alternative Plan of the minority stockholders represented by Miguel Lim (Lim). it is enough that a member or a minority of stockholders file a derivative suit for and in behalf of a corporation. BENHAR without authority elected new members of the Board and extended its corporate life. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. Al. Lim together with the minority shareholders instituted a derivative action where the real party in interest is the corporation itself. Held: A derivative action is a suit by a shareholder to enforce a corporate cause of action. Reeling from severe liquidity problems so they filed with SEC for petition for suspension of payments which the latter granted. Pending Appeal. 141 3B-Corporation Law . a minority shareholder and other creditors who allegedly will be prejudiced by the plan. Issue: WON Lim and the other minority stockholders have a right to sue as stockholders in behalf of the Corporation.

b) he has tried to exhaust intra-corporate remedies. Spouses Soriano in their personal capacity obtained a loan with Banco de Oro and as president and treasurer.. Hence. the Court enumerated the requisites for filing a derivative suit. PCIB raised that the parties have no locus standi. Incorporated v. the amended complaint remedied the defect in the original complaint and now sufficiently states a cause of action. Court of Appeals.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. (LEI) acquired residential land in Legazpi City. Plaintiffs commenced a derivative suit against defendants Lilian S. respectively LEI. Jr. has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea. 142 3B-Corporation Law . Soriano and the Estate of Leandro A. Soriano. A reading of the amended complaint will reveal that all the foregoing requisites had been alleged therein. but without authority and consent of the board of said plaintiff and with the use of a falsified board resolution. as follows: a) the party bringing the suit should be a shareholder as of the time of the act or transaction complained of. The court dismissed the case on this basis. executed a real estate mortgage on the said property. Hence. Issue : WON Petitioner Lolita Soriano (Corp. Held: In Hi-Yield Realty. before the Securities and Exchange Commission and in regular court for the nullification of the mortgage. Lolita Soriano has legal standing to represent LEI in this Derivative Suit. Said spouses also by falsification managed to obtain a fake Deed of Assumption of Loans making LEI liable for their personal loan.. the number of his shares not being material.e. Corporation Code Lisam Enterprises v Banco de Oro Unibank Facts: Lisam Enterprises Inc. Secretary) has legal right to represent LEI. and c) the cause of action actually devolves on the corporation. i. the wrongdoing or harm having been. or being caused to the corporation and not to the particular stockholder bringing the suit.

Where the wrong is done to a group of stockholders. Because of the frequent occurrence of such a situation. 143 3B-Corporation Law . Petitioners complaint seek to nullify the said election.. cannot be impleaded. at its face value. Held: Where a stockholder or member is denied the right of inspection. and for lack of time to authenticate the same. Inc. as plaintiff was denied on the ground that the vote is a personal right of a stockholder of a corporation. Legaspi Towers 300. incumbent Board Members set the meeting and the election of the new Board of the Condominium Corp. the suing stockholder is regarded as thenominal party. thus. The petitioners' motion to amend complaint to implead Legaspi Towers 300. hence the corporation should not be impleadead. hence. irregular. the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a "derivative suit. v Amelia Muer Facts: Pursuant to the by-laws of Legaspi Towers 300. In such actions. with the corporation as the party-in. an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. But where the acts complained of constitute a wrong to the corporation itself. Group of respondents challenged the adjournment of the meeting and proceeded with the election. Inc. the cause of action belongs to the corporation and not to the individual stockholder or member.interest." It has been proven to be an effective remedy of the minority against the abuses of management.. his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. such right can only be enforced through a direct action. They found out that most of the proxy votes. and to protect and enforce their individual right to vote.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72. Issue: WON the corporation can be impleaded in this case. a class or representative suit will be proper for the protection of all stockholders belonging to the same group. whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. Corporation Code Legaspi Towers 300 Inc. as where preferred stockholders' rights are violated. questionable. Thus. petitioners adjourned the meeting for lack of quorum. Petitioner filed complaint for nullification of the election results. Inc.

Petitioners also claim that on August 15. no dividends shall be declared in their favor. In accordance with the Lease and Development Agreement by and between Subic Bay Metropolitan Authority and The Universal International Group of Taiwan.Topic: Subtopic: Provision: Case Name: FACTS: Stocks and Stockholders Rights of Shareholders: Derivative Actions and other Actions of Stockholders Section 72.00 per share. presenting to them the Articles of Incorporation which contained the following provision: No profit shall inure to the exclusive benefit of any of its shareholders. An examination of the petition does not show any allegation that the petitioners applied for redress to the Board of Directors of respondent corporation there being no demand. Neither did the petitioners appl[y] for redress to the stockholders of the respondent corporation and ma[k]e an effort to obtain action by the stockholders as a whole. Neither did the defendant directors and officers furnish the stockholders with the financial statements of the corporation nor the financial report of the operation of the corporation in violation of Section 75 of the Corporation Code. an amendment to the Articles of Incorporation was approved by the Securities and Exchange Commission (SEC). 1996. 1997. (Emphasis supplied. (SBGCCI) against the said country club and its Board of Directors and officers under the provisions of Presidential Decree No. SBGCCI presented to the SEC an amendment to the By-Laws of the corporation suspending the voting rights of the shareholders except for the five founders’ shares. a corporation composed of shareholders of the defendant corporation. According to petitioners. The officers impleaded as defendants were the following: (1) its President. hence. as it takes away the right of the shareholders to participate in the pro-rata distribution of the assets of the corporation after its dissolution. ISSUE: Whether or not the complaint is a derivative suit? HELD: On the bases of these allegations of the petition. Corporation Code Ching v Subic Bay Golf and Country Club On February 26. and (4) directors Hu Tsung Hui and Hu Tsung Tzu. no dividends shall be declared in their favor. by-laws or rules governing the corporation or partnership to obtain the reliefs he desires. (3) corporate secretary Reynald Suarez. (2) its treasurer. this is in fraud of the stockholders who only discovered the amendment when they filed a case for injunction to restrain the corporation from suspending their rights to use all the facilities of the club. Hu Tsung Chieh alias Jack Hu. x x x. petitioners alleged that the Board of Directors and officers of the corporation did not call any stockholders’ meeting from the time of the incorporation. on June 27. the stockholders and members may bring an action in the name of the corporation or association provided that he (the minority stockholder) exerted all reasonable efforts and allege[d] the same with particularity in the complaint to exhaust of (sic) all remedies available under the articles of incorporation. Being a derivative suit in accordance with Rule 8 of the Interim Rules. petitioners Nestor Ching and Andrew Wellington filed a Complaint with the RTC of Olongapo City on behalf of the members of Subic Bay Golf and Country Club.2 of the Securities Regulation Code. 902-A in relation to Section 5. the Court finds that the case is a derivative suit. Inc. was also named as plaintiff. Furthermore. oral or written on the respondents to address their complaints.) Petitioners claimed in the Complaint that defendant corporation did not disclose to them the above amendment which allegedly makes the shares non-proprietary. Petitioners should have asked the Board of Directors of the respondent corporation and/or its stockholders to hold a meeting for the taking up of the petitioners’ rights in this petition 144 3B-Corporation Law . Said amendment was allegedly passed without any stockholders’ meeting or notices to the stockholders in violation of Section 48 of the Corporation Code. hence. The complaint alleged that the defendant corporation sold shares to plaintiffs at US$22. wherein the above provision was changed as follows: No profit shall inure to the exclusive benefit of any of its shareholders. 2003. where the golf course and clubhouse component thereof was assigned to the Club.000. Hu Ho Hsiu Lien alias Susan Hu. the shareholders shall not have proprietary rights or interests over the properties of the Club. in violation of Section 50 of the Corporation Code and the By-Laws of the corporation. The Subic Bay Golfers and Shareholders Incorporated (SBGSI). Shareholders shall be entitled only to a pro-rata share of the assets of the Club at the time of its dissolution or liquidation However.

Where a stockholder or member is denied the right of inspection. as where preferred stockholders’ rights are violated. the cause of action belongs to the corporation and not to the individual stockholder or member. there is the difficulty of determining the amount of damages that should be paid to each individual stockholder. namely Nestor Ching and Andrew Wellington. thus: "Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits. Although in most every case of wrong to the corporation. a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue. Where the wrong is done to a group of stockholders. it should be noted that the Complaint in question appears to have been filed only by the two petitioners. However. On the issue of whether the Complaint is indeed a derivative suit. each stockholder is necessarily affected because the value of his interest therein would be impaired. but there would be multiplicity of suits as well as a violation of the priority rights of creditors. Otherwise. Jr. the appointment of a receiver. While the caption of the Complaint also names the "Subic Bay Golfers and Shareholders Inc. Tan the Court previously elaborated on the distinctions among a derivative suit. Because of the frequent occurrence of such a situation. an individual suit. irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. not only would the theory of separate entity be violated. in cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves. with the corporation as the party in interest. petitioners do not have any statutory right to override the business judgments of SBGCCI’s officers and Board of Directors on the ground of the latter’s alleged lack of qualification to manage a golf course. the Complaint is deemed filed only by petitioners and not by SBGSI. Presidential Decree No. and can and should itself sue the wrongdoer. an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. and the prayer for damages in the amount of the decrease in the value of the shares of stock. who each own one stock in the respondent corporation SBGCCI." The reliefs sought in the Complaint.At the outset. But where the acts complained of constitute a wrong to the corporation itself. the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a "derivative suit. Contrary to the arguments of petitioners. as minority stockholders. The corporation would thus be helpless to seek remedy. It is settled that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code. a class or representative suit will be proper for the protection of all stockholders belonging to the same group. or even the Securities 145 3B-Corporation Law . is determined based on the allegations contained in the complaint of the plaintiff. In Cua. clearly show that the Complaint was filed to curb the alleged mismanagement of SBGCCI. v. and a representative or class suit: A derivative suit must be differentiated from individual and representative or class suits. The causes of action pleaded by petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation itself. as well as which court or body has jurisdiction over it. and they will never be willing to sue themselves. In such actions. However. We have also held that the body rather than the title of the complaint determines the nature of an action. namely that of enjoining defendants from acting as officers and Board of Directors of the corporation." petitioners did not attach any authorization from said alleged corporation or its members to file the Complaint. Thus. which is entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION WITH ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT. Thus. does not grant minority stockholders a cause of action against waste and diversion by the Board of Directors. his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him. Furthermore." It has been proven to be an effective remedy of the minority against the abuses of management. whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. we are mindful of the doctrine that the nature of an action. 902-A. for and in behalf of all its members. but merely identifies the jurisdiction of the SEC over actions already authorized by law or jurisprudence. the suing stockholder is regarded as the nominal party. and derivative suits. class suits.

by-laws. With regard. However.Regulation Code. At this point. to the second requisite. petitioners do not pray for the rescission of their subscription or seek to avail of their appraisal rights. 146 3B-Corporation Law . 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. Indeed. to exhaust all remedies available under the articles of incorporation. this Court finds that the same should not have been dismissed on the ground that it is a nuisance or harassment suit.24%. but is instead a product of jurisprudence based on equity. The legal standing of minority stockholders to bring derivative suits is not a statutory right. (3) No appraisal rights are available for the act or acts complained of. even if petitioners thought it was futile to exhaust intra-corporate remedies. and laws or rules governing the corporation to obtain the relief they desire. Instead. The Complaint contained no allegation whatsoever of any effort to avail of intra-corporate remedies. however. Petitioners’ only possible cause of action as minority stockholders against the actions of the Board of Directors is the common law right to file a derivative suit. the Court has held that it is enough that a member or a minority of stockholders file a derivative suit for and in behalf of a corporation. there being no provision in the Corporation Code or related statutes authorizing the same. by-laws. and alleges the same with particularity in the complaint. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at will. even motu proprio. Although the shareholdings of petitioners are indeed only two out of the 409 alleged outstanding shares or 0. Section 1. (2) He exerted all reasonable efforts. and (4) The suit is not a nuisance or harassment suit. a derivative suit cannot prosper without first complying with the legal requisites for its institution. we should take note that while there were allegations in the Complaint of fraud in their subscription agreements. they ask that defendants be enjoined from managing the corporation and to pay damages for their mismanagement. The RTC dismissed the Complaint for failure to comply with the second and fourth requisites above. in accordance with the Interim Rules. such as the misrepresentation of the Articles of Incorporation. Upon a careful examination of the Complaint. laws or rules governing the corporation or partnership to obtain the relief he desires. Failure to do so allows the RTC to dismiss the Complaint. we find that petitioners failed to state with particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation. they should have stated the same in the Complaint and specified the reasons for such opinion. Rule 8 of the Interim Rules of Procedure Governing Intra Corporate Controversies imposes the following requirements for derivative suits: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed.

v Ocampo Tan FACTS: Philippine Racing Club.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. Inc.was not only anomalous and fraudulent. (JME). VIII of the Agenda. but also extremely prejudicial and inimical to interest of PRCI. et al. as PRCI President. The difference of P3. The Complaint was based on three causes of action: (1) the approval by the majority directors of PRCI of the Board Resolutions dated 26 September 2006 and 11 May 2007 -. filed before the RTC a Complaint. ISSUE: Whether or not there was a derivative suit HELD: 147 3B-Corporation Law .419. The 11 May 2007 Resolution of the PRCI Board of Directors on the property-for-shares exchange between PRCI and JTH was supposed to be presented for approval by the stockholders under the afore-quoted Items No. Corporation Code. PRCI owns 2 properties: Makati and Cavite property. despite the absence of any disclosure and information -. the Cavite property into a racetrack. it was determined that the Makati property can be transferred to JTH in exchange for the unissued portion of the latter’s increased capital stock. and (3) without being officially and formally nominated.. as minority stockholders of PRCI. in a meeting with SGV. VII and No. PRCI wanted to manage and develop the Makati property under this subsidiary company. To determine the value of JTH. (SGV) to conduct a due diligence study. would be reflected as additional paid-in capital of PRCI in JTH. maliciously refused and resisted the request of respondents Miguel. PRCI wanted to convert the Makati Racetrack into an urban residential and commercial use. then developed.333. (2) respondent Solomon.V. for complete and adequate information relative to the disputed Board Resolutions. JTH Davies Holdings. The matter of the proposed exchange was taken up and approved by the PRCI Board of Directors in its meeting held on 11 May 2007.105. the majority directors of PRCI illegally and unlawfully constituted themselves as members of the Board of Directors and/or Executive Officers of JTH. Inc. Interim Rules for Intra-Corporate Controversies Cua Jr. again with the lone dissent of respondent Dulay. committed in violation of their fiduciary duty as directors of the said corporation. against the rest of the directors of PRCI and/or JTH. PRCI acquired a domestic corporation.50 between the total zonal value of the Makati property and the aggregate par value of the JTH shares to be issued in exchange for the same. with the acquiescence of the majority directors of PRCI. denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary Injunction. JTH was then owned by Jardine Matheson Europe B. the Articles of Incorportaion of PRCI was amended to include a secondary purpose: To acquire real properties and/or develop real properties. PRCI holds a franchise to operate a horse track and manage betting stations. (JTH).with undue haste and deliberate speed. In 1999. JTH.. rendering all the actions they have taken as such null and void ab initio. (PRCI) is a corporation organized and established under Philippine Laws to carry on a race horse business. However. et al. brazenly and unlawfully violating the rights of the minority stockholders to information and to inspect corporate books and records. Later on. PRCI engaged the services of the accounting firm Sycip Gorres Velayo & Co. on 10 July 2007. PRCI. respondents Miguel.

– A stockholder or member may bring an action in the name of a corporation or association. and (4) The suit is not a nuisance or harassment suit. (Emphasis ours. The basis of a stockholder’s suit is always one of equity. however. in order to redress the wrongs committed against the Corporation and to protect or vindicate corporate rights... et al. laws or rules governing the corporation or partnership to obtain the relief he desires. respondents have alleged that they are filing the same “as shareholders. but it also specifically appointed petitioner Santiago Sr. to exhaust all remedies available under the articles of incorporation. that its Complaint in Civil Case No. also aver that they are seeking “redress for the injuries of the minority stockholders against the wrongdoings of the majority. Thus.. with respect to the Resolution dated 11 May 2007 of the PRCI Board of Directors. by-laws. 07-610 is not just a derivative suit. against the interlocking directors of PRCI and JTH is also rooted in the 26 September 2006 Resolution of the PRCI Board of Directors. and alleges the same with particularity in the complaint. From the very beginning of their Complaint. Rule 8. appoint. is similarly dismissible for lack of cause ofaction. for and in behalf of the Corporation. the Court rules that it is dismissible for being moot and academic. as the case may be. (3) No appraisal rights are available for the act or acts complained of. A thorough study of the said Complaint. (2) He exerted all reasonable efforts. After a careful study of the allegations concerning this derivative suit. and to prevent wastage and dissipation of corporate funds and assets and the further commission of illegal acts by the Board of Directors. 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.The afore-quoted exposition is relevant considering the claim of respondents Miguel. it cannot prosper without first complying with the legal requisites for its institution. 1.) 148 3B-Corporation Law . et al. to act as attorney-in-fact and proxy who could vote all the shares of PRCI in JTH. reveals that the distinction is deceptive.” Although respondents Miguel. et al. It was by this authority that PRCI directors were able to constitute the JTH Board of Directors.” the rest of the Complaint does not bear this out. The supposed devices and schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation are the very same bases for the derivative suit. Derivative action. However. It is important for the Court to mention that the 26 September 2006 Resolution of the PRCI Board of Directors not only authorized the acquisition by PRCI of up to 100% of the common stock of JTH. but also an intracorporate action arising from devices or schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation. and is utterly lacking any allegation of injury personal to them or a certain class of stockholders to which they belong. as well as nominate. The derivative suit. and vote into office directors and/or officers during regular and special stockholders’ meetings of JTH. provided. Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (IRPICC) lays down the following requirements which a stockholder must comply with in filing a derivative suit: Sec. They are the very same acts of the PRCI Board of Directors that have supposedly caused injury to the corporation. the protest of respondents Miguel.

It is. Inc. HELD: The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. together with Michael Edward Chi Ang. b) he is unjustly demanding that he be given the office currently occupied by Mr. Genato. Belinda G. Eduardo sought permission to inspect the corporate books of VMC and Genato on account of petitioners’ alleged failure and/or refusal to update him on the financial and business activities of these family corporations. In other words. of the Corporation Code of the Philippines. c) he is usurping the rights belonging exclusively to the Corporation. charging them with violation of Section 74. and has to be proper and lawful in character and not inimical to the interest of the corporation. it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation." Eduardo filed an Affidavit-Complaint against petitioners Flordeliza and Jason. therefore. ISSUE: WON the Secretary of Justice committed grave abuse of discretion when it ruled that petitioners acted in good faith when they denied private respondent’s demand for inspection for the corporate books.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. Ang (Jason). 149 3B-Corporation Law . Ang (Hanna) and private respondent Eduardo G. Belen Flordeliza C. The appellate court ruled that the Secretary of Justice committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the Resolutions of the Malabon City Prosecutor and in finding that Eduardo did not act in good faith when he demanded for the examination of VMC and Genato’s corporate books. Corporation Code. During the pendency of the case. considering that: "a) he is harassing and/or bullying the Corporation[s] into writing off P165. This right is predicated upon the necessity of self-protection. It further held that Eduardo can demand said examination as a stockholder of both corporations. Hanna Zorayda A. Francis Jason Ang. TC granted the permanent injunction applied by the corporations. Petitioners denied the request claiming that Eduardo would use the information obtained from said inspection for purposes inimical to the corporations’ interests. and Oriana Manufacturing Corporation filed a case for damages with prayer for issuance of a TRO and/or writ of preliminary injunction against herein respondent. Belen Flordeliza C. CA denied the Motions for Reconsideration filed by petitioners and the Secretary of Justice. where petitioners Ma. that Eduardo raised legitimate questions that necessitated inspection of the corporate books and records. (Genato) are family-owned corporations. the VicePresident for Finance and Corporate Secretary. the inspection has to be germane to the petitioner's interest as a stockholder. Vincent G. Sandejas. or a quasi-ownership. in relation to Section 144.586. and d) he is coercing and/or trying to inveigle the Directors and/or Officers of the Corporation to give in to his baseless demands involving specific corporate assets. Ang (Eduardo) are shareholders. for allegedly conniving to fraudulently wrest control/management of the corporations. VMC. It is generally held by majority of the courts that where the right is granted by statute to the stockholder. whether this ownership or interest be termed an equitable ownership. DOJ denied Eduardo’s MR. a beneficial ownership.55 worth of personal advances which he had unlawfully obtained in the past. Interim Rules for Intra-Corporate Controversies Ma. Ma. and that petitioners’ refusal to allow inspection created probable cause to believe that they have committed a violation of Section 74 of the Corporation Code. officers and members of the board of directors. Ang-Abaya (Flordeliza). Francis Jason A. CA annulled permanent injunction. Vincent.071. and Hanna were subsequently impleaded for likewise denying respondent’s request to inspect the corporate books. Genato (Vincent). an incident of ownership of the corporate property. Ang-Abaya et al v Eduardo Ang FACTS: Vibelle Manufacturing Corporation (VMC) and Genato Investments. City Prosecutor’s Office of Malabon City issued a Resolution recommending that petitioners be charged with two counts of violation of Section 74 of the Corporation Code.

In a criminal complaint for violation of Section 74 of the Corporation Code. Accordingly. where the corporation denies inspection on the ground of improper motive or purpose. or that the person asking for such examination must be acting in good faith and for a legitimate purpose in making his demand. the stockholder’s right to inspect corporate books is not without limitations. contrary to Eduardo’s insistence. While the right of inspection was enlarged under the Corporation Code as opposed to the old Corporation Law. the burden of proof is taken from the shareholder and placed on the corporation. Taken together. there is lack of probable cause to support the allegation that petitioners violated Section 74 of the Corporation Code in refusing respondent’s request for examination of the corporation books. all these serve to justify petitioners’ allegation that Eduardo was not acting in good faith and for a legitimate purpose in making his demand for inspection of the corporate books. 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.Thus. the defense of improper use or motive is in the nature of a justifying circumstance that would exonerate those who raise and are able to prove the same. Otherwise stated. 150 3B-Corporation Law .

Marine Resources Development and Marcel Trading are different corporations. a domestic corporation that is engaged in the business of manufacture and sale of seaweeds. Araceli is the spouse of Dee Ping Wee. by arguing that the final ruling of the CA on the complaint against Marine Resources Dev’t. and to give the financial statements of RPIC. A stockholder has the statutory right of inspection per Sec. Rule 7. (2) Marine Resources Development Corporation. o RTC denied. Despite the fact that the parties to this case are all stockholders in the said corporations and the respondents invoked the same provisions of law.Topic: Subtopic: Provision: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. a domestic corporation that is primarily engaged in the business of cultivating and selling marine products. alleging that the petitioners failed to state which particular records they wanted to see. Corporation Code. Thus. any ruling on the Marine Resources Development Case would not materially alter the substance of the judgment in Marcel Trading Case.  Petitioners were the majority stockholders of: (1) Marcel Trading Corporation. 74 & 75. and First Marcel Properties. All 3 suits were appealed. Interim Rule for Intra-Corporate Controversies) Dee Ping Wee. a real estate business. Code. o RTC granted the 3 claims. Respondents were minority stockholders in the said corporations  Respondents sent a letter to petitioners.. and Marina Tan are siblings. Rosalind Wee FACTS:  Dee Ping Wee. but was diverted by Lee Hiong to fund the operations of Rico Philippines Industrial Corp (RPIC). The two corporations involved are primarily engaged in different businesses and do not share exactly the same set of stockholders. 74 of the Corp. the only express limitation being that the right of inspection should be exercised at reasonable hours on business days. requesting to be allowed to see the financial statements for 2002 and 2003. Code. PROVIDED that the respondents first repay the proceeds of a bank loan which allegedly was procured by Marcel Trading. holding that there was no basis to deny them the right to see the books. o CA dismissed two of the petitions for being the wrong remedy [certiorari was filed instead of appeal]. 2) the person demanding 151 3B-Corporation Law . and was raffled to different divisions of the CA. RTC issued upon motion a Writ of Execution since the Interim Rules provide that the decisions are immediately executory. o Petitioners filed Answers. and First Marcel Properties. and (3) First Marcel Properties. as well as for Lee Hiong to account for the export sales of RPIC which was diverted to lee Hiong’s personal HK account. o CA granted the third complaint as regards Marine Resources Dev’t Corp. Marina Tan vs Lee Hiong Wee. It became final. It became final. Rosalind is the spouse of Lee Hiong Wee. which would render the execution of the latter case inequitable. Interim Rules for Intra-Corporate Controversies Case Name: Dee Ping Wee v. Lee Hiong Wee RIGHTS TO INSPECT BOOKS AND RECORDS (Sec. should be considered by the RTC as regards the one against Marcel Trading since the three complaints were substantially the same. Corp. Inc. o Petitioners sought to quash the writ of execution. The records of the case are also silent with respect to the consolidation of the cases before the trial court. the cases filed before the RTC were entirely distinct from and independent of each other. are supervening events which would warrant the suspension of the execution of the RTC decision as regards the inspection of the books of Marcel Trading HELD: NO. The burden of proof lies with the corporation who refuses to grant to the stockholder the right to inspect corporate records. Lee Hiong Wee. Araceli Wee. o During the pendency of the appeals to the CA. Hence this recourse ISSUE: Whether or not final decisions of the CA declaring as improper the intended inspection of corporate records of Marine Resource Dev’t. except if restrained by the appellate court. Marine Resources Dev’t. that they wanted to see the books to merely vex the petitioners. Petitioners aver however that they shall only allow the same.  Respondents thus filed with the RTC 3 separate complaints for inspection of the corporate books. and to fish for evidence to regain management control over Marcel Trading.

and 3) the demand is made in good faith or for a legitimate purpose. 2005 of the Court of Appeals (Fourth Division) in CA-G. 85879. The latter two limitations. must be set up as a defense by the corporation if it is to merit judicial cognizance. had already become final and executory for failure of respondents to appeal therefrom.R. Inc. SP No. 2005 of the Court of Appeals (Eighth Division) in CA-G.R.to examine and copy excerpts from the corporation's records and minutes has not improperly used any information secured through any previous examination of the records of such corporation. however. In any event. which adopted the ruling of the Fourth Division. SP No. 152 3B-Corporation Law . 85880 and the Decision dated April 28. made by respondents. the Court may no longer disturb the same in these proceedings. the applicability of the said decisions of the Court of Appeals (Fourth and Eighth Divisions) is limited to the letter-demand for the inspection of corporate records of Marine Resources Development Corporation and First Marine Properties. While the decision dated March 11.

et al. vs Sy Chim. This is based on the principle that every crime is defined by its elements. the contrary must be shown or proved Thus. Code) Sy Tiong Shion.  They wrote a letter to petitioners Sy to inspect the books and records of the business. petitioners Sy merely averred that there is a prejudicial question in the civil case. 3.Topic: Subtopic: Provision: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. trustee. and Felicidad Sy FACTS:  Sy Chim and Felicidad Sy are spouses who are directors and stockholders in Sy Siy Ho & Sons. the petitioners Sy allege that the spouses Sy misappropriated certain amounts from the sales of the corporation to the latter’s personal accounts. The requisites before the penal provision under Section 144 of the Corporation Code may be applied in a case of violation of a stockholder or member’s right to inspect the corporate books/records as provided for under Section 74 of the Corporation Code are: 1. and even though so alleged. the defense of improper use or motive is in the nature of a justifying circumstance that would exonerate those who raise and are able to prove the same. 153 3B-Corporation Law . If such refusal is made pursuant to a resolution or order of the board of directors or trustees. stockholder or member of the corporation to examine and copy said excerpts. This is the rationale why they filed the civil case. 144. Petitioners Sy refused. in a criminal complaint for violation of Section 74 of the Corporation Code.  In 2003. Code. Any officer or agent of the concerned corporation shall refuse to allow the said director. and that they suddenly moved residences and were not heard from after the controversy was discovered. 74 in relation to Sec. where the corporation denies inspection on the ground of improper motive or purpose. In the Answer to the criminal complaint. In order that probable cause to file a criminal case may be arrived at. it is not proved by the corporation. and that they can’t do so until the Sy spouses have responded appropriately to the civil case. Sec. hence the criminal complaint must be suspended. Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from the corporation’s records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation. A director. stockholder or member has made a prior demand in writing for a copy of excerpts from the corporation’s records or minutes. the GIS was drawn up which showed allegedly showed a marked decrease in the shareholdings of the spouses Sy from that in the 2002 GIS. Accordingly. 74. HOWEVER this was not alleged in their Answer to the criminal complaint. DOJ affirmed. or was not acting in good faith or for a legitimate purpose in making his demand. the elements of the crime charged should be present. saying that a civil case for accounting and damages had already been filed against the respondent Sy spouses. However. Interim Rules for Intra-Corporate Controversies Case Name: Sy Tiong Shion v Sy Chim RIGHTS TO INSPECT BOOKS AND RECORDS (Sec. Corp. CA ruled that the issue in the civil case can proceed separately from the complaint. without which there should be–at the most–no criminal offense. 144 of the Corporation Code. ISSUE: Whether or not the civil case is a prejudicial question to the criminal complaint for violation of Sec.  Prosecutor suspended the criminal complaints. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal. Corp. where no such improper motive or purpose is alleged. the burden of proof is taken from the shareholder and placed on the corporation. Inc.  Given the refusal. Corporation Code. trustee. since a finding in the civil case that respondents mishandled or misappropriated the funds would not be determinative of their guilt or innocence in the criminal complaint. and 4. o In the civil case. the Sy spouses filed a criminal complaint with the prosecutor. then there is no valid reason to deny the requested inspection.  Upon R65 to the CA. or in order to engender the well-founded belief that a crime has been committed. HELD: NO. 2. The Sy spouses averred that they did not know how this happened as they did not executed any conveyance of their shares.

et al. There being no allegation of improper motive." Instead. Sy Tiong Shiou. they merely reiterated the pendency of the civil case. or was not acting in good faith or for a legitimate purpose in making his demand.Even in their Joint Counter-Affidavit dated 23 September 2003. and it being undisputed that Sy Tiong Shiou. did not make any allegation 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. et al. the Court rules and so holds that the DOJ erred in dismissing the criminal charge for violation of Section 74 in relation to Section 144 of the Corporation Code 154 3B-Corporation Law . denied spouses Sy‘s request for inspection.

initiated a complaint for specific performance against respondent. during such time. Corporation Code. As surviving heir. petitioner Joselito Musni Puno. dividends. absent any showing in its transfer book that some of the shares owned by Carlos L. Amelia Puno. he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. This would only be possible if petitioner has been recognized as an heir and has participated in the settlement of the estate of the deceased. even if petitioner presents sufficient evidence in this case to establish that he is the son of Carlos L. RTC ordered Puno Enterprises to let their records be inspected by plaintiff Joselito Puno. Interim Rules for Intra-Corporate Controversies Case Name: Puno v Puno Enterprises RIGHTS TO INSPECT BOOKS AND RECORDS (Sec. the executor or administrator duly appointed by the court being vested with the legal title to the stock. until the transfer is recorded in the books of the corporation. The stockholders right of inspection of the corporation’s books and records is based upon his ownership of shares in the corporation and the necessity for self-protection. Code) Puno vs Puno Enterprises FACTS:     Carlos L. Issue: Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the death of a shareholder. 2003. a shareholder has the right to be intelligently informed about corporate affairs. Thus. Puno. Section 63 of the Corporation Code provides that no transfer shall be valid.Topic: Subtopic: Provision: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. earnings. Petitioner averred that he is the son of the deceased with the latter’s common-law wife. After all. 63 & 74. Puno. it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder. Puno were transferred to him. he would still not be allowed to inspect respondents books and be entitled to receive dividends from respondent. the heirs stand as the equitable owners of the stocks. During such interim period. Held: NO. the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholder of the corporation. and the transfer of the stocks must be recorded in the books of the corporation. 1963. Corp. 155 3B-Corporation Law . or income pertaining to the shares of Carlos L. and give petitioner all the profits. Until a settlement and division of the estate is effected. the stocks of the decedent are held by the administrator or executor. The complaint thus prayed that respondent allow petitioner to inspect its corporate book. Such right rests upon the stockholders underlying ownership of the corporations assets and property Upon the death of a shareholder. Puno. who died on June 25. Puno. render an accounting of all the transactions it entered into from 1962. except as between the parties. The stocks must be distributed first to the heirs in estate proceedings. Consequently. was an incorporator of respondent Puno Enterprises. claiming to be an heir of Carlos L. CA dismissed. Inc. On March 14.

he filed a complaint against Chiu and Po for violation of the Corporate Code. Interim Rules for Intra-Corporate Controversies Loreli Lim Po v DOJ Herein private respondent. 156 3B-Corporation Law .Whether or not there is a violation of Section 74 of the Corporation Code Held: - - YES In the case at bar. Hernandez. The rules do not require that a prosecutor has moral certainty of the guilt of a person for the latter to be indicted for an offense after the conduct of a preliminary investigation. they brought a portable photocopying machine to CHVI’s premises but they were not allowed to use the same. Chiu and Po argues that Tan could have acquired said documents without problem himself and that his inspectors were not restricted from conducting an audit of the corporations account. Consequently. accountants Creest O. 2011. is an executive function. Jasper T. (CHVI). Further. executed a Joint Affidavit29 stating that the documents made available to them for inspection were limited. of a stockholder’s written request to examine or copy excerpts of a corporation’s books or minutes.Topic: Subtopic: Provision: Case Name: Facts: - Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. To name one. Po asserted otherwise and instead alleged that she is merely a consultant for CHVI. is a stockholder of Coastal Highpoint Ventures. The offense punishable under Section 74. for which Chiu was indicted. for purposes of preliminary investigation.30 in a preliminary investigation. the prosecutor is bound to determine merely the existence of probable cause that a crime has been committed and that the accused has committed the same. as we ruled in Metrobank. Morales and Jay Arr T. Tan (Tan). Inc. in relation to Section 144 of the Corporation Code. we find no grave abuse of discretion on the part of the CA when it rendered its Decision28 dated January 11. Besides. Corporation Code. Antonio Ng Chiu1 (Chiu) is its President. a real estate development company. they claimed that on the day of the inspection. Further. Tan argues otherwise Issue: . Tan claimed that Loreli Lim Po (Po) is Chiu’s personal accountant. Such determination should be free from the court’s interference save only in exceptional cases where the DOJ gravely abuses its discretion in the issuance of its orders or resolutions. There is ample evidence on record to support the said decision. Tan states that pertinent information of CHVI was withheld from him such as Financial Statements. The absence of any ascribed ill motives on the part of the aforementioned accountants to make statements adverse or unfavorable to Chiu lends credibility to their declarations. who were part of the Inspection Team sent by Tan to CHVI. we have repeatedly ruled that the determination of probable cause. requires the unjustified disallowance or refusal by a suspect.

2004 that respondents instituted an action questioning the validity of the March 1. Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under R. Interim Rules for Intra-Corporate Controversies Yuico v Quaimbao Facts: Respondents filed with the RTC a complaint against STRADEC. in their comment. (2) all ensuing transactions conducted by the elected directors be likewise nullified.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Rights to Inspect Books and Records Section 74. the RTC may. as well as to act on matters incidental and necessary thereto. an election contest must be "filed within 15 days from the date of the election. pursuant to Section 51 of the Corporation Code. order the holding of a special meeting of stockholders or members of a corporation.A. Clearly. the action has already prescribed since the case was filed beyond 15 day period from the day of the election. 157 3B-Corporation Law . The complaint prays that: (1) the election of Board of Directors be nullified on the ground of improper venue. has jurisdiction to order the holding of a special stockholders meeting involving an (2) intra-corporate Whether the action contrive." It was only on August 16. Under Section 3. Concomitant to said power is the authority to issue orders necessary or incidental to the carrying out of the powers expressly granted to it. the RTC has the power to hear and decide the intra-corporate controversy of the parties herein. Thus. clearly beyond the 15-day prescriptive period. Furthermore. have been transferred from the SEC to the RTCs designated as Special Commercial Courts. Issues: (1) Whether only the SEC. Corporation Code. 2004 stockholders election. and (3) a special stockholders meeting be held anew. Petitioner asserts that it is the SEC which has jurisdiction over the case. (2) Yes. in appropriate cases. not the RTC. counter that the appellate court correctly ruled that the power to hear and decide controversies involving intracorporate disputes. Held: (1) No. 8799. The respondents. has already prescribed. No.

400. The failure to make the demand within the period is deemed a waiver of the appraisal right. 3) All rights accruing to the withdrawing stockholder’s shares. 1999. was initially assigned to Branch 132. Upon payment by the corporation of the agreed or awarded price. the appraisal committee reported its valuation of P2. the petitioners’ nominee. the stockholder shall forthwith transfer his or her shares to the corporation. and Leo Anoche of the Asian Appraisal Company.00 as of December 31. the dissenting stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted retained earnings to cover the fair value of the shares. one of whom shall be named by the stockholder.2 Subsequently. The findings and award of the majority of the appraisers shall be final. Upon the respondent’s refusal to pay. Thus. including voting and dividend rights. and the corporation shall pay their award within 30 days after the award is made.4 the respondent refused the petitioners’ demand.5 It was granted for partial performance. 2001. the appraisal committee came to be made up of Reynaldo Yatco. the petitioners sued the respondent for collection and damages in the RTC in Makati City on January 22. The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to Section 82 of the Corporation Code. 2001. Interim Rules for Intra-Corporate Controversies Turner v Lorenzo Shipping Corp Facts: This case concerns the right of dissenting stockholders to demand payment of the value of their shareholdings.973. another by the corporation. Antonio Acyatan. for an aggregate value of P2. plus 2%/month penalty from the date of their original demand for payment. as well as the implications of the right of appraisal. as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72.. Corporation Code. as well as the reimbursement of the amounts advanced as professional fees to the appraisers. 01-086. Atty.565. 2) If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period of 60 days from the date the stockholders approved the corporate action. 2000. who together then nominated the third member who would be chairman of the appraisal committee. the fair value shall be determined and appraised by three disinterested persons. docketed as Civil Case No. The case.00 for the petitioners. but that it had no retained earnings at the time of the petitioners’ demand. each of them nominating a representative. the respondent’s nominee. the petitioners demanded payment based on the valuation of the appraisal committee. Inc.Topic: Subtopic: Provision: Case Name: Stocks and Stockholders Rights of Shareholders: Appraisal Right Section 74. the third member/chairman. On October 27. shall be suspended from the time of demand for the payment of the fair value of the shares until either the abandonment of 158 3B-Corporation Law . explaining that pursuant to the Corporation Code.3 In its letter to the petitioners dated January 2. Petitioner sues to assail such decision Issue: WoN appraisal right was exercised properly Held: The Corporation Code defines how the right of appraisal is exercised. as follows: 1) The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by making a written demand on the corporation within 30 days after the date on which the vote was taken for the payment of the fair value of his shares.54/share.114. and the third by the two thus chosen.

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares of stocks of the withdrawing stockholders. his voting and dividend rights shall immediately be restored. If shares represented by the certificates bearing such notation are transferred. a dissenting stockholder shall submit to the corporation the certificates of stock representing his shares for notation thereon that such shares are dissenting shares. excluding any appreciation or depreciation in anticipation of such corporate action. and all dividend distributions that would have accrued on such shares shall be paid to the transferee.the corporate action involved or the purchase of the shares by the corporation. 5) If the proposed corporate action is implemented or effected. 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. any disposition of corporate funds and assets to the prejudice of creditors is null and void. Under the doctrine. property. except the right of such stockholder to receive payment of the fair value of the shares. Notwithstanding the foregoing. and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. who are preferred in the distribution of corporate assets. 159 3B-Corporation Law . In case the corporation has no available unrestricted retained earnings in its books. the corporation shall pay to such stockholder. the fair value thereof as of the day prior to the date on which the vote was taken. terminate his rights under this Title X of the Corporation Code. at the option of the corporation. Thus. upon the surrender of the certificates of stock representing his shares. and the certificates are consequently canceled. the capital stock. There can be no distribution of assets among the stockholders without first paying corporate debts. 4) Within 10 days after demanding payment for his or her shares. The creditors of a corporation have the right to assume that the board of directors will not use the assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and liabilities. A failure to do so shall. no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. Section 83 of the Corporation Code provides that if the dissenting stockholder is not paid the value of his shares within 30 days after the award.

and FEBTC. this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything about it. labor contracts such as employment contracts and collective bargaining agreements are not enforceable against a transferee of an enterprise. Unlike the Voluntary Arbitrator. Respondent Union filed a motion for reconsideration. with their status and tenure recognized and salaries and benefits maintained. including those in its different branches across the country.Topic: Subtopic: Provision: Case Name: Merger and Consolidation Section 76 to 80 Corporation Code Bank of the Philippine Islands v BPI Employees Union Facts: · The BSP approved the Articles of Merger executed on January 20. Later. This Article and Plan of Merger was approved by the SEC on April 7. Voluntary Arbitrator ruled in favor of petitioner BPI. Even if it is so. some of those who initially joined retracted their membership. this petition. the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate their employment. the issue remained unresolved at this level and so it was subsequently submitted for voluntary arbitration by the parties. 160 3B-Corporation Law . This conclusion draws its force from the right of an employer to select his employees and to decide when to engage them as protected under our Constitution. as well as those who retracted their membership and called them to a hearing regarding the matter. thus binding only between the parties. The parties both advert to certain provisions of the existing CBA. 2000 by and between BPI. · Prior to the effectivity of the merger. respondent union invited said FEBTC employees to a meeting regarding the Union Shop Clause of the existing CBA between petitioner BPI and respondent union. 2000 did not contain any specific stipulation with respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. and the same can only be restricted by law through the exercise of the police power. Respondent BPI Employees Union-Davao ChapterFederation of Unions in BPI Unibank is the exclusive bargaining agent of BPI¶s rank and file employees in Davao City. Respondent union then sent notices to the former FEBTC employees who refused to join. After the meeting called by the union. · After two months of management inaction on the request.Pursuant to the Article and Plan of Merger. some of the former FEBTC employees joined the union. The former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the merger. respondent informed petitioner of its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the Grievance Committee. However. A labor contract merely creates an action in personam and does not create any real right which should be respected by third parties. FEBTC employees. it does not follow that the absorbed employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation. 2000. Issue: WON a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed employees from the coverage of a union shop clause contained in its existing CBA with its own certified labor union? HELD: the Articles of Merger and Plan of Merger dated April 7. When these former FEBTC employees refused to attend the hearing. but the voluntary arbitrator denied the same. labor contracts being in personam. while others refused. however. were hired by petitioner as its own employees. The rule is that unless expressly assumed. Hence. It appealed to the CA and the CA reversed and set aside the decision of the voluntary arbitrator. all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation.

however.[26] and 79[27] of the Corporation Code. the Monetary Board of the Central Bank of the Philippines ordered its liquidation with PDIC as its liquidator. and treated as banks. the Board of Directors of FISLAI passed and approved Board Resolution assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities. as provided for in Sections 76. failed. In 1995. an action for collection of sum of money against FISLAI. (2) Submission of plan to stockholders or members of each corporation for approval. The merger. The steps necessary to accomplish a merger or consolidation. and powers. Inc.Topic: Subtopic: Provision: Case Name: Merger and Consolidation Section 76 to 80 Corporation Code Mindanao Savings and Loan Association v Wilkom Facts: First Iligan Savings and Loan Association. Such plan must include any amendment. In 1985. to the articles of incorporation of the surviving corporation. The business of MSLAI. Respondents. 6 parcels of land owned by FISLAI were levied and sold to Willkom. A summary 161 3B-Corporation Law . Prior to the closure of MSLAI. with DSLAI as the surviving corporation but their articles of merger were not registered with the SEC due to incomplete documentation. The RTC issued a summary decision in favor of Uy. and liabilities are acquired by the surviving corporation. if necessary. one of the corporations survives while the rest are dissolved and all their rights. Uy filed with the RTC of Iligan City. as well as in the rights of stockholders and creditors. directing FISLAI to pay. filed before the RTC a complaint for the annulment of the Sheriff’s Sale alleging that the sale on execution of the subject properties was conducted without notice to it and PDIC. or in case of consolidation. however. MSLAI. CA affirmed but ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down by the Corporation Code for a valid merger or consolidation. In 1986. properties. A meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders or members. does not become effective upon the mere agreement of the constituent corporations.[25] 78. Although there is a dissolution of the absorbed or merged corporations. In merger. Since a merger or consolidation involves fundamental changes in the corporation. all the statements required in the articles of incorporation of a corporation. Issue: Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective? Held: NO. in its answer.[24] 77. personally or by registered mail. represented by PDIC. Inc. (FISLAI) and Davao Savings and Loan Association. As a consequence. there must be an express provision of law authorizing them. FISLAI and DSLAI entered into a merger. RTC dismissed the case for lack of jurisdiction. as well as their liabilities. privileges. (DSLAI) are entities duly registered with the SEC primarily engaged in the business of granting loans and receiving deposits from the general public. Hence. averred that MSLAI had no cause of action because MSLAI is a separate and distinct entity from FISLAI on the ground that the “unofficial merger” between FISLAI and DSLAI (now MSLAI) did not take effect considering that the merging companies did not comply with the formalities and procedure for merger or consolidation as prescribed by the Corporation Code of the Philippines. are: The board of each corporation draws up a plan of merger or consolidation. DSLAI changed its corporate name to MSLAI by way of an amendment to its Articles of Incorporation which was approved by the SEC. there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights.

the SEC shall set a hearing. In this case. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger. notifying all corporations concerned at least two weeks before.of the plan must be attached to the notice. Clearly. Appraisal rights. The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take place. notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties to DSLAI. (5) If necessary. Thus. the two corporations shall not be considered as one but two separate corporations. subject to its prior determination that the merger is not inconsistent with the Corporation Code or existing laws. Respondents cannot.” The certificates of title of the subject properties were clean and contained no annotation of the fact of assignment. Being separate entities. Vote of two-thirds of the members or of stockholders representing twothirds of the outstanding capital stock will be needed. There being no merger between FISLAI and DSLAI (now MSLAI). shall be taken and deemed transferred to and vested in the surviving corporation. or amend the articles of incorporation of the surviving corporation. it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. (3) Execution of the formal agreement. As provided in Article 1625 of the Civil Code. must be respected. (4) Submission of said articles of merger or consolidation to the SEC for approval. the fact remains that no certificate was issued by the SEC. for third parties such as respondents. These take the place of the articles of incorporation of the consolidated corporation. as far as third parties are concerned. the SEC did not issue the required certificate of merger. Such merger is still incomplete without the certification. as the successor-in-interest of DSLAI. (6) Issuance of certificate of merger or consolidation. With more reason can it not cause the cancellation of the title to the subject properties of Willkom and Go. the merger shall only be effective upon the issuance of a certificate of merger by the SEC. By operation of law. the assets of FISLAI remain as its assets and cannot be considered as belonging to DSLAI and MSLAI. “an assignment of credit. 162 3B-Corporation Law . and the latter assumed all the liabilities of the former. has no legal standing to annul the execution sale over the properties of FISLAI. upon the effectivity of the merger. the property of one cannot be considered the property of the other. referred to as the articles of merger or consolidation. therefore. unless it appears in a public instrument. MSLAI. by the corporate officers of each constituent corporation. in the instant case. as well as liabilities. be faulted for enforcing their claim against FISLAI on the properties registered under its name. when proper. Accordingly. the absorbed corporation ceases to exist but its rights and properties. Consequently. or the instrument is recorded in the Registry of Property in case the assignment involves real property. right or action shall produce no effect as against third persons.

BPI. The Articles of Merger provide. respondent Carlito Lee (Lee) filed a complaint for sum of money with damages and application for the issuance of a writ of attachment against Trendline and Buelva before the RTC seeking to recover his total investment in the amount of P5. therefore. He sought the release of the garnished deposits of Trendline. 1988. From that time onwards. it became bound by the orders and processes issued by the trial court despite not having been properly impleaded therein. which have been transferred to BPI by virtue of their merger. Upon the merger of Citytrust and BPI. among others. and with all the liabilities and obligations of Citytrust transferred to BPI as if it had incurred the same.962. Citytrust and BPI merged. in light of the Articles of Merger which provides that "all liabilities and obligations of Citytrust shall be transferred to and become the liabilities and obligations of BPI in the same manner as if the BPI had itself incurred such liabilities or obligations.Topic: Subtopic: Provision: Case Name: Merger and Consolidation Section 76 to 80 Corporation Code Bank of the Philippine Islands v Lee Facts: On April 26. that "all liabilities and obligations of Citytrust shall be transferred to and become the liabilities and obligations of BPI in the same manner as if the BPI had itself incurred such liabilities or obligations.10 were garnished. RTC found defendants jointly and severally liable to Lee for the full amount of his investment plus legal interest. When the writ was implemented. finding grave abuse of discretion on the part of the RTC in denying Lee’s motion to enforce the garnishment against Trendline’s attached bank deposits with Citytrust. NO. and thereafter BPI. Section 5. Ayala Branch. effectively became the garnishee. CA annulled the questioned orders. The defendants appealed the RTC decision to the CA. were lost without any explanation from the defendants. RTC issued a writ of preliminary attachment whereby the Check-O-Matic Savings Accounts of Trendline with Citytrust Banking Corporation.10. Whether or not BPI is a party of the case by virtue of the merger. on the manifestation of BPI that it cannot locate the defendants' bank records with Citytrust. however. BPI Manager Samuel Mendoza. prompting Lee to seek the production of their records of accounts with BPI. denied having possession. thus the "virtual party" to the civil case. attorney’s fees and costs of suit. 1996. 163 3B-Corporation Law . As such. however. Thus. by virtue of its merger with BPI on October 4. the deposits of the defendants with Citytrust were placed in custodia legis of the court. Consequently. or the judgment in favor of Lee is satisfied or the credit or deposit is delivered to the proper officer of the court. which Citytrust withheld pursuant to the RTC's previously-issued writ of attachment.962. the RTC denied the motion.8 million as he was enticed to invest his money with Trendline upon Buelva’s misrepresentation that she was its duly licensed investment consultant or commodity saleswoman. His investments. Citytrust. Issues: 1. Held: 1. and in order that the rights and interest of creditors of Citytrust or liens upon the property of Citytrust shall not be impaired by merger. BPI undoubtedly became a party interested in sustaining the proceedings. However. is obliged to keep the deposit intact and to deliver the same to the proper officer upon order of the court. with the latter as the surviving corporation. On October 4. Rule 65 of the Revised Rules of Court requires that persons interested in sustaining the proceedings in court must be impleaded as private respondents. upon service of the notice of garnishment and its acknowledgment that it was in possession of defendants' deposit accounts in its letter-reply dated June 28." After the RTC judgment had become final and executory. Whether or not the loss of bank records of a garnished deposit is not a ground for the dissolution of garnishment. 2. Citytrust. which automatically assumed the former’s liabilities and obligations upon the approval of their Articles of Merger. 2. Jr. as it stands to be prejudiced by the outcome of the case. BPI cannot avoid the obligation attached to the writ of garnishment by claiming that the fund was not transferred to it. as the surviving corporation. became a "virtual party" to or a "forced intervenor" in the civil case. By virtue of the writ of garnishment. Lee filed a Motion for Execution and was granted. their deposits were under the sole control of the RTC and Citytrust holds them subject to its orders until such time that the attachment or garnishment is discharged. 1988. It found BPI liable to deliver to the RTC the garnished bank deposit of Trendline in the amount of P700. with the latter as the surviving corporation. 1996. control and custody of any deposits or properties belonging to defendants. in the total amount of P700. YES.

(5) If necessary. These take the place of the articles of incorporation of the consolidated corporation. (3) Execution of the formal agreement. it is clear that no merger took place between Bancommerce and TRB as the requirements and procedures for a merger were absent. Section 79 of the Corporation Code further provides that the merger shall be effective only upon the issuance by the Securities and Exchange Commission (SEC) of a certificate of merger. when proper. RPN. (4) Submission of said articles of merger or consolidation to the SEC for approval. Acting in G. and Banahaw Broadcasting Corporation (collectively. The Corporation Code requires the following steps for merger or consolidation: (1) The board of each corporation draws up a plan of merger or consolidation. RPN. Based on this decision. all the statements required in the articles of incorporation of a corporation. But rather than pursue a levy in execution of the corresponding amounts on escrow with Metrobank. (6) Issuance of certificate of merger or consolidation. or in case of consolidation. et al. A summary of the plan must be attached to the notice.R.. which retains its identity and takes over the rights.Topic: Subtopic: Provision: Case Name: Merger and Consolidation Section 76 to 80 Corporation Code Bank of Commerce v Radio Philippines Network. claims. this Court ordered TRB to pay respondents RPN. (Metrobank). In strict sense. privileges. Bancommerce agreed subject to prior Bangko Sentral ng Pilipinas' (BSP's) approval of their Purchase and Assumption (P & A) Agreement. Inc. Bancommerce denied that there was a merger between TRB and Bancommerce. Here. (2) Submission of plan to stockholders or members of each corporation for approval. Radio Philippines Network (RPN). no merger or consolidation took place as the records do not show any plan or articles of merger or consolidation. filed a motion for execution against TRB before the Regional Trial Court (RTC) of Quezon City. filed a Supplemental Motion for Execution where they described TRB as "now Bank of Commerce" based on the assumption that TRB had been merged into Bancommerce. On November 8. 164 3B-Corporation Law . TRB placed P50 million in escrow with Metropolitan Bank and Trust Co. liabilities and obligations of the absorbed corporation(s). properties. et al. The absorbing corporation continues its existence while the life or lives of the other corporation(s) is or are terminated. Bancommerce and TRB remained separate corporations with distinct corporate personalities. must be respected. by the corporate officers of each constituent corporation. notifying all corporations concerned at least two weeks before. What happened is that TRB sold and Bancommerce purchased identified recorded assets of TRB in consideration of Bancommerce’s assumption of identified recorded liabilities of TRB including booked contingent accounts. franchises. referred to as the articles of merger o[r] consolidation. personally or by registered mail. Inc FACTS: The Traders Royal Bank (TRB) proposed to sell to Bank of Commerce (Bancommerce) its banking business consisting of specified assets and liabilities. To comply with the BSP mandate. A merger does not become effective upon the mere agreement of the constituent corporations. the SEC did not issue any certificate of merger or consolidation. ISSUE: Whether or not TRB had been merged into Bancommerce as to make the latter liable for TRB’s judgment debts HELD: No. Such plan must include any amendment. There is no law that prohibits this kind of transaction especially when it is done openly and with appropriate government approval. Bancommerce entered into a P & A Agreement with TRB and acquired its specified assets and liabilities. Appraisal rights. Intercontinental Broadcasting Corporation. if necessary. RPN. Indubitably.) actual damages. or amend the articles of incorporation of the surviving corporation. et al. More importantly. Merger is the absorption of one or more corporations by another existing corporation. 2001 the BSP approved that agreement subject to the condition that Bancommerce and TRB would set up an escrow fund with another bank to cover TRB liabilities for contingent claims. to the articles of incorporation of the surviving corporation. 138510. Traders Royal Bank v. excluding liabilities arising from judicial actions which were to be covered by the BSP-mandated escrow of P50 million. Vote of two-thirds of the members or of stockholders representing two thirds of the outstanding capital stock will be needed. the SEC shall set a hearing. A meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders or members.

In his reply to petitioners’ final letter of demand. Manzanal v Ramon K.223. He. complied with. however.74. ISSUE: Whether or not BCCC is correct in charging Ilusorio in the amount of P2. And he cast doubt on billing him for charges dating back to 1995. he was barred from using the unit and was almost expelled as member of the club. The Court finds from the tenor of the demand letters that it did not deviate from the standard practice of pursuing the satisfaction of a club member’s obligations.26.076. Corporation Code.Topic: Subtopic: Provision: Case Name: Non-Stock Corporations Sections 87 to 95.928. 165 3B-Corporation Law . ratiocinating that if the allegations in the complaint that Ilusorio is a member of BCCC and an owner of one of the units of the Club’s House Building. Replying. thereby admitting that he welched on his undertaking in the contract that only family members are allowed free usage. which BCCC. which he paid under protest. inter alia. The trial court dismissed the complaint. he should not be charged for the use of the unit as he. is entitled to its use and enjoyment. For a period of five years since the assignment. he in fact did not contradict petitioners’ statement that his work partners and employees used his unit. Ilusorio FACTS: A penthouse unit at the Baguio Country Club Corporation (BCCC) building was assigned to Ilusorio with the conformity of BCCC. thru Manzanal. the defendants-appellees had been unreasonably charging him. BCCC is expected to enforce claims from members in default of their contractual obligations. But that when conflict within the family arose in 1998 and escalated to great proportions. BCCC charged him the amount of P102.223. On appeal.928. Ilusorio requested from BCCC his current statement of account. CA reversed the RTC Makati and ordered the reinstatement of respondent’s complaint. Respondent averred that.26 HELD: The petition is meritorious. Sec Memorandum Circular 8 Dennis R. via letter to which was attached respondent’s Statement of Account itemizing the amount which in fact totalled P2. requested a breakdown of the amount. Respondent did not indicate in his complaint how tenuous petitioners’ claim for unpaid charges is. As an exclusive organization which primarily derives life from membership fees and charges. as owner. Ilusorio enjoyed the use of the unit and the club’s facilities. This spawned his filing of multiple suits against BCCC before the courts and SEC.

April 16. respondent’s husband. 166 3B-Corporation Law . However. Unaware of the pending controversy over the Golf Share. as is the situation in this case. 91. Valley Golf alleged that Caram stopped paying his monthly dues and that it has sent 5 letters to Caram concerning his delinquent account.Topic: Non-Stock Corporations Subtopic: Provision: Sections 87 to 95. Caram (GR No. Termination of membership. unless otherwise provided in the articles of incorporation or the by-laws. The section could not have applied in Caram’s case since he had fully paid for the Golf Share and he had been assessed not for the share itself but for his delinquent club dues. Corporation Code. ISSUE: Whether or not non-stock corporation can seize and dispose of the membership share of a fully-paid member on account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws but not by the Articles of Incorporation HELD: The SEC hearing officer noted that under Section 67. Section 91 of the Corporation Code provides: SEC. Jr. v Caram Name: Glenn Niño M. subscribed and paid in full 1 Golf Share of Valley Golf and was subsequently issued with a stock certificate which indicated a par value of P9. the Supreme Court ruled that the right of a non-stock corporation such as Valley Golf to expel a member through the forfeiture of the Golf Share may be established in the by-laws alone.—Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws.. Inc. Termination of membership shall have the effect of extinguishing all rights of a member in the corporation or in its property. The Golf Share was subsequently sold at public auction. 2009) Corporation Code Provision: Sections 76 to 80 FACTS: Cong. The Supreme Court found that Valley Golf acted in bad faith when it sent the final notice to Caram under the pretense they believed him to be still alive. the Golf Share was adjudicated to the wife. Sartillo Topic: Non-Stock Corporations Name of Case: Valley Golf & Country Club. a share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction only upon the failure of the stockholder to pay the unpaid subscription or balance for the share. the Caram family and the RTC included the Golf Share as part of Caram’s estate.000. Sec Memorandum Circular 8 Case Name: Valley Golf and Country Club Inc.00. Fermin Z. the Supreme Court proceed to declare the sale as invalid. 158805. vs. On the basis of Section 91. Caram thereafter died and his wife initiated intestate proceedings before the RTC. when in fact they had very well known that he had already died. Caram. There is a specific provision under Title XI on Non-Stock Corporations of the Corporation Code dealing with the termination of membership in a non-stock corporation such Valley Golf. the SEC hearing officer concluded that the auction sale had no basis in law and was thus a nullity. Upon partition. It was only through a letter that the heirs of Caram learned of the sale of the Golf Share following their inquiry with Valley Golf about the Golf Share. Proceeding from the foregoing premises. paragraph 2 of the Corporation Code.

400. the By-Laws guarantees that after the execution sale.Stock Corporations Case: Calatagan Golf and Country Club vs Clemente Name: Carmela Abergos FACTS: Clemente applied to purchase one share of stock of Calatagan.000. In addition.00 on 9 December 1991.O. As found by the Court of Appeals. Atty. Jr. and not just to provide an intricate façade that would facilitate Calatagan’s sale of the share. It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the payment of monthly dues. including Clemente’s. 1992 letter to Clemente’s mailing address knowing fully well that the P. He filed a claim with the Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.00 for his monthly dues on 21 March 1991 and another P5. Inc. we cannot label as due diligence Calatagan’s act of sending the December 7. The provision on monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. Calatagan’s board of directors adopted a resolution authorizing the foreclosure of shares of delinquent members. the monthly charge stood at P400. Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already been closed. The Court is satisfied that the By-Laws. the proceeds of the sale would be returned to the former member after deducting the outstanding obligations. ISSUE: Won Clemente is entitled to the restoration of his shareholding in Calatagan and award for damages RULING: Yes. as written. Hence. Clemente filed a petition for review with the CA. Calatagan argues that it exercised due diligence before the foreclosure sale and "sent several notices to Clemente’s specified mailing address." The By-law provisions are elaborate in explaining the manner and the causes for the termination of membership in Calatagan. Calatagan declared Clemente delinquent for having failed to pay his monthly dues. If followed to the letter. have to be kept on file and are in fact on file. Due diligence or good faith imposes upon the Corporate Secretary – the chief repository of all corporate records – the obligation to check Clemente’s other address which. the declaration of a member as delinquent. Jr. Topic: Non. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the impending sale. this letter was sent to Clemente’s mailing address that had already been closed. under the By-Laws. But then. Clemente learned of the sale of his share only in November of 1997. The SEC further held that Calatagan had complied with all the requirements for a valid sale of the subject share. He paid P3. It is also reproduced at the back of each certificate of stock. On 7 December 1992. membership in a non-stock corporation "shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Ten (10) months later. Corporation Code. the bad faith on Calatagan’s part is palpable. Under Section 91 of the Corporation Code. Then he ceased paying the dues. CA promulgated a decision reversing the SEC. Calatagan sent a third and final letter to Clemente. Sec Memorandum Circular 8 Case Name: Calatagan Golf and Country Club. through the execution on the lien of the share. the present appeal. this time signed by its Corporate Secretary. When Clemente became a member.Topic: Non-Stock Corporations Subtopic: Provision: Sections 87 to 95. Box had been closed. his share would be included among the delinquent shares to be sold at public auction.00. We do not agree. It is also noteworthy that Clemente in his membership application had provided his residential address along with 167 3B-Corporation Law . the termination of membership under this procedure outlined in the By-Laws would accord with substantial justice. On 1 December 1992. and the public auction of these shares. warning that unless Clemente settles his outstanding dues. Again. affords due protection to the member by assuring that the member should be notified by the Secretary of the looming execution sale that would terminate membership in the club.. and the constitution of a lien on the shares and its eventual public sale to answer for the member’s debts. yet it persisted in sending that final letter to the same postal box. v Sixto Clemente. SEC rendered a decision dismissing Clemente’s complaint. Benjamin Tanedo.

20 and 21 of the Civil Code. enunciate a general obligation under law for every person to act fairly and in good faith towards one another. the Court of Appeals instead directed that Calatagan to issue to Clemente a new certificate of stock. The utter bad faith exhibited by Calatagan brings into operation Articles 19. Nothing in Section 32 of Calatagan’s By-Laws requires that the final notice prior to the sale be made solely through the member’s mailing address. the certificate of stock is simply the evidence of the share. After all.his residence and office telephone numbers. under the Chapter on Human Relations. 168 3B-Corporation Law . A certificate of stock cannot be a charter of dehumanization. These provisions. even if the latter find themselves contractually bound to perform certain obligations to the corporation. It would not be feasible to deliver Clemente’s original Certificate of Stock because it had already been cancelled and a new one issued in its place in the name of the purchases at the auction who was not impleaded in this case. However. The obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or members. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its members. And therefore. the award of actual damages is of course warranted since Clemente has sustained pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. which the Court of Appeals did apply. That sufficiently redresses the actual damages sustained by Clemente.

With 11 remaining members.Topic: Subtopic: Provision: Case Name: Non-Stock Corporations Sections 87 to 95. among others. CA dismissed. shareholders may generally transfer their shares. on the death of a shareholder. In stock corporations. Therefore. SEC ruled that the meeting was void due to lack of quorum. Antonio C. Pacis. over the objection of Atty. who argued that there was no quorum. In other words. be terminated by the death of the member. the quorum in the present case should be 6. as 4 had already died. membership in and all rights arising from a nonstock corporation are personal and nontransferable. Virginia Khoo. 7 attended the meeting through their respective proxies. Sec Memorandum Circular 8 Tan v Sycip Topic: Non. the annual members meeting. there being a quorum. members present. and Judith Tan were voted to replace the 4 deceased member-trustees. While petitioners Ernesto Tanchi. unless otherwise provided in the articles of incorporation or the bylaws. Under the By-Laws of GCHS. Thus. 1998. the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. depends on those articles of incorporation or bylaws. only 11 living membertrustees. The meeting was convened and chaired by Atty.Stock Corporations Case: Tan vs Sycip Name: Carmela Abergos FACTS: Grace Christian High School (GCHS) is a nonstock. conducted with six. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation. On the other hand. ISSUE: Won dead members should still be counted in the quorum HELD: NO. the determination of whether or not dead members are entitled to exercise their voting rights (through their executor or administrator). who also constitute the board of trustees. During the annual members’ meeting on April 6. Until a settlement and division of the estate is effected. was valid 169 3B-Corporation Law . the next question to resolve is what happens in the event of the death of one of them. Applying Section 91 to the present case. the stocks of the decedent are held by the administrator or executor. Sabino Padilla Jr. we hold that dead members who are dropped from the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members meeting. Having determined that the quorum in a members meeting is to be reckoned as the actual number of members of the corporation. membership in the corporation shall. unless the articles of incorporation or the bylaws of the corporation provide otherwise. Corporation Code. non-profit educational corporation w/ 15 regular members. Edwin Ngo.

The status quo can no longer be restored. the RTC held that the Amended By-laws is questionable. Cruz and Jester identical letters dated December 15. Corporation Code. Joseph Ongchuan (Joseph). opening a ditch. PCCI amended its By-laws. Philippine Canine Club. The CA reversed the RTC Order. informing them of their expulsion from the organization due to their alleged “conduct prejudicial to the best interest” of PCCI. Cruz. Since the May 17. (PCCI). this petition. allegedly without the participation of its non-voting members. are capable of continuation. Inc. PHILIPPINE CANINE CLUB INC. ALEGADO. The RTC thus declared that the petitioners are entitled to the injunctive writ they prayed for. EDGARDO CRUZ.Stock Corporations Case: PRIMO CO. albeit. Shortly thereafter. PCCI allegedly threatened them with the same sanctions imposed on the other petitioners. The petitioners filed MR – denied. FE LANNY L. Injunction and Damages with application for the issuance of a TRO. Alegado (Alegado).Topic: Non-Stock Corporations Subtopic: Provision: Sections 87 to 95. In other words. Alegado and Jester are finished completed acts and which can only be restored depending on the final outcome of the case on the merits. Name: Carmela Abergos FACTS: The respondent. PCCI’s General Manager personally advised Alegado about her expulsion. which were all 170 3B-Corporation Law . including the petitioners. the suspension and expulsion of petitioners Co. and that there was no prohibition on members of PCCI whether express or implied from joining and affiliating themselves with other kennel clubs. 2008. Sec Memorandum Circular 8 Case Name: Primo Co. constitutes a violation of Section 6 of the Corporation Code. PCCI sent Co. to stop PCCI from implementing their suspension and expulsion – as the same has already been consummated. but also those acts that the defendant could still continue to execute unless restrained. the party praying for an injunction alleged not only acts that were already committed or consummated. This is different from the acts enjoined in Dayrit which consisted of the making of excavations. They claim that the adoption of the questioned Amended By-Laws. making excavations. Furthermore. and construction of a dam) are capable of being continued or repeated. is a non-stock. Dayrit v. Sr. 2008 Amended By-laws was voted upon only by its voting members and without the participation of its nonvoting members. (AKCUPI) was established as a corporate entity. it is no longer possible to grant the relief they were seeking – that is. without the participation of PCCI’s non-voting members. including the PCCI. which has already been implemented? RULING: It is a universal principle of law that an injunction will not issue to restrain the performance of an act already done. which has already been in effect. as these acts consist of several stages that are not consummated by a mere single act. Sr. Hence. the petitioners registered their dogs with AKCUPI. In the present case. including the petitioners. The actual suspension and expulsion of Co. Fe Lanny L. the acts sought to be restrained in that case (i. Jester B. SR. SEC issued a Certification approving PCCI’s Amended By-laws. In Dayrit. Moreover. even if partly or initially executed.. the act sought to be restrained by the petitioners has already been partly accomplished. ONGCHUAN. the defendant's questioned acts. and construction of a dam.(Co). Primo Co. and made known its intention to hold and to sponsor dog shows and events similar to those being held and conducted by other kennel clubs in the Philippines. and Lucianne Cham (Cham) were members of PCCI. the case cited by the petitioners is not squarely applicable to the present case. she has never actually received any formal communication to that effect. Topic: Non. Inc. JOSEPH ONGCHUAN and LUCIANNE CHAM vs. non-profit organization established in 1963 for the principal purpose of promoting the breeding of purebred dogs.e. Edgardo Cruz (Cruz). expulsion and termination of membership. v Philippine Canine Club. and the enforcement of the penalty of expulsion against the petitioners. In the present case. As regards Joseph and Cham. Delos Santos. RTC found that although the petitioners are non-voting members of PCCI. the Asian Kennel Club Union of the Philippines. Inc. Sometime in 2008. ISSUE: Can the court enjoin the enforcement of the PCCI Amended By-laws. they are still entitled to vote on the amendments of the by-laws under Section 6 of the Corporation Code. JESTER B. Believing that there was no conflict in the goals and the objectives of PCCI and AKCUPI.. opening a ditch. The petitioners filed a case for Annulment of the Amended By-laws.. Ongchuan (Jester). particularly Article VI on suspension. Alegado and Jester from PCCI rendered their prayer for injunctive relief moot. A writ of injunction becomes moot and academic after the act sought to be enjoined has already been consummated. Cruz. The petitioners. Evidently.

we cannot apply the ruling that "not only the commission or execution of such acts. 171 3B-Corporation Law . as the same may no longer be availed of. we hold that the trial court's issuance of the writ of preliminary injunction. Alegado and Jester.continuing. Hence. Cruz. is improper. but also their continuation can be prevented or prohibited by an injunction." Thus. insofar as petitioners Co.

Thus. He brought a suit for injunction and damages in the RTC praying for the issuance of a TRO against AUP and its Board of Trustees. by secret ballot. which was granted by the RTC. the Board of Trustees appointed Barayuga as president of AUP. including the chairman and the secretary. being made in accordance with the AUP Amended By-Laws. the term of office of the members of the Board of Trustees was only of two years. Under the amended By-Laws of AUP. which rendered its decision nullifying the RTC’s writ of preliminary injunction. Corporation Code Barayuga v Adventist University of the Philippines EDUCATIONAL CORPORATIONS BARAYUGA v ADVENTIST UNIVERSITY OF THE PHILIPPINES (AUP) FACTS:  The North Philippine Union Mission elected the members of the Board of Trustees of respondent AUP. was valid.  The respondents filed a petition for certiorari in the CA. which means the officers. That contrary provision controls on the term of office. who included the President. 172 3B-Corporation Law . Dayson was elected chairman while petitioner Barayuga was chosen secretary. were to be elected from among the members of the Board during their organizational meeting. upon the election or appointment of his successor. paragraph 2 provides that although the term set for the members of the Board of Trustees is at five years. without cause. By the time of his removal for cause as President. however. to appoint an interim committee consisting of 3 members to assume the powers and functions of president. which was held during the election of the Board of Trustees every two years. ISSUE: Whether petitioner’s term as President was five years HELD: No. and to recommend him to the NPUM for consideration as Associate Director of Secondary Education. the duration is subject to qualification as to what is otherwise provided in the articles of incorporation or by-laws of the educational corporation.  Barayuga asked for reconsideration. not five. voted to remove him as President based on the findings of the audit.Topic: Subtopic: Provision: Case Name: Special Corporations Educational Corporations Sections 106 to 108. Section 108 of the Corporation. and the officers. including the President. he was alreadyo ccupying the office in a hold-over capacity. it was denied by the Board because his reasons were not meritorious. were to exercise the powers vested by the amended By-Laws of AUP for a term of only 2years. and could be removed at any time. In January 2001.  In January 2003. a special meeting was held wherein the members of the Board of Trustees. his removal as President of AUP.

not just an amendment of the IEMELIF's articles of incorporation. according to Section 110 of the Corporation Code. The code requires two-thirds of their votes for the approval of such an amendment. Inc.  RTC dismissed the action for Declaration of Nullity of Amended Articles of Incorporation which CA affirmed after an appeal was filed by the petitioners. The amendment needs the concurrence of at least two-thirds of its membership. its one member in whom all the powers of the corporation technically belongs. it had always acted like a corporation aggregate.Topic: Special Corporations Subtopic: Religious Corporations Provision: Sections 106 to 108. is but a trustee. So how will this requirement apply to a corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its broad corporate powers over the properties. but a complete dissolution of the existing corporation sole followed by a re-incorporation. For non-stock corporations. The Securities and Exchange Commission (SEC) approved the vote. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General Superintendent. 173 3B-Corporation Law . the general membership voted to put things right by changing IEMELIF's organizational structure from a corporation sole to a corporation aggregate. For some reasons.  During its 1973 General Conference. If such approval mechanism is made to operate in a corporation sole. increase the technical number of the members of the corporation from “sole” or one to the greater number authorized by its amended articles. Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas Filipinas. however. The Corporation Code provides no specific mechanism for amending the articles of incorporation of a corporation sole. its articles of incorporation cannot be amended solely through the action of its board of trustees. here the General Superintendent. with membership concurrence. However. the corporate papers of the IEMELIF remained unaltered as a corporation sole. Corporation Code Case Name: Iglesia Evangelica Metodista Enlas Islas Filipinas.  Petitioners claim that a complete shift from IEMELIF's status as a corporation sole to a corporation aggregate required. rights. needs to get the concurrence of two-thirds of its membership. ISSUE: Whether CA erred in affirming the RTC ruling that a corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation HELD: Yes. He can."  Although the IEMELIF remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one member. the General Superintendent). The one member. Inc. the power to amend its articles of incorporation lies in its members. and interests of his religious organization? Although a non-stock corporation has a personality that is distinct from those of its members who established it. v Lazaro RELIGIOUS CORPORATIONS IGLESIA EVANGELICA METODISTA ENLAS ISLAS FILIPINAS INC v LAZARO FACTS:  In 1909. Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-stock corporations. of its membership.

creed or form of worship of the church. SEC approved the same on 2 July 1993.  In 1992. both in its Amended AOI and its dealings with the public. or the adoption and enforcement within a religious association of needful laws and regulations for the government of the membership. an ecclesiastical affair involves the relationship between the church and its members and relate to matters of faith. and from using its properties. Based on this definition. and that BUCCI and the respondents must be enjoined from using the name BUCCI. The effectivity of the disaffiliation was made to retroact to when BUCCI severed its ties from CCI. Inc.  SEC en banc dismissed UCCP's petition (which was later affirmed by CA) to declare as null and void the amendments made to the Articles of Incorporation of BUCCI. ordinations of religious ministers. RELIGIOUS CORPORATIONS UNITED CHURCH OF CHRIST IN THE PHILIPPINES. 174 3B-Corporation Law . The Court believes that the matter at hand is not purely an ecclesiastical affair. religious doctrines. (UCCP) v BRADFORD UNITED CHURCH OF CHRIST. and the power of excluding from such associations those deemed unworthy of membership. Inc. examples of this so-called ecclesiastical affairs to which the State cannot meddle are proceedings for excommunication. each having distinct and separate duties and powers. BUCCI disaffiliated from UCCP.  Consequently. To be concrete. (BUCCI) FACTS:  UCCP has three (3) governing bodies namely: the General Assembly. It was alleged in the amended complaint/protest. UCCP filed before SEC a complaint/protest initially for the disallowance of the continued use of BUCCI as corporate name. worship and governance of the congregation. INC. that the separate incorporation and registration of BUCCI is not allowed under the UCCP Constitution and By-laws. As a UCCP local church located in Cebu. ISSUE: Whether the disaffiliation of respondents purely an ecclesiastical affair. however. An ecclesiastical affair is one that concerns doctrine. outside the jurisdiction of civil courts HELD: No. the Conference and the Local Church.  Thereafter. BUCCI belonged to the Cebu Conference. (CCI) with whom it enjoyed peaceful co-existence until late 1989 when BUCCI started construction of a fence that encroached upon the right-of-way allocated by UCCP for CCI and Visayas jurisdiction.Topic: Subtopic: Provision: Case Name: Special Corporations Religious Corporations Sections 106 to 108. The SC upheld BUCCI's decision as it concerns its legal right as a religious corporation to disaffiliate from another religious corporation via legitimate means — a secular matter well within the civil courts' purview. hence. Corporation Code United Church of Christ in the Philippines v Bradford United Church of Christ. administration of sacraments and other activities attached with religious significance. INC. BUCCI filed its Amended Articles of Incorporation and By-Laws which provided for and effected its disaffiliation from UCCP.

albeit. during and beyond the three (3)-year winding-up period of RMC. respondent RMC Unpaid Employees Association. 175 3B-Corporation Law . 1995. Within those three (3) years. the Association. Under the Plan. the corporation may appoint a trustee or receiver who shall carry out the said purposes beyond the three (3)-year winding-up period.  When such demand went unheeded. 1979. with RMC‘s contribution to increase by 1% every five (5) years up to a maximum of 5%. In the same manner. the Board of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. In a letter dated September 27. but not for the purpose of continuing the business for which it was established. learned of Trust Account No. (Association).  Here. the Board of Trustees of RMCPRF (the Board) entered into an Investment Management Agreement with Philbank (petitioner Metropolitan Bank and Trust Company). Provident Retirement Fund FACTS:  RMC established a Provident and Retirement Plan for its regular employees. In 1984. RULING:  NO. invest and reinvest the Fund in Trust Account No. petitioner continued to render investment services to respondent Board. satisfaction of the liabilities of the Plan. RMC and its employees shall each contribute 2% of the employee‘s current basic monthly salary. a trustee of a dissolved corporation may commence a suit which can proceed to final judgment even beyond the three (3)-year period of liquidation. 1797. 1997. petitioner informed respondent Board that Philbank‘s Board of Directors had decided to apply the remaining trust assets held by it in the name of RMCPRF against part of the outstanding obligations of RMC. Inc.Topic: Subtopic: Provision: Case Name: Dissolution and Liquidation Sections 117 to 122.  The contributions shall form part of the provident fund (the Fund) which shall be held. and does not amount to doing business. manage.  Nonetheless. It may commence suits on behalf of its members but not continue managing the Fund for purposes of maximizing profits. RMC ceased business operations. a dissolved corporation shall nevertheless continue as a body corporate for three (3) years for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. the Board‘s act of issuing the Resolution authorizing petitioner to release the Fund to its beneficiaries is still part of the liquidation process. Corporation Code Metropolitan Bank and Trust Co. The Board retains its authority to act on behalf of its members. 1797 in its behalf. v The Board of Trustees of Riverside Mills Corp.  The Agreement shall be in force for one (1) year and shall be deemed automatically renewed unless sooner terminated either by petitioner bank or by the Board. which is.  Pursuant to the Agreement. Through counsel.  Under Section 122 of the Corporation Code. On October 15. Hence. along with the individual members of RMCPRF. invested and distributed by the Commercial Bank and Trust Company. representing the terminated employees of RMC. they demanded payment of their share in a letter dated February 4. ISSUE:  Whether or not the functions of the Board of Trustees ceased upon with RMC‘s closure. filed a complaint for accounting against the Board and its officers. in a limited capacity.  Subsequently. to dispose and convey its property and to distribute its assets. it was properly within the Board‘s power to promulgate. petitioner shall act as an agent of the Board and shall hold.  Thus.

Topic: Subtopic: Provision: Case Name: Facts:                Dissolution and Liquidation Sections 117 to 122.7 million ACS “in order to allow the long overdue program of the REHAB Program. Lim filed a Motion informing the SEC of acts being performed by BENHAR and RUBY. the SEC found that notwithstanding his allegations of 176 3B-Corporation Law . 1996: Lim together with other minority stockholders. composed of representatives from Ruby’s creditors. Jan 20. On August 10. Lim pointed out that such move of the majority was in implementation of the BENHAR/RUBY Plan which calls for capital infusion of P11. the SEC Hearing Panel created the management committee (MANCOM) for RUBY. Consequently. The Board resolved that: The corporation be authorized to issue out of the unissued portion of the authorized capital stocks of the corporation in the form of common stocks 11.00 [Million] to be subscribed and paid in full by the present stockholders in proportion to their present stockholding in the corporation on staggered basis… and that should any of the stockholders fail to exercise their rights to buy the number of shares they are qualified to buy by making the first installment payment of 25% on or before October 13. and (2) declare as null and void the resolution of the majority stockholders extending the corporate life of RUBY for another twenty-five (25) years. It also dissolves the MANCOM.829%) of the outstanding capital stock of RUBY. RUBY’s corporate life had legally ceased. two (2) rehabilitation plans were the BENHAR/RUBYsubmitted to the SEC Rehabilitation Plan of the majority stockholders led by Yu Kim Giang. Mar 17. Subsequently. Sept 1. 1984. Sept 18. It pointed out that Lim raised the issue only in the year 2000. Sept 18. But the implementation of both majority plans has been enjoined by the SEC and CA.7 Million. were all done in violation of the decisions of the CA and this Court. 1998: the SC affirmed CA decision setting aside the SEC orders approving the Revised BENHAR/RUBY Plan because it not only recognized the void deeds of assignments entered into with some of RUBY’s creditors in violation of the CA’s decision in CA-G.7 Million. SP No.814 million of theP23.” Oct 2. Lim argued that the majority stockholders claimed to have increased their shares to 74. and without compliance with the legal requirements under the Corporation Code.75%(from 59. Allegedly. then the other stockholders may buy the same and that only when none of the present stockholders are interested in the shares may there be a resort to selling them by public auction. the SEC overruled the objections raised by the minority stockholders regarding the questionable issuance of shares of stock by the majority stockholders and extension of RUBY’s corporate term because the filing of the amendment of articles of incorporation by RUBY in 1996 complied with all the legal requisites and hence the presumption of regularity in the act of a government entity stands. 1991. the implementation of the new percentage stockholdings of the majority stockholders and the calling of stockholders’ meeting and the subsequent resolution approving the extension of corporate life of RUBY for another twenty-five (25) years.75% by subscribing to the unissued shares of the authorized capital stock (ACS). SEC issued an Order approving the Revised BENHAR/RUBY Plan and creating a new management committee to oversee its implementation. RUBY’s board of directors held a special meeting and took up the capital infusion of P11. Specifically.814 Million representing the unissued and unsubscribed portion of the present ACS of P23. There being no valid extension of corporate term. Later. but also maintained a financing scheme which will just make the rehabilitation plan more costly and create a worse situation for RUBY.R. The matters that will be taken up in said meeting include the extension of RUBY’s corporate term for another twenty-five (25) years and election of Directors. 1996: Lim receive a Notice of Stockholders’ Meeting scheduled on September 3. 2002.8134. 1991: Notwithstanding the injunction order. One of the many task of MANCOM is study. Moreover. The minority directors claimed they were not notified of said board meeting. Lim moved that the SEC: (1) declare as null and void the infusion of additional capital made by the majority stockholders and restore the capital structure of RUBY to its original structure prior to the time injunction was issued. RUBY filed on December 13. The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued shares through a Board Resolution from the P11. they questioned the percentage of stockholders present in the meeting which the majority claimed stood at 74. 2000. and the Alternative Plan of the minority stockholders represented by Miguel Lim (Lim).814 Million representing the unissued and unsubscribed portion of the present ACS of P23. the SC issued a final injunction on the implementation. 1983 a petition for suspension of payments with the SEC which was granted. Reeling from severe liquidity problems beginning in 1980. 1996. Corporation Code Majority Stockholder s of Ruby Inc v Lim Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. 1991: To implement the Revised plan. Sept 3. review and evaluate the proposed rehabilitation plan for RUBY. appeared in order to put on record their objections on the validity of holding thereof and the matters to be taken therein. 18310.

the expiration of RUBY’s corporate term and the pending incidents on the void deeds of assignment of credit – all these should have been duly considered and acted upon by the SEC when the case was remanded to it for further proceedings. Pre-emptive right under 177 3B-Corporation Law . But CA found.  What is only required is the board resolution approving the additional issuance of shares. SEC should have invalidated the resolution extending the corporate term of RUBY for another twenty-five (25) years. which requires that no creditor should be preferred over the other. The CA pointed out that records confirmed the proposed infusion of additional capital for RUBY’s rehabilitation. With the nullification of the Revised BENHAR/RUBY Plan by both CA and SC on Jan 20.SEC erred in not finding that the October 2.172% shareholding and reduce it to a mere 25. (3) there was an existing permanent injunction against any additional capital infusion on the BENHAR/RUBY Plan. the SEC ignored the evidence adduced by the minority stockholders indicating that the correct amount of subscription of additional shares was not paid by the majority stockholders and that SEC official records still reflect the 60%-40% percentage of ownership of RUBY. the SEC did nothing to ascertain whether indeed. Necessarily then. (4) there was no General Information Sheet reports made to the SEC on the alleged capital infusion. Lim demonstrated the following evidence to rebut the presumption of regularity: (1) it was the board of directors and not the stockholders which conducted the meeting without the approval of the MANCOM. Even assuming the October 2. The CA likewise faulted the SEC in relying on the presumption of regularity on the matter of the extension of RUBY’s corporate term through the filing of amended articles of incorporation. With the expiration of the RUBY’s corporate term.  Here. The corporation shall also file the necessary application with the SEC to exempt these from the registration requirements under the Revised Securities Act (now the Securities Regulation Code). attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself.  The SEC remained indifferent to the reliefs sought by the minority stockholders. such capital infusion is covered by the final injunction against the implementation of the revised plan. as the minority claimed: (1) the minority stockholders were not given notice as required and reasonable time to exercise their preemptive rights. CA Decision (which is cited by SC in its decision): . The CA further noted that the October 2. Lim never proved the illegality of the additional infusion of the capitalization by RUBY so as to warrant a finding that there was indeed an unlawful act. as well as the minority stockholders and the unsecured creditors.]  Ratio: A stock corporation is expressly granted the power to issue or sell stocks. as implementing the Revised BENHAR/RUBY Plan. approved during said meeting. WON the additional capital infusion is valid? RULING  No because the issuance of additional shares was done in breach of trust by the controlling stockholders. Before the CA. With the final rejection of the courts of the Revised BENHAR/RUBY Plan. (2) there was no written waivers of the minority stockholders’ pre-emptive rights and thus it was irregular to merely notify them of the board of directors’ meeting and ask them to exercise their option.         Issue:  fraud. 1991 meeting held by RUBY’s board of directors was illegal because the MANCOM was neither involved nor consulted in the resolution approving the issuance of additional shares of RUBY.814 M and if minority will take up their pre-emptive rights and dilute minority shareholdings.  One of the salient features of the Revised Benhar/Ruby Plan is to Call on unissued shares forP11. which plan was set by CA and SC. saying that the issue of the validity of the additional capital infusion was belatedly raised. and (2) the capital infusion was not for the purpose of rehabilitation but a mere ploy to divest the minority stockholders of their 40. as per certification by the SEC. 1998. which the Court affirmed.25%. 1991 board meeting was conducted on the basis of the September 18.  Worse. while the CA and this Court both rejected the Revised BENHAR/RUBY Plan. it was grave error for the SEC not to act decisively on the motions filed by the minority stockholders who have maintained that the issuance of additional shares did not help improve the situation of RUBY except to stifle the opposition coming from the MANCOM and minority stockholders by diluting the latter’s shareholdings. the legitimate concerns of the minority stockholders and MANCOM who objected to the capital infusion which resulted in the dilution of their shareholdings. 1991 board meeting indeed took place. through fraudulent means. The power to issue shares of stock in a corporation is lodged in the board of directors and no stockholders’ meeting is required to consider it because additional issuances of shares of stock do not need approval of the stockholders. 1991 order of the SEC Hearing Panel approving the Revised BENHAR/RUBY Plan. that: the foregoing payment schedules as embodied in the said Revised plan which gives Benhar undue advantage over the other creditors goes against the very essence of rehabilitation. the majority sought to impose their will and. the CA ruled that it was error for the SEC in not commencing liquidation proceedings.

an issue of shares may still be objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or shift control of the corporation. the SEC refused to heed the plea of the minority stockholders and MANCOM for the SEC to order RUBY to commence liquidation proceedings. and subject to certain exceptions and limitations. suspension of payments. It is. x x x”[67] (Additional emphasis supplied. Indeed. more so. considering the give-away signs of private respondents’ perfidy strewn all over the factual landscape. the Supreme Court. 39 of the Corporation Code refers to the right of a stockholder of a stock corporation to subscribe to all issues or disposition of shares of any class. liquidation was the only hope of the minority stockholders for effecting an orderly and equitable settlement of RUBY’s obligations. The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling stockholders. equity cannot deprive the minority of a remedy against the abuses of the majority. as well as the minority stockholders and the unsecured creditors. but there are exceptions to this rule. when the majority seek to impose their will and through fraudulent means. in proportion to their respective shareholdings.upon the third and last remand to it pursuant to our January 20. or to “freeze out” the minority interest. Without such a limit the will of the majority will be absolute and irresistible and might easily degenerate into absolute tyranny.to demand transparency and accountability from the majority stockholders. and the present action has been instituted precisely for the purpose of protecting the true and legitimate interests of Ruby against the Majority Stockholders. has ruled that: “Generally speaking. In fine. the voice of the majority of the stockholders is the law of the corporation. Certainly. Thus. however. no error was committed by the CA when it set aside the September 18. The stockholder must be given a reasonable time within which to exercise their preemptive rights. There must necessarily be a limit upon the power of the majority. the following relevant observations should have signaled greater circumspection on the part of the SEC -. even if the preemptive right does not exist. in view of the illegal assignments and objectionable features of the Revised BENHAR/RUBY Plan.     Sec. which is allowed under Sec. the minority stockholders and the unsecured creditors are given some measure of protection by the law from the abuses and impositions of the majority. and compelling the majority stockholders to account for all funds. more so in this case. In this case. 2002 Order of the SEC and declared the nullity of the acts of majority stockholders in implementing capital infusion through issuance of additional shares in October 1991 and the board resolution approving the extension of RUBY’s corporate term for another 25 years. properties and documents in their possession. Under the circumstances. 1998 decision -.) Lamentably. 4-9 of the Rules on Corporate Recovery. attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself. Upon the expiration of said period. as found by the CA and as affirmed by this Court: There can be no gainsaying the well-established rule in corporate practice and procedure that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws not proscribed by law. or in this case. 178 3B-Corporation Law . any stockholder who has not exercised such right will be deemed to have waived it. either because the issue comes within the exceptions in Section 39 or because it is denied or limited in the articles of incorporation. On this score. The right may be restricted or denied under the articles of incorporation. equally true that other stockholders are afforded the right to intervene especially during critical periods in the life of a corporation like reorganization. and make full disclosure on the nullified credit assignments.

 On June 11.  RTC Ruled in favor of Panacor and IBA ISSUE:  Whether the Premiere can collect its deficiency claims from the involuntarily dissolved corporations (ARIZONA TRANSPORT CORPORATION and PANACOR MARKETING CORPORATION)? HELD:   No. the Court has held that the board of directors may be permitted to complete the corporate liquidation by continuing as "trustees" by legal implication. or officers." Even if no trustee is appointed or designated during the three-year period of the liquidation of the corporation. In any event.5 million. docketed as Civil Case No. there is no time limit within which the trustees must complete a liquidation placed in their hands. trustees. Colgate informed Panacor of its decision to terminate their distribution agreement. although the time during which the corporation. directors.  Panacor and Arizona filed a complaint for specific performance and damages against Premiere Bank before the Regional Trial Court of Pasig City. IBA-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere Bank to pay damages in its favor.  As early as 1939. 65577. its stockholders. 179 3B-Corporation Law . stockholders. representing the full outstanding loan account of Arizona. shall be removed or impaired either by the subsequent dissolution of said corporation. directors.23 this Court held that. which required an initial inventory level of P7. 1996. and the dissolution of the corporation would not serve as an effective bar to the enforcement of rights for or against it. should instead apply for the loan on condition that the proceeds thereof shall be made available to Panacor. a newly-formed corporation.  Since the P2. The trustees to whom the corporate assets have been conveyed pursuant to the authority of Section 122 may sue and be sued as such in all matters connected with the liquidation.  Premiere Bank still refused to release the requested mortgage documents specifically.235. Premiere Bank rejected the loan application and suggested that its affiliate company.  Panacor failed to generate the required capital to meet its distribution and sales targets. may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences. T-3475 despite IBA-Finance payment to Premiere Bank the amount of P6. through its own officers. no injustice would arise even if the Court does not stay the execution of G.25 Therefore. Section 145 of the Corporation Code clearly provides that "no right or remedy in favor of or against any corporation. Corporation Code Premiere Development Bank v Flores FACTS:  Panacor Marketing Corporation (Panacor for brevity). What is provided in Section 12224 of the Corporation Code is that the conveyance to the trustees must be made within the three-year period. 1995. (Colgate for short).5 million (to complete the needed capital of P4. nor any liability incurred by any such corporation.7 million released by Premiere Bank fell short of the P4. But it may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. acquired an exclusive distributorship of products manufactured by Colgate Palmolive Philippines.R. The fear of Premiere Development Bank that they would have difficulty collecting its alleged loan deficiencies from respondent corporations since they were already involuntarily dissolved due to their failure to file reportorial requirements with the Securities and Exchange Commission is neither here nor there. Inc.Topic: Subtopic: Provision: Case Name: Dissolution and Liquidation Sections 117 to 122.754. trustees.79. T-3475. members.1 million with Colgate) to be released after the cancellation by Premiere of the collateral mortgage on the property covered by TCT No.1 million credit line which was previously approved. the law specifically allows a trustee to manage the affairs of the corporation in liquidation. the owner’s duplicate copy of TCT No. members. After an extensive study of Panacor’s creditworthiness. Panacor negotiated for a take-out loan with IBA-Finance Corporation (hereinafter referred to as IBAFinance) in the sum of P10 million. On December 7. Panacor applied for a loan of P4. 159352.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the balance of P2. or officers.1 million with Premiere Development Bank. Arizona Transport Corporation (Arizona for short).  Furthermore. P7. To meet the capital requirements of the exclusive distributorship.

holding that it had no capacity to sue as it was already defunct. and the beneficial interest in the stockholders.developer of Alabang Hills Village filed a complaint for Injunction and Damages against Alabang Hills Village Association Inc. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. insanity. the fact that. Corporation Code Case Name: Alabang Development Corp. At any time during said three (3) years. Rafael for allegedly starting the construction of a multipurpose hall and a swimming pool on one of the parcels of land still owned by ADC. by b.] ‘lack of capacity to sue’ refers to a plaintiff’s general disability to sue.Topic: Dissolution and Liquidation Subtopic: Provision: Sections 117 to 122. b. c. lack of juridical personality or any other general disqualifications of a party. or whose corporate existence for other purposes is terminated in any other manner. said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders. Alabang Development Corporation. Held: The Supreme Court: “Anent the first assigned error. v Alabang Hills Village Association. failed to desist from constructing thereof. This Court has held that: 180 3B-Corporation Law . creditors. the legal interest vests in the trustees. as held by this Court and as correctly cited by the CA in the case of Columbia: “[l]ack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights. That ADC has no legal capacity to sue because its corporate existence was already dissolved by the Securities and Exchange Corporation on May 26. The CA cited the case for the purpose of restating and distinguishing the jurisprudential definition of the terms “lack of capacity to sue” and “lack of personality to sue. 2. petitioner lacks capacity to sue because it no longer possesses juridical personality by reason of its dissolution and lapse of the three-year grace period provided under Section 122 of the Corporation Code. which also denied its appeal. for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. all interest which the corporation had in the property terminates. the corporations involved in the Columbia case were foreign corporations is of no moment. or does not have the necessary qualification to appear in the case. such as on account of minority. In its answer with counter-claim. AHVAI denied ADC’s allegations and made the following claims: a. With respect to the second assigned error. creditors and others in interest. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. a. Section 122 of the Corporation Code provides as follows: SEC. and despite demand. 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. v. incompetence. and its president. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved. Indeed. creditors or other persons in interest. unlike in the instant case.. members.” and of applying these definitions to the present case. Except by decrease of capital stock and as otherwise allowed by this Code. members. – Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise. as will be discussed below. to dispose of and convey its property and to distribute its assets. without the latter’s consent and approval. or does not have the character or representation he claims[. …” In the instant case. HLURB has exclusive jurisdiction over the dispute between ADC and AHVAI. That the lot is part of the open space required by law to be provided in the subdivision. 3. 4. Thus. That ADC has no cause of action as it was merely holding the property in trust for AHVAI as beneficial owner thereof. 122. Upon winding up of the corporate affairs. Corporate liquidation. ADC filed a Notice of Appeal to elevate the case to the CA. 2003. The RTC dismissed ADC’s complaint holding that: It has no personality to sue and that subject area is a reserved area for the benefit of the homeowners as required law. Facts: 1. members. Inc. the Court does not agree that the CA erred in relying on the case of Columbia Pictures. and other persons in interest. Inc. Court of Appeals. but not for the purpose of continuing the business for which it was established. The definition of the term “lack of capacity to sue” enunciated in the said case still applies to the case at bar.

x x x” Petitioner. Thus. In fact. 2003. The temporary restraining order of June 27. 2006. however. as stated above. which has primary and sufficiently broad jurisdiction in matters of this nature. nonetheless. even if such judgment is rendered beyond the three-year period allowed by Section 122 of the Corporation Code.” WHEREFORE. insists that a corporation may still sue. on the ground that such complaint was filed for the sole purpose of liquidating its assets.. there is nothing in the said cases which allows an already defunct corporation to initiate a suit after the lapse of the said three-year period. As to the last issue raised. The import of this Court’s ruling in the cases cited by petitioner is that the trustee of a corporation may continue to prosecute a case commenced by the corporation within three years from its dissolution until rendition of the final judgment. Inc. On the contrary. United Cigarette Corporation. Law. it had three years. Based on the above-quoted provision of law. but there is no time limit within which the trustees must complete a liquidation placed in their hands. In fact. might make proper representations with the Securities and Exchange Commission. with capacity to sue and be sued. this Court ruled. original and owner's duplicate copy. 750). the subject judgment of the lower court ordering the register of deeds of Metro Manila. the alleged certificate of title. there is no dispute that petitioner’s corporate registration was revoked on May 26. those having any pecuniary interest in the assets. but trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 122] may sue and be sued as such in all matters connected with the liquidation… In the absence of trustees. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. petitioner filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed by Section 122 of theCorporation Code. Sec. 15170 and the plan and technical descriptions submitted. this Court finds no cogent reason to depart from the ruling of the CA finding it unnecessary to delve on the other issues raised by petitioner.It is to be noted that the time during which the corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment. including not only the shareholders but likewise the creditors of the corporation. it is even averred. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R. It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its directors or trustees. 2006. the actions were already pending at the time that they lost their corporate existence.. the factual circumstances in the abovecited cases would show that the corporations involved therein did not initiate any complaint after the lapse of the three-year period. In the present case. and Pepsi-Cola Products Philippines. or until May 26. In the instant case. to prosecute or defend any suit by or against it. 1980 issued against respondents is hereby made and declared permanent. through its own officers. Corps. even after it has been dissolved and the threeyear liquidation period provided under Section 122 of the Corporation Code has passed. Makati Branch IV to reconstitute from Decree No. agrees with the CA that in the abovecited cases. it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a corporation.C. 78 [now Sec. they already had pending actions at the time that their corporate existence was terminated. The Court. Petitioner cites the cases of Gelano v. 78 [now Sec. for working out a final settlement of the corporate concerns. Thus. Court of Appeals. the basic and pivotal issue in the instant case is petitioner’s capacity to sue as a corporation and it has already been settled that petitioner indeed lacks such capacity. acting for and in its behalf. more than three years after such revocation.L. as authority to support its position. may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences. in the name of Manuela Aquial is hereby annulled and set aside. was filed only on October 19. However. albeit wrongly. par. would be to circumvent the provisions of Section 122 of the Corporation Code. 122]) that the conveyance to the trustees must be made within the threeyear period. Court of Appeals. thus: … Still in the absence of a board of directors or trustees. however. the corporations involved filed their respective complaints while they were still in existence. With costs jointly and severally against private respondents. The subject complaint. and the petition for reconstitution is ordered dismissed. Knecht v. 181 3B-Corporation Law . In other words. v. It is provided only (Corp. in the first paragraph of the Complaint that “[p]laintiff is a duly organized and existing corporation under the laws of the Philippines.

1981 in the related Bernal case. 182 3B-Corporation Law . previously ordered furnished to him) for the institution of appropriate criminal proceedings against private respondents and all others who have assisted or conspired with them as may be warranted by the evidence of record. G. of the decision of January 27. for ready reference.The Division Clerk of Court is hereby directed to furnish the Honorable Minister of Justice a copy of the decision at bar (as well as a copy. L-45168.R. No. SO ORDERED.

the designated RTCs have the authority to exercise jurisdiction over such cases. 8799 conferred jurisdiction over intra-corporate controversies on courts of general jurisdiction or RTCs. Moreover. The respondents filed a Petition for Certiorari and Prohibition before the CA seeking the annulment of all the proceedings The CA postulated that Section 122 of the Corporation Code allows a dissolved corporation to continue as a body corporate for the limited purpose of liquidating the corporate assets and distributing them to its creditors.’s business.A. The application was granted when the respondents failed to attend the hearing. R. Thus. It does not allow the dissolved corporation to continue its business. and others in interest. injunction. Inc. the CA held that the trial court does not have jurisdiction to entertain an intra-corporate dispute when the corporation is already dissolved. being geared towards the continuation of FQB+7.Topic: Subtopic: Provision: Case Name: Dissolution and Liquidation Sections 117 to 122. HELD:  Intra-corporate disputes remain even when the corporation is dissolved. 183 3B-Corporation Law . and damages. Jurisdiction over the subject matter is conferred by law. That being the state of the law. Corporation Code Vitaliano Aguirre II v FQB+7 FACTS:      Vitaliano filed a Complaint for intra-corporate dispute. the CA determined that Vitaliano’s Complaint. stockholders. Priscila and Antonio for the usurpation of the management powers and prerogatives of the "real" Board of Directors. should be dismissed because the corporation has lost its juridical personality. to be designated by the Supreme Court. No. against respondents Nathaniel. as long as the nature of the controversy is intra-corporate. inspection of corporate books and records. ISSUE:  Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation.

In the case of Premiere Development Bank v. ISSUE: Whether the dissolved corporation can enter into an agreement such as releases. may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences. However. hence this case. But it may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. Flores. The executed releases. due to the valid quitclaim executed to MBMSI.  Petitioners filed complaints for illegal dismissal. there is no time limit within which the trustees must complete a liquidation placed in their hands. The revocation does not result in the termination of its liabilities. among others. What is provided in Section 122 of the Corporation Code is that the conveyance to the trustees must be made within the three-year period. Section 122 of the Corporation Code provides for a three-year winding up period for a corporation whose charter is annulled by forfeiture or otherwise to continue as a body corporate for the purpose. MBMSI and Atty. six (6) years after MBMSI’s dissolution in 2003. o there was no contractual relationship between PCCR and MBMSI. through its own officers.  In 2008. Seril are deemed as a labor only contractor and thus are solidarily liable with PCCR and Bautista for the valid claims of petitioners. 184 3B-Corporation Law . to wit: Although the time during which the corporation. reinstatement and payment of other benefits.Topic: Subtopic: Provision: Case Name: Dissolution and Liquidation Sections 117 to 122. They allege that their real employer was not MBMSI but PCCR.  CA affirms.  LA and NLRC both found that PCCR is the real principal employer and ordered backwages. the Court held that a corporation is allowed to settle and close its affairs even after the winding up period of three (3) years. the Certificate of Incorporation of MBMSI was revoked and PCCR terminated its contract with MBMSI thus causing petitioners to be dismissed from service under MBMSI. waivers and quitclaims beyond the 3-year winding up period under Section 122 of the Corporation Code HELD: Yes. Corporation Code Viguilla et al v Philipine College of Criminology FACTS:  Petitioners are janitorial employees of MBMSI service agency and work in the maintenance department of petitioner PCCR. This included notarized quitclaims that relieve MBMSI of liability for any and all claims after receipt of separation pay. and o PCCR selected and hired its employees. Seril was Senior VP for Admin of PCCR. PCCR submitted documents to prove that they were employees of MBMSI. the liability has been extinguished. waivers and quitclaims are valid and binding notwithstanding the revocation of MBMSI’s Certificate of Incorporation.  PCCR denied such contentions and insist that MBMSI is the direct employer of petitioners. Even if said documents were executed in 2009. of settling and closing its affairs. o PCCR had direct control over MBMSI’s operations (because Atty. contending that: o PCCR had direct control and supervision over their work. the same are still valid and binding upon the parties and the dissolution will not terminate the liabilities incurred by the dissolved corporation pursuant to Sections 122 and 14528 of the Corporation Code. and President and General Managemer of MBMI). The trustees to whom the corporate assets have been conveyed pursuant to the authority of Section 122 may sue and be sued as such in all matters connected with the liquidation.

Philippine Kingford. 185 3B-Corporation Law . Respondent KINGFORD filed a Motion to Dismiss. co-patentee of a US Patent. Judge Alameda inhibited himself notwithstanding the unfounded allegations and unsubstantiated assertions in the motion. validity and enforceability of such arbitration agreement” available to the parties before the commencement of arbitration and/or a petition for “judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its jurisdiction” after arbitration has already commenced should state “[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or be sued. If its tested mechanism can simply be ignored by an aggrieved party. the Court deny availment by the losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in Philippine courts. is gaining adherents in legal and judicial circles here and abroad. Inc. Inc. and moved for the reconsideration of the order denying the Motion. participate in the arbitration and cause the implementation of the result. Rule 13. Due to a series of events. it must be stressed. When a party enters into a contract containing a foreign arbitration clause and. Respondent KINGFORD then sought for the inhibition of the RTC judge. conceding thereby the capacity of the other party to enter into the contract. 2012)         Kanemitsu Yamaoka.5. ISSUE: W/N a foreign corporation not licensed to do business in the Philippines. Petitioner TPI submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California. Corporation Code Case Name: Tuna Processing Inc v Philippine Kingford Inc Foreign Corporations Tuna Processing. Inc. withdrew from Petitioner TPI and correspondingly reneged on their obligations. and for the establishment of herein Petitioner Tuna Processors. in the rule on local arbitral awards or arbitrations in instances where “the place of arbitration is in the Philippines. A foreign corporation’s capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is concerned. Judge Alameda. and collecting royalties. Oppositely..” it is specifically required that a petition “to determine any question concerning the existence.” it is in the best interest of justice that in the enforcement of a foreign arbitral award. vs. No. February 29. as an alternative mode of settlement. 185582. To enforce the award. voluntarily and actively participated in the arbitration proceedings from the very beginning.” The contents of such petition are enumerated in Rule 13. granting licenses under the same.Topic: Foreign Corporations Subtopic: Provision: Sections 123 to 136. although not licensed to do business in the Philippines. United States and won the case against Respondent KINGFORD. The case was re-raffled to Judge Ruiz who granted Respondent KINGFORDS’s Motion for Reconsideration and dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of California and not licensed to do business in the Philippines. in fact submits itself to arbitration. it will destroy the very essence of mutuality inherent in consensual contracts. but which collects royalties from entities in the Philippines. it becomes bound by the contract. the tuna processors. and Enforcement of Foreign Arbitral Award before the RTC of Makati City. and an Indonesian Patent. sue here to enforce a foreign arbitral award? RULING: Yes Petitioner can sue to enforce a foreign arbitral award in the Philippines. Inc.      Petitioner TPI. which the RTC denied for lack of merit. (G. Petitioner TPI filed a Petition for Confirmation. including Respondent KINGFORD. one who.1 of the Special Rules provides that “[a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral award. by the arbitration and by the result of arbitration. entered into a Memorandum of Agreement with five Philippine tuna processors including Respondent Philippine Kingford. Recognition. Philippine Letters Patent. as in this case. The MOA provides for the enforcing of the abovementioned patents.R. Capacity to sue is not included. may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004.. Arbitration.

that the RTC correctly observed that the Model Law. 186 3B-Corporation Law . a foreign arbitral award should be respected not because it is favored over domestic laws and procedures.  On the matter of capacity to sue. Petitioner TPI may still seek recognition and enforcement of the award in Philippine court. since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. governs the subject arbitral award. Even assuming. but because Republic Act No. only for the sake of argument. not the New York Convention. 9285 has certainly erased any conflict of law question.

170290.869. in accordance with the practice of the United States Federal Deposit Insurance Corporation(FDIC) after which PDIC was patterned. PDIC examined the books of accounts of BA which revealed that from BA received from its head office and its other foreign branches a total of P629.908. each branch. In the case of Citibank and BA. it may create a branch in the Philippines. Rather. must be viewed as a part of the parent bank rather than as an independent entity. lodged in the books of Citibank under the account “Their Account-Head Office/Branches-Foreign Currency. When considered with relation to the parent bank they are not independent agencies. contending that there was no depositor-depository relationship between the respondents and their head office or other branches. the Supreme Court of New York held: Where a bank maintains branches. covered by Certificates of Dollar Time Deposit that were interest-bearing. No. are subject to assessment for insurance premiums. April 11. Section 75 of The General 187 3B-Corporation Law . each branch becomes a separate business entity with separate books of account.923. In the leading case of Sokoloff vs.” BA also excluded these from its deposit liabilities. and are subject to the supervision and control of the parent bank In United States v. PDIC discovered that Citibank received from its head office and other foreign branches a total of P11.” Philippine banking laws also state that the head office of a foreign bank and its branches are considered as one legal entity. and simply obtain a license to do business in the Philippines.The National City Bank of New York.595. Such subsidiary would have its own separate and independent legal personality to conduct business in the country. Being the same entity. the US CA.” were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. In the alternative. which would not be a legally independent unit.081. the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter. Their Philippine branches are merely branches without a separate legal personality from their parent company.163.264. 2012)           Philippine Deposit Insurance Corporation (PDIC). PDIC wrote seeking the remittance of P109. BCCI Holdings Luxembourg. Corporation Code Case Name: Philippine Deposit Insurance Corp v Citibank Foreign Corporations Philippine Deposit Insurance Corporation VS Citibank (G. RULING: No. These funds.96. Citibank and BA sought a declaratory judgment that the money placements they received from their head office and other foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of the PDIC Charter and the deficiency assessments were improper and erroneous. Citibank is a banking corporation while respondent Bank of America is a national banking association. As a result.00 in dollars. both of which is duly organized and existing under the laws of the USA and duly licensed to do business in the Philippines. unless separately incorporated. they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines. as such. they are. a government instrumentality created by virtue of Republic Act No. CA affirmed the decision of the RTC. such deposits were not included as third-party deposits that must be insured. Respondents are not subject to assessment for insurance premiums     A foreign corporation can establish its presence in the Philippines by choosing to incorporate its own subsidiary as a domestic corporation.Topic: Foreign Corporations Subtopic: Provision: Sections 123 to 136. emphasized that “while individual bank branches may be treated as independent of one another. 3591. conducted an examination of the books of account of Citibank. they were considered inter-branch deposits which were excluded from the assessment base. merely branches. covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books under the account “Due to Head Office/Branches. PDIC assessed Citibank for deficiency in the sum of P1. ISSUE: W/N the funds placed in the Philippine branch by the head office and foreign branches of Citibank and BA are insurable deposits under the PDIC Charter and.311.R.83 representing deficiency premium assessments.10 in dollars. what their name imports. RTC favored respondent.

Citibank N. would be placed in the ridiculous position of having to reimburse itself.Banking Law and Section 5 of R. it would result to the incongruous situation where Citibank. as the head office. as depositor. would then be required to answer for the deposit liabilities of Citibank Philippines. 7221 (An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch PDIC must be reminded of the purpose for its creation as the “Corporation” which is to protect the depositing public in the event of a bank closure.A.A. If the Court were to adopt the posture of PDIC that the head office and the branch are two separate entities and that the funds placed by the head office and its foreign branches with the Philippine branch are considered deposits. for the losses it may incur occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such a preposterous circumstance when they created PDIC 188 3B-Corporation Law . No. Suppose the Philippine branch of Citibank suddenly closes for some reason.

Facts: Petitioner Steelcase.Topic: Subtopic: Provision: Case Name: Foreign Corporations Sections 123 to 136. it was barred from seeking redress from Philippine courts until it obtained the requisite license to do so. sell. The CA affirmed the ruling of the RTC. service contracts. Steelcase contends that DISI is an independent distributor of Steelcase products and not an agent or conduit of Steelcase. and is transacting business in its own name and for its own account. and contemplate to that extent the performance of acts or works. Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market. firm. Steelcase. distribute. Corporation Code Steelcase Inc. is a foreign corporation existing under the laws of Michigan. DISI alleged that the complaint failed to state a cause of action and that the complaint should be dismissed because of Steelcase’s lack of legal capacity to sue in Philippine courts due to that fact that it doesn’t have a license to operate in the country. and in the progressive prosecution of. install and service its products to end-user customers within the Philippines. USA and is engaged in the manufacture of office furniture with dealers worldwide. 189 3B-Corporation Law . Meanwhile. The RTC dismissed Steelcase’s complaint. opening offices. including the distribution of furniture. therefore. DISI is acting as Steelcase’s appointed local distributor. attorney’s fees and costs of suit. Issue: Whether or not Steelcase had been “doing business” in the Philippines without a license Held: The phrase “doing business” is clearly defined in Section 3(d) of RA 7042 (Foreign Investments Act of 1991) which states that “the phrase ‘doing business’ shall include soliciting orders. Steelcase filed a complaint for sum of money against DISI alleging that DISI had an unpaid account of $600. entity or corporation in the Philippines.” On such account. Design InternationalSelections.000. It also prayed that DISI be ordered to pay actual or compensatory damages. and any other act or acts that imply a continuity of commercial dealings or arrangements. or the exercise of some of the functions normally incident to. Inc. whether called ‘liaison’ offices or branches. The business relationship continued smoothly until it was terminated after the agreement was breached in 1999. v Design International Selections Inc. exemplary damages.” The second sentence of Section 3(d) states 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… nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. participating in the management. Moreover. It has likewise concluded that Steelcase was“doing business” in the Philippines as contemplated by RA 7042 (The Foreign Investments Act of 1991) and since it did not have the license to do business in the country. commercial gain or of the purpose and object of the business organization. Inc. supervision or control of any domestic business. the appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full control of the foreign corporation. is foreign corporation not doing business in the Philippines by its act of appointing a distributor falls under one of the exceptions under RA 7042. appointing representatives or distributors domiciled in the Philippines… totaling 180 days or more. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business.

The contract was amended 3 times (in relation to the amount and the price). In the case at bar. Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic).R.500. 2010 FACTS: Cargill (foreign) is a corporation organized and existing under the laws of theState of Delaware. In the present case. such provided that NMC would pay CARGILL 3 million uponsigning and would deliver to CARGILL 6. When INTRA failed to pay. whereby NMC agreed to sell to petitioner 20. INTRA STRATA issued a performance bond to guaranteeNMC’s delivery. vs. without opening an office or appointing an agent in the Philippines. The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of each case. ButNMC still failed to comply.000 metrictons of molasses to be delivered from Jan 1 to 30 1990 for $44 per metric ton. CARGILL NMC and INTRA entered into a compromise agreement approvedby the court. Corporation Code Cargill Inc. ISSUE: Whether or not petitioner is doing or transacting business in the Philippines in contemplation of the law and established jurisprudence. the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business. petitioner is a foreign company merely importing molasses from a Philipine exporter.000 representing the minimum priceof the contract. CARGILL.991 metric tons of molasses. No. The contract provided that CARGILL was to open a Letter of Credit with theBPI. RULING: NO." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation.But the third amendment required NMC to put up a performance bond whichwas intended to guarantee NMC’s performance to deliver the molasses duringthe prescribed shipment periods. is not doing business in the Philippines. INTRA STRATA ASSURANCE CORPORATION G. 190 3B-Corporation Law . NMC was permitted to draw up 500. NMC was only able to deliver 219551 metric tons out of the agreed 10. INC. v Intra Strata Assurance Corp. A foreign company that merely imports goods from a Philippine exporter.000 to 24. In compliance.Topic: Subtopic: Provision: Case Name: Foreign Corporations Sections 123 to 136.Thus CARGILL sent demand letters to INTRA claiming payment under theperformance and surety bonds. CARGILL filed acomplaint. 168266 March 15.

It does not relieve Global of its contractual obligation. However. Corporation Code Global Business Holdings Inc. a corporation organized in another country has no personality to file suits in the Philippines. it cannot now be made to raise the issue of capacity to sue (Merrill Lynch Futures. Global is estopped from challenging Surecomps capacity to sue. Surecomp failed to comply with Sec 87 & 88 of the Intellectual Property Code of the Philippines. rather than an executor contract. As to unenforceability of the contract. For this reason. When Global took over operations. Sometime in 2000. In 1999. saying that the RTC abused its discretion and acted in excess of its jurisdiction. Global failed to reimburse despite Surecomp’s delivery of the product. The statute of frauds finds no application here. MR denied. This is mandated under Section 133 of the Corporation Code. it must acquire a license from the Securities and Exchange Commission and appoint an agent for service of process. Global’s argument that it was not the one who actually contracted with Surecomp is of no moment. A party is estopped from challenging the personality of a corporation after having acknowledged the same by entering into a contract with it. RTC denied MTD. v. Global filed an MTD based on two grounds: 1. it cannot institute a suit in the Philippines. and damages. Surecomp installed the system and ABC also undertook to pay professional services and annual maintenance fees for 5 yrs. Global filed a petition for certiorari with prayer for the issuance of a TRO and/or writ of preliminary injunction under Rule 65 before the CA.A foreign corporation doing business in the Philippines without license may sue in Philippine courts a Filipino citizen or a Philippine entity that had contracted with and benefited from it. ABC merged with Global Business. Being a technology transfer arrangement. RTC ruled that: On Ground 1: Global is estopped from denying Surecomp’s capacity to sue. it is an executed. it entered into a software license agreement to let Asian Bank Corp (ABC) use Surecomp’s IMEX Software System for 20 yrs. RTC says it sees no reason to belabor the issue on Surecomp’s capacity to sue since there is a prima facie showing that Global entered into a contract with Surecomp and having done so. HELD: YES. willingly. unlicensed foreign non-resident corporations doing business in the Philippines cannot file suits in the Philippines.Topic: Subtopic: Provision: Case Name: Foreign Corporations Sections 123 to 136. The exception to this rule is the doctrine of estoppel. Pursuant to the agreement. Surecomp filed a complaint for breach of contract with damages in RTC-Makati for Global’s failure to pay its obligations in the agreement despite demands. Surecomp moved for an outright denial of the MTD. and committed to purchase some products at discounted prices. Inc. ABC also requested Surecomp to purchase a certain software with a promise to reimburse. As a rule. it found the IMEX system unworkable and informed Surecomp that it was going to discontinue with the software agreement and that it was going to stop payments. On Gorund 2: This will require a hearing before the MTD can be resolved. The principle is applied to 191 3B-Corporation Law . CA denied the petition. Facts: Surecomp Software is a foreign corp organized under the laws of the Netherlands. In order to subject a foreign corporation doing business in the country to the jurisdiction of our courts. CA). Surecomp demanded payment of actual damages and an additional amount for Global’s unilateral pretermination of the agreement. Issue: Whether Global is estopped from questioning Surecomps capacity to sue. The determination of a corporations capacity is a factual question that requires the elicitation of a preponderant set of facts. That Surecomp had no capacity to sue because it was doing business in the Philippines without a That the claim on which the action was founded was unenforceable under the Intellectual Property Code of the Philippines. Instead of filing an answer. A corporation has a legal status only within the state or territory in which it was organized. and 2. Without such license. license.

Global also has the right to exercise all defenses. one of the corporations survives and continues the business. as affirmed by the CA.This is particularly true in this case. and all its rights. while the other is dissolved. rights. under the terms of the merger or consolidation. Based on the findings of fact of the RTC. These findings of fact were never contested by Global in any of its pleadings filed before the Court. Due to Globals merger with ABC and because it is the surviving corporation. In the same way. chiefly in cases where such person has received the benefits of the contract. Global assumed all the liabilities and obligations of ABC as if it had incurred such liabilities or obligations itself. it is as if it was the one which entered into contract with Surecomp. properties. and liabilities are acquired by the surviving corporation. 192 3B-Corporation Law . and counter-claims of every kind and nature which ABC may have or invoke under the law. In the merger of two existing corporations. privileges.prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes.

incorporated under the laws of Hong Kong. it does not need a license in order to initiate and maintain a collection suit against respondent for the unpaid balance of respondent’s purchases. On several occasions. and GTVL became obligated to pay the agreed purchase price. In the present case. is a corporation. the series of transactions between petitioner and respondent cannot be classified as "doing business" in the Philippines under Section 3(d) of RA 7042. Considering that petitioner is not doing business in the Philippines. An essential condition to be considered as "doing business" in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. the transaction is concluded. There was no single activity which petitioner performed here in the Philippines pursuant to its purpose and object as a business organization. commencing October 31. or manage. upon receipt by Kenzar of the goods purchased by GTVL. the series of transactions between petitioner and respondent transpired and were consummated in Hong Kong. However. Petitioner did not also open an office here in the Philippines. Here. An unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. Insofar as Zuiden is concerned. GTVL purchased lace products from petitioner. While petitioner and respondent entered into a series of transactions implying a continuity of commercial dealings. as per the instructions of GTVL. to a certain Hong Kong corporation. upon delivery of the goods to KENZAR in Hong Kong. Kenzar had the obligation to deliver the products to the Philippines and/or to follow whatever instructions GTVL had on the matter. RULING: YES. 1994 up to the present. the perfection and consummation of these transactions were done outside the Philippines. known as Kenzar Ltd. FACTS: Petitioner Zuiden. was that Zuiden delivers the products purchased by GTVL. supervise or control a local business. 193 3B-Corporation Law . Corporation Code Van Zuiden Bros LTD v GTVL Industries Inc. Zuiden is not engaged in business in the Philippines. GTVL has failed and refused to pay the agreed purchase price for several deliveries ordered by it and delivered by Zuiden. an unlicensed foreign corporation. The procedure for these purchases. but is suing before the Philippine Courts. there is no basis for ruling that petitioner is doing business in the Philippines. Moreover. appoint a representative or distributor. It is engaged in the importation and exportation of several products. Therefore. Further. there is no showing that petitioner performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. ISSUE: Whether or not petitioner. petitioner’s desire to do business within the Philippines is not discernible from the allegations of the complaint or from its attachments.Topic: Subtopic: Provision: Case Name: Foreign Corporations Sections 123 to 136. and the products are then considered as sold. including lace products. for the reasons hereinafter stated. has legal capacity to sue before Philippine courts.

suit or proceeding in any court or administrative agency of the Philippines. Respondents filed a MTD in the 2nd case. and Damages”. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction. Doing business without a license. with the consent of Integrated Silicon.. if a foreign corporation is not doing business in the Philippines. The juridical relation among the various parties in this case can be traced to a 5-year Value Added Assembly Services Agreement (VAASA). which is engaged in the business of manufacturing and assembling electronics components. Corporation Code Agilent Technologies Singapore v Integrated Silicon Technology Philippines Corp AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD. Later.Topic: Subtopic: Provision: Case Name: Foreign Corporations Sections 123 to 136. for its part. vs. HELD: The petition is GRANTED. which. The Decision of the CA which dismissed the 2nd case is REVERSED and SET ASIDE. litis pendentia. Under the terms of the VAASA. Recovery of Possession. forum shopping. it cannot sue before the Philippine courts. The Order denying the MTD is REINSTATED. INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORP et al FACTS: Petitioner Agilent is a foreign corporation. 133. HP-Singapore. A license is necessary only if a foreign corporation is “transacting” or “doing business” in the country. shall be permitted to maintain or intervene in any action. The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements: if a foreign corporation does business in the Philippines without a license. The Corporation Code provides: Sec. on the grounds of lack of Agilent’s legal capacity to sue. 194 3B-Corporation Law . Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent and its officers. Agilent filed a separate complaint against Integrated Silicon for “Specific Performance. — No foreign corporation transacting business in the Philippines without a license. ISSUE: WON an unlicensed foreign corporation not doing business in the Philippines lacks the legal capacity to file suit. by its own admission. Ratio: A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine courts. 100% foreign owned. Preliminary Mandatory Injunction. is not licensed to do business in the Philippines. Agilent’s application for a Writ of Replevin is GRANTED. The VAASA had a five-year term with a provision for annual renewal by mutual written consent. was to consign raw materials to Integrated Silicon. or its successors or assigns. Respondent Integrated Silicon is a private domestic corporation. Later. between Integrated Silicon and HP-Singapore. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. HP-Singapore assigned all its rights and obligations in the VAASA to Agilent. and Sum of Money with Replevin. Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. and failure to state a cause of action. The aforementioned provision prevents an unlicensed foreign corporation “doing business” in the Philippines from accessing our courts.

if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has
contracted with said corporation may be estopped from challenging the foreign corporation’s corporate personality in
a suit brought before Philippine courts; and
if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on
any transaction.
**
The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the Philippines.
However, there is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting” business in the
Philippines. The Corporation Code itself is silent as to what acts constitute doing or transacting business in the
Philippines.
In the Mentholatum case this Court discoursed on the two general tests to determine whether or not a foreign
corporation can be considered as “doing business” in the Philippines. The first of these is the substance test, thus:
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.
The second test is the continuity test, expressed thus:
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.]
**
The Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as amended), defines “doing business” as
follows:
Sec. 3, par. (d). The 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 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.
An analysis of the relevant case law, in conjunction with Sec 1 of the IRR of the FIA (as amended by RA 8179), would
demonstrate that the acts enumerated in the VAASA do not constitute “doing business” in the Philippines. The said
provision provides that the following shall not be deemed “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 interest 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;

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(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.
By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is one that is for profitmaking.
By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a stock of
goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such, we hold
that, based on the evidence presented thus far, Agilent cannot be deemed to be “doing business” in the Philippines.
Respondents’ contention that Agilent lacks the legal capacity to file suit is therefore devoid of merit. As a foreign
corporation not doing business in the Philippines, it needed no license before it can sue before our courts.

196
3B-Corporation Law

Topic:
Subtopic:
Provision:
Case Name:

Penal Provisions
Sections 144, Corporation Code
Loreli Lim Po v DOJ

Facts: Tan is a stockholder of CHVI, a real estate development company. Chiu is the president and Loreli Lim Po is the
accountant. Tan requested a copy of the company’s financial statement and be allowed to inspect the corporate
books. His request, however, was denied despite repeated demands. Tan thus filed a case against Chiu and Po.
Issue: Whether or not Tan has a cause of action.
Held: Yes, Tan has a right to inspect the company’s financial statements and other business documents
Ratio:
There is ample evidence on record to support the said decision. To name one, accountants Creest O. Morales and Jay
Arr T. Hernandez, who were part of the Inspection Team sent by Tan to CHVI, executed a Joint AffidaviT stating that the
documents made available to them for inspection were limited. Further, they claimed that on the day of the inspection,
they brought a portable photocopying machine to CHVI’s premises but they were not allowed to use the same. The
offense punishable under Section 74, in relation to Section 144 of the Corporation Code, for which Chiu was indicted,
requires the unjustified disallowance or refusal by a suspect, of a
stockholder’s written request to examine or copy excerpts of a corporation’s books or minutes. The absence of any
ascribed ill motives on the part of the aforementioned accountants to make statements adverse or unfavorable to Chiu
lends credibility to their declarations.

197
3B-Corporation Law

Topic:
Subtopic:
Provision:
Case Name:

Penal Provisions
Sections 144, Corporation Code
Yuico v Quiambao

Facts:
- On Mar. 1 2004, Aderito Z. Yujuico was elected and replaced Quiambao as the president and chairman of Strategic
Alliance Development Corporation, a domestic corporation operating as a business development and investment
company.
- Yujuico then appointed Sumbilla as treasurer and Blando, who replaced Pilapil, as corporate secretary.
- Yujuico demanded to Quaimbao for the turnover of the corporate records of the company which were in possession of
Casanova, the accountant of STRADEC, who was in possession of the said records on behalf of Quiambao because the
latter needed the same as part of his defense in a pending case in court.
- Quiambao and Casanova then caused the removal of the corporate records of STRADEC from the company’s office.
- Blando likewise demanded Pilapil for the turnover of the stock and transfer book of STRADEC, to which he refused.
Pilapil then proposed that such records be deposited in a safety deposit box in Equitable-PCI Bank. Blando accepted
the proposal with the agreement that it was only to be opened in the presence of both Quiambao and Blando.
- Quiambao and Blando withdrew the safety deposit box and brought it to the offices of STRADCOM. Quiambao asked
Blando to proceed to the STRADCOM offices and upon arriving thereat, Quiambao pressured Blando to make certain
entries in the stock and transfer books. After making such entries, Blando demanded that he be given the possession
of the stock and transfer book, Quiambao refused.
- Even after several demands of Blando for the turnover of the stock and transfer book of STRADEC, Quiambao
repeatedly refused to turn over such.
- Thus, on August 12, 2005, Yujuico filed a criminal case against Quiambao, Pilapil and Casanova for the violation of
Sec. 74 in relation to Sec. 144 of the Corporation Code.’
- The RTC ruled that the act of refusing to allow inspection of the stock and transfer book, even though it may be a
violation of Section 74(4), is not punishable as an offense under the Corporation Code because under Sec. 74, the
application of Section 144 is expressly mentioned only in relation to the act of "refusing to allow any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from the corporation's records or minutes"
that excludes its stock and transfer book.

Issue: W/N the RTC’s interpretation of Sec. 74 in relation to Sec. 144 of the Corporation Code is correct

Held: No, RTC’s interpretation of Sec. 74 in relation to Sec. 144 of the Corporation Code.
- While Section 74 of the Corporation Code expressly mentions the application of Section 144 only in relation to the act
of "refusing to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts
from the corporation's records or minutes," it same does not mean that Sec. 144 no longer applies to any other
possible violations of Sec. 74.
- It must be emphasized that Section 144 already purports to penalize "violations" of "any provision" of the Corporation
Code "not otherwise specifically penalized therein." Hence, we find inconsequential the fact that that Section 74
expressly mentions the application of Section 144 only to a specific act, but not with respect to the other possible
violations of the former section.
- Indeed, we find no cogent reason why Section 144 of the Corporation Code cannot be made to apply to violations of
the right of a stockholder to inspect the stock and transfer book of a corporation under Section 74(4) given the already
unequivocal intent of the legislature to penalize violations of a parallel right, i.e., the right of a stockholder or member
to examine the other records and minutes of a corporation under Section 74(2). Certainly, all the rights guaranteed to
corporators under Section 74 of the Corporation Code are mandatory for the corporation to respect. All such rights are

198
3B-Corporation Law

just the same underpinned by the same policy consideration of keeping public confidence in the corporate vehicle thru an assurance of transparency in the corporation's operations. we find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection of the stock and transfer book is not a punishable offense under the Corporation Code. . 199 3B-Corporation Law . Such refusal. properly falls within the purview of Section 144 of the same code and thus may be penalized as an offense. when done in violation of Section 74(4) of the Corporation Code.Verily.

In the SEC v. (2) in a common enterprise." The business scheme of petitioner in the case at bar thus. SEC issued a Cease and Desist Order (CDO) hence this suit. Once an individual has purchased a Plan. transaction or scheme (collectively ‘contract’) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. (4) primarily from efforts of others. minimal. 8799 (The Securities Regulation Code). No. 200 3B-Corporation Law . Their value for any other purpose is. which are considered securities under Sec. Thus.Topic: Subtopic: Provision: Case Name: Securities and Exchange Commission Securities Regulations Code. Rather. No. 8799 appears to follow this flexible concept for it defines an investment contract as a contract. an investment contract in our jurisdiction must be proved to be: (1) an investment of money. 8 of the Code. Respondent Noel Manero requested public respondent SEC to investigate petitioner’s business.A. a domestic corporation is duly registered with public respondent SEC and its primary purpose is to develop real estates. its business constitutes an investment contract. he turns his efforts toward bringing others into the organization. SEC found that petitioner is engaged in the sale or offer for sale or distribution of investment contracts. and records.A. Hence. transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others. Held: An investment contract is defined in the Amended Implementing Rules and Regulations of R. films. Upon investigation. Kinds of Securities Securities and Regulations Code. for which he will receive a part of what they pay. (3) with expectation of profits. are aimed at interesting others in the Plans. His task is to bring prospective purchasers to "Adventure Meetings. Issue: whether petitioner’s business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public. The promotional aspects of the plan. petitioner was engaged in the sale or distribution of an investment contract. the purchaser is really buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. such as seminars.1 (b) of Republic Act (R. to put it mildly. to be a security subject to regulation by the SEC." Our R.) No. but failed to register them in violation of Sec. Turner case.A. PD-902-A Power Homes Unlimited Corp v SEC Facts: Power Homes Inc. the Court ruled that It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. 3. 8799 as a "contract.

Howey Co. 201 3B-Corporation Law . (2) an investment of money. referred to as the Howey test must concur: (1) a contract. Held: The United States Supreme Court held in Securities and Exchange Commission v. (4) expectation of profits. (GVI) which SEC issued a CDO before. transaction. (PCI) sold computer software and hosted websites without providing internet service. its scheme does not constitute an Investment Contract. Inc. and (5) profits arising primarily from the efforts of others. WON PCI’s scheme constitutes and Investment Contract. a buyer could acquire from it an internet website of a 15Mega Byte (MB) capacity and by referring to PCI his own down-line buyers. some skin cream. or scheme. The client can use this website to enable people to have internet access to what he has to offer to them. for the an amount. They buy a product of some value to them: an Internet website of a 15-MB capacity. SEC alleged that PCIs scheme constitutes an Investment contract and. a first-time buyer could earn commissions. The last requisite in the Howey test is lacking in the marketing scheme that PCI has adopted. Thus. it should have first registered such contract or securities with the SEC Issue:. To make a profit. following the Securities Regulations Code.[ that. PD-902-A and Exchange Commission v Prosperity Com Inc. PCIs clients do not make such investments. W. The buyers of the website do not invest money in PCI that it could use for running some business that would generate profits for the investors. Facts: Prosperity.J. (3) investment is made in a common enterprise. the following elements.Com. PCI devised a scheme in which. for an investment contract to exist. Thus. Inc. to sustain the SEC position in this case. Here. PCIs scheme or contract with its buyers must have all these elements.PCI patterned its scheme from that of Golconda Ventures.Topic: Subtopic: Provision: Case Name: Securities Securities Securities Securities and Exchange Commission Regulations Code. Kinds of Securities and Regulations Code. say.

who supposedly induced private complainants Luisa Mercedes P. Because the head of PIPC Corporation had gone missing and with it the monies and investment of a significant number of investors. Specifically alluding to Santos as Investment Consultant of PIPC Corporation. yet another investment scam was exposed with the disappearance of its primary perpetrator. employees.4 265 and 286 of the Securities Regulation Code before the Department of Justice which was docketed as I. agents and all those acting on PIPC Corporation’s behalf. the SEC was flooded with complaints from thirty-one (31) individuals against PIPC Corporation. In sum. the DOJ. PIPC-BVI incorporated herein as Philippine International Planning Center Corporation (PIPC Corporation). in particular complainants Sy and Lorenzo. PD-902-A and Exchange Commission v Santos FACTS: Sometime in 2007. Santos was charged in the complaints in her capacity as investment consultant of PIPC Corporation. Chairman and President. filed a complaint-affidavit for violation of Sections 8. Lorenzo (Lorenzo) and Ricky Albino P.S. in I. Director. apart from being PIPC Corporation’s employee. Kinds of Securities and Regulations Code. Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC Corporation who actively engaged in the solicitation and recruitment of investors.K. Ma. on behalf of PIPC Corporation and/or PIPC-BVI (which were found to be an issuer13 of securities without the necessary registration from the SEC) without Santos being registered as a broker. the DOJ panel issued a Resolution dated 2 September 2008 modifying its previous ruling and excluding respondent Victor Jose Vergel de Dios from prosecution for violation of Section 28 of the Securities Regulation Code. (3) PIPC Corporation being a separate entity from PIPC-BVI of which Santos has never been a part of in any capacity. including herein respondent Santos. a self. indicting: (a) Liew and Gonzalez-Tuason for violation of Sections 8 and 26 of the Securities Regulation Code. Santos’ defense consisted in: (1) denying participation in the conspiracy and fraud perpetrated against the investor-complainants of PIPC Corporation. (5) Santos having dealt only with Sy and the latter. the DOJ panel based its finding of probable cause on the collective acts of the majority of the respondents therein. On 18 April 2008. the two having. and (b) herein respondent Santos. deposited money directly into PIPC-BVI’s account. In the 18 April 2008 Resolution. 2007-1054. (4) her not having received any money from Sy and Lorenzo. specifically Sy and Lorenzo. On the whole. PIPC Corporation. Liew (Liew). No. 2007-1054. agents and brokers for alleged violation of certain provisions of the Securities Regulation Code. employees. directly invested their money in PIPC-BVI. which consisted in their acting as employees-agent and/or investor-agents of PIPC Corporation and/or PIPC-BVI. acted as PIPC Corporation’s agent and made representations regarding its investment products and that of the supposed global corporation PIPC-BVI. officers. Sy (Sy). issued a Resolution signed by a panel of three (3) prosecutors. Facilitating Lorenzo’s and Sy’s investment with PIPC Corporation.Topic: Subtopic: Provision: Case Name: Securities Securities Securities Securities and Exchange Commission Regulations Code.styled financial guru and Chairman of the Board of Directors of Performance Investment Products Corporation (PIPC-BVI). in fact. Director and General Manager. and herein respondent Santos. the DOJ found probable cause to indict her for violation of Section 28 of the Securities Regulation Code for engaging in the business of selling or offering for sale securities. the DOJ discussed at length the liability of PIPC Corporation and its officers. along with Cristina Gonzalez-Tuason and 12 others for violation of Section 28 of the Securities Regulation Code. thus the only corporation liable to Sy and Lorenzo and the other complainants. Respondent Santos filed a petition for review before the Office of the Secretary of the DOJ assailing the Resolutions dated 18 April 2008 and 2 September 2008 and claiming that she was a mere clerical employee/information provider who never solicited nor recruited investors. dealer. PIPC-BVI as the other party in the investment contracts signed by Sy and Lorenzo. the SEC. No. and ultimately approved by Chief State Prosecutor Jovencito R. 202 3B-Corporation Law . a foreign corporation registered in the British Virgin Islands. in actuality. Cristina Gonzalez-Tuason. Zuño. On separate motions for reconsideration of the respondents therein. an affiliate of PIPC-BVI. Private complainants maintain that Santos. Santos represented to the two that investing with PIPC Corporation. The same Resolution likewise dismissed the complaint against 8 of the respondents therein for insufficiency of evidence. Cristina Bautista-Jurado. would be safe and full-proof. Among the respondents in the complaint-affidavit were the principal officers of PIPC: Liew.S. (2) claiming that she was initially and merely an employee of. and (6) on the whole. through its Compliance and Endorsement Division. including herein respondent Santos. salesman or an associated person. including Section 28 thereof. its directors. To do business in the Philippines. and subsequently an independent information provider for. Soon thereafter. Michael H. with recommendation for approval of the Assistant Chief State Prosecutor. to invest their monies in PIPC Corporation.

Generally. we pass upon the elements for violation of Section 28 of the Securities Regulation Code: (a) engaging in the business of buying or selling securities in the Philippines as a broker or dealer. The conclusions made by the Secretary of the DOJ and the appellate court are a myopic view of the investment solicitations made by Santos on behalf of PIPC Corporation and/or PIPC-BVI while she was not licensed as a broker or dealer.for PIPC Corporation or PIPC. as previously adverted to. or had enticed Luisa Mercedes P. and (2) engaged in the business of buying and selling securities. In excluding Santos from the prosecution of the supposed violation of Section 28 of the Securities Regulation Code. a corporation which sold or offered for sale unregistered securities in the Philippines. the Secretary of the DOJ and the appellate court ruled that no evidence was adduced showing Santos’ actual participation in the final sale by PIPC Corporation and/or PIPC-BVI of unregistered securities since the very affidavits of complainants Lorenzo and Sy proved that Santos had never signed. To determine whether the DOJ Secretary’s Resolution was tainted with grave abuse of discretion. it cannot be exercised arbitrarily or capriciously. brought about the sale of securities made by PIPC Corporation and/or PIPC-BVI to certain individuals. The determination of probable cause is an executive function where the prosecutor determines merely that a crime has been committed and that the accused has committed the same. that PIPC Corporation and/or PIPC-BVI was: (1) an issuer of securities without the necessary registration or license from the SEC. the investigating prosecutor. To get to that conclusion. the Secretary of the DOJ. Where the findings of the investigating prosecutor or the Secretary of the DOJ as to the existence of probable cause are equivalent to a gross misapprehension of facts. ISSUE: Whether or not respondent Santos acted as agent of PIPC Corp. as affirmed by the appellate court. Tying it all in. However. there is no quarrel that Santos was in the employ of PIPC Corporation and/or PIPC-BVI. The SEC filed its Comment opposing Santos’ petition for review. the Office of the Secretary of the DOJ. Santos also claimed dearth of evidence indicating she was a salesman/agent or an associated person of a broker or dealer. neither was she mentioned in. as defined under the Securities Regulation Code. the authority of the prosecutor and the DOJ is not absolute. issued a Resolution dated 1 October 2009 which. adhered to some exceptions to the general rule. at the preliminary investigation proper. or registered as a salesman.BVI. is afforded wide latitude of discretion in the exercise of its power to determine probable cause to warrant criminal prosecution. on one hand. any of the investment documents between Lorenzo and Sy. debunked the DOJ panel’s finding that Santos was prima facie liable for either: (1) selling securities in the Philippines as a broker or dealer. To escape probable culpability. 203 3B-Corporation Law . or PIPC-BVI’s investment products. or (b) acting as a salesman. certiorari will lie to correct these errors. unless registered as such with the SEC. on the other hand.BVI with the end in view of PIPC Corporation closing a sale. and ultimately. Santos procured the sale of these unregistered securities to the two (2) complainants by providing information on the investment products being offered for sale by PIPC Corporation and/or PIPC-BVI and convincing them to invest therein. Thereafter. or (2) acting as a salesman. HELD: NO. We sustain the DOJ panel’s findings which were not overruled by the Secretary of the DOJ and the appellate court. on more than one occasion. Blancaflor. or an associated person of any broker or dealer on behalf of PIPC Corporation and/or PIPC-BVI without being registered as such with the SEC. Lorenzo or Ricky Albino P. through its then Undersecretary Ricardo R. Sy to buy PIPC Corp. Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPC-BVI and was never an agent or salesman who actually solicited the sale of or sold unregistered securities issued by PIPC Corporation and/or PIPC-BVI.18 While it is our policy not to interfere in the conduct of preliminary investigations. and PIPC Corporation and/or PIPC-BVI.17 The rules do not require that a prosecutor has moral certainty of the guilt of a person simply for preliminary investigation purposes. While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments. the Secretary of the DOJ. specifically private complainants Sy and Lorenzo by providing information on the investment products of PIPC Corporation and/or PIPC. or (c) acting as an associated person of any broker or dealer. we have.20 Santos. Solicitation is the act of seeking or asking for business or information. This appeal by certiorari raising the sole error of Santos’ exclusion from the Information for violation of Section 28 of the Securities Regulation Code. excluded respondent Santos from prosecution for violation of Section 28 of the Securities Regulation Code. it is not a commitment to an agreement. or an associated person of a broker or dealer. by the very nature of her function as what she now unaffectedly calls an information provider.

Santos only claims that the monies invested by Sy and Lorenzo did not pass through her hands. we clarify that we are only dealing herein with the preliminary investigation aspect of this case. The DOJ’s and Court of Appeals’ reasoning that Santos did not sign the investment contracts of Sy and Lorenzo is specious. undeniably. was prima facie established. Sy alleged in his affidavit. which allegation was not refuted by Santos. as the facts alleged in this case constitute fraud perpetrated on the public. In fact. Sy and Lorenzo. Such presentation would have foreclosed all questions on her status within PIPC Corporation and/or PIPC-BVI at the lowest rung of the ladder who only provided information and who did not use her discretion in any capacity. respectively. essentially depending upon their representations and their honesty and skill in managing it. to PIPC Corporation and/or PIPC-BVI. What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC Corporation’s and/or PIPC-BVI’s principal officers before making their investment or renewing their prior investment. the exculpation of Santos cannot be preliminarily established simply by asserting that she did not sign the investment contracts. The contracts merely document the act performed by Santos. Santos’ participation thereon. At each point of Sy’s and Lorenzo’s investment. is an investment contract or participation in a profit sharing agreement that falls within the definition of the law. 204 3B-Corporation Law .No matter Santos’ strenuous objections. acting as an ostensible agent of the latter on the viability of PIPC Corporation as an investment company. At bottom. Santos' defense of being a mere employee or simply an information provider is best raised and threshed out during trial of the case. that he was introduced to Santos while he performed routine transactions at his bank. We do not adjudge respondents’ guilt or the lack thereof. even if not shown strictly on paper. Individual complainants and the SEC have categorically alleged that Liew and PIPC Corporation and/or PIPC-BVI is not a legitimate investment company but a company which perpetrated a scam on 31 individuals where the president. When the investor is relatively uninformed and turns over his money to others. Santos actively recruited and referred possible investors to PIPC Corporation and/or PIPC-BVI and acted as the go-between on behalf of PIPC Corporation and/or PIPC-BVI. ran away with their money. Liew’s absconding with the monies of 31 individuals and that PIPC Corporation and/or PIPC-BVI were not licensed by the SEC to sell securities are uncontroverted facts. The transaction initiated by Santos with Sy and Lorenzo. likewise. indicative of a scheme to circumvent and evade liability should the pyramid fall apart. In all of the documents presented by Santos. The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. Lastly. Santos did not present in evidence her salaries as a supposed “mere clerical employee or information provider” of PIPC-BVI. it is apparent that she connected the probable investors. she never alleged or pointed out that she did not receive extra consideration for her simply providing information to Sy and Lorenzo about PIPC Corporation and/or PIPC-BVI. We cannot overemphasize that the very information provided by Santos locked the deal on unregistered securities with Sy and Lorenzo. Especially so because the absence of Santos’ signature in the contract is. the transaction generally is considered to be an investment contract. Liew. a foreign national. However. In short.

The lower courts said that petitioner had violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules). not just a right. This obligation he failed to settle despite its demands. Subsequent to an unpaid order.[4] It should be clear that Congress had imposed the margin requirements to 205 3B-Corporation Law . these margin requirements were applicable only to transactions entered into by the parties subsequent to the initial trades of April 10 and 11. without recourse against each other. ISSUES: Two issues were raised by the parties: (1) whether the pari delicto rule was applicable to the present case. respondent opened a cash account with petitioner for his transactions in securities and. PD-902-A Abacus Securities Corp v Ampil Petitioner corporation was engaged in business as a broker and dealer of securities of listed companies at the Philippine Stock Exchange Center. remained outstanding.”[1] clearly vested an obligation.[3] Elucidating further. Short Swing Transactions. as the initial transactions had been entered into pursuant to the instructions of respondent. in petitioner. Neither did it require him to deposit cash payments before it executed buy and/or sell orders subsequent to the first unsettled transaction. or the fourth day following the stock purchases. hence. Respondent Liable for the First Respondent Liable for the First But Not for the Subsequent Trade But Not for the Subsequent Trade Nonetheless.617. the broker should require its customer to deposit funds in the account sufficient to cover each purchase. 1997.the broker was duty-bound to advance the payment to the settlement banks.22 as of April 30. 1997. 1997. on April 10. and Manipulation of Security Prices and other Fraudulent acts Securities and Regulations Code. at T+4 -. Its right to collect was justified under the general law on obligations and contracts. The trial court noted that despite his nonpayment within the required period. and 2) to request from the appropriate authority an extension of time for the payment of his cash purchases. On April 8. Respondent failed to settle his account upon the lapse of the required period and the extension given by petitioner. The trial court and the Court of Appeals (CA) both held that the parties were in pari delicto and. petitioner could still collect from respondent to the extent of the difference between his outstanding obligation as of April 11. and (2) whether the trial court had jurisdiction over the case. and the obligations he incurred in regard to his stock purchases on those dates subsisted. Those transactions were valid. 1997. without prejudice to its right to collect from the client later on. 1997.313. As a result of his trading activities. since the buyer was not able to pay for the transactions that had taken place on April 10 and 11 -that is. there was yet no violation of the RSA. to offset his unsettled obligations.036. prior to the execution of the transaction. 1997. After the sale of his securities and the application of the proceeds against his account. by applying the proceeds as payment for his outstanding obligation. which forbade the broker from extending undue credit to a “cash” customer. if payment was not received within three days from the date of purchase. his remaining accountabilities to petitioner totalled P3. Thus. and 2) to complete its liquidation no later than ten days after. HELD: First Issue: Pari Delicto Pari Delicto Sections 23 and 25 and Rule 25-1. That obligation was to cancel or otherwise liquidate a customer’s order. started trading on that account.Topic: Subtopic: Provision: Case Name: FACTS: Securities and Exchange Commission Insider Trading. The violation was committed when it failed 1) to require respondent to pay for his stock purchases within three (T+3) or four days (T+4) from trading. otherwise known as the “mandatory close-out rule. At the time. prompting it to sell his securities on May 6. Petitioner committed a fault only when it failed 1) to liquidate the transactions on April 14 and 15. His obligation for stock transactions made and entered into on April 10 and 11. petitioner did not cancel his purchases. 1997.[2] Petitioner could not be denied the right to collect. less the proceeds from the mandatory sellout of the shares pursuant to the RSA Rules.56. he accumulated an outstanding obligation in favor of the corporation in the principal sum of P6.364. These duties were imposed upon the broker to ensure faithful compliance with the margin requirements of the law.

By failing to ensure his payment of his first purchase transactions within the period prescribed by law.[5] Not to require respondent to pay for his April 10 and 11 trades would put a premium on his circumvention of the laws and would enable him to enrich himself unjustly at the expense of petitioner. An ordinary civil case seeking to enforce rights arising from the Agreement (AOF) between the parties. to determine whether they had fulfilled their obligations under this Agreement. It was respondent’s privilege to gamble or speculate.” insofar as it intended to collect on transactions subsequent to the initial trades of April 10 and 11. with respect to his counterclaim for damages for having been allegedly induced by petitioner to generate additional purchases despite his outstanding obligations. Obviously. It is not right for a party who has affirmed and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief.[6] His conduct as an investor was precisely the sort deplored by the law. the Court passed upon their compliance with the RSA and its Rules. to afterwards deny that same jurisdiction to escape a penalty. “Indeed. the suit was intended to enable petitioner to collect on the alleged outstanding debt incurred by respondent for his stock purchases. however. he knowingly speculated on the market by taking advantage of the “nocash-out” arrangement extended to him by petitioner.protect the general economy. Thus. after voluntarily submitting a cause and encountering an adverse decision on the merits. Thus. not to give the customer a free ride at the expense of the broker. petitioner was remiss in its duty and could not be said to have come to court with “clean hands. repudiate or question that same jurisdiction. The extension or maintenance of credits on nonmargin transactions. was to be determined on the basis of the closing prices -. Respondent’s outstanding obligation. The Court was not prepared to accept his self-serving assertions of being an “innocent victim” in all the transactions. in the hope that the prices would rise. the pari delicto rule applied only to transactions entered into after those initial trades. Thus. it is settled that a party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and after obtaining or failing to obtain such relief. Thus. 1997. as provided under Sections 45 and 46 of the Act. as he apparently did by asking for extensions of time and refraining from giving orders to his broker to sell. In this case. as follows: “As to the issue of jurisdiction.at T+14 -. the Court held that he deserved no legal or equitable relief. Second Issue: Jurisdiction Jurisdiction The instant controversy related to acts committed by the parties in the course of their business relationship.of the stocks purchased. 1997. were specifically prohibited under Section 23(b). therefore. it is too late for petitioner to question the jurisdictional power of the court. In no way did it thereby deprive the Securities and Exchange Commission (SEC) of the authority to determine willful violations of the RSA and impose appropriate sanctions.” 206 3B-Corporation Law . petitioner effectively converted his cash account into a credit account. the Court upheld the SEC in its Opinion. respondent was found to be equally guilty of entering into transactions in violation of the RSA and RSA Rules. Respondent Equally Guilty Respondent Equally Guilty for Subsequent Trades for Subsequent Trades On the other hand. Sustaining his argument would have amounted to relieving him of the risks of his own speculation and saddling petitioner with the consequences after the result turned out to be unfavorable. In the final analysis. thereby allowing him to make subsequent purchases. the RSA and its Rules were to be read into the Agreement that the parties had entered into. both parties had acted in violation of the law and did not come to court with clean hands as regards the transactions subsequent to the initial one made on April 10 and 11. To be sure. Pursuant to RSA Rule 25-1. petitioner should have liquidated the transactions (sold the stocks) on the fourth day after (at T+4) and completed its liquidation not later than ten days following the last day for the customer to pay (effectively at T+14).

Under said memorandum of agreement. Where the statute contains sufficient standards and an unmistakable intent (as in this case. however. It is alleged herein that a press release announcing the approval of the agreement was sent to the Philippine Stock Exchange through facsimile and the SEC. The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct and that the intent of the law is the protection of investors against fraud committed when an insider. there may be valid corporate reasons for the nondisclosure of material information but it should not be used for non-corporate purposes. takes advantage of an uninformed investor. and Manipulation of Security Prices and other Fraudulent acts Securities and Regulations Code. 2. The provisions of the RSA are sufficiently clear and complete by themselves. Held: The Revised Securities Act does not require the enactment of implementing rules to make it binding and effective.) which would own and operate a 102 megawatt gas turbine power generating barge. Respondent contends that the terms "material fact". questioned the authority of the SEC to investigate on said matter since according to PD 902-A.) Whether or not the SEC has authority to file suit against respondents for violations of the RSA. the SEC received reports that the IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors. directly or indirectly to information intended to be available only for a corporate purpose and not for the personal benefit of anyone and 2) the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. They also contended that their right to due process was violated when the SEC required them to appear before the SEC to show cause why sanctions should not be imposed upon them since such requirement shifted the burden of proof to respondents. For this reason. heavily traded IRC shares utilizing this material insider information. Respondents. Insiders are obligatd to disclose material information to the other party or abstain from trading the shares of his corporation. IRC will issue to GHB 55% of the expanded capital stock of IRC.) Whether or not their right to due process was violated when the SEC denied the parties of their right to cross examination. the SEC required the directors to appear before the SEC to explain the alleged failure to disclose material information as required by the Rules on Disclosure of Material Facts. "nature and reliability" and "generally available" are vaguely used in the RSA because under the provision of the said law what is required to be disclosed is a fact of special significance. "reasonable person". Unsatisfied with the explanation. However. IRC acquired 100% of the entire capital stock of GEHI (Ganda Energy Holdings Inc. meaning: 207 3B-Corporation Law .Topic: Subtopic: Provision: Case Name: Securities and Exchange Commission Insider Trading. To tule that absence of implementing rules can render ineffective an act of Congress would empower administrative bodies to defeat the legislative will by delaying the implementing rules. the SEC found that the directors of IRC entered into transactions involving IRC shares in violation of the Revised Securities Act. jurisdiction upon the matter was conferred upon the PED (Prosecution and Enforcement Department) of the SEC – however. This obligation to disclose is imposed upon "insiders" which are particularly officers. Issue: 1. the RSA) there should be no impediment as to its implementation. PD-902-A SEC v Interport Resources Corp FACTS: The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda Holdings Berhad). This duty to disclose or abstain is based n 2 factors: 1) the existence of a relationship giving access. the SEC issued an order finding that the IRC violated the Rules in connection with the then Old Securities Act when it failed to make timely disclosures of its negotiations with GHB. On the side. In exchange. but the facsimile machine of the SEC could not receive it. directors or controlling stockholders but that definition has already been expanded and not includes those persons whose relationship of former relationship to the issuer or the security that is not generally available and the one who learns such a fact from an insider knowing that the person from whom he learns such fact is an insider. this issue is already moot since pending the disposition of the case. The court does not discern any vagueness or ambiguity in the RSA such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence. however. Short Swing Transactions. The requirements are specifically set out and the acts which are enjoined are determinable. using secret information. In some case. the Securities Regulation Code was passed thereby effectively repealing PD 902-A and abolishing the PED. In addition. IRC would acquire 67% of the entire capital of PRCI (Philippine Racing Club).

According to the doctrine of primary jurisdiction. Investigations by the SEC is a requisite before a criminal case may be referred to the DOJ since the SEC is an administrative agency with the special competence to do so. The standards of which cannot remain at a standstill. the repeal cannot deprive the SEC of its jurisdiction to continue investigating the case. "reasonable person" has already been used many times in jurisprudence and in law since it is a standard on which most of legal doctrines stand (even the doctrine on negligence uses such standard) and it has been held to mean " a man who relies on the calculus of common sense of which all reasonable men have in abundance" As to "nature and reliability" the proper adjudicative body would be able to determine if facts of a certain nature and reliability can influence a reasonable person's decision to retain. a material fact which would be likely to affect the market price of a security or. the PED need not comply with the provisions of the Administrative Code on adjudication. However. As to "generally available".1. reenacted in the Securities Regulations Code despite the abolition of the PED. the SEC already commenced investigating the respondents for violations of the RSA but during the pendency of the case the Securities and Regulations Code was passed thereby repealing the RSA. 2. But the court dismissed said contention and stated that material fact is already defined and explained as one which induces or tends to induce or otherwise affect the sale or purchase of securities. It does not have an adjudicatory powers. the law creating the PED empowers it to investigate violations of the rules and regulations and to file and prosecute such cases. A formal hearing is not mandatory and it is within the discretion of the hearing officer to determine whether or not there is a need for a formal hearing. Moreover. The SEC retained jurisdiction to investigate violations of the RSA. On the other hand. 208 3B-Corporation Law . buy or sell securities and thereafter explain and justify its factual findings in its decision since the same must be viewed in connection with the particular circumstances of a case. In this case. Thus. the court held also that such is a matter which may be adjudged given the particular circumstances of the case. one which a reasonable person would consider especially important in determining his course of action with regard to the shares of stock. The hearing officer may require the parties to submit their respective verified position papers together will all supporting documents and affidavits of witnesses. the courts will not determine a controversy involving a question within the jurisdiction of an administrative tribunal where the question demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact. There is no violation of due process in this case since the proceedings before the PED are summary in nature.

utilization and processing of all mineral resources. During the pendency of the suit.7 gives the government a 60 percent share in the net mining revenues of WMCP from the commencement of commercial production. 7942. Under the latter provision. and Manipulation of Security Prices and other Fraudulent acts Provision: Securities and Regulations Code.sell 60 percent or more of its outstanding capital stock to a Filipino citizen or corporation. Effectively. a Philippine corporation. when they sold the shares to Sagittarius Mining. No.A. declare the RA 7942 and its IRR as unconstitutional and null and void. 1995.9 of the FTAA to WMCP is valid. and cancel the FTAA with Western Mining. otherwise known as the Implementing Rules and Regulations of R.A. Ramos approved R. 7942 defines the modes of mineral agreements for mining operations. development. 7. 1996. Section 7.A. as finally structured. 96-40.9 deprives the government of part or all of the said 60 percent. 7942 to "govern the exploration. the President may execute with the foreign proponent. consisting of the remaining 40 percent foreign equity therein. 7942. 7942 took effect. No. Thus.A. While Section 7.who originally owned 100 percent of the equity -. the State loses its right to receive its 60 percent share in net mining revenues under Section 7. SC en banc ruled in favor of petitioners. outlines the procedure for their filing and approval.) No. Furthermore. consider and evaluate proposals from foreign-owned corporations or foreign investors for contracts or agreements involving either technical or financial assistance for large-scale exploration. 1995. giving the DENR fifteen days from receipt to act thereon.  On August 15. the President entered into an FTAA with WMCP covering 99. It is possible that the inclusion of the offending provision was initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in WMCP to eventually reduce its equity position and ultimately divest in favor of Filipino citizens and corporations. 1995. counsels for petitioners sent a letter to the DENR Secretary demanding that the DENR stop the implementation of R.7 grants to the State is taken away in the next breath by Section 7. 1997. 30 days following its publication. 1995.9 has the deleterious effect of 209 3B-Corporation Law . Sultan Kudarat.Topic: Subtopic: Securities and Exchange Commission Insider Trading. 95-23. it appears that what is given to the State in Section 7. Short Swing Transactions. Ramos issued DENR Administrative Order (DAO) No. which. 96-40. as what happened in this case.O. Moreover. however.7 is by mere tolerance of WMCP's foreign stockholders. However. then President Corazon C.  Petitioners filed suit to permanently enjoin respondents from acting on any FTAA agreement. 1995. Shortly before the effectivity of R. should WMCP's foreign shareholders -. 1996 which was adopted on December 20. in reality. the WMCP shares were bought by Sagittarius Mining.7. 7942 and DAO No. Section 7.A. the State will lose its right to receive all 60 percent of the net mining revenues of WMCP. Issue: Whether or not Sec. Similar provisions govern financial or technical assistance agreements. Held: NO. the proceeds of such sale will of course accrue to the foreign stockholders of WMCP." R. development. Davao del Sur and North Cotabato. and foreign stockholders will own beneficially up to 64 percent of WMCP. This was later repealed by DAO No. No. They can do so by simply selling 60 percent of WMCP's outstanding capital stock to a Philippine citizen or corporation. assignment/transfer and withdrawal. s.  On March 3. what Section 7. upon appropriate recommendation of the Secretary. not to the State. and utilization of minerals. or on March 30. the State has no vested right to receive any income from the FTAA for the exploitation of its mineral resources.9 without any offsetting compensation to the State. The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned and 40 percent foreign-owned will still trigger the operation of Section 7.  Hence this MR. s. Evidently. No. then DENR Secretary Victor O.  On January 10. R. 1987. No.387 hectares of land in South Cotabato. 279 authorizing the DENR Secretary to accept. Aquino issued Executive Order (E. and fixes their terms.9. then President Fidel V. No. SHORT SWING TRANSACTIONS AND MANIPULATION OF SECURITY PRICES AND OTHER FRAUDULENT ACTS La Bugal-B’Laan Tribal Association vs DENR Secretary Ramos FACTS:  On July 25.A.  On April 9. plus the 24 percent pro-rata share in the buyercorporation. who can at any time cut off the government's entire 60 percent share. PD-902-A Case Name: La Bugal – B’Laan Tribal Corp v Ramos INSIDER TRADING.

In short. Such an outcome is completely unacceptable. detrimental to the interests of the Filipino people. 210 3B-Corporation Law . the local and foreign stockholders get a windfall. and violative of public policy. By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or corporations. the provision in question is without a doubt grossly disadvantageous to the government. without their having to pay the government anything for it. without any form of compensation whatsoever.depriving government of the entire 60 percent share in WMCP's net mining revenues. Their share in the net mining revenues of WMCP is automatically increased.

31% and ACC’s stocks in UCHC equivalent to 29.  In a disclosure letter dated 5 July 2004. o SEC ruled for National Life. A public company is defined as a corporation which is listed on an exchange. ISSUE: WON the Tender Offer Rule applies to the indirect acquisition of shares in a listed company. SEC answered in the negative.  National Life. Under existing SEC Rules. a nonlisted company.51%. Margin Trading. MARGIN TRADING & OTHER REGULATED ACTIVITIES (Sec.03%. and petitioner Cemco with 17. at least 200 of them holding not less than 100 shares of such company. HELD: YES.000.00 and with 200 or more stockholders. or a corporation with assets exceeding P50.000. a publicly-listed company. in UCC has increased by 36% and amounted to at least 53% of the shares of UCC. Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. o CA affirmed. mandatory tender offer applies. giving them the opportunity to sell their shares at the same price as those of the majority shareholders. 211 3B-Corporation Law .Topic: Securities and Exchange Commission Subtopic: Tender Offer.  National Life filed a complaint with the SEC to declare the purchase of Cemco of the ACC and BCI shares to be void. it was stated that as a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC. Stated differently. in this case. PSE inquired with the SEC on whether the Tender Offer Rule in Rule 19 of the IRR of Securities Regulation Code is applicable or not. has two principal stockholders – UCHC.  In the PSE Circular for Brokers. and Other Regulated Activities Provision: Securities and Regulations Code. owned 9% of UCHC stocks. Cemco denied. The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition. RA 8799) CEMCO Holdings vs National Life FACTS:  Union Cement Corporation (UCC). Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company.69%. a publicly-listed company. Majority of UCHC’s stocks were owned by BCI with 21.69%. with shares amounting to 60. through its purchase of the shares in UCHC. Whatever may be the method by which control of a public company is obtained. It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. either through the direct purchase of its stocks or through an indirect means. a nonlisted company . Cemco. a minority stockholder of UCC. It gives the minority shareholders the chance to exit the company under reasonable terms. on the other hand. BCI informed the PSE that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to 21. and ordered Cemco to make a tender offer to National Life. PD-902-A Case Name: CEMCO Holdings Inc v National Life TENDER OFFER. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule. direct and indirect. the indirect acquisition by Cemco of 36% of UCC. sent a letter to Cemco demanding the mandatory Tender Offer Rule." The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation.31% and ACC with 29. a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. the 15% and 30% threshold acquisition of shares under the Section 19 of RA 8799 was increased to thirty-five percent (35%). petitioner’s total beneficial ownership. 19.

their broker advances for them the balance of the purchase price and keeps the securities as collateral for the advance or loan. PD-902-A Case Name: Abacus Securities Corp v Ampil TENDER OFFER. ISSUE: 1) Whether the pari delicto rule is applicable in the present case. Neither did it require him to deposit cash payments before it executed buy and/or sell orders subsequent to the first unsettled transaction. increasing margins i. The trial court noted that despite his nonpayment within the required period.364.. on April 10. Hence. petitioner did not cancel his purchases.  On April 8.617. not just a right. he accumulated an outstanding obligation in favor of the corporation in the principal sum of P6. without recourse against each other. Brokers take these securities/stocks to their bank and borrow the “balance” on it. After the sale of his securities and the application of the proceeds against his account. Investors pay only a portion of the purchase price of the securities.e.” [1] clearly vested an obligation. The violation was committed when it failed 1) to require respondent to pay for his stock purchases within three (T+3) or four days (T+4) from trading. respondent opened a cash account with petitioner for his transactions in securities and. As a result of his trading activities. started trading on that account. the broker should require its customer to deposit funds in the account sufficient to cover each purchase. The lower courts said that petitioner had violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules). It will be noted that trading on credit (or “margin trading”) allows investors to buy more securities than their cash position would normally allow.  The trial court and the CA both held that the parties were in pari delicto and. hence. and 2) to request from the appropriate authority an extension of time for the payment of his cash purchases. That obligation was to cancel or otherwise liquidate a customer’s order. prior to the execution of the transaction. Margin Trading. and Other Regulated Activities Provision: Securities and Regulations Code. MARGIN TRADING & OTHER REGULATED ACTIVITIES (Section 23 & 25.56. These duties were imposed upon the broker to ensure faithful compliance with the margin requirements of the law.313. RA 8799) Abacus Securities vs Ampil FACTS:  Petitioner corporation was engaged in business as a broker and dealer of securities of listed companies at the Philippine Stock Exchange Center. which forbade the broker from extending undue credit to a “cash” customer.036. Subsequent to an unpaid order. decreasing the amounts which brokers may lend for the speculative purchase and carrying of stocks is the most direct and effective method of discouraging an abnormal attraction of funds into the stock market and achieving a more balanced use of such resources. 1997. 212 3B-Corporation Law . and 2) Whether the trial court had jurisdiction over Abacus alleged violation of the Revised Securities Act. to offset his unsettled obligations.Topic: Securities and Exchange Commission Subtopic: Tender Offer. prompting it to sell his securities on May 6. 1997.22 as of April 30. his remaining accountabilities to petitioner totalled P3. This obligation he failed to settle despite its demands. since they have to pay in full for the traded stock. otherwise known as the “mandatory close-out rule. Sections 23 and 25 and Rule 25-1. 1997. HELD: YES.  Respondent failed to settle his account upon the lapse of the required period and the extension given by petitioner. in petitioner. if payment was not received within three days from the date of purchase.