Corporation Law Case Digest 1st Sem 2016-2017

LYCEUM OF THE PHILIPPINES UNIVERSITY
COLLEGE OF LAW
ACADEMIC YEAR 1st SEMESTER 2016-2017
COMPILATION OF CASE DIGEST IN CORPORATION LAW
---------------------------------------
Submitted by:
Section 3B
Ablang, Karpov; Balt, Saddam Hussein; Bantao, Mohammad Ali; Bernabe, Jayson; Cruz, Paolo,
Del Rosario, Michel Andre, Dionisio, Karl Anthony; Dulay, Alex; Estayo, Lalaine; Federico, Honey
Fame; Fernandez, Napolyn; Maandal, John Paul; Pagsibigan, Antonio; Petrache, Ria Kriselle;
Ramos, Forrah Mae; Razalan, Mnemosyne Realyn; Tuazon, Tweety; Valera, Lendy; Villadolid,
Carla Angela; Villegas, Maria Leonila; Virtucio, Anna Carmela
Submitted to :
ATTY. TIMOTEO B. AQUINO.
TABLE OF CONTENTS
Case no. 1 G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary
administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-appellant.
Case no. 2 G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners, vs. IMPERIAL
INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON. AGUSTIN MONTESA, Judge of
the Court of First Instance of Manila, respondents.
Case no. 3 G.R. No. 184517 October 8, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR, JR.,
Petitioners, vs. PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR., ELICERIO
GASPAR, , RICARDO GASPAR JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEON ESPIRITU, JR.,
and LIBERATO MANGOBA, Respondents.
x-----------------------x
G.R. No. 186641 SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO
VILLAFLOR, JR., Petitioners, vs. ELICERIO GASPAR, RICARDO GASPAR, JR., EUFEMIA
ROSETE, FIDEL ESPIRITU, SIMEON ESPIRITU, JR., and LIBERATO MANGOBA, Respondents.
Case no. 4 G.R. No. 171805 May 30, 2011 PHILIPPINE NATIONAL BANK,
Petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased),
represented by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD
(deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by his heirs,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021 MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners, vs. PHILIPPINE
NATIONAL BANK, Respondent.
Case no. 6 G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner vs PRINTWELL, INC., Respondent.
Case no. 7 G.R. No. 108734, May 29, 1996,

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First
Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos,
Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana,
Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
Case no. 9 G.R. No. 170782, June 22, 2009, SIAIN ENTERPRISE INC
PETITIONERS VS. CUPERTINO REALTY CORP AND EDWIN R. CATACUTAN, RESPONDENT.
Case No. 10 G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner, vs. HON. AMOR REYES, in her capacity as
Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing
business under the name and style "RM Morales Trophies and Plaques," Respondents.
Case no. 12 G.R. No. 166282 February 13, 2013

HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners, vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
Case no. 13 G.R. No. 174938 October 1,2014 GERARDO LANUZA, JR AND ANTONIO O. OLBES,
PETITIONERS VS. BF CORPORATION, SHANGRI-LA PROPERTIES INC, ALFREDO C. RAMOS,
RUFO B. COLAYCO,MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS RESPONDENTS
Case no 15 G.R. No 174938 October 1,2014 GERARDO LANUZA,JR AND ANTONIO O. OLBES,
PETITIONERS VS. BF CORPORATION, SHANGRI-LA PROPERTIES INC, ALFREDO C.RAMOS,
1
RUFO B. COLAYCO . COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS RESPONDEN
TS
Case no. 16 G.R. No. 174077 November 21, 2012 ELLICE

AGRO-INDUSTRIAL CORPORATION, represented by its Chairman of the Board of Directors and
President, RAUL E. GALA, Petitioner, vs.RODEL T. YOUNG, DELFIN CHAN, JIM WEE, and GUIA G.
DOMINGO, *** Respondents.
Case no. 17 G.R. No. L-18287 March 30, 1963 TRINIDAD J. FRANCISCO, plaintiff-
appellee, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
-----------------------------
G.R. No. L-18155 March 30, 1963 TRINIDAD J. FRANCISCO, plaintiff-appellant, vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
Case no. 18 G.R. No. L-2294, May 25, 1991

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,vs. CHRISTERN, HUENEFELD and CO.,
INC.,respondent.

HEIRS OF WILSON P. GAMBOA*, Petitioners,
Vs. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY
JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST
PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS, INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
(PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE
BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF
THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
Case no. 20 G.R. No. 195580 January 28, 2015

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC.,
and McARTHUR MINING, INC., Petitioners, vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
Case no. 21 G.R No. 126297 February 11, 2008, February 2, 2010
PROFESSIONAL SERVICES, INC., Petitioner, vs. THE COURT OF APPEALS and NATIVIDAD and
ENRIQUE AGANA, Respondents
Case No. 22. G.R. No. 171182 August 23, 2012

University of the Philippines, Jose V. Abueva, Raul P. De Guzman, Ruben P. Aspiras, Emmanuel P.
Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, Petitioners, vs HON. AGUSTIN S.
DIZON, in his capacity as Presiding Judge of the Regional Trial Court of Quezon City, Branch 80, STERN
BUILDERS, INC., and SERVILLANO DELA CRUZ, Respondents
2
ABS-CBN BROADCASTING CORP., Petitioners VS. HONORABLE COURT OF APPEALS, REPUBLIC
BROADCASTING CORP., VIVA PRODUCTIONS, INC. and VICENTE DEL ROSARIO, Respondents.
Case No. 24. G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, Vs. PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Case no. 25 G.R. No. L-32409. February 27, 1971

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO
M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO,
RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE,
JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Case no. 26 G.R. No. L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners, vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity
as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON,
EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE
AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila;
JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE
DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.
Case No. 27 G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner, v. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN
BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52;
RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.
Case no. 28 G.R. No. 182147 December 15, 2010

ARNEL U. TY, ET AL.,Petitioners, vs. NBI SUPERVISING AGENT MARVIN E. DE JEMIL, ET AL.,
Respondents
Case no. 29 G.R. No. 177131 June 7, 2011

BOY SCOUTS OF THE PHILIPPINES, Petitioner, vs. COMMISSION ON AUDIT, Respondent.
Case no. 30 G.R. No. 191109 July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY
(PRA),Petitioner, vs. CITY OF PARANAQUE, Respondent.
Case no. 31 G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, Petitioner, vs THE CLUB FILIPINO, INC. DE CEBU,
Respondent
Case no. 32 G. R. No. 175352 January 18, 2011

DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, Petitioners,
vs.
RICHARD J. GORDON, Respondent.
3
PHILIPPINE NATIONAL RED CROSS, Intervenor
Case no. 33 G.R. No. 199440, January 18, 2016, MARY LOU GETURBOS TORRES,
Petitioner, v. CORAZON ALMA G. DE LEON, IN HER CAPACITY AS SECRETARY GENERAL OF THE
PHILIPPINE NATIONAL RED CROSS AND THE BOARD OF GOVERNORS OF THE PHILIPPINE
NATIONAL RED CROSS, NATIONAL HEADQUARTERS, Respondents.
Case no. 34 G.R. No. 51765. March 3, 1997

REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as Presiding Judge,
Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY &
DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents.
Case no. 35 G.R. No. 131394. March 28, 2005

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT
OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA
NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT
MARINE SCHOOL, INC., respondents.
Case no. 36 G.R. No. 156819. December 11, 2003

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-
INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL
E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S.
MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N.
BATICULON, respondents.

MARSMAN & COMPANY, INC., petitioner, vs. FIRST COCONUT CENTRAL COMPANY, INC.,
respondent.
Case no. 38 G.R. No. 175278 September 23,2015 GSIS FAMILY BANK-THRIFT BANK,
PETITIONER, V. BPI FAMILY BANK, RESPONDENTS
Case no. 39 G.R. No. 211145, October 14, 2015

SAMAHAN NG MANGGAGAWA SA HANJIN SHIPYARD REP. BY ITS PRESIDENT, ALFIE
ALIPIO,Petitioner, v. BUREAU OF LABOR RELATIONS, HANJIN HEAVY INDUSTRIES AND
CONSTRUCTION CO., LTD. (HHIC-PHIL.), Respondents.
Case no. 40 G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., vs. TEODORO SANDIKO
Case no. 41 G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,
Vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
4
C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs.EDMUNDO S. PICCIO, Judge of the Court of
First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as
receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents
Case no. 43 G.R. No. 136448. November 3, 1999

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., Petitioner, vs HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, Respondents
Case No. 45 G.R. No. 203993 April 20, 2015

PRISCILO B. PAZ, Petitioner, VS. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC.,
Respondent.
Case No. 46 G.R. No. 71837 July 26, 1988

CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG, and MANUEL
CHUNG TONG OH, petitioners, vs.
INTERMEDIATE APPELLATE COURT (2nd Special Cases Division), SECURITIES and EXCHANGE
COMMISSION EN BANC, HON. ANTONIO R. MANABAT, HON. JAMES K. ABUGAN, HON. ANTERO
F.L. VILLAFLOR, JR., HON. SIXTO T.J. DE GUZMAN, JR., ALFREDO CHING, CHING TAN, CHIONG
TIONG TAY, CHUNG KIAT HUA, CHENG LU KUN, EMILIO TAÑEDO, ROBERTO G. CENON and
PHILIPPINE BLOOMING MILLS COMPANY, INC., respondents.
Case no. 47 G.R. No. 121466 August 15, 1997

PMI COLLEGES, petitioner,
Vs. NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N,
respondents.
Case No. 48 G.R. No. L-26649 July 13, 1927

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-General), plaintiff, vs.
EL HOGAR FILIPINO, defendant.
Case No. 49 G.R. No. 141735 June 8, 2005

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL
SERVICE COMMISSION and AL-AMANAH INVESTMENT BANK OF THE PHILIPPINES, respondents
Case No. 50 G.R. No. 177783 January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-
MANALO AND FAUSTINO D. IGNACIO, Petitioners, v. HOME BANKERS SAVINGS AND TRUST
COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE,
all surnamed ZUNIGA, Respondent
Case no. 51 G.R. No. L-15092 May 18, 1962

ALFREDO MONTELIBANO, ET AL, plaintiffs-appellants, vs.
5
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
Case no. 52 G.R. No. 161886 March 16, 2007

FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and MINDANAO
TERMINAL AND BROKERAGE SERVICES, INC., Petitioners, vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD,
JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and
ELIEZER B. DE JESUS, Respondents.
Case no. 53 G.R. No. 174353 September 10, 2014

NESTOR CHING and ANDREW WELLINGTON, Petitioners, vs. SUBIC BAY GOLF AND
COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG CHIEH alias JACK HU, HU
TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ, Respondents
Case no. 54 .G.R. No. 151969 September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M.
SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III,
ERIC ROXAS, in their capacities as members of the Board of Directors of Valle Verde Country Club, Inc.,
and JOSE RAMIREZ, Petitioners,
Vs. VICTOR AFRICA, Respondent.
Case No. 54 G.R. No. 154291 November 12, 2014

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners, VS. SPOUSES REYNALDO
TANJANGCO and MARIA LUISA ARGUELLES-TANJANGCO
Case no. 55 G.R. No. 168008, August 17, 2011, PETRONILO J. BARAYUGA, Petitioner, -
versus- ADVENTIST UNIVERSITY OF THE PHILIPPINES, THROUGH ITS BOARD OF TRUSTEES,
REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON,
Respondents.

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN,
ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P.
LIZARES and GRACE CHRISTIAN HIGH SCHOOL,Petitioners,- versus -PAUL SYCIP and MERRITTO
LIM, Respondents.
Case no 57. G.R. No. 172885 October 9, 2009

MANUEL LUIS S. SANCHEZ, Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Represented by the
Department of Promulgated:
Education, Culture and Sports,Respondent.
Case no. 58. G.R. NO. 171993 December 12, 2011

MARC II MARKETING, INC. AND LUCILA JOSON, petitioners, V. ALFREDO M. JOSON, respondent.
Case No. 59 G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner, vs.BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.
Case no. 60 G.R. No. L-18805, August 14,1967, THE BOARD OF LIQUIDATORS, PETITIONERS, V.
HEIRS OF MAXIMO. M. KALAW, RESPONDENTS
6
Case no. 61 G.R. No.176897 December 11, 2013
ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of Advance Paper
Corporation, Petitioners, vs. ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and
BENJAMIN NG, Respondents. ANTONIO TAN and UY SENG KEE WILLY, Respondents.
Case no. 62 G.R. Nos. 163356-57, July 01, 2015

JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T.
FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAPACITY AS
INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF
DIRECTORS OF MAKATI SPORTS CLUB, Petitioners, v. JOVENCIO F. CINCO, VICENTE R. AYLLON,
RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L. TORRES,
ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L.
ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA,
MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y.
RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES,Respondents.
[G.R. NOS. 163368-69] JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners,
v. JOSE A. BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents.
Case no. 63 G. R. No. 173333 August 13, 2008 LUCIA MAGALING, PARALUMAN R.
MAGALING, MARCELINA MAGALING-TABLADA, and BENITO R. MAGALING (Heirs of the late
Reynaldo Magaling), petitioners, vs. PETER ONG, respondent

HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners, vs. INTERNATIONAL
EXCHANGE BANK, Respondent.
Case no. 65 G.R. No. 185664 April 08, 2015

ANGELES P. BALINGHASAY, RENATO M. BERNABE, ALODIA L. DEL ROSARIO, CATALINA T.
FUNTILA, TERESITA L. GAYANILO, RUSTICO A. JIMENEZ, ARCELI P. JO, ESMERALDA D. MEDINA,
CECILIA S. MONTALBAN, VIRGILIO R. OBLEPIAS, CARMENCITA R. PARREÑO, EMMA L. REYES,
REYNALDO L. SAVET, SERAPIO P. TACCAD, VICENTE I. VALDEZ, SALVACION F. VILLAMORA, AND
DIONISIA M. VILLAREAL, Petitioners, vs CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S.
FLORES, XERXES NAVARRO, MARIA ANTONIA A. TEMPLO AND MEDICAL CENTER PARAÑAQUE,
INC., Respondent.
Case no. 66 G.R. Nos. 163356-57 July 01, 2015

FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAPACITY AS
DIRECTORS OF MAKATI SPORTS CLUB, Petitioners, vs JOVENCIO F. CINCO, VICENTE R. AYLLON,
RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L. TORRES,
ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L.
ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA,
MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y.
RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES, Respondents
7
Case No. 67 G.R. No. 171579 November 14, 2012
LILY SY, Petitioner, VS. HON. SECRETARY OF JUSTICE MA. MERCEDITAS N. GUTIERREZ, BENITO
FERNANDEZ Go, BERTHOLD LIM, JENNIFER SY, GLENN BEN TIAK SY and MERRY SY,
Respondents.
Case No. 68 G.R No. 163825 July 13, 2010

VIOLETA TUDTUD BANATE, MARY MELGRID M CORTEL, BONIFACIO CORTEL RODENDO
MAASANG and PATROCINIA MONILAR, Petitioners, vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU) INC., and TEOFILO SOON JR.,
Respondents

AQUILES RIOSA, Petitioner, Vs. TABACO LA SUERTE CORPORATION, Respondent.
Case No. 70 G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners, vs. BF CORPORATION, SHANGRI-LA
PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS, Respondent
Case No. 71 G.R. No. 165887 June 6, 2011

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioners, v. MIGUEL LIM, in
his personal capacity as Stockholder of Ruby Industrial Corporation and representing the MINORITY
STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION and the MANAGEMENT COMMITTEE OF
RUBY INDUSTRIAL CORPORATION, Respondents
Case no. 72 G.R. No. 180974 June 13, 2012

METROPOLITAN BANK and TRUST COMPANY, Petitioner, vs.
CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL KEHYENG AND
QUIRINO KEHYENG, Respondents.
Case no. 73 G.R. No. 207161, September 08, 2015

Y-I LEISURE PHILIPPINES, INC., YATS INTERNATIONAL LTD. AND Y-I CLUBS AND RESORTS, INC.,
Petitioners, vs. JAMES YU, Respondent.

REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF INTERNAL REVENUE,
Petitioner, vs. SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
Case No. 75 G.R No. 211535 July 22, 2015

BANK OF COMMERCE, Petitioner vs. MARILYN P. NITE, Respondent.
Case No. 76 G.R. Nos. 163356-57 July 10, 2015

FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAP A CITY AS
DIRECTORS OF MAKATI SPORTS CLUB, Petitioners,
vs.
8
JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA,
ROLANDO P. DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T.
AGUILING, JOSE B. QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON,
CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, MANUEL R. SANTIAGO, BENJAMIN A.
CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR., ALEJANDRO Z. BARIN,
EFRENILO M. CAYANGA AND JOHN DOES, Respondents
Case no. 77 G.R. No. 154291, November 12, 2014, LOPEZ REALTY, INC. and ASUNCION
LOPEZ-GONZALES, Petitioners, vs.SPOUSES REYNALDO TANJANGCO and MARIA LUISA
ARGUELLES-TANJANGCO, Respondents.
Case no. 78 G.R. No. 154291 November 12, 2014

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners, vs.SPOUSES REYNALDO
TANJANGCO and MARIA LUISA ARGUELLES-TANJANGCO, Respondents.
Case no. 79 G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner, vs.PRINTWELL, INC., Respondent.

RYUICHI YAMAMOTO, petitioner, vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO,
respondents.

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG,
And JULIE ONG ALONZO, Petitioners, v. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE
YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT
CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, And the SECURITIES
AND EXCHANGE COMMISSION, Respondents.

Case no 83. G.R. No. 177066, September 11,2009, JOSELITO MUSNI PUNO (AS HEIR OF
THE LATE CARLOS PUNO), PETITIONER vs.PUNO ENTERPRISES,INC., REPRESENTED BY
JESUSA PUNO RESPONDENT

OSCAR C. REYES, Petitioner, - versus - HON. REGIONAL TRIAL COURT OF MAKATI, Branch
142, ZENITH INSURANCE CORPORATION, and RODRIGO C. REYES, Respondents.
Case no. 85 G.R. NO. 139802 December 10, 2002 VICENTE C. PONCE,
petitioner, vs. ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents.
9
Case no. 86. G.R. No. 178523 June 16, 2010 MAKATI SPORTS CLUB, INC.,
Petitioner, vs. CECILE H. CHENG, MC FOODS, INC., and RAMON SABARRE, Respondents.

FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT CORP., petitioners, vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, respondents

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

ANNA TENG, Petitioner, vs SECURITIES AND EXCHANGE COMMISSION (SEC) AND TING PING LAY,
Respondents
Case No. 90 G.R. Nos. 181455-56 & 182008 December 4, 2009

SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as Directors of
PHILIPPINE RACING CLUB INC., Petitioners, VS. MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY.
BRIGIDO DULAY, Respondents. x---------x
SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB, INC., Petitioner, VS.
COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY> BRIGIDO DULAY, and HON.
CESAR UNTALAN, Presiding Judge, Makati Regional Trial Court, Br. 149, Respondents.
Case No. 91 G.R No. 170783 June 18, 2012

LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO
and RAY VINCENT, Petitioners vs. AMELIA P MUER, SAMUEL M TANCHOCO, ROMEO TANKIANG
RUDEL PANGANIBAN, DOLORES AGBAYANI, ARLENEDAL A YASUMA, GODOFREDO M CAGUIOA
and EDGARDO M SAKANDANAN, Respondents

NESTOR CHING and ANDREW WELLINGTON, Petitioners,
Vs. SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU,
HU TSUNG CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ,
Respondents.

ALFREDO L. VILLAMOR, JR., Petitioner, vs. JOHN S. UMALE, in substitution of HERNANDO F.
BALMORES, Respondent.
Case No. 94 G.R. No. 181455-56 December 4, 2009

SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as Directors of
PHILIPPINE RACING CLUB, INC., Petitioners,
v. MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY, Respondents.

LORELEI LIM PO, Petitioner, vs. DEPARTMENT OF JUSTICE and JASPER TAN, Respondents.
Case no. 96 G.R. No. 180416 June 2, 2014
10
ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLA, Petitioners, vs. CEZAR T. QUIAMBAO and ERIC
C. PILAPIL, Respondents.
Case no. 97 G.R. No. 160924, August 05, 2015

TERELAY INVESTMENT AND DEVELOPMENT CORPORATION, PETITIONER, VS. CECILIA
TERESITA J. YULO, RESPONDENT.
Case no. 98 G.R. No. 157479 November 24, 2010

PHILIP TURNER and ELNORA TURNER, Petitioners,
-versus - LORENZO SHIPPING CORPORATION, Respondent.
Case no. 99 G.R. No. 164301 August 10, 2010 & October 19, 2011
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK,
Respondent.
Case no. 100 G.R. No. 178618, October 11, 2010, MINDANAO SAVINGS AND LOAN ASSOCIATION,
INC., represented by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION,
Petitioner,
Vs. EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the
Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan
de Oro City,Respondent.

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.CARLITO LEE, Respondent.

BANK OF COMMERCE, Petitioner, vs. RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL
BROADCASTING CORPORATION, and BANAHA W BROADCASTING CORPORATION, THRU BOARD
OF ADMINISTRATOR, and SHERIFF BIENVENIDO S. REYES, JR., Sheriff, Regional Trial Court of
Quezon City, Branch 98, Respondents.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PILIPINAS SHELL PETROLEUM
CORPORATION, Respondent.
Case no. 104 G.R. No. 175188, July 15, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LA TONDEÑA DISTILLERS, INC. (LTDI
[NOW GINEBRA SAN MIGUEL], Respondent.
Case no. 105 G.R. No. 160273 January 18,2008.

CEBU COUNTRY CLUB,INC, ET AL, PETITIONER vs.RICARDO F. ELIZAGAQUE, RESPONDENT
Case no. 106 G.R. No. 190112, April 22, 2015

PRIMO CO, SR., EDGARDO CRUZ, FE LANNY L. ALEGADO, JESTER B. ONGCHUAN, JOSEPH
ONGCHUAN AND LUCIANNE CHAM, Petitioners, v.
THE PHILIPPINE CANINE CLUB, INC.,Respondent.
11
Case no. 107 GR. NO. 191033 January 11, 2016
THE ORCHARD GOLF AND COUNTRY CLUB, Petitioner vs YU AND YUHICO, Respondents

PETRONILO J. BARAYUGA, Petitioner, v. ADVENTIST UNIVERSITY OF THE PHILIPPINES,
THROUGH ITS BOARD OF TRUSTEES, REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON,
Respondents.
Case no. 109 G.R. No. 184088 July 6, 2010
EN LAS ISLAS FILIPINAS (IEMELIF) IGLESIA EVANGELICA METODISTA (Corporation Sole), INC.,
REV. NESTOR PINEDA, REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR., DANILO SAUR,
RICHARD PONTI, ALFREDO MATABANG and all the other members of the IEMELIF
TONDO CONGREGATION of the IEMELIF CORPORATION SOLE, Petitioners,
- versus –
BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL MADUCDOC,
FERDINAND MERCADO, ARCADIO CABILDO, DOMINGO GONZALES, ARTURO
LAPUZ, ADORABLE MANGALINDAN, DANIEL VICTORIA and DAKILA CRUZ, and LAY LEADER
LINGKOD MADUCDOC and CESAR DOMINGO, acting individually and as members of
the Supreme Consistory of Elders and those claiming under the Promulgated: Corporation Aggregate,
Respondents.
Case no. 110 G.R. No. 171905, June 20, 2012

UNITED CHURCH OF CHRIST IN THE PHILIPPINES, INC., Petitioner, vs
BRADFORD UNITED CHURCH OF CHRIST, INC., PATRIZIO EZRA, GERONIMO V. NAZARETH,
RUPERTO MAYUGA, SR., ROBERT SCHAARE, HENRY CARIAT, REYNALDO FERRENAL AND JOHN
DOES, Respondents.
Case no. 111 G.R. No. 187456 June 2, 2014

ALABANG DEVELOPMENT CORPORATION, Petitioner, vs ALABANG HILLS VILLAGE ASSOCIATION
and RAFAEL TINIO, Respondents
Case No. 112 G.R. No. 170770 January 9, 2013

VITALIANO N. AGUIRRE II and FIDEL N. AGUIRRE, Petitioners, VS. FQB+7, INC., NATHANIEL D.
BOCOBO and ANTONIO DE VILLA, Respondents.
Case No. 113 G.R No. 200094 June 10, 2013

BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO CALLESA, LINDA C. CALLO, NILO B.
CAMARA, ADELIA T. CAMARA, ADOLFO G. PINON, JOHN A. FERNANDEZ, FEDERICO A. CALLO,
MAXIMA P. ARELLANO, JULITO B. COST ALES, SAMSON F. BACHAR, EDWIN P. DAMO, RENA TO
E. FERNANDEZ, GENARO F.CALLO, JIMMY C. ALETA, and EUGENIO SALINAS, Petitioners, Vs.
PHILIPPINE COLLEGE OF CRIMINOLOGY INC. and/or GREGORY ALAN F. BAUTISTA, Respondents.

TUNA PROCESSING, INC., Petitioner Vs PHILIPPINE KINGFORD, INC., Respondent
12
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, vs. CITIBANK, N.A. and BANK OF
AMERICA, S.T. & N.A., Respondents.
Case No. 116 G.R. No. 171995 April 18, 2012

STEELCASE, INC., Petitioner, v. DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.
Case no. 117 G.R No. 168266 March 15, 2010

CARGILL, INC., Petitioner, vs. INTRA STRATA ASSURANCE CORP., Respondent.

GLOBAL BUSINESS HOLDINGS, INC. (formerly Global Business Bank, Inc.), Petitioner, vs.
SURECOMP SOFTWARE, B.V., Respondent.
Case no. 119 G.R. No. 147905 May 28, 2007

B. VAN ZUIDEN BROS., LTD., Petitioner, vs. GTVL MANUFACTURING INDUSTRIES, INC.,
Respondent.

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner, vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG, TEOH KIANG SENG, ANTHONY
CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T. NACILLA,
respondents.
Case No 121 G.R. No. 195198 February 11, 2013

LORELI LIM PO, Petitioner, vs. DEPARTMENT OF JUSTICE and JASPER T. TAN, Respondents.
Case no. 122 G.R. No. 180416 June 2, 2014

ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLA, Petitioners,
Vs. CEZAR T. QUIAMBAO and ERIC C. PILAPIL, Respondents.

SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. THE HONORABLE COURT OF APPEALS,
OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents. G.R. NO.
189014 ASTRA SECURITIES CORPORATION, Petitioner, v. OMICO CORPORATION, EMILIO S. TENG
AND TOMMY KIN HING TIA,
Respondents.

POWER HOMES UNLIMITED CORPORATION, Petitioner, Vs SECURITIES AND EXCHANGE
COMMISSION AND NOEL MANERO, Respondents.
Case no. 125 G.R. No. 164197 January 25,2012

SECURITIES AND EXCHANGE COMMISSION, Petitioner, vs. PROSPERITY.COM, INC., Respondent.

SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent.
13
Case no. 127 G.R. No.160016 February 27 ,2006
ABACUS SECURITIES CORPORATION, PETITIONER vs. RUBEN U. AMPIL, RESPONDENT.
Case no. 128 GR No. 135808 October 6, 2008

Securities and Exchange Commission, Petitioner Vs Interport Resources Corporation, Manuel S. Recto,
Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago
Tanchan, Jr.
Case no. 129 GR. No. 127882 December 1, 2004

LA BUGAL-B’LAAN TRIBAL ASSOCIATION, INC., Petitioners vs RAMOS, Respondents

CEMCO HOLDINGS, INC., Petitioner, vs.NATIONAL LIFE INSURANCE COMPANY OF THE
PHILIPPINES, INC., Respondent.
Case no. 131 G.R.No. 160016 February 27,2006

ABACUS SECURITIES CORPORATION, petitioner vs. RUBEN U. AMPIL, respondent
Del Rosario, Michel Andre P. Corporation as an artificial being created by operation of law;
(Essentially Section 2 of the Corporation Code)
EN BANC
G.R. No. L-23145 November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary

administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
FERNANDO, J.
FACTS:
Idonah Slade Perkins died in New York on March 1960, the domestic administrator in New York
refused to give the Stock Certificates owned by Perkins in the Benguet Consolidated Inc. to the Ancillary
administrator in the Philippines for the purpose of satisfying the legitimate claims of local creditors. The
Court of First Instance of Manila decided that the Stock Certificates was considered lost because of the
refusal of the domestic administrator in New York to give and turn over such certificates to the ancillary
administrator here in the Philippines, thus ordering Benguet Consolidated, Inc. to issue NEW Stock
14
Certificates in favor of the ancillary administrator. Benguet refuses to obey the order of the CFI of Manila
on the ground that it is in violation of the it’s by-laws.
ISSUE:
WON Benguet Consolidated, Inc. can be compelled by a lawful order of a competent court of this
jurisdiction.
HELD:
YES.
RATIO:
“” What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of
law...." It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated:
"Classically, a corporation was conceived as an artificial person, owing its existence through creation by a
sovereign power." As a matter of fact, the statutory language employed owes much to Chief Justice
Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law."
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in
reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as
an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It
is an artificial person created by law for certain specific purposes, the extent of whose existence, powers
and liberties is fixed by its charter." Dean Pound's terse summary, a juristic person, resulting from an
association of human beings granted legal personality by the state, puts the matter neatly.
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from
Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and
concession." 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. More than that, it cannot legitimately
refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called
upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive
authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate
branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from
judicial control in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not
autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when
so minded, overrule the state, the source of its very existence; it is to contend that what any of its
15
governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot
possibly merit approval.””
FALLO:
“” WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of
First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet
Consolidated, Inc.””
BERNABE, Jayson B. Corporate Franchise
G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners,
vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.
PAREDES, J.:
Facts:
16
Imperial Insurance Inc., fled 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 fled 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, furniture and equipment, the total liabilities, and net worth,
books of accounts, etc., of the petitioner corporation was, handed down.
JRS fled 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, furniture and
equipment, the total liabilities and net worth, books of accounts and etc. were bought by respondent
Imperial Insurance, Inc., for P 10,000, which was the highest bid offered.
After the sale, respondent Insurance Company too/possession of the properties and started running the
affairs and operating the business of the JRS Business Corporation.
ISSUE:
W/N the business or trade name, franchise and capital stock can be the subject of levy, execution and
sale.
HELD:
Yes. 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
(Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited
in 6 Words and Phrases, 109).
17
It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the
capital stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation,
has no justification. The sale of the properties of petitioner corporation is set aside, in so far as it
authorizes the levy and sale of its franchise, trade name and capital stocks. Without pronouncement as to
costs.
Mnemosyne Realyn A. Razalan
Topic : Two Types of Corporation acquisitions : asset sales and stock sales
G.R. No. 184517 October 8, 2013

Petitioners,
vs.
PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR., ELICERIO GASPAR, , RICARDO GASPAR
JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEON ESPIRITU, JR., and LIBERATO MANGOBA,
Respondents.
x-----------------------x
G.R. No. 186641
Petitioners,
vs.
ELICERIO GASPAR, RICARDO GASPAR, JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEON
ESPIRITU, JR., and LIBERATO MANGOBA, Respondents.
SERENO, CJ.:
A mere change in the equity composition of a corporation is neither a just nor an authorized cause that
would legally permit the dismissal of the corporation’s employees en masse.
Facts:
· Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.(Ricardo), Eufemia Rosete
(Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato) were
employees of Small and Medium Enterprise Bank, Incorporated (SME Bank).Originally, the principal
shareholders and corporate directors of the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de
Guzman, Jr. (De Guzman).
· In June 2001, SME Bank experienced financial difficulties. To remedy the situation, the bank
officials proposed its sale to Abelardo Samson(Samson).
· Agustin and De Guzman accepted the terms and conditions proposed by Samson and signed the
conforme portion of the Letter Agreements.
· Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all the
employees of the head office and of the Talavera and Muñoz branches of SME Bank and persuaded
them to tender their resignations, with the promise that they would be rehired upon reapplication.
· Relying on this representation, Elicerio, Ricardo, Fidel, Simeon, Jr.,1and Liberato tendered their
resignations.
18
· Elicerio,Ricardo, Fidel, Simeon, Jr.,and Liberato submitted application letters.
· Agustin and De Guzman signified their conformity to the Letter Agreements and sold 86.365% of
the shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson then became
the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president. As it
turned out, respondent employees, except for Simeon, Jr. were not rehired. After a month in service,
Simeon, Jr. again resigned on October 2001.
· Respondent-employees demanded the payment of their respective separation pays, but their
requests were denied.1âwphi1
· the labor arbiter ruled that the buyer of an enterprise is not bound to absorb its employees, unless
there is an express stipulation to the contrary. However, he also found that respondent employees were
illegally dismissed, because they had involuntarily executed their resignation letters after relying on
representations that they would be given their separation benefits and rehired by the new management.
· Dissatisfied with the Decision of the labor arbiter, respondent employees, Agustin and De Guzman
brought separate appeals to the NLRC.
· The NLRC found that there was only a mere transfer of shares – and therefore, a mere change of
management – from Agustin and De Guzman to the Samson Group. As the change of management was
not a valid ground to terminate respondent bank employees, the NLRC ruled that they had indeed been
illegally dismissed. It further ruled that Agustin, De Guzman and the Samson Group should be held jointly
and severally liable for the employees’ separation pay and backwages.
· NLRC denied the Motions for Reconsideration filed by Agustin, De Guzman and the Samson
Group.
· CA rendered a Decision in affirming that of the NLRC.
· The appellate court denied the Motions for Reconsideration filed by the parties
· The Samson Group then filed two separate Rule 45 Petitions questioning the CA Decisions and
Resolutions. The Supreme Court resolved to consolidate both Petitions.
Issues:
Whether or not after the stock sale the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims?
Ruling:
There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate
entity sells all or substantially all of its assets to another entity. In stock sales, the individual or corporate
shareholders sell a controlling block of stock to new or existing shareholders. In asset sales, the rule is
that the seller in good faith is authorized to dismiss the affected employees, but is liable for the payment
of separation pay under the law. The buyer in good faith, on the other hand, is not obliged to absorb the
employees affected by the sale, nor is it liable for the payment of their claims. The most that it may do, for
reasons of public policy and social justice, is to give preference to the qualified separated personnel of
the selling firm. In contrast with asset sales, in which the assets of the selling corporation are transferred
to another entity, the transaction in stock sales takes place at the shareholder level. Because the
corporation possesses a personality separate and distinct from that of its shareholders, a shift in the
composition of its shareholders will not affect its existence and continuity. Thus, notwithstanding the stock
sale, the corporation continues to be the employer of its people and continues to be liable for the payment
of their just claims. Furthermore, the corporation or its new majority shareholders are not entitled to
lawfully dismiss corporate employees absent a just or authorized cause. In Manlimos vs NLRC dealt with
a stock sale in which a new owner or management group acquired complete ownership of the corporation
at the shareholder level. The employees of the corporation were later "considered terminated, with their
conformity" by the new majority shareholders. The employees then re-applied for their jobs and were
rehired on a probationary basis. After about six months, the new management dismissed two of the
19
employees for having abandoned their work, and it dismissed the rest for committing "acts prejudicial to
the interest of the new management." Thereafter, the employees sought reinstatement, arguing that their
dismissal was illegal, since they "remained regular employees of the corporation regardless of the change
of management." In disposing of the merits of the case, we upheld the validity of the second termination,
ruling that "the parties are free to renew the contract or not [upon the expiration of the period provided for
in their probationary contract of employment]." The rule should be different in Manlimos, as this case
involves a stock sale. It is error to even discuss transfer of ownership of the business, as the business did
not actually change hands. The transfer only involved a change in the equity composition of the
corporation. To reiterate, the employees are not transferred to a new employer, but remain with the
original corporate employer, notwithstanding an equity shift in its majority shareholders. This being so, the
employment status of the employees should not have been affected by the stock sale. A change in the
equity composition of the corporate shareholders should not result in the automatic termination of the
employment of the corporation’s employees. Neither should it give the new majority shareholders the right
to legally dismiss the corporation’s employees, absent a just or authorized cause.
WHEREFORE, premises considered, the instant Petitions for Review are PARTIALLY GRANTED.
The assailed Decision and Resolution of the Court of Appeals in CA G.R. SP No. 97510 dated 13 March
2008 and 1 September 2008,respectively, are hereby REVERSED and SET ASIDE insofar as it held
Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 97942 dated 15
January 2008 and 19 February 2009,respectively, are likewise REVERSED and SET ASIDE insofar as it
held Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
We REVERSE our ruling in Manlimos v. NLRC insofar as it upheld that, in a stock sale, the buyer in good
faith has no obligation to retain the employees of the selling corporation, and that the dismissal of the
affected employees is lawful even absent a just or authorized cause.
SO ORDERED.
20
Acuzar, Maria Zeninissa C. Definition of Corporation / Corporation Code Article 2
G.R. No.171805 May 30, 2011

PHILIPPINE NATIONAL BANK, petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L.
AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA;
JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented
by his heirs, Respondents
G.R. No.172021 May 30, 2011
MERELO B. AZNAR and MATIAS B. AZNAR III, petitioners, vs. PHILIPPINE NATIONAL BANK,
Respondent
LEONARDO-DE CASTRO, J.:

Body:
Facts
Rural Insurance and Surety Company, Inc. (RISCO) ceased operation due to business reverses.
Stockholders, Aznar et.al want to rehabilitate the company, thus they contributed a total amount of
P212,720.00 to purchase three parcels of land in Cebu. Titles of the lots were issued under the name of
RISCO. There was an annotation on the title of the lots:
“And that the respective contributions above-mentioned shall constitute as their lien or interest on the
property described above, if and when said property are titled in the name of RURAL INSURANCE &
SURETY CO., INC., subject to registration as their adverse claim in pursuance of the Provisions of Land
Registration Act, (Act No. 496, as amended) until such time their respective contributions are refunded to
them completely”.
There are subsequent annotations made on the same titles including the Notice of Attachment and Writ of
Execution both dated August 3, 1962 in favor of Philippine National Bank.
PNB was the only bidder of the 3 parcels of land, thus the Certificate of Sale was issued to them.
Because of this Aznar et.al file a claim to quiet title to the 3 parcels of land.
Defendant PNB averred 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 and their validity
cannot be attacked except in a direct proceeding for their annulment. 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 plaintiffs’ monetary lien had not expired, their only recourse was
to require the reimbursement or refund of their contribution.
Trial Court ruled against PNB on the basis that there was an Express Trust between RISCO as the
trustee and Aznar et.al (stockholders) were the beneficiaries.
Issue
Whether or not Aznar et.al have the right to quiet title of the 3 parcels of land.
Ruling:
The court held that the agreement contained in the Minutes of the Special Meeting of the RISCO Board of
Directors was a loan by the stockholders to RISCO. The contributions shall constitute as “lien or interest
on the property”. The term lien as used in the Minutes is defined as “a discharge on property usually for
the payment of some debt or obligation. Hence, the term lien in the Minutes, the court said that the money
contributed by Aznar et.al was in the nature of a loan, secured by their liens and interests duly annotated
on the titles. The annotation of their lien serves only as collateral and does not in any way vest ownership
of property to plaintiffs, thus there’s no creation of trust relationship between RISCO and Aznar et.al.
21
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.
The court ruled that Aznar, et al., 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, the pertinent provision of the law is Section 2 of the Corporation Code
(Batas Pambansa Blg. 68), which states that corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.
As a consequence thereof, a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. Thus, as ruled in Magsaysay-Labrador
v. Court of Appeals 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.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The petition
of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case No. CEB-21511, filed
by Aznar, et al., is hereby DISMISSED. No costs.
ESTAYO, Lalaine A. Sec 2 Piercing the Corporate Veil /Limited Liability Rule
G.R. No. 157549, May 30, 2011
DONNINA C. HALLEY, Petitioner, vs. PRINTWELL, INC., Respondent.
Facts:
BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders, including
Donnina Halley. In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc.
(a magazine published and distributed by BMPI). PRINTWELL extended 30-day credit accommodation in
favor of BMPI and in a period of 9 mos. BMPI placed several orders amounting to Php 316,000.
However, only 25,000 was paid hence a balance of 291,000
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. It appears that BMPI has an
authorized capital stock of 3M divided into 300,000 shares with P10 par value. Only 75,000 shares worth
P750,000 were originally subscribed of which P187,500 were paid up capital.
Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
Arguing that she already paid her subscription to the stocks of the corporation, the petitioner said that
she should not be held personally liable as she and the corporation have separate and distinct
personality.
ISSUE:
May the stockholder who has an unpaid stock subscription be personally liable for the debts of the
corporation?
HELD:
Yes. According to the Supreme Court:
22
“Although a corporation has a personality separate and distinct from those of its stockholders, directors,
or officers, such separate and distinct personality is merely a fiction created by law for the sake of
convenience and to promote the ends of justice. The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the corporate entity is being used
as a cloak or cover for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders. As a general rule, a corporation is looked upon
as a legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always
presume good faith, and for that reason accord prime importance to the separate personality of the
corporation, disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established .It thus behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.
Further, the Court ruled:
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property
can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its
creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a
fund for the payment of its debts.
The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,was adopted in our
jurisdiction in Philippine Trust Co. v. Rivera, where this Court declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its
debts. (Velasco vs. Poizat, 37 Phil., 802)
SC clarified that the trust fund doctrine is not limited to reaching the stockholder’s unpaid subscriptions.
The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but
also other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts. All assets and property belonging to the corporation held in trust for the benefit of creditors that
were distributed or in the possession of the stockholders, regardless of full payment of their subscriptions,
may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine, a corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation of paying for his shares, in whole or in part, without a valuable
consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an action
upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of
its debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation to
compel them to contribute to the payment of its debts by making good unpaid balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the par
value of the stocks of the corporation.
The Court specified her personal liability as equivalent to the extent of her unpaid subscription on the
stock of the corporation (P262,500) plus legal interest.
Note Atty Aquino’s commentary:

He disagrees with the Supreme Court’s pronouncement that: “Stockholders cannot invoke the veil of
corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding the
creditors”. There is a difference in the Limited Liability Rule and the Doctrine of Piercing the Veil of
Corporate Fiction. The Limited Liability Rule and the Doctrine of Piercing the Veil of Corporate Fiction do
not go hand in hand. The Legal Personality of the corporation is not pierced if the Limited Liability Rule is
applied. If the Doctrine of Piercing the Veil of Corporate Fiction is applied then the entire obligation may
be enforced against a stockholder while under the Limited Liability Rule only the unpaid subscription
price is due
23
FORRAH MAE G. RAMOS PIERCING THE VEIL
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo
Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
HERMOSISIMA,JR
FACTS :
Petitioner Concept Builders, a domestic Corporation, is engaged in the construction business.

Private Respondent were employed by said company as laborers, carpenters and riggers. On November
1981, Private Respondent were served individual written notices of termination of employment by
Petitioner, effective November 30,1981. It was stated that their contracts of employment had expired and
the project in which they were hired had been completed. Public Respondents found out that the project
24
in which they were hired had not yet been finished and completed and that Petitioner had to engage the
services of subcntractors whose workers performed the functions of Private Respondent. Private
Respondent filed a complaint for illegal dismissal, ULP, and non payment of holiday pay, OT pay and
13th month pay against Petitioner. On November 6, 1989, Dennis Kuyegkeng filed a 3rd party claim with
the LA alleging that properties sought to be levied upon by the Sheriff were owned by Hydro Phils and
HPPI of which he is a vice president. On November 3, 1989, Private Respondent filed a "motion for
Issuance of a Breach Order" alleging that HPPI and Petitioner Corporation were owned by same
corporation/ stockholders. They alleged that Petitioner temporarily suspended its business operations in
order to evade its legal obligations to them and that Private Respondents were willing to post and
indemnity bond to answer for damages which petitioners and HPPI may suffer. On Feb. 1, 1990, HPPI
filed an opposition to Private Respondents Motion for issuance of a break open order contending that
HPPI is a Corporation which is separate and distinct from Petitioner. Further, he also alleged that HPPI is
a manufacturing firm while Petitioner was erngaged in construction.
ISSUE :
Whether or not piercing the veil should be applied.
HELD : YES.
It is a fundamental principle of corporation law that a corporation is an entity separate and

distinct from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the
separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may
be disregarded. The control necessary to invoke the rule is not majority or even complete stock control
but such domination of instances, policies and practices that the controlled corporation has, so to speak,
25
no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind
that the control must be shown to have been exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, 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, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's
legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to that operation.
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a
sham or a subterfuge is purely one of fact.
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992
and December 3, 1992, are AFFIRMED.
ESTAYO, Lalaine A.
Sec 2 Piercing the Corporate Veil /Trust Fund Doctrine / Limited Liability Rule
G.R. No. 157549, May 30, 2011 DONNINA C.

HALLEY, Petitioner, vs. PRINTWELL, INC., Respondent.
Facts:
26
(a magazine published and distributed by BMPI). PRINTWELL extended 30-day credit accommodation in
favor of BMPI and in a period of 9 mos. BMPI placed several orders amounting to Php 316,000.
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. It appears that BMPI has an
authorized capital stock of 3M divided into 300,000 shares with P10 par value. Only 75,000 shares worth
P750,000 were originally subscribed of which P187,500 were paid up capital.
Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
Arguing that she already paid her subscription to the stocks of the corporation, the petitioner said that
she should not be held personally liable as she and the corporation have separate and distinct
personality.
ISSUE:
May the stockholder who has an unpaid stock subscription be personally liable for the debts of the
corporation?
HELD:
Yes. According to the Supreme Court:
“Although a corporation has a personality separate and distinct from those of its stockholders, directors,
or officers, such separate and distinct personality is merely a fiction created by law for the sake of
convenience and to promote the ends of justice. The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the corporate entity is being used
as a cloak or cover for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders. As a general rule, a corporation is looked upon
as a legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always
presume good faith, and for that reason accord prime importance to the separate personality of the
corporation, disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established .It thus behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.
Further, the Court ruled:
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property
can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its
creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a
fund for the payment of its debts.
The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,was adopted in our
jurisdiction in Philippine Trust Co. v. Rivera, where this Court declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its
debts. (Velasco vs. Poizat, 37 Phil., 802)
SC clarified that the trust fund doctrine is not limited to reaching the stockholder’s unpaid subscriptions.
The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but
also other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts. All assets and property belonging to the corporation held in trust for the benefit of creditors that
were distributed or in the possession of the stockholders, regardless of full payment of their subscriptions,
may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine, a corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation of paying for his shares, in whole or in part, without a valuable
27
consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an action
upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of
its debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation to
compel them to contribute to the payment of its debts by making good unpaid balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the par
value of the stocks of the corporation.
The Court specified her personal liability as equivalent to the extent of her unpaid subscription on the
stock of the corporation (P262,500) plus legal interest.
Note Atty Aquino’s commentary:

He disagrees with the Supreme Court’s pronouncement that: “Stockholders cannot invoke the veil of
corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding the
creditors”. There is a difference in the Limited Liability Rule and the Doctrine of Piercing the Veil of
Corporate Fiction. The Limited Liability Rule and the Doctrine of Piercing the Veil of Corporate Fiction do
not go hand in hand. The Legal Personality of the corporation is not pierced if the Limited Liability Rule is
applied. If the Doctrine of Piercing the Veil of Corporate Fiction is applied then the entire obligation may
be enforced against a stockholder while under the Limited Liability Rule only the unpaid subscription
price is due (See detailed discussion on pp. 69-71 of his book )
Karl Anthony T. Dionisio Piercing the corporate veil

G.R. No. 170782 June 22, 2009
SIAIN ENTERPRESIS
VS
CUPERTINO REALTY CORP AND EDWIN R CATACUTAN
Facts:
SIAIN executed 2 PNs and REMs in favor of respondent (Cupertino). All were signed by their respective
presidents Cua Le Leng for Siain and Wilfredo Lua for Cupertino. The first set of PN and REM were dated
28
April 10, 1995 wherein the PN authorizes Cupertino to place in escrow loan proceeds of P37million with
MBTC to pay off petitioner’s obligation to DBP. This was secured by the REM. 2 days later the PN was
amended to include the interest of 17% p.a. The second set of PN and REM (amended from the first
REM) was dated Aug. 16, 1995 for the amount of P160million, on this second PN the Cua Le Leng signed
as a co-maker. The amended REM reflected the updated total obligation of P197million of Siain to
Cupertino. However, on Mar. 11, 1996 petitioner demanded from Cupertino the release of the loan
proceeds of P160million. Cupertino denied this and maintained that the proceeds had long been obtained
by petitioner. Cupertino instituted an extra judicial foreclosure over the properties subject of the amended
REM; auction sale was scheduled on Oct. 11, 1996 with respondent Notary Public Edwin Catacutan.
Petitioner filed a complaint with TRO to enjoin Notary Public Edwin Catacutan from proceeding with the
public auction. RTC initially declared the auction sale as null and void. Subsequently after Cupertino filed
its answer the RTC recalled and set aside the order of declaring the auction sale as null and void and
ruled in favor of the respondent; which was affirmed by the CA. Records show that various debit memos,
checks, pledges of jewelries, condominium units, trucks and other components were issued to petitioner
and its affiliate corporations as well to its president Cua Le Leng and her common law spouse Alberto Lim
by respondent and its president Wilfredo Lua and his wife Vicky Lua. Thus the lower courts applied the
doctrine of “piercing the veil of the corporate entity” in ruling in favor of the respondents.
Issue:
WON the RTC and CA erred in applying the doctrine of “piercing the veil of corporate entity”
Held:
No.
While it is true that the stockholders have a distinct and separate personality as to that of the
corporation; this is not an absolute rule. The distinct personality of the corporation may be disregarded
and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public convience,
justify wrong, protect fraud, or defend crime.
Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had
received the proceeds of the P160million loan.
Checks, debit memos, pledges of jewelries, condo units and trucks were constituted not exclusively in the
name Siain but also either in the name of Yuyek Manufacturing Corporation, Siain Transport Inc., Cua Le
Leng and Alberto Lim is of no moment. The fact remains that these companies are alter ego of its
president Cua Le Leng, it is established in the court that:
- Siain and Yuyek have a common set of incorporators
- Have the same internal bookkeeper and accountant
- Same office address
- Same majority stockholder and president (in the person of Cua Le Leng)
- In Siain Transport, Cua Le Leng has the unlimited authority by and on herself, without authority
from the Board of Directors, to use the fund
- In the case of Alberto Lim as Cua Le Leng’s common law spouse all the debit memos and check
issued in his name were was actually for the account of Cua Le Leng.
If the general rule of “the corporation has a distinct and separate personality from its stockholders” were
applied to this case it will result to injustice and evasion of a valid obligation. The obligation incurred
and/or the transactions entered into either by Yuyek, or by Siain Trucking, or by Cua Le Leng or by
Alberto Lim with Cupertino are deemed to be that of the petitioner itself.
The same principle applies to Cupertino, while it can be seen that the debit memos and checks were
issued on the same date as the incorporation of Cupertino. It does not affect the validity of the subject
transactions entered into by Cupertino Realty Corporation, it being a mere alter ego of its president
Wilfredo Lua, are deemed to be the latter’s personal transaction and vice versa.
29
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 71424 is AFFIRMED. Costs against the petitioner.
Petrache, Ria Kriselle P. Topic: Doctrine of Piercing the Corporate Veil
G.R. No. 182729 September 29, 2010

VELASCO, JR., J.:
FACTS:
· Kukan Inc. conducted a bidding for the supply and installation of signages in a building. Morales won the
bid and was awarded the 5M contract.
· Some of the items in the project award were later excluded reducing the contract price to 3.4M. Despite
Morales’ compliance with the contract, he was only paid 1.9M. Demands were made but he was not paid,
prompting Morales to file a Complaint.
· RTC ruled in favor of Morales
· Morales secured a writ of execution and the sheriff then levied upon various personal properties found at
what was supposed to be Kukan Inc’s office. But Kukan International, alleging that they are a different
corp from Kukan Inc. and that they are the owner of the properties being levied, filed an Affidavit of Third-
Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped
participating in the Civil Case against Morales.
· Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence
separate from Kukan, Inc. RTC granted the Motion. CA affirmed.
ISSUE: Is the principle of piercing the veil of corporate fiction applicable in this case? NO
RULING: Before the piercing the veil of corporate entity doctrine can be applied: (1) the court must first
acquire jurisdiction over the corporation or corporations involved before its or their separate personalities
are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a
full-blown trial over a cause of action duly commenced involving parties duly brought under the authority
of the court by way of service of summons or what passes as such service.
Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a

corporation does not, standing alone, provide sufficient justification for disregarding the separate
corporate personality. For this ground to hold sway in this case, there must be proof that Chan had
control or complete dominion of Kukan and KIC’s finances, policies, and business practices; he used
such control to commit fraud; and the control was the proximate cause of the financial loss complained of
by Morales. The absence of any of the elements prevents the piercing of the corporate veil. And indeed,
the records do not show the presence of these elements.
30
In the instances when the Court pierced the veil of corporate fiction of two corporations, there was a
confluence of the following factors:
1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of
the first corporation; and
3. 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.
In the instant case, however, the second and third factors are conspicuously absent. There is, therefore,
no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC.
In applying the principle, both the RTC and the CA miserably failed to identify the presence of the
abovementioned factors.
There is no showing that the incorporation, and the separate and distinct personality, of KIC was used to
defeat Morales’ right to recover from Kukan, Inc. Judging from the records, no serious attempt was made
to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to
avoid liability or had no property against which to proceed.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they
are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai
Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing
alone, 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.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of
piercing the veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan,
the similarity of business activities engaged in, and incidentally the word "Kukan" appearing in the
corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are
insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.
WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16, 2008
Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon
the personal properties of Kukan International Corporation is hereby ordered lifted and the personal
properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby
directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable
dispatch.
No costs.
SO ORDERED.
31
MARIA LEONILA VILLEGAS DUTIES AND LIABILITIES OF DIRECTORS, TRUSTEES, AND
OFFICERS
G.R. No. 185664, April 08, 2015

ANGELES P. BALINGHASAY, RENATO M. BERNABE, ALODIA L. DEL ROSARIO, CATALINA T.
FUNTILA, TERESITA L. GAYANILO, RUSTICO A. JIMENEZ, ARCELI P. JO, ESMERALDA D.
MEDINA, CECILIA S. MONTALBAN, VIRGILIO R. OBLEPIAS, CARMENCITA R. PARREÑO, EMMA L.
REYES, REYNALDO L. SAVET, SERAPIO P. TACCAD, VICENTE I. VALDEZ, SALVACION F.
VILLAMORA, AND DIONISIA M. VILLAREAL, Petitioners,
versus
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIA
ANTONIA A. TEMPLO AND MEDICAL CENTER PARAÑAQUE, INC., Respondent.
REYES, J.:
The MCPI operates the Medical Center Parañaque (MCP). In 1997, the MCPI’s Board of Directors
awarded the operation of the ultrasound unit to a group of investors (ultrasound investors) composed
mostly of Ob-gyne doctors. The ultrasound investors held either Class A or Class B shares of MCPI.
Among them were nine of the herein petitioners, who were then, likewise, MCPI Board Directors. The
group purchased an ultrasound equipment costing P850,000.00 and operated the same. Albeit awarded
by the Board of Directors, the operation was not yet covered by a written contract. 6
On February 5, 1999, twelve (12) Board Directors attended the Board meeting and eight (8) of them were
among the ultrasound investors. A Memorandum of Agreement (MOA) was entered into by and between
MCPI, represented by its President then, Bernabe, and the ultrasound investors, stating that the gross
income to be derived from the operation of the ultrasound unit, minus the sonologists’ professional fees,
shall be divided between the ultrasound investors and MCPI, in the proportion of 60% and 40%,
respectively. Come April 1, 1999, MCPI’s share would be 45%, while the ultrasound investors would
receive 55%. Further, the ownership of the ultrasound machine would eventually be transferred to MCPI. 8
32
On October 6, 1999, Flores wrote MCPI’s counsel a letter challenging the Board of Directors’ approval of
the MOA for being prejudicial to MCPI’s interest and cannot be validly ratified.
On March 22, 2001, the herein respondents filed with the RTC a derivative suit10 against the petitioners
for violation of Section 3111 of the Corporation Code. Among the prayers in the Complaint were: (a) the
annulment of the MOA and the accounting of and refund by the petitioners of all profits, income and
benefits derived from the said agreement; and (b) payment of damages and attorney’s fees. This was
dismissed by the RTC, but reversed by the CA.
ISSUE: W/N the CA committed an error of law in ignoring the circumstances under which the MOA was
conceived and implemented
HELD: NO
RATIO
The petitioners reiterate the RTC’s declaration that "[q]uestions of policy or of management are left solely
to the honest decision of the board as the business manager of the corporation, and the court is without
authority to substitute its judgment for that of the board, and as long as its acts in good faith and in the
exercise of honest judgment in the interest of the corporation, its orders are not reviewable by the
courts."26
The respondents aver as well that the petitioners’ several attempts for the MOA’s ratification by the
stockholders through the required two-third votes had failed in the years 2000 up to2003. Despite the
foregoing, the ultrasound investors continue to operate the unit and receive income therefrom causing
prejudice to MCPI.37 Pursuant to Section 31 of the Corporation Code, the petitioners should therefore be
liable not just for the profits or revenues they had received from the ultrasound unit’s operation, but for all
profits which otherwise would have accrued to MCPI.
As acknowledged by the petitioners and aptly pointed out by the respondents, the existence of the
circumstances and urgent hospital necessity justifying the purchase and operation of the ultrasound unit
by the investors were not at the outset offered as evidence. Having been belatedly raised, the aforesaid
defenses were not scrutinized during the trial and their truth or falsity was not uncovered. This is fatal to
the petitioners’ cause. The CA thus cannot be faulted for ruling against the petitioners in the face of
evidence showing that: (a) there was no quorum when the Board meetings were held on August 14, 1998
and February 5, 1999; (b) the MOA was not ratified by a vote of two-thirds of MCPI’s outstanding capital
stock; and (c) the Balance Sheets for the years 1996 to 2000 indicated that MCPI was in a financial
position to purchase the ultrasound equipment.
The petitioners harp on their lofty purpose, which had supposedly moved them to purchase and operate
the ultrasound unit. Unfortunately, their claims are not evident in the records. Further, even if their claims
were to be assumed as true for argument’s sake, the fact remains that the Board Directors, who approved
the MOA, did not outrightly inform the stockholders about it. The ultrasound equipment was purchased
and had been in operation since 1997, but the matter was only brought up for ratification by the
33
stockholders in the annual meetings held in the years 2000 to 2003. This circumstance lends no credence
to the petitioners’ cause.
IN VIEW OF THE FOREGOING, the instant petition is DENIED.
Petrache, Ria Kriselle P. Topic: Doctrine of Piercing the Corporate Veil
G.R. No. 182729 September 29, 2010

VELASCO, JR., J.:
FACTS:
· Kukan Inc. conducted a bidding for the supply and installation of signages in a building. Morales won the
bid and was awarded the 5M contract.
· Some of the items in the project award were later excluded reducing the contract price to 3.4M. Despite
Morales’ compliance with the contract, he was only paid 1.9M. Demands were made but he was not paid,
prompting Morales to file a Complaint.
· RTC ruled in favor of Morales
· Morales secured a writ of execution and the sheriff then levied upon various personal properties found at
what was supposed to be Kukan Inc’s office. But Kukan International, alleging that they are a different
34
corp from Kukan Inc. and that they are the owner of the properties being levied, filed an Affidavit of Third-
Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped
participating in the Civil Case against Morales.
· Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence
separate from Kukan, Inc. RTC granted the Motion. CA affirmed.
ISSUE: Is the principle of piercing the veil of corporate fiction applicable in this case? NO
RULING: Before the piercing the veil of corporate entity doctrine can be applied: (1) the court must first
acquire jurisdiction over the corporation or corporations involved before its or their separate personalities
are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a
full-blown trial over a cause of action duly commenced involving parties duly brought under the authority
of the court by way of service of summons or what passes as such service.
Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a

corporation does not, standing alone, provide sufficient justification for disregarding the separate
corporate personality. For this ground to hold sway in this case, there must be proof that Chan had
control or complete dominion of Kukan and KIC’s finances, policies, and business practices; he used
such control to commit fraud; and the control was the proximate cause of the financial loss complained of
by Morales. The absence of any of the elements prevents the piercing of the corporate veil. And indeed,
the records do not show the presence of these elements.
In the instances when the Court pierced the veil of corporate fiction of two corporations, there was a
confluence of the following factors:
1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of
the first corporation; and
3. 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.
In the instant case, however, the second and third factors are conspicuously absent. There is, therefore,
no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC.
In applying the principle, both the RTC and the CA miserably failed to identify the presence of the
abovementioned factors.
There is no showing that the incorporation, and the separate and distinct personality, of KIC was used to
defeat Morales’ right to recover from Kukan, Inc. Judging from the records, no serious attempt was made
to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to
avoid liability or had no property against which to proceed.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they
are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai
Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing
alone, 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.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of
piercing the veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan,
35
the similarity of business activities engaged in, and incidentally the word "Kukan" appearing in the
corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are
insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.
WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16, 2008
Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon
the personal properties of Kukan International Corporation is hereby ordered lifted and the personal
properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby
directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable
dispatch.
No costs.
SO ORDERED.
Ablang, Karpov B. Doctrine of Piercing the Veil

G.R. No. 166282 February 13, 2013
HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
MENDOZA, J.:
Facts:
· On several occasions, from June 23, 1997 to September 3, 1997, respondent International
Exchange Bank (iBank), granted loans to Hammer Garments Corporation (Hammer), covered by
promissory notes and deeds of assignment. These were made pursuant to the Letter-Agreement, dated
March 23, 1996, between iBank and Hammer, represented by its President and General Manager,
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus
Line.
· The loans were secured by a P 9 Million-Peso Real Estate Mortgage executed on July 1, 1997 by
Goldkey Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety
36
Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996. As of October 28, 1997,
Hammer had an outstanding obligation of P25,420,177.62 to iBank.
· Hammer defaulted in the payment of its loans, prompting iBank to foreclose on Goldkey’s third-party
Real Estate Mortgage. For failure of Hammer to pay the deficiency, iBank filed a Complaint for sum of
money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court,
Makati City (RTC).
· In her separate answer, Uy claimed that she was not liable to iBank because she never executed a
surety agreement in favor of iBank. Goldkey, on the other hand, also denies liability, averring that it acted
only as a third-party mortgagor and that it was a corporation separate and distinct from Hammer.
· Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by
the RTC in its December 17, 1997 Order.13 The Notice of Levy on Attachment of Real Properties, dated
July 15, 1998, covering the properties under the name of Goldkey, was sent by the sheriff to the Registry
of Deeds of Quezon City.
the RTC in its December 17, 1997 Order.The Notice of Levy on Attachment of Real Properties, dated July
15, 1998, covering the properties under the name of Goldkey, was sent by the sheriff to the Registry of
Deeds of Quezon City
Issue:
Whether or not there is guilt by association in those cases where the veil of corporate fiction may be
pierced
Held:
Uy is not liable; 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 wrong or that she had participated in the transaction
between Hammer and iBank. They further claim that she had cut all ties with Hammer and her husband
long before the execution of the loan
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, in general, from the people
comprising it. Following this principle, obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally
not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may
be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. This is consistent
with the provisions of the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully 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, its stockholders or members and other persons.
Solidary liability will then attach to the directors, officers or employees of the corporation in certain
circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing
the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto;
37
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.26
Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, 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, or that the officer was guilty of
gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith.
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed
an act as an officer of Hammer that would permit the piercing of the corporate veil. Indeed, there is no
showing that Uy committed gross negligence. And in the absence of any of the aforementioned requisites
for making a corporate officer, director or stockholder personally liable for the obligations of a corporation,
Uy, as a treasurer and stockholder of Hammer, cannot be made to answer for the unpaid debts of the
corporation.
WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the December 2,
2004 Resolution of the Court of Appeals in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is
released from any liability arising from the debts incurred by Hammer from iBank. Hammer Garments
Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are jointly and severally
liable to pay International Exchange Bank the sum of P13,420,177.62 representing the unpaid loan
obligation of Hammer as of December 12, 1997 plus interest. No costs.
Anna Carmela G.Virtucio Piercing the Corporate Veil

GR No 174938 October 1, 2014
GERARDO LANUZA JR AND ANTONIO O. OLBES, PETITIONERS
38
VS.
BF CORPORATION, SHANGRI-LA PROPERTIES INC, ALFREDO C. RAMOS, RUFO B.
COLAYCO,MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS RESPONDENTS
FACTS: BF Corporation entered into agreements with Shangri-La wherein it undertook to construct for
Shangri-La a mall and a parking structure along EDSA. Shangri-La had been consistent from the start in
paying BF Corporation until it started defaulting in payment Despite repeated demands by BF
Corporation, Shangri-La still refused to pay. BF Corporation then filed a complaint against Shangri-La and
its board of directors including Lanuza & Olbes who alleged that they already resigned as board of
directors. BF Corporation in its complaint alleged that the Board of Directors were in bad faith and that
they should be solidarily liable with Shangri-La for damages that BF Corporation incurred. Shangrila filed
a motion to oppose to suspend the proceedings which the RTC denied but the CA granted which ordered
the submission of the dispute to arbitration proceedings in accordance with the arbitration clause in their
contract. Lanuza & Olbes then filed a comment praying that they should not be included in the arbitration
proceedings as they are not parties to the agreement between BF Corporation and Shangrila. CA denied
and ruled that they are parties to the said proceedings.
ISSUE: Whether or not Lanuza & Olbes should be made parties to the arbitration proceedings in
accordance with the arbitration clause?
Ruling: Yes. It is provided that a corporation’s representative who did not personally bind himself or
herself to an arbitration agreement cannot be forced to participate in said proceedings entered by the
corporation. He or she is not considered a party to said agreement between the corporations. An
exception to this rule are instances when the distinction between personalities of the directors, officers
and representatives of the corporation are disregarded. This is called the Doctrine of piercing the
corporate veil. Piercing the corporate veil happens when the separate personality of a corporation is used
as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statues or to confuse legitimate issues. When the corporate veil is pierced, the
corporation and persons who are treated as distinct from the corporation are treated as one person such
that when the corporation
is found to be liable, these persons become liable as well as if they were the corporation.
In the case at bar, the Arbitral Tribunal rendered a decision finding that BF Corporation failed to prove the
existence of circumstances to render petitioners and the other directors solidarily liable. It ruled that
petitioners and the other directors were not liable for contractual obligations of Shangri-La to BF
Corporation. Since the petitioner’s participated in the said arbitration proceedings, the petitioner’s are
bound by such decision.
WHEREFORE THE PETITION IS DENIED. THE COURT OF APPEAL’S DECISION AND RESOLUTION
ARE AFFIRMED
39
Valera, Lendy J.
Topic: Doctrine of Apparent Authority
G.R. No. L-18287 March 30, 1963
TRINIDAD J. FRANCISCO
vs
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant
Facts:
On 10 October 1956, the plaintiff, Trinidad J. Francisco, in consideration of a loan in the amount of
P400,000.00, out of which the sum of P336,100.00 was released to her, mortgaged in favor of the
defendant, Government Service Insurance System (hereinafter referred to as the System) a parcel of land
containing an area of 18,232 square meters, with twenty-one (21) bungalows, known as Vic-Mari
Compound, located at Baesa, Quezon City, payable within ten (10) years in monthly installments of
P3,902.41, and with interest of 7% per annum compounded monthly.
On 6 January 1959, the System extrajudicially foreclosed the mortgage on the ground that up to that date
the plaintiff-mortgagor was in arrears on her monthly installments in the amount of P52, 000.00.
Payments made by the plaintiff at the time of foreclosure amounted to P130, 000.00. The System itself
was the buyer of the property in the foreclosure sale.
On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter to the general manager
of the defendant corporation, Mr. Rodolfo P. Andal offering that he pay P30,000 of the loan and then
allow GSIS to administer the mortgaged property instead of foreclosing it; that thereafter, 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 (because the total of the monthly rents is bigger than the monthly loan payments supposed to be
paid by Trinidad to GSIS).
40
GSIS, through its general manager Rodolfo Andal, responded with a letter which states that the GSIS
Board had accepted Vicente’s offer. But GSIS for some reason did not take over the property.
Nevertheless, the Franciscos collected rents and turned them over to GSIS.
Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then reminded GSIS that the
agreement in 1959 which is actually a compromise binding upon GSIS. GSIS then averred that the letter
sent to Vicente in response to his offer was sent in error because Andal’s secretary sent the poorly
worded response without Andal’s knowledge.
Issue:
Whether GSIS is bound by the act of its general manager who acted in his apparent authority?
Held:
Yes.
A third party transacting with a corporation cannot be expected to know what occurs within a corporation,
its meetings, without any external manifestations from the corporation. In the case at bar, the response by
GSIS to Vicente by way of a telegram, is within the apparent authority of Andal. If there are any
irregularities in the telegraph i.e., the sending of the secretary without the authority of Andal, Vicente is
not expected to know it because the telegram on its face is clear as to the acceptance. Vicente cannot
therefore be faulted for relying on the telegram; that GSIS accepted his offer. Hence, GSIS cannot now
ask Francisco to suddenly pay off the debt. If a corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as against anyone who has in good faith dealt
with the corporation through such agent, be estopped from denying his authority; 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.
GSIS cannot also deny that it has knowledge of the acceptance. A corporation cannot see, or know,
anything except through its officers. Knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters within the scope of his authority, is
notice to the corporation, whether he communicates such knowledge or not. Andal is presumed to have
knowledge of the acceptance because it was his office which sent it to Vicente. Knowledge of Andal, an
officer of GSIS, is deemed knowledge of GSIS.
At any rate, even if the compromise agreement is void because of the “unauthorized” telegram, GSIS’s
silence and acceptance of the subsequent remittances of the Franciscos ratified the compromise
agreement.
Tweety T. Tuazon Topic: Rules of Attribution
G.R. No. 174077 November 21, 2012

ELLICE AGRO-INDUSTRIAL CORPORATION, represented by its Chairman of the Board of Directors
and President, RAUL E. GALA, Petitioner,
vs.
RODEL T. YOUNG, DELFIN CHAN, JIM WEE, and GUIA G. DOMINGO, *** Respondents.
41
MENDOZA, J.:
Facts:
· On July 24, 1995, Rodel T. Young, Delfin Chan and Jim Wee (respondents) and Ellice Agro-
Industrial Corporation (EAIC), represented by its alleged corporate secretary and attorney-in-fact, Guia G.
Domingo, entered into a Contract to Sell a parcel of land in Quezon.
· Respondents made a partial payment for the acquisition of the property but EAIC failed to deliver
the duplicate certificate of title and deed of sale.
· Respondents filed a Complaint for Specific Performance against EAIC and Domingo before the
RTC.
· During pre –trial, neither Domingo nor counsel appeared so, by plaintiff’s ex-parte evidence, the
RTC rendered its November 11, 1999 Decision ordering EAIC to deliver the owner’s duplicate copy and
to execute a final deed of sale in favor of respondents.
· Seven months after finality of the RTC decision, EAIC, represented by Gala filed a Petition for
Relief from Judgment. However, said petition was denied.
· EAIC then filed a Petition for Annulment of Judgment which was grounded on the RTC’s lack of
jurisdiction over EAIC and the extrinsic fraud committed by Domingo. EAIC discarded any knowledge of
the said sale and the suit filed by respondents against it.
· EAIC alleged that Domingo was not its President, Manager, Secretary, Cashier, Agent or Director,
as evidenced by the General Information Sheets17 (GIS) it filed with the Securities and Exchange
Commission (SEC), at the time the summons was served upon her and she did not possess the requisite
authorization to represent EAIC in the subject transaction.
· CA denied the petition.
Issue: W/N the RTC validly acquired jurisdiction over EAIC.
Held: No. For service of summons upon a private domestic corporation, to be effective and valid, should
be made on the president, manager, secretary, cashier, agent, or director. The purpose is to render it
reasonably certain that the corporation will receive prompt and proper notice in an action against it or to
insure that the summons be served on a representative so integrated with the corporation that such
person will know what to do with the legal papers served on him.
In the present case, the 1996 GIS of EAIC, the pertinent document showing EAIC’s composition at the
time the summons was served upon it, through Domingo, will readily reveal that she was not its president,
manager, secretary, cashier, agent or director. Due to this fact, the Court is of the view that her honest
belief that she was the authorized corporate secretary was clearly mistaken because she was evidently
not the corporate secretary she claimed to be. In view of Domingo’s lack of authority to properly represent
EAIC, the Court is constrained to rule that there was no valid service of summons binding on it.
The Court cannot likewise subscribe to respondents argument that by filing its answer with counterclaim,
through Domingo, with the RTC, EAIC is deemed to have voluntarily submitted itself to the jurisdiction of
the RTC. 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. The
power of a corporation to sue and be sued is exercised by the board of directors. The physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly authorized for
the purpose by corporate bylaws or by a specific act of the board.
In this case, at the time she filed the Answer with Counterclaim, Domingo was clearly not an officer of
EAIC, much less duly authorized by any board resolution or secretary’s certificate from EAIC to file the
said Answer with Counterclaim in behalf of EAIC. Undoubtedly, Domingo lacked the necessary authority
to bind EAIC to Civil Case No. 96-177 before the RTC despite the filing of an Answer with Counterclaim.
42
EAIC cannot be bound or deemed to have voluntarily appeared before the RTC by the act of an
unauthorized stranger.
WHEREFORE, the petition is GRANTED. The July 1, 2003 Decision and August 8, 2006 Resolution of
the Court of Appeals, in CA-G.R. SP No. 64421, are hereby REVERSED. The November 11, 1999
Decision of the Regional Trial Court of Lucena City, Branch 60, in Civil Case No. 96-177, is hereby
declared VACATED and SET ASIDE.
The records of the case is hereby ordered remanded to the Regional Trial Court of Lucena City, Branch
60, for the proper service of summons to the petitioner and other parties, if any, and for other appropriate
proceedings.
Paolo F. Cruz Definition of the term “capital”
G.R. No. 176579 October 9, 2012

HEIRS OF WILSON P. GAMBOA*, Petitioners,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA,
AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF
THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS, INC., CHAIRMAN MANUEL V.
PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY
AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO
OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES
AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
Facts:
· This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the
Philippine Stock Exchange’s (PSE) President, (2) Manuel V. Pangilinan (Pangilinan), (3) Napoleon L.
Nazareno (Nazareno ),and (4) the Securities and Exchange Commission (SEC) (collectively, movants).
· Movants contend that the term “capital” in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting.
· In fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions.
· Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a “new”
definition or “midstream redefinition”9 of the term “capital” in Section 11, Article XII of the Constitution.
Issue:
Whether or not movants are correct
43
Ruling: No
· There has never been a judicial precedent interpreting the term “capital” in the 1935, 1973 and
1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in
defining the term “capital” in its 28 June 2011 Decision modified, reversed, or set aside the purported
long-standing definition of the term “capital,” which supposedly refers to the total outstanding shares of
stock, whether voting or non-voting.
· Opinions of SEC and DOJ are conflicting and inconsistent
· In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, categorically rejected the theory that the
term “capital” in Section 9, Article XIV of the 1973 Constitution includes “both preferred and common
stocks” treated as the same class of shares regardless of differences in voting rights and privileges. It was
stressed herein that stressed that the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution is not complied with unless the corporation “satisfies the criterion of beneficial ownership”
and that in applying the same “the primordial consideration is situs of control.”
· On the other hand, in Opinion No. 23-10 dated 18 August 2010, applied the Voting Control Test,
that is, using only the voting stock to determine whether a corporation is a Philippine national.
· The opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and regulations.
· An SEC en banc ruling (in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.)
conforms to the 28 June 2011 Decision that the 60-40 ownership requirement in favor of Filipino citizens
in the Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. Thus, in the 28 June 2011 Decision, it
was stated:
§ Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional
mandate. Otherwise, the corporation is “considered as non-Philippine national[s].”
· The Foreign Investments Act, on the other hand, clearly and unequivocally defines a “Philippine
national” as a Philippine citizen, or a domestic corporation at least “60% of the capital stock outstanding
and entitled to vote” is owned by Philippine citizens.
· Intent of the framers of the Constitution: that the term “capital” refers to controlling interest.
· 60 percent of the “capital” assumes, or should result in, a “controlling interest” in the corporation.
· The use of the term “capital” was intended to replace the word “stock” because associations
without stocks can operate public utilities as long as they meet the 60-40 ownership requirement in favor
of Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this did not change
the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the “controlling
interest” in public utilities.
· The Constitution expressly declares as State policy the development of an economy “effectively
controlled” by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to be
deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to
meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting
rights is essential.” In effect, the FIA clarifies, reiterates and confirms the interpretation that the term
“capital” in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as
44
with full beneficial ownership. This is precisely because the right to vote in the election of directors,
coupled with full beneficial ownership of stocks, translates to effective control of a corporation.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be
entertained.
SO ORDERED.
Honey Fame L. Federico Topic: Control Test, Grandfather Rule
G.R. No. 195580 January 28, 2015

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT,
INC., and McARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
VELASCO, JR., J.:
Facts:
Narra and its co-petitioner corporations – Tesoro and MacArthur, filed a motion before the SC to
reconsider its April 21, 2014 Decision which upheld the denial of their MPSA applications. The SC
affirmed the CA ruling that there is a doubt to their nationality, and that in applying the Grandfather Rule,
the finding is that MBMI, a 100% Canadian-owned corporation, effectively owns 60% of the common
stocks of petitioners by owning equity interests of the petitioners’ other majority corporate shareholders.
Narra, Tesoro and MacArthur argued that the application of the Grandfather Rule to determine their
nationality is erroneous and allegedly without basis in the Constitution, the FIA, the Philippine Mining Act,
and the Rules issued by the SEC. These laws and rules supposedly espouse the application of the
Control Test in verifying the Philippine nationality of corporate entities for purposes of determining
compliance with Sec. 2, Art. XII of the Constitution that only corporations or associations at least 60% of
whose capital is owned by such Filipino citizens may enjoy certain rights and privileges, like the
exploration and development of natural resources.
Issue:
W/N the application by the SC of the grandfather resulted to the abandonment of the ‘control test’
Held:
No. The ‘control test’ can be applied jointly with the Grandfather Rule to determine the observance of
foreign ownership restriction in nationalized economic activities. The Control Test and the Grandfather
Rule are not incompatible ownership-determinant methods that can only be applied alternative to each
other. Rather, these methods can, if appropriate, be used cumulatively in the determination of the
ownership and control of corporations engaged in fully or partly nationalized activities, as the mining
operation involved in this case or the operation of public utilities.
45
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control
in a corporation, as it could result in an otherwise foreign corporation rendered qualified to perform
nationalized or partly nationalized activities. Hence, it is only when the Control Test is first complied with
that the Grandfather Rule may be applied. Put in another manner, if the subject corporation’s Filipino
equity falls below the threshold 60%, the corporation is immediately considered foreign-owned, in which
case, the need to resort to the Grandfather Rule disappears.
In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to have satisfied the 60-40
equity requirement. But the nationality of these corporations and the foreign-owned common investor that
funds them was in doubt, hence, the need to apply the Grandfather Rule.
WHEREFORE, We DENY the motion for reconsideration WITH FINALITY. No further pleadings shall be
entertained. Let entry of judgment be made in due course.
MARIA LEONILA VILLEGAS

TORT LIABILITY & DOCTRINE OF CORPORATE RESPONSIBILITY
G.R No. 126297 February 11, 2008, February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,
- versus -
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE

AGANA, Respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
NATIVIDAD (Substituted by her children MARCELINO AGANA III,

ENRIQUE AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA,
46
and RAYMUND AGANA) and ENRIQUE AGANA, Petitioners,
- versus -
THE COURT OF APPEALS and JUANFUENTES, Respondents,

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
MIGUEL AMPIL, Petitioner,
- versus -
THE COURT OF APPEALS and NATIVIDAD AGANA and

ENRIQUE AGANA, Respondents.
x---------------------------------------------------------x
J. SANDOVAL – GUTIERREZ
FACTS
On April 4, 1984, Natividad Agana was admitted at the Medical City because of difficulty of bowel
movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from cancer of the
sigmoid. An anterior resection surgery was performed upon her. During the surgery, he found that the
malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions
of it. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed
the operation and closed the incision. After a couple of days, Natividad complained of excruciating pain in
her anal region. Dr. Ampil and Dr. Fuentes told her that the pain was the natural consequence of the
surgical operation. Natividad went to the United States to seek further treatment. After four (4) months of
consultations and laboratory examinations, Natividad was told that she was free of cancer. Natividad flew
back to the Philippines, still suffering from pains. Two (2) weeks thereafter, her daughter found a piece of
gauze protruding from her vagina. Dr. Ampil managed to extract by hand a piece of gauze measuring 1.5
inches in width. However, the pains intensified. While confined, Dr. Ramon Gutierrez detected the
presence of a foreign object in her vagina -- a foul-smelling gauze measuring 1.5 inches in width. The
gauze had badly infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ
which forced stool to excrete through the vagina. Another surgical operation was needed to remedy the
situation. Natividad filed a complaint for damages, but died pending outcome of the case.
The trial court rendered judgment in favor of spouses Agana finding PSI, Dr. Ampil and Dr. Fuentes jointly
and severally liable. This was affirmed by the CA except as to Dr. Fuentes.
ISSUE: W/N PSI is liable for the acts of Dr. Ampil and Dr. Fuentes
47
HELD: YES
RATIO:
Jan 31, 2007 Decision: PSI is jointly and severally liable with Dr. Ampil for the following reasons: first,
there is an employer-employee relationship between Medical City and Dr. Ampil. Second, PSIs act of
publicly displaying in the lobby of the Medical City the names and specializations of its accredited
physicians, estopped it from denying the existence of an employer-employee relationship between them
under the doctrine of ostensible agency or agency by estoppel; and third, PSIs failure to supervise
Dr. Ampil and its resident physicians and nurses and to take an active step in order to remedy their
negligence rendered it directly liable under the doctrine of corporate negligence.
On Motion for Reconsideration: The duty of providing quality medical service is no longer the sole
prerogative and responsibility of the physician. This is because the modern hospital now tends to
organize a highly-professional medical staff whose competence and performance need also to be
monitored by the hospital commensurate with its inherent responsibility to provide quality medical care. [8]
Such responsibility includes the proper supervision of the members of its medical staff.
Accordingly, the hospital has the duty to make a reasonable effort to monitor and oversee the
treatment prescribed and administered by the physicians practicing in its premises.
Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate investigation on the
reported missing gauzes to the great prejudice and agony of its patient. Not only did PSI breach its
duty to oversee or supervise all persons who practice medicine within its walls, it also failed to
take an active step in fixing the negligence committed. This renders PSI, not only vicariously liable for
the negligence of Dr. Ampil under Article 2180 of the Civil Code, but also directly liable for its own
negligence under Article 2176.
WHEREFORE, we DENY PSIs motion for reconsideration with finality.
Saddam Hussein S. Balt Topic: Right to Moral Damages
G.R. No. 171182 August 23, 2012
University of the Philippines, Jose V. Abueva, Raul P. De Guzman, Ruben P. Aspiras, Emmanuel P.
Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, Petitioners
48
v.
HON. AGUSTIN S. DIZON, in his capacity as Presiding Judge of the Regional Trial Court of Quezon
City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA CRUZ, Respondents
BERSAMIN, J.:
FACTS:
University of the Philippines (UP) entered into a General Construction Agreement with respondent Stern
Builders, Inc. (Stern Builders) for the construction and renovation of the buildings in the campus of the UP
in Los Bas. UP was able to pay its first and second billing. However, the third billing worth P273,729.47
was not paid due to its disallowance by the Commission on Audit (COA). Thus, Stern Builders sued the
UP to collect the unpaid balance.
On November 28, 2001, the RTC rendered its decision ordering UP to pay Stern Builders. Then on
January 16, 2002, the UP filed its motion for reconsideration. The RTC denied the motion. The denial of
the said motion was served upon Atty. Felimon Nolasco (Atty.Nolasco) of the UPLB Legal Office on May
17, 2002. Notably, Atty. Nolasco was not the counsel of record of the UP but the OLS inDiliman, Quezon
City.
Thereafter, the UP filed a notice of appeal on June 3, 2002. However, the RTC denied due course to the
notice of appeal for having been filed out of time. On October 4, 2002, upon motion of Stern Builders, the
RTC issued the writ of execution.
On appeal, both the CA and the High Court denied UPs petition. The denial became final and executory.
Hence, Stern Builders filed in the RTC its motion for execution despite their previous motion having
already been granted and despite the writ of execution having already issued. On June 11, 2003, the
RTC granted another motion for execution filed on May 9, 2003 (although the RTC had already issued the
writ of execution on October 4, 2002). Consequently, the sheriff served notices of garnishment to the UPs
depositary banks and the RTC ordered the release of the funds.
ISSUE:
Whether or not Stern Builders, Inc. should be awarded moral damages amounting to P10,000,000.
RULING:
There was also no clear and distinct statement of the factual and legal support for the award of moral
damages in the substantial amount of P10,000,000.00. The award was thus also speculative and
whimsical. Like the actual damages, the moral damages constituted another judicial ipse dixit, the
inevitable consequence of which was to render the award of moral damages incapable of attaining
finality. In addition, the grant of moral damages in that manner contravened the law that permitted the
recovery of moral damages as the means to assuage “physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.” The
contravention of the law was manifest considering that Stern Builders, as an artificial person, was
incapable of experiencing pain and moral sufferings. Assuming that in granting the substantial amount of
P10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had himself suffered
mental anguish and anxiety. If that was the case, then the RTC obviously disregarded his separate and
distinct personality from that of Stern Builders. Moreover, his moral and emotional sufferings as the
49
President of Stern Builders were not the sufferings of Stern Builders. Lastly, the RTC violated the basic
principle that moral damages were not intended to enrich the plaintiff at the expense of the defendant, but
to restore the plaintiff to his status quo ante as much as possible. Taken together, therefore, all these
considerations exposed the substantial amount of P10,000,000.00 allowed as moral damages not only to
be factually baseless and legally indefensible, but also to be unconscionable, inequitable and
unreasonable.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the
decision of the Court of Appeals under review; ANNULS the orders for the garnishment of the funds of the
University of the Philippines and for the release of the garnished amount to Stern Builders Corporation
and Servillano dela Cruz; and DELETES from the decision of the Regional Trial Court dated November
28,2001 for being void only the awards of actual damages of 5,716,729.00, moral damages of ~1
0,000,000.00, and attorney's fees of P150,000.00, plus P1,500.00 per appearance, in favor of Stern
Builders Corporation and Servillano dela Cruz.
Carla Angela D. Villadolid Topic: Right to moral damages
G.R. No. 128690. January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS,

REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO,
respondents.
DAVIDE, JR., C.J.
FACTS:
· In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby Viva gave ABS-
CBN an exclusive right to exhibit some Viva films.
· Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-
Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first
refusal. ABS-CBN, can tick off only ten (10) titles.
· In 1992, defendant Del Rosario approached Ms. Concio, with a list consisting of 52 original
movie titles including the 14 titles subject of the present case. He proposing to sell to ABS-CBN airing
rights over this package of 52 originals and 52 re-runs for P60,000,000.00.
· Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met to discuss the package
proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting versions. Mr.
Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million. On the other hand, Del
Rosario denied having made any agreement with Lopez regarding the 14 Viva films, and insisted that
what he and Lopez discussed at the lunch meeting was Viva’s film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60 million.
· 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.
· After the rejection of ABS-CBN and following several negotiations and meetings Del Rosario and
Viva’s President Teresita Cruz, in consideration of P60 million, signed a letter of agreement granting
RBS the exclusive right to air 104 Viva-produced and/or acquired films including the fourteen (14)
films subject of the present case.
· ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic
50
Broadcasting Corporation (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. On 28 May 1992, the RTC issued a temporary restraining order enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films
subject of the controversy.
· RTC: rendered in favor of defendants and against the plaintiff. Among its orders, the RTC
ordered ABS-CBN to also pay P5M as and by way of moral damages.
· ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract
between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films.
Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages
and additional attorneys fees.
· CA: Agreed with the RTC. But reduced the awards of moral damages to P 2 million
· Hence, this petition
ISSUES:
1. Was there a perfected contract between ABSCBN and Viva?
2. Did the CA err in awarding moral damages to RBS?
HELD:
1. None. Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once
there is concurrence between the offer and the acceptance upon the subject matter, consideration, and
terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract,
the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. In the case at bar, ABS-
CBN made no unqualified acceptance of VIVA’s offer hence, they underwent period of bargaining. ABS-
CBN formalized its counter-proposals or counter-offer in a draft contract and VIVA through its Board of
Directors, rejected such counter-offer.
Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate
such powers to either an executive committee or officials or contracted managers. The delegation, except
for the executive committee, must be for specific purposes. Delegation to officers makes the latter agents
of the corporation. For such officers to be deemed fully clothed by the corporation to exercise a power of
the Board, the latter must specially authorize them to do so. Del Rosario did not have the authority to
accept ABS-CBNs counter-offer was best evidenced by his submission of the draft contract to VIVAs
Board of Directors for the latters approval. In any event, there was between Del Rosario and Lopez III no
meeting of minds.
2. No. Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer. The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion,
or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate
to the suffering inflicted.
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 can be experienced
only by one having a nervous system. The statement in People v. Manero and Mambulao Lumber Co. v.
PNB that 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.
51
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.
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
There is no adequate proof that ABS-CBN was inspired by malice or bad faith.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in is
hereby REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.
JOHN PAUL MAANDAL TOPIC: CONSTITUTIONAL RIGHTS
G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,
COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.
SIACUNCO, et al., respondents.
FACTS: This case stemmed from the issuance of the Office of the President Executive Orders 1 and 2
mainly to sequester the Properties allegedly ill gotten by the previos president Ferdinand Marcos. The
executive Order mainly orders PCGG to sequester numerous companies including the petitioner may
require the sequestered corporation to submit and produce all corporate documents and take over the
administration thereto pending the investigation and final recommendation of the PCGG.
BASECO contends that its right against self incrimination and unreasonable searches and seizures had
been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from
1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon
the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring * * the production of such books, papers, contracts, records, statements of accounts and other
documents as may be material to the investigation conducted by the Commission, " and paragraph (3),
Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged
"ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same * *."
BASECO further theorizes that the executive orders in question are a bill of attainder. "A bill of attainder
is a legislative act which inflicts punishment without judicial trial. "Its essence is the substitution of a
legislative for a judicial determination of guilt."
52
ISSUES: 1. Can the Executive Orders 1 and 2 be considered as Bill of Attainder?
2. Does Executive Ordera and 2 violates the right against self incrimination towards a
corporation?
HELD:
1. The Supreme Court did sustain the theory of the Petitioner and stated that nothing in the
executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary,
the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of
guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this
case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no
punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately
make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.
2.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 *
Relevant jurisprudence is also cited by the Solicitor General. * * corporations are not entitled to all of the
constitutional protections which private individuals have. * * They are not at all within the privilege against
self-incrimination, although this court more than once has said that the privilege runs very closely with the
4th Amendment's Search and Seizure provisions. 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." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor
General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the
public. It received certain special privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the
laws of its creation. 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. The defense amounts to this, that an officer of the
corporation which is charged with a criminal violation of the statute may plead the criminality of such
corporation as a refusal to produce its books. To state this proposition is to answer it. 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. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's])
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is
lifted.
53
Fernandez, Napolyn P. Topic: Constitutional Rights
G.R. No. L-32409. February 27, 1971
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO
M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO,
RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE,
JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A.
Ramirez and Special Attorney Jaime M. Maza for Respondents.
VILLAMOR, J.:
Facts:
· This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction.
· Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the
Philippines, and its President, Frederick E. Seggerman, pray for the following:
o to declare null and void Search Warrant No. 2-M-70
54
o to order respondents to desist from enforcing the same and/or keeping the documents, papers
and effects seized by virtue
o as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners
to have been made on the basis of the said documents, papers and effects and
o to order the return of the latter to petitioners.
· Respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for
violation of Section 46(a) of the National Internal Revenue Code particularly Sections 53, 72, 73, 208 and
209, and authorizing Revenue Examiner Rodolfo de Leon, one of respondents, to make and file the
application for search warrant which was attached to the letter.
· The following day, respondent De Leon and his witness, respondent Arturo Logronio, went to the
Court of First Instance of Rizal to apply for a search warrant. At that time respondent Judge was hearing
a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of
respondents De Leon and Logronio.
· The stenographer read to the Judge her stenographic notes; and thereafter, respondent Judge asked
respondent Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon’s
application for search warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was
then sign by respondent Judge and accordingly issued.
· On February 25, 1970, the BIR agents served the search warrant petitioners at the offices of
petitioner corporation on Ayala Avenue, Makati, Rizal.
· Petitioners’ lawyers protested the search but the agents proceeded with their search which yielded
six boxes of documents.
· On April 16, 1970, the BIR made tax assessments on petitioner corporation in the total sum of
P2,594,729.97 based on the documents thus seized.
Issue: Was the right of the corporation to due process violated?
Held: Yes
1. Respondent Judge failed to personally examine the complainant and his witness.
Personal examination by the judge of the complainant and his witnesses to determine existence of
probable cause is required under Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the
Revised Rules of Court. In the case at bar, no personal examination at all was conducted by respondent
Judge of the complainant and his witness. The participation of respondent Judge in the proceedings
which led to the issuance of Search Warrant No. 2-M-70 was limited to listening to the stenographer’s
readings of her notes, to a few words of warning against the commission of perjury, and to administering
the oath to the complainant and his witness.
2. The search warrant was issued for more than one specific offense.
The search warrant in question was issued for at least four distinct offenses under the Tax Code: Sec.
46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the
violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208
(unlawful pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a
55
return of receipts, sales, business or gross value of output actually removed or to pay the tax due
thereon).
3. The search warrant does not particularly describe the things to be seized.
The warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners, regardless of whether the transactions were legal or illegal. The warrants sanctioned the
seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus
openly contravening the explicit command of our Bill of Rights — that the things to be seized be
particularly described — as well as tending to defeat its major objective: the elimination of general
warrants."
4. The tax assessments referred to earlier in this opinion were based on the documents seized by virtue
of Search Warrant No. 2-M-70.
The fact that the assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for the
assessments.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the
said search warrant; the documents, papers and effects seized thereunder are ordered to be returned to
petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition, as
well as other assessments based on the documents, papers and effects seized under the search warrant
herein nullified, and from using the same against petitioners in any criminal or other proceeding. No
pronouncement as to costs.
Alexis B. Dulay Attributes of Corporation; Constitutional Rights
Case No. 26
G.R. No. L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his
capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO
D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G.
REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal
Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City
Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.
56
FACTS:
· In violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the
Revised Penal Code, 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, and to seize and take possession of their books of accounts, financial records, vouchers,
correspondence, receipts, ledgers, journals, portfolios, credit journals, typewriters, and other documents
and/or papers showing all business transactions including disbursements receipts, balance sheets and
profit and loss statements and Bobbins (cigarette wrappers) which are the subject of the offense.
● Petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus
and injunction, and prayed that, pending final disposition of the present case, a writ of preliminary
injunction be issued alleging the search warrants to be void since: (1) they do not describe with
particularity the documents, books and things to be seized; (2) cash money, not mentioned in the
warrants, were actually seized; (3) the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them; (4) the searches and seizures
were made in an illegal manner; and (5) the documents, papers and cash money seized were not
delivered to the courts that issued the warrants, to be disposed of in accordance with law.
ISSUE: W/N the seizure is valid.
HELD: YES. Warrants for the search of three residences are null and void; searches and seizures made
are illegal; that the writ of preliminary injunction issued
· The documents, papers, and things seized under the alleged authority of the warrants in question
may be split into two (2) major groups, namely:
o (1) those found and seized in the offices of the aforementioned corporations, and
§ have no cause of action to assail the legality of the contested warrants and of the seizures made in
pursuance thereof, for the simple reason that said corporations have their respective personalities,
separate and distinct from the personality of herein petitioners, regardless of the amount of shares of
stock or of the interest of each of them in said corporations, and whatever the offices they hold therein
may be.
§ question of the lawfulness of a seizure can be raised only by one whose rights have been invaded.
Certainly, such a seizure, if unlawful, could not affect the constitutional rights of defendants whose
property had not been seized or the privacy of whose homes had not been disturbed
o (2) those found and seized in the residences of petitioners herein.
· Two points must be stressed in connection with this constitutional mandate, namely:
o (1) that no warrant shall issue but upon probable cause, to be determined by the judge in the manner
set forth in said provision; and
o (2) that the warrant shall particularly describe the things to be seized
§ 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, regardless of whether the transactions were legal or illegal.
o 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, 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.
o 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.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned;
that the warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution
of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that the writ
of preliminary injunction heretofore issued, in connection with the documents, papers and other effects
57
thus seized in said residences of herein petitioners is hereby made permanent; that the writs prayed for
are granted, insofar as the documents, papers and other effects so seized in the aforementioned
residences are concerned; that the aforementioned motion for Reconsideration and Amendment should
be, as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other
premises enumerated in the same Resolution, without special pronouncement as to costs.
Antonio S. Pagsibigan Jr. Topic: Definitions and Attributes of Corporation

Subtopic: Criminal Liability
G. R. No. 164317 February 6, 2006
ALFREDO CHING, Petitioner,

vs.
58
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL
BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.
CALLEJO, SR., J.:
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?
Ruling:
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.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioner.
SO ORDERED
59
Del Rosario, Michel Andre P. Criminal Liability
First Division
G.R. No. 182147 December 15, 2010
Arnel U. Ty, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and ALVIN TY,
vs.
NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL DEALERS ASSOCIATION, and
TOTALGAZ DEALERS ASSOCIATION
Velasco, Jr., J.
FACTS:
Petitioners are stockholders of Omni Gas Corporation ("Omni"). They are being suspected of
engaging in illegal trading of petroleum products and underfilling of branded LPG cylinders in violation of
B.P. 33, as amended by P.D. 1865. NBI Agents Marvin De Jemil and Edgardo Kawada conducted
surveillance operations on Omni. On 15 April 2004, the NBI Agents carried out a test-buy. Using eight
branded LPG cylinders from Shell, Petron and Total, they went to Omni for refilling. Omni refilled the
cylinders. The NBI agents paid more than P1500. LPG Inspector Noel Navio found that the LPG cylinders
were without LPG valve seals and one of the cylinders was actually underfilled.
On 28 April 2004, Agent De Jemil obtained a search warrant from Pasig RTC branch 167. The NBI seized
several items from Omni's premises. Subsequently, Agent De Jemil filed his Complaint-Affidavit before
the DOJ. The Assistant City Prosecutor of Pasig found probable cause for violation of BP 33. This was
later approved by Chief State Prosecutor Jovencito Zuno.
Petitioners appealed the decision to the Secretary of Justice, who later reversed the decision of the Office
of the Chief State Prosecutor. NBI Agent De Jemil moved for reconsideration. Denied. He thus filed a
petition for certiorari under Rule 65 with the Court of Appeals.
60
The Court of Appeals affirmed the decision of Secretary of Justice. It later reversed itself and reinstated
the Resolution of the Chief State Prosecutor.
ISSUE:
Whether petitioners can be held liable for violations of BP 33?
HELD:
YES.
RATIO:
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.
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
61
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 corporation or juridical entity. In short, they are operating officers of a
business concern, while the last in the list is self-explanatory.
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
62
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.
FALLO:
WHEREFORE, premises considered, we PARTIALLY GRANT the instant petition. Accordingly, the
assailed September 28, 2007 Decision and March 14, 2008 Resolution of the Court of Appeals in CA-
G.R. SP No. 98054 are AFFIRMED with MODIFICATION that petitioners Mari Antonette Ty, Jason Ong,
Willy Dy and Alvin Ty are excluded from the two Informations charging probable violations of Batas
Pambansa Bilang 33, as amended. The Joint Resolution dated November 7, 2005 of the Office of the
Chief State Prosecutor is modified accordingly.
No pronouncement as to costs.
So Ordered.
Bernabe, Jayson B. Classes of Corporation

G.R. No. 177131 June 7, 2011
BOY SCOUTS OF THE PHILIPPINES, Petitioner,
vs.
63
COMMISSION ON AUDIT, Respondent.
Facts:
COA issued Resolution No. 99-011 on Aug. 19, 1999 with the subject “Defining the Commission’s policy
with respect to the audit of the Boy Scouts of the Philippines”. This resolution stated that the BSP was
created as a public corporation under Commonwealth Act No. 111, as amended by PD No. 460 and RA
7278; and in the case of BSP vs NLRC the Supreme Court held that the BSP, under its charter, was a
“government controlled corporation within the meaning of Art. IX (B) (2) (1) of the Constitution” and that
“the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code”.
BSP sought reconsideration from the COA resolution in a letter signed by the BSP president Jejomar C.
Binay. 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. It does not receive special funds from the government nor
was there any appropriation of special funds for it. Funds of BSP came from donations or membership
fees. It cannot also be considered an “agency” as it is only an “attached-agency” to DECS.
Issue:
WON BSP is considered a public corporation subject to COA’s jurisdiction?
Held:
Yes.
BSP’s charter (Commonwealth Act No. 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”.
The amendment of RA 7278 only reduced the government representation in its governing body. And
being an “attached-agency” does not make it a private corporation.

Topic: Classes of Corporations
THIRD DIVISION
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY
(PRA), Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
MENDOZA, J.:
Facts:
· This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on
pure questions of law, assailing the January 8, 2010 Order 1 of the Regional Trial Court, Branch 195,
Paranaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a
64
government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, . not exempt from
payment of real property taxes.
· The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took effect on February 4,1977 to provide a
coordinated, economical and efficient reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by, the government with the object of maximizing their utilization
and hastening their development consistent with public interest.
· By virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA was
designated as the agency primarily responsible for integrating, directing and coordinating all reclamation
projects for and on behalf of the National Government.
· President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA, which shall
perform all the powers and functions of the PEA relating to reclamation activities.
· By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Parañaque City, and was issued Original Certificates of Title (OCT
Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312,
7309, 7311, 9685, and 9686) over the reclaimed lands.
· Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on PRA’s
reclaimed properties (Central Business Park and Barangay San Dionisio) located in Parañaque City
based on the assessment for delinquent real property taxes made by then Parañaque City Assessor
Soledad Medina Cue for tax years 2001 and 2002.
· PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or writ of
preliminary injunction against Carabeo before the RTC.
· After due hearing, the RTC issued an order denying PRA’s petition for the issuance of a temporary
restraining order.
· PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the
subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public
auction could not be deferred because the RTC had already denied PRA’s TRO application.
· RTC denied PRA’s prayer for the issuance of a writ of preliminary injunction for being moot and
academic considering that the auction sale of the subject properties on April 7, 2003 had already been
consummated.
· After an exchange of several pleadings and the failure of both parties to arrive at a compromise
agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought
to declare as null and void the assessment for real property taxes, the levy based on the said
assessment, the public auction sale conducted on April 7, 2003, and the Certificates of Sale issued
pursuant to the auction sale.
· RTC rendered its decision dismissing PRA’s petition. In ruling that PRA was not exempt from
payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No.
1084. It was organized as a stock corporation because it had an authorized capital stock divided into no
par value shares. In fact, PRA admitted its corporate personality and that said properties were registered
in its name as shown by the certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn
by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the
prevailing law in 2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax
exemption claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160
and that PRA failed to comply with the procedural requirements in Section 206 thereof.
Issues:
I
65
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT
AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS
234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS-À-VIS
MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE
PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.
Ruling:
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." Further, Section 88 provides that non-stock corporations are "organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and like chambers." Two requisites must
concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided
into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its
stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for
non-stock corporations, they must have members and must not distribute any part of their income to said
member. In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 7 4 of P.D. No. 1084, it is not authorized to
distribute dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in
P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No.
525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus allotments or
profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A non-
stock corporation must have members.8 Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all government
reclamation projects.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch
195, Parañaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine
Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque
on the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and the Certificates of
Sale subsequently issued by the Parañaque City Treasurer in favor of the City of Parañaque, are all
declared VOID.
SO ORDERED.
66
Saddam Hussein S. Balt Topic: Classes of Corporations
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, Petitioner

v.
THE CLUB FILIPINO, INC. DE CEBU, Respondent
PAREDES, J.:
FACTS:
The Club Filipino, is a civic corporation organized under the laws of the Philippines with an original
authorized capital stock of P22,000, which was subsequently increased to P200,000 to operate and
maintain a golf course, tennis, gymnasiums, bowling alleys, billiard tables and pools, and all sorts of
games not prohibited by general laws and general ordinances, and develop and nurture sports of any
kind and any denomination for recreation and healthy training of its members and shareholders" (sec. 2,
Escritura de Incorporacion (Deed of Incorporation) del Club Filipino, Inc.). There is no provision either in
the articles or in the by-laws relative to dividends and their distribution, although it is covenanted that
upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Phil.
Institution in Cebu (Art. 27, Estatutos del (Statutes of the) Club).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to
its members and their guests. The bar-restaurant was a necessary incident to the operation of the club
and its golf-course. The club is operated mainly with funds derived from membership fees and dues.
Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In
1951, as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price
of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to
the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its
bar and restaurant, although it secured licenses. In a letter, the Collector assessed against and
demanded from the Club P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty.
Also, the Collector denied the Club’s request to cancel the assessment.
On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the assessed tax
liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is a non-stock
corporation. Hence, the Collector filed the instant petition for review.
ISSUE:
Whether or not Club Filipino is a stock corporation.
RULING:
No. It is a non-stock corporation. The facts that the capital stock of the Club is divided into shares, does
not detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its object or
67
purpose, as stated in its articles and by-laws. The actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the extrinsic evidence adduced, the CTA
concluded that the Club is not engaged in the business as a barkeeper and restaurateur.
As provided by Section 3 of the Corporation Code, for a stock corporation to exist, two requisites must be
complied with:
1. a capital stock divided into shares and

2. an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on
the basis of the shares held.
Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation,
within the contemplation of the Corporation Law.
WHEREFORE, the decision appealed from is affirmed without costs.
Estayo Lalaine A Classes of Corporation
Dante Liban v Richard Gordon

GR 175352, January 18, 2011
FACTS
Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City Red Cross
Chapter, filed with the Supreme Court a “Petition to Declare Richard J. Gordon as Having Forfeited His
Seat in the Senate” against respondent Gordon, who was elected Chairman of the Philippine National
Red Cross (PNRC) Board of Governors during his incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors, respondent
Gordon ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the Constitution, which
provides that “[n]o Senator . . . may hold any other office or employment in the Government, or any
subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or
their subsidiaries, during his term without forfeiting his seat.” .
Formerly, in its Decision dated July 15, 2009, the Court, held that the office of the PNRC Chairman is
NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of
the 1987 Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is not
appointed by the President or by any subordinate government official. Moreover, the PNRC is NOT a
GOCC because it is a privately-owned, privately-funded, and privately-run charitable organization and
because it is controlled by a Board of Governors four-fifths of which are private sector individuals.
Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman
during his incumbency as Senator.
68
The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is
void insofar as it creates the PNRC as a private corporation since Section 7, Article XIV of the 1935
Constitution states that “[t]he Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or controlled by
the Government or any subdivision or instrumentality thereof.” The Court thus directed the PNRC to
incorporate under the Corporation Code and register with the Securities and Exchange Commission if it
wants to be a private corporation.
Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC
likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically
questioned the second part of the Decision with regard to the pronouncement on the nature of the PNRC
and the constitutionality of some provisions of the PNRC Charter.
ISSUE: What is the nature of the PNRC?
RULING
The passage of several laws relating to the PNRC’s corporate existence notwithstanding the effectivity of
the constitutional proscription on the creation of private corporations by law is a recognition that the
PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional
ban.
A closer look at the nature of the PNRC would show that there is none like it, not just in terms of structure,
but also in terms of history, public service and official status accorded to it by the State and the
international community. There is merit in PNRC’s contention that its structure is sui generis. It is in
recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective
from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of
the 1973 Constitution and the 1987 Constitution
The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can
neither “be classified as an instrumentality of the State, so as not to lose its character of neutrality” as well
as its independence, nor strictly as a private corporation since it is regulated by international humanitarian
law and is treated as an auxiliary of the State.
Although the PNRC is neither a subdivision, agency, or instrumentality of the government, nor a GOCC or
a subsidiary thereof . . . so much so that respondent, under the Decision, was correctly allowed to hold
his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not
ipso facto imply that the PNRC is a “private corporation” within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code
PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian
field in accordance with its commitments under international law. This Court cannot all of a sudden
refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter
was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all
national disasters since 1947, and is widely known to provide a substantial portion of the country’s blood
requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the
core in an untimely and drastic manner that would not only have negative consequences to those who
depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the
69
Philippines in the international community. The sections of the PNRC Charter that were declared void
must therefore stay.
[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive
portion of the Decision by deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution.]
RAMOS, FORRAH MAE G. TOPIC : Classes of Corporation
G.R. No. 199440, January 18, 2016
MARY LOU GETURBOS TORRES, Petitioner, v.

CORAZON ALMA G. DE LEON, IN HER CAPACITY AS SECRETARY GENERAL OF THE PHILIPPINE
NATIONAL RED CROSS AND THE BOARD OF GOVERNORS OF THE PHILIPPINE NATIONAL RED
CROSS,
NATIONAL HEADQUARTERS, Respondents.
PERALTA, J.:
FACTS:
When petitioner was the Chapter Administrator of the PNRC, General Santos City Chapter, the PNRC
Internal Auditing Office conducted an audit of the funds and accounts of the PNRC, General Santos City
Chapter for the period November 6, 2002 to March 14, 2006, and based on the audit report
submitted to respondent Corazon Alma G. De Leon (De Leon), petitioner incurred a "technical shortage"in
the amount of P4,306,574.23. Respondent De Leon charged petitioner with Grave Misconduct for
violating PNRC Financial Policies on Oversubscription, Remittances and Disbursement of Funds.
70
After investigation, respondent issued a memorandum imposing penalties of one month suspension and
transfer to national headquarters.
ISSUE :
W/N THE COURT A QUO ERRED IN NOT FINDING THAT THE CIVIL SERVICE COMMISSION
(CSC)
HAS NO APPELLATE JURISDICTION OVER THE CASE
HELD: YES
As ruled by this Court in Liban, et al. v. Gordon,3 the PNRC, although not a GOCC, is sui generis in
character, thus, requiring this Court to approach controversies involving the PNRC on a case-to-case
basis. As discussed:
A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure,
but also in terms of history, public service and official status accorded to it by the State and the
international community. There is merit in PNRC's contention that its structure is sui generis.
National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in
the humanitarian field and provide a range of services including disaster relief and health and social
programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position Paper,
submitted by the PNRC, is instructive with regard to the elements of (he specific nature of the National
Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red Crescent
Societies, have certain specificities deriving from the 1949 Geneva Convention and the Statutes of the
International Red Cross and Red Crescent Movement (the Movement). They are also guided by the
seven Fundamental Principles of the Red Cross and Red Crescent Movement: Humanity, Impartiality,
Neutrality, Independence, Voluntary Service, Unity and Universality.
A National Society partakes of a sui generis character. It is a protected component of the Red Cross
movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed conflict.
These provisions require that the staff of a National Society shall be respected and protected in all
circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary private
entities or even non-governmental organizations (NGOs). This sui generis character is also emphasized
by the Fourth Geneva Convention which holds that an Occupying Power cannot require any change in
the personnel or structure of a National Society. National societies are therefore organizations that are
directly regulated by international humanitarian law, in contrast to other ordinary private entities, including
NGOs.In addition, National Societies are not only officially recognized by their public authorities as
voluntary aid societies, auxiliary to the public authorities in the humanitarian field, but also benefit from
recognition at the International level. This is considered to be an element distinguishing National Societies
from other organizations (mainly NGOs) and other forms of humanitarian response.No other organization
belongs to a world-wide Movement in which all Societies have equal status and share equal
responsibilities and duties in helping each other. This is considered to be the essence of the Fundamental
Principle of Universality.Furthermore, the National Societies are considered to be auxiliaries to the public
authorities in the humanitarian field, x x x.
The auxiliary status of a Red Cross Society means that it is at one and the same time a private institution
and a public service organization because the very nature of its work implies cooperation with the
authorities, a link with the State. In carrying out their major functions, Red Cross Societies give their
humanitarian support to official bodies, in general having larger resources than the Societies, working
towards comparable ends in a given sector.
71
No other organization has a duty to be its government's humanitarian partner while remaining
independent.It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained
valid and effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and
during the effectivity of the 1973 Constitution and the 1987 Constitution.The PNRC Charter and its
amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case
lie fore the
Court now.
By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the
Decision of July 15, 2009 lost sight of the PNRC's special status under international humanitarian law and
as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva
Conventions. Although the PNRC is called to be independent under its Fundamental Principles, it
interprets such independence as inclusive of its duty to be the government's humanitarian partner. To be
recognized in the International Committee, the PNRC must have an autonomous status, and carry out its
humanitarian mission in a neutral and impartial manner.However, in accordance with the Fundamental
Principle of Voluntary Service of National Societies of the Movement, the PNRC must be distinguished
from private and profit-making entities. It is the main characteristic of National Societies that they "are not
inspired by the desire for financial gain but by individual commitment and devotion to a humanitarian
purpose freely chosen or accepted as part of the service that National Societies through its volunteers
and/or members render to the Community."The PNRC, as a National Society of the international Red
Cross and Red Crescent Movement, can neither "be classified as an instrumentality of the State, so as
not to lose its character of neutrality" as well as its independence, nor strictly as a private corporation
since it is regulated by international humanitarian law and is treated as an auxiliary of the State.
Based on the above, the sui generis status of the PNRC is now sufficiently established. Although it is
neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -
controlled corporation or a subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so
much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the
PNRC is a "private corporation" within the contemplation of the provision of the Constitution, that must be
organized under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui
generis character of PNRC requires us to approach controversies involving the PNRC on a casc-to-case
basis.
In this particular case, the CA did not err in ruling that the CSC has jurisdiction over the PNRC because
the issue at hand is the enforcement of labor laws and penal statutes, thus, in this particular matter, the
PNRC can be treated as a GOCC, and as such, it is within the ambit of Rule 1, Section 1 of the
Implementing Rules of Republic Act 67135, stating that:
Section 1. These Rules shall cover all officials and employees in the government, elective and appointive,
permanent or temporary, whether in the career or non-career service, including military and police
personnel, whether or not they receive compensation, regardless of amount.
Thus, having jurisdiction over the PNRC, the CSC had authority to modify the penalty and order the
dismissal of petitioner from the service. Under the Administrative Code of 1987,6 as well as decisions7 of
this Court, the CSC has appellate jurisdiction on administrative disciplinary cases involving the imposition
of a penalty of suspension for more than thirty (30) days, or fine in an amount exceeding thirty (30) days
salary. The CA, therefore, did not err when it agreed with the CSC that the latter had appellate
jurisdiction, thus:
The Court cites with approval the disquisition of the CSC in this regard:
The Commission is fully aware that under the Civil Service Law and rules and jurisprudence, it has
appellate jurisdiction only on administrative disciplinary cases involving the imposition of a penalty of
suspension for more than thirty (30) days, or fine in an amount exceeding thirty (30) days' salary.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court dated December
23, 2011 of petitioner Mary Lou Geturbos Torres is DENIED for lack of merit. The Decision of the Court of
Appeals, dated June 30, 2011, is therefore AFFIRMED.
72
Tweety T. Tuazon Topic: Nature and Classes of Shares
[G.R. No. 51765. March 3, 1997]
REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as Presiding Judge,
Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY &
DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents.
HERMOSISIMA, JR., J.:
Facts:
· On September 18, 1961, private respondent Corporation secured a loan from petitioner in the
amount of P120,000.00.
· As part of the proceeds of the loan, two stock certificates, numbered 3204 and 3205, each for 400
shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00 were issued
to private respondent Corporation, through its officers then, private respondent Adalia F. Robes and one
Carlos F. Robes.
· Said certificates of stock bear the following terms and conditions:
"The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating.
xxx
2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after two (2)
years from the date of issue at the option of the Corporation. x x x."
· On January 31, 1979, private respondents filed a complaint against petitioner anchored on private
respondents' alleged rights to collect dividends under the preferred shares in question and to have
petitioner redeem the same under the terms and conditions of the stock certificates.
· The trial court rendered judgment in favor of private respondents.
Issue: W/N petitioner can be compelled to pay the interest and redeem the preferred shares of private
respondent.
Held: No. A preferred share of stock, on one hand, is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed to induce persons to
subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most common
forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to
73
dividends. The former is a share which gives the holder thereof preference in the distribution of the assets
of the corporation in case of liquidation; the latter is a share the holder of which is entitled to receive
dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of
common stock. There is no guaranty, however, that the share will receive any dividends. Under the old
Corporation Law in force at the time the contract between the petitioner and the private respondents was
entered into, it was provided that "no corporation shall make or declare any dividend except from the
surplus profits arising from its business, or distribute its capital stock or property other than actual profits
among its members or stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution.” Similarly, the present Corporation Code provides that the
board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings.
Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted
retained earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do not
give them a lien upon the property of the corporation nor make them creditors of the corporation, the right
of the former being always subordinate to the latter. Dividends are thus payable only when there are
profits earned by the corporation and as a general rule, even if there are existing profits, the board of
directors has the discretion to determine whether or not dividends are to be declared. Shareholders, both
common and preferred, are considered risk takers who invest capital in the business and who can look
only to what is left after corporate debts and liabilities are fully paid.
Redeemable shares, on the other hand, are shares usually preferred, which by their terms are
redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at a
certain redemption price. A redemption by the corporation of its stock is, in a sense, a repurchase of it for
cancellation. The present Code allows redemption of shares even if there are no unrestricted retained
earnings on the books of the corporation. This is a new provision which in effect qualifies the general rule
that the corporation cannot purchase its own shares except out of current retained earnings. However,
while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings,
this is subject to the condition that the corporation has, after such redemption, assets in its books to cover
debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet
its debts as they mature
As pointed out by the petitioner, the Central Bank made a finding that said petitioner has been suffering
from chronic reserve deficiency, and that such finding resulted in a directive, issued on January 31, 1973
by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the
petitioner bank prohibiting the latter from redeeming any preferred share, on the ground that said
redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid reason.
Also, there is no legal basis for the order of issuance of dividends. Both Sec. 16 of the Corporation Law
and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the
approval of 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. Furthermore, "interest
bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of interest as dividends from
net earnings or surplus only.
WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The challenged
decision of respondent judge is set aside and the complaint against the petitioner is dismissed.
Costs against the private respondents.
74
Karl Anthony T. Dionisio Corporate Contract Law
JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT
OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA
NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT
MARINE SCHOOL, INC., respondents.
GR No. 131394 | March 28, 2005
Facts:
Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 41473 promulgated on
18 August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution of the Court of Appeals
dated 31 October 1997 which denied petitioners’ motion for reconsideration. In 1952, the Philippine
Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and
seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of
incorporation Onrubia et. al, who were in control of PMMSI registered the company’s stock and transfer
book for the first time in 1978, recording thirty-three (33) common shares as the only issued and
outstanding shares of PMMSI. In 1979, a special stockholders’ meeting was called and held on the basis
of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-
thirds (2/3) of the common shares issued and outstanding.. In 1982, Juan Acayan, 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. SEC en banc: affirmed the decision
As a result, the shares of Acayan were recorded in the stock and transfer book. On May 6, 1992, a
special stockholders’ meeting was held to elect a new set of directors. Onrubia et al filed a petition with
75
SEC questioning the validity of said meeting alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial
subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation
Petition was dismissed
SC en banc: shares of the deceased incorporators should be duly represented by their respective
administrators or heirs concerned. 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
Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising
the following issues:
1. whether the basis the outstanding capital stock and accordingly also for determining the quorum at
stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of
incorporation
(They contended that the basis is the stock and transfer book, not articles of incorporation in computing
the quorum)
2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose
Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al
· CA decision:
1. For purposes of transacting business, the quorum should be based on the outstanding capital
stock as found in the articles of incorporation
2. To require a separate judicial declaration to recognize the shares of the original incorporators
would entail unnecessary delay and expense. Besides. the incorporators have already proved their
stockholdings through the provisions of the articles of incorporation.
Appeal was made by Lanuza et al before the SC
Lanuza et al’ contention:
a. 1992 stockholders’ meeting was valid and legal
b. 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
c. 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, based on the Memorandum: petition should be dismissed on the ground
of res judicata
Another appeal was made, Lanuza et al’s contention was that the instant petition is separate and
distinct from G.R. No. 131315, there being no identity of parties, and more importantly, 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?
Ruling:
· Articles of Incorporation
- Defines the charter of the corporation and the contractual relationships between the State and the
corporation, the stockholders and the State, and between the corporation and its stockholders.
- Contents are binding, not only on the corporation, but also on its shareholders.
· Stock and transfer book
76
- Book which records the names and addresses of all stockholders arranged alphabetically, the
installments paid and unpaid on all stock for which subscription has been made, and the date of payment
thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to
whom made; and such other entries as may be prescribed by law
- necessary as a measure of precaution, 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, and thus is not exclusive evidence of the matters and things which ordinarily are
or should be written therein
· In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators
were bona fide stockholders of 700 founders’ shares and 76 common shares. Hence, at that time, the
corporation had 776 issued and outstanding shares.
· According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders representing a
majority of the outstanding capital stock.” As such, quorum is based on the totality of the shares which
have been subscribed and issued, whether it be founders’ shares or common shares
· To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and
transfer book, 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.
· 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, 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.
· 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.
· It is no less than the articles of incorporation that declare the incorporators to have in their name
the founders and several common shares. Thus, 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
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against
petitioners.
77
Petrache, Ria Kriselle P. Topic: Purpose Clause
G.R. No. 156819. December 11, 2003

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-
INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL
E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S.
MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N.
BATICULON, respondents.
YNARES-SANTIAGO, J.:
FACTS: Ellice Agro-Industrial Corporation was formed by spouses Manuel and Alicia Gala, their children
Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian
Jader. The spouses transferred several parcels of land as payment of their subscriptions. Subsequently,
Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader incorporated the Margo
Management and Development Corporation. Manuel Galathen transferred his shares in Ellice to Margo
and Raul Gala. Alicia transferred her shares to de Villa, Ofelia, Raul and Margo. de Villa later on
transferred his shares to Margo.
A special stockholders meeting of Margo was held where Raul Gala was elected as chairman.
During the meeting, the board approved several actions, including the commencement of proceedings to
annul certain dispositions of Margos’ property made by Alicia Gala. The board also resolved to change
the name of the corporation to MRG Management and Development Corporation. Similarly, a special
stockholders meeting of Ellice was held to elect a new board of directors where Raul Gala, likewise, was
elected as chairman.
Respondents filed against petitioners with the SEC a petition for the appointment of a
management committee or receiver, accounting and restitution by the directors and officers, and the
dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion of funds, financial
losses and the dissipation of assets. Whereas, petitioners initiated a complaint against the respondents
praying for, among others, the nullification of the elections of directors and officers of both Margo
Management and Development Corporation and Ellice Industrial Corporation and the return of all titles to
real property in the name of Margo and Ellice, as well as all corporate papers and records of both Margo
and Ellice which are in the possession and control of the respondents.
ISSUE:
WON SEC has authority to inquire on the matters.
HELD:
78
No. If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC
has no authority to inquire whether the corporation has purposes other than those stated.
The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline
the administrative organization of the corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose. In the case at bar, a perusal of the Articles of Incorporation of Ellice and
Margo shows no sign of the allegedly illegal purposes that petitioners are complaining of. It is well to note
that, if a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no
authority to inquire whether the corporation has purposes other than those stated, and mandamus will lie
to compel it to issue the certificate of incorporation.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8, 2002
and the Resolution dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs
against petitioners.
SO ORDERED.
ABLANG, KARPOV B. ANTI DUMMY LAW

G.R. No. L-39841 June 20, 1988
MARSMAN & COMPANY, INC., petitioner,
vs.
FIRST COCONUT CENTRAL COMPANY, INC., respondent.
GANCAYCO, J.:
Facts:
· This is the issue in this petition for review on certiorari assailing the decision of the Court of Appeals
dated September 16, 1974 which reversed the decision of the Court of First Instance and the denial of a
motion for reconsideration thereof.
· On January 26, 1967, the First Coconut Central Co., Inc. purchased on installment one diesel
generating unit worth P21,000.00 from Madrid Trading. As down payment, the defendant company paid
the amount of P4,000.00 to Madrid Trading which issued official receipt No. 02248.
· As security for the satisfaction of the said obligation, a chattel mortgage (Exhibit H) over the same
diesel generating unit was constituted by the defendant First Coconut Central Co., Inc. in favor of Madrid
79
Trading. On January 26, 1967, Madrid Trading assigned all its rights under the chattel mortgage to the
herein plaintiff, Marsman & Company, Inc. by virtue of a Deed of Assignment (Exhibit B). On March 28,
1967, the defendant company paid Marsman & Company, Inc. the sum of P2,000.00, leaving a balance of
P15,000.00.
· On September 13, 1967, the plaintiff company notified the defendant First Coconut Central
Company, lnc. of its "long overdue and outstanding account" in the amount of P15,000. 00. On
September 25, 1967, the defendant company wrote Marsman & Company, Inc., appealing that they be
given thirty (30) days to settle the obligation, and enclosing in said letter a check for One Thousand
Pesos (P1,000.00).
· On October 30, 1967, after repeated failure by the defendant company to meet its obligation,
plaintiff Marsman & Company, Inc. brought this action to recover the balance of defendant company's
account in the sum of Fourteen Thousand Pesos (P14,000.00).
Issue: WHETHER OR NOT THE SALE OF INDUSTRIAL MACHINERY FOR USE BY THE INDUSTRIAL
PLANT DOES NOT CONSTITUTE ENGAGING IN THE RETAIL BUSINESS WITHIN THE
CONTEMPLATION OF REPUBLIC ACT NO. 1180. ACCORDINGLY, THE COURT OF APPEALS
ERRED IN HOLDING THAT THE SALE OF A DIESEL GENERATING SET TO RESPONDENT WAS
NULL AND VOID FOR HAVING BEEN MADE IN VIOLATION OF REPUBLIC ACT NO. 1180.
Held: For a sale to be considered as retail, the following elements should concur:
(1) The seller should be habitually engaged in selling;
(2) The sale must be direct to the general public; and
(3) The object of the sale is limited to merchandise, commodities or goods for consumption.
In this case, the first two elements are present. It is the presence of the third element that must be
determined. The last element refers to the subject of the retailer's activities or what he is selling, i.e.,
consumption goods or consumer goods. Consumer goods may be defined as "goods which are used or
bought for use primarily for personal, family or household purposes. Such goods are not intended for
resale or further use in the production of other products." 7 In other words, consumer goods are goods
which by their very nature are ready for consumption.
In the case at bar, the article in controversy is a piece of industrial machinery—a diesel generating unit.
The said unit was purchased by respondent to be used in its coconut central and as such may be
classified as "production or producer goods." Since the diesel generating unit is not a consumer item, it
necessarily does not come within the ambit of retail business as defined by Republic Act No. 1180.
Hence, herein petitioner Marsman & Company, Inc. may engage in the business of selling producer
goods. It necessarily follows that petitioner cannot be guilty of violating the Anti- 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. From the foregoing, there can be no basis in law for declaring the contract of
sale as null and void.
The finding, therefore, of the respondent court and of the lower court that the petitioner was guilty of
violating the Anti-Dummy Law and the Retail Trade Nationalization Law is without lawful basis. By the
same token its conclusion that the contract of sale with the respondent is void must be overturned.
Petitioner's suit for the recovery of the unpaid balance of the sale of the machinery to respondent must be
upheld.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals is set
aside. The decision of the trial Court in favor of the petitioner and against the respondent for the amount
of P14,000.00, with interest at the rate of 12% per annum from September 25, 1967, and to pay attorney's
fees in the amount of P2,000.00, and the costs of the suit, is hereby AFFIRMED. This decision is
immediately executory and no motion for extension of time to file motion for reconsideration shall be
entertained.
SO ORDERED.
80
Anna Carmela G. Virtucio Topic: Corporate Name
G.R. No. 175278, September 23, 2015

GSIS FAMILY BANK - THRIFT BANK [FORMERLY COMSAVINGS BANK, INC.], Petitioner, v. BPI
FAMILY BANK, Respondent.
JARDALEZA, J:
Facts:
· Petitioner was originally organized as Royal Savings Bank however it encountered liquidity
problems and was temporarily closed.
· Petitioner then reopened and was renamed as Comsavings Bank, Inc. under the management of
the Commercial Bank of Manila.
· GSIS then acquired petitioner from the Commercial Bank of Manila.
· Petitioner later on sought SEC’s approval to change its corporate name to "GSIS Family Bank, a
Thrift Bank.” It also applied with the DTI and BSP for authority to use "GSIS Family Bank, a Thrift Bank"
as its business name.
· The DTI and the BSP approved the applications hence petitioner now operates under the
corporate name "GSIS Family Bank - a Thrift Bank,"
· Respondent BPI Family Bank on the other hand was a product of the merger between the Family
Bank and Trust Company and the Bank of the Philippine Islands.
· The owners registered with the SEC the corporate name "Family First Savings Bank," which was
then amended to "Family Savings Bank," and then later to "Family Bank and Trust Company." Since its
incorporation, the bank has been known as "Family Bank."
· Family Bank merged with BPI, and the latter acquired all the rights, privileges, properties, and
interests of Family Bank, including the right to use names. BPI Family Savings Bank was registered with
the SEC as a wholly-owned subsidiary of BPI and then registered with the Bureau of Domestic Trade the
trade or business name "BPI Family Bank”.
· Respondent filed a petition before the SEC Company Registration and Monitoring Department to
prevent the registration of the name "GSIS Family Bank" or any other corporate name with the words
"Family Bank" in it as they claimed exclusive ownership to the name having acquired the name since its
purchase and merger with Family Bank and Trust Company.
· The SEC CRMD declared that BPI Family Bank has a prior right to the use of the name Family
Bank in the banking industry and that BPI has the preferential right to the use of the name "Family Bank."
The SEC CRMD also held that there exists a confusing similarity between the corporate names BPI
Family Bank and GSIS Family Bank. It explained that although not identical, the corporate names are
indisputably similar, as to cause confusion in the public mind. Hence GSIS FAMILY BANK IS DIRECTED
TO DELETE OR DROP THE SUBJECT WORD “FAMILY” FROM ITS CORPORATE NAME.
· Petitioner appealed to the SEC En Banc which denied the appeal and upheld the SEC CRMD.
· Appeal to CA wherein CA ruled that respondent was entitled to the exclusive use of the corporate
name because of its prior adoption of the name "Family Bank". It was held that there is confusing
similarity in the corporate names because of the possible association with GSIS might arise if we were to
allow Comsavings Bank to add its parent company's acronym, 'GSIS' to 'Family Bank.' This is true
especially considering both companies belong to the banking industry.
81
Issue: W/N the use by GSIS-Family Bank in its corporate name of the words Family Bank” is confusingly
similar to the name BPI Family Bank?
Held: Yes. Sec 18 of the Corporation Code provides
Section 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary
to existing laws. When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name.
And in the case of Philips Export B.V. v. Court of Appeals, the Court ruled that to fall within the
prohibition of the law on the right to the exclusive use of a corporate name, two requisites must be
proven:
(1) that the complainant corporation acquired a prior right over the use of such corporate name;
and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other name
already protected by law; or
(c) patently deceptive, confusing or contrary to existing law
These two requisites are present in this case. As to the first requisite, respondent was incorporated first
as Family Savings Bank and then as BPI Family Bank. Petitioner, on the other hand, was incorporated as
GSIS Family - Thrift Bank only after (17) years after respondent started using its name. Hence
respondent has the prior right.
The second requisite is that the proposed name is (a) identical or (b) deceptive or confusingly similar to
that of any existing corporation. The words "Family Bank" present in both petitioner and respondent's
corporate name satisfy the requirement that there be identical names in the existing corporate name and
the proposed one. Next is that there is a deceptive and confusing similarity between petitioner's proposed
name and respondent's corporate name, as found by the SEC. In determining the existence of confusing
similarity, the test is whether the similarity is such as to mislead a person using ordinary care and
discrimination and it suffices that confusion is probable or likely to occur. Petitioner's corporate name is
"GSIS Family Bank—A Thrift Bank" and respondent's corporate name is "BPI Family Bank." The only
words that distinguish the two are "BPI," "GSIS," and "Thrift”. The use of “Family Bank” in both their
corporate names sufficiently suffices to mislead a person using ordinary care and discrimination and it
suffices that confusion is probable or likely to occur as both are engaged in the banking industry. Also as
held by the SEC that “it is not a remote possibility that the public may entertain the idea that a relationship
or arrangement indeed exists between BPI and GSIS due to the use of the term 'Family Bank' in their
corporate names”. Finally it is held by this Court that the enforcement of the protection accorded by
Section 18 of the Corporation Code to corporate names is lodged exclusively in the SEC. It is the SEC's
duty to prevent confusion in the use of corporate names not only for the protection of the corporations
involved, but more so for the protection of the public. It has authority to de-register at all times, and under
all circumstances corporate names which in its estimation are likely to generate confusion. Lastly findings
of fact of quasi-judicial agencies like the SEC are upheld if supported by substantial evidence and also in
recognition of their expertise on the matters.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals dated March 29, 2006 is
hereby AFFIRMED.
82
Paolo F. Cruz Corporate name
G.R. No. 211145, October 14, 2015

SAMAHAN NG MANGGAGAWA SA HANJIN SHIPYARD REP. BY ITS PRESIDENT, ALFIE
ALIPIO,Petitioner, v. BUREAU OF LABOR RELATIONS, HANJIN HEAVY INDUSTRIES AND
CONSTRUCTION CO., LTD. (HHIC-PHIL.), Respondents.
DECISION
MENDOZA, J.:
Facts:
Samahan, through its authorized representative, Alfie F. Alipio, filed an application for registration 5 of its
name "Samahan ng Mga Manggagawa sa Hanjin Shipyard" with the DOLE. The corresponding certificate
of registration6 in favor of Samahan.
Respondents, filed a petition with DOLE-Pampanga praying for the cancellation of registration of
Samahan's association on the ground that its members did not fall under any of the types of workers
enumerated in the second sentence of Article 243 (now 249).
Hanjin opined that only ambulant, intermittent, itinerant, rural workers, self-employed, and those without
definite employers may form a workers' association. It further posited that one third (1/3) of the members
of the association had definite employers and the continued existence and registration of the association
would prejudice the company's goodwill. Hanjin added the alternative ground that Samahan committed a
misrepresentation in connection with the list of members and/or voters who took part in the ratification of
their constitution and by-laws in its application for registration. Hanjin claimed that Samahan made it
appear that its members were all qualified to become members of the workers' association.
DOLE ruled in favor of Hanjin. He found that the preamble, as stated in the Constitution and By-Laws of
Samahan, was an admission on its part that all of its members were employees of Hanjin, to wit:
KAMI, ang mga Manggagawa sa HANJIN Shipyard (SAMAHAN) ay naglalayong na isulong ang
pagpapabuti ng kondisyon sa paggawa at katiyakan sa hanapbuhay sa pamamagitan ng patuloy na
pagpapaunlad ng kasanayan ng para sa mga kasapi nito. Naniniwala na sa pamamagitan ng aming mga
angking lakas, kaalaman at kasanayan ay anting maitataguyod at makapag-aambag sa kaunlaran ng
isang lipunan. Na mararating at makakamit ang antas ng pagkilala, pagdakila at pagpapahalaga sa mga
tulad naming mga manggagawa.
83
BLR ruled granting Samahan's appeal and reversed the ruling of the Regional Director. It stated that the
law clearly afforded the right to self-organization to all workers including those without definite employers.
As an expression of the right to self-organization, industrial, commercial and self-employed workers could
form a workers' association if they so desired but subject to the limitation that it was only for mutual aid
and protection. Nowhere could it be found that to form a workers' association was prohibited or that the
exercise of a workers' right to self-organization was limited to collective bargaining.
The BLR was of the opinion that there was no misrepresentation on the part of Samahan. The phrase,
"KAMI, ang mga Manggagawa sa Hanjin Shipyard" if translated, would be: "We, the workers at Hanjin
Shipyard." The use of the preposition "at" instead of "of " would indicate that "Hanjin Shipyard" was
intended to describe a place. Should Hanjin feel that the use of its name had affected the goodwill of the
company, the remedy was not to seek the cancellation of the association's registration. At most, the use
by Samahan of the name "Hanjin Shipyard" would only warrant a change in the name of the association.
CA: The registration of Samahan as a legitimate workers' association was contrary to the provisions of
Article 243 of the Labor Code.35 It stressed that only 57 out of the 120 members were actually working in
Hanjin while the phrase in the preamble of Samahan's Constitution and By-laws, "KAMI, ang mga
Manggagawa sa Hanjin Shipyard" created an impression that all its members were employees of HHIC.
Such unqualified manifestation which was used in its application for registration, was a clear proof of
misrepresentation which warranted the cancellation of Samahan's registration.
It also stated that the members of Samahan could not register it as a legitimate worker's association
because the place where Hanjin's industry was located was not a rural area. Neither was there any
evidence to show that the members of the association were ambulant, intermittent or itinerant workers. 36
At any rate, the CA was of the view that dropping the words "Hanjin Shipyard" from the association name
would not prejudice or impair its right to self-organization because it could adopt other appropriate names.
The dispositive portion reads:
Issue:
Whether or not the CA erred in ordering the removal/deletion of the word “Hanjin” in the name of the
Union by reason of the company’s property right over the company name “Hanjin”.
Ruling: No
Removal of the word "Hanjin Shipyard" from the association's name, however, does not infringe on
Samahan's right to self-organization
Nevertheless, the Court agrees with the BLR that "Hanjin Shipyard" must be removed in the name of the
association. A legitimate workers' association refers to an association of workers organized for mutual aid
and protection of its members or for any legitimate purpose other than collective bargaining registered
with the DOLE.59 Having been granted a certificate of registration, Samahan's association is now
recognized by law as a legitimate workers' association.
84
As there is no provision under our labor laws which speak of the use of name by a workers' association,
the Court refers to the Corporation Code, which governs the names of juridical persons. Section 18
thereof provides:
No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate of incorporation
under the amended name.
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public
which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties,
and the reduction of difficulties of administration and supervision over corporations.60
For the same reason, it would be misleading for the members of Samahan to use "Hanjin Shipyard" in its
name as it could give the wrong impression that all of its members are employed by Hanjin.
Further, Section 9, Rule IV of D.O. No. 40-03, Series of 2003 explicitly states:
The change of name of a labor organization shall not affect its legal personality. All the rights and
obligations of a labor organization under its old name shall continue to be exercised by the labor
organization under its new name.
Thus, in the directive of the BLR removing the words "Hanjin Shipyard," no abridgement of Samahan's
right to self-organization was committed.
WHEREFORE, the petition is PARTIALLY GRANTED. The July 4, 2013 Decision and the January 28,
2014 Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The September 6,
2010 Resolution of the Bureau of Labor Relations, as modified by its November 28, 2011 Resolution, is
REINSTATED.
85
Honey Fame L. Federico Topic: Commencement of Corporate Existence;
Corporate Term and Promoters
G.R. No. L-43350 December 23, 1937
CAGAYAN FISHING DEVELOPMENT CO., INC.,

vs.
TEODORO SANDIKO
LAUREL, J.:
FACTS:
Manuel Tabora is the registered owner of four parcels of land. The four parcels were mortgaged
for loans and indebtedness. However, Tabora executed a public document (Exhibit A) by virtue of which
the four parcels of land owned by him was sold to the plaintiff company, which at that time is still under
the process of incorporation.
A year later, the BOD of said company adopted a resolution authorizing its president to sell the
four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and transferred to the defendant the
four parcels of land. Exhibit C is a promissory note drawn by the defendant in favor of the plaintiff. Exhibit
D is a deed of mortgage executed where the four parcels of land were given a security for the payment of
the promissory note. Defendant failed to pay thus plaintiff filed a collection of sum of money in the Court
of First Instance in Manila. The latter rendered judgment absolving the defendant. Plaintiff has appealed
to this court and makes an assignment of various errors.
ISSUE:
WON the sale made by the plaintiff corporation is valid.
HELD:
No. The contract here was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand.
For reasons that are self-evident, these promoters could not have acted as agent for a projected
corporation since that which no legal existence could have no agent. This is not saying that under no
circumstances may the acts of promoters of a corporation be ratified by the corporation if and when
subsequently organized, however, under the peculiar facts and circumstances of the present the court
declined to extend the doctrine of ratification which would result in the commission of injustice or fraud to
the candid and unwary.
A corporation, until organized, has no life and therefore no faculties. Cagayan Fishing Dev’t Corp
could not and did not acquire the four parcels of land sold by Tabora, it also follows that it did not possess
86
any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. The corporation had no
juridical personality to enter into a contract.
Corporations are creatures of the law, and can only come into existence in the manner prescribed
by law. It should have a full and complete organization and existence as an entity before it can enter into
any kind of a contract or transact any business.
The decision of the lower court is accordingly affirmed, with costs against the appellant.
Valer, Lendy J. Topic: Defectively formed Corporation
PIONEER INSURANCE &

SURETY CORPORATION, petitioner,
vs THE HON. COURT OF APPEAL
S, BORDER MACHINERY &
HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, respondents
G.R. No. 84197 July 28, 1989
GUTIERREZ, JR., J.:
Facts:
In 1965, Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL)
a single proprietorship.
87
On May 17, 1965, at Tokyo, Japan, 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 $109,000.00 to be paid in installments. One DC-3 Aircraft with
Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July
18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation as surety executed and issued its Surety
Bond No. 6639 in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and
spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a
new corporation proposed by Lim to expand his airline business.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge of
Maglana et al, made an agreement with Pioneer Insurance for the latter to insure the two aircrafts which
were brought in installment from Japan Domestic Airlines (JDA) using said aircrafts as security. So when
Lim defaulted from paying JDA, the two aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
Issue:
Whether or not Borhameco and the other contributors share the loss as general partners?
Held:
No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto partnership would have been formed, and as such, all
must share in the losses and/or gains of the venture in proportion to their contribution. But in this case, it
was shown that Lim did not have the intent to form a corporation with Maglana et al. 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. 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.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is
AFFIRMED.
88
MOHAMMAD Ali BANTAO
TOPIC: DEFECTIVELY FORMED CORPORATION: De Facto Corp
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs.EDMUNDO S. PICCIO, Judge of the Court
of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity
as receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents
BENGZON, J.:
Facts:
On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita D.
Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the
Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to
carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of
the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain
properties transferred to the corporation described in a list appended thereto. Immediately after the
execution of said articles of incorporation, the corporation proceeded to do business with the adoption of
by-laws and the election of its officers.
On 2 December 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. On 22
March 1948, pending action on the articles of incorporation by the aforesaid governmental office, Fred
Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance
of Leyte the civil case, alleging among other things that the Far Eastern Lumber and Commercial Co. was
an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses. C. Arnold Hall and
Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the
cause of action.
After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of Brown, et. al., appointed Pedro A. Capuciong as the receiver of the properties thereof,
upon the filing of a P20,000 bond. Hall and Hall offered to file a counter-bond for the discharge of the
receiver, but Judge Piccio refused to accept the offer and to discharge the receiver. Whereupon, Hall and
Hall instituted the present special civil action with the Supreme Court.
Issue:
Whether or not Brown, et. al. may file an action to cause the dissolution of the Far Eastern
Lumber and Commercial Co., without State intervention.
Ruling:
The Securities and Exchange Commission has not issued the corresponding certificate of
incorporation. The personality of a corporation begins to exist only from the moment such certificate is
issued — not before. Not having obtained the certificate of incorporation, the Far Eastern Lumber and
Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a corporation.
89
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. The immunity if collateral
attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is
compatible with the existence of errors and irregularities; but not with a total or substantial disregard of
the law. 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."
This is not a suit in which the corporation is a party. This is a litigation between stockholders of
the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution between stockholders, without the
intervention of the state.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.
MARIA LEONILA VILLEGAS DEFECTIVELY FORMED CORPORATIONS: DE FACTO

CORPORATIONS & CORPORATIONS BY ESTOPPEL
[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract for
the purchase of fishing nets from the Philippine Fishing Gear Industries. They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the
agreement. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim, in their capacities as general partners, on
the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.[5]
The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ
of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of
the witnesses presented and (2) on a Compromise Agreement executed by the three in another case.
This was affirmed by the CA.
The CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held
liable as such for the fishing nets and floats purchased by and for the use of the partnership.
ISSUE 1: W/N a partnership existed between Chua, Yao, and Lim

HELD: YES
RATIO:
90
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in
a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed
money, fell under the term common fund under Article 1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible like credit or industry. 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.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of
the nets and the floats. It would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the business could not have
proceeded.
ISSUE 2: W/N Lim is liable by virtue of corporation by estoppel

HELD: YES
RATIO:
Even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence because a person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into or for
other acts performed as such agent.
The only question here is whether petitioner should be held jointly liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt in the name of the ostensible corporation should
be held liable. Since his name does not appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be held liable. However, petitioner benefited
from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
Saddam Hussein S. Balt Topic: Defectively Formed Corporations
G.R. No. 119002 October 19, 2000
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., Petitioner

v.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, Respondents
91
KAPUNAN, J.:
FACTS:
In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football
Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its
president, agreed. IETTI then delivered the plane tickets to PFF, PFF in turn made a down payment.
However, PFF was not able to complete the full payment in subsequent installments despite repeated
demands from IETTI. IETTI then sued PFF and Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he
averred is a corporation with separate and distinct personality from him. The trial court ruled against Kahn
and held him personally liable for the said obligation (PFF was declared in default for failing to file an
answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals
however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence
of PFF as a national sports association; that as such, PFF is empowered to enter into contracts through
its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled
that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it had
contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence.
ISSUE:
Whether or not the Court of Appeals is correct.
RULING:
No. PFF, upon its creation, is not automatically considered a national sports association. It must first be
recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth
and Sports Development. This fact was never substantiated by Kahn. As such, PFF is considered as an
unincorporated sports association. And under the law, any person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such agent. Kahn is therefore personally liable for the
contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of
corporation by estoppel applies to a third party only when he tries to escape liability on a contract from
which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not
trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
92
93
Carla Angela D. Villadolid Topic: Corporation by Estoppel (Sec. 21, Corp. Code)
G.R. No. 203993 April 20, 2015

PRISCILO B. PAZ, Petitioner,
vs.
NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC., Respondent.
PERLAS-BERNABE, J.:
FACTS:
On March 1, 2000, petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao
International Airport, Davao City, entered into a Memorandum of Agreement (MOA) with Captain Allan J.
Clarke (Capt. Clarke), President of International Environmental University, whereby for a period of four (4)
years, unless pre-terminated by both parties with six (6) months advance notice, the former shall allow the
latter to use the aircraft hangar space at the said Airport "exclusively for company aircraft/helicopter.”
Petitioner sent four letter complaints. The first two were addressed to "MR. ALLAN J. CLARKE,
International Environmental Universality, Inc. x x x,” reiterating that the hangar space "must be for aircraft
use only.” The other two were addressed to "MR. ALLAN JOSEPH CLARKE, CEO, New International
Environmental University, Inc. x x x," strongly demanding the latter to immediately vacate the hangar
space.
Respondent filed a complaint against petitioner for breach of contract before the RTC.
In his defense, petitioner alleged, among others, that, respondent had no cause of action against him as
the MOA was executed between him and Capt. Clarke in the latter’s personal capacity;
The RTC issued a Writ of Preliminary Injunction ordering petitioner to: (a) immediately remove all
his aircrafts parked within the leased premises; (b) allow entry of respondent by removing the steel gate
installed thereat; and (c) desist and refrain from committing further acts of dispossession and/or
interference in respondent’s occupation of the hangar space.
For failure of petitioner to comply with the foregoing writ, respondent filed a petition for indirect contempt
before the RTC.
The RTC ruled in favor of respondents. The RTC further declared that the MOA, which was
"made and executed by and between CAPT. [PRISCILO] B. PAZ, Officer-In-Charge of Aircraft Hangar at
Davao International Airport, Davao City, Philippines, hereinafter called as FIRST PARTY [a]nd CAPT.
ALLAN J. CLARKE[,] President of INTERNATIONAL ENVIRONMENTAL UNIVERSITY with office
address at LIBERTY AVIATION HANGAR, Davao International Airport, Davao City, Philippines,
hereinafter called as SECOND PARTY," was executed by the parties not only in their personal capacities
but also in representation of their respective corporations or entities.
Aggrieved, petitioner elevated his case on appeal before the CA, arguing that the trial court
should have dismissed outright the cases against him for failure of respondent to satisfy the essential
requisites of being a party to an action, i.e., legal personality, legal capacity to sue or be sued, and real
interest in the subject matter of the action.
The CA affirmed the RTC’s Decision. The CA ruled that, while there was no corporate entity at
the time of the execution of the MOA on March 1,2000 when Capt. Clarke signed as "President of
International Environmental University," petitioner is nonetheless estopped from denying that he had
contracted with respondent as a corporation, having recognized the latter as the "Second Party" in the
MOA that "will use the hangar space exclusively for company aircraft/helicopter." Petitioner was likewise
found to have issued checks to respondent from May 3, 2000 to October 13, 2000, which belied his claim
of contracting with Capt. Clarke in the latter’s personal capacity.
94
ISSUE:
Did petitioner contract with respondent as a corporation?
HELD:
Yes.
While Capt. Clarke’s name and signature appeared on the MOA, his participation was,
nonetheless, limited to being a representative of respondent. As a mere representative, Capt. Clarke
acquired no rights whatsoever, nor did he incur any liabilities, arising from the contract between petitioner
and respondent. Therefore, he was not an indispensable party to the case at bar.
The CA had correctly pointed out that, from the very language itself of the MOA entered into by
petitioner whereby he obligated himself to allow the use of the hangar space "for company
aircraft/helicopter," petitioner cannot deny that he contracted with respondent. Petitioner further
acknowledged this fact in his final letter dated July 23, 2002, where he reiterated and strongly demanded
the former to immediately vacate the hangar space his "company is occupying/utilizing."
Section 21 of the Corporation Code explicitly provides that 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. Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by
express provision of law. As aptly raised by respondent in its Comment to the instant petition, it is futile to
insist that petitioner issued the receipts for rental payments in respondent’s name and not with Capt.
Clarke’s, whom petitioner allegedly contracted in the latter’s personal capacity, only because it was upon
the instruction of an employee. Indeed, it is disputably presumed that a person takes ordinary care of his
concerns, and that all private transactions have been fair and regular. Hence, it is assumed that
petitioner, who is a pilot, knew what he was doing with respect to his business with respondent.
WHEREFORE, the petition is DENIED.
95
JOHN PAUL MAANDAL TOPIC: 46. Non Use of Charter and inoperation
(Sec. 22 Corporation code)
G.R. No. 71837 July 26, 1988
CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG, and MANUEL
CHUNG TONG OH, petitioners, vs.
INTERMEDIATE APPELLATE COURT (2nd Special Cases Division), SECURITIES and EXCHANGE
COMMISSION EN BANC, HON. ANTONIO R. MANABAT, HON. JAMES K. ABUGAN, HON. ANTERO
F.L. VILLAFLOR, JR., HON. SIXTO T.J. DE GUZMAN, JR., ALFREDO CHING, CHING TAN, CHIONG
TIONG TAY, CHUNG KIAT HUA, CHENG LU KUN, EMILIO TAÑEDO, ROBERTO G. CENON and
PHILIPPINE BLOOMING MILLS COMPANY, INC., respondents.
FACTS:
The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, for a term of 25
years which expired on January 19,1977. On May 14, 1977, the members of its board of directors
executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of
the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process
of reincorporation. On June 14, 1977, the new PMB was issued a certificate of incorporation by the
Securities and Exchange Commission.
On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with
the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new PBM. The
allegation was that the former had become legally non-existent for failure to extend its corporate life and
that the latter had likewise been ipso facto dissolved for non-use of the charter and continuous failure to
operate within 2 years from incorporation.
Dismissed for lack of a cause of action, the same case was later on reinstated on appeal to the SEC en
banc and remanded to a new panel of hearing officers for further proceedings, including the proper
accounting of the assets and liabilities of the old PBM. Despite several appeal, the lower court and Court
of Appeals affirmed the decision of the SEC allowing the said assignment and transfer. Thus the case.
The petitioners insist that they have never given their consent to the creation of the new corporation nor
have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM.
The creation of the new corporation with the transfer thereto of the assets of the old corporation was not
within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of
such company and not in any case to continue its business. Moreover, no stockholders' meeting had
been convened to discuss the deed of assignment and the 2/3 vote required by the Corporation Law to
authorize such conveyance had not been obtained.
96
ISSUE: Does a Corporation finally ceased to exist when it is “Deemed dissolved” under section 22 of the
New Corporation Code?
HELD: NO. Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code,
provided that the powers of the corporation would cease if it did not formally organize and commence the
transaction of its business or the continuation of its works within two years from date of its incorporation.
Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code,
expressly declared that "every corporation formed under this Act, must within one month after the filing of
the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws."
Whether this provision should be given mandatory or only directory effect remained a controversial
question until it became academic with the adoption of PD 902-A. Under this decree, it is now clear that
the failure to file by-laws within the required period is only a ground for suspension or revocation of the
certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(i) of
PD 902-A, the SEC is empowered to "suspend or revoked, after proper notice and hearing, the franchise
or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the
required period." It is clear from this provision that there must first of all be a hearing to determine the
existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation
but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, 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.
It should be stressed in this connection that substantial compliance with conditions subsequent will suffice
to perfect corporate personality. Organization and commencement of transaction of corporate business
are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption
and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a
corporation commences its corporate existence and juridical personality and is deemed incorporated from
the date the Securities and Exchange Commission issues certificate of incorporation under its official
seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation
Code, must be adopted "within one month after receipt of official notice of the issuance of its certificate of
incorporation."
In any case, the deficiency claimed by the petitioners was corrected when the new PBM adopted and filed
its by-laws on September 6, 1981 and therefore the new PBM has not been ipso facto dissolved.
WHEREFORE, the appealed decision is AFFIRMED as above modified, with costs against the
petitioners.
SO ORDERED.
97
Fernandez, Napolyn P. Topic: Binding Effect
G.R. No. 121466 August 15, 1997
PMI COLLEGES, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N, respondents.
ROMERO, J.:
Facts:
· On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training
and other marine-related courses, hired Alejandro Galvan as contractual instructor with an agreement
that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load
subjects and on the schedule for teaching the same.
· Galvan and other instructors received compensation for the first three periods of the contract, which
eventually stopped for unknown reasons.
· Petitioner's Acting Director wrote a letter addressed to its President, Atty. Santiago Pastor,
requesting for the release of the salaries of its instructors.
· After repeated demands, Galvan filed a complaint before the National Capital Region Arbitration
Branch seeking payment for salaries.
· In support of the claims, private respondent submitted documentary evidence, such as:
o detailed load and schedule of classes with number of class hours and rate per hour;
o PMI Colleges Basic Seaman Training Course
o letter-request for payment of salaries
o unpaid load of private respondent;
o and unpaid vouchers prepared by the accounting department of petitioner
98
· Petitioner alleged that subject classes were not held in the school premises and no appropriate and
proper supervision of the said classes was made.
· Later in the proceedings, petitioner manifested that Mr. Tomas G. Cloma, Jr., a member of the
petitioner's Board of Trustees wrote a letter to the Chairman of the Board on May 23, 1994, clarifying the
case of Galvan and stating that under petitioner's by-laws only the Chairman is authorized to sign any
contract.
· Attempts at amicable settlement having failed
· PMI filed this petition for certiorari under Rule 65 of the Rules of Court with regard to the resolution
National Labor Relations Commission declaring PMI Colleges liable to pay Galvan P405,000.00 in unpaid
wages and P40,532.00 as attorney's fees.
Issue: Is the contract invalid due to alleged violation of petitioner’s by laws with regard to the signatory of
the contract?
Held: No, contract is valid. By-laws merely operate as internal rules among the stockholders, they cannot
affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same."
No proof appears on record that private respondent ever knew anything about the provisions of said by-
laws. In fact, petitioner itself merely asserts the same without even bothering to attach a copy or excerpt
thereof to show that there is such a provision. That this allegation has never been denied by private
respondent does not necessarily signify admission of its existence because technicalities of law and
procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit while
the resolution of the National Labor Relations Commission dated August 4, 1995 is hereby AFFIRMED.
Alexis B. Dulay By-Laws; Binding Effect; Sec. 46-48
Case No. 48
G.R. No. L-26649 July 13, 1927

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-General), plaintiff,
vs.
99
EL HOGAR FILIPINO, defendant.
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: W/N 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:
100
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 taxes, causing necessary repairs, managing real
properties of non-borrowing 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 by-laws. 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
101
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
excessive-UNSUSTAINABLE
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 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
102
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.
103
MARIA LEONILA VILLEGAS EFFECT OF NON SUBMISSION OF BY LAWS
[G.R. No. 141735. June 8, 2005]

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL
SERVICE COMMISSION and AL-AMANAH INVESTMENT BANK OF THE PHILIPPINES,
respondents.
CHICO-NAZARIO, J.:
Petitioner Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB)
when it was created. He rose through the ranks, working his way up to being a loans analyst. [3]
In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the
2 parcels of land offered as collaterals by Compressed Air Machineries and Equipment Corporation
(CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). PAB granted the loan application on the
basis of the appraisal. 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. In the meantime, Sawadjaan was promoted to
Loans Analyst I.
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing the law which
created the PAB. All assets, liabilities and capital accounts of the PAB were transferred to the AIIBP,[7]
and the existing personnel of the PAB were to continue to discharge their functions unless discharged. [8]
When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP,
discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and that
the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina Pablico.
Petitioner was charged with Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial
to the Best Interest of the Service and was preventively suspended. The Board of Directors found
petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the Best
Interest of the Service and imposed the penalty of Dismissal from the Service. This was later reduced to
suspension of 6 months and 1 day, on reconsideration.
Sawadjaan, by himself, filed a Motion for New Trial in the Court of Appeals on newly discovered
evidence. He claimed that he had recently discovered that at the time his employment was terminated,
the AIIBP had not yet adopted its corporate by-laws. He attached a Certification[13] by the Securities and
Exchange Commission (SEC) that it was only on 27 May 1992 that the AIIBP submitted its draft by-laws
to the SEC, and that its registration was being held in abeyance pending certain corrections being made
thereon. Sawadjaan argued that since the AIIBP failed to file its by-laws within 60 days from the passage
of Rep. Act No. 6848, as required by Sec. 51 of the said law, the bank and its stockholders had already
forfeited its franchise or charter, including its license to exist and operate as a corporation, [14] and thus no
longer have the legal standing and personality to initiate an administrative case.
ISSUE: W/N AIIBP had forfeited its franchise and its license to exist as a corporation for failing to adopt
its corporate by-laws
HELD: NO
RATIO:
Petitioners recurrent argument, tenuous at its very best, is premised on the fact that since respondent
AIIBP failed to file its by-laws within the designated 60 days from the effectivity of Rep. Act No. 6848, all
proceedings initiated by AIIBP and all actions resulting therefrom are a patent nullity. Petitioner already
raised the question of AIIBPs corporate existence and lack of jurisdiction in his Motion for New
Trial/Motion for Reconsideration of 27 May 1997 and was denied by the Court of Appeals. Despite the
volume of pleadings he has submitted thus far, he has added nothing substantial to his arguments.
104
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, petitioners argument is irrelevant because this case is not a corporate controversy, but a
labor dispute; and it is an employers basic right to freely select or discharge its employees, if only as a
measure of self-protection against acts inimical to its interest.[46] Regardless of whether AIIBP is a
corporation, a partnership, a sole proprietorship, or a sari-saristore, it is an undisputed fact that AIIBP is
the petitioners 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.[47]
WHEREFORE, the petition is DISMISSED.
Antonio S. Pagsibigan Jr. Topic: Board of Directors/Trustees/Officers

Subtopic: Powers of the Board
Provision: Section 23, Corporation Code
G.R. No. 177783 January 23, 2013
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-

MANALO AND FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA
RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondent
VILLARAMA, JR., J.:
Facts:
Fausto C. Ignacio mortgaged the properties to Home Bankers Savings and Trust Company as security for
a loan extended by the Bank.
Ignacio defaulted in the payment of the loan, the property was foreclosed and subsequently sold to the
Bank in a public auction.
Ignacio offered to repurchase the property. Universal Properties Inc., the bank’s collecting agent sent
Ignacio a letter which contained the terms of the repurchase.
Ignacio annotated in the letter new terms and conditions. He claimed that these were verbal agreements
between himself and the Bank’s collection agent, UPI.
No repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold the
property to third parties.
105
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. He argued that there was implied
acceptance of the counter-offer of the sale through the receipt of the terms by representatives of UPI.
The Bank denied that it gave its consent to the counter-offer of Ignacio. It countered that it did not
approve the unilateral amendments placed by Ignacio.
RTC: Render decision in favor Ignacio.
CA Reversed the RTC’s decision.
Issue:
W/Na contract for the repurchase of the foreclosed properties was perfected between petitioner and
respondent bank.
Ruling:
No. 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.
A person representing the corporation in negotiations must be authorized by the corporation to accept the
counter-offer to a sale. Since the Bank did not accede to the counter proposal of Ignacio, there was no
valid acceptance of the offer.
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, so may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it.
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. Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are held not binding on the corporation.
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.
An agent cannot bind a corporation in any contract without delegation of powers from the board. Mere
communication of modified terms to a bank agent who gave his assent has no effect on the corporation.
In the absence of conformity or acceptance by properly authorized bank officers of petitioner’s counter-
proposal, no perfected repurchase contract was born out of the talks or negotiations between petitioner
and Mr. Lazaro and Mr. Fajardo.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and
Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED
Del Rosario, Michel Andre P. Business Judgement Rule
106
EN BANC
G.R. No. L-15092 May 18, 1962
ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
REYES, J.B.L., J.
FACTS:
Plaintiffs-appelants Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership

Gonzaga and Company, had been and are sugar planters adhered to the defendant’s sugar central mill
under identical milling contracts since 1919. Sometime in 1936, it was proposed to execute amended
milling contracts, increasing the planters’ share from 55% to 60% of the manufactured sugar and resulting
molasses, besides other concessions, but extending the operation of the milling contract from the original
30 years to 45 years. To this effect, a printed Amended Milling Contract form was drawn up. On August
20, 1936, the BOD of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution (Acts No. 11,
Acuerdo No. 1) granting further concessions to the planters over and above those contained in the printed
Amended Milling Contract. Appellants signed and executed the printed Amended Milling Contract on
September 10, 1936. but a copy of the resolution of August 10, 1936, signed by the Central’s General
Manager, was not attached to the printed contract until April 17, 1937.
In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela, and San Carlos), with a total annual production exceeding one-third of the
production of all the sugar central mills in the province, had already granted increased participation (of
62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, the appellee
had become obligated to grant similar concessions to the plaintiffs. The defendant-appellee Bacolod-
Murcia Milling Co., Inc., resisted the claim, and defended by urging that the stipulations contained in the
resolution were made without consideration; that the resolution in question was, therefore, null and void
ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors
to adopt.
After trial, the court below rendered judgment upholding the stand of the defendant Milling company.
Hence the appeal.
ISSUE:
Whether or not the resolution in question was null and void ab initio, being in effect a donation
that was ultra vires and beyond the powers of the corporate directors to adopt.
HELD:
107
No.
RATIO:
We agree with appellants that the appealed decisions cannot stand. It must be remembered that
the controverted resolution was adopted by appellee corporation as a supplement to, or further
amendment of, the proposed milling contract, and that it was approved on August 20, 1936, twenty-one
days prior to the signing by appellants on September 10, of the Amended Milling Contract itself; so that
when the Milling Contract was executed, the concessions granted by the disputed resolution had been
already incorporated into its terms. No reason appears of record why, in the face of such concessions,
the appellants should reject them or consider them as separate and apart from the main amended milling
contract, specially taking into account that appellant Alfredo Montelibano was, at the time, the President
of the Planters Association (Exhibit 4, p. 11) that had agitated for the concessions embodied in the
resolution of August 20, 1936. That the resolution formed an integral part of the amended milling contract,
signed on September 10, and not a separate bargain, is further shown by the fact that a copy of the
resolution was simply attached to the printed contract without special negotiations or agreement between
the parties.
It follows from the foregoing that the terms embodied in the resolution of August 20, 1936 were supported
by the same causa or consideration underlying the main amended milling contract; i.e., the promises and
obligations undertaken thereunder by the planters, and, particularly, the extension of its operative period
for an additional 15 years over and beyond the 30 years stipulated in the original contract. Hence, the
conclusion of the court below that the resolution constituted gratuitous concessions not supported by any
consideration is legally untenable.
All disquisition concerning donations and the lack of power of the directors of the respondent sugar milling
company to make a gift to the planters would be relevant if the resolution in question had embodied a
separate agreement after the appellants had already bound themselves to the terms of the printed milling
contract. But this was not the case. When the resolution was adopted and the additional concessions
were made by the company, the appellants were not yet obligated by the terms of the printed contract,
since they admittedly did not sign it until twenty-one days later, on September 10, 1936. Before that date,
the printed form was no more than a proposal that either party could modify at its pleasure, and the
appellee actually modified it by adopting the resolution in question. So that by September 10, 1936
defendant corporation already understood that the printed terms were not controlling, save as modified by
its resolution of August 20, 1936; and we are satisfied that such was also the understanding of appellants
herein, and that the minds of the parties met upon that basis. Otherwise there would have been no
consent or "meeting of the minds", and no binding contract at all. But the conduct of the parties indicates
that they assumed, and they do not now deny, that the signing of the contract on September 10, 1936, did
give rise to a binding agreement. That agreement had to exist on the basis of the printed terms as
modified by the resolution of August 20, 1936, or not at all. Since there is no rational explanation for the
company's assenting to the further concessions asked by the planters before the contracts were signed,
except as further inducement for the planters to agree to the extension of the contract period, to allow the
company now to retract such concessions would be to sanction a fraud upon the planters who relied on
such additional stipulations.
The same considerations apply to the "void innovation" theory of appellees. There can be no novation
unless two distinct and successive binding contracts take place, with the later designed to replace the
108
preceding convention. Modifications introduced before a bargain becomes obligatory can in no sense
constitute novation in law.
Stress is placed on the fact that the text of the Resolution of August 20, 1936 was not attached to the
printed contract until April 17, 1937. But, except in the case of statutory forms or solemn agreements (and
it is not claimed that this is one), it is the assent and concurrence (the "meeting of the minds") of the
parties, and not the setting down of its terms, that constitutes a binding contract. And the fact that the
addendum is only signed by the General Manager of the milling company emphasizes that the addition
was made solely in order that the memorial of the terms of the agreement should be full and complete.
Much is made of the circumstance that the report submitted by the Board of Directors of the appellee
company in November 19, 1936 (Exhibit 4) only made mention of 90%, the planters having agreed to the
60-40 sharing of the sugar set forth in the printed "amended milling contracts", and did not make any
reference at all to the terms of the resolution of August 20, 1936. But a reading of this report shows that it
was not intended to inventory all the details of the amended contract; numerous provisions of the printed
terms are alao glossed over. The Directors of the appellee Milling Company had no reason at the time to
call attention to the provisions of the resolution in question, since it contained mostly modifications in
detail of the printed terms, and the only major change was paragraph 9 heretofore quoted; but when the
report was made, that paragraph was not yet in effect, since it was conditioned on other centrals granting
better concessions to their planters, and that did not happen until after 1950. There was no reason in
1936 to emphasize a concession that was not yet, and might never be, in effective operation.
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. The rule is that —
It is a question, therefore, in each case of the logical relation of the act to the corporate purpose
expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for
the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers. The
test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-
268)
As the resolution in question was passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the central, the court has no authority to
review them.
They hold such office charged with the duty to act for the corporation according to their best judgment,
and in so doing they cannot be controlled in the reasonable exercise and performance of such duty.
Whether the business of a corporation should be operated at a loss during depression, or close down at a
smaller loss, is a purely business and economic problem to be determined by the directors of the
corporation and not by the court. It is a well-known rule of law that questions of policy or of management
are left solely to the honest decision of officers and directors of a corporation, and the court is without
authority to substitute its judgment of the board of directors; the board is the business manager of the
corporation, and so long as it acts in good faith its orders are not reviewable by the courts. (Fletcher on
Corporations, Vol. 2, p. 390).
109
FALLO:
WHEREFORE, the decision under appeal is reversed and set aside; and judgment is decreed sentencing
the defendant-appellee to pay plaintiffs-appellants the differential or increase of participation in the milled
sugar in accordance with paragraph 9 of the appellee Resolution of August 20, 1936, over and in addition
to the 60% expressed in the printed Amended Milling Contract, or the value thereof when due, as follows:
0,333% to appellants Montelibano for the 1951-1952 crop year, said appellants having received an
additional 2% corresponding to said year in October, 1953;
2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year; and to all appellants thereafter —
4.2% for the 1952-1953 crop year;
with interest at the legal rate on the value of such differential during the time they were withheld; and the
right is reserved to plaintiffs-appellants to sue for such additional increases as they may be entitled to for
the crop years subsequent to those herein adjudged.
Costs against appellee, Bacolod-Murcia Milling Co.
Bernabe, Jayson B. Business Judgment Rule

G.R. No. 161886 March 16, 2007
FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and
MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,
vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M.
TRINIDAD, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S.
JAYME, and ELIEZER B. DE JESUS, Respondents.
Facts:
FilPort is a domestic corporation engaged in stevedoring services. Eliodoro C. Cruz (Cruz) was president
of Filipinas Port Services, Inc. (Filport) since 1968. He lost his bid for re-election in 1991. A year
thereafter, 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.
Cruz was unhappy with the Board’s action on the matter, for a year later he filed a petition with the SEC,
joined by Mindanao Terminal and Brokerage Services, Inc as co-petitioner, in a derivative suit supposedly
in representation of Filport and its stockholders.
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.
He also questioned the re-creation of the positions of Assistant Vice President for corporate planning,
operations, finance and administration and additional positions where those holding said offices are not
doing any work but earning compensation.
110
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.
This intra-corporate case was transferred from the SEC to the Manila Regional Trial Court(RTC) and
eventually landing in the Davao RTC.
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, nevertheless it ordered the directors holding the
positions of Assistant Vice President for Corporate Planning, 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.
CA Reverse the decision of the RTC
ISSUE:
Whether the creation of an executive committee and other offices in the corporation with corresponding
remunerations are within the powers of the Board of Directors.
HELD:
Yes it is within the powers of the Board of Directors.
The governing body of a corporation is its board of directors. Section 23 of the Corporation C ode
explicitly provides that unless otherwise provided therein, the corporate powers of all corporations formed
under the Code shall be exercised, all business conducted and all property of the corporation shall be
controlled and held by a board of directors. Thus, with the exception only of some powers expressly
granted by law to stockholders (or members, in case of non-stock corporations), the board of directors (or
trustees, in case of non-stock corporations) has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation within the scope of its charter, i.e., its
articles of incorporation, 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, unless more extensive power is expressly conferred.
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. Stockholders are
too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly.
In the present case, the board’s creation of the positions of Assistant Vice Presidents for Corporate
Planning, Operations, Finance and Administration, and those of the Special Assistants to the President
and the Board Chairman, was in accordance with the regular business operations of Filport as it is
authorized to do so by the corporation’s by-laws, pursuant to the Corporation Code.
The election of officers of a corporation is provided for under Section 25 of the Code.
Sec. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director, a treasurer who may or may not
be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as
may be provided for in the by-laws.
The amended Bylaws of Filport provides the following:
Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at
their first meeting after the election of Directors.
The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a
Secretary, a Treasurer, a General Manager and such other officers as the Board of Directors may from
time to time provide, and these officers shall be elected to hold office until their successors are elected
and qualified.
The fixing of the corresponding remuneration for the positions in question is provided for in the same by-
laws of the corporation,
111
Under Section 35 of the Corporation Code, the creation of an executive committee must be provided for
in the bylaws of the corporation.
Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of the
executive committee by the board of directors is illegal or unlawful. One reason is the absence of a
showing as to the true nature and functions of said executive committee considering that the “executive
committee,” 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, 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.
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, clearly upholding the
power of its board to exercise its prerogatives in managing the business affairs of the corporation.
It was pointed out that as testified to and admitted by petitioner Cruz himself, 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, Finance and
Administration. By his acquiescence and/or ratification of the creation of the aforesaid offices, Cruz is
virtually precluded from suing to declare such acts of the board as invalid or illegal. And it makes no
difference that he sues in behalf of himself and of the other stockholders.
Topic : Business Judgement and Minority Stockholders
FIRST DIVISION
G.R. No. 174353 September 10, 2014
vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG
CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ, Respondents.
Facts:
· This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the review of
the Decision of the Court of Appeals which affirmed the Order dated July 8, 2003 of the Regional Trial
Court (RTC), Branch 72 of Olongapo City in Civil Case dismissing the Complaint filed by herein
petitioners.
112
· 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, Inc. (SBGCCI) against the said country
club and its Board of Directors and officers under the provisions of Presidential Decree No. 902-A in
relation to Section 5.2 of the Securities Regulation Code. The Subic Bay Golfers and Shareholders
Incorporated (SBGSI), a corporation composed of shareholders of the defendant corporation, was also
named as plaintiff. The officers impleaded as defendants were the following: (1) itsPresident, Hu Ho Hsiu
Lien alias Susan Hu; (2) its treasurer, Hu Tsung Chieh alias Jack Hu; (3) corporate secretary Reynald
Suarez; and (4) directors Hu Tsung Hui and Hu Tsung Tzu. The case was docketed as Civil Case No. 03-
001. The complaint alleged that the defendant corporation sold shares to plaintiffs at US$22,000.00 per
share, presenting to them the Articles of Incorporation which contained the following provision:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall be
declared in their favor. Shareholders shall be entitled only to a pro-rata share of the assets of the Club at
the time of its dissolution or liquidation.
However, on June 27, 1996, an amendment to the Articles of Incorporation was approved by the
Securities and Exchange Commission (SEC), wherein the above provision was changed as follows:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, 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, where the golf courseand
clubhouse component thereof was assigned to the Club, the shareholders shall not have proprietary
rights or interests over the properties of the Club. x x x. (Emphasis supplied.)
· Petitioners claimed in the Complaint that defendant corporation did not disclose to them the above
amendment which allegedly makes the shares non-proprietary, as it takes away the rightof the
shareholders to participate in the pro-rata distribution of the assets of the corporation after its dissolution.
· The Complaint furthermore enumerated several instances of fraud in the management of the
corporation allegedly committed by the Board of Directors and officers of the corporation, particularly:
a. The Board of Directors and the officers of the corporation did not indicate in its financial report for the
year 1999 the amount of P235,584,000.00 collected from the subscription of 409 shareholders who paid
U.S.$22,000.00 for one (1) share of stock at the then prevailing rate of P26.18 to a dollar. The
stockholders were not informed how these funds were spent or its whereabouts.
b. The Corporation has been collecting green fees from the patrons of the golf course at an average sum
ofP1,600.00 per eighteen (18) holes but the income is not reported in their yearly report. The yearly report
for the year 1999 contains the report of the Independent Public Accountant who stated that the company
was incorporated on April 1, 1996 but has not yet started its regular business operation. The golf course
has been in operation since 1997 and as such has collected green fees from non-members and
foreigners who played golf in the club. There is no financial report as to the income derived from these
sources.
c. There is reliable information that the Defendant Corporation has not paid its rentals to the Subic Bay
Metropolitan Authority which up to the present is estimated to be not less than one (1) million U.S.
Dollars. Furthermore, the electric billings of the corporation [have] not been paid which amounts also to
several millions of pesos.
d. That the Supreme Court sustained the pre-termination of its contract with the SBMA and presently the
club is operating without any valid contract with SBMA. The defendant was ordered by the Supreme
Court to yield the possession, the operation and the management of the golf course to SBMA. Up to now
the defendants [have] defied this Order.
e. That the value of the shares of stock of the corporation has drastically declined from its issued value of
U.S.$22,000.00 to only Two Hundred Thousand Pesos, (P200,000.00) Philippine Currency. The
shareholders [have] lost in terms ofinvestment the sum estimated to be more than two hundred thousand
pesos.This loss is due to the fact that the Club is mismanaged and the golf course is poorly maintained.
Other amenities of the Club has (sic) not yet been constructed and are not existing despite the lapse of
113
morethan five (5) years from the time the stocks were offered for sale to the public. The cause of the
decrease in value of the sharesof stocks is the fraudulent mismanagement of the club.
· In their Answer, respondents specifically denied the allegations of the Complaint and essentially
averred that:
(a) The subscriptions of the 409 shareholders were paid to Universal International Group Development
Corporation (UIGDC), the majority shareholder of SBGCCI, from whom plaintiffs and other shareholders
bought their shares.
(b) Contrary to the allegations in the Complaint, said subscriptions were reflected inSBGCCI’s balance
sheets for the fiscal years 1998 and 1999.
(c) Plaintiffs were never presented the original Articles of Incorporation of SBGCCI since their shares
were purchased after the amendment of the Articles of Incorporation and such amendment was publicly
known to all members prior and subsequent to the said amendment;10
(d) Shareholders’ meetingshad been held and the corporate acts complained of were approved at
shareholders’ meetings;
(e) Financial statements of SBGCCI had always been presented to shareholders justifiably requesting
copies;
(f) Green fees collected were reported in SBGCCI’s audited financial statements; 13
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and SBGCCI continued to operate under a
valid contract with the SBMA;14 and
(h) SBGCCI’s Board of Directors was not guilty of any mismanagement and in fact the value of members’
shares have increased.15
· RTC issued an Order dismissing the Complaint. The RTC held that the action is a derivative suit,
explaining thus:
The Court finds that this case is intended not only for the benefit of the two petitioners. This is
apparentfrom the caption of the case which reads Nestor Ching, Andrew Wellington and the Subic Bay
Golfers and Shareholders, Inc., for and in behalf of all its members as petitioners. This is also shown in
the allegations of the petition[.] x x x.
· Petitioners Ching and Wellington elevated the case to the Court of Appeals. The Court of Appeals
rendered the assailed Decision affirming that of the RTC.
· Hence, petitioners resort to the present Petition for Review, wherein they argue that the Complaint
they filed with the RTC was not a derivative suit.
Issue:
Whether the Complaint is indeed a derivative suit, we are mindful of the doctrine that the nature of an
action, as well as which court or body has jurisdiction over it, is determined based on the allegations
contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover
upon all or some of the claims asserted therein.
Ruling:
As minority stockholders, 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. Contrary to the arguments of petitioners, Presidential Decree No. 902-A, 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, does not grant minority stockholders a cause of
action against waste and diversion by the Board of Directors, but merely identifies the jurisdiction of the
SEC over actions already authorized by law or jurisprudence. It is settled that a stockholder’s right to
institute a derivative suit is not based on any express provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or
officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary
114
duties. We should take note that while there were allegations in the Complaint of fraud in their
subscription agreements, such as the misrepresentation of the Articles of Incorporation, petitioners do not
pray for the rescission of their subscription or seek to avail of their appraisal rights. Instead, they ask that
defendants be enjoined from managing the corporation and to pay damages for their mismanagement.
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 legal standing of minority stockholders to
bring derivative suits is not a statutory right, there being no provision in the Corporation Code or related
statutes authorizing the same, but is instead a product of jurisprudence based on equity. However, a
derivative suit cannot prosper without first complying with the legal requisites for its institution. We find
that petitioners failed to state with particularity in the Complaint that they had exerted all reasonable
efforts to exhaust all remedies available under the articles of incorporation, by-laws, and laws or rules
governing the corporation to obtain the relief they desire. The Complaint contained no allegation
whatsoever of any effort to avail of intra-corporate remedies. Indeed, even if petitioners thought it was
futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and
specified the reasons for such opinion. Failure to do so allows the RTC to dismiss the Complaint, even
motu proprio, in accordance with the Interim Rules. The requirement of this allegation in the Complaint is
not a useless formality which may be disregarded at will
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court (RTC) of Olongapo City
dismissing the Complaint filed thereon by herein petitioners is AFFIRMED. SO ORDERED.
Carla Angela D. Villadolid Topic: Ratification of Board Actions
G.R. No. 154291 November 12, 2014
LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners, vs. SPOUSES REYNALDO
TANJANGCO and MARIA LUISA ARGUELLES-TANJANGCO
REYES, J.
FACTS:
Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-owners of three
parcels of land and the building erected thereon known as the "Trade Center Building". Jose’s one-half
share in the subject properties were later transferred and registered in the name of his son Reynaldo
Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).
At the time material to this case the stockholders of record of LRI were the following: a. Asuncion
Lopez-Gonzalez (Asuncion) – 7,831 shares; b. Arturo F. Lopez (Arturo) – 7,830 shares; c. Teresita
Lopez-Marquez (Teresita) – 7,830 shares; d. Rosendo de Leon (Rosendo) – 5 shares e. Benjamin
Bernardino (Benjamin) – 1 share; f. Augusto de Leon (Augusto) – 1 share; and g. Leo Rivera (Leo) – 1
share. Except for Arturo and Teresita, the rest of the stockholders were members of the Board of
Directors. Asuncion was LRI’s Corporate Secretary.
During a special stockholders’ meeting held on 27 July 1981, the sale of 1/2 share of LRI in the
Trade Center Building was taken up. While the selling price was at P4 M, the Tanjancos offered P3.8 M.
To this, countered with P5 M which was not accepted by the Tanjancos. Thus, the board agreed to give
Asuncion the priority to equal the Tanjanco offer and the same to be exercised within ten (10) days.
Otherwise, the Tanjanco offer will be deemed accepted. Just a day after, Teresita died (her estate’s
executor Juanito L. Santos represented her afterwards).
As Asuncion failed to exercise her option to purchase the subject properties, and while she was
abroad, “the remaining directors: Rosendo, Benjamin and Leo convened in a special meeting” passing
115
and approving the 17 August 1981 Resolution authorizing Arturo to negotiate and “carry out the complete
termination of the sale terms and conditions as embodied in the Resolution of July 27, 1981”, among
others. Subsequently, the sale was perfected with payments subsequently made.
As Jose’s one-half interest in the subject properties had already been transferred to the spouses
Tanjangco,it was requested that LRI execute another deed of sale, where the spouses Tanjangco shall
be designated as buyers. Thus, Arturo executed a Deed of Sale similar to that which was executed on
August 25,1981 in favor of the spouses Tanjangco. Consequently, on November 4, 1981, LRI and
Asuncion (herein petitioners) filed with the then Court of First Instance of Manila, a Complaint for
annulment of sale, cancellation of title, reconveyance and damages with prayer for the issuance of
temporary restraining order (TRO) and/or writ of preliminary injunction against the spouses Tanjangco,
Arturo and the Registrar of Deeds of Manila.
On July 30, 1982, the stockholders of LRI had a meeting where they voted on whether to ratify
and confirm the sale of the subject properties to the spouses Tanjangco. The minutes of such meeting
state:
At this juncture, Juanito Santos moved for the ratification and confirmation of the sale of Trade Center
Building to the [spouses Tanjangco] and thereby ratifying and confirming all minutes relative to the sale
made to the [spouses Tanjangco], and the same being seconded, it was placed to a vote amongst the
stockholders and Directors present and the votes were as follows:
Leo Rivera - yes

Rosendo de Leon - yes Juanito Santos - yes
Benjamin Bernardino - yes
During the trial, the petitioners, among others, attempted to establish that the subject sale had not been
validly ratified during the July 30, 1982 stockholders’ meeting in view of the failure to meet the required
number of votes.
ISSUE:
Is the sale between LRI and spouses Tanjangco valid?
HELD:
Yes.
The Court agrees with the petitioners that the August 17, 1981 Board Resolution did not give
Arturo the authority to act as LRI’s representative in the subject sale, as the meeting of the board of
directors where such was passed was conducted without giving any notice to Asuncion. This is in
violation of Section 53 of the Corporation Code, which requires sending of notices for regular or special
meetings to every director.
The general rule is that a corporation, through its board of directors, should act in the manner and
within the formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a
body in a meeting called pursuant to the law or the corporation’s bylaws, otherwise, any action taken
therein may be questioned by any objecting director or shareholder. However, the actions taken in such a
meeting by the directors or trustees may be ratified expressly or impliedly. "Ratification means that the
principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its
behalf. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the party so making the ratification. The substance of
the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ratification can
be made either expressly or impliedly. Implied ratification may take various forms — like silence or
acquiescence, acts showing approval or adoption of the act, or acceptance and retention of benefits
flowing therefrom.
116
In the present case, the ratification was expressed through the July 30, 1982 Board Resolution.
The Court takes into account that majority of the board of directors except for Asuncion, had already
approved of the sale to the spouses Tanjangco. As a consequence, the power to ratify the previous
resolutions and actions of the board of directors in this case lies in the stockholders, not in the board of
directors. It would be absurd to require the board of directors to ratify their own acts—acts which the
same directors already approved of beforehand. Hence, Juanito, as the administrator of Teresita’s estate
even though not a director, is entitled to vote on behalf of Teresita’s estate as the administrator thereof.
In sum, whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17,
1981 Board Resolution, the same was cured through its ratification in the July 30, 1982 Board Resolution.
It is of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on
behalf of LRI as all his actions in connection to the sale were expressly ratified by the stockholders
holding 67% of the outstanding capital stock.
WHEREFORE, the instant petition is DENIED.
Estayo, Lalaine A Election of Directors; Vacancy in the Board
GR No 151969 September 4, 2009

Valle Verde Country Club v Africa
FACTS
On February 27, 1996 Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico,
and Ray Gamboa were elected as BOD during the Annual Stockholders’ Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC)
From 1997 to 2001, the requisite quorum for the holding of the stockholders’ meeting could not be
obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over capacity.
On November 10, 1998, Makalintal resigned as member of the VVCC Board and Jose Ramirez
(Ramirez) was elected by the remaining BOD as his replacement.
117
Respondent Africa (Africa), a member of VVCC, 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 (RTC) as contrary to:
§ Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for 1 year until their successors are elected and qualified.
§ Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting
a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special
meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only
for the unexpired term of his predecessor in office. xxx.
Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his
[Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered to
have already expired. Thus, according to Africa, the resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose, and not by the remaining members of
the VVCC Board, as was done in this case. The RTC sustained Africa’s complaint.
ISSUE
Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director.
RULING
NO.
When 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,” we construe the provision to mean that the term
of the members of the board of directors shall be only for one year; their term expires one year after
election to the office. 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, nor is it a new term; the holdover period, however, constitutes part of his tenure.
Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity,
it implies that the office has a fixed term, which has expired, and the incumbent is holding the
succeeding term.
[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no
more unexpired term to speak of, as Makalintal’s one-year term had already expired. Pursuant to law, the
authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the
remaining members of its board of directors. To assume – as VVCC does – that the vacancy is caused by
Makalintal’s resignation in 1998, not by the expiration of his term in 1997, is both illogical and
unreasonable. His resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintal’s term had been created long before his resignation.
WHEREFORE, we DENY the petitioners petition for review on certiorari, and AFFIRM the partial decision
of the Regional Trial Court, Branch 152, Manila, promulgated on January 23, 2002, in Civil Case No.
68726. Costs against the petitioners.
118
RAMOS, FORRAH MAE G. TOPIC : HOLD- OVER DIRECTORS
PETRONILO J. BARAYUGA,
Petitioner,
-versus-
ADVENTIST UNIVERSITY OF THE PHILIPPINES, THROUGH ITS BOARD OF TRUSTEES,
REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON,
Respondents.
G.R. No. 168008
August 17, 2011
BERSAMIN, J:
FACTS:
AUP, a non-stock and non-profit domestic educational institution incorporated under Philippine
laws on March 3, 1932, was directly under the North Philippine Union Mission (NPUM) of the Southern
Asia Pacific Division of the Seventh Day Adventists. During the 3rd Quinquennial Session of the General
Conference of Seventh Day Adventists held from November 27, 2000 to December 1, 2000, the NPUM
Executive Committee elected the members of the Board of Trustees of AUP, including the Chairman and
the Secretary. Respondent Nestor D. Dayson was elected Chairman while the petitioner was chosen
Secretary.On January 23, 2001, almost two months following the conclusion of the 3rd Quinquennial
Session, the Board of Trustees appointed the petitioner President of AUP. During his tenure, or from
November 11 to November 13, 2002, a group from the NPUM conducted an external performance audit.
The audit revealed the petitioners autocratic management style, like making major decisions without the
approval or recommendation of the proper committees, including the Finance Committee; and that he had
himself done the canvassing and purchasing of materials and made withdrawals and reimbursements for
expenses without valid supporting receipts and without the approval of the Finance Committee. The audit
concluded that he had committed serious violations of fundamental rules and procedure in the
disbursement and use of funds.The NPUM Executive Committee and the Board of Trustees decided to
immediately request the services of the General Conference Auditing Service (GCAS) to determine the
veracity of the audit findings. Accordingly, GCAS auditors worked in the campus from December 4 to
December 20, 2002 to review the petitioners transactions during the period from April 2002 to October
2002. On December 20, 2002, CGAS auditors reported the results of their review, and submitted their
observations and recommendations to the Board of Trustees.
Upon receipt of the CGAS report that confirmed the initial findings of the auditors on January 8, 2003, the
NPUM informed the petitioner of the findings and required him to explain.
On January 15, 2003, Chairman Dayson and the NPUM Treasurer likewise informed the petitioner inside
the NPUM office on the findings of the auditors in the presence of the AUP Vice-President for Financial
Affairs, and reminded him of the possible consequences should he fail to satisfactorily explain the
irregularities cited in the report. He replied that he had already prepared his written explanation.
The Board of Trustees set a special meeting at 2 p.m. on January 22, 2003. Being the Secretary, the
petitioner himself prepared the agenda and included an item on his case. In that meeting, he provided
copies of the auditors report and his answers to the members of the Board of Trustees. After hearing his
explanations and oral answers to the questions raised on issues arising from the report, the members of
the Board of Trustees requested him to leave to allow them to analyze and evaluate the report and his
answers. Despite a long and careful deliberation, however, the members of the Board of Trustees
decided to adjourn that night and to set another meeting in the following week considering that the
meeting had not been specifically called for the purpose of deciding his case. The adjournment would
119
also allow the Board of Trustees more time to ponder on the commensurate disciplinary measure to be
meted on him. On January 23, 2003, Chairman Dayson notified the petitioner in writing that the Board of
Trustees would hold in abeyance its deliberation on his answer to the auditors report and would meet
again at 10:00 a.m. on January 27, 2003. Chairman Dayson indicated that some sectors in the campus
had not been properly represented in the January 22, 2003 special meeting, and requested the petitioner
as Secretary to ensure that all sectors are duly represented in the next meeting of the Board of Trustees.
In the January 27, 2003 special meeting, the petitioner sent a letter to the Board of Trustees. The
members, by secret ballot, voted to remove him as President because of his serious violations of
fundamental rules and procedures in the disbursement and use of funds as revealed by the special audit;
to appoint an interim committee consisting of three members to assume the powers and functions of the
President; and to recommend him to the NPUM for consideration as Associate Director for Secondary
Education. On January 28, 2003, the petitioner was handed inside the NPUM office a letter, together with
a copy of the minutes of the special meeting held the previous day. In turn, he handed to Chairman
Dayson a letter requesting two weeks within which to seek a reconsideration, stating that he needed time
to obtain supporting documents because he was then attending to his dying mother. The Board of
Trustees, most of whose members had not yet left Cavite, reconvened to consider and decide the
petitioners request for reconsideration. During the meeting, he made an emotional appeal to allow him to
continue as President, promising to immediately vacate his office should he again commit any of the
irregularities cited in the auditors report. He added that should the Board of Trustees not favor his appeal,
he would settle for a retirement package for him and his wife and would leave the church. The Board of
Trustees denied the petitioners request for reconsideration because his reasons were not meritorious.
Board Member Elizabeth Role served the notice of the denial on him the next day, but he refused to
receive the notice, simply saying Alam ko na yan. The petitioner later obtained a copy of the inter-school
memorandum dated January 31, 2003 informing AUP students, staff, and faculty members about his
relief as President and the appointment of an interim committee to assume the powers and duties of the
President. On February 4, 2003, the petitioner brought his suit for injunction and damages in the RTC,
with prayer for the issuance of a temporary restraining order (TRO), impleading AUP and its Board of
Trustees, represented by Chairman Dayson, and the interim committee. His complaint alleged that the
Board of Trustees had relieved him as President without valid grounds despite his five-year term; that the
Board of Trustees had thereby acted in bad faith; and that his being denied ample and reasonable time to
present his evidence deprived him of his right to due process.
ISSUE:
W/N his term in that office was 5 years, or two years as AUP insists.
HELD:
RTC acted in patently grave abuse of discretion in issuing the TRO and writ of injunction It is
clear to us, based on the foregoing principles guiding the issuance of the TRO and the writ of injunction,
that the issuance of the assailed order constituted patently grave abuse of discretion on the part of the
RTC, and that the CA rightly set aside the order of the RTC. To begin with, the petitioner rested his claim
for injunction mainly upon his representation that he was entitled to serve for five years as President of
AUP under the Constitution, By-Laws and Working Policy of the General Conference of the Seventh Day
Adventists. All that he presented in that regard, however, were mere photocopies of the Bluebook. Yet,
the document had no evidentiary value. It had not been officially adopted for submission to and approval
of the Securities and Exchange Commission. It was nothing but an unfilled model form. As such, it was, at
best, only a private document that could not be admitted as evidence in judicial proceedings until it was
first properly authenticated in court. For the RTC to base its issuance of the writ of preliminary injunction
on the mere photocopies of the document, especially that such document was designed to play a crucial
part in the resolution of the decisive issue on the length of the term of office of the petitioner, was gross
120
error. Secondly, even assuming that the petitioner had properly authenticated the photocopies of the
Bluebook, the provisions contained therein did not vest the right to an office in him. An unfilled model form
creates or establishes no rights in favor of anyone. Thirdly, the petitioners assertion of a five-year duration
for his term of office lacked legal basis. Section 108 of the Corporation Code determines the membership
and number of trustees in an educational corporation, viz: Section 108. Board of trustees. Trustees of
educational institutions organized as educational corporations shall not be less than five (5) nor more
than fifteen (15): Provided, however, That the number of trustees shall be in multiples of five (5). Unless
otherwise provided in the articles of incorporation or the by-laws, the board of trustees of incorporated
schools, colleges, or other institutions of learning shall, as soon as organized, so classify themselves that
the term of office of one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a particular term, shall hold office only for the unexpired
period. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five
(5) years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers
and authority of trustees shall be defined in the by-laws. For institutions organized as stock corporations,
the number and term of directors shall be governed by the provisions on stock corporations. The second
paragraph of the provision, although setting the term of the members of the Board of Trustees at five
years, contains a proviso expressly subjecting the duration to what is otherwise provided in the articles of
incorporation or by-laws of the educational corporation. That contrary provision controls on the term of
office. In AUPs case, its amended By-Laws provided the term of the members of the Board of Trustees,
and the period within which to elect the officers, thusly: Article I Board of Trustees Section 1. At the first
meeting of the members of the corporation, and thereafter every two years, a Board of Trustees shall be
elected. It shall be composed of fifteen members in good and regular standing in the Seventh-day
Adventist denomination, each of whom shall hold his office for a term of two years, or until his successor
has been elected and qualified. If a trustee ceases at any time to be a member in good and regular
standing in the Seventh-day Adventist denomination, he shall thereby cease to be a trustee. xxxx Article
IV Officers Section 1. Election of officers. At their organization meeting, the members of the Board of
Trustees shall elect from among themselves a Chairman, a Vice-Chairman, a President, a Secretary, a
Business Manager, and a Treasurer. The same persons may hold and perform the duties of more than
one office, provided they are not incompatible with each other.In light of foregoing, the members of the
Board of Trustees were to serve a term of office of only two years; and the officers, who included the
President, were to be elected from among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the Board of Trustees every two years.
Naturally, the officers, including the President, were to exercise the powers vested by Section 2 of the
amended By-Laws for a term of only two years, not five years. Ineluctably, the petitioner, having assumed
as President of AUP on January 23, 2001, could serve for only two years, or until January 22, 2003. By
the time of his removal for cause as President on January 27, 2003, he was already occupying the office
in a hold-over capacity, and could be removed at any time, without cause, upon the election or
appointment of his successor. His insistence on holding on to the office was untenable, therefore, and
with more reason when one considers that his removal was due to the loss of confidence on the part of
the Board of Trustees.
WHEREFORE, we DENY the petition for review on certiorari for lack of merit, and hereby DISMISS SEC
Case No. 028-03 entitled Dr. Petronilo Barayuga v. Nelson D. Dayson, et al.
121
Tweety T. Tuazon Topic: Removal and Replacement of Directors or Trustees
G.R. No. 153468 August 17, 2006
PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN,
ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P.
LIZARES and GRACE CHRISTIAN HIGH SCHOOL, Petitioners,
- versus -
PAUL SYCIP and MERRITTO LIM, Respondents.
PANGANIBAN, CJ.:
Facts:
· Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation
with fifteen (15) regular members, who also constitute the board of trustees.
· During the annual members meeting held on April 6, 1998, there were only eleven (11) living
member-trustees, as four (4) had already died. Out of the eleven, seven (7) attended the meeting through
their respective proxies.
· In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to
replace the four deceased member-trustees.
· When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the quorum
because, upon their death, members automatically lost all their rights (including the right to vote) and
interests in the corporation.
122
· The SEC hearing officer declared the meeting null and void for lack of quorum. He also opined that
Article III (2) of the By-Laws of GCHS, insofar as it prescribed the mode of filling vacancies in the board of
trustees, must be interpreted in conjunction with Section 29 of the Corporation Code.
· The Court of Appeals dismissed the appeal based on defective verification and certification.
Issue: W/N the filling up of vacancies was proper.
Held: No.
The phrase may be filled in Section 29 shows that the filling of vacancies in the board by the remaining
directors or trustees constituting a quorum is merely permissive, not mandatory. Corporations, therefore,
may choose how vacancies in their respective boards may be filled up -- either by the remaining directors
constituting a quorum, or by the stockholders or members in a regular or special meeting called for the
purpose.
The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
directors; that is, by a majority vote of the remaining members of the board.
While a majority of the remaining corporate members were present, however, the election of the four
trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the
members, not of the board of trustees. Although the members of GCHS themselves also constitute the
trustees, it cannot be ignored that the GCHS bylaw provision specifically prescribes that vacancies in the
board must be filled up by the remaining trustees. In other words, these remaining member-trustees must
sit as a board in order to validly elect the new ones.
WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals are
hereby REVERSED AND SET ASIDE.The remaining members of the board of trustees of Grace Christian
High School (GCHS) may convene and fill up the vacancies in the board, in accordance with this
Decision. No pronouncement as to costs in this instance.
Karl Anthony T. Dionisio Duties of Directors

Manuel Sanchez vs Republic
G.R. 172885
Facts:
123
The complaint alleged that Kahn and petitioner Sanchez, as key ULFI (University of Life Foundation, Inc.
(ULFI), a private non-stock, non-profit corporation devoted to non-formal education) officers, were remiss
in safekeeping ULFIs corporate incomes and in accounting for them. They neither placed the incomes
derived from the Complex in ULFIs deposit account nor submitted the required financial statements
detailing their transactions. The underlying theory of the case is that Kahn and Sanchez operated ULFI as
if it were their own property, handled the collections and spent the money as if it were their personal
belonging. The DECS asked the RTC to order Kahn and Sanchez personally to pay it the P22,559,215.14
in rents due from ULFI with legal interest, exemplary damages of P1,000,000.00, attorneys fees of
P500,000.00, and costs
In his answer, petitioner Sanchez alleged that, being a mere officer of ULFI, he cannot be made
personally liable for its adjudged corporate liability. He took exception to the complaint, characterizing it
as an attempt to pierce the corporate veil that cloaked ULFI.
Both Kahn and petitioner Sanchez appealed to the Court of Appeals. The latter court gave due course to
Sanchezs appeal but denied that of Kahn since it was filed out of time. On February 21, 2006 the Court of
Appeals rendered judgment, wholly affirming the trial court’s decision, hence, this petition.
ISSUE:
Whether or not petitioner Sanchez, a director and chief executive officer of ULFI, can be held liable in
damages under Section 31 of the Corporation Code for gross neglect or bad faith in directing the
corporations affairs
Held:
Petitioner Sanchez claims that there is no ground for the courts below to pierce the veil of corporate
identity and hold him and Kahn, who were mere corporate officers, personally liable for ULFIs obligations
to the DECS. But this is not a case of piercing the veil of corporate fiction. The DECS brought its action
against Sanchez and Kahn under Section 31 of the Corporation Code, which should not be confused with
actions intended to pierce the corporate fiction.
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.
Thus:
Sec. 31. Liability of directors, trustees or officers. - 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, its stockholders or members and other persons
The DECS does not have to invoke the doctrine of piercing the veil of corporate fiction. Section 31 above
expressly lays down petitioner Sanchez and Kahns liability for damages arising from their gross
negligence or bad faith in directing corporate affairs. The doctrine mentioned, on the other hand, is an
equitable remedy resorted to only when the corporate fiction is used, among others, to defeat public
convenience, justify wrong, protect fraud or defend a crime.
Moreover, in a piercing case, the test is complete control or domination, not only of finances, but of policy
and business practice in respect of the transaction attacked. This is not the case here. Section 31, under
124
which this case was brought, makes a corporate director who may or may not even be a stockholder or
memberaccountable for his management of the affairs of the corporation.
WHEREFORE, the Court DENIES the petition and AFFIRMS the February 21, 2006 Decision of the Court
of Appeals in CA-G.R. CV 83648 and its Resolution ofMay 29, 2006.
Petrache, Ria Kriselle P. Topic: Corporate Officers
G.R. NO. 171993 December 12, 2011

MARC II MARKETING, INC. AND LUCILA JOSON, petitioners, V. ALFREDO M. JOSON, respondent.
PEREZ, J.:
FACTS: Marc II Marketing, Inc. and Lucila Joson is assailing the decision of the CA for reversing and
settling aside the Resolution of the National Labor Relations Commission.
Marc II Marketing, Inc. is a corporation duly organized and existing under and by virtue of the laws of the
Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or wholesale for
export or import household appliances and products and other items. Petitioner Lucila V. Joson is the
President and majority stockholder of the corporation.
Before Marc II Marketing, Inc. was officially incorporated, Alfredo M. Joson has already been engaged by
Lucila, in her capacity as President, to work as General Manager of the corporaton and it was formalized
through the execution of a Management Contract dated in 1994 under Marc Marketing, Inc., as Marc II
Marketing, Inc. was yet to be incorporated. For occupying the said position, respondent was among the
corporation’s corporate officers by the express provision of Section 1, Article IV of its by-laws.
Alfredo was appointed as one of its officers with the designation or title of General Manager to function as
a managing director with other duties and responsibilities that the Board may provide and authorized.
However, in 1997, Marc II Marketing Inc. decided to stop and cease its operation as evidenced by an
Affidavit of Non-Operation due to poor sales collection aggravated by the inefficient management of its
affairs. Alfredo was informed of the cessation of its business operations and the termination of his
services as General Manager. He filed action for reinstatement and money claim against petitioners.
ISSUE: Whether or not Marc II Marketing Inc.’s Board of Directors could create a position for corporate
officers through an enabling clause found in its corporate by-laws?
HELD: The Court held that in the context of PD 902-A, 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.
Section 25 of the Corporation Code specifically enumerated who are these corporate officers, namely:
president, secretary, treasurer and such other officers as may be provided for in the by-laws.
A careful examination of Marc II Marketing Inc.’s by-laws, particularly paragraph 1, Section 1 of Article IV
explicitly revealed that its corporate officers are composed only of chairman, president, one/more vice
125
president, treasurer and secretary. The position of general manager was not among those enumerated.
Meanwhile, paragraph 2, 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, making this an enabling
provision for approving a resolution to make the position of general manager a corporate officer. 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.
Though the Board of Directors may create appointive positions other than the positions of corporate
officers, the persons occupying such positions cannot be viewed as corporate officers under Section 25 of
the Corporation Code. 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.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March
2006, respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the
MODIFICATION finding respondents dismissal from employment legal but without proper observance of
due process. Accordingly, petitioner corporation, jointly and solidarily liable with petitioner Lucila, is
hereby ordered to pay respondent the following; (1) separation pay equivalent to one month pay or at
least one-half month pay for every year of service, whichever is higher, to be computed from the
commencement of employment until termination; and (2) nominal damages in the amount of P50,000.00.
This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner corporation for the proper computation of
his separation pay.
Costs against petitioners.
SO ORDERED.
ABLANG, KARPOV B. CORPORATE OFFICERS (Sec. 25 Corp. Code)
G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,
vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.
Reyes, J.
Facts:
· Complainant “claimed that sometime in April 1993, he was employed as a salesman by Arevalo,
who was then in the business of selling broadcast equipment needed by television networks and
production houses.
· In December 2000, Arevalo set up the company Broadcom, still to continue the business of trading
communication and broadcast equipment.
· Cosare was named an incorporator of Broadcom… In October 2001, Cosare was promoted to the
position of Assistant Vice President for Sales (AVP for Sales) and Head of the Technical Coordination,
having a monthly basic net salary and average commissions of P18,000.00 and P37,000.00, respectively.
· Thereafter, sometime in 2003, “Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President
for Sales and thus, became Cosare’s immediate superior.
126
· On March 23, 2009, Cosare sent a confidential memo to Arevalo to inform him of the following
anomalies which were allegedly being committed by Abiog against the company: (a) he failed to report to
work on time, and would immediately leave the office on the pretext of client visits; (b) he advised the
clients of Broadcom to purchase camera units from its competitors, and received commissions therefor;
(c) he shared in the ‘under the-table dealings’ or ‘confidential commissions’ which Broadcom extended to
its clients’ personnel and engineers; and (d) he expressed his complaints and disgust over Broadcom’s
uncompetitive salaries and wages and delay in the payment of other benefits, even in the presence of
office staff.
· Thereafter, on 30 March 2009, Complainant received a memo charging him with serious
misconduct and willful breach of trust and required him to respond within forty-eight (48) hours.
· The memo was signed by Defendant Arevalo. Complainant was also “suspended from having
access to any and all company files/records and use of company assets effective immediately.”
Issue: Whether or not the case instituted by Cosare was an intra-corporate dispute that was within the
original jurisdiction of the RTC, and not of the Labor Arbiter.
Held: The petition is impressed with merit. As regards the issue of jurisdiction, the Court has determined
that contrary to the ruling of the CA, it is the LA, and not the regular courts, which has the original
jurisdiction over the subject controversy. An intra-corporate controversy, which falls within the jurisdiction
of regular courts, has been regarded in its broad sense to pertain to disputes that involve any of the
following relationships: (1) between the corporation, partnership or association and the public; (2)
between the corporation, partnership or association and the state in so far as its franchise, permit or
license to operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or associates,
themselves.29 Settled jurisprudence, however, qualifies that when the dispute involves a charge of illegal
dismissal, the action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls
termination disputes and claims for damages arising from employer-employee relations as provided in
Article 217 of the Labor Code. Consistent with this jurisprudence, 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.
The Court distinguished between a "regular employee" and a "corporate officer" for purposes of
establishing the true nature of a dispute or complaint for illegal dismissal and determining which body has
jurisdiction over it. Succinctly, it was explained that "[t]he determination of whether the dismissed officer
was a regular employee or corporate officer unravels the conundrum" of whether a complaint for illegal
dismissal is cognizable by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to adjudicate.
To support their argument that Cosare was a corporate officer, the respondents referred to Section 1,
Article IV of Broadcom’s by-laws, which reads:
ARTICLE IV
OFFICER
Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall formally
organize by electing the President, the Vice-President, the Treasurer, and the Secretary at said meeting.
The Board may, from time to time, appoint such other officers as it may determine to be necessary or
proper. Any two (2) or more compatible positions may be held concurrently by the same person, except
that no one shall act as President and Treasurer or Secretary at the same time.
The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcom’s by-laws are the following: the President, Vice-President, Treasurer and Secretary. Although a
blanket authority provides for the Board’s appointment of such other officers as it may deem necessary
and proper, the respondents failed to sufficiently establish that the position of AVP for Sales was created
by virtue of an act of Broadcom’s board, and that Cosare was specifically elected or appointed to such
127
position by the directors. No board resolutions to establish such facts form part of the case records.
Further, it was held in Marc II Marketing, Inc. v. Joson that an enabling clause in a corporation’s by-laws
empowering its board of directors to create additional officers, even with the subsequent passage of a
board resolution to that effect, cannot make such position a corporate office. 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.39 "To allow 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 to do
so can result in the circumvention of that constitutionally well-protected right [of every employee to
security of tenure.
It bears mentioning that even the CA’s finding that Cosare was a director of Broadcom when the dispute
commenced was unsupported by the case records, as even the General Information Sheet of 2009
referred to in the CA decision to support such finding failed to provide such detail.
All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely on
the ground that the dispute was an intra-corporate controversy within the jurisdiction of the regular courts.
WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution dated
March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The Decision dated
August 24, 2010 of the National Labor Relations Commission in favor of petitioner Raul C. Cosare is
AFFIRMED.
SO ORDERED.
Anna Carmela G. Virtucio Topic: Authority of Officers(Implied)
G.R.No. L-18805 August 14, 1967

THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,
and LEONOR MOLL, defendants-appellees.
JARDALEZA, J:
Facts:
● NACOCO was chartered as a non-profit governmental organization on avowedly for the
protection, preservation and development of the coconut industry in the Philippines. Later on its
charter was amended to grant that corporation the express power to buy and sell copra.
128
● The general manager and board chairman was Maximo M. Kalaw and herein defendants Juan
Bocar and Casimiro Garcia were members of the Board.
● NACOCO then embarked on copra trading activities but series of events happened which
prevented NACOCO from fulfilling the contracts.
● In a meeting of the board, Kalaw made a full disclosure of the situation, apprised the board of the
impending heavy losses. The board met again with Kalaw, Bocar, Garcia and Moll in attendance.
They unanimously approved the contracts hereinbefore enumerated.
● NACOCO partially performed the contracts. One of its buyers, Louis Dreyfus & Go. (Overseas)
Ltd filed a case.
● The cases happened when the Kalaw management was already out.
● NACOCO in its answer then alleged that the contracts were void because Louis Dreyfus & Co.
(Overseas) Ltd. did not have license to do business here and failure to deliver was due to force
majeure, the typhoons.
● NACOCO now seeks to recover the sum of P1,343,274.52 from general manager and board
chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It
charges Kalaw with negligence and defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts.
● Later on by Executive Order 372, NACOCO, together with other government-owned corporations,
was abolished, and the Board of Liquidators was entrusted with the function of settling and
closing its affairs.
● CFI dismissed the complaint and the plaintiff was ordered to pay the heirs of Maximo Kalaw the
sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.
Issue: Whether or not the contracts entered into by Kalaw without the prior approval of the corporation's
directors are valid?
Held:Yes. It is provided by NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, that, as
amongst the duties of the general manager is the obligation: "(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts necessary and essential to the proper
accomplishment for which the Corporation was organized." It was held that a corporate officer "entrusted
with the general management and control of its business, has implied authority to make any contract or
do any other act which is necessary or appropriate to the conduct of the ordinary business of the
corporation. As such officer, "he may, without any special authority from the Board of Directors perform
all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the
corporation by contracts in matters arising in the usual course of business. Also where acts have been
approved by the directors as a matter of general practice, custom, and policy, the general manager may
bind the company without formal authorization of the board of directors. Thus, when, in the usual course
of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his
authority to represent the corporation may be implied from the manner in which he has been permitted by
the directors to manage its business.
In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and
execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval.
But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of
prior approval. Hence all the contracts entered by Kalaw are valid corporate acts.
Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed.
129
Paolo F. Cruz Doctrine of Apparent Authority
G.R. No.176897 December 11, 2013

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of Advance
Paper Corporation, Petitioners,
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN NG, Respondents.
x-------------------------------------------------x
ANTONIO TAN and UY SENG KEE WILLY, Respondents.
DECISION
BRION, J.:
Facts:
On various dates from September to December 1994, Arma Traders purchased on credit notebooks and
other paper products from Advance Paper. Arma Traders also obtained three loans from Advance Paper.
As payment for the purchases on credit and the loan transactions, Arma Traders issued 82 postdated
checks payable to cash or to Advance Paper. Tan and Uy were Arma Traders’ authorized bank
signatories who signed and issued these checks
Advance Paper presented the checks to the drawee bank but these were dishonored either for
"insufficiency of funds" or "account closed." Despite repeated demands, however, Arma Traders failed to
settle its account with Advance Paper.
The petitioners filed a complaint for collection of sum of money with application for preliminary attachment
against Arma Traders, Tan, Uy, Ting, Gui, and Ng.
Petitioner’s contention:
The petitioners claimed that the respondents fraudulently issued the postdated checks as payment for the
purchases and loan transactions knowing that they did not have sufficient funds with the drawee banks.
To prove the loan transactions, the petitioners presented the copies of the checks which Advance Paper
issued in favor of Arma Traders. The petitioners also filed a manifestation, submitting a bank statement
from Metrobank EDSA Kalookan Branch. This was to show that Advance Paper’s credit line with
Metrobank has been transferred to the account of Arma Traders as payee.
Moreover, Haw testified to prove the loan transactions. When asked why he considered extending the
loans without any collateral and loan agreement or promissory note, and only on the basis of the issuance
of the postdated checks, he answered that it was because he trusted Arma Traders since it had been
their customer for a long time and that none of the previous checks ever bounced.
Respondent’s claim:
As to the loan transactions, the respondents countered that these were the personal obligations of Tan
and Uy to Advance Paper. These loans were never intended to benefit the respondents.
130
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. They claimed that the borrowing of money must be done only with the prior approval of the board
of directors because without the approval, the corporate officers are acting in excess of their authority or
ultra vires. When the acts of the corporate officers are ultra vires, the corporation is not liable for whatever
acts that these officers committed in excess of their authority. Further, the respondents claimed that
Advance Paper failed to verify Tan and Uy’s authority to transact business with them. Hence, Advance
Paper should suffer the consequences.
RTC Ruling:
The RTC held that the respondents failed to present hard, admissible and credible evidence to prove that
the sale invoices were forged or fictitious, and that the loan transactions were personal obligations of Tan
and Uy. Nonetheless, the RTC dismissed the complaint against Tan, Uy, Ting, Gui and Ng due to the lack
of evidence showing that they bound themselves, either jointly or solidarily, with Arma Traders for the
payment of its account.
CA Ruling:
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 CA acknowledged that Tan and Uy were Arma Traders’
authorized bank signatories. However, 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.
Issue:
Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority.
Ruling: Yes
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, and it holds him out to the public as possessing the power to do those acts.76 The doctrine of
apparent authority does not apply if the principal did not commit any acts or conduct which a third party
knew and relied upon in good faith as a result of the exercise of reasonable prudence. Moreover, the
agent’s acts or conduct must have produced a change of position to the third party’s detriment.
A corporate officer or agent may represent and bind the corporation in transactions with third persons to
the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the
usual course of the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the officer or agent to
believe that it has conferred.
Apparent authority is derived not merely from practice. 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, with which it clothes him; or (2) the acquiescence in
his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope
of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or
in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the
vesting of a corporate officer with the power to bind the corporation.
131
In this case, 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, promissory notes and
other evidence of indebtedness. Likewise, 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, and Pedro Chao. Furthermore, the respondents, through Ng who is Arma
Traders’ corporate secretary, incorporator, stockholder and director, 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. He also confirmed that since 1984 up to the filing of the
complaint against Arma Traders, its stockholders and board of directors never had its meeting.
Thus, 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. Arma Traders
failed to take precautions to prevent its own corporate officers from abusing their powers. Because of its
own laxity in its business dealings, Arma Traders is now estopped from denying Tan and Uy’s authority to
obtain loan from Advance Paper.
WHEREFORE, premises considered, we GRANT the petition. The decision dated March 31, 2006 and
the resolution dated March 7, 2007 of the Court of Appeals in CA-G.R. CV No. 71499 are REVERSED
and SET ASIDE. The Regional Trial Court decision in Civil Case No. 94-72526 dated June 18, 2001 is
REINSTATED. No costs.
Honey Fame L. Federico Topic: De Facto Officers
G.R. Nos. 163356-57 July 10, 2015

FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAP A CITY
132
AS INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD
OF DIRECTORS OF MAKATI SPORTS CLUB, Petitioners,
vs.
EFRENILO M. CAYANGA AND JOHN DOES, Respondents.
x-----------------------x
G.R. Nos. 163368-69
JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners,
vs.
JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents.
PEREZ, J.:
Facts:
These are two consolidated Petitions for Review on Certiorari assailing the 28 April 2003 Decision and the
27 April 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 62683, which declared the 17
December 1997 Special Stockholders' Meeting of the Makati Sports Club invalid for having been
improperly called but affirmed the actions taken during the Annual Stockholders' Meeting held on 20 April
1998, 19 April 1999 and 17 April 2000.
The controversy arose between two groups of stockholders/members of Makati Sports Club (MSC), the
Bernas Group, which is composed of incumbent directors and officers and the Cinco Group composed on
the newly elected directors and officers of the said Club.
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for the
election of new set of officers. Resonating this clamor were the stockholders of the corporation
representing at least 100 shares who sought the assistance of the MSCOC to call for a special
stockholders meeting for the purpose of removing the sitting officers and electing new ones. Pursuant to
such request, the MSCOC called a Special Stockholders' Meeting and sent out notices to all stockholders
and members stating therein the time, place and purpose of the meeting. For failure of the Bernas Group
to secure an injunction before the Securities Commission (SEC), the meeting proceeded wherein the
Bernas Group were removed from the office, and in their place the Cinco group were elected.
Agrrieved, the Bernas Group seek SICD of SEC to nullify 17 Dec 1997 meeting on the grounds that
Section 25of the MSC by-laws merely authorized the Corporate Secretary to issue notices of meetings
and nowhere does it state that such authority solely belongs to him. It was further asseverated by the
Cinco Group that it would be useless to course the request to call a meeting thru the Corporate Secretary
because he repeatedly refused to call a special stockholders' meeting despite demands and even "filed a
suit to restrain the holding of a special meeting.
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in
administering the corporate affairs and after finding Bernas guilty of irregularities, the Board resolved to
133
expel him from the club by selling his shares at public auction. After the notice requirement was complied
with, Bernas' shares was accordingly sold for P902,000.00 to the highest bidder.
Prior to the resolution of SEC Case No. 5840, an Annual Stockholders' Meeting was held on 20 April
1998 pursuant to Section 8 of the MSC bylaws. During the said meeting, which was attended by 1,017
stockholders representing 2/3 of the outstanding shares, the majority resolved to approve, confirm and
ratify, among others, the calling and · holding of 17 December 1997 Special Stockholders' Meeting, the
acts and resolutions adopted therein including the removal of Bernas Group from the Board and the
election of their replacements.
SICD Findings – 17 Dec 1997 meeting is null and void for being prematurely called, therefore produces
no legal effect. The April 20, 1998 meeting was not attended by a sufficient number of valid proxies. No
quorum could have been present at the said meeting. No corporate business could have been validly
completed and/or transacted during the said meeting.
SEC En Banc – Reversed SIDC Findings
CA – 17 December 1997 Meeting is void, but upheld the April 1998, 1999 and 2000 Annual Stockholders
Meeting.
ISSUE:
WON CA erred in failing to nullify the April 1998, 1999, and 200 Annual Stockholders Meeting.
RULING:
Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the MSC by-laws
can it be gathered that the Oversight Committee is authorized to step in wherever there is breach of
fiduciary duty and call a special meeting for the purpose of removing the existing officers and electing
their replacements even if such call was made upon the request of shareholders. Needless to say, the
MSCOC is neither · empowered by law nor the MSC by-laws to call a meeting and the subsequent
ratification made by the stockholders did not cure the substantive infirmity, the defect having set in at the
time the void act was done. The defect goes into the very authority of the persons who made the call for
the meeting. It is apt to recall that illegal acts of a corporation which contemplate the doing of an act
which is contrary to law, morals or public order, or contravenes some rules of public policy or public duty,
are, like similar transactions between individuals, void.
They cannot serve as basis for a court action, nor acquire validity by performance, ratification or estoppel.
The same principle can apply in the present case. The void election of 17 December 1997 cannot be
ratified by the subsequent Annual Stockholders' Meeting. Special Stockholders' Meeting called by the
Oversight Committee cannot have any legal effect. The removal of the Bernas Group, as well as the
election of the Cinco Group, effected by the assembly in that improperly called meeting is void, and since
the Cinco Group has no legal right to sit in the board, their subsequent acts of expelling Bernas from the
club and the selling of his shares. at the public auction, are likewise invalid.
134
The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken
after the invalid election since the operation of the principle is limited to third persons who were originally
not part of the corporation but became such by reason of voting of government-sequestered shares.
Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders
Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate in
office. Members of the group had no right to continue as directors of the corporation unless reelected by
the stockholders in a meeting called for that purpose every year.
WHEREFORE, premises considered, the petitions of Jose A. Bernas, Cecile. H. Cheng, Victor Africa,
Jesus B. Maramara, Jose T. Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos. 163356-57
and of Jovencio Cinco, Ricardo Librea and Alex Y. Pardo in G.R. Nos. 163368-69 are hereby DEN~ED.
The assailed Decision dated 28 April 2003 and Resolution dated 27 April 2004 of the Court of Appeals
are hereby AFFIRMED.
Valer, Lendy J. Topic: Duties and liabilities of a director
LUCIA MAGALING,
PARALUMAN R. MAGALING et.al
vs. PETER ONG G. R. No. 173333
August 13, 2008
CHICO-NAZARIO, J.:
Facts:
Defendants Sps. Reynaldo Magaling and Lucila Magaling are the controlling stockholders/owners of
Thermo (sic) Loans and Credit Corp. and had used the corporation as mere alter ego or adjunct to evade
the payment of valid obligation.
135
On or about December 1994, defendant Reynaldo Magaling, (sic) approached plaintiff in his store at Lipa
City and induced him to lend him money and/or his company Thermo (sic) Loans and Credit Corp. with
undertaking to pay interest at the rate of two and a half (2 %) percent per month. Defendant gave
assurance that he and his company Thermo (sic) Loans and Credit Corp. will be able to pay the loan.
Without the assurance plaintiff would not have lent the money.
Based on the assurance and representation of Reynaldo Magaling, Peter Ong extended loan to
defendants. As of September 1997, the principal loan extended to defendants stands atP350,000.00. The
interest thereon computed at 2 % per month is P8,750.00 per month.
Despite demands, oral and written, defendants Sps. Reynaldo and Lucila Magaling and/or Thermo (sic)
Loans and Credit Corp. unjustifiably and illegally failed, refused and neglected and still fail, refuse and
neglect to pay to the prejudice and damage of plaintiff. As of June 30, 1998, defendant’s obligation stands
at P389,043.96 inclusive of interest;
It was alleged further that Reynaldo Magaling, as President of Termo Loans, together with the
corporation’s treasurer, a certain Mrs. L. Rosita, signed a Promissory Not in favor of Ong for the amount
of P300,000.00 plus a monthly interest of 2.5%.
Because of the failure of Termo Loans to pay its outstanding obligation despite demand, Ong filed the
above-mentioned complaint praying that Spouses Magaling and Termo Loans be ordered to pay, jointly
and severally, the principal amount of P389,000.00, plus interest, attorneys fees and costs of suit. In
addition to the preceding entreaty, Ong asked for the issuance of the writ of preliminary attachment
pursuant to Section 1(d), Rule 57 of the Rules of Court, as amended.
On 7 October 1998, acting on Ongs prayer for the issuance of a writ of preliminary attachment grounded
on the allegation that Spouses Magaling were guilty of fraud in contracting the obligation subject of the
complaint for sum of money; and finding the same to be impressed with merit, the RTC issued an Order
directing the issuance of the writ prayed for upon the filing of a bond in the amount of P390,000.00.
Issue:
Whether or not Reynaldo Magaling should be held personally responsible for the debts of Termo Loans.
Held:
Yes.
In the present case, there is nothing substantial on record to show that Reynaldo Magaling, as President
of Termo Loans, has, indeed, acted in bad faith in inviting Ong to invest in Termo Loans and/or in
obtaining a loan from Ong for said corporation in order to warrant his personal liability. From all
indications, the proceeds of the investment and/or loan were indeed utilized by Termo Loans. Likewise,
136
bad faith does not arise just because a corporation fails to pay its obligations, because the inability to pay
ones obligation is not synonymous with fraudulent intent not to honor the obligations.
The foregoing discussion notwithstanding, this Court still cannot totally absolve Reynaldo Magaling from
any liability considering his gross negligence in directing the affairs of Termo Loans; thus, he must be
made personally liable for the debt of Termo Loans to Ong.
In order to pierce the veil of corporate fiction, for reasons of negligence by the director, trustee or officer in
the conduct of the transactions of the corporation, such negligence must be gross. Gross negligence is
one that is characterized by the want of even slight care, acting or omitting to act in a situation where
there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to
consequences insofar as other persons may be affected; and must be established by clear and
convincing evidence. Parenthetically, gross or willful negligence could amount to bad faith.
WHEREFORE, premises considered, the instant petition is DENIED.
137
MOHAMMAD ALI BANTAO TOPIC: DUTIES and LIABILITIES of DIRECTORS,
TRUSTEES and OFFICERS
G.R. No. 166282 February 13, 2013
HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners, vs. INTERNATIONAL
EXCHANGE BANK, Respondent.
MENDOZA, J.:
Facts:
· On several occasions, from June 23, 1997 to September 3, 1997, respondent International
Exchange Bank (iBank), granted loans to Hammer Garments Corporation (Hammer), covered by
promissory notes and deeds of assignment. These were made pursuant to the Letter-Agreement,dated
March 23, 1996, between iBank and Hammer, represented by its President and General Manager,
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus
Line.
· The loans were secured by a P 9 Million-Peso Real Estate Mortgage executed on July 1, 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, Fe Tan Uy (Uy), on April 15, 1996. As of October 28, 1997,
Hammer had an outstanding obligation of P25,420,177.62 to iBank.
· Hammer defaulted in the payment of its loans, prompting iBank to foreclose on Goldkey’s third-party
Real Estate Mortgage. For failure of Hammer to pay the deficiency, iBank filed a Complaint for sum of
money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court,
Makati City(RTC).
· In her separate answer, Uy claimed that she was not liable to iBank because she never executed a
surety agreement in favor of iBank. Goldkey, on the other hand, also denies liability, averring that it acted
only as a third-party mortgagor and that it was a corporation separate and distinct from Hammer.
the RTC in its December 17, 1997 Order.13 The Notice of Levy on Attachment of Real Properties, dated
July 15, 1998, covering the properties under the name of Goldkey, was sent by the sheriff to the Registry
of Deeds of Quezon City.
Issue:
Whether or not there is guilt by association in those cases where the veil of corporate fiction may
be pierced
Ruling:
Uy is not liable. 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 wrong
or that she had participated in the transaction between Hammer and iBank. They further claim that she
had cut all ties with Hammer and her husband long before the execution of the loan
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, in general, from the
people comprising it. Following this principle, obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the corporation.24 Nevertheless, this legal
138
fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. This is
consistent with the provisions of the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully 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, its stockholders or
members and other persons.
Solidary liability will then attach to the directors, officers or employees of the corporation in certain
circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, 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, or that the officer was guilty of
gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith.
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that would permit the piercing of the corporate veil. Indeed,
there is no showing that Uy committed gross negligence. And in the absence of any of the
aforementioned requisites for making a corporate officer, director or stockholder personally liable for the
obligations of a corporation, Uy, as a treasurer and stockholder of Hammer, cannot be made to answer
for the unpaid debts of the corporation.
WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the December 2,
2004 Resolution of the Court of Appeals in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is
released from any liability arising from the debts incurred by Hammer from iBank. Hammer Garments
Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are jointly and severally
liable to pay International Exchange Bank the sum of P13,420,177.62 representing the unpaid loan
obligation of Hammer as of December 12, 1997 plus interest. No costs.
139
Saddam Hussein S. Balt Topic: Removal of Directors
G.R. Nos. 163356-57 July 01, 2015

FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAPACITY
AS INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD
OF DIRECTORS OF MAKATI SPORTS CLUB, Petitioners
v.
EFRENILO M. CAYANGA AND JOHN DOES, Respondents
PEREZ, J.:
FACTS:
Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws for
the primary purpose of establishing, maintaining, and providing social, cultural, recreational and athletic
activities among its members. Petitioners Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus
Maramara, Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were among the
Members of the Board of Directors and Officers of the corporation.
In a special stockholders meeting, the MSC Oversight Committee (MSCOC), composed of the past
presidents of the club, demanded from the Bernas Group, who were then incumbent officers of the
corporation, to resign from their respective positions to pave the way for the election of new set of
officers. For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC),
the meeting proceeded wherein Jose A. Bernas and his co-petitioners were removed from office and, in
their place and stead, Jovencio F. Cinco and his co-respondents were elected.
Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities Investigation
and Clearing Department (SICD) of the SEC. It rendered a decision finding the special stockholders
meeting invalid and it likewise nullified the expulsion of Bernas from the corporation and the sale of his
share at the public auction.
On appeal, the SEC En Banc reversed the findings of SICD. However, the Court of Appeals rendered a
decision invalidating the special stockholders meeting.
ISSUE:
Whether or not the Court of Appeals erred in ruling that the special stockholkders’ meeting is invalid.
RULING:
As provided in Section 28 of the Corporation Code, “A special meeting of the stockholders or members of
a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the
140
secretary on order of the president or on the written demand of the stockholders representing or holding
at least a majority of the outstanding capital stock..”
Consequently, such special Stockholders’ Meeting called by the Oversight Committee cannot have any
legal effect. The removal of the Bernas Group, as well as the election of the Cinco Group, effected by the
assembly in that improperly called meeting is void, and since the Cinco Group has no legal right to sit in
the board, their subsequent acts of expelling Bernas from the club and the selling of his shares at the
public auction, are likewise invalid.
The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken
after the invalid election since the operation of the principle is limited to third persons who were originally
not part of the corporation but became such by reason of voting of government- sequestered shares.
WHEREFORE, premises considered, the petitions of Jose A. Bernas, Cecile H. Cheng, Victor Africa,
Jesus B. Maramara, Jose T. Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos. 163356-57
and of Jovencio Cinco, Ricardo Librea and Alex Y. Pardo in G.R. Nos. 163368-69 are hereby DENIED.
The assailed Decision dated 28 April 2003 and Resolution dated 27 April 2004 of the Court of Appeals
are hereby AFFIRMED.
141
Carla Angela D. Villadolid Topic: General Powers (Sec. 36, Corp. Code)
G.R. No. 171579 November 14, 2012
LILY SY,
Petitioner,
-versus-
HON. SECRETARY OF JUSTICE MA. MERCEDITAS N. GUTIERREZ, BENITO FERNANDEZ GO,

BERTHOLD LIM, JENNIFER SY, GLENN BEN TIAK SY and MERRY SY,
Respondents.
Peralta, J.
FACTS:
Petitioner Lily Sy claimed that in the morning of December 16, 1999, respondents Benito
Fernandez Go (Benito) and Glenn Ben Tiak Sy (Glenn), together with "Elmo," a security guard went to
petitioner's residence at the tenth Floor, Fortune Wealth, 612 Elcano St., Binondo, Manila and forcibly
opened the door, destroyed and dismantled the door lock then replaced it with a new one, without
petitioner’s consent. She, likewise, declared that as a diversionary ruse, respondent Jennifer Sy (Jennifer)
was at the lobby of the same building who informed petitioner’s helper Geralyn Juanites (Geralyn) that the
elevator was not working. Glenn and Benito’s act of replacing the door lock appeared to be authorized by
a resolution of Fortune Wealth Mansion Corporation’s Board of Directors, namely, respondents Glenn,
Jennifer, William Sy (William), Merlyn Sy (Merlyn), and Merry Sy (Merry). In the evening of the same date,
petitioner supposedly saw Benito, Glenn, Jennifer, Merry and respondent Berthold Lim (Berthold) took
from her residence numerous boxes containing her personal belongings without her consent and, with
intent to gain, load them inside a family-owned van/truck named “Wheels in Motion.” The same incident
supposedly happened in January 2000 and the “stolen” boxes allegedly reached 34, the contents of
which were valued at P10,244,196.00.
Respondents Benito and Berthold denied the accusations against them. Merry, Glenn, and
Jennifer, on the other hand, claimed that petitioner’s accusations were brought about by the worsening
state of their personal relationship because of misunderstanding on how to divide the estate of their
deceased father. They also pointed out that the whole condominium building where the alleged residence
of petitioner is located is owned and registered in the name of the corporation. They explained that the
claimed residence was actually the former residence of their family (including petitioner). After their
parents’ death, the corporation allegedly tolerated petitioner to continuously occupy said unit while they,
in turn, stayed in the other vacant units leaving some of their properties and those of the corporation in
their former residence. They further stated that petitioner transferred to the ground floor because the tenth
floor’s electric service was disconnected. They explained that they changed the unit’s door lock to protect
their personal belongings and those of the corporation as petitioner had initially changed the original lock.
They supported their authority to do so with a board resolution duly issued by the directors. They
questioned petitioner’s failure to report the alleged incident to the police, considering that they supposedly
witnessed the unlawful taking. They thus contended that petitioner’s accusations are based on illusions
and wild imaginations, aggravated by her ill motive, greed for money and indiscriminate prosecution.
-Assistant City Prosecutor: Respondents be charged with Robbery In Uninhabited
-Sec. of Justice: Reversed and Set Aside
-CA: Reinstate the Sec. of Justice’s Resolution
142
ISSUES:
1. Are respondents guilty of Robbery?
2. May a corporation arbitrarily take the law into their own hands by means of a
mere Board Resolution?
HELD:
1. No
2. Yes
Respondents were charged with robbery in an uninhabited place, which was later amended to
reflect the facts as alleged in the complaint that the robbery was committed in an inhabited place and that
it was committed through force upon things.
“Any person who, with intent to gain, shall take any personal property belonging to another, by
means of violence against or intimidation of any person, or using force upon anything, is guilty of robbery.
To constitute robbery, the following elements must be established:
1. The subject is personal property belonging to another;
2. There is unlawful taking of that property;
3. The taking is with the intent to gain; and
4. There is violence against or intimidation of any person or use of force upon things.
Admittedly, the subject tenth floor unit is owned by the corporation and served as the family
residence prior to the death of petitioner and respondents’ parents. The tenth floor unit, including the
personal properties inside, is the subject of estate proceedings pending in another court and is, therefore,
involved in the disputed claims among the siblings (petitioner and respondents). Respondents admitted
that armed with a Board Resolution authorizing them to break open the door lock system of said unit and
to install a new door lock system, they went up to the subject unit to implement said resolution. The said
corporate action was arrived at because petitioner had allegedly prevented prospective buyers from
conducting ocular inspection.
Taking as an element of robbery means depriving the offended party of ownership of the thing
taken with the character of permanency. The taking should not be under a claim of ownership. Thus, one
who takes the property openly and avowedly under claim of title offered in good faith is not guilty of
robbery even though the claim of ownership is untenable.
In this case, 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. If at all, they took them openly and
avowedly under that claim of ownership. This is bolstered by the fact that at the time of the alleged
incident, petitioner had been staying in another unit because the electric service in the tenth floor was
disconnected.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
143
JOHN PAUL MAANDAL TOPIC: General Powers (Section 36)
(G.R. No. 163825, July 13, 2010)
VIOLETA TUDTUD BANATE, MARY MELGRID M CORTEL, BONIFACIO CORTEL RODENDO

MAASANG and PATROCINIA MONILAR, Petitioners, vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU) INC., and TEOFILO SOON JR.,
Respondents
FACTS: On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses
Maglasang) obtained a loan from PCRB for P1,070,000.00. The spouses Maglasang executed, in favor
of PCRB a real estate mortgage over their property, Lot 12868-H-3-C, including the house constructed
thereon owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel) Aside from the subject
loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate
promissory notes and secured by mortgages on their other properties.
Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the
spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the
subject properties be released from the mortgage since the two other loans were adequately secured by
the other mortgages.
The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch
Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the
subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate
the subject properties for P1,750,000.00. The spouses Magsalang and the spouses Cortel used the
amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners
duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name.
The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from
PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the
petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the
release deed.
RTC ruled in favor of the petitioners but was subsequently reversed by the CA as it did not consider as
valid the petitioners new agreement with Mondigo. It ruled that Mondigo cannot orally amend the
mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the
claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB.
ISSUE: Can the Bank be held liable for agreements entered into by it’s Branch Manager without express
authority by the Board?
HELD: NO. Under the doctrine of apparent authority, acts and contracts of the agent, as are within the
apparent scope of the authority conferred on him, although no actual authority to do such acts or to make
such contracts has been conferred, bind the principal. The principals liability, however, is limited only to
144
third persons who have been led reasonably to believe by the conduct of the principal that such actual
authority exists, although none was given. In other words, apparent authority is determined only by the
acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent
without acts or conduct on the part of the principal; 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,
and such acts or conduct must have produced a change of position to the third partys detriment.
In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as
supposed principal, has clothed or held out its branch manager as having the power to enter into an
agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the
bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts
regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to
verbally alter the terms of mortgage contracts. Neither was there any allegation, much less proof, that
PCRB ratified Mondigos act or is estopped to make a contrary claim.
Further, 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 doctrines ambit. Although a branch
manager, within his field and as to third persons, is the general agent and is in general charge of the
corporation, 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. 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, especially
when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage
contract; PCRBs vigorous denial that any agreement to release the mortgage was ever entered into by it;
and, the fact that the purported agreement was not even reduced into writing considering its legal effects
on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate
the mortgage contract has not been established.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of the agents
authority, and in case either is controverted, the burden of proof is upon them to establish it. As parties to
the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported
agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent
authority, as above discussed.
WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit, and AFFIRM the
decision of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-
G.R. CV No. 74332. No pronouncement as to costs. SO ORDERED.
145
Fernandez, Napolyn P. Topic: General Powers
G.R. No. 203786 October 23, 2013
AQUILES RIOSA, Petitioner,

vs.
TABACO LA SUERTE CORPORATION, Respondent.
MENDOZA, J.:
Facts:
· On February 26, 2002, petitioner Aquiles Riosa (Aquiles) filed his Complaint for
Annulment/Declaration of Nullity of Deed of Absolute Sale and Transfer Certificate of Title, Reconveyance
and Damages against respondent Tabaco La Suerte Corporation (La Suerte) before the RTC.
· Aquiles alleged that he was the owner of the property which he acquired through a deed of cession
and quitclaim executed by his parents.
· He obtained loans from Sia Ko Pio amounting to P50,000. Sia Ko Pio requested from a photocopy
of the deed of cession and quitclaim as a security. Sia Ko Pio then presented to him a document
purportedly a receipt for the P50,000.00 loan with an undertaking to pay the total amount of P52,000.00
including the P2,000.00 attorney’s fees which he signed without reading the document
· In September 2001, to his surprise, he received a letter from La Suerte informing him that the
subject lot was already registered in its name.
· Aquiles claimed he was made to sign the document which he thought was a receipt and
undertaking to pay the loan, only to find out later that it was a document of sale.
· La Suerte averred that it purchased the property from Aquiles on December 7, 1990 through Sia Ko
Pio who was then its Chief Executive Officer.
Issue: Is there a perfected and valid contract of sale for the subject property between Aquiles and La
Suerte, through its Chief Executive Officer, Sia Ko Pio?
Held: None, there was no perfected contract of sale. No clear and convincing evidence that Aquiles sold
the property to La Suerte, nor was there evidence that La Suerte authorized its Chief Executive Officer,
Sia Ko Pio, to negotiate and conclude a purchase of the property. Section 23 of the Corporation Code
expressly provides that the corporate powers of all corporations shall be exercised by the board of
directors. 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. Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the corporation, but not in the course of,
146
or connected with, the performance of authorized duties of such director, is held not binding on the
corporation. In the case at bench, Sia Ko Pio, although an officer of La Suerte, had no authority from its
Board of Directors to enter into a contract of sale of Aquiles’ property. The loan obtained by Aquiles from
Sia Ko Pio was a personal loan from the latter, not a transaction between Aquiles and La Suerte. 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.
WHEREFORE, the petition is GRANTED. The May 30, 2012 Decision of the Court of Appeals in CA-G.R.
CV No. 96459 is REVERSED and SET ASIDE. The September 30, 2010 Decision of the Regional Trial
Court, Branch 15 Tabaco City, Albay, is REINSTATED.
Alexis B. Dulay Powers of Corporations; General Powers; Sec. 35
Case No. 70
G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO,
MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Responden
FACTS:
147
· In 1993, BF Corporation filed a complaint for collection of money against Shangri-La and the
members of its board of directors: Alfredo C. Ramos, Rufo B. Colayco, Antonio O. Olbes, Gerardo Lanuza
Jr., Maximo G. Licauco III and Benjamin C. Ramos for the outstanding balance of the construction of
Shangri-La mall and a multilevel parking structure along EDSA.
· BF Corporation alleged that Shangri-La’s directors were in bad faith in directing Shangri-La’s
affairs, therefore they should be held jointly and severally liable with the company.
· Shangri-La and Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III and Benjamin C.
Ramos filed a motion to suspend the proceeding because BF Corporation failed to submit the dispute to
arbitration in accordance with their contract. Which was later on denied by the RTC.
· Alfredo C. Ramos, Rufo B. Colayco, Antonio O. Olbes, Gerardo Lanuza Jr., Maximo G. Licauco
III and Benjamin C. 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, 1991.
· Thereafter, a controversy arose as to whether the board of directors impleaded in the complaint
should be made parties to the arbitration proceeding.
ISSUE: W/N the petitioners should be made parties to the arbitration proceedings?
HELD: YES. 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.
· A corporation is an artificial entity created by fiction of law. This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal
sense, is an individual with a personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives, and other juridical entities.
· The law vests in corporations rights, powers, and attributes as if they were natural persons with
physical existence and capabilities to act on their own. For instance, they have the power to sue and
enter into transactions or contracts.
· Because a corporation's existence is only by fiction of law, it can only exercise its rights and
powers through its directors, officers, or agents, who are all natural persons. A corporation cannot sue or
enter into contracts without them.
· A consequence of a corporation's separate personality is that consent by a corporation through
its representatives is not consent of the representative, personally. Its obligations, incurred through official
acts of its representatives, are its own. A stockholder, director, or representative does not become a party
to a contract just because a corporation executed a contract through that stockholder, director or
representative.
· Hence, a corporation's representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities incurred on or in
behalf of the corporation.
· As a general rule, therefore, 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. He or she is
generally not considered a party to that agreement.
· However, there are instances when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction.
· When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist to warrant the courts or tribunals to
148
disregard the distinction between the corporation and the persons representing it. The determination of
these circumstances must be made by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those persons whose personalities are
impliedly the same as the corporation. This is because when the court or tribunal finds that circumstances
exist warranting the piercing of the corporate veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts. The corporation's distinct personality is
disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under
the collective name of the corporation.
· Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging
malice or bad faith on their part in directing the affairs of the corporation, complainants are effectively
alleging that the directors and the corporation are not acting as separate entities. They are alleging that
the acts or omissions by the corporation that violated their rights are also the directors' acts or omissions.
They are alleging that contracts executed by the corporation are contracts executed by the directors.
Complainants effectively pray that the corporate veil be pierced because the cause of action between the
corporation and the directors is the same.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.
149
MOHAMMAD ALI BANTAO TOPIC: NATIONALITY, CITIZENSHIP and FOREIGN
EQUITY
G.R. No. L-2294, May 25, 1991

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,vs. CHRISTERN, HUENEFELD and CO.,
INC.,respondent.
PARAS, C.J:
Facts:
· On October 1, 1941,ChristernHuenefeld Corporation (Huenefeld), a company whose major
stockholders are German, bought a fire insurance policy from Filipinas Compania de Seguros to cover
merchandise contained in a building.
· On December 10, 1941, the U.S. declared a war against Germany.
· On February 27, 1942, during the Japanese military occupation, the insured merchandise and the
building were burned, so Huenefeld filed a claim under the policy.
· Filipinas Compania refused to pay, alleging that the policy had ceased to be in force when the US
declared war against Germany.
· Filipinas Compania contended that Huenefeld, although organized and created under Philippine
laws, is a German subject, and hence, a public enemy, since majority of its stockholders are Germans.
On the other hand, Filipinas Companiais under American jurisdiction.
· However,the Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas
Compania to pay the claim, so Filipinas Compania did pay.
· Later on, Filipinas Compania filed a case for the recovery of the amount they paid to Huenefeld.
· The theory of the Filipinas Compania is that the insured merchandise were burned up after the
policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the
outbreak of the war between the United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military occupation
was under pressure.Huenefeld, became an enemy when the U.S. declared a war, thus no claim can be
made.
Issue:
Whether or not, Huenefeld is a German subject because majority of its stockholders are under German
jurisdiction, despite the fact that it was organized and created under Philippine laws.
Ruling:
There is no question that majority of the stockholders of the respondent corporation were German
subjects. This being so, we have to rule that said respondent became an enemy corporation upon the
outbreak of the war between the United States and Germany. In Haw Pia vs. China Banking
Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within
the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not
only because it was incorporated under the laws of an enemy country but because it was controlled by
enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.The respondent having become an enemy
corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the
petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods
150
were burned after December 10, 1941, and during the war, the respondent was not entitled to any
indemnity under said policy from the petitioner
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered
to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in
question, beginning December 11, 1941. Without costs.
So ordered.
151
Antonio S. Pagsibigan Jr. Topic: Powers of Corporations
Subtopic: Specific Powers: Power to Deny Pre-
emptive Right
G.R. No. 165887 June 6, 2011
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION,

Petitioners,
vs.
MIGUEL LIM, in his personal capacity as Stockholder of Ruby Industrial
Corporation and representing the MINORITY STOCKHOLDERS OF RUBY
INDUSTRIAL CORPORATION and the MANAGEMENT COMMITTEE OF RUBY
INDUSTRIAL CORPORATION, Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - -x
CHINA BANKING CORPORATION Petitioner,

vs.
MIGUEL LIM, in his personal capacity as a stockholder of Ruby Industrial Corporation
and representing the MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION, Respondents.
VILLARAMA, JR., J.:
Facts:
Reeling from severe liquidity problems beginning in 1980, Ruby Industrial Corporation (Ruby), filed a
petition for suspension of payments with the Securities and Exchange Commission (SEC). In an order,
SEC declared Ruby under suspension of payments, enjoining the disposition of its properties pending
hearing of the petition, except insofar as necessary in its ordinary operations, and making payments
outside of the necessary or legitimate expenses of its business.
The SEC Hearing Panel created the management committee (Mancom) for Ruby tasked, among others,
to take custody and control over all existing assets and liabilities of Ruby, and determine the best way to
salvage and protect the interest of its investors and creditors.
Two rehabilitation plans were submitted to the SEC: the BENHAR/Ruby Rehabilitation Plan of the
majority stockholders led by Yu Kim Giang, and the Alternative Plan of the minority stockholders
represented by Miguel Lim (Lim). Over 90% of Ruby’s creditors objected to the Revised BENHAR/Ruby
Plan and the creation of a new management committee. Instead, they endorsed the minority
stockholders’ Alternative Plan. Notwithstanding the objections, the SEC Hearing Panel approved the
Revised BENHAR/Ruby Plan and dissolved the existing Mancom. It also created a new Mancom and
appointed BENHAR as one of its members.
Issue: Whether the minority’s pre-emptive rights were violated
152
Ruling:
Yes. Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a
stock corporation to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings. The right may be restricted or denied under the articles of incorporation, and
subject to certain exceptions and limitations. The stockholder must be given a reasonable time within
which to exercise their preemptive rights.
The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, an issue of shares may still be
objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or shift
control of the corporation, or to "freeze out" the minority interest.
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. It is, however, equally true that other stockholders are afforded
the right to intervene especially during critical periods in the life of a corporation like reorganization, or in
this case, suspension of payments, more so, when the majority seek to impose their will and through
fraudulent means, attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby itself, as
well as the minority stockholders and the unsecured creditors.
Generally speaking, the voice of the majority of the stockholders is the law of the corporation, but there
are exceptions to this rule. There must necessarily be a limit upon the power of the majority. Without such
a limit the will of the majority will be absolute and irresistible and might easily degenerate into absolute
tyranny.
Lamentably, the SEC refused to heed the plea of the minority stockholders for the SEC to order Ruby to
commence liquidation proceedings, which is allowed under Sec. 4-9 of the Rules on Corporate Recovery.
Under the circumstances, liquidation was the only hope of the minority stockholders for effecting an
orderly and equitable settlement of Ruby’s obligations, and compelling the majority stockholders to
account for all funds, properties and documents in their possession, and make full disclosure on the
nullified credit assignments. Oblivious to these pending incidents so crucial to the protection of the
interest of the majority of creditors and minority shareholders, the SEC simply stated that in the interim,
Ruby’s corporate term was validly extended, as if such extension would provide the solution to Ruby’s
myriad problems.
Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders
meeting called for the purpose. The actual percentage of shareholdings in RUBY as of September 3,
1996 -- 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, and we
find the evidence of compliance with the notice and quorum requirements submitted by the majority
stockholders insufficient and doubtful. Consequently, 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.
WHEREFORE, the petitions for review on certiorari are DENIED. The Decision dated May 26, 2004 and
Resolution dated November 4, 2004 of the Court of Appeals in CA-G.R. SP No. 73195 are hereby
AFFIRMED with MODIFICATION in that the Securities and Exchange Commission is hereby ordered to
TRANSFER SEC Case No. 2556 to the appropriate Regional Trial Court which is hereby DIRECTED to
supervise the liquidation of Ruby Industrial Corporation under the provisions of R.A. No. 10142. With
costs against the petitioners. SO ORDERED
153
Del Rosario, Michel Andre P. Power to sell all or substantially all of the assets
Second Division
G.R. No. 180974 June 13, 2012
METROPOLITAN BANK and TRUST COMPANY,
- versus -
CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL CO KEHYENG AND

QUIRINO KEHYENG,
Sereno, J.
FACTS:
On 20 March 1990, in a special meeting of the board of directors of respondent Centro

Development Corporation (Centro), 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. The properties and assets consisted of a parcel of land with a building and improvements
located at Salcedo St., Legaspi Village, Makati City, and covered by Transfer Certificate of Title Nos.
139880 and 139881. This authorization was subsequently approved on the same day by the
stockholders. Maria Jacinta V. Go, the corporate secretary, issued a Secretary’s Certificate
On 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a Mortgage Trust Indenture
(MTI) with the Bank of the Philippines Islands. Under the MTI, respondent Centro, together with its
affiliates Lucky Two Corporation and Lucky Two Repacking or 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. To secure these obligations from different creditors, respondent Centro constituted a
continuing mortgage on all or substantially all of its properties and assets enumerated above unto and in
favor of BPI, the trustee. Should respondent Centro or any of its affiliates fail to pay their obligations when
due, the trustee shall cause the foreclosure of the mortgaged property.
On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of ₱36 million and to
include San Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to Centro, Lucky Two
Corp. and Lucky Two Repacking. Then, on 28 July 1994, Centro and BPI again amended the MTI for
another loan of ₱24 million, bringing the total obligation to ₱144 million.
154
Meanwhile, during the period April 1998 to December 1998, San Carlos obtained loans in the total
principal amount of ₱812,793,513.23 from petitioner Metrobank.
San Carlos failed to pay these outstanding obligations despite demand. Thus, petitioner, as trustee of the
MTI, enforced the conditions thereof and initiated foreclosure proceedings, denominated as Foreclosure
No. S-04-11, on the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a Petition for
Extrajudicial Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC) of Makati
City. Petitioner alleged that the total amount of the Promissory Notes that San Carlos executed in favor of
the former amounted to ₱812,793,513.23. As of 30 April 2000, the total outstanding obligation, inclusive
of interests and penalties, was ₱1,178,961,181.45.
Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a Complaint for the
annulment of the 27 September 1994 MTI with a prayer for a temporary restraining order (TRO) and
preliminary injunction at Branch 138 of the RTC of Makati City. Docketed as Civil Case No. 00-942, the
Complaint was against petitioner, Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta Go and
Enriqueto Magpantay.
The bone of contention in Civil Case No. 00-942 was that since the mortgaged properties constituted all
or substantially all of the corporate assets, the amendment of the MTI failed to meet the requirements of
Section 40 of the Corporation Code on notice and voting requirements. Under this provision, in order for a
corporation to mortgage all or substantially all of its properties and assets, it should be authorized by the
vote of its stockholders representing at least 2/3 of the outstanding capital stock in a meeting held for that
purpose. Furthermore, there must be a written notice of the proposed action and of the time and place of
the meeting. Thus, respondents alleged, the representation of Go Eng Uy that he was authorized by the
board of directors and/or stockholders of Centro was false.
After trial on the merits, the RTC dismissed the Complaint. On 30 August 2007, the CA promulgated the
assailed Decision.
ISSUE:
Whether the requirements of Section 40 of the Corporation Code was complied with in the
execution of the MTI.
HELD:
No.
RATIO:
The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V. Go reads as follows:
“I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT CORPORATION, a corporation

duly organized and existing under our laws with principal office located at the 2nd Floor Centro Buidling,
180 Salcedo St., Legaspi Village, Makati, Metro Manila, do hereby certify that during a special meeting of
the board of Directors of the Corporation held at its main office in Makati, Metro Manila on August 12,
155
1994, at 3:00 p.m., at which meeting a quorum was present, the following resolution was approved and
adopted:
Resolution No. 005, s. 1994
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW TRUSTEE FOR THE EXISTING
MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the existing Mortgage Trust
Indenture of real estate property covered by Transfer Certificate of Title Nos. 139880 and 139881 situated
at 180 Salcedo St., Legaspi Village, Makati, Metro Manila, with an area of 1,608 square meters more or
less, the Corporation be [sic], as it is hereby authorized, to appoint Metrobank Trust Banking Group
(Metrobank) as the new trustee for the existing mortgage trust indenture presently held by the Bank of the
Philippines Islands;
RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is hereby, authorized and
empowered to sign the Real Estate Mortgage and all documents/instruments with the said bank, for and
in behalf of the Company which are necessary and pertinent thereto;
RESOLVED FINALLY, that any resolution or resolutions heretofore adopted by this Board, inconsistent
with the provisions hereof be, as they hereby are amended and/or revoked accordingly.”
That at the meeting of the Stockholders of said corporation held on August 12, 1994 at 4:00 p.m., at
which meeting a quorum was present and acting throughout, the following resolution was unanimously
approved:
“STOCKHOLDERS RESOLUTION
RESOLVED, that the stockholders approve, ratify and confirm, as they have hereby approved, ratified
and confirmed, the board resolution dated August 12, 1994 appointing Metrobank Trust Banking Group
as the new trustee, presently held by the Bank of the Philippine Islands, for the existing MTI of real estate
property covered by Transfer Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St.,
Legaspi Village, Makati, Metro Manila with an area of 1,608 square meters, and that the President, Mr.
Go Eng Uy[,] to sign the Real Estate Mortgage and all documents/ instruments with the said bank, for and
in behalf of the Company which are necessary and pertinent thereto; xxx.”
Reading carefully the Secretary’s Certificate, 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. Going through
the original and the revised MTI, we find no substantial amendments to the provisions of the contract. We
agree with petitioner that the act of appointing a new trustee of the MTI was a regular business
transaction. The appointment necessitated only a decision of at least a majority of the directors present at
the meeting in which there was a quorum, pursuant to Section 25 of the Corporation Code.
156
The second paragraph of the directors Resolution No. 005, s. 1994, which empowered Go Eng Uy to sign
the Real Estate Mortgage and all documents/instruments with the said bank, for and in behalf of the
Company which are necessary and pertinent thereto, must be construed to mean that such power was
limited by the conditions of the existing mortgage, and not that a new mortgage was thereby constituted.
Moreover, it is worthy to note that respondents do not assail the previous MTI executed with BPI. They do
not question the validity of the mortgage constituted over all or substantially all of respondent Centros
assets pursuant to the 21 March 1994 MTI in the amount of ₱84 million. Nor do they question the
additional loans increasing the value of the mortgage to ₱144 million; or the use of Centros properties as
collateral for the loans of San Carlos, Lucky Two Corporation, and Lucky Two Repacking.
Thus, Section 40 of the Corporation Code finds no application in the present case, as there was no new
mortgage to speak of under the assailed directors Resolution.
Nevertheless, while we uphold the validity of the stockholders Resolution appointing Metrobank as
successor-trustee, this is not to say that we uphold the validity of the extrajudicial foreclosure of the
mortgage.
FALLO:
WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED. The Mortgage Trust
Indenture is declared VALID. Nonetheless, for reasons stated herein, the Decision of the Court of
Appeals in CA-G.R. CV No. 80778, declaring the foreclosure proceedings in Foreclosure No. S-04-011
over TCT Nos. 139880 and 139881 of no force and effect, is AFFIRMED. Likewise, the cancellation of the
Certificates of Title in the name of petitioner Metropolitan Bank and Trust Company and the denial of the
payment of damages are also AFFIRMED.
SO ORDERED.
Bernabe, Jayson B. Power to Sell All Assets

G.R. No. 207161, September 08, 2015
Y-I LEISURE PHILIPPINES, INC., YATS INTERNATIONAL LTD. AND Y-I CLUBS AND RESORTS,
INC., Petitioners,
vs.
JAMES YU, Respondent.
Facts:
Sometime in 1997, Mt. Arayat Development Co. Inc. (Madci) sold shares of a golf and country club to the
public. James Yu bought 500 golf and 150 country club shares for P650,000.
After three years, he found out the supposed site of the club was non-existent. He demanded the return
of his money from Madci. The latter acknowledged his investment but claimed Madci’s president then,
Rogelio Sangil, should be held personally liable for the return of Yu’s money.
157
Yu filed an action to recover his money. He included Y-1 Leisure Phils. Inc., Yats International Ltd. and Y-
I Clubs and Resorts Inc. (YIL) in his complaint because, in 1999, Madci sold substantially all of its assets,
consisting of 120 hectares of land in Pampanga, to them.
It turned out Sangil, then 60 percent owner of the capital stock of Madci, invited YIL to invest in the
remaining 40 percent (worth P31 million) on condition, among others, that should he fail to get the
necessary government approvals for the construction of the club, he will return YIL’s subscription plus
interest.
Moreover, in case Sangil defaulted on the repayment of that amount, YIL would be authorized to sell the
120 hectares of land to cover the obligation. Sangil also agreed to redeem the proprietary shares that
Madci had sold or settle all the claims for their refund.
Sangil failed to fulfill his commitment. As a result, the land was sold to YIL for P9.3 million, below its
market value.
The president of YIL testified his company was engaged in the development of real estate projects for
leisure and tourism purposes and that it bought into Madci because of the latter’s golf development
project in Pampanga.
The lower court ruled in Yu’s favor. It ordered Madci to return his money and Sangil to be solidarily liable
for such payment because he used Madci as a business conduit.
The parties appealed the decision to the Court of Appeals for different reasons. CA ruled in Yu’s favor
and held YIL jointly and severally liable for the payment of his claim.
Issue:
Whether the transfer of all or substantially all the assets of a corporation under Section 40 of the
Corporation Code carries with it the assumption of corporate liabilities.
Held:
To reiterate, Section 40 refers to the sale, lease, exchange or disposition of all or substantially all of the
corporation's assets, including its goodwill. The sale under this provision does not contemplate an
ordinary sale of all corporate assets; the transfer must be of such degree that the transferor corporation is
rendered incapable of continuing its business or its corporate purpose.
Section 40 suitably reflects the business-enterprise transfer under the exception of the Nell Doctrine
because the purchasing or transferee corporation necessarily continued the business of the selling or
transferor corporation. Given that the transferee corporation acquired not only the assets but also the
business of the transferor corporation, then the liabilities of the latter are inevitably assigned to the former.
It must be clarified, however, that not every transfer of the entire corporate assets would qualify under
Section 40. It does not apply (1) if the sale of the entire property and assets is necessary in the usual and
regular course of business of corporation, or (2) if the proceeds of the sale or other disposition of such
property and assets will be appropriated for the conduct of its remaining business. Thus, the litmus test to
determine the applicability of Section 40 would be the capacity of the corporation to continue its business
after the sale of all or substantially all its assets.
Based on these factual findings, the Court is convinced that MADCI indeed had assets consisting of 120
hectares of landholdings in Magalang, Pampanga, to be developed into a golf course, pursuant to its
primary purpose. Because of its alleged violation of the MOA, however, MADCI was made to transfer all
its assets to the petitioners. No evidence existed that MADCI subsequently acquired other lands for its
development projects. Thus, MADCI, as a real estate development corporation, was left without any
property to develop eventually rendering it incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
Section 40 must apply.
Consequently, the transfer of the assets of MADCI to the petitioners should have complied with the
requirements under Section 40. Nonetheless, the present petition is not concerned with the validity of the
transfer; but the respondent's claim of refund of his P650,000.00 payment for golf and country club
shares. Both the CA and the RTC ruled that MADCI and Sangil were liable.
158
On the question of whether the petitioners must also be held solidarily liable to Yu, the Court answers in
the affirmative.
While the Corporation Code allows the transfer of all or substantially all of the assets of a corporation, the
transfer should not prejudice the creditors of the assignor corporation.69 Under the business-enterprise
transfer, the petitioners have consequently inherited the liabilities of MADCI because they acquired all the
assets of the latter corporation. The continuity of MADCI's land developments is now in the hands of the
petitioners, with all its assets and liabilities. There is absolutely no certainty that Yu can still claim its
refund from MADCI with the latter losing all its assets. To allow an assignor to transfer all its business,
properties and assets without the consent of its creditors will place the assignor's assets beyond the
reach of its creditors. Thus, the only way for Yu to recover his money would be to assert his claim against
the petitioners as transferees of the assets.

Topic : Power to Invest in another purpose
G.R. No. 158085 October 14, 2005
REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF INTERNAL REVENUE,
Petitioner,
159
vs.
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
PANGANIBAN, J.:
Having satisfactorily proven to the Court of Tax Appeals, to the Court of Appeals and to this Court that it
is a bona fide cooperative, respondent is entitled to exemption from the payment of taxes on life
insurance premiums and documentary stamps. Not being governed by the Cooperative Code of the
Philippines, it is not required to be registered with the Cooperative Development Authority in order to avail
itself of the tax exemptions. Significantly, neither the Tax Code nor the Insurance Code mandates this
administrative registration.
Facts:
· This is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the January 23,
2003 Decision and the April 21, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 69125.
· Sun Life is a mutual life insurance company organized and existing under the laws of Canada. It is
registered and authorized by the Securities and Exchange Commission and the Insurance Commission to
engage in business in the Philippines as a mutual life insurance company with principal office at Paseo de
Roxas, Legaspi Village, Makati City.
· Sun Life filed with the [Commissioner of Internal Revenue] (CIR) its insurance premium tax return
for the third quarter of 1997 and paid the premium tax in the amount of P31,485,834.51. For the period
covering August 21 to December 18, 1997, petitioner filed with the CIR its [documentary stamp tax (DST)]
declaration returns and paid the total amount of P30,000,000.00.
· [Court of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR],
which held that mutual life insurance companies are purely cooperative companies and are exempt from
the payment of premium tax and DST. This pronouncement was later affirmed by this court in [CIR] v.
Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it
was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life
filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and
DST for the aforestated tax periods.
· 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, Sun Life filed with the CTA a
petition for review on August 23, 1999. In its petition, it prayed for the issuance of a tax credit certificate in
the amount ofP61,485,834.51 representing P31,485,834.51 of erroneously paid premium tax for the third
quarter of 1997 andP30,000[,000].00 of DST on policies of insurance from August 21 to December 18,
1997. Sun Life stood firm on its contention that it is a mutual life insurance company vested with all the
characteristic features and elements of a cooperative company or association as defined in [S]ection 121
of the Tax Code. Primarily, the management and affairs of Sun Life were conducted by its members;
secondly, it is operated with money collected from its members; and, lastly, it has for its purpose the
mutual protection of its members and not for profit or gain.
· In its answer, the CIR, then respondent, raised as special and affirmative defenses the following:
‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to administrative routinary
investigation/examination by respondent’s (CIR’s) Bureau.
‘8. Petitioner must prove that it falls under the exception provided for under Section 121 (now 123) of the
Tax Code to be exempted from premium tax and be entitled to the refund sought.
‘9. Claims for tax refund/credit are construed strictly against the claimants thereof as they are in the
nature of exemption from payment of tax.
‘10. In an action for tax credit/refund, the burden is upon the taxpayer to establish its right thereto, and
failure to sustain this burden is fatal to said claim x x x.
160
‘11. It is incumbent upon petitioner to show that it has complied with the provisions of Section 204[,] in
relation to Section 229, both in the 1997 Tax Code.’
· CTA found in favor of Sun Life. Quoting largely from its earlier findings in Insular Life Assurance
Company, Ltd. v. [CIR], which it found to be on all fours with the present action.
· Notwithstanding these arguments, the CTA denied the CIR’s motion for reconsideration.
· In upholding the CTA, the CA reasoned that respondent was a purely cooperative corporation duly
licensed to engage in mutual life insurance business in the Philippines.
· For having satisfactorily shown with substantial evidence that it had erroneously paid and
seasonably filed its claim for premium and documentary stamp taxes, respondent was entitled to a
refund, the CA ruled.
Issues:
"I.
"Whether or not respondent is a purely cooperative company or association under Section 121 of the
National Internal Revenue Code and a fraternal or beneficiary society, order or cooperative company on
the lodge system or local cooperation plan and organized and conducted solely by the members thereof
for the exclusive benefit of each member and not for profit under Section 199 of the National Internal
Revenue Code.
"II.
"Whether or not registration with the Cooperative Development Authority is a sine qua non requirement to
be entitled to tax exemption.
"III.
"Whether or not respondent is exempted from payment of tax on life insurance premiums and
documentary stamp tax.
Ruling:
A stock insurance company doing business in the Philippines may "alter its organization and transform
itself into a mutual insurance company." Respondent 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. On the basis of its bylaws, its ownership has been vested in its member-
policyholders who are each entitled to one vote; and who, in turn, elect from among themselves the
members of its board of trustees. Being the governing body of a nonstock corporation, the board
exercises corporate powers, lays down all corporate business policies, and assumes responsibility for the
efficiency of management. A mutual life insurance company is conducted for the benefit of its member-
policyholders, who pay into its capital by way of premiums. To that extent, they are responsible for the
payment of all its losses. "The cash paid in for premiums and the premium notes constitute their assets x
x x." In the event that the company itself fails before the terms of the policies expire, the member-
policyholders do not acquire the status of creditors. Rather, they simply become debtors for whatever
premiums that they have originally agreed to pay the company, if they have not yet paid those amounts in
full, for "[m]utual companies x x x depend solely upon x x x premiums." Only when the premiums will have
accumulated to a sum larger than that required to pay for company losses will the member-policyholders
be entitled to a "pro rata division thereof as profits." Where the insurance is taken at cost, it is important
that the rates of premium charged by a mutual company be larger than might reasonably be expected to
carry the insurance, in order to constitute a margin of safety. The table of mortality used will show an
admittedly higher death rate than will probably prevail; the assumed interest rate on the investments of
the company is made lower than is expected to be realized; and the provision for contingencies and
expenses, made greater than would ordinarily be necessary. This course of action is taken, because a
mutual company has no capital stock and relies solely upon its premiums to meet unexpected losses,
contingencies and expenses. Sharing in the common fund, any member-policyholder may choose to
161
withdraw dividends in cash or to apply them in order to reduce a subsequent premium, purchase
additional insurance, or accelerate the payment period. Although the premium made at the beginning of a
year is more than necessary to provide for the cost of carrying the insurance, the member-policyholder
will nevertheless receive the benefit of the overcharge by way of dividends, at the end of the year when
the cost is actually ascertained. "The declaration of a dividend upon a policy reduces pro tanto the cost of
insurance to the holder of the policy. That is its purpose and effect. A stipulated insurance premium
"cannot be increased, but may be lessened annually by so much as the experience of the preceding year
has determined it to have been greater than the cost of carrying the insurance x x x." The difference
between that premium and the cost of carrying the risk of loss constitutes the so-called "dividend" which,
however, "is not in any real sense a dividend." It is a technical term that is well understood in the
insurance business to be widely different from that to which it is ordinarily attached. The so-called
"dividend" that is received by member-policyholders is not a portion of profits set aside for distribution to
the stockholders in proportion to their subscription to the capital stock of a corporation. One, a mutual
company has no capital stock to which subscription is necessary; there are no stockholders to speak of,
but only members. And, two, the amount they receive does not partake of the nature of a profit or income.
The quasi-appearance of profit will not change its character. It remains an overpayment, a benefit to
which the member-policyholder is equitably entitled. A mutual life insurance corporation is a cooperative
that promotes the welfare of its own members. It does not operate for profit, but for the mutual benefit of
its member-policyholders. They receive their insurance at cost, while reasonably and properly guarding
and maintaining the stability and solvency of the company. “The economic benefits filter to the
cooperative members. Either equally or proportionally, they are distributed among members in correlation
with the resources of the association utilized. It does not follow that because respondent is registered as
a nonstock corporation and thus exists for a purpose other than profit, the company can no longer make
any profits Earning profits is merely its secondary, not primary, purpose. In fact, it may not lawfully
engage in any business activity for profit, for to do so would change or contradict its nature as a non-profit
entit It may, however, invest its corporate funds in order to earn additional income for paying its operating
expenses and meeting benefit claims. Any excess profit it obtains as an incident to its operations can only
be used, whenever necessary or proper, for the furtherance of the purpose for which it was organized.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution are AFFIRMED.
SO ORDERED.
162
JOHN PAUL G MAANDAL TOPIC: ULTRA VIRES ACT (Sec 45)
G.R. No. 211535 July 22, 2015
BANK OF COMMERCE, Petitioner

vs.
MARILYN P. NITE, Respondent.
FACTS: Respondent Marilyn Nite (Nite) was charged, together with Nunelon Bradley (Bradley) and
Victoria Magalona-Escalambre (Escalambre), with violation of Section 19 of Batas Pambansa Bilang 178 5
(BP Blg. 178) through engaging in the business of selling securities, particularly treasury bills (T-bills) with
Bank of Commerce (Bancom) in the amount of P250 Million without having been registered as a broker,
dealer or salesman with the Securities and Exchange Commission, in violation of said law.
Nite was also charged, together with Bradley, Escalambre, and Eugene Yang (Yang), with Estafa by
taking advantage of his position as senior manager of the Bank of Commerce (Bancom),when they
offered and confirmed for sale Php250 Million worth of Treasury bills at a discounted price of
Php243,215,972.52 to Bancom which was actually purchased and fully paid by Bancom, when in truth
and in fact Bancap which was not authorized to trade security did not actually have such Treasury bills
worth Php250 Million as only Php88 Million worth of Treasury bills was delivered to Bancom upon receipt
by Bancap of the full payment thereof;
The two cases were tried jointly. The thrust of the prosecution’s argument was that Nite, as President of
Bancapital Development Corporation (Bancap), violated Section 19 of BP Blg. 178 when Bancap sold
P250 million worth of treasury bills to Bank of Commerce (Bancom) without being registered as broker,
dealer, or salesman of securities. Further, the prosecution alleged that Nite defrauded Bancom by falsely
pretending to posses and own P250 million worth of treasury bills that Bancap supposedly sold to
Bancom when none of the treasury bills described in the Confirmation of Sale and Letter of Undertaking
issued by Bancap were ever delivered to Bancom. The prosecution alleged that Bancom paid Bancap the
163
amount of P243,215,972.52 as payment for the treasury bills but Bancap only delivered substitute bills in
the amount of P88 million.
The trial court acquitted MARILYNN NITE.
In prosecution’s motion for reconsideration, alleged that the trial court erred in absolving Nite of her civil
liability to Bancom. The prosecution alleged that the trial court erred in not piercing the corporate veil of
Bancap when it was adequately shown that Nite used the company to perpetuate fraud and to evade an
existing obligation. This contention however was not granted
ISSUE: Can there be a piercing of the veil of corporate fiction when a Corporation’s officer acted beyond
the scope of its authority?
HELD: NO. The general rule is that a corporation is invested by law with a personality separate and
distinct from that of the persons composing it, or from any other legal entity that it may be related to. The
obligations of a corporation, acting through its directors, officers, and employees, are its own sole
liabilities. Therefore, the corporation’s directors, officers, or employees are generally not personally liable
for the obligations of the corporation.
To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1)
complainant must allege in the complaint that the director or officer assented to patently unlawful acts of
the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) complaint must
clearly and convincingly prove such unlawful acts, negligence or bad faith. To hold a director personally
liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing
of the director must be established clearly and convincingly.
It is settled that the transaction between Bancom and Bancap is an ordinary sale. We give weight to the
finding of both the trial court and the Court of Appeals that Bancap’s liability arose from its contractual
obligation to Bancom. The trial court and the Court of Appeals found that Bancom and Bancap had been
dealing with each other as seller and buyer of treasury bills from December 1992 until the transaction
subject of this case on 25 April 1994, which was no different from their previous transactions. Nite, as
Bancap’s President, cannot be held personally liable for Bancap’s obligation unless it can be shown that
she acted fraudulently. However, the issue of fraud had been resolved with finality when the trial court
acquitted Nite of estafa on the ground that the element of deceit is non-existent in the case. The acquittal
had long become final and the finding is conclusive on this Court. The prosecution failed to show that Nite
acted in bad faith. It is no longer open for review. Nite’s act of signing the Confirmation of Sale, by itself,
does not make the corporate liability her personal liability.
In addition, we consider the testimony of Lagrimas Nuqui, the Legal Officer in Charge of the Government
Securities Department of the Bangko Sentral ng Pilipinas from 1994 to 1998, who explained that primary
issues of treasury bills are supposed to be issued only to accredited dealers but these accredited banks
can sell to anyone who need not be accredited, and such buyers, who may be corporations or individuals,
are classified as the secondary market. The trial court and the Court of Appeals found that Bancap sold
the treasury bills as a secondary dealer. As such, Bancap’s act of selling securities to Bancom is at most
ultra vires and not patently unlawful.
Base on the foregoing, we cannot hold Nite Personally liable for Bancap’s corporate liability.
WHEREFORE, we DENY the petition.
164
SO ORDERED.
Estayo, Lalaine A Stockholder’s Meeting

GR 163356-57, July 1, 2015
Bernas v. Cinco
Facts:
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for the
election of new set of officers. The MSCOC called a Special Stockholders’ Meeting and sent out notices
to all stockholders and members stating therein the time, place and purpose of the meeting. For failure to
secure an injunction before the Securities and Exchange Commission (SEC), the meeting proceeded
wherein the Bernas Group were removed from office and in their place and stead, the Cinco group were
elected
The Bernas Group initiated an action before the Securities Investigation and Clearing Department (SICD)
to nullify the 17 December 1997 Special Stockholders Meeting on the ground that it was improperly
called. Citing Section 28 of the Corporation Code, the Bernas Group argued that the authority to call a
meeting lies with the Corporate Secretary and not with the MSCOC which functions merely as an
oversight body and is not vested with the power to call corporate meetings. For being called by the
persons not authorized to do so, the Bernas Group urged the SEC to declare the 17 December 1997
Special Stockholders’ Meeting, including the removal of the sitting officers and the election of new ones,
be nullified.
For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is
sanctioned by the Corporation Code and the MSC by-laws. They reasoned that Section 25 of the MSC
by-laws merely authorized the Corporate Secretary to issue notices of meetings and nowhere does it
state that such authority solely belongs to him. They further asseverated that it would be useless to
course the request to call a meeting thru the Corporate Secretary because he repeatedly refused to call a
special stockholders’ meeting despite demands and even filed a suit to restrain the holding of a special
meeting
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in
administering the corporate affairs and after finding Bernas guilty of irregularities, the Board resolved to
expel him from the club by selling his shares at public auction. After the notice12 requirement was
complied with, Bernas’ shares was accordingly sold for P902,000.00 to the highest bidder.
In the subsequent Annual Stockholders Meetings in 1998, 1999, and 2000 the stockholders approved,
confirmed and ratified the calling and holding of 17 December 1997 Special Stockholders’ Meeting, the
acts and resolutions adopted therein including the removal of Bernas Group from the Board and the
election of their replacements
Issues
1. WHETHER OR NOT THAT THE 17 DECEMBER 1997 SPECIAL STOCKHOLDERS’ MEETING
IS INVALID
165
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN FAILING TO NULLIFY THE
HOLDING OF THE ANNUAL STOCKHOLDERS’ MEETING ON 20 APRIL 1998, 19 APRIL 1999 AND 17
APRIL 2000.
1. The 17 December 1997 Special Stockholders’ Meeting is null and void and produces no effect;
the resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas’ shares
at the public auction is likewise null and void.
Textually, only the President and the Board of Directors are authorized by the by-laws to call a special
meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least 100 shares, upon written request, may file a petition
to call a special stockholder’s meeting.
In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting
was called neither by the President nor by the Board of Directors but by the MSCOC. While the
MSCOC, as its name suggests, is created for the purpose of overseeing the affairs of the corporation,
nowhere in the by-laws does it state that it is authorized to exercise corporate powers, such as the
power to call a special meeting, solely vested by law and the MSC by-laws on the President or the
Board of Directors.
Consequently, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any
legal effect. The removal of the Bernas Group, as well as the election of the Cinco Group, effected by the
assembly in that improperly called meeting is void, and since the Cinco Group has no legal right to sit in
the board, their subsequent acts of expelling Bernas from the club and the selling of his shares at the
public auction, are likewise invalid.
The case would have been different if the petitioning stockholders went directly to the SEC and sought its
assistance to call a special stockholders’ meeting citing the previous refusal of the Corporate Secretary to
call a meeting. Where there is an officer authorized to call a meeting and that officer refuses, fails, or
neglects to call a meeting, the SEC can assume jurisdiction and issue an order to the petitioning
stockholder to call a meeting pursuant to its regulatory and administrative powers to implement the
Corporation Code. This is clearly provided for by Section 50 of the Corporation Code
2. The 20 April 1998 Annual Stockholders Meeting was valid because it was sanctioned by Section
8 of the MSC bylaws. Unlike in Special Stockholders Meeting wherein the bylaws mandated that such
meeting shall be called by specific persons only, no such specific requirement can be obtained under
Section 8.
The 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it
was conducted in accordance to Section 8 of the MSC bylaws, such meeting was supervised by the SEC
in the exercise of its regulatory and administrative powers to implement the Corporation Code.
All other actions of the [Cinco Group] and stockholders taken during the Regular Stockholders’ Meetings
held in April 1998, 1999 and 2000, including the election of the [Cinco Group] as directors after the
expiration of the term of office of [Bernas Group] as directors, are valid and binding except the ratification
of the removal of the Bernas Group and the sale of Bernas’ shares at the public auction effected by the
body during the said meetings. The void election of 17 December 1997 cannot be ratified by the
subsequent Annual Stockholders’ Meeting. The expulsion of the Bernas Group and the subsequent
auction of Bernas’ shares are void from the very beginning and therefore the ratifications effected
166
during the subsequent meetings cannot be sustained. A void act cannot be the subject of
ratification
RAMOS, FORRAH MAE G. TOPIC : MEETINGS
G.R. No. 154291 November 12, 2014
LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners,

vs.
SPOUSES REYNALDO TANJANGCO and MARIA LUISA ARGUELLES-TANJANGCO, Respondents.
REYES, J.:
167
FACTS:
Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-owners of three parcels of
land and the building erected thereon known as the "Trade Center Building". Jose’s one-half share in the
subject properties were later transferred and registered in the name of his son Reynaldo Tanjangco and
daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco). At the time material to this case,the
stockholders of record of LRI were the following:
a. Asuncion Lopez-Gonzalez (Asuncion) – 7,831 shares;
b. Arturo F. Lopez (Arturo) – 7,830 shares;
c. Teresita Lopez-Marquez (Teresita) – 7,830 shares;
d. Rosendo de Leon (Rosendo) – 5 shares
e. Benjamin Bernardino (Benjamin) – 1 share;
f. Augusto de Leon (Augusto) – 1 share; and
g. Leo Rivera (Leo) – 1 share
Except for Arturo and Teresita, the rest of the stockholders were members of the Board of Directors.
Asuncion was LRI’s Corporate Secretary. In a special meeting of the stockholders held on July 27, 1981,
the sale of the one-half share of LRI in the Trade Center Building was discussed:
MINUTES OF SPECIAL MEETING OF STOCKHOLDERS OF LOPEZ REALTY[,] INCORPORATED ON
JULY 27, 1981 AT 3:00 P.M. STOCKHOLDERS PRESENT:
TERESITA L. MARQUEZ - 7,830 shares
ASUNCION F. LOPEZ - 7,831 shares
ARTURO F. LOPEZ - 7,830 shares
ROSENDO DE LEON - 5 shares
BENJAMIN B. BERNARDINO - 1 share
LEO R. RIVERA - 1 share
TOTAL 23,498 Shares II. Sale of One-Half (1/2) Share of Lopez Realty, Inc. in Trade Center Building The
matter of the sale of ½ share of Lopez Realty, Inc., in the Trade Center Building was taken up. Atty.
Benjamin B. Bernardino informed the body that the selling price is pegged at 4 Million Pesos, and the
Tanjangcos are offering 3.6 Million Pesos plus 50% of the receivablesor a total of 3.8 Million Pesos
payable under the following terms: 1) 50% - upon registration 50% - 30 days thereafter 2) All expenses
and documentary stamp tax to be born[e] by the Tanjangcos. 3) Transfer Tax and Reserve Fund to be
borne by Lopez Realty, Inc. ASUNCION F. LOPEZ countered for a selling price of 5 Million Pesos,
LOPEZ REALTY, INC., clean and of everything. At this point, TERESITA L. MARQUEZ and BENJAMIN
B. BERNARDINO offered to ASUNCION F. LOPEZ that they accept the TANJANGCO’s offer as stated
above. At this juncture, ASUNCION F. LOPEZ called and talked with TANJANGCO over the phone 3x
and offered the selling price at 5 Million Pesos but the latter did not move from their original offer as
above-stated. It was finally agreed by the body that ASUNCION F. LOPEZ be given the priority to accept
the TANJANGCO offer and the same to be exercised within ten days. Failure on her part to act on the
offer, the said offer will be deemed accepted.On July 28, 1981, Teresita died.Asuncion failed to exercise
her option to purchase the subject properties within the stated period. Thus, on August 17, 1981, while
Asuncion was abroad, the remaining directors: Rosendo, Benjamin and Leo convened in a special
meeting, where the resolution was passed and approved.After learning of the sale, Asuncion filed this
complaint challenging the validity of the 17 August 1982 Resolution on the ground that she was not
notified of the meeting.
ISSUE:
W/N the sale was valid.
168
HELD:
The sale was valid. The 17 August 1981 Board Resolution did not give Arturo the authority to act as LRI’s
representative in the sale “as the meeting of the board of directors where such was passed was
conducted without giving any notice to Asuncion.” This is in violation of Section 53 of the Corporation
Code which requires sending of notices for regular or special meetings to every director.
As a result, “a meeting of the board of directors is legally infirm if there is failure to comply with the
requirements or formalities of the law or the corporation’s by laws and any action taken on such meeting
may be challenged as a consequence.”
Notwithstanding, “the actions taken in such a meeting by the directors or trustees may be ratified
expressly or impliedly.” In the case of ratification, it means that “the principal voluntarily adopts, confirms
and gives sanction to some unauthorized act of its agent on its behalf.”
Here, “the ratification was expressed through the July 30, 1982 Board Resolution.” Regarding Asuncion’s
claims that the 30 July 1982 Board Resolution did not ratify the 17 August 1981 Resolution due to
Juanito’s disqualification and Leo’s negative vote. “Asuncion assails the authority of Juanito to vote
because he was not a director and he did not own any share of stock which would qualify him to be one.
On the contrary, Juanito defends his right to vote as the representative of Teresita’s estate. Upon
examination of the July 30, 1982 minutes of the meeting, it can be deduced that the meeting is a joint
stockholders and directors’ meeting. The Court takes into account that majority of the board of directors
except for Asuncion, had already approved of the sale to the spouses Tanjangco prior to this meeting. As
a consequence, the power to ratify the previous resolutions and actions of the board of directors in this
case lies in the stockholders, not in the board of directors. It would be absurd to require the board of
directors to ratify their own acts—acts which the same director s already approved of beforehand. Hence,
Juanito, as the administrator of Teresita’s estate even though not a director, is entitled to vote on behalf of
Teresita’s estate as the administrator thereof.”
Citing jurisprudence, in stock corporations, “shareholders may generally transfer their shares. Thus, on
the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the
legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor.”
As there exists no corporate secretary’s certification of the minutes of the meeting, “only Juanito,
Benjamin and Roseno, whose signature appeared on the minutes, could be considered as to have ratified
the sale to the spouses Tanjangco.” As Leo owns only 1 share, the results are the same against the
overwhelming shares who voted in favor of ratification.
“In sum, whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17,
1981 Board Resolution, the same was cured through its ratification in the July 30, 1982 Board Resolution.
It is of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on
holding 67% of the outstanding capital stock.”
169
Citing jurisprudence, “the Court held that by virtue of ratification, the acts of the board of directors become
the acts of the stockholders themselves, even if those acts were, at the outset, unauthorized.”
Tweety T. Tuazon Topic: Minutes of Meetings
G.R. No. 154291 November 12, 2014

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners,
vs.
SPOUSES REYNALDO TANJANGCO and MARIA LUISA ARGUELLES-TANJANGCO, Respondents.
REYES, J.:
Facts:
· Lopez Realty, Inc. and Dr. Jose Tanjangco were the registered co-owners of three parcels of land
and the building erected thereon known as the Trade Center Building.
· Jose’s one-half share in the subject properties were later transferred and registered in the name of
his son Reynaldo Tanjangco and daughter-in-law, Maria Luisa Arguelles.
170
· During a special stockholders’ meeting held on 27 July 1981, the sale of 1/2 share of LRI in the
Trade Center Building was taken up wherein the board agreed to give Asuncion the priority to equal the
Tanjanco offer and the same to be exercised within ten (10) days. Otherwise, the Tanjanco offer will be
deemed accepted.
· As Asuncion failed to exercise her option to purchase the subject properties, and while she was
abroad, the remaining directors: Rosendo, Benjamin and Leo convened in a special meeting passing and
approving the 17 August 1981 Resolution authorizing Arturo to negotiate and carry out the complete
termination of the sale terms and conditions as embodied in the Resolution of July 27, 1981, among
others.
· Subsequently, the sale was perfected with payments subsequently made.
· After learning of the sale, Asuncion filed this complaint challenging the validity of the 17 August
1982 Resolution on the ground that she was not notified of the meeting.
Issue: W/N the assailed board resolution is valid.
Held: Yes. A meeting of the board of directors is legally infirm if there is failure to comply with the
requirements or formalities of the law or the corporation’s by laws and any action taken on such meeting
may be challenged as a consequence.
The Court agrees with the petitioners that the August 17, 1981 Board Resolution did not give Arturo the
authority to act as LRI’s representative in the subject sale, as the meeting of the board of directors where
such was passed was conducted without giving any notice to Asuncion.
But, whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17, 1981
Board Resolution, the same was cured through its ratification in the July 30, 1982 Board Resolution. It is
of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on
holding 67% of the outstanding capital stock.
WHEREFORE, the instant petition is DENIED. The Decision dated February 22, 2002 of the Court of
Appeals in CA-G.R. CV No. 63519 is hereby AFFIRMED.
171
Karl Anthony T. Dionisio TRUST FUND DOCTRINE
Donnina Halley vs. Printwell, Inc.

G.R. No. 157549
Facts:
(a magazine published and distributed by BMPI) PRINTWELL extended 30-day credit accommodation in
favor of BMPI and in a period of 9 mos. BMPI placed several orders amounting to 316,000.
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.
It appears that BMPI has an authorized capital stock of 3M divided into 300,000shares with P10 par
value.
Only 75,000 shares worth P750,000 were originally subscribed of which P187,500 were paid up
capital.Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500. Halley contends that:
1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3.BOD and SH had resolved to dissolve BMPIRTC and CA
Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL)
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 serialnumber than payment made on an earlier date.
Issue: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 fictionHeld: 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, BMPI was under the control of its stockholders
who know fully well that the corporation was not ina position to pay its account (thinly capitalized).
And, that the stockholders personally benefited from the operations of the corporation even though they
never paid their subscriptions in full.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.
On piercing the veil:
172
Although the corporation has a personality separate and distinct from its SH, 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,justification of a wrong, or an alter ego for the sole benefit
of the SH.
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, corporation is a simple debtor.
-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.
-The trust fund doctrine is not limited to reaching the SH’s unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate
Petrache, Ria Kriselle P. Topic: Trust Fund Doctrine
G.R. No. 150283 April 16, 2008

RYUICHI YAMAMOTO, petitioner, vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO,
respondents.
CARPIO MORALES, J.:
FACTS:
In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine
laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather
tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto Nishino, also a Japanese national, forged a Memorandum of Agreement under which
they 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 WAKO.
Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the
authorized capital stock of WAKO, reducing Yamamotos investment therein to, by his claim, 10%, less
than 10% according to Nishino.
173
The corporate name of WAKO was later changed to NLII.
Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out
the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishino’s counsel
Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent
portions of which follow:
Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino
yesterday, October 29th, based on the letter of Mr. Ikuo Nishino from Japan, and which I am now
transmitting to you.
xxxx
12. Machinery and Equipment:
The following machinery/equipment have been contributed by you to the company:
Splitting machine - 1 unit

Samming machine - 1 unit
Forklift - 1 unit
Drums - 4 units
Toggling machine - 2 units
Regarding the above machines, you may take them out with you (for your own use and sale) if you want,
provided, the value of such machines is deducted from your and Wakos capital contributions, which will
be paid to you.
Kindly let me know of your comments on all the above, soonest.
On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were,
by Yamamotos admission, part of his investment in the corporation, but he was frustrated by
respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of
Makati a complaint against them for replevin.
Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond.
In their Answer, respondents claimed that the machineries and equipment subject of replevin form part of
Yamamotos capital contributions in consideration of his equity in NLII and should thus be treated as
corporate property.
ISSUE: WON the properties contributed by Yamamoto in the corporation may be validly taken by him and
appropriate for himself.
HELD: No. It is settled that the property of a corporation is not the property of its stockholders or
members. Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors which are preferred over the
stockholders in the distribution of corporate assets. The distribution of corporate assets and property
cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the
174
corporation unless the indispensable conditions and procedures for the protection of corporate creditors
are followed.

Costs against petitioner.
SO ORDERED.
ABLANG, KARPOV B Trust Fund Doctrine and Subscription Contracts
G.R. No. 144476 February 1, 2002

Corona, J.
Facts:
· 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily
indebted to the Philippine National Bank (PNB) for P190M
● To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs),
to invest in FLADC.
● Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in
FLADC
· Ongs: subscribe to 1,000,000 shares
· Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of
450,200 shares
· Tius: nominate the Vice-President and the Treasurer plus 5 directors
· Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.
· Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares) ; Ongs: paid P190M to settle the mortgage
indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M shares)
· February 23, 1996: Tius rescinded the Pre-Subscription Agreement; February 27, 1996: Tius filed at
the Securities and Exchange Commission (SEC) seeking confirmation of their rescission of the Pre-
Subscription Agreement
· SEC: confirmed recission of Tius; Ongs filed reconsideration that their P70M was not a premium on
capital stock but an advance loan
· SEC en banc: affirmed it was a premium on capital stock
· CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission)
but, "for practical considerations," that is, their inability to work together, it was best to separate the two
175
groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and
awarding practically everything else to the Tius.
Issue: Whether the Tius could legally rescind the Pre-Subscription Agreement.
Held: Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to
be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract.
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. Thus, the
subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs
invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the
Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their
personal capacities with the Ongs since they were not selling any of their own shares to them. It was
FLADC that did.
All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for
rescission based on breach of contract, said action will nevertheless still not prosper since rescission will
violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property under
the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera
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. This doctrine is the underlying principle in the
procedure for the distribution of capital assets, 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 stocks (2) purchase of redeemable shares by the corporation, regardless of
the existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation of the
corporation. Furthermore, 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
In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is allowed.
WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita
Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for
partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The
Petition for Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No.
02-96-5269 is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject
Pre-Subscription Agreement, dated August 15, 1994, is hereby declared as null and void.
176
The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely
Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED
for being moot.
Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision of
the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby
REVERSED.
Costs against the petitioner Tius.
SO ORDERED.
Anna Carmela G. Virtucio Topic: Certificate of Stocks & Transfer of Shares
G.R.No. 177066 September 11,2009

JOSELITO MUSNI PUNO (AS HEIR OF THE LATE CARLOS PUNO), PETITIONER
vs.
PUNO ENTERPRISES,INC., REPRESENTED BY JESUSA PUNO RESPONDENT.
NACHURA, J:
Facts:
· Carlos L. Puno was an incorporator of respondent Puno Enterprises, Inc.
· Petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a complaint for
specific performance against respondent. Petitioner averred that he is the son of the deceased with the
latter’s common-law wife.
· As surviving heir, he claimed entitlement to the rights and privileges of his late father as
stockholder of respondent. Thus he prayed that respondent allow petitioner to inspect its corporate book,
render an accounting of all the transactions and give petitioner all the profits, earnings, dividends, or
income pertaining to the shares of Carlos L. Puno.
· Respondent filed a motion to dismiss on the ground that petitioner did not have the legal
personality to sue because his birth certificate names him as Joselito Musni Muno.
· Petitioner submitted the corrected birth certificate with the name Joselito M. Puno
· The court rendered a Decision allowing the plaintiff to inspect the corporate books and records of
the company from 1962 up to the present including the financial statements of the corporation.
· On appeal, the CA ordered the dismissal. According to the CA, petitioner was not able to establish
the paternity of and his filiation to Carlos L. Puno and that petitioner had no right to demand that he be
allowed to examine respondent’s books. Moreover, petitioner was not a stockholder of the corporation but
was merely claiming
· Petitioner’s MR was denied by CA
Issue: Whether or not petitioner has the right to inspect respondent corporation’s books and receive
dividends on the stocks owned by Carlos L. Puno?
Held: No. Petitioner was not able to prove satisfactorily his filiation to the deceased stockholder; thus, the
former cannot claim to be an heir of the latter. Upon the death of a shareholder, the heirs do not
177
automatically become stockholders of the corporation, the stocks must be distributed first to the heirs in
estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation.
Section 63 of the Corporation Code provides that no transfer shall be valid, except as between the
parties, until the transfer is recorded in the books of the corporation. During such interim period, the heirs
stand as the equitable owners of the stocks, the executor or administrator duly appointed by the court
being vested with the legal title to the stock. Until a settlement and division of the estate is effected, the
stocks of the decedent are held by the administrator or executor. Consequently, during such time, it is the
administrator or executor who is entitled to exercise the rights of the deceased as stockholder. Thus,
even if petitioner presents sufficient evidence he would still not be allowed to inspect respondent’s books
and be entitled to receive dividends from respondent, absent any showing in its transfer book that some
of the shares owned by Carlos L. Puno were transferred to him. This would only be possible if petitioner
has been recognized as an heir and has participated in the settlement of the estate of the deceased
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
October 11, 2006 and Resolution dated March 6, 2007 are AFFIRMED.
Paolo F. Cruz Transfer of shares
G.R. No. 165744 August 11, 2008

OSCAR C. REYES, Petitioner,
- versus -
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH INSURANCE CORPORATION,
and RODRIGO C. REYES, Respondents.
BRION, J.:
Facts:
Petitioner and private respondent were siblings together with two others, namely Pedro and Anastacia, in
a family business established as Zenith Insurance Corporation (Zenith), from which they owned shares of
stocks. The Pedro and Anastacia subsequently died. The former had his estate judicially partitioned
among his heirs, but the latter had not made the same in her shareholding in Zenith. Zenith and Rodrigo
filed a complaint with the Securities and Exchange Commission (SEC) against petitioner (1) a derivative
suit to obtain accounting of funds and assets of Zenith, and (2) to determine the shares of stock of
deceased Pedro and Anastacia that were arbitrarily and fraudulently appropriated [by Oscar, and were
unaccounted for]. In his answer with counterclaim, petitioner denied the illegality of the acquisition of
shares of Anastacia and questioned the jurisdiction of SEC to entertain the complaint because it pertains
178
to settlement of [Anastacia’s] estate. The case was transferred to. Petitioner filed Motion to Declare
Complaint as Nuisance or Harassment Suit and must be dismissed. RTC denied the motion. The motion
was elevated to the Court of Appeals by way of petition for certiorari, prohibition and mandamus, but was
again denied.
Issue:
Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the shareholdings
originally belonging to Anastacia.
Ruling: No.
Rodrigo must, hurdle two obstacles before he can be considered a stockholder of Zenith with respect to
the shareholdings originally belonging to Anastacia. First, he must prove that there are shareholdings
that will be left to him and his co-heirs, and this can be determined only in a settlement of the decedent’s
estate. No such proceeding has been commenced to date. Second, he must register the transfer of the
shares allotted to him to make it binding against the corporation. He cannot demand that this be done
unless and until he has established his specific allotment (and prima facie ownership) of the shares.
Without the settlement of Anastacia’s estate, there can be no definite partition and distribution of the
estate to the heirs. Without the partition and distribution, there can be no registration of the transfer. And
without the registration, we cannot consider the transferee-heir a stockholder who may invoke the
existence of an intra-corporate relationship as premise for an intra-corporate controversy within the
jurisdiction of a special commercial court. The subject shares of stock (i.e., Anastacia’s shares) are
concerned – Rodrigo cannot be considered a stockholder of Zenith.
WHEREFORE, we hereby GRANT the petition and REVERSE the decision of the Court of Appeals dated
May 26, 2004 in CA-G.R. SP No. 74970. The complaint before the Regional Trial Court, Branch 142,
Makati, docketed as Civil Case No. 00-1553, is ordered DISMISSED for lack of jurisdiction.
179
Honey Fame L. Federico Topic: Certificate of Stocks and Transfer of Shares
G.R. NO. 139802 December 10, 2002
VICENTE C. PONCE, petitioner,

vs.
ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents.
QUISUMBING, J.:
FACTS:
Facts: On 25 January 1996, Vicente C. Ponce, filed a complaint with the SEC for mandamus and
damages against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his
complaint, Ponce alleged, among others, that "the late Fausto G. Gaid was an incorporator of Victory
Cement Corporation (VCC), having subscribed to and fully paid 239,500 shares of said corporation; that
on 8 February 1968, Ponce and Fausto Gaid executed a "Deed of Undertaking" and "Indorsement"
whereby the latter acknowledges that the former is the owner of said shares and he was therefore
assigning/endorsing the same to Ponce; that on 10 April 1968, VCC was renamed Floro Cement
Corporation (FCC); that on 22 October 1990, FCC was renamed Alsons Cement Corporation (ACC); that
from the time of incorporation of VCC up to the present, no certificates of stock corresponding to the
239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or
Ponce; and that despite repeated demands, ACC and Giron refused and continue to refuse without any
justifiable reason to issue to Ponce the certificates of stocks corresponding to the 239,500 shares of Gaid,
in violation of Ponce's right to secure the corresponding certificate of stock in his name. ACC and Giron
moved to dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an Order
dated 29 February 1996. Ponce appealed the Order of dismissal.
On 6 January 1997, the Commission En Banc reversed the appealed Order and directed the Hearing
Officer to proceed with the case. In ruling that a transfer or assignment of stocks need not be registered
first before it can take cognizance of the case to enforce Ponce's rights as a stockholder, the Commission
En Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987). Their motion for
reconsideration having been denied, ACC and Giron appealed the decision of the SEC En Banc and the
resolution denying their motion for reconsideration to the Court of Appeals. In its decision, the Court of
Appeals held that in the absence of any allegation that the transfer of the shares between Gaid and
Ponce was registered in the stock and transfer book of ACC, Ponce failed to state a cause of action.
Thus, said the appellate court, "the complaint for mandamus should be dismissed for failure to state a
cause of action." Ponce's motion for reconsideration was denied in a resolution dated 10 August 1999.
Ponce filed the petition for review on certiorari.
ISSUE:
Whether or not Ponce can require the corporate secretary, Giron, to register Gaid’s shares in his name.
RULING:
180
Fausto Gaid was an original subscriber of ACC's 239,500 shares. From the Amended Articles of
Incorporation approved on 9 April 1995, each share had a par value of P1.00 per share. Ponce had not
made a previous request upon the corporate secretary of ACC, Francisco M. Giron Jr., to record the
alleged transfer of stocks. Pursuant to Section 63 of the Corporation Code, a transfer of shares of stock
not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is
concerned. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is
only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully
regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of
the corporation to recognize such rights as it is mandated by law to recognize arises. Hence, without such
recording, the transferee may not be regarded by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock certificates in the name of the transferee even when
there has been compliance with the requirements of Section 64 of the Corporation Code.
The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to
the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation
is under no specific legal duty to issue stock certificates in the transferee's name. A petition for
mandamus fails to state a cause of action where it appears that the petitioner is not the registered
stockholder and there is no allegation that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make the transfer.
The deed of undertaking with indorsement presented by Ponce does not establish, on its face, his right to
demand for the registration of the transfer and the issuance of certificates of stocks. Under the provisions
of our statute touching the transfer of stock, the mere indorsement of stock certificates does not in itself
give to the indorsee such a right to have a transfer of the shares of stock on the books of the company as
will entitle him to the writ of mandamus to compel the company and its officers to make such transfer at
his demand, because, under such circumstances the duty, the legal obligation, is not so clear and
indisputable as to justify the issuance of the writ. As a general rule, as between the corporation on the
one hand, and its shareholders and third persons on the other, the corporation looks only to its books for
the purpose of determining who its shareholders are, so that a mere indorsee of a stock certificate,
claiming to be the owner, will not necessarily be recognized as such by the corporation and its officers, in
the absence of express instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer. Thus, absent an allegation that the transfer of shares is
recorded in the stock and transfer book of ACC, there appears no basis for a clear and indisputable duty
or clear legal obligation that can be imposed upon the corporate secretary, so as to justify the issuance of
the writ of mandamus to compel him to perform the transfer of the shares to Ponce.
WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals, in CA-G.R.
SP No. 46692, which set aside that of the Securities and Exchange Commission En Banc in SEC-AC No.
545 and reinstated the order of the Hearing Officer, is hereby AFFIRMED.
SO ORDERED.
181
Valer, Lendy J.
Topic:Certificate of Stocks and Stock Shares
MAKATI SPORTS CLUB, INC.,Petitioner,
Vs. CECILE H. CHENG,
MC FOODS, INC., and
RAMON SABARRE, Respondents.
G.R. No. 178523, June 16, 2010
NACHURA, J.:
Facts:
On October 20, 1994, plaintiffs Board of Directors adopted a resolution authorizing the sale of 19
unissued shares at a floor price of P400,000 and P450,000 per share for Class A and B, respectively.
Defendant Cheng was a Treasurer and Director of plaintiff in 1985. On July 7, 1995, Hodreal expressed
his interest to buy a share, for this purpose he sent the letter. In said letter, he requested that his name be
included in the waiting list.
It appears that sometime in November 1995, McFoods expressed interest in acquiring a share of the
plaintiff, and one was acquired with the payment to the plaintiff by McFoods ofP1,800,000 through Urban
Bank. On December 15, 1995, the Deed of Absolute Sale was executed by the plaintiff and McFoods
Stock Certificate No. A 2243 was issued to McFoods on January 5, 1996. On December 27, 1995,
McFoods sent a letter to the plaintiff giving advice of its offer to resell the share.
On February 7, 1996, plaintiff was advised of the sale by McFoods to Hodreal of the share evidenced by
Certificate No. 2243 for P2.8 Million. Upon request, a new certificate was issued. In 1997, an investigation
was conducted and the committee held that there is prima facie evidence to show that defendant Cheng
profited from the transaction because of her knowledge.
Issue:
Whether or not Makati Sports Club was defrauded by Cheng’s collaboration with McFoods.
Held:
No.
Mc Foods properly complied with the requirement of Section 30(e) of the Amended By-Laws on MSCIs
pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods Class A share within the thirty
(30) day pre-emptive period as provided by the Amended By-Laws. It was only on January 29, 1996, or
32 days after December 28, 1995, when MSCI received Mc Foods letter of offer to sell the share, that Mc
Foods and Hodreal executed the Deed of Absolute Sale over the said share of stock. While Hodreal had
the right to demand the immediate execution of the Deed of Absolute Sale after his full payment of Mc
Foods Class A share, he did not do so. Perhaps, he wanted to wait for Mc Foods to first comply with the
pre-emptive requirement as set forth in the Amended By-Laws. Neither can MSCI argue that Mc Foods
was not yet a registered owner of the share of stock when the latter offered it for resale, in order to void
the transfer from Mc Foods to Hodreal. The corporations obligation to register is ministerial upon the
182
buyers acquisition of ownership of the share of stock. The corporation, either by its board, its by-laws, or
the act of its officers, cannot create restrictions in stock transfers.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated June 25, 2007 of the Court of
Appeals in CA-G.R. CV No. 80631, affirming the decision dated August 20, 2003 of the Regional Trial
Court, Branch 138, Makati City in Civil Case No. 01-837, is AFFIRMED.
183
MOHAMMAD ALI M. BANTAO
TOPIC: SOURCES of CORP. FUNDS: Certificate of Stocks and Transfer of Shares
G.R. No. 154670 January 30, 2012
FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT CORP., petitioners, vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, respondents
Facts:
Respondent Spouses tan bought from petitioner RN Development Corporation two class "D"
shares of stock in petitioner Fontana Resort worth P 387, 300.00, enticed by the promises of petitioners'
sales agents, that they would construct a park with frist class leisure facilities in Clark Field, Pampanga to
be called Fontana Leisure Park and that those class "D" shareholders would be admitted to one
membership in the country club, which will entitled them to use park facilities and stay at a two-bedroom
villa for five ordinary weekdays and two weekends every year for free.
Two years later, respondents filed before the SEC a complaint for a refund of their P 387, 300.00
they spent to purchase shares of stock form Fontana. Respondents alleged that they have been deceive
into buying the Fontana shares because of petitioners fraudulent misrepresentations. The construction of
the park turned out to be still unfinished and the policies, rules and regulations of the country club were
obscure. The respondent spouses after availing one free accommodation at the villa, but the succeeding
reservations were refused.
Petitioners filed their answer in which they asserted that respondents had been fully informed of
the privileges given to them as shareholders of class "D" , since these were all explicitly provided in the
promotional materials for the country club, the articles of incorporation and the by laws of Fontana Resort
and they denied that they unjustly canceled respondents' reservation. Lastly, petitioners averred that
when respondents were first accommodated at FLP, minor or finishing construction works were left to be
done and that facilities of the country club were already operational.
SEC-SICD Hearing Officer Bacalla rendered a decision in favor of Spouses Tan. They appealed
the said decision of Bacalla before the SEC en banc but their appeal was denied. Petitioners filed before
the CA a petition for review and find their appeal to be partly meritorious. Petitioner filed a motion for
reconsideration, but it was denied, hence the petition for review.
Issue:
Whether or not petitioners committed fraud or defaulted on their promises as would justify the
annulment or rescission of their contract of sale with respondents.
Ruling:
No. The petitioners did not commit fraud or default on their promises as would justify the
annulment or recission of their contract of sale with Respondents. Article 1330 provides that fraud refers
to dolocausante or causal fraud, in which, prior to or simultaneous with the execution of the contract, one
party secures the consent of the other party by using deception, without which such consent would not
have been given. The fraud must be the determining cause of the contract or must have caused the
consent to be given.
The general rule is that he who alleges fraud or mistake in a transaction must substantiate his
allegation as the presumption is that a person takes ordinary care for his concerns and that private
dealings have been entered into fairly and regularly.
184
In this case, respondents have miserably failed to prove how petitioners employed fraud to
induced respondents to buy shares of stock. It can only be expected that petitioners presented the
Fontana Leisure Park and the country club in the most positive light in order to attract investor-members.
There is no showing that in their sales talk to respondents, petitioner actually used insidious words or
machinations, without which, respondents would not have brought shares from Fontana. Respondents
appears to be literate and of above-average means, who may not be easily deceived into parting with a
substantial amount of money.
What is apparent is that respondents knowingly and willingly consented to buying the shares from
Fontana, but were later on disappointed with the actual FLP facilities and club membership benefits.
Respondents' complaint sufficiently alleged a cause of action for the annulment or recission of the
contract of sale of Fontana class "D" shares by petitioners to respondents, however, respondents were
unable to establish preponderance of evidence that they are entitled to said annulment or recission.
WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Decision dated May 30,
2002 and Resolution dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816 are
REVERSED and SET ASIDE. Petitioners are ORDERED to pay respondents the amount of P5,000.00 as
nominal damages for their negligence as regards respondents’ cancelled reservation for April 1, 1999, but
respondents’ Complaint, in so far as the annulment or rescission of the contract of sale of the FRCCI
class "D" shares of stock is concerned, is DISMISSED for lack of merit.
MARIA LEONILA VILLEGAS CERTIFICATE OF STOCKS & TRANSFER OF

SHARES
G.R. No. 202205 March 6, 2013
FOREST HILLS GOLF & COUNTRY CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
BRION, J.:
FACTS:
Petitioner Forest Hills Golf & Country Club operates and maintains a golf and country club facility in
Antipolo City, created as a result of a joint venture agreement between Kings Properties Corporation
(Kings) and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the
shares of stock of Forest Hills, holding 40% and 60% of the shares, respectively.
FEGDI sold to 1 Class "C" common share of Forest. Prior to the full payment of the purchase price,
RSACC transferred its interests over FEGDI's Class "C" common share to respondent Vertex. RSACC
advised FEGDI of the transfer and FEGDI, in turn, requested Forest Hills to recognize Vertex as a
shareholder. Forest Hills acceded to the request, and Vertex was able to enjoy membership privileges in
the golf and country club.
Despite the sale of share to Vertex, the share remained in the name of FEGDI, prompting Vertex to
demand for the issuance of a stock certificate in its name.
As its demand went unheeded, Vertex filed a complaint for rescission with damages against defendants
Forest Hills, FEGDI, and Fil-Estate Land. The RTC dismissed the complaint, which was reversed by the
CA.
ISSUE:
W/N Forest Hills was properly impleaded in the case
HELD: NO
RATIO:
Forest hills was not a party to the sale even though the subject of the sale was its share of stock. The
corporation whose shares of stock are the subject of a transfer transaction need not be a party to the
transaction, as may be inferred from the terms of Section 63 of the Corporation Code. However, to bind
185
the corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation.
WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for review on
certiorari.
Saddam Hussein S. Balt Topic: Certificate of Stocks and Transfer of Shares
G.R. No. 184332 February 17, 2016
ANNA TENG, Petitioner

v.
SECURITIES AND EXCHANGE COMMISSION (SEC) AND TING PING LAY, Respondents
REYES, J.:
FACTS:
Respondent Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu (Chiu)
1,400 shares from his brother Teng Ching Lay (Teng Ching), who was also the president and operations
manager of TCL; and 1,440 shares from Ismaelita Maluto (Maluto).
Upon Teng Ching's death, his son Henry Teng (Henry) took over the management of TCL. To protect his
shareholdings with TCL, Ting Ping requested TCL's Corporate Secretary, herein petitioner Teng, to enter
the transfer in the Stock and Transfer Book of TCL for the proper recording of his acquisition. Lie also
demanded the issuance of new certificates of stock in his favor. TCL and Teng, however, refused despite
repeated demands. Because of their refusal, Ting Ping filed a petition for mandamus with the SEC
against TCL and Teng. SEC granted Ping’s petition.
TCL and Teng appealed to SEC en banc which affirmed the SEC decision. Not contented, TCL and Teng
filed a petition for review with the CA, however, it dismissed the petition. This prompted TCL and Teng to
come to the Court via a petition for review on certiorari under Rule 45.It was also denied.
After the finality of the decision, SEC issued a writ of execution addressed to the Sheriff of the Regional
Trial Court (RTC) of Manila. Teng, however, filed on a complaint for interpleader where Teng sought to
compel Henry and Ting Ping to interplead and settle the issue of ownership over the 1,400 shares, which
were previously owned by Teng Ching. Thus, the deputized sheriff held in abeyance the further
implementation of the writ of execution pending outcome of the case. Subsequently, RTC Manila found
Henry to have a better right to the shares of stock formerly owned by Ching. Upon motion by Ping, SEC
granted partial enforcement and satisfaction of its decision.
Teng and TCL filed their motions to quash the alias writ of execution, which was opposed by Ting Ping,
who also expressed his willingness to surrender the original stock certificates of Chiu and Maluto to
facilitate and expedite the transfer of the shares in his favor. Teng pointed out, however, that the annexes
in Ting Ping's opposition did not include the subject certificates of stock, surmising that they could have
been lost or destroyed. Ping belied this, claiming that his counsel Atty. Simon V. Lao already
186
communicated with TCL's counsel regarding the surrender of the said certificates of stock. SEC denied
the motions to quash filed by Teng and TCL.
Unperturbed, Teng filed a petition for certiorari and prohibition under Rule 65. The CA promulgated the
assailed decision dismissing the petition and denying the motion to expunge the SEC's comment. Hence,
Teng filed the present petition.
ISSUE:
Whether or not CA erred in declaring that there was no need to surrender the stock certificates
representing the shares conveyed by Maluto to Ping to record the transfer in the corporate books and
issue new stock certificates.
RULING:
Under Section 63 of the Corporation Code, certain minimum requisites must be complied with for there to
be a valid transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate
must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (c) to be valid against third parties, the transfer must be recorded in the books of the
corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares from the original owner to the transferee. The
delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the
transferor to the transferee, that is, from the original stockholder named in the certificate to the person or
entity the stockholder was transferring the shares to, whether by sale or some other valid form of absolute
conveyance of ownership. "Shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed
certificate of stock."
It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and Maluto's respective
certificates of stock before the transfer to Ting Ping may be registered in the books of the corporation -
does not have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is
not a requisite before the conveyance may be recorded in its books. To compel Ting Ping to deliver to the
corporation the certificates as a condition for the registration of the transfer would amount to a restriction
on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The
only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares
intended to be transferred.
WHEREFORE, the petition is DENIED. The Decision dated April 29, 2008 and Resolution dated August
28, 2008 of the Court of Appeals in CA-G.R. SP No. 99836 are AFFIRMED.
187
Carla Angela D. Villadolid Topic: Derivative Actions and other Actions of Stockholders
Gr. Nos. 181455-56 & 182008 December 4, 2009
Santiago, Cua Jr., Solomon S. Cua and Exequiel D. Robles in their capacities as Directors of
Philippine Racing Club Inc. vs. Miguel Ocampo Tan, Jemie U. Tan and Atty. Brigido J .Dulay
Santiago, Cua Jr. in his capacity as Directors of Philippine Racing Club Inc. vs. Court of Appeals,
Miguel Ocampo Tan, Jemie U. Tan and Atty. Brigido J .Dulay and Hon. Cesar Untalan, Presiding
Judge, Makati Regional Trial Court, Br. 149
CHICO-NAZARIO, J
FACTS:
PRCI is a corporation organized and established under Philippine laws to: (1) carry on the
business of a race course in all its branches and, in particular, to conduct horse races or races of any
kind, to accept bets on the results of the races, and to construct grand or other stands, booths, stablings,
paddocks, clubhouses, refreshment rooms and other erections, buildings, and conveniences, and to
conduct, hold and promote race meetings and other shows and exhibitions; and (2) promote the breeding
of better horses in the Philippines, lend all possible aid in the development of sports, and uphold the
principles of good sportsmanship and fair play.
In 1999, the Articles of Incorporation of PRCI was amended to include a secondary purpose, viz:
To acquire real properties and/or develop real properties into mix-use realty projects including but not
limited to leisure, recreational and memorial parks and to own, operate, manage and/or sell these real
estate projects.
PRCI owns 2 properties(Makati and Cavite). Following the trend in the development of properties
in the same area, it wished to convert its Makati property from a racetrack to urban residential and
commercial use. PRCI management decided that it was best to spin off the management and
development of the same to a wholly owned subsidiary, so that PRCI could continue to focus its efforts on
pursuing its core business competence of horse racing. PRCI management opted to acquire another
domestic corporation, JTH Davies Holdings, Inc. (JTH).
Using the results of the SGV (accounting firm Sycip Gorres Velayo & Co.) study, PRCI
management determined that PRCI could initially acquire 41,928,290 shares, or 95.55% of the
outstanding capital stock of JTH. The PRCI Board of Directors held a meeting on 26 September 2006.
Among the directors present were petitioners Santiago Sr., Santiago Jr., and Solomon, as well as
respondent Dulay. The next day, PRCI entered into a Sale and Purchase Agreement for the acquisition
from JME of 41,928,290 common shares or 95.55% of the outstanding capital stock of JTH. In the Special
Stockholders Meeting held on 7 November 2006, attended by stockholders with 481,045,887 shares or
84.42% of the outstanding capital stock of PRCI, the acquisition by PRCI of JTH was presented for
approval.
Thereafter, PRCI again engaged the assistance of SGV in executing its intended spin-off to JTH
of the management and development of PRCI’s Makati property. It was then determined that the Makati
property, with a total zonal value of P3,817,242,000.00, could be transferred to JTH in exchange for the
unissued portion of the latter’s recently increase authorized capital stock. Subsequently, the Annual
Stockholders Meeting of PRCI was scheduled on 17 July 2007. The property-for-shares exchange
between PRCI and JTH was supposed to be presented for approval by the stockholders. However, on 10
July 2007, respondents Miguel, et al., as minority stockholders of PRCI filed before the RTC a Complaint,
denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary Injunction, against the rest
of the directors of PRCI and/or JTH.
ISSUE:
Did the Complaint of respondents constitute a valid derivative suit?
188
HELD:
No.
It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust
not of mere error of judgment or abuse of discretion and intracorporate remedy is futile or useless, a
stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly
upon the stockholders.
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, class suits, and derivative suits. Where a
stockholder or member is denied the right of inspection, his suit would be individual because the wrong
is done to him personally and not to the other stockholders or the corporation. Where the wrong is done
to a group of stockholders, as where preferred stockholders rights are violated, a class or
representative suit will be proper for the protection of all stockholders belonging to the same group. But
where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to
the corporation and not to the individual stockholder or member. However, in cases of mismanagement
where the wrongful acts are committed by the directors or trustees themselves, a stockholder or member
may find that he has no redress because the former are vested by law with the right to decide whether or
not the corporation should sue, and they will never be willing to sue themselves. The corporation would
thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the common
law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually
became known as a derivative suit. It has been proven to be an effective remedy of the minority against
the abuses of management. Thus, an individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the nominal party, with the corporation
as the party in interest.
Derivative suit (re: acquisition of JTH: After a careful study of the allegations concerning this
derivative suit, the Court rules that it is dismissible for being moot and academic. In fact, if the derivative
suit, insofar as it concerns the Resolution dated 26 September 2006 of the PRCI Board of Directors, is
not dismissible for mootness, it is still vulnerable to dismissal for failure to implead indispensable parties,
namely, the majority of the PRCI stockholders. Respondents Miguel, et al., cannot simply assert that the
majority of the PRCI Board of Directors named as defendants in Civil Case No. 07-610 are also the PRCI
majority stockholders, because respondents Miguel, et al., explicitly impleaded said defendants in their
capacity as directors of PRCI and/or JTH, not as stockholders.
Derivative suit (re: property-for-shares exchange: The derivative suit, with respect to the
Resolution dated 11 May 2007 of the PRCI Board of Directors, is similarly dismissible for lack of cause of
action. Rule 8, 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.
Respondents lacked the 3rd requisite, “No appraisal rights are available for the act or acts
complained of”. the property-for-shares exchange between PRCI and JTH, involving as it did
substantially all of the properties and assets of PRCI, qualified as one of the instances when dissenting
stockholders, such as respondents Miguel, et al., could have exercised their appraisal rights.
The Court ORDERS the DISMISSAL of the Complaint of respondents Miguel, et al., in Civil Case
No. 07-610 before the RTC for lack of cause of action, failure to implead indispensable parties, and
mootness.
189
JOHN PAUL MAANDAL TOPIC :(91) DERIVATIVE ACTION AND OTHER ACTION OF
THE STOCKHOLDERS
(G.R. No. 170783, June 18, 2012)
LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA
DOMINGO and RAY VINCENT, Petitioners vs.
AMELIA P MUER, SAMUEL M TANCHOCO, ROMEO TANKIANG RUDEL PANGANIBAN, DOLORES

AGBAYANI, ARLENEDAL A YASUMA, GODOFREDO M CAGUIOA and EDGARDO M
SAKANDANAN, Respondents
FACTS: Pursuant to the by-laws of Legaspi Towers 300, Inc., set the annual meeting of the members of
the condominium corporation and the election of the new Board of Directors for the years 2004-2005 on
April 2, 2004 at 5:00 p.m. at the lobby of Legaspi Towers 300, Inc.
Out of a total number of 5,723 members who were entitled to vote, 1,358 were supposed to vote through
their respective proxies and their votes were critical in determining the existence of a quorum, which was
at least 2,863 (50% plus 1). The Committee on Elections of Legaspi Towers 300, Inc., however, found
most of the proxy votes, at its face value, irregular, thus, questionable; and for lack of time to authenticate
the same, petitioners adjourned the meeting for lack of quorum.
However, the group of respondents challenged the adjournment of the meeting. Despite petitioners'
insistence that no quorum was obtained during the annual meeting held on April 2, 2004, respondents
pushed through with the scheduled election and were elected as the new Board of Directors and officers
of Legaspi Towers 300, Inc. Subsequently, they submitted a General Information Sheet to the Securities
and Exchange Commission (SEC) with the following new set of officers: Amelia P. Muer, President;
Samuel M. Tanchoco, Internal Vice President; Romeo V. Tankiang, External Vice-President; Rudel H.
Panganiban, Secretary; Dolores B. Agbayani, Assistant Secretary; Arlenedal A. Yasuma, Treasurer;
Godofredo M. Caguioa, Assistant Treasurer; and Edgardo M. Salandanan, Internal Auditor.
On April 13, 2004, petitioners filed a Complaint for the Declaration of Nullity of Elections with Prayers for
the lssuance of Temporary Restraining Orders and Writ of Preliminary Injunction and Damages against
respondents with the RTC of Manila. Subsequently, A TRo was also issued.
On the same date, April 21, 2004, respondents filed their Answert, alleging that the election on April 2,
2004 was lawfully conducted.Respondents cited the Report of SEC Counsel Nicanor P. Patricio, who was
ordered by the SEC to attend the annual meeting of Legaspi Towers 300, Inc. on April 2, 2004. Atty.
Patricio stated in his Report that at the time of the election, it cant proceed because the certificate of
stocks and the proxies cannot be authenticated. Despite the move of to postpone the election, the
Respondents insisted to conduct the election hence, claimed that the said election was legitimate and
lawful; thus, they prayed for the dismissal of the complaint for lack cause of action against them.
The Petitioner amended their complaint impleading Legaspi Towers 300 Inc. as Party defendant, but
RTC and CA both denied the said amendment stating that petitioners complaint sought to nullify the
election of the Board of Directors held on April 2, 2004, and to protect and enforce their individual right to
vote. The appellate court held that as the right to vote is a personal right of a stockholder of a corporation,
such right can only be enforced through a direct action; hence, Legaspi Towers 300, Inc. cannot be
impleaded as plaintiff in this case.
190
ISSUE: Can the petitioners file a case in behalf of a corporation (derivative suit) in questioning the validity
of the election?
HELD: NO. Supreme Court differentiated a derivative suit from individual and representative or class
suits.
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, class suits, and derivative suits. Where a stockholder
or member is denied the right of inspection, his suit would be individual because the wrong is done to him
personally and not to the other stockholders or the corporation. Where the wrong is done to a group of
stockholders, as where preferred stockholders' rights are violated, a class or representative suit will be
proper for the protection of all stockholders belonging to the same group. But where the acts complained
of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to
the individual stockholder or member. Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest therein would be impaired, 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, and can and should itself sue the wrongdoer. Otherwise, not only would the
theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the
priority rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that
should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no redress because the former are vested by
law with the right to decide whether or not the corporation should sue, and they will never be willing to sue
themselves. The corporation would thus be helpless to seek remedy. Because of the frequent occurrence
of such a situation, the common law gradually recognized the right of a stockholder to sue on behalf of a
corporation in what eventually became known as a "derivative suit." It has been proven to be an effective
remedy of the minority against the abuses of management. Thus, an individual stockholder is permitted to
institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued
or hold the control of the corporation. In such actions, the suing stockholder is regarded as the nominal
party, with the corporation as the party-in- interest.
Since it is the corporation that is the real party-in-interest in a derivative suit, then e reliefs prayed for must
be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the
corporation, then it is an improper derivative suit.
The requisites for a derivative suit are as follows: a) t he party bringing suit should be a shareholder as of
the time of the act or transaction complained of, the number of his shares not being material; b) he has
tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea; and c) the cause of action actually
devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.
As correctly stated by the Court of Appeals, petitioners complaint seek to nullify the said election, and to
protect and enforce their individual right to vote. Petitioners seek the nullification of the election of the
Board of Directors for the years 2004-2005, composed of herein respondents, who pushed through with
the election even if petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners are
the injured party, whose rights to vote and to be voted upon were directly affected by the election of the
new set of board of directors. The party-in-interest are the petitioners as stockholders, who wield such
right to vote. The cause of action devolves on petitioners, not the condominium corporation, which did not
191
have the right to vote. Hence, the complaint for nullification of the election is a direct action by
petitioners, who were the members of the Board of Directors of the corporation before the election,
against respondents, who are the newly-elected Board of Directors. Under the circumstances, the
derivative suit filed by petitioners in behalf of the condominium corporation in the Second Amended
Complaint is improper.
The stockholders right to file a derivative suit is not based on any express provision of The Corporation
Code, but is impliedly recognized when the law makes corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties, [22] which is not the
issue in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87684,
dated July 22, 2005, and its Resolution dated November 24, 2005 are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Fernandez, Napolyn P.
Topic: Derivative Actions and Other Actions of Stockholders
G.R. No. 174353 September 10, 2014
192
vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG
CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ, Respondents.
Facts:
· On February 26, 2003, petitioners Nestor Ching and Andrew Wellington on behalf of the members
of Subic Bay Golf and Country Club, Inc. (SBGCCI) filed a Complaint against the said country club and its
Board of Directors and officers under the provisions of Presidential Decree No. 902-A in relation to
Section 5.2 of the Securities Regulation Code.
· The Subic Bay Golfers and Shareholders Incorporated (SBGSI), a corporation composed of
shareholders of the defendant corporation, was named as plaintiff together with its officers (president,
treasurer, corporate secretary and directors)
· The Complaint enumerated several instances of fraud in the management of the corporation
allegedly committed by the Board of Directors and officers of the corporation.
· Respondents claimed by way of defense that petitioners failed (a) to show that it was authorized by
SBGSI to file the Complaint on the said corporation’s behalf; (b) to comply with the requisites for filing a
derivative suit and an action for receivership; and (c) to justify their prayer for injunctive relief since the
Complaint may be considered a nuisance or harassment suit under Section 1(b), Rule1 of the Interim
Rules of Procedure for Intra-Corporate Controversies.
Issue: Is the case a derivative suit?
Held: Yes. The Court finds that this case is intended not only for the benefit of the two petitioners. This is
apparent from the caption of the case which reads Nestor Ching, Andrew Wellington and the Subic Bay
Golfers and Shareholders, Inc., for and in behalf of all its members as petitioners. 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 legal standing of minority stockholders to bring derivative
suits is not a statutory right, there being no provision in the Corporation Code or related statutes
authorizing the same, but is instead a product of jurisprudence based on equity. A derivative suit cannot
prosper without first complying with the legal requisites for its institution.
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies imposes the
following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
Upon a careful examination of the Complaint, this Court finds that the same should not have been
dismissed on the ground that it is a nuisance or harassment suit. Although the shareholdings of
petitioners are indeed only two out of the 409 alleged outstanding shares or 0.24%, the Court has held
that it is enough that a member or a minority of stockholders file a derivative suit for and in behalf of a
corporation. With regard, however, to the second requisite, we find that petitioners failed to state with
particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies available
under the articles of incorporation, by-laws, and laws or rules governing the corporation to obtain the relief
they desire. The Complaint contained no allegation whatsoever of any effort to avail of intra-corporate
remedies. Indeed, even if petitioners thought it was futile to exhaust intra-corporate remedies, they should
have stated the same in the Complaint and specified the reasons for such opinion.
193
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court (RTC) of Olongapo City
dismissing the Complaint filed thereon by herein petitioners is AFFIRMED.
Alexis B. Dulay Rights of Shareholders and Corporate Books and

Records; Derivative Actions and other Actions of Stockholders; Sec. 73
Case No. 93
G.R. No. 172843 September 24, 2014

ALFREDO L. VILLAMOR, JR., Petitioner,
vs.
JOHN S. UMALE, in substitution of HERNANDO F. BALMORES, Respondent.
FACTS:
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of the area
owned by Mid-Pasig Development Corporation (Mid-Pasig). On March 1, 2004, Pasig Printing
Corporation (PPC) obtained an option to lease portions of MidPasig’s property, including the Rockland
area. On November 11, 2004, PPC’s board of directors issued a resolution waiving all its rights, interests,
and participation in the option to lease contract in favor of the law firm of Atty. Alfredo Villamor, Jr.
(Villamor). PPC received no consideration for this waiver in favor of Villamor’s law firm.
On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of agreement (MOA)
with MC Home Depot. Under the MOA, MC Home Depot would continue to occupy the area as PPC’s
sublessee for 4 years, renewable for another 4 years, at a monthly rental of P4,500,000.00 plus goodwill
of P18,000,000.00.
In compliance with the MOA, MC Home Depot issued 20 post-dated checks representing rental payments
for one year and the goodwill money. The checks were given to Villamor who did not turn these or the
equivalent amount over to PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to PPC’s directors on
April 4, 2005. He informed them that Villamor should be made to deliver to PPC and account for MC
Home Depot’s checks or their equivalent value.
Due to the alleged inaction of the directors, respondent Balmores filed with the RTC an intra-corporate
controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-Corporate Controversies
(Interim Rules) against petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the corporation and its stockholders."
Respondent Balmores alleged in his complaint that because of petitioners’ actions, PPC’s assets were ". .
. not only in imminent danger, but have actually been dissipated, lost, wasted and destroyed."
Respondent Balmores prayed that a receiver be appointed from his list of nominees. He also prayed for
petitioners’ prohibition from "selling, encumbering, transferring or disposing in any manner any of [PPC’s]
properties, including the MC Home Depot checks and/or their proceeds." He prayed for the accounting
and remittance to PPC of the MC Home Depot checks or their proceeds and for the annulment of the
board’s resolution waiving PPC’s rights in favor of Villamor’s law firm.
194
The RTC denied respondent Balmores’ prayer for the appointment of a receiver or the creation of a
management committee. RTC held PPC’s entitlement to the checks was doubtful. The resolution issued
by PPC’s board of directors, waiving its rights to the option to lease contract in favor of Villamor’s law firm,
must be accorded prima facie validity. Also, there was a pending case filed by one Leonardo Umale
against Villamor, involving the same checks. Umale was also claiming ownership of the checks. This,
according to the trial court, weakened respondent Balmores’ claim that the checks were properties of
PPC.
Balmores filed with the CA a petition for certiorari under Rule 65 of the Rules of Court and the same was
granted. It reversed the trial court’s decision, and issued a new order placing PPC under receivership and
creating an interim management committee. As a justification of said decision, the CA stated that the
board’s waiver of PPC’s rights in favor of Villamor’s law firm without any consideration and its inaction on
Villamor’s failure to turn over the proceeds of rental payments to PPC warrant the creation of a
management committee. The circumstances resulted in the imminent danger of loss, waste, or dissipation
of PPC’s assets.
According to the CA, the trial court abandoned its duty to the stockholders in a derivative suit when it
refused to appoint a receiver or create a management committee, all during the pendency of the
proceedings.
ISSUE: W/N correctly characterized respondent Balmores’ action as a derivative suit.
HELD: NO
A derivative suit is an action filed by stockholders to enforce a corporate action. It is an exception to the
general rule that the corporation’s power to sue is exercised only by the board of directors or trustees.
Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or
officers of the corporation refuse to sue to vindicate the rights of the corporation or are the ones to be
sued and are in control of the corporation. In derivative suits, the real party in interest is the corporation,
and the suing stockholder is a mere nominal party.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies (Interim Rules)
provides the 5 requisites for filing derivative suits:
SECTION 1. Derivative action. – A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided that:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member
must be "in the name of [the] corporation or association. . . ." This requirement has already been settled in
jurisprudence.
It is important that the corporation be made a party to the case. As explained in Asset Privatization Trust
v. Court of Appeals, to wit: “the corporation must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res judicata against it.”
In the same case, this court enumerated the reasons for disallowing a direct individual suit.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to sue separately would conflict with the
separate corporate entity principle;
195
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that ‘the stockholders may not directly claim those damages for
themselves for that would result in the appropriation by, and the distribution among them of part
of the corporate assets before the dissolution of the corporation and the liquidation of its debts
and liabilities, something which cannot be legally done in view of Section 16 of the Corporation
Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for the protection
of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act.
Respondent Balmores’ action in the trial court failed to satisfy all the requisites of a derivative suit.
Respondent failed to exhaust all available remedies to obtain the reliefs he prayed for. He also failed to
allege that appraisal rights were not available for the acts complained of. This is another requisited as
provided under Rule 8, Section 1(3) of the Interim Rules. Neither did respondent Balmores implead PPC
as party in the case nor did he allege that he was filing on behalf of the corporation.
The non-derivative character of respondent Balmores’ action may also be gleaned from his allegations in
the trial court complaint. In the complaint, he described the nature of his action as an action under Rule 1,
Section 1(a)(1) of the Interim Rules, and not an action under Rule 1, Section 1(a)(4) of the Interim Rules,
which refers to derivative suits.
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board, associates, and officers,
amounting to fraud or misrepresentation, which may be detrimental to the interest of the stockholders.
This is different from a derivative suit.
While devices and schemes of the board of directors, business associates, or officers amounting to fraud
under Rule 1, Section 1(a)(1) of the Interim Rules are causes of a derivative suit, it is not always the case
that derivative suits are limited to such causes or that they are necessarily derivative suits. Hence, they
are separately enumerated in Rule 1, Section 1(a) of the Interim Rules:
SECTION 1. (a) Cases covered. – These Rules shall govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers
or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; and between, any or all of them and the corporation, partnership,
or association of which they are stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.
Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or officers may also be
individual suits or class suits.
Individual suits are filed when the cause of action belongs to the individual stockholder personally, and
not to the stockholders as a group or to the corporation.
In this case, respondent Balmores filed an individual suit. His intent was very clear from his manner of
describing the nature of his action. He was alleging that the acts of PPC’s directors, specifically the
waiver of rights in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks
from Villamor, were detrimental to his individual interest as a stockholder.
WHEREFORE, the petitions are GRANTED. The decision of the Court of Appeals dated March 2,
2006 and its resolution dated May 29, 2006 are SET ASIDE.
196
Antonio S. Pagsibigan Jr. Topic: Stocks and Stockholders
Subtopic: Rights of Shareholders: Derivative
Actions and other Actions of Stockholders
G.R. No. 181455-56 December 4, 2009
SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacity as Directors
of PHILIPPINE RACING CLUB, INC., Petitioners,
vs.
MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 182008

SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB, INC., Petitioner,
vs.
COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY. BRIGIDO J. DULAY, and
HON. CESAR UNTALAN, Presiding Judge, Makati Regional Trial Court, Br. 149, Respondents.
CHICO-NAZARIO, J.:
Facts:
Petitioner is a minority stockholder of Philippine Racing Club Inc. (PRCI). PRCI wanted to developed its
property in Makati thus, it opted to acquire another domestic corporation, JTH Davies Holdings, Inc.
(JTH). 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, however, the petitioner filed before
the RTC a Complaint, denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary
Injunction, against the rest of the directors of PRCI and/or JTH. Petitioner complained that respondent
Solomon, as PRCI President, with the acquiescence of the majority directors of PRCI, maliciously refused
and resisted the request of respondents Miguel, et al., for complete and adequate information relative to
the disputed Board Resolutions, brazenly and unlawfully violating the rights of the minority stockholders to
information and to inspect corporate books and records.
Issue:
Whether or not the petitioner has cause of action.
Ruling:
The petition is without merit.
Respondents Miguel, et al., allege another cause of action, other than the derivative suit -- the violation of
their right to information relative to the disputed Resolutions, i.e., the Resolutions dated 16 September
2006 and 11 May 2007 of the PRCI Board of Directors.
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,
under Sections 74[1]and 75[2] of the Corporation Code.
Rule 7, Section 2 of IRPICC enumerates the requirements particular to a complaint for inspection of
corporate books and records:
Sec. 2. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint
must state the following:
197
(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to
be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the
Philippines;
(2) A demand for inspection and copying of books and records and/or to be furnished with
financial statements made by the plaintiff upon defendant;
(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals,
if any; and
(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal,
stating the law and jurisprudence in support thereof. (Emphasis ours.)
As has already been previously established herein, the right to information, which includes the right to
inspect corporate books and records, is a right personal to each stockholder. After a closer reading of the
Complaint in Civil Case No. 07-610, the Court observes that only respondent Dulay actually made a
demand for a copy of all the records, documents, contracts, and agreements, emails, letters,
correspondences, relative to the acquisition of JTH x x x. There is no allegation that his co-respondents
(who are his co-plaintiffs in Civil Case No. 07-610) made similar demands for the inspection or copying of
corporate books and records. Only respondent Dulay complied then with the requirement under Rule 7,
Section 2(2) of IRPICC.
Even so, respondent Dulays Complaint should be dismissed for lack of cause of action, 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. 07-610, but by Atty. Jesulito A. Manalo
(Manalo), the Corporate Secretary of PRCI, in a letter dated 17 January 2006. Section 74 of the
Corporation Code, the substantive law on which respondent Dulays Complaint for inspection and copying
of corporate books and records is based, states that:
Sec. 74. Books to be kept; stock transfer agent.
xxxx
Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or
member of the corporation to examine and copy excerpts from its records or minutes, in accordance with
the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages,
and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code:
Provided, That if such refusal is pursuant to a resolution or order of the Board of Directors or Trustees,
the liability under this section for such action shall be imposed upon the directors or trustees who voted
for such refusal: x x x (Emphasis ours.)
Based on the foregoing, 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; but, as previously mentioned, Corporate Secretary Manalo is not among the
defendants named in the Complaint in Civil Case No. 07-610. 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, so that the latter (who are actually named defendants in the
Complaint) could also be held liable for the denial.
WHEREFORE, the Court renders the following judgment:

(1) The Court GRANTS the Petitions of petitioners Santiago, et al., and petitioner Santiago Sr. in G.R. No.
181455-56 and G.R. No. 182008, respectively. It REVERSES and SETS ASIDE the Decision dated 6
September 2007 and Resolution dated 22 January 2008 of the Court of Appeals in CA-G.R. SP No.
99769 and No. 99780;
(2) The Court LIFTS the TRO issued on 9 April 2008 in G.R. No. 180028 and CANCELS and RETURNS
the cash bond posted by petitioner Santiago Sr. The permanent injunction issued by the RTC on 8
198
October 2007, the execution and enforcement of which the TRO dated 9 April 2008 of this Court enjoins,
has been rendered moot, since the agenda items subject of said permanent injunction were already
presented to, and approved and ratified by a majority of the PRCI stockholders at the Annual
Stockholders’ Meeting held on 18 June 2008;
(3) The Court ORDERS the DISMISSAL of the Complaint of respondents Miguel, et al., in Civil Case No.
07-610 before the RTC for lack of cause of action, failure to implead indispensable parties, and
mootness;
(4) The Court ORDERS the DISMISSAL of the Complaint of Jalane, et al., in Civil Case No. 08-458, for
being in violation of the rules on the multiplicity of suits and forum shopping; and
(5) The Court DENIES the Very Respectful Motion for Leave to Intervene as Co-Respondent in the
Petition with the attached Very Respectful Urgent Motion to Lift Restraining Order of APRI, for
redundancy and mootness.
No costs.
SO ORDERED
Del Rosario, Michel Andre P. Right to inspect books and records
First Division
199
GR Nos. 195198 and 197098 February 11, 2013
LORELI LIM PO,

Petitioner,
-versus-
DEPARTMENT OF JUSTICE and
JASPER T. TAN,
Respondents.
X----------------------------------------------X
ANTONIO NG CHIU,
Petitioner,
-versus-
COURT OF APPEALS, DEPARTMENT
OF JUSTICE and JASPER T. TAN,
Respondents.
REYES, J.B.L., J.
FACTS:
Private respondent, Jasper T. Tan (Tan), is a stockholder of Coastal Highpoint Ventures, Inc. (CHVI), a
real estate development company. Antonio Ng Chiu (Chiu) is its President. Tan claimed that Loreli Lim Po
(Po) is Chiu’s personal accountant. Po asserted otherwise and instead alleged that she is merely a
consultant for CHVI. Tan lamented that pertinent information relative to CHVI’s operations were withheld
from him. His repeated requests for copies of financial statements and allowance to inspect corporate
books proved futile.
Consequently, he filed before the Office of the City Prosecutor of Cebu a complaint against Chiu and Po
for violation of Section 74(2), in relation to Section 144 of the Corporation Code of the Philippines, the
origin of the two consolidated petitions now before us.
On October 16, 2008, Assistant City Prosecutor Anna Lou B. Fernandez-Cavada (Prosecutor Fernandez-
Cavada) issued a Resolution finding probable cause to indict Chiu and Po.
On April 30, 2009, Prosecutor Fernandez-Cavada issued a Resolution denying Chiu and Po’s motions to
reconsider the foregoing. A petition for review was filed before the Department of Justice (DOJ). On
March 2, 2010, then Undersecretary Ricardo R. Blancaflor issued a resolution reversing Prosecutor
Fernandez-Cavada’s findings.
On April 30, 2010, then Acting DOJ Secretary Alberto C. Agra (Secretary Agra) issued a Resolution
granting Tan’s motion for reconsideration. Secretary Agra reversed the Resolution dated March 2, 2010
and instead affirmed Prosecutor Fernandez-Cavada’s earlier disquisition. Chiu and Po’s motions for
reconsideration were denied by Secretary Agra through a Resolution dated June 21, 2010.
Chiu and Po each filed before the Court of Appeals (CA) a Petition for Certiorari under Rule 65 of the
Rules of Court. Po and Chiu’s petitions were docketed as CA-G.R. SP Nos. 05351 and 05352,
respectively. On December 15, 2010, the CA dismissed with finality Po’s petition on technical grounds;
Chiu’s petition was denied for lack of merit.
ISSUE:
200
Whether the CA committed grave abuse of discretion.
HELD:
No.
RATIO:
Chiu’s petition is procedurally-flawed. Chiu filed his petition under Rule 65 of the Rules of Court when he
should have resorted instead to Rule 45 thereof. An appeal taken either to us or the CA by the wrong or
inappropriate mode shall be dismissed.
In the case at bar, we find no grave abuse of discretion on the part of the CA when it rendered its
Decision dated January 11, 2011.
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.
Besides, as we ruled in Metrobank, 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. 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. Further,
we have repeatedly ruled that the determination of probable cause, for purposes of preliminary
investigation, is an executive function. 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.
We likewise find no compelling reason to grant Po’s petition.
FALLO:
WHEREFORE, IN VIEW OF THE FOREGOING, the instant consolidated petitions are DENIED. The
Decision and Resolution of the Court of Appeals dated January 11, 2011 and April 8, 2011, respectively,
relative to CA- GR. SP No. 05352, and Resolutions issued on September 15, 2010 and December 15, 20
I 0, relative to CA-G.R. SP No. 05351, are AFFIRMED in toto.
SO ORDERED.
201
Bernabe, Jayson B. Rights of Shareholders
G.R. No. 180416 June 2, 2014
vs.
CEZAR T. QUIAMBAO and ERIC C. PILAPIL, Respondents.
Facts:
Respondents filed with the RTC a complaint against STRADEC. The complaint prays that: (1) the election
of Board of Directors be nullified on the ground of improper venue, pursuant to Section 51 of the
Corporation Code; (2) all ensuing transactions conducted by the elected directors be likewise nullified;
and (3) a special stockholders meeting be held anew.
Petitioner asserts that it is the SEC which has jurisdiction over the case. Furthermore, the action has
already prescribed since the case was filed beyond 15 day period from the day of the election. The
respondents, in their comment, counter that the appellate court correctly ruled that the power to hear and
decide controversies involving intra-corporate disputes, as well as to act on matters incidental and
necessary thereto, have been transferred from the SEC to the RTCs designated as Special Commercial
Courts.
Issues:
1. Whether only the SEC, not the RTC, has jurisdiction to order the holding of a special stockholders
meeting involving an intra-corporate contrive.
2. Whether the action has already prescribed.
Held:
1. No. Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the
parties herein. Concomitant to said power is the authority to issue orders necessary or incidental to the
carrying out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the
holding of a special meeting of stockholders or members of a corporation.
2. Yes. Under Section 3, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies under R.A. No. 8799, an election contest must be "filed within 15 days from the date of the
election." It was only on August 16, 2004 that respondents instituted an action questioning the validity of
the March 1, 2004 stockholders election, clearly beyond the 15-day prescriptive period.

Topic : Rights to Inspect Books and Records
FIRST DIVISION
G.R. No. 160924, August 05, 2015
TERELAY INVESTMENT AND DEVELOPMENT CORPORATION, PETITIONER, VS. CECILIA
TERESITA J. YULO, RESPONDENT.
BERSAMIN, J.:
Facts:
202
· In its desire to block the inspection of its corporate books by a stockholder holding a very
insignificant shareholding, the petitioner now seeks to set aside the judgment promulgated on September
12, 2003, whereby the Court of Appeals (CA) affirmed the decision rendered on March 22, 2002 by the
Regional Trial Court, Branch 142, in Makati City (RTC) allowing the inspection, and ordering it to pay
attorney's fees of P50,000.00 to the stockholder.
· With the CA having denied the petitioner's motion for reconsideration and motion for oral argument
through the resolution promulgated on November 28, 2003, such denial is also the subject of this appeal.
Antecedents
· Asserting her right as a stockholder, Cecilia Teresita Yulo wrote a letter, dated September 14, 1999,
addressed to Terelay Investment and Development Corporation (TERELAY) requesting that she be
allowed to examine its books and records on September 17, 1999 at 1:30 o'clock in the afternoon at the
latter's office on the 25th floor, Citibank Tower, Makati City. In its reply-letter, dated September 15, 1999,
TERELAY denied the request for inspection and instead demanded that she show proof that she was a
bona fide stockholder.
· On September 16, 1999, Cecilia Yulo again sent another letter clarifying that her request for
examination of the corporate records was for the purpose of inquiring into the financial condition of
TERELAY and the conduct of its affairs by the principal officers. The following day, Cecilia Yulo received
a faxed letter from TERELAY's counsel advising her not to continue with the inspection in order to avoid
trouble.
· On October 11, 1999, Cecilia Yulo filed with the Securities and Exchange Commission (SEC), a
Petition for Issuance of a Writ of Mandamus with prayer for Damages against TERELAY, docketed as
SEC Case No. 10-99-6433. In her petition, she prayed that judgment be rendered ordering TERELAY to
allow her to inspect its corporate records, books of account and other financial records; to pay her actual
damages representing attorney's fees and litigation expenses of not less than One Hundred Thousand
Pesos (P100,000.00); to pay her exemplary damages; and to pay the costs of the suit On May 16, 2000,
in the preliminary conference held before the SEC Hearing Officer, the parties agreed on the following:
1. Petitioner Cecilia Teresita Yulo is registered as a stockholder in the corporation's stock and transfer
book subject to the qualification in the Answer, and
2. Petitioner had informed the respondent, through demand letter, of her desire to inspect the records of
the corporation, but the same was denied by the respondent.
Thereafter, the parties stipulated that the ISSUES to be resolved are the following:
1. Whether or not petitioner has the right to inspect and examine TERELAY's corporate records, books of
account and other financial records pursuant to Section 74 of the Corporation Code of the Philippines;
203
2. Whether or not petitioner as stockholder and director of TERELAY has been unduly deprived of her
right to inspect and examine TERELAY's corporate records, books of accounts and other financial
records in clear contravention of law, which warrants her claim for damages;
3. Whether or not Atty. Reynaldo G. Geronimo and/or the principal officers, Ma. Antonia Yulo Loyzaga
and Teresa J. Yulo of respondent corporation are indispensable parties and hence, should be impleaded
as respondents;
4. As a prejudicial question, whether or not petitioner is a stockholder of respondent corporation and such
being the issue, whether this issue should be threshed out in the probate of the will of the late Luis A.
Yulo and settlement of estate now pending with the Regional Trial Court of Manila;
5. Assuming petitioner is a stockholder, whether or not petitioner's mere desire to inquire into the financial
condition of respondent corporation and conduct of the affairs of the corporation is a just and sufficient
ground for inspection of the corporate records.
· Following the enactment of Republic Act No. 8799 (The Securities Regulation Code), the case was
transferred from the Securities and Exchange Commission to the RTC.
· Petitioner's application for inspection of corporate records is granted pursuant to Rule 7 of the
Interim Rules in relation to Section 74 and 75 of the Corporation Code.
· CA affirmed the RTC.
· The petitioner sought reconsideration, and moved for the holding of oral arguments thereon, but the
CA denied the motion on November 28, 2003.
Issue:
Whether or not she is a stockholder and therefore, has the right to inspect the corporate books and
records.
Ruling:
SC deny the petition for review on certiorari.
The petitioner's submission that the respondent's "insignificant holding" of only .001% of the petitioner's
stockholding did not justify the granting of her application for inspection of the corporate books and
records is unwarranted. The Corporation Code has granted to all stockholders the right to inspect the
corporate books and records, and in so doing has not required any specific amount of interest for the
exercise of the right to inspect. Ubi lex non distinguit nee nos distinguere debemos. When the law has
204
made no distinction, we ought not to recognize any distinction. Neither could the petitioner arbitrarily deny
the respondent's right to inspect the corporate books and records on the basis that her inspection would
be used for a doubtful or dubious reason. Under Section 74, third paragraph, of the Corporation Code, the
only time when the demand to examine and copy the corporation's records and minutes could be refused
is when the corporation puts up as a defense to any action that "the person demanding" had "improperly
used any information secured through any prior examination of the records or minutes of such corporation
or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his
demand." The right of the shareholder to inspect the books and records of the petitioner should not be
made subject to the condition of a showing of any particular dispute or of proving any mismanagement or
other occasion rendering an examination proper, but if the right is to be denied, the burden of proof is
upon the corporation to show that the purpose of the shareholder is improper, by way of defense.
WHEREFORE, the Court AFFIRMS the judgment promulgated on September 12, 2003; and ORDERS
the petitioner to pay the costs of suit.
SO ORDERED.
Fernandez, Napolyn P. Topic: Appraisal Rights
G.R. No. 157479 November 24, 2010
PHILIP TURNER and ELNORA TURNER, Petitioners,

-versus -
LORENZO SHIPPING CORPORATION, Respondent.
BERSAMIN, J.:
Facts:
· The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged
primarily in cargo shipping activities.
205
· In June 1999, the respondent decided to amend its articles of incorporation to remove the
stockholders pre-emptive rights to newly issued shares of stock
· Feeling that the corporate move would be prejudicial to their interest as stockholders, the petitioners
voted against the amendment and demanded payment of their shares based on the book value of the
shares.
· The respondent found the fair value of the shares demanded by the petitioners unacceptable. 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 disagreement on the valuation of the shares led the parties to constitute an appraisal
committee pursuant to Section 82 of the Corporation Code, each of them nominating a representative,
who together then nominated the third member who would be chairman of the appraisal committee.
· On October 27, 2000, the appraisal committee reported its valuation of P2.54/share, for an
aggregate value of P2,565,400.00 for the petitioners.[2]
· Subsequently, the petitioners demanded payment based on the valuation of the appraisal
committee, plus 2%/month penalty from the date of their original demand for payment, as well as the
reimbursement of the amounts advanced as professional fees to the appraisers.
· Respondent refused the petitioners demand, explaining that pursuant to the Corporation Code, 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, but that it had no retained earnings at
the time of the petitioners demand, as borne out by its Financial Statements for Fiscal Year 1999 showing
a deficit of P72,973,114.00 as of December 31, 1999.
Issue: Can the petitioners exercise their right of appraisal
Held: No, petitioners’ cause of action was premature.

Respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced Civil Case No. 01-086 on January 22, 2001 proved that the respondents legal obligation to
pay the value of the petitioners shares did not yet arise.
A stockholder who dissents from certain corporate actions has the right to demand payment of the fair
value of his or her shares. The right of appraisal may be exercised when there is a fundamental change in
the charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does not
vest unless objectionable corporate action is taken. It serves the purpose of enabling the dissenting
stockholder to have his interests purchased and to retire from the corporation. However, a corporation
can purchase its own shares, provided payment is made out of surplus profits and the acquisition is for a
legitimate corporate purpose. No payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover the payment. In case the corporation
has no available unrestricted retained earnings in its books, 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, his
voting and dividend rights shall immediately be restored.
WHEREFORE, the petition for review on certiorari is denied for lack of merit.
206
Estayo Lalaine A Merger /
Consolidation
G.R. No. 164301, August 10, 2010
Bank of the Philippine Islands v. BPI Employees Union Davao Chapter – Federation of Unions in
BPI Unibank,.
FACTS
Bangko Sentral ng Pilipinas approved the Articles of Merger executed by and between BPI, herein
petitioner, and Far East Bank and Trust Company (FEBTC) and was approved by the Securities and
Exchange Commission. The Articles of Merger and Plan of Merger did not contain any specific stipulation
with respect to the employment contracts of existing personnel of the non-surviving entity which is
FEBTC. Pursuant to the said Article and Plan of Merger, all the assets and liabilities of FEBTC were
transferred to and absorbed by BPI as the surviving corporation. FEBTC employees, including those in its
different branches across the country, were hired by petitioner as its own employees, with their status and
tenure recognized and salaries and benefits maintained.
ISSUE
Whether or not employees are ipso jure absorbed in a merger of the two corporations.
RULING
NO. Human beings are never embraced in the term “assets and liabilities.”Moreover, BPI’s absorption of
former FEBTC employees was neither by operation of law nor by legal consequence of contract. There
was no government regulation or law that compelled the merger of the two banks or the absorption of the
employees of the dissolved corporation by the surviving corporation. Had there been such law or
regulation, the absorption of employees of the non-surviving entities of the merger would have been
mandatory on the surviving corporation. In the present case, the merger was voluntarily entered into by
both banks presumably for some mutually acceptable consideration. In fact, the Corporation Code does
not also mandate the absorption of the employees of the non-surviving corporation by the surviving
corporation in the case of a merger.
The 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. Even if it is so, it does not follow that the absorbed employees should not be subject to the terms
and conditions of employment obtaining in the surviving corporation.
Furthermore, the Court believes that it is contrary to public policy to declare the former FEBTC employees
as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the
Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to property
rights and obligations of FEBTC and do not include the employment contracts of its personnel. A
corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if BPI as
an employer had the right to choose who to retain among FEBTC’s employees, FEBTC employees had
the concomitant right to choose not to be absorbed by BPI. Even though FEBTC employees had no
choice or control over the merger of their employer with BPI, they had a choice whether or not they would
allow themselves to be absorbed by BPI. Certainly nothing prevented the FEBTC’s employees from
207
resigning or retiring and seeking employment elsewhere instead of going along with the proposed
absorption.
Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee
without the consent of the employee is in violation of an individual’s freedom to contract. It would have
been a different matter if there was an express provision in the articles of merger that as a condition for
the merger, BPI was being required to assume all the employment contracts of all existing FEBTC
employees with the conformity of the employees. In the absence of such a provision in the articles of
merger, then BPI clearly had the business management decision as to whether or not employ FEBTC’s
employees. FEBTC employees likewise retained the prerogative to allow themselves to be absorbed or
not; otherwise, that would be tantamount to involuntary servitude.
[Note: The decision as to absorption of employees upon merger is reversed in the Resolution of
MR dated October 19, 2011]
The Court held that a qualification of its August 10, 2010 ruling is in order only with respect to the
interpretation of the provisions of the Articles of Merger and its implications on the former FEBTC
employees’ security of tenure.
It is more in keeping with the dictates of social justice and the State policy of according full protection to
labor to deem employment contracts as automatically assumed by the surviving corporation in a merger,
even in the absence of an express stipulation in the articles of merger or the merger plan.
In a complete merger situation where there is total takeover by one corporation over another and there is
silence in the merger agreement on what the fate of the human resource complement shall be, the latter
should not be left in legal limbo and should be properly provided for, by compelling the surviving entity to
absorb these employees. This is what Section 80 of the Corporation Code commands, as the surviving
corporation has the legal obligation to assume all the obligations and liabilities of the merged constituent
corporation.
In a merger and consolidation situation, they cannot be treated without consideration of the applicable
constitutional declarations and directives, or, worse, be simply disregarded. There is a need for the
surviving corporation to take responsibility for the affected employees and to absorb them into its
workforce where no appropriate provision for the merged corporation’s human resources component is
made in the Merger Plan.
By upholding the automatic assumption of the non-surviving corporation’s existing employment contracts
by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security of
tenure of employees affected by a merger and avoids confusion regarding the status of their various
benefits. However, nothing in this Resolution shall impair the right of an employer to terminate the
employment of the absorbed employees for a lawful or authorized cause or the right of such an employee
to resign, retire or otherwise sever his employment, whether before or after the merger, subject to existing
contractual obligations.
WHEREFORE, the Motion for Reconsideration is DENIED. The Decision dated August 10, 2010 is
AFFIRMED, subject to the qualifications that:
(a) Petitioner is deemed to have assumed the employment contracts of the Far East Bank and Trust
Company (FEBTC) employees upon effectivity of the merger without break in the continuity of their
employment, even without express stipulation in the Articles of Merger
208
RAMOS, FORRAH MAE G. TOPIC: MERGER AND CONSOLIDATTION
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION,
Petitioner,
- versus -
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy
Sheriff of Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro
City,
Respondent.
G.R. No. 178618

NACHURA, J.:
FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the SEC primarily engaged in the business of
granting loans and receiving deposits from the general public, and treated as banks. Sometime in 1985,
FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation.The articles of merger
were not registered with the SEC due to incomplete documentation. On August 12, 1985, DSLAI changed
its corporate name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation, but the
amendment was approved by the SEC only on April 3, 1987. Meanwhile, on May 26, 1986, the Board of
Directors of FISLAI passed and approved Board Resolution No. 86-002, assigning its assets in favor of
DSLAI which in turn assumed the formers liabilities. The business of MSLAI, however, failed. Hence, the
Monetary Board of the Central Bank of the Philippines ordered its closure and placed it under
receivership per Monetary Board Resolution No. 922 dated August 31, 1990. The Monetary Board found
that MSLAIs financial condition was one of insolvency, and for it to continue in business would involve
probable loss to its depositors and creditors. On May 24, 1991, the Monetary Board ordered the
liquidation of MSLAI, with PDIC as its liquidator. It appears that prior to the closure of MSLAI, Uy filed with
the RTC, an action for collection of sum of money against FISLAI. On October 19, 1989, the RTC issued
a summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay the former
the sum of P136,801.70, plus interest until full payment, 25% as attorneys fees, and the costs of suit. On
April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de
Oro City, and the notice of sale was subsequently published. During the public auction on May 17, 1993,
Willkom was the highest bidder. A certificate of sale was issued and eventually registered with the
209
Register of Deeds of Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas
issued the sheriffs definite deed of sale. New certificates of title covering the subject properties were
issued in favor of Willkom. On September 20, 1994, Willkom sold one of the subject parcels of land to Go.
On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, a complaint for Annulment of
Sheriffs Sale, Cancellation of Title and Reconveyance of Properties against respondents.MSLAI alleged
that the sale on execution of the subject properties was conducted without notice to it and PDIC; that
PDIC only came to know about the sale for the first time in February 1995 while discharging its mandate
of liquidating MSLAIs assets; that the execution of the RTC was illegal and contrary to law and
jurisprudence, not only because PDIC was not notified of the execution sale, but also because the assets
of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia
legis and should be exempt from any order of garnishment, levy, attachment, or execution.
ISSUE:
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective
HELD: NO
Ordinarily, in the merger of two or more existing corporations, one of the corporations survives and
continues the combined business, while the rest are dissolved and all their rights, properties, and
liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed or
merged corporations, there is no winding up of their affairs or liquidation of their assets because the
surviving corporation automatically acquires all their rights, privileges, and powers, as well as their
liabilities.
The merger, however, does not become effective upon the mere agreement of the constituent
corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well
as in the rights of stockholders and creditors, there must be an express provision of law authorizing them.
The steps necessary to accomplish a merger or consolidation are provided in the Corporation Code :
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include
any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of
consolidation, all the statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be
called and at least two (2) weeks notice must be sent to all stockholders or members, personally or by
registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the members
or of stockholders representing two-thirds of the outstanding capital stock will be needed. Appraisal rights,
when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger or consolidation, by the
corporate officers of each constituent corporation. These take the place of the articles of incorporation of
the consolidated corporation, or amend the articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.
210
Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC,
subject to its prior determination that the merger is not inconsistent with the Corporation Code or existing
laws. Where a party to the merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate government agency should first
be obtained.
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered
with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required
certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines
recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still
incomplete without the certification.
The issuance of the certificate of merger is crucial because not only does it bear out SECs approval but it
also marks the moment when the consequences of a merger take place. By operation of law, upon the
effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as well as
liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated March
21, 2007 and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337 are AFFIRMED
Tweety T. Tuazon Topic: Merger and Consolidation

G.R. No. 190144 August 1, 2012
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
CARLITO LEE, Respondent.
PERLAS-BERNABE, J.:
Facts:
· On April 26, 1988, respondent Carlito 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 P5.8 million.
· On May 4, 1988, the RTC issued a writ of preliminary attachment whereby the Check-O-Matic
Savings Accounts of Trendline with Citytrust Banking Corporation, Ayala Branch, in the total amount of
P700, 962.10 were garnished.
· On October 4, 1996, Citytrust and BPI merged, with the latter as the surviving corporation.
· When the writ was implemented, BPI Manager Samuel Mendoza, Jr. denied having possession,
control and custody of any deposits or properties belonging to defendants.
· Lee filed a Motion for Execution and/or Enforcement of Garnishment before the RTC seeking to
enforce against BPI the garnishment of Trendline’s deposit and other deposits it may have had with
Citytrust.
· The RTC denied the motion.
· On appeal, the CA held that BPI have become a party in-interest upon the approval by the
Securities and Exchange Commission (SEC) of the parties’ Articles of Merger.
Issue: W/N BPI is accountable for Citytrust’s liabilities.
Held: Yes.
By virtue of its merger with BPI on October 4, 1996, BPI, as the surviving corporation, effectively became
the garnishee, thus the "virtual party" to the civil case.
In sum, although Citytrust was dissolved, no winding up of its affairs or liquidation of its assets, privileges,
powers and liabilities took place. As the surviving corporation, BPI simply continued the combined
businesses of the two banks and absorbed all the rights, privileges, assets, liabilities and obligations of
Citytrust, including the latter’s obligation over the garnished deposits of the defendants.
211
Moreover, BPI cannot avoid the obligation attached to the writ of garnishment by claiming that the fund
was not transferred to it, 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, 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."
WHEREFORE, the instant petition is DENIED and the assailed February 11, 2009 Decision and October
29, 2009 Resolution of the Court of Appeals are AFFIRMED.
Petrache, Ria Kriselle P. Topic: Merger and Consolidation
G.R. No. 192398 September 29, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PILIPINAS SHELL PETROLEUM
CORPORATION, Respondent.
VILLARAMA, JR., J.:
212
FACTS: On April 27, 1999, respondent entered into a Plan of Merger with its affiliate, Shell Philippine
Petroleum Corporation (SPPC). In the Plan of Merger, its entire assets and liabilities of SPPC will be
transferred to, and absorbed by, respondent as the surviving entity. The Securities and Exchange
Commission approved the merger.
Respondent paid documentary stamp taxes on the original issuance of shares of stock of respondent
issued in exchange for the surrendered SPPC shares pursuant to Section 175 of the NIRC.
Confirming the tax-free nature of the merger between respondent and SPPC, the BIR ruled that no gain
or loss shall be recognized, if, in pursuance to a plan of merger or consolidation, a shareholder
exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of
another corporation which is also a party to the merger or consolidation.
The BIR, however, also stated in said Ruling that the issuance by PSPC of its own shares of stock to the
shareholders of SPPC in exchange for the surrendered certificates of stock of SPPC shall be subject to
the documentary stamp tax (DST) at the rate of Two Pesos (P2.00) on each Two Hundred Pesos
(P200.00), or fractional part thereof, based on the total par value of the PSPC shares of stock issued
(Sec. 175 of the Tax Code) AND the exchange of land and improvements by SPPC to PSPC for the
latter’s shares of stock shall be subject to documentary stamp tax (under Section 196 of the Tax Code).
Respondent paid to the BIR the amount of P22,101,407.64 representing documentary stamp tax on the
transfer of real property from SPPC to respondent. And believing that it erroneously paid documentary
stamp tax on its absorption of real property owned by SPPC, respondent filed a formal claim for refund or
tax credit of the documentary stamp tax.
Petitioner maintains that the tax-deferred exchange of properties of a corporation, which is a party to a
merger or consolidation, solely for shares of stock in a corporation, which is also a party to the merger or
consolidation, is subject to the documentary stamp tax under Section 176 if the properties to be
transferred are shares of stock or even certificates of obligations, and also to the documentary stamp tax
under Sec.196, if the properties to be transferred are real properties.
The CTA granted the respondent’s prayer for tax refund.

The CA affirmed
ISSUE: Is the transfer of real properties of sppc to respondent in exchange for the latter’s shares of stock
subject to the Documentary Stamp Tax imposed under section 196 of the tax code?
HELD: NO.
The pertinent provision states, to wit:
SEC. 196. Stamp Tax on Deeds of Sale and Conveyance of Real Property. – On all conveyances, deeds,
instruments, or writings, other than grants, patents, or original certificates of adjudication issued by the
Government, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or
otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by
such purchaser or purchasers, there shall be collected a documentary stamp tax,at the rates herein below
prescribed based on the consideration contracted to be paid for such realty or on its fair market value
determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one
of the contracting parties is the Government, the tax herein imposed shall be based on the actual
consideration
213
Pertinently, a merger of two corporations produces the following effects, among others:
Sec. 80. Effects of merger or consolidation. – x x x
xxxx
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including subscriptions to shares and other
choses in action, and all and every other interest of, or belonging to, or due to each constituent
corporations, shall be taken and deemed to be transferred to and vested in such surviving or consolidated
corporation without further act or deed;…
\
In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could not
be considered as "purchaser" of realty since the real properties subject of the merger were merely
absorbed by the surviving corporation by operation of law and these properties are deemed automatically
transferred to and vestedin the surviving corporation without further act or deed. Therefore, the transfer of
real properties to the surviving corporation in pursuance of a merger is not subject to documentary stamp
tax.
Section 9 of the law which amends Section 199 of the NIRC states:
SECTION 9. Section 199 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
Section 199. Documents and Papers Not Subject to Stamp Tax. – The provisions of Section 173 to the
contrary notwithstanding, the following instruments, documents and papers shall be exempt from the
documentary stamp tax:
xxxx
(m) Transfer of property pursuant to Section 40 (C)(2) of the National Internal Revenue Code of 1997, as
amended. (Emphasis supplied.)
The enactment of the said law now removes any doubt and had made clear that the transfer of real
properties as a consequence of merger or consolidation is not subject to documentary stamp tax.
WHEREFORE, we DENY the petition for lack of merit. The Decision dated September 10, 2009 and
Resolution dated April 13, 2010 of the Court of Appeals in CA-G.R. SP No. 77117 are hereby
AFFIRMED.
ABLANG, KARPOV B. MERGERS
214
G.R. No. 175188, July 15, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LA TONDEÑA DISTILLERS, INC. (LTDI
[NOW GINEBRA SAN MIGUEL], Respondent.
Facts:
· On September 17, 2001, respondent La Tondena Distillers, Inc. entered into a Plan of Merger with
Sugarland Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation
(MBWC). As a result of the merger, the assets and liabilities of the absorbed corporations were
transferred to respondent, the surviving corporation. Respondent later changed its corporate name to
Ginebra San Miguel, Inc. (GSMI)
· On September 26, 2001, respondent requested for a confirmation of the tax-free nature of the said
merger from the Bureau of Internal Revenue (BIR).
· On November 5, 2001, the BIR issued a ruling stating that pursuant to Section 40(C)(2) and (6)(b)
of the 1997 National Internal Revenue Code (NIRC), no gain or loss shall be recognized by the absorbed
corporations as transferors of all assets and liabilities. However, the transfer of assets, such as real
properties, shall be subject to DST imposed under Section 196 of the NIRC.
· On October 14, 2003, claiming that it is exempt from paying DST, respondent filed with petitioner
Commissioner of Internal Revenue (CIR) an administrative claim for tax refund or tax credit in the amount
of P14,140,980.00, representing the DST it allegedly erroneously paid on the occasion of the merger.
Issue: Whether the CTA En Banc erred in ruling that respondent is exempt from payment of DST.
Held:
The Petition must fail. In a merger, the real properties are not deemed "sold" to the surviving
corporation and the latter could not be considered as "purchaser" of realty since the real properties
subject of the merger were merely absorbed by the surviving corporation by operation of law and these
properties are deemed automatically transferred to and vested in the surviving corporation without further
act or deed. Therefore, the transfer of real properties to the surviving corporation in pursuance of a
merger is not subject to documentary stamp tax. As stated at the outset, documentary stamp tax is
imposed only on all conveyances, deeds, instruments or writing where realty sold shall be conveyed to a
purchaser or purchasers. The transfer of SPPC's real property to respondent was neither a sale nor was it
a conveyance of real property for a consideration contracted to be paid as contemplated under Section
196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and respondent is not liable for
documentary stamp tax.
Following the doctrine of stare decisis, which dictates that when a court has reached a conclusion in one
case, it should be applied to those that follow if the facts are substantially the same, even though the
parties may be different, we find that respondent is not liable for DST as the transfer of real properties
from the absorbed corporations to respondent was pursuant to a merger. And having complied with the
provisions of Sections 204(C) and 229 of the NIRC, we agree with the CTA that respondent is entitled to
a refund of the DST it erroneously paid on various dates between October 31, 2001 to November 15,
2001 in the total amount of P14,140,980.00.
All told, we find no error on the part of the CTA in granting respondent's claim for tax refund or tax credit
in the amount of P14,140,980.00, representing its erroneously paid DST for the taxable year 2001.
In closing, we must stress that taxes must not be imposed beyond what the law expressly and clearly
declares as tax laws must be construed strictly against the State and liberally in favor of the
taxpayer.45chanrobleslaw
WHEREFORE, the Petition is hereby DENIED. The assailed September 26, 2006 Decision and the
October 31, 2006 Resolution of the Court of Tax Appeals in C.T.A. EB No. 178 are hereby AFFIRMED.
SO ORDERED.
215
Anna Carmela G. Virtucio Topic: Non-Stock Corporations
G.R.No. 160273 January 18, 2008

CEBU COUNTRY CLUB,INC, ET AL, PETITIONER
vs.
RICARDO F. ELIZAGAQUE, RESPONDENT.
SANDOVAL-GUTIERREZ, J:
Facts:
· Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and
non-stock private membership club, having its principal place of business in Banilad, Cebu City.
· Petitioners herein are members of its Board of Directors.
· Respondent filed with CCCI an application for proprietary membership. The application was
indorsed by CCCI’s two (2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo. As the
price of a proprietary share was around the P5 million range, Benito Unchuan, then president of CCCI,
offered to sell respondent a share for only P3.5 million. Respondent, however, purchased the share of a
certain Dr. Butalid for only P3 million.
· During the meetings of the CCCI Board of Directors, action on respondent’s application for
proprietary membership was deferred.
· In another Board meeting, respondent’s application was voted upon. As shown by the records, the
Board adopted a secret balloting known as the “black ball system” of voting wherein each member will
drop a ball in the ballot box. A white ball represents admission of an applicant, while a black ball means
disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous vote of the directors is
required. When respondent’s application for proprietary membership was voted upon during the Board
meeting, the ballot box contained one (1) black ball. Thus, for lack of unanimity, his application was
disapproved.
· Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration which CCCI
never responded.
· Respondent then filed with the RTC a complaint for damages against petitioners
Issue: Whether in disapproving respondent’s application for proprietary membership with CCCI,
petitioners are liable to respondent for damages, and if so, whether their liability is joint and several.
Held: YES. CCCI is a non stock corporation and membership therein as well as the right of participation
in its assets shall be limited to qualified persons who are duly accredited owners of Proprietary Ownership
Certificates issued by the corporation in accordance with its By-Laws. This is specifically provided for in
216
the Articles of Incorporation of CCCI. Section 3(c) which provided for the procedure for the admission of
new members was amended; “After the expiration of the aforesaid 30 days, the Board may, by
unanimous vote of all directors present at a regular or special meeting, approve the inclusion of the
candidate in the “Eligible for Membership List”. It bears stressing that this amendment to Section 3(c) of
CCCI’s Amended By-Laws requiring the unanimous vote of the directors present at a special or regular
meeting was not printed on the application form respondent filled and submitted to CCCI. What was
printed thereon was the original provision of Section 3(c) which was silent on the required number of
votes needed for admission of an applicant as a proprietary member.
Such amendment, aside from being extremely significant, was introduced way back in 1978 or almost
twenty (20) years before respondent filed his application. Thus respondent was never informed and is still
wondering why his application was disproved. With this the directors, trustees or offices are liable jointly
and severally for the moral damages caused to the respondent as provided for by Sec 31 of the
Corporation Code.
Section 31 of the Corporation Code provides:
SEC. 31. Liability of directors, trustees or officers. — 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, its stockholders or members and other persons.
The challenged Decision and Resolution of the Court of Appeals are AFFIRMED with modification in the
sense that (a) the award of moral damages is reduced fromP2,000,000.00 to P50,000.00; (b) the award
of exemplary damages is reduced from P1,000,000.00 toP25,000.00; and (c) the award of attorney’s fees
and litigation expenses is reduced from P500,000.00 andP50,000.00 to P50,000.00 and P25,000.00,
respectively.
Paolo F. Cruz Non-Stock Corporation

SECOND DIVISION
G.R. No. 190112, April 22, 2015
PRIMO CO, SR., EDGARDO CRUZ, FE LANNY L. ALEGADO, JESTER B. ONGCHUAN, JOSEPH
ONGCHUAN AND LUCIANNE CHAM, Petitioners, v. THE PHILIPPINE CANINE CLUB,
INC.,Respondent.
DECISION
BRION, J.:
Facts:
The respondent, Philippine Canine Club, Inc. (PCCI), is a non-stock, non-profit organization established
in 1963 for the principal purpose of promoting the breeding of purebred dogs. The petitioners were
members of PCCI.
217
Sometime in 2008, the Asian Kennel Club Union of the Philippines, Inc. (AKCUPI) was established as a
corporate entity, 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, including the PCCI.
Believing that there was no conflict in the goals and the objectives of PCCI and AKCUPI, and that there
was no prohibition on members of PCCI whether express or implied from joining and affiliating
themselves with other kennel clubs, the petitioners registered their dogs with AKCUPI.
On May 17, 2008, PCCI amended its By-laws, allegedly without the participation of its non-voting
members, including the petitioners. Thereafter, PCCI submitted the Amended By-laws to the Securities
and Exchange Commission (SEC) for approval. On August 22, 2008, the SEC issued a Certification
approving PCCI's Amended By-laws pursuant to Section 48 of the Corporation Code of the Philippines.
Among the amendments assailed by the petitioners as onerous was the provision stating:
ARTICLE VI
SUSPENSION, EXPULSION, TERMINATION AND REINSTATEMENT OF MEMBERSHIP
SECTION 6.1 SUSPENSION AND EXPULSION FOR CAUSE
6.1.1 Any member shall be suspended or removed from the roll of membership in the manner provided in
these By-Laws and for causes and conduct prejudicial to the best interest and welfare of the corporation,
its members and/or the purebred dog sport in the Philippines, including but not limited to, a violation of
existing laws, of the Articles of Incorporation and the By-Laws of PCCI and of the rules and regulations,
policies and procedures promulgated by the Board of Directors not otherwise contrary to law or to these
By-Laws.
SECTION 6.2 PREJUDICIAL CONDUCT

xxxx
(d) Membership in or direct or indirect participation in the formation, organization, operation and
activities of an incorporated or unincorporated organization whose purposes and activities have
been determined by the Board of Directors to be prejudicial to the best interest of PCCI, its
members and the purebred dog sport. [Emphasis supplied.]
Subsequently, PCCI's Board of Directors ordered the immediate suspension of petitioners Co, Cruz,
Alegado and Jester, due to their registration of their dogs with AKCUPI. In addition, PCCI stripped off
218
Co's champion dog, Phil Hof Palawan Stalwart Ethan, of its title; and prevented Cruz from acting as a
judge in any dog shows which he regularly performed in the past.
Shortly thereafter, PCCI sent Co, Cruz and Jester identical letters dated December 15, 2008, informing
them of their expulsion from the organization due to their alleged "conduct prejudicial to the best interest"
of PCCI.
On January 7, 2008, the petitioners filed a case for Annulment of the Amended By-laws, Injunction and
Damages with application for the issuance of a Temporary Restraining Order (TRO) and/or Writ of
Preliminary Injunction before the RTC of Quezon City.
The petitioners alleged that the Amended By-laws entirely revised and modified the article on the
suspension and expulsion of members. They claim that the adoption of the questioned Amended By-
Laws, particularly Article VI on suspension, expulsion and termination of membership, without the
participation of PCCI's non-voting members, constitutes a violation of Section 6 of the
Corporation Code, and consequently rendered the amendments null and void. Since the
suspension of Co, Cruz, Alegado and Jester from PCCI, as well as the threatened imposition of the same
sanctions on Joseph and Cham are based on this provision, the petitioners prayed that the trial court
issue a TRO and, thereafter, a Writ of Preliminary Injunction enjoining PCCI from further implementing the
Amended By-laws.
The RTC granted the petitioners' prayer for the issuance of a TRO. Thereafter, it issued a Writ of
Preliminary Injunction. The RTC found that although the petitioners are non-voting members of PCCI,
they are still entitled to vote on the amendments of the by-laws under Section 6 of the Corporation Code.
Since the May 17, 2008 Amended By-laws was voted upon only by its voting members and without the
participation of its non-voting members, including the petitioners, the RTC held that the Amended By-laws
is questionable.
The CA granted the petition of PCCI and ruled that the issuance of the assailed writ of preliminary
injunction was tainted with grave abuse of discretion. It reversed RTC order. It found that at the time the
preliminary injunction was issued, all the petitioners had already been expelled or suspended by
PCCI, and the amended By-laws was already in full force and effect.
Relying on the Court's pronouncement in Bustamante v. Court of Appeals,6 the CA ruled that the
enforcement of PCCI's amendments to the By-laws, having already been long consummated, could no
longer be enjoined since the primary purpose of the injunctive relief is not to correct a wrong already
consummated, or to redress an injury already sustained, but to protect and preserve the status quountil
the finality of the resolution of the main issue.
219
Issue:
Whether or not the court can enjoin the enforcement of the PCCI Amended By-laws, which has already
been in effect, and the enforcement of the penalty of expulsion against the petitioners, which has already
been implemented.
Ruling:
At the outset, we note that the Court cannot rule on the issue of the validity of the Amended By-laws
to prevent a pre-judgment on the merits of the main case that is pending before the RTC. What the
court can only resolve for now in the present case is the issue on the propriety of the issuance of the writ
of preliminary injunction against the implementation of the Amended By-laws considering that these
were approved by the SEC and enforced prior to the filing of the case.
Not all of the petitioners were expelled or suspended at the time the RTC issued the writ of preliminary
injunction. It is clear from the complaint in Civil Case No. Q-09-207,12 as well as from the Order granting
the writ of preliminary injunction,13that Joseph and Cham were only threatened with the imposition of
sanctions, and were neither suspended nor expelled. Thus, it appears that the trial court can still enjoin
the enforcement of the Amended By-laws with respect to Joseph and Cham, as to whom the sanctions
were not yet implemented.
However, as regards the suspended and expelled members namely, Co, Cruz, Alegado and Jester, the
trial court can no longer enjoin the enforcement of the Amended By-laws as the latter has already been
consummated. This conclusion, however, is without prejudice to the Court's final action on the merits of
the case.
It is a well-established rule that consummated acts can no longer be restrained by injunction. When the
acts sought to be prevented by injunction or prohibition have already been performed or completed prior
to the filing of the injunction suit, nothing more can be enjoined or restrained; 15 a writ of injunction then
becomes moot and academic, and the court, by mere issuance of the writ, can no longer stop or undo the
act. To do so would violate the sole purpose of a prohibitive injunction, that is, to preserve the status quo.
In the present case, the act sought to be restrained by the petitioners has already been partly
accomplished. The actual suspension and expulsion of Co, Cruz, Alegado and Jester from PCCI
rendered their prayer for injunctive relief moot. Evidently, it is no longer possible to grant the relief they
were seeking - that is, to stop PCCI from implementing their suspension and expulsion - as the same has
already been consummated. The status quo can no longer be restored.
220
Furthermore, Dayrit v. Delos Santos, the case cited by the petitioners is not squarely applicable to the
present case. The factual circumstances in that case are clearly distinguishable from those in the present
case.
In Dayrit, the party praying for an injunction alleged not only acts that were already committed or
consummated, but also those acts that the defendant could still continue to execute unless restrained.
Moreover, the acts sought to be restrained in that case (i.e., making excavations, opening a ditch, and
construction of a dam) are capable of being continued or repeated. In other words, the defendant's
questioned acts, even if partly or initially executed, are capable of continuation, as these acts consist of
several stages that are not consummated by a mere single act.
In the present case, the suspension and expulsion of petitioners Co, Cruz, Alegado and Jester are
finished completed acts and which can only be restored depending on the final outcome of the case on
the merits. This is different from the acts enjoined in Dayrit which consisted of the making of excavations,
opening a ditch, and construction of a dam, which were all continuing.
Hence, we cannot apply the ruling that "not only the commission or execution of such acts, but also their
continuation can be prevented or prohibited by an injunction.'' Thus, we hold that the trial court's
issuance of the writ of preliminary injunction, insofar as petitioners Co, Cruz, Alegado and Jester, is
improper, as the same may no longer be availed of.
WHEREFORE, premises considered, we hereby PARTLY GRANT the petition for review on
certiorari.The relief of preliminary injunction is GRANTED with respect to petitioners Joseph Ongchuan
and Lucianne Cham. With respect to petitioners Primo Co, Sr., Edgardo Cruz, Fe Lanny L. Alegado, and
Jester B. Ongchuan, the relief is DENIED.
Honey Fame L. Federico Topic: Non-Stock Organization (Sec. 91

Termination of Membership)
THE ORCHARD GOLF & COUNTRY CLUB, INC., EXEQUIEL D. ROBLES, CARLO R.H. MAGNO,
CONRADO L. BENITEZ II, VICENTE R. SANTOS, HENRY CUA LOPING, MARIZA SANTOS-TAN,
TOMAS B. CLEMENTE III, AND FRANCIS C. MONTALLANA, Petitioners,
v.
ERNESTO V. YU AND MANUEL C. YUHICO, Respondents.
221
PERALTA, J.:
FACTS:
Yu and Yuhico were set to play golf at the Orchard Golf and Country Club with one more member
of the club. Unfortunately, this other member cancelled at the last minute. Because of the Club’s policy,
which prohibited “twosomes” from teeing off on weekends and public holidays before 1pm, petitioners
requested management to look for another player to join them. When a third player could not be found,
petitioners requested that they be allowed to play. The Club refused, but they played anyway, in violation
of the Club’s rules. As a result, an incident report was filed with the Club’s Board of Directors. The Board
resolved to suspend both members for 3 months.
Petitioners filed complaints with the Securities Investigation and Clearing Department of the
Securities and Exchange Commission, at that time the tribunal vested by law with jurisdiction to hear and
decide intra-corporate controversies. The SICD-SEC issued a TRO effective for 20 days, restraining the
Club from implementing the suspension. 2 days before the TRO would lapse, however, the SEC issued
guidelines wherein parties would be allowed to file their cases before August 8, 2000 but any provisional
remedies the SEC granted them were to be effective only until that date. On August 7, 2000, the SIDC-
SEC issued a writ of preliminary injunction enjoining respondents from implementing the suspensions.
RTC – Ruled in favor of Respondents, ordered Orchard Golf Club to pay damages.
CA – Affirm
ISSUE:
WON the suspension was valid?
RULING:
Respondents were suspended in accordance with the procedure set forth in the Club's By-laws. There is
no merit on their insistence that their suspension is invalid on the ground that the affirmative vote of eight
(8) members is required to support a decision suspending or expelling a Club member. Both the
provisions of Articles of Incorporation and By-Laws of the Club expressly limit the number of directors to
seven (7); hence, the provision on suspension and expulsion of a member which requires the affirmative
vote of eight (8) members is obviously a result of an oversight. Former Senator Helena Z. Benitez, the
Honorary Chairperson named in the Membership Handbook, could not be included as a regular Board
member since there was no evidence adduced by respondents that she was elected as such pursuant to
the Corporation Code and the By-laws of the Club or that she had the right and authority to attend and
vote in Board meetings. In addition, at the time the Board resolved to suspend respondents, the
affirmative votes of only six (6) Board members already sufficed. The testimony of Jesus A. Liganor, who
served as Assistant Corporate Secretary, that Rodrigo Francisco had not attended a single Board
meeting since 1997 remains uncontroverted. The Court agrees with petitioners that the Club should not
be powerless to discipline its members and be helpless against acts inimical to its interest just because
one director had been suspended and refused to take part in the management affairs.
Lastly, contrary to respondents' position, the recommendation of the House Committee to suspend a Club
member is not a pre-requisite. Section 1, Article XIV, not Section 2 (b), Article XI, of the By-Laws governs
as it outlines the procedure for the suspension of a member. Even assuming that the recommendation of
the House Committee is mandatory, respondents failed to prove, as a matter of fact, that petitioners acted
in bad faith in relying on the subject provision, which employs the permissive word "may" in reference to
the power of the House Committee to recommend anytime the suspension of a Club member.
222
WHEREFORE, premises considered, the petition is GRANTED. The Resolutions dated September 16,
2009 and January 21, 2010 of the Court of Appeals in CA-G.R. SP No. 106918, which reconsidered and
set aside its Resolution dated January 15, 2009, granting petitioners a fifteen-day period within which to
file a petition for review under Rule 43 of the Rules, is ANNULLED AND SET ASIDE. SEC Case Nos.
001-01 and 002-01 filed and raffled before the Regional Trial Court, Branch 21 of Imus, Cavite are hereby
DISMISSED for lack of merit. Respondents are ORDERED TO RETURN to petitioners the total amount of
P9,200,000.00 or P4,600,000.00 each, within THIRTY (30) DAYS from the time this decision becomes
final and executory. Thereafter, said amount shall earn legal interest of six percent (6%) per annum until
fully paid. SO ORDERED.
Valera, Lendy J.
Topic: Term of Members of Educational Corporation
PETRONILO J. BARAYUGA,petitioner
223
vs. ADVENTIST UNIVERSITY
OF THE PHILIPPINES, THROUGH ITS BOARD
OF TRUSTEES, REPRESENTED BY ITS
CHAIRMAN, NESTOR D. DAYSON,respondents
G.R. No. 168008, August 17, 2011
BERSAMIN, J:
Facts:
AUP, a non-stock and non-profit domestic educational institution incorporated under Philippine laws on
March 3, 1932, was directly under the North Philippine Union Mission (NPUM) of the Southern Asia
Pacific Division of the Seventh Day Adventists. During the 3 rd Quinquennial Session of the General
Conference of Seventh Day Adventists held from November 27, 2000 to December 1, 2000, the NPUM
Executive Committee elected the members of the Board of Trustees of AUP, including the Chairman and
the Secretary. Respondent Nestor D. Dayson was elected Chairman while the petitioner was chosen
Secretary.
On January 23, 2001, almost two months following the conclusion of the 3rd Quinquennial Session, the
Board of Trustees appointed the petitioner President of AUP. During his tenure, or from November 11 to
November 13, 2002, a group from the NPUM conducted an external performance audit. The audit
revealed the petitioners autocratic management style, like making major decisions without the approval or
recommendation of the proper committees, including the Finance Committee; and that he had himself
done the canvassing and purchasing of materials and made withdrawals and reimbursements for
expenses without valid supporting receipts and without the approval of the Finance Committee. The audit
concluded that he had committed serious violations of fundamental rules and procedure in the
disbursement and use of funds.
On January 15, 2003, Chairman Dayson and the NPUM Treasurer likewise informed the petitioner inside
the NPUM office on the findings of the auditors in the presence of the AUP Vice-President for Financial
Affairs, and reminded him of the possible consequences should he fail to satisfactorily explain the
irregularities cited in the report.
The members, by secret ballot, voted to remove him as President because of his serious violations of
fundamental rules and procedures in the disbursement and use of funds as revealed by the special audit;
to appoint an interim committee consisting of three members to assume the powers and functions of the
President; and to recommend him to the NPUM for consideration as Associate Director for Secondary
Education.
Issue:
Whether or not the removal of the President was proper.
Held:
224
Yes.
In light of foregoing, the members of the Board of Trustees were to serve a term of office of only two
years; and the officers, who included the President, were to be elected from among the members of the
Board of Trustees during their organizational meeting, which was held during the election of the Board of
Trustees every two years. Naturally, the officers, including the President, were to exercise the powers
vested by Section 2 of the amended By-Laws for a term of only two years, not five years.
Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for
only two years, or until January 22, 2003. By the time of his removal for cause as President on January
27, 2003, he was already occupying the office in a hold-over capacity, and could be removed at any time,
without cause, upon the election or appointment of his successor. His insistence on holding on to the
office was untenable, therefore, and with more reason when one considers that his removal was due to
the loss of confidence on the part of the Board of Trustees.
WHEREFORE, we DENY the petition for review on certiorari for lack of merit, and hereby DISMISS SEC
Case No. 028-03 entitled Dr. Petronilo Barayuga v. Nelson D. Dayson, et al.
225
MOHAMMAD ALI BANTAO
TOPIC: RELIGIOUS CORPORATION
G.R. No. 184088 July 6, 2010
EN LAS ISLAS FILIPINAS (IEMELIF) IGLESIA EVANGELICA METODISTA (Corporation Sole), INC.,
REV. NESTOR PINEDA, REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR., DANILO SAUR,
RICHARD PONTI, ALFREDO MATABANG and all the other members of the IEMELIF
TONDO CONGREGATION of the IEMELIF CORPORATION SOLE, Petitioners,
- versus –
BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL MADUCDOC,

FERDINAND MERCADO, ARCADIO CABILDO, DOMINGO GONZALES, ARTURO
LAPUZ, ADORABLE MANGALINDAN, DANIEL VICTORIA and DAKILA CRUZ, and LAY LEADER
LINGKOD MADUCDOC and CESAR DOMINGO, acting individually and as members of
the Supreme Consistory of Elders and those claiming under the Promulgated: Corporation
Aggregate, Respondents.
ABAD, J:
Facts:
The present dispute resolves the issue of whether or not a corporation may change its character
as a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation
without first going through the process of dissolution.
Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate
powers theoretically lodged in the hands of one member, the General Superintendent), it had always
acted like a corporation aggregate. The Consistory exercised IEMELIF’s decision-making powers without
ever being challenged. Subsequently, during its 1973 General Conference, the general membership
voted to put things right by changing IEMELIF’s organizational structure from a corporation sole to a
corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved the
vote. For some reasons, however, the corporate papers of the IEMELIF remained unaltered as a
corporation sole.
Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the
IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to
the conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried out
and documented. The SEC said that the IEMELIF needed to amend its articles of incorporation for that
purpose.
Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate.
Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations to
take up the matter with their respective members for resolution. Subsequently, the general membership
approved the conversion, prompting the IEMELIF to file amended articles of incorporation with the SEC.
Bishop Lazaro filed an affidavit-certification in support of the conversion.
Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of
Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with
Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIF’s name against
226
respondent members of its Consistory before the Regional Trial Court (RTC) of Manila.3 Petitioners claim
that a complete shift from IEMELIF’s status as a corporation sole to a corporation aggregate required, not
just an amendment of the IEMELIF’s articles of incorporation, but a complete dissolution of the existing
corporation sole followed by a re-incorporation.
Issue:
Whether or not the 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.
Ruling:
For non-stock corporations, the power to amend its articles of incorporation lies in its members.
The code requires two-thirds of their votes for the approval of such an amendment. 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, rights, 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, its articles of incorporation cannot be amended solely through the action of its board of
trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such
approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of
the corporation technically belongs, needs to get the concurrence of two-thirds of its membership. The
one member, here the General Superintendent, is but a trustee, according to Section 110 of the
Corporation Code, of its membership.
There is no point to dissolving the corporation sole of one member to enable the corporation
aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate
being remains distinct from its members, whatever be their number. The increase in the number of its
corporate membership does not change the complexion of its corporate responsibility to third parties. The
one member, with the concurrence of two-thirds of the membership of the organization for whom he acts
as trustee, can self-will the amendment. He can, with membership concurrence, increase the technical
number of the members of the corporation from "sole" or one to the greater number authorized by its
amended articles.
The amendment of the articles of incorporation, as correctly put by the CA, requires merely that
a) the amendment is not contrary to any provision or requirement under the Corporation Code, and that b)
it is for a legitimate purpose. Section 17 of the Corporation Code10 provides that amendment shall be
disapproved if, among others, the prescribed form of the articles of incorporation or amendment to it is not
observed, or if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral,
or contrary to government rules and regulations, or if the required percentage of ownership is not
complied with. These impediments do not appear in the case of IEMELIF.
Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation
upon the initiative and advice of the SEC. The latter’s interpretation and application of the Corporation
Code is entitled to respect and recognition, barring any divergence from applicable laws. Considering its
experience and specialized capabilities in the area of corporation law, the SEC’s prior action on the
IEMELIF issue should be accorded great weight.
227
WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and August
1, 2008 resolution of the Court of Appeals in CA-G.R. SP 92640.
SO ORDERED.
228
Carla Angela D. Villadolid Topic: Dissolution and Liquidation (Secs. 117 to 122, Corp. Code)
G.R. No. 170770, January 09, 2013
VITALIANO N. AGUIRRE II AND FIDEL N. AGUIRRE, Petitioners, v. FQB+7, INC., NATHANIEL D.

BOCOBO, PRISCILA BOCOBO AND ANTONIO DE VILLA, Respondents
DEL CASTILLO, J.
FACTS:
On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc.
(FQB+7), a Complaint4Ï‚rÎ½l1 for intra-corporate dispute, injunction, inspection of corporate books and
records, and damages, against respondents Nathaniel D. Bocobo (Nathaniel), Priscila D. Bocobo
(Priscila), and Antonio De Villa (Antonio). Aguirre discovered substantive discrepancies in the General
Informatin Sheet (GIS) of FQB+7 Inc., such as Nathaniel Bocobo and Priscilla Bocobo replaced their
father Francisco Bocobo as directors and subscribers.
The substantive changes found in the GIS, respecting the composition of directors and
subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of Directors (the directors reflected
in the Articles of Incorporation), represented by Fidel N. Aguirre (Fidel). In this letter 11Ï‚rÎ½l1 dated April
29, 2004, Vitaliano questioned the validity and truthfulness of the alleged stockholders meeting held on
September 3, 2002. He asked the "real" Board to rectify what he perceived as erroneous entries in the
GIS, and to allow him to inspect the corporate books and records. The "real" Board allegedly ignored
Vitaliano's request.
Characterizing Nathaniel's, Priscila's, and Antonio's continuous representation of the corporation
as a usurpation of the management powers and prerogatives of the "real" Board of Directors, the
Complaint asked for an injunction against them and for the nullification of all their previous actions as
purported directors, including the GIS they had filed with the SEC. The Complaint also sought damages
for the plaintiffs and a declaration of Vitaliano's right to inspect the corporate records.c
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, stockholders, and others in interest. It does not allow the dissolved corporation to
continue its business. That being the state of the law, the CA determined that Vitaliano's Complaint, being
geared towards the continuation of FQB+7, Inc.'s business, should be dismissed because the corporation
has lost its juridical personality. Moreover, the CA held that the trial court does not have jurisdiction to
entertain an intra-corporate dispute when the corporation is already dissolved.
ISSUE:
Is the Complaint a continuation of the business?
HELD:
No.
Petitioners concede that a dissolved corporation can no longer continue its business. They argue,
however, that Section 122 allows a dissolved corporation to wind up its affairs within 3 years from its
dissolution. Petitioners then maintain that the Complaint, which seeks only a declaration that respondents
are strangers to the corporation and have no right to sit in the board or act as officers thereof, and a
return of Vitaliano's stockholdings, intends only to resolve remaining corporate issues. The resolution of
these issues is allegedly part of corporate winding up.
Does the Complaint seek a continuation of business or is it a settlement of corporate affairs? The
answer lies in the prayers of the Complaint.
The Court fails to find in the prayers above any intention to continue the corporate business of FQB+7.
The Complaint does not seek to enter into contracts, issue new stocks, acquire properties, execute
business transactions, etc. Its aim is not to continue the corporate business, but to determine and
229
vindicate an alleged stockholder's right to the return of his stockholdings and to participate in the election
of directors, and a corporation's right to remove usurpers and strangers from its affairs. The Court fails to
see how the resolution of these issues can be said to continue the business of FQB+7.
Neither are these issues mooted by the dissolution of the corporation. A corporation's board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation to
continue its existence for a limited purpose, necessarily there must be a board that will continue acting for
and on behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes the dissolved
corporation's board of directors to conduct its liquidation within three years from its dissolution.
Jurisprudence has even recognized the board's authority to act as trustee for persons in interest beyond
the said three-year period. Thus, the determination of which group is the bona fide or rightful board of the
dissolved corporation will still provide practical relief to the parties involved.
The dissolution of the corporation simply prohibits it from continuing its business. However,
despite such dissolution, the parties involved in the litigation are still corporate actors. The dissolution
does not automatically convert the parties into total strangers or change their intra-corporate
relationships. Neither does it change or terminate existing causes of action, which arose because of the
corporate ties between the parties. Thus, a cause of action involving an intra-corporate controversy
remains and must be filed as an intra-corporate dispute despite the subsequent dissolution of the
Corporation.
WHEREFORE, premises considered, the Petition for Review on Certiorari is PARTIALLY GRANTED.
The assailed June 29, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 87293, as well as its
December 16, 2005 Resolution, are ANNULLED with respect to their dismissal of SEC Case No. 04-
111077 on the ground of lack of jurisdiction. The said case is ordered REINSTATED before Branch 24 of
the Regional Trial Court of Manila. The rest of the assailed issuances are AFFIRMED.
230
MARIA LEONILA VILLEGAS RELIGIOUS CORPORATIONS
G.R. No. 171905, June 20, 2012

UNITED CHURCH OF CHRIST IN THE PHILIPPINES, INC., Petitioner,
vs
BRADFORD UNITED CHURCH OF CHRIST, INC., PATRIZIO EZRA, GERONIMO V. NAZARETH,
RUPERTO MAYUGA, SR., ROBERT SCHAARE, HENRY CARIAT, REYNALDO FERRENAL AND JOHN
DOES, Respondents.
PEREZ, J.:
FACTS:
Petitioner UCCP is a religious corporation duly organized and existing under the Philippine laws.
Respondent BUCCI is also a religious corporation with a separate personality from UCCP.
UCCP has three (3) governing bodies namely: the General Assembly, the Conference and the Local
Church. As a UCCP local church located in Cebu, BUCCI belonged to the Cebu Conference Inc. (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.
UCCP General Assembly attempted to settle the dispute a decision was rendered in favor of CCI. BUCCI
disaffiliated from UCCP and amended its Articles of Incorporation and By-laws, which provided for and
effected its disaffiliation from UCCP.
Thereafter, UCCP filed before SEC a complaint/protest for rejection/annulment of Amended Articles and
Incorporation and Injunction. UCCP later on filed an Amended Complaint/Protest dated 8 March 1994,
abandoning the original Complaint/Protest, alleging that the separate incorporation and registration of
BUCCI is not allowed under the UCCP Constitution and By-laws; and sought to enjoin BUCCI and the
respondents from using the name BUCCI, both in its Amended Articles of Incorporation and its dealings
with the public, and from using its properties.
The SEC en banc dismissed UCCPs petition.
ISSUE: W/N courts may take cognizance of the case

HELD: YES
RATIO:
In any event, the Court believes that the matter at hand is not purely an ecclesiastical affair.
An ecclesiastical affair is one that concerns doctrine, creed or form of worship of the church, or the
adoption and enforcement within a religious association of needful laws and regulations for the
government of the membership, and the power of excluding from such associations those deemed
unworthy of membership. Based on this definition, an ecclesiastical affair involves the relationship
between the church and its members and relate to matters of faith, religious doctrines, worship and
governance of the congregation. To be concrete, examples of this so-called ecclesiastical affairs to which
the State cannot meddle are proceedings for excommunication, ordinations of religious ministers,
administration of sacraments and other activities attached with religious significance.
231
UCCP and BUCCI, being corporate entities and grantees of primary franchises, are subject to the
jurisdiction of the SEC. Section 3 of PD No. 902-A provides that SEC shall have absolute jurisdiction,
supervision and control over all corporations. Even with their religious nature, SEC may exercise
jurisdiction over them in matters that are legal and corporate.
UCCPs control and authority over its local churches is not full and supreme; membership of the local
churches in the UCCP is voluntary and not perpetual; local churches enjoy independence and autonomy
and may maintain or continue church-life with or without UCCP.Thus, under the law and UCCP polity,
BUCCI may validly bring about its disaffiliation from UCCP through the amendment of its Articles of
Incorporation and By-laws. SEC approved the amendments on 2 July 1993, which approval has in its
favor the presumption of regularity.
232
Saddam Hussein S. Balt Topic: Dissolution and Liquidation
G.R. No. 187456 June 2, 2014
ALABANG DEVELOPMENT CORPORATION, Petitioner

v.
ALABANG HILLS VILLAGE ASSOCIATION and RAFAEL TINIO, Respondents
PERALTA, J.:
FACTS:
Alabang Development Corporation,developer of Alabang Hills Village filed a complaint for Injunction and
Damages against Alabang Hills Village Association Inc., and its president, Rafael for allegedly starting the
construction of a multi-purpose hall and a swimming pool on one of the parcels of land still owned by
ADC, without the latter’s consent and approval, and despite demand, failed to desist from constructing
thereof.
In its answer with counter-claim, AHVAI denied ADC’s allegations and made the following claims:
a. ADC has no legal capacity to sue because its corporate existence was already dissolved by the
Securities and Exchange Corporation on May 26, 2003.
b. ADC has no cause of action as it was merely holding the property in trust for AHVAI as beneficial
owner thereof.
c. The lot is part of the open space required by law to be provided in the subdivision.
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 by law and HLURB has exclusive jurisdiction
over the dispute between ADC and AHVAI.
ADC filed a Notice of Appeal to elevate the case to the CA, which also denied its appeal, holding that it
had no capacity to sue as it was already defunct.
ISSUE:
Whether or not the Court of Appeals erred in ruling that ADC had no capacity to sue.
233
RULING:
As provided for by Section 122 of the Corporation Code, at any time during said three (3) years, said
corporation is authorized and empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the property terminates, the legal interest vests in the
trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are
located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its debts
and liabilities.
It is to be noted that the time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the
period of dissolution commences; but there is no time limit within which the trustees must complete a
liquidation placed in their hands. The conveyance to the trustees must be made within the three-year
period. It may be found impossible to complete the work of liquidation within the three-year period or to
reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation
abate when it ceased to be an entity capable of suing or being sued; but trustees to whom the corporate
assets have been conveyed may sue and be sued as such in all matters connected with the liquidation.
In the absence of a board of directors or trustees, those having any pecuniary interest in the assets,
including not only the shareholders but likewise the creditors of the corporation, acting for and in its
behalf, might make proper representations with the Securities and Exchange Commission, which has
primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the
corporate concerns.
In the instant case, there is no dispute that petitioner’s corporate registration was revoked on May 26,
2003. Based on the above-quoted provision of law, it had three years, or until May 26, 2006, to prosecute
or defend any suit by or against it. The subject complaint, however, was filed only on October 19, 2006,
more than three years after such revocation.
It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its
directors or trustees. In fact, it is even averred, albeit wrongly, in the first paragraph of the Complaint that
234
“[p]laintiff is a duly organized and existing corporation under the laws of the Philippines, with capacity to
sue and be sued. x x x”
The Court agrees with the CA that in the abovecited cases, the corporations involved filed their respective
complaints while they were still in existence. In other words, they already had pending actions at the time
that their corporate existence was terminated.
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, even if such judgment is rendered beyond the three-year period allowed
by Section 122 of the Corporation Code. However, 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. On the contrary,
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 fact, as stated above, the actions
were already pending at the time that they lost their corporate existence.
In the present case, petitioner filed its complaint not only after its corporate existence was terminated but
also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that
at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a corporation. To
allow petitioner to initiate the subject complaint and pursue it until final judgment, on the ground that such
complaint was filed for the sole purpose of liquidating its assets, would be to circumvent the provisions of
Section 122 of the Corporation Code.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals in CA-G.R.
CV No. 88864, sustaining the Decision of the Regional Trial Court of Muntinlupa City, Branch 276, in Civil
Case No. 06-138, is AFFIRMED.
JOHN PAUL G MAANDAL TOPIC: (113) DISSOLUTION AND LIQIDATION

Sec. 117 to 122
G.R. No. 200094 June 10, 2013
BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO CALLESA, LINDA C. CALLO, NILO B.

CAMARA, ADELIA T. CAMARA, ADOLFO G. PINON, JOHN A. FERNANDEZ, FEDERICO A. CALLO,
MAXIMA P. ARELLANO, JULITO B. COST ALES, SAMSON F. BACHAR, EDWIN P. DAMO, RENA TO
E. FERNANDEZ, GENARO F.CALLO, JIMMY C. ALETA, and EUGENIO SALINAS, Petitioners,
Vs.
235
PHILIPPINE COLLEGE OF CRIMINOLOGY INC. and/or GREGORY ALAN F. BAUTISTA,
Respondents.
FACTS: Petitioners in this case are working as Janitors and Janitresses under MBMSI, engaged in
providing janitorial services in PCCR, a non-stock educational institution.
Sometime in 2008, PCCR discovered that the Certificate of Incorporation of MBMSI had been revoked as
of July 2, 2003. On March 16, 2009, PCCr, through its President, respondent Gregory Alan F. Bautista
(Bautista), citing the revocation, terminated the school’s relationship with MBMSI, resulting in the
dismissal of the employees or maintenance personnel under MBMSI, except Alfonso Bongot (Bongot)
who was retired.
Petitioners then filed a case for illegal dismissal alleging that it was the school, not MBMSI, which was
their real employer because (a) MBMSI’s certification had been revoked; (b) PCCR had direct control over
MBMSI’s operations; (c) there was no contract between MBMSI and PCCR and (d) the selection and
hiring of employees were undertaken by PCCR.
On September 11, 2009, PCCR submitted several documents before LA Ronaldo Hernandez, including
releases, waivers and quitclaims in favor of MBMSI executed by the complainants to prove that they were
employees of MBMSI and not PCCR. The said documents appeared to have been notarized by one Atty.
Ramil Gabao.
Both NLRC and the Court of Appeals gave weight to the existence of the Release waiver and quitclaim
signed by the petitioners in favour of MBMSI presented by PCCR on the basis that Petitioners did not
question the due execution of such Waiver and quitclaims. Thus, PCCR was absolved from liability.
Interestingly, Petitioners further argue that MBMSI had no legal personality to incur civil liabilities as it did
not exist as a corporation on account of the fact that its Certificate of Incorporation had been revoked on
July 2, 2003. Petitioners ask this Court to exempt MBMSI from its liabilities because it is no longer
existing as a corporation.
ISSUE: whether or not a dissolved corporation can enter into an agreement such as releases, waivers
and quitclaims beyond the 3-year winding up period under Section 122 of the Corporation Code.
HELD: The executed releases, waivers and quitclaims are valid and binding notwithstanding the
revocation of MBMSI’s Certificate of Incorporation. The revocation does not result in the termination of its
liabilities. Section 122 of the Corporation Code provides for a three-year winding up period for a
corporation whose charter is annulled by forfeiture or otherwise to continue as a body corporate for the
purpose, among others, of settling and closing its affairs.
Even if said documents were executed in 2009, six (6) years after MBMSI’s dissolution in 2003, the same
are still valid and binding upon the parties and the dissolution will not terminate the liabilities incurred by
the dissolved corporation pursuant to Sections 122 and 14528 of the Corporation Code. In the case of
Premiere Development Bank v. Flores,29 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 Court wrote:
As early as 1939, this Court held that, although the time during which the corporation, through its own
officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three
years from the time the period of dissolution commences, there is no time limit within which the trustees
must complete a liquidation placed in their hands. What is provided in Section 122 of the Corporation
Code is that the conveyance to the trustees must be made within the three-year period. But it may be
found impossible to complete the work of liquidation within the three-year period or to reduce disputed
236
claims to judgment. The trustees to whom the corporate assets have been conveyed pursuant to the
authority of Section 122 may sue and be sued as such in all matters connected with the liquidation.
Furthermore, Section 145 of the Corporation Code clearly provides that "no right or remedy in favor of or
against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability
incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent dissolution of said corporation." Even if no trustee is
appointed or designated during the three-year period of the liquidation of the corporation, the Court has
held that the board of directors may be permitted to complete the corporate liquidation by continuing as
"trustees" by legal implication.
SO ORDERED.
Fernandez, Napolyn P. Topic: Foreign Corporations
237
G.R. No. 185582 February 29, 2012
TUNA PROCESSING, INC., Petitioner

vs
PHILIPPINE KINGFORD, INC., Respondent
PEREZ, J.:
Facts:
· On 14 January 2003, Kanemitsu Yamaoka (the licensor), co-patentee of U.S. Patent No. 5,484,619,
Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the
Yamaoka Patent), and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia
Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (the
sponsors/licensees) entered into a Memorandum of Agreement (MOA), pertinent provisions of which
read:
Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No.
31138, and Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes
of enforcing his three aforementioned patents, granting licenses under those patents, and collecting
royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes
claimed in those patents in the United States, the Philippines, and Indonesia, enforce those patents and
collect royalties in conjunction with Licensor.
xxx
Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna
Processors, Inc. (TPI), a corporation established in the State of California, in order to implement the
objectives of this Agreement.
Bank account. TPI shall open and maintain bank accounts in the United States, which will be used
exclusively to deposit funds that it will collect and to disburse cash it will be obligated to spend in
connection with the implementation of this Agreement.
Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one
share of TPI for the purpose of being elected as member of the board of directors. The remaining shares
of TPI shall be held by the Sponsors according to their respective equity shares. [9]
xxx
· Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their obligations.
· Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution
in the State of California, United States and won the case against respondent.
· To enforce the award, petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement
of Foreign Arbitral Award
· Respondent Kingford filed a Motion to Dismiss which was granted on the ground that the petitioner
lacked legal capacity to sue in the Philippines thus the petition.
Issue: Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
238
Held: Yes, foreign corporation can sue to enforce a foreign arbitral award.
The Corporation Code is the general law providing for the formation, organization and regulation of
private corporations. Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its
title - An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and
to Establish the Office for Alternative Dispute Resolution, and for Other Purposes, is a law especially
enacted to actively promote party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes. It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral award. As
between a general and special law, the latter shall prevailgeneralia specialibus non derogant.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an
application for recognition and enforcement of the arbitral award may raise only those grounds that were
enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it
is invoked, only if that party furnishes to the competent authority where the recognition and enforcement
is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission
to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration,
provided that, if the decisions on matters submitted to arbitration can be separated from those not so
submitted, that part of the award which contains decisions on matters submitted to arbitration may be
recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement, was not in accordance with the law of the country
where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a
competent authority of the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the
country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that
country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
Not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition
and enforcement of the award. Clearly, on the matter of capacity to sue, a foreign arbitral award should
be respected not because it is favored over domestic laws and procedures, but because Republic Act No.
9285 has certainly erased any conflict of law question. All considered, petitioner TPI, although a foreign
corporation not licensed to do business in the Philippines, is not, for that reason alone, precluded from
filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a
Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati
City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case is
REMANDED to Branch 61 for further proceedings.
239
Alexis B. Dulay Foreign Corporations
Case No. 115
G.R. No. 170290 April 11, 2012

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,
vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A., Respondents.
FACTS:
· Philippine Deposit Insurance Corporation (PDIC), a government instrumentality created by virtue of
Republic Act No. 3591, conducted an examination of the books of account of Citibank.
· Citibank is a banking corporation while respondent Bank of America is a national banking association,
both of which is duly organized and existing under the laws of the USA and duly licensed to do business
in the Philippines.
· PDIC discovered that Citibank received from its head office and other foreign branches a total of
P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing.
· These funds, lodged in the books of Citibank under the account “Their Account-Head
Office/Branches-Foreign Currency,” were not reported to PDIC as deposit liabilities that were subject to
assessment for insurance.
· PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.
· 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 P629,311,869.10 in dollars, 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.” BA also excluded these from its deposit
liabilities.
· PDIC wrote seeking the remittance of P109,264.83 representing deficiency premium assessments.
· 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.
· RTC favored respondent, contending that there was no depositor-depository relationship between the
respondents and their head office or other branches. As a result, such deposits were not included as
third-party deposits that must be insured. Rather, they were considered inter-branch deposits which were
excluded from the assessment base, in accordance with the practice of the United States Federal Deposit
Insurance Corporation(FDIC) after which PDIC was patterned.
· CA affirmed the decision of the RTC.
240
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, as such, are subject to assessment
for insurance premiums
RULING: No, 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. Such subsidiary would have its own separate and independent
legal personality to conduct business in the country. In the alternative, it may create a branch in the
Philippines, which would not be a legally independent unit, and simply obtain a license to do business in
the Philippines.
· In the case of Citibank and BA, they both did not incorporate a separate domestic corporation to
represent its business interests in the Philippines. Their Philippine branches are merely branches without
a separate legal personality from their parent company. Being the same entity, 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.
· In the leading case of Sokoloff vs.The National City Bank of New York, the Supreme Court of New
York held: Where a bank maintains branches, each branch becomes a separate business entity with
separate books of account. When considered with relation to the parent bank they are not independent
agencies; they are, what their name imports, merely branches, and are subject to the supervision and
control of the parent bank
· In United States v. BCCI Holdings Luxembourg, the US CA, emphasized that “while individual bank
branches may be treated as independent of one another, each branch, unless separately incorporated,
must be viewed as a part of the parent bank rather than as an independent entity.” Philippine banking
laws also state that the head office of a foreign bank and its branches are considered as one legal entity.
Section 75 of The General Banking Law and Section 5 of R.A. No. 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. Suppose the
Philippine branch of Citibank suddenly closes for some reason, Citibank N.A. would then be required to
answer for the deposit liabilities of Citibank Philippines. 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, it would result to the
incongruous situation where Citibank, as the head office, would be placed in the ridiculous position of
having to reimburse itself, as depositor, 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
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of Appeals in
CA-G.R. CV No. 61316 is AFFIRMED.
241
Bernabe, Jayson B. Foreign Corporations
G.R. No. 173463 October 13, 2010
GLOBAL BUSINESS HOLDINGS, INC. (formerly Global Business Bank, Inc.), Petitioner,
vs.
SURECOMP SOFTWARE, B.V., Respondent.
Facts:
Surecomp Software is a foreign corp organized under the laws of the Netherlands. In 1999, it entered into
a software license agreement to let Asian Bank Corp (ABC) use Surecomp’s IMEX Software System for
20 yrs. Pursuant to the agreement, Surecomp installed the system and ABC also undertook to pay
professional services and annual maintenance fees for 5 yrs, and committed to purchase some products
at discounted prices. ABC also requested Surecomp to purchase a certain software with a promise to
reimburse. However, Global failed to reimburse despite Surecomp’s delivery of the product. Sometime in
2000, ABC merged with Global Business. When Global took over operations, 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.
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 demanded payment of actual damages and
an additional amount for Global’s unilateral pretermination of the agreement, and damages.
Instead of filing an answer, Global filed an MTD based on two grounds:
1. That Surecomp had no capacity to sue because it was doing business in the Philippines without a
license; and
2. That the claim on which the action was founded was unenforceable under the Intellectual
Property Code of the Philippines. Being a technology transfer arrangement, Surecomp failed to comply
with Sec 87 & 88 of the Intellectual Property Code of the Philippines.
RTC ruled that: On Ground 1: Global is estopped from denying Surecomp’s capacity to sue. Global’s
argument that it was not the one who actually contracted with Surecomp is of no moment. It does not
relieve Global of its contractual obligation. On Gorund 2: This will require a hearing before the MTD can
be resolved. Surecomp moved for an outright denial of the MTD. RTC denied MTD. 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, willingly, it cannot now be made to
raise the issue of capacity to sue (Merrill Lynch Futures, Inc. v. CA).
As to unenforceability of the contract, it is an executed, rather than an executor contract. The statute of
frauds finds no application here. Global filed a petition for certiorari with prayer for the issuance of a TRO
242
and/or writ of preliminary injunction under Rule 65 before the CA, saying that the RTC abused its
discretion and acted in excess of its jurisdiction. CA denied the petition. MR denied.
Issue:
Whether Global is estopped from questioning Surecomps capacity to sue.
Held:
YES. The determination of a corporations capacity is a factual question that requires the elicitation of a
preponderant set of facts. As a rule, unlicensed foreign non-resident corporations doing business in the
Philippines cannot file suits in the Philippines. This is mandated under Section 133 of the Corporation
Code. A corporation has a legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines. In
order to subject a foreign corporation doing business in the country to the jurisdiction of our courts, it must
acquire a license from the Securities and Exchange Commission and appoint an agent for service of
process. Without such license, it cannot institute a suit in the Philippines.
The exception to this rule is the doctrine of estoppel. Global is estopped from challenging Surecomps
capacity to sue.A foreign corporation doing business in the Philippines without license may sue in
Philippine courts a Filipino citizen or a Philippine entity that had contracted with and benefited from it. A
party is estopped from challenging the personality of a corporation after having acknowledged the same
by entering into a contract with it. The principle is applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract.
Due to Globals merger with ABC and because it is the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the merger of two existing corporations, one of the
corporations survives and continues the business, while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the surviving corporation.This is particularly true in this case.
Based on the findings of fact of the RTC, as affirmed by the CA, under the terms of the merger or
consolidation, Global assumed all the liabilities and obligations of ABC as if it had incurred such liabilities
or obligations itself. In the same way, Global also has the right to exercise all defenses, rights, privileges,
and counter-claims of every kind and nature which ABC may have or invoke under the law. These
findings of fact were never contested by Global in any of its pleadings filed before the Court.

Topic : Foreign Corporations
G.R. No. 147905 May 28, 2007
B. VAN ZUIDEN BROS., LTD., Petitioner,
vs.
GTVL MANUFACTURING INDUSTRIES, INC., Respondent.
CARPIO, J.:
Facts:
· This is a petition for review of the 18 April 2001 Decision of the Court of Appeals in CA-G.R. CV
No. 66236. The Court of Appeals affirmed the Order of the Regional Trial Court, Branch 258, Parañaque
City (trial court) dismissing the complaint for sum of money filed by B. Van Zuiden Bros., Ltd. (petitioner)
against GTVL Manufacturing Industries, Inc. (respondent).
· On 13 July 1999, petitioner filed a complaint for sum of money against respondent, docketed as
Civil Case No. 99-0249. The pertinent portions of the complaint read:
243
1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x ZUIDEN is not
engaged in business in the Philippines, but is suing before the Philippine Courts, for the reasons
hereinafter stated.
xxxx
3. ZUIDEN is engaged in the importation and exportation of several products, including lace products.
4. On several occasions, GTVL purchased lace products from [ZUIDEN].
5. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers the
products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd. (KENZAR), x x
x and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by
GTVL.
KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever
instructions GTVL had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the transaction is
concluded; and GTVL became obligated to pay the agreed purchase price.
xxxx
7. However, commencing October 31, 1994 up to the present, GTVL has failed and refused to pay the
agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, as above-mentioned.
xxxx
9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of liability, GTVL
has failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02
[inclusive of interest]
· Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner has
no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without
securing the required license. Accordingly, petitioner cannot sue before Philippine courts.
· After an exchange of several pleading between the parties, the trial court issued an Order on 10
November 1999 dismissing the complaint.
· On appeal, the Court of Appeals sustained the trial court’s dismissal of the complaint.
Hence, this petition.
Issue:
Whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.
The resolution of this issue depends on whether petitioner is doing business in the Philippines.
Ruling:
An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts.
On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue
before Philippine courts. Under Section 3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign
Investments Act of 1991," the phrase "doing business" includes: x x x soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country for a period or periods
totalling one hundred eighty (180) days or more; participating in the management, supervision or control
of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as
a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account. The series of transactions between petitioner
and respondent cannot be classified as "doing business" in the Philippines under Section 3(d) of RA
7042. An essential condition to be considered as "doing business" in the Philippines is the actual
244
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. Here, there is no
showing that petitioner performed within the Philippine territory the specific acts of doing business
mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines,
appoint a representative or distributor, or manage, supervise or control a local business. While petitioner
and respondent entered into a series of transactions implying a continuity of commercial dealings, the
perfection and consummation of these transactions were done outside the Philippines. An exporter in one
country may export its products to many foreign importing countries without performing in the importing
countries specific commercial acts that would constitute doing business in the importing countries. The
mere act of exporting from one’s own country, without doing any specific commercial act within the
territory of the importing country, cannot be deemed as doing business in the importing country. The
importing country does not acquire jurisdiction over the foreign exporter who has not performed any
specific commercial act within the territory of the importing country. Without jurisdiction over the foreign
exporter, the importing country cannot compel the foreign exporter to secure a license to do business in
the importing country. To be doing or "transacting business in the Philippines" for purposes of Section 133
of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is,
perform specific business transactions within the Philippine territory on a continuing basis in its own name
and for its own account. Actual transaction of business within the Philippine territory is an essential
requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign
corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of
business in the Philippines, even if it exports its products to the Philippines, the Philippines has no
jurisdiction to require such foreign corporation to secure a Philippine business license.
WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April 2001 of the Court of
Appeals in CA-G.R. CV No. 66236. No costs.
SO ORDERED.
Alexis B. Dulay Foreign Corporations; Sec. 132-136
Case No. 120
G.R. No. 154618 April 14, 2004

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner,
vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG, TEOH
KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and
ROLANDO T. NACILLA, respondents.
FACTS:
245
Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do business in
the Philippines. Respondent Integrated Silicon is a private domestic corporation, 100% foreign owned,
which is engaged in the business of manufacturing and assembling electronics components.
The juridical relation among the various parties in this case can be traced to a 5-year Value Added
Assembly Services Agreement (VAASA), between Integrated Silicon and HP-Singapore. Under the terms
of the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-
Singapore. HP-Singapore, for its part, was to consign raw materials to Integrated Silicon. The VAASA had
a five-year term with a provision for annual renewal by mutual written consent. Later, with the consent of
Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to Agilent.
Later, Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent and its
officers. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. Agilent filed a
separate complaint against Integrated Silicon for “Specific Performance, Recovery of Possession, and
Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages.”
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal capacity to sue; litis
pendentia; forum shopping; and failure to state a cause of action.
ISSUE: W/N an unlicensed foreign corporation not doing business in the Philippines lacks the legal
capacity to file suit.
HELD: YES.
A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine
courts. A license is necessary only if a foreign corporation is “transacting” or “doing business” in the
country. The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation “doing business” in the
Philippines from accessing our courts.
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, it cannot sue before the
Philippine courts;
if a foreign corporation is not doing business in the Philippines, 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;
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.
246
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;
(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 profit-making.
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.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil Case No. 3123-
2001-C,
is REVERSED and SET ASIDE. The Order dated September 4, 2001 issued by the Regional Trial
Court of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is REINSTATED. Agilent’s
application for a Writ of Replevin is GRANTED.
247
Antonio S. Pagsibigan Jr. Topic: Foreign Corporations
Provision: Sections 123 to 136, Corporation Code
G.R. No. 171995 April 18, 2012
STEELCASE, INC., Petitioner,

vs.
DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.
MENDOZA, J.:
Facts:
Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan, USA and is
engaged in the manufacture of office furniture with dealers worldwide. Design International Selections,
Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business,
including the distribution of furniture. Steelcase and DISI orally entered into a dealership agreement
whereby Steelcase granted DISI the right to market, sell, distribute, install and service its products to end-
user customers within the Philippines. The business relationship continued smoothly until it was
248
terminated after the agreement was breached in 1999. Steelcase filed a complaint for sum of money
against DISI alleging that DISI had an unpaid account of $600,000. It also prayed that DISI be ordered to
pay actual or compensatory damages, exemplary damages, attorney’s fees and costs of suit. Meanwhile,
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.
The RTC dismissed Steelcase’s complaint. 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, it was barred from seeking redress from Philippine courts
until it obtained the requisite license to do so. The CA affirmed the ruling of the RTC. Steelcase contends
that DISI is an independent distributor of Steelcase products and not an agent or conduit of Steelcase.
Moreover, DISI is acting as Steelcase’s appointed local distributor, and is transacting business in its own
name and for its own account.
Issue:
Whether or not Steelcase had been “doing business” in the Philippines without a license
Ruling:
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, service contracts,
opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors
domiciled in the Philippines… totaling 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.”
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.”
On such account, 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. Steelcase, therefore, 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.
WHEREFORE, the March 31, 2005 Decision of the Court of Appeals and its March 23, 2006 Resolution
are hereby REVERSED and SET ASIDE. The dismissal order of the Regional Trial Court dated
November 15, 1999 is hereby set aside. Steelcase’s Amended Complaint is hereby ordered
REINSTATED and the case is REMANDED to the RTC for appropriate action.
SO ORDERED.
249
Michel Andre P. Del Rosario Foreign Corporations
G.R. No. 168266 March 15, 2010
Cargill, Inc. vs. Intra Strata Assurance Corp.
Carpio, J.
FACTS:
Cargill (foreign) is a corporation organized and existing under the laws of the State of Delaware.
Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic), whereby NMC agreed
to sell to petitioner 20,000 to 24,000 metric tons of molasses to be delivered from Jan 1 to 30 1990 for
$44 per metric ton.
The contract provided that CARGILL was to open a Letter of Credit with the BPI. NMC was permitted to
draw up 500,000 representing the minimum price of the contract.
The contract was amended 3 times (in relation to the amount and the price).But the third amendment
required NMC to put up a performance bond which was intended to guarantee NMC’s performance to
deliver the molasses during the prescribed shipment periods
In compliance, INTRA STRATA issued a performance bond to guarantee NMC's delivery.
NMC was only able to deliver 219551 metric tons out of the agreed 10,500.Thus CARGILL sent demand
letters to INTRA claiming payment under the performance and surety bonds. When INTRA failed to pay,
CARGILL filed a complaint.
CARGILL NMC and INTRA entered into a compromise agreement approved by the court, such provided
that NMC would pay CARGILL 3 million upon signing and would deliver to CARGILL 6,991 metric tons of
molasses. But NMC still failed to comply.
RTC ruled in favor of CARGILL.
According to the CA – CARGILL does not have the capacity to file suit since it was a foreign corporation
doing business in the PH without the requisite license. The Purchase of molasses were in pursuance of
its basic business and not just mere isolated and incidental transactions.
ISSUE:
Whether or not petitioner is doing or transacting business in the Philippines in contemplation of the law
and established jurisprudence/ Whether or not CARGILL,an unlicensed foreign corporation, has legal
capacity to sue before Philippine courts.
HELD:
Yes.
RATIO:
250
“The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has legal
capacity to sue before Philippine courts. Under Article 123[13] of the Corporation Code, a foreign
corporation must first obtain a license and a certificate from the appropriate government agency before it
can transact business in the Philippines. Where a foreign corporation does business in the Philippines
without the proper license, it cannot maintain any action or proceeding before Philippine courts as
provided under Section 133 of the Corporation Code:
Sec. 133. Doing business without a license. No foreign corporation transacting business
in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
Thus, the threshold question in this case is whether petitioner was doing business in the Philippines. The
Corporation Code provides no definition for the phrase doing business. Nevertheless, Section 1 of
Republic Act No. 5455 (RA 5455),[14] provides that:
x x x the phrase doing business shall include soliciting orders, purchases, service contracts,
opening offices, whether called liaison offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay in the
Philippines for a period or periods totalling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization. (Emphasis supplied)
This is also the exact definition provided under Article 44 of the Omnibus Investments Code of 1987.
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991, which
repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated not only the
acts or activities which constitute doing business but also those activities which are not deemed doing
business. Section 3(d) of RA 7042 states:
[T]he phrase doing business shall include soliciting orders, service contracts, opening
offices, whether called liaison offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such investor; nor having
a nominee director or officer to represent its interests in such corporation; nor appointing
a representative or distributor domiciled in the Philippines which transacts business in its
own name and for its own account.
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an
action in Philippine courts, respondent bears the burden of proving that petitioners business activities in
the Philippines were not just casual or occasional, but so systematic and regular as to manifest continuity
and permanence of activity to constitute doing business in the Philippines. In this case, we find that
251
respondent failed to prove that petitioners activities in the Philippines constitute doing business as would
prevent it from bringing an action.
The determination of whether a foreign corporation is doing business in the Philippines must be based on
the facts of each case.[15] In the case of Antam Consolidated, Inc. v. CA,[16] in which a foreign
corporation filed an action for collection of sum of money against petitioners therein for damages and loss
sustained for the latters failure to deliver coconut crude oil, the Court emphasized the importance of the
element of continuity of commercial activities to constitute doing business in the Philippines. The Court
held:
In the case at bar, the transactions entered into by the respondent with the petitioners are
not a series of commercial dealings which signify an intent on the part of the respondent
to do business in the Philippines but constitute an isolated one which does not fall under
the category of doing business. The records show that the only reason why the
respondent entered into the second and third transactions with the petitioners was
because it wanted to recover the loss it sustained from the failure of the petitioners to
deliver the crude coconut oil under the first transaction and in order to give the latter a
chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by the parties only in
an effort to fulfill the basic agreement and in no way indicate an intent on the part of the
respondent to engage in a continuity of transactions with petitioners which will categorize
it as a foreign corporation doing business in the Philippines.[17]
Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to NMC to
deliver to petitioner the molasses, considering that NMC already received the minimum price of the
contract. There is no showing that the transactions between petitioner and NMC signify the intent of
petitioner to establish a continuous business or extend its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that doing
business does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered

to do business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the
representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by
another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the processing of
products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing
basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines,
servicing the same, training domestic workers to operate it, and similar incidental services.
Most of these activities do not bring any direct receipts or profits to the foreign corporation, consistent
with the ruling of this Court in National Sugar Trading Corp. v. CA[18] that activities within Philippine
jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing
business in the Philippines.[19] In that case, the Court held that it would be inequitable for the National
Sugar Trading Corporation, a state-owned corporation, to evade payment of a legitimate indebtedness
owing to the foreign corporation on the plea that the latter should have obtained a license first before
perfecting a contract with the Philippine government. The Court emphasized that the foreign corporation
252
did not sell sugar and derive income from the Philippines, but merely purchased sugar from the Philippine
government and allegedly paid for it in full.
In this case, the contract between petitioner and NMC involved the purchase of molasses by petitioner
from NMC. It was NMC, the domestic corporation, which derived income from the transaction and not
petitioner. To constitute doing business, the activity undertaken in the Philippines should involve profit-
making.[20] Besides, under Section 3(d) of RA 7042, soliciting purchases has been deleted from the
enumeration of acts or activities which constitute doing business.
Other factors which support the finding that petitioner is not doing business in the Philippines are: (1)
petitioner does not have an office in the Philippines; (2) petitioner imports products from the Philippines
through its non-exclusive local broker, whose authority to act on behalf of petitioner is limited to soliciting
purchases of products from suppliers engaged in the sugar trade in the Philippines; and (3) the local
broker is an independent contractor and not an agent of petitioner.[21]
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.:[22]
An exporter in one country may export its products to many foreign importing countries
without performing in the importing countries specific commercial acts that would
constitute doing business in the importing countries. The mere act of exporting from ones
own country, without doing any specific commercial act within the territory of the importing
country, cannot be deemed as doing business in the importing country. The importing
country does not require jurisdiction over the foreign exporter who has not yet performed
any specific commercial act within the territory of the importing country. Without
jurisdiction over the foreign exporter, the importing country cannot compel the foreign
exporter to secure a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by
the importing countries to be doing business in those countries. This will require Philippine exporters to
secure a business license in every foreign country where they usually export their products, even if they
do not perform any specific commercial act within the territory of such importing countries. Such a legal
concept will have deleterious effect not only on Philippine exports, but also on global trade.
To be doing or transacting business in the Philippines for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions within the Philippine territory on
a continuing basis in its own name and for its own account. Actual transaction of business
within the Philippine territory is an essential requisite for the Philippines to to acquire
jurisdiction over a foreign corporation and thus require the foreign corporation to secure a
Philippine business license. If a foreign corporation does not transact such kind of
business in the Philippines, even if it exports its products to the Philippines, the
Philippines has no jurisdiction to require such foreign corporation to secure a Philippine
business license.[23] (Emphasis supplied)
In the present case, petitioner is a foreign company merely importing molasses from a Philipine exporter.
A foreign company that merely imports goods from a Philippine exporter, without opening an office or
appointing an agent in the Philippines, is not doing business in the Philippines.”
FALLO:
WHEREFORE , we GRANT the petition. We REVERSE the Decision dated 26 May 2005 of the Court of
Appeals in CA-G.R. CV No. 48447. We REINSTATE the Decision dated 23 November 1994 of the trial
court.
253
SO ORDERED.
Estayo, Lalaine A Penal Provisions (Section 144)
G.R. No. 195198 : February 11, 2013

LORELI LIM PO, Petitioner, v. DEPARTMENT OF JUSTICE and JASPER T. TAN, Respondents.
G.R. No. 197098

ANTONIO NG CHIU, Petitioner, v. COURT OF APPEALS, DEPARTMENT OF JUSTICE and JASPER
T. TAN, Respondents.
Facts:
A complaint against Antonio Chiu and Loreli Lim Po for violation of Section 74(2), in relation to Section
144 of the Corporation Code of the Philippines was filed by Jasper Tan, a stockholder of Coastal
Highpoint Ventures, Inc. (CHVI), a real estate development company. Antonio Ng Chiu (Chiu) is CHVI’s
President. Tan claimed that Loreli Lim Po(Po) is Chiu’s personal accountant. Po asserted otherwise and
instead alleged that she is merely a consultant for CHVI.
On October 16, 2008, Prosecutor Fernandez-Cavada issued a Resolution finding probable cause to indict
Chiu and Po based on the following grounds:
The records of all business transactions of the corporation and the minutes of any meetings shall be open
to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on
business days and he may demand, writing, for a copy of excerpts from said records or minutes, at his
expense.
and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code.
A petition for review was filed before the Department of Justice (DOJ). On March 2, 2010. Then
Undersecretary Ricardo R. Blancaflor issued a resolution reversing Prosecutor Fernandez-Cavada’s
findings. On April 30, 2010, then Acting DOJ Secretary Alberto C. Agra issued a Resolution granting
Tan’s motion for reconsideration. Secretary Agra reversed the Resolution dated March 2, 2010 and
instead affirmed Prosecutor Fernandez-Cavada’s earlier disquisition. Chiu and Po’s motions for
reconsideration were denied by Secretary Agra.
Chiu and Po each filed before the Court of Appeals (CA) a Petition for Certiorari under Rule 65 of the
Rules of Court.
254
The CA dismissed with finality Po’s petition on technical grounds. On the other hand, Chiu’s petition was
denied for lack of merit.
Issue: Whether or Not DOJ and CA erred in reversing the resolution of undersecretary and upholding the
prosecutor’s finding that there is a probable cause of violation of sec 144 of Corporation code committed
by Po and Chiu.
Ruling: The DOJ and the CA are correct in upholding that there is probable cause of violation of sec 144
of Corporation code committed by Po and Chiu
The requisites in order for the penal provision under Section 144 of the Corporation Code to apply in a
case of violation of a stockholder or members right to inspect the corporate books/records as provided for
under Section 74 of the Corporation Code, are:
First. A director, trustee, stockholder or member has made a prior demand in writing for a copy of
excerpts from the corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee,
stockholder or member of the corporation to examine and copy said excerpts
The Court has reviewed the records and the pleadings of the parties and found that the requisites
mentioned above are present. It is noted that private respondent on several occasions had expressed in
writing his request to inspect CHVIs corporate books and records but his written requests were turned
down on the pretext that the petitioner needed more time to prepare the documents requested by the
private respondent. The initial written demand was made on October 10, 2007 but it was only on April 24,
2008 that the audit team sent by the private respondent was able to inspect some of the documents of
CHVI. However, it appears that the inspection was ineffective since the Antonio Chiu and Loreli Lim Po
refused to present the other documents demanded by the inspection team. Po even prevented the team
from copying the corporate books and records.
There is also 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 stockholders 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
WHEREFORE, IN VIEW OF THE FOREGOING, the instant consolidated petitions are DENIED. The
Decision and Resolution of the Court of Appeals dated January 11, 2011 and April 8, 2011, respectively,
relative to CA- G.R. SP No. 05352, and Resolutions issued on September 15, 2010 and December 15,
2010, relative to CA-G.R. SP No. 05351, are AFFIRMED in toto.
255
RAMOS, FORRAH MAE G. TOPIC : PENAL PROVISIONS
G.R. No. 180416 June 2, 2014

vs.
CEZAR T. QUIAMBAO and ERIC C. PILAPIL, Respondents.
PEREZ, J.:
FACTS:
Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a

business development and investment company.
On 1 March 2004, during the annual stockholder's meeting of STRADEC, petitioner Aderito Z. Yujuico
was elected as president and chairman of the company.Yujuico replaced respondent Cezar T. Quiambao,
who had been the president and chairman of STRADEC since 1994.4 With Yujuico at the helm,
STRADEC appointed petitioner Bonifacio C. Sumbilla as treasurer and one Joselito John G. Blando as
corporate secretary. Blando replaced respondent Eric C. Pilapil, the previous corporate secretary of
STRADEC.
On 12 August 2005, petitioners filed a criminal complaint against respondents and one Giovanni T.
Casanova.
The complaint accuses respondents and Casanova of violating Section 74 in relation to Section 144 of
Batas Pambansa Blg. 68 or the Corporation Code.
1. During the stockholders' meeting on 1 March 2004, Yujuico-as newly elected president and chairman
of STRADEC-demanded Quiambao for the turnover of the corporate records of the company, particularly
the accounting files, ledgers, journals and other records of the corporation's business. Quiambao refused.
256
2. As it turns out, the corporate records of STRADEC were in the possession of Casanova-the accountant
of STRADEC. Casanova was keeping custody of the said records on behalf of Quiambao, who allegedly
needed the same as part of his defense in a pending case in court.
3. After the 1 March 2004 stockholders' meeting, Quiambao and Casanova caused the removal of the
corporate records of STRADEC from the company's offices in Pasig City.
4. Upon his appointment as corporate secretary on 21 June 2004, Blando likewise demanded Pilapil for
the turnover of the stock and transfer book of STRADEC. Pilapil refused.
5. Instead, on 25 June 2004, Pilapil proposed to Blando to have the stock and transfer book deposited in
a safety deposit box with Equitable PCI Bank, Kamias Road, Quezon City. Blando acceded to the
proposal and the stock and transfer book was deposited in a safety deposit box with the bank identified. It
was agreed that the safety deposit box may only be opened in the presence of both Quiambao and
Blando.
6. On 30 June 2004, however, Quiambao and Pilapil withdrew the stock and transfer book from the safety
deposit box and brought it to the offices of the Stradcom Corporation. Quiambao thereafter asked Blando
to proceed to the STRADCOM offices. Upon arriving thereat, Quiambao pressured Blando to make
certain entries in the stock and transfer books. After making such entries, Blando again demanded that he
be given possession of the stock and transfer book. Quiambao refused.
7. On 1 July 2004, Blando received an order which directed him to cancel the entries he made in the
stock and transfer book. Hence, on even date, Blando wrote letters to Quiambao and Pilapil once again
demanding for the turnover of the stock and transfer book.
8. However, upon meeting with Pilapil and Quiambao, the latter still refused to turnover the stock and
transfer book to Blando. Instead, Blando was once again constrained to agree to a proposal by Pilapil to
have the stock and transfer book deposited with the RTC. The said court, however, refused to accept
such deposit on the ground that it had no place for safekeeping.
9. Since Quiambao and Pilapil still refused to turnover the stock and transfer book, Blando again acceded
to have the book deposited in a safety deposit box, this time, with the Export and Industry Bank in San
Miguel A venue, Pasig City.
Petitioners theorize that the refusal by the respondents and Casanova to turnover STRADEC's corporate
records and stock and transfer book violates their right, as stockholders, directors and officers of the
corporation, to inspect such records and book under Section 74 of the Corporation Code. For such
violation, petitioners conclude, respondents may be held criminally liable pursuant to Section 144 of the
Corporation Code.
ISSUE:
W/N they violated section 144 of the Corporation code.
HELD:YES.
The act of refusing to allow inspection of the stock and transfer book of a corporation, when done in
violation of Section 74(4) of the Corporation Code, is punishable as an offense under Section 144 of the
same code.
Section 74 is the provision of the Corporation Code that deals with the books a corporation is required to
keep. It reads:
Section 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully preserve
at its principal office a record of all business transactions and minutes of all meetings of stockholders or
members, or of the board of directors or trustees, in which shall be set forth in detail the time and place of
holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if
special its object, those present and absent, and every act done or ordered done at the meeting. Upon
the demand of any director, trustee, stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted in the minutes; and on a similar
demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully
257
made. The protest of any director, trustee, stockholder or member on any action or proposed action must
be recorded in full on his demand.
The records of all business transactions of the corporation and the minutes of any meetings shall be open
to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on
business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his
expense.
and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code:
Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be imposed upon the directors or trustees
who voted for such refusal: and Provided, further, That it shall be a defense to any action under this
section that the person demanding to examine and copy excerpts from the corporation's records and
minutes has improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate
purpose in making his demand.
Stock corporations must also keep a book to be known as the "stock and transfer book'', in which must be
kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid
and unpaid on all stock for which subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and
to whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall
be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be
open for inspection by any director or stockholder of the corporation at reasonable hours on business
days.
No stock transfer agent or one engaged principally in the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license
from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission, which
shall be renewable annually: Provided, That a stock corporation is not precluded from performing or
making transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein provided, shall be applicable.
Section 144 of the Corporation Code, on the other hand, is the general penal provision of the Corporation
Code. It reads:
Section 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments
not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand
(P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the violation
is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not
preclude the institution of appropriate action against the director, trustee or officer of the corporation
responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal
the other causes for dissolution of a corporation provided in this 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'srecords or minutes," the same does not mean that the latter section no longer
applies to any other possible violations of the former section.
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.
258
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 7 4 of the
Corporation Code are mandatory for the corporation to respect. All such rights are just the same
underpinned by the same policy consideration of keeping public confidence in the corporate vehicle thru
an assurance of transparency in the corporation's operations.
Verily, 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. Such refusal, when
done in violation of Section 74(4) of the Corporation Code, properly falls within the purview of Section 144
of the same code and thus may be penalized as an offense.
A criminal action based on the violation of a

stockholder's right to examine or inspect the
corporate records and the stock and transfer
book of a corporation under the second and
fourth paragraphs of Section 74 of the
Corporation Code can only be maintained
against corporate officers or any other persons
acting on behalf of such corporation.
The foregoing notwithstanding, and independently of the reasons provided therefor by the RTC, we
sustain the dismissal of Criminal Case No. 89724.
Criminal Case No. 89724 accuses respondents of denying petitioners' right to examine or inspect the
corporate records and the stock and transfer book of STRADEC. It is thus a criminal action that is based
on the violation of the second and fourth paragraphs of Section 7 4 of the Corporation Code.
A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the same
section, reveal that they are provisions that obligates a corporation: they prescribe what books or records
a corporation is required to keep; where the corporation shall keep them; and what are the other
obligations of the corporation to its stockholders or members in relation to such books and
records.1âwphi1 Hence, by parity of reasoning, the second and fourth paragraphs of Section 74,
including the first paragraph of the same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth paragraphs of Section
74 can only be maintained against corporate officers or such other persons that are acting on behalf of
the corporation. Violations of the second and fourth paragraphs of Section 74 contemplates a situation
wherein a corporation, acting thru one of its officers or agents, denies the right of any of its stockholders
to inspect the records, minutes and the stock and transfer book of such corporation.
The problem with the petitioners' complaint and the evidence that they submitted during preliminary
investigation is that they do not establish that respondents were acting on behalf of STRADEC. Quite the
contrary, the scenario painted by the complaint is that the respondents are merely outgoing officers of
STRADEC who, for some reason, withheld and refused to turn-over the company records of STRADEC;
that it is the petitioners who are actually acting on behalf of STRADEC; and that STRADEC is actually
merely trying to recover custody of the withheld records.
In other words, petitioners are not actually invoking their right to inspect the records and the stock and
transfer book of STRADEC under the second and fourth paragraphs of Section 74. What they seek to
enforce is the proprietary right of STRADEC to be in possession of such records and book. Such right,
though certainly legally enforceable by other means, cannot be enforced by a criminal prosecution based
on a violation of the second and fourth paragraphs of Section 74. That is simply not the situation
contemplated by the second and fourth paragraphs of Section 74 of the Corporation Code.
For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of probable cause.
259
WHEREFORE, premises considered, the petition is hereby DENIED. The Orders dated 4 June 2007 and
5 November 2007 of the Regional Trial Court, Branch 154, of Pasig City in S.C.A. No. 3047, insofar as
said orders effectively dismissed Criminal Case No. 89724 pending before Metropolitan Trial Court,
Branch 69, of Pasig City, are hereby AFFIRMED.
Tweety T. Tuazon Topic: Securities and Exchange Commission
G.R. No. 187702, October 22, 2014

SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. THE HONORABLE COURT OF APPEALS,
OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents.
G.R. NO. 189014

ASTRA SECURITIES CORPORATION, Petitioner, v. OMICO CORPORATION, EMILIO S. TENG AND
TOMMY KIN HING TIA, Respondents.
SERENO, C.J.:
Facts:
260
· Omico Corporation is a company whose shares of stock are listed and traded in the Philippine
Stock Exchange, Inc. Astra Securities Corporation (Astra) is one of the stockholders of Omico owning
about 18% of the latter’s outstanding capital stock.
· In relation to the scheduled annual stockholder’s meeting, Astra objected to the validation of the
proxies issued in favor of Tommy Kin Hing Tia (Tia) and the inclusion of the proxies issued in favor of Tia
and/or Martin Buncio alleging violation of the Securities Regulation Code (SRC) rules on proxy
solicitation.
· Despite the objections of Astra, Omico’s Board of Inspectors declared that the proxies issued in
favor of Tia were valid.
· Astra filed a complaint against Omico before the Securities and Exchange Commission.
· SEC issued a CDO enjoining Omico from accepting and including the questioned proxies in
determining a quorum and in electing the members of the board of directors during the annual
stockholders’ meeting. However, the said meeting still proceeded.
· On appeal, the CA ruled that because controversies involving the validation of proxies are
considered election contests under the Interim Rules of Procedure Governing Intra-Corporate
Controversies, they are properly cognizable by the regular courts, not by the Securities and Exchange
Commission.
Issue: W/N the SEC has jurisdiction over controversies arising from the validation of proxies for the
election of the directors of a corporation.
Held: No. The power of the SEC to regulate proxies remains in place in instances when stockholders vote
on matters other than the election of directors. The test is whether the controversy relates to such
election. All matters affecting the manner and conduct of the election of directors are properly cognizable
by the regular courts. Otherwise, these matters may be brought before the SEC for resolution based on
the regulatory powers it exercises over corporations, partnerships and associations.
Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.
Nonetheless, it is a quorum for the election of the directors, and, as such, which requires the presence –
in person or by proxy – of the owners of the majority of the outstanding capital stock of Omico. Also, the
fact that there was no actual voting did not make the election any less so, especially since Astra had
never denied that an election of directors took place.
Calling to mind established jurisprudential principles, the Court therein ruled that quasi-judicial agencies
do not have the right to seek the review of an appellate court decision reversing any of their rulings. This
is because they are not real parties-in-interest. Thus, the Court expunged the petition filed by the SEC for
the latter’s lack of capacity to file the suit. So it must be in the instant cases.
WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack of capacity of petitioner to file the
suit.
The petition in G.R. No. 189014 is DENIED. The Court of Appeals Decision dated 18 March 2009 and
Resolution dated 9 July 2009 in CA-G.R. SP No. 106006 are AFFIRMED.
261
Petrache. Ria Kriselle P. Topic: Kinds of Security (Sec. 3.1, SRC)
G.R. No. 164197 JANUARY 25,2012

SECURITIES AND EXCHANGE COMMISSION, Petitioner, vs. PROSPERITY.COM, INC., Respondent.
ABAD, J.:
FACTS: Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing
internet service. To make a profit, PCI devised a scheme in which, for the price of US$234.00
(subsequently increased to US$294), a buyer could acquire from it an internet website of a 15-Mega Byte
(MB) capacity. At the same time, by referring to PCI his own down-line buyers, a first-time buyer could
earn commissions, interest in real estate in the Philippines and in the United States, and insurance
coverage worth P50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own
down-lines. These second tier of buyers could in turn build up their own down-lines. For each pair of
down-lines the buyer-sponsor received a US$92.00 commission.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist
order (CDO) against it. As it later on turned out, the same persons who ran the affairs of GVI directed
PCIs actual operations.
SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCIs
scheme constitutes an Investment contract and, following the Securities Regulations Code, it should have
first registered such contract or securities with the SEC.
ISSUE: Whether the PCIs scheme constitutes an investment contract that requires registration under R.A.
8799?
HELD: No. An investment contract is a contract, transaction, or scheme where a person invests his
money in a common enterprise and is led to expect profits primarily from the efforts of others.
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that,
for an investment contract to exist, the following elements, referred to as the Howey test must concur: (1)
a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. Thus to
262
sustain the SEC position in this case, PCIs scheme or contract with its buyers must have all these
elements.
Example would be the long-term commercial papers that large companies, like San Miguel Corporation
(SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these
papers or securities, he invests his money, together with others, in SMC with an expectation of profits
arising from the efforts of those who manage and operate that company. SMC has to register these
commercial papers with the SEC before offering them to investors.
Here, PCIs clients do not make such investments. They buy a product of some value to them: an Internet
website of a 15-MB capacity. They appear to be engaged in network marketing, a scheme adopted by
companies for getting people to buy their products outside the usual retail system.
The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to
down-line sellers to bring in other customers. These can hardly be regarded as profits from investment of
money under the Howey test.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated July 31, 2003 and the
resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP 62890.
SO ORDERED.
ABLANG, KARPOV B. Kinds of Securities (Sec. 3.1 SRC)

G.R. No. 195542, March 19, 2014
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent.
Perez, J.
Facts:
· Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary
perpetrator Liew, a self–styled financial guru and Chairman of the Board of Directors of Performance
Investment Products Corporation (PIPC–BVI), a foreign corporation registered in the British Virgin
Islands.
· To do business in the Philippines, PIPC–BVI incorporated herein as Philippine International
Planning Center Corporation (PIPC Corporation).
· Because the head of PIPC Corporation had gone missing and with it the monies and investment of
a significant number of investors, the SEC was flooded with complaints from 31 individuals against PIPC
Corporation, its directors, officers, employees, agents and brokers for alleged violation of certain
provisions of the SRC, including Section 28 thereof. Santos was charged in the complaints in her
capacity as investment consultant of PIPC Corporation, who supposedly induced private complainants
Lorenzo and Sy, to invest their monies in PIPC Corporation.
263
· On her defense, Santos alleged that she was merely an employee of PIPC thus should not be
personally liable.
Issue: Whether or not Santos violated Sec. 28 of SRC which punishes unregistered broker or dealer who
engage in business of buying or selling securities.
Held: YES. The Court held that Santos acted as an agent or salesman of PIPC Corporation making her
liable under Sec. 28 of SRC.
There is no question that Santos was in the employ of PIPC Corporation and/or PIPC–BVI, a corporation
which sold or offered for sale unregistered securities in the Philippines. To escape probable culpability,
Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPC–BVI and was
never an agent or salesman who actually solicited the sale of or sold unregistered securities issued by
PIPC Corporation and/or PIPC–BVI.
Solicitation is the act of seeking or asking for business or information; it is not a commitment to an
agreement. Santos, by the very nature of her function as what she now unaffectedly calls an information
provider, brought about the sale of securities made by PIPC Corporation and/or PIPC–BVI to certain
individuals, specifically private complainants Sy and Lorenzo by providing information on the investment
products of PIPC Corporation and/or PIPC–BVI with the end in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments, Santos procured the
sale of these unregistered securities to the 2 complainants by providing information on the investment
products being offered for sale by PIPC Corporation and/or PIPC–BVI and convincing them to invest
therein. Thus, Santos violated Sec. 28 of SRC. Its elements are as follows:
1. Engaging in the business of buying or selling securities in the Philippines as a broker or dealer;
2. Acting as a salesman; or
3. Acting as an associated person of any broker or dealer, unless registered as such with the SEC.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA–G.R. No. SP No.
112781 and the Resolutions of the Department of Justice dated 1 October 2009 and 23 November 2009
are ANNULLED and SET ASIDE. The Resolution of the Department of Justice dated 18 April 2008 and 2
September 2008 are REINSTATED. The Department of Justice is directed to include respondent Oudine
Santos in the Information for violation of Section 28 of the Securities and Regulation Code.
SO ORDERED.
264
Karl Anthony T Dionisio Kinds of Security
Power Homes Unlimited Corp. vs. SEC
G.R. No. 164182
Facts:
Power Homes (P) was engaged in managing real estate properties for subdivision & allied purposes and
in the purchase, exchange, and/or sale of such through network marketing. Manero & Munsayac
requested SEC (R) to investigate P’s business since he attended a seminar conducted by P where the
latter claimed to sell properties that were inexistent and without any broker’s license & desires to know if
network marketing is legitimate. P submitted to R copies of its marketing course module and letters of
accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty
Corporation after a conference held by R. R found P to be engaged in the sale or offer for sale or
distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of R.A. No. 8799
(The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act. R
then issued a CDO to P to enjoin the latter from engaging in the sale, offer or distribution of the securities.
Issue:
Whether P’s business constitutes investment contracts which should be registered with R before its sale
or offer for sale or distribution to the public.
Ruling:
Yes. The court ruled that P failed the Howey Test. It requires a transaction, contract, or scheme whereby
a person:
(1) makes an investment of money
(2) in a common enterprise
(3) with the expectation of profits
(4) to be derived solely from the efforts of others.
Any investment contract covered by the Howey Test must be registered under the Securities Act,
regardless of whether its issuer was engaged in fraudulent practices. R.A. No. 8799 defines an
Investment contract as a contract, transaction or scheme 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. In the
case at bar, P’s business involves security contracts wherein an investor enrolls in P’s program by paying
US$234. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he
receives US$92. A minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at
least two (2) each, entitles the principal investor to US$184 and the pyramid goes on.
The trainings or seminars are merely designed to enhance P’s business of teaching its investors the
know-how of its multi-level marketing business. An investor enrolls under the scheme of P to be entitled
265
to recruit other investors and to receive commissions from the investments of those directly recruited by
him. Under the scheme, the accumulated amount received by the investor comes primarily from the
efforts of his recruits.
Anna Carmela G. Virtucio Topic: Insider Trading, Short Swing Transactions and
Manipulation of Security Prices and other fraudulent acts
G.R.No. 160016 February 27,2006

ABACUS SECURITIES CORPORATION, PETITIONER
vs.
RUBEN U. AMPIL, RESPONDENT.
PANGANIBAN,CJ:
Facts:
· Abacus Corporation was engaged in business as a broker and dealer of securities of listed
companies at the Philippine Stock Exchange Center.
· On April 8, 1997, Ampil opened a cash account with petitioner for his transactions in securities and,
on April 10, started trading on that account. As a result of his trading activities, he accumulated an
outstanding obligation in favor of the corporation in the principal sum of 6,617,036.22 as of April 30, 1997.
· Respondent failed to settle his account upon the lapse of the required period and the extension
given by petitioner, prompting it to sell his securities on May 6, 1997, to offset his unsettled obligations.
· After the sale of his securities and the application of the proceeds against his account, his
remaining accountabilities to petitioner totaled 3,364,313.56. This obligation he failed to settle despite its
demands.
· TC and CA both held that the parties were in pari delicto and, hence, without recourse against each
other. The lower courts said that petitioner had violated Sections 23 and 25 of the Revised Securities Act
266
(RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules). The violation was committed when
it failed: to require respondent to pay for his stock purchases within three or four days from trading; and
to request from the appropriate authority an extension of time for the payment of his cash purchases.
The trial court noted that despite his nonpayment within the required period, petitioner did not cancel his
purchases. Neither did it require him to deposit cash payments before it executed buy and/or sell orders
subsequent to the first unsettled transaction.
Issue: Whether or not both parties are in pari delicto?

Held: Yes. The provisions governing this case are Sections 23 and 25 of the RSA[16] and Rule 25-1 of
the RSA Rules, which state as follows:
“SEC. 23. Margin Requirements. –

(b) It shall be unlawful for any member of an exchange or any broker or dealer, directly or indirectly, to
extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer –
(1) On any security other than an exempted security, in contravention of the rules and regulations which
the Commission shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially
extended in conformity with the rules and regulations of the Commission and (ii) in cases where the
extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of subparagraph (1) of this subsection.
x x x x x x x x x”
“SEC. 25. Enforcement of margin requirements and restrictions on borrowings. – To prevent indirect
violations of the margin requirements under Section 23 hereof, the broker or dealer shall require the
customer in non margin transactions to pay the price of the security purchased for his account within such
period as the Commission may prescribe, which shall in no case exceed three trading days; otherwise,
the broker shall sell the security purchased starting on the next trading day but not beyond ten trading
days following the last day for the customer to pay such purchase price, unless such sale cannot be
effected within said period for justifiable reasons. The sale shall be without prejudice to the right of the
broker or dealer to recover any deficiency from the customer. x x x.”
The law places the burden of compliance with margin requirements primarily upon the brokers and
dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out rule,”clearly
vested an obligation in petitioner. That obligation was to cancel or otherwise liquidate a customer’s order,
if payment was not received within three days from the date of purchase. Subsequent to an unpaid
order, the broker should require its customer to deposit funds in the account sufficient to cover
each purchase, prior to the execution of the transaction. These duties were imposed upon the broker to
ensure faithful compliance with the margin requirements of the law, which forbade the broker from
extending undue credit to a “cash” customer. Petitioner committed a fault only when it failed to liquidate
the transactions on April 14 and 15, 1997, or the fourth day following the stock purchases and to
complete its liquidation no later than ten days after by applying the proceeds as payment for his
outstanding obligation.
Since the buyer was not able to pay for the transactions that had taken place on April 10 and 11, the
broker was duty-bound to advance the payment to the settlement banks, without prejudice to its right to
collect. Respondent was found to be equally guilty of entering into transactions in violation of the RSA
and RSA Rules. It was respondent’s privilege to gamble or speculate, as he apparently did by
asking for extensions of time and refraining from giving orders to his broker to sell, in the hope that the
prices would rise. Both parties had acted in violation of the law and did not come to court with clean
hands as regards the transactions subsequent to the initial one made on April 10 and 11, 1997.
In this case, the pari delicto rule applied only to transactions entered into after those initial trades.
267
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby MODIFIED.
Respondent is ordered to pay petitioner the difference between the formers outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with
interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of respondents outstanding
obligation using the closing prices of the stocks at T+14 as basis -- counted from April 11, 1997 and to
issue the proper order for payment if warranted. It may hold trial and hear the parties to be able to make
this determination.
Paolo F. Cruz Insider Trading, Short Swing Transactions and Manipulation of

Security Prices and Other Fraudulent Acts
GR No. 135808 October 6, 2008
Securities and Exchange Commission, Petitioner
Vs
Interport Resources Corporation, Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio
Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr.
J. Chico-Nazario
Facts:
6 Aug 1994 – Board of Directors of IRC approved a Memorandum of Agreement (MoA) with Ganda
Holdings Berhad (GHB).
a. Under the MoA, IRC acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc.
(GEHI), which would own and operate a 102 megawatt gas turbine power-generating barge.
268
b. Also stipulated is that GEHI would assume a five-year power purchase contract with National Power
Corp. At that time, GEHI’s power-generating barge was 97% complete and would go on-line by mid-Sept
1994.
c. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC (amounting to 40.88
billion shares – total par value of P488.44 million)
d. On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI).
PRCI owns 25.724 hectares of real estate property in Makati.
e. Under the Agreement, GHB, a member of the Westmont Group of Companies in Malaysia, shall
extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI.
8 Aug 1994 – IRC alleged that a press release announcing the approval of the agreement was sent
through fax to Philippine Stock Exchange (PSE) and the SEC, but that the fax machine of SEC could not
receive it. Upon the advice of SEC, IRC sent the press release on the morning of 9 Aug 1994.
SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors heavily traded IRC shares utilizing this
material insider information.
16 Aug 1994 – SEC Chairman issued a directive requiring IRC to submit to SEC a copy of its aforesaid
MoA with GHB and further directed all principal officers of IRC to appear at a hearing before the Brokers
and Exchanges Dept (BED) of SEC to explain IRC’s failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts by Corporations Whose Securities are Listed in Any
Stock Exchange or Registered/Licensed Under the Securities Act
IRC sent a letter to SEC, attaching copies of MoA and its directors appeared to explain IRC’s alleged
failure to immediately disclose material information as required under the Rules on Disclosure of Material
Facts.
19 Sept 1994 – SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure when it
failed to make timely disclosure, and that some of the officers and directors of IRC entered into
transactions involving IRC shares in violation of Sec 30, in relation to Sec 36 of the Revised Securities
Act.
IRC filed an Omnibus Motion (later an Amended Omnibus Motion) alleging that SEC had no authority to
investigate the subject matter, since under Sec 8 of PD 902-A, as amended by PD 1758, jurisdiction was
conferred upon the Prosecution and Enforcement Dept (PED) of SEC
IRC also claimed that SEC violated their right to due process when it ordered that the respondents
appear before SEC and show cause why no administrative, civil or criminal sanctions should be imposed
on them, and thus, shifted the burden of proof to the respondents. They filed a Motion for Continuance of
Proceedings.
No formal hearings were conducted in connection with the Motions.
25 Jan 1995 – SEC issued an Omnibus Order: creating a special investigating panel to hear and decide
the case in accordance with Rules of Practice and Procedure before the PED, SEC; to recall the show
cause orders; and to deny the Motion for Continuance for lack of merit.
Respondents filed a petition before the CA questioning the Omnibus Orders and filed a Supplemental
Motion wherein they prayed for the issuance of a writ of preliminary injunction.
269
5 May 1995 – CA granted their motion and issued a writ of preliminary injunction, which effectively
enjoined SEC from filing any criminal, civil or administrative case against the respondents.
20 Aug 1998 – CA promulgated a Decision

a) Determined that there were no implementing rules and regulations regarding disclosure,
insider trading, or any of the provisions of the Revised Securities Acts which respondents
allegedly violated.
b) It found no statutory authority for SEC to initiate and file any suit for civil liability under Sec 8, 30 and
36 of the Revised Securities Act, thus, it ruled that no civil, criminal or administrative proceedings may
possibly be held against the respondents without violating their rights to due process and equal
protection.
c) It further resolved that absent any implementing rules, the SEC cannot be allowed to quash the
assailed Omnibus Orders
d) Further decided that the Rules of Practice and Procedure before the PED did not comply with
the statutory requirements contained in the Administrative Code of 1997. Section 9, Rule V of the
Rules of Practice and Procedure before the PED affords a party the right to be present but without the
right to cross-examine witnesses presented against him, in violation of Sec 12(3), Chap 3, Book VII of the
Administrative Code.
Issues:
1) Do sections 8, 30, and 36 of the Revised Securities Act require the enactment of implementing rules
to make them binding and effective? No.
2) May a criminal case still be filed against the respondents despite the repeal of Sections 8, 30, and 36
of the Revised Securities Act? Yes.
3) Did SEC retain the jurisdiction to investigate violations of the Revised Securities Act, re-enacted in
the Securities Regulations Code, despite the abolition of the PED? Yes.
Ruling:
* It should be noted that while the case was pending in SC, RA 8799 (Securities Regulation Code) took
effect on 8 August 2000.
Section 8 of PD 902-A, as amended, which created the PED, was already repealed as provided for in Sec
76 of Securities Regulation Code.
Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the
place of the Revised Securities Act.
On the merits:
1) Sections 8, 30, and 36 of the Revised Securities Act (RSA) do not require the enactment of
implementing rules to make them binding and effective.
● The mere absence of implementing rules cannot effectively invalidate provisions of law, where a
reasonable construction that will support the law may be given.
● Absence of any constitutional or statutory infirmity, which may concern Secs 30 and 36 of RSA,
the provisions are legal and binding.
270
● Every law has in its favour the presumption of validity. Unless and until a specific provision of the
law is declared invalid and unconstitutional, the same is valid and binding for all intents and
purposes.
● The Court does not discern any vagueness or ambiguity in Sec 30 and 36 of RSA
○ Sec 30 – Insider’s duty to disclose when trading
■ Insiders are obligated to disclose material information to the other party or
abstain from trading the shares of his corporation. This duty to disclose or
abstain is based on two factors:
1. the existence of a relationship giving access, directly or indirectly, to information intended to be
available only for a corporate purpose and not for the personal benefit of anyone
2. the inherent unfairness involved when a party takes advantage of such information knowing it is
unavailable to those with whom he is dealing.
■ The intent of the law is the protection of investors against fraud, committed when
an insider, using secret information, takes advantage of an uninformed investor.
■ In some cases, however, there may be valid corporate reasons for nondisclosure
of material information. Where such reasons exist, an issuer’s decision not to
make any public disclosures is not ordinarily considered as a violation of insider
trading. At the same time, the undisclosed information should not be improperly
used for non-corporate purposes, particularly to disadvantage other persons with
whom an insider might transact, and therefore the insider must abstain from
entering into transactions involving such securities.
○ Sec 36 – Directors, officers and principal stockholders
■ A straightforward provision that imposes upon:
1. a beneficial owner of more than 10 percent of any class of any equity security or
2. a director or any officer of the issuer of such security
the obligation to submit a statement indicating his or her ownership of the issuer’s securities and such
changes in his or her ownership.
· Sections 30 and 36 of the RSA were enacted to promote full disclosure in the securities market and
prevent unscrupulous individuals, who by their positions obtain non-public information, from taking
advantage of an uninformed public.
· Sec 30 prevented the unfair use of non-public information in securities transactions, while Sec 36
allowed the Sec to monitor the transactions entered into by corporate officers and directors as regards the
securities of their companies.
· The lack of implementing rules cannot suspend the effectivity of these provisions.
2) The Securities Regulation Code (SRC) did not repeal Sections 8, 30, and 36 of the Revised
Securities Act since said provisions were re-enacted in the new law.
· when the repealing law punishes the act previously penalized under the old law, the act committed
before the re-enactment continues to be an offense and pending cases are not affected.
o Sec 8 of RSA, which previously provided for the registration of securities and the information that
needs to be included in the registration statements, was expanded under Sec 12 of the Securities
Regulations Code. Further details of the information required to be disclosed by the registrant are
explained.
o Sec 30 of RSA has been re-enacted as Sec 27 of SRC, still penalizing an insider’s misuse of material
and non-public information about the issuer, for the purpose of protecting public investors
o Sec 23 of SRC was practically lifted from Sec 36 of RSA.
· The legislature had not intended to deprive the courts of their authority to punish a person charged
with violation of the old law that was repealed
271
3) The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, re-enacted in
the Securities Regulations Code, despite the abolition of the PED.
· Sec 53 of SRC clearly provides that criminal complaints for violations of rules and regulations
enforced or administered by SEC shall be referred to the DOJ for preliminary investigation, while the SEC
nevertheless retains limited investigatory powers. SEC may still impose the appropriate administrative
sanctions under Sec 54.
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court

hereby REVERSES the assailed Decision of the Court of Appeals promulgated on 20 August 1998 in
CAG.R. SP No. 37036 and LIFTS the permanent injunction issued pursuant thereto. This Court further
DECLARES that the investigation of the respondents for violations of Sections 8, 30 and 36 of the
Revised Securities Act may be undertaken by the proper authorities in accordance with the Securities
Regulations Code. No costs.
Honey Fame L. Federico TOPIC: Insider Trading, Short Swing

Transactions and Manipulation of Security Prices and other fraudulent acts
G.R. No. 127882 December 1, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG MIGUEL

M. LUMAYONG et. al. petitioners
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR);

HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN TORRES,
Executive Secretary; and WMC (PHILIPPINES), INC.,4 respondents.
PANGANIBAN, J.:
Facts:
On January 27, 2004, the Court en banc promulgated its Decision granting the Petition and declaring the
unconstitutionality of certain provisions of Philippine Mining Act of 1995 (RA 7942) and its implementing
rules and regulation, DAO 96-40, as well as of the entire Financial and Technical Assistance Agreement
(FTAA) executed between the government and Western Mining Coproration Philippines (WMCP), mainly
on the finding that FTAAs are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, which, though permitted
under the 1973 Constitution, were subsequently denounced for being antithetical to the principle of
sovereignty over our natural resources, because they allowed foreign control over the exploitation of our
natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts for, inter alia,
vesting in the foreign contractor exclusive management and control of the enterprise, including operation
of the field in the event petroleum was discovered; control of production, expansion and development;
nearly unfettered control over the disposition and sale of the products discovered/extracted; effective
272
ownership of the natural resource at the point of extraction; and beneficial ownership of our economic
resources. According to the Decision, the 1987 Constitution (Section 2 of Article XII) effectively banned
such service contracts.
ISSUE:
WON FTAA should be struck down for being utithethical because it allows foreign control over our natural
resources.
RULING:
No. Although Section 2 sanctions the participation of foreign-owned corporations in the exploration,
development, and utilization of natural resources, it imposes certain limitations or conditions to
agreements with such corporations. First, the parties to FTAAs. Only the President, in behalf of the State,
may enter into these agreements, and only with corporations. By contrast, under the 1973 Constitution, a
Filipino citizen, corporation or association may enter into a service contract with a „foreign person or
entity.‰ Second, the size of the activities: only large-scale exploration, development, and utilization is
allowed. The erm „large-scale usually refers to very capital-intensive activities.‰ Third, the natural
resources subject of the activities is restricted to minerals, petroleum and other mineral oils, the intent
being to limit service contracts to those areas where Filipino capital may not be sufficient. Fourth,
consistency with the provisions of statute. The agreements must be in accordance with the terms and
conditions provided by law. Fifth, Section 2 prescribes certain standards for entering into such
agreements. The agreements must be based on real contributions to economic growth and general
welfare of the country. Sixth, the agreements must contain rudimentary stipulations for the promotion of
the development and use of local scientific and technical resources. Seventh, the notification requirement.
The President shall notify Congress of every financial or technical assistance agreement entered into
within thirty days from its execution. Finally, the scope of the agreements. While the 1973 Constitution
referred to “service contracts for financial, technical, management, or other forms of assistance” the 1987
Constitution provides for “agreements . . . involving either financial or technical assistance.” It bears
noting that the phrases “service contracts” and “management or other forms of assistance” in the earlier
constitution have been omitted.
The State, being the owner of the natural resources, is accorded the primary power and responsibility in
the exploration, development and utilization thereof. As such, it may undertake these activities through
four modes: The State may directly undertake such activities. (2) The State may enter into co-production,
joint venture or production- sharing agreements with Filipino citizens or qualified corporations. (3)
Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens. (4) For the
large-scale exploration, development and utilization of minerals, petroleum and other mineral oils, the
President may enter into agreements with foreign- owned corporations involving technical or financial
assistance. Except to charge the Mines and Geosciences Bureau of the DENR with performing
researches and surveys, and a passing mention of government-owned or controlled corporations, R.A.
No. 7942 does not specify how the State should go about the first mode. The third mode, on the other
hand, is governed by Republic Act No. 7076 (the People’s Small-Scale Mining Act of 1991) and other
pertinent laws. R.A. No. 7942 primarily concerns itself with the second and fourth modes.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions for
Reconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision; to DISMISS the
Petition; and to issue this new judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the
Philippine Mining Law), (2) its Implementing Rules and Regulations contained in DENR Administrative
273
Order (DAO) No. 9640 -- insofar as they relate to financial and technical assistance agreements referred
to in paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the Financial and Technical
Assistance Agreement (FTAA) dated March 30, 1995 executed by the government and Western Mining
Corporation Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA which are hereby
INVALIDATED for being contrary to public policy and for being grossly disadvantageous to the
government.
SO ORDERED.
Valera, Lendy J. Topic: Tender Offer
CEMCO HOLDINGS, INC.,Petitioner,
Vs NATIONAL LIFE INSURANCE
COMPANY OF THE PHILIPPINES, INC.,

Respondent.
G.R. No. 171815, August 7, 2007
CHICO-NAZARIO, J.:
Facts:
Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders UCHC, a
non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of
UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand,
owned 9% of UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its
subsidiary ACC had passed resolutions to sell to Cemco BCIs stocks in UCHC equivalent to 21.31% and
ACCs stocks in UCHC equivalent to 29.69%.
In a letter dated 16 July 2004, Director Justina Callangan of the SECs Corporate Finance Department
responded to the query of the PSE that while it was the stance of the department that the tender offer rule
was not applicable, the matter must still have to be confirmed by the SEC en banc.
274
Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc
had resolved that the Cemco transaction was not covered by the tender offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of
the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply
with the rule on mandatory tender offer. Cemco, however, refused.
On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco,
as buyer.
On 12 August 2004, the transaction was consummated and closed.
On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a
complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase
agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares.
Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were then required by the
SEC to file their respective comment on the complaint. In their comments, they were uniform in arguing
that the tender offer rule applied only to a direct acquisition of the shares of the listed company and did
not extend to an indirect acquisition arising from the purchase of the shares of a holding company of the
listed firm.
In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent by reversing and setting
aside its 27 July 2004 Resolution and directed petitioner Cemco to make a tender offer for UCC shares to
respondent and other holders of UCC shares similar to the class held by UCHC in accordance with
Section 9(E), Rule 19 of the Securities Regulation Code.
Petitioner filed a petition with the Court of Appeals challenging the SECs jurisdiction to take cognizance of
respondents complaint and its authority to require Cemco to make a tender offer for UCC shares, and
arguing that the tender offer rule does not apply, or that the SECs re-interpretation of the rule could not be
made to retroactively apply to Cemcos purchase of UCHC shares.
Issue:
Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed
company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly listed company
through its purchase of the shares in UCHC, a non-listed company.
Held:
Yes.
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. A public company is defined as a corporation which is
listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100 shares of such company. Stated differently, 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. Tender offer is in place to protect minority
shareholders against any scheme that dilutes the share value of their investments. It gives the minority
shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell
their shares at the same price as those of the majority shareholders.
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least
fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any
equity security of a corporation with assets of at least Fifty million pesos (P50,000,000.00) and having two
275
hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to
acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make a
tender offer to stockholders by filing with the Commission a declaration to that effect; and furnish the
issuer, a statement containing such of the information required in Section 17 of this Code as the
Commission may prescribe. Such person or group of persons shall publish all requests or invitations for
tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of any
additional material soliciting or requesting such tender offers subsequent to the initial solicitation or
request shall contain such information as the Commission may prescribe, and shall be filed with the
Commission and sent to the issuer not later than the time copies of such materials are first published or
sent or given to security holders.
Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to thirty-five percent (35%). 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.
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.
This interpretation given by the SEC and the Court of Appeals must be sustained
WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March
2006, respectively, affirming the Decision dated 14 February 2005 of the Securities and Exchange
Commission En Banc, are hereby AFFIRMED.
276
MOHAMMAD ALI BANTAO
TOPIC: TENDER OFFER, MARGN TRADING and OTHER REGULATED ACTIVITES
G.R.No. 160016 February 27,2006
ABACUS SECURITIES CORPORATION, petitioner vs. RUBEN U. AMPIL, respondent
PANGANIBAN,CJ:
Facts:
· Abacus Corporation was engaged in business as a broker and dealer of securities of listed
companies at the Philippine Stock Exchange Center.
· On April 8, 1997, Ampilopened a cash account with petitioner for his transactions in securities and,
on April 10, started trading on that account. As a result of his trading activities, he accumulated an
outstanding obligation in favor of the corporation in the principal sum of 6,617,036.22 as of April 30, 1997.
· Respondent failed to settle his account upon the lapse of the required period and the extension
given by petitioner, prompting it to sell his securities on May 6, 1997, to offset his unsettled obligations.
· After the sale of his securities and the application of the proceeds against his account, his
remaining accountabilities to petitioner totaled 3,364,313.56. This obligation he failed to settle despite its
demands.
· TC and CA both held that the parties were in pari delicto and, hence, without recourse against each
other. 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). The violation was committed when
it failed: to require respondent to pay for his stock purchases within three or four days from trading; and
to request from the appropriate authority an extension of time for the payment of his cash purchases.
The trial court noted that despite his nonpayment within the required period, petitioner did not cancel his
purchases. Neither did it require him to deposit cash payments before it executed buy and/or sell orders
subsequent to the first unsettled transaction.
Issue:
Whether or not the Court of Appeal’s ruling on petitioner’s alleged violation of the Revised
Securities Act [is] in accord with law and jurisprudence since the lower court has no jurisdiction over
violations of the Revised Securities Act."
Held:
The provisions governing this case are Sections 23 and 25 of the RSA[16] and Rule 25-1 of the RSA
Rules, which state as follows:
“SEC. 23. Margin Requirements. –
(b) It shall be unlawful for any member of an exchange or any broker or dealer, directly or indirectly, to
extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer –
277
(1) On any security other than an exempted security, in contravention of the rules and regulations which
the Commission shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially
extended in conformity with the rules and regulations of the Commission and (ii) in cases where the
extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of subparagraph (1) of this subsection.
x xxxxxxxx”
“SEC. 25. Enforcement of margin requirements and restrictions on borrowings. – To prevent indirect
violations of the margin requirements under Section 23 hereof, the broker or dealer shall require the
customer in non margin transactions to pay the price of the security purchased for his account within such
period as the Commission may prescribe, which shall in no case exceed three trading days; otherwise,
the broker shall sell the security purchased starting on the next trading day but not beyond ten trading
days following the last day for the customer to pay such purchase price, unless such sale cannot be
effected within said period for justifiable reasons. The sale shall be without prejudice to the right of the
broker or dealer to recover any deficiency from the customer. x xx.”
The law places the burden of compliance with margin requirements primarily upon the brokers and
dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out rule,”clearly
vested an obligation in petitioner. That obligation was to cancel or otherwise liquidate a customer’s order,
if payment was not received within three days from the date of purchase. Subsequent to an unpaid
order, the broker should require its customer to deposit funds in the account sufficient to cover
each purchase, prior to the execution of the transaction. These duties were imposed upon the broker to
ensure faithful compliance with the margin requirements of the law, which forbade the broker from
extending undue credit to a “cash” customer. Petitioner committed a fault only when it failed to liquidate
the transactions on April 14 and 15, 1997, or the fourth day following the stock purchases and to
complete its liquidation no later than ten days after by applying the proceeds as payment for his
outstanding obligation.
Since the buyer was not able to pay for the transactions that had taken place on April 10 and 11, the
broker was duty-bound to advance the payment to the settlement banks, without prejudice to its right to
collect. Respondent was found to be equally guilty of entering into transactions in violation of the RSA
and RSA Rules. It was respondent’s privilege to gamble or speculate, as he apparently did
byasking for extensions of time and refraining from giving orders to his broker to sell, in the hope that the
prices would rise. Both parties had acted in violation of the law and did not come to court with clean
hands as regards the transactions subsequent to the initial one made on April 10 and 11, 1997.
In this case, the pari delicto rule applied only to transactions entered into after those initial
trades.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby MODIFIED.
Respondent is ordered to pay petitioner the difference between the formers outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with
interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of respondents outstanding
obligation using the closing prices of the stocks at T+14 as basis -- counted from April 11, 1997 and to
issue the proper order for payment if warranted. It may hold trial and hear the parties to be able to make
this determination.
278
279

Corporation Law Case Digest 1st Sem 2016-2017

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corporation Law Case Digest 1st Sem 2016-2017

Uploaded by

Copyright:

Available Formats

LYCEUM OF THE PHILIPPINES UNIVERSITY

ACADEMIC YEAR 1st SEMESTER 2016-2017

COMPILATION OF CASE DIGEST IN CORPORATION LAW

ATTY. TIMOTEO B. AQUINO.

Case no. 1 G.R. No. L-23145 November 29, 1968

Case no. 2 G.R. No. L-19891 July 31, 1964

Case no. 3 G.R. No. 184517 October 8, 2013

Case no. 6 G.R. No. 157549 May 30, 2011

Case no. 7 G.R. No. 108734, May 29, 1996,

Case No. 10 G.R. No. 182729 September 29, 2010

Case no. 12 G.R. No. 166282 February 13, 2013

Case no. 16 G.R. No. 174077 November 21, 2012 ELLICE

Case no. 18 G.R. No. L-2294, May 25, 1991

Case no. 19 G.R. No. 176579 October 9, 2012

Case no. 20 G.R. No. 195580 January 28, 2015

Case No. 22. G.R. No. 171182 August 23, 2012

Case no. 23 G.R. No. 128690 January 21, 1999

Case No. 24. G.R. No. 75885 May 27, 1987

Case no. 25 G.R. No. L-32409. February 27, 1971

Case no. 26 G.R. No. L-19550 June 19, 1967

Case No. 27 G. R. No. 164317 February 6, 2006

Case no. 28 G.R. No. 182147 December 15, 2010

Case no. 29 G.R. No. 177131 June 7, 2011

Case no. 30 G.R. No. 191109 July 18, 2012

Case no. 32 G. R. No. 175352 January 18, 2011

Case no. 34 G.R. No. 51765. March 3, 1997

Case no. 35 G.R. No. 131394. March 28, 2005

Case no. 36 G.R. No. 156819. December 11, 2003

Case no. 37 G.R. No. L-39841 June 20, 1988

Case no. 39 G.R. No. 211145, October 14, 2015

Case no. 40 G.R. No. L-43350 December 23, 1937

Case no. 41 G.R. No. 84197 July 28, 1989

Case no. 43 G.R. No. 136448. November 3, 1999

Case no. 44 G.R. No. 119002 October 19, 2000

Case No. 45 G.R. No. 203993 April 20, 2015

Case No. 46 G.R. No. 71837 July 26, 1988

Case no. 47 G.R. No. 121466 August 15, 1997

Case No. 48 G.R. No. L-26649 July 13, 1927

Case No. 49 G.R. No. 141735 June 8, 2005

Case No. 50 G.R. No. 177783 January 23, 2013

Case no. 51 G.R. No. L-15092 May 18, 1962

Case no. 52 G.R. No. 161886 March 16, 2007

Case no. 53 G.R. No. 174353 September 10, 2014

Case no. 54 .G.R. No. 151969 September 4, 2009

Case No. 54 G.R. No. 154291 November 12, 2014

Case no. 56 G.R. No. 153468 August 17, 2006

Case no 57. G.R. No. 172885 October 9, 2009

Case no. 58. G.R. NO. 171993 December 12, 2011

Case No. 59 G.R. No. 201298 February 5, 2014

Case no. 62 G.R. Nos. 163356-57, July 01, 2015

Case no. 64 G.R. No. 166282 February 13, 2013

Case no. 65 G.R. No. 185664 April 08, 2015

Case no. 66 G.R. Nos. 163356-57 July 01, 2015

Case No. 68 G.R No. 163825 July 13, 2010

Case no. 69 G.R. No. 203786 October 23, 2013

Case No. 70 G.R. No. 174938 October 1, 2014

Case No. 71 G.R. No. 165887 June 6, 2011

Case no. 72 G.R. No. 180974 June 13, 2012

Case no. 73 G.R. No. 207161, September 08, 2015

Case no. 74 G.R. No. 158085 October 14, 2005

Case No. 75 G.R No. 211535 July 22, 2015

Case No. 76 G.R. Nos. 163356-57 July 10, 2015

Case no. 78 G.R. No. 154291 November 12, 2014

Case no. 79 G.R. No. 157549 May 30, 2011