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Topic: Remedial Rights; Individual Suit

Case No.388
January 20, 2016 GR. No. 174909
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO and RAUL A. MUYCO, Petitioners,
vs.
ROGELIO M. FLORETE, IMELDA C. FLORETE, DIAMEL CORPORATION, ROGELIO C. FLORETE JR., and
MARGARET RUTH C. FLORETE, Respondents.

A stockholder may suffer from a wrong done to or involving a corporation, but this does not
vest in the aggrieved stockholder a sweeping license to sue in his or her own capacity. The
determination of the stockholder’s appropriate remedy—whether it is an individual suit, a class
suit, or a derivative suit—hinges on the object of the wrong done. When the object of the
wrong done is the corporation itself or "the whole body of its stock and property without any
severance or distribution among individual holders," it is a derivative suit, not an individual suit
or class/representative suit, that a stockholder must resort to.
FACTS
This resolves consolidated cases involving a Complaint for Declaration of Nullity of Issuances,
Transfers and Sale of Shares in People’s Broadcasting Service, Inc. and All Posterior Subscriptions
and Increases thereto with Damages. The Complaint did not implead as parties the concerned
corporation, some of the transferees, transferors and other parties involved in the assailed
transactions.

People’s Broadcasting Service, Inc. (People’s Broadcasting) is a private corporation authorized to


operate, own, maintain, install, and construct radio and television stations in the Philippines.
People’s Broadcasting sought the services of the accounting and auditing firm Sycip Gorres Velayo
and Co. in order to determine the ownership of equity in the corporation. Sycip Gorres Velayo and
Co. submitted a report detailing the movements of the corporation’s shares from November 23, 1967
to December 8, 1989.

Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a
categorical statement on equity ownership as People’s Broadcasting’s corporate records were
incomplete. The report contained the following disclaimer on the findings regarding the
corporation’s capital structure. The Board of Directors of People’s Broadcasting approved Sycip
Gorres Velayo and Co.’s report.

In the meantime, Rogelio Florente, Sr. transferred a portion of his shareholdings to the members of
his immediate family, namely: Imelda Florete, Rogelio Florete, Jr., and Margaret Ruth Florete, as well
as to Diamel Corporation, a corporation owned by Rogelio, Sr.’s family.

In 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before the RTC a
Complaint for Declaration of Nullity of Issuances, Transfers and Sale of Shares in People’s
Broadcasting Service, Inc. and All Posterior Subscriptions and Increases thereto with Damages
against Diamel Corporation, Rogelio, Sr., Imelda Florete, Margaret Florete, and Rogelio Florete, Jr.
(Rogelio, Sr. Group).
On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory counterclaim.
The RTC issued a Decision (which it called a "Placitum") dismissing the Marcelino, Jr. Group’s
Complaint. It ruled that the Marcelino, Jr. Group did not have a cause of action against the Rogelio,
Sr. Group and that the former is estopped from questioning the assailed movement of shares of
People’s Broadcasting. It also ruled that indispensible parties were not joined in their Complaint.

The Court of Appeals denied the Marcelino, Jr. Group’s Petition for Review and affirmed the trial
court Decision.

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

Hence this Petition.

ISSUE
Was the filing of the Complaint for the Declaration of Nullity of Issuances of the Shares of People’s
Broadcasting Services proper? (NO!)

RULING
A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken through
directors, associates, officers, or other persons) may sue in any of three (3) capacities:
1. as an individual;
2. as part of a group or specific class of stockholders; or
3. as a representative of the corporation.

Villamor v. Umale distinguished individual suits from class or representative suits:


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

A derivative suit "is an action filed by stockholders to enforce a corporate action." A


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

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

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

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

Villamor recalls the requisites for filing derivative suits:


Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies (Interim
Rules) provides the five (5) requisites for filing derivative suits:
SECTION 1. Derivative action.—A stockholder or member may bring an action in the
name of a corporation or association, as the case may be, provided, that:
1. He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with particularity
in the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

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

What the Marcelino, Jr. Group asks is the complete reversal of a number of corporate acts
undertaken by People’ Broadcasting’s different boards of directors. These boards supposedly
engaged in outright fraud or, at the very least, acted in such a manner that amounts to wanton
mismanagement of People’s Broadcasting’s affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People’s Broadcasting’s capital structure.
The remedies that the Marcelino, Jr. Group seeks are for People’s Broadcasting itself to avail. Ordinarily,
these reliefs may be unavailing because objecting stockholders such as those in the Marcelino, Jr. Group
do not hold the controlling interest in People’s Broadcasting. This is precisely the situation that the rule
permitting derivative suits contemplates: minority shareholders having no other recourse "whenever
the directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or are
the ones to be sued and are in control of the corporation."

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

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

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

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

As explained in Asset Privatization Trust:


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

SO ORDERED.
Topic: Meetings; Who may Attend and Vote

Case No.407
G.R. No. L-5883 November 28, 1953
DOMINGO PONCE AND BUHAY L. PONCE, petitioners,
vs.
DEMETRIO B. ENCARNACION, Judge of the Court of First Instance of Manila, Branch I, and
POTENCIANO GAPOL, respondents.
FACTS
The petitioners Domingo and Buhay Ponce aver that the Daguhoy Enterprises, Inc. On 16 April 1951 at
a meeting duly called, the voluntary dissolution of the corporation and the appointment of
Potenciano Gapol as receiver were agreed upon and to that end a petitioner Domingo Ponce. Instead
of filing the petition for voluntary dissolution of the of the corporation as agreed upon, the
respondent Potenciano Gapol, who is the largest stockholder, charged his mind and filed a complaint
in the CFI to compel the petitioners to render an accounting of the funds and assets of the
corporation, to reimburse it, jointly and severally for a total sum of P18,690, plus interest, or such
sum as may be found after the accounting shall have been rendered to have been misspent,
misapplied, missappropriated and converted by the petitioner Domingo Ponce to his own use and
benefit.

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

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

ISSUE
Was the meeting validly called? (YES!)

RULING
The only question to determine in this case is whether under and pursuant to section 26 of Act No.
1459, known as the Corporation law, the respondent court may issue the order complained of. Said
section provides: —
Whenever, from any cause, there is no person authorized to call a meeting, or when the
officer authorized to do so refuses, fails or neglects to call a meeting, any judge of a Court of
First Instance on the showing of good cause therefor, may issue an order to any stockholder
or member of a corporation, directing him to call a meeting of the corporation by giving the
proper notice required by this Act or by-laws; and if there be no person legally authorized to
preside at such meeting, the judge of the Court of First Instance may direct the person calling
the meeting to preside at the same until a majority of the members or stockholders
representing a majority of the stock members or stockholders presenting a majority of the
stock present and permitted by law to be voted have chosen one of their number to act as
presiding officer for the purposes of the meeting.

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

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

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

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

The petition is denied, with costs against the petitioners.


Topic: Capital Affairs/ Extent of Proprietary Rights

Case No.426
G.R. No. 90580 April 8, 1991
RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional
Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION, EQUITABLE
BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO LIAN, THE REGISTER OF DEEDS
OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA, respondents.
FACTS
A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to
intervene, alleging that:
1. the loan transactions between Saw Chiao Lian and Equitable Banking Corp. were not
approved by the stockholders representing at least 2/3 of corporate capital;
2. Saw Chiao Lian had no authority to contract such loans; and
3. there was collusion between the officials of Freeman, Inc. and Equitable Banking Corp. in
securing the loans.
The motion to intervene was denied, and the petitioners appealed to the Court of Appeals.

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

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

ISSUE
Are the petitioners entitled to intervene in the case?
No. The lower courts ruled correctly in denying the Motion for Intervention.

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

After examining the issues and arguments of the parties, the Court finds that the respondent court
committed no reversible error in sustaining the denial by the trial court of the petitioners' motion for
intervention.
To allow intervention:
a. it must be shown that the movant has legal interest in the matter in litigation, or otherwise
qualified; and
b. consideration must be given as to whether the adjudication of the rights of the original
parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in
a separate proceeding or not.

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

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

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

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


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

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

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

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

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

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

Case No.445
MAKATI SPORTS CLUB, INC., Petitioner, - versus - CECILE H. CHENG, MC FOODS, INC., and RAMON
SABARRE, Respondents.
G.R. No. 178523 June 16, 2010
FACTS
Plaintiffs Board of Directors adopted a Resolution authorizing the sale of 19 unissued shares at a
floor price of P400,000 and P450,000 per share for Class A and B, respectively. Defendant Cheng was
a Treasurer and Director of plaintiff. Hodreal expressed his interest to buy a share, for this purpose
he sent a letter. In said letter, he requested that his name be included in the waiting list.

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

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

Makati Sports Club was advised of the sale by McFoods to Hodreal of the share evidenced by
Certificate No. 2243 for P2.8 Million. Upon request, a new certificate was issued. In 1997, an
investigation was conducted and the committee held that there is prima facie evidence to show
that defendant Cheng profited from the transaction because of her knowledge.

Plaintiffs evidence of fraud are


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

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

After trial on the merits, the RTC rendered its decision, dismissing the complaint, including all
counterclaims. The CA affirmed.
ISSUE
Was the transfer of MCSI’s shares from McFoods to Hordeal valid? YES!

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

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

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

Also in point are the powers and duties of the MSCIs Membership Committee. Charged with
ascertaining the compliance of all the requirements for the purchase of MSCIs shares of stock, the
Membership Committee failed to question the alleged irregularities attending Mc Foods purchase of
one Class A share at P1,800,000.00. If there was really any irregularity in the transaction, this inaction
of the Management Committee belies MSCIs cry of foul play on Mc Foods purchase of the subject
share of stock. In fact, the purchase price of P1,800,000.00 cannot be said to be detrimental to MSCI,
considering that it is the same price paid for a Class A share in the last sale of an original share to
Land Bank of the Philippines on September 25, 1995, and in the sale by Marina Properties
Corporation to Xanland Properties, Inc. on October 23, 1995. These circumstances have not been
denied by MSCI. What is more, the purchase price of P1,800,000.00 is P1,400,000.00 more than the
floor price set by the MSCI Board of Directors for a Class A share in its resolution dated October 20,
1994.

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

Case No.464
G.R. No. 133969. January 26, 2000
NEMESIO GARCIA, petitioner, vs. NICOLAS JOMOUAD, Ex-Officio Provincial Sheriff of Cebu, and
SPOUSES JOSE ATINON & SALLY ATINON, respondents. ULANDU
FACTS
Spouses Atinon filed a collection suit against Jaime Dico. In that case, the trial court rendered
judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After said
judgment became final and executory, respondent sheriff proceeded with its execution. In the
course thereof, the Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club,
which was in the name of Dico, was levied on and scheduled for public auction. Claiming ownership
over the subject certificate, petitioner Nemesio Garcia filed the aforesaid action for injunction with
prayer for preliminary injunction to enjoin respondents from proceeding with the auction.

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

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

ISSUE
Was the levy on the POC proper? YES.

RULING
The petition is without merit.
Section 63 of the Corporation Code reads:
Sec. 63 Certificate of stock and transfer of shares. - The capital stock of corporations shall be
divided into shares for which certificates signed by the president or vice- president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and
the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable
in the books of the corporation.
The sole issue in this case is similar to that raised in Uson vs. Diosomito, i.e., "whether a bona
fide transfer of the shares of a corporation, not registered or noted in the books of the
corporation, is valid as against a subsequent lawful attachment of said shares, regardless of
whether the attaching creditor had actual notice of said transfer or not." In that case, we held that
the attachment prevails over the unrecorded transfer stating thus -

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

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

SO ORDERED.
Topic: Payment of Balance Subscription - Notice Requirement

Case No.483
G.R. No. L-45493 April 21, 1939
GERARDO GARCIA, plaintiff-appellee,
vs.
ANGEL SUAREZ, defendant-appellant.
FACTS
On October 4, 1924, the appellant Angel Suarez subscribed to 16 shares of the capital stock of the
Compañia Hispano-Filipina, Inc., a corporation which is duly formed and organized. Of the 16
subscribed shares, at the par value of P100 each, the appellant only paid P400, the value of four
shares. The plaintiff-appellee Gerardo Garcia was appointed by the court receiver of the Compañia
Hispano-Filipina, Inc., to collect all the credits of said corporation, pay its debts and dispose of the
remainder of its assets and of its properties. Gerardo Garcia, in vain, made demand upon Angel
Suarez to pay the balance of his subscription. Hence, Garcia, as receiver, brought an action in the CFI
to recover from Suarez and other shareholders the balance of their subscriptions, but the complaint
was dismissed for lack of prosecution. On October 10, 1935, a similar complaint was filed against the
appellant, and after trial, judgment was rendered therein ordering the said Suarez to pay to Garcia, as
receiver of Compañia Hispano-Filipina, Inc., the sum of P1,200, with legal interest thereon. Suarez
appealed alleging Prescription. Suarez also claims to be released from his obligation to pay the
balance of his subscription.

ISSUE
Is Suarez liable to pay the balance of his subscription? (Yes.)

RULING
Suarez alleges that he was released from the obligation to pay the balance of his subscription. In
support of his connection, the appellant adduced as evidence a letter, allegedly signed by R. Pando,
acting president of the corporation Compañia Hispano-Filipina, Inc., wherein Suarez was released by
Pando from all obligation with respect to the payment of his subscription in consideration of his
transfer of his shares to the corporation.

The very citation of authorities made by the appellant in his brief destroys his contention. It says:
Released of subscribers by the corporation. — There can be no doubt that a corporation may
effectually release a subscriber from liability on his subscription, in whole or in part, or allow
him to modify his contract, if all the stockholders expressly or impliedly consent . . . .

The agents or officers of the corporation have no such power, however, unless it is expressly
conferred upon them by the charter or statute, or by the stockholders by a by-law or otherwise.
...

It has not been established that the stockholders of the Compañia Hispano-Filipina, Inc., have in any
wise consented to release the appellant from his obligation, or that the acting president, R. Pando,
was expressly authorized by the stockholders, or was authorized by the by-laws of the corporation,
to release the appellant from his obligation.

A corporation has no legal capacity to release a subscriber to its capital stock from the obligation to
pay for his shares; and any agreement to this effect is invalid.
Topic: Right to financial statements

Case No.502
G.R. No. 83831 January 9, 1992
VICTOR AFRICA, petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, JOSE LAURETA, MELQUIADES GUTIERREZ,
EDUARDO M. VILLANUEVA, EDUARDO DE LOS ANGELES and ROMAN MABANTA, JR., respondents.

FACTS
These four cases separately filed before this Court were consolidated since they involve issues arising
from, incidental or related to the sequestration of Eastern Telecommunications Philippines, Inc.
(ETPI) by the PCGG and the consequent filing by the PCGG of an action for reconveyance, reversion,
accounting and restitution of the alleged ill-gotten ETPI shares and damages in the Sandiganbayan.

Shortly after the PCGG sequestered ETPI, the sequestration order was partially lifted when 40% of
the shares of stock (Class "B") owned by Cable and Wireless, Ltd. were freed from the effects of
sequestration. The remaining 60% of the shares (Class "A"), however, remained under sequestration.
Thereafter, the PCGG filed with the Sandiganbayan action for reconveyance, reversion, accounting
and restitution of the alleged ill-gotten ETPI shares and damages.

Subsequently, during the annual stockholders meeting convened on January 29, 1988, Eduardo M.
Villanueva, as PCGG nominee, Roman Mabanta, Jr. and Eduardo de los Angeles as nominees of the
foreign investors, Cable and Wireless Ltd., and Jose L. Africa (who was absent) were elected as
members of the board of directors.

An organizational meeting was later held where Eduardo Villanueva was elected as president and
general manager, while Ramon Desuasido, Almario Velasco and Ranulfo Payos were elected as acting
corporate secretary, acting treasurer, and acting assistant corporate secretary, respectively.

The nomination and election of PCGG nominees/designees to the ETPI Board of Directors, as well as
the election of its new officers, triggered a chain of contentious proceedings before the
Sandiganbayan and this Court between the members of the ETPI Board and its stockholders, on the
one hand, and the PCGG's nominees/designees elected ETPI Board, on the other hand.

The issue raised in the original petition was in relation to the validity of the issuance by the
Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its
representative to testify and produce the stock and transfer book, all stubs of the outstanding stock
certificates of ETPI and the minutes of all meetings of the board of directors and stockholders of ETPI
held from January 29, 1988 to date.

ISSUE
Was it proper for the Sandiganbayan to order the testimony and production of ETPI’s books? (YES.)
RULING
The issue raised in the original petition relating to the validity of the issuance by the Sandiganbayan
of the subpoena duces tecum and ad testificandum ordering the PCGG or its representative to testify
and produce the stock and transfer book, all stubs of the outstanding stock certificates of ETPI and
the minutes of all meetings of the board of directors and stockholders of ETPI held from January 29,
1988 to date was laid to rest by our joint resolution in two cases, both entitled Republic
vs. Sandiganbayan and Eduardo Cojuangco, Jr., which applies squarely in the instant petitions.

In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine
the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found
nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an implied amendment
of the Corporation Code, much less an implied modification of a stockholder's right of inspection as
guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to
the Court, is that
1. the right of inspection should be exercised at reasonable hours on business days;
2. the person demanding the right to examine and copy excerpts from the corporate records
and minutes has not improperly used any information secured through any previous
examination of the records of such corporation; and
3. the demand is made in good faith or for a legitimate purpose.

SO ORDERED.
Topic: Other Cases- Liquidation

Case No:540
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.
CRUZ, J.:
FACTS
The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, for a term of 25
years which expired on January 19,1977. On May 14, 1977, the members of its board of directors
executed a deed of assignment of all of the accounts receivables, properties, obligations and
liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM,
then in the process of reincorporation. On June 14, 1977, the new PMB was issued a certificate of
incorporation by the SEC.

On May 5, 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed
with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new
PBM. The allegation was that the former had become legally non-existent for failure to extend its
corporate life and that the latter had likewise been ipso facto dissolved for non-use of the charter
and continuous failure to operate within 2 years from incorporation.

The petitioners Chung Ka Bio et al insist that they have never given their consent to the creation of
the new corporation nor have they indicated their agreement to transfer their respective stocks in
the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the
assets of the old corporation was not within the powers of the board of directors of the latter as it
was authorized only to wind up the affairs of such company and not in any case to continue its
business. Moreover, no stockholders' meeting had been convened to discuss the deed of
assignment and the 2/3 vote required by the Corporation Law to authorize such conveyance had not
been obtained.

ISSUE
Is the board of directors permitted to undertake any activity outside of the usual liquidation of the
business of the dissolved corporation? (NO, but…)

RULING
The contention is based on the negative averment that no stockholders' meeting was held and the
2/3 consent vote was not obtained, there is no need for affirmative proof. Even so, there is the
presumption of regularity which must operate in favor of the private respondents PBM, who insist
that the proper authorization as required by the Corporation Law was duly obtained at a meeting
called for the purpose. (That authorization was embodied in a unanimous resolution dated March 19,
1977, which was reproduced verbatim in the deed of assignment.) Otherwise, the new PBM would
not have been issued a certificate of incorporation, which should also be presumed to have been
done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did not vote to
authorize the action of the board of directors may, within forty days after the date upon which such
action was authorized, object thereto in writing and demand payment for his shares." The record does
not show, nor have the petitioners alleged or proven, that they filed a written objection and
demanded payment of their shares during the reglementary forty-day period. This circumstance
should bolster the private respondents' claim that the authorization was unanimous.

While we agree that the board of directors is not normally permitted to undertake any activity
outside of the usual liquidation of the business of the dissolved corporation, there is nothing to
prevent the stockholders from conveying their respective shareholdings toward the creation of a
new corporation to continue the business of the old. Winding up is the sole activity of a dissolved
corporation that does not intend to incorporate anew. If it does, however, it is not unlawful for the
old board of directors to negotiate and transfer the assets of the dissolved corporation to the new
corporation intended to be created as long as the stockholders have given their consent. This was
not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-1/2.

What the Court finds especially intriguing in this case is the fact that although the deed of
assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to question its
validity. All of four years had elapsed before the petitioners filed their action for liquidation of both
the old and the new corporations, and during this period, the new PBM was in full operation, openly
and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. The
petitioners and the private respondents are not strangers but relatives and close business
associates. The PBM office is in the heart of Metro Manila. The new corporation, like the old,
employs as many as 2,000 persons, the same personnel who worked for the old PBM. Additionally,
one of the petitioners, Chung Siong Pek was one of the directors who executed the deed of
assignment in favor of the old PBM and it was he also who received the deeded assets on behalf and
as treasurer of the new PBM. Surely, these circumstances must operate to bar the petitioners now
from questioning the deed of assignment after this long period of inaction in the protection of the
rights they are now belatedly asserting. Laches has operated against them.

We have said in a number of cases that laches, in a general sense, means the failure or neglect, for an
unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or
should have been done earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned or declined to
assert it.
Topic: Non-stock Corporation

Case No.559
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
FACTS
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic
corporation organized under the laws of the Philippines with an original authorized capital stock of
P22,000.00, which was subsequently increased to P200,000.00. Neither in the articles or by-laws is
there a provision relative to dividends and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu.

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short
orders to its members and their guests. The bar-restaurant was a necessary incident to the operation
of the club and its golf-course. The club is operated mainly with funds derived from membership fees
and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its
golf-course. In 1951, as a result of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club declared stock dividends; but no actual
cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club
has never paid percentage tax on the gross receipts of its bar and restaurant. The CIR assessed
against the Club taxes from 1946-1951.

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having
been denied, the Club filed the instant petition for review.

ISSUE
For purposes of determining the Club’s tax liability, is the Club a stock or non-stock corporation? (The
Club is a non-stock corporation.)

RULING
It is claimed that the appellee Club is a stock corporation. This is unmeritorious. The facts that the
capital stock of the respondent Club is divided into shares, does not detract from the finding of the
trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as
stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence
adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and
restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit:
1. a capital stock divided into shares and
2. an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held.
In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for
the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be
considered a stock corporation, within the contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit,
nonstock organizations, unless the intent to the contrary is manifest and patent, which is not the
case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of
a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not
liable for any penalty, much less of a compromise penalty.

It has been held that the liability for fixed and percentage taxes, as provided in the Tax Code does
not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to
attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The
plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose
or livelihood is the motive, and the term business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to activities for profit or livelihood.

Having found as a fact that


 the Club was organized to develop and cultivate sports of all class and denomination, for the
healthful recreation and entertainment of its stockholders and members;
 upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu; that it is operated mainly with funds derived from membership
fees and dues;
 the Club's bar and restaurant catered only to its members and their guests; that there was in
fact no cash dividend distribution to its stockholders and that whatever was derived on retail
from its bar and restaurant was used to defray its overall overhead expenses and to improve
its golf-course (cost-plus-expenses-basis),
it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact
does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary
adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the healthful recreation and
entertainment of the stockholders and members. That a Club makes some profit, does not make it a
profit-making Club. As has been remarked a club should always strive, whenever possible, to have
surplus.
Topic: Appointment of a Resident Agent

Case No.578
[G.R. No. 152392. May 26, 2005]
EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF APPEALS and KOREAN
AIRLINES, respondents.
FACTS
 Expertravel and Tours, Inc. (ETI).
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law firm.

In 1999, KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the RTC, for the collection
of the principal amount of P260,150.00, plus attorneys fees and exemplary damages. The verification
and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that
he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.

ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping as required by the Rules of Court. KAL
opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as
such with the SEC as required by the Corporation Code of the Philippines. It was further alleged that
Atty. Aguinaldo was also the corporate secretary of KAL.

The trial court denied. ETI then filed a petition for certiorari and mandamus, assailing the orders of
the RTC. The CA dismissed the Petition. Hence, this case.

ISSUE
Is the resident agent of a foreign corporation authorized to sign the Verification and CNFS in the
Complaint filed by the corporation? NONE unless otherwise authorized.

RULING
The petition is meritorious.

It is settled that the requirement to file a certificate of non-forum shopping is mandatory and that
the failure to comply with this requirement cannot be excused. The certification is a peculiar and
personal responsibility of the party, an assurance given to the court or other tribunal that there are
no other pending cases involving basically the same parties, issues and causes of action. Hence, the
certification must be accomplished by the party himself because he has actual knowledge of
whether or not he has initiated similar actions or proceedings in different courts or tribunals. Even
his counsel may be unaware of such facts. Hence, the requisite certification executed by the
plaintiff’s counsel will not suffice.

The verification and certificate of non-forum shopping was incorporated in the complaint and signed
by Atty. Aguinaldo. In the certification, there was no allegation that Atty. Aguinaldo had been
authorized to execute the certificate of non-forum shopping by the respondents Board of Directors;
moreover, no such board resolution was appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean
that he is authorized to execute the requisite certification against forum shopping. Under Section
127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a
foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the
foreign corporation, services and other legal processes in all actions and other legal proceedings
against such corporation.

Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum
shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent
may be aware of actions filed against his principal (a foreign corporation doing business in the
Philippines), such resident may not be aware of actions initiated by its principal, whether in the
Philippines against a domestic corporation or private individual, or in the country where such
corporation was organized and registered, against a Philippine registered corporation or a Filipino
citizen.

The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically
authorized to execute the said certification. It attempted to show its compliance with the rule
subsequent to the filing of its complaint by submitting a resolution purporting to have been approved
by its Board of Directors during a teleconference, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in
attendance. However, such attempt of the respondent casts veritable doubt not only on its claim that
such a teleconference was held, but also on the approval by the Board of Directors of the resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.

Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference
along with the respondents Board of Directors, the Court is not convinced that one was conducted;
even if there had been one, the Court is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required
certification against forum shopping.

Respondent submitted an affidavit of its general manager Suk Kyoo Kim, stating, inter alia, that he
and Atty. Aguinaldo attended the said teleconference on June 25, 1999, where the Board of Directors
supposedly approved the resolution.

But then, in the same affidavit, Suk Kyoo Kim declared that the respondent does not keep a written
copy of the aforesaid Resolution because no records of board resolutions approved during
teleconferences were kept. This belied the respondent’s earlier allegation that the Resolution was in
the custody of its main office in Korea. The respondent gave the trial court the impression that it
needed time to secure a copy of the resolution kept in Korea, only to allege later (via the affidavit of
Suk Kyoo Kim) that it had no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that
the resolution was embodied in the Secretarys/Resident Agents Certificate signed by Atty.
Aguinaldo. However, no such resolution was appended to the said certificate.

SO ORDERED.
Topic: Doctrine of ‘doing business’- Contract Test

Case No.597
G.R. No. 110910 July 17, 1995
NATIONAL SUGAR TRADING CORPORATION and SUGAR REGULATORY
ADMINISTRATION, petitioners,
vs.
HON. COURT OF APPEALS and EASTERN SUGAR CORPORATION, respondents.

QUIASON, J.:
FACTS
Petitioner National Sugar Trading Corporation (NASUTRA) was a domestic corporation created for
the purpose of engaging in the trading of sugar, and was a subsidiary of the Philippine Sugar
Commission (PSC), an entity owned and controlled by the Philippine government. The NASUTRA and
PSC were phased out respectively by P.D. No. 1971 in 1985 and E.O. No. 18 in 1986, which at the same
time created petitioner Sugar Regulatory Administration (SRA) to administer over the sugar industry.
Respondent Eastern Sugar Corporation (ESC) is a corporation organized and existing under the laws
of Hongkong.

ESC alleged that it is a foreign corporation doing business in the Philippines. ESC and NASUTRA
entered into a Contract for the Purchase and Sale of Sugar where ESC purchased from NASUTRA a
total of 40,000 long tons of raw sugar at 10,000 long tons per year from the sugar cane crops of 1981
to 1984 at a price of U.S. $0.25 per pound. As stipulated, payment for the sugar was made. NASUTRA,
however, was able to deliver only 20,569.89 long tons of sugar, leaving a balance of 19,430.11 long
tons due and demandable.

In 1986, NASUTRA was dissolved and SRA was created to liquidate and succeed it. The Board of
Directors of SRA passed Resolution No. 68-87-A assuming NASUTRA's obligation to deliver to ESC
the remaining sugar. The SRA made a partial delivery and reduced the balance to 15,843.66 long
tons. The SRA, however, failed to make further deliveries despite repeated demands therefor, to the
prejudice of ESC. ESC thus prayed for specific performance of the remaining obligation in the contract,
and in the event of non-compliance, for partial rescission thereof with damages.

The trial court dismissed the complaint on the ground of lack of capacity to sue by ESC. Upon motion
for reconsideration of private respondent the trial court reversed and set aside the previous order
and directed petitioners to file their answer to the complaint.

Petitioners questioned this order before the Court of Appeals in a petition under Rule 65 of the
Revised Rules of Court. The Court of Appeals rendered a decision, dismissing the petition.

Petitioners filed the petition before this Court under Rule 45 of the Revised Rules of Court.

ISSUE
As an unlicensed foreign corporation, does ESC have the capacity to sue in the Philippines?
YES. License is not necessary as ESC cannot be considered as doing business in the
Philippines.
RULING
Whether a foreign corporation is doing business in the Philippines must be determined in the light of
the peculiar circumstances of each case. This is essentially a question of fact.

Petitioners do not dispute private respondent's claim that NASUTRA entered into the Contract of
Purchase and Sale of Sugar with the latter in 1980. In fact, in its Motion to Dismiss filed below,
petitioner SRA admits the partial delivery of the sugar and the issuance of SRA Resolution No. 68-87-
A recognizing payment and receipt by NASUTRA of the purchase price for the said sugar, and
NASUTRA's existing obligation over the undelivered portion.

Given these preliminary facts and assuming that petitioner NASUTRA was aware from the outset
that private respondent had no license to do business in this country, it would appear quite
inequitable for NASUTRA, a state-owned corporation, to evade payment of an otherwise legitimate
indebtedness due and owing to private respondent upon the plea that the latter should have
obtained a license first before perfecting a contract with the Philippine government. (Merrill Lynch
Futures, Inc. v. Court of Appeals, 211 SCRA 824 [1992]).

Furthermore, private respondents did not, under the subject transaction, sell sugar and derive
income from the Philippines. Private respondent specifically purchased sugar from the Philippine
government and allegedly paid for it in full.

Antam Consolidated, Inc. v. Court of Appeals, 143 SCRA 288 (1986):


The doctrine of lack of capacity to sue based on failure to acquire a local license is based on
considerations of sound public policy. The license requirement was imposed to subject the
foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was
never intended to favor domestic corporations who enter into solitary transactions with
unwary foreign firms and then repudiate their obligations simply because the latter are not
licensed to do business in this country.

SO ORDERED.
Topic: Doctrine of “doing business” – Other Cases

Case No.615
G.R. No. L-38649 March 26, 1979
FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners,
vs.
LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents.

FACTS
Leonardo dela Rosa was employed by Facilities Management Corporation (FMC) as follows:
1. painter with an hourly rate of $1.25 from March, 1964 to November, 1964, inclusive;
2. houseboy with an hourly rate of $1.26 from December, 1964 to November, 1965, inclusive;
3. houseboy with an hourly rate of $1.33 from December, 1965 to August, 1966, inclusive; and
4. cashier with an hourly rate of $1.40 from August, 1966 to March 27, 1967, inclusive.
He further averred that from December, 1965 to August, 1966, inclusive, he rendered overtime
services daily and that this entire period was divided into swing and graveyard shifts to which he was
assigned, but he was not paid both overtime and night shift premiums despite his repeated demands
from respondents.

Respondent FMC, without substantially denying the material allegations of the basic petition,
interposed the following special defenses, namely:
1. That respondents Facilities Management Corporation and J. S. Dreyer are domiciled in Wake
Island which is beyond the territorial jurisdiction of the Philippine Government;
2. that respondent J. V. Catuira, though an employee of respondent corporation presently
stationed in Manila, is without power and authority of legal representation; and
3. that the employment contract between petitioner and respondent corporation carries -the
approval of the Department of Labor of the Philippines.

Subsequently FMC filed a motion to dismiss the subject petition on the ground that this Court has no
Jurisdiction over the instant case.

ISSUE
Did the Court acquire jurisdiction over the case? Is the mere act by a non-resident foreign corporation
of recruiting Filipino workers for its own use abroad, in law doing business in the Philippines?

The Philippine Courts has jurisdiction.

RULING
Apropos before this Court were filed three (3) other cases involving the same petitioner, all of which
had been finally dispoded of. The principal question involved in each of the three cases is more or
less identical, to wit: Is the mere act by a non-resident foreign corporation of recruiting Filipino
workers for its own use abroad, in law doing business in the Philippines?

While it is true that the issues presented in the decided cases are worded differently from the
principal issue raised in the case at bar, the fact remains that they all boil down to one and the same
issue, which was aptly formulated and ably resolved by Mr. Justice Ramon C. Fernandez. The
majority opinion of the Court of Appeals, which was penned by Justice Fernandez and which WE
hereby adopt, runs as follows:
The principal issue presented in this special civil action is whether petitioner has been 'doing
business in the Philippines' so that the service of summons upon its agent in the Philippines
vested the Court of First Instance of Manila with jurisdiction.

From the facts of record, the petitioner may be considered as doing business in the
Philippines within the scope of Section 14, Rule 14 of the Rules of the Court which provide:
SEC 14. Service upon private foreign corporations. If the defendant is a foreign
corporation or a non-resident joint stock company or association: doing business in
the Philippines, service may be made on its resident agent designated in accordance
with law for that purpose or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents within the
Philippines.

Indeed, the petitioner, in compliance with Act 2486 as implemented by Department of Labor
Order No. IV had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila as agent for FMC
with authority to execute Employment Contracts and receive, in behalf of that corporation,
legal services from and be bound by processes of the Philippine Courts of Justice, for as long
as he remains an employee of FMC. It is a fact that when the summons for the petitioner was
served on Jaime V. Catuira he was still in the employ of the FMC.

In his motion to dismiss, petitioner admits that Mr. Catuira represented it in this country 'for
the purpose of making arrangements for the approval by the Department of Labor of the
employment of Filipinos who are recruited by the Company as its own employees for
assignment abroad.' In effect, Mr. Catuira was a on officer representing petitioner in the
Philippines.

Under the rules and regulations promulgated by the Board of Investments which took effect
Feb. 3, 1969, implementing Rep. Act No. 5455, which took effect Sept. 30, 1968, the phrase
'doing business' has been exemption with illustrations, among them being as follows:
xxx xxx xxx
(f) the performance within the Philippines of any act or combination of acts enumerated in
Section l(l) of the Act shall constitute 'doing business' therein. in particular, 'doing
business
includes:

(2) Appointing a representative or distributor who is domiciled in the Philippines,


unless said representative or distributor has an independent status, i.e., it transacts
business in its name and for its own account, and not in the name or for the account
of the principal.
Aetna Casualty & Curety Company vs. Pacific Star Line, the Bradman Co., Inc.
The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to suit in the
local courts. It was never the purpose of the Legislature to exclude a foreign corporation
which happens to obtain an isolated order for business from the Philippines, from securing
redress in the Philippine courts (Marshall Co. vs. Elser & Co., 46 Phil 70,75).

In Mentholatum Co., Inc., et al vs- M Court rules that-


No general rule or governing principle can be laid down as to what constitutes 'doing' or
'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it and turned it over to
another. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held:
(d) While plaintiff is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no capacity to bring the present action. Such
license is not necessary because it is not engaged in business in the Philippines. In fact, the
transaction herein involved is the first business undertaken by plaintiff in the Philippines,
although on a previous occasion plaintiff's vessel was chartered by the National Rice and
Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated
transactions do not constitute engaging in business in the Philippines within the purview of
Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our
courts.

Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from
seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in Philippine courts for acts done against a person or persons in the
Philippines.

WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE PETITIONERS.

SO ORDERED.
Topic: Powers and Functions of the SEC

Case No.633
G.R. No. 164026 December 23, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
GMA NETWORK, INC., respondent.
FACTS
The petitioner, GMA NETWORK, INC., a domestic corporation, filed an application for collective
approval of various amendments to its Articles of Incorporation and By-Laws with the respondent
SEC. The amendments applied for include, among others, the change in the corporate name of
petitioner from "Republic Broadcasting System, Inc." to "GMA Network, Inc." as well as the extension
of the corporate term for another fifty (50) years from and after June 16, 2000.

Upon such filing, the petitioner had been assessed by the SEC’s Corporate and Legal Department a
separate filing fee for the application for extension of corporate term equivalent to 1/10 of 1% of its
authorized capital stock plus 20% thereof or an amount of P1,212,200.00.

GMA informed the SEC of its intention to contest the legality and propriety of the said assessment.
However, the petitioner requested the SEC to approve the other amendments being requested by
the petitioner without being deemed to have withdrawn its application for extension of corporate
term. In 1995, GMA formally protested the assessment amounting to P1,212,200.00 for its application
for extension of corporate term.

In 1996, the SEC approved the other amendments to the petitioner’s Articles of Incorporation,
specifically Article 1 thereof referring to the corporate name of the petitioner as well as Article 2
thereof referring to the principal purpose for which the petitioner was formed. GMA requested for
an official opinion/ruling from the SEC on the validity and propriety of the assessment for application
for extension of its corporate term.

Consequently, the respondent SEC, through Associate Commissioner Fe Eloisa C. Gloria, issued its
ruling upholding the validity of the questioned assessment.

In its petition for review with the Court of Appeals, GMA argued that its application for the extension
of its corporate term is akin to an amendment and not to a filing of new articles of incorporation. It
further averred that SEC Memorandum Circular No. 2, Series of 1994, which the SEC used as basis for
assessing P1,212,200.00 as filing fee for the extension of GMA’s corporate term, is not valid.

The appellate court agreed with the SEC’s submission that an extension of the corporate term is a
grant of a fresh license for a corporation to act as a juridical being endowed with the powers
expressly bestowed by the State. As such, it is not an ordinary amendment but is analogous to the
filing of new articles of incorporation. However, the Court of Appeals ruled that Memorandum
Circular No. 2, Series of 1994 is legally invalid and ineffective for not having been published in
accordance with law. The challenged memorandum circular, according to the appellate court, is not
merely an internal or interpretative rule, but affects the public in general. Hence, its publication is
required for its effectivity.
ISSUE
Does the SEC have the authority to assess GMA for the amendment to its AOI regarding the
extension of Corporate term?
NO. SEC Memo No.2 (1994) is not valid because it was not published. However, the authority
of the SEC to collect fees is emphasized. Since SEC Memo No.2, which imposes a filing fee of
1/10 of 1% of the OCS plus 20% thereof, is invalid, the SEC cannot collect that amount from
GMA. However, SEC may collect from GMA the amount of 1/10 of 1% of the OCS under the
authority of SEC Memo No. 1which was the one supposed to be superseded by SEC Memo
No. 2 had the latter been valid.

RULING
It should be mentioned at the outset that the authority of the SEC to collect and receive fees as
authorized by law is not in question.

Republic Act No. 3531 (R.A. No. 3531) provides that where the amendment consists in extending the
term of corporate existence, the SEC "shall be entitled to collect and receive for the filing of the
amended articles of incorporation the same fees collectible under existing law as the filing of articles
of incorporation." As is clearly the import of this law, the SEC shall be entitled to collect and receive
the same fees it assesses and collects both for the filing of articles of incorporation and the filing of
an amended articles of incorporation for purposes of extending the term of corporate existence.

What the Law says…

SEC Memorandum Circular No. 1, Series of 1986: for the filing of amended articles of incorporation
where the amendment consists of extending the term of corporate existence.
 filing fee of 1/10 of 1% of the authorized capital stock but not less than P300.00 nor more
than P100,000.00 for stock corporations, and
 1/10 of 1% of the authorized capital stock but not less than P200.00 nor more
than P100,000.00 for stock corporations without par value,

Several years after, the SEC issued Memorandum Circular No. 2, Series of 1994, imposing new fees
and charges and deleting the maximum filing fee set forth in SEC Circular No. 1, Series of 1986, such
that
 the fee for the filing of articles of incorporation became 1/10 of 1% of the authorized capital
stock plus 20% thereof but not less than P500.00.

The clear directive of R.A. No. 3531 was to impose the same fees for the filing of articles of
incorporation and the filing of amended articles of incorporation to reflect an extension of corporate
term. R.A. No. 3531 provides an unmistakable standard which should guide the SEC in fixing and
imposing its rates and fees. If such mandate were the only consideration, the Court would have been
inclined to rule that the SEC was correct in imposing the filing fees as outlined in the questioned
memorandum circular, GMA’s argument notwithstanding.

However, we agree with the Court of Appeals that the questioned memorandum circular is invalid
as it does not appear from the records that it has been published in the Official Gazette or in a
newspaper of general circulation.

SO ORDERED.
Topic: Controversies Arising Out of Intra-Corporate or Partnership Relations

Case No.652
G.R. No. 118088 November 23, 1995
MAINLAND CONSTRUCTION, CO., INC., and/or LUCITA LU CARABUENA, ROBERT L. CARABUENA,
ELLEN LU CARABUENA, and MARTIN LU, petitioners,
vs.
MILA MOVILLA, ERNESTO MOVILLA, JR., MILA JUDITH C. MOVILLA, JUDE BRIX C. MOVILLA,
JONARD ELLERY C. MOVILLA, AND MAILA JONAH M. QUIMBO, surviving heirs of ERNESTO
MOVILLA, and THE HONORABLE COMMISSIONER of the NATIONAL LABOR RELATIONS
COMMISSION-5TH DIVISION, respondents.

HERMOSISIMA, JR., J.:


FACTS
Mainland Construction Co., Inc. is a domestic corporation, duly organized and existing under
Philippine laws, having been issued a certificate of registration by the SEC. Its principal line of
business is the general construction of roads and bridges and the operation of a service shop for the
maintenance of equipment. Respondents on the other hand, are the surviving heirs of complainant,
Ernesto Movilla, who died during the pendency of the action with the Labor Arbiter.

Records show that Ernesto Movilla, who was a Certified Public Accountant during his lifetime, was
hired as such by Mainland in 1977. Thereafter, he was promoted to the position of Administrative
Officer with a monthly salary of P4,700.00. Ernesto Movilla, recorded as receiving a fixed salary of
P4,700.00 a month, was registered with the SSS as an employee of petitioner Corporation. His
contributions to the SSS, Medicare and Employees Compensation Commission (ECC) were deducted
from his monthly earnings by his said employer.

During petitioner corporation's annual meeting of stockholders, the following were elected
members of the Board of Directors, viz.: Robert L. Carabuena, Ellen L. Carabuena, Lucita Lu
Carabuena, Martin G. Lu and Ernesto L. Movilla.

On the same day, an organizational meeting was held and the Board of Directors elected Ernesto
Movilla as Administrative Manager. He occupied the said position up to the time of his death. The
DOLE conducted a routine inspection on petitioner corporation and found that it committed such
irregularities in the conduct of its business as:
1. Underpayment of wages under R.A. 6727 and RTWPB-XI-01;
2. Non-implementation of Wage Order No. RTWPB-XI-02;
3. Unpaid wages for 1989 and 1990;
4. Non-payment of holiday pay and service incentive leave pay; and
5. Unpaid 13th month pay (remaining balance for 1990).4

On the basis of this finding, petitioner corporation was ordered by DOLE to pay to its thirteen
employees, which included Movilla, the total amount of P309,435.89, representing their salaries,
holiday pay, service incentive leave pay differentials, unpaid wages and 13th month pay. All the
employees listed in the DOLE's order were paid by petitioner corporation, except Ernesto Movilla.

Ernesto Movilla filed a case against petitioner corporation for unpaid wages, separation pay and
attorney's fees, with the DOLE, Regional Arbitration.
Ernesto Movilla died while the case was being tried by the Labor Arbiter and was promptly
substituted by his heirs, private respondents herein, with the consent of the Labor Arbiter.

The Labor Arbiter rendered judgment dismissing the complaint on the ground of lack of jurisdiction.
The DOLE found that the controversy presented is intra-corporate in nature and is within the
jurisdiction of the SEC, pursuant to P.D. 902-A.

The NLRC ruled that the issue in the case was one which involved a labor dispute between an
employee and petitioner corporation and, thus, the NLRC had jurisdiction to resolve the case.

ISSUE
Which government agency has jurisdiction over the case?

RULING
The NLRC has jurisdiction.

In order that the SEC can take cognizance of a case, the controversy must pertain to any of the
following relationships:
a. between the corporation, partnership or association and the public;
b. between the corporation, partnership or association and its stockholders, partners, members
or officers;
c. between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and
d. among the stockholders, partners or associates themselves.

The fact that the parties involved in the controversy are all stockholders or that the parties involved
are the stockholders and the corporation does not necessarily place the dispute within the ambit of
the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should
be to consider concurrent factors such as the status or relationship of the parties or the nature of
the question that is the subject of their controversy. In the absence of any one of these factors, the
SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between
the corporation and its stockholders would involve such corporate matters as only the SEC can
resolve in the exercise of its adjudicatory or quasi-judicial powers.

In the case at bench, the claim for unpaid wages and separation pay filed by the complainant against
petitioner corporation involves a labor dispute. It does not involve an intra-corporate matter, even
when it is between a stockholder and a corporation. It relates to an employer-employee relationship
which is distinct from the corporate relationship of one with the other. Moreover, there was no
showing of any change in the duties being performed by complainant as an Administrative Officer
and as an Administrative Manager after his election by the Board of Directors. What comes to the
fore is whether there was a change in the nature of his functions and not merely the nomenclature
or title given to his job.
Indeed, Ernesto Movilla worked as an administrative officer of the company for several years and was
given a fixed salary every month. A Premium Certification issued by an authorized representative of
petitioners was also presented to show his actual monthly earnings as well as his monthly
contributions to the SSS, Medicare and ECC. Movilla's registration in the SSS by petitioner corporation
added strength to the conclusion that he was petitioner corporation's employee as coverage by the
said law is predicated on the existence of an employer-employee relationship. Furthermore,
petitioner corporation failed to present evidence which showed that, after his election as
Administrative Manager, he was excluded from the coverage of the SSS, Medicare and ECC.

The existence of an employer-employee relationship is a factual question and public respondent's


findings are accorded great weight and respect as the same are supported by substantial
evidence. Hence, we uphold the conclusion of public respondent that Ernesto Movilla was an
employee of petitioner corporation.

It is pertinent to note that petitioner corporation is not prohibited from hiring its corporate
officers to perform services under a circumstance which will make him an employee. Moreover,
although a director of a corporation is not, merely by virtue of his position, its employee, said
director may act as an employee or accept duties that make him also an employee.

Since Ernesto Movilla's complaint involves a labor dispute, it is the NLRC, under Article 217 of the
Labor Code of the Philippines, which has jurisdiction over the case at bench.

SO ORDERED.
Topic: Petitions for Declaration in the State of Suspension of Payments

Case No. 689


[G.R. No. 126773. April 14, 1999]
RUBBERWORLD (PHILS.), INC., or JULIE YAP ONG, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, MARILYN F. ARELLANO, EMILY S. LEGASPI, MYRNA S. GALGANA, MERCEDITA R.
SONGCO, WILFREDO V. SANTOS, JOSEPHINE S. RAMOS, REDENTOR G. HONA, LUZ B. HONA,
ROLANDO B. CRUZ, GUILLERMA R. MUZONES, CARMELITA V. HALILI, SUSAN A. REYES, EMILY A.
ROBILLOS, PLACIDO REYES, MANOLITO DELA CRUZ, VICTORINO C. FRANCISCO, ROGER B. MARIAS,
VIOLETA ALEJO, RICARDO T. TORRES, EMMA DELA TORRE, PERLA N. MANZANERO, FRANCISCO D.
SERDONCILLO, LUISITO P. HERNANDEZ, RAYMOND PEREA, EDITHA A. SERDONCILLO, FRANCISCO
GENER, MARIO B. REYES, VALERIANO A. HERRERA, JORGE S. SEERES, ELENA S. IGNACIO, EMERITA
S. CACHERO, NERIZA G. ENRIQUEZ, LOLITA M. FABULAR, NORMITA M. HERNANDEZ, DOMINADOR
P. ENRIQUEZ, respondents.
FACTS
Petitioner Rubberworld is a domestic corporation which used to be in the business of manufacturing
footwear, bags and garments. It filed with the SEC a petition for suspension of payments praying
that it be declared in a state of suspension of payments and that the SEC accordingly issue an order
restraining its creditors from enforcing their claims against petitioner corporation. It further prayed
for the creation of a management committee as well as for the approval of the proposed
rehabilitation plan and memorandum of agreement between petitioner corporation and its creditors.

The SEC favorably ruled on the petition for suspension of payments thusly:
'Accordingly, with the creation of the Management Committee, all actions for claims against
Rubberworld Philippines, Inc. pending before any court, tribunal, office, board, body
Commission of Sheriff are hereby deemed SUSPENDED.

'Consequently, all pending incidents for preliminary injunctions, writ of attachments (sic),
foreclosures' and the like are hereby rendered moot and academic.'

Private respondents, who claim to be employees of petitioner corporation, filed against petitioners
their respective complaints for illegal dismissal, unfair labor practice, damages and payment of
separation pay, retirement benefits, 13th month pay and service incentive pay.

Petitioner Rubberworld moved to suspend the proceedings in the above labor cases on the strength
of the SEC Order dated December 28, 1994.

The Labor Arbiter denied the aforesaid motion holding that the injunction contained in the SEC Order
applied only to the enforcement of established rights and did not include the suspension of
proceedings involving claims against petitioner which have yet to be ascertained. The Labor Arbiter
further held that the order of the SEC suspending all actions for claims against petitioners does not
cover the claims of private respondents in the labor cases because said claims and the concomitant
liability of petitioners still had to be determined, thus carrying no dissipation of the assets of
petitioners.
ISSUE
 Is Rubberworld entitled to the suspension of payments that it seeks? (YES.)
 Will the proceedings in the suspension of payment affect the preference of credit of the
employees in the labor case under the Civil Code? (NO. The corporation is not yet insolvent.
It is Solvent but illiquid. Rehabilitation is not the same as insolvency.)

RULING
Jurisprudence teaches us:
where the petition filed is one for declaration of a state of suspension of payments due to a
recognition of the inability to pay one's debts and liabilities, and where the petitioning corporation
either:
a. has sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due (solvent but illiquid) or
b. has no sufficient property (insolvent) but is under the management of a
rehabilitation receiver or a management committee, the applicable law is P.D.
902-A pursuant to Sec. 5 par. (d) thereof.
However, if the petitioning corporation has no sufficient assets to cover its liabilities and is not under
a rehabilitation receiver or a management committee created under P.D. 902-A and does not seek
merely to have the payments of its debts suspended, but seeks a declaration of insolvency xxx the
applicable law is Act 1956 [The Insolvency Law] on voluntary insolvency,

In the case at bar, Petitioner Rubberworld filed before the SEC a Petition for Declaration of
Suspension of Payments, as well as a propose rehabilitation plan. On December 28, 1994, the SEC
ordered the creation of a management committee and the suspension of all actions for claim against
Rubberworld. Clearly, the applicable law is PD 902-A, as amended, the relevant provision of which
read:
SECTION 5. In addition to the regulatory adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving:
xxxxxxxxx
d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when
they respectively fall due or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities, but is under the management of a rehabilitation
receiver or management committee created pursuant to this Decree.

It is plain from the foregoing that upon the appointment, by the SEC, of a management committee
or a rehabilitation receiver, all actions for claims against the corporation pending before any court,
tribunal or board shall ipso jure be suspended. The justification for the automatic stay of all pending
actions for claims is to enable the management committee or the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the 'rescue' of the debtor company. To allow such other actions to
continue would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.
Parenthetically, the rehabilitation of a financially distressed corporation benefits its employees,
creditors, stockholders and, in a larger sense, the general public. And in considering whether to
rehabilitate or not, the SEC gives preference to the interest of creditors, including employees. The
reason that shareholders can recover their investments only upon liquidation of' the corporation, and
only if there are assets remaining after all corporate creditors are paid.

Preference in Favor of Workers in Case of Bankruptcy or Liquidation

The private respondents contend that automatic stay under PD 902-A is not applicable to the instant
case; otherwise, the preference granted to workers by Article 110 of the Labor Code would be
rendered ineffective. This contention is misleading.

The preferential right of workers and employees under Article 110 of the Labor Code may be
invoked only upon the institution of insolvency or judicial liquidation proceeding. Indeed, it is well-
settled that "a declaration of bankruptcy or a judicial liquidation must be present before preferences
over various money claims may be enforced." But debtors resort to preference of credit -- giving
preferred creditors the right to have their claims paid ahead of those of other claimants -- only when
their assets are insufficient to pay their debts fully. The purpose of rehabilitation proceedings is
precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid
their claims from its earnings. In insolvency proceedings, on the other hand, the company stops
operating, and the claims of creditors are satisfied from the assets of the insolvent corporation. The
present case involves the rehabilitation, not the liquidation, of petitioner-corporation. Hence, the
preference of credit granted to workers or employees under Article 110 of the Labor Code is
not applicable.

SO ORDERED.
Topic: Brokers/Dealers

Case No. 707


[G.R. No. 122857. March 27, 1998]
ROY NICOLAS, petitioner, vs. THE HONORABLE COURT OF APPEALS (Sixth Division) and BLESILO
F.B. BUAN, respondents.
FACTS
Petitioner Roy Nicolas and private respondent Blesito Buan entered into a Portfolio Management
Agreement, wherein Nicolas was to manage the stock transactions of Blesito Buan for a period of
three months with an automatic renewal clause. However, upon the initiative of Buan the agreement
was terminated on August 19, 1987, and thereafter he requested for an accounting of all transactions
made by the Nicolas.

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

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

After hearing, the trial court rendered its decision in favor of Nicolas. The appellate court reversed
the trial courts finding and ruled against Nicolas.

ISSUE
Is Nicolas entitled to receive compensation or his management of Buan’s business? No.

RULING
We affirm the ruling of the Court of Appeals.

Under the Portfolio Management Agreement, it was agreed that private respondent would pay the
petitioner 20% of all realized profits every end of the month as his management fees. The exact
wording of the provision reads:
3. For his services, the INVESTOR agrees to pay the PORTFOLIO MANAGER 20% of all realized
profits every end of the month.

Evidently, the key word in the provision is profits. Simply put, profit has been defined as the excess
of return over expenditure in a transaction or series of transactions or the series of an amount
received over the amount paid for goods and services.

To begin with, petitioner has the burden to prove that the transaction realized gains or profits to
entitle him to said management fees, as provided in the Agreement. Accordingly, petitioner
submitted the profit and loss statements for the period of June 30, July 31 and August 19, 1987,
showing a total profit of P341,318.34, of which 20% would represent his management fees amounting
to P68,263.70.
Admittedly, like any services rendered or performed, stock brokers are entitled to commercial fees
or compensation pursuant to the Revised Securities Act Rule 19-13, which reads:
RSA Rule 19-13. Charges for Services Performed.
Charges by brokers or dealers, if any, for service performed, including miscellaneous
services such as collection of monies due for principal, dividends, interests, exchange
or transfer of securities, appeals, safekeeping or custody of securities, and other
services, shall be reasonable and not unfairly discriminatory between customers.

Moreover, the same law provides that any fee or commission must be with due regard to relevant
circumstances.

Unfortunately, the profit and loss statements presented by the petitioner are nothing but bare
assertions, devoid of any concrete basis or specifics as to the method of arriving at the amounts
indicated in the documents. In fact, it did not even state when the stocks were purchased, the type
of stocks (whether Class A or B or common or preferred) bought, when the stocks were sold, the
acquisition and selling price of each stock, when the profits, if any, were delivered to the private
respondent, the cost of safekeeping or custody of the stocks, as well as the taxes paid for each
transaction. With respect to the alleged losses, it has been held that where a profit or loss statement
shows a loss, the statement must show income and items of expense to explain the method of
determining such loss. However, in the instant petition, petitioner hardly elucidated the reasons and
the factors behind the losses incurred in the course of the transactions.

In short, no evidentiary value can be attributed to the profit and loss statements submitted by the
petitioner. These documents can hardly be considered a credible or true reflection of the transactions. It
is an incomplete record yielding easily to the inclusion or deletion of certain matters. The contents are
subject to suspicion since they are not reflective of all pertinent and relevant data. Thus, even assuming
the admissibility of these alleged profit and loss statements, they are devoid of any evidentiary weight,
for the amounts are conclusions without premises, its bases left to speculation, conjectures, assertions
and guesswork.

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

To our mind, petitioners complaint is similar to an action for damages, wherein the general rule is
that for the same to be recoverable it must not only be capable of proof but must actually be proved
with a reasonable degree of certainty, and courts, in making the awards, must posit specific facts
which could afford sufficient basis for measuring compensatory or actual damages. Since petitioner
could not present any credible evidence to substantiate his claims, the Court of Appeals was correct
in ordering the dismissal of his complaint.
Lastly, the futility of petitioners action became more pronounced by the fact that he traded
securities for the account of others without the necessary license from the Securities and Exchange
Commission (SEC). Clearly, such omission was in violation of Section 19 of the Revised Securities Act
which provides that no broker shall sell any securities unless he is registered with the SEC. The
purpose of the statute requiring the registration of brokers selling securities and the filing of data
regarding securities which they propose to sell, is to protect the public and strengthen the securities
mechanism.

American jurisprudence emphasizes the principle that:


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

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

SO ORDERED.
Topic: Petitions for Declaration in the State of Suspension of Payment

Case No. 670


G.R. NOS. 174457-59
EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT CANADA, Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR THE HOLDERS
OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN TELECOMMUNICATIONS, INC.) AND ATTY.
REMIGIO A. NOVAL (AS THE COURT-APPOINTED REHABILITATION RECEIVER OF
BAYANTEL), Respondents.

FACTS
Respondent Bayantel is a duly organized domestic corporation engaged in the business of providing
telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings Corporation
(BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and Benpres Holdings
Corporation.

On various dates between the years 1995 and 2001, Bayantel entered into several credit agreements
with Express Investments III Private Ltd. and Export Development Canada, among others. To secure
said loans, Bayantel executed an Omnibus Agreement dated September 19, 1995 and an EVTELCO
Mortgage Trust Indenture.

Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an Indenture that it entered
into with The Bank of New York as trustee for the holders of said notes. Bayantel managed to make
two interest payments before it defaulted on its obligation.

Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying the
Holders of Notes. Bayantel’s total indebtedness had reached US$674 million or P35.928 billion in
unpaid principal and interest, based on the prevailing conversion rate of US$1 = P53.282. Out of its
total liabilities, Bayantel allegedly owes 43.2% or US$291 million (P15.539 billion) to the Holders of the
Notes.

The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel an Acceleration Letter
declaring immediately due and payable the principal, premium interest, and other monetary
obligations on all outstanding Notes. Then, The Bank of New York filed a petition for the corporate
rehabilitation of Bayantel upon the instructions of the Informal Steering Committee.

The Pasig RTC issued a Stay Order which directed, among others, the suspension of all claims against
Bayantel and required the latter’s creditors and other interested parties to file a comment or
opposition to the petition. The court appointed Atty. Remigio A. Noval (Atty. Noval) as receiver

The Rehabilitation Court gave due course to the petition and directed the Rehabilitation Receiver to
submit his recommendations to the court within 120 days from the initial hearing. Atty. Noval filed a
Compliance and Submission of the Report as Compelling Evidence that Bayantel may be
Successfully Rehabilitated.

In his report, Atty. Noval classified Bayantel’s debts into three:


1.
those owed to secured Bank Creditors pursuant to the Omnibus Agreements (Omnibus
Creditors) in the total amount of US$334 million or P17.781 billion;
2.
those owed to Holders of the Senior Notes and Bank Creditors combined (Chattel Creditors),
comprising US$625 million, of which US$473 million (P25.214 billion) is principal and US$152
million (P8.106 billion) is accrued unpaid interest; and
3.
those that Bayantel owed to persons other than Financial Creditors/unsecured creditors in
the amount of US$49 million or P2.608 billion.

Dissatisfied, The Bank of New York filed a Notice of Appeal.

The Rehabilitation Court issued an Order directing the creation of a Monitoring Committee to be
composed of one member each from the group of Omnibus Creditors and unsecured creditors, and a
third member to be chosen by the unanimous vote of the first two members. In the same Order, the
court defined the scope of the Monitoring Committee’s authority

The Bank of New York filed a Petition for Review before the Court of Appeals. The petition contest
the Rehabilitation Court’s Decision for, among others, fixing the level of Bayantel’s sustainable debt
at US$325 million to be paid in 19 years.

Issues
 May the preferred creditors of a corporation under Rehabilitation be paid in preference over
the other creditors? NO!
 May a debtor submit a rehabilitation plan in a creditor-initiated rehabilitation? YES!

RULING
What is Rehabilitation

Rehabilitation is an attempt to conserve and administer the assets of an insolvent corporation in


the hope of its eventual return from financial stress to solvency. It contemplates the continuance
of corporate life and activities in an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. The purpose of rehabilitation proceedings is
precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid
their claims from its earnings.

Rehabilitation shall be undertaken when it is shown that the continued operation o the corporation is
economically feasible and its creditors can recover, by way of present value of payments projected in
the plan, more, if the corporation continues as a going concern than if it is immediately liquidated.

The law governing rehabilitation and suspension of actions for claims against corporations is PD
902-A, as amended. On December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC or the
Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation
filed by corporations, partnerships and associations pursuant to PD 902-A.

NOTES:
 The stay order shall be effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings.
 Under the Interim Rules, the petition shall be dismissed if no rehabilitation plan is approved
by the court upon the lapse of 180 days from the date of the initial hearing. The court may
grant an extension beyond this period only if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated. In no instance, however, shall the
period for approving or disapproving a rehabilitation plan exceed 18 months from the date of
filing of the petition.

G.R. NOS. 174457-59


Preference of Credit and Rehabilitation

The resolution of the issue at hand rests on a determination of whether secured creditors may
enforce preference in payment during rehabilitation by virtue of a contractual agreement.

Section 6(c), PD 902-A provides that upon the appointment of a management committee,
rehabilitation receiver, board or body, all actions for claims against corporations, partnerships or
associations under management or receivership pending before any court, tribunal, board or body
shall be suspended accordingly. The suspension of action for claims against the corporation under a
rehabilitation receiver or management committee embraces all phases of the suit, be it before the
trial court or any tribunal or before this Court.

The justification for suspension of actions for claims is to enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the “rescue” of the debtor company. It is intended
to give enough breathing space for the management committee or rehabilitation receiver to make
the business viable again without having to divert attention and resources to litigation in various
fora.

In Rizal Commercial Banking Corporation v. Intermediate Appellate Court:


We ruled that whenever a distressed corporation asks the SEC for rehabilitation and
suspension of payments, preferred creditors may no longer assert preference but shall stand
on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice
other creditors, or cause discrimination among them. In 1999, the Court qualified this ruling
by stating that preferred creditors of distressed corporations shall stand on equal footing
with all other creditors only after a rehabilitation receiver or management committee has
been appointed. More importantly, the Court laid the guidelines for the treatment of claims
against corporations undergoing rehabilitation:

All claims against corporations, partnerships, or associations that are pending before
any court, tribunal, or board, without distinction as to whether or not a creditor is
secured or unsecured, shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board, or body in accordance with
the provisions of Presidential Decree No. 902-A.

Secured creditors retain their preference over unsecured creditors, but


enforcement of such preference is equally suspended upon the appointment of a
management committee, rehabilitation receiver, board, or body. In the event that
the assets of the corporation, partnership, or association are finally liquidated,
however, secured and preferred credits under the applicable provisions of the Civil
Code will definitely have preference over unsecured ones.
Basically, once a management committee or rehabilitation receiver has been appointed in accordance
with PD 902-A, no action for claims may be initiated against a distressed corporation and those already
pending in court shall be suspended in whatever stage they may be. Notwithstanding, secured creditors
shall continue to have preferred status but the enforcement thereof is likewise held in abeyance.
However, if the court later determines that the rehabilitation of the distressed corporation is no longer
feasible and its assets are liquidated, secured claims shall enjoy priority in payment.

Here, the stipulation in the Assignment Agreement to the effect that respondent Bayantel shall pay
petitioners in full and ahead of other creditors out of its cash flow during rehabilitation directly
impinges on the provision of the approved Rehabilitation Plan that “the creditors of Bayantel, whether
secured or unsecured, should be treated equally and on the same footing or pari passu until the
rehabilitation proceedings is terminated in accordance with the Interim Rules.”

In this case, petitioners Express Investments III Private Ltd. and Export Development Canada are
concerned, not so much with the adequacy of the securities offered by respondent, but with the
devaluation of such securities over time. Petitioners fear that the proceeds of respondent’s collateral
would be insufficient to cover their claims in the event of liquidation.

On this point, suffice it to state that petitioners are not without any remedy to address a deficiency in
securities, if and when it comes about. Under Section 12, Rule 4 of the Interim Rules, a secured creditor
may file a motion with the Rehabilitation Court for the modification or termination of the stay order. If
petitioners can show that arrangements to insure or maintain the property or to make payment or
provide additional security therefor is not feasible, the court shall modify the stay order to allow
petitioners to enforce their claim − that is, to foreclose the mortgage and apply the proceeds thereof to
their claims. Be that as it may, the court may deny the creditor this remedy if allowing so would prevent
the continuation of the debtor as a going concern or otherwise prevent the approval and
implementation of a rehabilitation plan.

In G.R. Nos. 175418-20

Next, petitioners contest the admission of respondent’s rehabilitation plan for being filed in violation
of the Interim Rules. It is petitioner’s view that in a creditor-initiated petition for rehabilitation, the
debtor may only submit either a comment or opposition but not its own rehabilitation plan.

We cannot agree.

Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who between the debtor
and the creditor initiated the petition. Nowhere in said Rule is there any provision that prohibits the debtor in a
creditor-initiated petition to file its own rehabilitation plan for consideration by the court. Quite the reverse, one
of the functions and powers of the rehabilitation receiver under Section 14(m) of said Rule is to study the
rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together
with any comments made thereon. This provision makes particular reference to a debtor-initiated proceeding in
which the debtor principally files a rehabilitation plan. In such case, the receiver is tasked, among other things,
to study the rehabilitation plan presented by the debtor along with any rehabilitation plan submitted during
the proceedings. This implies that the creditors of the distressed corporation, and even the receiver, may file
their respective rehabilitation plans. We perceive no good reason why the same option should not be available,
by analogy, to a debtor in creditor-initiated proceedings, which is also found in Rule 4 of the Interim Rules.
Topic: Petitions for Declaration in the State of Suspension of Payment

Case No. 521


2 June 2014
SEC-OGC Opinion No. 14-12
Re: Retail Trade
FACTS
Biosystems is a domestic corporation that is a wholly-owned subsidiary of Biosystems S.A. of Spain.

Biosystems intends to sell Biosystems S.A. equipments, reagents and instruments directly to hospitals and
laboratories. According to Biosystems, Biosystems’ planned sale of chemical reagents, equipments and
instruments to laboratories and hospitals does not constitute “retail trade” within the purview of the Retail
Trade Liberalization Act of 2000 (“RA 8762”), hence Biosystems may engage in the same without violating
said law. Biosystems seeks affirmation of this position.

ISSUE
Does the intended activity constitute retail trade?

RULING
NO.

Under Section 3(1) of RA 8762, “retail trade” shall mean any act, occupation or calling of habitually
selling direct to the general public merchandise, commodities or good for consumption. Further, Rule I,
Section 2(e)' of the Implementing Rules and Regulations of RA 9762, reiterating Section 4(c) ' of Republic
Act No. 1180 or the Retail Trade Nationalization Law as amended by Presidential Decree No. 714,
considers sales to consumers who use the products bought by them to render service to the general
public as non-retail sales.

The Supreme Court ruled in the case or Balmaceda ve. Union Carbide Philippines’ that to be covered
by RA 8762, the items sold must be “the final and end (uses) of a product which directly satisfy human
wants and desires and are needed for home and daily life.” Moreover, RA 8762 covers only the sale of
goods for consumption to the general public as end-user.

The Commission had opined that the sale of door control, automatic and revolving door, glass fittings
and systems, room dividing systems, etc., to the real estate developer, which shall be used by the same
in the construction of buildings and other infrastructure, is not considered as retail trade.’ In another
opinion, the sale of ‘Network Box” to industrial and commercial users to provide computer network
security for the said business firms and not for personal or household use, consumption is not embraced
in the category of retail sale.
Applying the abovementioned principles to this case, the sale of chemical reagents, equipment and
instruments directly to hospitals and laboratories cannot be considered as retail trade because it is not a
sale of goods for consumption to the general public as end-user. The buyers (i.e., hospitals and laboratories)
will use the products to render service to the general public.

We therefore opine that Biosystems, a foreign-owned domestic corporation, may engage in the
business of selling reagents and equipment directly to laboratories, hospitals and distributors, without
violating RA 8762.