THIRD DIVISION

[G.R. No. 157549. May 30, 2011.]

DONNINA C. HALLEY, petitioner, vs. PRINTWELL, INC., respondent.

DECISION

BERSAMIN, J p:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their
unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because
the veil may be lifted to avoid defrauding corporate creditors.
We affirm with modification the decision promulgated on August 14, 2002, 1 whereby the Court
of Appeals (CA) upheld the decision of the Regional Trial Court, Branch 71, in Pasig City (RTC), 2
ordering the defendants (including the petitioner) to pay to Printwell, Inc. (Printwell) the principal sum
of P291,342.76 plus interest.
Antecedents
The petitioner was an incorporator and original director of Business Media Philippines, Inc.
(BMPI), which, at its incorporation on November 12, 1987, 3 had an authorized capital stock of
P3,000,000.00 divided into 300,000 shares each with a par value of P10.00, of which 75,000 were
initially subscribed, to wit:
Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P350,000.00 P87,500.00

Roberto V. Cabrera, Jr. 18,000 P180,000.00 P45,000.00
Albert T. Yu 18,000 P180,000.00 P45,000.00
Zenaida V. Yu 2,000 P20,000.00 P5,000.00
Rizalino C. Viñeza 2,000 P20,000.00 P5,000.00
—————— ——————— ————————
TOTAL 75,000 P750,000.00 P187,500.00
===== ========= ==========

Printwell engaged in commercial and industrial printing. BMPI commissioned Printwell for the
printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI
published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.
ADSIaT
In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell several
orders on credit, evidenced by invoices and delivery receipts totaling P316,342.76. Considering that
BMPI paid only P25,000.00, Printwell sued BMPI on January 26, 1990 for the collection of the unpaid
balance of P291,342.76 in the RTC. 4
 On February 8, 1990, Printwell amended the complaint in order to implead as defendants all
the original stockholders and incorporators to recover on their unpaid subscriptions, as follows: 5
Name Unpaid Shares

Donnina C. Halley P262,500.00

Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Viñeza P15,000.00
————————
TOTAL P562,500.00
=========

The defendants filed a consolidated answer, 6 averring that they all had paid their subscriptions
in full; that BMPI had a separate personality from those of its stockholders; that Rizalino C. Viñeza had
assigned his fully-paid up shares to a certain Gerardo R. Jacinto in 1989; and that the directors and
stockholders of BMPI had resolved to dissolve BMPI during the annual meeting held on February 5,
1990.
To prove payment of their subscriptions, the defendant stockholders submitted in evidence
BMPI official receipt (OR) no. 217, OR no. 218, OR no. 220, OR no. 221, OR no. 222, OR no. 223, and
OR no. 227, to wit:
Receipt No. Date Name Amount

217 November 5, 1987 Albert T. Yu P45,000.00

218 May 13, 1988 Albert T. Yu P135,000.00
220 May 13, 1988 Roberto V. Cabrera, P135,000.00
Jr.
221 November 5, 1987 Roberto V. Cabrera, P45,000.00
Jr.
222 November 5, 1987 Zenaida V. Yu P5,000.00
223 May 13, 1988 Zenaida V. Yu P15,000.00
227 May 13, 1988 Donnina C. Halley P262,500.00

In addition, the stockholders submitted other documents in evidence, namely: (a) an audit
report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the
BIR); 7 (b) BMPI balance sheet 8 and income statement 9 as of December 31, 1988; (c) BMPI income
tax return for the year 1988 (stamped "received" by the BIR); 10 (d) journal vouchers; 11 (e) cash
deposit slips; 12 and (f) Bank of the Philippine Islands (BPI) savings account passbook in the name of
BMPI. 13
Ruling of the RTC
On November 3, 1993, the RTC rendered a decision in favor of Printwell, rejecting the
allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs
and observing that the defendants had used BMPI's corporate personality to evade payment and create
injustice, viz.:
 The claim of individual defendants that they have fully paid their subscriptions to
defend[a]nt corporation, is not worthy of consideration, because: — CTEDSI

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the
alleged payment made on May 13, 1988 amounting to P135,000.00, is covered
by Official Receipt No. 218 (Exh. "2"), whereas the alleged payment made earlier
on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt
No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued
just to suit their theory since in the ordinary course of business, a receipt issued
earlier must have serial numbers lower than those issued on a later date. But in
the case at bar, the receipt issued on November 5, 1987 has serial numbers
(222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant
corporation for the payment of unpaid subscriptions will not be a valid excuse to
free individual defendants from liability. Since the individual defendants are
members of the Board of Directors of defendant corporation, it was within their
exclusive power to prevent the fulfillment of the condition, by simply not making
a call for the payment of the unpaid subscriptions. Their inaction should not work
to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate
personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc.
vs. Judge Jarencio, G.R. No. 41337, 30 June 1988). 14

Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell
pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1"

to "A-9"), and, as appearing from the Articles of Incorporation, individual defendants have
the following unpaid subscriptions:

Names Unpaid Subscription

Donnina C. Halley P262,500.00

Roberto V. Cabrera, Jr. 135,000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Viñeza 15,000.00
————————
Total P562,500.00
==========

and it is an established doctrine that subscriptions to the capital stock of a

corporation constitute a fund to which creditors have a right to look for satisfaction of their
claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, 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 (Velasco vs.
Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated
as follows:

Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Viñeza 8,579.00
—————————
Total P321,342.75 15
===========

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as
principal, with interest thereon at 20% per annum, from date of default, until fully paid,
plus P30,000.00 as attorney's fees, plus costs of suit. TDAHCS

Defendants' counterclaims are ordered dismissed for lack of merit.

SO ORDERED. 16

Ruling of the CA
All the defendants, except BMPI, appealed.
Spouses Donnina and Simon Halley, and Rizalino Viñeza defined the following errors
committed by the RTC, as follows:

I.

THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE

FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.

ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF

THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL
COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-
STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID
SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

 I.

THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO

DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU'S EXHIBITS 2
AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT
ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.

II.

THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT

AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION
OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID
DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE
CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE

DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE
OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD
JUSTIFY RESORT THERETO.

II.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT

INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEE'S
CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING
OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED
CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants' resort to the
corporate personality would create an injustice because Printwell would thereby be at a loss against
whom it would assert the right to collect, viz.: ATaDHC

Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievements or perfection of monopoly or generally
the perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals (First Philippine International
Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs.
CIR, 65 SCRA 613).
 In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record, pp. 3-5, Annex "A")
which facts were never denied by appellants' stockholders that they owe appellee the
amount of P291,342.76. The said goods were delivered to and received by BMPI but it
failed to pay its overdue account to appellee as well as the interest thereon, at the rate
of 20% per annum until fully paid. It was also during this time that appellants stockholders
were in charge of the operation of BMPI despite the fact that they were not able to pay
their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view
of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in
order to protect its right can collect from the appellants' stockholders regarding their
unpaid subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction to
evade payment of its obligations. 17

Further, the CA concurred with the RTC on the applicability of the trust fund doctrine, under
which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate
debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation

constitute a fund to which creditors have a right to look up to for satisfaction of their
claims, and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds,

which consists of the payment of subscriptions of the stockholders, is where the creditors
can claim monetary considerations for the satisfaction of their claims. If these funds
which ought to be fully subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to collect from
the corporation of its liability. Such occurrence was evident in the case at bar wherein
the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the
creditors helpless in collecting their claim due to insufficiency of funds of the corporation.
Likewise, the claim of appellants that they already paid the unpaid subscriptions could
not be given weight because said payment did not reflect in the Articles of Incorporations
of BMPI that the unpaid subscriptions were fully paid by the appellants' stockholders. For
it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid
subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital

stock, without valuable consideration for such releases, and as against creditors, a
reduction of the capital stock can take place only in the manner and under the conditions
prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok
Sawmill, 23 SCRA 1366). 18

The CA declared that the inconsistency in the issuance of the ORs rendered the claim of full
payment of the subscriptions to the capital stock unworthy of consideration; and held that the veil of
corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse
legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid
subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely — Exhibits "1", "2", "3" & "4", which were never disputed
by appellee, clearly shows that they should not be held liable for payment of the said
unpaid subscriptions of BMPI.

The reliance is misplaced. CaDEAT

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: "1" — YU — Official Receipt No. 217 dated November 5, 1987

amounting to P45,000.00 allegedly representing the initial payment of
subscriptions of stockholder Albert Yu.

Exh: "2" — YU — Official Receipt No. 218 dated May 13, 1988
amounting to P135,000.00 allegedly representing full payment of balance of
subscriptions of stockholder Albert Yu. (Record, p. 352).

Exh: "3" — YU — Official Receipt No. 222 dated November 5, 1987

amounting to P5,000.00 allegedly representing the initial payment of
subscriptions of stockholder Zenaida Yu.

Exh: "4" — YU — Official Receipt No. 223 dated May 13, 1988
amounting to P15,000.00 allegedly representing the full payment of balance of
subscriptions of stockholder Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower court's findings that
the claim of the individual appellants that they fully paid their subscription to the
defendant BMPI is not worthy of consideration, because, in the case of appellants SPS.
YU, there is an inconsistency regarding the issuance of the official receipt since the
alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by
Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on
November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222
(Record, p. 353). Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid subscriptions since in
the ordinary course of business, a receipt is issued earlier must have serial numbers
lower than those issued on a later date. But in the case at bar, the receipt issued on
November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988
(218). And even assuming arguendo that the individual appellants have paid their unpaid
subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced
when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs.
Court of Appeals, 198 SCRA 211). 19 TAcSaC

Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for
reconsideration.
 Issues
Only Donnina Halley has come to the Court to seek a further review, positing the following for
our consideration and resolution, to wit:

I.

THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT

DID NOT STATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS
BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENT'S
MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE

REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE
VEIL OF CORPORATE FICTION

III.

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND

DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum
of Printwell; and submits that the RTC thereby violated the requirement imposed in Section 14, Article
VIII of the Constitution 20 as well as in Section 1, Rule 36 of the Rules of Court, 21 to the effect that a
judgment or final order of a court should state clearly and distinctly the facts and the law on which it is
based. The petitioner claims that the RTC's violation indicated that the RTC did not analyze the case
before rendering its decision, thus denying her the opportunity to analyze the decision; and that a
suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwell's
memorandum. She cites Francisco v. Permskul, 22 in which the Court has stated that the reason
underlying the constitutional requirement, that every decision should clearly and distinctly state the
facts and the law on which it is based, is to inform the reader of how the court has reached its decision
and thereby give the losing party an opportunity to study and analyze the decision and enable such
party to appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA and the RTC erroneously
pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as
stockholder of BMPI, had any hand in transacting with Printwell; that the CA and the RTC failed to
appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTC wrongly
relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the
articles of incorporation being at best reflective only of the pre-incorporation status of BMPI.
As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety
of disregarding the separate personalities of BMPI and its stockholders by piercing the thin veil that
separated them; and (b) the application of the trust fund doctrine.
Ruling
The petition for review fails.
 I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in
writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of
Printwell, is unfounded.
It is noted that the petition for review merely generally alleges that starting from its page 5, the
decision of the RTC "copied verbatim the allegations of herein Respondents in its Memorandum before
the said court," as if "the Memorandum was the draft of the Decision of the Regional Trial Court of
Pasig," 23 but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why
she regards the decision as copied. The omission renders the petition for review insufficient to support
her contention, considering that the mere similarity in language or thought between Printwell's
memorandum and the trial court's decision did not necessarily justify the conclusion that the RTC simply
lifted verbatim or copied from the memorandum.
It is to be observed in this connection that a trial or appellate judge may occasionally view a
party's memorandum or brief as worthy of due consideration either entirely or partly. When he does so,
the judge may adopt and incorporate in his adjudication the memorandum or the parts of it he deems
suitable, and yet not be guilty of the accusation of lifting or copying from the memorandum. 24 This is
because of the avowed objective of the memorandum to contribute in the proper illumination and correct
determination of the controversy. Nor is there anything untoward in the congruence of ideas and views
about the legal issues between himself and the party drafting the memorandum. The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions
of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable
to the adherence by our courts of law and the legal profession to widely known or universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.
We also do not agree with the petitioner that the RTC's manner of writing the decision deprived
her of the opportunity to analyze its decision as to be able to assign errors on appeal. The contrary
appears, considering that she was able to impute and assign errors to the RTC that she extensively
discussed in her appeal in the CA, indicating her thorough analysis of the decision of the RTC.
Our own reading of the trial court's decision persuasively shows that the RTC did comply with
the requirements regarding the content and the manner of writing a decision prescribed in the
Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of
facts, and stated the applicable law and jurisprudence, fully explaining why the defendants were being
held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for
the ultimate result. SECAHa
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely:
(a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining
visible assets of BMPI; and (b) to avoid multiplicity of suits. 25
The petitioner submits that she had no participation in the transaction between BMPI and
Printwell; that BMPI acted on its own; and that she had no hand in persuading BMPI to renege on its
obligation to pay. Hence, she should not be personally liable.
We rule against the petitioner's submission.
 Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers, 26 such separate and distinct personality is merely a fiction created by law for the
sake of convenience and to promote the ends of justice. 27 The corporate personality may be
disregarded, and the individuals composing the corporation will be treated as individuals, if the
corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; as
an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. 28 As a general
rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary
appears. Thus, the courts always presume good faith, and for that reason accord prime importance to
the separate personality of the corporation, disregarding the corporate personality only after the
wrongdoing is first clearly and convincingly established. 29 It thus behooves the courts to be careful in
assessing the milieu where the piercing of the corporate veil shall be done. 30
Although nowhere in Printwell's amended complaint or in the testimonies Printwell offered can
it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege on its
obligation to pay; or that she induced Printwell to extend the credit accommodation by misrepresenting
the solvency of BMPI to Printwell, her personal liability, together with that of her co-defendants,
remained because the CA found her and the other defendant stockholders to be in charge of the
operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit:

In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record, pp. 3-5, Annex "A")
which facts were never denied by appellants' stockholders that they owe(d) appellee the
amount of P291,342.76. The said goods were delivered to and received by BMPI but it
failed to pay its overdue account to appellee as well as the interest thereon, at the rate
of 20% per annum until fully paid. It was also during this time that appellants stockholders
were in charge of the operation of BMPI despite the fact that they were not able to pay
their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view
of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in
order to protect its right can collect from the appellants stockholders regarding their
unpaid subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction to
evade payment of its obligations. 31

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not good
defenses in the suit.
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions; stockholders must
prove full payment of their subscriptions
Both the RTC and the CA applied the trust fund doctrine against the defendant stockholders,
including the petitioner.
The petitioner argues, however, that the trust fund doctrine was inapplicable because she had
already fully paid her subscriptions to the capital stock of BMPI. She thus insists that both lower courts
erred in disregarding the evidence on the complete payment of the subscription, like receipts, income
tax returns, and relevant financial statements.
The petitioner's argument is devoid of substance.
The trust fund doctrine enunciates a —

. . . rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund 'only by way of analogy or
metaphor.' As between the corporation itself and its creditors it is a simple debtor, and
as between its creditors and stockholders its assets are in equity a fund for the payment
of its debts. 32 DaTISc

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer, 33 was
adopted in our jurisdiction in Philippine Trust Co. v. Rivera, 34 where this Court declared that:

It is established doctrine that subscriptions to the capital of a corporation

constitute a fund to which creditors have a right to look for satisfaction of their claims and
that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat,
37 Phil. 802) . . . 35

We clarify that the trust fund doctrine is not limited to reaching the stockholder's unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts. 36 All assets and property belonging to the corporation held in trust for the
benefit of creditors that were distributed or in the possession of the stockholders, regardless of full
payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine, a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in part, 37 without
a valuable consideration, 38 or fraudulently, to the prejudice of creditors. 39 The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation
for the satisfaction of its debt. 40 To make out a prima facie case in a suit against stockholders of an
insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the stockholders have not in
good faith paid the par value of the stocks of the corporation. 41
The petitioner posits that the finding of irregularity attending the issuance of the receipts (ORs)
issued to the other stockholders/subscribers should not affect her because her receipt did not suffer
similar irregularity.
Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her
favor, we still cannot sustain the petitioner's defense of full payment of her subscription.
In civil cases, the party who pleads payment has the burden of proving it, that even where the
plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden
of showing with legal certainty that the obligation has been discharged by payment. 42
Apparently, the petitioner failed to discharge her burden.
 A receipt is the written acknowledgment of the fact of payment in money or other settlement
between the seller and the buyer of goods, the debtor or the creditor, or the person rendering services,
and the client or the customer. 43 Although a receipt is the best evidence of the fact of payment, it is
not conclusive, but merely presumptive; nor is it exclusive evidence, considering that parole evidence
may also establish the fact of payment. 44
The petitioner's OR No. 227, presented to prove the payment of the balance of her subscription,
indicated that her supposed payment had been made by means of a check. Thus, to discharge the
burden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that
her payment by check was regarded as payment under the law.
Payment is defined as the delivery of money. 45 Yet, because a check is not money and only
substitutes for money, the delivery of a check does not operate as payment and does not discharge
the obligation under a judgment. 46 The delivery of a bill of exchange only produces the fact of payment
when the bill has been encashed. 47 The following passage from Bank of the Philippine Islands v.
Royeca 48 is enlightening: TSHEIc

Settled is the rule that payment must be made in legal tender. A check is not
legal tender and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document
is actually realized.

To establish their defense, the respondents therefore had to present proof,

not only that they delivered the checks to the petitioner, but also that the checks
were encashed. The respondents failed to do so. Had the checks been actually
encashed, the respondents could have easily produced the cancelled checks as
evidence to prove the same. Instead, they merely averred that they believed in
good faith that the checks were encashed because they were not notified of the
dishonor of the checks and three years had already lapsed since they issued the
checks.

Because of this failure of the respondents to present sufficient proof of payment,

it was no longer necessary for the petitioner to prove non-payment, particularly proof that
the checks were dishonored. The burden of evidence is shifted only if the party upon
whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioner's mere submission of the receipt issued in exchange of the
check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could
not even inform the trial court about the identity of her drawee bank, 49 and about whether the check
was cleared and its amount paid to BMPI. 50 In fact, she did not present the check itself.
The income tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented,
had no bearing on the issue of payment of the subscription because they did not by themselves prove
payment. ITRs establish a taxpayer's liability for taxes or a taxpayer's claim for refund. In the same
manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant
due to their not reflecting the alleged payments.
 It is notable, too, that the petitioner and her co-stockholders did not support their allegation of
complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed,
books and records of a corporation (including the stock and transfer book) are admissible in evidence
in favor of or against the corporation and its members to prove the corporate acts, its financial status
and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate
acts and proceedings. 51 Specifically, a stock and transfer book is necessary as a measure of
precaution, expediency, and convenience because it provides the only certain and accurate method of
establishing the various corporate acts and transactions and of showing the ownership of stock and
like matters. 52 That she tendered no explanation why the stock and transfer book was not presented
warrants the inference that the book did not reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate
covering her subscription might have been a reliable evidence of full payment of the subscriptions,
considering that under Section 65 of the Corporation Code a certificate of stock issues only to a
subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock
certificate in her favor likewise warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on the articles of
incorporation as proof of the liabilities of the stockholders subscribing to BMPI's stocks, averring that
the articles of incorporation did not reflect the latest subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-incorporation status of
a corporation, the lower courts' reliance on that document to determine whether the original subscribers
already fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier
explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was
the plaintiff, but to the stockholders like the petitioner who, as the defendants, averred full payment of
their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as
their failure to counter the reliance on the recitals found in the articles of incorporation simply meant
their failure or inability to satisfactorily prove their defense of full payment of the subscriptions. EAISDH
To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the corporate
obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI's creditor, had a
right to reach her unpaid subscription in satisfaction of its claim.
IV
Liability of stockholders for corporate debts is up
to the extent of their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt (based on the proportion to their
shares in the capital stock of BMPI); and held the petitioner personally liable only in the amount of
P149,955.65.
We do not agree. The RTC lacked the legal and factual support for its prorating the liability.
Hence, we need to modify the extent of the petitioner's personal liability to Printwell. The prevailing rule
is that a stockholder is personally liable for the financial obligations of the corporation to the extent of
his unpaid subscription. 53 In view of the petitioner's unpaid subscription being worth P262,500.00, she
was liable up to that amount.
Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at
12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation
(i.e., to the extent of the petitioner's personal liability of P262,500.00) is fully paid. 54
 Lastly, we find no basis to grant attorney's fees, the award for which must be supported by
findings of fact and of law as provided under Article 2208 of the Civil Code 55 incorporated in the body
of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the
deletion of the attorney's fees.
ACCORDINGLY, we deny the petition for review on certiorari; and affirm with modification the
decision promulgated on August 14, 2002 by ordering the petitioner to pay to Printwell, Inc. the sum of
P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.
HTASIa
The petitioner shall pay cost of suit in this appeal.
SO ORDERED.
||| (Halley v. Printwell, Inc., G.R. No. 157549, [May 30, 2011], 664 PHIL 361-389)

FIRST DIVISION

[G.R. Nos. 163356-57. July 1, 2015.]

JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA,

JOSE T. FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING
IN THEIR CAPACITY AS INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB,
INC., AND ON BEHALF OF THE BOARD OF DIRECTORS OF MAKATI SPORTS
CLUB, petitioners, vs. JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G.
LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L.
TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B.
QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON,
CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, MANUEL R. SANTIAGO,
BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS,
JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES,
respondents.

[G.R. Nos. 163368-69. July 1, 2015.]

JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, petitioners, vs.

JOSE A. BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, respondents.

DECISION

PEREZ, J p:
Before us are two consolidated Petitions for Review on Certiorari 1 assailing the 28 April 2003
Decision and the 27 April 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 62683, 2 which
declared the 17 December 1997 Special Stockholders' Meeting of the Makati Sports Club invalid for
having been improperly called but affirmed the actions taken during the Annual Stockholders' Meeting
held on 20 April 1998, 19 April 1999 and 17 April 2000. The dispositive portion of the assailed decision
reads:
WHEREFORE, foregoing considered, the instant petition for review is hereby
GRANTED. The appealed Decision dated December 12, 2000 of the SEC en banc is
SET ASIDE and the Decision dated April 20, 1998 of the Hearing Officer is
REINSTATED and AMENDED as follows:
1. The supposed Special Stockholders' Meeting of December 17, 1997 was
prematurely or invalidly called by the [Cinco Group]. It therefore failed to
produce any legal effects and did not effectively remove [the Bernas
Group] as directors of the Makati Sports Club, Inc.;
2. The expulsion of petitioner Jose A. Bernas as well as the public auction of his
share[s] is hereby declared void and without legal effect;
3. The ratification of the removal of [the Bernas Group] as directors, the
expulsion of petitioner Bernas and the sale of his share by the
defendants and by the stockholders held in their Regular Stockholders'
Meeting held in April of 1998, 1999 and 2000, is void and produces no
effects as they were not the proper party to cause the ratification;
4. All other actions of the [Cinco Group] and stockholders taken during the
Regular Stockholders' Meetings held in April 1998, 1999 and 2000,
including the election of the [Cinco Group] as directors after the
expiration of the term of office of petitioners as directors, are hereby
declared valid;
5. No awards for damages and attorney's fees. 3
The Facts
Makati Sports Club (MSC) is a domestic corporation duly organized and existing under
Philippine laws for the primary purpose of establishing, maintaining, and providing social, cultural,
recreational and athletic activities among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa,
Jesus Maramara, Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were
among the Members of the Board of Directors and Officers of the corporation whose terms were to
expire either in 1998 or 1999.
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo Librea and Alex Y. Pardo (Cinco
Group) are the members and stockholders of the corporation who were elected Members of the Board
of Directors and Officers of the club during the 17 December 1997 Special Stockholders Meeting.
The antecedent events of the meeting and its results, follow:
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight
Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas Group,
who were then incumbent officers of the corporation, to resign from their respective positions to pave
the way for the election of new set of officers. 4 Resonating this clamor were the stockholders of the
corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a
special stockholders meeting for the purpose of removing the sitting officers and electing new ones. 5
Pursuant to such request, the MSCOC called a Special Stockholders' Meeting and sent out notices 6
to all stockholders and members stating therein the time, place and purpose of the meeting. For failure
of the Bernas Group to secure an injunction before the Securities Commission (SEC), the meeting
proceeded wherein Jose A. Bernas, Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso,
Ignacio T. Macrohon, Jr. and Paulino T. Lim were removed from office and, in their place and stead,
Jovencio F. Cinco, Ricardo G. Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G. Villarosa, Armando
David, Norberto Maronilla, Regina de Leon-Herlihy and Claudio B. Altura, were elected. 7
Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities
Investigation and Clearing Department (SICD) of the SEC docketed as SEC Case No. 5840 seeking
for the nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it was
improperly called. Citing Section 28 of the Corporation Code, the Bernas Group argued that the
authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which functions
merely as an oversight body and is not vested with the power to call corporate meetings. For being
called by the persons not authorized to do so, the Bernas Group urged the SEC to declare the 17
December 1997 Special Stockholders' Meeting, including the removal of the sitting officers and the
election of new ones, be nullified. CAIHTE
For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders'
Meeting is sanctioned by the Corporation Code and the MSC by-laws. In justifying the call effected by
the MSCOC, they reasoned that Section 25 8 of the MSC by-laws merely authorized the Corporate
Secretary to issue notices of meetings and nowhere does it state that such authority solely belongs to
him. It was further asseverated by the Cinco Group that it would be useless to course the request to
call a meeting thru the Corporate Secretary because he repeatedly refused to call a special
stockholders' meeting despite demands and even filed a suit to restrain the holding of a special meeting.
9
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in
administering the corporate affairs and after finding Bernas guilty of irregularities, 10 the Board resolved
to expel him from the club by selling his shares at public auction. 11 After the notice 12 requirement
was complied with, Bernas' shares was accordingly sold for P902,000.00 to the highest bidder.
Prior to the resolution of SEC Case No. 5840, an Annual Stockholders' Meeting was held on
20 April 1998 pursuant to Section 8 of the MSC bylaws. 13 During the said meeting, which was attended
by 1,017 stockholders representing 2/3 of the outstanding shares, the majority resolved to approve,
confirm and ratify, among others, the calling and holding of 17 December 1997 Special Stockholders'
Meeting, the acts and resolutions adopted therein including the removal of Bernas Group from the
Board and the election of their replacements. 14
Due to the filing of several petitions for and against the removal of the Bernas Group from the
Board pending before the SEC resulting in the piling up of legal controversies involving MSC, the SEC
En Banc, in its Decision 15 dated 30 March 1999, resolved to supervise the holding of the 1999 Annual
Stockholders' Meeting. During the said meeting, the stockholders once again approved, ratified and
confirmed the holding of the 17 December 1997 Special Stockholders' Meeting.
The conduct of the 17 December 1997 Special Stockholders' Meeting was likewise ratified by
the stockholders during the 2000 Annual Stockholders' Meeting which was held on 17 April 2000. 16
On 9 May 2000, the SICD rendered a Decision 17 in SEC Case No. 12-97-5840 finding, among
others, that the 17 December 1997 Special Stockholders' Meeting and the Annual Stockholders'
Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the
expulsion of Bernas from the corporation and the sale of his share at the public auction. The dispositive
portion of the said decision reads:
 WHEREFORE, in view of the foregoing considerations this Office, through the
undersigned Hearing Officer, hereby declares as follows:
(1) The supposed Special Stockholders' Meeting of
December 17, 1997 was prematurely or invalidly called by the [the
Cinco Group]. It therefore failed to produce any legal effects and did
not effectively remove [the Bernas Group] as directors of the Makati
Sports Club, Inc.
(2) The April 20, 1998 meeting was not attended by a
sufficient number of valid proxies. No quorum could have been
present at the said meeting. No corporate business could have been
validly completed and/or transacted during the said meeting. Further,
it was not called by the validly elected Corporate Secretary Victor
Africa nor presided over by the validly elected president Jose A.
Bernas. Even if the April 20, 1998 meeting was valid, it could not ratify
the December 17, 1997 meeting because being a void meeting, the
December 17, 1997 meeting may not be ratified.
(3) The April 1998 meeting was null and void and therefore
produced no legal effect.
(4) The April 1999 meeting has not been raised as a defense
in the Answer nor assailed in a supplemental complaint. However, it
has been raised by [the Cinco Group] in a manifestation dated April
21, 1999 and in their position paper dated April 8, 2000. Its legal
effects must be the subject of this Decision in order to put an end to
the controversy at hand. In the first place, by [the Cinco Group's] own
admission, the alleged attendance at the April 1999 meeting
amounted to less than 2/3 of the stockholders entitled to vote, the
minimum number required to effect a removal. No removal or
ratification of a removal may be effected by less than 2/3 vote of the
stockholders. Further, it cannot ratify the December 1997 meeting for
failure to adhere to the requirement of the By-laws on notice as
explained in paragraph (2) above, even if it was accompanied by valid
proxies, which it was not.
(5) The [the Cinco Group], their agents, representatives and
all persons acting for and conspiring on their behalf, are hereby
permanently enjoined from carrying into effect the resolutions and
actions adopted during the 17 December 1997 and April 20, 1998
meetings and of the Board of Directors and/or other stockholders'
meetings resulting therefrom, and from performing acts of control and
management of the club.
(6) The expulsion of complainant Jose A. Bernas as well as
the public auction of his share is hereby declared void and without
legal effect, as prayed for. While it is true that [the Cinco Group] were
not restrained from acting as directors during the pendency of this
case, their tenure as directors prior to this Decision is in the nature of
de facto directors of a de facto Board. Only the ordinary acts of
administration which [the Cinco Group] carried out de facto in good
 faith are valid. Other acts, such as political acts and the expulsion or
other disciplinary acts imposed on the [the Bernas Group] may not be
appropriately taken by de facto officers because the legality of their
tenure as directors is not complete and subject to the outcome of this
case.
(7) No awards for damages and attorney's fees. 18
On appeal, the SEC En Banc, in its 12 December 2000 Decision 19 reversed the findings of
the SICD and validated the holding of the 17 December 1997 Special Stockholders' Meeting as well as
the Annual Stockholders' Meeting held on 20 April 1998 and 19 April 1999. DETACa
On 28 April 2003, the Court of Appeals rendered a Decision 20 declaring the 17 December
1997 Special Stockholders' Meeting invalid for being improperly called but affirmed the actions taken
during the Annual Stockholders' Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000.
In a Resolution 21 dated 27 April 2004, the appellate court refused to reconsider its earlier
decision.
Aggrieved by the disquisition of the Court of Appeals, both parties elevated the case before
this Court by filing their respective Petitions for Review on Certiorari. While the Bernas Group agrees
with the disquisition of the appellate court that the Special Stockholders' Meeting is invalid for being
called by the persons not authorized to do so, they urge the Court to likewise invalidate the holding of
the subsequent Annual Stockholders' Meetings invoking the application of the holdover principle. The
Cinco Group, for its part, insists that the holding of 17 December 1997 Special Stockholders' Meeting
is valid and binding underscoring the overwhelming ratification made by the stockholders during the
subsequent annual stockholders' meetings and the previous refusal of the Corporate Secretary to call
a special stockholders' meeting despite demand. For the resolution of the Court are the following
issues:
The Issues
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE 17 DECEMBER 1997 SPECIAL STOCKHOLDERS' MEETING IS
INVALID; AND
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN FAILING
TO NULLIFY THE HOLDING OF THE ANNUAL STOCKHOLDERS' MEETING ON 20
APRIL 1998, 19 APRIL 1999 AND 17 APRIL 2000.
The Court's Ruling
The Corporation Code laid down the rules on the removal of the Directors of the corporation by
providing, inter alia, the persons authorized to call the meeting and the number of votes required for
the purpose of removal, thus:
Sec. 28. Removal of directors or trustees. — Any director or trustee of a
corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote: Provided, That such removal shall take place either at a
regular meeting of the corporation or at a special meeting called for the purpose, and
 in either case, after previous notice to stockholders or members of the corporation of
the intention to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal of
directors or trustees, or any of them, must be called by the secretary on order of
the president or on the written demand of the stockholders representing or
holding at least a majority of the outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of the members entitled to vote.
Should the secretary fail or refuse to call the special meeting upon such demand or fail
or refuse to give the notice, or if there is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by any stockholder or member of
the corporation signing the demand. Notice of the time and place of such meeting, as
well as of the intention to propose such removal, must be given by publication or by
written notice prescribed in this Code. Removal may be with or without cause:
Provided, That removal without cause may not be used to deprive minority
stockholders or members of the right of representation to which they may be entitled
under Section 24 of this Code. (Emphasis supplied)
Corollarily, the pertinent provisions of MSC by-laws which govern the manner of calling and
sending of notices of the annual stockholders' meeting and the special stockholders' meeting provide:
SEC. 8. Annual Meetings. — The annual meeting of stockholders shall be held
at the Clubhouse on the third Monday of April of every year unless such day be a
holiday in which case the annual meeting shall be held on the next succeeding
business day. At such meeting, the President shall render a report to the stockholders
of the clubs.
xxx xxx xxx
SEC. 10. Special Meetings. — Special meetings of stockholders shall be held
at the Clubhouse when called by the President or by the Board of Directors or upon
written request of the stockholders representing not less than one hundred (100)
shares. Only matters specified in the notice and call will be taken up at special
meetings.
xxx xxx xxx
SEC. 25. Secretary. — The Secretary shall keep the stock and transfer book
and the corporate seal, which he shall stamp on all documents requiring such seal, fill
and sign together with the President, all the certificates of stocks issued, give or caused
to be given all notices required by law of these By-laws as well as notices of all meeting
of the Board and of the stockholders; shall certify as to quorum at meetings; shall
approve and sign all correspondence pertaining to the Office of the Secretary; shall
keep the minutes of all meetings of the stockholders, the Board of Directors and of all
committees in a book or books kept for that purpose; and shall be acting President in
the absence of the President and Vice-President. The Secretary must be a citizen and
a resident of the Philippines. The Secretary shall keep a record of all the addresses
and telephone numbers of all stockholders. 22
Textually, only the President and the Board of Directors are authorized by the by-laws to call a
special meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to
call a meeting, then the stockholders representing at least 100 shares, upon written request, may file a
petition to call a special stockholder's meeting.
 In the instant case, there is no dispute that the 17 December 1997 Special Stockholders'
Meeting was called neither by the President nor by the Board of Directors but by the MSCOC. While
the MSCOC, as its name suggests, is created for the purpose of overseeing the affairs of the
corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate powers,
such as the power to call a special meeting, solely vested by law and the MSC by-laws on the President
or the Board of Directors.
The board of directors is the directing and controlling body of the corporation. It is a creation of
the stockholders and derives its power to control and direct the affairs of the corporation from them.
The board of directors, in drawing to itself the power of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that the board should exercise not only care
and diligence, but utmost good faith in the management of the corporate affairs. 23
The underlying policy of the Corporation Code is that the business and affairs of a corporation
must be governed by a board of directors whose members have stood for election, and who have
actually been elected by the stockholders, on an annual basis. Only in that way can the continued
accountability to shareholders, and the legitimacy of their decisions that bind the corporation's
stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over the properties that they do not own. 24
Even the Corporation Code is categorical in stating that a corporation exercises its powers
through its board of directors and/or its duly authorized officers and agents, except in instances where
the Corporation Code requires stockholders' approval for certain specific acts:
SEC. 23. The Board of Directors or Trustees. — Unless otherwise provided in
this Code, the corporate powers of all the corporations formed under this Code shall
be exercised, all business conducted and all property of such corporations controlled
and held by the board of directors and trustees . . . .
A corporation's board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls
and holds all the property of the corporation. Its members have been characterized as trustees or
directors clothed with fiduciary character. 25 aDSIHc
It is ineluctably clear that the fiduciary relation is between the stockholders and the board of
directors and who are vested with the power to manage the affairs of the corporation. The ordinary trust
relationship of directors of a corporation and stockholders is not a matter of statutory or technical law.
26 It springs from the fact that directors have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders. 27 Equity recognizes that stockholders are the
proprietors of the corporate interests and are ultimately the only beneficiaries thereof. 28 Should the
board fail to perform its fiduciary duty to safeguard the interest of the stockholders or commit acts
prejudicial to their interest, the law and the by-laws provide mechanisms to remove and replace the
erring director. 29
Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the
MSC by-laws can it be gathered that the Oversight Committee is authorized to step in wherever there
is breach of fiduciary duty and call a special meeting for the purpose of removing the existing officers
and electing their replacements even if such call was made upon the request of shareholders. Needless
to say, the MSCOC is neither empowered by law nor the MSC by-laws to call a meeting and the
subsequent ratification made by the stockholders did not cure the substantive infirmity, the defect
having set in at the time the void act was done. The defect goes into the very authority of the persons
who made the call for the meeting. It is apt to recall that illegal acts of a corporation which contemplate
the doing of an act which is contrary to law, morals or public order, or contravenes some rules of public
policy or public duty, are, like similar transactions between individuals, void. 30 They cannot serve as
basis for a court action, nor acquire validity by performance, ratification or estoppel. 31 The same
principle can apply in the present case. The void election of 17 December 1997 cannot be ratified by
the subsequent Annual Stockholders' Meeting.
A distinction should be made between corporate acts or contracts which are illegal and those
which are merely ultra vires. The former contemplates the doing of an act which are contrary to law,
morals or public policy or public duty, and are, like similar transactions between individuals, void. They
cannot serve as basis of a court action nor acquire validity by performance, ratification or estoppel.
Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not
merely within the scope of the articles of incorporation, are merely voidable and may become binding
and enforceable when ratified by the stockholders. 32 The 17 December 1997 Meeting belongs to the
category of the latter, that is, it is void ab initio and cannot be validated.
Consequently, such Special Stockholders' Meeting called by the Oversight Committee cannot
have any legal effect. The removal of the Bernas Group, as well as the election of the Cinco Group,
effected by the assembly in that improperly called meeting is void, and since the Cinco Group has no
legal right to sit in the board, their subsequent acts of expelling Bernas from the club and the selling of
his shares at the public auction, are likewise invalid.
The Cinco Group cannot invoke the application of de facto officership doctrine to justify the
actions taken after the invalid election since the operation of the principle is limited to third persons who
were originally not part of the corporation but became such by reason of voting of government-
sequestered shares. 33 In Cojuangco v. Roxas, 34 the Court deemed the directors who were elected
through the voting of government of sequestered shares who assumed office in good faith as de facto
officers, viz.:
In the light of the foregoing discussion, the Court finds and so holds that the
PCGG has no right to vote the sequestered shares of petitioners including the
sequestered corporate shares. Only their owners, duly authorized representatives
or proxies may vote the said shares. Consequently, the election of private respondents
Adolfo Azcuna, Edison Coseteng and Patricio Pineda as members of the board of
directors of SMC for 1990-1991 should be set aside.
However, petitioners cannot be declared as duly elected members of the board
of directors thereby. An election for the purpose should be held where the questioned
shares may be voted by their owners and/or their proxies. Such election may be held
at the next shareholders' meeting in April 1991 or at such date as may be set under
the by-laws of SMC.
Private respondents in both cases are hereby declared to be de facto
officers who in good faith assumed their duties and responsibilities as duly
elected members of the board of directors of the SMC. They are thereby legally
entitled to emoluments of the office including salary, fees and other compensation
attached to the office until they vacate the same. (Emphasis supplied)
Apparently, the assumption of office of the Cinco Group did not bear parallelism with the factual
milieu in Cojuangco and as such they cannot be considered as de facto officers and thus, they are
without colorable authority to authorize the removal of Bernas and the sale of his shares at the public
auction. They cannot bind the corporation to third persons who acquired the shares of Bernas and such
third persons cannot be deemed as buyer in good faith. 35
 The case would have been different if the petitioning stockholders went directly to the SEC and
sought its assistance to call a special stockholders' meeting citing the previous refusal of the Corporate
Secretary to call a meeting. Where there is an officer authorized to call a meeting and that officer
refuses, fails, or neglects to call a meeting, the SEC can assume jurisdiction and issue an order to the
petitioning stockholder to call a meeting pursuant to its regulatory and administrative powers to
implement the Corporation Code. 36 This is clearly provided for by Section 50 of the Corporation Code
which we quote:
Sec. 50. Regular and special meetings of stockholders or members. — . . .
xxx xxx xxx
Whenever, for any cause, there is no person authorized to call a meeting, the
Securities and Exchange Commission, upon petition of a stockholder or member, and
on a showing of good cause therefore, may issue an order to the petitioning
stockholder or member directing him to call a meeting of the corporation by giving
proper notice required by this Code or by the by-laws. The petitioning stockholder or
member shall preside thereat until at least majority of the stockholders or members
present have chosen one of their member[s] as presiding officer.
As early as Ponce v. Encarnacion, etc. and Gapol, 37 the Court of First Instance (now the SEC)
38 is empowered to call a meeting upon petition of the stockholder or member and upon showing of
good cause, thus:
On the showing of good cause therefore, the court may authorize a stockholder
to call a meeting and to preside thereat 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 the call for such meeting
has not been done. 39
The same jurisprudential rule resonates in Philippine National Construction Corporation v.
Pabion, 40 where the Court validated the order of the SEC to compel the corporation to conduct a
stockholders' meeting in the exercise of its regulatory and administrative powers to implement the
Corporation Code:
SEC's assumption of jurisdiction over this case is proper, as the controversy
involves the election of PNCC's directors. Petitioner does not really contradict the
nature of the question presented and agrees that there is an intra-corporate question
involved. ETHIDa
xxx xxx xxx
Prescinding from the above premises, it necessarily follows that SEC can
compel PNCC to hold a stockholders' meeting for the purpose of electing members of
the latter's board of directors.
xxx xxx xxx
As respondents point out, the SEC's action is also justified by its regulatory
and administrative powers to implement the Corporation Code, specifically to compel
the PNCC to hold a stockholders' meeting for election purposes. 41
 Given the broad administrative and regulatory powers of the SEC outlined under Section 50 of
the Corporation Code and Section 6 of Presidential Decree (PD) No. 902-A, the Cinco Group cannot
claim that if was left without recourse after the Corporate Secretary previously refused to heed its
demand to call a special stockholders' meeting. If it be true that the Corporate Secretary refused to call
a meeting despite fervent demand from the MSCOC, the remedy of the stockholders would have been
to file a petition to the SEC to direct him to call a meeting by giving proper notice required under the
Code. To rule otherwise would open the floodgates to abuse where any stockholder, who consider
himself aggrieved by certain corporate actions, could call a special stockholders' meeting for the
purpose of removing the sitting officers in direct violation of the rules pertaining to the call of meeting
laid down in the by-laws.
Every corporation has the inherent power to adopt by-laws for its internal government, and to
regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. 42 The by-laws of a corporation are its own
private laws which substantially have the same effect as the laws of the corporation. They are in effect
written into the charter. In this sense they become part of the fundamental law of the corporation with
which the corporation and its directors and officers must comply. 43 The general rule is that a
corporation, through its board of directors, should act in the manner and within the formalities, if any,
prescribed in its charter or by the general law. Thus, directors must act as a body in a meeting called
pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned
by the objecting director or shareholder. 44
Certainly, the rules set in the by-laws are mandatory for every member of the corporation to
respect. They are the fundamental law of the corporation with which the corporation and its officers and
members must comply. It is on this score that we cannot upon the other hand sustain the Bernas
Group's stance that the subsequent annual stockholders' meetings were invalid.
First, the 20 April 1998 Annual Stockholders Meeting was valid because it was sanctioned by
Section 8 45 of the MSC bylaws. Unlike in Special Stockholders Meeting 46 wherein the bylaws
mandated that such meeting shall be called by specific persons only, no such specific requirement can
be obtained under Section 8.
Second, the 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition
to the fact that it was conducted in accordance to Section 8 of the MSC bylaws, such meeting was
supervised by the SEC in the exercise of its regulatory and administrative powers to implement the
Corporation Code. 47
Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the
presumption that the corporate officers who won the election were duly elected to their positions and
therefore can be rightfully considered as de jure officers. As de jure officials, they can lawfully exercise
functions and legally perform such acts that are within the scope of the business of the corporation
except ratification of actions that are deemed void from the beginning.
Considering that a new set of officers were already duly elected in 1998 and 1999 Annual
Stockholders Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield
to perpetuate in office. Members of the group had no right to continue as directors of the corporation
unless reelected by the stockholders in a meeting called for that purpose every year. 48 They had no
right to hold-over brought about by the failure to perform the duty incumbent upon them. 49 If they were
sure to be reelected, why did they fail, neglect, or refuse to call the meeting to elect the members of
the board? 50
 Moreover, it is fundamental rule that factual findings of quasi-judicial agencies like the SEC, if
supported by substantial evidence, are generally accorded not only great respect but even finality, and
are binding upon this Court unless it was shown that the quasi-judicial agencies had arbitrarily
disregarded evidence before it had misapprehended evidence to such an extent as to compel a contrary
conclusion if such evidence had been properly appreciated. 51 It is not the function of this Court to
analyze or weigh all over again the evidence and credibility of witnesses presented before the lower
court, tribunal, or office, as we are not trier of facts. 52 Our jurisdiction is limited to reviewing and
revising errors of law imputed to the lower court, the latter's finding of facts being conclusive and not
reviewable by this Court. 53 However, when it can be shown that administrative bodies grossly
misappreciated evidence of such nature as to compel a contrary conclusion, the Court will not hesitate
to reverse its factual findings. 54 In the case at bar, the incongruent findings of the SEC on the one
hand, and the Court of Appeals on the other, constrained the Court to review the records to ascertain
which body correctly appreciated the facts vis-à-vis the standing statutory and jurisprudential principles.
After finding that the ruling of the appellate court was in accordance with the existing laws and
jurisprudence as exhaustively discussed above, we hereby quote with approval its disquisition:
(1) The supposed Special Stockholders' Meeting of 17 December 1997 was
prematurely or invalidly called by the [Cinco Group]. It therefore failed to produce any
legal effects and did not effectively remove [the Bernas Group] as directors of the
Makati Sports Club, Inc.;
(2) The expulsion of [Bernas] as well as the public auction of his shares is
hereby declared void and without legal effect;
(3) The ratification of the removal of [the Bernas Group] as directors, the
expulsion of Bernas and the sale of his share by the [Cinco Group] and by the
stockholders held in their Regular Stockholders' Meeting held in April of 1998, 1999
and 2000, is void and produces no effects as they were not the proper party to cause
the ratification;
(4) All other actions of the [Cinco Group] and stockholders taken during the
Regular Stockholders' Meetings held in April 1998, 1999 and 2000, including the
election of the [Cinco Group] as directors after the expiration of the term of office of
[Bernas Group] as directors, are hereby declared valid. 55
In fine, we hold that 17 December 1997 Special Stockholders' Meeting is null and void and
produces no effect; the resolution expelling the Bernas Group from the corporation and authorizing the
sale of Bernas' shares at the public auction is likewise null and void. The subsequent Annual
Stockholders' Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000 are valid and binding
except the ratification of the removal of the Bernas Group and the sale of Bernas' shares at the public
auction effected by the body during the said meetings. The expulsion of the Bernas Group and the
subsequent auction of Bernas' shares are void from the very beginning and therefore the ratifications
effected during the subsequent meetings cannot be sustained. A void act cannot be the subject of
ratification. 56
WHEREFORE, premises considered, the petitions of Jose A. Bernas, Cecile H. Cheng, Victor
Africa, Jesus B. Maramara, Jose T. Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos.
163356-57 and of Jovencio Cinco, Ricardo Librea and Alex Y. Pardo in G.R. Nos. 163368-69 are
hereby DENIED. The assailed Decision dated 28 April 2003 and Resolution dated 27 April 2004 of the
Court of Appeals are hereby AFFIRMED.
SO ORDERED.
||| (Bernas v. Cinco, G.R. Nos. 163356-57 & 163368-69, [July 1, 2015])

THIRD DIVISION

[G.R. No. 184332. February 17, 2016.]

ANNA TENG, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION (SEC) and
TING PING LAY, respondents.

DECISION

REYES, J p:
This petition for review on certiorari 1 under Rule 45 of the Rules of Court seeks the reversal
of the Decision 2 dated April 29, 2008 and the Resolution 3 dated August 28, 2008 rendered by the
Court of Appeals (CA) in CA-G.R. SP No. 99836. The CA affirmed the orders of the Securities and
Exchange Commission (SEC) granting the issuance of an alias writ of execution, compelling petitioner
Anna Teng (Teng) to register and issue new certificates of stock in favor of respondent Ting Ping Lay
(Ting Ping).
The Facts
This case has its origin in G.R. No. 129777 4 entitled TCL Sales Corporation and Anna Teng
v. Hon. Court of Appeals and Ting Ping Lay. Herein respondent Ting Ping purchased 480 shares of
TCL Sales Corporation (TCL) from Peter Chiu (Chiu) on February 2, 1979; 1,400 shares on September
22, 1985 from his brother Teng Ching Lay (Teng Ching), who was also the president and operations
manager of TCL; and 1,440 shares from Ismaelita Maluto (Maluto) on September 2, 1989. 5
Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took over the management of
TCL. To protect his shareholdings with TCL, Ting Ping on August 31, 1989 requested TCL's Corporate
Secretary, herein petitioner Teng, to enter the transfer in the Stock and Transfer Book of TCL for the
proper recording of his acquisition. He also demanded the issuance of new certificates of stock in his
favor. TCL and Teng, however, refused despite repeated demands. Because of their refusal, Ting Ping
filed a petition for mandamus with the SEC against TCL and Teng, docketed as SEC Case No. 3900.
6
In its Decision 7 dated July 20, 1994, the SEC granted Ting Ping's petition, ordering as follows:
WHEREFORE, in view of all the foregoing facts and circumstances, judgment
is hereby rendered.
A. Ordering [TCL and Teng] to record in the Books of the Corporation the
following shares:
1. 480 shares acquired by [Ting Ping] from [Chiu] per Deed of Sales
[sic] dated February 20, 1979;
2. 1,400 shares acquired by [Ting Ping] from [Teng Ching] per Deed
of Sale dated September 22, 1985; and
 3. 1,440 shares acquired by [Ting Ping] from [Maluto] per Deed of
Assignment dated Sept. 2, 1989 [sic].
B. Ordering [TCL and Teng] to issue corresponding new certificates of stocks
(sic) in the name of [Ting Ping].
C. Ordering [TCL and Teng] to pay [Ting Ping] moral damages in the amount
of One Hundred Thousand (P100,000.00) Pesos and Fifty Thousand (P50,000.00)
Pesos for attorney's fees.
SO ORDERED. 8 AaCTcI
TCL and Teng appealed to the SEC en banc, which, in its Order 9 dated June 11, 1996,
affirmed the SEC decision with modification, in that Teng was held solely liable for the payment of moral
damages and attorney's fees.
Not contented, TCL and Teng filed a petition for review with the CA, docketed as CA-G.R. SP.
No. 42035. On January 31, 1997, the CA, however, dismissed the petition for having been filed out of
time and for finding no cogent and justifiable grounds to disturb the findings of the SEC en banc. 10
This prompted TCL and Teng to come to the Court via a petition for review on certiorari under Rule 45.
On January 5, 2001, the Court promulgated its Decision in G.R. No. 129777, the dispositive
portion of which states:
WHEREFORE, the petition is DENIED, and the Decision dated January 31,
1997, as well as the Resolution dated July 3, 1997 of [the CA] are hereby AFFIRMED.
Costs against [TCL and Teng].
SO ORDERED. 11
After the finality of the Court's decision, the SEC issued a writ of execution addressed to the
Sheriff of the Regional Trial Court (RTC) of Manila. Teng, however, filed on February 4, 2004 a
complaint for interpleader with the RTC of Manila, Branch 46, docketed as Civil Case No. 02-102776,
where Teng sought to compel Henry and Ting Ping to interplead and settle the issue of ownership over
the 1,400 shares, which were previously owned by Teng Ching. Thus, the deputized sheriff held in
abeyance the further implementation of the writ of execution pending outcome of Civil Case No. 02-
102776. 12
On March 13, 2003, the RTC of Manila, Branch 46, rendered its Decision 13 in Civil Case No.
02-102776, finding Henry to have a better right to the shares of stock formerly owned by Teng Ching,
except as to those covered by Stock Certificate No. 011 covering 262.5 shares, among others. 14
Thereafter, an Ex Parte Motion for the Issuance of Alias Writ of Execution 15 was filed by Ting
Ping where he sought the partial satisfaction of SEC en banc Order dated June 11, 1996 ordering TCL
and Teng to record the 480 shares he acquired from Chiu and the 1,440 shares he acquired from
Maluto, and for Teng's payment of the damages awarded in his favor.
Acting upon the motion, the SEC issued an Order 16 dated August 9, 2006 granting partial
enforcement and satisfaction of the Decision dated July 20, 1994, as modified by the SEC en banc's
Order dated June 11, 1996. 17 On the same date, the SEC issued an alias writ of execution. 18
Teng and TCL filed their respective motions to quash the alias writ of execution, 19 which was
opposed by Ting Ping, 20 who also expressed his willingness to surrender the original stock certificates
of Chiu and Maluto to facilitate and expedite the transfer of the shares in his favor. Teng pointed out,
however, that the annexes in Ting Ping's opposition did not include the subject certificates of stock,
surmising that they could have been lost or destroyed. 21 Ting Ping belied this, claiming that his counsel
Atty. Simon V. Lao already communicated with TCL's counsel regarding the surrender of the said
certificates of stock. 22 Teng then filed a counter manifestation where she pointed out a discrepancy
between the total shares of Maluto based on the annexes, which is only 1305 shares, as against the
1440 shares acquired by Ting Ping based on the SEC Order dated August 9, 2006. 23
On May 25, 2007, the SEC denied the motions to quash filed by Teng and TCL, and affirmed
its Order dated August 9, 2006. 24
Unperturbed, Teng filed a petition for certiorari and prohibition under Rule 65 of the Rules of
Court, docketed as CA-G.R. SP No. 99836. 25 The SEC, through the Office of the Solicitor General
(OSU), filed a Comment dated June 30, 2008, 26 which, subsequently, Teng moved to expunge. 27
On April 29, 2008, the CA promulgated the assailed decision dismissing the petition and
denying the motion to expunge the SEC's comment. 28 EcTCAD
Hence, Teng filed the present petition, raising the following grounds:
I. THE RESPONDENT [CA] GRAVELY ERRED IN DECLARING THAT THERE WAS
NO NEED TO SURRENDER THE STOCK CERTIFICATES REPRESENTING
THE SHARES CONVEYED BY [MALUTO] TO [TING PING] TO RECORD THE
TRANSFER THEREOF IN THE CORPORATE BOOKS AND ISSUE NEW
STOCK CERTIFICATES[;]
II. THE RESPONDENT [CA] GRAVELY ERRED IN UPHOLDING THE POSE THAT
THERE WAS NEITHER AMENDMENT NOR ALTERATION OF THE FINAL
DECISION OF THE SUPREME COURT IN "TCL SALE[S] CORP., ET AL. VS.
CA, ET AL.", G.R. NO. 129777, DESPITE THE CONTRARY RECORD
THERETO[;]
III. THE RESPONDENT [CA] GRAVELY ERRED IN DECLARING THAT THE [OSG]
WAS ALREADY REQUIRED TO COMMENT ON [TENG'S] MOTION FOR
RECONSIDERATION. 29
The core question before the Court is whether the surrender of the certificates of stock is a
requisite before registration of the transfer may be made in the corporate books and for the issuance
of new certificates in its stead. Note at this juncture that the present dispute involves the execution of
the Court's decision in G.R. No. 129777 but only with regard to Chiu's and Maluto's respective shares.
The subject of the orders of execution issued by the SEC pertained only to these shares and the Court's
decision will revolve only on these shares.
Teng argues, among others, that the CA erred when it held that the surrender of Maluto's stock
certificates is not necessary before their registration in the corporate books and before the issuance of
new stock certificates. She contends that prior to registration of stocks in the corporate books, it is
mandatory that the stock certificates are first surrendered because a corporation will be liable to a bona
fide holder of the old certificate if, without demanding the said certificate, it issues a new one. She also
claims that the CA's reliance on Tan v. SEC 30 is misplaced since therein subject stock certificate was
allegedly surrendered. 31
On the other hand, Ting Ping contends that Section 63 of the Corporation Code does not
require the surrender of the stock certificate to the corporation, nor make such surrender an
indispensable condition before any transfer of shares can be registered in the books of the corporation.
Ting Ping considers Section 63 as a permissive mode of transferring shares in the corporation. Citing
Rural Bank of Salinas, Inc. v. CA, 32 he claims that the only limitation imposed by Section 63 is when
the corporation holds any unpaid claim against the shares intended to be transferred. Thus, for as long
as the shares of stock are validly transferred, the corporate secretary has the ministerial duty to register
the transfer of such shares in the books of the corporation, especially in this case because no less than
this Court has affirmed the validity of the transfer of the shares in favor of Ting Ping. 33
Ruling of the Court
To restate the basics —
A certificate of stock is a written instrument signed by the proper officer of a corporation stating
or acknowledging that the person named in the document is the owner of a designated number of
shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation. 34 A
certificate, however, is merely a tangible evidence of ownership of shares of stock. 35 It is not a stock
in the corporation and merely expresses the contract between the corporation and the stockholder. 36
The shares of stock evidenced by said certificates, meanwhile, are regarded as property and the owner
of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been
dissolved, or unless the right to do so is properly restricted, or the owner's privilege of disposing of his
shares has been hampered by his own action. 37
Section 63 of the Corporation Code prescribes the manner by which a share of stock may be
transferred. Said provision is essentially the same as Section 35 of the old Corporation Law, which, as
held in Fleisher v. Botica Nolasco Co., 38 defines the nature, character and transferability of shares of
stock. Fleisher also stated that the provision on the transfer of shares of stocks contemplates no
restriction as to whom they may be transferred or sold. As owner of personal property, a shareholder
is at liberty to dispose of them in favor of whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law. 39
Section 63 provides:
Sec. 63. Certificate of stock and transfer of shares. — The capital stock of
stock 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. (Emphasis and underscoring ours)
Under the provision, certain minimum requisites must be complied with for there to be a valid
transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer;
and (c) to be valid against third parties, the transfer must be recorded in the books of the corporation.
40 HSAcaE
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly
authorized representative that is the operative act of transfer of shares from the original owner to the
transferee. 41 The Court even emphatically declared in Fil-Estate Golf and Development, Inc., et al. v.
Vertex Sales and Trading, Inc. 42 that in "a sale of shares of stock, physical delivery of a stock certificate
is one of the essential requisites for the transfer of ownership of the stocks purchased." 43 The delivery
contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the
transferor to the transferee, that is, from the original stockholder named in the certificate to the person
or entity the stockholder was transferring the shares to, whether by sale or some other valid form of
absolute conveyance of ownership. 44 "[S]hares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of
the duly indorsed certificate of stock." 45
It is thus clear that Teng's position — that Ting Ping must first surrender Chiu's and Maluto's
respective certificates of stock before the transfer to Ting Ping may be registered in the books of the
corporation — does not have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting
Ping to TCL, is not a requisite before the conveyance may be recorded in its books. To compel Ting
Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would
amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not
sanctioned by law. The only limitation imposed by Section 63 is when the corporation holds any unpaid
claim against the shares intended to be transferred.
In Rural Bank of Salinas, 46 the Court ruled that the right of a transferee/assignee to have
stocks transferred to his name is an inherent right flowing from his ownership of the stocks. 47 In said
case, the private respondent presented to the bank the deeds of assignment for registration, transfer
of the shares assigned in the bank's books, cancellation of the stock certificates, and issuance of new
stock certificates, which the bank refused. In ruling favorably for the private respondent, the Court
stressed that a corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers. In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of ownership. 48 If a corporation refuses
to make such transfer without good cause, it may, in fact, even be compelled to do so by mandamus.
49 With more reason in this case where the Court, in G.R. No. 129777, already upheld Ting Ping's
definite and uncontested titles to the subject shares, viz.:
Respondent Ting Ping Lay was able to establish prima facie ownership over the shares
of stocks in question, through deeds of transfer of shares of stock of TCL Corporation.
Petitioners could not repudiate these documents. Hence, the transfer of shares to
him must be recorded on the corporation's stock and transfer book. 50
(Emphasis and underscoring ours)
In the same vein, Teng cannot refuse registration of the transfer on the pretext that the
photocopies of Maluto's certificates of stock submitted by Ting Ping covered only 1,305 shares and not
1,440. As earlier stated, the respective duties of the corporation and its secretary to transfer stock are
purely ministerial. 51 Aside from this, Teng's argument on this point was adequately explained by both
the SEC and CA in this wise:
In explaining the alleged discrepancy, the public respondent, in its 25 May
2007 order, cited the order of the Commission En Banc, thus:
"An examination of this decision, however, reveals, no
categorical pronouncements of fraud. The refusal to credit in [Ting
Ping's] favor five hundred eighty-five (585) shares in excess of what
[Maluto] owned and the two hundred forty (240) shares that [Ting Ping]
bought from the corporation, is a mere product of the failure of the
corporation to register with the [SEC] the increase in the subscribed
capital stock by 4000 shares last 1981. Surely, [Ting Ping] cannot be
faulted for this." 52
 Nevertheless, to be valid against third parties and the corporation, the transfer must be
recorded or registered in the books of corporation. There are several reasons why registration of the
transfer is necessary: one, to enable the transferee to exercise all the rights of a stockholder; 53 two,
to inform the corporation of any change in share ownership so that it can ascertain the persons entitled
to the rights and subject to the liabilities of a stockholder; 54 and three, to avoid fictitious or fraudulent
transfers, 55 among others. Thus, in Chua Guan v. Samahang Magsasaka, Inc., 56 the Court stated
that the only safe way to accomplish the hypothecation of share of stock is for the transferee [a creditor,
in this case] to insist on the assignment and delivery of the certificate and to obtain the transfer of the
legal title to him on the books of the corporation by the cancellation of the certificate and the issuance
of a new one to him. 57 In this case, given the Court's decision in G.R. No. 129777, registration of the
transfer of Chiu's and Maluto's shares in Ting Ping's favor is a mere formality in confirming the latter's
status as a stockholder of TCL. 58
Upon registration of the transfer in the books of the corporation, the transferee may now then
exercise all the rights of a stockholder, which include the right to have stocks transferred to his name.
59 In Ponce v. Alsons Cement Corporation, 60 the Court stated that "[f]rom the corporation's point of
view, the transfer is not effective until it is recorded. Unless and until such recording is made[,] the
demand for the issuance of stock certificates to the alleged transferee has no legal basis. . . . [T]he
stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the
liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation
is under no specific legal duty to issue stock certificates in the transferee's name." 61 HESIcT
The manner of issuance of certificates of stock is generally regulated by the corporation's by-
laws. Section 47 of the Corporation Code states: "a private corporation may provide in its by-laws for .
. . the manner of issuing stock certificates." Section 63, meanwhile, provides that "[t]he capital stock of
stock 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." In Bitong v. CA, 62 the Court outlined the
procedure for the issuance of new certificates of stock in the name of a transferee:
First, the certificates must be signed by the president or vice-president, countersigned
by the secretary or assistant secretary, and sealed with the seal of the corporation. . .
. Second, delivery of the certificate is an essential element of its issuance. . . . Third,
the par value, as to par value shares, or the full subscription as to no par value shares,
must first be fully paid. Fourth, the original certificate must be surrendered where
the person requesting the issuance of a certificate is a transferee from a
stockholder. 63 (Emphasis ours and citations omitted)
The surrender of the original certificate of stock is necessary before the issuance of a new one
so that the old certificate may be cancelled. A corporation is not bound and cannot be required to issue
a new certificate unless the original certificate is produced and surrendered. 64 Surrender and
cancellation of the old certificates serve to protect not only the corporation but the legitimate
shareholder and the public as well, as it ensures that there is only one document covering a particular
share of stock.
In the case at bench, Ting Ping manifested from the start his intention to surrender the subject
certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates
in his name. It would be sacrificing substantial justice if the Court were to grant the petition simply
because Ting Ping is yet to surrender the subject certificates for cancellation instead of ordering in this
case such surrender and cancellation, and the issuance of new ones in his name. 65
 On the other hand, Teng, and TCL for that matter, have already deterred for so long Ting Ping's
enjoyment of his rights as a stockholder. As early as 1989, Ting Ping already requested Teng to enter
the transfer of the subject shares in TCL's Stock and Transfer Book; in 2001, the Court, in G.R. No.
129777, resolved Ting Ping's rights as a valid transferee and shareholder; in 2006, the SEC ordered
partial execution of the judgment; and in 2008, the CA affirmed the SEC's order of execution. The Court
will not allow Teng and TCL to frustrate Ting Ping's rights any longer. Also, the Court will not dwell on
the other issues raised by Teng as it becomes irrelevant in light of the Court's disquisition. AcICHD
WHEREFORE, the petition is DENIED. The Decision dated April 29, 2008 and Resolution
dated August 28, 2008 of the Court of Appeals in CA-G.R. SP No. 99836 are AFFIRMED.
Respondent Ting Ping Lay is hereby ordered to surrender the certificates of stock covering the
shares respectively transferred by Ismaelita Maluto and Peter Chiu. Petitioner Anna Teng or the
incumbent corporate secretary of TCL Sales Corporation, on the other hand, is hereby ordered, under
pain of contempt, to immediately cancel Ismaelita Maluto's and Peter Chiu's certificates of stock and to
issue new ones in the name of Ting Ping Lay, which shall include Ismaelita Maluto's shares not covered
by any existing certificate of stock but otherwise validly transferred to Ting Ping Lay.
Costs against petitioner Anna Teng.
SO ORDERED.
Velasco, Jr., Peralta, Perez and Jardeleza, JJ., concur.
||| (Teng v. Securities and Exchange Commission, G.R. No. 184332, [February 17, 2016])

FIRST DIVISION

[G.R. No. 208844. November 10, 2015.]

F & S VELASCO COMPANY, INC., IRWIN J. SEVA, ROSINA B. VELASCO-

SCRIBNER, MERCEDEZ SUNICO, and JOSE SATURNINO O. VELASCO, *
petitioners, vs. DR. ROMMEL L. MADRID, PETER PAUL L. DANAO, MANUEL L.
ARIMADO, and MAUREEN R. LABALAN, respondents.

DECISION

PERLAS-BERNABE, J p:
Assailed in this petition for review on certiorari 1 are the Decision 2 dated March 1, 2013 and
the Resolution 3 dated August 7, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 113279, which
modified the Decision 4 dated March 3, 2010 of the Regional Trial Court of Legazpi City, Branch 5
(RTC) in SR-09-007: (a) declaring the Special Stockholders' and Re-Organizational Meeting of
petitioner F & S Velasco Company, Inc. (FSVCI) held on November 18, 2009 legal and valid; and (b)
remanding the case to the court a quo and directing it to appoint or constitute a Management Committee
to take over the corporate and business affairs of FSVCI.
The Facts
 On June 8, 1987, FSVCI was duly organized and registered as a corporation with Francisco O.
Velasco (Francisco), Simona J. Velasco (Simona), Angela V. Madrid (Angela), herein respondent Dr.
Rommel L. Madrid (Madrid), and petitioner Saturnino O. Velasco (Saturnino) as its incorporators. When
Simona and Francisco died on June 12, 1998 and June 22, 1999, respectively, their daughter, Angela,
inherited their shares, thereby giving her control of 70.82% of FSVCI's total shares of stock. As of May
11, 2009, the distribution of FSVCI's 24,000 total shares of stock is as follows: (a) Angela with 16,998
shares; (b) Madrid with 1,000 shares; (c) petitioner Rosina B. Velasco-Scribner (Scribner) with 6,000
shares; and (d) petitioners Irwin J. Seva (Seva) and Mercedez Sunico (Sunico) with one (1) share each.
5
On September 20, 2009 and during her tenure as Chairman of the Board of Directors of FSVCI
(the other members of the Board of Directors being Madrid, Scribner, Seva, and Sunico), Angela died
intestate and without issue. On October 8, 2009, Madrid, as Angela's spouse, executed an Affidavit of
Self-Adjudication covering the latter's estate which includes her 70.82% ownership of FSVCI's shares
of stock. Believing that he is already the controlling stockholder of FSVCI by virtue of such self-
adjudication, Madrid called for a Special Stockholders' and Re-Organizational Meeting to be held on
November 18, 2009. On November 10, 2009 and in preparation for said meeting, Madrid executed
separate deeds of assignment transferring one share each to Vitaliano B. Ricafort and to respondents
Peter Paul L. Danao (Danao), Maureen R. Labalan (Labalan), and Manuel L. Arimado (Arimado;
collectively, Madrid Group). 6
Meanwhile, as Madrid was performing the aforesaid acts, Seva, in his then-capacity as FSVCI
corporate secretary, sent a Notice of an Emergency Meeting to FSVCI's remaining stockholders for the
purpose of electing a new president and vice-president, as well as the opening of a bank account. Such
meeting was held on November 6, 2009 which was attended by Saturnino, Seva, and Sunico
(November 6, 2009 Meeting), during which, Saturnino was recognized as a member of the FSVCI Board
of Directors and thereafter, as FSVCI President, while Scribner was elected FSVCI Vice-President
(Saturnino Group). 7
Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with the
Special Stockholders' and Re-Organizational Meeting on November 18, 2009, wherein: (a) the current
members of FSVCI Board of Directors (save for Madrid) were ousted and replaced by the members of
the Madrid Group; and (b) Madrid, Danao, Arimado, and Labalan were elected President, Vice-
President, Corporate Secretary, and Treasurer, respectively, of FSVCI (November 18, 2009 Meeting).
8
In view of the November 18, 2009 Meeting, the Saturnino Group filed a petition for Declaration
of Nullity of Corporate Election with Preliminary Injunction and Temporary Restraining Order 9 (TRO)
against the Madrid Group before the RTC, which was acting as a Special Commercial Court. 10
After the RTC denied the Saturnino Groups' prayer for TRO, the Madrid Group filed its Answer
(with Compulsory Counterclaims) 11 which prayed for, among others, the declaration of nullity of the
November 6, 2009 Meeting conducted by the Saturnino Group. The Madrid Group likewise applied for
the Appointment of a Management Committee for FSVCI, which was denied by the RTC in an Order
12 dated January 12, 2010. 13 CAIHTE
The RTC Ruling
In a Decision 14 dated March 3, 2010, the RTC declared both the November 6, 2009 and
November 18, 2009 Meetings null and void. 15 It found the November 6, 2009 Meeting invalid because:
(a) it was conducted without a quorum as only two (2) FSVCI Board Members (i.e., Seva and Sunico)
attended the same, and that Scribner cannot attend by proxy as the Corporation Code expressly
prohibits proxy attendance in Board meetings; and (b) merely recognizing Saturnino as an additional
member of the FSVCI Board of Directors — and not electing him to take the position vacated by Angela
upon her death — had the effect of increasing FSVCI's number of Directors to six (6), thus, exceeding
the number of Directors explicitly stated in the FSVCI Articles of Incorporation. 16
On the other hand, in ruling on the invalidity of the November 18, 2009 Meeting, the RTC held
that until a probate court conducting the settlement proceedings of Angela's estate determines the
rightful owner of Angela's properties, Madrid only has an equitable right over Angela's 70.82%
ownership of FSVCI's shares of stock. As such, Madrid cannot exercise the rights accorded to such
ownership, hence, making his call for a meeting, as well as the actual conduct of the November 18,
2009 Meeting, invalid. 17
Aggrieved, the Madrid Group appealed 18 before the CA contesting the RTC's declaration of
invalidity of the November 18, 2009 Meeting, as well as the denial of the appointment of a Management
Committee for FSVCI. 19 Meanwhile, records do not show that the Saturnino Group appealed the
declaration of invalidity of the November 6, 2009 Meeting to the CA.
The CA Ruling
In a Decision 20 dated March 1, 2013, the CA modified the RTC ruling: (a) declaring the
November 18, 2009 Meeting conducted by the Madrid Group valid; and (b) remanding the case to the
court a quo and directing it to appoint or constitute a Management Committee to take over the corporate
and business affairs of FSVCI. 21
Contrary to the RTC findings, the CA held that Madrid's execution of the Affidavit of Self-
Adjudication already conferred upon him the ownership of Angela's 70.82% ownership of FSVCI's
shares of stock, resulting in total ownership of 74.98% shares of stock inclusive of his original 4.16%
ownership. 22 In this relation, the CA found that Madrid had already complied with the registration
requirement of such transfer in the books of the corporation through the November 18, 2009 General
Information Sheet (GIS) of the corporation duly filed with the Securities and Exchange Commission
(SEC). As such, he validly made the call for the November 18, 2009 Meeting, and accordingly, the
matters resolved therein — such as the reorganization of the FSVCI Board of Directors and the election
of corporate officers — should bind the corporation. 23
Further, the CA ruled that the creation of a Management Committee is appropriate in view of
the persisting conflict between the Saturnino and Madrid Groups, the allegations of embezzlement of
corporate funds among the parties, and the uncertainty in the leadership and direction of the corporation
which had created an imminent danger of dissipation, loss, and wastage of FSVCI's assets and the
paralyzation of its business operations which may be prejudicial to the minority stockholders, parties-
litigants, or the general public. 24
Dissatisfied, the Saturnino Group moved for reconsideration 25 which was, however, denied in
a Resolution 26 dated August 7, 2013; hence, the instant petition.
The Issues Before the Court
The core issues for the Court's resolution are whether or not the CA correctly ruled that: (a) the
November 18, 2009 Meeting organized by Madrid is legal and valid; and (b) a Management Committee
should be appointed or constituted to take over the corporate and business affairs of FSVCI.
The Court's Ruling
The petition is partly meritorious.
 At the outset, the Court notes that after Madrid executed his Affidavit of Self-Adjudication, he
then filed a petition for letters of administration regarding Angela's estate, docketed as S.P. No. M-
7025, before the Regional Trial Court of Makati City, Branch 59 27 (RTC-Makati Br. 59). Through
Orders dated December 29, 2010 28 and March 29, 2011, 29 the RTC-Makati Br. 59 already recognized
Madrid as Angela's sole heir to the exclusion of others — i.e., Angela's purported biological sister,
Lourdita J. Estevez (Estevez) — and, thus, appointed him as Special Administrator of Angela's estate.
30 Estevez then belatedly challenged such Orders of the RTC-Makati Br. 59 via a petition for annulment
of judgment before the CA, docketed as CA-G.R. SP No. 128979, which was dismissed through
Resolutions dated April 3, 2013 31 and November 4, 2013. 32 Undaunted, Estevez made a further
appeal 33 to the Court, which was denied in the Minute Resolutions dated February 26, 2014 34 and
June 16, 2014. 35 Such ruling of the Court had already attained finality as evidenced by an Entry of
Judgment 36 dated June 16, 2014. In view of the foregoing, the Court is constrained to view that Madrid
is indeed Angela's sole heir and her death caused the immediate transfer of her properties, including
her 70.82% ownership of FSVCI's shares of stock, to Madrid. 37 As such, Madrid may compel the
issuance of certificates of stock in his favor, as well as the registration of Angela's stocks in his name
in FSVCI's Stock and Transfer Book.
Be that as it may, it must be clarified that Madrid's inheritance of Angela's shares of stock does
not ipso facto afford him the rights accorded to such majority ownership of FSVCI's shares of stock.
Section 63 of the Corporation Code governs the rule on transfers of shares of stock. It reads: DETACa
SEC. 63. Certificate of stock and transfer of shares. — The capital stock of
stock 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. (Emphasis and underscoring supplied)
Verily, all transfers of shares of stock must be registered in the corporate books in order to be
binding on the corporation. Specifically, this refers to the Stock and Transfer Book, which is described
in Section 74 of the same Code as follows:
SEC. 74. Books to be kept; stock transfer agent. — . . . .
xxx xxx xxx
Stock corporations must also keep a book to be known as the "stock and
transfer book", in which must be kept a record of all stocks in the names of the
stockholders alphabetically arranged; the installments paid and unpaid on all stock for
which subscription has been made, and the date of payment of any installment; a
statement of every alienation, sale or transfer of stock made, the date thereof, and by
and to whom made; and such other entries as the by-laws may prescribe. The stock
and transfer book shall be kept in the principal office of the corporation or in the office
 of its stock transfer agent and shall be open for inspection by any director or
stockholder of the corporation at reasonable hours on business days.
xxx xxx xxx
In this regard, the case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga 38 instructs that
an owner of shares of stock cannot be accorded the rights pertaining to a stockholder — such as the
right to call for a meeting and the right to vote, or be voted for — if his ownership of such shares is not
recorded in the Stock and Transfer Book, viz.:
Indeed, until registration is accomplished, the transfer, though valid between the
parties, cannot be effective as against the corporation. Thus, the unrecorded
transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose
of registration, therefore, is two-fold: to enable the transferee to exercise all the
rights of a stockholder, including the right to vote and to be voted for, and to
inform the corporation of any change in share ownership so that it can ascertain
the persons entitled to the rights and subject to the liabilities of a stockholder.
Until challenged in a proper proceeding, a stockholder of record has a right to
participate in any meeting; his vote can be properly counted to determine whether a
stockholders' resolution was approved, despite the claim of the alleged transferee. On
the other hand, a person who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must secure such a
standing by having the transfer recorded on the corporate books. Until the
transfer is registered, the transferee is not a stockholder but an outsider. 39
(Emphases and underscoring supplied)
In the case at bar, records reveal that at the time Madrid called for the November 18, 2009
Meeting, as well as the actual conduct thereof, he was already the owner of 74.98% shares of stock of
FSVCI as a result of his inheritance of Angela's 70.82% ownership thereof. However, records are bereft
of any showing that the transfer of Angela's shares of stock to Madrid had been registered in FSVCI's
Stock and Transfer Book when he made such call and when the November 18, 2009 Meeting was held.
Thus, the CA erred in holding that Madrid complied with the required registration of transfers of shares
of stock through mere reliance on FSVCI's GIS dated November 18, 2009.
In this relation, it is noteworthy to point out that the submission of a GIS of a corporation before
the SEC is pursuant to the objective sought by Section 26 40 of the Corporation Code which is to give
the public information, under sanction of oath of responsible officers, of the nature of business, financial
condition, and operational status of the company, as well as its key officers or managers, so that those
dealing and who intend to do business with it may know or have the means of knowing facts concerning
the corporation's financial resources and business responsibility. 41 The contents of the GIS, however,
should not be deemed conclusive as to the identities of the registered stockholders of the corporation,
as well as their respective ownership of shares of stock, as the controlling document should be the
corporate books, specifically the Stock and Transfer Book. Jurisprudence in Lao v. Lao 42 is instructive
on this matter, to wit:
The mere inclusion as shareholder of petitioners in the General
Information Sheet of PFSC is insufficient proof that they are shareholders of the
company.
Petitioners bank heavily on the General Information Sheet submitted by PFSC
to the SEC in which they were named as shareholders of PFSC. They claim that
respondent is now estopped from contesting the General Information Sheet.
 While it may be true that petitioners were named as shareholders in the
General Information Sheet submitted to the SEC, that document alone does not
conclusively prove that they are shareholders of PFSC. The information in the
document will still have to be correlated with the corporate books of PFSC. As
between the General Information Sheet and the corporate books, it is the latter
that is controlling. As correctly ruled by the CA: aDSIHc
We agree with the trial court that mere inclusion in the
General Information Sheets as stockholders and officers does
not make one a stockholder of a corporation, for this may have
come to pass by mistake, expediency or negligence. As
professed by respondent-appellee, this was done merely to
comply with the reportorial requirements with the SEC. This may
be against the law but "practice, no matter how long continued, cannot
give rise to any vested right."
If a transferee of shares of stock who failed to register such
transfer in the Stock and Transfer Book of the Corporation could not
exercise the rights granted unto him by law as stockholder, with more
reason that such rights be denied to a person who is not a stockholder
of a corporation. Petitioners-appellants never secured such a standing
as stockholders of PFSC and consequently, their petition should be
denied. 43 (Emphases and underscoring supplied)
In light of the foregoing, Madrid could not have made a valid call of the November 18, 2009
Meeting as his stock ownership of FSVCI as registered in the Stock and Transfer Book is only 4.16%
in view of the non-registration of Angela's shares of stock in the FSVCI Stock and Transfer Book in his
favor. As there was no showing that he was able to remedy the situation by the time the meeting was
held, the conduct of such meeting, as well as the matters resolved therein, including the reorganization
of the FSVCI Board of Directors and the election of new corporate officers, should all be declared null
and void.
Thus, in view of the nullity of the November 6, 2009 Meeting conducted by the Saturnino Group
which ruling of the RTC had already attained finality, as well as the November 18, 2009 Meeting
conducted by the Madrid Group — both of which attempted to wrest control of FSVCI by reorganizing
the Board of Directors and electing a new set of corporate officers — the FSVCI Board of Directors at
the time of Angela's death (i.e., Madrid, Seva, Scribner, and Sunico) should be reconstituted, and
thereafter, fill the vacant seat left by Angela in accordance with Section 29 44 of the Corporation Code.
Such Board of Directors shall only act in a hold-over capacity until their successors are elected and
qualified, pursuant to Section 23 45 of the Corporation Code. ATICcS
Finally, on the issue of the propriety of appointing/constituting a Management Committee to
manage FSVCI's affairs, the Court recognizes that a corporation may be placed under the care of a
Management Committee specifically created by a court and, thus, under the latter's control and
supervision, for the purpose of preserving properties involved in a suit and protecting the rights of the
parties. 46 However, case law is quick to point out that "the creation and appointment of a management
committee . . . is an extraordinary and drastic remedy to be exercised with care and caution; and only
when the requirements under the Interim Rules [of Procedure Governing Intra-Corporate
Controversies] are shown. It is a drastic course for the benefit of the minority stockholders, the parties-
litigants or the general public [and is] allowed only under pressing circumstances and when there is
inadequacy, ineffectual or exhaustion of legal or other remedies. . . . The power of the court to continue
 a business of a corporation . . . must be exercised with the greatest care and caution. There should be
a full consideration of all the attendant facts, including the interest of all the parties concerned." 47 In
view of the extraordinary nature of such a remedy, Section 1, Rule 9 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies 48 provides the elements needed for the creation of a
Management Committee:
SEC. 1. Creation of a management committee. — As an incident to any of the
cases filed under these Rules or the Interim Rules on Corporate Rehabilitation, a party
may apply for the appointment of a management committee for the corporation,
partnership or association, when there is imminent danger of:
(1) Dissipation, loss, wastage or destruction of assets or other properties; and
(2) Paralyzation of its business operations which may be prejudicial to the
interest of the minority stockholders, parties-litigants or the general public.
Thus, applicants for the appointment of a management committee need to establish the
confluence of these two (2) requisites. This is because appointed management committees will
immediately take over the management of the corporation and exercise the management powers
specified in the law. This may have a negative effect on the operations and affairs of the corporation
with third parties, as persons who are more familiar with its operations are necessarily dislodged from
their positions in favor of appointees who are strangers to the corporation's operations and affairs. 49
In the case at bar, the CA merely based its directive of creating a Management Committee for
FSVCI on its finding of "the persisting conflict between [the Saturnino and Madrid Groups], the
allegations of embezzlement of corporate funds among the parties, and the uncertainty in the
leadership and direction of the corporation had created an imminent danger of dissipation, loss[,] and
wastage of FSVCI's assets and the paralyzation of its business operations which may be prejudicial to
the minority stockholders, parties-litigants or the general public." 50 However, absent any actual
evidence from the records showing such imminent danger, the CA's findings have no legal or factual
basis to support the appointment/constitution of a Management Committee for FSVCI. Accordingly, the
CA erred in ordering the creation of a Management Committee in this case. Hence, in the event a
Management Committee had already been constituted pursuant to the CA ruling, as what herein
respondents point out, 51 then it should be immediately dissolved for the reasons aforestated.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 1, 2013 and the
Resolution dated August 7, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 113279 are hereby
REVERSED and SET ASIDE. The Special Stockholders' and Re-Organizational Meeting of petitioner
F & S Velasco Company, Inc. called by respondent Rommel L. Madrid and held on November 18, 2009
is declared NULL and VOID and the Management Committee constituted pursuant to the
aforementioned CA Decision and Resolution is hereby DISSOLVED.
Accordingly, the Board of Directors of petitioner F & S Velasco Company, Inc. prior to the death
of Angela V. Madrid — consisting of the remaining members petitioners Rosina B. Velasco-Scribner,
Irwin J. Sera, and Mercedez Sunico and respondent Dr. Rommel L. Madrid — is hereby ORDERED
reconstituted. The Board of Directors is ORDERED to fill the vacant seat left by Angela V. Madrid and,
thereafter, act in a hold-over capacity until their successors are elected and qualified, in accordance
with prevailing laws, rules, and jurisprudence.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, JJ., concur.
||| (F & S Velasco Co., Inc. v. Madrid, G.R. No. 208844, [November 10, 2015])
 FIRST DIVISION

[G.R. No. 160924. August 5, 2015.]

TERELAY INVESTMENT AND DEVELOPMENT CORPORATION, petitioner, vs.

CECILIA TERESITA J. YULO, respondent.

DECISION

BERSAMIN, J p:
In its desire to block the inspection of its corporate books by a stockholder holding a very
insignificant shareholding, the petitioner now seeks to set aside the judgment promulgated on
September 12, 2003, 1 whereby the Court of Appeals (CA) affirmed the decision rendered on March
22, 2002 by the Regional Trial Court, Branch 142, in Makati City (RTC) allowing the inspection, and
ordering it to pay attorney's fees of P50,000.00 to the stockholder. 2
With the CA having denied the petitioner's motion for reconsideration and motion for oral
argument through the resolution promulgated on November 28, 2003, 3 such denial is also the subject
of this appeal.
Antecedents
The CA recited the following antecedents:
Asserting her right as a stockholder, Cecilia Teresita Yulo wrote a letter, dated
September 14, 1999, addressed to Terelay Investment and Development Corporation
(TERELAY) requesting that she be allowed to examine its books and records on
September 17, 1999 at 1:30 o'clock in the afternoon at the latter's office on the 25th
floor, Citibank Tower, Makati City. In its reply-letter, dated September 15, 1999,
TERELAY denied the request for inspection and instead demanded that she show
proof that she was a bona fide stockholder.
On September 16, 1999, Cecilia Yulo again sent another letter clarifying that
her request for examination of the corporate records was for the purpose of inquiring
into the financial condition of TERELAY and the conduct of its affairs by the principal
officers. The following day, Cecilia Yulo received a faxed letter from TERELAY's
counsel advising her not to continue with the inspection in order to avoid trouble.
On October 11, 1999, Cecilia Yulo filed with the Securities and Exchange
Commission (SEC), a Petition for Issuance of a Writ of Mandamus with prayer for
Damages against TERELAY, docketed as SEC Case No. 10-99-6433. In her petition,
she prayed that judgment be rendered ordering TERELAY to allow her to inspect its
corporate records, books of account and other financial records; to pay her actual
damages representing attorney's fees and litigation expenses of not less than One
Hundred Thousand Pesos (P100,000.00); to pay her exemplary damages; and to pay
the costs of the suit. On May 16, 2000, in the preliminary conference held before the
SEC Hearing Officer, the parties agreed on the following:
 "1. Petitioner Cecilia Teresita Yulo is registered as a
stockholder in the corporation's stock and transfer book subject to the
qualification in the Answer, and
2. Petitioner had informed the respondent, through demand
letter, of her desire to inspect the records of the corporation, but the
same was denied by the respondent."
Thereafter, the parties stipulated that the ISSUES to be resolved are the
following:
"1. Whether or not petitioner has the right to inspect and
examine TERELAY's corporate records, books of account and other
financial records pursuant to Section 74 of the Corporation Code of
the Philippines; aDSIHc
2. Whether or not petitioner as stockholder and director of
TERELAY has been unduly deprived of her right to inspect and
examine TERELAY's corporate records, books of accounts and other
financial records in clear contravention of law, which warrants her
claim for damages;
3. Whether or not Atty. Reynaldo G. Geronimo and/or the
principal officers, Ma. Antonia Yulo Loyzaga and Teresa J. Yulo of
respondent corporation are indispensable parties and hence, should
be impleaded as respondents;
4. As a prejudicial question, whether or not petitioner is a
stockholder of respondent corporation and such being the issue,
whether this issue should be threshed out in the probate of the will of
the late Luis A. Yulo and settlement of estate now pending with the
Regional Trial Court of Manila;
5. Assuming petitioner is a stockholder, whether or not
petitioner's mere desire to inquire into the financial condition of
respondent corporation and conduct of the affairs of the corporation is
a just and sufficient ground for inspection of the corporate records." 4
Following the enactment of Republic Act No. 8799 (The Securities Regulation Code), the case
was transferred from the Securities and Exchange Commission to the RTC.
On March 22, 2002, the RTC rendered its judgment, 5 ruling thusly:
Accordingly, petitioner's application for inspection of corporate records is
granted pursuant to Rule 7 of the Interim Rules in relation to Sections 74 and 75 of the
Corporation Code. Defendant, through its officers, is ordered to allow inspection of
corporate books and records at reasonable hours on business days and/or furnish
petitioner copies thereof, all at her expense. In this connection, plaintiff is ordered to
deposit to the Court the amount of P1,000.00 to cover the estimated cost of the
manpower necessary to produce the books and records and the cost of copying.
Respondent is further ordered to pay petitioner attorney's fees in the amount
of P50,000.00
SO ORDERED. 6
 On September 12, 2003, the CA affirmed the RTC. 7
The petitioner sought reconsideration, and moved for the holding of oral arguments thereon,
but the CA denied the motion on November 28, 2003. 8
Issues
In this appeal, the petitioner insists that the CA committed serious error: (a) in holding that the
respondent was a stockholder entitled to inspect its books and records, and allowing her to inspect its
corporate records despite her shareholding being a measly .001% interest; (b) in declaring that the
RTC had the jurisdiction to determine whether or not she was a stockholder; (c) in ruling that it did not
adduce sufficient proof showing that she was in bad faith or had an ulterior motive in demanding
inspection of the records; (d) in finding that her purpose for the inspection, which was to inquire into its
financial condition and into the conduct of its affairs by its principal officers, was a valid ground to
examine the corporate records; (e) in holding that her petition for mandamus was not premature; (f) in
not resolving whether or not its principal officers should be impleaded as indispensable parties; and (g)
in not setting aside the award of attorney's fees in the amount of P50,000.00. 9
In her comment, 10 the respondent counters that the law does not require substantial
shareholding before she can exercise her right of inspection as a stockholder; that the issue of the
nullity of the donation in her favor of the shareholding was irrelevant because it was the subscription to
the shares that granted the statutory and common rights to stockholders; that the RTC, sitting as a
corporate court, was the proper court to declare that she was a stockholder; that she has just and
sufficient grounds to inspect its corporate records; that its officers are not indispensable parties; that
her petition for mandamus was not premature; and that the CA correctly upheld the RTC's order to pay
attorney's fees to her. ETHIDa
Ruling of the Court
We deny the petition for review on certiorari.
To start with, it is fundamental that a petition for review on certiorari should raise only questions
of law. 11 In that regard, the findings of fact of the trial court, as affirmed by the appellate court, are
final and conclusive, and cannot be reviewed on appeal by the Court as long as such findings are
supported by the records, or are based on substantial evidence. In other words, it is not the function of
the Court to analyze or weigh all over again the evidence or the factual premises supportive of the lower
courts' determinations.
Even when the Court has to review the factual premises, it has consistently held that the
findings of the appellate and the trial courts are accorded great weight, if not binding effect, unless the
most compelling and cogent reasons exist to revisit such findings. 12 Among the compelling and cogent
reasons are the following, 13 namely: (a) when the findings are grounded entirely on speculation,
surmises, or conjectures; (b) when the inference made is manifestly mistaken, absurd, or impossible;
(c) when there is grave abuse of discretion; (d) when the judgment is based on a misapprehension of
facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its findings, went beyond
the issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (g) when the CA's findings are contrary to those by the trial court; (h) when the findings are
conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in
the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (j)
when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; or (k) when the CA manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.
 However, the Court has determined from its review in this appeal that the CA correctly disposed
of the legal and factual matters and issues presented by the parties. This appeal is not, therefore, under
any of the aforecited exceptions.
The Court now adopts with approval the cogent observations of the CA on the matters and
issues raised by the petitioner, as follows:
Regarding the issue of jurisdiction, TERELAY avers that it is not within the
jurisdiction of the trial court to determine whether or not petitioner-appellee is its
stockholder. It contends that a petition for the probate of the will of Cecilia's father, the
late Luis A. Yulo, and the settlement of his estate was filed with the Regional Trial Court
of Manila. The inventory of the estate includes the five (5) shares which Cecilia is
claiming. Being a court of limited jurisdiction, the court a quo could not decide whether
or not Luis A. Yulo donated five (5) shares to Cecilia during his lifetime. The position
of TERELAY is untenable. As correctly pointed out by Cecilia Yulo, the main issue in
this case is the question of whether or not she is a stockholder and therefore, has the
right to inspect the corporate books and records. We agree with the ruling of the trial
court that the determination of this issue is within the competence of the Regional Trial
Court, acting as a special court for intra-corporate controversies, and not in the
proceeding for the settlement of the estate of the late Luis Yulo.
On the matter of exhaustion of administrative remedies, TERELAY asserts that
the petition for mandamus filed by Cecilia Yulo was premature because she failed to
exhaust all available remedies before filing the instant petition. The Court disagrees. A
writ of mandamus is a remedy provided by law where despite the stockholder's request
for record inspection, the corporation still refuses to allow the stockholder the right to
inspect. In the instant case, Cecilia Yulo, through counsel, sent a letter-request, dated
September 14, 1999, for inspection of corporate records, books of accounts and other
financial records, but the same was denied by TERELAY through counsel, in its reply-
letter, dated September 15, 1999. Appellee Yulo sent another letter, dated September
16, 1999, reiterating the same request but the same was again denied by TERELAY
in a reply-letter dated September 17, 1999. Clearly then, appellee Yulo's right is not
pre-mature and may be enforced by a writ of mandamus.
On the contention that there was no stipulation that Cecilia Yulo was registered
as a stockholder, TERELAY asserts that the trial court was misled into believing that
there was a stipulation or admission that Cecilia Yulo is a registered stockholder in its
stock and transfer book. According to TERELAY, the admission or stipulation was that
she was registered in the Articles of Incorporation is separate and distinct from being
so in the stock and transfer book. TERELAY's argument cannot be sustained. A careful
review of the records would show that in the Preliminary Conference Order, dated May
16, 2000, of the SEC Hearing Officer, both parties represented by their respective
counsels, agreed on the fact that petitioner-appellee was "registered as a stockholder
in respondent-appellant's stock and transfer book subject to the qualifications in the
Answer." The records failed to disclose any objection by TERELAY. Neither did
TERELAY raise this matter in the SEC hearing held on August 7, 2000 as one of the
issues to be determined and resolved.
TERELAY further points out that her name as incorporator, stockholder and
director in the Articles of Incorporation and Amendments were unsigned; that she did
not pay for the five (5) shares appearing in the Amended Articles of Incorporation and
 General Information Sheet of TERELAY; that she did not subscribe to the shares; that
she has neither been in possession of nor seen the certificate of stock covering the
five (5) shares of stock; that the donation of the five (5) shares claimed by her was null
and void for failure to comply with the requisites of a donation under Art. 748 of the
Civil Code; and that there was no acceptance of the donation by her as donee.
TERELAY further contends that Cecilia Yulo's purpose in inspecting the books was to
inquire into its financial condition and the conduct of its affairs by the principal officers
which are not sufficient and valid reasons. Therefore, the presumption of good faith
cannot be accorded her.
TERELAY's position has no merit. The records disclose that the corporate
documents submitted, which include the Articles of Incorporation and the Amended
Articles of Incorporation, as well as the General Information Sheets and the Quarterly
Reports all bear the signatures of the proper parties and their authorized custodians.
The signature of appellee under the name Cecilia J. Yulo appears in the Articles of
Incorporation of TERELAY. Likewise, her signatures under the name Cecilia Y.
Blancaflor appear in the Amended Articles of Incorporation where she signed as
Director and Corporate Secretary of TERELAY. The General Information Sheets from
December 31, 1977 up to February 20, 2002 all exhibited that she was recognized as
director and corporate secretary, and that she had subscribed to five (5) shares of
stock. The quarterly reports do not show otherwise.
Verily, petitioner-appellee has presented enough evidence that she is a
stockholder of TERELAY. The corporate documents presented support her claim that
she is a registered stockholder in TERELAY's stock and transfer book thus giving her
the right, under Section 74 par. 2 and Section 75 of the Philippine Corporation Law, to
inspect TERELAY's books, records, and financial statements. Section 74, par. 2 and
Section 75 of our Corporation Code reads as follows: . . .
Accordingly, Cecilia Yulo as the right to be fully informed of TERELAY's
corporate condition and the manner its affairs are being managed. It is well-settled that
the ownership of shares of stock gives stockholders the right under the law to be
protected from possible mismanagement by its officers. This right is predicated upon
self-preservation. In any case, TERELAY did not adduce sufficient proof that Cecilia
Yulo was in bad faith or had an ulterior motive in demanding her right under the law.
In view of the foregoing, the Court finds it unnecessary to discuss the other
issues raised by TERELAY as they are incapable of defeating the established fact that
Cecilia Yulo is a registered stockholder of respondent-applicant.
Finally, the Court agrees with the ruling of the court a quo that the petitioner is
entitled to the reasonable amount of P50,000.00 representing attorney's fees for
having been compelled to litigate in order to exercise her right of inspection. 14
Secondly, the petitioner's submission that the respondent's "insignificant holding" of only .001%
of the petitioner's stockholding did not justify the granting of her application for inspection of the
corporate books and records is unwarranted.
The Corporation Code has granted to all stockholders the right to inspect the corporate books
and records, and in so doing has not required any specific amount of interest for the exercise of the
right to inspect. 15 Ubi lex non distinguit nec nos distinguere debemos. When the law has made no
distinction, we ought not to recognize any distinction. AIDSTE
 Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate
books and records on the basis that her inspection would be used for a doubtful or dubious reason.
Under Section 74, third paragraph, of the Corporation Code, the only time when the demand to examine
and copy the corporation's records and minutes could be refused is when the corporation puts up as a
defense to any action that "the person demanding" had "improperly used any information secured
through any prior examination of the records or minutes of such corporation or of any other corporation,
or was not acting in good faith or for a legitimate purpose in making his demand."
The right of the shareholder to inspect the books and records of the petitioner should not be
made subject to the condition of a showing of any particular dispute or of proving any mismanagement
or other occasion rendering an examination proper, but if the right is to be denied, the burden of proof
is upon the corporation to show that the purpose of the shareholder is improper, by way of defense.
According to a recognized commentator: 16
By early English decisions it was formerly held that there must be something
more than bare suspicion of mismanagement or fraud. There must be some particular
controversy or question in which the party applying was interested, and inspection
would be granted only so far as necessary for that particular occasion. By the general
rule in the United States, however, shareholders have a right to inspect the books and
papers of the corporation without first showing any particular dispute or proving any
mismanagement or other occasion rendering an examination proper. The privilege,
however, is not absolute and the corporation may show in defense that the applicant
is acting from wrongful motives.
In Guthrie v. Harkness, there was involved the right of a shareholder in a
national bank to inspect its books for the purpose of ascertaining whether the business
affairs of the bank had been conducted according to law, and whether, as suspected,
the bank was guilty of irregularities. The court said: "The decisive weight of American
authority recognizes the right of the shareholder, for proper purposes and under
reasonable regulations as to place and time, to inspect the books of the corporation of
which he is a member . . . In issuing the writ of mandamus the court will exercise a
sound discretion and grant the right under proper safeguards to protect the interest of
all concerned. The writ should not be granted for speculative purposes or to gratify idle
curiosity or to aid a blackmailer, but it may not be denied to the stockholder who seeks
the information for legitimate purposes."
Among the purposes held to justify a demand for inspection are the following:
(1) To ascertain the financial condition of the company or the propriety of dividends;
(2) the value of the shares of stock for sale or investment; (3) whether there has been
mismanagement; (4) in anticipation of shareholders' meetings to obtain a mailing list
of shareholders to solicit proxies or influence voting; (5) to obtain information in aid of
litigation with the corporation or its officers as to corporate transactions. Among the
improper purposes which may justify denial of the right of inspection are: (1) Obtaining
of information as to business secrets or to aid a competitor; (2) to secure business
"prospects" or investment or advertising lists; (3) to find technical defects in corporate
transactions in order to bring "strike suits" for purposes of blackmail or extortion.
SDAaTC
In general, however, officers and directors have no legal authority to close the
office doors against shareholders for whom they are only agents, and withhold from
them the right to inspect the books which furnishes the most effective method of
 gaining information which the law has provided, on mere doubt or suspicion as to the
motives of the shareholder. While there is some conflict of authority, when an
inspection by a shareholder is contested, the burden is usually held to be upon the
corporation to establish a probability that the applicant is attempting to gain inspection
for a purpose not connected with his interests as a shareholder, or that his purpose is
otherwise improper. The burden is not upon the petitioner to show the propriety of his
examination or that the refusal by the officers or directors was wrongful, except under
statutory provisions.

WHEREFORE, the Court AFFIRMS the judgment promulgated on September 12, 2003; and
ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
Sereno, C.J., Velasco, Jr., * Leonardo-de Castro and Perez, JJ., concur.
||| (Terelay Investment and Development Corp. v. Yulo, G.R. No. 160924, [August 5, 2015])

SECOND DIVISION

[G.R. No. 180416. June 2, 2014.]

ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLA, petitioners, vs. CEZAR T.

QUIAMBAO and ERIC C. PILAPIL, respondents.

DECISION

PEREZ, J p:

This case is a Petition for Review on Certiorari 1 from the Orders 2 dated 4 June 2007 and 5
November 2007 of the Regional Trial Court (RTC), Branch 154, of Pasig City in S.C.A. No. 3047.

The facts:

Background

Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a

business development and investment company.

On 1 March 2004, during the annual stockholder's meeting of STRADEC, petitioner Aderito Z.
Yujuico (Yujuico) was elected as president and chairman of the company. 3 Yujuico replaced respondent
Cezar T. Quiambao (Quiambao), who had been the president and chairman of STRADEC since 1994. 4
 With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C. Sumbilla (Sumbilla) as
treasurer and one Joselito John G. Blando (Blando) as corporate secretary. 5 Blando replaced respondent
Eric C. Pilapil (Pilapil), the previous corporate secretary of STRADEC. 6

The Criminal Complaint

On 12 August 2005, petitioners filed a criminal complaint 7 against respondents and one Giovanni
T. Casanova (Casanova) before the Office of the City Prosecutor (OCP) of Pasig City. The complaint was
docketed in the OCP as I.S. No. PSG 05-08-07465.

The complaint accuses respondents and Casanova of violating Section 74 in relation to Section
144 of Batas Pambansa Blg. 68 or the Corporation Code. The petitioners premise such accusation on the
following factual allegations: 8

1. During the stockholders' meeting on 1 March 2004, Yujuico — as newly elected

president and chairman of STRADEC — demanded Quiambao for the turnover
of the corporate records of the company, particularly the accounting files,
ledgers, journals and other records of the corporation's business. Quiambao
refused. DAEcIS

2. As it turns out, the corporate records of STRADEC were in the possession of

Casanova — the accountant of STRADEC. Casanova was keeping custody of
the said records on behalf of Quiambao, who allegedly needed the same as part
of his defense in a pending case in court.

3. After the 1 March 2004 stockholders' meeting, Quiambao and Casanova caused the
removal of the corporate records of STRADEC from the company's offices in
Pasig City.

4. Upon his appointment as corporate secretary on 21 June 2004, Blando likewise

demanded Pilapil for the turnover of the stock and transfer book of STRADEC.
Pilapil refused.

5. Instead, on 25 June 2004, Pilapil proposed to Blando to have the stock and transfer
book deposited in a safety deposit box with Equitable-PCI Bank, Kamias Road,
Quezon City. Blando acceded to the proposal and the stock and transfer book
was deposited in a safety deposit box with the bank identified. It was agreed that
the safety deposit box may only be opened in the presence of both Quiambao
and Blando.

6. On 30 June 2004, however, Quiambao and Pilapil withdrew the stock and transfer
book from the safety deposit box and brought it to the offices of the Stradcom
Corporation (STRADCOM) in Quezon City. Quiambao thereafter asked Blando
to proceed to the STRADCOM offices. Upon arriving thereat, Quiambao
pressured Blando to make certain entries in the stock and transfer books. After
making such entries, Blando again demanded that he be given possession of
the stock and transfer book. Quiambao refused.
 7. On 1 July 2004, Blando received an order dated 30 June 2004 issued by the RTC,
Branch 71, of Pasig City in Civil Case No. 70027, which directed him to cancel
the entries he made in the stock and transfer book. Hence, on even date, Blando
wrote letters to Quiambao and Pilapil once again demanding for the turnover of
the stock and transfer book. Pilapil replied thru a letter dated 2 July 2004 where
he appeared to agree to Blando's demand.

8. However, upon meeting with Pilapil and Quiambao, the latter still refused to turnover
the stock and transfer book to Blando. Instead, Blando was once again
constrained to agree to a proposal by Pilapil to have the stock and transfer book
deposited with the RTC, Branch 155, of Pasig City. The said court, however,
refused to accept such deposit on the ground that it had no place for
safekeeping.

9. Since Quiambao and Pilapil still refused to turnover the stock and transfer book,
Blando again acceded to have the book deposited in a safety deposit box, this
time, with the Export and Industry Bank in San Miguel Avenue, Pasig City.

Petitioners theorize that the refusal by the respondents and Casanova to turnover STRADEC's
corporate records and stock and transfer book violates their right, as stockholders, directors and officers of
the corporation, to inspect such records and book under Section 74 of the Corporation Code. For such
violation, petitioners conclude, respondents may be held criminally liable pursuant to Section 144 of the
Corporation Code.

Preliminary investigation thereafter ensued. AHcaDC

Resolution of the OCP and the Informations

After receiving the counter-affidavits of the respondents and Casanova, as well as the other
documentary submissions 9 by the parties, the OCP issued a Resolution 10 dated 6 January 2006 in I.S.
No. PSG 05-08-07465. In the said resolution, the OCP absolved Casanova but found probable cause to
hail respondents to court on two (2) offenses: (1) for removing the stock and transfer book of STRADEC
from its principal office, and (2) for refusing access to, and examination of, the corporate records and the
stock and transfer book of STRADEC at its principal office.

Pursuant to the resolution, two (2) informations 11 were filed against the respondents before the
Metropolitan Trial Court (MeTC) of Pasig City. The informations were docketed as Criminal Case No. 89723
and Criminal Case No. 89724 and were raffled to Branch 69.

Criminal Case No. 89723 is for the offense of removing the stock and transfer book of STRADEC
from its principal office. The information reads: 12

On and/or about the period between March 1 and June 25, 2004, inclusive, in Pasig
City and within the jurisdiction of this Honorable Court, the above accused, being then
members of the Board of Directors and/or officers, as the case may be, of Strategic
Alliance Development Corporation (STRADEC, for short), conspiring and
confederating together and mutually helping and aiding one another, did then and there
willfully, unlawfully and feloniously, remove the stock and transfer book of the said
 STRADEC at its principal office at the 24th Floor, One Magnificent Mile-CITRA City
Bldg., San Miguel Avenue, Ortigas Center, Pasig City, where they should all be kept,
in violation of the aforesaid law, and to the prejudice of the said complainants.

Criminal Case No. 89724, on the other hand, covers the offense of refusing access to, and
examination of, the corporate records and the stock and transfer book of STRADEC at its principal office.
The information reads: 13

On and/or about the period between March 1 and June 25, 2004, inclusive, in Pasig
City, and within the jurisdiction of this Honorable Court, the above accused, being then
members of the Board of Directors and/or officers, as the case may be, of Strategic
Alliance Development Corporation (STRADEC, for short), conspiring and
confederating together and mutually helping and aiding one another, did then and there
willfully, unlawfully and feloniously, refuse to allow complainants Bonifacio C. Sumbilla
and Aderito Z. Yujuico, being then stockholders and/or directors of STRADEC, access
to, and examination of, the corporate records, including the stock and transfer book, of
STRADEC at its principal office at the 24th Floor, One Magnificent Mile-CITRA Bldg.,
San Miguel Avenue, Ortigas Center, Pasig City, where they should all be kept, in
violation of the aforesaid law, and to the prejudice of the said complainants.

Urgent Omnibus Motion and the Dismissal of Criminal Case No. 89723

On 18 January 2006, respondents filed before the MeTC an Urgent Omnibus Motion for Judicial
Determination of Probable Cause and to Defer Issuance of Warrants of Arrest (Urgent Omnibus Motion).
14

On 8 May 2006, the MeTC issued an order 15 partially granting the Urgent Omnibus Motion. The
MeTC dismissed Criminal Case No. 89723 but ordered the issuance of a warrant of arrest against
respondents in Criminal Case No. 89724.

In dismissing Criminal Case No. 89723, the MeTC held that Section 74, in relation to Section 144,
of the Corporation Code only penalizes the act of "refus[ing] to allow any director, trustee, stockholder or
member of the corporation to examine and copy excerpts from the records or minutes of the corporation"
16 and that act is already the subject matter of Criminal Case No. 89724. Hence, the MeTC opined, Criminal
Case No. 89723 — which seeks to try respondents for merely removing the stock and transfer book of
STRADEC from its principal office — actually charges no offense and, therefore, cannot be sustained. 17
CHIaTc

Anent directing the issuance of a warrant of arrest in Criminal Case No. 89724, the MeTC found
probable cause to do so; given the failure of the respondents to present any evidence during the preliminary
investigation showing that they do not have possession of the corporate records of STRADEC or that they
allowed petitioners to inspect the corporate records and the stock and transfer book of STRADEC. 18

Unsatisfied, the respondents filed a motion for partial reconsideration 19 of the 8 May 2006 order
of the MeTC insofar as the disposition in Criminal Case No. 89724 is concerned. The MeTC, however,
denied such motion on 16 August 2006. 20

Certiorari Petition and the Dismissal of Criminal Case No. 89724

 After their motion for partial reconsideration was denied, respondents filed a certiorari petition, 21
with prayer for the issuance of a temporary restraining order (TRO), before the RTC of Pasig City on 27
September 2006. The petition was docketed as S.C.A. No. 3047.

On 16 November 2006, the RTC issued a TRO enjoining the MeTC from conducting further
proceedings in Criminal Case No. 89724 for twenty (20) days. 22

On 4 June 2007, the RTC issued an Order 23 granting respondents' certiorari petition and directing
the dismissal of Criminal Case No. 89724. According to the RTC, the MeTC committed grave abuse of
discretion in issuing a warrant of arrest against respondents in Criminal Case No. 89724.

The RTC found that the finding of probable cause against the respondents in Criminal Case No.
89724 was not supported by the evidence presented during the preliminary investigation but was, in fact,
contradicted by them: 24

1. The RTC noted that, aside from the complaint itself, no evidence was ever submitted
by petitioners to prove that they demanded and was refused access to the
corporate records of STRADEC between 1 March to 25 June 2004. What
petitioners merely submitted is their letter dated 6 September 2004 demanding
from respondents access to the corporate records of STRADEC.

2. The allegations of petitioners in their complaint, as well as 6 September 2004 letter

above-mentioned, however, are contradicted by the sworn statement dated 1
July 2004 of Blando 25 wherein he attested that as early as 25 June 2004, Pilapil
already turned over to him "two binders containing the minutes, board
resolutions, articles of incorporation, copies of contracts, correspondences and
other papers of the corporation, except the stock certificate book and the stock
and transfer book."

3. The RTC also took exception to the reason provided by the MeTC in supporting its
finding of probable cause against the respondents. The RTC held that it was not
incumbent upon the respondents to provide evidence proving their innocence.
Hence, the failure of the respondents to submit evidence showing that they do
not have possession of the corporate records of STRADEC or that they have
allowed inspection of the same cannot be taken against them much less support
a finding of probable cause against them.

The RTC further pointed out that, at most, the evidence on record only supports probable cause
that the respondents were withholding the stock and transfer book of STRADEC. The RTC, however,
opined that refusing to allow inspection of the stock and transfer book, as opposed to refusing examination
of other corporate records, is not punishable as an offense under the Corporation Code. 26 Hence, the
directive of the RTC dismissing Criminal Case No. 89724. IaCHTS

The petitioners moved for reconsideration, 27 but the RTC remained steadfast. 28

Hence, this petition by petitioners.

The Instant Petition

 In their petition, petitioners claim that Criminal Case No. 89724 may still be sustained against the
respondents insofar as the charge of refusing to allow access to the stock and transfer book of STRADEC
is concerned. They argue that the RTC made a legal blunder when it held that the refusal to allow inspection
of the stock and transfer book of a corporation is not a punishable offense under the Corporation Code.
Petitioners contend that such a refusal still amounts to a violation of Section 74 of the Corporation Code,
for which Section 144 of the same code prescribes a penalty.

OUR RULING

The RTC indeed made an inaccurate pronouncement when it held that the act of refusing to allow
inspection of the stock and transfer book of a corporation is not a punishable offense under the Corporation
Code. Such refusal, when done in violation of Section 74 (4) of the Corporation Code, properly falls within
the purview of Section 144 of the same code and thus may be penalized as an offense.

The foregoing gaffe nonetheless, We still sustain the dismissal of Criminal Case No. 89724 as
against the respondents.

A criminal action based on the violation of a stockholder's right to examine or inspect the corporate
records and the stock and transfer book of a corporation under the second and fourth paragraphs of Section
74 of the Corporation Code — such as Criminal Case No. 89724 — can only be maintained against
corporate officers or any other persons acting on behalf of such corporation. The submissions of the
petitioners during the preliminary investigation, however, clearly suggest that respondents are neither in
relation to STRADEC.

Hence, we deny the petition.

The act of refusing to allow inspection of the

stock and transfer book of a corporation,
when done in violation of Section 74 (4) of
the Corporation Code, is punishable as an
offense under Section 144 of the same code.

We first address the inaccurate pronouncement of the RTC.

Section 74 is the provision of the Corporation Code that deals with the books a corporation is
required to keep. It reads:

Section 74. Books to be kept; stock transfer agent. — Every corporation shall keep
and carefully preserve at its principal office a record of all business transactions and
minutes of all meetings of stockholders or members, or of the board of directors or
trustees, in which shall be set forth in detail the time and place of holding the meeting,
how authorized, the notice given, whether the meeting was regular or special, if special
its object, those present and absent, and every act done or ordered done at the
meeting. Upon the demand of any director, trustee, stockholder or member, the time
when any director, trustee, stockholder or member entered or left the meeting must be
noted in the minutes; and on a similar demand, the yeas and nays must be taken on
any motion or proposition, and a record thereof carefully made. The protest of any
 director, trustee, stockholder or member on any action or proposed action must be
recorded in full on his demand.

The records of all business transactions of the corporation and the minutes of
any meetings shall be open to inspection by any director, trustee, stockholder
or member of the corporation at reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records or minutes, at his
expense.

Any officer or agent of the corporation who shall refuse to allow any director,
trustees, stockholder or member of the corporation to examine and copy
excerpts from its records or minutes, in accordance with the provisions of this
Code, shall be liable to such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is made pursuant
to a resolution or order of the board of directors or trustees, the liability under
this section for such action shall be imposed upon the directors or trustees who
voted for such refusal: and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly used any
information secured through any prior examination of the records or minutes of
such corporation or of any other corporation, or was not acting in good faith or
for a legitimate purpose in making his demand.

Stock corporations must also keep a book to be known as the "stock and transfer
book", in which must be kept a record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any installment; a statement
of every alienation, sale or transfer of stock made, the date thereof, and by and to
whom made; and such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the corporation or in the
office of its stock transfer agent and shall be open for inspection by any director
or stockholder of the corporation at reasonable hours on business days.

No stock transfer agent or one engaged principally in the business of registering

transfers of stocks in behalf of a stock corporation shall be allowed to operate in the
Philippines unless he secures a license from the Securities and Exchange Commission
and pays a fee as may be fixed by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from performing or making transfer
of its own stocks, in which case all the rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein provided, shall be applicable. (51a
and 32a; P.B. No. 268.) (Emphasis supplied)

Section 144 of the Corporation Code, on the other hand, is the general penal provision of the
Corporation Code. It reads: CEHcSI

Section 144. Violations of the Code. — Violations of any of the provisions of this Code
or its amendments not otherwise specifically penalized therein shall be punished
 by a fine of not less than one thousand (P1,000.00) pesos but not more than ten
thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but
not more than five (5) years, or both, in the discretion of the court. If the violation is
committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the Securities and Exchange Commission: Provided,
That such dissolution shall not preclude the institution of appropriate action against the
director, trustee or officer of the corporation responsible for said violation: Provided,
further, That nothing in this section shall be construed to repeal the other causes for
dissolution of a corporation provided in this Code. (190 1/2 a) (Emphasis supplied)

In the assailed Orders, the RTC expressed its opinion that the act of refusing to allow inspection of
the stock and transfer book, even though it may be a violation of Section 74 (4), is not punishable as an
offense under the Corporation Code. 29 In justifying this conclusion, the RTC seemingly relied on the fact
that, under Section 74 of the Corporation Code, the application of Section 144 is expressly mentioned only
in relation to the act of "refus[ing] to allow any director, trustees, stockholder or member of the corporation
to examine and copy excerpts from [the corporation's] records or minutes" that excludes its stock and
transfer book.

We do not agree.

While Section 74 of the Corporation Code expressly mentions the application of Section 144 only
in relation to the act of "refus[ing] to allow any director, trustees, stockholder or member of the corporation
to examine and copy excerpts from [the corporation's] records or minutes," the same does not mean that
the latter section no longer applies to any other possible violations of the former section.

It must be emphasized that Section 144 already purports to penalize "[v]iolations" of "any provision"
of the Corporation Code "not otherwise specifically penalized therein." Hence, we find inconsequential the
fact that that Section 74 expressly mentions the application of Section 144 only to a specific act, but not
with respect to the other possible violations of the former section.

Indeed, we find no cogent reason why Section 144 of the Corporation Code cannot be made to
apply to violations of the right of a stockholder to inspect the stock and transfer book of a corporation under
Section 74 (4) given the already unequivocal intent of the legislature to penalize violations of a parallel right,
i.e., the right of a stockholder or member to examine the other records and minutes of a corporation under
Section 74 (2). Certainly, all the rights guaranteed to corporators under Section 74 of the Corporation Code
are mandatory for the corporation to respect. All such rights are just the same underpinned by the same
policy consideration of keeping public confidence in the corporate vehicle thru an assurance of transparency
in the corporation's operations.

Verily, we find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection
of the stock and transfer book is not a punishable offense under the Corporation Code. Such refusal, when
done in violation of Section 74 (4) of the Corporation Code, properly falls within the purview of Section 144
of the same code and thus may be penalized as an offense.

A criminal action based on the violation of a

stockholder's right to examine or inspect the
corporate records and the stock and transfer
book of a corporation under the second and
 fourth paragraphs of Section 74 of the
Corporation Code can only be maintained
against corporate officers or any other persons
acting on behalf of such corporation.

The foregoing notwithstanding, and independently of the reasons provided therefor by the RTC,
we sustain the dismissal of Criminal Case No. 89724.

Criminal Case No. 89724 accuses respondents of denying petitioners' right to examine or inspect
the corporate records and the stock and transfer book of STRADEC. It is thus a criminal action that is based
on the violation of the second and fourth paragraphs of Section 74 of the Corporation Code.

A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the
same section, reveal that they are provisions that obligates a corporation: they prescribe what books or
records a corporation is required to keep; where the corporation shall keep them; and what are the other
obligations of the corporation to its stockholders or members in relation to such books and records. Hence,
by parity of reasoning, the second and fourth paragraphs of Section 74, including the first paragraph of the
same section, can only be violated by a corporation. SCEDAI

It is clear then that a criminal action based on the violation of the second or fourth paragraphs of
Section 74 can only be maintained against corporate officers or such other persons that are acting on behalf
of the corporation. Violations of the second and fourth paragraphs of Section 74 contemplates a situation
wherein a corporation, acting thru one of its officers or agents, denies the right of any of its
stockholders to inspect the records, minutes and the stock and transfer book of such corporation.

The problem with the petitioners' complaint and the evidence that they submitted during preliminary
investigation is that they do not establish that respondents were acting on behalf of STRADEC. Quite the
contrary, the scenario painted by the complaint is that the respondents are merely outgoing officers of
STRADEC who, for some reason, withheld and refused to turn-over the company records of STRADEC;
that it is the petitioners who are actually acting on behalf of STRADEC; and that STRADEC is actually
merely trying to recover custody of the withheld records.

In other words, petitioners are not actually invoking their right to inspect the records and the stock
and transfer book of STRADEC under the second and fourth paragraphs of Section 74. What they seek
to enforce is the proprietary right of STRADEC to be in possession of such records and book. Such
right, though certainly legally enforceable by other means, cannot be enforced by a criminal prosecution
based on a violation of the second and fourth paragraphs of Section 74. That is simply not the situation
contemplated by the second and fourth paragraphs of Section 74 of the Corporation Code.

For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of probable cause.

WHEREFORE, premises considered, the petition is hereby DENIED. The Orders dated 4 June
2007 and 5 November 2007 of the Regional Trial Court, Branch 154, of Pasig City in S.C.A. No. 3047,
insofar as said orders effectively dismissed Criminal Case No. 89724 pending before Metropolitan Trial
Court, Branch 69, of Pasig City, are hereby AFFIRMED.

SO ORDERED.
||| (Yujuico v. Quiambao, G.R. No. 180416, [June 2, 2014], 734 PHIL 606-623)

FIRST DIVISION

[G.R. No. 153468. August 17, 2006.]

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN,
JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO
PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL,
petitioners, vs. PAUL SYCIP and MERRITTO LIM, respondents.

DECISION

PANGANIBAN, C.J p:

For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based
on the number of outstanding voting stocks. For nonstock corporations, only those who are actual,
living members with voting rights shall be counted in determining the existence of a quorum during
members' meetings. Dead members shall not be counted.
The Case
The present Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court seeks the
reversal of the January 23 2 and May 7, 2002, 3 Resolutions of the Court of Appeals (CA) in CA-G.R.
SP No. 68202. The first assailed Resolution dismissed the appeal filed by petitioners with the CA.
Allegedly, without the proper authorization of the other petitioners, the Verification and Certification of
Non-Forum Shopping were signed by only one of them — Atty. Sabino Padilla Jr. The second
Resolution denied reconsideration.
The Facts
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of trustees. 4 During the
annual members' meeting held on April 6, 1998, there were only eleven (11) 5 living member-trustees,
as four (4) had already died. Out of the eleven, seven (7) 6 attended the meeting through their
respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the
objection of Atty. Antonio C. Pacis, who argued that there was no quorum. 7 In the meeting, Petitioners
Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased
member-trustees.
When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right to
vote) and interests in the corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack
of quorum. She held that the basis for determining the quorum in a meeting of members should be their
number as specified in the articles of incorporation, not simply the number of living members. 8 She
explained that the qualifying phrase "entitled to vote" in Section 24 9 of the Corporation Code, which
provided the basis for determining a quorum for the election of directors or trustees, should be read
together with Section 89. 10
The hearing officer also opined that Article III (2) 11 of the By-Laws of GCHS, insofar as it
prescribed the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with
Section 29 12 of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed
the Decision of the hearing officer in toto. 13 It found to be untenable their contention that the word
"members,"' as used in Section 52 14 of the Corporation Code, referred only to the living members of
a nonstock corporation. 15
As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and
Certification of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power
of Attorney had been attached to show his authority to sign for the rest of the petitioners.
Hence, this Petition. 16
Issues
Petitioners state the issues as follows:

"Petitioners principally pray for the resolution of the legal question of whether or
not in NON-STOCK corporations, dead members should still be counted in determination
of quorum for purposed of conducting the Annual Members' Meeting. STcHEI

"Petitioners have maintained before the courts below that the DEAD members
should no longer be counted in computing quorum primarily on the ground that members'
rights are 'personal and non-transferable' as provided in Sections 90 and 91 of the
Corporation Code of the Philippines.

"The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion
that did not even involve a non-stock corporation as petitioner GCHS.

"The Honorable Court of Appeals on the other hand simply refused to resolve
this question and instead dismissed the petition for review on a technicality — the failure
to timely submit an SPA from the petitioners authorizing their co-petitioner Padilla, their
counsel and also a petitioner before the Court of Appeals, to sign the petition on behalf
of the rest of the petitioners.

"Petitioners humbly submit that the action of both the SEC and the Court of
Appeals are not in accord with law particularly the pronouncements of this Honorable
Court in Escorpizo v. University of Baguio (306 SCRA 497), Robern Development
Corporation v. Quitain (315 SCRA 150) and MC Engineering, Inc. v. NLRC, (360 SCRA
183). Due course should have been given the petition below and the merits of the case
decided in petitioners' favor." 17

In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the
Petition below, on the basis of a defective Verification and Certification; and 2) whether dead members
should still be counted in the determination of the quorum, for purposes of conducting the annual
members' meeting.
The Court's Ruling
 The present Petition is partly meritorious.
Procedural Issue:
Verification and Certification
of Non-Forum Shopping
The Petition before the CA was initially flawed, because the Verification and Certification of
Non-Forum Shopping were signed by only one, not by all, of the petitioners; further, it failed to show
proof that the signatory was authorized to sign on behalf of all of them. Subsequently, however,
petitioners submitted a Special Power of Attorney, attesting that Atty. Padilla was authorized to file the
action on their behalf. 18
In the interest of substantial justice, this initial procedural lapse may be excused. 19 There
appears to be no intention to circumvent the need for proper verification and certification, which are
aimed at assuring the truthfulness and correctness of the allegations in the Petition for Review and at
discouraging forum shopping. 20 More important, the substantial merits of petitioners' case and the
purely legal question involved in the Petition should be considered special circumstances 21 or
compelling reasons that justify an exception to the strict requirements of the verification and the
certification of non-forum shopping. 22
Main Issue:
Basis for Quorum
Generally, stockholders' or members' meetings are called for the purpose of electing directors
or trustees 23 and transacting some other business calling for or requiring the action or consent of the
shareholders or members, 24 such as the amendment of the articles of incorporation and bylaws, sale
or disposition of all or substantially all corporate assets, consolidation and merger and the like, or any
other business that may properly come before the meeting.
Under the Corporation Code, stockholders or members periodically elect the board of directors
or trustees, who are charged with the management of the corporation. 25 The board, in turn, periodically
elects officers to carry out management functions on a day-to-day basis. As owners, though, the
stockholders or members have residual powers over fundamental and major corporate changes.
While stockholders and members (in some instances) are entitled to receive profits, the
management and direction of the corporation are lodged with their representatives and agents — the
board of directors or trustees. 26 In other words, acts of management pertain to the board; and those
of ownership, to the stockholders or members. In the latter case, the board cannot act alone, but must
seek approval of the stockholders or members. 27
Conformably with the foregoing principles, one of the most important rights of a qualified
shareholder or member is the right to vote — either personally or by proxy — for the directors or trustees
who are to manage the corporate affairs. 28 The right to choose the persons who will direct, manage
and operate the corporation is significant, because it is the main way in which a stockholder can have
a voice in the management of corporate affairs, or in which a member in a nonstock corporation can
have a say on how the purposes and goals of the corporation may be achieved. 29 Once the directors
or trustees are elected, the stockholders or members relinquish corporate powers to the board in
accordance with law.
In the absence of an express charter or statutory provision to the contrary, the general rule is
that every member of a nonstock corporation, and every legal owner of shares in a stock corporation,
has a right to be present and to vote in all corporate meetings. Conversely, those who are not
stockholders or members have no right to vote. 30 Voting may be expressed personally, or through
proxies who vote in their representative capacities. 31 Generally, the right to be present and to vote in
a meeting is determined by the time in which the meeting is held. 32
Section 52 of the Corporation Code states:

"Section 52. Quorum in Meetings. — Unless otherwise provided for in this Code
or in the by-laws, a quorum shall consist of the stockholders representing a majority of
the outstanding capital stock or a majority of the members in the case of non-stock
corporations."

In stock corporations, the presence of a quorum is ascertained and counted on the basis of the
outstanding capital stock, as defined by the Code thus:

"SECTION 137. Outstanding capital stock defined. — The term 'outstanding

capital stock' as used in this Code, means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or partially
paid, except treasury shares." (Underscoring supplied)

The Right to Vote in

Stock Corporations
The right to vote is inherent in and incidental to the ownership of corporate stocks. 33 It is
settled that unissued stocks may not be voted or considered in determining whether a quorum is present
in a stockholders' meeting, or whether a requisite proportion of the stock of the corporation is voted to
adopt a certain measure or act. Only stock actually issued and outstanding may be voted. 34 Under
Section 6 of the Corporation Code, each share of stock is entitled to vote, unless otherwise provided in
the articles of incorporation or declared delinquent 35 under Section 67 of the Code. CTDAaE
Neither the stockholders nor the corporation can vote or represent shares that have never
passed to the ownership of stockholders; or, having so passed, have again been purchased by the
corporation. 36 These shares are not to be taken into consideration in. determining majorities. When
the law speaks of a given proportion of the stock, it must be construed to mean the shares that have
passed from the corporation, and that may be voted. 37
Section 6 of the Corporation Code, in part, provides:

"Section 6. Classification of shares. — The shares of stock of stock corporations

may be divided into classes or series of shares, or both, any of which classes or series
of shares may have such rights, privileges or restrictions as may be stated in the articles
of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided
in this Code: Provided, further, that there shall always be a class or series of shares
which have complete voting rights.

xxx xxx xxx

"Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled to vote
on the following matters:
 1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporation property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other

corporations;

7. Investment of corporate funds in another corporation or business in

accordance with this Code; and

8. Dissolution of the corporation.

"Except as provided in the immediately preceding paragraph, the vote necessary

to approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights."

Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention
of the lawmakers was to base the quorum mentioned in Section 52 on. the number of outstanding
voting stocks. 38
The Right to Vote in
Nonstock Corporations
In nonstock corporations, the voting rights attach to membership. 39 Members vote as persons,
in accordance with the law and the bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. 40 We hold that
when the principle for determining the quorum for stock corporations is applied by analogy to nonstock
corporations, only those who are actual members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members representing the actual
number of voting rights, not the number or numerical constant that may originally be specified in the
articles of incorporation, constitutes the quorum. 41
The March 3, 1986 SEC Opinion 42 cited by the hearing officer uses the phrase "majority vote
of the members"; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number
of registered members of the association mentioned therein) plus one. The best evidence of who are
the present members of the corporation is the "membership book"; in the case of stock corporations, it
is the stock and transfer book. 43
Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed
in the articles of incorporation, shall constitute a quorum for the transaction of corporate business
(unless the articles of incorporation or the bylaws provide for a greater majority). If the intention of the
lawmakers was to base the quorum in the meetings of stockholders or members on their absolute
number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the
only logical conclusion is that the legislature did not have that intention.
Effect of the Death
of a Member or Shareholder
Having thus determined that the quorum in a members' meeting is to be reckoned as the actual
number of members of the corporation, the next question to resolve is what happens in the event of the
death of one of them.
In stock corporations, shareholders may generally transfer their shares. Thus, on the death of
a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to
the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of
the decedent are held by the administrator or executor. 44
On the other hand, membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation
provide otherwise. 45 In other words, the determination of whether or not "dead members" are entitled
to exercise their voting rights (through their executor or administrator), depends on those articles of
incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among others, be
terminated by the death of the member. 46 Section 91 of the Corporation Code further provides that
termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the
articles of incorporation or the bylaws.
Applying Section 91 to the present case, we hold that dead members who are dropped from
the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not
to be counted in determining the requisite vote in corporate matters or the requisite quorum for the
annual members' meeting. With 11 remaining members, the quorum in the present case should be 6.
Therefore, there being a quorum, the annual members' meeting, conducted with six 47 members
present, was valid. CDScaT
Vacancy in the
Board of Trustees
As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code
provides:

"SECTION 29. Vacancies in the office of director or trustee. — Any vacancy

occurring in the board of directors or trustees other than by removal by the stockholders
or members or by expiration of term, may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies
must be filled by the stockholders in a regular or special meeting called for that purpose.
A director or trustee so elected to fill a vacancy shall be elected only for the unexpired
term of his predecessor in office."

Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still
constitute a quorum. The phrase "may be filled" in Section 29 shows that the filling of vacancies in the
board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory.
48 Corporations, therefore, may choose how vacancies in their respective boards may be filled up —
either by the remaining directors constituting a quorum, or by the stockholders or members in a regular
or special meeting called for the purpose. 49
 The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board
of directors; that is, by a majority vote of the remaining members of the board. 50
While a majority of the remaining corporate members were present, however, the "election" of
the four trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting
of the members, not of the board of trustees. We are not unmindful of the fact that the members of
GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which
specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In other
words, these remaining member-trustees must sit as a board in order to validly elect the new ones.
Indeed, there is a well-defined distinction between a corporate act to be done by the board and
that by the constituent members of the corporation. The board of trustees must act, not individually or
separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members
may be represented by their respective proxies, as in the contested annual members' meeting of
GCHS.
WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of
Appeals are hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees
of Grace Christian High School (GCHS) may convene and fill up the vacancies in the board, in
accordance with this Decision. No pronouncement as to costs in this instance.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
||| (Tan v. Sycip, G.R. No. 153468, [August 17, 2006], 530 PHIL 609-627)