1.Narra Nickel Mining and Development Corporation v.

Redmont
Consolidated Mines, Corporation, G.R. No. 195580, January 28, 2015

FACTS:
Redmont Consolidated Mines Corp. (Redmont), a domestic corporation that took interest in
mining and exploring certain areas of the province of Palawan. However, the areas where it wanted to
undertake explorations were already covered by a Mineral Production Sharing Agreement (MPSA)
applications with the petitioners, Narra, Tesoro and Mc Arthur. Redmont sought for the denial of the
applications.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that
since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of
the MPSAs over the areas covered by applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. Redmont argued that given that
petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in
mining activities through MPSAs, which are reserved only for Filipino citizens.
The petitioners contend that they were qualified because they were Philippine Nationals as 60%
of the capital stock are owned by Filipinos. They alleged that though MBMI owns 40% of the shares of
PLMC (which in turn owns 5,997 shares of Narra) 40% of the shares of MMC (which owns 5,997 shares
of McArthur), 40% of the shares of SLMC (which owns 5,997 shares of Tesoro), the shares of MBMI will
not make it the owner of at least 60% of the capital stock of each of petitioners.
The Panel of Arbitrators decided in favor of Redmont holding that MBMI, 100% Canadian
corporation, effectively controlled the corporation of the respondents. The case was appealed to the
Mines Adjudication Board (MAB) and the decision was reversed. RTC reversed the ruling of the MAB.
ISSUE:
Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law.
RULING:
No, petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
There are two cases in determining the nationality of the Investee Corporation. The first case is
the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to
the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the
60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least
60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage
shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino ownership.
 Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee Corporation
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt
(i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and
persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40
Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the
100% Canadian corporation––MBMI, funded them. However, petitioners also claim that there is "doubt"
only when the stockholdings of Filipinos are less than 60%.
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60%
fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an
example of an instance where "doubt" as to the ownership of the corporation exists. It would be ludicrous
to limit the application of the said word only to the instances where the stockholdings of non-Filipino
stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in
circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It would be
senseless for these applying corporations to state in their respective articles of incorporation that they
have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various
corporate schemes and layerings are utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore,
the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.
It is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding
to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint
venture" agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro,
PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic
or corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically
exercising majority control over the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.
2.Indian Chamber of Commerce Phils., Inc. vs. Filipino Indian
Chamber of Commerce in the Philippines, Inc., 799 SCRA 278, G.R.
No. 184008 August 3, 2016
FACTS:

Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI) was originally registered
with the SEC as Indian Chamber of Commerce of Manila, Inc. It amended its corporate name into Indian
Chamber of Commerce of the Philippines, Inc., and further amended it into Filipino-Indian Chamber of
Commerce of the Philippines.

Defunct FICCPI's corporate term expired on November 24, 2001.

On January 20,2005, Naresh Mansukhani reserved the corporate name "Filipino Indian Chamber of
Commerce in the Philippines." Ram Sitaldas, representative of FICCPI opposed the reservation
contending that FICCPI has used that corporate name.

CRMD rendered a decision in favor of Naresh Mansukhani holding that since FICCPI's corporate
existence has terminated, FICCPI has no legal personality to oppose Mansukhani's reservation of the
corporate name.

Sitaldas appealed the case to the SEC en banc and the case was dismissed. He then appealed the case
to the CA. CA ruled in favor of Mansukhani. It ruled that Mansukhani, reserving the name 'Filipino Indian
Chamber of Commerce in the Philippines, Inc.," has the of the better right over the corporate name. It
ruled that with the expiration corporate life of the defunct FICCPI, without an extension having been filed
and granted, it lost its legal personality as a corporation.
The CA also cited SEC Memorandum Circular No. 14-2000 which gives protection to corporate names for
a period of three years after the approval of the dissolution of the corporation. It noted that the reservation
for the use of the corporate name "Filipino Indian Chamber of Commerce in the Philippines, Inc.," and the
opposition were filed only in January 2005, way beyond this three-year period. It further held that there
was striking similarity in the name of the two corporations.

ISSUE:
1. Whether or not the corporate names are similar
2. Who has a better right over the corporate name?

RULING:
1. Yes, the corporate names are similar.

Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or
deceptively or confusingly similar to that of any existing corporation:

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.

In Philips Export B. V. v. Court of Appeals,45 this Court ruled that to fall within the prohibition, two
requisites must be proven, to wit:
that the complainant corporation acquired a prior right over the use of such corporate name; and
cralawlawlibrary

the proposed name is either:

(a) identical; or
(b) deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law; or
(c) patently deceptive, confusing or contrary to existing law.46
These two requisites are present in this case.

2. FICCPI has a better right over the corporate name

In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was incorporated
only on April 5, 2006, or a month after FICCPI registered its corporate name. Thus, applying the principle
in the Refractories case, we hold that FICCPI, which was incorporated earlier, acquired a prior right over
the use of the corporate name.

ICCPI cannot argue that it first incorporated and held the "Filipino Indian Chamber of Commerce," in
1977; and that it established the name's goodwill until it failed to renew its name due to oversight.49 It is
settled that a corporation is ipso facto dissolved as soon as its term of existence expires.

SEC Memorandum Circular No. 14-2000 likewise provides for the use of corporate names of dissolved
corporations:ChanRoblesVirtualawlibrary

14. The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after
the approval of the dissolution of the corporation by the Commission, unless allowed by the last
stockholders representing at least majority of the outstanding capital stock of the dissolved firm.

When the term of existence of the defunct FICCPI expired on November 24, 2001, its corporate name
cannot be used by other corporations within three years from that date, until November 24, 2004. FICCPI
reserved the name "Filipino Indian Chamber of Commerce in the Philippines, Inc." on January 20, 2005,
or beyond the three-year period. Thus, the SEC was correct when it allowed FICCPI to use the reserved
corporate name.

3. Gold Line Tours, Inc. vs. Heirs of Maria Concepcion Lacsa, 673
SCRA 399, G.R. No. 159108 June 18, 2012
FACTS:
Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa (Miriam), boarded a Goldline
passenger bus owned and operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to
Cubao, Quezon City.

Upon reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, driven by
Rene Abania (Abania), collided with a passenger jeepney with Plate No. coming from the opposite
direction and driven by Alejandro Belbis. A part of the jeepney detached and struck the chest of
Concepcion causing her death. Concepcions heirs, represented by Teodoro Lacsa, instituted in the RTC
a suit against Travel & Tours Advisers Inc. and Abania to recover damages arising from breach of
contract of carriage.

RTC rendered a decision in favor of the heirs of Concepcion holding that Gold line failed to overcome the
presumption of negligence on its part. Cheng, the operator of the bus, failed to pay the damages in
accordance with the writ of execution. The heirs sought to have Cheng cited for contempt.

Petitioner submitted a so-called verified third party claim, claiming that the tourist bus be returned to
petitioner because it was the owner; that petitioner had not been made a party to Civil Case; and that
petitioner was a corporation entirely different from Travel & Tours Advisers, Inc., the defendant in the Civil
Case.
It is notable that petitioners Articles of Incorporation was amended shortly after the filing of Civil Case
against Travel & Tours Advisers, Inc.

Respondents opposed petitioners verified third-party claim on the following grounds, namely: (a) the
third-party claim did not comply with the required notice of hearing as required by Rule 15, Sections 4 and
5 of the Rules of Court; (b) Travel & Tours Advisers, Inc. and petitioner were identical entities and were
both operated and managed by the same person, William Cheng; and (c) petitioner was attempting to
defraud its creditors respondents herein hence, the doctrine of piercing the veil of corporate entity was
squarely applicable.

RTC dismissed the third party claim. The petitioners appealed the same to the CA. CA rendered a
decision in favor of the heirs of concepcion dismissing the third party claim.
petitioner faults the CA for holding that the RTC did not act without jurisdiction or grave abuse of
discretion in finding that petitioner and Travel & Tours Advisers, Inc., the defendant in Civil Case No.
5917, were one and same entity, and for sustaining the propriety of the levy of the tourist bus with Plate
No. NWW-883 in satisfaction of the writ of execution.

ISSUE:

Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying
petitioners verified third-party claim?

RULING:

YES.

RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and
the same entity, specifically: (a) documents submitted by petitioner in the RTC showing that William
Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was also the
President/Manager and an incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had
been known in Sorsogon as Goldline.

The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment
through the use of the doctrine of separate corporate identity. Truly, this fiction of law could not be
employed to defeat the ends of justice​.

4. Pioneer Insurance Surety Corporation vs. Morning Star Travel, 762

SCRA 283, G.R. No. 198436 July 8, 2015
FACTS:
Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny
Chua, and Wong Yan Tak as shareholders and members of the board of directors.

International Air Transport Association is a Canadian corporation licensed to do business in the

Philippines "to promote safe, regular and economical air transport for all people, among others."

International Air Transport Association appointed Morning Star as an accredited travel agent.
Morning Star "avail[ed] of the privilege of getting on credit... air transport tickets from various airline
companies [to be sold] to passengers at prices fixed by the airline companies."

Morning Star and International Air Transport Association entered a Passenger Sales Agency
Agreement such that Morning Star must report all air transport ticket sales to International Air Transport
Association and account all payments received through the centralized system called Billing and
Settlement Plan. Morning Star only holds in trust all monies collected as these belong to the airline
companies.
International Air Transport Association obtained a Credit Insurance Policy from Pioneer to assure
itself of payments by accredited travel agents for ticket sales and monies due to the airline companies
under the Billing and Settlement Plan.
Morning star had accrued a billing of 49 million pesos and failed to remit these accounts to
International Air Transport Association. International Air Transport association demanded the payment of
Morning star’s accountabilities from Pioneer Insurance, pursuant to the credit insurance policies. Pioneer,
in turn, demanded from Morning Star the said amount. Pioneer filed a Complaint for Collection of Sum of
Money and Damages against Morning Star and its shareholders and directors. RTC ruled in favor of
Pioneer holding the corporate officers to be liable for the amount. CA reversed the decision holding that
the corporation is a separate and distinct entity from its corporate officers.
ISSUE:
Whether the doctrine of piercing the corporate veil applies to hold the individual respondents
solidarily liable with respondent Morning Star Travel and Tours, Inc. to pay the award in favor of petitioner
Pioneer Insurance & Surety Corporation.
RULING:
NO, doctrine of piercing the corporate veil does not apply in the case.
petitioner failed to plead and prove the circumstances that would pass the following control test for the
operation of the alter ego doctrine:​LawlibraryofCRAlaw

ChanRoblesVirtualawlibrary
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's
legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss
complained of.​91
The records do not show that the individual respondents controlled Morning Star Tour Planners,
Inc. and that such control was used to commit fraud against petitioner. Neither does this suspicion
support petitioner's position that the individual respondents were in bad faith or gross negligence in
directing the affairs of respondent Morning Star.

5. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22,
2016
FACTS:
The court issued the ​Gamboa Decision holding that the term "capital" in Section 11, Article XII of
the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors and not to
the total outstanding capital stock.
The SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8 entitled
"​Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the
Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized
Activities​." Section 2 of SEC-MC No. 8 provides:​chanRoblesvirtualLawlibrary

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
ownership requirement. For purposes of determining compliance therewith, the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in the election of directors.

Corporations covered by special laws which provide specific citizenship requirements

shall comply with the provisions of said law.

Petitioner Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of SEC-MC No. 8
for not conforming to the letter and spirit of the ​Gamboa Decision and Resolution and for having been
issued by the SEC with grave abuse of discretion. Petitioner Roy seeks to apply the 60-40 Filipino
ownership requirement separately to each class of shares of a public utility corporation, whether common,
preferred non​voting, preferred voting or any other class of shares. Petitioner Roy also questions the ruling
of the SEC that respondent Philippine Long Distance Telephone Company ("PLDT") is compliant with the
constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional
and direct the SEC to issue new guidelines regarding the determination of compliance with Section 11,
Article XII of the Constitution in accordance with ​Gamboa.​
ISSUE:
Whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the ​Gamboa
Decision and ​Gamboa​ Resolution.
RULING:
SEC did ​not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it
issued SEC​-MC No. 8. ​To the contrary​, the Court finds SEC-MC No. 8 to have been issued in fealty to
the ​Gamboa​ Decision and Resolution.
In the Gamboa Decision, the Court adopted the foregoing definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution in furtherance of "the intent and letter of the Constitution
that the 'State shall develop a self-reliant and independent national economy ​effectively controlled by
Filipinos' [because a] broad definition unjustifiably disregards who owns the all-important voting stock,
which necessarily equates to control of the public utility." The Court, recognizing that the provision is an
express recognition of the sensitive and vital position of public utilities both in the national economy and
for national security, also pronounced that the evident purpose of the citizenship requirement is to prevent
aliens from assuming control of public utilities, which may be inimical to the national interest. Further, the
Court noted that the foregoing interpretation is consistent with the intent of the framers of the Constitution
to place in the hands of Filipino citizens the control and management of public utilities; and, as revealed in
the deliberations of the Constitutional Commission, "capital" refers to the voting stock or ​controlling
interest​ of a corporation.

In this regard, it would be ​apropos to state that since Filipinos own at least 60% of the
outstanding shares of stock entitled to vote directors, which is what the Constitution precisely requires,
then the Filipino stockholders ​control the corporation, ​i.e.​, they dictate corporate actions and decisions,
and they have all the rights of ownership including, but not limited to, offering certain preferred shares that
may have greater economic interest to foreign investors - as the need for capital for corporate pursuits
(such as expansion), may be good for the corporation that they own. Surely, these "true owners" will not
allow any dilution of their ownership and control if such move will not be beneficial to them.
The relevant provision in the assailed SEC-MC No. 8 IS Section 2, which
provides:​chanRoblesvirtualLawlibrary
 Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to BOTH (a) the total number
of outstanding shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to vote in the
election of directors.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest
requirement. ​In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in
the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of
outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to
the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights is required." Clearly, SEC-MC No. 8 cannot be
said to have been issued with grave abuse of discretion.

6. Andaya vs. Rural Bank of Cabadbaran, Inc., 799 SCRA 325, G.R. No.
188769 August 3, 2016
FACTS​:
Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000.
Chute duly endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the
bank to register the transfer and issue new stock certificates in favor of the latter. Andaya also separately
communicated with the bank's corporate secretary, respondent Oraiz, reiterating Chute's request for the
issuance of new stock certificates in petitioner's favor.
A few days later, the bank's corporate secretary wrote ​Chute to inform her that he could not
register the transfer. He explained that under a previous stockholders' Resolution, existing stockholders
were given priority to buy the shares of others in the event that the latter offered those shares for sale
​ right of first refusal). He then asked Chute if she, instead, wished to have her shares offered to
(​i.e., a
existing stockholders. He told her that if no other stockholder would buy them, she could then proceed to
sell her shares to outsiders.
Citing Section 98 of the Corporation Code, Andaya claimed that the purported restriction on the
transfer of shares of stock agreed upon during the 2001 stockholders' meeting could not deprive him of
his right as a transferee. He pointed out that the restriction did not appear in the bank's articles of
incorporation, bylaws, or certificates of stock.
The bank eventually denied the request of Andaya. It reasoned that he had a conflict of interest,
as he was then president and chief executive officer of the Green Bank of Caraga, a competitor bank.
Consequently, Andaya instituted an action for mandamus seeking to compel the Rural Bank of
Cabadbaran to record the transfer in the bank’s stock and transfer book and to issue new certificates of
stock in his name.
ISSUE:
Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus
compelling the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer
book, as well as issue new stock certificates in his name
RULING:
YES. The petition is partly meritorious.
It is already settled jurisprudence that the registration of a transfer of shares of stock is a
ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of
mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue
new certificates of stock. This remedy is available even upon the instance of a bona fide transferee​17 who
is able to establish a clear legal right to the registration of the transfer.
Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the bank
stockholders' right of first refusal and that petitioner was a buyer in bad faith. Both parties refer to Section
98 of the Corporation Code to support their arguments, which reads as
follows:​ChanRoblesVirtualawlibrary
SECTION 98. ​Validity of restrictions on transfer of shares. — ​Restrictions on the
right to transfer shares must appear in the articles of incorporation and in the
by-laws as well as in the certificate of stock; otherwise, the same shall not be
binding on any purchaser thereof in good faith. Said restrictions shall not be
more than onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such reasonable
terms, conditions or period stated therein. If upon the expiration of said period, the
existing stockholders or the corporation fails to exercise the option to purchase, the
transferring stockholder may sell his shares to any third person. (Emphases
supplied)
It must be noted that Section 98 applies only to close corporations. Hence, before the Court can
allow the operation of this section in the case at bar, there must first be a factual determination that
respondent Rural Bank of Cabadbaran is indeed a close corporation. There needs to be a presentation of
evidence on the relevant restrictions in the articles of incorporation j and bylaws of the said bank. From
the records or the RTC Decision, there is apparently no such determination or even allegation that would
assist this Court in ruling on these two major factual matters. With the foregoing, the validity of the
transfer cannot yet be tested using that provision. These are the factual matters that the parties must first
thresh out before the RTC.

7. Anna Teng v. SEC; G. R. 184332; Feb 17, 2016)

FACTS:
This case has its origin in G.R. No. 129777 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.
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
​ ith the SEC against TCL and Teng, docketed as SEC Case No. 3900.​6
filed a petition for ​mandamus w
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 (P 100,000.00) Pesos and Fifty Thousand (P 50,000.00) Pesos for
attorney's fees.
SO ORDERED. 8​
TCL and Teng appealed to the SEC ​en banc, w ​ hich, 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 denying the petition.
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
​ otion for the Issuance of ​Alias ​Writ of Execution​15 was filed by Ting Ping where
Thereafter, an ​Ex Parte M
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
​ Teng then filed a counter manifestation where she pointed out a discrepancy
certificates of stock. 22
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.
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. S ​ EC​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.
ISSUE: IS THE SURRENDER OF CERTIFICATES OF STOCK A REQUISITE BEFORE
REGISTRATION OF THE TRANSFER MAY BE MADE IN THE CORPORATE BOOKS AND FOR
ISSUANCE OF NEW CERTIFICATES IN ITS STEAD?

HELD: No. 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 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
​ vidence that the holder is a shareholder of a corporation. ​34 A certificate,
its stock. It is ​prima facie e
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 a​ lso 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.
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 ​ t​ he 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 o​ wnership 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 Mags as aka, 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 GR. 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
​ In
exercise all the rights of a stockholder, which include the right to have stocks transferred to his name. 59
Ponce v. Alsons Cement Corporation,​ t​ he Court stated that "[f]rom the corporation's point of view, the
60

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. x x x [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
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 x x x 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. x x x ​Second, d ​ elivery of the
certificate is an essential element of its issuance. x x x ​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, t​ he 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, tμe 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.
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.

8. Jose A. Bernas v. Jovencio F. Cinco, G.R. Nos.

163356-57/163368-69; July 10, 2015
FACTS:
This is a consolidated petitions of Certiorari assailing the decisions of CA which declared that the Special
Stockholders’ Meeting of the Makati Sports Club invalid for having been improperly called but affirmed the
actions taken during the Annual Stockholders’ Meeting.
Case 1: Gr No. 163356-57
Petitioners: 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 CAP A CITY AS
INDIVIDUAL DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF
DIRECTORS OF MAKATI SPORTS CLUB
Respondents: 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
​Case 2: G.R. Nos. 163368-69
Petitioners: JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO
Respondents: ​JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON
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 CASE 1: 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 CASE 2: 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.
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for the
election of new set of officers. Resonating this clamor were the stockholders of the corporation
representing at least 100 shares who sought the assistance of the MSCOC to call for a ​special
stockholders meeting for the purpose of removing the sitting officers and electing new ones. Pursuant to
such request, the MSCOC called a Special Stockholders' Meeting and sent out notices to all stockholders
and members stating therein the time, place and purpose of the meeting. For failure of the Bernas Group
to secure an injunction before the Securities Commission (SEC), the meeting proceeded wherein Jose A.
Bernas et al (petitioners in case 1) were removed from office and, in their place and stead, Jovencio F.
Cinco et al ( petitioners in case 2) were elected.

CONTENTION OF PETITIONERS: Aggrieved by the turn of events, Bernas Group initiated an action
before the ​Securities Investigation and Clearing Department (SICD) of SEC seeking the nullification of
the Special Stockholders’ meeting on the ground that it was improperlycalled. Citing section 28 of the
Corporation Code, the Bernas Group argued that the authority to call a meeting lies with the corporate
secrecretary and not the MSCOC which functions merely as an oversight bidy and is not vested with the
power to call corporate meetings. For being called by the ersons not authorized to do so, the Bernas
Group urged the SEC to declared thespecial stockholders’ meeting, including the removal of the sitting
officers and the election of the new ones, be nullified.

CONTENTION OF RESPONDENT: Cinco insited that the Special Stockholder’s meeting is sanctioned by
the Corporation Code and the MSC By-laws. In justifying the call effected by the MSCOC, the reasoned
that section 25 of the MSC by-laws merely authorized the corporate secretary to issue notices of
meetings and nowhere does it state the authority solely belongs to him. It was further asserverated by
Cinco group that it would be useless to course the request to call a meeting through the corporate
secretary because he repeatedly refused to call a special stockholders’ meeting despite demands and
even filed a suit to restrain from holding of special meeting.

Meanwhile, the newly elected directors intiated an investigation on the alleged anomalies in administering
the corporate affairs and after finding Bernas guilty of irregularities, the board resolved to expel him from
the club by selling his shares at a public auction.

Prior to the resolution of SEC, an Annual Stockholders’ Meeting was held pursuant to Section 8 of the
MSC bylaws . during the said meeting , which was attended by 1,017 stockholders representing ⅔ of the
outstanding shares, the majority resolved to approve, confirm and ratify, among others, the calling and
holding of the Special stockholders’ meeting, the acts and resolutions therein including the removal of the
Bernas Group from the Board and the election of their replacements.

SEC SICD RULING: the Special Stockholders’ meeting and the Annual Stockholders’ meeting conducted
were invalid. The SICD likewise nullified the expulsion of Bernas from the corporation and the sale of his
share at the public auction.

SEC ​En Banc ​RULING: reversed the decision of SICD and validated the holding of the special
stockholders’ meeting as well as the Annual Stockholders’ Meeting

CA RULING: the Special Stockholders’ meeting and the Annual Stockholders’ meeting conducted were
invalid for being improperly called but affirmed the actions taken during the Annual Stockholders meeting.

Aggrieved, both parties elevated the case before SC by filing their respective petitions for reveiw on
certiotari. 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 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.

ISSUE/S:
1. Whether or not MSCOC had authority to call the special meeting (NO)
2. Assuming that MSCO had no authority, w/n the subsequent ratification in the annual
meetings cured the defect (NO)
3. Whether or not expulsion of Bernas and sale of his shares were valid (NO)
4. Whether or not Cinco Group was left w/ no recourse in calling the special election (since the
corpo secretary failed/refused to call meeting, despite demand) (NO)

HELD:
(1) Whether ot not MSCOC had authority to call the special meeting (NO)
No. MSOC had no authority to call for a special meeting. As provided for in the Corporation Code and the
MSC By-Laws, only the President or the Board of Directors may call for such. And when such authorized
persons refuses or fails to call such meeting, the stockholders, representing at least 100 shares, upon
written request, may file a petition w/ the SEC for such call.
- Sec 28 of the Corpo Code provides the rules for removal of director or trustees: (a) authorized
person to call meeting and (b) number of votes required
○ 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.
- The By Laws of MSC provide that only President and the Board of Directors are
authorized by the by-laws to call a special meeting.
○ In cases where the authorized person to call a meeting refuses, fails or neglects to
do so, then the stockholders representing at least 100 shares, upon written request,
may file a petition to call a special stockholders meeting.
In the instant case, there is no dispute that the 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. 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.

(2) Assuming that MSCO had no authority, w/n the subsequent ratification in the annual meetings
cured the defect
No. 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 subsequent ratification made by the stockholders ​did not cure the substantive infirmity, the defect
having set in at the time the void act was done. The defect goes into the very authority of the persons who
made the call for the meeting. It is apt to recall that illegal acts of a corporation which contemplate the
doing of an act which is contrary to law, morals or public order, or contravenes some rules of public policy
or public duty, are, like similar transactions between individuals, void. They cannot serve as basis for a
court action, nor acquire validity by performance, ratification or estoppel. The same principle can apply in
the present case. ​The void election cannot be ratified by the subsequent Annual Stockholders'
Meeting​. T​he Special meeting is an illegal corporate act​. ​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.
● Illegal corporate acts vs Ultra Vires Acts

Illegal corporate acts Ultra vires acts

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.
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.

(3) w/n expulsion of Bernas and sale of his shares were valid (NO)
No. Since the 1997 Special Meeting was void, it did not have any legal effect, thus, the Cinco group had
no legal right to sit in the board, the expulsion of Bernas and the subsequent sale of his shares were
invalid.

(4) w/n Cinco Group was left w/ no recourse in calling the special election (since the corpo
secretary failed/refused to call meetin, despite demand) (NO)
No. The CINCO group had another remedy even if the Corporate Secretary failed to call the meeting
despite demands and requests, which was to file a petition with the SEC
● 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. (Sec 50 of Corporation 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.

SUMMARY OF RULINGS
 1. the 1997 Special Meeting 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 declared valid.

Void Valid

1997 Special Meeting 1998, 1999, 200 annual meeting

Expulsion of Bernas and sale of shares at Election of Cinco Group as officers in

public auction and its ratification (void the 1998, 1999, 2000 annual meeting
from beginning, cannot be ratified)

9. Philippine Associated Smelting and Refining Corporation vs. Lim,

804 SCRA 600, G.R. No. 172948 October 5, 2016
Facts:
Petitioner company: ​a corporation duly organized and existing under the laws of PH and is engaged in
copper smelting and refining.
Respondents​: former senior officers and presently shareholders of PASAR holding 500 shares each.
Petitioner filed a petition for certiorari to assail the CA decision which lifted and cancelled the writ of
preliminary injunction issued by the RTC which enjoined the respondents from gaining access to the
records of the petitioner corporation. The records were then classified as either confidential or inexistent
until further orders from the court.

Contention of Petitioner: Petitioner argues that the right of a stockholder to inspect corporate books and
records is limited in that any demand must be made in good faith or for a legitimate purpose.
Respondents, however, have no legitimate purpose in this case. If respondents gain access to
petitioner's confidential records, petitioner's trade secrets and other confidential information will be used
by its former officers to give undue commercial advantage to third parties. Petitioner insists that to hold
that objections to the right of inspection can only be raised in an action for mandamus brought by the
stockholder, would leave a corporation helpless and without an adequate legal remedy. To leave the
corporation helpless negates the doctrine that where there is a right, there is a remedy for its violation.

Petitioner argues that it has the right to protect itself against all forms of embarrassment or harassment
against its officers, including the filing of criminal cases against them. Moreover, respondents' request for
inspection of confidential corporate records and documents violates and breaches petitioner's right to
peaceful and continuous possession of its confidential records and documents. Petitioner further argues
that respondents' Motion for Dissolution before the Court of Appeals did not comply with Rule 58, Section
6 of the Rules of Court. Therefore, the Motion should not have been granted. Likewise, respondents'
Motion to Dismiss is a prohibited pleading under Rule 1, Section 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies and should not have been granted. In any case, the Court of
Appeals should have remanded the case to the trial court for further disposition

ISSUE:
WON an action for injunction properly lies to prevent respondents from invoking their right to inspect

RULING:
NO.
Reason no. 1: the petition asks the court to enjoin acts beyond what was enjoined by the RTC. the RTC
did not specify the particular acts it enjoined respondents from doing.
The question as to what records should be deemed confidential and inexistent, however,
cannot be passed upon at this time, since neither were admissions nor sufficient evidence
presented to categorically determine which corporate records are to be considered confidential
and inexistent.In the meantime, then, and in order to prevent grave and irreparable injury on the
part of PASAR should otherwise be allowed [sic], respondents' right to inspect is limited to the
ordinary records as identified and classified by PASAR. Subsequent hearings shall be set to
determine which among the corporate records demanded to be inspected by the respondents are
indeed confidential or inexistent, and to further determine whether or not the issuance of a writ of
final injunction is in order.
What precisely is contemplated by the phrase”gaining access to records” is not clear.
The Corporation Code provides that a stockholder has the right to inspect the records of all business
transactions of the corporation and the minutes of any meeting at reasonable hours on business days.
The stockholder may demand in writing for a copy of excerpts from these records or minutes, at his or her
expense.(SEC 74 of Corp Code)

The right to inspect under Section 74 of the Corporation Code is subject to certain limitations. ​However,
these limitations are expressly provided as defenses in actions filed under Section 74. ​Thus, this
Court has held that a corporation's objections to the right to inspect must be raised as a defense.

The stockholder the burden of showing propriety of purpose and place upon the corporation the burden of
showing impropriety of purpose or motive." It appears to be the "general rule that stockholders are entitled
to full information as to the management of the corporation and the manner of expenditure of its funds,
and to inspection to obtain such information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others."
Remedy of stockholders: file an action for specific performance, damages, petition for mandamus or for
violation of section 74, in relation to section 144 of the Corporation Code.

Reason no. 2: In the case at bar, petitioner invokes its right to raise the limitations provided under
Section 74 of the Corporation Code. However, petitioner provides scant legal basis to claim this
right because it does not raise the limitations as a matter of defense. As properly appreciated by the
Court of Appeals:
We agree. The act of PASAR in filing a petition for injunction with prayer for writ of preliminary
injunction is uncalled for. The petition is a pre-emptive action unjustly intended to impede and
restrain the stockholders' rights. If a stockholder demands the inspection of corporate books, the
corporation could refuse to heed to such demand. When the corporation, through its officers,
denies the stockholders of such right, the latter could then go to court and enforce their rights. It is
then that the corporation could set up its defenses and the reasons for the denial of such right.
Thus, the proper remedy available for the enforcement of the right of inspection is undoubtedly
the writ of mandamus to be filed by the stockholders and not a petition for injunction filed by the
corporation.

The clear provision in Section 74 of the Corporation Code is sufficient authority to conclude that an action
for injunction and, consequently, ​a writ of preliminary injunction filed by a corporation is ​generally
unavailable to prevent stockholders from exercising their right to inspection​. Specifically,
stockholders cannot be prevented from gaining access to the (a) records of all business transactions of
the corporation; and (b) minutes of any meeting of stockholders or the board of directors, including their
various committees and subcommittees

The grant of legal personality to a corporation is conditioned on its compliance with certain obligations.
Among these are its fiduciary responsibilities to its stockholders. Providing stockholders with access to
information is a fundamental basis for their intelligent participation in the governance of the corporation as
a business organization that they partially own. The law is agnostic with respect to the amount of shares
required. Generally, each individual stockholder should be given reasonable access so that he or she can
assess or share his or her assessment of the management of the corporation with other stockholders.
The separate legal personality of a corporation is not so absolutely separate that it divorces itself from its
responsibility to its constituent owners. The law takes into consideration the potential disparity in the
financial legal resources between the corporation and an ordinary stockholder. The phraseology of the
text of the law provides that access to the information mentioned in Section 74 of the Corporation Code is
mandatory. The presumption is that the corporation should provide access. If it has basis for denial, then
the corporation shoulders the risks of being sued and of successfully raising the proper defenses. The
corporation cannot immediately deploy its resources — part of which is owned by the requesting
stockholder — to put the owner on the defensive.

Specifically, corporations may raise their objections to the right of inspection through affirmative defense
in an ordinary civil action for specific performance or damages, or through a comment (if one is required)
in a petition for mandamus. The corporation or defendant or respondent still carries the burden of proving
(a) that the stockholder has improperly used information before; (b) lack of good faith; or (c) lack of
legitimate purpose
10. Agdao Landless Residents Association, Inc. vs. Maramion, 806
SCRA 74, G.R. Nos. 188642; 189425, G.R. Nos. 188888-89 October 17,
2016
Petitioners: ALRAI, a non-stock, non-profit corporation duly organized and existing under and by virtue of
the laws of the Republic of the Philippines, 4 and its board of directors, 5 namely, Armando Javonillo
(Javonillo), Ma. Acelita Armentano (Armentano), Alex Josol, Salcedo de la Cruz, Jr., Claudio Lao, Antonia
Amorada, Julius Alinsub, Pompeniano Espinosa, Consorcio Delgado, Romeo Cabillo, Benjamin Lamigo,
Ricardo Bacong, Rodolfo Galenzoga, and Asuncion Alcantara (Alcantara).
Respondents: allegedly ousted members of ALRAI.
FACTS:
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation in favor of ALRAI covering 46 titled lots
(donated lots). One Deed of Donation prohibits ALRAI, as donee, from partitioning or distributing
individual certificates of title of the donated lots to its members, within a period of five years from
execution, unless a written authority is secured from Dakudao. A violation of the prohibition will render the
donation void, and title to and possession of the donated lot will revert to Dakudao.
The other five Deeds of Donation do not provide for the five-year restriction.
In the board of directors and stockholders meetings held on January 5, 2000 and January 9, 2000,
respectively, members of ALRAI resolved to directly transfer 10 of the donated lots to individual members
and non-members of ALRAI. It was transferred to Romeo Dela Cruz, petitioner Javonillo, the president of
ALRAI, petitioner Armentano, secretary of ALRAI, petitioner Alcanara, the widow of the former legal
counsel of ALRAI.

Respondents filed a Complaint against petitioners. Respondents alleged that petitioners expelled them
as members of ALRAI, and that petitioners are abusing their powers as officers. Respondents further
alleged that petitioners were engaged in the following anomalous and illegal acts:
(1) requiring ALRAI's members to pay exorbitant arrear fees when ALRAI's By-Laws only set membership
dues at P1.00 per month;
(2) partially distributing the lands donated by Dakudao to some officers of ALRAI and to some
non-members in violation of the Deeds of Donation;
(3) illegally expelling them as members of ALRAI without due process; and
(4) being unable to show the books of accounts of ALRAI.
They also alleged that Loy (who bought one of the donated lots from Alcantara) was buyer in bad faith,
having been aware of the status of the land when she bought it.
Thus, respondents prayed for:
(1) the restoration of their membership to ALRAI;
(2) petitioners to stop selling the donated lands and to annul the titles transferred to Javonillo, Armentano,
Dela Cruz, Alcantara and Loy;
(3) the production of the accounting books of ALRAI and receipts of payments from ALRAI's members;
(4) the accounting of the fees paid by ALRAI's members; and
(5) damages.
In their Answer, petitioners alleged that ALRAI transferred lots to Alcantara as attorney's fees ALRAI
owed to her late husband, who was the legal counsel of ALRAI. On the other hand, Javonillo and
Armentano, as president and secretary of ALRAI, respectively, made a lot of sacrifices for ALRAI, while
Dela Cruz provided financial assistance to ALRAI. Petitioners also alleged that respondents who are
non-members of ALRAI have no personality to sue. They also claimed that the members who were
removed were legally ousted due to their absences in meetings.

Issues:

1. Whether respondents should be reinstated as members of ALRAI; and

2. Whether the transfers of the donated lots are valid.

Ruling:

Whether respondents should be reinstated as members of ALRAI

respondents were illegally dismissed from ALRAI. Section 91​58 of the Corporation Code of the Philippines
(Corporation Code) ​provides that membership in a non-stock, non-profit corporation (as in petitioner
ALRAI in this case) shall be terminated in the manner and for the cases provided in its articles of
incorporation or the by-laws.

In tum, Section 5, Article II of the ALRAI Constitution​60​ states:

Sec. 5. - Termination of Membership - Membership may be lost in any of the following: a)

Delinquent in the payment of monthly dues​; b) ​failure to [attend] any annual or special
meeting of the association for three consecutive times without justifiable cause​, and c)
expulsion may be exacted by majority vote of the entire members, on causes which herein
enumerated: 1) Act and utterances which are derogatory and harmful to the best interest of the
association; 2) Failure to attend any annual or special meeting of the association for six (6)
consecutive months, which shall be construed as lack of interest to continue his membership, and
3) any act to conduct which are contrary to the objectives, purpose and aims of the association as
embodied in the charter[.]​61

Petitioners allege that the membership of respondents in ALRAI was terminated due to (a) non-payment
of membership dues and (b) failure to consecutively attend meetings.​62 However, petitioners failed to
substantiate these allegations. In fact, the court ​a quo found that respondents submitted several receipts
showing their compliance with the payment of monthly dues.​63 Petitioners likewise failed to prove that
respondents' absences from meetings were without any justifiable grounds to result in the loss of their
membership in ALRAI.

Even assuming that petitioners were able to prove these allegations, the automatic termination of
respondents' membership in ALRAI is still not warranted. As shown above, Section 5 of the ALRAI
Constitution does not state that the grounds relied upon by petitioners will cause the ​automatic
termination of respondents' membership. Neither can petitioners argue that respondents' memberships in
ALRAI were terminated under letter (c) of Section 5, to wit:

chanRoblesvirtualLawlibrary
x x x c) expulsion may be exacted by majority vote of the entire members, on causes which herein
enumerated: 1) Act and utterances which are derogatory and harmful to the best interest of the
association; 2) Failure to attend any annual or special meeting of the association for six (6) consecutive
months, which shall be construed as lack of interest to continue his membership, and 3) any act to
conduct which are contrary to the objectives, purpose and aims of the association as embodied in the
charter; x x x​64​chanroblesvirtuallawlibrary

Although termination of membership from ALRAI may be made by a majority of the members, the court ​a
quo found that the "guideline (referring to Section 2, Article III of the ALRAI Constitution) was not
followed, hence, complainants' ouster from the association was illegally done."​65 The court ​a quo cited
Section 2, Article III of the ALRAI Constitution which provides, thus:

chanRoblesvirtualLawlibrary

Sec. 2. -Notice- The Secretary shall give or cause to be given written notice of all meetings,
regular or special to all members of the association at least three (3) days before the date of each
meetings either by mail or personally. Notice for special meetings shall specify the time and the
​
purposes or purpose for which it was called; x x x 66

The CA concurred with the finding of the court ​a quo​.67 ​ The CA noted that the evidence presented
revealed that the General Meeting for the termination of membership was to be held on July 29, 2001, at
2 o'clock in the afternoon; but the Notice to all officers and members of ALRAI informing them about the
General Meeting appeared to have been signed by ALRAI's President only on July 27, 2001.​68 Thus, the
CA held that the "notice for the July 29, [2001] meeting where the general membership of ALRAI
approved the expulsion of some of the respondents was short of the three (3)-day notice requirement.
More importantly, the petitioners have failed to adduce evidence showing that the expelled members were
indeed notified of any meeting or investigation proceeding where they are given the opportunity to be
heard prior to the termination of their membership."​69​chanrobleslaw

The requirement of due notice becomes more essential especially so since the ALRAI Constitution
provides for the penalties to be imposed in cases where any member is found to be in arrears in payment
of contributions, or is found to be absent from any meeting without any justifiable cause.

Clearly, members proved to be in arrears in the payment of monthly dues, contributions, or assessments
shall only be automatically suspended; while members who shall be absent from any meeting without any
justifiable cause shall only be liable for a fine. Nowhere in the ALRAI Constitution does it say that the
foregoing actions shall cause the automatic termination of membership. Thus, the CA correctly ruled that
"respondents' expulsion constitutes an infringement of their constitutional right to due process of law and
is not in accord with the principles established in ​Article 19 of the Civil Code,​ x x x."​aw

There being no valid termination of respondents' membership m ALRAI, respondents remain as

its existing members. ​It follows that as members, respondents are entitled to inspect the records
and books of accounts of ALRAI subject to Section 1, Article VII of ALRAI's Constitution, and they
can demand the accounting of its funds in accordance with Section 6, Article V of the ALRAI
Constitution. In addition, Sections 74 ​and 75 ​of the Corporation Code also sanction the right of
respondents to inspect the records and books of accounts of ALRAI and demand the accounting
of its funds.
11.Aguirre II vs. FQB+7, Inc., 688 SCRA 242, G.R. No. 170770 January
9, 2013
Doctrine:
Pursuant to Section 145 of the Corporation Code, an existing intra-corporate dispute, which does not
constitute a continuation of corporate business, is not affected by the subsequent dissolution of the
corporation.

Facts:
Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc., a Complaint ​for intra-corporate
dispute, injunction, inspection of corporate books and records, and damages, against respondents
Nathaniel D. Bocobo, Priscila D. Bocobo, and Antonio De Villa. The Complaint alleged that FQB+7 was
established in 1985 with the following directors and subscribers, as reflected in its Articles of
Incorporation:

Directors Subscribers

1. 1.
Francisco Francisco
Q. Q. Bocobo
Bocobo

2. Fidel 2. Fidel N.
N. Aguirre Aguirre

3. Alfredo 3. Alfredo
Torres Torres

4. 4.
Victoriano Victoriano
Santos Santos

5. 5. Victorino
Victorino Santos
Santos​5

6. Vitaliano
N. Aguirre II

7. Alberto
Galang
 8. Rolando
B.
Bechayda

To Vitaliano’s knowledge, except for the death of Francisco Q. Bocobo and Alfredo Torres, there has
been no other change in the above listings.
The Complaint further alleged that Vitaliano discovered a General Information Sheet of FQB+7 in the
Securities and Exchange Commission records. This GIS was filed by Francisco Q. Bocobo’s heirs,
Nathaniel and Priscila, as FQB+7’s president and secretary/treasurer, respectively. It also stated FQB+7’s
directors and subscribers, as follows:

Directors Subscriber
s

1. 1.
Nathaniel Nathaniel
D. Bocobo D. Bocobo

2. Priscila 2. Priscila
D. Bocobo D. Bocobo

3. Fidel N. 3. Fidel N.
Aguirre Aguirre

4. 4.
Victoriano Victorino​7
Santos Santos

5. 5.
Victorino Victorino
Santos Santos

6. 6.
Consolaci Consolaci
on Santos on Santos

Further, the GIS reported that FQB+7’s stockholders held their annual meeting.
The substantive changes found in the GIS, respecting the composition of directors and subscribers of
FQB+7, prompted Vitaliano to write to the "real" Board of Directors (the directors reflected in the Articles
of Incorporation), represented by Fidel N. Aguirre. In this letter, Vitaliano questioned the validity and
truthfulness of the alleged stockholders meeting held. He asked the "real" Board to rectify what he
perceived as erroneous entries in the GIS, and to allow him to inspect the corporate books and records.
The "real" Board allegedly ignored Vitaliano’s request.
Nathaniel, in the exercise of his power as FQB+7’s president, appointed Antonio as the corporation’s
attorney-in-fact, with power of administration over the corporation’s farm in Quezon Province. Pursuant
thereto, Antonio attempted to take over the farm, but was allegedly prevented by Fidel and his men.
Characterizing Nathaniel’s, Priscila’s, and Antonio’s continuous representation of the corporation as a
usurpation of the management powers and prerogatives of the "real" Board of Directors, the Complaint
asked for an injunction against them and for the nullification of all their previous actions as purported
directors, including the GIS they had filed with the SEC. The Complaint also sought damages for the
plaintiffs and a declaration of Vitaliano’s right to inspect the corporate records.
The case was assigned to Branch 24 of the RTC of Manila, which was a designated special commercial
court.
The respondents failed, despite notice, to attend the hearing on Vitaliano’s application for preliminary
injunction. Thus, in an Order, the trial court granted the application based only on Vitaliano’s testimonial
and documentary evidence, consisting of the corporation’s articles of incorporation, by-laws, the GIS,
demand letter on the "real" Board of Directors, and police blotter of the incident between Fidel’s and
Antonio’s groups. The trial court issued the writ of preliminary injunction after Vitaliano filed an injunction
bond.
The respondents filed a motion for an extension of 10 days to file the "pleadings warranted in response to
the complaint," which they received. The trial court denied this motion for being a prohibited pleading
under Section 8, Rule 1 of the Interim Rules of Procedure Governing Intra-corporate Controversies under
R.A. No. 8799.
The respondents filed a Petition for Certiorari and Prohibition before the CA. They later amended their
Petition by impleading Fidel, who allegedly shares Vitaliano’s interest in keeping them out of the
corporation, as a private respondent therein.
The respondents sought, in their certiorari petition, the annulment of all the proceedings and issuances in
SEC Case No. 04-111077 on the ground that Branch 24 of the Manila RTC has no jurisdiction over the
subject matter, which they defined as being an agrarian dispute. They theorized that Vitaliano’s real goal
in filing the Complaint was to maintain custody of the corporate farm in Quezon Province. Since this land
is agricultural in nature, they claimed that jurisdiction belongs to the Department of Agrarian Reform, not
to the Manila RTC. They also raised the grounds of improper venue (alleging that the real corporate
address is different from that stated in the Articles of Incorporation) and forum-shopping (there being a
pending case between the parties before the DAR regarding the inclusion of the corporate property in the
agrarian reform program). Respondents also raised their defenses to Vitaliano’s suit, particularly the
alleged disloyalty and fraud committed by the "real" Board of Directors, and respondents’ "preferential
right to possess the corporate property" as the heirs of the majority stockholder Francisco Q. Bocobo.
The respondents further informed the CA that the SEC had already revoked FQB+7’s Certificate of
Registration for its failure to comply with the SEC reportorial requirements. The CA determined that the
corporation’s dissolution was a conclusive fact after petitioners Vitaliano and Fidel failed to dispute this
factual assertion.
Ruling of the Court of Appeals
The CA determined that the issues of the case are the following: (1) whether the trial court’s issuance of
the writ of preliminary injunction, in its Order, was attended by grave abuse of discretion amounting to
lack of jurisdiction; and (2) whether the corporation’s dissolution affected the trial court’s jurisdiction to
hear the intra corporate dispute in SEC Case No. 04-111077.
On the first issue, the CA determined that the trial court committed a grave abuse of discretion when it
issued the writ of preliminary injunction to remove the respondents from their positions in the Board of
Directors based only on Vitaliano’s self-serving and empty assertions. Such assertions cannot outweigh
the entries in the GIS, which are documented facts on record, which state that respondents are
stockholders and were duly elected corporate directors and officers of FQB+7, Inc. The CA held that
Vitaliano only proved a future right in case he wins the suit. Since an injunction is not a remedy to protect
future, contingent or abstract rights, then Vitaliano is not entitled to a writ.
Further, the CA disapproved the discrepancy between the trial court’s Order, which granted the
application for preliminary injunction, and its writ. The Order enjoined all the respondents "from entering,
occupying, or taking over possession of the farm owned by Atty. Vitaliano Aguirre II," while the writ states
that the subject farm is "owned by plaintiff corporation located in Mulanay, Quezon Province." The CA
held that this discrepancy imbued the Order with jurisdictional infirmity.
On the second issue, the CA postulated that Section 122 of the Corporation Code allows a dissolved
corporation to continue as a body corporate for the limited purpose of liquidating the corporate assets and
distributing them to its creditors, stockholders, and others in interest. It does not allow the dissolved
corporation to continue its business. That being the state of the law, the CA determined that Vitaliano’s
Complaint, being geared towards the continuation of FQB+7, Inc.’s business, should be dismissed
because the corporation has lost its juridical personality. Moreover, the CA held that the trial court does
not have jurisdiction to entertain an intra-corporate dispute when the corporation is already dissolved.
After dismissing the Complaint, the CA reminded the parties that they should proceed with the liquidation
of the dissolved corporation based on the existing GIS, thus:
With SEC’s revocation of its certificate of registration, FQB+7, Inc. will be obligated to wind up its affairs.
The Corporation will have to be liquidated within the 3-year period mandated by Sec. 122 of the
Corporation Code.
Regardless of the method it will opt to liquidate itself, the Corporation will have to reckon with the
members of the board as duly listed in the GIS last filed with SEC. Necessarily, and as admitted in the
complaint below, the following as listed in the Corporation’s General Information Sheet, will have to
continue acting as Members of the Board of FQB+7, Inc.
Herein petitioners filed a Motion for Reconsideration. They argued that the CA erred in ruling that the
Order was inconsistent with the writ. They explained that pages 2 and 3 of the said Order were
interchanged in the CA’s records, which then misled the CA to its erroneous conclusion. They also
posited that the original sentence in the correct Order reads: "All defendants are further enjoined from
entering, occupying or taking over possession of the farm owned by plaintiff corporation located in
Mulanay, Quezon." This sentence is in accord with what is ordered in the writ, hence the CA erred in
nullifying the Order.
On the second issue, herein petitioners maintained that the CA erred in characterizing the reliefs they
sought as a continuance of the dissolved corporation’s business, which is prohibited under Section 122 of
the Corporation Code. Instead, they argued, the relief they seek is only to determine the real Board of
Directors that can represent the dissolved corporation.
The CA denied the Motion for Reconsideration in its Resolution. It determined that the crucial issue is the
trial court’s jurisdiction over an intra-corporate dispute involving a dissolved corporation. Based on the
prayers in the Complaint, petitioners seek a determination of the real Board that can take over the
management of the corporation’s farm, not to sit as a liquidation Board. Thus, contrary to petitioners’
claims, their Complaint is not geared towards liquidation but a continuance of the corporation’s business.
Issues:
1. Whether the CA erred in annulling the Order based on interchanged pages.
2. Whether the Complaint seeks to continue the dissolved corporation’s business.
3. Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation.
Held:
The Petition is partly meritorious.
Is the Complaint a continuation of business?
Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its business, but
allows it to continue with a limited personality in order to settle and close its affairs, including its complete
liquidation, thus:
Sec. 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when
it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets,
but not for the purpose of continuing the business for which it was established.
Upon learning of the corporation’s dissolution by revocation of its corporate franchise, the CA held that
the intra-corporate Complaint, which aims to continue the corporation’s business, must now be dismissed
under Section 122.
Petitioners concede that a dissolved corporation can no longer continue its business. They argue,
however, that Section 122 allows a dissolved corporation to wind up its affairs within 3 years from its
dissolution. Petitioners then maintain that the Complaint, which seeks only a declaration that respondents
are strangers to the corporation and have no right to sit in the board or act as officers thereof, and a
return of Vitaliano’s stockholdings, intends only to resolve remaining corporate issues. The resolution of
these issues is allegedly part of corporate winding up.
Does the Complaint seek a continuation of business or is it a settlement of corporate affairs? The answer
lies in the prayers of the Complaint, which state:
PRAYER
WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor
of the plaintiffs and against the defendants, in the following wise:
I. ON THE PRAYER OF TRO/STATUS QUO ORDER AND WRIT OF PRELIMINARY
INJUNCTION:
1. Forthwith and pending the resolution of plaintiffs’ prayer for issuance of writ of
preliminary injunction, in order to maintain the status quo, a status quo order or
temporary restraining order (TRO) be issued enjoining the defendants, their officers,
employees, and agents from exercising the powers and authority as members of the
Board of Directors of plaintiff FQB as well as officers thereof and from misrepresenting
and conducting themselves as such, and enjoining defendant Antonio de Villa from taking
over the farm of the plaintiff FQB and from exercising any power and authority by reason
of his appointment emanating from his co-defendant Bocobos.
2. After due notice and hearing and during the pendency of this action, to issue writ of
preliminary injunction prohibiting the defendants from committing the acts complained of
herein, more particularly those enumerated in the immediately preceeding paragraph,
and making the injunction permanent after trial on the merits.
II. ON THE MERITS
After trial, judgment be rendered in favor of the plaintiffs and against the defendants, as follows:
1. Declaring defendant Bocobos as without any power and authority to represent or
conduct themselves as members of the Board of Directors of plaintiff FQB, or as officers
thereof.
2. Declaring that Vitaliano N. Aguirre II is a stockholder of plaintiff FQB owning fifty (50)
shares of stock thereof.
 3. Allowing Vitaliano N. Aguirre II to inspect books and records of the company.
4. Annulling the GIS, Annex "C" of the Complaint as fraudulent and illegally executed and
filed.
5. Ordering the defendants to pay jointly and solidarily the sum of at least ₱200,000.00 as
moral damages; at least ₱100,000.00 as exemplary damages; and at least ₱100,000.00
as and for attorney’s fees and other litigation expenses.
Plaintiffs further pray for costs and such other relief just and equitable under the premises.
The Court fails to find in the prayers above any intention to continue the corporate business of FQB+7.
The Complaint does not seek to enter into contracts, issue new stocks, acquire properties, execute
business transactions, etc. Its aim is not to continue the corporate business, but to determine and
vindicate an alleged stockholder’s right to the return of his stockholdings and to participate in the election
of directors, and a corporation’s right to remove usurpers and strangers from its affairs. The Court fails to
see how the resolution of these issues can be said to continue the business of FQB+7.
Neither are these issues mooted by the dissolution of the corporation. A corporation’s board of directors is
not rendered ​functus officio by its dissolution. Since Section 122 allows a corporation to continue its
existence for a limited purpose, necessarily there must be a board that will continue acting for and on
behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes the dissolved
corporation’s board of directors to conduct its liquidation within three years from its dissolution.
Jurisprudence has even recognized the board’s authority to act as trustee for persons in interest beyond
the said three-year period. Thus, the determination of which group is the bona fide or rightful board of the
dissolved corporation will still provide practical relief to the parties involved.
The same is true with regard to Vitaliano’s shareholdings in the dissolved corporation. A party’s
stockholdings in a corporation, whether existing or dissolved, is a property right which he may vindicate
against another party who has deprived him thereof. The corporation’s dissolution does not extinguish
such property right. Section 145 of the Corporation Code ensures the protection of this right, thus:
Sec. 145. Amendment or repeal. – No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the
subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of
any part thereof. (Emphases supplied.)
On the dismissal of the Complaint for lack of jurisdiction.
The CA held that the trial court does not have jurisdiction over an intra-corporate dispute involving a
dissolved corporation. It further held that due to the corporation’s dissolution, the qualifications of the
respondents can no longer be questioned and that the dissolved corporation must now commence
liquidation proceedings with the respondents as its directors and officers.
The CA’s ruling is founded on the assumptions that intra-corporate controversies continue only in existing
corporations; that when the corporation is dissolved, these controversies cease to be intra-corporate and
need no longer be resolved; and that the status quo in the corporation at the time of its dissolution must
be maintained. The Court finds no basis for the said assumptions.
Intra-corporate disputes remain even when the corporation is dissolved.
Jurisdiction over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction over
intra-corporate controversies on courts of general jurisdiction or RTCs, to be designated by the Supreme
Court. Thus, as long as the nature of the controversy is intra-corporate, the designated RTCs have the
authority to exercise jurisdiction over such cases.
So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of Presidential Decree
(P.D.) No. 902-A (or The SEC Reorganization Act) for a description of such controversies:
a) Devices or schemes employed by or any acts, of the board of directors, business associates,
its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.
The Court reproduced the above jurisdiction in Rule 1 of the Interim Rules of Procedure Governing
Intra-corporate Controversies under R.A. No. 8799:
SECTION 1. (a) Cases Covered – These Rules shall govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, or members
of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations,
between and among stockholders, members, or associates; and between, any or all of
them and the corporation, partnership, or association of which they are stockholders,
members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or
managers of corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.
Meanwhile, jurisprudence has elaborated on the above definitions by providing tests in determining
whether a controversy is intra-corporate. Reyes v. Regional Trial Court of Makati, Br. 142 contains a
comprehensive discussion of these two tests, thus:
A review of relevant jurisprudence shows a development in the Court's approach in classifying what
constitutes an intra-corporate controversy. Initially, the main consideration in determining whether a
dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate
relationship existing between or among the parties. The types of relationships embraced under Section
5(b) x x x were as follows:
a) between the corporation, partnership, or association and the public;
b) between the corporation, partnership, or association and its stockholders, partners, members,
or officers;
c) between the corporation, partnership, or association and the State as far as its franchise,
permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves. xxx
The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC
now the RTC, regardless of the subject matter of the dispute. This came to be known as the relationship
test.
However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court
introduced the nature of the controversy test. We declared in this case that it is not the mere existence of
an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship
test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a
corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or
minimizing the value of the nature of the transactions which gives rise to the dispute.
Under the nature of the controversy test, the incidents of that relationship must also be considered for the
purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be
rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of
the parties' correlative rights and obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely
incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no
intra-corporate controversy exists.
The Court then combined the two tests and declared that jurisdiction should be determined by considering
not only the status or relationship of the parties, but also the nature of the question under controversy.
This two-tier test was adopted in the recent case of Speed Distribution, Inc. v. Court of Appeals:
'To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by
the branches of the RTC specifically designated by the Court to try and decide such cases, two elements
must concur: (a) the status or relationship of the parties, and [b] the nature of the question that is the
subject of their controversy.
The first element requires that the controversy must arise out of intra-corporate or partnership relations
between any or all of the parties and the corporation, partnership, or association of which they are
stockholders, members or associates, between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership, or association and the State insofar as it concerns the individual franchises. The
second element requires that the dispute among the parties be intrinsically connected with the regulation
of the corporation. If the nature of the controversy involves matters that are purely civil in character,
necessarily, the case does not involve an intra-corporate controversy.' (Citations and some emphases
omitted; emphases supplied.)
Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of intra-corporate or
partnership relations, and (b) the nature of the question subject of the controversy must be such that it is
intrinsically connected with the regulation of the corporation or the enforcement of the parties’ rights and
obligations under the Corporation Code and the internal regulatory rules of the corporation. So long as
these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a special commercial
court, has jurisdiction over it.
Examining the case before us in relation to these two criteria, the Court finds and so holds that the case is
essentially an intra-corporate dispute. It obviously arose from the intra-corporate relations between the
parties, and the questions involved pertain to their rights and obligations under the Corporation Code and
matters relating to the regulation of the corporation. We further hold that the nature of the case as an
intra-corporate dispute was not affected by the subsequent dissolution of the corporation.
It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and
remedies of corporate actors against other corporate actors. The statutory provision assures an aggrieved
party that the corporation’s dissolution will not impair, much less remove, his/her rights or remedies
against the corporation, its stockholders, directors or officers. It also states that corporate dissolution will
not extinguish any liability already incurred by the corporation, its stockholders, directors, or officers. In
short, Section 145 preserves a corporate actor’s cause of action and remedy against another corporate
actor. In so doing, Section 145 also preserves the nature of the controversy between the parties as an
intra-corporate dispute.
The dissolution of the corporation simply prohibits it from continuing its business. However, despite such
dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not
automatically convert the parties into total strangers or change their intra-corporate relationships. Neither
does it change or terminate existing causes of action, which arose because of the corporate ties between
the parties. Thus, a cause of action involving an intra-corporate controversy remains and must be filed as
an intra-corporate dispute despite the subsequent dissolution of the corporation.
WHEREFORE, premises considered, the Petition for Review on Certiorari is PARTIALLY GRANTED. The
assailed June 29, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 87293, as well as its
December 16, 2005 Resolution, are ANNULLED with respect to their dismissal of SEC Case No.
04-111077 on the ground of lack of jurisdiction. The said case is ordered REINSTATED before Branch 24
of the Regional Trial Court of Manila. The rest of the assailed issuances are AFFIRMED.
SO ORDERED.

12.Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January
25, 2017
Facts:
Petitioner: ​registered unit owner of 1322 Golden Empire Tower ​(Golden Empire Tower), ​a condominium
project of Moldex Land
Respondent: ​a real estate company engaged in the construction and development of high-end
condominium projects and in the marketing and sale of the units thereof to the general public. Condocor,
a non-stock, non-profit corporation, is the registered condominium corporation for the Golden Empire
Tower. Lim, as a unit owner of Golden Empire Tower, is a member of Condocor.

Lim claimed that the individual respondents are ​non-unit buyers, ​but all are members of the Board of
Directors of Condocor, having been elected during its organizational meeting in 2008. They were again
elected during the July 21, 2012 general membership meeting.

Moldex became a member of Condocor on the basis of its ownership of the 220 unsold units in the
Golden Empire Tower. The individual respondents acted: as its representatives.
Condocor held its annual general membership meeting. Its corporate secretary certified, and Jaminola, as
Chairman, declared the existence of a quorum even though only 29 of the 108 unit buyers were present.
The declaration of quorum was based on the presence of the majority of the voting rights, including those
pertaining to the 220 unsold units held by Moldex through its representatives. Lim, through her
attorney-in-fact, objected to the validity of the meeting. The objection was denied. Thus, Lim and all the
other unit owners present, except for one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit owner proceeded with the annual
general membership meeting and elected the new members of the Board of Directors for 2012-2013. All
four (4) individual respondents were voted as members of the board, together with three (3) others whose
election was conditioned on their subsequent confirmation.Thereafter, the newly elected members of the
board conducted an organizational meeting and proceeded with the election of its officers. The individual
respondents were elected as follows:
1. Atty. Jeffrey Jaminola - Chairman of the Board and President
2. Ms. Joji Milanes - Vice-President
3. Ms. Clothilda Ann Roman - Treasurer
4. Mr. Edgardo Macalintal - Corporate Secretary
5. Atty. Ma. Rosario Bernardo - Asst. Corporate Secretary
6. Atty. Mary Rose Pascual - Asst. Corporate Secretary
7. Atty. Jasmin Cuizon - Asst. Corporate Secretary
Consequently, Lim filed an election protest before the RTC. Said court, however, dismissed the complaint
holding that there was a quorum during the July 21, 2012 annual membership meeting; that Moldex is a
member of Condocor, being the registered owner of the unsold/unused condominium units, parking lots
and storage areas; and that the individual respondents, as Moldex's representatives, were entitled to
exercise all membership rights, including the right to vote and to be voted. In so ruling, the trial court
explained that the presence or absence of a quorum in the subject meeting was determined on the basis
of the voting rights of all the units owned by the members in good standing. The total voting rights of unit
owners in good standing was 73,376 and, as certified by the corporate secretary, 83.33% of the voting
rights in good standing were present in the said meeting, inclusive of the 5 8,504 voting rights of Moldex.
ISSUES
1) whether the July 21, 2012 membership meeting was valid; NO
2) whether Moldex can be deemed a member of Condocor; and YES
3) whether a non-unit owner can be elected as a member of the Board of Directors of Condocor. NO
RULING:
1) whether the July 21, 2012 membership meeting was valid;
No. there was no quorum.
In non-stock corporations, quorum is determined by the majority of its actual members
In corporate parlance, the term "meeting" applies to every duly convened assembly either of stockholders,
members, directors, trustees, or managers for any legal purpose, or the transaction of business of a
common interest. Under Philippine corporate laws, meetings may either be regular or special. A
stockholders' or members' meeting must comply with the following requisites to be valid:
1. The meeting must be held on the date fixed in the By-Laws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record;
3. It must be called by the proper party;
4. It must be held at the proper place;and
5. Quorum and voting requirements must be met.
Of these five (5) requirements, the existence of a quorum is crucial. Any act or transaction made during a
meeting without quorum is rendered of no force and effect, thus, not binding on the corporation or parties
concerned.
​ rovides:
In relation thereto, Section 52 of the Corporation Code of the Philippines ​(Corporation Code) p
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.
Thus, for stock corporations, the quorum is based on the ​number of outstanding voting stocks w ​ hile for
non-stock corporations, only those who are ​actual, living members with voting rights s​ hall be counted in
determining the existence of a quorum.
To be clear, the basis in determining the presence of quorum in non-stock corporations is the numerical
equivalent of all members who are entitled to vote, unless some other basis is provided by the By-Laws of
the corporation. The qualification "with voting rights" simply recognizes the power of a non-stock
corporation to limit or deny the right to vote of any of its members. To include these members without
voting rights in the total number of members for purposes of quorum would be superfluous for although
they may attend a particular meeting, they cannot cast their vote on any matter discussed therein.
Similarly, Section 6 of Condocor's By-Laws reads: "The attendance of a simple majority of the members
who are in good standing shall constitute a quorum ... x x x." The phrase, "members in good standing," is
a mere qualification as to which members will be counted for purposes of quorum. As can be gleaned
from Condocor's By-Laws, there are two (2) kinds of members: 1) members in good standing; and 2)
delinquent members. Section 6 merely stresses that delinquent members are not to be taken into
consideration in determining quorum. In relation thereto, Section 7of the By-Laws, referring to voting
rights, also qualified that only those members in good standing are entitled to vote. Delinquent members
are stripped off their right to vote. Clearly, contrary to the ruling of the RTC, Sections 6 and 7 of
Condocor's By-Laws do not provide that majority of the total voting rights, without qualification, will
constitute a quorum.
It must be emphasized that insofar as Condocor is concerned, quorum is different from voting rights.
Applying the law and Condocor's By-Laws, if there are 100 members in a non-stock corporation, 60 of
which are members in good standing, then the presence of 50% plus 1 of those members in good
standing will constitute a quorum. Thus, 31 members in good standing will suffice in order to consider a
meeting valid as regards the presence of quorum. The 31 members will naturally have to exercise their
voting rights. It is in this instance when the number of voting rights each member is entitled to becomes
significant. If 29 out of the 31 members are entitled to 1 vote each, another member (known as A) is
entitled to 20 votes and the remaining member (known as B) is entitled to 15 votes, then the total number
of voting rights of all 31 members is 64. Thus, majority of the 64 total voting rights, which is 33 (50% plus
1), is necessary to pass a valid act. Assuming that only A and B concurred in approving a specific
undertaking, then their 35 combined votes are more than sufficient to authorize such act.
The By-Laws of Condocor has no rule different from that provided in the Corporation Code with respect
the determination of the existence of a quorum. The quorum during the July 21, 2012 meeting should
have been majority of Condocor's members in good standing. Accordingly, there was no quorum during
the July 21, 2012 meeting considering that only 29 of the 108 unit buyers were present.
As there was no quorum, any resolution passed during the July 21, 2012 annual membership
meeting was null and void and, therefore, not binding upon the corporation or its members. The
meeting being null and void, the resolution and disposition of other legal issues emanating from
the null and void July 21, 2012 membership meeting has been rendered unnecessary.

3) whether a non-unit owner can be elected as a member of the Board of Directors of Condocor.
Individual respondents who are non-members cannot be elected as directors and officers of the
condominium corporation
The governance and management of corporate affairs in a corporation lies with its board of directors in
case of stock corporations, or board of trustees in case of non-stock corporations. As the board exercises
all corporate powers and authority expressly vested upon it by law and by the corporations' by-laws, there
are minimum requirements set in order to be a director or trustee, one of which is ownership of a share in
one's name or membership in a non-stock corporation. Section 23 of the Corporation Code provides:
Section 23. ​The Board of Directors or Trustees. ​- Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where ​there is no stock, from among the members of the
corporation,​ who shall hold office for one (1) year until their successors are elected and qualified.
Every director must own at least one (1) share of the capital stock of the corporation of which he is a
director, which share shall stand in his name on the books of the corporation. Any director who ceases to
be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall
thereby cease to be a director. ​Trustees of non-stock corporations must be members thereof.​A
majority of the directors or trustees of all corporations organized under this Code must be residents of the
Philippines. [Emphases supplied]
This rule was reiterated in Section 92 of the Corporation Code, which states:
Section 92. ​Election and term of trustees. ​– x x x No person shall be elected as trustee unless he is a
member of the corporation. x x x
While Moldex may rightfully designate proxies or representatives, the latter, however, cannot be elected
as directors or trustees of Condocor. ​First, t​ he Corporation Code clearly provides that a director or trustee
must be a member of record of the corporation. ​Further, ​the power of the proxy is merely to vote. If said
proxy is not a member in his own right, he cannot be elected as a director or proxy.
Respondents cannot rely on the Securities and Exchange Commission ​(SEC) O ​ pinions they cited to
​ eves,The Court ​En Banc
justify the individual respondents' election as directors. In ​Heirs of Gamboa v. T
held that opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC ​en banc ​can adopt rules and regulations.
Following Section 25 of the Corporation Code, the election of individual respondents, as corporate
officers, was likewise invalid.
Section 25 of the Corporation Code mandates that the President shall be a director. As previously
discussed, Jaminola could not be elected as a director. Consequently, Jaminola's election as President
was null and void.
The same provision allows the election of such other officers as may be provided for in the by-laws.
Condocor's By-Laws, however, require that the Vice-President shall be ​elected b​ y the Board from among
​ y the Board under the same
its member-directors in good standing, and the Secretary may be ​appointed b
circumstance. Like Jaminola, Milanes and Macalintal were not directors and, thus, could not be elected
and appointed as Vice-President and Secretary, respectively.
Insofar as Roman's election as Treasurer is concerned, the same would have been valid, as a corporate
treasurer may or may not be a director of the corporation's board. The general membership meeting of
Condocor, however, was null and void. As a consequence, Roman's election had no legal force and
effect.
In fine, the July 21, 2012 annual general membership meeting of Condocor being null and void, all acts
and resolutions emanating therefrom are likewise null and void.
WHEREFORE, the petition is ​GRANTED​. The March 4, 2013 Decision of the Regional Trial Court,
Branch 24, Manila, in Civil Case No. 12-128478 is hereby ​REVERSED and ​SET ASIDE​. The Court
declares that:
a) The July 21, 2012 Annual General Membership Meeting of Condocor is null and void;
b) The election of members of the Board of Directors in the annual general membership meeting is
likewise null and void; and
c) The succeeding Organizational Meeting of Condocor's Board of Directors as well as the election of its
corporate officers are of no force and effect.

13. Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131,
G.R. No. 169507 January 11, 2016
DOCTRINE: There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its peculiar environmental circumstances. The term
implies a ​continuity of commercial dealings and arrangements,​ and contemplates, to that extent, ​the
performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of commercial gain or for the purpose and object of the business
organization​. "In order that a foreign corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary character.

FACTS: ​Air Canada ​is a "foreign corporation organized and existing under the laws of Canada. On April
24, 2000, it was granted an authority to operate as an offline carrier by the Civil Aeronautics Board,
subject to certain conditions, which authority would expire on April 24, 2005. "As an off-line carrier, [Air
Canada] does not have flights originating from or coming to the Philippines [and does not] operate any
airplane [in] the Philippines.

Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the
Philippines. Aerotel "sells [Air Canada’s] passage documents in the Philippines."

For the period ranging from the third quarter of 2000 to the second quarter of 2002, Air Canada, through
Aerotel, filed quarterly and annual income tax returns and paid the income tax on Gross Philippine Billings
in the total amount of ₱5,185,676.77.

On November 28, 2002, Air Canada filed a written claim for refund of alleged erroneously paid income
taxes amounting to ₱5,185,676.77 before the Bureau of Internal Revenue. It found basis from the revised
definition of Gross Philippine Billings under Section 28(A)(3)(a) of the 1997 National Internal Revenue
Code.

To prevent the running of the prescriptive period, Air Canada filed a Petition for Review before the Court
of Tax Appeals on November 29, 2002.
CTA: The Court of Tax Appeals First Division rendered its Decision denying the Petition for Review and,
hence, the claim for refund. It found that Air Canada was engaged in business in the Philippines through a
local agent that sells airline tickets on its behalf. As such, it should be taxed as a resident foreign
corporation at the regular rate of 32%. Further, according to the Court of Tax Appeals First Division, Air
Canada was deemed to have established a "permanent establishment" in the Philippines under Article
V(2)(i) of the Republic of the Philippines-Canada Tax Treaty by the appointment of the local sales agent,
"in which [the] petitioner uses its premises as an outlet where sales of [airline] tickets are made.

Air Canada seasonably filed a Motion for Reconsideration, but the Motion was denied.

CTA EN BANC: The Court of Tax Appeals En Banc affirmed the findings of the First Division. The En
Banc ruled that Air Canada is subject to tax as a resident foreign corporation doing business in the
Philippines since it sold airline tickets in the Philippines.

Hence, this Petition for Review was filed.

Petitioner Air Canada’s Contention: ​Petitioner claims that the general provision imposing the regular
corporate income tax on resident foreign corporations provided under Section 28(A)(1) of the 1997
National Internal Revenue Code does not apply to "international carriers," which are especially classified
and taxed under Section 28(A)(3).

Respondent CIR’s Contention: ​On the other hand, respondent maintains that petitioner is subject to the
32% corporate income tax as a resident foreign corporation doing business in the Philippines.
Respondent further points out that this court in ​Commissioner of Internal Revenue v. American Airlines,
Inc.​, which in turn cited the cases involving the British Overseas Airways Corporation and Air India, had
already settled that "foreign airline companies which sold tickets in the Philippines through their local
agents . . . [are] considered resident foreign corporations engaged in trade or business in the country." It
also cites Revenue Regulations No. 6-78 dated April 25, 1978, which defined the phrase "doing business
in the Philippines" as including "regular sale of tickets in the Philippines by offline international airlines
either by themselves or through their agents."

ISSUE/S: Whether petitioner Air Canada, as an offline international carrier selling passage documents
through a general sales agent in the Philippines, is a resident foreign corporation within the meaning of
Section 28(A)(1) of the 1997 National Internal Revenue Code.

HELD: Yes. Petitioner, an offline carrier, is a resident foreign corporation for income tax purposes.
Petitioner falls within the definition of resident foreign corporation under Section 28(A)(1) of the 1997
National Internal Revenue Code, thus, it may be subject to 32% tax on its taxable income.

The definition of "resident foreign corporation" has not substantially changed throughout the amendments
of the National Internal Revenue Code. All versions refer to "a foreign corporation engaged in trade or
business within the Philippines."
Commonwealth Act No. 466, known as the National Internal Revenue Code and approved on June 15,
1939, defined "resident foreign corporation" as applying to "a foreign corporation engaged in trade or
business within the Philippines or having an office or place of business therein."

Section 24(b)(2) of the National Internal Revenue Code, as amended by Republic Act No. 6110, approved
on August 4, 1969, reads:

Sec. 24. Rates of tax on corporations. — . . .

(b) Tax on foreign corporations. — . . .

(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any
foreign country, except a foreign life insurance company, ​engaged in trade or business within the
Philippines,​ shall be taxable as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)

Presidential Decree No. 1158-A took effect on June 3, 1977 amending certain sections of the 1939
National Internal Revenue Code. Section 24(b)(2) on foreign resident corporations was amended, but it
still provides that "[a] corporation organized, authorized, or existing under the laws of any foreign country,
engaged in trade or business within the Philippines, ​shall be taxable as provided in subsection (a) of this
section upon the total net income received in the preceding taxable year from all sources within the
Philippines[.]"
As early as 1987, this court in ​Commissioner of Internal Revenue v. British Overseas Airways Corporation
declared British Overseas Airways Corporation, an international air carrier with no landing rights in the
Philippines, as a resident foreign corporation engaged in business in the Philippines through its local
sales agent that sold and issued tickets for the airline company. This court discussed that:

There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business.
Each case must be judged in the light of its peculiar environmental circumstances. The term implies a
continuity of commercial dealings and arrangements​, and contemplates, to that extent, ​the
performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of commercial gain or for the purpose and object of the business
organization​. "In order that a foreign corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary character.

Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its definition of
"doing business" with regard to foreign corporations. Section 3(d) of the law enumerates the activities that
constitute doing business:

d. ​the phrase "doing business" shall include ​soliciting orders, service contracts, opening offices,
whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and ​any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to that extent the performance of acts
or works, or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business organization​:
Provided, however, T ​ hat the phrase "doing business" shall not be deemed to include mere investment as
a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account[.] (Emphasis supplied)

While Section 3(d) above states that "appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account" is not considered as "doing
business," the Implementing Rules and Regulations of Republic Act No. 7042 clarifies that "doing
business" includes "​appointing representatives or distributors, o ​ perating under full control of the
foreign corporation​, domiciled in the Philippines or who in any calendar year stay in the country for a
period or periods totaling one hundred eighty (180) days or more[.]"
An offline carrier is "any foreign air carrier not certificated by the [Civil Aeronautics] Board, but who
maintains office or ​who has designated or appointed agents or employees in the Philippines,​ who sells or
offers for sale any air transportation in behalf of said foreign air carrier and/or others, or negotiate for, or
holds itself out by solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or
arranges for such transportation."

"Anyone desiring to engage in the activities of an off-line carrier [must] apply to the [Civil Aeronautics]
Board for such authority." Each offline carrier must file with the Civil Aeronautics Board a monthly report
containing information on the tickets sold, such as the origin and destination of the passengers, carriers
involved, and commissions received.

Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the Philippines.

Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of
petitioner’s business. The activities of Aerotel bring direct receipts or profits to petitioner. There is nothing
on record to show that Aerotel solicited orders alone and for its own account and without interference
from, let alone direction of, petitioner. On the contrary, Aerotel cannot "enter into any contract on behalf of
[petitioner Air Canada] without the express written consent of [the latter,]" and it must perform its functions
according to the standards required by petitioner. Through Aerotel, petitioner is able to engage in an
economic activity in the Philippines.

Further, petitioner was issued by the Civil Aeronautics Board an authority to operate as an offline carrier
in the Philippines for a period of five years, or from April 24, 2000 until April 24, 2005.

Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from
sources within the Philippines. Petitioner’s income from sale of airline tickets, through Aerotel, is
income realized from the pursuit of its business activities in the Philippines.
14. Steelcase, Inc. v. Design International Selections, Inc., 18 April
2012
Petitioner: Steelcase, Inc. ​(Steelcase) is a foreign corporation existing under the laws of Michigan, United
States of America ​(U.S.A.),​ and engaged in the manufacture of office furniture with dealers worldwide.
Respondent: Design International Selections, Inc. ​(DISI) is a corporation existing under Philippine Laws
and engaged in the furniture business, including the distribution of furniture.

Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby
Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user
customers within the Philippines. The business relationship continued smoothly until it was terminated
sometime in January 1999 after the agreement was breached with neither party admitting any fault.
Steelcase filed a complaint for sum of money against DISI alleging, among others, that DISI had an
unpaid account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory
damages, exemplary damages, attorney’s fees, and costs of suit. Among the counter-arguments raised,
DISI alleged that the complaint failed to state a cause of action and to contain the required allegations on
Steelcase’s capacity to sue in the Philippines despite the fact that Steelcase was doing business in the
Philippines without the required license to do so. Consequently, it posited that the complaint should be
dismissed because of Steelcase’s lack of legal capacity to sue in Philippine courts.

The Regional Trial Court (RTC) dismissed the complaint and granted the temporary restraining order
prayed for by DISI. The RTC stated that in requiring DISI to meet the Dealer Performance Expectation
and in terminating the dealership agreement with DISI based on its failure to improve its performance in
the areas of business planning, organizational structure, operational effectiveness, and efficiency,
Steelcase unwittingly revealed that it participated in the operations of DISI. Despite a showing that DISI
transacted with the local customers in its own name and for its own account, the RTC stated that any
doubt in the factual environment should be resolved in favor of a pronouncement that a foreign
corporation was doing business in the Philippines, considering the twelve-year period that DISI had been
distributing Steelcase products in the Philippines. The RTC concluded that Steelcase was "doing
business" in the Philippines, as contemplated by the Foreign Investments Act of 1991, and since it did not
have the license to do business in the country, it was barred from seeking redress from our courts until it
obtained the requisite license to do so. Steelcase moved for the reconsideration of the dismissal but the
same was denied.

Aggrieved, Steelcase appealed the case to the Court of Appeals. The Court of Appeals rendered its
Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation doing or transacting
business in the Philippines without a license. Steelcase filed a motion for reconsideration but it was
denied by the Court of Appeals.

Steelcase filed a Petition for Review with the Supreme Court. The issues in the Supreme Court petition
are: (a) whether or not Steelcase is doing business in the Philippines without a license; and (b) whether or
not DISI is estopped from challenging the Steelcase’s legal capacity to sue.

ISSUE: WHETHER OR NOT STEELCASE WAS DOING BUSINESS IN THE PH WITHOUT A LICENSE
RULING:
NO. Steelcase is an unlicensed foreign corporation not doing business in the Philippines.
According to the Supreme Court, the following acts shall NOT be deemed "doing business" in the
Philippines:
(a) mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor;
(b) having a nominee director or officer to represent its interest in such corporation;
(c) appointing a representative or distributor domiciled in the Philippines which transacts business in the
representative's or distributor's own name and account;
(d) the publication of a general advertisement through any print or broadcast media;
(e) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by
another entity in the Philippines;
(f) consignment by a foreign entity of equipment with a local company to be used in the processing of
products for export;
(g) collecting information in the Philippines; and
(h) performing services auxiliary to an existing isolated contract of sale which are not on a continuing
basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines,
servicing the same, training domestic workers to operate it, and similar incidental services.

Both from the the Foreign Investments Act of 1991, and its Implementing Rules and Regulations, the
appointment of a distributor in the Philippines is not sufficient to constitute "doing business" unless it is
under the full control of the foreign corporation. On the other hand, if the distributor is an independent
entity which buys and distributes products, other than those of the foreign corporation, for its own name
and its own account, the latter cannot be considered to be doing business in the Philippines. It should be
kept in mind that the determination of whether a foreign corporation is doing business in the Philippines
must be judged in light of the attendant circumstances. All things considered, it has been sufficiently
demonstrated that DISIwas an independent contractor which sold Steelcase products in its own name
and for its own account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No.
7042.

15. Vicmar Development Corporation vs. Elarcosa G.R. No. 202215,

December 9, 2015
FACTS:
Respondents alleged that Vicmar, a domestic corporation engaged in manufacturing of plywood
for export and for local sale, employed them in various capacities. They averred that Vicmar has two
branches, Top Forest Developers, Incorporated (TFDI) and Greenwood International Industries,
Incorporated (GUI) located in the same compound where Vicmar operated.
Respondents claimed that they were illegally dismissed after filing a complaint for not having
been granted benefits required by law. Even those persons associated with them were dismissed. They
also asserted that Vicmar did not comply with the twin notice requirement in dismissing employees.
Furthermore, respondents contended that while Vicmar, TFDI and Gin were separately registered
with the SEC, they were involved in the same business, located in the same compound, owned by one
person, had one resident manager, and one and the same administrative department, personnel and
finance sections. They claimed that the employees of these companies were identified as employees of
Vicmar even if they were assigned in TFDI or GIII.
 On the other hand, petitioners stated that Vicmar engaged the services of additional workers
when there were unexpected high demands of plywood products and when several regular employees
were unexpectedly absent or on leave.
Petitioners further asseverated that, they decided to ​engage the services of legitimate
independent contractors​, namely, E.A. Rosales Contracting Services and Candole Contracting Services,
to provide additional workforce. Petitioners claimed that they were unaware that respondents were
dissatisfied with this decision leading to the DOLE case. They insisted that hiring said contractors was a
cost-saving measure, which was part of Vicmar's management prerogative.
The Labor Arbiter ruled in favor of the Petitioner. It held that the employees were merely seasonal
employees whose tenure was co-terminus upon extraordinary demands of the business. NLRC affirmed
the decision of the Labor Arbiter. The CA reversed the rulings of the LA and the NLRC holding that the
employees’ works are necessary and desirable to the usual business of Vicmar.
ISSUE:
Did the CA err in finding that the NLRC gravely abused its discretion in affirming the ELAs' Decisions
dismissing the complaint?
RULING:
NO. SC found that the CA correctly granted respondents' Petition for ​Certiorari because the
NLRC gravely abused its discretion when it affirmed the dismissal of respondents' Complaints.
respondents were shown to have performed activities necessary in the usual business of Vicmar.
Most of them were assigned to activities essential for plywood production, the central business of Vicmar.
In the list above, more than half of the respondents were assigned to the boiler, where pieces of plywood
were cooked to perfection. While the other respondents appeared to have been assigned to other
sections in the company, the presumption of regular employment should be granted in their favor
pursuant to Article 280 of the Labor Code since they had been performing the same activity for at least
one year, as they were assigned to the same sections, and there is no indication that their respective
activities ceased.​71

The test to determine whether an employee is regular is the reasonable connection between the
activity he performs and its relation to the employer's business or trade, as in the case of respondents
assigned to the boiler section. Nonetheless, the continuous re-engagement of all respondents to perform
the same kind of tasks proved the necessity and desirability of their services in the business of Vicmar.​72
Likewise, considering that respondents appeared to have been performing their duties for at least one
year is sufficient proof of the necessity, if not the indispensability of their activities in Vicmar's business.​73

The Court also holds that Vicmar failed to prove that the contractors it engaged were legitimate
labor contractors.

To determine the existence of independent contractorship, it is necessary to establish that the

contractor carries a distinct and independent business, and undertakes to perform work on its own
account and under its responsibility and pursuant to its own manner and method, without the control of
the principal, except as to the result; that the contractor has substantial capital or investment; and, that
the agreement between the principal and the contractor assures the contractual employees to all labor
and occupational safety and health standards, to right to self-organization, security of tenure and other
benefits.​74
 Other than their respective Certificates ​of Registration issued by the DOLE on August 12, 2004,
E.A Rosales Contracting Services and Candole Labor Contracting Services were not shown to have
substantial capital or investment, tools and the like. Neither was it established that they owned equipment
and machineries for the purported contracted job.

16. Dutch Movers, Inc. vs. Vs. Lequin G.R. No. 210032; April 25, 2017
FACTS:
Respondents stated in their Amended Complaint and Position paper that DMI employed Lequin
as truck driver, and the rest of respondents as helpers. Cesar Lee, through the Supervisor Nazario Furio,
informed them that DMI would cease its hauling operation for no reason; as such, they requested DMI to
issue a formal notice regarding the matter but to no avail. Later, upon respondents' request, the DOLE
NCR issued a certification revealing that DMI did not file any notice of business closure. Thus,
respondents argued that they were illegally dismissed as their termination was without cause and only on
the pretext of closure.

LA Mangandog dismissed the case for lack of cause of action. The NLRC reversed and set aside
the LA Decision. It ruled that respondents were illegally dismissed. The NLRC decision became final and
executory. Consequently, respondents filed a motion for execution. Pending resolution of this motion,
respondents found out that DMI no longer operates. They, nonetheless, insisted that petitioners — who
managed and operated DMI, and consistently represented to respondents that they were the owners of
DMI — continue to work at Toyota Alabang, which they (petitioners) also own and operate. They further
averred that the Articles of Incorporation (AOI) of DMI ironically did not include petitioners as its directors
or officers; and those named directors and officers were persons unknown to them.

Respodents prayed that petitioners, and the officers named in DMI’s AOI, which included
Spouses Smith, be impleaded, and be held solidarily liable with DMI in paying the judgment awards. In
their opposition to Motion to Implead, spouses Smith alleged that as part of their services as lawyers, they
lent their names to petitioners to assist them into incorporating DMI. Spouses Smith stressed that they
never participated in the management and operations of DMI, and they were not its stockholders,
directors, officers, or managers at the time respondents were terminated.

LA Savari issued an Order holding petitioners liable for the judgment awards. LA Savari decreed
that petitioners represented themselves to respondents as owners of DMI and were the one who
managed the same.

The NLRC ruled that the Writ of Execution should only pertain to DMI since petitioners were not
held liable to pay the awards under the final and executory NLRC Decision. It added that petitioners could
not be sued personally for the acts of DMI because the latter had a separate and distinct personality from
the persons comprising it.

ISSUE:
Whether petitioners are personally liable to pay the judgment awards in favor of respondents?
HELD:
YES. the veil of corporate fiction may be pierced attaching personal liability against responsible
person if the corporation's personality is used to defeat labor laws. By responsible person, we refer to an
individual or entity responsible for, and who acted in bad faith in committing illegal dismissal or in violation
of the Labor Code; or one who actively participated in the management of the corporation. Here, the veil
of corporate fiction must be pierced and accordingly, petitioners should be held personally liable for
judgment awards because the peculiarity of the situation shows that they controlled DMI; they actively
participated in its operation such that DMI existed not as a separate entity but only as business conduit of
petitioners. As will be shown below, petitioners controlled DMI by making it appear to have no mind of its
own, and used DMI as shield in evading legal liabilities, including payment of the judgment awards in
favor of respondents.

Petitioners denied having any participation in the management and operation of DMI; however,
they were aware of and disclosed the circumstances surrounding respondents' employment, and
propounded arguments refuting that respondents were illegally dismissed.
To note, petitioners revealed the annual compensation of respondents and their length of service; they
also set up the defense that respondents were merely project employees, and were not terminated but
that DMI's contract with its client was discontinued resulting in the absence of hauling projects for
respondents.

If only to prove that they were not part of DMI, petitioners could have revealed who operated it,
and from whom they derived the information embodied in their pleadings. Such failure to reveal thus gives
the Court reasons to give credence to respondents' firm stand that petitioners are no strangers to DMI,
and that they were the ones who managed and operated it.

17. Federated LPG Dealers Association vs. Ma. Cristina l. del Rosario,
et al.
G.R. No. 202639; November 9, 2016

FACTS:
Petitioner sought the assistance of CIDG in the surveillance, investigation, apprehension, and
prosecution of certain persons and establishments within Metro Manila reported committing acts violative
of BP33. Having reasonable grounds to believe that ACCS was in violation of BP 33, P/Supt. Esguerra
filed with the Regional Trial Court of Manila applications for search warrant against the officers of ACCS,
to wit; Antonio G. Del Rosario (Antonio) and, respondents Ma. Cristina L. Del Rosario, Celso E. Escobido
II, and Shiela M. Escobido. Pursuant to search warrants accordingly issued by the court, a search and
seizure operation was conducted. This resulted to the seizure of things used in refilling LPG Cylinders.
Inspection and evaluation of the said filled LPG cylinders showed that they were underfilled by 0.5 kg. to
0.9 kg.(Ito yung BP33 mentioned kanina, AGAINST THE LAW ANG UNDERFILLING NG LPG
CYLINDERS SEE FULL TEXT FOR REFERENCE)
P/Supt. Esguerra filed with the Department of Justice Complaints Affidavits against Antonio and
respondents for illegal trading of petroleum products and for underfilling of LPG cylinders.
In his counter-affidavit, Antonio Del Rosario admitted that he was the General Managers of ACCS.
Antonio likewise asserted that the herein respondents were merely incorporators of ACCS who have no
active participation in the operation of the business of the corporation.
Respondents for their part, filed a Joint Counter-Affidavit corroborating the statements of Antonio that they
were merely incorporators/stockholders of ACCS who have no active participation in the operation,
management, and control of the business.

P.Supt. Esguerra filed a Reply-Affidavit wherein he stressed that that pursuant to Section 4 of BP
33, the President, General Manager, Managing Partner, or such other officer charged with the
management of the business affairs of the corporation, or the employee responsible for the violation shall
be criminally liable. Thus, Antonio, being the General Manager, is criminally liable. Anent the
respondents, P/Supt. Esguerra averred that the Articles of Incorporation (AOI) of ACCS provides that
there shall be five incorporators who shall also serve as the directors. Considering that respondents were
listed in the AOI as incorporators, they are thus deemed as the directors of ACCS. And since the By-Laws
of ACCS provides that all business shall be conducted and all property of the corporation controlled and
held by the Board of Directors, and also pursuant to Section 23of the Corporation Code, respondents are
likewise criminally liable.

Respondents in their Joint Rejoinder-Affidavit, Antonio and respondents reiterated that

respondents cannot be held liable under BP 33 as amended since the AOI of ACCS did not state that
they were the President, General Manager, Managing Partner, or such other officer charged with the
management of business affairs. What the AOI plainly indicated was that they were the incorporating
stockholders of the corporation and nothing more.

ISSUE:
Can respondents, as members of the Board of Directors of ACCS, be criminally prosecuted for
the latter's alleged violation/s of BP 33 as amended?

HELD:
NO. Respondents cannot be prosecuted for ACCS' alleged violations of BP 33. They were thus
correctly dropped as respondents in the complaints. As clearly enunciated in Ty, a member of the Board
of Directors of a corporation, cannot, by mere reason of such membership, be held liable for the
corporation's probable violation of BP 33. If one is not the President, General Manager or Managing
Partner, it is imperative that it first be shown that he/ she falls under the catch-all "such other officer
charged with the management of the business affairs," before he/she can be prosecuted. However, it
must be stressed, that the matter of being an officer charged with the management of the business affairs
is a factual issue which must be alleged and supported by evidence. Here, there is no dispute that neither
of the respondents was the President, General Manager, or Managing Partner of ACCS. Hence, it
becomes incumbent upon petitioner to show that respondents were officers charged with the
management of the business affairs. However, the Complaint-Affidavit attached to the records merely
states that respondents were members of the Board of Directors based on the AOI of ACCS. There is no
allegation whatsoever that they were in-charge of the management of the corporation's business affairs.

18. California Manufacturing Company, Inc. vs. Advanced Technology

System, Inc., 824 SCRA 295, G.R. No. 202454 April 25, 2017

FACTS:
 Petitioner CMCI is a domestic corporation engaged in the food and beverage manufacturing
business. Respondent ATSI is also a domestic corporation that fabricates and distributes food processing
machinery and equipment, spare parts, and its allied products. CMCI leased from ATSI a Prodopak
machine which was used to pack products. ATSI filed a complaint for sum of money against CMC to
collect unpaid rentals when CMCI defaulted on its obligation without just cause.

CMCI, in its answer averred that TSI was one and the same with Processing Partners and
Packaging Corporation. CMCI alleged that in 2000, PPPC agreed to transfer the processing of CMCI's
product line from its factory in Meycauayan to Malolos, Bulacan. Upon the request of PPPC, through its
Executive Vice President Felicisima Celones, CMCI advanced P4 million as mobilization fund. PPPC
President and Chief Executive Officer Francis Celones allegedly committed to pay the amount in 12 equal
instalments deductible from PPPC's monthly invoice to CMCI. CMCI likewise claims that Felicisima
proposed to set off PPC’s obligation to pay the mobilization fund with the rentals for the Prodopak
machine. CMCI argued that the proposal was binding on both PPPC and ATSI because Felicisima was
an officer and a majority stockholder of the two corporations. CMCI argued that legal compensation had
set in and that ATSI was even liable for the balance of PPPC's unpaid obligation after deducting the
rentals for the Prodopak machine.

The trial court ruled that legal compensation did not apply because PPPC had a separate legal
personality from its individual stockholders, the Spouses Celones, and ATSI. Moreover, there was no
board resolution or any other proof showing that Felicisima's proposal to set-off the unpaid mobilization
fund with CMCI's rentals to ATSI for the Prodopak Machine had been authorized by the two corporations.
The CA affirmed the ruling of the RTC.

ISSUE:
Whether the CA erred in affirming the ruling of the RTC that legal compensation between ATSI's
claim against CMCI on the one hand, and the latter's claim against PPPC on the other hand, has not set
in?

HELD:
YES. CMCI's alter ego theory rests on the alleged interlocking boards of directors and stock
ownership of the two corporations. The CA, however, rejected this theory based on the settled rule that
mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation, by
itself, is not sufficient ground to disregard the corporate veil. The instrumentality or control test of the alter
ego doctrine requires not mere majority or complete stock control, but complete domination of finances,
policy and business practice with respect to the transaction in question. The corporate entity must be
shown to have no separate mind, will, or existence of its own at the time of the transaction.
Without question, the Spouses Celones are incorporators, directors, and majority stockholders of the
ATSI and PPPC. But that is all that CMCI has proven. There is no proof that PPPC controlled the financial
policies and business practices of ATSI either in July 2001 when Felicisima proposed to set off the unpaid
P3.2 million mobilization fund with CMCI's rental of Prodopak machines; or in August 2001 when the
lease agreement between CMCI and ATSI commenced.

19. Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 April
24, 2017
FACTS:
Spouses Fernando and Amelia Cruz owned a lot which was levied by the City Government of
Marikina for non payment of real estate taxes. The City Treasurer of Marikina auctioned off the property,
with petitioner Joselito Hernand M. Bustos emerging as the winning bidder. Petitioner applied for the
cancellation of the TCT. The RTC of Marikina City rendered a final and executory Decision ordering the
cancellation of the previous title and the issuance of a new one under the name of petitioner.
Meanwhilem notice of lis pendens were annotated on the new TCT. These markings indicatated that SEC
Corp. Case No. 036-04,which was filed before the RTC and involved the rehabilitation proceedings for
MSI, covered the subject property and included it in the Stay Order issued by the RTC dated 25 October
2004.

Petitioner moved for the exclusion of the subject property from the Stay Order. He claimed that
the lot belonged to Spouses Cruz who were mere stockholders and officers of MSI. He further argued that
since he had won the bidding of the property on 14 October 2004, or
before the annotation of the title on 9 February 2005, the auctioned property could no longer be part of
the Stay Order.

The RTC denied the the entreaty of petitioner. It ruled that because the period of redemption up
to 15 October 2005 had not yet lapsed at the time of the issuance of the Stay Order on 25 October 2004,
the ownership thereof had not yet been transferred to petitioner.

He then filed an action for certiorari before the CA. He asserted that the Stay Order undermined
the taxing powers of the local government unit. He also reiterated his arguments that Spouses Cruz
owned the property, and that the lot had already been auctioned to him. However CA affirmed the
decision of the RTC.

ISSUE:
Whether the CA correctly considered the properties of Spouses Cruz answerable for the
obligations of MSI?

HELD:
NO. In finding the subject property answerable for the obligations of MSI, the CA characterized
respondent spouses as stockholders of a close corporation who, as such, are liable for its debts. This
conclusion is baseless. In this case, neither the CA nor the RTC showed its basis for finding that MSI is a
close corporation. The courts a quo did not at all refer to the Articles of Incorporation of MSI. The Petition
submitted by respondent in the rehabilitation proceedings before the RTC did not even include those
Articles of Incorporation among its attachments. In effect, the CA and the RTC deemed MSI a close
corporation based on the allegation of Spouses Cruz that it was so. However, mere allegation is not
evidence and is not equivalent to proof. For this reason alone, the CA rulings should be set aside.
Citing the case of San Juan Structural and Steel Fabricators , Inc vs CA, PARA MAGING CLOSE
CORPORATION ITO REQUISITES:
(1) the number of stockholders shall not exceed 20; or
(2) a preemption of shares is restricted in favor of any stockholder or of the corporation; or (3) the listing
of the corporate stocks in any stock exchange or making a public offering of those stocks is prohibited.
20. Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., 317
SCRA 728, G.R. No. 136448 November 3, 1999
FACTS: Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing
Corporation for the purchase of fishing nets from respondent Philippine Fishing Gear Industries, Inc. Chua
and Yao claimed that they were engaged in business venture with petitioner Lim Tong Lim, who,
however, was not a signatory to the contract. The buyers failed to pay the fishing nets. Respondent filed a
collection against Chua, Yao and petitioner Lim in their capacities as general partners because it turned
out that Ocean Quest Fishing Corporation is a non-existent corporation. The trial court issued a Writ of
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets. The trial court rendered
its decision ruling that respondent was entitled to the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent. Lim appealed to the Court of Appeals, but the
appellate court affirmed the decision of the trial court that petitioner Lim is a partner and may thus be held
liable as such. Hence, the present petition. Petitioner claimed that since his name did not appear on any
of the
contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held
liable. c

ISSUE:
WON Lim Tong Lim maybe held liable?

HELD:
YES. The Court ruled that having reaped the benefits of the contract entered into by Chua and Yao, with
whom he had an existing relationship, petitioner Lim is deemed a part of said association and is covered
by the doctrine of corporation by estoppel. The Court also ruled that under the principle of estoppel, those
acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are
held liable as general partners.

21. Mindanao Savings and Loan Association, Inc. vs. Willkom, 634
SCRA 291, G.R. No. 178618 October 20, 2010
FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission
(SEC) under Registry Nos. 34869 and 32388, respectively, primarily engaged in the business of granting
loans and receiving deposits from the general public, and treated as banks.

FISLAI and DISLAI entered into a merger, with DSLAI as the surviving corporation. The articles of
merger were not registered with the SEC due to incomplete documentation. DSLAI changed its corporate
name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation, but the amendment
was approved by the SEC only on April 3, 1987. Meanwhile, on May 26, 1986, the Board of Directors of
FISLAI passed and approved Board Resolution No. 86-002, assigning its assets in favor of DSLAI which
in turn assumed the former's liabilities.
 The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the
Philippines ordered its closure and placed it under receivership.

It appears that prior to the closure of MSLAI. Uy had a judgment award against MSLAI. A writ of
execution was issued in favor of Uy. The sheriff levied on 6 parcels of land owned by FISLAI located in
Cagayan De Oro City, and the notice of sale was subsequently published. Willkom was the highest
bidder. A certificate of sale was issued and eventually registered with the Register of Deeds of Cagayan
de Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued the sheriff's definite
deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom.

MSLAI represented by PDIC filed a complaint for Annulment of Sheriff's Sale, Cancellation of Title
and Reconveyance of Properties against respondents. MSLAI alleged that the sale on execution of the
subject properties was conducted without notice to it and PDIC; that PDIC only came to know about the
sale for the first time in February 1995 while discharging its mandate of liquidating MSLAI's assets; that
the execution of the RTC decision in Civil Case No. 111-697 was illegal and contrary to law and
jurisprudence, not only because PDIC was not notified of the execution sale, but also because the assets
of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia
legis and should be exempt from any order of garnishment, levy, attachment, or execution.

Respondent, in its answer averred that MSLAI had no cause of action against them or the right to
recover the subject properties because MSLAI is a separate and distinct entity from

FISLAI. They further contended that the "unofficial merger" between FISLAI and DSLAI (now
MSLAI) did not take effect considering that the merging companies did not comply with the formalities and
procedure for merger or consolidation as prescribed by the Corporation Code of the Philippines. Finally,
they claimed that FISLAI is still a SEC registered corporation and could not have been absorbed by
petitioner.

ISSUE:
WON CA erred in refusing to recognize THE MERGER BETWEEN F[I]SLAI AND DSLAI WITH
DSLAI AS THE SURVIVING CORPORATION?

HELD:
NO. It s undisputed that the articles of merger between FISLAI and DSLAI were not registered
with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required
certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines
recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still
incomplete without the certification.

The issuance of the certificate of merger is crucial because not only does it bear out SEC's
approval but it also marks the moment when the consequences of a merger take place. By operation of
law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation.
 There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate corporations. Being
separate entities, the property of one cannot be considered the property of the other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets
and cannot be considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment
wherein FISLAI assigned its assets and properties to DSLAI, and the latter assumed all the liabilities of
the former. Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the
properties registered under its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no
legal standing to annul the execution sale over the properties of FISLAI. With more reason can it not
cause the cancellation of the title to the subject properties of Willkom and Go.