MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
DERIVATIVE SUIT
38.
Juanito Ang, et. al. vs. Sps. Roberto and Rachel Ang
G.R. No. 201675, June 19, 2013: CARPIO, J.
Stockholders are permitted by law to bring an action in
the name of the corporation to hold these directors and officers
accountable.
FACTS:
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
registered corporation owned by the Ang family. On 31 July
1995, Nancy Ang (Nancy), and her husband, Theodore Ang
(Theodore), agreed to extend a loan to settle the obligations of
SMBI and other corporations owned by the Ang family. Nancy
and Theodore issued a check in the amount of $1,000,000.00
payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang
and/or Rachel Ang." There was no written loan agreement, in
view of the close relationship between the parties. Part of the
loan was also used to purchase real properties for SMBI, for
Juanito, and for Roberto.
Juanito claimed that payments to Nancy and Theodore ceased
sometime after 2006. On 2008, Nancy and Theodore sent a
demand letter to "Spouses Juanito L. Ang/Anecita L. Ang and
Spouses Roberto L. Ang/Rachel L. Ang" for a total of
$2,585,577.37. Roberto and Rachel failed to comply denying they
have not contracted a loan from Nancy and Theodore.
Thereafter, Juanito filed a Derivative Suit. On 2009, Rachel
prayed that the Complaint be dismissed on the ground that the
Complaint is actually a collection suit since the real party in
interest is not SMBI, but Nancy and Theodore.
1
RTC Bacolod ruled that the present action is a DERIVATIVE SUIT.
On 20 September 2011, the CA-Cebu promulgated its Decision
which reversed and set aside the Order of the RTC Bacolod. It
held that it should be dismissed because it is a harassment suit,
and not a valid derivative suit as defined under the Interim
Rules. The CA-Cebu also found that Juanito failed to exhaust
intra-corporate remedies and that the loan extended by Nancy
and Theodore was not SMBI’s corporate obligation.
ISSUE:
Whether based on the allegations of the complaint, the
nature of the case is one of a derivative suit or not.
HELD:
NO. It is not a derivative suit. A derivative suit is an
action brought by a stockholder on behalf of the corporation to
enforce corporate rights against the corporation’s directors,
officers or other insiders. In derivative suits, the real party in
interest is the corporation, while the stockholder is a mere
nominal party.
This Court, in Yu v. Yukayguan, explained:
The laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for
violation of their fiduciary duties. Hence, a stockholder may sue
for mismanagement, waste or dissipation of corporate assets
because of a special injury to him for which he is otherwise
without redress. In effect, the suit is an action for specific
performance of an obligation owed by the corporation to the
stockholders to assist its rights of action when the corporation
has been put in default by the wrongful refusal of the directors or
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
management to make suitable measures for its protection. The
basis of a stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal requisites
for its institution.
Section 1, Rule 8 of the Interim Rules imposes the
following requirements for derivative suits:
(1) The person filing the suit must be a stockholder or
member at the time the acts or transactions subject of the
action occurred and the time the action was filed;
(2) He must have exerted all reasonable efforts, and
alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
The CA-Cebu correctly concluded that the loan was not a
corporate obligation, but a personal debt of the Ang brothers and
their spouses. The check was issued to "Juanito Ang and/or
Anecita Ang and/or Roberto Ang and/or Rachel Ang" and not
SMBI. The proceeds of the loan were used for payment of the
obligations of the other corporations owned by the Angs as well
as the purchase of real properties for the Ang brothers. SMBI was
never a party to the Settlement Agreement or the Mortgage. It
was never named as a co-debtor or guarantor of the loan. Both
instruments were executed by Juanito and Anecita in their
personal capacity, and not in their capacity as directors or
officers of SMBI. Thus, SMBI is under no legal obligation to satisfy
the obligation.
2
39
LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA,
ROSANNA D. IMAI, GLORIA DOMINGO and RAY VINCENT vs.
AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO
TANKIANG, RUDEL PANGANIBAN, DOLORES AGBAYANI,
ARLENEDAL A. YASUMA, GODOFREDO M. CAGUIOA and
EDGARDO M. SALANDANAN
G.R. No. 170783 JUNE 18, 2012 J. PERALTA
The stockholders right to file a derivative suit is not based
on any express provision of The Corporation Code, but is impliedly
recognized when the law makes corporate directors or officers
liable for damages suffered by the corporation and its stockholders
for violation of their fiduciary duties.
FACTS:
Pursuant to the by-laws of Legaspi Towers 300, Inc.,
petitioners, the incumbent Board of Directors, set the annual
meeting of the members of the condominium corporation and
the election of the new Board of Directors at the lobby of Legaspi
Towers 300, Inc. The Committee on Elections of Legaspi Towers
300, Inc., however, found most of the proxy votes, at its face
value, irregular, thus, questionable; and for lack of time to
authenticate the same, petitioners adjourned the meeting for
lack of quorum. However, the group of respondents challenged
the adjournment of the meeting. Despite petitioners’ insistence
that no quorum was obtained during the annual meeting held on
April 2, 2004, respondents pushed through with the scheduled
election and were elected as the new Board of Directors and
officers of Legaspi Towers 300, Inc. and subsequently submitted
a General Information Sheet to the Securities and Exchange
Commission (SEC).
MERCANTILE LAW REVIEW || Corporation Law 3
Cases 38-63

Legaspi Towers 300, Inc. filed a Complaint for the
Declaration of Nullity of Elections with Prayers for the lssuance
of Temporary Restraining Orders and Writ of Preliminary
Injunction and Damages against respondents with the RTC of
Manila. Before respondents could file an Answer to the original
Complaint, petitioners filed an Amended Complaint, which was
admitted by the RTC.
Respondents filed their Answer to the Amended
Complaint, alleging that the election was lawfully conducted.
Respondents filed a Comment on the Motion to Amend
Complaint, praying that the name of Legaspi Towers 300, Inc., as
party-plaintiff in the Second Amended Complaint, be deleted as
the said inclusion by petitioners was made without the authority
of the current Board of Directors.
devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular
stockholder bringing the suit.
As stated by the Court of Appeals, petitioners’ complaint
seek to nullify the said election, and to protect and enforce their
individual right to vote. The cause of action devolves on
petitioners, not the condominium corporation, which did not
have the right to vote. Hence, the complaint for nullification of
the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the
election, against respondents, who are the newly-elected Board
of Directors. Under the circumstances, the derivative suit filed by
petitioners in behalf of the condominium corporation in the
Second Amended Complaint is improper.

ISSUE:

Whether or not the filing of the derivative suit is proper.

HELD:

NO. Derivative Suit is not proper.

Since it is the corporation that is the real party-in-

interest in a derivative suit, then the reliefs prayed for must be
for the benefit or interest of the corporation. When the reliefs
prayed for do not pertain to the corporation, then it is an
improper derivative suit. The requisites for a derivative suit are
as follows: a) the party bringing suit should be a shareholder as
of the time of the act or transaction complained of, the number of
his shares not being material; b) he has tried to exhaust intra-
corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or
refused to heed his plea; and c) the cause of action actually
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
40.
Maj. Stockholders of Ruby Ind’l. Corp. vs. Miguel Lim, et. al.
G.R. No. 165887 June 6, 2011 VILLARAMA,JR., J.
A derivative action is a suit by a shareholder to enforce a
corporate cause of action. It is a remedy designed by equity and
has been the principal defense of the minority shareholders
against abuses by the majority.
FACTS:
Ruby Industrial Corporation (RUBY) is engaged in glass
manufacturing. Reeling from severe liquidity problems, RUBY
filed a petition for suspension of payments with the Securities
and Exchange Commission (SEC). SEC issued an order declaring
RUBY under suspension of payments and enjoining the
disposition of its properties pending hearing of the petition,
except insofar as necessary in its ordinary operations, and
making payments outside of the necessary or legitimate
expenses of its business.
The SEC Hearing Panel created the management
committee (MANCOM) for RUBY. The MANCOM was tasked to
study, review and evaluate the proposed rehabilitation plan for
RUBY. Subsequently, two (2) rehabilitation plans were submitted
to the SEC: the BENHAR/RUBY Rehabilitation Plan of the
majority stockholders, and the Alternative Plan of the minority
stockholders represented by Miguel Lim (Lim). Both plans were
endorsed by the SEC to the MANCOM for evaluation.
On April 26, 1991, over ninety percent (90%) of RUBYs
creditors objected to the Revised BENHAR/RUBY Plan and the
creation of a new management committee. Instead, they
endorsed the minority stockholders Alternative Plan. At the
hearing of the petition for the creation of a new management
4
committee, three (3) members of the original management
committee (Lim, ALFC and Pilipinas Shell) opposed the Revised
BENHAR/RUBY Plan on grounds that:(1) it would legitimize the
entry of BENHAR, a total stranger, to RUBY as BENHAR would
become the biggest creditor of RUBY;(2) it would put RUBYs
assets beyond the reach of the unsecured creditors and the
minority stockholders; and (3) it was not approved by RUBYs
stockholders in a meeting called for the purpose.
Notwithstanding the objections of 90% of RUBYs
creditors and three members of the MANCOM, the SEC Hearing
Panel approved the Revised BENHAR/RUBY Plan and dissolved
the existing management committee. Respondent filed a suit
representing the minority stockholders of Ruby. Petitioner
contends that the filing of the same violates the rule against
forum shoping.
ISSUE:
Whether or not Respondent Lim may file derivative suit
against petitioner
HELD:
Yes. The CA correctly held that the rule against forum
shopping is not applicable because the parties in CA-G.R. SP No.
73169 (filed by MANCOM) and CA-G.R. SP No. 73195 (filed by
Lim) are not the same and they do not have the same
interest. This issue was in fact already resolved in G.R. Nos.
124185-87 wherein this Court, citing Ramos, Sr. v. Court of
Appeals declared that private respondents Lim, the unsecured
creditors (ALFC) and MANCOM cannot be considered to have
engaged in forum shopping in filing separate petitions with the
CA as each have distinct rights to protect.
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
The CA also found that the belated submission of the
special power of attorney executed by the other minority
stockholders representing 40.172% of RUBYs ownership has no
bearing to the continuation of the petition filed with the
appellate court. Moreover, since the petition is in the nature
of a derivative suit, Lim clearly can file the same not only in
representation of the minority stockholders but also in
behalf of the corporation itself which is the real party in
interest. Thus, notwithstanding that Lims ownership in
RUBY comprises only 1.4% of the outstanding capital stock,
as claimed by the majority stockholders, his petition may
not be dismissed on this ground.
A derivative action is a suit by a shareholder to
enforce a corporate cause of action. It is a remedy designed
by equity and has been the principal defense of the minority
shareholders against abuses by the majority. For this
purpose, it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a
corporation. An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be
sued or hold the control of the corporation. In such actions, the
suing stockholder is regarded as the nominal party, with the
corporation as the party in interest.
5
TRANSFER OF STOCK OF OWNERSHIP
41.
Simny G. Guy, et. Al. vs. The Hon. Ofelia C. Calo, G.R. No.
189486, Sept. 5, 2012, CARPIO, J.
When a stock certificate is endorsed in blank by the owner
thereof, it constitutes what is termed as “street certificate,” so that
upon its face, the holder is entitled to demand its transfer into his
name from the issuing corporation. Such certificate is deemed
quasi-negotiable, and as such the transferee thereof is justified in
believing that it belongs to the holder and transferor.
FACTS:
The present controversy arose, when in 2008, three years after
the complaint with the RTC of Manila was withdrawn, Gilbert
again filed a complaint, this time, with the RTC of Mandaluyong,
captioned as “Intra Corporate Controversy: For the Declaration
of Nullity of Fraudulent Transfers of Shares of Stock Certificates,
Fabricated Stock Certificates, Falsified General Information
Sheets, Minutes of Meetings, and Damages with Application for
the Issuance of a Writ of Preliminary and Mandatory Injunction,”
docketed as SEC-MC08-112, against his mother, Simny, his
sisters, Geraldine, Gladys, and the heirs of his late sister Grace.
ISSUE:
Whether or not there was a valid transfer of Stock Ownership.
HELD:
Yes. With Gilbert’s failure to allege specific acts of fraud in his
complaint and his failure to rebut the NBI report, this Court
pronounces, as a consequence thereof, that the signatures
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
appearing on the stock certificates, including his blank
endorsement thereon were authentic. With the stock certificates
having been endorsed in blank by Gilbert, which he himself
delivered to his parents, the same can be cancelled and
transferred in the names of herein petitioners.
In Santamaria v. Hongkong and Shanghai Banking Corp., this
Court held that when a stock certificate is endorsed in blank by
the owner thereof, it constitutes what is termed as “street
certificate,” so that upon its face, the holder is entitled to demand
its transfer into his name from the issuing corporation. Such
certificate is deemed quasi-negotiable, and as such the transferee
thereof is justified in believing that it belongs to the holder and
transferor.
While there is a contrary ruling, as an exception to the general
rule enunciated above, what the Court held in Neugene
Marketing Inc., et al., v CA, where stock certificates endorsed in
blank were stolen from the possession of the beneficial owners
thereof constraining this Court to declare the transfer void for
lack of delivery and want of value, the same cannot apply to
Gilbert because the stock certificates which Gilbert endorsed in
blank were in the undisturbed possession of his parents who
were the beneficial owners thereof and who themselves as such
owners caused the transfer in their names. Indeed, even if
Gilbert’s parents were not the beneficial owners, an
endorsement in blank of the stock certificates coupled with its
delivery, entitles the holder thereof to demand the transfer of
said stock certificates in his name from the issuing corporation.
6
42.
Fil-Estate Gold and Dev. Inc., et al. v. Vertex Sales and
Trading, Inc., G.R. No. 202079, June 10, 2013
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. Here, FEGDI clearly failed to
deliver the stock certificates, representing the shares of stock
purchased by Vertex, within a reasonable time from the point the
shares should have been delivered. This was a substantial breach
of their contract that entitles Vertex the right to rescind the sale
under Article 1191 of the Civil Code. It is not entirely correct to say
that a sale had already been consummated as Vertex already
enjoyed the rights a shareholder can exercise. The enjoyment of
these rights cannot suffice where the law, by its express terms,
requires a specific form to transfer ownership.
FACTS:
FEGDI is a stock corporation primarily engaged in the
development of golf courses. As developer of the Forest Hill Golf
and Country Club and in consideration of its financing support,
FEGDI was issued several shares of stock of Forest Hill. FEGDI’s
Forest Hills stocks were later sold to, RSACC (a third party),
which prior to full payment sold the shares to Vertex
(respondent). 17 months after the sale and after the full payment
of Vertex, the share remained in the name of FEGDI. Vertex made
a final demand which remained unheeded, thus a complaint for
rescission (with damages) against
FEGDI, FELI and Forest Hill was filed, alleging that they
defaulted in their obligations as sellers. During the pendency of
this case, a certificate of stock was issued in Vertex’s name but
the latter refused to accept it.
MERCANTILE LAW REVIEW || Corporation Law 7
Cases 38-63

Position of Petitioner - FEGDI argued that the delay
cannot be considered a substantial breach because Vertex was
unequivocally recognized as a shareholder of Forest Hills.
Position of Respondent - Vertex alleged that the
fulfillment of its obligation to pay the purchase price called into
action the petitioners’ reciprocal obligation to deliver the stock
certificate. Since there was delay in the issuance of a certificate
for more than three years, then it should be considered a
substantial breach warranting the rescission of the sale.
ISSUE:
requires a specific form to transfer ownership. Mutual restitution
is required in cases involving rescission under Article 1191 of
the Civil Code as to bring back the parties to their original
situation, prior to the inception of the contract.
Final Ruling: CA order is affirmed. Petitioners should
return the amounts paid by Vertex. The prolonged issuance of
the stock certificate is a substantial breach that served as basis
for Vertex to rescind the sale. No award of damages because
Vertex failed to prove by sufficient evidence that it suffered
actual damage due to the delay. FELI is absolved from liability
because no privity of contract exists between Vertex and FELI.

Whether or not there was a valid transfer of shares.

HELD:

NO. There’s no valid transfer of shares where there is no

delivery of the stock certificate, under the Corporation Code:
SEC. 63 “Certificate of stock and transfer of shares. – xxx Shares
of stock so issued are personal property and may be transferred
by delivery of the certificate ... No transfer shall be valid, except
as between the parties, until the transfer is recorded in the books
of the corporation...”

In this case, Vertex fully paid the purchase price by

February 1999 but the stock certificate was only delivered on
January 2002 after Vertex filed an action for rescission against
FEGDI. FEGDI clearly failed to deliver the stocks within a
reasonable time. This was a substantial breach of their contract
that entitles Vertex the right to rescind the sale under Article
1191 of the Civil Code.

The sale is not considered consummated due to the

issuance of the certificates. It does not suffice because the law
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
SALE OF DELINQUENT STOCKS
43.
CALATAGAN GOLF CLUB, INC. Petitioner vs. SIXTO
CLEMENTE, JR., Respondent.
G.R. No. 165443, April 16, 2009,  TINGA, J.
There are fundamental differences that defy equivalence
or even analogy between the sale of delinquent stock under Section
68 and the sale that occurred in this case. At the root of the sale of
delinquent stock is the non-payment of the subscription price for
the share of stock itself. The stockholder or subscriber has yet to
fully pay for the value of the share or shares subscribed.
FACTS:
Clemente applied to purchase one share of stock of
Calatagan, then was issued a Certificate of Stock for said
purchase. Calatagan charges monthly dues on its members to
meet expenses for general operations, as well as costs for upkeep
and improvement of the grounds and facilities. The provision on
monthly dues is incorporated in Calatagans Articles of
Incorporation and By-Laws. It is also reproduced at the back of
each certificate of stock.
Clemente was paying the monthly dues that he owes
Calatagan, until said payment ceased. Months later, Calatagan
made the initial step to collect Clemente’s back accounts by
sending a demand letter. It was followed by a second letter, but
both letters were sent to Clemente’s mailing address as indicated
in his membership application but were sent back to sender with
the postal note that the address had been closed.
Calatagan then declared Clemente delinquent for having
failed dues for having failed to pay his monthly dues for more
8
than 60 days. Clemente’s name was also included in the list of
delinquent members posted on the club’s bulletin board.
Calatagan’s board of directors adopted a resolution
authorizing the foreclosure of shares of delinquent members,
including Clemente’s; and the public auction of these shares.
Calatagan sent a third and final letter to Clemente, this time
signed by its Corporate Secretary. The letter contains a warning
that unless Clemente settles his outstanding dues, his share
would be included among the delinquent shares to be sold at
public auction.  Again, this letter was sent to Clementes mailing
address that had already been closed.
A notice of auction sale was posted on the Clubs bulletin
board, as well as on the clubs premises. The auction sale took
place and Clemente’s share was sold. Thereafter a notice of
foreclosure of Clemente’s share was published.
Clemente learned of the sale of his share only years after,
then he filed a claim with the SEC seeking the restoration of his
shareholding in Calatagan with damages. The SEC rendered a
decision dismissing Clemente’s complaint. Upon appeal with the
CA, the appellate court reversed the decision of the SEC and
restored Clemente’s share with a directive to Calatagan to issue
in his a new share and was also awarded moral damages.
Aggrieved, petitioners filed the present appeal before the SC.
ISSUE:
WON Clemente’s action has prescribed pursuant to
Section 69 of the Corporation Code.
HELD:
NO. There are fundamental differences that defy
equivalence or even analogy between the sale of delinquent
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
stock under Section 68 and the sale that occurred in this case. At
the root of the sale of delinquent stock is the non-payment of the
subscription price for the share of stock itself. The stockholder or
subscriber has yet to fully pay for the value of the share or shares
subscribed. In this case, Clemente had already fully paid for the
share in Calatagan and no longer had any outstanding obligation
to deprive him of full title to his share. Perhaps the analogy could
have been made if Clemente had not yet fully paid for his share
and the non-stock corporation, pursuant to an article or by-law
provision designed to address that situation, decided to sell such
share as a consequence. But that is not the case here, and there is
no purpose for us to apply Section 69 to the case at bar.
Calatagan had endeavored to install a clear and
comprehensive procedure to govern the payment of monthly
dues, the declaration of a member as delinquent, and the
constitution of a lien on the shares and its eventual public sale to
answer for the members debts. Under Section 91 of the
Corporation Code, membership in a non-stock corporation shall
be terminated in the manner and for the causes provided in the
articles of incorporation or the by-laws. The By-law provisions
are elaborate in explaining the manner and the causes for the
termination of membership in Calatagan, through the execution
on the lien of the share. The Court is satisfied that the By-Laws,
as written, affords due protection to the member by assuring
that the member should be notified by the Secretary of the
looming execution sale that would terminate membership in the
club. In addition, the By-Laws guarantees that after the execution
sale, the proceeds of the sale would be returned to the former
member after deducting the outstanding obligations. If followed
to the letter, the termination of membership under this
procedure outlined in the By-Laws would accord with
substantial justice.
9
QUORUM
44.
Paul Lee Tan, et. al. vs. Paul Sycip, et. al.,
August 17, 2006
For stock corporations, the "quorum" referred to in Section
52 of the Corporation Code is based on the number of outstanding
voting stocks. For nonstock corporations, only those who are
actual, living members with voting rights shall be counted in
determining the existence of a quorum during members’ meetings.
Dead members shall not be counted.
FACTS:
During the annual members’ meeting of GCHS, out of the
15 regular members, only 11 living members attended as the
other 4 died. Out of the 11, 7 attended the meeting through their
proxies. Atty Antonio C. Pacis argued that there was no quorum.
In the meeting petitioners Tanchi, Ngo, Khoo and Tan voted to
replace the 4 deceased members. In the SEC, the petitioners
maintained that the deceased member-trustees should not be
counted in the computation of the quorum as they lost all their
rights and interests in the corporation when they died. The SEC
denied the petitioners’ claim.
ISSUE:
Whether or not there was a quorum in the case at bar.
HELD:
YES. There was indeed a quorum.
The presence of a quorum is ascertained and counted on
the basis of the outstanding capital stock.—In stock corporations,
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
the presence of a quorum is ascertained and counted on the basis
of the outstanding capital stock, as defined by the Code thus:
“SECTION 137. Outstanding capital stock defined.—The term
‘outstanding capital stock’ as used in this Code, means the total
shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially
paid, except treasury shares.”
The right to vote is inherent in and incidental to the
ownership of corporate stocks. It is settled that unissued stocks
may not be voted or considered in determining whether a
quorum is present in a stockholders’ meeting, or whether a
requisite proportion of the stock of the corporation is voted to
adopt a certain measure or act. Only stock actually issued and
outstanding may be voted.
When the principle for determining the quorum for stock
corporations is applied by analogy to non-stock corporations,
only those who are actual members with voting rights should be
counted.
Dead members who are dropped from the membership
roster in the manner and for the cause provided for in the By-
Laws of GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the annual
members’ meeting. With 11 remaining members, the quorum in
the present case should be 6. Therefore, there being a quorum,
the annual members’ meeting, conducted with six members
present, was valid.
10
APPRAISAL RIGHT
45.
Philip Turner, et. al. vs. Lorenzo Shipping Corp.,
G.R. No. 157479 November 24, 2010 J. BERSAMIN
Any stockholder of a corporation shall have the right to dissent
and demand payment of the fair value of his shares in the
following instances:
1. In case any amendment to the articles of incorporation has
the effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term
of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the
corporate property and assets as provided in the Code; and
3. In case of merger or consolidation.
“No payment shall be made to any dissenting stockholder
unless the corporation has unrestricted retained earnings in its
books to cover the payment and there must be sufficient funds to
cover the creditors after the dissenting stockholder is paid”
FACTS:
The Petitioner Turner Spouses owned 1,010,000 shares
of stock of the respondent Lorenzo Shipping Corporation (LSC), a
domestic corporation engages in cargo shipping. The corporation
decided to amend the articles of Incorporation to remove the
pre-emptive right of the new share holders. Upon knowing the
same, the Turners demand the fair value of their shares which is
an exercise of their appraisal right as a Shareholder. They had
MERCANTILE LAW REVIEW || Corporation Law 11
Cases 38-63

disagreement as to the valuation of the fair value which led to
constitute an appraisal committee pursuant to Section 82 of the
Corporation Code who submitted a report that the valuation of
the said shares was P2.54/share or an aggregate value of
P2,565,500.00.
LSC refused to pay the said amount claiming that a
dissenting Shareholder can only exercise their right to appraisal
only when the corporation has an unrestricted retained earnings
to cover the fair value of the shares, but since the corporation has
no retained earnings as evidence by the Financial Statement
submitted for that fiscal year, the Turners has no right to
demand payment of the same. The Turners filed a collection suit
but it was dismiss by the Court of Appeals because of lack of
cause of action.
shall be made to any dissenting SH unless the corporation has
unrestricted retained earnings it its books to cover the payment.
Thus, since the LSC has no URE at the time the Turners
demanded the payment the corporation has no obligation to pay
the Turners because doing so will be a violation to the TFD.
Accordingly, the Appraisal right should also be exercised when
there is proper written demand which is absent in the case of the
Turners.
The SC affirmed the decision of the CA and dismissed the
case because of lack of cause of action. Even though the LRC
already had URE while the case is pending it did not rectify the
absence of the cause of action at the time of the commencement
of the civil case.

ISSUE:

Whether the Turners can exercise their rights to

Appraisal?

HELD:

No. Appraisal right as stated in Section 82 of the

Corporation Code is the right exercised by any stockholder who
has voted against a proposed corporate action by making a
written demand for the payment of the fair value of his shares of
stock within 30 days after the said date on which the vote was
taken. This right can only be exercise when there is fundamental
change on the charter or Articles of Incorporation that
substantially prejudice the rights of the Shareholders. The said
amendment to the AI of the LSC is sufficient for the Turners to
demand the payment of their fair value but said right should be
exercised applying the Trust Fund Doctrine, that NO payment
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
CORPORATE BOOKS AND RIGHT TO INSPECT
46.
MA. BELEN FLORDELIZA, ANG-ABAYA, FRANCIS JASON A.
ANG, HANNAH ZORAYDA A. ANG, and VICENTE G. GENATO
(Petitioners) vs. Eduardo G. Ang (Respondent)
G.R. No. 178511, Dec. 4, 2008
It is now expressly required as a condition for such
examination that the one requesting it must not have been guilty
of using improperly any information secured through a prior
examination, or that the person asking for such examination must
be acting in good faith and for a legitimate purpose in making his
demand.
FACTS:
Vibelle Manufacturing Corporation (VMC) and Genato
Investments, Inc. (Genato) (collectively referred to as the
corporations) are family-owned corporations, where petitioners
Ma. Belen Flordeliza C. Ang-Abaya (Flordeliza), Francis Jason A.
Ang (Jason), Vincent G. Genato (Vincent), Hanna Zorayda A. Ang
(Hanna) and private respondent Eduardo G. Ang (Eduardo) are
shareholders, officers and members of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriana
Manufacturing Corporation (Oriana) filed Civil Case, which is a
case for damages with prayer for issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction
against herein respondent Eduardo, together with Michael
Edward Chi Ang (Michael), and some other persons for allegedly
conniving to fraudulently wrest control/management of the
corporations.  the right of inspection was enlarged under the Corporation Code
12
During the pendency of the case, Eduardo sought
permission to inspect the corporate books of VMC and Genato on
account of petitioners alleged failure and/or refusal to update
him on the financial and business activities of these family
corporations. Petitioners denied the request claiming that
Eduardo would use the information obtained from said
inspection for purposes inimical to the corporations interests.
Because of petitioners refusal to grant his request to
inspect the corporate books of VMC and Genato, Eduardo filed an
Affidavit-Complaint against petitioners Flordeliza and Jason,
charging them with violation (two counts) of Section 74, in
relation to Section 144, of the Corporation Code of the
Philippines.
The City Prosecutor issued a Resolution recommending
that petitioners be charged with two counts of violation of
Section 74 of the Corporation Code, but dismissed the complaint
against Belinda for lack of evidence. Petitioners filed a Petition
for Review before the DOJ, which reversed the recommendation
of the City Prosecutor. The DOJ denied Eduardo’s Motion for
Reconsideration. The Court of Appeals reversed the DOJ.
ISSUE:
WON Petitioners acted in good faith in denying private
respondents demand to inspect the corporate books.
HELD:
YES. Contrary to Eduardos insistence, the stockholders
right to inspect corporate books is not without limitations. While
as opposed to the old Corporation Law (Act No. 1459, as
amended),
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
It is now expressly required as a condition for such
examination that the one requesting it must not have been guilty
of using improperly any information secured through a prior
examination, or that the person asking for such examination
must be acting in good faith and for a legitimate purpose in
making his demand. (Emphasis supplied)
 
In order therefore for the penal provision under Section
144 of the Corporation Code to apply in a case of violation of a
stockholder or members right to inspect the corporate
books/records as provided for under Section 74 of the
Corporation Code, the following elements must be present:
 
First. A director, trustee, stockholder or member
has made a prior demand in writing for a copy of
excerpts from the corporations records or minutes;
 
Second. Any officer or agent of the concerned
corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to
examine and copy said excerpts;
 
Third. If such refusal is made pursuant to a
resolution or order of the board of directors or
trustees, the liability under this section for such
action shall be imposed upon the directors or
trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the
corporation sets up the defense that the person
demanding to examine and copy excerpts from the
corporations records and minutes has improperly
used any information secured through any prior
examination of the records or minutes of such
corporation or of any other corporation, or was not
13
acting in good faith or for a legitimate purpose in
making his demand, the contrary must be shown or
proved.
Petitioners argue that Eduardos demand for an inspection
of the corporations books is based on the latters attempt in bad
faith at having his more than P165 million advances from the
corporations written off; that Eduardo is unjustly demanding
that he be given the office of Jason, or the Vice Presidency for
Finance and Corporate Secretary; that Eduardo is usurping rights
belonging exclusively to the corporations; and Eduardos
attempts at coercing the corporations, their directors and
officers into giving in to his baseless demands involving specific
corporate assets. Specifically, petitioners accuse Eduardo of the
following:
 
1. He is a spendthrift, using the family corporations
resources to sustain his extravagant lifestyle. During his
incumbency as officer of VMC and Genato (from 1984 to
2000), he was able to obtain massive amounts by way of
cash advances from these corporations, amounting to
more than P165 million;
2. He is exercising undue pressure upon petitioners in
order to acquire ownership, through the forced execution
of a deed of donation, over the VAG Building in San Juan,
which building belongs to Genato;
3. He is putting pressure on the corporations, through their
directors and officers, for the latter to disregard their
respective policies which prohibit the grant of cash
advances to stockholders.
4. At one time, he coerced Flordeliza for the latter to sell her
Wack-Wack Golf Proprietary Share;
MERCANTILE LAW REVIEW || Corporation Law 14
Cases 38-63

5. In May 2003, without the requisite authority, he called a
stockholders meeting to demand an increase in his
P140,000.00 monthly allowance from the corporation to
P250,000.00; demand a cash advance of US$10,000; and
to demand that the corporations shoulder the medical
and educational expenses of his family as well as those of
the other stockholders;
6. In November 2003, he demanded that he be given an
office within the corporations premises. In December
2003, he stormed the corporations common office,
ordered the employees to vacate the premises,
summoned the directors to a meeting, and there he
berated them for not acting on his requests. In January
2004, he returned to the office, demanding the transfer of
the Accounting Department and for Jason to vacate his
office by the end of the month. He likewise left a letter
which contained his demands. At the end of January
2004, he returned, ordered the employees to leave the
premises and demanded that Jason surrender his office
and vacate his desk. He did this no less than four (4)
times. As a result, the respective boards of directors of
the corporations resolved to ban him from the corporate
premises;
hamper business operations; he has caused chaos and
confusion in VMC and Genato as a result;
8. He is out to sabotage the family corporations.
These serious allegations are supported by official and other
documents, such as board resolutions, treasurers affidavits and
written communication from the respondent Eduardo himself,
who appears to have withheld his objections to these
charges. His silence virtually amounts to an acquiescence. Taken
together, all these serve to justify petitioners allegation that
Eduardo was not acting in good faith and for a legitimate
purpose in making his demand for inspection of the corporate
books. Otherwise stated, there is lack of probable cause to
support the allegation that petitioners violated Section 74 of the
Corporation Code in refusing respondents request for
examination of the corporation books.

7. He has been interfering in the everyday operations of

VMC and Genato, usurping the duties, rights and
authority of the directors and officers thereof. He
attempted to lease out a warehouse within the VMC
premises without the knowledge and consent of its
directors and officers; during the wake of the former
President of VMC and Genato, he issued instructions for
the employees to close down operations for the whole
duration of the wake, against the corporate officers
instructions to attend the wake by batch, so as not to
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
47.
Aderito Z. Yujuico , et. al. vs. Cezar T. Quiambao et. al., G.R.
No. 180416, June 2, 2014
FACTS:
During the annual stockholder's meeting of Strategic
Alliance Development Corporation (STRADEC), petitioner
Aderito Z. Yujuico was elected as president and
chairman. Yujuico replaced respondent Cezar T. Quiambao, who
had been the president and chairman of STRADEC since 1994.
With Yujuico at the helm, STRADEC appointed petitioner
Bonifacio C. Sumbilla as treasurer and one Joselito John G. Blando
(Blando) as corporate secretary. Blando replaced respondent
Eric C. Pilapil (Pilapil), the previous corporate secretary of
STRADEC.
Petitioners filed a criminal complaint against
respondents The complaint accuses respondents of violating
Section 74 in relation to Section 144 of the Corporation Code.
Petitioners theorize that the refusal by the respondents to
turnover STRADEC's corporate records and stock and transfer
book violates their right, as stockholders, directors and officers
of the corporation, to inspect such records and book under
Section 7 4 of the Corporation Code. For such violation,
petitioners conclude, respondents may be held criminally liable
pursuant to Section 144 of the Corporation Code.
ISSUE:
Whether or not a criminal action based on the violation
of a stockholder's right to examine or inspect the corporate
records and the stock and transfer book of a corporation under
the second and
15
fourth paragraphs of Section 74 of the Corporation Code can only
be maintained against corporate officers or any other persons
acting on behalf of such corporation
HELD:
YES. A perusal of the second and fourth paragraphs of
Section 74, as well as the first paragraph of the same section,
reveal that they are provisions that obligates a corporation: they
prescribe what books or records a corporation is required to
keep; where the corporation shall keep them;and what are the
other obligations of the corporation to its stockholders or
members in relation to such books and records. Hence, by parity
of reasoning, the second and fourth paragraphs of Section 74,
including the first paragraph of the same section, can only be
violated by a corporation.
It is clear then that a criminal action based on the
violation of the second or fourth paragraphs of Section 74 can
only be maintained against corporate officers or such other
persons that are acting on behalf of the corporation. Violations of
the second and fourth paragraphs of Section 74 contemplates a
situation wherein a corporation, acting thru one of its officers or
agents, denies the right of any of its stockholders to inspect the
records, minutes and the stock and transfer book of such
corporation.
The problem with the petitioners' complaint and the
evidence that they submitted during preliminary investigation is
that they do not establish that respondents were acting on behalf
of STRADEC. Quite the contrary, the scenario painted by the
complaint is that the respondents are merely outgoing officers of
STRADEC who, for some reason, withheld and refused to turn-
over the company records of STRADEC; that it is the petitioners
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
who are actually acting on behalf of STRADEC; and that STRADEC
is actually merely trying to recover custody of the withheld
records.
In other words, petitioners are not actually invoking their
right to inspect the records and the stock and transfer book of
STRADEC under the second and fourth paragraphs of Section 74.
What they seek to enforce is the proprietary right of STRADEC to
be in possession of such records and book. Such right, though
certainly legally enforceable by other means, cannot be enforced
by a criminal prosecution based on a violation of the second and
fourth paragraphs of Section 74. That is simply not the situation
contemplated by the second and fourth paragraphs of Section 74
of the Corporation Code.
16
48.
BANK OF COMMERCE, vs.RADIO PHILIPPINES NETWORK,
INC., INTERCONTINENTAL BROADCASTING CORPORATION
G.R. No. 195615 April 21, 2014 J. ABAD1
A merger does not become effective upon the mere
agreement of the constituent corporations. All the requirements
specified in the law must be complied with in order for merger to
take effect. Section 79 of the Corporation Code further provides
that the merger shall be effective only upon the issuance by the
Securities and Exchange Commission (SEC) of a certificate of
merger.
FACTS:
The Traders Royal Bank (TRB) under a Purchase and
Assumption (P & A) Agreement agreed to sell to petitioner Bank
of Commerce (Bancommerce) its banking business consisting of
specified assets and liabilities the BSP approved that agreement
subject to the condition that Bancommerce and TRB would set
up an escrow fund of PSO million with another bank to cover
TRB liabilities for contingent claims that may subsequently be
adjudged against it, which liabilities were excluded from the
purchase.
Following the above approval, Bancommerce entered
into a P & A Agreement with TRB and acquired its specified
assets and liabilities, excluding liabilities arising from judicial
actions which were to be covered by the BSP-mandated escrow
of ₱50 million with Metropolitan Bank and Trust Co.
(Metrobank).
Shorlty thereafter, acting on the case filed by Radio
Philippines Network (RPN), Inc., against Traders Royal Bank
1
Identical case with Case 51 under Merger and Consolidation
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
(TRB) the Court ordered TRB to pay respondents RPN et al.
actual damages plus legal interest and some amounts.
Based on this decision, RPN, et al.filed a motion for
execution against TRB before the Regional Trial Court (RTC) of
Quezon City. But rather than pursue a levy in execution of the
corresponding amounts on escrow with Metrobank, RPN, et al.
filed a Supplemental Motion for Execution where they described
TRB as "now Bank of Commerce" based on the assumption that
TRB had been merged into Bancommerce. Having learned of the
supplemental application for execution, Bancommerce filed its
Special Appearance with Opposition to the same questioning the
jurisdiction of the RTC over Bancommerce and denying that
there was a merger between TRB and Bancommerce.
The RTC issued an Order granting and issuing the writ of
execution to cover any and all assets of TRB, "including those
subject of the merger/consolidation in the guise of a Purchase
and Sale Agreement with Bank of Commerce, and/or against the
Escrow Fund established by TRB and Bank of Commerce with the
Metrobank."
The case was elevated to CA but affirmed the RTC’s
decision. The CA pointed out that the Decision of the RTC was
clear in that Bancommerce was not being made to answer for the
liabilities of TRB, but rather the assets or properties of TRB
under its possession and custody.
ISSUE:
WON merger took place between Bancommerce and TRB.
RULING:
NO. The court ruled that no merger took place between
Bancommerce and TRB as the requirements and procedures for
17
a merger were absent. A merger does not become effective upon
the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in
order for merger to take effect. Section 79 of the Corporation
Code further provides that the merger shall be effective only
upon the issuance by the Securities and Exchange Commission
(SEC) of a certificate of merger.
The Corporation Code requires the following steps for
merger or consolidation:
(1) The board of each corporation draws up a plan of
merger or consolidation. Such plan must include
any amendment, if necessary, to the articles of
incorporation of the surviving corporation, or in
case of consolidation, all the statements required
in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members
of each corporation for approval. A meeting must
be called and at least two (2) weeks’ notice must
be sent to all stockholders or members,
personally or by registered mail. A summary of
the plan must be attached to the notice. Vote of
two-thirds of the members or of stockholders
representing two thirds of the outstanding capital
stock will be needed. Appraisal rights, when
proper, must be respected.
(3) Execution of the formal agreement, referred to as
the articles of merger o[r] consolidation, by the
corporate officers of each constituent
corporation. These take the place of the articles of
incorporation of the consolidated corporation, or
amend the articles of incorporation of the
surviving corporation.
(4) Submission of said articles of merger or
consolidation to the SEC for approval.
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
(5) If necessary, the SEC shall set a hearing, notifying
all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.
Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities. What
happened is that TRB sold and Bancommerce purchased
identified recorded assets of TRB in consideration of
Bancommerce’s assumption of identified recorded liabilities of
TRB including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done
openly and with appropriate government approval. In strict
sense, no merger or consolidation took place as the records do
not show any plan or articles of merger or consolidation. More
importantly, the SEC did not issue any certificate of merger or
consolidation.
18
MERGER AND CONSOLIDATION
49.
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC.
Represented by its Liquidator, THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION vs. EDWARD WILLKOM et, al.
G.R. No. 178618 October10,20120 J. NACHURA
Merger does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves
fundamental changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express provision of
law authorizing them.
FACTS:
First Iligan Savings and Loan Association, Inc. (FISLAI)
and Davao Savings and Loan Association, Inc. (DSLAI) are
entities duly registered with the SEC primarily engaged in the
business of granting loans and receiving deposits from the
general public, and treated as banks. In 1985, FISLAI and DSLAI
entered into a merger, with DSLAI as the surviving corporation
but their 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 its Articles of
Incorporation which was approved by the SEC. In 1986, the BOD
of FISLAI passed and approved Board Resolution assigning its
assets in favor of DSLAI which in turn assumed the former’s
liabilities. The business of MALAI, however, failed. Hence, the
Monetary Board of the Central Bank of The Philippines ordered
its liquidation with PDIC as its liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC of
Iligan City, an action for collection of sum of money against
FISLAI. The RTC issued a summary decision in favor of Uy,
MERCANTILE LAW REVIEW || Corporation Law 19
Cases 38-63

directing FISLAI to pay. As a consequence, 6 parcels of land
owned by FISLAI were levied and sold to Willkom.
In 1995, MSLA, represented by PDIC, filed before the RTC
a complaint for the annulment of thye Sheriff’s sale alleging that
the sale on execution of the subject properties was conducted
without notice to it and PDIC. Respondents, in its answer,
averred that MSLAI had no cause of action because MSLAI is a
separate and distinct entity from FISLAI on the ground that the
“unofficial merger” between FISLAI and DSLAI (now MSLAI) did
not take effect considering that the merging companies did not
comply with the formalities and procedure for merger or
consolidation as prescribed by the Corporation Code. RTC
dismissed the case for lack of jurisdiction. CA affirmed but ruled
that there was no merger between FISLAI and MSLAI (formerly
DSLAI) for their failure to follow the procedure laid down by the
Corporation Code for a valid merger or consolidation.
ISSUE :
merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing
them.
The merger shall only be effective upon the issuance of a
certificate of merger by the SEC, subject to its prior
determination that the merger is not inconsistent with the
Corporation Code or existing laws. In this case, it is undisputed
that the articles of merger between FISLAI and DSLAI were not
duly 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
incompletewithout the certification. The issuance of the
certificate or 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.

Whether or not the merger between FISLAI and DSLAI

(now MSLAI) valid and effective.

HELD :

NO. In merger, one of the corporation survives while the

rest are dissolved and all their rights, properties, and liabilities
are acquired by the surviving corporation. Although there is a
dissolution of the absorbed or merged corporations, there is no
winding up of their affairs or liquidation of their assets because
the surviving corporation automatically acquires all their rights,
privileges, and powers, as well as their liabilities.

The merger, however, does not become effective upon

the mere agreement of the constituent corporations. Since a
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
50.
Metrobank vs. The Board of Trustees of Riverside Mills
Corp., et al., G.R. No. 176959, Sept. 8, 2010
Under Section 122 of the Corporation Code, a dissolved
corporation shall nevertheless continue as a body corporate for
three (3) years for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to
dispose and convey its property and to distribute its assets, but not
for the purpose of continuing the business for which it was
established.
FACTS:
RMC established a Provident and Retirement Plan for its
regular employees from the contributions that form part of the
RMC Provident and Retirement Fund. The contributions of the
employees and RMC shall form part of the provident fund (the
Fund) which shall be held, invested and distributed by the
Commercial Bank and Trust Company. Paragraph 13 of the
Plan likewise provided that the Plan "may be amended or
terminated by the Company at any time on account of business
conditions, but no such action shall operate to permit any part of
the assets of the Fund to be used for, or diverted to purposes
other than for the exclusive benefit of the members of the Plan
and their … beneficiaries. In no event shall any part of the assets
of the Fund revert to [RMC] before all liabilities of the Plan have
been satisfied."
In 1979, the BOT of RMCPRF entered into an Investment
Management Agreement with Philbank (now Metrobank).
Petitioner shall act as an agent of the Board and shall hold,
manage, invest and reinvest the Fund in Trust Account No. 1797
in its behalf.
20
In 1984, RMC ceased to operate business. Nonetheless,
Metrobank continued to render investment services to
respondent board. Metrobank informed the BOT that the board
of the latter had decided to apply the remaining trust assets held
by it in the name of RMCPRF against the outstanding obligations
of the RMC. Subsequently, the RMC unpaid Employees
Association demanded their share.
ISSUE:
Whether or not the functions of the BOT ceased upon
with RMC’s closure.
RULING:
NO. Under Section 122 of the Corporation Code, a
dissolved corporation shall nevertheless continue as a body
corporate for three (3) years for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close
its affairs, to dispose and convey its property and to distribute its
assets, but not for the purpose of continuing the business for
which it was established. Within those three (3) years, the
corporation may appoint a trustee or receiver who shall carry
out the said purposes beyond the three (3)-year winding-up
period. Thus, a trustee of a dissolved corporation may commence
a suit which can proceed to final judgment even beyond the three
(3)-year period of liquidation.
In the same manner, during and beyond the three (3)-
year winding-up period of RMC, the Board of Trustees of
RMCPRF may do no more than settle and close the affairs of the
Fund. The Board retains its authority to act on behalf of its
members, albeit, in a limited capacity. It may commence suits on
behalf of its members but not continue managing the Fund for
purposes of maximizing profits. Here, the Board’s act of issuing
MERCANTILE LAW REVIEW || Corporation Law 21
Cases 38-63

the Resolution authorizing petitioner to release the Fund to its 51.

beneficiaries is still part of the liquidation process, that is, Bank of Commerce v. Radio Philippines Network, Inc., et
satisfaction of the liabilities of the Plan, and does not amount to al.,G.R. No. 195615, April 21, 20142
doing business. Hence, it was properly within the Board’s power
to promulgate. Merger is a reorganization of two or more corporations
that results in their consolidating into a single corporation, which
is one of the constituent corporations, one disappearing or
dissolving and the other surviving. A merger does not become
effective upon the mere agreement of the constituent corporations;
Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the Securities
and Exchange Commission (SEC) of a certificate of merger.

FACTS:

In late 2001 the Traders Royal Bank (TRB) proposed to

sell to petitioner Bank of Commerce (Bancommerce) for P10.4
billion its banking business consisting of specified assets and
liabilities. Bancommerce agreed. Bancommerce entered into a P
& A Agreement with TRB and acquired its specified assets and
liabilities, excluding liabilities arising from judicial actions which
were to be covered by the BSP-mandated escrow of P50 million.

Shortly after or on October 10, 2002, acting in G.R.

138510, Traders Royal Bank v. Radio Philippines Network
(RPN), Inc., this Court ordered TRB to pay respondents RPN
actual damages of P9,790,716.87 plus 12% legal interest.

But rather than to pursue a levy in execution of the

corresponding amounts on escrow with Metrobank, RPN, et al.
filed a Supplemental Motion for Execution where they described
TRB as "now Bank of Commerce" based on the
assumption that TRB had been merged into Bancommerce.
2
Same case with Case 48 under Corporate Books and Right to
Inspect
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
Bancommerce filed denying that there was a merger
between TRB and Bancommerce.
ISSUE:
Whether or not TRB and Bancommerce were validly
merged.
HELD:
No. TRB and Bancommerce were not validly merged.
Merger is a re-organization of two or more corporations
that results in their consolidating into a single corporation,
which is one of the constituent corporations, one disappearing or
dissolving and the other surviving. To put it another way, merger
is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the
rights, privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing
corporation continues its existence while the life or lives of the
other corporation(s) is or are terminated.
Indubitably, it is clear that no merger took place between
Bancommerce and TRB as the requirements and procedures for
a merger were absent. A merger does not become effective upon
the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in
order for merger to take effect. Section 79 of the Corporation
Code further provides that the merger shall be effective only
upon the issuance by the SEC of a certificate of merger.
Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities. What
22
happened is that TRB sold and Bancommerce purchased
identified recorded assets of TRB in consideration of
Bancommerce’s assumption of identified recorded liabilities of
TRB including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done
openly and with appropriate government approval. No merger or
consolidation took place as the records do not show any plan or
articles of merger or consolidation. More importantly, the SEC
did not issue any certificate of merger or consolidation.
In his book, Dean Cesar Villanueva explained that under
the Corporation Code, "a de facto merger can be pursued by one
corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation would end up
with the business enterprise of the target corporation; whereas,
the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring
corporation.”
No de facto merger took place in the present case simply
because the TRB owners did not get in exchange for the bank’s
assets and liabilities an equivalent value in Bancommerce shares
of stock. Bancommerce and TRB agreed with BSP approval to
exclude from the sale the TRB’s contingent judicial liabilities,
including those owing to RPN.
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
CORPORATE DISSOLUTION
52.
Vitaliano N. Aguirre II , et. al. vs. FQB+, Inc., et. al., G.R. No.
170770, Jan. 9, 2013
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. (FQB+7), a Complaint 4for intra-corporate dispute,
injunction, inspection of corporate books and records, and
damages, against respondents Nathaniel D. Bocobo (Nathaniel),
Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio). The
substantive changes found in the GIS, respecting the composition
of directors and subscribers of FQB+7, prompted Vitaliano to
write to the "real" Board of Directors (the directors reflected in
the Articles of Incorporation), represented by Fidel N. Aguirre
(Fidel). In this letter dated April 29, 2004, Vitaliano questioned
the validity and truthfulness of the alleged stockholders meeting
held on September 3, 2002. He asked the "real" Board to rectify
what he perceived as erroneous entries in the GIS, and to allow
him to inspect the corporate books and records. The "real" Board
allegedly ignored Vitaliano’s request.
The respondents informed the CA that the SEC had
already revoked FQB+7’s Certificate of Registration on
September 29, 2003 for its failure to comply with the SEC
reportorial requirements. The CA determined that the
23
corporation’s dissolution was a conclusive fact after petitioners
Vitaliano and Fidel failed to dispute this factual assertion.
ISSUES:
1. Whether the Complaint seeks to continue the dissolved
corporation’s business.
2. Whether the RTC has jurisdiction over an intra-corporate
dispute involving a dissolved corporation.
HELD:
1. No. 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
MERCANTILE LAW REVIEW || Corporation Law 24
Cases 38-63

authority to act as trustee for persons in interest beyond the said which arose because of the corporate ties between the parties.
three-year period. Thus, the determination of which group is the Thus, a cause of action involving an intra-corporate controversy
bona fide or rightful board of the dissolved corporation will still remains and must be filed as an intra-corporate dispute despite
provide practical relief to the parties involved. the subsequent dissolution of the corporation.

2. Yes. 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.

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,
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
53.
Paramount Insurance Corp. vs. A.C. Ordonez Corp., et. al.,
G.R. No. 175109, August 6, 2008
Corporation whose corporate existence is terminated in
any manner continues to be a body corporate for three years after
its dissolution for purposes of prosecuting and defending suits by
and against it and to enable it to settle and close its affairs.
Dissolution or even the expiration of the three-year liquidation
period should not be a bar to a corporation’s enforcement of its
rights as a corporation.
FACTS:
Petitioner Paramount Insurance Corp. is the subrogee of
Maximo Mata, the registered owner of a Honda City sedan
involved in a vehicular accident with a truck mixer owned by
Respondent Corporation and driven by respondent Franklin A.
Suspine.
Petitioner filed before the MTC, a complaint for damages
against respondents. Petitioner then filed a Motion to Declare
Defendants in Default. Pending resolution of its first motion to
declare respondents in default, petitioner filed a Second Motion
to Declare Defendants in Default. Respondent Corporation filed a
Motion to Admit Answer alleging honest mistake and business
reverses that prevented them from hiring a lawyer.
The MTC issued an Order admitting the answer and
setting the case for pre-trial. Petitioner moved for
reconsideration but it was denied. Thus, it filed a petition for
certiorari and mandamus with prayer for preliminary injunction
and TRO before the RTC, which was granted. Respondent
Corporation moved for reconsideration but it was denied. Hence,
it appealed to the Court of Appeals. The CA affirmed the ruling of
25
the RTC. Respondent appealed to the Supreme Court. Petitioner
claims that respondent corporation lacks legal personality to file
an appeal as it was already dissolved. 
ISSUE:
Whether or not a party without corporate existence may
file an appeal.
RULING:
YES. There is likewise no merit in petitioner’s claim that
respondent corporation lacks legal personality to file an appeal.
Although the cancellation of a corporation’s certificate of
registration puts an end to its juridical personality, Sec. 122 of
the Corporation Code, however provides that a corporation
whose corporate existence is terminated in any manner
continues to be a body corporate for three years after its
dissolution for purposes of prosecuting and defending suits by
and against it and to enable it to settle and close its affairs.
Moreover, the rights of a corporation, which is dissolved pending
litigation, are accorded protection by law pursuant to Sec. 145 of
the Corporation Code, to wit:
Section 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.
MERCANTILE LAW REVIEW || Corporation Law 26
Cases 38-63

Dissolution or even the expiration of the three-year 54.

liquidation period should not be a bar to a corporation’s ALABANG DEVELOPMENT CORPORATION vs. ALABANG
enforcement of its rights as a corporation. HILLS VILLAGE ASSOCIATION and RAFAEL TINIO
G.R. No. 187456 JUNE 2, 2014 J. PERALTA

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.

FACTS:

Alabang Development Corporation (ADC), developer of

Alabang Hills Village filed a complaint sometime in September
(2006), for injunction and damages against Alabang Hills Village
Association Inc. (AHVAI) and its president Rafael Tinio (Tinio)
for allegedly starting the construction of a multi-purpose hall and
a swimming pool on one of the parcels of land still owned by
ADC, without the latter’s consent ad approval and despite
demand, failed to desist from constructing thereof.

AHVAI denied ADC’s allegations and made the following

claimed that ADC has no legal capacity to sue since its existence
as a registered corporate entity was revoked by the Securities
and Exchange Commission (SEC) on May 26, 2003; that ADC has
no cause of action because by law it is no longer the absolute
owner but is merely holding the property in question in trust for
the benefit of AHVAI as beneficial owner thereof; and that the
subject lot is part of the open space required by law to be
MERCANTILE LAW REVIEW || Corporation Law 27
Cases 38-63

provided in the subdivision. As counterclaim, it prayed that an
order be issued divesting ADC of the title of the property and
declaring AHVAI as owner thereof.
ISSUE:
Whether or not ADC a dissolved corporation could still
validly initiate a complaint considering that the case involved the
liquidation of its assets.
three-year period allowed by Section 122 of the Corporation
Code. Thus, it is clear that at the time of the filing of the subject
complaint ADC lacks the capacity to sue as a corporation. To
allow ADC to initiate the subject complaint and pursue it until
final judgment, on the ground that such complaint was filed for
the sole purpose of liquidating its assets, would be to circumvent
the provisions of Section 122 of the Corporation Code.

HELD:

NO. A corporation cannot initiate a complaint beyond the

period of 3 years of its dissolution for the purpose of liquidation
of its assets.

It is to be noted that the time during which the

corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is
limited to three years from the time the period of dissolution
commences; but there is no time limit within which the trustees
must complete a liquidation placed in their hands. It is provided
only (Corp. Law, Sec. 78 now Sec. 122) that the conveyance to the
trustees must be made within the three-year period. It may be
found impossible to complete the work of liquidation within the
three-year period or to reduce disputed claims to judgment. The
authorities are to the effect that suits by or against a corporation
abate when it ceased to be an entity capable of suing or being
sued); but trustees to whom the corporate assets have been
conveyed pursuant to the authority of Sec. 78 [now Sec. 122]
may sue and be sued as such in all matters connected with the
liquidation.

In the present case, ADC filed its complaint not only after
its corporate existence was terminated but also beyond the
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
FOREIGN CORPORATION
55.
Steelcase, Inc. vs. Design International Selections, Inc.,G.R.
No. 171995 April 18, 2012
A foreign corporation doing business in the Philippines
without a license may still sue before the Philippine courts a
Filipino or a Philippine entity that had derived some benefit from
their contractual arrangement because the latter is considered to
be estopped from challenging the personality of a corporation
after it had acknowledged the said corporation by entering into a
contract with it.
FACTS:
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.3 Respondent Design
International Selections, Inc. (DISI) is a corporation existing
under Philippine Laws and engaged in the furniture business,
including the distribution of furniture.4  business in the Philippines.
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.5  The appointment of a distributor in the Philippines is not
On January 18, 1999, Steelcase filed a complaint 6 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
28
ordered to pay actual or compensatory damages, exemplary
damages, attorney’s fees, and costs of suit.
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 it
(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.
ISSUE:
(1) Whether or not Steelcase is doing business in the
Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the
Steelcase’s legal capacity to sue.
HELD:
(1) NO. Steelcase is an unlicensed foreign corporation NOT doing
The phrase "doing business" is clearly defined in Section
3(d) of R.A. No. 7042 (Foreign Investments Act of 1991). The
definition is supplemented by its Implementing Rules and
Regulations, Rule I, Section 1(f) which elaborates on the
meaning of the same phrase.
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
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
corporation, for its own name and its own account, the latter
cannot be considered to be doing business in the
Philippines.14 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.15  corporation after having acknowledged the same by entering into
(2) YES. DISI is estopped from challenging Steelcase’s legal
capacity to sue.
By acknowledging the corporate entity of Steelcase and
entering into a dealership agreement with it and even
benefiting from it, DISI is estopped from questioning
Steelcase’s existence and capacity to sue.
A party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering
into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to a foreign as well as to
domestic corporations.
The rule is deeply rooted in the time-honored axiom of
Commodum ex injuria sua non habere debet — no person
ought to derive any advantage of his own wrong. This is as it
should be for as mandated by law, "every person must in the
exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and
good faith."
The principle "will be applied to prevent a person
contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the
contract . . ."
29
56.
Global Business Holdings, Inc. v. Surecomp Software,
B.V., G.R. No. 173463, Oct. 13, 2010
A party is estopped from challenging the personality of a
a contract with it.
FACTS:
Surecomp Software, B.V. (Surecomp), a foreign
corporation duly organized and existing under the laws of the
Netherlands, entered into a software license agreement with
Asian Bank Corporation (ABC), a domestic corporation, for the
use of its IMEX Software System (System) in the banks computer
system for a period of twenty (20) years.
ABC Merged with Global. Global was the surviving
corporation. Global failed to pay Surecomp, thus a case was filed
by Surecomp for breach of contract. Global counted via Motion to
Dismiss that Surecomp has no capacity to sue in the Philippines
because it is a foreign corporation without any license to do
business in the PH.
ISSUE:
Whether a foreign corporation has the capacity to sue
before the Philippine courts of law
RULING:
NO. As a rule, unlicensed foreign non-resident
corporations doing business in the Philippines cannot file suits in
the Philippines. This is mandated under Section 133 of the
Corporation Code, which reads:
MERCANTILE LAW REVIEW || Corporation Law 30
Cases 38-63

  noncompliance with the statutes, chiefly in cases where such

Sec. 133. Doing business without a license. - No person has received the benefits of the contract.
foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines,
but such corporation may be sued or proceeded
against before Philippine courts or administrative
tribunals on any valid cause of action recognized
under Philippine laws.
 
A corporation has a legal status only within the state or
territory in which it was organized. For this reason, a
corporation organized in another country has no personality to
file suits in the Philippines. In order to subject a foreign
corporation doing business in the country to the jurisdiction of
our courts, it must acquire a license from the Securities and
Exchange Commission and appoint an agent for service of
process. Without such license, it cannot institute a suit in
the Philippines.
 
The exception to this rule is the doctrine of estoppel.
Global is estopped from challenging Surecomps capacity to
sue.
 
A foreign corporation doing business in
the Philippines without license may sue in Philippine courts
a Filipino citizen or a Philippine entity that had contracted
with and benefited from it. A party is estopped from
challenging the personality of a corporation after having
acknowledged the same by entering into a contract with it. The
principle is applied to prevent a person contracting with a
foreign corporation from later taking advantage of its
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
57.
Cargill, Inc. vs. Intra Strata Assurance Corp., G.R. No. 168266
March 15, 2010
To be doing or “transacting business in the Philippines” for
purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine
territory on a continuing basis in its own name and for its own
account.
FACTS:
Cargill (foreign) is a corporation organized and existing
under the laws of the State of Delaware. Cargill executed a
contract with Northern Mindanao Corporation (NMC)
(domestic), whereby NMC agreed to sell to petitioner 20,000 to
24,000 metric tons of molasses to be delivered from Jan 1 to 30
1990 for $44 per metric ton. The contract provided that CARGILL
was to open a Letter of Credit with the BPI. NMC was permitted
to draw up 500,000 representing the minimum price of the
contract. The contract was amended 3 times (in relation to the
amount and the price). But the third amendment required NMC
to put up a performance bond which was intended to guarantee
NMC’s performance to deliver the molasses during the
prescribed shipment periods. In compliance, INTRA STRATA
issued a performance bond to guarantee NMC’s delivery. NMC
was only able to deliver 219551 metric tons out of the agreed
10,500. Thus CARGILL sent demand letters to INTRA claiming
payment under the performance and surety bonds. When INTRA
failed to pay, CARGILL filed a complaint. CARGILL NMC and
INTRA entered into a compromise agreement approved by the
court, such provided that NMC would pay CARGILL 3 million
upon signing and would deliver to CARGILL 6,991 metric tons of
molasses. But NMC still failed to comply. The RTC ruled in favor
31
of CARGILL. The CA held that CARGILL does not have the
capacity to file suit since it was a foreign corporation doing
business in the PH without the requisite license. The purchase of
molasses were in pursuance of its basic business and not just
mere isolated and incidental transactions
ISSUE:
Whether or not petitioner is doing or transacting
business in the Philippines in contemplation of the law and
established jurisprudence/ Whether or not CARGILL, an
unlicensed foreign corporation, has legal capacity to sue before
Philippine courts.
HELD:
YES. According to Article 123 of the Corporation Code, a
foreign corporation must first obtain a license and a certificate
from the appropriate government agency before it can transact
business in the Philippines. Where a foreign corporation does
business in the Philippines without the proper license, it cannot
maintain any action or proceeding before Philippine courts,
according to Article 133 of the Corporation Code:
“Doing Business”
….. 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.”
Since INTRA is relying on Section 133 of the Corporation
Code to bar petitioner from maintaining an action in Philippine
MERCANTILE LAW REVIEW || Corporation Law 32
Cases 38-63

courts, INTRA bears the burden of proving that CARGILL was opening an office or appointing an agent in the Philippines, is not
doing business in the PH. In this case, we find that INTRA failed doing business in the Philippines.
to prove that CARGILL’s activities in the Philippines constitute
doing business as would prevent it from bringing an action.

There is no showing that the transactions between

petitioner and NMC signify the intent of petitioner to establish a
continuous business or extend its operations in the Philippines.

In this case, the contract between petitioner and NMC

involved the purchase of molasses by petitioner from NMC. It
was NMC, the domestic corporation, which derived income from
the transaction and not petitioner. To constitute “doing business,”
the activity undertaken in the Philippines should involve profit-
making.

Other factors which support the finding that petitioner is

not doing business in the Philippines are: (1) petitioner does not
have an office in the Philippines; (2) petitioner imports products
from the Philippines through its non-exclusive local broker,
whose authority to act on behalf of petitioner is limited to
soliciting purchases of products from suppliers engaged in the
sugar trade in the Philippines; and (3) the local broker is an
independent contractor and not an agent of petitioner.

To be doing or “transacting business in the Philippines”

for purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the
Philippine territory on a continuing basis in its own name and for
its own account.

CARGILL is a foreign company merely importing

molasses from a Philipine exporter. A foreign company that
merely imports goods from a Philippine exporter, without
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
58.
Strategic Alliance Dev. Corp. vs. Star Infra Dev. Corp. et. al.,
G.R. No. 187872, Nov. 17, 2010
FACTS:
Strategic Alliance Development Corporation (STRADEC)
is a domestic corporation with principal place of business at
Poblacion Sur, Bayambang, Pangasinan. It is a development
company that incorporated Star Infrastructure Development
Corporation (SIDC) for the purpose of engaging in the general
construction business. STRADEC fully paid and owned 49% of
the 5,000,000 shares of stock into which SIDC’s authorized
capital stock were divided. SIDC transferred its principal place of
business from Pasig City to Poblacion Sur, Bayambang,
Pangasinan and, later, to Lipa, Batangas.
Respondents Yujuico and Sumbilla, in their respective
capacities as then President and Treasurer of STRADEC,
executed a Promissory Note for and in consideration of a loan in
the sum ofP10,000,000.00 ostensibly extended in favor of said
corporation by respondent Robert L. Wong, one of the
incorporators of SIDC. As security for the loan, STRADEC’s entire
shareholdings in SIDC was pledged by respondent Yujuico.
STRADEC repeatedly defaulted on its obligations. Hence, the
shares pledged were sold by way of the notarial sale conducted
in Makati City by respondent Raymond M. Caraos. Respondent
Wong, having tendered the sole bid of P11,800,000.00, was
thereby issued the corresponding certificates of stocks by
respondent Bede S. Tabalingcos, SIDC’s Corporate Secretary for
the years 2004 and 2005, after the transfer was recorded in the
corporation’s stock and transfer book. Respondent Wong
subsequently sold the shares to respondent Cypress Tree Capital
Investment, Inc. (CTCII), a corporation he formed with members
of his own family 
33
Quiambao, in his capacity as President and Chairman of
the Board of Directors of STRADEC, commenced the instant suit
before a commercial court in Batangas City. He alleged: that
respondents Yujuico and Sumbilla were not authorized to enter
into any loan agreement with respondent Wong, that the auction
sale was held in a wrong venue, that the transfer of STRADED
shares in SIDC was made fraudulently and that the 30 July 2005
annual stockholders meeting and 20 July 2006 special
stockholder’s meeting of SIDC where the change of principal
place of business was approved is invalid pending determination
of the legitimate Board of Directors for STRADEC.
ISSUE:
Is the cause of action of petitioners an intra-corporate
dispute?
HELD:
Yes.An intra-corporate dispute is understood as a suit
arising from intra-corporate relations or between or among
stockholders or between any or all of them and the corporation.
Applying what has come to be known as the relationship test, it
has been held that the types of actions embraced by the
foregoing definition include the following suits: (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 insofar as
its franchise, permit or license to operate is concerned; and, (d)
among the stockholders, partners or associates themselves. As
the definition is broad enough to cover all kinds of controversies
between stockholders and corporations, the traditional
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
interpretation was to the effect that the relationship test brooked
no distinction, qualification or any exemption whatsoever.
However, the unqualified application of the relationship
test has been modified on the ground that the same effectively
divests regular courts of jurisdiction over cases for the sole
reason that the suit is between the corporation and/or its
corporators. It was held that the better policy in determining
which body has jurisdiction over a case would be to consider not
only the status or relationship of the parties but also the nature
of the question that is the subject of their controversy. Under the
nature of the controversy test, the dispute must not only be
rooted in the existence of an intra-corporate relationship, but
must also refer to the enforcement of the parties' correlative
rights and obligations under the Corporation Code as well as the
internal and intra-corporate regulatory rules of the
corporation. The combined application of the relationship test
and the nature of the controversy test has, consequently, become
the norm in determining whether a case is an intra-corporate
controversy or is purely civil in character.
Applying the relationship test, we find that STRADEC’s
lawsuit qualify as intra-corporate disputes since said corporation
and respondent Wong are incorporators and/or stockholders of
SIDC. Having acquired STRADEC’s shares thru the impugned
notarial sale conducted by respondent Caraos, respondent Wong
appears to have further transferred said shares in favor of CTCII.
By reason of said transfer, CTCII became a stockholder of SIDC
and was, in fact, alleged to have been recognized as such by the
latter and its corporate officers.
Considering that they fundamentally relate to STRADEC’s
status as a stockholder and the alleged fraudulent divestment of
its stockholding in SIDC, the same causes of action also qualify as
intra-corporate disputes under the nature of the controversy
34
test. As part of the fraud which attended the transfer of its
shares, STRADEC distinctly averred, among other matters, that
respondents Yujuico and Sumbilla had no authority to contract a
loan with respondent Wong; that the pledge executed by
respondent Yujuico was simulated since it did not receive the
proceeds of the loan for which its shares in SIDC were set up as
security; that irregularities attended the notarial sale conducted
by respondent Caraos who sold said shares to respondent Wong;
that the latter unlawfully transferred the same shares in favor of
CTCII; and, that SIDC and its officers recognized and validated
said transfers despite being alerted about their defects.
Ultimately, the foregoing circumstances were alleged to have
combined to rid STRADEC of its shares in SIDC and its right as a
stockholder to participate in the latter’s corporate affairs.
Considering that the determination of the factual and
legal issues presented in the case can proceed independent of
those being litigated in the other cases filed against each other by
the members of STRADEC's Board of Directors, we find that the
CA finally erred in denying STRADEC's application of a writ of
preliminary injunction to restrain (a) CTCII from further
exercising proprietary rights over the subject shares; (b) SIDC
and its officers from recognizing the transfer or further transfers
of the same; (c) the implementation of the resolutions passed
during the 20 July 2006 SIDC stockholders’ special meeting; and
(d) the SEC from acting on any report submitted in respect
thereto. A provisional remedy which has, for its object, the
preservation of the status quo, preliminary injunction may be
resorted to by a party in order to preserve and protect certain
rights and interests during the pendency of an action. By both
law and jurisprudence, said provisional writ may be issued upon
the concurrence of the following essential requisites, to wit: (1)
that the invasion of the right is material and substantial; (2) that
the right of complainant is clear and unmistakable; and, (3) that
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
there is an urgent and paramount necessity for the writ to
prevent serious damage.
As the owner, STRADEC is undoubtedly possessed of
clear and unmistakable rights over the subject SIDC shares which
respondent Yujuico pledged in favor of respondent Wong. Unless
collectively restrained, the aforesaid acts will completely divest
STRADEC of its shares and unfairly deprive it of participation in
SIDC's corporate affairs pending the determination of the validity
of the impugned transfers.
35
CORPORATION SOLE
59.
IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS
(IEMELIF), INC., Petitioner. vs. NATANAEL B. JUANE,
Respondent.
G.R. No. 172447, September 18, 2009, CHICO-NAZARIO, J.
A corporation sole is one formed by the chief archbishop, bishop,
priest, minister, rabbi or other presiding elder of a religious
denomination, sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and temporalities of
such religious denomination, sect or church. As opposed to a
corporation aggregate, a corporation sole consists of a single
member, while a corporation aggregate consists of two or more
persons. 
FACTS:
IEMELIF is a religious corporation existing and duly
organized under Philippine laws. It is the absolute and registered
owner of particular lots situated in Tondo Manila, on these lots
the Cathedral of the Iglesia Evangelica Metodista en las Islas
Filipinas is located together with other improvements including
the Pastors residence and the church’s school.
Juane is a former minister or pastor of IEMELIF. He was
elected as one of the members of the Highest Consistory of
Elders (or Board of Trustees) of IEMELIF in the IEMELIF General
Conference. 
The Highest Consistory of Elders of the IEMELIF Church,
upon recommendation of IEMELIFs Committee on Relations,
Examination and Ordination, and in accordance with the
Discipline of the Church, approved the expulsion of herein Juane
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
as a pastor of the IEMELIF Church for various acts of defiance
(defying his reassignment) and rebellion. This expulsion as a
pastor permanently took away from Juane any and all right or
authority to occupy and possess any property of
the IEMELIF Church. But despite this, Juane ignored said
expulsion.
A demand letter was made on Juane, stating that he
vacate and turnover to the Church all Church property in his
possession, including the cathedral, pastoral house, the school
and the church premises. But Juane did not heed to said demand.
IEMELIF then filed a legal action with the MeTC to
enforce its right to have physical possession of the Cathedral
premises. Juane filed a Motion to Dismiss on said case
contending that the Complaint therein actually involved intra-
corporate controversies that falls within the jurisdiction of the
RTC. The MeTC denied the MTD and held that the case did not
involve the issue of removal of a corporate officer, but rather
right to possess the IEMELIF Cathedral in Tondo. Upon elevating
the case with the RTC, it affirmed the decision of the MeTC.
Juanes appealed with the CA, which set aside the RTC decision.
Thus, the present petition before the SC.
ISSUE:
WON the Complaint filed by IEMELIF against Juane
constitutes an intra-corporate dispute beyond the jurisdiction of
the MeTC.
HELD:
NO. The jurisdictional elements needed to be alleged in a
Complaint for unlawful detainer are the following: (1) the
plaintiff is a vendor, vendee, or other person from whom
36
possession of any land or building is unlawfully withheld after
the expiration or termination of the right to hold possession, by
virtue of any contract, express or implied; (2) the defendant is
the person unlawfully withholding the same from the plaintiff
after the expiration or termination of the right to hold
possession, by virtue of any contract express or implied; (3) the
plaintiff issued a demand for the defendant to comply with the
contract or vacate the said premises; and (4) the action is
commenced within one year from the demand.
The Complaint of IEMELIF stated all the foregoing
jurisdictional elements. The Complaint stated that IEMELIF is the
absolute and registered owner of the subject parcel of land. The
Complaint stated further that by virtue of the appointment and
assignment of defendant Juane as Resident Pastor of the
Cathedral Congregation in Tondo, Manila, he was authorized to
stay in and occupy the Pastors residence inside the cathedral
complex. The Complaint stated that this authority to stay in the
premises expired upon Juanes reassignment as Resident Pastor
of the Sta. Mesa Congregation. Finally, the Complaint stated that
IEMELIF issued a demand for Juane to vacate the premises which
was within one year from the date of the Complaint, 17
September 2002.
Furthermore, the Complaint never alleged as issues
the validity of IEMELIFs actions of reassigning Juane to another
church, and later removing him as pastor. The invalidity of
Juanes removal as the Resident Pastor of the IEMELIF Tondo
Congregation and his reassignment as the Resident Pastor of the
IEMELIF Sta. Mesa (Banal na Hapag) Congregation was a defense
set up by Juane in his Motion to Dismiss, which cannot be
considered in resolving the issue of jurisdiction.
 
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
The Complaint, having stated the jurisdictional elements
in an unlawful detainer case, was properly filed with the
Metropolitan Trial Court.
NOTE: This is a consolidated case. G.R. No. 179404 (Main Case),
is the part that discusses about corporate sole. To discuss:
Juane filed an appeal on MeTC judgment, before the RTC
of Manila. The RTC affirmed the MeTC Decision.
 
Juane brought his case before the Court of Appeals and
pursued his argument that the transformation of IEMELIF from a
corporation sole to a corporation aggregate was legally defective
and, therefore, IEMELIF had no personality to eject Juane from
the subject property.
 
The Court of Appeals, affirmed the RTC Decision. The
Court of Appeals reasoned that even assuming arguendo, that the
transformation of IEMELIF from a corporation sole to a
corporation aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts were approved by
the Highest Consistory of Elders, still did not change. As Bishop
Lazaro and the Highest Consistory of Elders had the authority to
appoint Juane as Resident Pastor of the IEMELIF Tondo
Congregation, they also had the power to remove him as such or
transfer him to another congregation. The Court of Appeals
additionally stressed that ownership of the subject property was
not a valid defense in an ejectment proceeding where at issue
was the right to physical possession of the subject property.
 
Thereafter, Juane filed a Petition for Review
on Certiorari with the SC, docketed as G.R. No. 179404. Juane
maintains that the IEMELIF that filed the Complaint before the
MeTC had no personality to eject him from the subject
37
property. The Church has remained a corporation sole, since its
transformation to a corporation aggregate was legally
defective. Juane, thus, claims that he is now the corporation sole,
who is entitled to the physical possession of the subject property
as owner thereof. In fact, on the basis of these same arguments,
Juane already filed a case disputing ownership of the subject
property, before the RTC of Manila. The RTC rendered a Decision
in against Juane, which was affirmed by the Court of
Appeals. Juane now has a pending Petition.
 
As held by the Court of Appeals, even if the
transformation of IEMELIF from a corporation sole to a
corporation aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts were approved by
the Highest Consistory of Elders, still did not
change. A corporation sole is one formed by the chief
archbishop, bishop, priest, minister, rabbi or other presiding
elder of a religious denomination, sect, or church, for the purpose
of administering or managing, as trustee, the affairs, properties
and temporalities of such religious denomination, sect or church.
As opposed to a corporation aggregate, a corporation sole
consists of a single member, while a corporation
aggregate consists of two or more persons. If the transformation
did not materialize, the corporation sole would still be Bishop
Lazaro, who himself performed the questioned acts of removing
Juane as Resident Pastor of the Tondo Congregation. If the
transformation did materialize, the corporation aggregate would
be composed of the Highest Consistory of Elders, which
nevertheless approved the very same acts. As either Bishop
Lazaro or the Highest Consistory of Elders had the authority to
appoint Juane as Resident Pastor of the IEMELIF Tondo
Congregation, it also had the power to remove him as such or
transfer him to another congregation.
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
An action for reconveyance or accion reivindicatoria has
no effect and can exist at the same time as ejectment cases
involving the same property. This is because the only issue to be
resolved in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of
ownership by any of the parties involved. Ejectment cases are
designed to summarily restore physical possession to one who
has been illegally deprived of such possession, without prejudice
to the settlement of the parties opposing claims of juridical
possession in appropriate proceedings. The question of
ownership may only be provisionally ruled upon for the sole
purpose of determining who is entitled to possession de facto.
 
That IEMELIF has presented sufficient evidence to prove
its allegations in its Complaint thus, warranting the ejectment of
Juane from the subject property, is a matter which the Court can
no longer look into. There is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts, or
when the query necessarily invites calibration of the whole
evidence, considering mainly the credibility of witnesses,
existence and relevance of specific surrounding circumstances,
their relation to one another and to the whole and the
probabilities of the situation. Time and again we have held that it
is not the function of the Supreme Court to analyze or weigh all
over again the evidence and credibility of witnesses presented
before the lower tribunal or office. The Supreme Court is not a
trier of facts. Its jurisdiction is limited to reviewing and revising
errors of law imputed to the lower court, its findings of fact being
conclusive and not reviewable by this Court. Findings of fact of
the trial court, particularly when affirmed by the Court of
Appeals, are binding upon this Court.
38
INTRA-CORPORATE DISPUTE
60.
RENATO REAL vs. SANGU PHILIPPINES, INC. ET AL. and/or
KIICHI ABE
G.R. No. 168757 January 19, 2011: J. Del Castillo
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 (2) the nature of the question that is the subject of
their controversy.
FACTS:
Renato Real was the Manager of respondent corporation
Sangu Philippines, Inc. which is engaged in the business of
providing manpower for general services. He filed a complaint
for illegal dismissal against the respondents stating that he was
neither notified of the Board meeting during which his removal
was discussed nor was he formally charged with any infraction.
Respondents, on the other hand, said that Real
committed gross acts of misconduct detrimental to the company
since 2000. The LA declared petitioner as having been illegally
dismissed. Sangu appealed to NLRC and established petitioner’s
status as a stockholder and as a corporate officer and hence, his
action against respondent corporation is an intra-corporate
controversy over which the Labor Arbiter has no jurisdiction.
NLRC modified the LA’s decision. On appeal, the CA affirmed the
decision of NLRC.
Hence, this petition.
ISSUE:
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
Whether or not petitioner’s complaint for illegal
dismissal constitutes an intra-corporate controversy.
HELD:
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 (2) 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 x x . 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.
Guided by this recent jurisprudence, we thus find no merit in
respondents’ contention that the fact alone that petitioner is a
stockholder and director of Respondent Corporation
automatically classifies this case as an intra-corporate
controversy. To reiterate, not all conflicts between the
stockholders and the corporation are classified as intra-
corporate. There are other factors to consider in determining
whether the dispute involves corporate matters as to consider
them as intra-corporate controversies.
39
61.
Chateau De Baie Condominium Corp. (Petitioner) v. Sps.
Moreno, (Respondent).
G.R. No. 186271, Feb. 23, 2011, Brion, J.
FACTS:
Mrs. Moreno is the registered owner of a penthouse unit
and two parking slots in Chateau de Baie Condominium (Chateau
Condominium. These properties are covered by Condominium
Certificates of Title (CCT). As a registered owner in Chateau
Condominium, Mrs. Moreno is a member/stockholder of the
condominium corporation.
 
Mrs. Moreno obtained a loan from Oscar Salvacion, and
she mortgaged the Moreno properties as security; the mortgage
was annotated on the CCTs.
Under Section 20 of Republic Act (R.A.) No. 4726 (the
Condominium Act), when a unit owner fails to pay the association
dues, the condominium corporation can enforce a lien on the
condominium unit by selling the unit in an extrajudicial
foreclosure sale.
The petitioner caused the annotation of a Notice of
Assessment on the CCTs of the Moreno properties for unpaid
association dues. It also sent a demand letter to
the Moreno spouses who offered to settle their obligation, but
the petitioner declined the offer.
 
Subsequently, to enforce its lien, the president of the
petitioner wrote the Clerk of Court/Ex-Officio Sheriff
of Parañ aque City for the extrajudicial public auction sale of
the Moreno properties. The extrajudicial sale was then
scheduled.
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
THE FIRST CASE (SALVACION CASE) - Salvacion filed a
Petition for Certiorari and Prohibition with a prayer for issuance
of a TRO which sought to prohibit the extrajudicial sale for lack
of special power to sell from the registered owner as mandated
by Act No. 3135. But said Petition was dismissed by the RTC.
Upon appeal with the CA, it upheld the validity of the
extrajudicial sale.
THE PRESENT CASE (MORENO CASE) - While the
Salvacion case was pending before the CA, the Moreno spouses
filed before the RTC of Parañ aque, a complaint for inra-corporate
dispute against petitioner to question how it calculated the dues
assessed against them, and to ask an accounting of the
association dues. The petitioner moved to dismiss the complaint
on the ground of lack of jurisdiction, alleging that since the
complaint was against the owner/developer of a condominium
whose condominium project was registered with and licensed by
the Housing and Land Use Regulatory Board (HLURB), the
HLURB has the exclusive jurisdiction. RTC denied the motion to
dismiss. Petitioner went to the CA via Certiorari, Prohibition and
Mandamus under Rule 65 but was dismissed by the appellate
court. Hence the present appeal.
ISSUE:
WON the case involved an intra corporate dispute.
HELD:
YES. The case before the RTC involved an intra-corporate
dispute the Moreno spouses were asking for an accounting of the
association dues and were questioning the manner the petitioner
calculated the dues assessed against them. These issues are alien
to the first case that was initiated by Salvacion a third party to
40
the petitioner-Moreno relationship to stop the extrajudicial sale
on the basis of the lack of the requirements for a valid
foreclosure sale. Although the extrajudicial sale of
the Moreno properties to the petitioner has been fully effected
and the Salvacion petition has been dismissed with finality, the
completion of the sale does not bar the Moreno spouses from
questioning the amount of the unpaid dues that gave rise to the
foreclosure and to the subsequent sale of their properties. The
propriety and legality of the sale of the condominium unit and
the parking spaces questioned by Salvacion are different from
the propriety and legality of the unpaid assessment dues that
the Moreno spouses are questioning in the present case.
The facts of this case are similar to the facts in Wack
Wack Condominium Corporation, et al. v. Court of Appeals, et
al., where we held that the dispute as to the validity of the
assessments is purely an intra-corporate matter between Wack
Wack Condominium Corporation and its stockholder, Bayot, and
is, thus, within the exclusive original jurisdiction of the Securities
and Exchange Commission (SEC). We ruled in that case that since
the extrajudicial sale was authorized by Wack
Wack Condominium Corporations by-laws and was the result of
the nonpayment of the assessments, the legality of the
foreclosure was necessarily an issue within the exclusive original
jurisdiction of the SEC. We added that:
Just because the property has already been sold
extrajudicially does not mean that the questioned assessments
have now become legal and valid or that they have become
immaterial. In fact, the validity of the foreclosure depends on the
legality of the assessments and the issue must be determined by
the SEC if only to insure that the private respondent was not
deprived of her property without having been heard. If there
were no valid assessments, then there was no lien on the
property, and if there was no lien, what was there to foreclose?
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
Thus, SEC Case No. 2675 has not become moot and academic and
the SEC retains its jurisdiction to hear and decide the case
despite the extrajudicial sale.
Based on the foregoing, we affirm the decision of the CA
dismissing the petitioner’s petition. The way is now clear for the
RTC to continue its proceedings on the Moreno case.
41
62.
Wack Wack Condominium Corp., et al. v. CA, et al.
G.R. No. 78490, Nov. 23, 1992, J. CAMPOS, JR.
The Securities and Exchange Commission (SEC) has
exclusive original jurisdiction over intra-corporate matters. 3
FACTS
Before the Securities and Exchange Commission (SEC) is
a dispute involving assessments made by petitioners against
Josefina Bayot’s (Bayot’s) condominium unit. Petitioner Welbilt
Construction Corporation (Welbilt) is the developer of said
condominium building, while petitioner Wack Wack
Condominium Corporation (Wack Wack) owns the common
areas of said building and is the manager of the condominium
project. Petitioner Eugenio Gonzales is the President of both
Welbilt and Wack Wack and, with Welbilt, holds the controlling
interest in Wack Wack.
In July 1984, Wack Wack issued an undated Statement of
Account in Bayot’s name wherein the latter refused to pay on the
ground that they were allegedly unreasonable, arbitrary and/or
unauthorized by the their contract of sale. Under Section 20 of
the Condominium Act (R.A. No. 4762) and the by-laws of the
Wack Wack, assessments upon a condominium constitute a lien
on such condominium and may be enforced by judicial or
extrajudicial foreclosure. The said Act and by-laws were made
part of the contract of sale between the parties.
When Bayot refused to pay said assessments, the
petitioners sought to enforce the lien on Bayot’s condominium
3
Intra-corporate matters are now under the exclusive original
jurisdiction of the RTC by virtue of the passage of R.A. 8799 (The
Securities Regulation Code) on July 19, 2000.
MERCANTILE LAW REVIEW || Corporation Law 42
Cases 38-63

by extra-judicial foreclosure. Bayot went before the SEC which legality of the assessments and the issue must be determined by
issued two restraining orders from going on with the the SEC if only to insure that the private respondent was not
extrajudicial sale. Petitioners, meanwhile, was able to secure a deprived of her property without having been heard. If there
petition for mandamus from RTC Pasig for the expiry of the 20- were no valid assesment, then there was no lien on the property,
day TRO. and if there was no lien, what was there to foreclose? Thus, SEC
Case No. 2675 has not become moot and academic and the SEC
The dispute was aggravated and the proceeding became retains its jurisdiction to hear and decide the case despite the
protracted because of the various legal proceedings/motions extrajudicial sale.
which the parties subsequently resorted to in order to resolve
their dispute. Both SEC and the Court of Appeals decided that the
validity of the assessments is purely and intra-corporate matter
between Wack Wack and its stockholder, Bayot, and is thus
within the exclusive original jurisdiction of the SEC. (Section 5,
P.D. 902-A) Bayot alleges that SEC has no jurisdiction over such
foreclosure it being an action quasi-in-rem. Hence this petition.

ISSUE

Whether or not SEC has jurisdiction over the foreclosure

sale of the condominium unit for failure to pay dues alleging the
validity of the assessments.

HELD

YES. The dispute as to the validity of assessments is

purely an intra-corporate matter between Wack Wack and its
stockholder, Bayot, and is thus within the exclusive original
jurisdiction of the SEC, contrary to petitioners’ contention that
the SEC has no jurisdiction over such foreclosure it being an
action quasi-in-rem.

Just because the property has already been sold

extrajudicially does not mean that the questioned assessments
have not become legal and valid or that they have become
immaterial. The validity of the foreclosure depends on the
MERCANTILE LAW REVIEW || Corporation Law
Cases 38-63
63.
RAUL C. COSARE –VS- BROADCOM ASIA, INC, and DANTE
AREVALO
GR NO. 201298, FEBRUARY 5, 2014 J. REYES
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 exist.
FACTS:
Cosare filed a complaint for constructive dismissal, illegal
suspension and monetary claims before the NLRC against
Broadcom Asia and Dante Arevalo. Prior to his dismissal, Cosare
was a salesman employed by Arevalo and was named an
incorporator of Broadcom and having been assigned 100 shares
of stock with a par value of P1.00 per share when the company
was set up in December 2000. Cosare was promoted as Assistant
Vice President for Sales and Head of the Technical Coordination.
The Labor Arbiter dismissed the complaint but upon appeal to
the NLRC the latter reversed the LA’s decision. During the
pendency of appeal in the CA, the respondent raised a new
argument, the case involved an intra-corporate controversy
which was within the jurisdiction of the RTC, instead of the LA.
They argued that the case involved a complaint against a
corporation filed by a stockholder, who at the same time, was a
43
corporate officer. The CA ruled in favor of the respondent that
the case involved an intra-corporate controversy.
ISSUE:
Whether or not the case instituted by Cosare involves
intra-corporate dispute.
RULING:
NO. LA had the original jurisdiction over the complaint
for illegal dismissal because Cosare, although an officer of
Broadcom for being its AVP for Sales, was not a “corporate
officer” as the term is defined by law. For the purpose of
identifying an intra-corporate controversy, it was held in Garcia
v. Eastern Telecommunications that:
“Corporate officers’ in the context of PD 902-A are those
officers of the corporation who are given that character by the
Corporation Code or by the corporation’s by-law. There are three
specific officers whom a corporation must have under Section 25
of the Corporation Code. These are the president, secretary and
the treasurer. The number of officers in not limited to these
three. A corporation may have such other officers as may be
provided for by its by-laws like, but not limited to, the vice-
president, cashier, auditor or general manager. The number of
corporate officers is thus limited by law and by the corporation’s
by-laws.”
The mere fact that Cosare was a stockholder of Broadcom
at the time of the case’s filing did not necessarily make the action
an intra-corporate controversy. “Not all conflicts between the
stockholders and the corporation are classified as intra-
corporate. There are other facts to consider in determining
whether the dispute involves corporate matters as to consider
MERCANTILE LAW REVIEW || Corporation Law 44
Cases 38-63

them as intra-corporate controversies.” Time and again, the

Court has ruled that in determining the existence of an intra-
corporate dispute, the status or relationship of the parties and
the nature of the question that is the subject of the controversy
must be taken into account. Considering that the pending dispute
particularly relates to Cosare’s rights and obligations as a regular
officer of Broadcom, instead of as a stockholder of the
corporation, the controversy cannot be deemed intra-corporate.
This is consistent with the “controversy test” explained by the
Court in Reyes v. Hon. RTC, Br. 142, to wit:

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.