CONSIDERATION FOR ISSUANCES OF SHARES

G.R. No. 19893 March 31, 1923

Arnaldo f. De Silva, plainti ff v. Aboiti z & Company Inc., defendant

Arnaldo F. De Silva (Plaintiff) v. Aboitiz & Company, Inc. (Defendant)

G.R. No. 19893 (31 March 1923)

Facts:
Plaintiff subscribed for 650 shares of stock of the defendant corporation at P500/share. He has
paid for only 200 shares, remaining 450 shares unpaid. Thus, he still owes the corporation
P225,000, the value of the 450 unpaid shares.
On April 22, 1922, he was notified by defendant’s secretary that the Board of Directors has
adopted a resolution declaring the unpaid subscriptions to the capital stock of the corporation to
have become due and payable; that all unpaid shares, with the accrued interest up to that date,
will be declared delinquent, advertised for sale at public auction and sold for the purpose of
paying up the amount of the subscription and accrued interest, with the expenses of the
advertisement and sale, unless said payment was made before such sale.
Plaintiff filed a complaint in the Court of First Instance of Cebu praying for the issuance of a
writ of injunction.
Plaintiff alleged the ff. grounds:
1) Art. 46 of the by-laws states that shares subscribed to by the incorporators that were
not paid for at the time of the incorporation, shall be paid out of the 70 per cent of the
profit obtained, the same to be distributed among the subscribers, who shall not
receive any dividend until said shares were paid in full;
2) In declaring the plaintiff’s unpaid subscription due and demandable and in declaring
his unpaid shares delinquent, the defendant corporation has violated and
disregarded the right of the plaintiff vested under the said by-laws;
1
3) The said acts of the defendant were in excess of its powers and executive authority,
the plaintiff had no other remedy than that prayed for in the said complaint, to
prevent the defendant from taking any further action in sale and alienation of the said
shares.
Issue/s:
1. WON, under the provision of article 46 of the by- laws of the defendant corporation, the
defendant corporation may declare the unpaid shares delinquent , or collect their
value by another method different from that prescribed in the said article. (YES)
Ratio:
Yes – Defendant corporation may declare the unpaid shares delinquent , or collect their
value by another method different from that prescribed in the said article.
Art. 46 of its by-laws authorizes or empowers the board of directors to collect the value- of
the shares subscribed to and not fully paid by deducting from the 70%, distributable in equal
parts among the shareholders, such amount as may be deemed convenient, to be applied on
the payment of the said shares, and not to pay the subscriber until the same are fully paid up.
However, it is the board of directors and not the delinquent subscriber that may and must
judge and decide whether or not such unpaid value must be paid out of a part of the 70% of the
profit distributable in equal parts among the shareholders. It lies, therefore, within the discretion
of the board of directors to make use of such authority.
If the board of directors does not wish to make, or does not make, use of said authority it
has two other remedies for accomplishing the same purpose.
For the foregoing, the orders appealed from are affirmed, with the costs of both instances
against the appellant. So ordered.
2
G.R. No. 125469 October 27, 1997

PHILIPPINE STOCK EXCHANGE, INC.,   peti ti oner , vs. THE HONORABLE COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.,   respondents.

Lumanhan v. Cura, et al., 59 Phil 601FACTS:

The Puerto Azul Land, Inc. (PALI) is a domestic real estate corporation. PALI sought to
offer its shares to the public in order to raise funds allegedly to develop its properties and pay its
loans with several banking institutions.

PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange
Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to
course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an application to list its shares, with supporting
documents attached. The Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's listing application.

Before it could act upon PALI's application, the Board of Governors of the PSE received
a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the
legal and beneficial owner of certain assets of PALI which likewise appears to have been held
and continue to be held in trust by one Rebecco Panlilio for then President Marcos. PALI wrote
a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to
the SEC's attention the action taken by the PSE. SEC rendered its Order, reversing the PSE's
decision. SEC ordered to immediately cause the listing of the PALI shares in the Exchange.

The CA rendered the decision that SEC had both jurisdiction and authority to look into
the decision of the petitioner PSE, for the purpose of ensuring fair administration of the
exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public
respondent's jurisdiction, regulation and control. PALI complied with all the requirements for
public listing, affirming the SEC's ruling.

3
ISSUE:

WON SEC has the authority to order the PSE to list the shares of PALI in the stock
exchange.

RULING:

YES. A corporation is but an association of individuals, allowed to transact under an

assumed corporate name, and with a distinct legal personality. In organizing itself as a collective
body, it waives no constitutional immunities and perquisites appropriate to such a body.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold

the SECs challenged control authority over the petitioner PSE even as it provides that the
Commission shall have absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or
permit issued by the government to operate in the Philippines.

The SECs power to look into the subject ruling of the PSE, therefore, may be implied
from or be considered as necessary or incidental to the carrying out of the SECs express power
to insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange.

The Court also finds that the private respondent PALI, on at least two points (nos. 1 and
5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby
lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in
its stock exchange.
G.R. No. L-39861 March 21, 1934

BONIFACIO LUMANLAN,  Plainti ff -Appellee, vs. JACINTO R. CURA, ET AL., defendants.

DIZON & CO., INC., ETC., Appellant.
FACTS:

The appellant is a corporation duly organized under the laws of the Philippine Islands
with its central office in the City of Manila. The plaintiff-appellee Bonifacio Lumanlan, on July 31,
1922, subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of
P15,000. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this corporation,
filed suit against it in the Court of First Instance of Manila, case No. 37007, praying that a
receiver be appointed, as it appeared that the corporation at that time had no assets except
credits against those who had subscribed for shares of stock. As Bonifacio Lumanlan had only
paid P1,500 of the P15,000, par value of the stock for which he subscribed, the receiver on
August 30, 1930, filed a suit against him in the Court of First Instance of Manila, civil case No.
37492, for the collection of P15,109, P13,500 of which was the amount he owed for unpaid
stock and P1,609 for loans and advances by the corporation to Lumanlan. In that case
Lumanlan was sentenced to pay the corporation the above-mentioned sum of P15,109 with
legal interest thereon from August 30, 1930, and costs. Lumanlan appealed from this decision.
ISSUE:

W/ON the trial court can compel the appellant to immediately issue the certificates
of actions which is equivalent to the mentioned sum
RULING:

It appears from the record that during the trial of the case now under consideration, the
Bank of the Philippine Islands appeared in this case as assignee in the "Involuntary Insolvency
of Dizon & Co., Inc. That bank was appointed assignee in case No. 43065 of the Court of First
Instance of the City of Manila on November 28, 1932. It is therefore evident that there are still
4 case that corporation has a right to collect all
other creditors of Dizon & Co., Inc. This being the
unpaid stock subscriptions and any other amounts which may be due it.
It is established doctrine that subscriptions to the capital of a corporation constitute a
fund to which the creditors have a right to look for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts. (Philippine Trust Co. vs. Rivera, 44 Phil., 469, 470.)
The Corporation Law clearly recognizes that a stock subscription is a subsisting liability
from the time the subscription is made, since it requires the subscriber to pay interest quarterly
from that date unless he is relieved from such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share subscribed by him as he would be
to pay any other debt, and the right of the company to demand payment is no less
incontestable.
G.R. No. L-19441             March 27, 1923

FUA CUN (alias Tua Cun), plainti ff -appellee, vs RICARDO SUMMERS, in his capacity as

Sheriff ex-ofi cio of the City of Manila, and the CHINA BANKING
CORPORATION, defendants-appellants.
FACTS:

Chua Soco subscribed for 500 shares of stock to China banking Corp. paying the sum of
P25,000 which is the one-half of the subscription price in cash for which a receipt was issued.
Chua Soco executed a promissory note in favour of Fua Cun for P25, 000 securing with
a chattel mortagage on the former’s shares of stock in China Banking Corp. Chua Soco
endorsed the aforementioned receipt to Fua Cun and delivered it to the latter. Fua Cun took the
receipt to the manager of China Banking Corp. and informed him of the transaction with Chua
Soco, but was told to await action upon the matter by the BOD.
In the meantime, Chua Soco appears to be indebted to China Banking Corp. for the non-
payment of drafts accepted by the former. Chua Soco’s interest in the 500 shares subscribed for
was attached and the receipt seized by the sheriff. The attachment was levied after China
Banking Corp. learned that the receipt was endorsed to Fua Cun. Trial court rendered judgment
in favour of Fua Cun.
ISSUE:

W/ON Fua Cun’s lien is superior that China Banking Corp.?

RULING:

Equity in shares of stock may be assigned, the assignment becoming effective as between the
parties and as to third parties with notice. Equity in shares of stock may be a subject of a chattel
mortgage but such will operate as a conditional equitable assignment.
The claim of China Banking Corp. was for the5non-payment of drafts accepted by Chua Soco
and had no direct connection with the shares of stock in question. A corporation has no lien
upon the shares of stockholders for ay indebtedness to the corporation.
If banking institutions were given a lien on their own stock for the indebtedness of the
stockholders, the prohibition against granting loans or discounts upon the security of the stock
would become largely ineffective.
Moreover, the attachment was levied after China Banking Corp. had received notice of the
assignment of Chua Soco’s interests to Fua Cun and was therefore subject to the rights of the
latter.
Hence, as against these rights, China Banking Corp. holds no lien.
G.R. No. L-16236, EN BANC, June 30, 1965
IRINEO S. BALTAZAR, Peti ti oner, vs. LINGAYEN GULF ELECTRIC POWER CO., INC.,
DOMINADOR C. UNGSON BRIGIDO G. ESTRADA, MANUEL L. FERNANDEZ, BENEDICTO C.
YUSON and BERNARDO ACENA , Respondents.
FACTS

Plaintiffs Baltazar and Rose were among the incorporators of Lingayen Gulf, the
corporation. It is alleged that it has always been the practice and procedure of the Corporation
to issue certificates of stock to its individual subscribers for unpaid shares of stock. Of the 600
shares of capital stock subscribed by Baltazar, he had fully paid 535 shares of stock, and the
Corporation issued to him] several fully paid up and non-assessable certificates of stock,
corresponding to 535 shares. Defendants Ungson, Estrada, Fernandez and Yuzon, constituted
the majority of the holdover seven member Board of Directors of the Corporation. Let the first
group be called the Ungson Group and the second, Baltazar group.

In the absence of special agreement to the contrary, a subscriber for a certain number of
shares of stock does not, upon payment of one-half of the subscription price become entitled to
the issuance of certificates for one-half of the number of shares subscribed for; the subscriber’s
right consists only in equity entitling him to a certificate for the total number of shares subscribed
for by him upon payment of the remaining portion of the subscription price.

ISSUE
Whether or not the partially unpaid subscriptions in a stock corporation are entitled to
vote based on an agreement entered into by the Board of Directors

RULING:
NO. The cases at bar do not come under the aegis of the principle enunciated in the Fua
Cun v. Summers case, because it was the practice and procedure, since the inception of the
corporation, to issue certificates of stock to its individual subscribers for unpaid shares of stock
and gave voting power to shares of stock fully paid. And even though no agreement existed, the
ruling in said case, does not now reflect the 6correct view on the matter, for better than an
agreement or practice, there is the law, which renders the said case of Fua Cun-Summers,
obsolescent.

The cited case connotes the principle that a partial payment of a subscription, does not
entitle the Stockholder to a certificate for the total number of shares subscribed by him; his right
consists only in equity to a certificate of the total number of shares subscribed for, upon
payment of the remaining portion of the subscription price. In other words, it is contended, as in
the present case, that if Baltazar subscribed to 600 shares of stock in a single subscription, and
he merely paid for 300 shares, for which he was given fully paid certificates for 300 shares, he
cannot vote said 300 shares, in any meeting of the Corporation, until he shall have paid the
remaining 300 shares of stock. The saving clause in the quoted pronouncement, "in the
absence of agreement to the contrary," reveals that the doctrine is not mandatory, but merely
directory and that if "there is an agreement to the contrary," which is not violative of law, the
rigor of the pronouncement may be relaxed. The plaintiffs-appellees seem to sustain an adverse
concept, postulating that once a stockholder has subscribed to a certain number of shares,
although he has made partial payments only, but is issued a certificate for the paid up share of
stock, he is entitled to vote the whole number of shares subscribed by him, paid or not, until the
said unpaid shares shall have been called for payment or declared delinquent.

In the cases at bar, the defendant-corporation had chosen to apply payments by its
stockholders to definite shares of the capital stock shares certificates for said payments; its call
for payment of unpaid subscriptions and its declaration of delinquency for nonpayment of said
call affecting only the remaining number of shares of its capital stock, for which no fully paid
capital stock shares certificates have been issued, and only these have been legally shorn of
their voting rights by said declaration of delinquency.
[GR L-28120, 25 November 1976]

RICARDO A. NAVA, Peti ti oner-appellant, vs. PEERS MARKETING CORP., RENATO R. CUSI
AND AMPARO CUSI, Respondents-appellees

FACTS
Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at
P100 a share or a total par value of P8,000. Po paid P2,000 or 25% of the amount of his
subscription. No certificate of stock was issued to him or, for that matter, to any incorporator,
subscriber or stockholder. On 2 April 1966 Po sold to Ricardo A. Nava for P2,000 20 of his 80
shares. In the deed of sale Po represented that he was "the absolute and registered owner of
twenty shares" of Peers Marketing Corp. Nava requested the officers of the corporation to
register the sale in the books of the corporation. The request was denied because Po has not
paid fully the amount of his subscription. Nava was informed that Po was delinquent in the
payment of the balance due on his subscription and that the corporation had a claim on his
entire subscription of 80 shares which included the 20 shares that had been sold to Nava. On
21 December 1966 Nava filed a mandamus action in the Court of First Instance of Negros
Occidental, Bacolod City Branch to compel the corporation and Renato R. Cusi and Amparo
Cusi, its executive vice-president and secretary respectively, to register the said 20 shares in
Nava's name in the corporation's transfer book. The corporation and the Cusis pleaded the
defense that no shares of stock against which the corporation holds an unpaid claim are
transferable in the books of the corporation. After hearing, the trial court dismissed the petition.
Nava appealed.

ISSUE
Whether the officers of Peers Marketing Corporation can be compelled by mandamus to
enter in its stock and transfer book the sale made by Po to Nava of the 20 shares forming part
of Po's subscription of 80 shares, with a total par value of P8,000 and for which Po had paid
only P2,000, it being admitted that the corporation has an unpaid claim of P6,000 as the
balance due on Po's subscription and that the 20 shares are not covered by any stock
certificate. 7
HELD
The transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that is
supposed to be recorded in the stock and transfer book, as contemplated in section 52 of the
Corporation Law. As a rule, the shares which may be alienated are those which are covered by
certificates of stock. The twenty shares in question, however, are not covered by any certificate
of stock in Po's name. Moreover, the corporation has a claim on the said shares for the unpaid
balance of Po's subscription. A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his subscription as he would be
to pay any other debt. The right of the corporation to demand payment is no less incontestable.
A corporation cannot release an original subscriber from paying for his shares without a
valuable consideration or without the unanimous consent of the stockholders. Thus, herein,
there is no clear legal duty on the part of the officers of the corporation to register the 20 shares
in Nava's name. As no stock certificate was issued to Po; and without the stock certificate,
which is the evidence of ownership of corporate stock, the assignment of corporate shares is
effective only between the parties to the transaction. The delivery of the stock certificate, which
represents the shares to be alienated, is essential for the protection of both the corporation and
its stockholders.
DIVIDENTS PURCHASE BY CORPORATION OF SHARES

G.R. No. L-21601 December 17, 1966

NIELSON & COMPANY, INC., Plaintiff-appellant -versus- LEPANTO CONSOLIDATED

MINING COMPANY, Defendant-appellee

FACTS
On January 30, 1937, the parties have entered into an operating agreement wherein
Nielson & Co. would operate and manage the mining properties owned by Lepanto
Consolidated Mining Co. for a period of five years. Before the lapse of the five year period, the
parties have renewed the contract for another five years with modifications made by Lepanto on
the management fee.

On its modified contract Nielson will receive (1) 10% of the dividends declared and paid,
when and as paid during the period of the contract and at the end of each year, (2) 10% of any
depletion reserve that may set up, and (3) 10% of any amount expended during the year out of
surplus earnings for capital account.

In January, 1942 operation of the mining properties was disrupted on account of the war.
The Japanese forces thereafter occupied the mining properties, operated the mines during the
continuance of the war, and who were ousted from the mining properties only in August of 1945.

After the mining properties were liberated from the Japanese forces, Lepanto took
possession thereof and embarked in rebuilding and reconstructing the mines and mill. The
restoration lasted for nearly three years and the mines have resumed its operation under the
exclusive management of Lepanto. Shortly after the mines were liberated from the Japanese
invaders in 1945, a disagreement arose between NIELSON and LEPANTO over the status of
the operating contract in question which as renewed expired in 1947.

ISSUE
Whether or not Nielson is entitled to his share in the stock dividends.
8
HELD
Stock dividends cannot be issued to a person who is not a stockholder in payment of
services rendered.

Section 16 of the Corporation Law, in part, provides a follows:

No corporation organized under this Act shall create or issue bills, notes or other
evidence of debt, for circulation as money, and no corporation shall issue stock or bonds except
in exchange for actual cash paid to the corporation or for: (1) property actually received by it at a
fair valuation equal to the par or issued value of the stock or bonds so issued; and in case of
disagreement as to their value, the same shall be presumed to be the assessed value or the
value appearing in invoices or other commercial documents, as the case may be; and the
burden or proof that the real present value of the property is greater than the assessed value or
value appearing in invoices or other commercial documents, as the case may be, shall be upon
the corporation, or for (2) profits earned by it but not distributed among its stockholders or
members; Provided, however, That no stock or bond dividend shall be issued without the
approval of stockholders representing not less than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the corporation or at a special meeting duly called for the
purpose.
In the case at bar Nielson cannot be paid in shares of stock which form part of the stock
dividends of Lepanto for services it rendered under the management contract. We sustain the
contention of Lepanto that the understanding between Lepanto and Nielson was simply to make
the cash value of the stock dividends declared as the basis for determining the amount of
compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the
stock dividends declared. In other words, Nielson must still be paid his 10% fee using as the
basis for computation the cash value of the stock dividends declared.
9
52 A.2d 571 (Pa. 1947) May 7, 1947

BERKS BROADCASTING CO. V. CRAUMER

1. Under section 707 of the Business Corporation Law of May 5, 1933, P. L. 364, a
corporation which has unlawfully paid a dividend may recover the amount of it from the directors
under whose administration it was paid.
2. Under section 701 of the Law a corporation, in computing a surplus from which cash
dividends may lawfully be paid, must not include as an asset any unrealized appreciation in the
value of its fixed assets
3. The capital of a corporation must not be impaired in any manner, except as such an
impairment may involuntarily occur through losses resulting from the operation of the company's
business
4. It is illegal for a corporation to declare and pay dividends from other than a surplus
consisting of an excess in the value of the assets over the aggregate of the liabilities and the
issued capital stock.
5. The surplus from which dividends may properly be declared and paid must be a bona
fide and not an artificial or fictitious one; it must be founded upon actual earnings or profits and
not be dependent for its existence upon a theoretical estimate of an appreciation in the value of
the company's assets.
6. Under the Act of July 17, 1935, P. L. 1123 (which amends section 701 of the Business
Corporation Law by providing that the amount of unrealized appreciation is not to be included
among the assets of the corporation in determining the existence of a surplus available for the
payment of a dividend "unless the amount thereof shall have been transferred to, or included in,
its stated capital") the prohibition applies unless the stated capital is increased to the same
extent by the issue of additional stock in that amount, as by a stock dividend.
7. The prohibition against declaring 10 and paying a dividend based on unrealized
appreciation in value or revaluation of fixed assets is confined by section 701 of the Business
Corporation Law to dividends "in cash or property"; there is no such prohibition against
declaring a stock dividend to represent the alleged increases in value.
8. Where the value of a franchise is carried as an asset on a company's balance sheet it
should, if limited, be amortized over its term; if indeterminate, and subject to revocation at the
pleasure of the authority which had granted it, proper accounting would require that it be written
off as quickly as possible.
9. The market price of shares of stock of a corporation has no relation whatever to the
factors which the law prescribes as determinative of the right of a corporation to declare
dividends.
District Court, D. New Jersey 39 F. Supp. 675 (1941) July 3, 1941.

LICH v UNITED STATES RUBBER CO.

FACTS
United States Rubber Company (US Rubber) is a corporation organized and existing
under the laws of the State of New Jersey, having been originally incorporated in 1892 under an
Act entitled "An Act Concerning Corporations," approved April 7, 1875, Revision 1877, p. 175,
and, acts amendatory thereof and supplementary thereto. Sophia G. Lich, is, and was during
the years in question, the holder of three hundred shares of non-cumulative preferred stock of
the US Rubber.
US Rubber, in 1938, pursuant to and in accordance with a statute reconstructed its
capital structure. There was issued, in lieu of the outstanding common stock of no par value,
common stock of the par value of $10. This reconstruction reduced the capital liability and
created a capital surplus, which was applied to the then existing deficit, resulting in its
cancellation. Thereafter, in the years 1938, 1939, and 1940, the deficit having been cancelled,
the annual net earnings for each of the said years were productive of net profits and were
available for the declaration and lawful payment of dividends; in each of the said years
dividends on the non-cumulative preferred stock were declared and paid in full. No dividends,
however, were declared on the common stock.
On March 5, 1941, US Rubber declared a dividend, payable on April 30, 1941, on both
the preferred and common stock. This declaration of dividends, which is herein questioned,
specifically contemplates payment from the net profits of the current year and from no other
fund. It is to be noted that in the years in question, to wit, 1935, 1936, and 1937, US Rubber,
despite the deficit, maintained adequate reserves.
Lich alleges that the established preference as to dividends, to wit, priority of payment,
11
extends not only to the current year, but to the prior years of 1935, 1936, and 1937, to the
extent of the annual net earnings of the said years; and, that dividends may not be paid on the
common stock at this time until the dividends are paid on the preferred stock for the years in
question, either in full or in proportion to the annual net earnings of those years.

ISSUE
Whether or not Lich is entitled to dividends for the years of 1935, 1936, and 1937, to the
extent of the annual net earnings of the said years

RULING
No. In the immediate case there were, in the years in question, to wit, 1935, 1936, and
1937, no net profits to which the inchoate right to dividends could have attached. There was, in
each of the said years, a substantial deficit which greatly exceeded the annual net earnings of
the corresponding year, and, to the reduction of which the annual net earnings were applied. It
is manifest that the annual net earnings of each of the said years resulted, not in a profit, but in
a reduction of the deficit. There was in each of the said years no source from which dividends
could have been paid lawfully; the payment of dividends under the circumstances would have
been unlawful.
No dividend is earned in any year unless the operations for that year produce a fund (which
need not be cash) which may someday be available for the dividend. The hoped-for profits of
1938 can never be used for dividends, but must be applied to prior losses.
285 N.W. 809 APR 14, 1939

KEOUGH V. ST. PAUL MILK CO.

FACTS:
In 1936, the company did not declare dividends in spite of the fact that there was an
accumulated surplus (about $394T). Keough, a minority SH, sued to have a declaration of cash
dividends contending that: “Those in charge of the corporate affairs are wrongfully and
needlessly withholding profits available for cash dividend and conspiring to retain them for their
benefit and to the prejudice of the majority.”
In three suits tried together, one to recover salary from defendant corporation, one as a
representative suit to recover for the corporation excessive salaries paid to officers and for
corporate property converted, and the third to recover shares of stock improperly issued to
another, in all of which suits the plaintiff, or the plaintiff and his trustee prevailed, except as to
one item in the salary suit, it is held on appeals from orders denying plaintiff's and defendants'
motions for new trial

HELD: It seems clear, in light of the facts, the C did not have a reasonable need to for
the large surplus accumulated and held as bonds or other easily liquidated assets in December
1936.

a) The merchandise inventory was small with an almost daily cash turnover.
b) There were no substantial obligations to be met.
c) The evidence does not disclose any immediate expansion program.
d) 12 were adequately set up.
Accounts for obsolescence and depreciation

Hence, the surplus was easily available for dividends if the directors so elected.

The large surplus also existed at the time when the Ryans (BOD) were receiving salaries in
excess of their worth and draining from the C cash otherwise available for dividends. Viewed in
light of these facts, the spectacle takes on a distinct color of fraud and bad faith.
204 Mich. 459, 1919 Mic

Dodge v. Ford Motor Co

FACTS
Defendant Corporation was the dominant manufacturer of cars when this case was
initiated. At one point, the cars were sold for $900, but the price was slowly lowered to $440 –
and finally, Defendant lowered the price to $360. The head of Defendant Corporation, Henry
Ford, admitted that the price negatively impacted short-term profits, but Ford defends his
decision altruistically, saying that his ambition is to spread the benefits of the industrialized
society with as many people as possible. Further, he contends that he has paid out substantial
dividends to the shareholders ensuring that they have made a considerable profit, and should
be happy with whatever return they get from this point forward. Instead of using the money to
pay dividends, Ford decided to put the money into expanding the corporation.
ISSUE
The issue is whether Plaintiff shareholders can force Defendant to increase the cost of
the product and limit the money invested into expansion in order to pay out a larger dividend.
RULING
Plaintiffs are entitled to a more equitable-sized dividend, but the court will not interfere
with Defendant’s business judgments regarding the price set on the manufactured products or
the decision to expand the business. The purpose of the corporation is to make money for the
shareholders, and Defendant is arbitrarily withholding money that could go to the shareholders.
Notably, Ford did not deny himself a large salary for his position with the company in order to
achieve his ambitions. However, the court will not question whether the company is better off
with a higher price per vehicle, or if the expansion is wise, because those decisions are covered
under the business judgment rule.
13
87 Kan. 6 No. 17,310 May 11 1912

BURK, et al., Appellants -- BURK V. OTTAWA GAS & ELECTRIC CO. , Appellees

FACTS
This action was brought by the preferred stockholders' of the .Ottawa Gas and Electric
Company against two other corporations, alleged to have some interest in the matter in
controversy, and W. T. Harris, George A. Rodgers, C. H. Pattison, S. J. Mattox, Y. Hundley and
I. W. King, alleged to be the officers and directors of the Ottawa Gas and Electric. Company.
The action was brought to require all of the defendants to account for all the property
and assets of every description which were at the time of bringing-the action or had been at any
time in the possession of' the defendants or any of them, and that upon the final, hearing of the
action the court should order the directors of the Ottawa Gas and Electric Company to declare
such dividends from the net profits of the business of such company as should have been
declared since January 1, 1906, and further, to restrain the officers and directors of the Ottawa
Gas and Electric Company' during the pendency of the action from paying out. any of the
money or disposing of the assets of the company except such amounts as should be necessary
to-pay the actual necessary current expenses of conducting the business of the company, and
other relief is prayed for.
HELD
Case remanded to the LC to ascertain facts necessary to protect the rights of the P SH.
The Directors of the C owed a positive duty to pay a dividend to the P SHs whenever in any
year there were net profits available. The funds that might be used for that purpose could not
rightfully be expended for extensions merely for the benefit of the business, nor could they be
withheld to meet the expenses of the next year.
14
It is against public policy to construe the terms upon which stock is issued so as to
require dividends to be paid to preferred creditors out of the invested capital, as that might result
in the destruction of the corporation. (Lockhart v. Van Alstyne, 31 Mich. 76, 18 Rep. 156.) But
no such objection attaches to a construction that makes mandatory the payment of dividends
out of the net profits.
The fair interpretation of the contract between the corporation and the holder of this
stock is that if in any year net profits are earned, a dividend is to be declared. To hold that the
board of directors, that is to say, the corporation, has a discretion to declare or not to de clare a
dividend when it has funds that it can use for the purpose is to hold that, one of the parties to a
contract has the option to pay something to the other or not, at its own election, since, if the
div'idefid is not declared at the end of the year, the benefits of the accumulated profits are
practically lost to these stockholders. Such a construction should be avoided if any other is
reasonably open, because it would result in temptation to unfair dealing.
Since the only possible source of profit to the P SH from his investment is the distribution
of earnings in the year in w/c they accrue, he has a right to insist that an accounting shall be
taken annually, and that the surplus of one year, available for a dividend, shall not be carried
over to meet a possible deficiency of the next.
McLaren v. Crescent Planning Mill Co., 93 S.W. 819

FACTS
C being solvent and possessing ample funds, at a regular meeting of the BOD
unanimously adopted a resolution:

“Moved and seconded that the company declare a dividend of 6%. Divided into 4
payments of 1.5% each, payable Feb 15, April 1, July 1, and October 1, 1903.”
C was $29,000 surplus. BOD failed to pass a resolution setting aside a fund for the said
dividends. The 1.5% installment falling due on Feb1 was paid. However, the 1.5% installment
falling due April 1 was not paid and at a meeting of the BOD (held on April 11) it was shown that
an error had been discovered in the previous showing of the financial condition of the company
and that its assets were actually $6,000 less than had been understood, w/c reduced its surplus
from $29,000 to $23,000. Hence, the BOD issued a resolution (April 11):
“…. recalling of dividends payable April 1, July 1, and October 1
be adopted, that payment of said dividends be indefinitely
deferred and the said dividends rescinded and recalled.”
C sought to revoke and rescind the former declaration of dividends. The C was perfectly
solvent and had ample funds on hand at that time to pay the dividend and retain a comfortable
surplus of $20,000. Plaintiff (McLaran is actually the administrator of the Plaintiff who died
during the appeal) requested the payment of his installment of the dividend falling due April 1
but was refused on the ground that its declaration and allowance had been superseded and set
aside by the resolution of April 11. Plaintiff sued C with the defense:

a) there was no declaration of a dividend because the BOD failed at that time, or at
any prior time to the institution of the suit, to set apart funds for the payment of
the same. 15
b) April 11 BOD resolution set aside its former action and thereby rescinded and
recalled the dividend.

ISSUE
The right of SHs to be paid dividends vests as soon as the same has been lawfully
declared by the BOD. From that time, it becomes a debt owing by the C to each stockholder and
no revocation of the dividends can be made.

RULING
If the declaration of the dividend is fairly and properly made, out of profits existing at the
time it is declared, the relation of debtor and creditor is hereby established between the C and
the SHs and a debt is hereby created against the C and in favor of the SH for the amount of the
dividend due on the stock held by him. By the mere declaration, the dividend becomes
immediately fixed and absolute in the SH and from thenceforth the right of each individual SH is
changed by the act of declaration from that of partner and part owner of the C property to a
status absolutely adverse to every other SH and to the C itself, in so far as his pro rata
proportion of the dividend is concerned.
It follows that a cash dividend, properly and fairly declared, cannot be revoked by the
subsequent action of the C, for it, by the declaration of the dividend, the C becomes the debtor
of the SH, it goes w/o saying that the debtor cannot revoke, recall or rescind the debt or
otherwise absolve itself from its payment by any action on its part against or w/o the consent of
the creditor, and therefore the resolution of April 11, attempting to do so, was of no force.
GR No. 157479 November 24, 2010,

PHILIP TURNER and ELNORA TURNER, Peti ti oners -versus- LORENZO SHIPPING

CORPORATION, Respondent

FACTS
This case concerns the right of dissenting stockholders to demand payment of the value
of their shareholdings. The petitioners held 1,010,000 shares of stock of the respondent, a
domestic corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent decided to amend its articles of incorporation to remove the stockholders’ pre-
emptive rights to newly issued shares of stock. Feeling that the corporate move would be
prejudicial to their interest as stockholders, the petitioners voted against the amendment and
demanded payment of their shares at the rate of ₱2.276/share based on the book value of the
shares, or a total of ₱2,298,760.00.

In its letter to the petitioners dated January 2, 2001, the respondent refused the
petitioners’ demand, explaining that pursuant to the Corporation Code, the dissenting
stockholders exercising their appraisal rights could be paid only when the corporation had
unrestricted retained earnings to cover the fair value of the shares, but that it had no retained
earnings at the time of the petitioners’ demand, as borne out by its Financial Statements for
Fiscal Year 1999 showing a deficit of ₱72,973,114.00 as of December 31, 1999.

In the stockholders’ suit to recover the value of their shareholdings from the corporation,
the Regional Trial Court (RTC) upheld the dissenting stockholders, herein petitioners, and
ordered the corporation, herein respondent, to pay. Execution was partially carried out against
the respondent. On the respondent’s petition for certiorari, however, the Court of Appeals (CA)
corrected the RTC and dismissed the petitioners’ suit on the ground that their cause of action for
collection had not yet accrued due to the lack of unrestricted retained earnings in the books of
the respondent. The petitioners now come to the Court for a review on certiorari of the CA’s
decision

ISSUES
16
Whether the dissenting stockholders (petitioners) can recover the value of their
shareholdings despite inexistence of URE at the time of demand

RULING

NO. Stockholder’s Right of Appraisal, In General a stockholder who dissents from

certain corporate actions has the right to demand payment of the fair value of his or her shares.
This right, known as the right of appraisal, is expressly recognized in Section 81 of the
Corporation Code.

The right of appraisal may be exercised when there is a fundamental change in the
charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does
not vest unless objectionable corporate action is taken. It serves the purpose of enabling the
dissenting stockholder to have his interests purchased and to retire from the corporation.

Notwithstanding, no payment shall be made to any dissenting stockholder unless the

corporation has unrestricted retained earnings in its books to cover the payment. In case the
corporation has no available unrestricted retained earnings in its books, Section 83 of the
Corporation Code provides that if the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend rights shall immediately be restored.

The trust fund doctrine backstops the requirement of unrestricted retained earnings to
fund the payment of the shares of stocks of the withdrawing stockholders. Under the doctrine,
the capital stock, property, and other assets of a corporation are regarded as equity in trust for
the payment of corporate creditors, who are preferred in the distribution of corporate assets.
The creditors of a corporation have the right to assume that the board of directors will not use
the assets of the corporation to purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no distribution of assets among the stockholders
without first paying corporate debts. Thus, any disposition of corporate funds and assets to the
prejudice of creditors is null and void.

17
AMENDMENTS TO CHARTER

74 N.E.2d 228 Jul 2, 1947

Marcus v. RH MACY CO. INC.

FACTS

Marcus is a registered owner of 50 Common Stocks of RH MACY CO. INC. RH MACY

CO. INC. gave formal notice to its SHs that among other matters to be acted upon its annual
meeting would be a proposal recommended by the BOD that its certificate of incorporation be
so amended as to add to the rights of PS voting rights, equal share or share to those w/c the
holders of the C’s Common Stocks are entitled. Prior to the annual meeting, Marcus sent a
written notice to the C that as a Common stockholder that:

a) She objected to the proposed amendment of the certificate

of incorporation

b) Demanded payment for the Common Stocks owned by her

The proposal was approved by the SHs w/ Marcus voting against. Marcus instituted a
suit to determine the value of her stock as a basis for the enforcement of payment therefore.
Marcus application was not made in good faith since the effect of the amendment on her was
trivial because she only owns 50 Common Stocks (out of 1,656,000 shares of common stock).

HELD

An alteration or limitation on the voting power of the Common Shares held by Marcus-
when considered w/ the facts that she gave to the C formal written notice of her objection to the
proposed amendment to the C’s charter w/ a demand for payment of her stock, and thereafter
18
caused her shares to be voted against that amendment at the annual meeting- was sufficient to
qualify her to invoke the statutory procedure upon w/c the present proceeding is based.

By thus limiting the voting power of Marcus’ common shares to a proportionate extent
measured at a given time by the number of Preferred Shares then issued and outstanding, the
C action to w/c Marcus objected was of such a character as to afford her a legal basis to invoke
a procedure prescribed by law as a means to accomplish the appraisal of her stock and
payment therefore.

As to the argument of C, it is enough to say that the legislature has clearly prescribed
the conditions under w/c a nonconsenting SH may have hi stock evaluated and enforce
payment therefore. We find in those conditions no legislative declaration of a minimum
percentage or value of stock w/c must be owned by a nonconsenting SH to qualify him to invoke
the prescribed statutory procedure.
G.R. No. L-19761 January 29, 1923

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperati va Naval Filipina,"

plainti ff -appellee, vs. MARCIANO RIVERA, defendant-appellant

FACTS
PHILIPPINE TRUST CO. (as assignee in insolvency of the C-
COOPERATIVE NAVAL FILIPINA) sued Rivera for the purpose of recovering a
balance of P22,500 alleged to be due upon his subscription to the capital
stock of said insolvent C. COOPERATIVE NAVAL FILIPINA has a capital f
P100,000 divided into 1,000 shares of a par value of P100/share. Rivera
subscribed for 450 shares (P45,000) and paid only half of it (P22,500). C
became insolvent and went into the hands of PHILIPPINE TRUST CO.
PHILIPPINE TRUST CO sued Rivera to recover ½ of his stock subscription
(P22,500). Not long after the COOPERATIVE NAVAL FILIPINA had been
incorporated, a meeting of its SHs occurred, at w/c a resolution was adopted
that the capital should be reduced by 50% and the subscribers released from
the obligation to pay any unpaid balance of their subscription in excess of
50% of the same. LC made a finding that the formalities of the Corporation
Law relative to the reduction of capital stock in Cs were not observed, and it
does not appear that any certificate was at any time filed in the Bureau of
Commerce, showing such reduction.

ISSUE
In the case before us, the resolution releasing the shareholders from
their obligation to pay 50% of their respective subscriptions was an attempted
withdrawal of so much capital from the fund upon w/c the C’s creditors are
entitled ultimately to rely and, having19been effected w/o compliance w/ the
statutory requirements, was wholly ineffectual

RULING
It is the established doctrine that subscriptions to the capital of a C
constitute a fund to w/c creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payment of its
debt (Velasco v Poizat).
A C has no power to release an original subscriber to its capital stock
form the obligation of paying his shares, w/o a valuable consideration for
such release; and as against creditors a reduction of the capital stock can
take place only in the manner and under the conditions prescribed by the
statute or the charter or the AOI. Moreover, strict compliance w/ the statutory
regulation is necessary.
G.R. No. L-30460             March 12, 1929
C. H. STEINBERG, as Receiver of the Sibuguey Trading Company,
Incorporated ,   plaintiff-appellant, vs. GREGORIO VELASCO, ET AL.,   defendants-
appellees.
FACTS:
Steinberg (P) is the receiver of Sibuguey Trading Corp. P alleges that [Velasco, as
president, Del Castillo, as vice-president, Navallo, as secretary-treasurer, and Manuel, as
director of the trading Company][R], at a meeting of the board of directors held on July 24, 1922,
approved and authorized various lawful purchases already made of a large portion of the capital
stock of the company from its various stockholders, thereby diverting its funds to the injury of
the creditors of the corp. At the time of such purchase, the corporation had debts amounting to
P13,807.50, most of which were unpaid at the time petition for the dissolution of the corporation
was financial condition, in contemplation of an insolvency and dissolution.
P also alleges that R approved a resolution for the payment of P3,000 as dividends to its
stockholders, which was done in bad faith, and to the injury and fraud of its creditors since it had
accounts less in amount than the accounts receivable. R argues that the distribution of
dividends was authorized by the board of directors and they constitute surplus profit of the corp.
The lower court found out that R authorized the purchase of, purchased and paid for, 330
shares of the capital stock of the corporation at the agreed price of P3,300, and that at the time
the purchase was made, the corporation was indebted in the sum of P13,807.50, and that
according to its books, it had accounts receivable in the sum of P19,126.02.
ISSUE:
Whether R can declare dividends
RULING:
20
No. The action of the board in purchasing the stock from the corporation and
in declaring the dividends on the stock was all done at the same meeting of the
board of directors. The directors were permitted to resign so that they could sell
their stock to the corporation. The authorized capital stock was P20 ,000 divided
into 2,000 shares of the par value of P10 each, which only P10,030 was subscribed
and paid. Deducting the P3 ,300 paid for the purchase of the stock, there would be
left P7,000 of paid up stock, from which deduct P3,000 paid in dividends, there
would be left P4,000 only. R acted on assumption that it appeared from the books
of the corporation that it had accounts receivable of the face value of P19 ,126.02 ,
therefore it had a surplus over and above its debts and liabilities. However, there is
no stipulation as to the actual cash value of those accounts, and it does appear
from the stipulation that, P12 ,512.47 of those accounts had but little value. The
corporation did not then have an actual bona fide surplus from which the dividends
could be paid, and that the payment of them in full at the time would affect the
financial condition of the corporation. Because of this, the directors did not act in
good faith or that they were grossly ignorant of their duties. Creditors of a
corporation have the right to assume that so long as there are outstanding debts
and liabilities, the board of directors will not use the assets of the corporation to
purchase its own stock, and that it will not declare dividends to stockholders when
the corporation is insolvent. TRANSFER OF SHARES
17. Uson v. Diomosoto 61 Phil 635
 G.R. No. L-49003 July 28, 1944
ANTONIO ESCAÑO, plaintiff-appellee, vs. FILIPINAS MINING CORPORATION , ET Al.,
defendants. STANDARD INVESTMENT OF THE PHILIPPINES , appellant.

FACTS:

On March 8, 1937, the plaintiff-appellee obtained judgment against Silverio Salvosa

whereby the latter was ordered to transfer and deliver to the former 116 active shares and an
undetermined number of shares in escrow of the Filipinas Mining Corporation and to pay the
sum of P500 as damages, with the proviso that the escrow shares shall be transferred and
delivered to the plaintiff only after they shall have been released by the company. A writ of
garnishment was served by the sheriff of Manila upon the Filipinas Mining Corporation to satisfy
the said judgment; and Filipinas Mining Corporation advised the sheriff of Manila that according
to its books the judgment debtor Silverio Salvosa was the registered owner of 1,000 active
shares and about 21,339 unissued shares held in escrow by the said corporation. The sheriff
sold the 1,000 active shares at public auction.

It appears that Silverio Salvosa sold to Jose P. Bengzon all his right, title, and interest in and to
18,580 shares of stock of the Filipinas Mining Corporation held in escrow which the said
Salvosa was entitled to receive, and which Bengzon in turn subsequently sold and transferred to
Standard Investment of the Philippines. Neither Salvosa's sale to Bengzon nor Bengzon's sale
to the Standard Investment of the Philippines was notified to and recorded in the books of the
Filipinas Mining Corporation more than three years after the escrow shares in question were
attached by garnishment served on the Filipinas Mining Corporation as hereinbefore set forth.

On January 24, 1941, the defendant Filipinas Mining Corporation issued in favor of the
defendant Standard
Investment of the Philippines certificate of stock for the 18,580 shares formerly held in escrow
by Silverio Salvosa and which had been adversely by the present plaintiff-appellee on the one
hand and the Standard Investment of the Philippines on the other, the first by virtue of
garnishment proceedings and the second by virtue of the sale made to it by Jose P. Bengzon as
aforesaid. 21
ISSUE
Whether or not the issuance by the Filipinas Mining Corporation of the said 18,580
shares of its stock to the Standard Investment of the Philippines was valid as against the
attaching judgment creditor of the original owner.

RULING
No. The transfer of duly issued shares of stock is not valid as against third parties and
the corporation until it is noted upon the books of the corporation. The reasons for the
registration are (1) to enable the corporation to know at all times who its actual stockholders are,
because mutual rights and obligations exist between the corporation and its stockholders; (2) to
afford to the corporation an opportunity to object or refuse its consent to the transfer in case it
has any claim against the stock sought to be transferred, or for any other valid reason; and (3)
to avoid fictitious or fraudulent transfers.

Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still held
by the corporation in escrow pending receipt of authorization from the Government to issue
them, may be negotiated or transferred unrestrictedly and more freely than active or issued
shares evidenced by certificates of stock.

We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, which
requires the registration of transfers of shares stock upon the books of the corporation as a
condition precedent to their validity against the corporation and third parties, is also applicable
to unissued shares held by the corporation in escrow.
G.R. Nos. L-57586 October 8, 1986

AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT, INC.,
Peti ti oners, -versus – THE HON. ALFREDO C. FLORENDO, AS JUDGE OF THE COURT OF
FIRST INSTANCE OF MANILA (BRANCH XXXVI), LOURDES JUREIDINI and MILAGROS
TSUCHIYA, Respondents

FACTS
Fujiyama Hotel & Restaurant, Inc. is incorporated with a capital stock of P1 million
divided into 10,000 shares of P100.00 par value each by Aquilino Rivera and 4 other
incorporators. Subsequently, Rivera increased his subscription from the original 1,250 to a total
of 4899 shares. Isamu Akasako who is allegedly the real owner of the shares of stock in the
name of Rivera, sold 2550 shares of the same to Milagros Tsuchiya with the assurance that
Tsuchiya will be made the President while Lourdes Jureidini will be made a director after the
purchase. Rivera who was in Japan also assured Tsuchiya and Jureidini by overseas call that
he will sign the stock certificates because Akasako is the real owner. However, after the sale
was consummated, Rivera refused to make the indorsement unless he is also paid.

It appears that the other incorporators sold their shares to both Jureidini and Tsuchiya
such that both became the owners of a total of 3300 shares out of 5,649 outstanding subscribed
shares and that there was no dispute as to the legality of the transfer of the stock certificate to
Jureidini, all of which bear the signatures of the president and the secretary with the proper
indorsements of the respective owners appearing thereon. Some are specifically indorsed to her
while others are indorsed in blank. Rivera admitted the genuineness of all the signatures of the
officers of the corporation and of all the indorsee therein.

Tsuchiya and Jureidini attempted several times to register their stock certificates with the
corporation but the latter refused to register the same. Thus, they filed a special civil action for
mandamus and damages against the petitioners. Petitioners filed a motion to dismiss on the
ground that Judge Florendo has no jurisdiction to entertain the case.

ISSUES 22
Whether the certificate of stock was properly transferred

RULING
Section 63 of the Corporation Code provides that the shares of stock so issued are
personal property and may be transferred by delivery of the certificate indorsed by the owner or
his attorney- -in-fact or other person legally authorized to make the transfer. No transfer,
however, shall be valid, except as between the parties, until the transfer is recorded in the book
of the corporation showing the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred. There should
be compliance with the mode of transfer prescribed by law. In the case at bar, the requirements
cited above were not properly complied with. No indorsement was made by Rivera, the
registered owner of the subject shares ofstock. In fact, the bone of contention in this case is the
refusal of Rivera to indorse the same. Considering the foregoing, the lower court correctly ruled
that the case is not an intra-corporate one.

Mandamus will not lie where the shares of stock in question are not even indorsed by
the registered owner Rivera who is specifically resisting the registration thereof in the books of
the corporation. Even the shares of stock which were purchased by respondents from the other
incorporators cannot also be the subject of mandamus on the strength of mere indorsement of
supposed owners of said shares in the absence of express instructions from them.
G.R. No. 164588 October 19, 2005,

NAUTICA CANNING CORPORATION, FIRST DOMINION PRIME HOLDINGS, INC. and

FERNANDO R. ARGUELLES, JR., Peti ti oners, -versus – ROBERTO C. YUMUL, Respondent

FACTS
Nautica Canning Corporation (Nautica) was incorporated with an authorized capital
stock of P40 million divided into 400,000 shares. One of its stockholders is Alvin Dee who have
89,991 shares, making him own the majority of the outstanding capital shares. Roberto C. Yumul
was then appointed as the Chief Operating Officer/General Manager of Nautica. On the same
date, First Dominion Prime Holdings, Inc. (FDPHI), Nautica's parent company, through its
Chairman, Alvin Y. Dee, granted Yumul an option to purchase up to 15% of the total stocks it
subscribed from Nautica.
Subsequently, a deed of trust and assignment was executed between FDPHI and Yumul
whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed
stated that the shares were acquired and paid for in the name of the assignor only for
convenience but actually executed in behalf of and in trust for the asignee. Yumul resigned from
Nautica. He then wrote a letter to Dee requesting the latter to formalize his offer to buy Yumul's
15% share in Nautica and demanding the issuance of the corresponding certificate of shares in
his name should Dee refuse to buy the same. Dee denied the request claiming that Yumul was
not a stockholder of Nautica.
Subsequently, Yumul requested that the deed of trust and assignment be recorded in
the stock and transfer book of Nautica, and that he, as a stockholder, be allowed to inspect its
books and records. These requests were denied allegedly because he neither exercised the
option to purchase the shares nor paid for the acquisition price of the 14,999 shares. The cash
dividends received by Yumul in consonance withi his shares of stock are allegedly held by him
only in trust for FDPHI. Consequently, Yumul filed before the SEC a petition for mandamus with
damages, with prayer that the deed of trust and assignment be recorded in the stock and
transfer book of Nautica and that the certificate of stocks corresponding thereto be issued in his
name. The SEC ruled in favor of Yumul.

ISSUE 23
Whether Yumul may inspect the stock and transfer book.

RULING

It is possible for a business to be wholly owned by 1 individual. The validity of its

incorporation is not affected when such individual gives nominal ownership of only 1 share of
stock to each of the other 4 incorporators. This is not necessarily illegal. However, it must be
noted that this is valid only between or among the incorporators privy to the agreement. It does
bind the corporation which, at the time the agreement is made, was non-existent. As such,
incorporators continue to be stockholders unless, subsequent to the incorporation, they have
validly transferred their subscriptions to the real parties in interest. As between the corporation
on the one hand, and its shareholders and third persons on the other, the corporation looks only
to its books for the purpose of determining who its shareholders are.

In the case at bar, Yumul is found to be a stockholder of Nautica for 1 share of stock
which was recorded in Yumul's name although allegedly held in trust for Dee. Nautica's Articles
of Incorporation and By-laws as well as the General Information Sheet indicated that Yumul was
an incorporator and a subscriber of 1 share. Even granting that there was an agreement
between Yumul and Dee as stated above, the same is binding only between them. From the
corporation's vantage point, Yumul is its stockholder with 1 share considering that there is no
showing that Yumul transferred his subscription to Dee.

The conduct of the parties also constitute sufficient proof of Yumul's status as a
stockholder. Yumul was elected during the regular annual stockholders' meeting as a director of
Nautica's board of directors and eventually as its president. Thus, Nautica and its stockholders
knowingly held respondent out to the public as an officer and a stockholder of the corporation.
As to whether Yumul is beneficial owner of the 14,999 shares of Nautica, the Court held that he
is not so because Yumul failed to exercise the option. There was no cause or consideration for
the deed of trust and assignment which makes it void for being simulated or fictitious.
G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, Peti ti oner, -versus – INTERMEDIATE APPELLATE COURT and VICENTE B.
CHUIDIAN, in his capacity as Administrator of the Estate of the Deceased JUAN T.
CHUIDIAN, Respondents.

FACTS

Enrique Razon organized the E. Razon, Inc. (ERI) for the purpose of bidding for the
arrastre services in South Harbor, Manila. Stock certificate No. 003 for 1,500 shares of stock
was issued in the name of the late Juan T. Chuidian. Vicente B. Chuidian, as an administrator,
filed a complaint against Razon for the delivery of certificate of stocks representing the
shareholdings of the deceased Juan T. Chuidian in ERI.

Vicente alleged that after organizing ERI, Razon distributed shares of stock previously
placed in the names of the withdrawing nominal incorporators to some friends including Juan T.
Chuidian. Stock Certificate No. 003, upon instruction of the late Chuidian, was personally
delivered to the Corporate Secretary of ERI. Since then, Enrique was in possession of the said
stock certificate even during the lifetime of the late Chuidian. By agreement of the parties, the
stock certificate was delivered for deposit with the bank under the joint custody of the parties.
Razon alleged later that he paid for all the subscription on the subject shares of stock and the
understanding was that he was the owner of the same and was to have possession thereof until
such time as he was paid therefor by the other nominal stockholders. The then Court of First
Instance of Manila declared that Razon is the owner of the subject shares of stock. The then
Intermediate Appellate Court, however, reversed the CFI's decision and ruled that Juan T.
Chuidian is the owner of the shares of stock.

ISSUE
Whether Juan T. Chuidian is the rightful owner of the stocks. (YES)

RULING
24
The law is clear that in order for a transfer of stock certificate to be effective, the
certificate must be properly indorsed. Indorsement is a mandatory requirement of law for an
effective transfer of a certificate of stock. Title to such certificate of stock is vested in the
transferee by the delivery of the duly indorsed certificate of stock. Since the certificate of stock
covering the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian
was never indorsed to the Razon, the inevitable conclusion is that the questioned shares of
stock belong to Chuidian. Razon’s oral testimony alleging the existence of an agreement
between the two parties cannot prevail over what appears in the certificate of shares of stocks
and the corporate books. Razon’s asseveration that he did not require the indorsement of the
certificate of stock in view of his intimate friendship with the late Juan Chuidian cannot
overcome the failure to follow the procedure required by law or the proper conduct of business
even among friends.
G.R. No. 96674 June 26, 1992,

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO
TRIAS, Peti ti oners, -versus – COURT OF APPEALS*, SECURITIES AND EXCHANGE
COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES,
FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO, SR., Respondents.

FACTS

Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc. (Bank), executed a Special
Power of Attorney in favor of his wife, Melania, giving and granting the latter full power and
authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank
registered in his name. Melania then presented to the Bank 2 deeds of assignment for registration
with a request for the transfer in the Bank's stock and transfer book shares of stock so assigned, the
cancellation of stock certificates in the name of Clemente and the issuance of new stock certificates
covering the transfer in the name of the new owners thereof. However, the Bank denied the
request. Consequently, Melania filed with the SEC an action for mandamus against the Bank, its
President and Corporate Secretary. The SEC rendered a Decision granting the writ of Mandamus
directing petitioners to cancel the subject stock certificates, all in the name of Clemente, and to
issue new certificates in the names of private respondents, except Melania. This was affirmed by the
CA.

ISSUES

W/ON SEC has jurisdiction over the instant case. (YES) and W/ON the corporation is
obliged to register the transfer. (YES)

RULING

P.D. No. 902 grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intra-corporate controversies. An intra- corporate controversy has been defined as
25
one that arises between a stockholder and the corporation. The case at bar involves shares of stock
and their registration, cancellation and issuances thereof by the bank. Applying the foregoing, it is
therefore within the power of SEC to adjudicate the controversy presented herein.

Sec. 63 of the Corporation Code contemplates no restriction as to whom the stocks may be
transferred. The owner of shares, as owner of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases without limitation in this respect than the general
provisions of law. In this case, the Corporation's obligation to register is ministerial. The secretary
of the corporation, in transferring stock, acts in purely ministerial capacity and does not try to
decide the question of ownership.
G.R. No. L-2808 August 31, 1951

JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO SANTAMARIA, Jr., plainti ff -

appellee, vs. THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W.
TAPLIN, defendants-appellant.

FACTS:
Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc.
(Batangas), through the offices of Woo, Uy-Tioco & Naftaly (Woo), a stock brokerage firm and
pay therefore P8,041.20 as shown by a receipt. The buyer received Stock Certificate No. 517
issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in blank by this firm.
Thereafter, Mrs. Santamaria placed an order for the purchase of 10,000 shares of the
Crown Mines, Inc. with R.J. Campos & Co. (RJ Campos), a brokerage firm, and delivered
Certificate No. 517 to the latter as security therefor with the understanding that said certificate
would be returned to her upon payment of the 10,000 shares. Her name was later written in lead
pencil on the upper right hand corner of the certificate.
Two days later, when Mrs. Santamaria went to pay for her order, she was informed that
R.J. Campos was no longer allowed to transact business due to a prohibition order from
Securities and Exchange Commission and that her Stock certificate was in the possession of
the Hongkong and Shanghai Banking Corporation (Hongkong)
It came into the possession of the Hongkong because R.J. Campos had opened an
overdraft account with this bank and had executed a document of hypothecation. As per request
of Hongkong, Batangas issued Certificate No. 715 in lieu of Certificate No. 517, in the name of
Robert W. Taplin as trustee. CFI ordered Hongkong to pay the plaintiff the sum of P8,041.20
plus the costs of suit. The case was certified to this Court of Appeals.
ISSUES:
WON the defendants Bank obligated to 26inquire who was the real owner of the shares
represented by the certificate of stock, and could it be charged with negligence for having failed
to do so?
RULING
It should be noted that the certificate of stock in question was issued in the name of the
brokerage firm-Woo, Uy-Tioco & Naftaly and that it was duly indorsed in blank by said firm, and
that said indorsement was guaranteed by R.J. Campos which in turn indorsed it in blank. This
certificate is what it is known as street certificate. Upon its face, the holder was entitled to
demand its transfer into his name from the issuing corporation. The Bank was not obligated to
look beyond the certificate to ascertain the ownership of the stock at the time it received the
same from R.J. Campos for it was given to the Bank pursuant to their letter of hypothecation.
Even if said certificate had been in the name of the plaintiff but indorsed in blank, the Bank
would still have been justified in believing that R.J. Campos had title thereto for the reason that
it is a well-known practice that a certificate of stock, indorsed in blank, is deemed quasi
negotiable, and as such the transferee thereof is justified in believing that it belongs to the
holder and transferor.
The only evidence in the record to show that the certificate of stock in question may not
have belonged to R.J. Campos is the testimony of the plaintiff but even assuming for the sake of
argument that what plaintiff has stated is true, such an incident would merely show that plaintiff
has an adverse claim to the ownership of said certificate of stock, but that would not necessarily
place the Bank in the position to inquire as to the real basis of her claim, nor would it place the
Bank in the obligation to recognize her claim and return to her the certificate outright. The Court
has noticed that the defendant Bank was willing from the very beginning to compromise this
case by delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the
issuer corporation in lieu of the original as alleged and prayed for in its amended answer to the
complaint.
27
G.R. No. 178523 June 16, 2010

MAKATI SPORTS CLUB, INC., Peti ti oner, v. CECILE H. CHENG, MC FOODS, INC., and
RAMON SABARRE, Respondents.

FACTS:
On October 20, 1994, Makati Sports Club (MSCI) through its BOD adopted a resolution
authorizing the sale of 19 unissued shares of Class A and Class B. Defendant Cheng was the
corporate treasurer and Director. On July 7, 1995, Hodreal expressed his interest to buy a share
and requested that his name be included in the waiting list. Sometime in November 1995,
McFoods Inc. expressed its interest in acquiring a share. McFood was able to buy the Class A
shares from petitioner in the amount P1, 800,000. Payment for the share was made on
November 28, 1995. The Deed of Absolute Sale was executed on December 15, 1995 and the
stock certificate was issued on January 5, 1996. By December 27, 1995, McFood sent a notice
to petitioner that it was offering to resell the stock for P 2,800,000.
It appear that while the sale between petitioner and McFood was under negotiation,
there was also an ongoing negotiation between McFoods and Hodreal. On November 24, 1995,
Hondreal paid McFoods P1, 400,000 and another payment in the amount of P1, 400,00 was
made on December 27, 1995.On January 29, 1996, McFoods and Hodreal executed a Deed of
Sale for the same share of stock. Only on February 7, 1996 was petitioner was advised of the
sale between McFoods and Hodreal. A new certificate of stock was issued upon request.
However, Cheng had been accused of profiteering from the said transaction upon an
investigation conducted. Petitioner alleged that Cheng and McFoods confabulated with one
another at the expense of MSCI. Thus, petitioner filed against Cheng and demanded to pay P1,
000,000 as amount allegedly defrauded with damages.

ISSUE:
Whether McFoods can validly sold his MSCI share prior to the issuance of the certificate
of sale

HELD:
Yes. Assuming the intention of McFoods 28was to speculate on the price of the share of
stock when it tendered payment on November 28, 1995, it had all the right to negotiate and
transact, at least on the anticipated and expected ownership of the share, with Hodreal. There is
nothing wrong with the fact that the first payment/installment made by Hodreal to McFoods
preceded or came earlier than the payment made McFoods to MSCI for the same share of
stocks because eventually McFoods became the owner of Class A share covered in Certificate
A2243.
Upon the payment by McFoods of P1, 800,000 to MSCI and the execution of the Deed
of Absolute Sale on December 15, 1995, McFoods then had the right to demand the delivery of
stock certificate in his name. The right of a transferee to have the stocks transferred to its name
is an inherent right flowing from its ownership. Petitioner’s stance that McFoods violated its By-
Laws on its pre-emptive right is not correct as McFoods offered to sell the shares to MSCI on
December 27, 1995 for the latter to exercise his right of first refusal. It had legally have the right
to do so by virtue of the payment made by McFoods and the execution of the Deed of Absolute
Sale even if the certificate was issued on January 1996.
The certificate of stock is the paper representative or tangible evidence of the stock itself
and of the various interests therein. The certificate is not a stock in the corporation but is merely
evidence of the holder’s interest and stars in the corporation, his ownership of the share
represented thereby. It is not in law, the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share of
stock or the nature of the relation of the shareholder to the corporation. Therefore, McFoods
properly complied with the requirement of Sec30 (e) of the Amended By-Laws on MSCI’s pre-
emptive right. Petitioner failed to purchase the share within 30 days from receipt of notice. It was
only on January 29, 1996 or 32 days after December 28, 1994 when McFoods and Hodreal
executed the Deed of Absolute Sale. Registration of McFoods as owner is not essential as it is
only a ministerial upon the buyer’s acquisition of ownership.
G.R. No. 123553, (CA-G.R. No. 33291), FIRST DIVISION, July 13, 1998,

NORA A. BITONG, peti ti oner, vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D.
APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND
ADORACION G. NUYDA, respondents.

NORA A. BITONG, peti ti oner, vs. COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B.
ESPIRITU, respondents.

FACTS:

These twin cases originated from a derivative suit filed by petitioner Nora A. Bitong
before the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of
private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold
respondent spouses Eugenia D. Apostol and Jose A. Apostol liable for fraud, misrepresentation,
disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of
Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner.
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit
before the SEC against respondent spouses Apostol, who were officers in said corporation, to
hold them liable for fraud and mismanagement in directing its affairs. Respondent spouses
moved to dismiss on the ground that petitioner had no legal standing to bring the suit as she
was merely a holder-in-trust of shares of JAKA Investments which continued to be the true
stockholder of Mr. & Ms. Petitioner contends that she was a holder of proper stock certificates
and that the transfer was recorded. She further contends that even in the absence of the actual
certificate, mere recording will suffice for her to exercise all stockholder rights, including the right
to file a derivative suit in the name of the corporation. The SEC Hearing Panel dismissed the
suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc decision.

ISSUE
Whether or not petitioner is the true holder of stock certificates to be able institute a
derivative suit.
29
RULING:
NO. Sec. 63 of The Corporation Code expressly provides —

Sec. 63. Certificate of stock and transfer of shares. — The capital stock
of stock corporations shall be divided into shares for which certificates
signed by the president or vice president, countersigned by the secretary
or assistant secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer however shall be
valid except as between the parties until the transfer is recorded in the
books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred . . . .

This provision above quoted envisions a formal certificate of stock which can be issued
only upon compliance with certain requisites. First, the certificates must be signed by the
president or vice-president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation. A mere typewritten statement advising a stockholder of the
extent of his ownership in a corporation without qualification and/or authentication cannot be
considered as a formal certificate of stock. Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a stock certificate where it is never
detached from the stock books although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the company. Third, the par value, as
to par value shares, or the full subscription as to no par value shares, must first be fully paid.
Fourth, the original certificate must be surrendered where the person requesting the issuance of
a certificate is a transferee from a stockholder.
G.R. No. 120138, FIRST DIVISION, September 5, 1997

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR.,

MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN,
peti ti oners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL
REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T.
CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES, respondents.

FACTS

Judge Manuel Torres was the majority stockholder of Tormil Realty & Development
Corporation (TRDC) while private respondents who are the children of Judge Torres' deceased
brother Antonio Torres, constituted the minority stockholders TRDC is a small family owned
corporation and other stockholders thereof include Judge Torres’ nieces and nephews. Before
the regular election of TRDC officers, Judge Torres assigned one share each to his assignees
for the purpose of qualifying them to be elected as directors in the board and thereby strengthen
Judge Torres’ power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary,
in the stock and transfer book of TRDC. When the validity of said assignments were questioned,
Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries
himself because he was keeping the stock and transfer book. He further ratiocinated that he can
do what a mere secretary can do because in the first place, he is the president. Judge Torres
and his assignees then decided to conduct the election among themselves considering that the
6 of them constitute a quorum.

ISSUE
Whether or not the recording made in the books by Judge Torres, and his custody of the
books complied with procedural requirements in Section 74 of the Corporation Code.

RULING
No. The assignment of the shares30of stocks did not comply with procedural
requirements. It did not comply with the by laws of TRDC nor did it comply with Section 74 of
the Corporation Code.
Section 74 provides that the stock and transfer book should be kept at the principal office of the
corporation. In the case at bar, the stock and transfer book was not kept at the principal office of
the corporation either but at the place of Torres. These being the obtaining circumstances, any
entries made in the stock and transfer book by respondent cannot therefore be given any valid
effect. Here, it was Judge Torres who was keeping it and was bringing it with him. Petitioners
cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent
corporate secretary to register the aforestated assignments in the stock and transfer book
because the latter belonged to the opposite faction. It is the corporate secretary's duty and
obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance.
In other words, there are remedies within the law that petitioners could have availed of,
instead of taking the law in their own hands. The Supreme Court also emphasized: all
corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple
family corporation is not an exemption. Such corporations cannot have rules and practices other
than those established by law.
G.R. No. 186641, G.R. No. 184517, EN BANC, October 8, 2013 ,

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR, JR.,
Peti ti oners, vs. PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR., ELICERIO GASPAR, ,
RICARDO GASPAR JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.

FACTS

Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr. (Ricardo),

Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato
Mangoba (Liberato) were employees of Small and Medium Enterprise Bank, Incorporated (SME
Bank). Originally, the principal shareholders and corporate directors of the bank were Eduardo
M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De Guzman). SME Bank experienced
financial difficulties. To remedy the situation, the bank officials proposed its sale to Samson.
Accordingly, negotiations ensued, Letter Agreements were sent to Agustin and De
Guzman, conditioning that it shall guarantee the peaceful turnover of all assets as well as the
peaceful transition of management of the bank and shall terminate/retire the employees we
mutually agreed upon, upon transfer of shares in favor of groups nominees; and all retirement
benefits, if any of the above officers/stockholders/board of directors are hereby waived upon
consummation of the above sale. The retirement benefits of the rank and file employees
including the managers shall be honored by the new management.
The labor arbiter ruled that the buyer of an enterprise is not bound to absorb its
employees, unless there is an express stipulation to the contrary. However, he also found that
respondent employees were illegally dismissed, because they had involuntarily executed their
resignation letters after relying on representations that they would be given their separation
benefits and rehired by the new management. Accordingly, the labor arbiter decided the case
against Agustin and De Guzman, but dismissed the Complaint against the Samson Group.
Respondent employees questioned the labor arbiter’s failure to award backwages, while Agustin
and De Guzman contended that they should not 31be held liable for the payment of the employees
claims. De Guzman and the Samson Group should be held jointly and severally liable for the
employee’s separation pay and backwages. On appeal, the CA affirmed the decision of the
NLRC.

ISSUE
Whether or not the respondent employees were illegally dismissed and, if so, which of
the parties are liable for the claims of the employees and the extent of the reliefs that may be
awarded to these employees.

RULING
Petitioner bank also argues that, there being a transfer of the business establishment,
the innocent transferees no longer have any obligation to continue employing respondent
employees and that the most that they can do is to give preference to the qualified separated
employees; hence, the employees were validly dismissed. The argument is misleading and
unmeritorious. Contrary to petitioner bank’s argument, there was no transfer of the business
establishment to speak of, but merely a change in the new majority shareholders of the
corporation. There are two types of corporate acquisitions: asset sales and stock sales. In asset
sales, the corporate entity sells all or substantially all of its assets to another entity. In stock
sales, the individual or corporate shareholders sell a controlling block of stock to new or existing
shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected
employees, but is liable for the payment of separation pay under the law. The buyer in good
faith, on the other hand, is not obliged to absorb the employees affected by the sale, nor is it
liable for the payment of their claims. The most that it may do, for reasons of public policy and
social justice, is to give preference to the qualified separated personnel of the selling firm. In
contrast with asset sales, in which the assets of the selling corporation are transferred to
another entity, the transaction in stock sales takes place at the shareholder level. Because the
corporation possesses a personality separate and distinct from that of its shareholders, a shift in
the composition of its shareholders will not affect its existence and continuity.
32
DISSOLUTION
G.R. No. L-4900             August 31, 1953

FINANCING CORPORATION OF THE PHILIPPINES and J. AMADO ARANETA , peti ti oners, vs.
HON. JOSE TEODORO, Judge of the Court of First Instance of Negros Occidental, Branch
II, and ENCARNACION LIZARES VDA. DE PANLILIO,  respondents.

FACTS:
Lizares et al., in their own behalf and in behalf of the other minority stockholders of the
Financing Corporation of the Philippines sued the Corporation and J Amado Araneta, its
President and GM, alleging gross mismanagement and fraudulent conduct of the corporate
affairs by Araneta and asking that (1) the corporation be dissolved, (2) Araneta be declared
personally accountable for the unauthorized and fraudulent disbursements of the corporate
assets and violations of the Corporation Law and the by-laws of the Corporation, and (3) the
best means to protect and preserve the assets of Corporation is the appointment of a receiver.

Among the allegations specified in the complaint were: 1. wrongful and unauthorized diversion
from corporate purposes and use for personal benefit; 2 unauthorized and profitless pledging of
securities owned by Corporation to secure obligations amounting to P588,645.34 of another
corporation controlled by Araneta; 3. unauthorized and profitless using of the name of the
Corporation in the shipping of sugar belonging to other corporations controlled by Araneta to the
benefit of said corporations in the amount of at least P104,343.36; 4. refusal by Araneta to
endorse to the Corporation shares of stock and other securities belonging to it but which are still
in his name; 5. negligent failure to endorse other shares of stock belonging to Corporation but
still in the names of the respective vendors; and 6. illegal and unauthorized transfer and deposit
in the US of 6,426,281 shares of the Atok-Big Wedge Mining Company; 7. refusal to allow
minority stockholders to examine the books and records of the Corporation; 8. failure to call and
hold stockholders' and directors' meetings; 9. virtual disregard and ignoring of the board of
directors who has been and is conducting the affairs of the Corporation under his absolute
control and for his personal benefit and for the benefit of the corporations controlled by him; and
33
10. Irregularity in the keeping and errors and omissions in the books and failure of the same to
reflect the real and actual transactions of the Corporation. Judge Teodoro granted petition for
appointment of a receiver (Yulo). The Corporation filed the present petition for certiorari with
preliminary injunction to revoke and set aside the order appointing a receiver, alleging that: 1.
The appointment of a receiver was merely an auxiliary remedy; 2. The principal remedy sought
by Lizares et al. was dissolution; 3. A suit for the dissolution of a corporation can be brought and
maintained only by the State through its legal counsel, and Lizares et al., much less the minority
shareholders, have no right or personality to maintain the action for dissolution. 4. Since the
action cannot be maintained legally by Lizares et al., the auxiliary remedy of appointment of a
receiver has no basis. The lower court granted the writ of preliminary injunction upon the filing of
a bond by the Corporation.

ISSUE
WON the appointment of a receiver by the lower court was proper – YES. PETITION
DENIED. WRIT OF PRELIMINARY INJUCTION DISSOLVED.

RULING:
GENERAL RULE: Minority shareholders of a corporation cannot sue and demand
dissolution in a private suit. The action should be brought by the Government through its legal
officer, via a quo warranto proceeding. EXCEPTION: cases wherein the intervention of the State
cannot be obtained because the complaint is a matter strictly between the shareholders and the
corporation and does not involve issues which involve acts/omissions warranting a quo
warranto. When such action is brought, the trial court has jurisdiction and has discretion to grant
the prayer or not. Having such jurisdiction, the appointment of a receiver pendente lite is left to
the sound discretion of the trial court.
The appointment of a receiver upon petition by the minority shareholders is a power that
must be exercised with great caution, and should be exercised when necessary to protect their
rights, especially when they cannot obtain redress through or within the corporation.
G.R. No. 124293             January 31, 2005

J.G. SUMMIT HOLDINGS, INC.,   peti ti oner , vs. COURT OF APPEALS; COMMITTEE ON
PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC.,   respondents .

FACTS:
A joint venture (JVA) was entered by a government corporation, National Investment and
Development Corporation (NIDC) with a Japanese corporation, Kawasaki Heavy Industries, Ltd.
for a shipyard business, Philippine Shipyard and Engineering Corporation (PHILSECO), with an
agreement of a shareholding proportion of 60%-40 respectively and a right of first refusal to
Kawasaki. Thereafter, NIDC transferred all its rights, title and interest to the Philippine National
Bank (PNB). After several months, by virtue of Administrative Order 14, PNB's interest in
PHILSECO was transferred to the National Government. Then President Aquino’s Proclamation
No. 50 was issued establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to and possession of, conserve, manage and dispose of
non-performing assets of the National Government. A trust agreement was entered into
between the National Government and the APT by virtue of which the latter was named the
trustee of the National Government's share in PHILSECO. As a result of a quasi-reorganization
of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in
PHILSECO increased to 97.41% thereby reducing Kawasaki's shareholdings to 2.59%.

After negotiations, it was agreed that Kawasaki’s right of first refusal under the JVA be
“exchanged” for the right to top by 5% the highest bid for said shares. Kawasaki informed that
Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its
stead. Petitioner JG Summit Holdings was declared highest bidder. Even so, because of the
right to top by 5% percent the highest bid, Kawasaki/PHI’s was able to top the winning bid. JG
Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must
observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECO’s capital
stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock, thus violative of
the laws. 34
ISSUE:
Whether or not PHILSECO, a shipyard, is a public utility and hence Kawasaki, a foreign
corporation, can acquire only a maximum of 40% of its capital.

HELD:

No, a shipyard such as PHILSECO is not considered a public utility. First, because a
shipyard which is a place or enclosure where ships are built or repaired is in its nature serves a
limited clientele and not legally obliged to render its services indiscriminately to the public. While
the business may be regulated for public good, it does not justify the qualifications for public
utility which implies public use and service to the public hence it must be engaged in regularly
supplying the public with some commodity or service of public consequence.

Second, it is not declared as public utility by law. Based on its legislative history, since
the enactment of Act No. 2307 which created the Public Utility Commision (PUC) until repealed
by Commonwealth Act No. 146 establishing Public Service Commission, a shipyard was a
public utility and should abide by the Filipino citizenship requirement of 60-40 capital of a
corporation. Thereafter, Pres. Marcos issued PD No. 666 which removed the shipbuilding and
ship repair industry from the list of public utilities thereby freeing it from the 60-40 citizenship
requirement. Batas Pambansa Blg. 391 repealed the PD No. 666 and reverted shipyards as
public utilities. Then Pres. Aquino’s Executive Order No. 226 repealed the previous laws with no
revival of the principle that shipyards are public utilities. Thus absent of such legislation
declaring the same, a shipyard reverts back to its status as a non-public utility.
1. RP v. Bisaya Land Transportation Co., Inc., 81 SCRA 9

35
G.R. No. 84606 June 28, 1989

SPOUSES RAMON A. GONZALES and LILIA Y. GONZALES , peti ti oners, vs. SUGAR
REGULATORY ADMINISTRATION , respondent.

FACTS

On May 13, 1980, Spouses Gonzales obtained a P176,000 loan from the Republic
Planters Bank (RPBank) secured by REM. RPBank is owned and controlled by Philsucom.
proceeds of the loan released on a staggered basis, loan was "payable from [the] 1980-1981
sugar crop, " amortization payments to be remitted by Philsucom to RPBank

On 24 September 1987, Spouses Gonzales received a statement of account from

RPBank stating spouses had an outstanding loan balance of around P650k. On the basis of the
promissory notes executed by spouses and the list of re-payments made, the complaint
continued. Spouses received the total amount of P1,041,610 from RPBank and had re-paid
thereon P1,051,296. In other words, spouses had already more than fully repaid their loan.
Philsucom had deducted P421,517 from the export sugar proceeds of spouses in 1980-1984
without the authority and consent of spouses, thereby allegedly overpaying RPBank by
P289,260. Hence, spouses filed a complaint against RPBank seeking cancellation of a
mortgage and prayed that Philsucom and SRA be required jointly and severally to reimburse
spouses the P289,260, plus moral damages attorney's fees. RPBank, Philsucom and SRA:
moved to dismiss because of lack of cause of action denied any obligation of Philsucom to
return any amount to spouses. SRA argued that while the deductions complained of were
made by Philsucom in 1980-1984, SRA had been created by EO 18 only on May 18, 1986
and that it was not a party to the REM Spouses filed an amended complaint assailing the
constitutionality of EO 18.
ISSUES
W/N the dismissal of the complaint insofar as SRA is concerned is proper.
RULING
36
NO. Dismissal of spouses’ complaint against SRA was clearly premature. Spouses have
a cause of action against SRA to the extent that they are able to prove lawful claims against
Philsucom, which claims Philsucom may be unable to satisfy, and to the extent SRA did, or
does, in fact take over all or some of the assets of Philsucom. At the very least, the motion to
dismiss was not shown to rest upon indubitable grounds and should, therefore, have been
denied not only in respect of Philsucom but also in respect of respondent SRA One who asserts
a claim against a juridical entity has no constitutional right to the perpetual existence of such
entity. Juridical persons, w/n incorporated, whether owned by the govn’t or the private sector,
may come to an end at one time or another for a variety of reasons, e.g., the fulfillment or the
abandonment of the business purposes for which a corporation was set up. The Corporation
Code provides for termination of corporate life, the dissolution of the corporation, the winding up
of its operations, the liquidation of its assets, the payment of its obligations and distribution of
any residual assets to its stockholders. The termination of the life of a juridical entity does NOT
by itself imply the diminution or extinction of rights demandable against such juridical entity. EO
18 abolished Philsucom, created the SRA, and authorized the transfer of assets from Philsucom
to SRA. Sec. 13 thereof did NOT provide for universal succession of SRA to Philsucom, or more
specifically to the assets and liabilities of Philsucom. SRA has been authorized to determine
which of the assets and records of Philsucom are required for the carrying out of the activities
which the SRA is to carry on or undertake.
G.R. No. 96663           August 10, 1999

PEPSI-COLA PRODUCTS, PHILIPPINES, INC.,  peti ti oner, vs. HONORABLE SECRETARY OF

LABOR, MED-ARBITER NAPOLEON V. FERNANDO & PEPSI-COLA SUPERVISORY EMPLOYEES
ORGANIZATION-UOEF, respondents,

FACTS
Pepe B. Pagdanganan and Pepito A. Lumahan against herein petitioners Pesi-Cola
Products PH, Incorporated and PEPSICO Incorporated before the RTC of Pasig City, Branch
163, for Sim of Money and Damages. Petitioners PCPPI and PEPSICO launched a Department
of Trade and Industry approved and supervised under promotional campaign entitled “Number
Fever” sometime in 1992. It undertook to give away cash prizes to holders of specially marked
crowns and resealble caps of PEPSI_COLA softdrink product i.e. Pepsi, 7-UP, Mirinda and
Mountain Dew. Specially marked crowns and resealable caps were said to contain: a. A 3 digit
number; b. A 7 digit alpha-numeric security code; c. the amount of the cash prize in any of the ff
denominations: 1k, 10k, 50k, 100k, 1 million pesos. Petitioners engaged the services of D.G.
Consultores, a Mexican consultancy firm with experience in handling similar promotion in other
countries. From Monday to Friday, petitioners will announce on national and local broadcast and
print media a randomly preselected winning 3 digit number. On account of the success of the
promotional campaign, petitioners extended the duration of the “Number Fever” for another five
weeks. Petitioners again sought the services of D.G. Consultores to pre-select 25 winning 3
digit number with their matching security codes. Petitioners announced the notorious 3 digit
combination 349 as the winning number.

On the same night of the announcement, petitioners learned of reports that numerous
people were trying to redeem. 349 bearing crowns and/or resealable caps with incorrect security
codes L-2560 FQ and L-3560-FQ. Petitioners said they will pay P500 for all 349 bearing crowns
but having the wrong security code. Pagdanganan demanded from the petitioners and the DTI
payment of the corresponding cash prize of his 349 bearing crowns specifically 4 7-Up crowns
and 2 mirinda crowns, each displaying the cash prize of P1,000,000 in addition to the 7-up
crown showing the cash prize P100,000. Notbaly all seven crowns bore the security code of L-
37
2560-FQ. Lumahan similarly insisted that the petititioners pay his 2 winning crowns that is 2 7-
up crowns with one exhibiting P1 million and the other P100k. Respondents filed a collective
complaint for Sum of Money and Damages before the RTC of Pasig City. RTC decided that the
plaintiffs (respondents here) fialed to establish a cause of action against defendants thus the
case is dismissed. But Pepsi needs to pay P3500 to Pagdanganan and P1k to Lumahan for the
349 crowns with the wrong security code. It was made clear in the advertisements and posters
put up by Pepsi that to win, the 3 digit number must be matched with the proper security code.
Pagadingan and Lumahan filed for a partial motion for reconsideration but have been denied by
the RTC. They then filed their case to the CA. The CA reversed and set aside the decision of
the RTC. CA likewise denied the motion for reconsideration of Pepsi.

ISSUE/S
Whether or not petitioners are estopped from raising stare decisis (to adhere to
precedents and not to unsettle things which are established) and Whether or not Rodrigo,
Mendoza, Patan and De Mesa are binding although respondents were not parties therein.

RULING
Petitioners are NOT estopped from raising stare decisis. The cases are BINDING even
though respondent are not the same parties. These cases held that even though the 3 digit
number is a winning number, the security code MUST be a winning code too before claiming
prize. Respondents justify that it is required that the legal rights and relations of the parties and
the facts and the applicable laws, the issue and evidence are exactly the same. They contend
however that a comparison of the subject case show that they are not the same. They
particularly argue that the cases of their action is BREACH OF CONTRACT while that of the
Rodrigo and Mendoza cases involved complaints for SPECIFIC PERFORMANCE. -In the case
at bar, we have no alternative but to uphold the ruling that the correct security code is an
essential, and critical requirement in order to become entitled to the amount printed on a “349”
bearing crown. Doctrine of stare decisis is founded on the necessity for securing certainty and
stability in the law and does not require identity of or privity of parties. Abandonment of the
doctrine must be based only on strong ang compelling reasons.
G.R. No. L-16779, EN BANC, August 16, 1961,

NATIONAL ABACA AND OTHER FIBERS CORPORATION, Petitioners, -versus –

APOLONIA PORE, Respondent.
FACTS

On November 14, 1953, plaintiff filed with the Municipal Court of Tacloban, Leyte, a
complaint, against defendant Apolonia Pore, for the recovery of P1,213.34, allegedly advanced
to her for the purchase of hemp for the account of the former and for which she had allegedly
failed to account. In her answer, defendant alleged that she had accounted for all cash
advances received by her for the aforementioned purpose from the plaintiff. In due course, said
court rendering judgment finding that the defendant had not accounted for cash advances which
she was, accordingly, sentenced to pay to the plaintiff. Said court having subsequently denied a
reconsideration of this decision, as well a new trial prayed for the plaintiff, the latter appealed to
the Court of First Instance of Leyte, in which defendant moved to dismiss the complaint upon
the ground that plaintiff has no legal capacity to sue, it having abolished by Executive Order No.
372 of the President of the Philippines, dated November 24, 1950. Plaintiff objected there to
upon the ground that pursuant to said executive order, plaintiff "shall nevertheless be continued
as a body corporate for a period of three (3) years from the effective date" of said executive
order, which was November 30, 1950, "for the purpose of prosecuting and defending suits by or
against it and of enabling the Board of Liquidators - thereby created — "gradually to settle and
close its affairs”, and that this case was begun on November 14, 1953, or before the expiration
of the period aforementioned. After due hearing, the court of first instance issued an order
directing plaintiff to amend the complaint, within ten (10) days from notice, by including the
Board of Liquidators as co-party plaintiff, with the admonition that otherwise the case would be
dismissed. Hence, an appeal by plaintiff National Abaca and other Fibers Corporation, from two
(2) orders of the Court of First Instance of Leyte.

ISSUE
Whether or not an action, commenced within three (3) years after the abolition of
plaintiff, as a corporation, may be continued by38
the same after the expiration of said period.

HELD
NO. The rule appears to be well settled that, in the absence of statutory provision to the
contrary, pending actions by or against a corporation are abated upon expiration of the period
allowed by law for the liquidation of its affairs. Our Corporation Law contains no provision
authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its
corporate name actions instituted by it within said period of three(3) years. in fact, section 77 of
said law provides that the corporation shall "be continued as a body corporate for three (3)
years after the time when it would have been . . . dissolved, for the purposed of prosecuting and
defending suits by or against it . . .", so that, thereafter, it shall no longer enjoy corporate
existence for such purpose. For this reason, section 78 of the same law authorizes the
corporation, "at any time during said three years . . . to convey all of its property to trustees for
the benefit of members, stockholders, creditors and other interested", evidently for the purpose,
among others, of enabling said trustees to prosecute and defend suits by or against the
corporation begun before the expiration of said period. Obviously, the complete loss of plaintiff's
corporate existence after the expiration of the period of three (3) years for the settlement of its
affairs is what impelled the President to create a Board of Liquidators, to continue the
management of such matters as may then be pending. The first question must, therefore, be
answered in the negative.
G.R. No. 36930. June 30, 1933

CHINA BANKING CORPORATION and LEOPOLDO KAHN , claimants-appellants, v. M.

MICHELIN & CIE. claimants-appellee

FACTS:
George O’Farrel & Cie Inc. is a domestic corporation acting as agent and representative
of the Michelin & Cie, a foreign corporation engaged in the sale and distribution of Michelin tires.
Michelin decided to discontinue their business relations, and it was discovered that O’Farrel
failed to account for an amount representing the price of tires sold by the latter. Michelin claims
the money was disposed by O’Farrel for its own use and benefit and without the authority or
consent of Michelin. Gaston O’Farrel (the person) and Sanchez executed a mortgage on the
house of O’Farrel and shares owned by both to guarantee payment of the amount to the
Michelin, but left a balance which the latter seeks to recover.
The trial court granted the claim and nobody except Michelin and Gaston were notified of
the order. China Bank intervened and moved that Michelin’s claim be allowed as an ordinary
one under the Insolvency Law and that the sum of P5,000 paid by the receiver to the appellee
on account of the latter’s claim be refunded to the funds of the corporation in liquidation for the
benefit of the rest of the creditors. The lower court dismissed the case stating the decision has
become final and unappealable.
ISSUE:
Can the court declare the claim preferred? Has the lower court’s decision has become
final and unappealable?
Ruling:
No. According to the Corporation Law, during the winding up proceedings after
dissolution, no creditor will be permitted by legal process or otherwise to acquire priority, or to
enforce his claim against the property held39 for distribution as against the rights of other
creditors. Furthermore, in so far as the service of notice is concerned, we adhere to the rule laid
down in Whalen v. Pasig Iron Works (13 Phil., 417), where this court held that.”. . Claims
against a corporation in the hands of a receiver should not be approved and paid without some
formal and regular proceeding whereby their justice and correctness may be inquired into after a
reasonable opportunity has been given to all the parties in interest to present objections and
submit evidence in support of such objections." The said case is a parallel of the case at bar in
that the receiver in that case, together with the claimant, appeared in open court and without
previous notice to any of the other parties in interest, the claim was submitted upon the
favorable recommendation of the receiver and allowed by the court, and upon appeal to this
court it was held that the trial court erred in rendering judgment in such a summary manner.
The applicable law is sec 77 and 78 of the Corporation Law. The appointment of a
receiver by the court to wind up the affairs of the corporation upon petition of voluntary
dissolution does not empower the court to hear and pass on the claims of the creditors of the
corporation at first hand. In such cases the receiver does not act as a receiver of an insolvent
corporation. All claims must be presented for allowance to the receiver or trustee or other proper
persons during the winding up proceedings which in this jurisdiction would be within the three
years as the term for the corporate existence of the corporation, and if a claim is disputed or
unliquidated so that the receiver cannot safely allow the same, it should be transferred to the
proper court for trial and allowance, and the amount so allowed then presented to the receiver
or trustee for payment. The rulings of the receiver on the validity of claims submitted are subject
to review by the court appointing such receiver though no appeal is taken to the latter’s ruling.
G.R. NO. L-18956 27 April 1976

REPUBLIC of the PHILIPPINES, Peti ti oner vs. MARSMAN DEVELOPMENT CORP.,

respondent

FACTS
Marsman Devt. Corp was a timber license holder with concessions in Camarines Norte.
Investigations led to the discovery that certain taxes were due upon the Corporation. BIR assessed MDC 3
times for unpaid taxes. The assessments were acknowledged by Atty. Moya with demands for
specification and request for exemptions Defendants admit having received the final tax notices as shown
by corporation letters. MDC protested the assessment of P45, 541.66 and reiterated its request for
specification of the items disputing the assessment in question. Finding no merit in the protests of the
defendant corporation, the BIR issued a warrant of distraint and levy against MDC. This was again
acknoweldge in writing by MDC with reiteration of its request for a specification of the different items of
the assessment, subject to the right to contest the legality and validity of the same within 30 days after
receipt of said specifications. The next communication is a demand from the CIR to MDC of the
assessment of P45,541.66 which has remained unpaid. Informed MDC that if they do not settle said tax
obligation within five days from receipt thereof, the BIR will be constrained to file an action in Court for
the collection thereof without further notice. To which MDC replied that it needed more time to go over
the records and vouchers, and requesting for an extension of 10 days plus reiterated its previous request.
ISSUE:
W/ON ACTION CAN PROCEED AGAINST THE LIQUIDATOR WHO HAS NOT LIQUIDATED
THE ASSETS OF THE CORPORATION AFTER THE PROVISIONAL 3 YEAR PERIOD
RULING
YES. While section 77 of the Corporation Law provides for a three-year period for the continuation
of the corporate existence of the corporation for purposes of liquidation, there is nothing in said provision
which bars an action for the recovery of the debts 40of the corporation against the liquidator thereof, after
the lapse of the said three-year period. The stress given by appellants to the extinction of the corporate
and juridical personality as such of MDC by virtue of its extra-judicial dissolution which admittedly took
place on April 23, 1954 is misdirected. While Section 77 of the Corporation Law does provide that:
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 years
after the time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to settle and close its affairs,
to dispose of and convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established.
Tthe next provision, Section 78, adds for clarification:
At any time during said three years said corporation is authorized and empowered to
convey all of its property to trustees for the benefit of members, stock-holders, creditors,
and others interested. From and after any such conveyance by the corporation of its
property in trust for the benefit of its members, stockholders, creditors, and others in
interest, all interest which the corporation had in the property terminates, the legal
interest vests in the trustee, and the beneficial interest in the members, stockholders,
creditors, or other persons in interest.
It is to be recalled that the assessments against appellant corporation for deficiency taxes due for
its operations since 1947 were made by the Bureau of Internal Revenue on October 15, 1953, September
13, 1954 and November 8, 1954, such that the first was before its dissolution and the last two not later
than six months after such dissolution.
G.R. No. L-15778. April 23, 1962
TAN TIONG BIO, ET AL., Peti ti oners, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.

FACTS
Central Syndicate (syndicate for short) a corporation, sent a letter to the
Collector of Internal Revenue advising the latter that (1) it purchased from Dee
Hong Lue the surplus properties which the said Dee Hong Lue had bought from the
Foreign Liquidation Commission (2) that it assumed Dee Hong Lue's obligation and
would pay a portion of the sales tax on said surplus goods (3) it was paying
P43,750.00 in behalf of Dee Hong Lue as deposit to answer for the payment of said
sales tax
The syndicate again wrote the Collector requesting a refund for the purchase
price of goods obtained from Dee Hong Lue was adjusted and reduced. The CIR
investigated the matter and the Collector decided that the Central Syndicate was
the importer and original seller of the surplus goods in question and, therefore, the
one liable to pay the sales tax. The Collector denied the request of the syndicate
for the refund.
The Central Syndicate elevated the case to the Court of Tax Appeals. The
Collector filed a motion requiring the syndicate to file a bond to guarantee the
payment of the tax assessed against it. COURT OF TAX APPEALS DECISION:
(1)Denied Collector’s motion. On the ground that cannot be legally done it
appearing that the syndicate is already a non-existing entity due to the expiration of
its corporate existence (2) dismissing syndicate’s appeal primarily on the ground
that the Central Syndicate has no personality to maintain the action then pending
before it. From this order the syndicate appealed to the Supreme Court wherein it
intimated that the appeal should not be dismissed because it could be substituted
41 was later substituted by its officers and
by its successors-in-interest. The syndicate
directors (petitioners herein). Court of Tax Appeals proceeded to hear the case.
ISSUE
W/ON the sales tax in question can be enforced against the corporation’s
successors-in-interest who are the present petitioners since the Central Syndicate
has already been dissolved because of the expiration of its corporate existence.
RULING
YES. The creditor of a dissolved corporation may follow its assets once they
passed into the hands of the stockholders. Net profit of the corporation (from the
sale of the surplus goods) and was distributed among the stockholders when the
corporation liquidated and distributed its assets immediately after the sale of the
said surplus goods. Petitioners are therefore the beneficiaries of the defunct
corporation and as such should be held liable to pay the taxes in question.
The dissolution of a corporation does not extinguish the debts due or owing
to it because a creditor of a dissolved corporation may follow its assets, as in the
nature of a trust fund, into the hands of its stockholders. with reference to the
effect of dissolution upon taxes due from a corporation, "that the hands of the
government cannot, of course, collect taxes from a defunct corporation, it loses
thereby none of its rights to assess taxes which had been due from the corporation,
and to collect them from persons, who by reason of transactions with the
corporation, hold property against which the tax can be enforced and that the legal
death of the corporation no more prevents such action than would the physical
death of an individual prevent the government from assessing taxes against him
and collecting them from his administrator, who holds the property which the
decedent had formerly possessed”.
42
G.R. No. 170770 January 09, 2013

VITALIANO N. AGUIRRES II and FIDEL N. AGUIRRE, Petitioner, -versus - FQB+7,

INC., NATHANIEL D. BOCOBO, PRISCILA BOCOBO and ANTONIO DE VILLA,
Respondent.
FACTS
Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc. (FQB+7), a Complaint
for intracorporate 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). To Vitaliano’s knowledge, except for the death of Francisco Q. Bocobo and Alfredo
Torres, there has been no other change in the above listings. Sometime in April 2004, Vitaliano
discovered a General Information Sheet (GIS) of FQB+7, dated September 6, 2002, in the Securities
and Exchange Commission (SEC) records The respondents failed, despite notice, to attend the
hearing on Vitaliano’s application for preliminary injunction. TC: issued the writ of preliminary
injunction after Vitaliano filed a injunction bond.
The respondents filed a Petition for Certiorari and Prohibition, docketed as CA-G.R. SP No.
87293, before the CA. They later amended their Petition by impleading Fidel, who allegedly shares
Vitaliano’s interest in keeping them out of the corporation, as a private respondent therein. The
respondents sought, in their certiorari petition, the annulment of all the proceedings and issuances
in SEC Case No. 04-11107722. The respondent argued that Branch 24 of the Manila RTC has no
jurisdiction over the subject matter, which they defined as being an agrarian dispute. They
theorized that Vitaliano’s real goal in filing the Complaint was to maintain custody of the corporate
farm in Quezon Province. Since this land is agricultural in nature, they claimed that jurisdiction
belongs to the Department of Agrarian Reform (DAR), not to the Manila RTC. The respondents
further 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.

ISSUE
Whether the Complaint seeks to continue 43 the dissolved corporation’s business; and
whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation.

RULING
The Complaint does not seek to continue the dissolved corporation’s business.The prayers
of the complaint are as follows: After trial, judgment be rendered in favor of the plaintiffs and
against the defendants, as follows: a. Declaring defendant Bocobos as without any power and
authority to represent or conduct themselves as members of the Board of Directors of plaintiff FQB,
or as officers thereof; b. Declaring that Vitaliano N. Aguirre II is a stockholder of plaintiff FQB
owning fifty (50) shares of stock thereof; c. Allowing Vitaliano N. Aguirre II to inspect books and
records of the company; d. Annulling the GIS, Annex "C" of the Complaint as fraudulent and illegally
executed and filed; e. Ordering the defendants to pay jointly and solidarily the sum of at least
₱200,000.00 as moral damages; at least ₱100,000.00 as exemplary damages; and at least
₱100,000.00 as and for attorney’s fees and other litigation expenses.
The Court fails to find in the prayers 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. Neither are these issues mooted by the dissolution of the corporation. A
corporation’s board of directors is not rendered functus officio by its dissolution. Since Section 122
allows a corporation to continue its existence for a limited purpose, necessarily there must be a
board that will continue acting for and on behalf of the dissolved corporation for that purpose. In
fact, Section 122 authorizes the dissolved corporation’s board of directors to conduct its liquidation
within three years from its dissolution. Jurisprudence has even recognized the board’s authority to
act as trustee for persons in interest beyond the said three-year period. Thus, the determination of
which group is the bona fide or rightful board of the dissolved corporation will still provide
practical relief to the parties involved.
CORPORATION COMBINATIONS

G.R. No. L-4420             May 19, 1952

CESAR REYES, ET ALS., plainti ff s-appellants, vs. MAX BLOUSE, ET ALS., defendants-

appellees.

FACTS
The minority stockholders of the Laguna Tayabas Bus Co. brought an action to restrain
its Board of Directors from carrying out a resolution approved by approximately 92½% of the
stockholders. They allege that the resolution authorized a merger and consolidation of Laguna
Tayabas Co. and Batangas Transport Co. They argue that it is illegal since: (1) it would be
prejudicial to the L.T.B. Co. and to the appellants who do not own shares of stock of B.T. Co.,
and that (2) the unanimous vote of the stockholders was not secured, and the proposed
consolidation or merge is contrary to the spirit of the laws. Max Blouse, President of the Laguna
Tayabas Bus Co. contends that: contends that resolution is merely intended as an exchange of
properties sanctioned by our corporation law, as amended, and that even if it be considered as
a consolidation, the same can still be carried out under Commonwealth Act No. 146, section 20,
otherwise known as the Public Service Law.

ISSUE
Whether the real purpose of the disputed resolution is the merger or consolidation of the
corporations in question?
RULING
“xxx On the difference between a merger and consolidation and a mere exchange of
corporate assets xxx”
The court affirms Max Blouse’s argument. It is apparent that the purpose of the
resolution is not to dissolve the Laguna Tayabas Bus Co. but merely to transfer its assets to a
new corporation in exchange for its corporation stock. This intent is clearly deducible from the
provision that the Laguna Tayabas Bus Co. will 44not be dissolved but will continue existing until
its stockholders decide to dissolve the same. This comes squarely within the purview of the
corporation laws in that a corporation may sell, exchange, lease or otherwise dispose of all its
property and assets, including its good will, upon such terms and conditions as its Board of
Directors may deem expedient when authorized by the affirmative vote of the shareholders
holding at least 2/3 of the voting power. The transaction called for therein cannot be considered
a merger or consolidation of the two corporations because a merger implies necessarily the
termination or cessation of the merged corporations and not merely a merger of their properties
and assets. what is intended by the resolution is merely a consolidation of properties and
assets, to be managed and operated by a new corporation, and not a merger of the
corporations themselves. Wherefore, the decision is hereby affirmed, with cost against
appellants.
Assuming arguendo that the disputed resolution has really the intention and the purpose
of carrying out the merger or consolidation both of the assets and properties of the two
corporations as well as of the two corporations themselves, we believe that this can be carried
out in Philippine Jurisdiction in the light of our Public Service Law.
hus, section 20(g) of Commonwealth Act No. 146, as amended, prohibits any public
service operators, unless with the approval of the Public Service Commission,
"to sell, alienate, mortgage, encumber or lease its property, franchises,
certificates, privileges, or rights, or any part thereof, or merge or consolidate its
property, franchises, privileges or rights or any part thereof, with those of any
other public service".
This law speaks of merger or consolidation of public service engaged in land transportation. It
does not impose any qualification except that it shall be done with the approval of the Public
Service Commission. There is no doubt that the intended merger or consolidation comes within
the purview of this legal provision.
G.R. No. L-20850 November 29, 1965

THE EDWARD J. NELL COMPANY, peti ti oner, vs. PACIFIC FARMS, INC., respondent.

FACTS

On March 21, 1958, Pacific Farms, Inc. purchased 1,000 shares of stock of Insular
Farms for P285,126.99; that, thereupon, Pacific Farms sold said shares of stock to certain
individuals, who forthwith reorganized said corporation; and that the board of directors thereof,
as reorganized, then caused its assets, including its leasehold rights over a public land in
Bolinao, Pangasinan, to be sold to Pacific Farms for P10,000.00. Meanwhile, On October 9,
1958, Edward J. Nell Company secured in Civil Case No. 58579 of the Municipal Court of
Manila against Insular Farms, Inc. — hereinafter referred to as Insular Farms a judgment for the
sum of P1, 853.80 — representing the unpaid balance of the price of a pump sold by the
company to Insular Farms — with interest on said sum, plus P125.00 as attorney's fees and
P84.00 as costs. A writ of execution, issued after the judgment had become final. However on
August 14, 1959, the writ was returned unsatisfied, stating that Insular Farms had no leviable
property. Soon thereafter, or on November 13, 1959, Edward J. Nell Company filed with said
court the present action against Pacific Farms, Inc. — hereinafter referred to as appellee — for
the collection of the judgment aforementioned, upon the theory that appellee is the alter ego of
Insular Farms, which appellee has denied. In due course, the municipal court rendered
judgment dismissing appellant's complaint. Hence the petition.

ISSUE

Whether or not the Pacific Farms is an alter ego of Insular Farms.

RULING

NO. Generally where one corporation sells or otherwise transfers all of its assets to
another 45
corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where
the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction
amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation
is merely a continuation of the selling corporation; and (4) where the transaction is entered into
fraudulently in order to escape liability for such debts.

In this case, there is neither proof nor allegation that Pacific Farms had expressly or
impliedly agreed to assume the debt of Insular Farms in favor of Edward J. Nell Company or
that the appellee is a continuation of Insular Farms, or that the sale of either the shares of stock
or the assets of Insular Farms to the appellee has been entered into fraudulently, in order to
escape liability for the debt of the Insular Farms in favor of appellant herein. Moreover, appellee
purchased the shares of stock of Insular Farms as the highest bidder at an auction sale held at
the instance of a bank to which said shares had been pledged as security for an obligation of
Insular Farms in favor of said bank. It has, also, been established that the appellee had paid
P285, 126.99 for said shares of stock, apart from the sum of P10, 000.00 it, likewise, and paid
for the other assets of Insular Farms.

Neither is it claimed that these transactions have resulted in the consolidation or merger
of the Insular Farms and appellee herein. On the contrary, appellant's theory to the effect that
appellee is an alter ego of the Insular Farms negates such consolidation or merger, for a
corporation cannot be its own alter ego.
G.R. No. 195615 April 21, 2014

BANK OF COMMERCE, Peti ti oner, vs. RADIO PHILIPPINES NETWORK, INC., ET. AL.,
respondents

FACTS
Traders Royal Bank (TRB) sold to petitioner Bank of Commerce (Bancommerce) its
banking business consisting of specified assets and liabilities through a Purchase and
Assumption (P & A) Agreement. Bangko Sentral ng Pilipinas' (BSP's) approval of their P & A
Agreement was however necessary. On November 8, 2001 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. Subsequently, P & A
Agreement was approved by BSP. To comply with a BSP mandate, TRB placed P50 million in
escrow with Metropolitan Bank and Trust Co. (Metrobank) to answer forthose claims and
liabilities that were excluded from the P & A Agreement and remained with TRB.
Shortly after acting in G.R. 138510, Traders Royal Bank v. Radio Philippines Network
(RPN), Inc., this Court ordered TRB to pay respondents RPN, Intercontinental Broadcasting
Corporation, and Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual damages
plus 12% 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). 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.
Subsequently, the RTC issued the assailed Order directing the release to the Sheriff of
Bancommerce’s "garnished monies and shares of stock or their monetary equivalent" and for
the sheriff to pay 25% of the amount "to the respondents’ counsel representing his attorney’s
fees and appearance fees and litigation expenses" and the balance to be paid to the
respondents after deducting court dues.

ISSUE
46
Whether or not there was a merger or de facto merger between TRB and Bancommerce
thereby considering the latter as judgment debtor.

RULING:

None. 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 providesthat the merger shall be effective only upon the issuance by
the Securities and Exchange Commission (SEC) of a certificate of merger. 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 his book, Philippine Corporate Law, 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 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. Moreover, Bancommerce and TRB agreed with BSP approval to
exclude from the sale the TRB’s contingent judicial liabilities, including those owing to RPN, et
al. The Bureau of Internal Revenue (BIR) treated the transaction between the two banks purely
as a sale of specified assets and liabilities when it rendered its opinion on the tax consequences
of the transaction given that there is a difference in tax treatment between a sale and a merger
or consolidation. Furthermore, what was"consolidated" was the banking activities and
transactions of Bancommerce and TRB, not their corporate existence. The BSP did not
remotely suggest a merger of the two corporations.
FOREIGN CORPORATIONS
G.R. No. 22015 September 1, 1924

MARSHALL-WELLS COMPANY, plainti ff -appellant, vs. HENRY W. ELSER & CO., INC.,
defendant-appellee.

FACTS
Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a
domestic corporation, in the Court of First Instance of Manila, for the unpaid balance of a bill of
goods sold by plaintiff to defendant and for which plaintiff holds accepted drafts. Defendant
demurred to the complaint on the statutory ground that the plaintiff has not legal capacity to sue.
In the demurrer, counsel stated that "The said complaint does not show that the plaintiff has
complied with the laws of the Philippine Islands in that which is required of foreign corporations
desiring to do business in the Philippine Islands, neither does it show that it was authorized to
do business in the Philippine Islands." The demurrer was sustained by the trial judge. Inasmuch
as the plaintiff could not allege compliance with the statute, the order was allowed to become
final and an appeal was perfected.
ISSUES
Is the obtaining of the license prescribed in section 68, as amended, of the Corporation
Law a condition precedent to the maintaining of any kind of action in the courts of the Philippine
Islands by a foreign corporation?
RULING
Yes. The object of the statute was to subject the foreign corporation doing business in
the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the
foreign corporation from performing single acts, but to prevent it from acquiring a domicile for
the purpose of business without taking the steps necessary to render it amenable to suit in the
local courts. The implication of the law is that it was never the purpose of the Legislature to
47
exclude a foreign corporation which happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons
to avoid their contracts made with such foreign corporations. The effect of the statute preventing
foreign corporations from doing business and from bringing actions in the local courts, except on
compliance with elaborate requirements, must not be unduly extended or improperly applied. It
should not be construed to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law. The noncompliance
of a foreign corporation with the statute may be pleaded as an affirmative defense. Thereafter, it
must appear from the evidence, first, that the plaintiff is a foreign corporation, second, that it is
doing business in the Philippines, and third, that it has not obtained the proper license as
provided by the statute.
The literal terminology of Section 69 of the Corporation Law is as follows:
No foreign corporation or corporation formed, organized, or existing
under any laws other than those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands or maintain by
itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed in the
section immediately preceding. Any officer, director, or agent of the
corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one
thousand pesos, or by both such imprisonment and fine, in the
discretion of the court.
G.R. No. 110318 August 28, 1996,

COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, ET. AL., Petitioners, -

versus- COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO,
Respondents.
FACTS
Complainants lodged a complaint with the NBI for violation of PD No. 49 and sought its
assistance in their anti-film piracy drive. Agents of the NBI and private researchers made
discreet surveillance on video establishments in Metro Manila including Sunshine Home Video
Inc. owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center,
Magallanes, Makati, and Metro Manila. NBI Senior Agent Lauro C. Reyes applied for a search
warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated
video tapes of copyrighted films all of which were enumerated in a list attached to the
application; and, television sets, video cassettes and/or laser disc recordings equipment and
other machines and paraphernalia used or intended to be used in the unlawful exhibition,
showing, reproduction, sale, lease or disposition of video grams tapes in the premises above
described. Search Warrant No. 87-053 for violation of Section 56 of PD No. 49, as amended,
was issued by the court a quo. In the course of the search of the premises indicated in the
search warrant, the NBI Agents found and seized various video tapes of duly copyrighted
motion pictures/films owned or exclusively distributed by private complainants, and machines,
equipment, television sets, paraphernalia, materials, accessories all of which were included in
the receipt for properties accomplished by the raiding team.
On December 16, 1987, a "Return of Search Warrant" was filed with the Court. A
"Motion to Lift the Order of Search Warrant" was filed but was later denied for lack of merit. A
Motion for reconsideration of the Order of denial was filed. The court a quo granted the said
motion for reconsideration. Petitioners thereafter appealed the order of the trial court granting
private respondents' motion for reconsideration, thus lifting the search warrant which it had
theretofore issued, to the Court of Appeals. Said appeal was dismissed and the motion for
reconsideration thereof was denied.

ISSUE 48
Whether or not the petitioner has legal standing to maintain the present action.

RULING

The Corporation Code provides: Sec. 133. Doing business without a license. — No
foreign corporation transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws. The obtainment of a license prescribed by Section 125 of the
Corporation Code is not a condition precedent to the maintenance of any kind of action in
Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign
corporation shall be permitted to transact business in the Philippines, as this phrase is
understood under the Corporation Code, unless it shall have the license required by law, and
until it complies with the law in transacting business here, it shall not be permitted to maintain
any suit in local courts. As thus interpreted, any foreign corporation not doing business in the
Philippines may maintain an action in our courts upon any cause of action, provided that the
subject matter and the defendant are within the jurisdiction of the court.

It is not the absence of the prescribed license but "doing business" in the Philippines
without such license which debars the foreign corporation from access to our courts. In other
words, although a foreign corporation is without license to transact business in the Philippines, it
does not follow that it has no capacity to bring an action. Such license is not necessary if it is not
engaged in business in the Philippines.
G.R. No. L-24295 September 30, 1971

GENERAL GARMENTS CORPORATION,  peti ti oner, vs. THE DIRECTOR OF PATENTS and
PURITAN SPORTSWEAR CORPORATION,  respondents.

FACTS

The General Garments Corporation, (GGC) organized and existing under the laws of the
Philippines, is the owner of the trademark "Puritan," and duly registered in the Philippine Patent
Office, for assorted men's wear, such as sweaters, shirts, jackets, undershirts and briefs. On the
other hand, Puritan Sportswear Corporation, (PSC) is organized and existing in and under the
laws of the state of Pennsylvania, U.S.A. On May 1964, PSC filed a petition with the Philippine
Patent Office for the cancellation of the trademark "Puritan" registered in the name of GGC
alleging PSC’s ownership and prior use in the Philippines of the said trademark on the same
kinds of goods, which use it had not abandoned; and alleging further that the registration thereof
by General Garments Corporation had been obtained fraudulently and in violation of Section
17(c) of Republic Act No. 166. GGC moved to dismiss the petition on the ground that PSC had
no legal capacity to file a suit against GGC because PSC is a foreign corporation and not
licensed to do business and not doing business in the Philippines. However, Director of Patents
(DP) denied the motion to dismiss of GGC.
Aggrieved, GGC appealed to the SC. It argued that PSC is not considered as a person
under Philippine Laws who may apply for cancellation of a trademark.

ISSUE

W/ON Puritan Sportswear Corporation has legal capacity to maintain a suit in the
Philippine Patent Office for cancellation of a trademark registered.

RULING 49
Yes. The fact that PSC may not transact business in the Philippines unless it has
obtained a license for that purpose, nor maintain a suit in Philippine courts for the recovery of
any debt, claim or demand without such license (Secs. 68 and 69, Corporation Law) does not
make PSC any less a juridical person. Indeed an exception to the license requirement has been
recognized in this jurisdiction, namely, where a foreign corporation sues on an isolated
transaction.

In Marshall-Wells Co. v. Elser & Co, SC said that the object of the statute (Secs. 68 and
69, Corporation Law) was not to prevent the foreign corporation from performing single acts, but
to prevent it from acquiring a domicile for the purpose of business without taking the steps
necessary to render it amenable to suit in the local courts ... the implication of the law (being)
that it was never the purpose of the legislature to exclude a foreign corporation which happens
to obtain an isolated order for business from the Philippines, from securing redress in the
Philippine Courts.
PSC is not suing for infringement or unfair competition but for cancellation under Section
17. The first kind of action, it maybe stated, is cognizable by the Courts of First Instance. The
second partakes of an administrative proceeding before the Patent Office. And while a suit for
infringement requires that the mark or tradename alleged to have been infringed has been
"registered or assigned" to the suing foreign corporation, a suit for cancellation of the
registration of a mark or tradename has no such requirement. The right to the use of the
corporate or trade name is a property right, a right in rem, which it may assert and protect in any
of the courts of the world — even in jurisdictions where it does not transact business — just the
same as it may protect its tangible property, real or personal against trespass or conversion.
G.R. No. L-63796-97 May 2, 1984

LA CHEMISE LACOSTE, S. A., peti ti oner, vs. HON. OSCAR C. FERNANDEZ, Presiding Judge
of Branch XLIX, Regional Trial Court, Nati onal Capital Judicial Region, Manila and
GOBINDRAM HEMANDAS, respondents.

FACTS

La chemise Lacoste is a French corporation and the actual owner of the trademarks
“Lacoste,”“Chemise Lacoste,” “Crocodile Device” and a composite mark consisting of the word
“Lacoste” and are presentation of a crocodile/alligator, used on clothing's and other goods sold
in many parts of the world and which has been marketed in the Philippines (notably by Rustans)
since 1964.

In 1975 and 1977, Hemandas Q. Co. was issued certificate of registration for the
trademark “Chemise Lacoste and Q Crocodile Device "both in the supplemental and Principal
Registry. In 1980, La Chemise Lacoste SA filed for the registration of the “Crocodile device” and
“Lacoste”. Games and Garments (Gobindram Hemandas, assignee of Hemandas Q.Co.)
opposed the registration of “Lacoste.” In 1983, La Chemise Lacoste filed with the NBI a letter-
complaint alleging acts of unfair competition committed by Hemandas and requesting the
agency’s assistance for investigation and prosection. A search warrant was issued by the trial
court. Various goods and articles were seized upon the execution of the warrants. Hemandas
filed motion to quash the warrants, which the court granted. The search warrants were recalled,
and the goods ordered to be returned. La Chemise Lacoste filed a petition for certiorari. The
defendant argued that the petitioner has no capacity to sue being a foreign corporation not
doing business in the Philippines

ISSUE/S:

Whether or not La Chemise Lacoste 50

has capacity to sue

Ruling:
Yes. As early as 1927, this Court was, and it still is, of the view that a foreign corporation
not doing business in the Philippines needs no license to sue before Philippine courts for
infringement of trademark and unfair competition. Thus, in Western Equipment and Supply Co.
v. Reyes(51 Phil. 115), this Court held that a foreign corporation which has never done any
business in the Philippines and which is unlicensed and unregistered to do business here, but is
widely and favorably known in the Philippines through the use therein of its products bearing its
corporate and tradename, has a legal right to maintain an action in the Philippines to restrain
the residents and inhabitants thereof from organizing a corporation therein bearing the same
name as the foreign corporation, when it appears that they have personal knowledge of the
existence of such a foreign corporation, and it is apparent that the purpose of the proposed
domestic corporation is to deal and trade in the same goods as those of the foreign corporation.

xxx xxx xxx

... That company is not here seeking to enforce any legal or control rights arising from, or
growing out of, any business which it has transacted in the Philippine Islands. The sole purpose
of the action:
Is to protect its reputation, its corporate name, its goodwill, whenever that reputation,
corporate name or goodwill have, through the natural development of its trade, established
themselves.' And it contends that its rights to the use of its corporate and trade name:
Is a property right, a right in rem, which it may assert and protect against all the world, in
any of the courts of the world-even in jurisdictions where it does not transact business-just the
same as it may protect its tangible property, real or personal, against trespass, or conversion.
…….
xx

Since it is the trade and not the mark that is to be protected, a trade-mark acknowledges
no territorial boundaries of municipalities or states or nations, but extends to every market
where the trader's goods have become known and Identified by the use of the mark.
 More important is the nature of the case which led to this petition. What preceded this
petition forcertiorari was a letter complaint filed before the NBI charging Hemandas with a
criminal offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows
after the completion of the preliminary investigation being conducted by the Special Prosecutor
the information shall be in the name of the People of the Philippines and no longer the petitioner
which is only an aggrieved party since a criminal offense is essentially an act against the State.
It is the latter which is principally the injured party although there is a private right violated.
Petitioner's capacity to sue would become, therefore, of not much significance in the main case

51
G.R. No. 94980 May 15, 1996,

LITTON MILLS, INC, Petitioner, -versus – THE COURT OFAPPEALS and

GELHAAR UNIFORM COMPANY ,INC ., Respondents.
FACTS
Petitioner Litton Mills, Inc. (Litton) entered into an agreement with Empire Sales
Philippines Corporation (Empire), as local agent of private respondent Gelhaar Uniform
Company (Gelhaar), a corporation organized under the laws of the United States, whereby
Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys. The agreement stipulated that
before it could collect from the bank on the letter of credit, Litton must present an inspection
certificate issued by Gelhaar's agent in the Philippines, Empire Sales, that the goods were in
satisfactory condition. Litton sent four shipments totalling 4,770 dozens of the soccer jerseys
between December 2 and December 30, 1983. A fifth shipment, consisting of 2,110 dozens of
the jerseys, was inspected by Empire from January 9 to January 19, 1984, but Empire refused
to issue the required certificate of inspection. Alleging that Empire's refusal to issue a certificate
was without valid reason, Litton filed a complaint with the Regional Trial Court for specific
performance. Litton sought the issuance of a writ of preliminary mandatory injunction to compel
Empire to issue the inspection certificate covering the 2,110 dozen jerseys. The trial court
issued the writ; consequently, Empire issued the inspection certificate, so that the cargo was
shipped on time. Atty. Remie Noval filed in behalf of the defendants a "Motion for Extension of
Time to File an Answer/Responsive Pleading." And the same was granted. The the law firm of
Sycip, Salazar, Feliciano and Hernandez entered a special appearance for the purpose of
objecting to the jurisdiction of the court over Gelhaar.

The appellate court held that proof that Gelhaar was doing business in the Philippines
should have been presented because, under the doctrine of Pacific Micronisian, this is a
condition sine qua non for the service of summons under Rule 14 of the Rules of Court, and that
it was error for the trial court to rely on the mere allegations of the complaint. Consequently, the
appellate court ordered the trial court to issue anew summons to be served on Empire Sales
Philippines Corporation, after the allegation in the complaint that Gelhaar was doing business in
the Philippines had been established. 52
ISSUE
W/ON jurisdiction over Gelhaar was acquired by the trial court by the service of
summons
through Gelhaar's agent (Empire) and, at any rate, by the voluntary appearance of Atty. Noval
as counsel of Gelhaar

RULING

Jurisdiction over Gelhaar was acquired by the trial court. A court need not go
beyond the allegations in the complaint to determine whether or not a defendant foreign
corporation is doing business for the purpose of Rule 14, §14. In the case at bar, the allegation
that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton
and for this purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of
Litton is a sufficient allegation that Gelhaar was doing business in the Philippines. Gelhaar
contends that the contract with Litton was a single, isolated transaction and that it did not
constitute "doing business." Reference is made to Pacific Micronisian in which the only act done
by the foreign company was to employ a Filipino as a member of the crew on one of its ships.
This court held that the act was an isolated, incidental or casual transaction, not sufficient to
indicate a purpose to engage in business.

It is not really the fact that there is only a single act done that is material. The other
circumstances of the case must be considered. Thus, in Wang Laboratories, Inc. v. Mendoza, it
was held that where a single act or transaction of a foreign corporation is not merely incidental
or casual but is of such character as distinctly to indicate a purpose on the part of the foreign
corporation to do other business in the state, such act will be considered as constituting doing
business. This Court referred to acts which were in the ordinary course of business of the
foreign corporation.
G.R. No. L-47701 June 27, 1941

THE MENTHOLATUM CO., INC., ET AL., peti ti oners, vs. ANACLETO MANGALIMAN, ET AL.,
respondents.

FACTS:
Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action in
the CFI of Manila against Anacleto Mangaliman, Florencio Mangaliman and the Director of the
Bureau of Commerce for infringement of trade mark and unfair competition. Mentholatum Co.
Inc is a Kansas corporation which manufactures Mentholatum," a medicament and salve
adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation
and other external ailments of the body. Its exclusive distributing agent in the Philippines
authorized by it to look after and protect its interests is Philippine-American Drug co., Inc. It
alleged that on June 26, 1919 and on January 21, 1921, it registered with the Bureau of
Commerce and Industry the word, "Mentholatum," as trade mark for its products.

The Mangaliman brothers prepared a medicament and salve named "Mentholiman"

which they sold to the public packed in a container of the same size, color and shape as
"Mentholatum". Due to this acts Mentholatum Co., Inc suffered damages from the dimunition of
their sales and the loss of goodwill and reputation of their product in the market. CFI dismissed
the case for failure of Mentholatum Co., Inc’s counsel to attend, but rendered judgment in favor
of Mentholatum Co., Inc. CA reversed the decision holding that the activities of the Mentholatum
Co., Inc., were business transactions in the Philippines, and that, by section 69 of the
Corporation Law, it may not maintain the present suit.

ISSUE:
Whether the petitioners could prosecute the instant action without having secured the
license required in section 69 of the Corporation Law

HELD:
Section 69 of Act No. 1459 reads: 53
SEC. 69. No foreign corporation or corporation formed, organized, or existing
under any laws other than those of the Philippine Islands shall be permitted to transact
business in the Philippine Islands or maintain by itself or assignee any suit for the
recovery of any debt, claim, or demand whatever, unless it shall have the license
prescribed in the section immediately preceding. Any officer, or agent of the corporation
or any person transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six months nor more than
two years or by a fine of not less than two hundred pesos nor more than one thousand
pesos, or by both such imprisonment and fine, in the discretion of the court.
In the present case, no dispute exists as to facts: a. that the plaintiff, the Mentholatum Co., Inc.,
is a foreign corporation; b. that it is not licensed to do business in the Philippines. No general
rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or
"transacting" business. a. The true test, however, seems to be whether the foreign corporation
is continuing the body or substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to another; b. The term implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally incident to, and
in progressive prosecution of, the purpose and object of its organization. In the pleadings in
petitioner alleged that Philippine-American Drug Co., Inc. is its exclusive distributor.
It follows that whatever transactions the Philippine-American Drug Co., Inc., had
executed in view of the law, the Mentholatum Co., Inc., did it itself. The Mentholatum Co., Inc.,
being a foreign corporation doing business in the Philippines without the license required by
section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark
and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action
here for the reason that the distinguishing features of the agent being his representative
character and derivative authority it cannot now, to the advantage of its principal, claim an
independent standing in court. Western Equipment and Supply Co. vs. Reyes: cannot apply
since Western Equipment and Supply Co. was not engaged in business in the Philippines, and
significantly added that if the plaintiff had been doing business in the Philippine Islands without
first obtaining a license, 'another and a very different question would be presented'.
G.R. No. 154618             April 14, 2004

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD.,   peti ti oner , vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG, TEOH KIANG SENG,
ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA,   respondents.

FACTS:

Agilent Technologies Singapore (Pte.), Ltd. is a foreign corporation, which, by its own admission,
is not licensed to do business in the Philippines. Integrated Silicon Technology Philippines Corporation is
a private domestic corporation, 100% foreign owned, which is engaged in the business of manufacturing
and assembling electronics components. Teoh Kiang Hong, Teoh Kiang Seng and Anthony Choo,
Malaysian nationals, are current members of Integrated Silicon’s board of directors, while Joanne Kate
M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its former members. The juridical
relation among the various parties in the case can be traced to a 5-year Value Added Assembly Services
Agreement (VAASA), entered into on 2 April 1996 between Integrated Silicon and the Hewlett-Packard
Singapore (Pte.) Ltd., Singapore Components Operation (HP-Singapore). Under the terms of the VAASA,
Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore.

Without filing a motion for reconsideration, Integrated Silicon, et. al. filed a petition for
certiorari with the Court of Appeals. In the meantime, upon motion filed by Integrated Silicon, et. al.,
Judge Antonio S. Pozas of Branch 92 voluntarily inhibited himself in Civil Case 3123-2001-C. The case was
re-raffled and assigned to Branch 35, the same branch where Civil Case 3110-2001-C is pending. On 12
August 2002, the Court of Appeals granted Integrated Silicon, et. al.’s petition for certiorari, set aside the
assailed Order of the trial court dated 4 September 2001, and ordered the dismissal of Civil Case 3123-
2001-C. Agilent filed the petition for review.

ISSUE: 54
Whether a foreign corporation without a license is incapacitated from bringing an action in
Philippine courts and whether Agilent was doing business in the Philippines.

HELD:

A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is “transacting” or “doing business”
in the country. Section 133 of the Corporation Code provides that "No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;
but such corporation may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws."

The aforementioned provision prevents an unlicensed foreign corporation “doing business” in

the Philippines from accessing our courts. In a number of cases, however, the Court held that an
unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine courts
against a Philippine citizen or entity who had contracted with and benefited from said corporation. Such
a suit is premised on the doctrine of estoppel. A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into a contract with it. This doctrine of
estoppel to deny corporate existence and capacity applies to foreign as well as domestic corporations.
The application of this principle prevents 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. d license, it can sue before Philippine courts on any transaction.
G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC.,   peti ti oner, vs. HON. COURT OF APPEALS, and the
SPOUSES PEDRO M. LARA and ELISA G. LARA,   respondents.

FACTS
On November 23, 1987, Merrill Lynch Futures, Inc. (ML) filed a complaint with the QC
RTC against Spouses LARA for the recovery of a debt and interest thereon, damages, and
attorney's fees. 

In ML’s complaint, it described itself as (a) a non-resident foreign corporation, not doing
business in the Philippines and a (b) "futures commission merchant" duly licensed in the futures
markets and exchanges in the United States. He essentially functions as a broker, executing
orders to buy and sell futures contracts received from its customers on U.S. futures exchanges.
A "futures contract" is a contractual commitment to buy and sell a standardized quantity of a
particular item at a specified future settlement date and at a price agreed upon, with the
purchase or sale being executed on a regulated futures exchange.

Petitioner alleges that on September 28, 1983 ML entered into a Futures Customer
Agreement with the defendant spouses. Pursuant to the contract, Spouses transmitted orders to
buy and sell futures contracts to ML through the facilities of Merrill Lynch Philippines, Inc., a
Philippine corporation and a company servicing ML’s customers. The Spouses knew and were
duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts and that it
did not have a license from the SEC to operate as a commodity trading advisor. The Spouses
actively traded in futures contracts for four years there being regular accounting and
corresponding remittances of money made between the parties.

In a motion to dismiss, the defendant spouses averred that: (a) ML is prohibited by law
to maintain or intervene in any action, suit or proceeding in any court or administrative agency of
the Philippines because it described itself in the complaint as “not being licensed, but had been
doing business in the Philippines at least for the last four (4) years; (b) they had never been
informed that Merrill Lynch Philippines, Inc. was55not licensed to do business in this country; and
(c) all their transactions had actually been with MERRILL LYNCH PIERCE FENNER & SMITH,
INC., and not with ML FUTURES.

ISSUE

Whether Merrill Lynch Futures is prohibited from suing in Philippine Courts for doing
business in the country without a license.

HELD/RULING

NO, remand to determine Spouses’ liability. Despite having no license to transact

business in the Philippines, the fact that the Lara Spouses had done business with ML in the
Philippines through ML Philippines, the Spouses are now estopped to impugn ML’s capacity to
sue them in Philippine courts. Under Sec. 133 of the Corporation Code, “no foreign corporation
transacting business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or administrative
agency in 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.” However, one who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity.

This 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. The Court is satisfied that the Spouses did
transact business with ML through its agent corporation organized in the Philippines, and that
on several occasions the latter received account documents and money in connection with
those transactions.
G.R. No. L-44944 August 9, 1985

TOP-WELD MANUFACTURING, INC.,   peti ti oner , vs. ECED, S.A., IRTI, S.A., EUTECTIC
CORPORATION, VICTOR C. GAERLAN, and THE HON. COURT OF APPEALS ,   respondents .

FACTS :
Top-weld Manufacturing Inc., a Philippine corporation engaged in the
business of manufacturing and selling welding supplies and equipment, entered
into separate contracts with two different foreign entities: With IRTI, S.A. (IRTI), a
corporation organized and existing under the laws of Switzerland with principal
office in Fribourg, Switzerland: a “License and Technical Assistance Agreement”
Top-weld will be a licensee of IRTI, wherein the former will purchase raw materials
from the suppliers designated by the IRTI and will manufacture in favor of the latter
welding products under certain specifications The contract is for a period of three
years, up to Jan. 1, 1975, but was later extended up to Dec. 31, 1975. With ECED,
S.A., (ECED), a company organized and existing under the laws of Panama, with
principal office at Apartado 1903, Panama I, City of Panama: a “Distributor
Agreement” .
However, IRTI and ECED still wrote Top-weld separate notices about the
termination of their respective contracts. Top-weld then filed an amended complaint
and a supplemental complaint for preliminary mandatory injunction invoking RA
5455, Sec. 4(9) [prohibiting alien firms doing business in the PH from terminating
existing contracts except for just cause] and seeking: to compel ECED to ship and
deliver various items covered by the distributorship contract ; to prohibit the
corporations from importing into the Philippines any EUTECTIC materials, supplies
or e quipment except through Top-well.
RULING :
56 ECED are foreign corporations “doing
Petition granted. Whether IRTI and
business in the Philippines” who should comply with the requirements of Sec. 4(9)
RA 5455 – YES, they are foreign corporations doing business in the Philippines,
but given the circumstances present in the instant case, they are NOT obligated to
follow Sec. 4(9) of RA 5455. IRTI and ECED are foreign corporations “doing
business in the Philippines” .
What constitutes “doing” or “engaging in” or “transacting” business in the
Philippines depends on the peculiar circumstances of each case. The true test,
however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another. When the foreign
corporation extends the business for which it is organized here in the Philippines,
then it can be considered as doing business in the Philippines.
G.R. No. L-61523 July 31, 1986

ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA

CONSOLIDATED SECURITIES and INVESTMENT CORPORATION,   peti ti oners , vs. THE COURT
OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First Instance of
Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC .,   respondents.

FACTS:
Stokely Van Camp. Inc. is a corporation organized and existing under the laws of the
state of Indiana, U.S.A. with "Capital City Product Company" (Capital City) as one of its
subdivisions. Stokely and Capital City were not engaged in business in the Philippines.
Stokely and Capital filed a complaint against Banahaw Milling Corporation, Antam Consolidated,
Inc., Tambunting Trading Corporation, Aurora Consolidated Securities and Investment
Corporation, and United Coconut Oil Mills, Inc. (Unicom) for collection of sum of money after
failure to deliver the crude coconut oil under the first transaction and their failure to comply with
their obligations.

The trial court ordered the issuance of a writ of attachment in favor of Stokely upon the
latter's deposit of a bond in the amount of P1,285,000.00. On 3 June 1981, Stokely filed a
motion for reconsideration to reduce the attachment bond. On 11 June 1981, Antam, et al. filed
a motion to dismiss the complaint on the ground that Stokely, being a foreign corporation not
licensed to do business in the Philippines, has no personality to maintain the suit. Thereafter,
the trial court issued an order, dated 10 August 1981, reducing the attachment bond to
P500,000.00 and denying the motion to dismiss by Antam, et al. on the ground that the reason
cited therein does not appear to be indubitable. Antam, et al. filed a petition for certiorari before
the Intermediate Appellate Court. On 14 June 1982, the appellate court dismissed the petition.
Antam, et al. filed a motion for reconsideration but the same was denied. Hence, they filed the
petition for certiorari and prohibition with prayer for temporary restraining order.

ISSUE 57
Whether Stokely Van Camp, Inc. has the capacity to sue, in light of three transactions it
entered into with Comphil, Antam, etc. without license.

HELD
The transactions entered into by Stokely with Comphil, Antam, et al. are not a series of
commercial dealings which signify an intent on the part of Stokely to do business in the
Philippines but constitute an isolated one which does not fall under the category of "doing
business." The only reason why Stokely entered into the second and third transactions with
Comphil, Antam, et al. was because it wanted to recover the loss it sustained from the failure of
Comphil, Antam, et al. to deliver the crude coconut oil under the first transaction and in order to
give the latter a chance to make good on their obligation. Instead of making an outright demand
on Comphil, Antam, et al., Stokely opted to try to push through with the transaction to recover
the amount of US$103,600.00 it lost.
This explains why in the second transaction, Comphil, Antam, et al. were supposed to
buy back the crude coconut oil they should have delivered to the respondent in an amount
which will earn the latter a profit of US$103,600.00. When this failed the third transaction was
entered into by the parties whereby Comphil, Antam, et al. were supposed to sell crude coconut
oil to the respondent at a discounted rate, the total amount of such discount being
US$103,600.00. Unfortunately, Comphil, Antam, et al. failed to deliver again, prompting Stokely
to file the suit below. From these facts alone, it can be deduced that in reality, there was only
one agreement between Comphil, Antam, et al. and Stokely and that was the delivery by the
former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the
corresponding price for the same. The three seemingly different transactions were entered into
by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on
the part of Stokely to engage in a continuity of transactions with Comphil, Antam, et al. which
will categorize it as a foreign corporation doing business in the Philippines. Stokely, being a
foreign corporation not doing business in the Philippines, does not need to obtain a license to do
business in order to have the capacity to sue.
G.R. No. 168266               March 15, 2010

CARGILL, INC.,   Peti ti oner , vs. INTRA STRATA ASSURANCE CORPORATION ,   Respondent.

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

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.
58
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”
o ….. 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 courts, INTRA bears the burden of proving that CARGILL
was doing business in the PH. In this case, we find that INTRA failed 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.