Corporations

IMELDA COJUANGCO v. SANDIGANBAYAN

G.R. NO. 183278, April 24, 2009
Carpio, Morales, J:

DOCTRINE:

Dividends are payable to the stockholders of record as of the date of the declaration of dividends or
holders of record on a certain future date, as the case may be, unless the parties have agreed otherwise.

FACTS:

Republic filed before the Sandiganbayan a complaint for reconveyance, reversion, accounting, restitution,
and damages praying for the recovery of the alleged ill-gotten wealth from the late President Marcos and
his first lady, including among others some shares of stock in PLDT. The complaint was amended to
include the shares in PLDT covered by the shares of stock in PTIC and Prime Holdings. The
Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares; hence, the case
was appealed to the Supreme Court. Decisions for the other cases related in this case became final and
executory; hence, Republic filed a motion for issuance of a writ of execution, praying for the cancellation
of the shares/certificates of stock registered in the name of Prime Holdings and the annotation of the
change of ownership on PTIC’s stock and transfer book.

ISSUES:
1. Whether or Not Sandiganbayan gravely abused its discretion in ordering the accounting, delivery, and
remittance to the Republic of the stock, cash, and property dividends pertaining to the PTIC shares of
Prime Holdings
2. Whether or Not the Republic, having transferred to shares to a third party, is entitled to the dividends,
interests, and earnings

HELD:

1. Yes. In G.R. No. 153459, although the inclusion of the dividends, interests, and earnings of the PTIC
shares  as belonging to the Republic was not mentioned in the dispositive portion of the Court’s Decision,
it is clear from its body that what was being adjudicated in favor of the Republic was the whole block of
shares and the fruits thereof, said shares having been found to be part of the Marcoses’ ill-gotten wealth,
and therefore, public money. It would be absurd to award the shares to the Republic as their owner and
not include the dividends and interests accruing thereto. An owner who cannot exercise the "juses" or
attributes of ownership -- the right to possess, to use and enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate, and to the fruits - is a crippled owner.

2. Yes. Dividends are payable to the stockholders of record as of the date of the declaration of
dividends or holders of record on a certain future date, as the case may be, unless the parties have agreed
otherwise. A transfer of shares which is not recorded in the books of the corporation is valid only as
between the parties, hence, the transferor has the right to dividends as against the corporation without
notice of transfer but it serves as trustee of the real owner of the dividends, subject to the contract
between the transferor and transferee as to who is entitled to receive the dividends

INTERPORT RESOURCES v. SECURITIES SPECIALIST, INC

G.R. NO. 154069, June 6, 2016
Bersamin, J:

DOCTRINE:

The assignment of the subscription agreement is a form of novation by substitution of a new debtor and
which requires the consent of or notice to the creditor.

FACTS:

Oceanic entered into a subscription agreement with R.C. Lee, a domestic corporation engaged in the
trading of stocks and other securities. R.C. Lee paid 25% of the subscription, leaving 75% unpaid.
Oceanic merged with Interport, with the latter as the surviving corporation. Interport was a publicly-listed
domestic corporation whose shares of stocks were traded in the stock exchange. Under the terms of the
merger, each share of Oceanic was exchanged for a share of Interport. SSI, a domestic corporation
registered as a dealer in securities, received in the ordinary course of business Oceanic Subscription
Agreements, all outstanding in the name of R.C. Lee. R.C. Lee requested Interport for a list of
subscription agreements and stock certificates issued in the name of R.C. Lee and other individuals
named in the request. Interport issued a call for the full payment of subscription receivables, and SSI
tendered payment to 2 stockbrokers, but the latter reported to SSI that Interport refused to honor Oceanic
subscriptions. Interport originally rejected the tender of payment for all unpaid subscriptions on the
ground that the Oceanic subscription agreements should have been previously converted to shares in
Interport.

ISSUE:

Whether or Not Interport was liable to deliver to SSI the Oceanic shares of stock, or the value thereof

HELD:

Yes. The assignment of the subscription agreement is a form of novation by substitution of a new debtor
and which requires the consent of or notice to the creditor. In this case, the change of debtor took place
when R.C. Lee assigned the Oceanic shares under Subscription Agreement to SSI so that the latter
became obliged to settle the 75% unpaid balance on the subscription. Interport was duly notified of the
assignment when SSI tendered its payment for the 75% unpaid balance. Section 63 of the Corporation
Code stating that no transfer of shares of stock shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation so as to show the names of the parties to the
transaction is inapplicable in this case because Interport had unduly refused to recognize the assignment
of the shares between R.C. Lee and SSI.

ROGELIO FLORETE, ET AL. v. MARCELINO FLORETE

G.R. NO. 223321, April 2, 2018
Peralta, J:

DOCTRINE:

Even if the transfer of stocks is made in violation of the restrictions enumerated under Section 99 of the
RCC, such transfer is still valid if it has been consented to by all the stockholders of the close corporation
and the corporation cannot refuse to register the transfer of stock in the name of the transferee. 

FACTS:

Marsal is a close corporation and Teresita is one of its directors. Article 7 of the AOI provides for the
preemptive right of the stockholder. When Teresita died, her husband, Ephraim, filed a petition for
issuance of letters of administration over her estate. Rogelio and Marsal, represented by Marsal’s
president, Atty. Raul, opposed on the ground of Ephraim’s incompetency, but Ephraim was granted said
letters. Ephraim, the special administrator, entered into a Compromise Agreement and Deed of
Assignment with Rogelio ceding all the shareholdings of Teresita in various corporations owned and
controlled by the Florete which includes shares in Marsal. Marcelino, the patriarch, died intestate, and
Rogelio was appointed as administrator of the estate. Rogelio filed a project of partition enumerating
herein all the properties of the estate of Marcelino. ½ of the share of the whole estate was given to
Rogelio, while Elene and Marcelino, Jr. were given 1/4 share each. The probate court noted the sale of all
shares of the late Teresita to Rogelio. Marcelino Jr. and Elena filed a case for annulment/rescission of sale
of shares of stocks and the exercise of their preemptive rights in Marsal.

ISSUE:

Whether or Not the sale of Teresita’s Marsal shares was in violation of Marsal’s AOI

HELD:

No. The AOI of Marsal provides for the procedure for the sale of shares of stock of a stockholder. The
stockholder seller must notify in writing the Board of Directors of his intention to sell, who, in turn, must
notify all the stockholders of records within 5 days upon receipt of such letter, and the stockholder must
exercise the preemptive right within ten days from notice of the Board, otherwise, the sale shall be null
and void. Here, Teresita's share was sold to Rogelio via a compromise agreement and deed of assignment.
However, it appeared in the records that respondents had nonetheless been informed of such sale to which
they had already given their consent thereto as shown by the following circumstances. There was already
substantial compliance with paragraph 7 of the AOI when respondents obtained actual knowledge of the
sale of Teresita's shares and in fact, respondents had already given their consent and conformity to such
sale by their inaction for 17 years despite knowledge of the sale. Even if the transfer of stocks is made in
violation of the restrictions enumerated under Section 99 of the RCC, such transfer is still valid if it has
been consented to by all the stockholders of the close corporation and the corporation cannot refuse to
register the transfer of stock in the name of the transferee. 

CAROLINA QUE VILLONGCO v. CECILIA QUE YABUT

G.R. NO. 225022, February 5, 2018
Tijam, J:

DOCTRINE:

Total outstanding capital stocks, without distinction as to disputed or undisputed shares of stock, is the
basis in determining the presence of quorum.

FACTS:

Phil-Ville is a family corporation founded by Geronima and is engaged in the real estate business.
Geronia owned a portion of shares while the remained were owned equally by her 6 children. Geronima’s
shares were sold by her alleged attorney-in-fact and effected an inequitable distribution of Geronima’s
shares. Cecilia et al, wrote a letter to the Corporate Secretary to send out notices for the holding of an
annual stockholder’s meeting; but before the Corporate Secretary can reply, several letters were sent to
the stockholders in regards to the notice of the annual stockholder’s meeting signed by Cecilia et al as
directors. Carolina et al, comprising the majority of the BOD held an emergency meeting and made a
decision, by concensus, to postpone the annual stockholders' meeting. All the stockholders were apprised
of the decision to postpone the meeting and SEC was notified. Despite postponement, Cecilia et al
proceeded with the scheduled annual stockholder's meeting participated only by a few stockholders, and
elected new members of the BOD. Carolina et al filed an election case before the RTC seeking to declare
the election of the new BOD as null and void due to lack of quorum in the meeting.

ISSUE:

Whether or Not the total undisputed shares of Phil-Ville should be the basis in determining the presence
of quorum

HELD:

No. Total outstanding capital stocks, without distinction as to disputed or undisputed shares of stock, is
the basis in determining the presence of quorum, as provided under Section 52 in relation to Section 137
of the RCC. Section 52 of the Corporation Code states that “Unless otherwise provided for in this Code
or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding
capital stock or a majority of the members in the case of non-stock corporations.” While Section 137 of
the same Code defines "outstanding capital stock" as the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except
treasury shares. Thus, for stock corporations, the quorum is based on the number of outstanding voting
stocks.

CEZAR YATCO REAL ESTATE v. BEL-AIR VILLAGE

G.R. NO. 211780, November 21, 2018
Leonen, J:

DOCTRINE:

A proxy is a form of agency created in instances when a person is unable to personally cast his or her
vote; hence, the act of voting is delegated to another person.

FACTS:

Makati Development developed Bel-Air Village. Bell-Air Village Homeowner’s Association was
constituted as a non-stock, non-profit association to promote its members' best interests. Under its by-
laws, all lot owners of Bel-Air Village automatically became members of the Association. The
Association created the 2007 Committee to assess and propose amendments to the Deed Restrictions, in
anticipation of its impending expiration. The Association had its annual meeting and discussed the
proposed amendments and revisions to the Deed Restrictions, circulated copies of proposed amendments
and revisions, and passed a board resolution to such. Petitioners voted against the extension of the Deed
Restrictions and filed a verified complaint before the HLURB. Petitioners contended that the
Association's resolution extending the Deed Restrictions' effectivity was illegally and arbitrarily
approved, and that there was no quorum when the special membership meeting was held.

ISSUE:

Whether or Not the Association’s members can, by majority vote, extend the Deed Restrictions’ term of
effectivity

HELD:

Yes. A plain reading of Part VI, or the Term of Restrictions, would show that the term of effectivity was
not set in stone, and that private respondent was empowered to cancel it altogether, through its members'
majority vote. The contracting parties' clear intention was to give the lot owners freedom to establish rules
and regulations, under which they could best use their properties and protect their interests. The term of
restrictions was also subject to amendment by a majority vote of private respondent's members:
"However, the Association may, from time to time, add new ones, amend or abolish particular restrictions
or parts thereof by majority rule." Although there are members who voted through proxies, the submitted
proxies where validly upheld. A proxy is a form of agency created in instances when a person is unable to
personally cast his or her vote; hence, the act of voting is delegated to another person. Section 58 of the
Corporation Code then provides that a proxy shall be in writing, signed by the member, and filed with the
corporate secretary before the scheduled meeting. The Corporation Code also empowers the members to
provide for their own proxy requirements in their by-laws. Nonetheless, in the absence of additional
formal requirements for proxies in the by-laws, the basic requirements for a written proxy submitted prior
to the scheduled meeting under Section 58 govern. Hence, it is whimsical to insist that the special meeting
did not constitute a quorum solely based on its lame excuse that the proxy letters during said meeting
were not notarized and lacking in authority or specific grant of power to approve the extension of the
effectivity of the term of restrictions.

TERELAY INVESTMENT v. CECILIA TERESITA YULO

G.R. NO. 160924, August 5, 2015
Bersamin, J:

DOCTRINE:

The Corporation Code has granted to all stockholders the right to inspect the corporate books and
records, and in so doing has not required any specific amount of interest for the exercise of the right to
inspect.

FACTS:

Cecilia wrote a letter to Terelay requesting that she be allowed to examine its books and records, but was
denied and Terelay demanded her to show proof of being a bona fide stockholder. Cecilia filed with the
SEC a petition for writ of mandamus with prayer for damages. Following the enactment of the SRC, the
case was transferred to the RTC, which granted Cecilia’s application for inspection of corporate records.

ISSUE:
Whether or Not Cecilia was entitled to inspect the books and records despite her shareholding being
merely a .001% interest

HELD:

Yes. The Corporation Code has granted to all stockholders the right to inspect the corporate books and
records, and in so doing has not required any specific amount of interest for the exercise of the right to
inspect. Neither could the Terelay arbitrarily deny the respondent's right to inspect the corporate books
and records on the basis that her inspection would be used for a doubtful or dubious reason. Under
Section 74, third paragraph, of the Corporation Code, the only time when the demand to examine and
copy the corporation's records and minutes could be refused is when the corporation puts up as a defense
to any action that "the person demanding" had "improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other corporation, or was not
acting in good faith or for a legitimate purpose in making his demand." The right of the shareholder to
inspect the books and records of the petitioner should not be made subject to the condition of a showing
of any particular dispute or of proving any mismanagement or other occasion rendering an examination
proper, but if the right is to be denied, the burden of proof is upon the corporation to show that the
purpose of the shareholder is improper, by way of defense. 

ADERITO YUJUICO v. CEZAR QUIAMBAO

G.R. NO. 180416, June 2, 2014
Peres, J:

DOCTRINE:

Violations of the second and fourth paragraphs of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of any of its stockholders to inspect
the records, minutes and the stock and transfer book of such corporation.

FACTS:

During the annual stockholder’s meeting of STRADEC, Aderito was elected as president and chairman,
replacing Cezar. Bonifacio was appointed as treasurer and Joselito as corporate secretary. Petitioners filed
a criminal complaint against respondents before the OCP for violation of Section 74 in relation to Section
144 of the Corporation Code. Petitioners theorize that the refusal by the Respondents to turnover
STRADEC’s corporate records and stock and transfer book violates their right, as stockholders, directors
and officers of the corporation, to inspect such records and book. The OCP found probable cause and
filed an information before the MeTC. The case was dismissed since it seeks to try Respondents for
merely removing the stock and transfer book of STRADEC from its principal office-actually charges no
offense and, therefore, cannot be sustained.

ISSUE:

Whether or not the dismissal is proper

HELD:

Yes. A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the
same section, reveal that they are provisions that obligates a corporation: they prescribe what books or
records a corporation is required to keep; where the corporation shall keep them; and what are the other
obligations of the corporation to its stockholders or members in relation to such books and
records. Hence, by parity of reasoning, the second and fourth paragraphs of Section 74, including the first
paragraph of the same section, can only be violated by a corporation. It is clear then that a criminal action
based on the violation of the second or fourth paragraphs of Section 74 can only be maintained against
corporate officers or such other persons that are acting on behalf of the corporation. Violations of the
second and fourth paragraphs of Section 74 contemplates a situation wherein a corporation, acting thru
one of its officers or agents, denies the right of any of its stockholders to inspect the records, minutes and
the stock and transfer book of such corporation. The problem with the petitioners' complaint and the
evidence that they submitted during preliminary investigation is that they do not establish that
respondents were acting on behalf of STRADEC. Quite the contrary, the scenario painted by the
complaint is that the respondents are merely outgoing officers of STRADEC who, for some reason,
withheld and refused to turn-over the company records of STRADEC; that it is the petitioners who are
actually acting on behalf of STRADEC; and that STRADEC is actually merely trying to recover custody
of the withheld records. Such right, though certainly legally enforceable by other means, cannot be
enforced by a criminal prosecution based on a violation of the second and fourth paragraphs of Section
74. That is simply not the situation contemplated by the second and fourth paragraphs of Section 74 of the
Corporation Code.
PHILIPPINE ASSOCIATED SMELTING v. PABLITO LIM
G.R. NO. 172948, October 5, 2016
Leonen, J:

DOCTRINE:

An action for injunction filed by a corporation generally does not lie to prevent the enforcement by a
stockholder of his or her right to inspection.

FACTS:

Respondents were former senior officers and present shareholders of PASAR. PASAR filed a petition for
injunction and damages with prayer for preliminary injunction and/or TRO seeking to restrain
Respondents from demanding inspection of its confidential and inexistent records. This was granted by
the RTC. PASAR argues that  the right of a stockholder to inspect corporate books and records is limited
in that any demand must be made in good faith or for a legitimate purpose, and that Respondents have no
legitimate purpose, and that if they gain access to petitioner's confidential records, petitioner's trade
secrets and other confidential information will be used by its former officers to give undue commercial
advantage to third parties.

ISSUE:

Whether or Not injunction properly lies to prevent Respondents from invoking their right to inspect

HELD:

No. An action for injunction filed by a corporation generally does not lie to prevent the enforcement by a
stockholder of his or her right to inspection. The Corporation Code provides that a stockholder has the
right to inspect the records of all business transactions of the corporation and the minutes of any meeting
at reasonable hours on business days. The stockholder may demand in writing for a copy of excerpts from
these records or minutes, at his or her expense. The right to inspect under Section 74 of the Corporation
Code is subject to certain limitations. However, these limitations are expressly provided as defenses in
actions filed under Section 74. In this case, PASAR invokes its right to raise the limitations provided
under Section 74 of the Corporation Code. However, PASAR provides scant legal basis to claim this right
because it does not raise the limitations as a matter of defense. Section 74 of the Corporation Code is
sufficient authority to conclude that an action for injunction and, consequently, a writ of preliminary
injunction filed by a corporation is generally unavailable to prevent stockholders from exercising their
right to inspection.

DONNINA HALLEY v. PRINTWELL INC.

G.R. NO. 157549, May 30, 2011
Bersamin, J:

DOCTRINE:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil
may be lifted to avoid defrauding corporate creditors.

FACTS:

Halley was an incorporator and original director of BMPI. BMPI commissioned Printwell for the printing
of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published
and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI. Printwell sued
BMPI for the collection of unpaid balance, and later on amended the complaint to implead as defendants
all the original stockholders and incorporators to recover on their unpaid subscriptions. Among the
defenses raised by Petitioners is that BMPI has a separate personality from its stockholders. Applying the
trust fund doctrine, the RTC declared Petitioners as liable to Printwell pro rata.

ISSUE:

Whether or Not there is an erroneous piercing of the corporate veil

HELD:

No. Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers, such separate and distinct personality is merely a fiction created by law for the sake
of convenience and to promote the ends of justice. The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the corporate entity is being used
as a cloak or cover for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders. It is during the time that Petitioners were in
charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions
to BMPI yet greatly benefited from said transactions. The prevailing rule is that a stockholder is
personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.

BANK OF COMMERCE v. RADIO PHILIPPINES NETWORK

G.R. NO. 195615, April 21, 2014
Abad, J:

DOCTRINE:

Merger is a re-organization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the other
surviving. To put it another way, merger is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims,
liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is or are terminated.

FACTS:
TRB proposed to sell to the bank its business consisting of specified assets and liabilities. The bank
agreed subject to prior BSP approval of the purchase and assumption agreement. BSP approved that
agreement subject to the condition that the bank and TRB would set up an escrow fund with another bank
to cover TRB’s liabilities for contingent claims that may subsequently be adjudged against it, which
liabilities were excluded from the purchase. Following the approval, the bank entered into the agreement
with TRB and d acquired its specified assets and liabilities, excluding liabilities arising from judicial
actions which were to be covered by the BSP-mandated escrow.

ISSUE:

Whether or Not the agreement constituted a merger of the 2 corporations

HELD:

No. Merger is a re-organization of two or more corporations that results in their consolidating into a
single corporation, which is one of the constituent corporations, one disappearing or dissolving and the
other surviving. To put it another way, merger is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the rights, privileges, franchises, properties,
claims, liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is or are terminated. There are procedures that
must be followed for a merger. Indubitably, it is clear that no merger took place between the bank and
TRB as the requirements and procedures for a merger were absent. A merger does not become effective
upon the mere agreement of the constituent corporations. All the requirements specified in the law must
be complied with in order for merger to take effect. Section 79 of the Corporation Code further provides
that the merger shall be effective only upon the issuance by the Securities and Exchange Commission
(SEC) of a certificate of merger. Here, the bank and TRB remained separate corporations with distinct
corporate personalities. What happened is that TRB sold and the bank purchased identified recorded
assets of TRB in consideration of the bank’s assumption of identified recorded liabilities of TRB
including booked contingent accounts. There is no law that prohibits this kind of transaction especially
when it is done openly and with appropriate government approval. In strict sense, no merger or
consolidation took place as the records do not show any plan or articles of merger or consolidation. More
importantly, the SEC did not issue any certificate of merger or consolidation.
BANK OF COMMERCE v. HEIRS OF RODOLFO DELA CRUZ
G.R. NO. 211519, August 14, 2017
Bersamin, J:

DOCTRINE:

The terms of merger between two corporations, when determinative of their joint or respective liabilities
towards third parties, cannot be assumed. The party alleging the corporations' joint liabilities should
establish the allegation. Otherwise, the liabilities of each of them shall be separate.

FACTS:

Rodolfo discovered that Panasia allowed his son, Allan to withdraw money without Rodolfo’s consent
and/or authority. He instructed Panasia not to allow his son to make any withdrawals from his bank
account for Allan is not authorized to do so. Despite instructions, Panasia still allowed Allan to do so.
Rodolfo demanded Panasia the restoration of the amount withdrew to his account, but Panasia failed to do
so. Rodolfo instituted a complaint for collection of sum of money and damages with prayer for WPI
and/or TRO against Panasia, and was later on amended to include BOC as additional defendant because
of the existing purchase and sale agreement between the banks. Panasia was declared in default; hence,
Rodolfo demanded payment from BOC.

ISSUE:

Whether or Not BOC is solidarily liable with Panasia on the latter’s negligence

HELD:

No. The terms of merger between two corporations, when determinative of their joint or respective
liabilities towards third parties, cannot be assumed. The party alleging the corporations' joint liabilities
should establish the allegation. Otherwise, the liabilities of each of them shall be separate. The exclusion
of the Sale and Purchase Agreement from the body of evidence for consideration in the resolution of the
case caused a void in the link between BOC and Panasia necessary to support the pronouncement of the
personal liability of BOC for the negligence on the part of Panasia.  Verily, without the Sale and Purchase
Agreement being admitted in evidence, implicating BOC  in the negligence of Panasia had no factual
basis for the simple reason that there was no showing at all of BOC having specifically merged with
Panasia and thereby assumed the latter's liabilities.

Y-I-LEISURE PHILIPPINES v. JAMES YU

G.R. NO. 207161, September 8, 2015
Mendoza, J:

DOCTRINE:

The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall
not render the latter liable to the 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.

FACTS:
MADCI offered for sale shares of a golf and country club located in the vicinity of Mt. Arayat in Arayat,
Pampanga. Relying on the representation of MADCI's brokers and sales agents, Yu bought golf and
country club shares, paid by installment via checks. Upon full payment of the shares to MADCI, Yu
visited the supposed site of the golf and country club and discovered that it was non-existent. Yu
demanded from MADCI that his payment be returned to him. MADCI recognized that Yu had an
investment but the latter had not yet received any refund. Yu filed with the RTC a complaint for
collection of sum of money and damages with prayer for preliminary attachment against MADCI and its
president Rogelio, alleging that Yu dealt with Rogelio who used MADCI’s corporate personality to
defraud him. MADCI invoked that Rogelio defrauded Yu and cited the MOA entered into by MADCI,
Rogelio, and Yats where Rogelio undertook to redeem MADCI proprietary shares sold to third persons or
settle in full all their claims for refund of payments. Petitioner was also included in the amended
complaint for substantially, all the assets of MADCI were sold to it.

ISSUE:

Whether or not the transfer of all or substantially all the assets of a corporation under Section 40 of the
Corporation Code carries with it the assumption of corporate liabilities

HELD:

YES. While the Corporation Code allows the transfer of all or substantially all of the assets of a
corporation, the transfer should not prejudice the creditors of the assignor corporation. Under the
business-enterprise transfer, the petitioners have consequently inherited the liabilities of MADCI because
they acquired all the assets of the latter corporation. The continuity of MADCI's land developments is
now in the hands of the petitioners, with all its assets and liabilities. There is absolutely no certainty that
Yu can still claim its refund from MADCI with the latter losing all its assets. To allow an assignor to
transfer all its business, properties and assets without the consent of its creditors will place the assignor's
assets beyond the reach of its creditors. Thus, the only way for Yu to recover his money would be to
assert his claim against the petitioners as transferees of the assets. The protection of the creditors of the
transferor corporation does not depend on any deceit committed by the transferee -corporation, fraud is
certainly not an element of the business enterprise doctrine.

SME BANK INC v. PEPEGRIN DE GUZMAN

G.R. NO. 184517, October 8, 2013
Sereno, C. J:

DOCTRINE:

A mere change in the equity composition of a corporation is neither a just nor an authorized cause that
would legally permit the dismissal of the corporation’s employees en masse.

FACTS:

Respondents were employees of SME. Originally, the principal shareholders and corporate directors of
SME were Agustin and De Guzman. SME experienced financial difficulties, hence, its officials proposed
its sale to Samson. Espiritu, then the general manager of SME, held a meeting with all the employees and
persuaded them to tender their resignations, with the promise that they would be rehired upon
reapplication. Relying on this representation, employees tendered their resignation, but they were not
rehired. A complaint before the NLRC was filed, but it rules that the buyer of an enterprise is not bound
to absorb its employees, unless there is an express stipulation to the contrary.

ISSUE:

Whether or not a mere change in equity composition of a corporation is either a just or an authorized
cause to permit dismissal of corporation’s employees

HELD:

No. Although the law permits an employer to dismiss its employees in the event of closure of the business
establishment, the records do not support the contention of SME Bank that it intended to close the
business establishment. On the contrary, the intention of the parties to keep it in operation is confirmed by
the provisions of the Letter Agreements requiring Agustin and De Guzman to guarantee the "peaceful
transition of management of the bank." 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, notwithstanding the stock sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims. 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. This case involves a stock sale, whereby the transferee acquires the
controlling shares of stock of the corporation. Thus, following the rule in stock sales, respondent
employees may not be dismissed except for just or authorized causes under the Labor Code.

IGLESIA EVANGELISTA ET AL v. BISHOP NATHANAEL LAZARO

G.R. NO. 184088, July 6, 2010
Abad, J:

DOCTRINE:

Section 109 of the Corporation Code allows the application to religious corporations of the general
provisions governing non-stock corporations.

FACTS:

Bishop Zamora established Petitioner as a corporation sole with the former as General Superintendent.
However, its by-laws provided for other officers who would manage the affairs of the organization, and
has a BOD as well. Although Petitioner remained a corporation sole on paper, it had always acted like a
corporation aggregate. Later on, the organizational structure was changed into a corporation aggregate,
but for some reasons the corporate papers remained unaltered as a corporation sole.

ISSUE:

Whether or Not a corporation sole may be converted into a corporation aggregate by mere amendment of
its articles of incorporation

HELD:

Yes. Section 109 of the Corporation Code allows the application to religious corporations of the general
provisions governing non-stock corporations. For non-stock corporations, the power to amend its articles
of incorporation lies in its members. The code requires two-thirds of their votes for the approval of such
an amendment. Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the action of
its board of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If
such approval mechanism is made to operate in a corporation sole, its one member in whom all the
powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to Section 110
of the Corporation Code, of its membership. The one member, with the concurrence of two-thirds of the
membership of the organization for whom he acts as trustee, can self-will the amendment. He can, with
membership concurrence, increase the technical number of the members of the corporation from "sole" or
one to the greater number authorized by its amended articles. Evidence shows that Bishop Lazaro had
obtained, not only the approval of the Consistory that drew up corporate policies, but also that of the
required two-thirds vote of its membership.

ALABANG DEVELOPMENT CORPORATION v. ALABANG HILLS VILLAGE

ASSOCIATION
G.R. NO. 187456, June 2, 2014
Peralta, J:

DOCTRINE:

Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or
whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
FACTS:

ADC filed a complaint for injunction and damages against AHVAI and Tinio, President of AHVAI. It
was alleged that ADC learned that AHVAI started the construction of a multi-purpose hall and a
swimming pool on one of the parcels of land still owned by ADC without the latter’s consent and
approval. AHVAI denied ADC's asseverations and claimed that the latter has no legal capacity to sue
since its existence as a registered corporate entity was revoked by the SEC. It was also alleged that ADC
has no cause of action because by law it is no longer the absolute owner but is merely holding the
property in question in trust for the benefit of AHVAI as beneficial owner thereof; and that the subject lot
is part of the open space required by law to be provided in the subdivision. As counterclaim, it prayed that
an order be issued divesting ADC of the title of the property and declaring AHVAI as owner thereof; and
that ADC be made liable for moral and exemplary damages as well as attorney's fees.

ISSUE:

Whether or Not ADC has the capacity to sue as a corporation

HELD:

No. In the instant case, petitioner lacks capacity to sue because it no longer possesses juridical personality
by reason of its dissolution and lapse of the three-year grace period provided under Section 122 of the
Corporation Code. At any time during said three (3) years, said corporation is authorized and empowered
to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other
persons in interest. From and after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interest, all interest which the corporation
had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest. It is to be noted that the time during which
the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as
a corporation is limited to three years from the time the period of dissolution commences.

DR. GIL J. RICH v. GUILLERMO PALOMA III

G.R. NO. 210538, March 7, 2018
Reyes, Jr., J:

DOCTRINE:

A corporation which has already been dissolved, be it voluntarily or involuntarily, retains no juridical
personality to conduct its business save for those directed towards corporate liquidation.

FACTS:

Gil lent a certain amount to his brother Estanislao. The agreement was secured by a REM. When
Estanislao failed to make good on his obligations under the loan agreement, Gil foreclosed the property
via a public auction sale. Without Gil’s knowledge, and prior to the foreclosure, it appeared from the
records, Estanislao entered into an agreement with MTLC where loans and advances were secured by a
REM over the same property. Ester, President of MTLC, exercised equitable redemption after the
foreclosure proceedings. Guillermo, as sheriff, issued a deed of redemption in favor of MTLC, which
became the subject of the complaint for annulment of deed of redemption, damages, attorney’s fees,
litigation expenses, application for issuance of TRO and/or WPI. According to Gil, MTLC no longer has
juridical personality to effect the equitable redemption as it has already been dissolved by SEC.

ISSUE:

Whether or Not a corporation not invested with corporate personality at the time of redemption redeem a
property

HELD:

No. Two things must be said of the foregoing in relation to the facts of this case. First, if MTLC entered
into the real estate mortgage agreement with Estanislao after its dissolution, then resultantly, such real
estate mortgage agreement would be void ab initio because of the non-existence of MTLC's juridical
personality. Second, if, however, MTLC entered into the real estate mortgage agreement prior to its
dissolution, then MTLC's redemption of the subject property, even if already after its dissolution (as long
as it would not exceed three years thereafter), would still be valid because of the liquidation/winding up
powers accorded by Section 122 of the Corporation Code to MTLC. By the time MTLC executed the real
estate mortgage agreement, its juridical personality has already ceased to exist. The agreement is void as
MTLC could not have been a corporate party to the same. To be sure, a real estate mortgage is not part of
the liquidation powers that could have been extended to MTLC. It could not have been for the purposes of
"prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets." It is, in fact, a new business in which MTLC no
longer has any business pursuing. Hence, any redemption exercised by MTLC pursuant to this void real
estate mortgage is likewise void, and could not be given any effect.

VITALIANO AGUIRRE II v. FQB+7 INC

G.R. NO. 170770, January 9, 2013
Del Castillo, J:

DOCTRINE:

Pursuant to Section 145 of the Corporation Code, an existing intra-corporate dispute, which does not
constitute a continuation of corporate business, is not affected by the subsequent dissolution of the
corporation.

FACTS:
Vitaliano filed, in his individual capacity and on behalf of FQB+7 a complaint for intra-corporate dispute,
injunction, inspection of corporate books and records, and damages, against Respondents. While several
disputes were pending, Respondents informed the CA that the SEC had already revoked FQB+7's
Certificate of Registration for its failure to comply with the SEC reportorial requirements.

ISSUE:

Whether or Not he complaint seek a continuation of business

HELD:

No. The Court fails to find in the prayers above any intention to continue the corporate business of
FQB+7. The Complaint does not seek to enter into contracts, issue new stocks, acquire properties, execute
business transactions, etc. Its aim is not to continue the corporate business, but to determine and vindicate
an alleged stockholder's right to the return of his stockholdings and to participate in the election of
directors, and a corporation's right to remove usurpers and strangers from its affairs. 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. Intra-corporate disputes remain even when the corporation is dissolved. There are
tests to determine the existence of an intra-corporate controversy: 1) the relationship test; and the
controversy test. Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The
controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code
and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents
are merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.

MARCELINO FLORETE, JR v. ROOGELIO FLORETE

G.R. NO. 174909, January 20, 2016
Leonen, J:

DOCTRINE:

A stockholder may suffer from a wrong done to or involving a corporation, but this does not vest in the
aggrieved stockholder a sweeping license to sue in his or her own capacity. 

FACTS:
Spouses Marcelino Florete, Sr. and Salome Florete (both deceased) had four (4) children: Marcelino, Jr. ,
Maria, Rogelio and Teresita Florete, now deceased. People’s Broadcasting Service, Inc. is a private
corporation authorized to operate, own, maintain, install and construct radio and television stations in the
Philippines. Salome died on 1980 while Marcelino, Sr. suffered a stroke and died on 1990. After which,
their son, Rogelio, Sr. started managing the affairs of People’s Broadcasting. In 1993, People’s
Broadcasting sought the services of Sycip Gorres Velayo and Co. to determine the ownership of equity in
the corporation. Rogelio, Sr. transferred a portion of his shareholdings to the members of his immediate
family. On June 23, 2003, Marcelino, Jr. group filed a complaint against Rogelio, Sr. group seeking the
nullity of issuances, transfers and sales of shares in People’s Broadcasting, Inc.

ISSUE:

Whether or not there is a cause of action for Marcelino group to file the action

HELD:

No. A stockholder suing on account of wrongful or fraudulent corporate actions may sue in any of three
(3) capacities: as an individual; as part of a group or specific class of stockholders; or as a representative
of the corporation: individual suits are filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a group or to the corporation. If the cause of action
belongs to a group of stockholders, such as when the rights violated belong to preferred stockholders, a
class or representative suit may be filed to protect the stockholders in the group. A derivative suit is an
action filed by stockholders to enforce a corporate action, it concerns a wrong to the corporation itself and
the real party in interest is the corporation, not the stockholders. In this case, the Marcelino group sued the
Rogelio group in their own capacity. It was, however, upon People’s Broadcasting itself that the causes of
action now claimed accrued. The stockholders in the Marcelino, Jr. group were permitted to seek relief
but they should have done so in place of the corporation itself through a derivative suit and not in their
individual capacity or as a group. For they have done so bereft of a cause of action.

LEGASPI TOWERS 300 INC v. AMELIA MUER

G.R. NO. 170783, June 18, 2012
Peralta, J:

DOCTRINE:

Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for
must be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the
corporation, then it is an improper derivative suit.

FACTS:
Pursuant to the by-laws of Legaspi, the other Petitioners then the incumber BOD, set the annual meeting
of the members of the condominium corporation and the election of the new BOD. Out of a total number
of 5,723 members who were entitled to vote, 1,358 were supposed to vote through their respective proxies
and their votes were critical in determining the existence of a quorum, which was at least 2,863 (50% plus
1). The Committee on Elections of Legaspi Towers 300, Inc., however, found most of the proxy votes, at
its face value, irregular, thus, questionable; and for lack of time to authenticate the same, Petitioners
adjourned the meeting for lack of quorum. However, the group of respondents challenged the
adjournment of the meeting. Despite petitioners' insistence that no quorum was obtained during the
annual meeting, Respondents pushed through with the scheduled election and were elected as the new
BOD. Petitioners filed a complaint for the declaration of nullity of elections with prayers for the issuance
of TRO and WPI and damages. An amended complaint was filed and Legaspi was included as party-
plaintiff.

ISSUE:

Whether or Not a derivative suit is proper in this case

HELD:

No. Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed
for must be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the
corporation, then it is an improper derivative suit. The requisites for a derivative suit are as follows: a) the
party bringing suit should be a shareholder as of the time of the act or transaction complained of, the
number of his shares not being material; b) he has tried to exhaust intra-corporate remedies, i.e., has made
a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his
plea; and c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the suit.
Petitioners are the injured party, whose rights to vote and to be voted upon were directly affected by the
election of the new set of board of directors. The party-in-interest are the petitioners as stockholders, who
wield such right to vote. The cause of action devolves on petitioners, not the condominium corporation,
which did not have the right to vote. Hence, the complaint for nullification of the election is a direct
action by petitioners, who were the members of the Board of Directors of the corporation before the
election, against respondents, who are the newly-elected Board of Directors. Under the circumstances, the
derivative suit filed by petitioners in behalf of the condominium corporation in the Second Amended
Complaint is improper.

AGO REALTY v. DR. ANGELITA AGO

G.R. BO. 210906, October 16, 2019
A. REYES, JR., J:

DOCTRINE:

As a general rule, corporate litigation must be commenced by the corporation itself, with the imprimatur
of the board of directors, which, pursuant to the law, wields the power to sue. Since derivative suit is a
remedy of last resort, it must be shown that the board, to the detriment of the corporation and without a
valid business consideration, refuses to remedy a corporate wrong.

FACTS:

Petitioner is a close corporation and Respondent is one of the stockholders. Respondent introduced
improvements on a lot titled in the name of Petitioner without proper resolution from the Board.
Petitioner and Emmanuel filed a complaint where the local officials where impleaded as defendants for
being responsible for the issuance of permits relative to the improvements. Respondents argued that
Petitioner never authorized the institution of the suit; hence, without a resolution, Emmanuel has no legal
standing to bring the case.

ISSUE:

Whether or Not Emmanuel may sue on behalf of Petitioner absent a resolution or any other grant of
authority from its BOD sanctioning the institution of the case

HELD:

Yes. As a general rule, corporate litigation must be commenced by the corporation itself, with the
imprimatur of the board of directors, which, pursuant to the law, wields the power to sue. Since derivative
suit is a remedy of last resort, it must be shown that the board, to the detriment of the corporation and
without a valid business consideration, refuses to remedy a corporate wrong. Here, the cause of action
belongs to Petitioner for the properties in question being titled in its name. The case instituted by
Emmanuel is derivative in nature. A board resolution is not needed for the institution of a derivative suit.
The corporate power to sue is exercised by the board of directors.  Such authority may be derived from
the by-laws or from a specific act of the board of directors, i.e., a board resolution. Since the board is
guilty of breaching the trust reposed in it by the stockholders, it is but logical to dispense with the
requirement of obtaining from it authority to institute the case and to sign the certification against forum
shopping. Derivative suits are, therefore, grounded not on law, but on equity. Before instituting a
derivative suit, the relator-stockholder must exert all reasonable efforts to exhaust all remedies available
under the articles of incorporation, the by-laws, and the laws or rules governing the corporation or
partnership to obtain the relief he or she desires. Here, Emmanuel alleged that they exerted all reasonable
efforts to exhaust all remedies available to them. They point to the fact that they invited Angelita to a
meeting to amicably settle the dispute. However, their attempt to resolve the dispute turned sour when
Respondent walked out before the meeting even started.

FOREST HILLS GOLF v. FIL-ESTATE PROPERTIES

G.R. NO. 206649, July 20, 2016
Del Castillo, J:

DOCTRINE:

Upon the enactment of Republic Act (RA) No. 8799, otherwise known as "The Securities Regulation
Code," jurisdiction over derivative actions now lies with the special commercial courts.
FACTS:

Kingsville and KPC entered into a project agreement with Respondent, whereby the latter agreed to
finance and cause the development of several parcels of land owned by Kingsville. Under the agreement,
Respondent was tasked to incorporate Petitioner and the remaining shares of the club will be retained by
Kingsville in exchange for the parcels of land used for the golf course development. Respondent assigned
its rights to FEGDI. Madrid purchased 2 Class “A” shares and applied membership. Due to the delayed
construction, Madrid wrote the BOD to initiate appropriate legal action, but the BOD failed and/or
refused to act on the demand. Madrid, in a derivative capacity, filed a complaint for specific performance.

ISSUE:

Whether or Not the complaint for specific performance falls under the jurisdiction of the regular court

HELD:

No. The complaint, denominated as a derivative suit for specific performance, falls under the jurisdiction
of special commercial courts. Madrid filed a derivative suit on behalf of petitioner to compel respondents
FEPI and FEGDI to complete the golf course and country club project and to render an accounting of all
works done, existing work-in-progress and, if any, differential backlog. Upon the enactment of RA No.
8799, jurisdiction over intra- corporate disputes, including derivatives suits, is now vested in the RTCs
designated as special commercial courts. Apparent in the Complaint are allegations of the interlocking
directorships of the Board of Directors of petitioner FHGCCI and respondents FEPI and FEGDI, the
conflict of interest of the Board of Directors of petitioner FHGCCI, and their bad faith in carrying out
their duties. Likewise alleged is that respondent FEPI and, later, respondent FEGDI are shareholders of
petitioner FHGCCI which under the project agreement, respondent FEPI was tasked to perform the
development and construction work and other obligations and undertakings of the project as full payment
of its subscription to the authorized capital stock of petitioner FHGCCI, which it later assigned to
respondent FEGDI. There are unavoidably intra- corporate controversies intertwined in the specific
performance case. Moreover, a derivative suit is a remedy designed by equity as a principal defense of the
minority shareholders against the abuses of the majority. It is for this reason that a derivative suit is
among the cases covered by the Interim Rules of Procedure Governing Intra-Corporate Controversies.

MANUEL LUIS GONZALES v. GJH LAND

G.R. NO. 202664, November 20, 2015
Perlas-Bernabe, J:

DOCTRINE:
By virtue of RA 8799, jurisdiction over cases enumerated in Section 5 of Presidential Decree No. 902-A
was transferred from the Securities and Exchange Commission (SEC) to the RTCs, being courts of
general jurisdiction.

FACTS:

Petitioners filed a complaint for injunction with prayer for issuance of status quo order, TRO and WPI
with damages against GJH seeking to enjoin the sale of S.J. Land, Inc.'s shares which they purportedly
bought from S.J. Essentially, petitioners alleged that the subscriptions for the said shares were already
paid by them in full in the books of S.J. Land, Inc., but were nonetheless offered for sale. The case was
raffled to a branch which is not a special commercial court. The case was dismissed due to lack of
jurisdiction.

ISSUE:

Whether or Not the case was properly dismissed due to lack of jurisdiction

HELD:

No. It was held that the matter of whether the RTC resolves an issue in the exercise of its general
jurisdiction or of its limited jurisdiction as a special court is only a matter of procedure and has nothing to
do with the question of jurisdiction. By virtue of RA 8799, jurisdiction over cases enumerated in Section
5 of Presidential Decree No. 902-A was transferred from the Securities and Exchange Commission (SEC)
to the RTCs, being courts of general jurisdiction. To clarify, the word "or" in Item 5.2, Section 5 of RA
8799 was intentionally used by the legislature to particularize the fact that the phrase "the Courts of
general jurisdiction" is equivalent to the phrase "the appropriate Regional Trial Court." In other words,
the jurisdiction of the SEC over the cases enumerated under Section 5 of PD 902-A was transferred to the
courts of general jurisdiction, that is to say (or, otherwise known as), the proper Regional Trial Courts.
The Court nonetheless deems that the erroneous raffling to a regular branch instead of to a Special
Commercial Court is only a matter of procedure - that is, an incident related to the exercise of jurisdiction
- and, thus, should not negate the jurisdiction which the RTC had already acquired. In such a scenario, the
proper course of action was not for the commercial case to be dismissed; instead, should have
first referred the case to the Executive Judge for re-docketing as a commercial case; thereafter, the
Executive Judge should then assign said case to the only designated Special Commercial Court in the
station. Meanwhile, if the RTC acquiring jurisdiction has no branch designated as a Special Commercial
Court, then it should refer the case to the nearest RTC with a designated Special Commercial Court
branch within the judicial region. Upon referral, the RTC to which the case was referred to should re-
docket the case as a commercial case, and then: (a) if the said RTC has only one branch designated as a
Special Commercial Court, assign the case to the sole special branch; or (b) if the said RTC has multiple
branches designated as Special Commercial Courts, raffle off the case among those special branches.

ALFREDO VILLAMOR, JR v. JOHN S. UMALLE

G.R. NO. 172843, September 24, 2014
Leonen, J:

DOCTRINE:
It is a condition sine qua non that the corporation be impleaded as party in derivative suits. Not only is the
corporation an indispensible party, but it is also the present rule that it must be served with process. The
reason given is that the judgment must be made binding upon the corporation in order that the corporation
may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the
same cause of action.

FACTS:

Pasig Printing Corp. (PPC) obtained an option to lease portions of Mid-Pasig's property. PPC's board of
directors issued a resolution waiving all its rights, interests, and participation in the option to lease
contract in favor of the law firm of Atty. Alfredo Villamor, Jr. PPC, represented by Villamor, entered into
a MOA with MC Home Depot, the same would continue to occupy the area as PPC's sublessee. Hernando
Balmores (Respondent), and a stockholder and director of PPC, wrote a letter informing them that
Villamor should be made to deliver to PPC and account for MC Home Depot's checks or their equivalent
value. Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial
Court an intra-corporate controversy, without including the corporation as a party-plaintiff.

ISSUE:

Whether or not the action is a derivative suit and thus, will entitle the petitioner to the relief sought

HELD:

No. Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules)
provides the five (5) requisites for filing derivative suits: (1) He was a stockholder or member at the time
the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted
all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts
complained of; and (4) The suit is not a nuisance or harassment suit. The fifth requisite for filing
derivative suits, while not included in the enumeration, is implied in the first paragraph of Rule 8, Section
1 of the Interim Rules: The action brought by the stockholder or member must be "in the name of [the]
corporation or association. ..." In this case, respondent Balmores did not allege any cause of action that is
personal to him. His allegations are limited to the facts that PPC's directors waived their rights to rental
income in favor of Villamor's law firm without consideration and that they failed to take action when
Villamor refused to turn over the amounts to PPC. These are wrongs that pertain to PPC. Therefore, the
cause of action belongs to PPC — not to respondent Balmores or any stockholders as individuals. For this
reason, respondent Balmores is not entitled to the reliefs sought in the complaint. Only the corporation, or
arguably the stockholders as a group, is entitled to these reliefs, which should have been sought in a
proper derivative suit filed on behalf of the corporation.

ROBERTO SAN JOSE v. JOSE MA. OZAMIZ

G.R. NO. 190590, July 12, 2017
Carpio, J:

DOCTRINE:
The mere fact that a corporation's shares of stocks are owned by a sequestered corporation does not, by
itself, automatically categorize the matter as one involving sequestered assets, or matters incidental to or
related to transactions involving sequestered corporations and/ or their assets.

FACTS:

Roberto was elected as Corporate Secretary of PHC then known as Liberty Mines. San Jose was elected
as a member of the Board of Directors and was re-elected several times as director and Corporate
Secretary in the succeeding years. Later on, Angcao was elected as Assistant Corporate Secretary, and
was likewise re-elected several times thereafter as such. Roberto resigned as PHC director and
relinquished his position as Corporate Secretary.  With this resignation, Angcao was elected to serve as
the Corporate Secretary of PHC. Since then, Roberto ceased to be connected with PHC. Ozamiz was a
stockholder of PHC who wrote petitioners to request for a copy of all the Minutes of the Meetings of the
Board of Directors and Executive Committee of PHC from 2000 to 2007 and a certification as to the
completeness thereof. Ozamiz filed a complaint for inspection of books with the RTC, praying that he be
provided a copy of all the minutes of the meetings of directors, the Executive Committee and such other
committees constituted. Petitioners asserted that 80.35% of PHC is owned by Philcomsat, which is wholly
owned by POTC, and both Philcomsat and POTC are subjects of a standing sequestration order issued by
PCGG, the case should have been filed before the Sandiganbayan

ISSUE:

Whether or Not the RTC has jurisdiction over the case

HELD:

Yes. The dispute at hand, which involves the stockholder, Ozamiz, demanding to inspect the books of
PHC and the consequent refusal of the corporation to show its books, is simply an intra-corporate dispute.
The mere fact that a corporation's shares of stocks are owned by a sequestered corporation does not, by
itself, automatically categorize the matter as one involving sequestered assets, or matters incidental to or
related to transactions involving sequestered corporations and/ or their assets. In this case, there is no
question on any illegally acquired or misappropriated property by former President Marcos or his agents.
This case does not relate to the recovery of ill-gotten wealth or any property that needs to be sequestered
or assets that have already been placed under sequestration. Thus, the subject matter of this case does not
arise from, or is incidental to, or is related to the Executive Orders cited in the law that would vest
jurisdiction with the Sandiganbayan.

MATLING INDUSTRIAL v. RICARDO COROS

G.R. NO. 157802, October 13, 2010
Bersamin, J:

DOCTRINE:
Where the complaint for illegal dismissal concerns a corporate officer, the controversy falls under the
jurisdiction of the Securities and Exchange Commission (SEC). Upon the passage of Republic Act No.
8799, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC.

FACTS:

After his dismissal by Matling as its Vice President for Finance and Administration, the Respondent filed
a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers
in the NLRC. Petitioners moved to dismiss the complaint, raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the
controversy being intra-corporate inasmuch as the respondent was a member of Matlings Board of
Directors aside from being its Vice-President for Finance and Administration prior to his termination.

ISSUE:

Whether or Not Respondent is a corporate officer

HELD:

No. Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office. In this case, Respondent was appointed vice
president for nationwide expansion by Malonzo, Petitioner's general manager, not by the board of
directors of petitioner. It was also Malonzo who determined the compensation package of respondent.
Thus, Respondent was an employee, not a "corporate officer." Jurisdiction over the case was properly
with the NLRC, not the SEC (now the RTC). This interpretation is the correct application of Section 25 of
the Corporation Code, which plainly states that the corporate officers are the President, Secretary,
Treasurer and such other officers as may be provided for in the By-Laws. Accordingly, the corporate
officers in the context of PD No. 902-A are exclusively those who are given that character either by the
Corporation Code or by the corporations By-Laws. Not every conflict between a corporation and its
stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory
or quasi-judicial powers. The better policy to be followed in determining jurisdiction over a case should
be to consider concurrent factors such as the status or relationship of the parties or the nature of the
question that is the subject of their controversy.

RAUL COSARE v. BROADCOM ASIA

G.R. NO. 201298, February 5, 2014
Reyes, J:

DOCTRINE:
When the dispute involves a charge of illegal dismissal, the action may fall under the jurisdiction of the
LA. There are two circumstances which must concur in order for an individual to be considered a
corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is
under the corporation’s charter or by-laws; and (2) the election of the officer is by the directors or
stockholders.

FACTS:

Cosare was employed as a salesman and was promoted to the position of Assistant Vice President for
Sales (AVP for Sales) by Arevalo, who was then in the business of selling broadcast equipment needed
by television networks and production houses (Broadcom). Abiog was appointed as Broadcom’s Vice
President for Sales and thus, became Cosare’s immediate superior. Cosare sent a confidential memo to
Arevalo to inform him of the following anomalies which were allegedly being committed by Abiog
against the company. This lead to his dismissal.

ISSUE:

Whether the Labor Arbiter has jurisdiction over the case

HELD:

Yes. It is the Labor Arbiter (LA), and not the regular courts, which has the original jurisdiction over the
subject controversy. Settled jurisprudence qualifies that when the dispute involves a charge of illegal
dismissal, the action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls
termination disputes and claims for damages arising from employer-employee relations. Consistent with
jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcom at the time the
subject controversy developed failed to necessarily make the case an intra-corporate dispute. The
determination of whether the dismissed officer was a regular employee or corporate officer unravels the
conundrum of whether a complaint for illegal dismissal is cognizable by the LA or by the RTC. There are
two circumstances which must concur in order for an individual to be considered a corporate officer, as
against an ordinary employee or officer, namely: (1) the creation of the position is under the corporation’s
charter or by-laws; and (2) the election of the officer is by the directors or stockholders. The only officers
who are specifically listed, and thus with offices that are created under Broadcom’s by-laws are the
following: the President, Vice-President, Treasurer and Secretary. Although a blanket authority provides
for the Board’s appointment of such other officers as it may deem necessary and proper, the respondents
failed to sufficiently establish that the position of AVP for Sales was created by virtue of an act of
Broadcom’s board, and that Cosare was specifically elected or appointed to such position by the directors.

NORMA CACHO v. VIGINIA BALAGTAS

G.R. NO. 202974, February 7, 2018
Leonardo-De Castro, J:
DOCTRINE:

The two-tier test must be employed to determine whether an intra-corporate controversy exists in the
present case, viz.: (a) the relationship test, and (b) the nature of the controversy test.

FACTS:

A complaint for constructive dismissal was filed by Balagtas against Petitioners before the Labor Arbiter.
Balagtas alleged that she was one of the original incorporators-directors of the said corporation. She was
placed under 30 days preventive suspension pursuant to a Board Resolution due to her alleged
questionable transactions. While under preventive suspension, Cacho informed her that the former was
assuming the latter’s position.

ISSUE:

Whether or Not the present case is an intra-corporate controversy within the jurisdiction of the regular
courts

HELD:

Yes. The two-tier test must be employed to determine whether an intra-corporate controversy exists in the
present case, viz.: (a) the relationship test, and (b) the nature of the controversy test. Section 25 of the
Corporation Code explicitly provides for the election of the corporation's president, treasurer, secretary,
and such other officers as may be provided for in the by-laws. Clearly, there may be  one or more vice
president positions in petitioner North Star and, by virtue of its by-laws, all such positions shall be
corporate offices. The use of the phrase "one or more" in relation to the establishment of vice president
positions without particular exception indicates an intention to give petitioner North Star's Board ample
freedom to make several vice-president positions available as it may deem fit and in consonance with
sound business practice. To require that particular designation/variation of each vice-president ( i.e.,
executive vice president) be specified and enumerated is to invalidate the by-laws' true intention and to
encroach upon petitioner North Star's inherent right and authority to adopt its own set of rules and
regulations to govern its internal affairs. The GIS neither governs nor establishes whether or not a
position is an ordinary or corporate office. At best, if one is listed in the GIS as an officer of a
corporation, his/her position as indicated therein could only be deemed a regular office, and not a
corporate office as it is defined under the Corporation Code. Based on the above discussion, as  Executive
Vice President, respondent Balagtas was one of petitioner North Star's corporate officers. Thus, there is
an intra-corporate relationship existing between the parties.

BELO MEDICAL GROUP v. JOSE SANTOS & VICTORIA BELO

G.R. NO. 185894, August 30, 2017
Leonen, J:
DOCTRINE:

A conflict between two (2) stockholders of a corporation does not automatically render their dispute as
intra-corporate. The nature of the controversy must also be examined.

FACTS:

Belo Medical Group received a request from Santos for the inspection of corporate records. Santos
claimed that he was a registered shareholder and a co-owner of Belo's shares, as these were acquired
while they cohabited as husband and wife. Santos sought advice on his probable removal as director of
the corporation considering that he was not notified of meetings where he could have been removed.
Santos was unsuccessful in inspecting the corporate books as Henares, the officer-in-charge of corporate
records, was travelling.  Belo wrote Belo Medical Group to repudiate Santos' co-ownership of her shares
and his interest in the corporation. She claimed that Santos held the 25 shares in his name merely in trust
for her, as she, and not Santos, paid for these shares. Belo Medical Group filed a Complaint for
Interpleader.

ISSUE:

Whether or Not the present controversy is intra-corporate

HELD:

Yes. Applying the relationship test, this Court notes that both Belo and Santos are named shareholders in
Belo Medical Group's Articles of Incorporation and General Information Sheet. The conflict is clearly
intra-corporate as it involves two (2) shareholders although the ownership of stocks of one stockholder is
questioned. Unless Santos is adjudged as a stranger to the corporation because he holds his shares only in
trust for Belo, then both he and Belo, based on official records, are stockholders of the corporation.
Applying the nature of the controversy test, this is still an intra-corporate dispute. The Complaint for
interpleader seeks a determination of the true owner of the shares of stock registered in Santos' name.
Ultimately, however, the goal is to stop Santos from inspecting corporate books. This goal is so apparent
that, even if Santos is declared the true owner of the shares of stock upon completion of the interpleader
case, Belo Medical Group still seeks his disqualification from inspecting the corporate books based on
bad faith. Therefore, the controversy shifts from a mere question of ownership over movable property to
the exercise of a registered stockholder's proprietary right to inspect corporate books. The circumstances
of the case and the aims of the parties must not be taken in isolation from one another. The totality of the
controversy must be taken into account to improve upon the existing tests. This Court notes that Belo
Medical Group used its Complaint for interpleader as a subterfuge in order to stop Santos, a registered
stockholder, from exercising his right to inspect corporate books.