1. Bases Conversion and Development Authority v. Commissioner of Internal Revenue, G.R. No.

205925,
[June 20, 2018]
Facts:
BCDA filed a petition for review with the CTA in order to preserve its right to pursue its claim for refund of the
Creditable Withholding Tax (CWT) in the amount of Php122,079,442.53, which was paid under protest. The
CWT which BCDA paid under protest was in connection with its sale of the BCDA-allocated units as its share in
the Serendra Project pursuant to the Joint Development Agreement with Ayala Land, Inc.4
The petition for review was filed with a Request for Exemption from the Payment of Filing Fees in the amount
of Php1,209,457.90.5
The CTA First Division denied BCDA's Request for Exemption and ordered it to pay the filing fees within five
days from notice.
Issue:
Whether or not BCDA is a government instrumentality which is exempted from payment of docket fees.
Ruling:
Yes. BCDA is a government instrumentality vested with corporate powers. As such, it is exempt from the
payment of docket fees. The grant of these corporate powers is likewise stated in Section 3 of Republic Act
(R.A.) No. 7227.
From the foregoing, it is clear that a government instrumentality may be endowed with corporate powers and
at the same time retain its classification as a government "instrumentality" for all other purposes.
Based on the foregoing, it is clear that BCDA has an authorized capital of Php100 Billion, however, it is not
divided into shares of stock. BCDA has no voting shares. There is likewise no provision which authorizes the
distribution of dividends and allotments of surplus and profits to BCDA's stockholders. Hence, BCDA is not a
stock corporation.
From the foregoing, it is clear that BCDA is neither a stock nor a non-stock corporation. BCDA is a government
instrumentality vested with corporate powers. Under Section 21,22 Rule 141 of the Rules of Court, agencies
and instrumentalities of the Republic of the Philippines are exempt from paying legal or docket fees. Hence,
BCDA is exempt from the payment of docket fees.

2. Manila Electric Co. v. Nordec Philippines

Facts:
Meralco was contracted to supply electricity to Marvex Industrial Corporation (Marvex) under an
Agreement for Sale of Electric Energy. It installed metering devices at Marvex's premises on
January 18, 1985. Marvex was billed according to the monthly electric consumption recorded in
its meter.
Meralco service inspectors inspected Marvex's electric metering facilities and found that the main
meter terminal and cover seals had been tampered with. During a second inspection, Meralco found
that the metering devices were tampered with again. Subsequently, Meralco assessed Marvex a
differential billing in the total amount of P496,386.29. Meralco sent demand letters dated August 7, 1985
and November 29, 1985, and disconnected Marvex's electric service when it did not pay.
Nordec, the new owner of Marvex, sued Meralco for damages with prayer for preliminary
mandatory injunction. It alleged that Meralco's service inspectors conducted the 1985 inspections
without its consent or approval.
Meralco required Nordec to pay P371,919.58 for the unregistered electricity bill. Nordec then informed
Meralco of the pending resolution of the recomputation. Nordec claimed that Meralco then
disconnected its service without prior notice on December 18, 1986, resulting to loss of income
and cancellation of other business opportunities.
The appellatecourt found that Meralco was negligent in discovering the alleged tampering only on May
29, 1985, or four (4) months after it first found irregularities in the metering devices, despite the monthly
meter readings. There was no evidence that Nordec was responsible for tampering with its own metering
devices.
Finally, the Court of Appeals awarded Nordec exemplary damages and attorney's fees, but not
actual damages. As to actual damages, Nordec failed to prove that it actually sustained pecuniary losses
due to Meralco's disconnection. But Nordec was entitled to exemplary damages as an example or
correction for the public good, and to attorney's fees since Nordec was forced to litigate to protect
its rights
Issue: Whether or not the award of exemplary damages to NORDEC is proper
Ruling:
NO. Exemplary damages, which cannot be recovered as a matter of right, may not be awarded if no
moral, temperate, or compensatory damages have been granted.
As a rule, a corporation is not entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock.
The only exception to this rule is when the corporation has a reputation that is debased, resulting in its
humiliation in the business realm. But in such a case, it is imperative for the claimant to present proof to
justify the award. It is essential to prove the existence of the factual basis of the damage and its causal
relation to petitioner's acts.
Here, the records are bereft of evidence that would show that Nordec's name or reputation suffered due
to the disconnection of its electric supply
(Thus, since NORDEC is not entitled to moral damages by virtue of it being a corporation, the
award of exemplary damages is also erroneous.)

3. Ambassaor Hotel vs SSS

Facts: In Sep 2001, the SSS filed a complaint against Ambassador Hotel Inc, and its officers for non-remittance
of SSS contributions and penalty liabilities for the period from Jun 1999 to Mar 2001 in the amount of P700k
charging Ambassador’s Yolanda Chan, the president and chairman of the board and Alvin Rivera as treasurer
and head of the finance department with violation of the RA 8282, Only Yolanda was arrested. Upon
Arraignment, she pleaded not guilty.
Ambassador hotel argued that it has a separate and distinct personality from its officers such as Yolanda it was
neither a party to the criminal case nor was summons issued against it, hence the RTC did not acquire
Jurisdiction over it.
The SSS then argued that under RA 8282, employers including juridical entities, that violate their obligation to
remit the SSS contributions shall be criminally liable and in corporations, it is the managing head shall be the
one criminally responsible. It argued that since Yolanda, as president, was properly arrested. The SSS added
that the acquittal of Yolanda did not extinguish the civil liability of the hotel because it was deemed in the
criminal action. Further, it highlighted that Ambassador Hotel was given sufficient notice of its delinquency and
the pending case against it.
Issue: W/N the corporation can invoke separate judicial entity to escape its liability for nonpayment of SSS
Contributions.
Ruling: No. Although a corporation is invested by law with a personality separate and distinct from that
of the persons composing it, the corporate veil is pierced when a director, trustee or officer is made
personally liable by specific provision of law.
To acquire jurisdiction over the corporation in a criminal case, its head, directors or partners must be served
with a warrant of arrest. Naturally, a juridical entity cannot be the subject of an arrest because it is a mere
fiction of law; thus, an arrest on its representative is sufficient to acquire jurisdiction over it. To reiterate, the
law specifically disregards the separate personality between the corporation and its officers with respect to
violations of R.A. No. 8282; thus, an arrest on its officers binds the corporation.

In this case, Yolanda, as President of Ambassador Hotel, was arrested and brought before the RTC.
Consequently, the trial court acquired jurisdiction over the person of Yolanda and of Ambassador Hotel as the
former was its representative. No separate service of summons is required for the hotel because the law simply
requires the arrest of its agent for the court to acquire jurisdiction over it in the criminal action. Likewise, there
is no requirement to implead Ambassador Hotel as a party to the criminal case because it is deemed included
therein through its managing head, directors or partners, as provided by Section 28 (f) of R.A. No. 8282.

4. GAMBOA V. TEVES, 652 SCRA 690

Mainpoint: Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term “capital” shall include such preferred shares because the right to
participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to
shares of stock that can vote in the election of directors.

**The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock comprising both common and non-voting preferred shares.
Facts:
The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12
million shares of the Philippine Long Distance Telephone Company (PLDT) owned by Philippine
Telecommunication Investment Corp. (PTIC) to First Pacific. Thus, First Pacific’s common shareholdings
in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings
of foreigners in PLDT to about 81.47%. The petitioner contends that it violates the Constitutional
provision on filipinization of public utility, stated in Section 11, Article XII of the 1987 Philippine
Constitution, which limits foreign ownership of the capital of a public utility to not more than 40%. Then,
in 2011, the court ruled the case in favor of the petitioner, hence this new case, resolving the motion for
reconsideration for the 2011 decision filed by the respondents.
Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011
decision?

Ruling: No. The Court said that the Constitution is clear in expressing its State policy of developing an
economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want
to achieve, that is – to conserve and develop our patrimony , hence, the State should fortify a Filipino-
controlled economy. In the 2011 decision, the Court finds no wrong in the construction of the term
‘capital’ which refers to the ‘shares with voting rights, as well as with full beneficial ownership’ (Art. 12,
sec. 10) which implies that the right to vote in the election of directors, coupled with benefits, is
tantamount to an effective control. Therefore, the Court’s interpretation of the term ‘capital’ was not
erroneous. Thus, the motion for reconsideration is denied.

5. Roy III vs. Herbosa

Facts:
Petitioner Atty. Jose M. Roy III (“Roy”) filed a petition assailing the validity of SEC-MC No. 8 for not
conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by
the SEC with grave abuse of discretion. Petitioner Roy seeks to apply the 60-40 Filipino ownership
requirement separately to each class of shares of a public utility corporation, whether common, preferred
non¬voting, preferred voting or any other class of shares. Petitioner Roy also questions the ruling of the
SEC that respondent Philippine Long Distance Telephone Company (“PLDT”) is compliant with the
constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional
and direct the SEC to issue new guidelines regarding the determination of compliance with Section 11,
Article XII of the Constitution in accordance with Gamboa.

Issue: Whether or not SEC committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8.

Held: No. SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when
it issued SEC-MC No. 8. The Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa
Decision and Resolution.
Pursuant to the Court's constitutional duty to exercise judicial review, the Court has conclusively found
no grave abuse of discretion on the part of SEC in issuing SEC-MC No. 8.
The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in the
Gamboa Resolution that the constitutional requirement on Filipino ownership should "apply uniformly
and across the board to all classes of shares, regardless of nomenclature and category, comprising the
capital of a corporation." The Court stated that:
While there is a passage in the body of the Gamboa Resolution that might have appeared contrary to the
fallo of the Gamboa Decision, the definiteness and clarity of the fallo of the Gamboa Decision must control
over the obiter dictum in the Gamboa Resolution regarding the application of the 60-40 Filipino-foreign
ownership requirement to "each class of shares, regardless of differences in voting rights, privileges and
restrictions."

The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is full and
legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights must rest in the hands of Filipino nationals. And, precisely that is what SEC-MC No. 8
provides; For purposes of determining compliance with the constitutional or statutory ownership, the
required percentage of Filipino ownership shall be applied to both the total number of outstanding
shares of stock entitled to vote in the election of directors; and (b) the total number of outstanding shares
of stock, whether or not entitled to vote.

6. Roy III v. Herbosa, G.R. No. 207246 (Resolution), 18 April 2017

Facts: Before the Court is the Motion for Reconsideration dated January 19, 20171 (the Motion) filed by
petitioner Jose M. Roy III (movant) seeking the reversal and setting aside of the Decision dated November
22, 20162 (the Decision) which denied the movant's petition, and declared that the Securities and
Exchange Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum. That case
is the case before this. MOR to
Issue: Whether or not the case should be reconsidered.
Held: No. Other than PLDT, the petitions failed to join or implead other public utility corporations subject
to the same restriction imposed by Section 11, Article XII of the Constitution. These corporations are in
danger of losing their franchise and property if they are found not compliant with the restrictive
interpretation of the constitutional provision under review which is being espoused by petitioners. They
should be afforded due notice and opportunity to be heard, lest they be deprived of their property
without due process. Not only are public utility corporations other than PLDT directly and materially
affected by the outcome of the petitions, their shareholders also stand to suffer in case they will be forced
to divest their shareholdings to ensure compliance with the said restrictive interpretation of the term
"capital"

The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull
[and legal] beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent
of the voting rights x x x must rest in the hands of Filipino nationals x x x." 11 And, precisely that is what
SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the
total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote x x x." 12

The definition of "beneficial owner or beneficial ownership" in the SRC-IRR, which is in consonance with
the concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the Decision, relevant in
resolving only the question of who is the beneficial owner or has beneficial ownership of each "specific
stock" of the public utility company whose stocks are under review. If the Filipino has the voting power of
the "specific stock", i.e., he can vote the stock or direct another to vote for him, or the Filipino has
the investment power over the "specific stock", i.e., he can dispose of the stock or direct another to
dispose of it for him, or both, i.e., he can vote and dispose of that "specific stock" or direct another to vote
or dispose it for him, then such Filipino is the "beneficial owner" of that "specific stock." Being considered
Filipino, that "specific stock" is then to be counted as part of the 60% Filipino ownership requirement
under the Constitution. The right to the dividends, jus fruendi - a right emanating from ownership of that
"specific stock" necessarily accrues to its Filipino "beneficial owner.
Finally, as to how the SEC will classify or treat certain stocks with voting rights held by a trust fund that is
created by the public entity whose compliance with the limitation on foreign ownership under the
Constitution is under scrutiny, and how the SEC will determine if such public utility does, in fact, control
how the said stocks will be voted, and whether, resultantly, the trust fund would be considered as
Philippine national or not - lengthily discussed in the dissenting opinion of Justice Carpio - is speculative
at this juncture. The Court cannot engage in guesswork. Thus, there is need of an actual case or
controversy before the Court may exercise its power of judicial review. The movant's petition is not that
actual case or controversy.

In conclusion, the basic issues raised in the Motion having been duly considered and passed upon by the
Court in the Decision and no substantial argument having been adduced to warrant the reconsideration
sought, the Court resolves to DENY the Motion with FINALITY.
7. NARRA NICKEL MINING AND DEVELOPMENT CORP vs. REDMONT CONSOLIDATED MINES CORP.
G.R. No. 195580; April 21, 2014

FACTS: Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of
the province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR),
it learned that the areas where it wanted to undertake exploration and mining activities where already covered
by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit (EP) which
was subsequently issued. On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the
DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA. Redmont alleged that at
least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder
of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by
MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved
only for Filipino citizens. Petitioners averred that they were qualified persons under Section 3(aq) of Republic
Act No. (RA) 7942 or the Philippine Mining Act of 1995. They stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA) denominated
as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to
foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the
Philippines. On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a
100% Canadian company and declared their MPSAs null and void. Pending the resolution of the appeal filed by
petitioners with the MAB, Redmont filed a Complaint with the Securities and Exchange Commission (SEC),
seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-
owned or controlled corporations engaged in mining in violation of Philippine laws. CA found that there was
doubt as to the nationality of petitioners when it realized that petitioners had a common major investor, MBMI,
a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the exploitation of natural resources, the CA used
the "grandfather rule" to determine the nationality of petitioners. In determining the nationality of petitioners,
the CA looked into their corporate structures and their corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint
venture agreements. The CA found that through a "web of corporate layering, it is clear that one common
controlling investor in all mining corporations involved x x x is MBMI." Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.

ISSUE: Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations
based on the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments
Act (FIA) of 1991, as amended, and the FIA Rules.

HELD: No. There are two acknowledged tests in determining the nationality of a corporation: the control test and
the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides: Shares
belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall
be considered as of Philippine nationality (CONTROL TEST), but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall
be counted as of Philippine nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only
50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to
aliens. The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition
of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the applicable rule." They also opined that the last
portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of corporations. Petitioners
claim that the clear and unambiguous wordings of the statute preclude the court from construing it and prevent
the court’s use of discretion in applying the law. They said that the plain, literal meaning of the statute meant
the application of the control test is obligatory. SC disagreed. "Corporate layering" is admittedly allowed by the
FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned must be discredited for lack
of basis.

Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60%
or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners,
namely: MMI, SMMI and PLMDC. The "control test" is still the prevailing mode of determining whether or not
a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines. When in the
mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."
8.Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Corp (2015)
Facts: Respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan.
After inquiring with the DENR, it learned that the areas where it wanted to undertake exploration and mining
activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur. Petitioners Narra, Tesoro and McArthur applied for an MPSA and Exploration
Permit which was subsequently issued. Redmont filed before the Panel of Arbitrators (POA) of the DENR 3
separate petitions for the denial of petitioners’ applications for MPSA. Redmont alleged that at least 60% of
the capital stock of McArthur,Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a
100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners,
it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it
knows that it can only participate in mining activities through corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

Petitioners averred that they were qualified persons under Section 39 (aq) of Republic Act No. (RA) 7942 or
the Philippine Mining Act of 1995. They stated that their nationality as applicants is immaterial because they
also applied for Financial or Technical Assistance Agreements (FTAA) which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines.

POA issued a Resolution disqualifying petitioners from gaining MPSAs considering petitioners as foreign
corporations being "effectively controlled" by MBMI. CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common major investor, MBMI. CA used the "grandfather
rule" to determine the nationality of petitioners.

Issue: Whether the petitioners are foreign corporations.

Ruling: Yes, they are foreign corporations. The Control Test can be, as it has been, applied jointly with the
Grandfather Rule to determine the observance of foreign ownership restriction in nationalized economic
activities. These methods can, if appropriate, be used cumulatively in the determination of the ownership and
control of corporations engaged in fully or partly nationalized activities. It is only when the Control Test is first
complied with that the Grandfather Rule may be applied. Put in another manner, if the subject corporation’s
Filipino equity falls below the threshold 60%, the corporation is immediately considered foreign-owned, in
which case, the need to resort to the Grandfather Rule disappears. However, even if the 60- 40 Filipino to
foreign equity ratio is apparently met by the subject or investee corporation, a resort to the Grandfather Rule
is necessary if doubt exists as to the locus of the “beneficial ownership” and “ control.”“Doubt” refers to
various indicia that the “beneficial ownership” and “ control” of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders.

In Teroso, Filipino corporation Sara Marie Mining, Inc. holds 59.97% of the 10,000 common shares of Tesoro.
While MBMI, holds 39.98% of Teroso’s shares. In turn, the Filipino corporation Olympic Mines & Development
Corp. holds 66.63% of Sara Marie’s shares while the same Canadian company MBMI holds 33.31% of Sara
Marie’s shares. Nonetheless, it is admitted that Olympic did not pay a single peso for its shares. On the
contrary, MBMI paid for 99% of the paid-up capital of Sara Marie. The fact that MBMI had practically provided
all the funds in Sara Marie and Tesoro creates serious doubt as to the true extent of its (MBMI) control and
ownership over both of them.

In McArthur, it follows the corporate layering structure of Tesoro, as 59.97% of its 10,000 common shares is
owned by supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98% belonged to the
Canadian MBMI. In turn, 66.63% of Madridejos’ shares were held by Olympic while 33.31% of its shares
belonged to MBMI. Yet again, Olympic did not contribute to the paid-up capital of Madridejos and it was
MBMI that provided 99.79% of the paid-up capital of Madridejos.

And in Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation (PLMDC),
while Canadian MBMI held 39.98% of its shares. PLMDC’s shares, in turn, were held by Palawan Alpha South
Resources Development Corporation (PASRDC), which subscribed to 65.96% of PLMDC’s shares, and the
Canadian MBMI, which subscribed to 33.96% of PLMDC’s shares. Yet again, PASRDC did not pay for any of its
subscribed shares, while MBMI contributed 99.75% of PLMDC’s paid-up capital.

Thus, the application of the Grandfather Rule is justified.

Extra:
Indicators of the dummy status:
1.That the foreign investors provide practically all the funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner;

2. That the foreign investors undertake to provide practically all the technological support for the joint
venture;chanrobleslaw

3. That the foreign investors, while being minority stockholders, manage the company and prepare all
economic viability studies.

9. PEOPLE V. QUASHA, 93 PHIL. 333 (1953)

FACTS:
William H. Quasha, a member of the Philippine bar, was charged with the crime of falsification of a public
and commercial document. He was said to have been entrusted with the preparation and registration of
the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the
purpose of engaging in business as a common carrier by land, air and water (public utility). He
caused it to appear in said article of incorporation that one Arsenio Baylon, a Filipino citizen, had
subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the corporation
when in reality, as the accused well knew, such was not the case, the truth being that the owner of the
portion of the capital stock subscribed to by Baylon and the money paid thereon were American citizen
whose name did not appear in the article of incorporation.

ISSUE: W/N the corporation may still operate as a public utility and does the 60% of the capital be
owned by Filipinos from the start?
RULING: NO.
 The Constitution does not prohibit the mere formation of a public utility corporation without the
required formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to a corporation already in existence but without the
requisite proportion of Filipino capital.

For a corporation to be entitled to operate a public utility it is not necessary that it be organized with 60
per cent of its capital owned by Filipinos from the start. A corporation formed with capital that is entirely
alien may subsequently change the nationality of its capital through transfer of shares to Filipino citizens.
conversely, a corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a corporation
that intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital
owned by Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks.
The moment for determining whether a corporation is entitled to operate as a public utility is when it
applies for a franchise, certificate, or any other form of authorization for that purpose. And that can be
done after the corporation has already come into being and not while it is still being formed. And at that
moment, the corporation must show that it has complied not only with the requirement of the
Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if
it is a common carrier by air, the Revised Administrative Code if it is a common carrier by water, and the
Public Service Law if it is a common carrier by land or other kind of public service.

Additional: Pacific Airways Corporation registered its articles of incorporation that its capital stock was
P1,000,000, represented by 9,000 preferred and 100,000 common shares, each preferred share being of
the par value of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and entitled
to one vote; that the amount capital stock actually subscribed was P200,000, and the names of the
subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin,
and William H. Quasha, the first being a Filipino and the other five all Americans; that Baylon's
subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common shares,
of the total par value of P6,500, while the aggregate subscriptions of the American subscribers were for
200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the total par value
of P59,000. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of
the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting
power between the preferred shares and the common shares.
10.Lanuza v BF corp
Facts: In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-La and
the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza,
Jr., Maximo G. Licauco III, and Benjamin C. Ramos. BF Corporation alleged in its complaint that on December
11, 1989 and May 30, 1991, it entered into agreements with Shangri-La wherein it undertook to construct for
Shangri-La a mall and a multilevel parking structure. BF Corporation alleged that Shangri-La induced BF
Corporation to continue with the construction of the buildings using its own funds and credit despite Shangri-
La’s default. ShangriLa misrepresented that it had funds to pay. BF Corporation eventually completed the
construction of the buildings. Shangri-La allegedly took possession of the buildings while still owing BF
Corporation an outstanding balance. BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it. It also alleged that the Shangri-La’s directors were in bad faith in
directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its
obligations as well as for the damages that BF Corporation incurred as a result of Shangri-La’s default.
Petitioners argue that they cannot be held personally liable for corporate acts or obligations. The corporation
is a separate being, and nothing justifies BF Corporation’s allegation that they are solidarily liable with Shangri-
La.
On August 3, 1993, Shangri-La and board of directors filed a motion to suspend the proceedings in view of
BF Corporation’s failure to submit its dispute to arbitration. RTC denied. CA granted the petition for certiorari
and ordered the submission of the dispute to arbitration. Arbitral award says that BF Corporation failed to
prove the existence of circumstances that render petitioners and the other directors solidarily liable

Issue: Whether or not officers of the corporation is solidarily liable with the corporation

Ruling: No. As a general rule, therefore, a corporation’s representative who did not personally bind himself
or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or she is generally not considered a party to
that agreement. However, there are instances when the distinction between personalities of directors,
officers, and representatives, and of the corporation, are disregarded. We call this piercing the veil of
corporate fiction.
A director, trustee, or officer of a corporation may be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or members, and other persons in any of the
following cases: a) The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act; b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and c) The director or trustee acquired personal or pecuniary interest in conflict with his
or her duties as director or trustee. Solidary liability with the corporation will also attach in the following
instances: a) “When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto”; b)
“When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation”; and c) “When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action.”

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled that
petitioners and Shangri-La’s other directors were not liable for the contractual obligations of Shangri-La to
BF Corporation. The Arbitral Tribunal’s decision was made with the participation of petitioners, albeit with
their continuing objection. In view of our discussion above, we rule that petitioners are bound by such
decision.

Other doctrines:
Separate personality
 A corporation is an artificial entity created by fiction of law. This means that while it is not a person, naturally,
the law gives it a distinct personality and treats it as such. A corporation, in the legal sense, is an individual
with a personality that is distinct and separate from other persons including its stockholders, officers,
directors, representatives, and other juridical entities. The law vests in corporations rights, powers, and
attributes as if they were natural persons with physical existence and capabilities to act on their own. For
instance, they have the power to sue and enter into transactions or contracts. Because a corporation’s
existence is only by fiction of law, it can only exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter into contracts without them. A
consequence of a corporation’s separate personality is that consent by a corporation through its
representatives is not consent of the representative, personally. Its obligations, incurred through official acts
of its representatives, are its own. A stockholder, director, or representative does not become a party to a
contract just because a corporation executed a contract through that stockholder, director or representative.
Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the
corporation.

Piercing of the corp veil

Piercing the corporate veil is warranted when “[the separate personality of a corporation] is used as a means
to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention
of statutes, or to confuse legitimate issues.” It is also warranted in alter ego cases “where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.” When corporate veil is pierced, the corporation and persons who
are normally treated as distinct from the corporation are treated as one person, such that when the
corporation is adjudged liable, these persons, too, become liable as if they were the corporation. Among the
persons who may be treated as the corporation itself under certain circumstances are its directors and
officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons. When a director, trustee or officer attempts to acquire or acquires, in violation of
his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a
trustee for the corporation and must account for the profits which otherwise would have accrued to the
corporation. When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and the
corporation should be treated as one. Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced.
11. Francisco Motors Corp v CA
FACTS: Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel
the unpaid balance of the jeepney bought by the latter from them. As their answer, respondent spouses
interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not paid by petitioner
corporation’s directors and officers. Respondent Manuel alleges that he represented members of the
Francisco family who were directors and officers of herein petitioner corporation in an intestate estate
proceeding of Benita Trinidad, but even after its termination, his services were not paid. The trial court
ruled in favor of petitioner but also allowed respondent spouses’ counterclaim. CA affirmed.
ISSUE: W/N the CA erred in applying the doctrine of piercing the veil of corporate entity
RULING: YES. The doctrine of piercing the corporate veil has no relevant application here.
Respondent court erred in permitting the trial court’s resort to this doctrine. The rationale
behind piercing a corporation’s identity in a given case is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed activities.
However, in the case at bar, instead of holding certain individuals or persons responsible for an
alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is
being ordered to answer for the personal liability of certain individual directors, officers and
incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because
of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were
solicited as counsel for members of the Francisco family to represent them in the intestate proceedings
over Benita Trinidad’s estate. These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from
petitioner corporation on the claims that its management had requested his services and he acceded
thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His
move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation,
to offset the unpaid balance of the purchase and repair of a jeep body could only result from an
obvious misapprehension that petitioner’s corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted could
easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly
iniquitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate in this case.
12. INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS (I/AME) vs. LITTON AND COMPANY

Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton, owed the latter rental
arrears as well as his share of the payment of realty taxes.
Litton filed a complaint for unlawful detainer against Santos before the MeTC of Manila. The MeTC ruled in
Litton's favor and ordered Santos to vacate A.I.D. Building and Litton Apartments and to pay various sums of
money representing unpaid arrears, realty taxes, penalty, and attorney's fees. The sheriff of the MeTC of
Manila levied on a piece of real property registered in the name of International Academy of Management and
Economics Incorporated (I/AME), in order to execute the judgment against Santos.
I/AME claimed that it has a separate and distinct personality from Santos; hence, its properties should not be
made to answer for the latter's liabilities. Petitioner I/AME argues that the doctrine of piercing the corporate
veil applies only to stock corporations, and not to non-stock, nonprofit corporations such as I/AME since there
are no stockholders to hold liable in such a situation but instead only members. Hence, they do not have
investments or shares of stock or assets to answer for possible liabilities. Thus, no one in a non-stock
corporation can be held liable in case the corporate veil is disregarded or pierced.

The petitioner also insists that the piercing of the corporate veil cannot be applied to a natural person - in this
case, Santos - simply because as a human being, he has no corporate veil shrouding or covering his person.

Issue: W/N there was a violation of due process when I/AME was not impleaded in the main case and yet was
so named in a writ of execution
Ruling: No.

In general, corporations, whether stock or non-stock, are treated as separate and distinct legal entities from
the natural persons composing them. The privilege of being considered a distinct and separate entity is
confined to legitimate uses, and is subject to equitable limitations to prevent its being exercised for
fraudulent, unfair or illegal purposes.24 However, once equitable limitations are breached using the coverture
of the corporate veil, courts may step in to pierce the same.

The piercing of the corporate veil is premised on the fact that the corporation concerned must have been
properly served with summons or properly subjected to the jurisdiction of the court a quo. Corollary thereto,
it cannot be subjected to a writ of execution meant for another in violation of its right to due process.

There exists, however, an exception to this rule: if it is shown "by clear and convincing proof that the separate
and distinct personality of the corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings. "

Thus, as the Court has already ruled, a party whose corporation is vulnerable to piercing of its corporate veil
cannot argue violation of due process.

In this case, the Court confirms the lower courts' findings that Santos had an existing obligation based on a
court judgment that he owed monthly rentals and unpaid realty taxes under a lease contract he entered into
as lessee with the Littons as lessor. He was not able to comply with this particular obligation, and in fact,
refused to comply therewith.

This Court agrees with the CA that Santos used I/AME as a means to defeat judicial processes and to evade his
obligation to Litton. Thus, even while I/AME was not impleaded in the main case and yet was so named in a
writ of execution to satisfy a court judgment against Santos, it is vulnerable to the piercing of its corporate
veil.

Issue: Piercing the Corporate Veil may apply to Non-stock Corporations

Ruling: Yes

The mere fact that the corporation involved is a nonprofit corporation does not by itself preclude a court from
applying the equitable remedy of piercing the corporate veil. The equitable character of the remedy permits a
court to look to the substance of the organization, and its decision is not controlled by the statutory
framework under which the corporation was formed and operated. While it may appear to be impossible for a
person to exercise ownership control over a non-stock, not-for-profit corporation, a person can be held
personally liable under the alter ego theory if the evidence shows that the person controlling the corporation
did in fact exercise control, even though there was no stock ownership

Issue: W/N Piercing the Corporate Veil may apply to natural persons
Ruling: Yes

The piercing of the corporate veil may apply to corporations as well as natural persons involved with
corporations. This Court has held that the "corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of another corporation.

This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural person - is the
alter ego of I/AME. Santos falsely represented himself as President of I/AME in the Deed of Absolute Sale
when he bought the Makati real property, at a time when I/ AME had not yet existed.

Hence, I/AME is the alter ego of the natural person, Santos, which the latter used to evade the execution on
the Makati property, thus frustrating the satisfaction of the judgment won by Litton.

Issue: W/N reverse piercing of the Corporate Veil

Ruling:

We borrow from American parlance what is called reverse piercing or reverse corporate piercing or piercing
the corporate veil "in reverse."
As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership, 50 "in a traditional veil-piercing
action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a
corporate insider. In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation
to satisfy claims against a corporate insider."
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the
corporation liable for the debt of the shareholders.”
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs
when a party with a claim against an individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant. 52 In contrast, in insider reverse piercing, the
controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or protection of personal assets.

Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor, seeks the Court's
intervention to pierce the corporate veil of I/AME in order to make its Makati real property answer for a
judgment against Santos, who formerly owned and still substantially controls I/AME.

In the instant case, it may be possible for this Court to recommend that Litton run after the other properties of
Santos that could satisfy the money judgment - first personal, then other real properties other than that of the
school. However, if we allow this, we frustrate the decades-old yet valid MeTC judgment which levied on the
real property now titled under the name of the school. Moreover, this Court will unwittingly condone the
action of Santos in hiding all these years behind the corporate form to evade paying his obligation under the
judgment in the court a quo. This we cannot countenance without being a party to the injustice.
Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on execution of the Makati real
property where the school now stands is applied.
13. La Campana Coffee Factory v. Kaisahan ng Manggagawa [93 Phil. 160, May 25, 1953]
FACTS: Tan Tong, one of the petitioners has been engaged in the business of buying and selling gaugau
under the trade name La Campana Gaugau Packing. In 1950, Tan Tong together with members of his
family established a family corporation called La Campana Coffee Factory Inc. In 1951, the employees of
La Campana Gaugau and La Campana Coffee Factory, Inc. demanded for higher wages. As the demand was
not granted and an attempt at settlement through the mediation of the Conciliation Service of the
Department of Labor had given no result, the said Department certified the dispute to the Court of
Industrial Relations (CIR). Petitioners now filed for the dismissal of the case, alleging that the complaint
was filed against two different entities with distinct personalities.
ISSUE: WON La Campana Gaugau Packing and La Campana Coffee Factory are two different corporate
entities.
HELD: No. The doctrine that a corporation is a legal entity existing separate and apart from the person
composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice.
The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in
support of an end subversive of this policy, will be disregarded by the courts. Thus, in an appropriate
case and in furtherance of the ends of justice, a corporation and the individual or individuals
owning all its stocks and assets will be treated as identical, the corporate entity being disregarded
where used as a cloak or cover for fraud or illegality. In the present case Tan Tong appears to be the
owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned
exclusively by Tan Tong and his family. As found by the CIR, the two factories have but one office, one
management and one payroll, except after July 17, the day the case was certified to the Court of Industrial
Relations, when the person who was discharging the office of cashier for both branches of the business
began preparing separate payrolls for the two. In view of all these, the attempt to make the two factories
appears as two separate businesses, when in reality they are but one, is but a device to defeat the ends of
the law (the Act governing capital and labor relations) and should not be permitted to prevail.
14. MANUELA AZUCENA MAYOR vs EDWIN TIU G.R. No. 203770 November 23, 2016
FACTS:
Rosario Guy-Juco Villasin Casilan passed away and left a holographic Last Will and Testament
naming her sister, Remedios Tiu, and her niece, Manuela Azucena Mayor as executors. Immediately
thereafter, Remedios and Manuela filed a petition for the probate of Rosario's holographic will with
prayer for the issuance of letters testamentary raffled to RTC-Br. 9. Damiana Charito Marty filed her
Verified Urgent Manifestation and Motion praying for the probate court to: 1) order an immediate
inventory of all the properties subject of the proceedings; 2) direct the tenants of the estate, namely,
Mercury Drug and Chowking, located at Primrose Hotel, to deposit their rentals with the court; 3) direct
Metro bank, P. Burgos Branch, to freeze the accounts in the name of Rosario, Primrose Development
Corporation (Primrose) or Remedios; and 4) lock up the Primrose Hotel in order to preserve the property
until final disposition by the court.

Remedios and Manuela filed their Comment/Opposition10 to the urgent manifestation averring
that Marty was not an adopted child of the Villasins based on a certification issued by the Office of the
Clerk of Court of Tacloban City, attesting that no record of any adoption proceedings involving Marty
existed in their records. They also argued that the probate court had no jurisdiction over the properties
mistakenly claimed by Marty as part of Rosario's estate because these properties were actually owned by,
and titled in the name of, Primrose. Anent the prayer to direct the tenants to deposit the rentals to the
probate court, Remedios and Manuela countered that the probate court had no jurisdiction over
properties owned by third persons, particularly by Primrose, the latter having a separate and distinct
personality from the decedent's estate. RTC-Br. 9 granted the motion of Marty and ordered Mercury Drug
and Chowking to deposit the rental income to the court and Metrobank to freeze the bank accounts
mentioned in the motion of Marty. The doctrine of piercing the corporate veil was applied in the case
considering that Rosario had no other properties that comprised her estate other than Primrose.
According to the probate court, for the best interest of whoever would be adjudged as the legal heirs of
the Estate, it was best to preserve the properties from dissipation.

ISSUE: WON it was correct for the probate court to pierce the veil of Primrose?

HELD:
NO. The doctrine of piercing the corporate veil has no relevant application in this case. Under this
doctrine, the court looks at the corporation as a mere collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the
group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and
the same.47 The purpose behind piercing a corporation's identity is to remove the barrier between the
corporation and the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities. 48

Here, instead of holding the decedent's interest in the corporation separately as a stockholder, the
situation was reversed. Instead, the probate court ordered the lessees of the corporation to remit rentals to
the estate's administrator without taking note of the fact that the decedent was not the absolute owner of
Primrose but only an owner of shares thereof. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities. 49 Moreover, to disregard the separate juridical
personality of a corporation, the wrongdoing cannot be presumed, but must be clearly and convincingly
established.

The probate court in this case has not acquired jurisdiction over Primrose and its properties.
Piercing the veil of corporate entity applies to determination of liability not of jurisdiction; it is basically
applied only to determine established liability. It is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not impleaded in a case. 59 This is so because the doctrine
of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has
already acquired jurisdiction over the corporation. Hence, before this doctrine can be even applied, based
on the evidence presented, it is imperative that the court must first have jurisdiction over the
corporation. Hence, a corporation not impleaded in a suit cannot be subject to the court's process of
piercing the veil of its corporate fiction. Resultantly, any proceedings taken against the corporation and
its properties would infringe on its right to due process.

In the case at bench, the probate court applied the doctrine of piercing the corporate veil
ratiocinating that Rosario had no other properties that comprise her estate other than her shares in
Primrose. Although the probate court's intention to protect the decedent's shares of stock in Primrose
from dissipation is laudable, it is still an error to order the corporation's tenants to remit their rental
payments to the estate of Rosario.
15. Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965)
FACTS: In a complaint for ULP filed before the CIR, Emilio, Ariston and Rodolfo, all surnamed Cano, were made
respondents in their capacity as president and proprietor, field supervisor and manager of Emilio Cano
Enterprises, Inc. After trial, Presiding Judge rendered a decision finding Emilio Cano and Rodolfo Cano guilty of
the ULP charge, but absolved Ariston for insufficiency of evidence. The two were ordered, jointly and severally,
to reinstate Honorata Cruz, to her former position with payment of backwages from the time of her dismissal
up to her reinstatement, together with all other rights and privileges thereunto appertaining.
Emilio Cano died, and the attempt to have the case dismissed against him having failed, the case was appealed
to the court en banc, which in due course affirmed the decision of Judge Bautista. An order of execution was
issued, the dispositive part of which reads: (1) to reinstate Honorata Cruz to her former position as ordered in
the decision; and (2) to deposit with the court P7,222.58 within ten days from receipt of the order, failing
which the court will order either a levy on respondents' properties or the filing of an action for contempt of
court.
The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of
those of the respondents named in the decision, said corporation filed an ex parte motion to quash the writ on
the ground that the judgment sought to be enforced was not rendered against it which is a juridical entity
separate and distinct from its officials. This motion was denied. And having failed to have it reconsidered, the
corporation interposed the present petition for certiorari.
ISSUE: Can the judgment rendered against Emilio and Rodolfo Cano in their capacity as officials of the
corporation Emilio Cano Enterprises, Inc. be made effective against the property of the latter which was not a
party to the case?
RULING: YES. While it is an undisputed rule that a corporation has a personality separate and distinct from its
members or stockholders because of a fiction of the law, here we should not lose sight of the fact that the
Emilio Cano Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to
one single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo and
Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where the corporation and its members can
be considered as one. And to hold such entity liable for the acts of its members is not to ignore the legal fiction
but merely to give meaning to the principle that such fiction cannot be invoked if its purpose is to use it as a
shield to further an end subversive of justice. 1 And so it has been held that while a corporation is a legal
entity existing separate and apart from the persons composing it, that concept cannot be extended to a point
beyond its reason and policy, and when invoked in support of an end subversive of this policy it should be
disregarded by the courts (12 Am. Jur. 160-161).
A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private
capacity, but as president and manager of Emilio Cano Enterprises, Inc. Having been sued officially their
connection with the case must be deemed to be impressed with the representation of the corporation. In fact,
the court's order is for them to reinstate Honorata Cruz to her former position in the corporation and
incidentally pay her the wages she had been deprived of during her separation. Verily, the order against them
is in effect against the corporation. No benefit can be attained if this case were to be remanded to the court  a
quo merely in response to a technical substitution of parties for such would only cause an unwarranted delay
that would work to Honorata's prejudice. This is contrary to the spirit of the law which enjoins a speedy
adjudication of labor cases disregarding as much as possible the technicalities of procedure. We, therefore,
find unmeritorious the relief herein prayed for. WHEREFORE, petition is dismissed, with costs.
16. Pacific Rehouse v CA
Facts: A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB
Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific Rehouse
Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East
Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the pleadings,
directing the E–Securities to return to the petitioners 32,180,000 DMCI shares, as of judicial demand. On
the other hand, petitioners are directed to reimburse the defendant the amount of [P]10,942,200.00,
representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share. The
Resolution was ultimately affirmed by the Supreme Court and attained finality.
When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an alias writ
of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E–Securities is “a
wholly–owned controlled and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a
mere alter ego and business conduit of the latter. E–Securities opposed the motion[,] arguing that it has a
corporate personality that is separate and distinct from the respondent.
The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of petitioner, the
dominant parent corporation, which justifies piercing of the veil of corporate fiction, and issued an alias
writ of summons directing defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully
comply therewith. It ratiocinated that being one and the same entity in the eyes of the law, the service of
summons upon EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over both the parent and
wholly–owned subsidiary.
Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition
for certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the
nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that the alter
ego theory cannot be sustained because ownership of a subsidiary by the parent company is not enough
justification to pierce the veil of corporate fiction. There must be proof, apart from mere ownership, that
Export Bank exploited or misused the corporate fiction of E–Securities. The existence of interlocking
incorporators, directors and officers between the two corporations is not a conclusive indication that
they are one and the same. The records also do not show that Export Bank has complete control over the
business policies, affairs and/or transactions of E–Securities. It was solely E–Securities that contracted
the obligation in furtherance of its legitimate corporate purpose; thus, any fall out must be confined
within its limited liability.
ISSUE: Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of
corporate fiction” is proper.
RULING
NO. An alter ego exists where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other. The control necessary to invoke the
alter ego doctrine is not majority or even complete stock control but such domination of finances, policies
and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its
own, and is but a conduit for its principal.
The Court has laid down a three–pronged control test to establish when the alter ego doctrine should be
operative:
Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal
right; and
The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss
complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation. Hence, all three
elements should concur for the alter ego doctrine to be applicable.
In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by itself, does
not mean that the controlled corporation is a mere instrumentality or a business conduit of the mother
company. Even control over the financial and operational concerns of a subsidiary company does not by
itself call for disregarding its corporate fiction. There must be a perpetuation of fraud behind the control
or at least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction. Such fraudulent intent is lacking in this case.
While the courts have been granted the colossal authority to wield the sword which pierces through the
veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the
doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to enter into
economic endeavors fraught with risks and where only a few dared to venture.
The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

17.THE MISSIONARY SISTERS OF OUR LADY OF FATIMA v. AMANDO V. ALZONA

MP: The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when a non-existent corporation enters into contracts or dealings with third
persons. In which case, the person who has contracted or otherwise dealt with the nonexistent corporation is
estopped to deny the latter's legal existence in any action leading out of or involving such contract or dealing.
FACTS: The Missionary Sisters of Our Lady of Fatima, known as the Peach Sisters of Laguna, is a religious and
charitable group. Its primary mission is to take care of the abandoned and neglected elderly persons. The
petitioner came into being as a corporation by virtue of a Certificate issued by the SEC on August 31, 2001.
Mother Concepcion is the petitioner's Superior General.
The respondents, on the other hand, are the legal heirs of the late Purificacion Y. Alzona. Purificacion, is the
registered owner of parcels of land located in Calamba City, Laguna. In October 1999, Purificacion called
Mother Concepcion and handed her a handwritten letter dated October 1999. Therein, Purificacion stated that
she is donating her house and lot at Calamba, Laguna, to the petitioner through Mother Concepcion.
2.On October 30, 2001, Purificacion died without any issue, and survived only by her brother of full blood,
Amando, who nonetheless died during the pendency of this case and is now represented and substituted by
his legal heirs, joined as herein respondents. On April 9, 2002, Amando filed a Complaint before the RTC,
seeking to annul the Deed executed between Purificacion and the petitioner, on the ground that at the time
the donation was made, the latter was not registered with the SEC and therefore has no juridical personality
and cannot legally accept the donation. RTC dismissed the petition. CA modified, declaring the donation void.
ISSUE: Whether or not petitioner has the legal capacity, as donee, to accept the donation, and the
authority to act on behalf of the petitioner in accepting the donation
RULING: YES. Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC
issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion
executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner
cannot be considered a corporation de facto. Rather, a review of the attendant circumstances reveals that it
calls for the application of the doctrine of corporation by estoppel as provided for under Section 21 of the
Corporation Code. In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is
evident from the fact that Purificacion executed two (2) documents conveying her properties in favor of the
petitioner – first, on October 11, 1999 via handwritten letter, and second, on August 29, 2001 through a Deed;
the latter having been executed the day after the petitioner filed its application for registration with the SEC.
In this case, while the underlying contract which is sought to be enforced is that of a donation, and thus
rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit therefrom so
as to prevent the application of the doctrine of corporation by estoppel. To recall, the subject properties were
given by Purificacion, as a token of appreciation for the services rendered to her during her illness. In fine, the
subject deed partakes of the nature of a remuneratory or compensatory donation, having been made "for the
purpose of rewarding the donee for past services, which services do not amount to a demandable debt."
The acceptance of Mother Concepcion for the sisters comprising the congregation is sufficient to perfect the
donation and transfer title to the property to the petitioner. Ultimately, the subsequent incorporation of the
petitioner and its affirmation of Mother Concepcion's authority to accept on its behalf cured whatever defect
that may have attended the acceptance of the donation. The Deed sought to be enforced having been validly
entered into by Purificacion,the respondents' predecessor-in-interest, binds the respondents who succeed the
latter as heirs.
18. MARIANO A. ALBERT vs. UNIVERSITY PUBLISHING CO., INC. January 30, 1965
FACTS: Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged inter alia that defendant
was a corporation duly organized and existing under the laws of the Philippines; that defendant, through
Jose M. Aruego, its President, entered into a contract with plaintiff; that defendant had thereby agreed
to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised
Penal Code and for his share in previous sales of the book's first edition; that defendant had undertaken
to pay in eight quarterly installments of P3,750.00 starting July 1948; that per contract failure to pay one
installment would render the rest due; and that defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and
terms of the contract; but alleged that it was plaintiff who breached their contract by failing to deliver his
manuscript. Furthermore, defendant counterclaimed for damages.
Court of First Instance of Manila, after trial, rendered decision in favor of the plaintiff. Plaintiff then
petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's
counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co.,
Inc. Plaintiff annexed to his petition a certification from the securities and Exchange Commission
attesting: "The records of this Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc."
countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that
"Jose M. Aruego is not a party to this case," and that, therefore, plaintiff's petition should be denied.
The court a quo denied the petition, thus plaintiff has appealed.
ISSUE: Should Aruego be held liable even though he is not named as a party to the case? (Considering that
Corporations have a separate juridical personality)
HELD: Yes. The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange
Commission has not been disputed. Defendant would only raise the point that "University Publishing Co.,
Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing Co.,
Inc." is an existing corporation with an independent juridical personality. Precisely, however, on
account of the non-registration it cannot be considered a corporation, not even a corporation de
facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it
cannot be sued independently.
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal,
was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from
it, so much so that partial payments of the consideration were made by him; that he violated its terms,
thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in
line with the ends of justice, responsibility under the judgment falls on him.
Even with regard to corporations duly organized and existing under the law, we have in many a case
pierced the veil of corporate fiction to administer the ends of justice.  * And in Salvatiera vs.
Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed as such agent."

****Other matters*****
Discussion about corporation-by-estoppel doctrine
The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here.
Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe
in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating
that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously
misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to act upon his
wilful misrepresentation that a corporation was duly organized and existing under the law, cannot
thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56
O.G. 3069).
"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon
the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just a
name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as
counsel. He was in fact, if not, in name, the defendant.

Discussion about due process

Had Jose M. Aruego been named as party defendant instead of, or together with, "University Publishing
Co., Inc.," there would be no room for debate as to his personal liability. Since he was not so named, the
matters of "day in court" and "due process" have arisen
In this connection, it must be realized that parties to a suit are "persons who have a right to control the
proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67
C.J.S. 887) — and Aruego was, in reality, the person who had and exercised these rights. Clearly, then,
Aruego had his day in court as the real defendant; and due process of law has been substantially
observed.
19. PAZ v. NEW INT'L ENVIRONMENTAL UNIVERSALITY
DOCTRINE:
Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an
ostensible corporation, as such, cannot resist performance thereof on the ground that there was in
fact no corporation. (Doctrine of Estoppel)
FACTS:
Priscillo Paz, entered into a MOA with Captain Allan J. Clarke, president of International Environmental
University, for the use of the aircraft hangar space at the said airport exclusively for “company
aircraft/helicopter” for a period of four years, unless pre-terminated with 6-months’ notice. By letters to
“MR ALLAN J. CLARK, International Environmental Universality Inc., Paz threatened to cancel the
contract since the company was using it to park trucks and equipments instead of aircraft. More letters
were sent demanding compliance with the MOA, to no avail. Paz then caused disconnection of electric and
telephone lines of respondent’s premises; and ordered security guards to prevent respondent’s
employees from entering the premises - without giving respondent the 6- month notice as required
under the MOA.
Respondent then filed an action for breach of contract against Paz, alleging that his acts violated the
terms of the MOA. Paz alleged that the company had no cause of action since he dealt with Mr. Allan J.
Clark in his personal capacity; there was no need to wait for the expiration of the contract since the
company was performing high risk works in the leased premises and the six-month notice was given thru
his letters given to Mr. Allan J. Clarke.
RTC rendered judgment in favour of the corporation. CA dismissed Priscillo’s appeal, ruling that, while
there was no corporate entity at the time of the execution of the MOA on March 1, 2000 when Capt.
Clarke signed as “President of International Environmental University,” petitioner is nonetheless
estopped from denying that he had contracted with respondent as a corporation, having recognized the
latter as the “Second Party” in the MOA that “will use the hangar space exclusively for company aircraft/
helicopter.” Paz elevated his case to the SC, contending that case should be dismissed for failure to
implead Allan J. Clarke, and lack of legal capacity of the corporation.
ISSUE:
WON Capt. Clarke should have been impleaded in the case as an indispensable party.
RULING:
(1) NO. Capt. Clarke was not an indispensable party because he was merely an agent of respondent
company. While Capt. Clarke’s name and signature appeared on the MOA, his participation was,
nonetheless, limited to being a representative of respondent. As a mere representative, Capt. Clarke
acquired no rights whatsoever, nor did he incur any liabilities, arising from the contract between
petitioner and respondent. Therefore, he was not an indispensable party to the case at bar. CA had
correctly pointed out that, from the very language itself of the MOA entered into by petitioner whereby he
obligated himself to allow the use of the hangar space "for company aircraft/helicopter," petitioner
cannot deny that he contracted with respondent. Petitioner further acknowledged this fact in his final
demand letter where he reiterated and strongly demanded the respondent to immediately vacate the
hangar space his "company is occupying/utilizing” Section 21 of the Corporation Code explicitly
provides that one who assumes an obligation to an ostensible corporation, as such, cannot resist
performance thereof on the ground that there was in fact no corporation. Clearly, petitioner is
bound by his obligation under the MOA not only on estoppel but by express provision of law.
Courts have no power to relieve parties from obligations they voluntarily assumed, simply
because their contracts turn out to be disastrous deals or unwise investments. 33

20. Boman Environmental Dev. Corp. v. Court of Appeals

Facts:
Respondent offered in writing to resign as President and Member of the Board of Directors of petitioner,
Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights,
and interests therein for P 300,000 plus the transfer to him of the company’s Isuzu pick-up truck which he had
been using.

Fajilan’s resignation as president was accepted and new officers were elected. Fajilan’s offer to sell his shares
back to the corporation was approved, the Board promising to pay for them on a staggered basis.But BEDECO
defaulted in paying respondent, prompting the latter to file a complaint in the Regional Trial Court of Makati
for collection of that balance from BEDECO.

RTC ruled that ruled that the controversy arose out of intracorporate relations, hence, the Securities and
Exchange Commission has original and exclusive jurisdiction to hear and decide it. CA has set aside the RTC
ruling hence the petition.

Issue: Whether or not a suit brought by a withdrawing stockholder against the corporation to enforce
payment of the balance due on the consideration for the surrender of his shares of stock and interests in the
corporation, involves an intra-corporate dispute.

Held:

Yes. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan’s
participation and interests in BEDECO and the execution of the promissory note for payment of the price of
the sale did not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as amended, for both
the said agreement and the promissory note arose from intra-corporate relations. Indeed, all the signatories
of both documents were stockholders of the corporation at the time of signing the same. It was an intra-
corporate transaction; hence, this suit is an intra-corporate controversy.
Fajilan’s suit against the corporation to enforce the latter’s promissory note or compel the corporation to pay
for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not
constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation.
The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation
has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a
legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code,

SEC. 41. Power to acquire own shares

3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of
this Code,

Sec. 12. Corporate liquidation. …

xxx xxx xxx

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any
of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities, (77a,
89a, 16a).

These provisions of the Corporation Code should be deemed written into the agreement between the
corporation and the stockholders even if there is no express reference to them in the promissory note. The
principle is well settled that an existing law enters into and forms part of a valid contract without need for the
parties’ expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA 437).

The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine
which means that the capital stock, property and other assets of a corporation are regarded as equity in
trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over
the stockholders in the distribution of corporate assets. There can be no distribution of assets among the
stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the
prejudice of creditors is null and void. (Trust Fund Doctrine) "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.
21. Ong Yong vs. Tiu
FACTS: The Masagana Citimall, owned by the First Landlink Asia Development Corporation (FLADC) was
threatened with incompletion when FLADC was heavily indebted to the Philippine National Bank (PNB).
FLADC was owned by the Tiu Group. To recover from its floundering finances, the Tius invited the Ong
Group to invest in FLADC.
The Tius and the Ongs then executed a Pre-Subscription Agreement wherein both parties agreed to
maintain equal shareholdings in FLADC with the Ongs investing cash while the Tius contributing
property.
Also for purposes of equality, the parties agreed that 6 directors of FLADC were to be nominated from the
Ong Group, while 5 directors thereof were to be nominated from the Tiu Group. It was also agreed that
the positions of President and Secretary of FLADC shall be held by the Ongs, while the positions of Vice-
President and Treasurer thereof shall be held by the Tius.
To liquidate FLADC's outstanding ₱190,000,000.00 loan from the PNB, the parties to the Pre-Subscription
Agreement proposed payment thereof with the ₱100,000,000.00 cash to be invested by the Ongs to
FLADC and with the other available funds of FLADC.
In lieu of the FLADC funds which were supposed to be used as partial payment for said loan, the Ongs had
to pay ₱70,000,000.00 more aside from their ₱100,000,000.00 subscription payment.
The controversy arose when the Ongs refused to credit the number of FLADC shares in favor of the Tius
commensurate; and when David and Cely Tiu were proscribed from performing their duties as Vice-
President and Treasurer of FLADC. These became the basis of the Tius' unilateral rescission of the Pre-
Subscription Agreement.
ISSUE: W/N the rescission of Pre-Subscription Agreement would result in an unauthorized liquidation.
RULING: Yes. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and
adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly
not one of them, specially if the party asking for it has no legal personality to do so and the requirements
of the law therefor have not been met. A contrary doctrine will tread on extremely dangerous ground
because it will allow just any stockholder, for just about any real or imagined offense, to demand
rescission of his subscription and call for the distribution of some part of the corporate assets to him
without complying with the requirements of the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs.
Rivera provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims. This doctrine is the underlying principle
in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows
the distribution of corporate capital only in three instances:
1) amendment of the Articles of Incorporation to reduce the authorized capital stock,

2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted

retained earnings, and

3) dissolution and eventual liquidation of the corporation.

Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own
shares and in Section 122 on the prohibition against the distribution of corporate assets and property
unless the stringent requirements therefor are complied with.
The distribution of corporate assets and property cannot be made to depend on the whims and caprices
of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire
of the court a quo “to prevent further squabbles and future litigations” unless the indispensable
conditions and procedures for the protection of corporate creditors are followed. Otherwise, the
“corporate peace” laudably hoped for by the court will remain nothing but a dream because this time, it
will be the creditors’ turn to engage in “squabbles and litigations” should the court order an unlawful
distribution in blatant disregard of the Trust Fund Doctrine.
22. De La Salle Montessori International of Malolos vs. De La Salle Brothers Inc., 2018
Facts: Petitioner reserved with the SEC its corporate name De La Salle Montessori International Malolos, Inc.
from June 4 to August 3, 2007. Consequently, the SEC issued a certificate of incorporation to petitioner.
On January 29, 2010, respondents De La Salle Brothers, Inc., De La Salle University, Inc., La Salle Academy, Inc.,
De La Salle-Santiago Zobel School, Inc. (formerly De La Salle-South, Inc.), and De La Salle Canlubang, Inc.
(formerly De La Salle University-Canlubang, Inc.) filed a petition with the SEC seeking to compel petitioner to
change its corporate name. Respondents claim that petitioner's corporate name is misleading or confusingly
similar to that which respondents have acquired a prior right to use, and that respondents' consent to use
such name was not obtained. According to respondents, petitioner's use of the dominant phrases "La Salle"
and "De La Salle" gives an erroneous impression that De La Salle Montessori International of Malolos, Inc. is
part of the "La Salle" group, which violates Section 18 of the Corporation Code of the Philippines. Moreover,
being the prior registrant, respondents have acquired the use of said phrases as part of their corporate names
and have freedom from infringement of the same.

SEC OGC concluded that respondents' use of the phrase "De La Salle" or "La Salle" is arbitrary, fanciful,
whimsical and distinctive, and thus legally protectable. The SEC OGC disagreed with petitioner's argument that
the case of Lyceum of the Philippines, Inc. v. Court of Appeals (Lyceum of the Philippines) applies since the
word "lyceum" is clearly descriptive of the very being and defining purpose of an educational corporation,
unlike the term "De La Salle" or "La Salle." Hence, the Court held in that case that the Lyceum of the
Philippines, Inc. cannot claim exclusive use of the name "lyceum."

Issue: WON petitioner should change its corporate name

Ruling: Yes. As early as Western Equipment and Supply Co. v. Reyes, the Court declared that a corporation's
right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect
against the world in the same manner as it may protect its tangible property, real or personal, against trespass
or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or
defeated by subsequent appropriation by another corporation in the same field.
In Philips Export B.V. v. Court of Appeals, the Court held that to fall within the prohibition of Section 18, two
requisites must be proven, to wit: (1) that the complainant corporation acquired a prior right over the use of
such corporate name; and (2) the proposed name is either: (a) identical, or (b) deceptively or confusingly
similar to that of any existing corporation or to any other name already protected by law; or (c) patently
deceptive, confusing or contrary to existing law.
With respect to the first requisite, the Court has held that the right to the exclusive use of a corporate name
with freedom from infringement by similarity is determined by priority of adoption.
The second requisite is also satisfied since there is a confusing similarity between petitioner's and
respondents' corporate names. While these corporate names are not identical, it is evident that the phrase
"De La Salle" is the dominant phrase used.
In determining the existence of confusing similarity in corporate names, the test is whether the similarity is
such as to mislead a person using ordinary care and discrimination.
By-Laws
23. Ching v. Quezon City Sports Club, Inc., 807 SCRA 46 (2016)
Facts: Respondent Club is a duly registered domestic corporation providing recreational activities, sports
facilities, and exclusive privileges and services to its members. Petitioner Catherine became a member
and regular patron of respondent Club. Petitioner Catherine was duly notified of the implementation of
the special assessment through the Treasurer of respondent Club. Because respondent Club was not in a
financial position to pay the monetary awards in NLRC NCR Case No. 00-07-06219, respondent BOD
approved Board Resolution No. 7-2001,3 entitled "Special Assessment for Club Members in Relation to
the Marie Rose Navarro, et al. v. QCSI, et al. Case," resolving to "seek the assistance of its members by
assessing each member .
Petitioner Catherine believed that the imposition of the special assessment in Board Resolution No. 7-
2001 was unjust and/or illegal, however, she took no action against the same. Petitioner Catherine simply
avoided paying the special assessment by settling the amounts due in her Statements of Account from
September 2001 to January 2002 short of P500.00.  Petitioner Catherine was not personally informed of
Board Resolution No. 3-2002 nor advised that she was already deemed delinquent in the payment of any
other Statements of Account.
Petitioner Laurence went to respondent Club intending to avail himself of its services using the account
of his mother, petitioner Catherine. Respondent Club refused to accommodate petitioner Laurence
because his mother's membership privileges had been suspended which prompted the petitioner to file a
case against the respondent club. RTC though ruled that respondents failed to comply with section 35 of
By-Laws of respondent Club when they suspended petitioner Catherine's privileges. However, on appeal,
the Court of Appeals ruled in favor of respondents. The Court of Appeals determined that Section 33(a) of
the By-Laws of respondent Club on the "Billing of Members, Posting of Suspended Accounts" applied to
petitioners' case, instead of Section 35 of the same By Laws.
Issue: Whether the CA erred in applying section 33 of the By-laws
Ruling. Yes. Bylaws are the self-imposed rules resulting from the agreement between the country club
and its members to conduct the corporate business in a particular way. In that sense, the bylaws are the
private “statutes” by which the country club is regulated, and will function. Bylaws constitute a binding
contract as between the country club and its members, and as among the members themselves. They are
self-imposed private laws binding on all members, directors, and officers of the country club. The
prevailing rule is that the provisions of the articles of incorporation and the bylaws must be strictly
complied with and applied to the letter. At cursory glance, it would seem that the suspension of
petitioner Catherine's privileges was due to the P2,500.00 special assessment charged in her Statements
of Account from September 2001 to January 2002, which remained unpaid for over three months by the
time respondent BOD passed Board Resolution No. 3-2002 on April 18, 2002; and for one year and four
months by the time respondent Lopez issued her Memorandum dated May 22, 2003. However, tracing
back, the P2,500.00 special assessment was not an ordinary account or bill incurred by petitioners in
respondent Club, as contemplated in Section 33(a) of the By-Laws.
The special assessment in the instant case arose from an extraordinary circumstance, i.e., the necessity of
raising payment for the monetary judgment against respondent Club in an illegal dismissal case. The
special assessment of P2,500.00 was imposed upon the members by respondent BOD through Board
Resolution No. 7-2001 dated September 20, 2001; it only so happened that said Board Resolution was
implemented by directly charging the special assessment, in P500.00 installments, in the members'
Statements of Account for five months. Thus, petitioner Catherine's nonpayment of the special
assessment was, ultimately, a violation of Board Resolution No. 7-2001, covered by Section 35(a) of the
By-Laws.

24. Bernas vs Cinco

Facts: Petitioners Jose A. Bernas (Bernas), Cecile H. Cheng,et al... among the Members of the Board of
Directors and Officers of the corporation... terms were... to expire either in 1998 or 1999. Jovencio Cinco,
Ricardo Librea and Alex Y. Pardo (Cinco Group) are the members and stockholders of the corporation who
were elected Members of the Board of Directors and Officers of the club during the 17 December 1997 Special
Stockholders Meeting. Alarmed with the rumored anomalies in handling the corporate funds, the MSC
Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas
Group, who were then incumbent officers of the corporation, to resign from their respective positions... the
stockholders of the corporation representing at least 100 shares who sought the assistance of the MSCOC to
call for a special stockholders meeting for the purpose... of removing the sitting officers and electing new ones
For failure of the Bernas Group to secure an injunction before the SEC, the meeting proceeded... were...
removed from office and, in their place and stead, Jovencio F. Cinco, Ricardo G. Librea, et al. The Bernas Group
initiated an action before the SEC... seeking for the nullification of the 17 December 1997 Special Stockholders
Meeting on the ground that... it was improperly called. Citing Section 28 of the Corporation Code, the Bernas
Group argued that the authority to call a meeting lies with the Corporate Secretary and not with the MSCOC
which functions merely as an oversight body and is not vested with the power to call... corporate meetings.
The Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned by the
Corporation Code and the MSC by-laws. Meanwhile, the newly elected directors initiated an investigation on
the alleged anomalies in administering the corporate affairs and after finding Bernas guilty of irregularities, the
Board resolved to expel him from the club by selling his shares at... public auction. An Annual Stockholders’
meeting was conducted. SICD rendered a Decision that the 17 December 1997 Special Stockholders’ Meeting
and the Annual Stockholders’ Meeting conducted on 20 April 1998 and 19 April 1999 are invalid.
Issue: Whether or not the December 1997 stockholders’ meeting is invalid.
Ruling: Yes. Textually, only the President and the Board of Directors are authorized by the by-laws to call a
special meeting.  In cases where the person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least 100 shares,... upon written request, may file a petition to
call a special stockholder’s meeting. In the instant case, there is no dispute that the 17 December 1997 Special
Stockholders’ Meeting was called neither by the President nor by the Board of Directors but by the MSCOC.  
While the MSCOC, as its name suggests, is created for the purpose of overseeing the affairs... of the
corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate powers, such as
the power to call a special meeting, solely vested by law and the MSC by-laws on the President or the Board of
Directors.
The board of directors is the directing and controlling body of the corporation.  It is a creation of the
stockholders and derives its power to control and direct the affairs of the corporation from them.  The board
of directors, in drawing to itself the power of the... corporation, occupies a position of trusteeship in relation
to the stockholders, in the sense that the board should exercise not only care and diligence, but utmost good
faith in the management of the corporate affairs. The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a board of directors whose members have stood for
election, and who have actually been elected by the stockholders, on an annual basis.  Only in that way can...
the continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation’s
stockholders, be assured.  The shareholder vote is critical to the theory that legitimizes the exercise of power
by the directors or officers over the properties... that they do not own. Relative to the powers of the Board of
Directors, nowhere in the Corporation Code or in the MSC by-laws can it be gathered that the Oversight
Committee is authorized to step in wherever there is breach of fiduciary duty and call a special meeting for the
purpose of removing the... existing officers and electing their replacements even if such call was made upon
the request of shareholders.  Needless to say, the MSCOC is neither empowered by law nor the MSC by-laws
to call a meeting and the subsequent ratification made by the stockholders did not cure... the substantive
infirmity, the defect having set in at the time the void act was done.  The defect goes into the very authority of
the persons who made the call for the meeting.  It is apt to recall that illegal acts of a corporation which
contemplate the doing of an... act which is contrary to law, morals or public order, or contravenes some rules
of public policy or public duty, are, like similar transactions between individuals, void.  They cannot serve as
basis for a court action, nor acquire validity by... performance, ratification or estoppel.  The same principle can
apply in the present case. The void election of 17 December 1997 cannot be ratified by the subsequent Annual
Stockholders’ Meeting.
Such Special Stockholders’ Meeting called by the Oversight Committee cannot have any legal effect.  The
removal of the Bernas Group, as well as the election of the Cinco Group, effected by the assembly in that
improperly called meeting is void, and since the Cinco Group has no legal right to sit in the board, their
subsequent acts of expelling Bernas from the club and the selling of his shares at the public auction, are
likewise invalid.

25. China Banking Corp. v. CA, and Valley Golf and Country Club, Inc.
G.R. No. 117604. 270 SCRA 503. 26 March 1997.
Facts: On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private
respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to
petitioner China Banking Corporation (CBC, for brevity). Petitioner wrote VGCCI requesting that the
aforementioned pledge agreement be recorded in its books which the latter approved and noted in its
corporate book. Calapatia obtained a loan from petitioner, payment of which was secured by the
aforestated pledge agreement. Calapatia failed to pay his loan obligation. CBC petitioned for extrajudicial
foreclosure and requested VGCCI to transfer the pledged stock in its name. VGCCI informed CBC of its
inability to accede to the request in view of Calapatia's unsettled accounts with the club. Notwithstanding,
CBC proceeded to foreclose the pledge. It emerged as the highest bidder and was issued the
corresponding certificate of sale. Subsequently, VGCCI sold Calapatia’s stock at public auction for his
failure to settle his accounts with it (monthly dues). Thus when CBC requested that a new certificate of
stock be issued in its name, VGCCI replied it has already been sold. At the SEC, CBC sought to cancel the
latter sale and have a new certificate of stock issued in its name. VGCCI anchors its prior right over the
subject stock on a provision of its by-laws: “after a member shall have been posted as delinquent, the
Board may order his share sold to satisfy the claims of the Club...” VGCCI maintains that CBC is bound by
its by-laws arguing that CBC had actual knowledge of its by-laws when CBC foreclosed the pledge and
when CBC purchased the pledged stocks.
Issue: Whether or not CBC is bound by the by-laws of VGCC
Ruling: NO. No. A third person is not privy to the contract created by the by-laws between the
shareholder and the corporation. Concededly, it is the generally accepted rule that third persons are not
bound by bylaws, except when they have knowledge of theprovisions either actually or constructively.
However, in order to be bound, the third party must have acquired knowledge of the pertinent by-laws at
the time the transaction or agreement between said third party and the shareholder was entered into, in
this case, at the time the pledge agreement was executed. CBC’s belated notice of said by-laws at the time
of foreclosure will not suffice.
26. University of Mindanao v. Bangko Sentral ng Pilipinas, 778 SCRA 458 (2016)
Nature of Action: An action for the nullification and cancellation of mortgage on the ground that the
person who entered into contract has no authority to execute such contract.
Facts: Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks: (1) First
Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc.
(DSLAI). Guillermo B. Torres chaired both thrift banks. He acted as FISLAI's President, while his wife,
Dolores P. Torres, acted as DSLAI's President and FISLAI's Treasurer. Upon Guillermo B. Torres' request,
Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency credit to FISLAI. On May 25, 1982,
University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a deed of real estate
mortgage over University of Mindanao's property in Cagayan de Oro City in favor of Bangko Sentral ng
Pilipinas. "The mortgage served as security for FISLAI's PI.9 Million loan" It was allegedly executed on
University of Mindanao's behalf. As proof of his authority to execute a real estate mortgage for University
of Mindanao, Saturnino Petalcorin showed a Secretary's Certificate signed by University of Mindanao's
Corporate Secretary, Aurora de Leon. The Secretary’s certificate states among others the authorizing of
the chairman to appoint Satunino Pactolerin to represent the University of Mindanao to transact,
transfer, convey, lease, mortgage, or otherwise hypothecate the subject properties. Saturnino Petalcorin
executed another deed of real estate mortgage, allegedly on behalf of University of Mindanao, over its two
properties in Iligan City. This mortgage served as additional security for FISLAI's loans. FISLAI and DSLAI
eventually merged with DSLAI as the surviving corporation in an effort to rehabilitate the thrift banks
due to the heavy withdrawals of depositors. DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI). MSLAI failed to recover from its losses. Bangko Sentral ng Pilipinas later on
foreclosed the mortgaged properties. University of Mindanao filed two Complaints for nullification and
cancellation of mortgage. One Complaint was filed before the Regional Trial Court of Cagayan de Oro City,
and the other Complaint was filed before the Regional Trial Court of Iligan City. University of Mindanao
alleged that it did not obtain any loan from Bangko Sentral ng Pilipinas and that Aurora De Leon’s
certification was anomalous. That it never authorized Saturnino Petalcorin to execute real estate
mortgage contracts involving its properties to secure FISLAI's debts and it never ratified the execution of
the mortgage contracts. The Regional Trial Courts ruled in favor of University of Mindanao. The Court of
Appeals however ruled that "although BSP failed to prove that the UM Board of Trustees actually passed
a Board Resolution authorizing Petalcorin to mortgage the subject real properties, Aurora de Leon's
Secretary's Certificate" clothed Petalcorin with apparent and ostensible authority to execute the
mortgage deed on its behalf. Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's
Certificate. University of Mindanao is estopped from denying Saturnino Petalcorin's authority.
Issue: Whether or not petitioner University of Mindanao is bound by the real estate mortgage contracts
executed by Saturnino Petalcorin.
Ruling: No. Acts of an officer that are not authorized by the board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts or holds the officer out as a person with authority to
transact on its behalf. Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its
properties on its behalf. There was no board resolution to that effect. Thus, the mortgages executed by
Saturnino Petalcorin were unenforceable. The mortgage contracts executed in favor of respondent do not
bind petitioner. They were executed without authority from petitioner. Being a juridical person,
petitioner cannot conduct its business, make decisions, or act in any manner without action from its
Board of Trustees. The Board of Trustees must act as a body in order to exercise corporate powers.
Individual trustees are not clothed with corporate powers just by being a trustee. Hence, the individual
trustee cannot bind the corporation by himself or herself. The corporation may, however, delegate
through a board resolution its corporate powers or functions to a representative, subject to limitations
under the law and the corporation's articles of incorporation. The relationship between a corporation
and its representatives is governed by the general principles of agency. Article 1317 of the Civil Code
provides that there must be authority from the principal before anyone can act in his or her name: ART.
1317. No one may contract in the name of another without being authorized by the latter, or unless he
has by law a right to represent him. Hence, without delegation by the board of directors or trustees, acts
of a person - including those of the corporation's directors, trustees, shareholders, or officers—executed
on behalf of the corporation are generally not binding on the corporation. The unenforceable status of
contracts entered into by an unauthorized person on behalf of another is based on the basic principle that
contracts must be consented to by both parties. There is no contract without meeting of the minds as to
the subject matter and cause of the obligations created under the contract. Consent of a person cannot be
presumed from representations of another, especially if obligations will be incurred as a result. Thus,
authority is required to make actions made on his or her behalf binding on a person. Contracts entered
into by persons without authority from the corporation shall generally be considered ultra vires and
unenforceable against the corporation.

27. Toms v. Rodriguez

Facts: Fidel Cu (Cu) sold via Deed of Conditional Sale his 17,237 shares of stock in GDITI to Virgilio S.
Ramos (Ramos) and Cirilo C. Basalo, Jr. (Basalo). When the latter failed to pay the purchase price, Cu sold
15,233 of the same shares through a Deed of Sale in favor of Edgar D. Lim (Lim), Eddie C. Ong (Ong), and
Arnold Gunnacao (Gunnacao), who also did not pay the consideration therefor.
The following were elected as officers of GDITI: Lim as President and Chairman of the Board, Basalo as
Vice President. However, a group led by forcibly took over the GDITI offices and performed the functions
of its officers. This prompted GDITI, through its duly-elected Chairman and President, Lim, to file an
action for injunction and damages against Ramos, et al., Pending the injunction case, Cu resold his shares
of stock in GDITI to Basalo for a consideration of 60,000,000.00, as evidenced by an Agreement. Under
the said agreement, Cu sold not only his remaining 1,997 shares of stock in GDITI, but also the shares of
stock subject of the previously-executed Deed of Conditional Sale in favor of Ramos, as well as the Deed of
Sale in favor of Lim, Ong, and Gunnacao, where the respective considerations were not paid.
As such, Cu intervened in the injunction case claiming that, as an unpaid seller, he was still the legal
owner of the shares of stock subject of the previous contracts he entered into with Ramos, Lim, Ong, and
Gunnacao
RTC-Manila granted Cu’s application for Preliminary Mandatory and Preliminary Prohibitory Injunctions,
and thereafter issued corresponding writs therefor on October 20, 2010,14 which, inter alia, directed the
original parties (plaintiff Lim and those acting under his authority, and defendants Ramos, et al.) to cease
and desist from performing or causing the performance of any and all acts of management and control
over GDITI, and to give Cu, as intervenor, the authority to put in order GDITI’s business operations. Tom
filed for an injunction against the RTC order it was denied by the CA.

Issue: Whether the CA committed grave abuse of discretion in denying Tom's prayer for the issuance of a
TRO and/or writ of preliminary injunction.
Ruling: YES. The issuance of an injunctive writ is warranted to enjoin the RTC-Nabunturan from
implementing its November 13, 2013 and December 11, 2013 Orders in the specific performance case
placing the management and control of GDITI to Rodriguez, among other directives. This pronouncement
follows the well-entrenched rule that a corporation exercises its powers through its board of directors
and/or its duly authorized officers and agents, except in instances where the Corporation Code requires
stockholders' approval for certain specific acts. As statutorily provided for in Section 23 of Batas
Pambansa Bilang 68, otherwise known as "The Corporation Code of the Philippines":
SEC. 23. The board of directors or trustees. — Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected and qualified. Every director must
own at least one (1) share of the capital stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at
least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to
be a director. Trustees of non-stock corporations must be members thereof. A majority of the directors or
trustees of all corporations organized under this Code must be residents of the Philippines.
Accordingly, it cannot be doubted that the management and control of GDITI, being a stock corporation,
are vested in its duly elected Board of Directors, the body that: (1) exercises all powers provided for
under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all
property of the corporation. Its members have been characterized as trustees or directors clothed with a
fiduciary character.
Thus, by denying Tom's prayer for the issuance of a TRO and/or writ of preliminary injunction, the CA
effectively affirmed the RTC's Order placing the management and control of GDITI to Rodriguez, a mere
intervenor, on the basis of a MOA between the latter and Basalo, in violation of the foregoing provision of
the Corporation Code. In so doing, the CA committed grave abuse of discretion amounting to lack or
excess of jurisdiction, which is correctable by certiorari.
WHEREFORE, the petition is GRANTED.

28. Safic Alcan & Cie v. Imperial Vegetable Oil Co

FACTS: Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the
international purchase, sale and trading of coconut oil.
Petitioner Safic alleged that on July 1, 1986 and September 25, 1986, it placed purchase orders with IVO
for 2,000 long tons of crude coconut oil, valued at US$222.50 per ton to be delivered within the month of
January 1987. Private respondent, however, failed to deliver the said coconut oil and, instead, offered a
"wash out" settlement, whereby the coconut oil subject of the purchase contracts were to be "sold back"
to IVO at the prevailing price in the international market at the time of wash out. Thus, IVO bound itself to
pay to Safic the difference between the said prevailing price and the contract price of the 2,000 long tons
of crude coconut oil, which amounted to US$293,500.00. IVO failed to pay this amount despite repeated
oral and written demands.
Safic alleged that on eight occasions between April 24, 1986 and October 31, 1986, it placed purchase
orders with IVO for a total of 4,750 tons of crude coconut oil. When IVO failed to honor its obligation
under the wash out settlement narrated above, Safic demanded that IVO make marginal deposits within
forty-eight hours on the eight purchase contracts in amounts equivalent to the difference between the
contract price and the market price of the coconut oil, to compensate it for the damages it suffered when
it was forced to acquire coconut oil at a higher price. IVO failed to make the prescribed marginal deposits
on the eight contacts, in the aggregate amount of US$391,593.62, despite written demands
Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses.

IVO raised the following special affirmative defenses: Safic had no legal capacity to sue because it was
doing business in the Philippines without the requisite license or authority; the subject contracts were
speculative contracts entered into by IVO's then President, Dominador Monteverde, in contravention of
the prohibition by the Board of Directors against engaging in speculative paper trading, and despite IVO's
lack of the necessary license from Central Bank to engage in such kind of trading activity.

ISSUE: Whether the act of Dominador Monteverde binds IVO

HELD: No, the act of Dominador Monteverde without the authorization of the Board of Directors did not
bind IVO. The Supreme Court ruled that Monteverde had no blanket authority to bind IVO to any contract.
He must act according to the instructions of the Board of Directors. Even in instances when he was
authorized to act according to his discretion, that discretion must not conflict with prior Board orders,
resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986 contracts
and that it did not authorize Monteverde to enter into speculative contracts.
Safic can not rely on the doctrine of implied agency because before the controversial 1986 contracts, IVO
did not enter into identical contracts with Safic. The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.
Under Article 1898 of the Civil Code, the acts of an agent beyond the scope of his authority do not bind
the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was acting beyond his power or authority, the principal can
not be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he
is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure
the principal's ratification.

29. Colegio Medico-Farmaceutico De Filipinas, Inc. v. Lim, G.R. No. 212034, [July 2, 2018]
Facts:
The MeTC rendered a Decision9 dismissing the Complaint for lack of a valid demand letter. The MeTC
considered the demand letter dated March 5, 2008 as legally non-existent for failure of petitioner to show that
Del Castillo was duly authorized by the Board to issue the same. The MeTC stressed that a demand letter is a
jurisdictional requirement the absence of which opens the case susceptible to dismissal.
Issue:
Whether or not the act of the President to issue the demand letter is valid and binding with the corporation.
Ruling:
Yes. Just as natural person may authorize another to do certain acts for and on his behalf, the Board, as the
repository of corporate powers, may validly delegate some of its functions and powers to officers,
committees, or agents. The authority of such individuals to bind the corporation is generally derived from
law, bylaws or authorization from the Board, either expressly or impliedly by habit, custom or acquiescence
in the general course of business.
In this case, the issuance of the demand letter dated March 5, 2008 to collect the payment of unpaid rentals
from respondent and to demand the latter to vacate the subject property was done in the ordinary course of
business, and thus, within the scope of the powers of Del Castillo. In fact, it was his duty as President to
manage the affairs of petitioner, which included the collection of receivables.
30. Vrata vs. Ng-Wee
Facts:
Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by the bank manager to
make money placements with Westmont Investment Corporation (Wincorp), a domestic corporation
organized and licensed to operate as an investment house, and one of the bank's affiliates. Offered to him
were "sans recourse" transactions which has the following mechanics:
Ng Wee's initial investments were matched with Hottick Holdings Corporation (Hottick), one of
Wincorp's accredited borrowers. Hottick was extended a credit facility but it defaulted in paying its
outstanding obligations when the Asian financial crisis struck. As a result, Wincorp filed a collection suit
against Hottick, for the repayment of the loan.
Alarmed by the news of Hottick's default and financial distress, Ng Wee confronted Wincorp and inquired
about the status of his investments. Wincorp assured him that the losses from the Hottick account will be
absorbed by the company and that his investments would be transferred instead to a new borrower
account. In view of these representations, Ng Wee continued making money placements, rolling over
his previous investments in Hottick and even increased his stakes in the new borrower account -
Power Merge Corporation (Power Merge) (which does not have enough authorized capital
stocks.)
Power Merge following protocols issued promissory notes in favor of WinCorp.
Unknown to Ng Wee, however, was that on the very same dates the Credit Line Agreement and its
subsequent Amendment were entered into by Wincorp and Power Merge, additional contracts
(Side Agreements) were likewise executed by the two corporations absolving Power Merge of
liability as regards the Promissory Notes it issued to the prejudice of Ng Wee.
Ng Wee in a complaint sought to pierce the separate juridical personality of Power Merge since
Virata, it’s officer owns almost all of the company's stocks, thus making him the majority
stockholder of power corporation.
Other Wincorp directors (Cua and Cualopings) argued that they should not be jointly and
solidarily liable with Virata, Wincorp, Ong, and Reyes to pay Ng Wee the amount of his investment.
as lack of proof that the said directors assented to the execution of the Side Agreements, barring
the Court from holding them personally accountable for fraud.
Issue: Whether or not the directors of Win Corp is solidarily liable with Win Corp
Ruling:
Yes. Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation.
Had it fulfilled its fiduciary duty, the obvious warning signs would have cautioned it from approving the
loan in haste. To recapitulate: (1) Power Merge has only been in existence for two years when it was
granted a credit facility; (2) Power Merge was thinly capitalized with only ₱37,500,000.00 subscribed
capital; (3) Power Merge was not an ongoing concern since it never secured the necessary permits and
licenses to conduct business, it never engaged in any lucrative business, and it did not file the necessary
reports with the SEC; and (4) no security other than its Promissory Notes was demanded by Wincorp or
was furnished by Power Merge in relation to the latter’s drawdowns.
This only goes to show that even if Cua and the Cualopings are not guilty of fraud, they would
nevertheless still be liable for gross negligence in managing the affairs of the company, to the prejudice of
its clients and stakeholders. Under such circumstances, it becomes immaterial whether or not they
approved of the Side Agreements or authorized Reyes to sign the same since this could have all been
avoided if they were vigilant enough to disapprove the Power Merge credit application. Neither can the
business judgment rule apply herein for it is elementary in corporation law that the doctrine admits of
exceptions: bad faith being one of them, gross negligence.
31. LIM VS. MOLDEX LAND INC., et al.
G.R. No. 206038; January 25, 2017

DOCTRINE: A non-member cannot be elected as a director or officer of a corporation.

FACTS:
This case is a petition for review on certiorari assailing the Decision of the RTC which dismissed the
complaint against the respondents for the annulment of the general membership meeting of 1322
Roxas Boulevard Condominium Corporation (Condocor), annulment of election of Jeffrey Jaminola,
Edgardo Macalintal, Joji Milanes, and Clothilda Roman, as members of the BOD, and for accounting.

Mary E. Lim is a registered unit owner of 1322 Golden Empire Tower, a condominium project of
Moldex Land, Inc. (Moldex), a real estate company engaged in the construction and development of
high-end condominium projects and in the sale of the units thereof to the public. Condocor, a non-
stock and non-profit corporation, is the registered condominium corporation for the Golden Empire
Tower. Lim, as a unit owner of Golden Empire Tower, is a member of Condocor.

On July 21, 2012 Condocor held its annual general membership meeting. Moldex became a member
of Condocor on the basis of its ownership of the 220 unsold units in the Golden Empire Tower. During
the meeting, an existence of a quorum was declared even though only 29 of the 108 unit buyers were
present. Lim objected to the validity of the meeting but was denied, and Lim and all other unit owners,
except for one, walked out of the meeting. Nonetheless, the individual respondents and the other unit
owners proceeded with the meeting and elected the new members of the BOD. All four individual
respondents (Jaminola, Macalintal, Milanes and Roman) were voted as members of the board,
together with other 3 members, whose election was conditioned on their subsequent confirmation.

Lim filed an election protest before the RTC. The RTC ruled in favor of the respondents and held that
the presence or absence of a quorum in the subject meeting was determined on the basis of the
voting rights of all the units owned by the members in good standing.  Lim filed the present petition
claiming that the respondents, who are non-unit buyers, are not entitled to be members of the BOD
because they are non-unit buyers because a condominium corporation, being an association of
homeowners, must be composed of actual unit buyers or residents of the condominium project. Lim
further alleged that the ownership of Moldex was only in the nature of an owner-developer and only
for the sole purpose of selling the units.

ISSUES:
 1. Whether the membership meeting is valid; and
2. Whether Moldex is considered a member of Condocor.

HELD:
1. No. The July 21, 2012 membership meeting was not valid. Any act or transaction made during a
meeting without quorum is rendered of no force and effect, thus, not binding on the corporation
or parties concerned. Sec. 52 of the Corporation Code provides 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.”

Moldex is a member of Condocor. Respondents are correct asserting in that a registered owner
of a unit in a condominium project or the holders of duly issued condominium certificate of title,
automatically becomes a member of the condominium corporation, relying on Sections 2 and 10
of the Condominium Act, the Master Deed and Declaration of Restrictions and the By-Laws of
Condocor.

Nonetheless, the quorum during the meeting should have been majority of Condocor's members
in good standing. Accordingly, there was no quorum during the meeting considering that only 29
of the 108 unit buyers were present. As there was no quorum, any resolution passed during the
said meeting was null and void and, not binding upon the corporation or its members.

2. Yes. Moldex is a member of Condocor. Respondents are correct asserting in that a registered
owner of a unit in a condominium project or the holders of duly issued condominium certificate of
title, automatically becomes a member of the condominium corporation, relying on Sections 2
and 10 of the Condominium Act, the Master Deed and Declaration of Restrictions and the By-
Laws of Condocor.

In sum, the July 21, 2012 annual general membership meeting of Condocor being null and void,
all acts and resolutions emanating therefrom are likewise null and void.

MISSING 32. LEE VS COURT OF APPEALS

60. VIGILLA V. PHILIPPINE COLLEGE OF CRIMINOLOGY, INC., 698 SCRA 247

Facts: PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and
supervisor in the Maintenance Department of PCCr under the supervision and control of Atty. Seril, PCCr’s
Senior Vice President for Administration. The petitioners, however, were made to understand, upon
application with respondent school, that they were under MBMSI, a corporation engaged in providing
janitorial services to clients. Atty. Seril is also the President and General Manager of MBMSI.
Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been revoked as of
July 2, 2003. On March 16, 2009, PCCr, through its President, respondent Gregory Alan F. Bautista, citing the
revocation, terminated the school’s relationship with MBMSI, resulting in the dismissal of the employees or
maintenance personnel under MBMSI.
In September, 2009, the dismissed employees, led by their supervisor, Benigno Vigilla, filed their respective
complaints for illegal dismissal, reinstatement, back wages, separation pay, underpayment of salaries,
overtime pay, holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril, PCCr, and
Bautista.
In their complaints, they alleged that it was the school, not MBMSI, which was their real employer because
(a) MBMSI’s certification had been revoked; (b) PCCr had direct control over MBMSI’s operations; (c) there
was no contract between MBMSI and PCCr; and (d) the selection and hiring of employees were undertaken by
PCCr.
On the other hand, PCCr and Bautista contended that (a) PCCr could not have illegally dismissed the
complainants because it was not their direct employer; (b) MBMSI was the one who had complete and direct
control over the complainants; and (c) PCCr had a contractual agreement with MBMSI, thus, making the latter
their direct employer.
On September 11, 2009, PCCr submitted several documents before LA Ronaldo Hernandez, including
releases, waivers and quitclaims in favor of MBMSI executed by the complainants to prove that they were
employees of MBMSI and not PCCr.

ISSUE: Whether or not a dissolved corporation can enter into an agreement such as releases, waivers and
quit- claims beyond the 3-year winding up period under Section 122 of the Corporation Code
33. Agdao Landless Residents Association vs. Maramion
FACTS: Petitioners are Agdao Landless Residents Association, Inc. (ALRAI), a non-stock, non-profit corporation
duly organized and existing under and by virtue of the laws of the Republic of the Philippines, and its board of
directors.

Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation in favor of ALRAI covering 46 titled lots. One
Deed of Donation prohibits ALRAI, as donee, from partitioning or distributing individual certificates of title of the
donated lots to its members, within a period of five years from execution, unless a written authority is secured from
Dakudao. A violation of the prohibition will render the donation void, and title to and possession of the donated lot
will revert to Dakudao. The other five Deeds of Donation do not provide for the five-year restriction.

In the board of directors and stockholders meetings, members of ALRAI resolved to directly transfer 10 of the
donated lots to individual members and non- members of ALRAI.

Respondents filed a Complaint against petitioners alleging that petitioners expelled them as members of ALRAI, and
that petitioners are abusing their powers as officers. Respondents further alleged that petitioners were engaged in
anomalous and illegal acts. In their Answer, petitioners alleged that ALRAI transferred lots to Alcantara as attorney’s
fees ALRAI owed to her late husband, who was the legal counsel of ALRAI.

The court a quo treated the case as an intra-corporate dispute. It found respondents to be bona fide members of
ALRAI to which the CA affirmed. Under Section 2, Article III of ALRAI’s Amended Constitution and By-Laws (ALRAI
Constitution), the corporate secretary should give written notice of all meetings to all members at least three days
before the date of the meeting. The CA found that respondents were not given notices of the meetings held for the
purpose of their termination from ALRAI at least three days before the date of the meeting. Being existing members
of ALRAI, respondents are entitled to inspect corporate books and demand accounting of corporate funds in
accordance with Section 1, Article VII and Section 6, Article V ofthe ALRAI Constitution. The CA nullified the
transfers made to Javonillo and Armentano because these transfers violated Section 6 of Article IV of the ALRAI
Constitution. Section 6 prohibits directors from receiving any compensation, except for per diems, for their services
to ALRAI. The CA upheld the validity of the transfers to Dela Cruz and Alcantara because the ALRAI Constitution
does not prohibit the same. The CA held that as a consequence, the subsequent transfer of the lot covered by TCT
No. T-41366 to Loy from Alcantara was also valid.

ISSUE: Whether respondents were legally dismissed as members of ALRAI.

RULING: Yes. Section 91 of the Corporation Code of the Philippines (Corporation Code) provides that membership
in a non-stock, non-profit corporation (as in petitioner ALRAI in this case) shall be terminated in the manner and for
the cases provided in its articles of incorporation or the by-laws.
Sec. 5. – Termination of Membership – Membership may be lost in any of the following: a) Delinquent in the
payment of monthly dues; b) failure to [attend] any annual or special meeting of the association for three
consecutive times without justifiable cause, and c) expulsion may be exacted by majority vote of the entire
members, on causes which herein enumerated: 1) Act and utterances which are derogatory and harmful to the best
interest of the association; 2) Failure to attend any annual or special meeting of the association for six (6)
consecutive months, which shall be construed as lack of interest to continue his membership, and 3) any act to
conduct which are contrary to the objectives, purpose and aims of the association as embodied in the charter[.]
Petitioners allege that the membership of respondents in ALRAI was terminated due to (a) non-payment of
membership dues and (b) failure to consecutively attend meetings. However, petitioners failed to substantiate these
allegations. In fact, the court a quo found that respondents submitted several receipts showing their compliance with
the payment of monthly dues. Petitioners likewise failed to prove that respondents’ absences from meetings were
without any justifiable grounds to result in the loss of their membership in ALRAI.
34. Wesleyan University-Philippines v. Maglaya, Sr., 815 SCRA 171 (2017
FACTS: WUP is a non-stock, non-profit, non-sectarian educational corporation duly organized and
existing under the Philippine laws. Respondent Atty. Guillermo T. Maglaya, Sr. was appointed as a
corporate member and was elected as a member of the Board of Trustees, both for a period of five (5)
years. He was elected as President of the University for a five-year term. He was re-elected as a trustee. In
a Memorandum, the incumbent Bishops of the United Methodist Church apprised all the corporate
members of the expiration of their tenns on December 31, 2008, unless renewed by the former. The said
members, including Maglaya, sought the renewal of their membership in the WUP's Board, and signified
their willingness to serve the corporation. Dr. Dominador Cabasal, Chairman of the Board, informed the
Bishops of the cessation of corporate terms of some of the members and/or trustees since the by-laws
provided that the vacancy shall only be filled by the Bishops upon the recommendation of the Board.
Maglaya learned that the Bishops created an Ad Hoc Committee to plan the efficient and orderly turnover
of the administration of the WUP in view of the alleged "gentleman's agreement", and that the Bishops
have appointed the incoming corporate members and trustees. He clarified that there was no agreement
and any discussion of the turnover because the corporate members still have valid and existing corporate
terms. In this case, the Bishops, through a formal notice to all the officers, deans, staff, and employees of
WUP, introduced the new corporate members, trustees, and officers. In the said notice, it was indicated
that the new Board met, organized, and elected the new set of officers. Manuel Palomo, the new Chairman
of the Board, informed Maglaya of the termination of his services and authority as the President of the
University. Thereafter, Maglaya and other fonner members of the Board filed a Complaint for Injunction
and Damages before the Regional Trial Court of Cabanatuan City.The RTC dismissed the case declaring
the same as a nuisance or harassment suit prohibited under Section l(b), Rule 1 of the Interim Rules for
Intra-Corporate Controversies. The RTC observed that it is clear from the by-laws of WUP that insofar as
membership in the corporation is concerned, which can only be given by the College of Bishops of the
United Methodist Church, it is a precondition to a seat in the WUP Board. Consequently, the expiration of
the terms of the plaintiffs, including Maglaya, as corporate members carried with it their termination as
members of the Board. Moreover, their continued stay in their office beyond their terms was only in hold-
over capacities, which ceased when the Bishops appointed new members of the corporation and the
Board. He claimed that he was unceremoniously dismissed in a wanton, reckless, oppressive and
malevolent manner.
Issue: Whether or not the case is an intra corporate dispute
Held: Yes. The president, vice president, secretary and treasurer are commonly regarded as the principal
or executive officers of a corporation, and they are usually designated as the officers of the corporation.
However, other officers are sometimes created by the charter or bylaws of a corporation, or the board of
directors may be empowered under the bylaws of a corporation to create additional offices as may be
necessary. This Court expounded that an “office” is created by the charter of the corporation and the
officer is elected by the directors or stockholders, while an “employee” usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee. It is apparent from the
bylaws of WUP that the president was one of the officers of the corporation, and was an honorary
member of the Board. He was appointed by the Board and not by a managing officer of the corporation.
We held that one who is included in the bylaws of a corporation in its roster of corporate officers is an
officer of said corporation and not a mere employee. The alleged “appointment” of Maglaya instead of
“election” as provided by the bylaws neither convert the president of university as a mere employee, nor
amend its nature as a corporate officer.. A corporate officer’s dismissal is always a corporate act, or an
intra-corporate controversy which arises between a stockholder and a corporation, and the nature is not
altered by the reason or wisdom with which the Board of Directors may have in taking such action. The
issue of the alleged termination involving a corporate officer, not a mere employee, is not a simple labor
problem but a matter that comes within the area of corporate affairs and management and is a corporate
controversy in contemplation of the Corporation Code. To emphasize, the determination of the rights of a
corporate officer dismissed from his employment, as well as the corresponding liability of a corporation,
if any, is an intra-corporate dispute subject to the jurisdiction of the regular courts.
35. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT v. GUTIERREZ

FACTS: Bicolandia Sugar Development Corporation (BISUDECO) is a domestic corporation engaged in the
business of sugarcane milling. It was incorporated on September 30, 1970, with an initial authorized
capital stock worth P10,000,000.00 of which P2,010,000.00 worth of shares were subscribed and
P510,000.00 worth were paid up. Its incorporators were private respondents Ojeda, de Vera, Lukban,
Tan, Recato, Dychiao, Borja, and Edmund Cea (Cea) (Deceased).
BISUDECO filed a loan request with Philippine National Bank (PNB) for the issuance of a standby letter of
credit. The loan request in the total amount of P172,583,125.00 was recommended to the PNB Board of
Directors and was approved under PNB Resolution No. 157-D dated October 27, 1971. Allegedly, at this
time, BISUDECO had no sufficient capital and collateral, and had assets amounting to only P510,000.00 as
reflected in its Balance Sheet. When BISUDECO failed to comply with the conditions imposed on the
grant of loan, that it must have sufficient capital and collateral, it requested for modifications in the
guarantee conditions. That the aforequoted condition be amended so as to allow them to deposit only
P500,000 before L/C opening, the balance of P15.1 million to be put up during the construction period as
the need arises; and that the bank accept as collateral for the accommodations their plant site, sugar mill
machinery and equipment, farm equipment and implements and other assets to be acquired; and
assignment of proceeds of their share in their sugar and molasses produced. PNB approved the requested
modifications under Resolution No. 141-C.Despite the amendments made, BISUDECO still failed to submit
and comply with the guarantee conditions. Nonetheless, PNB further accommodated BISUDECO and
passed PNB Resolution No. 137-C approving modifications in the terms and conditions and facilitating
the implementation and opening of the letter of credit. PCGG claims that despite continuously incurring
losses in its milling operations resulting to capital deficiency, BISUDECO was extended by PNB undue and
unwarranted accommodations from 1977 to 1985 by way of grant of the loans. On February 27, 1987,
PNB’s rights, titles and interests were transferred to the Philippine Government through a Deed of
Transfer, including the account of BISUDECO. In 1994, after study and investigation, the Presidential Ad
Hoc Fact-Finding Committee (Committee), in reference to Memorandum No. 61, found that the loan
accounts of BISUDECO were behest loans due to the following characteristics: a) the accounts were under
collateralized; and b) the borrower corporation was undercapitalized.

PCGG filed with the Ombudsman a complaint against private respondents (in their capacities as members
of PNB’s Board of Directors and Officers of BISUDECO) for violation of Sections 3(e) and (g) of Republic
Act (R.A.) No. 3019 or the Anti-Graft and Corrupt Practices Act. The Ombudsman dismissed the Complaint
on the grounds of lack of probable cause and prescription. PCGG filed a Motion for Reconsideration but
the same was denied by the Ombudsman

ISSUE: Whether or not the Ombudsman acted with grave abuse of discretion amounting to lack or excess
of jurisdiction in dismissing PCGG’s Complaint on the ground lack of probable cause to indict private
respondents for alleged violation of R.A. No. 3019.
RULING: NO. As a general rule, a corporation has a separate and distinct personality from those who
represent it. Its officers are solidarily liable only when exceptional circumstances exist, such as cases
enumerated in Section 31 of the Corporation Code. The liability of the officers must be proven by
evidence sufficient to overcome the burden of proof borne by the plaintiff. Section 31 of the Corporation
Code states: Sec. 31. Liability of Directors, Trustees or Officers.—Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons. From the foregoing it can be deduced that personal liability will only attach to a director or
officer if they are guilty of any of the following: (1) willfully or knowingly vote or assent to patently
unlawful acts of the corporation; (2) gross negligence; or (3) bad faith.

As to the other loans/accommodations extended by PNB to BISUDECO, the complaint and its supporting
papers do not show the individual or collective participation of the respondents in the acts complained of.
As a matter of fact, they do not show the names of the members of the PNB Board who approved said
loans/accommodations in favor of BISUDECO. Paragraph “16” of the complaint merely provided the
names of the members of the PNB Board at the time of the application and approval of the loans, and its
Annex “K” listed the names of the PNB Board from 1964 to 1986. Moreover, there is no copy of the PNB
Board Resolution in the record. The Board Resolutions referred to by the complainant in the complaint
are actually excerpts of the Minute of the Board Meetings during which the Resolutions were approved.
Thus, we cannot make a presumption that all the members of the PNB Board from 1964 to 1986
unanimously approved the loan in favor of BISUDECO.
36.Malcaba v. ProHealth Pharma Philippines, Inc
Facts: ProHealth Pharma Philippines, Inc. (ProHealth) is a corporation engaged in the sale of pharmaceutical
products and health food on a wholesale and retail basis. Malcaba had been employed with ProHealth since it
started in 1997. He was one of its incorporators together with Del Castillo and Busto, and they were all
members of the Board of Directors in 2004. He held 1,000,000 shares in the corporation. He was initially the
Vice President for Sales then became President in 2005.

Malcaba alleged that Del Castillo (Chair of the Board of Directors and Chief Executive Officer) did acts that
made his job difficult. He asked to take a leave on October 23, 2007. When he attempted to return, Del Castillo
insisted that he had already resigned and had his things removed from his office. He attested that he was paid
a lower salary in December 2007 and his benefits were withheld. Malcaba tendered his resignation.

The Labor Arbiter found that Malcaba was constructively dismissed. He found that ProHealth never
controverted the allegation that Del Castillo made it difficult for Malcaba to effectively fulfill his duties. He
likewise ruled that ProHealth's insistence that Malcaba's leave of absence in October 2007 was an act of
resignation was false since Malcaba continued to perform his duties as President through December 2007. The
NLRC affirmed the decision of the Labor Arbiter but modified so that del Castillo and Busto (Executive Vice
President) are held jointly and severally liable with ProHealth for the claims of complainant Malcaba.

When elevated to CA, it held that there was no employer-employee relationship between Malcaba and
ProHealth since he was a corporate officer. Thus, he should have filed his complaint with the Regional Trial
Court, not with the Labor Arbiter, since his dismissal from service was an intra-corporate dispute.

Issue: Whether the Labor Arbiter and National Labor Relations Commission had jurisdiction over petitioner
Nicanor F. Malcaba's termination dispute considering the allegation that he was a corporate officer, and not a
mere employee.

Ruling: No. Under Section 25 of the Corporation Code, the President of a corporation is considered a
corporate officer. The dismissal of a corporate officer is considered an intra-corporate dispute, not a labor
dispute. Thus, a corporate officer's dismissal is always a corporate act, or an intracorporate controversy, and
the nature is not altered by the reason or wisdom with which the Board of Directors may have in taking such
action. Also, an intracorporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations. The clear weight of jurisprudence clarifies that
to be considered a corporate officer, the office must be created by the charter of the corporation, and second,
the officer must be elected by the board of directors or by the stockholders.

To be considered a corporate officer,  first, the office must be created by the charter of the corporation,
and second, the officer must be elected by the board of directors or by the stockholders. Petitioner Malcaba
was an incorporator of the corporation and a member of the Board of Directors. Respondent corporation's By-
Laws creates the office of the President. That foundational document also states that the President is elected
by the Board of Directors. Finding that petitioner Malcaba is the President of respondent corporation and a
corporate officer, any issue on his alleged dismissal is beyond the jurisdiction of the Labor Arbiter or the
National Labor Relations Commission. Their adjudication on his money claims is void for lack of jurisdiction. As
a matter of equity, petitioner Malcaba must, therefore, return all amounts received as judgment award
pending final adjudication of his claims. The Court's dismissal of petitioner Malcaba's claims, however, is
without prejudice to his filing of the appropriate case in the proper forum.

The Labor Arbiter and the National Labor Relations Commission only exercise jurisdiction over termination
disputes between an employer and an employee. They do not exercise jurisdiction over termination disputes
between a corporation and a corporate officer.
37. ELLAO Y DELA VEGA V. BATANGAS I ELECTRIC COOPERATIVE, INC., G.R. NO. 209166, [JULY 9,
2018]
FACTS:
Respondent is an electric cooperative organized and existing under P.D. 269 and is engaged in the business of
distributing electric power or energy in the province of Batangas. At the time material to this petition,
respondent Raquel Rowena Rodriguez is the President of BATELEC I's Board of Directors. Ellao was employed
by BATELEC I initially as Office Supplies and Equipment Control Officer until he was appointed as General
Manager.
A complaint was filed by Nestor de Sagun and Conrado Cornejo against Ellao, charging him of committing
irregularities in the discharge of his functions as General Manager.
Ellao submitted his explanation refuting the charges against him, after which the matter was set for hearing.
However, the scheduled hearing was postponed at Ellao's instance. Ellao was terminated on the grounds of
gross and habitual neglect of duties and responsibilities and willful disobedience or insubordination resulting
to loss of trust and confidence.

After the Securities Regulation Code was passed, Ellao filed a Complaint for illegal dismissal and money claims
before the Labor Arbiter against BATELEC I and/or its President Rowena A. Rodriguez. Alleging illegal dismissal,
Ellao complained that the charges against him were unsubstantiated and that there was no compliance with
procedural due process as he was not afforded the opportunity to explain and there was no written notice of
termination specifying the grounds of his termination.

ISSUE: W/N an intra-corporate dispute is involved and such is not under the jurisdiction of the
labor tribunals
RULING: YES.
P.D. 269 sufficiently vests upon electric cooperatives' juridical personality enjoying corporate powers.
Registration with the SEC becomes relevant only when a non-stock, non-profit electric cooperative
decides to convert into and register as a stock corporation. As such, and even without choosing to convert
and register as a stock corporation, electric cooperatives already enjoy powers and corporate
existence akin to a corporation.

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by
the labor arbiter pursuant to Article 217 (a)2 of the Labor Code, as amended.

By way of exception, where the complaint for illegal dismissal involves a corporate officer, the controversy
falls under the jurisdiction of the SEC, because the controversy arises out of intra-corporate or partnership
relations between and among stockholders, members, or associates, or between any or all of them and the
corporation, partnership, or association of which they are stockholders, members, or associates, respectively;
and between such corporation, partnership, or association and the State insofar as the controversy concerns
their individual franchise or right to exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such corporation, partnership, or association . With
the advent of Republic Act No. 8799 (R.A. 8799) or The Securities Regulation Code, the SEC's jurisdiction
over all intra-corporate disputes was transferred to the regional trial courts. Since Ellao filed his Complaint
for illegal dismissal on February 23, 2011, after the passage and approval of R.A. 8799, his complaint may
either fall under the jurisdiction of the labor arbiter or the regional trial courts, depending on his position. If
Ellao is determined to be a corporate officer then jurisdiction over his complaint for illegal dismissal is to be
treated as an intra-corporate dispute, hence jurisdiction belongs to the regional trial courts.

Additional: A cooperative, as defined under P.D. 269, refers to a "corporation organized…under P.D. 269…
a cooperative supplying or empowered to supply service which has heretofore been organized under the
Philippine Non-Agricultural Cooperative Act, whether covered under this Decree or not." P.D. 269 further
provides that "[c]ooperative non-stock, non-profit membership corporations may be organized,
and electric cooperative corporations heretofore formed or registered under the Philippine non
Agricultural Cooperative Act may as hereinafter provided be converted, under this Decree for the
purpose of supplying, and of promoting and encouraging the fullest use of, service on an area coverage
basis at the lowest cost consistent with sound economy and the prudent management of the business of
such corporations." Likewise, by express provision of PD 269, an electric cooperative is hereby vested
with all powers necessary or convenient for the accomplishment of its corporate purpose.
38.Lu Ym v Lu Ym Sr.
Facts:
The parties in this case are shareholders, directors and officers of Ludo and LuYm Development
Corporation (LLDC) a domestic corp in real estate. The LLDC Board of Directors issued a Resolution authorizing
the issuance of the company's 600,000 unsubscribed and unissued shares of stock at par value. Paterno Lu
Ym, Sr. (Paterno, Sr.) and his children, Paterno, Jr., Victor, John, and Kelly, all surnamed LuYm (collectively, Lu
Ym father and sons), availed of this issuance, thus, increasing their shareholdings in the company.
One of the directors of LLDC, David Lu, opposed the board's action since it led to a substantial increase in Lu
Ym father and son’s stockholdings and a drastic decrease in his and the other stockholders' snares in the
company. Accordingly, on August 14, 2000, David and three other plaintiffs (Rosa Go, Silvano Lu Do, and CL
Corporation; collectively, David, et al.) instituted a complaint against Paterno, Sr., Paterno, Jr., Victor, John,
Kelly and LLDC ^ with the Regional Trial Court of Cebu City for the declaration of nullity of the share issue,
receivership, and dissolution of LLDC. RTC rendered a Decision based on the pleadings submitted by the
parties and without conducting a trial In substance, the RTC: a) annulled the issuance of LLDC’s 600,000 shares
of stock to Lu Ym father and sons; b) ordered the dissolution of LLDC and the liquidation of its assets; and c)
created a management committee (Man Com) to take over LLDC, CA REVERSED and SET ASIDE RTC’s decision
and remanded the case back.
In G.R. No. 219902 Kelly, et al., in the main, bemoans the CA's failure to squarely address the issues raised (on
the illegal conveyances and misappropriation of LLDC assets by the trustees)
In GR no 219903 John, et al., on the other hand, assail the authority of the RTC to take cognizance of the case
David is merely suing in his capacity as stockholder to vindicate the rights of the corporation, which is in the
nature of a derivative suit, He, however, failed to comply with the requirements of a derivative suit under
Sec. 1, Rule 8 of the Interim Rules.
G.R. Nos. 219943-44 David, for his part, questions the CA’s decision to remand the case to the trial court for
further reception of evidence as it will serve to delay resolution of the instant case

Issues:

Whether or not RTC as special commercial court has jurisdiction

Whether David has the personality to institute the action (Main ISSUE)

Whether RTC could have decided the case without conducting a trial

Ruling:
Yes. Republic Act No. 8799 (RA 8799)d in relation to Sec. 5 of Presidential Decree (PD) No. 902-A, confers
jurisdiction to the RTCs, designated by this Court as SCCs, over intra-corporate disputes. Concomitantly, this
Court promulgated A.M. No. 01-2-04-SC, or the Interim Rules of Procedure for Intra-Corporate Controversies
(Interim Rules), which took effect on April 1, 2001. Rule I thereof enumerates the circumstances with more
particularity where the jurisdiction of the RTCs may be invoked:
SECTION 1. (a) Cases Covered — These Rules shall govern the procedure to be observed in
civil cases involving the following:
(2) Devices or schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may be
 detrimental to the interest of the public and/or of the stockholders, partners, or members of any
corporation, partnership, or association;
(3) Controversies arising out of intra-corporate, partnership, or association relations,
between and among stockholders, members, or associates; and between, any or all of them and
the corporation, partnership, or association of which they are stockholders, members, or
associates, respectively;
(4) Controversies in the election or appointment of directors, trustees, officers, or
managers of corporations, partnerships, or associations;
(5) Derivative suits; and
(6) Inspection of corporate books. (Emphasis supplied)

In addition to the grounds stated in the Interim Rules and Sec. 5 of PD 902-A, jurisprudence instructs
that two conditions must be satisfied for an action to be considered as an intra-corporate dispute: the
relationship test and the nature of controversy test.
In Medical Plaza Makati Condominium Corporation v. Robert H. Cullen this Court lengthily
explained:
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests,
namely, the relationship test and the nature of the controversy test.
An intra-corporate controversy is one which pertains to any of the following relationships. (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to members of the Man Com are
considered as officers of the court who are subject to its control and supervision. Consequently, the Court
may issue orders to its members to be apprised of the developments and status of the corporation: is
concerned; (3) between the corporation, partnership or association and its stockholders, partners, members
or officers; and (4) among the stockholders, partners or associates themselves. Thus, under the relationship
test, the existence of any of the above intra-corporate relations makes the case intra-corporate.
Under the nature of the controversy test, “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 obligation under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation.” In other words, jurisdiction should be determined by considering both the relationship of the
parties as well as the nature of the question involved. (Emphasis supplied)
Succinctly stated, under the relationship test, an intra-corporate controversy arises when the conflict
is between the corporation, partnership or association and its stockholders, partners, members or officers.
** While 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 present case certainly satisfies the relationship test since David and Lu Ym father and sons are all
stockholders of LLDC. Anent the nature of the controversy, the issues involved herein pertain to the parties'
rights and obligations under Batas Pambansa Blg. 68, or the Corporation Code of the Philippines
(Corporation Code), and fundamentally relate to David’s status as a stockholder, his alleged divestment of
his stockholdings in LLDC, and the corporate fraud purportedly perpetrated by the corporation's directors
and officers that led to the dissipation of company assets. Applying the two tests, we rule that this case is in
the nature of an Intra-corporate controversy falling under Sec. 1 (a) (2) of the Interim Rules and properly
cognizable by the RTC.
Closely intertwined with the question of jurisdiction is the personality of David to institute the
complaint.

Ruling number 2:
NO. A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken through
directors, associates, officers, or other persons) 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. An individual suit
may be instituted by a stockholder either against a) another stockholder for wrongs committed against him
personally, and to determine their individual rights (individual suit between stockholders); orb) a
corporation since the latter is a separate juridical personality, which by its own may be sued.
On the other hand, a suit filed in the stockholder’s capacity as a representative of the corporation,
commonly known as a derivative suit, is an action filed by stockholders to enforce a corporate action. In
Villamor v. Umale, We explained that a derivative suit concerns "a wrong to the corporation itself. The real
party in interest is the corporation, not the stockholders filing the suit, and the latter are technically nominal
parties but are nonetheless the active persons who pursue the action for and on behalf of the corporation."
It is settled doctrine that the nature of an action, as well as which court or body has jurisdiction over it,
is determined based on the allegations in the complaint of the plaintiff, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein. In addition to being conferred
by law, the jurisdiction of a court or tribunal over the case is determined by the allegations in the complaint
and the character of the relief sought. Concededly, the allegations, causes of action, and reliefs sought in
the Complaint (such as the alleged imminent dissipation of corporate assets and funds, entering into
transactions grossly disadvantageous to the corporation, self-dealing transactions, and abuse of powers by
Lu Ym father and sons as majority stockholders, receivership, and dissolution of the corporation) indicate
that the instant action is in the nature of a derivative suit since it is LLDC which stands to suffer due to these
acts. Hence, compliance with Sec. 1, Rule 8 of the Interim Rules is necessary, to wit:
Section 1. Derivative action. — A stockholder or member may bring an action in the
name of a corporation or association, as the case may be, provided, that:
(11)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;
(12)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;
(13)No appraisal rights are available for the act or acts complained of; and
(14)The suit is not a nuisance or harassment suit.

It is not shown that David complied with all of these requirements prior to the filing of the complaint. He
failed to state with particularity in both the original and Amended Complaint that he had exerted all
reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, or any laws or
rules governing the corporation to obtain redress from the acts complained of.
Ruling number 3

NO. RTC merely based its decision on the pleadings submitted by the parties. A question of fact requires this
Court to review the truthfulness or falsity of the allegations of the parties. This review includes assessment of
the "probative value of the evidence presented." Without going into trial, the parties were unable to adduce
evidence in support of their respective arguments, leaving crucial factual issues unresolved, such as how the
alleged fraud that led to the dissipation of assets and acts of mismanagement was committed.

39. Ku v. RCBC Securities, Inc.

FACTS: Stephen Y. Ku opened an account with RCBC Securities for the purchase and sale of securities. Ku
then filed a complaint for sum of money and specific performance with damages against RCBC Securities,
seeking to recover money and stocks sold without his consent.
The Complaint, docketed as Civil Case No. 13-171, was raffled off to Branch 63, RTC of Makati. The RTC of
Makati, Branch 63, issued its questioned Order dated September 12, 2013, to wit:
xxxx After going over plaintiff's [herein Ku's] Complaint and defendant's [herein respondent's]
Motion to Dismiss and the Reply that followed, the Court is of the considered view that this case
involves trading of securities.
Consequently, the case should be heard and tried before a Special Commercial Court. Accordingly, the
Court's Branch Clerk of Court is forthwith directed to forward the entire record of the case to the
Office of the Clerk of Court for re-raffle.
The case was, subsequently, re-raffled to Branch 149 of the RTC of Makati. Thereafter, the RTC of Makati,
Branch 149, denied the Motion to Dismiss for lack of merit. It held that Ku's payment of insufficient
docket fees does not warrant the dismissal of the Complaint and that the trial court still acquires
jurisdiction over the case subject to the payment of the deficiency assessment. The RTC, thus, ordered Ku
"to pay the docket fees on the value of the shares of stocks being prayed to be returned to him, within
thirty (30) days from receipt" of the said Order.
The CA reversed and dismissed Ku’s complaint, on the ground of lack of jurisdiction by Branch 63. Thus,
the case should have been dismissed
ISSUE: Which court has jurisdiction over the case?
RULING: BRANCH 149 RTC OF MAKATI. The Court finds, and so holds, that the case is not an intra-
corporate dispute and, instead, is an ordinary civil action. There are no intra-corporate relations between
the parties. Petitioner is neither a stockholder, partner, member or officer of respondent corporation. The
parties' relationship is limited to that of an investor and a securities broker. Moreover, the questions
involved neither pertain to the parties' rights and obligations under the Corporation Code, if any, nor to
matters directly relating to the regulation of the corporation.
On the basis of the foregoing, since the Complaint filed by petitioner partakes of the nature of an ordinary
civil action, it is clear that it was correctly raffled-off to Branch 63. Hence, it is improper for it (Branch 63)
to have ordered the re-raffle of the case to another branch of the Makati RTC. Nonetheless, the Order of
Branch 63, although erroneous, was issued in the valid exercise of the RTC's jurisdiction. Such mistaken
Order can, thus, be considered as a mere procedural lapse which does not affect the jurisdiction which
the RTC of Makati had already acquired. Moreover, while designated as a Special Commercial Court,
Branch 149, to which it was subsequently re-raffled, retains its general jurisdiction to try ordinary civil
cases such as petitioner's Complaint. In addition, after its re-raffle to Branch 149, the case remained
docketed as an ordinary civil case. Thus, the Order likewise issued by Branch 149 in the valid exercise of
the RTC's jurisdiction. In sum, it is error to conclude that the questioned Orders of Branches 63 and 149
are null and void on the ground of lack of jurisdiction, because, in fact, both branches of the Makati RTC
have jurisdiction over the subject matter of petitioner's Complaint.
Hence, considering that the RTC of Makati has jurisdiction over the subject matter of petitioner's
complaint, and that Branch 149 continued and continues to exercise jurisdiction over the case during the
pendency of the proceedings leading to this petition and, thus, has presumably conducted hearings
towards the resolution of petitioner's complaint, this Court, in the interest of expediency and in
promoting the parties' respective rights to a speedy disposition of their case, finds it proper that Civil
Case No. 13-171 should remain with Branch 149, instead of being remanded to Branch 63 or re-raffled
anew among all courts of the same RTC.
NB: Jurisdiction over intra-corporate controversies is transferred by law (RA 8799) from the SEC to the RTCs
in general, but the authority to exercise such jurisdiction is given by the Supreme Court, in the exercise of its
rule-making power under the Constitution, to RTCs which are specifically designated as Special Commercial
Courts. On the other hand, the cases enumerated under Section 19 of BP 129, as amended, are taken
cognizance of by the RTCs in the exercise of their general jurisdiction.
40. Loreche-Amit v. Cagayan De Oro Medical Center, Inc.

Dr. Mary Jean P. Loreche-Amit (petitioner) started working with Cagayan De Oro Medical Center, Inc. (CDMC)
when she was engaged by the late Dr. Gaerlan as Associate Pathologist in the Department of Laboratories.
Upon the demise of Dr. Gaerlan, CDMC's Board of Directors formally appointed petitioner as Chief Pathologist
for five years.

CDMC's Board of Directors passed a resolution, recalling petitioner's appointment as Chief Pathologist. This
prompted petitioner to file a complaint for illegal dismissal, contending that she was dismissed by CDMC from
her work without just cause and due process.

She averred that Dr. Emano asked her to help his daughter Dr. Helga Emano-Bleza to qualify as a pathologist
considering that petitioner is one of the six members of the Board of Governors accredited by the Professional
Regulation Commission. However, petitioner refused to assist Dr. Emano-Bleza because the latter failed to
qualify in the clinical pathology examination. Such refusal, according to petitioner, started the subtle attempt
of Dr. Emano to oust her from her job.

In dismissing the complaint for lack of jurisdiction, the Labor Arbiter rendered a Decision 10 dated March 31,
2008. The Labor Arbiter found that petitioner is a corporate officer of the hospital because of her appointment
by the Board of Directors through a resolution; thus, matters relating to the propriety of her dismissal is under
the jurisdiction of the RTC

Issue: W/N Petitioner is a corporate officer

Ruling: No
To be considered as a corporate officer, the designation must be either provided by the Corporation Code or
the by-laws of the corporation, to wit:
Corporate officers are given such character either by the Corporation Code or by the corporation's by-laws.
Under Section 25 of the Corporation Code, the corporate officers are the president, secretary, treasurer and
such other officers as may be provided in the by-laws. Other officers are sometimes created by the charter or
by-laws of a corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary.
In this case, nowhere in the records could the by-laws of CDMC be found. An appointment through the
issuance of a resolution by the Board of Directors does not make the appointee a corporate officer. It is
necessary that the position is provided in the Corporation Code or in the by-laws. In the absence of the by-
laws of CDMC, there is no reason to conclude that petitioner, as Pathologist, is considered as a corporate
officer.
41. Joseph Omar O. Andaya v. Rural Bank of Cabadbaran, Inc. [799 SCRA 325, Aug. 3, 2016]
FACTS: Petitioner bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran. Chute
requested the bank to transfer and issue new stock certificates to petitioner. The bank’s corporate
secretary informed Chute that the transfer could not be registered, stating that under a previous
stockholders' Resolution, existing stockholders were given priority to buy the shares of others in the
event that the latter offered those shares for sale (i.e., a right of first refusal). Petitioner cited Sec. 98 of
the Corporation Code, claiming that the purported restriction on the transfer of shares of stock agreed
upon during the 2001 stockholders' meeting could not deprive him of his right as a transferee. He pointed
out that the restriction did not appear in the bank's articles of incorporation, bylaws, or certificates of
stock. The bank denied petitioner’s request to register the stock certificates. Petitioner filed a mandamus
suit against the bank, which was challenged by the bank, alleging that such transfer violated the bank
stockholders’ right of first refusal.
ISSUE: WON the transfer of stocks to petitioner violated the stockholders’ right of first refusal
HELD: No. Sec. 98 of the Corporation Code provides that “restrictions on the right to transfer shares
must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any purchaser thereof in good faith.” The court held that Sec.
98 applies only to close corporations. Hence, before the Court can allow the operation of this section in
the case at bar, there must first be a factual determination that respondent Rural Bank of Cabadbaran is
indeed a close corporation. There needs to be a presentation of evidence on the relevant restrictions in
the articles of incorporation and bylaws of the said bank. From the records or the RTC Decision, there is
apparently no such determination or even allegation that would assist this Court in ruling on these
two major factual matters. With the foregoing, the validity of the transfer cannot yet be tested using
that provision.
42. TEE LING KIAT vs AYALA CORPORATION (Substituted herein by its Assignee And Successor-in-
Interest, BIENVENIDO B.M. AMORA, JR.) G.R. No. 192530 March 7, 2018
FACTS:
Ayala Investment and Development Corporation (AIDC) granted in favor of CMC a money market
line in the maximum amount of ₱2,000,000.00. With Dewey Dee as the President of CMC then, the
Spouses Dee executed a Surety Agreement on the same date, as guarantee for the money market line. One
of CMC's availments under the money market line was evinced by a Promissory Note. AIDC subsequently
endorsed the Promissory Note to Ayala Corporation. 13 CMC defaulted on its obligation under the
promissory note, leading Ayala Corporation to institute a claim for sum of money against CMC and the
Spouses Dee. RTC Branch 149 ruled in favor of Ayala Corporation. With the above Decision having
attained finality, the RTC Branch 149 forthwith issued a Writ of Execution against the Spouses Dee.
Notice of Levy on Execution was issued and addressed to the Register of Deeds of Antipolo City, to levy
upon "the rights, claims, shares, interest, title and participation" 21 that the Spouses Dee may have in
parcels of land registered in the name of Vonnel Industrial Park, Inc. (VIP) since Dewey Dee was an
incorporator of VIP.

Tee Ling Kiat filed a Third-Party Claim alleging that while Mr. Dewey Dee was indeed one of the
incorporators of VIP, he is no longer a stockholder thereof. He no longer has any rights, claims, shares,
interest, title and participation in VIP or any of its properties. As early as December 1980, Mr. Dewey Dee
has already sold to Mr. Tee Ling Kiat all his stocks in VIP, as evidenced by a cancelled check which he
issued in Mr. Tee Ling Kiat's favor. RTC disallowed the claim because Tee Ling Kiat failed to adduce
evidence to prove that the sale of shares of stock from Dewey Dee to Tee Ling Kiat had taken place in
accordance with the law. The purported Deed of Sale of Shares of Stock 44 was not recorded in the stock
and transfer books of VIP, as required by Section 63 of the Corporation Code. 45 Thus, there was no valid
transfer of shares as against third persons. The R TC observed that in support of the purported sale of
shares of stock, Tee Ling Kiat merely submitted a cancelled check 46 issued by Tee Ling Kiat in favor of
Dewey Dee and a photocopy47 of the Deed of Sale of Shares of Stock dated December 29, 1980 and CA
denied Tee Ling Kiat’s claim as well because Tee Ling Kiat utterly failed: (i) to prove that he is a
stockholder of VIP; and assuming he is, (ii) to show that he was authorized by the corporation for the
purpose of prosecuting the claim on behalf of the corporation.

ISSUE: WON the CA committed any reversible error in issuing its Decision?

HELD:
NO. Tee Ling Kiat imputes error on the CA by the simple expedient of arguing that he did not
personally need to prove that the sale of shares of stock between Dewey Dee and himself had in fact
transpired, as the duty to record the sale in the corporate books lies with VIP. Such an argument,
however, fails to recognize that the very right of Tee Ling Kiat, as a thirdparty claimant, to institute
a terceria is founded on his claimed title over the levied property. Accordingly, if the third-party
claimant's evidence does not persuade the court of the validity of his title or right possession thereto, the
third-party claim will, and should be, denied. Suffice it to state that the only evidence adduced by Tee
Ling Kiat to support his claim that Dewey Dee's shares in VIP have been sold to him are a cancelled
check74 issued by Tee Ling Kiat in favor of Dewey Dee and a photocopy 75 of the Deed of Sale of Shares of
Stock dated December 29, 1980.
 Even if it could be assumed that the sale of shares of stock contained in the photocopies had
indeed transpired, such transfer is only valid as to the parties thereto, but is not binding on the
corporation if the same is not recorded in the books of the corporation. Section 63 of the Corporation
Code of the Philippines provides that: "No transfer, x x x 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." 79 Here, the records show that the purported transaction between Tee
Ling Kiat and Dewey Dee has never been recorded in VIP's corporate books. Thus, the transfer, not having
been recorded in the corporate books in accordance with law, is not valid or binding as to the corporation
or as to third persons.
43. Villongco v. Yabut, G.R. Nos. 225022 & 225024, [February 5, 2018]
FACTS: (Phil-Ville) is a family corporation founded by Geronima Gallego Que that is engaged in the real
estate business. During her lifetime, Geronima owned 3,140 shares of stock while the remaining 196,860
shares were equally distributed among Geronima's 6 children. Geronima then died. By virtue of the Sale
of Shares of Stocks  purportedly executed by Cecilia as the attorney-in-fact of Geronima, Cecilia allegedly
effected an inequitable distribution of the 3,140 shares that belonged to Geronima.
Carolina, Ana Maria, and Angelica, comprising the majority of the Board of Directors of Phil-Ville held an
emergency meeting and made a decision, by concensus, to postpone the annual stockholders' meeting of
Phil-Ville until the issue of the distribution of the 3,140 shares of stocks in the name of certain
stockholders is settled. Despite the postponement, however, [Cecilia Que, et al.] proceeded with the
scheduled annual stockholder's meeting participated only by a few stockholders. They elected the new
members of the Board of Directors and officers of Phil-Ville namely: Cecilia, Ma. Corazon and Eumir,
Chairman/Vice President/Treasurer, President/General Manager, and Secretary, respectively.
Consequently, Carolina, Ana Maria, Angelica, Elaine and Edison Williams [Carolina, et al.] filed the instant
election case against [Cecilia Que, et al.] praying that the election of Cecilia, Ma. Corazon and Eumir Carlo
as directors be declared void considering the invalidity of the holding of the meeting at Max's Restaurant
for lack of quorum therein, the questionable manner by which it was conducted, including the invalid
inclusion in the voting of the shares of the late Geronima, the questionable validation of proxies, the
representation and exercise of voting rights by the alleged proxies representing those who were not
personally present at the said meeting, and the invalidity of the proclamation of the winners. [Carolina, et
al.] also questioned the election of Cecilia, Ma. Corazon and Eumir Carlo as officers of the corporation.
They likewise prayed that all the actions taken by the petitioners in relation to their election as directors
and officers of the corporation be declared void, including but not limited to the filing of the General
Information Sheet with the Securities and Exchange Commission on January 27, 2014. 4
ISSUE: Whether the total undisputed shares of stocks in Phil-Ville should be the basis in determining the
presence of a quorum?

RULING: NO. Total outstanding capital stocks, without distinction as to disputed or undisputed shares
of stock, is the basis in determining the presence of quorum.

Section 52 of the Corporation Code states that:

Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of
the members in the case of non-stock corporations.
While Section 137 of the same Code defines "outstanding capital stock", thus:
Section 137. Outstanding capital stock defined. - The term "outstanding capital stock", as used in this
Code, means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.
The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled that
unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholders' meeting. Only stocks actually issued and outstanding may be voted. 23 Thus, for stock
corporations, the quorum is based on the number of outstanding voting stocks. 24 The distinction of
undisputed or disputed shares of stocks is not provided for in the law or the jurisprudence.  Ubi lex non
distinguit nec nos distinguere debemus — when the law does not distinguish we should not distinguish.
Thus, the 200,000 outstanding capital stocks of Phil-Ville should be the basis for determining the
presence of a quorum, without any distinction.
Therefore, to constitute a quorum, the presence of 100,001 shares of stocks in Phil-Ville is necessary.
We agree with the CA when it held that only 98,430 shares of stocks were present during the January 25,
2014 stockholders meeting at Max's Restaurant, therefore, no quorum had been established.
There is no evidence that the 3,140 shares were transferred and recorded in the stocks and transfer book
of Phil-Ville. Therefore, the transferees of the said shares cannot exercise the rights granted unto
stockholders of a corporation, including the right to vote and to be voted upon.
Section 6325 of the Corporation Code states that "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. "
The contention of Cecilia Que, et al., that they should not be faulted for their failure to present the stock
and transfer book because the same is in the possession of the corporate secretary, who has an interest
adverse from them, is devoid of merit. It is basic that a stockholder has the right to inspect the books of
the corporation,28 and if the stockholder is refused by an officer of the corporation to inspect or examine
the books of the corporation, the stockholder is not without any remedy. The Corporation Code grants
the stockholder a remedy—to file a case in accordance with Section 144. 29

44. Socorro Ongkingco v. Sugiyama

Facts: Respondent Kasuhiro Sugiyama entered into a "Contract Agreement" with New Rhia Car Services,
Inc. where petitioner Socorro is the President and Chairperson of the Board of Directors, and petitioner
Maria Paz B. Ongkingco is a Board Director. Under the Agreement, Sugiyama would receive a monthly
dividend of P90,675.00 for five years in exchange for his investment of P2,200,000.00 in New Rhia Car
Services, Inc. To cover Sugiyama's monthly dividends, petitioners issued six (6) checks. The first three (3)
checks, dated September 10, 2011, October 10, 2001 and November 10, 2001, were good checks, but the
remaining 3 checks bounced for having been draw against insufficient funds.
In the Contract of Agreement dated April 6, 2001, Socorro, President and Chairman of the Board of New
Rhia Car Services, Inc., undertook and bound herself as obligor, among other matters, to pay Sugiyama, as
obligee, Ninety Thousand Six Hundred Seventy-Five Pesos (P90,675.00) as monthly director's dividends
for a period of five (5) years, in consideration of his purchase of stock at New Rhia Car Services, Inc.
amounting to Two Million and Two Hundred Thousand Pesos (P2,200,000.00). To recall, the first three
(3) Allied Bank checks, dated September 10, 2011, October 10, 2001 and November 10, 2001, were good
checks, but the remaining checks bounced for having been draw against insufficient funds.
Issue: W/N petitioner is liable
Ruling: Yes. Generally, the stockholders and officers are not personally liable for the obligations of the
corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or
illegality, or to work injustice.55 Here, petitioner Socorro bound herself personally liable for the monthly
director's dividends in the fixed amount of P90,675.00 for a period of five (5) years and for the
P500,000.00 loan, for which she issued the subject four (4) dishonored checks. She then admitted having
incurred serious delay in the payment of the said fixed monthly dividends and loan, and further agreed to
adopt a new payment schedule of payment therefor, but to no avail.
Granted that Socorro is authorized to sign checks as corporate officer and authorized signatory of New
Rhia Car Services, Inc., there is still no evidence on record that she was duly authorized, through a Board
Resolution or Secretary's Certificate, to guarantee a corporate director thereof [Sugiyama] fixed monthly
dividends for 5 years, to enter into a loan, and to adopt a new schedule of payment with the same
director, all in behalf of the corporation. It would be the height of injustice for the Court to allow Socorro
to hide behind the separate and distinct corporate personality of New Rhia Car Services, Inc., just to
evade the corporate obligation which she herself bound to personally undertake.
It is not amiss to stress that the power to declare dividends under Section 43 of the Corporation Code of
the Philippines lies in the hands of the board of directors of a stock corporation, and can be declared only
out of its unrestricted retained earnings. Assuming arguendo that Socorro was authorized by the Board
to fix the monthly dividends of Sugiyama as a corporate director, it appears that she committed an ultra
vires act because dividends can be declared only out of unrestricted retained earnings of a corporation,
which earnings cannot obviously be fixed and pre-determined 5 years in advance.
In fine, since Socorro was convicted of four (4) charges of violation of B.P. 22, she must be held liable for
the face value of the subject four (4) dishonored checks which is P797,025.00, more so because she
personally bound herself liable for what appears to be unauthorized corporate obligations. 

45.CHUA vs People
Facts: Joselyn was a stockholder of Chua Tee Corporation of Manila. Alfredo was the president and chairman
of the board, while Tomas was the corporate secretary and also a member of the board of the same
corporation. Mercedes was the accountant/bookkeeper tasked with the physical custody of the corporate
records.
Joselyn invoked her right as a stockholder pursuant to Section 74 of the Corporation Code to inspect
the records of the books of the business transactions of the corporation, the minutes of the meetings
of the board of directors and stockholders, as well as the financial statement[ s] of the corporation. She
hired a lawyer to send demand letters to each of the petitioners for her right to inspect to be heeded.
However, she was denied of such right to inspect.
In the Complaint-Affidavit filed before the Quezon City Prosecutors' Office, Joselyn alleged that despite written
demands, the petitioners conspired in refusing without valid cause the exercise of her right to inspect Chua
Tee Corporation of Manila's (CTCM) business transactions records, financial statements and minutes of the
meetings of both the board of directors and stockholders. In their Counter Affidavits,  the petitioners denied
liability.
An Information indicting the petitioners for alleged violation of Section 74, in relation to Section 144, of the
Corporation Code was filed before the MeTC of Quezon City. The petitioners filed before the MeTC a Motion
to Quash the Information filed against them. They argued that CTCM had ceased to exist as a corporate entity
since May 26, 1999.
Issue: Whether or not there was no longer any duty pertaining to corporate officers to allow a stockholder to
inspect the records since CTCM had ceased business operations prior to Joselyn’s filing of her complaint
before the MeTC.
Ruling: No. The corporation continues to be a body corporate for three (3) years after its dissolution
for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close
its affairs, culminating in the disposition and distribution of its ,remaining assets. The termination of
the life of a juridical entity does not by itself cause the extinction or diminution of the rights and
liabilities of such entity nor those of its owners and creditors.
Further, as correctly pointed out by the OSG, Sections 122 and 145 of the Corporation Code explicitly provide
for the continuation of the body corporate for three years after dissolution. The rights and remedies against,
or liabilities of, the officers shall not be removed or impaired by reason of the dissolution of the corporation.
Corollarily then, a stockholder's right to inspect corporate records subsists during the period of liquidation.
Hence, Joselyn, as a stockholder, had the right to demand for the inspection of records. Lodged upon the
corporation is the corresponding duty to allow the said inspection.
46. NESTOR CHING and ANDREW WELLINGTON vs. SUBIC BAY GOLF AND COUNTRY CLUB, INC.
September 10, 2014
FACTS: Petitioners Nestor Ching and Andrew Wellington filed a Complaint with the RTC of Olongapo City
on behalf of the members of Subic Bay Golf and Country Club, Inc. (SBGCCI) against the said country club
and its Board of Directors and officers. A provision in the Articles of Incorporation was changed from
“shareholders shall be entitled only to a pro-rata share of the assets of the Club at the time of its dissolution
or liquidation.” to
“shareholders shall not have proprietary rights or interests over the properties of the Club.”
The complaint alleged that defendant corporation did not disclose to them the amendment which
allegedly makes the shares non-proprietary, as it takes away the right of the shareholders to participate
in the pro-rata distribution of the assets of the corporation after its dissolution. According to petitioners,
this is in fraud of the stockholders who only discovered the amendment when they filed a case for
injunction to restrain the corporation from suspending their rights to use all the facilities of the club.
Furthermore, said amendment was allegedly passed without any stockholders’ meeting or notices to the
stockholders in violation of Section 48 of the Corporation Code.
RTC issued an Order dismissing the Complaint stating that the case is a derivative suit. Being a
derivative suit in accordance with Rule 8 of the Interim Rules, the stockholders and members may bring
an action in the name of the corporation or association provided that he (the minority stockholder)
exerted all reasonable efforts and allege[d] the same with particularity in the complaint to exhaust of
(sic) all remedies available under the articles of incorporation, by-laws or rules governing the
corporation or partnership to obtain the reliefs he desires. The RTC held that petitioners failed to
exhaust their remedies within the respondent corporation itself, there being no demand, oral or
written on the respondents to address their complaints. Court of Appeals affirmed the RTC decision.
Hence, petitioners resort to the present Petition for Review, wherein they argue that the Complaint they
filed with the RTC was not a derivative suit. They claim that they filed the suit in their own right as
stockholders against the officers and Board of Directors of the corporation.
ISSUE: Whether the Complaint is indeed a derivative suit.
HELD: Yes, thus the Court finds the petition unmeritorious. In Cua, Jr. v. Tan, the Court previously
elaborated on the distinctions among a derivative suit, an individual suit, and a representative or class
suit:
A derivative suit must be differentiated from individual and representative or class suits, thus:
"Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors
or other persons may be classified into individual suits, class suits, and derivative suits. Where a
stockholder or member is denied the right of inspection, his suit would be individual because the wrong
is done to him personally and not to the other stockholders or the corporation. Where the wrong is done
to a group of stockholders, as where preferred stockholders’ rights are violated, a class or representative
suit will be proper for the protection of all stockholders belonging to the same group. But where the acts
complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation
and not to the individual stockholder or member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation
is a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not
only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a
violation of the priority rights of creditors. Furthermore, there is the difficulty of determining the amount
of damages that should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful acts are committed by the directors or
trustees themselves, a stockholder or member may find that he has no redress because the former
are vested by law with the right to decide whether or not the corporation should sue, and they will
never be willing to sue themselves. The corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation, the common law gradually recognized the
right of a stockholder to sue on behalf of a corporation in what eventually became known as a
"derivative suit." x x x x
Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on one hand, and
individual and class suits, on the other, are mutually exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s derivative suit seeks to recover for the
benefit of the corporation and its whole body of shareholders when injury is caused to the
corporation that may not otherwise be redressed because of failure of the corporation to act.”
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies imposes the
following requirements for 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.
With regard to the second requisite, we find that petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to exhaust all remedies available under the articles
of incorporation, by-laws, and laws or rules governing the corporation to obtain the relief they desire.
Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in accordance with
the Interim Rules.
47. YU v. YUKAYGUAN

FACTS:
The families Yu and Yukayguan were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a
domestic corporation engaged in the operation of a general hardware and industrial supply and equipment
business. Anthony Yu is the older half-brother of Joseph Yukayguan. The Yukayguan family accused the Yu
family of misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging
their personal and family expenses to the said corporation, and withdrawing stocks for their personal use
without paying for the same.

For this reason, the Yukayguan family filed a complaint for Accounting, Inspection of Corporate Books and
Damages through Embezzlement and Falsification of Corporate Records and Accounts against the Yu family.
The said complaint was filed by the former in their own behalf and as a derivative suit on behalf of
Winchester, Inc. The trial court dismissed the complaint filed by the Yukayguan family for failure to show that
they had complied with the essential requisites for filing a derivative suit. The ruling of the trial court was
upheld by the Court of Appeals but was later reversed by the appellate court.

ISSUE:
Whether or not the derivative suit filed by the Yukayguan family is meritorious.

RULING:
No. The general rule is that where a corporation is an injured party, its power to sue with its board of directors
or trustees. Nonetheless, an individual stockholder is to institute a derivative suit on behalf of the corporation
wherein he holds stocks to protect or vindicate corporate rights, whenever the officials of the corporation sue,
or are the ones to be sued, or hold the control of the corporation. However, stockholder’s suit cannot prosper
without first complying with the legal requisites institution. In this case, the complaint filed by the Yukayguan
family did not comply with the requisites filing a derivative suit. Section 1, Rule 8 of the Interim Rules of
Procedure Governing Corporate Controversies, provides:

Sec. 1. Derivative action. – A stockholder or member may bring an action in a corporation or association, as
the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions of
the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the
same with particularity the complaint, to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain he desires; (3) No appraisal rights are
available for the act or acts complained of; (4) The suit is not a nuisance or harassment suit.

The complaint of the Yukayguan family did not allege with particularly that they exerted all reasonable efforts
to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing
Winchester, Inc. to obtain the relief they desire. With respect to the third and fourth requirements of the
above-mentioned provision, the Yukayguans’ Complaint also failed to allege, explicitly or otherwise, the fact
that there were no appraisal rights available for the acts complained of, as well as a categorical statement that
the suit was not a nuisance or a harassment suit. Therefore, the derivative suit filed by the Yukayguan family
should be dismissed. The fact that Winchester, Inc. is a family corporation should not in a way exempt the
Yukayguan family from complying with the clear requirements and formalities of the rules for filing a
derivative suit.

48. Makati Sports Club, Inc. v. Cheng

Facts:
 Makati Sports Club through its through its BOD adopted a resolution authorizing the sale of 19
unissued shares of Class A and B.
Defendant Cheng was a Treasurer and Director of plaintiff in 1985. On July 7, 1995, Hodreal expressed
his interest to buy a share, for this purpose he sent the letter to which he requested that his name be included
in the waiting list.
Sometime in November 1995, M-Foods Inc. expressed its interest in acquiring a share. McFoods 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
P2,800,000.
It appears that while the sale between petitioner and McFoods was under negotiation, there was also
an ongoing negotiation between McFoods and Hodreal. On November 24, 1995, Hodreal 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 or not McFoods can validly sell its MSCI share prior to the issuance of the certificate of sale

Held: Yes
Assuming the intention of McFoods was to speculate on the price of the share of stock when
ittendered payment on November 28, 1995, it had all the right to negotiate and transact, at leaston 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 toMcFoods preceded
or came earlier than the payment made McFoods to MSCI for the sameshare 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 ofstock certificate in his name.
The right of a transferee to have the stocks transferred to itsname 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 hisright 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
ofstock 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. The corporation cannot create restrictions in stock transfers.
 
Petitioner’s allegation of Cheng’s fraudulent act was not supported by evidence. The mere fact of receiving
payment from Hodreal in behalf of McFoods or claiming the certificate do notshow badges of fraud.

49. Teng vs. Securities and Exchange Commission

FACTS: This case has its origin in the case entitled TCL Sales Corporation and Anna Teng v. Hon. Court of
Appeals and Ting Ping Lay (G.R. No. 129777). Herein respondent Ting Ping purchased 480 shares of TCL
Sales Corporation (TCL) from Peter Chiu (Chiu) on February 2, 1979; 1,400 shares on September 22,
1985 from his brother Teng Ching Lay (Teng Ching), who was also the president and operations manager
of TCL; and 1,440 shares from Ismaelita Maluto (Maluto) on September 2, 1989.
Upon Teng Ching’s death in 1989, his son Henry Teng (Henry) took over the management of TCL. To
protect his shareholdings with TCL, Ting Ping on August 31, 1989 requested TCL’s Corporate Secretary,
herein petitioner Teng, to enter the transfer in the Stock and Transfer Book of TCL for the proper
recording of his acquisition. He also demanded the issuance of new certificates of stock in his favor. TCL
and Teng, however, refused despite repeated demands. Because of their refusal, Ting Ping filed a petition
for mandamus with the SEC against TCL and Teng.
The Securities and Exchange Commission (SEC) granted the issuance of an alias writ of execution,
compelling petitioner Anna Teng (Teng) to register and issue new certificates of stock in favor of
respondent Ting Ping Lay (Ting Ping). The order of the SEC was affirmed by the CA; hence, this petition.
ISSUE: Whether the surrender of the certificates of stock is a requisite before registration of the transfer
may be made in the corporate books and for the issuance of new certificates in its stead.
RULING: NO. Under Section 63 of the Corporation Code, certain minimum requisites must be complied
with for there to be a valid transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b)
the certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized
to make the transfer; and (c) to be valid against third parties, the transfer must be recorded in the books
of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares from the original owner to the transferee.
The Court even emphatically declared. in Fil-Estate Golf and Development, Inc., et al. v. Vertex Sales and
Trading, Inc. that in “a sale of shares of stock, physical delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks purchased.
The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by
the transferor to the transferee, that is, from the original stockholder named in the certificate to the
person or entity the stockholder was transferring the shares to, whether by sale or some other valid form
of absolute conveyance of ownership. Shares of stock may be transferred by delivery to the transferee of
the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly
indorsed certificate of stock.
It is thus clear that Teng’s position – that Ting Ping must first surrender Chiu’s and Maluto’s respective
certificates of stock before the transfer to Ting Ping may be registered in the books of the corporation –
does not have legal basis. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not
a requisite before the conveyance may be recorded in its books. To compel Ting Ping to deliver to the
corporation the certificates as a condition for the registration of the transfer would amount to a
restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by
law. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against
the shares intended to be transferred.

50. Tee Ling Kiat vs Ayala Corp

Facts: The present petition arose from a judgment for a sum of money obtained by Ayala Corporation against
Continental Manufacturing Corporation (CMC) and Spouses Dewey and Lily Dee (Spouses Dee) in 1990. RTC
ruled in favor of Ayala Corporation. Notice of Levy on Execution was issued and addressed to the Register of
Deeds of Antipolo City, to levy upon "the rights, claims, shares, interest, title and participation" that the
Spouses Dee may have in parcels of land which were registered in the name of Vonnel Industrial Park, Inc.
(VIP), in which Dewey Dee was an incorporator.
Tee Ling Kiat filed a Third-Party Claim, alleging that: while Mr. Dewey Dee was indeed one of the incorporators
of VIP, he is no longer a stockholder thereof. He no longer has any rights, claims, shares, interest, title and
participation in VIP or any of its properties. As early as December 1980, Mr. Dewey Dee has already sold to Mr.
Tee Ling Kiat all his stocks in VIP, as evidenced by a cancelled check which he issued in Mr. Tee Ling Kiat's
favor.
Attached to the Third-Party Claim was a copy of an Affidavit executed by Tee Ling Kiat, attesting to the fact
that he is a stockholder of VIP and that he acquired knowledge of the levy on the subject properties only
through newspaper, as well as a photocopy of cancelled checks issued by Tee Ling Kiat in Dewey Dee's favor,
allegedly as payment for the purchase of the latter's shares in VIP.Amora, who by then had substituted Ayala
Corporation, posted a bond. Amora claimed that from the date of VIP's incorporation until present, no general
information sheets and audited financial statements have been submitted by VIP to the Securities and
Exchange Commission (SEC). Further, nowhere in the SEC records does Tee Ling Kiat's name appear as a
stockholder.

Issue: Whether it has been sufficiently proven by Tee Ling Kiat that Dewey Dee had in fact sold his shares of
stock to Tee Ling Kiat in 1980, such that, as a result, Tee Ling Kiat can be considered a real party-in-interest in
the Third-Party Claim, and consequently, in the petition for certiorari before the CA
Ruling: No. Even if it could be assumed that the sale of shares of stock contained in the photocopies had
indeed transpired, such transfer is only valid as to the parties thereto, but is not binding on the corporation if
the same is not recorded in the books of the corporation. Section 63 of the Corporation Code of the
Philippines provides that: "No transfer, x x x 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."Here, the records
show that the purported transaction between Tee Ling Kiat and Dewey Dee has never been recorded in VIP's
corporate books. Thus, the transfer, not having been recorded in the corporate books in accordance with law,
is not valid or binding as to the corporation or as to third persons.
Capital Stock; Shares of Stock
51. Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 362 SCRA 635 (2001)
Facts: These cases involve the Batangas Laguna Tayabas Bus Company, Inc., which has been owned by
four generations of the Potenciano family. Immediately prior to the events leading to this controversy,
the Potencianos owned 87.5% of the outstanding capital stock of BLTB. Dolores A. Potenciano, Max
Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. Yorro, and Maya Industries, Inc., entered into a
Sale and Purchase Agreement, whereby they sold to BMB Property Holdings, Inc., represented by its
President their shares of stock in BLTB. The said shares represented 47.98% of the total outstanding
capital stock of BLTB. Barely a month after the Agreement was executed, at a meeting of the stockholders
of BLTB, Benjamin Bitanga and Monina Grace Lim were elected as directors of the corporation, replacing
Dolores and Max Joseph Potenciano.

During a meeting of the Board of Directors, the newly elected directors of BLTB scheduled the annual
stockholders' meeting, to be held at the principal office of BLTB in San Pablo, Laguna. Before the
scheduled meeting, Michael Potenciano wrote Benjamin Bitanga, requesting for a postponement of the
stockholders' meeting due to the absence of a thirty-day advance notice. However, there was no response
from Bitanga on whether or not the request for postponement was favorably acted upon.

On the scheduled date of the meeting, a notice of postponement of the stockholders' meeting was
published in the Manila Bulletin. The majority of the stockholders present rejected the postponement and
voted to proceed with the meeting. The Potenciano group was re-elected to the Board of Directors, and a
new set of officers was thereafter elected.

However, the Bitanga group refused to relinquish their positions and continued to act as directors and
officers of BLTB and filed a writ of preliminary injunction with the SEC. A Hearing Panel of the SEC
conducted joint hearings of SEC Cases Nos. 05-98-5973 and 05-98-5978. The SEC Hearing Panel granted
the Bitanga group's application for a writ of preliminary injunction upon the posting of a bond . The
Potenciano group filed a petition for certiorari with the SEC En Banc, seeking a writ of preliminary
injunction to restrain the implementation of the Hearing Panel's assailed Order. On July 21, 1998, the SEC
En Banc set aside the Order of the Hearing Panel and issued the writ of preliminary injunction prayed for.

Issue: whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to
the extraordinary remedy of certiorari
Ruling: No. In the July 21, 1998 Order of the SEC En Banc, the validity of the BLTB stockholders' meeting
held on May 19, 1998 was sustained, in light of the time-honored doctrine in corporation law that a
transfer of shares is not valid unless recorded in the books of the corporation. The SEC En Banc went on
to rule that —
It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the Bitanga group
has not yet been recorded in the books of the corporation. Hence, the group of Dolores Potenciano, in
whose names those shares still stand, were the ones entitled to attend and vote at the stockholders'
meeting of the BLTB on 19 May 1998. This being the case, the Hearing Panel committed grave abuse of
discretion in holding otherwise and in concluding that there was no quorum in said meeting.
Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against the
Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a
specialized administrative agency specifically tasked to deal with corporate law issues. We are in full
accord with the SEC En Banc on this matter. Indeed, until registration is accomplished, the transfer,
though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded
transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose of registration,
therefore, is two-fold: to enable the transferee to exercise all the rights of a stockholder, including the
right to vote and to be voted for, and to inform the corporation of any change in share ownership so that
it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. Until
challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his
vote can be properly counted to determine whether a stockholders' resolution was approved, despite the
claim of the alleged transferee. On the other hand, a person who has purchased stock, and who desires to
be recognized as a stockholder for the purpose of voting, must secure such a standing by having the
transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a
stockholder but an outsider

52. Garcia v. Jomouad, 323 SCRA 424 (2000)

Doctrine: All transfers not so entered on the books of the corporation are absolutely void; not because they
are without notice or fraudulent in law or fact, but because they are made so void by statute.
Facts: Jaime Dico used to be employed as the manager of Young Auto Supply, which was owned by the
petitioner, Nemesio Garcia. In order to assist Dico in entertaining the clients, Garcia “lent” his Proprietary
Ownership Certificate (POC) in Cebu Country Club so that Dico could enjoy the “signing privileges” of its
members. Thereafter, Dico resigned from the Company and returned the POC. He then executed a Deed of
Transfer covering the POC in favor of Garcia. The Club was furnished with a copy of the said deed but the
transfer was not recorded in the books of the Club because Garcia failed to present proof of payment of the
requisite capital gains tax. The Spouses Atinon, respondents, filed a collection case against Jaime Dico for the
amount of P900,000.00. After the judgment became final and executory, the respondent sheriff proceeded
with its execution and levied on the POC share of Dico in the Cebu Country Club, and scheduled it for public
auction. Claiming ownership over the POC, Garcia filed an action for injunction to enjoin respondents from
proceeding with the auction. The RTC dismissed the complaint of Garcia for injunction for lack of merit, and on
appeal, such was likewise affirmed by the CA. Garcia claimed the POC although in the name of Dico cannot be
levied upon on execution to satisfy the judgment debt because even prior to the institution of the case: a.  The
spouses Atinon had knowledge that Dico already conveyed back the ownership of the subject, certificate to
petitioner; b. Dico executed a deed of transfer, dated 18 November 1992, covering the subject certificate in
favor of petitioner and the Club was furnished with a copy thereof; and c. Dico resigned as a proprietary
member of the Club and his resignation was accepted by the board of directors at their meeting on 4 May
1993.
Issue: W/N a bona fide transfer of the shares of a corporation, not registered or noted in the books of the
corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not.
Ruling: No, it is not valid. Sec. 63 of the Corporation Code reads: Sec. 63 Certificate of stock and transfer
of shares. —  The capital stock of corporations shall be divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of
the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred. No shares of stock against
which the corporation holds any unpaid claim shall be transferable in the books of the corporation.2. The
transfer of the subject certificate made by Dico to petitioner was not valid as to the spouses Atinon, the
judgment creditors, as the same still stood in the name of Dico, the judgment debtor, at the time of the levy
on execution. In addition, as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's
board of directors noting the resignation of Dico as proprietary member thereof does not constitute
compliance with Section 63 of the Corporation Code. Said provision of law strictly requires the recording of the
transfer in the books of the corporation, and not elsewhere, to be valid as against third parties. Accordingly,
the CA committed no reversible error in rendering the assailed decision.

53. Edward J. Nell Co. v. Pacific Farms Inc. G.R. No. L-20850, November 29, 1965

Facts: On October 9, 1958, appellant 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 appellant 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, was, on August 14, 1959, returned unsatisfied, stating that Insular Farms had
no leviable property. Soon thereafter, or on November 13, 1959, appellant 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.

The record shows that, on March 21, 1958, appellee purchased 1,000 shares of stock of Insular Farms for
P285,126.99; that, thereupon, appellee 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 herein
appellee for P10,000.00.

Issue: Whether or not that the appellee, Pacific Farms is an alter ego of Insular Farms

Ruling: NO. We agree with the Court of Appeals that these facts do not prove that the appellee is an alter
ego of Insular Farms, or is liable for its debts. The rule is set forth in Fletcher Cyclopedia Corporations,
Vol. 15, Sec. 7122, pp. 160-161, as follows:
Generally where one corporation sells or otherwise transfers all of its assets to another 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.
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.

MP: Appellant's claim that the transactions betwe the two corporations have resulted in their
consilidation or merger is negated by its theory to the effect that one of the said corporations is an
alter ego of the other. For, a corporation cannot be its own alter ago. Edward J. Nell Company vs.
Pacific Farms, Inc., 15 SCRA 415, No. L-20850 November 29, 1965

54. Y-I Leisure Phils., Inc. v. Yu, 770 SCRA 56 (2015)

Facts: Respondent Yu, a businessman interested in purchasing golf and country club shares, bought 500
golf and 150 country club shares from Mt. Arayat Development Co. Inc. (MADCI) a real estate
development corporation.
However, 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. He 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
Sangil (Sangil) to recover his payment for the purchase of golf and country club shares.
In its Answer, MADCI claimed that it was Sangil who defrauded Yu. It invoked the Memorandum of
Agreement (MOA) entered into by MADCI, Sangil and petitioner Yats International Ltd. (YIL). Under the
MOA, Sangil undertook to redeem MADCI proprietary shares sold to third persons or settle in full all their
claims for refund of payments. Thus, it was MADCI's position that Sangil should be ultimately liable to
refund the payment for shares purchased.
After the pre-trial, Yu filed an Amended Complaint, wherein he also impleaded petitioner YIL, Y-I Leisure
Phils., Inc. (YILPI) and Y-I Club & Resorts, Inc. (YICRI). According to Yu, he discovered in the Registry of
Deeds of Pampanga that, substantially, all the assets of MADCI, consisting of one hundred twenty (120)
hectares of land located in Magalang, Pampanga, were sold to YIL, YILPI and YICRI. The transfer was done
in fraud of MADCI's creditors, and without the required approval of its stockholders and board of
directors under Section 40 of the Corporation Code.
RTC Ruling - because MADCI did not deny its contractual obligation with Yu, it must be liable for the
return of his payments. However, it exonerated YIL, YILPI and YICRI from liability because they were not
part of the transactions between MADCI and Sangil, on one hand and Yu, on the other hand.
CA Ruling - partly granted the appeals and modified the RTC decision by holding YIL and its companies,
YILPI and YICRI, jointly and severally, liable for the satisfaction of Yu's claim.
Now, petitioners counter that they did not assume such liabilities because the transfer of assets was not
committed in fraud of the MADCI's creditors.
Issues:
1. 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?

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, and does not depend on any deceit
committed by the transferee -corporation, fraud is certainly not an element of the business
enterprise doctrine.

2. Whether or not the petitioner indeed became a continuation of MADCI's business?

Yes, Section 40 refers to the sale, lease, exchange or disposition of all or substantially all of the
corporation's assets, including its goodwill. The sale under this provision does not contemplate an
ordinary sale of all corporate assets; the transfer must be of such degree that the transferor
corporation is rendered incapable of continuing its business or its corporate purpose.

It must be clarified, however, that not every transfer of the entire corporate assets would qualify
under Section 40. It does not apply (1) if the sale of the entire property and assets is necessary in
the usual and regular course of business of corporation, or (2) if the proceeds of the sale or other
disposition of such property and assets will be appropriated for the conduct of its remaining
business. Thus, the litmus test to determine the applicability of Section 40 would be the capacity
of the corporation to continue its business after the sale of all or substantially all its assets.

Based on these factual findings, the Court is convinced that MADCI indeed had assets consisting of
120 hectares of landholdings in Magalang, Pampanga, to be developed into a golf course, pursuant
to its primary purpose. Because of its alleged violation of the MOA, however, MADCI was made to
transfer all its assets to the petitioners. No evidence existed that MADCI subsequently acquired
other lands for its development projects. Thus, MADCI, as a real estate development corporation,
was left without any property to develop eventually rendering it incapable of continuing the
business or accomplishing the purpose for which it was incorporated. Section 40 must apply.

55. Spouses Ong v BPI family bank

FACTS: Petitioners are engaged in the business of printing under the name and style " Melbros Printing
Center ” . Sometime in December 1996 , Bank of Southeast Asia's ( BSA ) managers visited petitioners '
office and discussed the various loan and credit facilities offered by their bank . In view of petitioners '
business expansion plans and the assurances made by BSA's managers , they applied for the credit
facilities offered by the latter . Sometime 1997 , they executed a real estate mortgage over their property
in favor of BSA as security for a P15M term loan and P5M credit line or a total of P20M . Thus , with
regard to the term loan , only P10,444,271.49 was released by BSA , while with regard to the P5M credit
line , only P3M was released . BSA promised to release the remaining P2M conditioned upon the payment
of the P3M initially released to petitioners . Petitioners acceded to the condition and paid the P3M in full .
However , BSA still refused to release the P2M . Petitioners then refused to pay the amortizations due on
their term loan . Later on . BPI Family Savings Bank ( BPD merged with BSA , thus , acquired all the
latter's rights and assumed its obligations . BPI filed a petition for extrajudicial foreclosure of the REM for
petitioners ' default in the payment of their term loan . In order to enjoin the foreclosure , petitioners
instituted an action for damages with Temporary Restraining Order and Preliminary Injunction against
BPI praying for P23,570.881.32 as actual damages . P1,000,000.00 as moral damages ; P500,000.00 as
attorney's fees , litigation expenses and costs of suit . The RTC ruled in favor of the petitioners , however
BPI appeal before the CA. The CA reversed the decision of the lower court and ruled in favor of BPI
Issue: wheter or not there was already an existing and binding contract betweeen petitioneers and BSA

Ruling: Yes there is no iota of doubt that when BSA approved and released the P3,000,000.00 out of the
original P5,000,000.00 credit facility, the contract was perfected.
The conclusion reached by the appellate court that only the term loan of P15,000,000.00 was proved to
have materialized into an actual contract while the P5,000,000.00 omnibus line credit remained non-
existent is ludicrous. A careful perusal of the records reveal that the credit facility that BSA extended to
petitioners was a credit line of P20,000,000.00 consisting of a term loan in the sum of P15,000,000.00
and a revolving omnibus line of P3,000,000.00 to be used in the petitioner's printing business. In
separate Letters both dated January 31, 1997, BSA approved the term loan and the credit line. Such
approval and subsequent release of the amounts, albeit delayed, perfected the contract between the
parties.

Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor and the
other the debtor.11 The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous. This means that in a loan,
the creditor should release the full loan amount and the debtor repays it when it becomes due and
demandable.12
In this case, BSA did not only incur delay in releasing the pre-agreed credit line of P5,000,000.00 but
likewise violated the terms of its agreement with petitioners when it deliberately failed to release the
amount of P2,000,000.00 after petitioners complied with their terms and paid the first P3,000,000.00 in
full. The default attributed to petitioners when they stopped paying their amortizations on the term loan
cannot be sustained by this Court because long before they sent a Letter to BSA informing the latter of
their refusal to continue paying amortizations, BSA had already reneged on its obligation to release the
amount previously agreed upon, i.e., the P5,000,000.00 covered by the credit line.
56. BPI vs BPI employees Union. (G.R. No. 164301; October 19, 2011).

FACTS: In 2000, Far East Bank and trust Company (FEBTC) merged with Bank of the Philippine Islands.
Petitioner had a Union Shop agreement with respondent BPI Employees Union-Davao Chapter-
Federation of Unions in BPI Unibank (the Union).Pursuant to the merger, respondent requested BPI to
terminate the employment of those new employees from FEBTC who did not join the union.

BPI refused to undertake such action and brought the controversy before a voluntary arbitrator.
Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the
Court of Appeals which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was
at war with the spirit and rationale why the Labor Code allows the existence of such provision.

This was followed and affirmation by the Supreme Court of the CA decision holding that former
employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI pursuant to the two
banks merger. The absorbed employees were covered by the Union Shop Clause in the then existing
collective bargaining agreement (CBA)of BPI with respondent BPI Employees Union-Davao Chapter-
Federation of Unions in BPI Unibank (the Union). Petitioners, despite the August 2010 decision moved
for a Motion for reconsideration of the decision.

ISSUE: May the "absorbed" FEBTC employees fell within the definition of "new employees," under the
Union Shop Clause, such that they be required to join respondent union or suffer termination upon
request by the union?

HELD: The court agreed with Justice Brion's view that it is more in keeping with the dictates of social
justice and the State policy of according full protection to labor to deem employment contracts as
automatically assumed by the surviving corporation in a merger, without break in the continuity of their
employment, and even in the absence of an express stipulation in the articles of merger or the merger
plan.

By upholding the automatic assumption of the non-surviving corporations existing employment contracts
by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security
of tenure of employees affected by a merger and avoid confusion regarding the status of their various
benefits. However, it shall be noted that nothing in the Resolution shall impair the right of an employer to
terminate the employment of the absorbed employees for a lawful or authorized cause or the right of
such an employee to resign, retire or otherwise sever his employment, whether before or after the
merger, subject to existing contractual obligations.

Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the
former had been the employer of the latters employees from the beginning it must be emphasized that, in
reality, the legal consequences of the merger only occur at a specific date,i.e.,upon its effectivity which is
the date of approval of the merger by the SEC.Thus, the court observed in the Decision that BPI and
FEBTC stipulated in the Articles of Merger that they will both continue their respective business
operations until the SEC issues the certificate of merger and in the event no such certificate is issued, they
shall hold each other blameless for the non-consummation of the merger.

57. Chua v. People, 801 SCRA 436, 449 (2016)

Facts:
[Joselyn] was a stockholder of Chua Tee Corporation of Manila. x x x [Alfredo] was the president and chairman
of the board, while [Tomas] was the corporate secretary and also a member of the board of the same
corporation. x x x [Mercedes] was the accountant/bookkeeper tasked with the physical custody of the
corporate records.
On or about August 24, 2000, Joselyn invoked her right as a stockholder pursuant to Section 74 of the
Corporation Code to inspect the records of the books of the business transactions of the corporation, the
minutes of the meetings of the board of directors and stockholders, as well as the financial statements] of the
corporation. She hired a lawyer to send demand letters to each of the petitioners for her right to inspect to be
heeded. However, she was denied of such right to inspect.
Issue:
Whether or not Joselyn has the right to inspect Chua Tee Corporation of Manila's (CTCM) business
transactions records, financial statements and minutes of the meetings of both the board of directors and
stockholders.
Ruling:
Yes. The right to inspect remains valid and enforceable during the 3-year liquidation period provided under.
The rights and remedies against, or liabilities of, the officers shall not be removed or impaired by reason of the
dissolution of the corporation. Corollarily then, a stockholder's right to inspect corporate records subsists
during the period of liquidation. Hence, Joselyn, as a stockholder, had the right to demand for the inspection
of records. Lodged upon the corporation is the corresponding duty to allow the said inspection.
58. Reyes vs. Bancom Development Corporation
Facts:
Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the two petitioners herein, Ramon E. Reyes and Clara R.
Pastor (the Reyes Group). In the instrument, the Reyes Group agreed to guarantee the full and due
payment of obligations incurred by Marbella under an Underwriting Agreement with Bancom. These
obligations included certain Promissory Notes5 issued by Marbella in favor of Bancom.
Because of Marbella's continued failure to pay back the loan despite repeated demands, Bancom filed a
Complaint for Sum of Money with a prayer for damages before the RTC of Makati. The case, which sought
payment, was instituted against (a) Marbella as principal debtor; and (b) the individuals comprising the
Reyes Group as guarantors of the loan.
Eventually, when the case reached the appellate Court, petitionerpointed out that the Certificate of
Registration issued to Bancom had been revoked by the Securities and Exchange Commission (SEC) on 31
May 2004, and that no trustee or receiver had been appointed to continue the suit; in fact, even Bancom's
former counsel was compelled to withdraw its appearance from the case, as it could no longer contact the
corporation.
Issue: Whether the collection suit should be deemed abated by the revocation by the SEC of the
Certificate of Registration issued to Bancom
Ruling:
No. Section 122 of the Corporation Code (the old corporation code) provides that a corporation whose
charter is annulled, or whose corporate existence is otherwise terminated, may continue as a body
corporate for a limited period of three years, but only for certain specific purposes enumerated by law.
These include the prosecution and defense of suits by or against the corporation, and other objectives
relating to the settlement and closure of corporate affairs.
Based on the provision, a defunct corporation loses the right to sue and be sued in its name upon the
expiration of the three-year period provided by law. Jurisprudence, however, has carved out an exception
to this rule. In several cases, this Court has ruled that an appointed receiver, an assignee, or a trustee may
institute suits or continue pending actions on behalf of the corporation, even after the winding-up period.
In Gelano v. Court of Appeals, we declared that in the absence of a receiver or an assignee, suits may be
instituted or continued by a trustee specifically designated for a particular matter, such as a lawyer
representing the corporation in a certain case. We also ruled in Clemente v. Court of Appeals that the
board of directors of the corporation may be considered trustees by legal implication for the
purpose of winding up its affairs.
It is evident from the foregoing discussion of law and jurisprudence that the mere revocation of the
charter of a corporation does not result in the abatement of proceedings. Since its directors are
considered trustees by legal implication the fact that Bancom did not convey its assets to a
receiver or assignee was of no consequence. It must also be emphasized that the dissolution of a
creditor-corporation does not extinguish any right or remedy in its favor.

59.DR. GIL J. RICH , v. GUILLERMO PALOMA III, ATTY. EVARISTA TARCE AND
ESTER L. SERVACIO,
G.R. No. 210538, March 07, 2018

MP: 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
Sometime in 1997, Dr. Gil Rich (petitioner) lent P1,000,000.00 to his brother, Estanislao Rich (Estanislao),
which was secured by a real estate mortgage over a 1000-square-meter parcel of land with improvements.

When Estanislao failed to make good on his obligations under the loan agreement, the petitioner foreclosed
on the subject property via a public auction sale where he was declared the highest bidder, and subsequently,
 was issued a Certificate of Sale as purchaser/mortgagee.

Without the petitioner's knowledge, however, and prior to the foreclosure, Estanislao entered into an
agreement with Maasin Traders Lending Corporation (MTLC), where loans and advances amounting to P2.6
million were secured by a real estate mortgage over the same property.

On the strength of this document, respondent Ester L. Servacio (Servacio), as president of MTLC, exercised
equitable redemption after the foreclosure proceedings. On March 15, 2006, respondent Paloma III, again as
sheriff of the RTC, issued a Deed of Redemption in favor of MTLC.

Petitioner then filed a complaint alleging, among others, that MTLC no longer has juridical personality to
effect the equitable redemption as it has already been dissolved by the Securities and Exchange Commission
as early as September 2003.

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

HELD
No. Section 122 of the Corporation Code xxx empowers every corporation whose corporate existence has
been legally terminated to continue as a body corporate for three (3) years after the time when it would have
been dissolved. This continued existence would only be 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 clear that 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.

60. VIGILLA V. PHILIPPINE COLLEGE OF CRIMINOLOGY, INC., 698 SCRA 247

FACTS: PCCr is a non-stock educational institution, while the petitioners were janitors, janitresses and
supervisor in the Maintenance Department of PCCr under the supervision and control of Atty. Seril, PCCr’s
Senior Vice President for Administration. The petitioners, however, were made to understand, upon
application with respondent school, that they were under MBMSI, a corporation engaged in providing
janitorial services to clients. Atty. Seril is also the President and General Manager of MBMSI.
Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been revoked as of
July 2, 2003. On March 16, 2009, PCCr, through its President, respondent Gregory Alan F. Bautista, citing the
revocation, terminated the school’s relationship with MBMSI, resulting in the dismissal of the employees or
maintenance personnel under MBMSI.
 In September, 2009, the dismissed employees, led by their supervisor, Benigno Vigilla, filed their respective
complaints for illegal dismissal, reinstatement, back wages, separation pay, underpayment of salaries,
overtime pay, holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril, PCCr, and
Bautista.
In their complaints, they alleged that it was the school PCCr, not MBMSI, which was their real employer. On
the other hand, PCCr and Bautista contended that MBMSI was the one who had complete and direct control
over the complainants; and PCCr had a contractual agreement with MBMSI, thus, making the latter their direct
employer.
On September 11, 2009, PCCr submitted several documents before the Labor Arbiter, including releases,
waivers and quitclaims in favor of MBMSI executed by the complainants to prove that they were employees of
MBMSI and not PCCr.
Petitioners argue that MBMSI had no legal personality to incur civil liabilities as it did not exist as a
corporation on account of the fact that its Certificate of Incorporation had been revoked on July 2, 2003.
Petitioners ask this Court to exempt MBMSI from its liabilities because it is no longer existing as a corporation.

ISSUE: Whether or not the the documents of releases, waivers and quit- claims were valid considering that
MBMSI’s Certificate of Incorporation was already revoked.

RULING: Yes. The executed releases, waivers and quitclaims are valid and binding notwithstanding the
revocation of MBMSI’s Certificate of Incorporation. The revocation does not result in the termination of its
liabilities. Section 122 of the Corporation Code provides for a three-year winding up period for a corporation
whose charter is annulled by forfeiture or otherwise to continue as a body corporate for the purpose, among
others, of settling and closing its affairs.
Even if said documents were executed in 2009, six (6) years after MBMSI’s dissolution in 2003, the
same are still valid and binding upon the parties and the dissolution will not terminate the liabilities
incurred by the dissolved corporation pursuant to Sections 122 and 145 of the Corporation Code.
As held in the case of Premiere Development Bank v. Flores,  a corporation is allowed to settle and close its
affairs even after the winding up period of three (3) years. 

Sec. 122. Corporate liquidation.—Every corporation whose charter expires by its own limitation or is

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

61. Alabang Development Corp vs. Alabang Hills Village

FACTS: The Complaint alleged that [petitioner] is the developer of Alabang Hills Village and still owns certain
parcels of land therein that are yet to be sold, as well as those considered open spaces that have not yet been
donated to [the] local government of Muntinlupa City or the Homeowner’s Association. Sometime in
September [2006], 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, and that
despite demand, AHVAI failed to desist from constructing the said improvements. ADC thus prayed that an
injunction be issued enjoining defendants from constructing the multi-purpose hall and the swimming pool at
the Alabang Hills Village.

In its Answer With Compulsory Counterclaim, 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 Securities
and Exchange Commission (SEC) on May 26, 2003; that ADC has no cause of action because by law it is no
longer the absolute owner but is merely holding the property in question in trust for the benefit of AHVAI as
beneficial owner thereof.

ISSUE: Whether or not the petitioner has a capacity to sue despite revocation of its license by the Securities
and Exchange Commission.

RULING: NO. It is to be noted that the time during which the corporation, through its own officers, may
conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the
time the period of dissolution commences; but there is no time limit within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 now Sec. 122]) that the conveyance
to the trustees must be made within the three-year period. It may be found impossible to complete the work
of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to
the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being
sued (7 R.C.L., Corps., par. 750); but trustees to whom the corporate assets have been conveyed pursuant to
the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the
liquidation…

In the absence of trustees, this Court ruled, thus :Still in the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of
the corporation, acting for and in its behalf, might make proper representations with the Securities and
Exchange Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for
working out a final settlement of the corporate concerns.

62. National Electrification Administration v. Maguindanao Electric Cooperative, Inc.,

FACTS: Maguindanao Electric Cooperative, Inc. (MAGELCO) is a duly organized cooperative with a
franchise to distribute electric light, and power to the municipalities in the province of Maguindanao. Its
franchise also includes the authority to distribute electricity in six municipalities in Cotabato, namely
Pigcawayan, Alamada, Libungan, Midsayap, Aleosan, and Pikit (PPALMA Area). Cotabato Electric
Cooperative, Inc. (COTELCO) is also a duly organized cooperative with a franchise to distribute electric
light, and power to the province of Cotabato except for the PPALMA Area. COTELCO filed before National
Electrification Administration (NEA) an application for the amendment of its franchise to include the
PPALMA Area. MAGELCO opposed the application. After conducting hearings, NEA granted COTELCO’s
application and ordered the transfer of MAGELCO’s assets in the PPALMA area to COTELCO upon
payment of just compensation. MAGELCO then passed GA Resolution No. 4 which amended the MAGELCO
by-laws. The resolution states that the general assembly has approved the division and separation of
MAGELCO into two separate and independent branch units, the Maguindanao Electric Cooperative, Inc.
(MAGELCO Main) and Maguindanao Electric Coorperative, Inc. Palma Area (MAGELCO-PALMA). NEA then
approved GA Resolution No. 4 and its transition plan. However, MAGELCO Main thereafter issued Board
Resolution No. 40, declaring the cancellation of the transition plan executed by and between MAGELCO
Main and MAGELCOPALMA. NEA then issued two letter-directives. In the first letter-directive, NEA
approved MAGELCO Main Board Resolution No. 40 and revoked its approval of MAGELCO Board
Resolution No. 4 which divided MAGELCO between MAGELCO Main and MAGELCO-PALMA. In the second
letter-directive, NEA declared that the PPALMA Area is under the coverage of COTELCO and not
MAGELCO Main or MAGELCO-PALMA. MAGELCO-PALMA then filed a petition challenging the two letter-
directives of NEA. The CA nullified the two letter-directives and ruled that the NEA, in dissolving
MAGELCO-PALMA, acted without jurisdiction.

Issue: whether or not the compromise agreement is valid

Held: No. PD 269 provides that the bylaws is a document which contains the basic rights and duties of
members and directors as well as provisions for the regulation and management of the affairs of the
cooperative. By analogy, in the case of corporations, the bylaws governs the internal affairs of the
corporation and the relationships between and among its members. The bylaws is intended as a guide in
the management of the activities of the cooperative and the relationships of its members. Amendments to
the bylaws, as such, affect only the management of the cooperative and its members. It is not a
mechanism by which new cooperatives are created. Section 4(m) outlines the extent of the NEA’s power
in connection with the disposition of properties necessary in the pursuit of the declared policy in favor of
nationwide electrification. Under PD 269, the NEA had the power to acquire assets which includes the
exercise of the right to eminent domain. This right is conditioned upon compliance with the appropriate
expropriation proceedings. Section 4(m), however, does not limit the NEA’s power to expropriation
alone. It, in fact, empowers the NEA to acquire properties by purchase or by any other means, as an agent
of a public service entity who shall, in turn, have the right to receive such properties. This section also
mentions that payment may be made directly by the public service entity or through reimbursement to
the NEA. The law recognizes a compromise agreement as a contract through which the parties, by making
reciprocal concessions, avoid litigation or put an end to one already commenced. Once judicially
approved, it becomes immediately final and executory. A judgment on compromise agreement is a
judgment on the merits and operates as res judicata. However, its effects must be understood within the
confines of the laws on contracts and the rules pertaining to res judicata in judicial decisions. A
compromise agreement is essentially a contract. As in the case of ordinary contracts, it is binding only
upon the parties. It cannot affect the rights of persons who did not sign it. We highlighted this doctrine
in Cebu International Finance Corporation v. Court of Appeals (CIFC), 316 SCRA 488 (1999). In CIFC, we
explained that a compromise agreement, even if judicially approved, is unenforceable against a nonparty.
Res judicata also limits the effect of a judgment to the parties to a case and their privies. A judgment is
conclusive only as to the parties and their successors in interest as to the matter directly adjudged or any
matter that could have been raised in the action. The effect of res judicata extends only to a litigation on
the same thing by the party or the successor-in-interest under the same title and in the same
 
action. While res judicata may operate in cases involving a different subject matter, the parties to the
latter action must involve the same parties to the previous judgment or their successors-in-interest. In
this instance, the prior judgment is res judicata only as to the issues directly adjudged and to matters that
were actually and necessarily included in such issues. Thus, a judgment on compromise agreement, while
it is final and immediately executory, binds only the parties who signed the contract. Moreover, precisely
because a judgment on compromise agreement has the force of res judicata, its binding effect must be
seen within the parameters within which res judicata finds application. A judgment on compromise
agreement is immediately final and executory. This general rule, however, allows for exceptions. While a
final and executory agreement is immutable and ought to be enforced, no execution will issue under the
following exceptions: (1) the correction of clerical errors; (2) the so-called nunc pro tunc entries which
cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the
finality of the decision rendering its execution unjust and inequitable. We rule that the last exception, the
presence of a supervening event, prevents the execution of the judgment on compromise agreement.
63. SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. v. COURT OF APPEALS
G.R. No. 129459. September 29, 1998

FACTS: The Case is a Petition for Review on Certiorari, assailing the March 18, 1997 Decision of the Court of
Appeals in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court
of Makati, Metro Manila, Branch 633 in Civil Case No. 89-3511 which dismissed both the Complaint and the
Counterclaim filed by the parties.

Plaintiff San Juan structural and Steel fabricators Inc.’s amended complaint alleged that on February 14, 1989,
plaintiff-appellant entered into an agreement with defendant Motorich Sales Corporation for the sale of a
parcel of land identified as lot 30, Block 1 of the Acropolis Greens Subdivision located in the district of Murphy,
Quezon City, Metro Manila containing an area of 414 square meters, covered by TCT No. 362909; through the
latter’s treasurer, Nenita Gruenberg. San Juan advanced P100,000.00 to Nenita as earnest money, the balance
to be paid on or before March 2, 1989. On the day agreed upon on which Nenita was supposed to deliver the
title of the land to Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent
demand of San Juan to comply with the contract hence San Juan sued Motorich.

Motorich, in its defense, argued that it is not bound by the acts of its treasurer, Nenita, since her act in
contracting with San Juan was not authorized by the corporate board. San Juan raised the issue that Nenita
was actually the wife of the President of Motorich; that Nenita and her husband owns 99.866% of the
corporation’s capital stocks; that as such, it is a close corporation and that makes Nenita and the President as
principal stockholders who do not need any authorization from the corporate board; that in this case, the
corporate veil may be properly pierced.

ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction is applicable since spouses
Nenita and Reynaldo Gruenberg own majority shares of the corporation.

RULING: NO. Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of
the Corporation Code defines a close corporation as follows: “SEC. 96. Definition and Applicability of Title.
—A close corporation, within the meaning of this Code, is one whose articles of incorporation provide
that: (1) All of the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued
stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this
Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code. 
The articles of incorporation of Motorich Sales Corp. does not contain any provision required under [Sec. 95 of
RCC], stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or
making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is
not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita
Gruenberg owned 99.866% of its subscribed capital stock. The “[m]ere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities.” So, too, a narrow distribution of ownership does not, by
itself, make a close corporation.

The Court is not unaware that there are exceptional cases where “an action by a director, who singly is the
controlling stockholder, may be considered as a binding corporate act and a board action as nothing more
than a mere formality.” The present case, however, is not one of them. As stated by petitioner, Spouses
Reynaldo and Nenita Gruenberg own “almost 99.866%” of Respondent Motorich. Since Nenita is not the sole
controlling stockholder of Motorich, the aforementioned exception does not apply.
64.Andaya v. Rural Bank of Cabadbaran
Facts: Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran. The transaction was
evidenced by a notarized document denominated as Sale of Shares of Stocks. Chute duly endorsed and
delivered the certificates of stock to Andaya and, subsequently, requested the bank to register the transfer
and issue new stock certificates in favor of the latter. Andaya also separately communicated with the bank's
corporate secretary, respondent Oraiz, reiterating Chute's request for the issuance of new stock certificates in
petitioner's favor. The bank eventually denied the request of Andaya. It reasoned that he had a conflict of
interest, as he was then president and chief executive officer of the Green Bank of Caraga, a competitor bank.

Respondent bank concluded that the purchase of shares was not in good faith, and that the purchase "could
be the beginning of a hostile bid to take-over control of the Rural Bank of Cabadbaran." Citing Gokongwei v.
Securities and Exchange Commission, respondent insisted that it may refuse to accept a competitor as one of
its stockholders. It also maintained that Chute should have first offered her shares to the other stockholders,
as agreed upon during the 2001 stockholders' meeting.

Andaya instituted an action for mandamus and damages to compel the recording of the transfer in the bank's
stock and transfer book and to issue new certificates of stock in his name. The RTC issued a Decision
dismissing the complaint. Citing Ponce v. Alsons Cement Corporation, the trial court ruled that Andaya had no
standing to compel the bank to register the transfer and issue stock certificates in his name. It explained that
he had failed "to show that the transfer of subject shares of stock was recorded in the stock and transfer book
of the bank or that he was authorized by Chute to make the transfer.
Issue: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling
the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue
new stock certificates in his name.

Ruling: Yes. Transferees of shares of stock are real parties in interest having a cause of action for mandamus
to compel the registration of the transfer and the corresponding issuance of stock certificates. Andaya has
been able to establish that he is a bona fide transferee of the shares of stock of Chute. In proving this fact, he
presented to the RTC the following documents evidencing the sale: (1) a notarized Sale of Shares of Stocks
showing Chute's sale of 2,200 shares of stock to petitioner; (2) a Documentary Stamp Tax Declaration/ Retum;
(3) a Capital Gains Tax Return; and ( 4) stock certificates covering the subject shares duly endorsed by Chute.
There is no doubt that Andaya had the standing to initiate an action for mandamus to compel the Rural Bank
of Cabadbaran to record the transfer of shares in its stock and transfer book and to issue new stock
certificates in his name. As the transferee of the shares, petitioner stands to be benefited or injured by the
judgment in the instant petition, a judgment that will either order the bank to recognize the legitimacy of the
transfer and petitioner's status as stockholder or to deny the legitimacy thereof.

Requiring the petitioner to register the transaction before he could institute a mandamus suit in supposed
abidance by the ruling in Ponce was a palpable error. It led to an absurd, circuitous situation in which Andaya
was prevented from causing the registration of the transfer, ironically because the shares had not been
registered. With the logic resorted to by the RTC, transferees of shares of stock would never be able to compel
the registration of the transfer and the issuance of new stock certificates in their favor. They would first be
required to show the registration of the transfer in their names – the ministerial act that is the subject of the
mandamus suit in the first place. The trial court confuses the application of the dicta in Ponce, which is
pertinent only to the issuance of new stock certificates, and not to the registration of a transfer of shares. As
Ponce itself provides, these two are entirely different events.
65.FLORETE, SR. V. FLORETE, JR., G.R. NO. 223321, [APRIL 2, 2018]
FACTS:
Marsal & Co., Inc. (Marsal) was organized as a close corporation by Marcelino Sr., Salome, Rogelio,
Marcelino Jr., Ma. Elena, and Teresita (all surnamed Florete). Paragraph 7 of its Articles of
Incorporation (AOI) provides for the procedure in the sale of the shares of stocks of a stockholder, to
wit:
x x x Any stockholder who desires to sell his share of stock in the company must notify in writing the
Board of Directors. The Board of Directors upon receipt of such notice must immediately notify all
stockholders of record within five days upon receipt of the letter of said stockholder. Any stockholder of
record has the preemptive right to buy any share offered for sale by any stockholder of the company on
book value base[d] on the balance sheet approved by the Board of Directors. Any sale or transfer in
violation of the above terms and conditions shall be null and void.

Teresita Florete Menchavez died and her estate included 3464 shares in Marsal. Ephraim, was the
husband of Terasita and special administrator of her estate. Atty. Muyco was the counsel of the
oppositor’s on the letters of administration case. Ephraim entered into a Compromise Agreement and
Deed of Assignment with petitioner Rogelio ceding all the shareholdings of Teresita including the
3,464 to petitioner. A Motion to Approve Compromise Agreement and Deed of Assignment filed by Atty.
Muyco was granted and approved. Atty. Muyco was the counsel of the oppositor’s on the letters of
administration case.
When Marcelino Florete Sr., patriarch of the Florete family, died. An intestate proceeding to settle
his estate was filed by petitioner Rogelio, who was later appointed as administrator of the estate.
Petitioner Rogelio filed a project of partition enumerating herein all the properties of the estate of
Marcelino Sr., the court approved the project of partition adjudicating to petitioner Rogelio one-half (½)
share of the whole estate; and to respondents the undivided one-fourth (¼) share each of the
enumerated properties. The Probate Court had noted the sale of all the shares of Teresita which she
inherited from her deceased parents to petitioner.

Respondents filed with the RTC a case for annulment/rescission of sale of shares of stocks and the exercise
of their preemptive rights in Marsal corporation and damages against petitioners herein represented by
their heirs. Respondents claimed that the sale of Teresita's 3,464 shares of stocks in Marsal made by
petitioner estate to petitioner Rogelio was void ab initio as it violated paragraph 7 of Marsal's AOI since the
sale was made sans written notice to the Board of Directors who was not able to notify respondents in writing
of the petitioner estate and heirs' intention to sell and convey the shares and depriving respondents of their
preemptive rights.

The RTC, as a Special Commercial Court, dismissed the complaint as the sale of Teresita's Marsal shares of
stocks to petitioner, being one of the incorporators and stockholders of Marsal at the time of sale, was not a
sale to a third party or outsider as would justify the restriction on transfer of shares in the AOI. The RTC also
found that laches and estoppel had already set in as respondents' inaction for 17 years constituted a neglect
for an unreasonable time to question the same; and that respondents could not feign ignorance of the
transactions as they knew of the same and yet they did not do anything at that time.

ISSUE:W/N the sale of Teresita’s shares is null and void

RULING: NO
Section 99 of the Corporation Code provides that even if the transfer of stocks is made in violation of the
enumerated restrictions, 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.
The sale of Teresita's 3,464 Marsal shares had already been consented to by respondents, and may be
registered in the name of petitioner Rogelio.

There was already substantial compliance with paragraph 7 of the AOI when respondents obtained actual
knowledge of the sale. In fact, respondent’s inaction for 17 years despite knowledge of the sale is in effect
a consent and conformity to such sale. They had already waived the procedure of the stockholder's sale of
stocks as provided under Paragraph 7 of the AOL

They had already waived the procedure of the stockholder's sale of stocks as provided under Paragraph 7
of the AOL While it would appear that petitioner estate of Teresita, through its administrator Ephraim
and petitioner Rogelio, did not comply with the procedure on the sale of Teresita's Marsal shares as
stated under paragraph 7 of the AOI, 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:

First. Atty. Muyco was not only acting as counsel of petitioner Rogelio but also of Marsal. Thus, it would
be impossible for Atty. Muyco, who had the duty to protect Marsal's interest in the intestate proceedings
of Teresita's estate, not to have informed respondents of such compromise agreement since they are the
stockholders and Board of Directors of Marsal who would be deprived of their preemptive right to the
Marsal shares.

Second. The sale Teresita's shares had also been made known to respondents in the intestate proceedings
to settle the estate of Marcelino Florete, Sr.

66. Bustos v Milan Shoe Inc

Facts:
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot  On 6 January 2004, the City
Government of Marikina levied the property for nonpayment of real estate taxes. The City Treasurer of
Marikina auctioned off the property, with petitioner Joselito Hernand M. Bustos emerging as the winning
bidder. Petitioner then applied for the cancellation of TCT of the lot. Meanwhile, notices of lis pendens were
annotated. These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC and
involved the rehabilitation proceedings for MSI (MILLIANS SHOE, INC), covered the subject property and
included it in the Stay Order issued by the RTC dated 25 October 2004.

On 26 September 2006, petitioner moved for the exclusion of the subject property from the Stay
Order. He claimed that the lot belonged to Spouses Cruz who were mere stockholders and officers of MSL
The RTC denied.CA affirmed RTC that properties of Spouses Cruz answerable for the obligations of MSI.
In their Comment, respondents., do not contest that Spouses Cruz own the subject property. Rather,
respondents assert that as stockholders and officers of a close corporation, they are personally liable for its
debts and obligations. Furthermore, they argue that since the Rehabilitation Plan of MSI has been approved,
petitioner can no longer assail the same.

Issue: whether or not the CA correctly considered the properties of Spouses Cruz answerable for the
obligations of MSI.

Ruling: NO. To be considered a close corporation, an entity must abide by the requirements laid out in Section
96 of the Corporation Code, which reads:
Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this
Code, is one whose articles of incorporation provide that: (1) All the corporation's issued stock
of all classes, exclusive of treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be
subject to one or more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or
 controlled by another corporation which is not a close corporation within the meaning of this
Code.
Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts  a
quo did not at all refer to the Articles of Incorporation of MSI. The Petition submitted by respondent in the
rehabilitation proceedings before the RTC did not even include those Articles of Incorporation among its
attachments.

Section 97 of the Corporation Code only specifies that "the stockholders of the corporation shall be subject to
all liabilities of directors." Nowhere in that provision do we find any inference that stockholders of a close
corporation are automatically liable for corporate debts and obligations.

Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for personal liability
of stockholders of close corporation, viz:chanRoblesvirtualLawlibrary
Sec. 100. Agreements by stockholders. -

x x x x5. To the extent that the stockholders are actively engaged in the management or

operation of the business and affairs of a close corporation, the stockholders shall be held to
strict fiduciary duties to each other and among themselves. Said stockholders shall
be personally liable for corporate torts unless the corporation has obtained reasonably
adequate liability insurance. (Emphasis supplied)
As can be read in that provision, several requisites must be present for its applicability. None of these were
alleged in the case of Spouses Cruz. Neither did the RTC or the CA explain the factual circumstances for this
Court to discuss the personally liability of respondents to their creditors because of "corporate torts."

We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a
legal personality separate and distinct from that of people comprising it. By virtue of that doctrine,
stockholders of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of the
stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the
property also of the corporation.

In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or character
against a debtor or its property, whether for money or otherwise. 23 In several cases,24 we have already held
that stay orders should only cover those claims directed against corporations or their properties, against their
guarantors, or their sureties who are not solidarily liable with them, to the exclusion of accommodation
mortgagors.25 To repeat, properties merely owned by stockholders cannot be included in the inventory of
assets of a corporation under rehabilitation.

Given that the true owner the subject property is not the corporation, petitioner cannot be considered a
creditor of MSI but a holder of a claim against respondent spouses.
67. Commissioner of Internal Revenue v. Club Filipino Inc. de Cebu
FACTS: Club Filipino, Inc. de Cebu is a civic corporation with an original authorized capital stock of
P22,000.00, which was subsequently increased to P200,000.00, among others, to it “provide, operate, and
maintain x x x all sorts of games not prohibited under general laws and general ordinances; and develop
and cultivate sports of every kind and any denomination for recreation and healthy training of its
members and shareholders.”
The Club owns and operates a club house, a bowling alley, a golf course, and a bar-restaurant for its
members and their guests, which was a necessary incident to the operation of the club. The club is
operated mainly with funds derived from membership fees and dues.
As a result of a capital surplus, arising from the increased value due to the revaluation of its real
properties, the Club declared stock dividends; but no actual cash dividends were distributed to the
stockholders.
A BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and
restaurant. The Collector of Internal Revenue assessed against and demanded from the Club the unpaid
percentage tax on the gross receipts plus surcharges. The Club requested for the cancellation of the
assessment. The request having been denied, the Club filed the instant petition for review.
ISSUE: W/N Club Filipino is a stock corporation.
RULING: NO. It is a non-stock corporation.
The fact that the capital stock of the respondent Club is divided into shares does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in
its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court
concluded that the Club is not engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital
stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar,
nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation,
within the contemplation of the corporation law.

68. Valley Golf & Country Club v. Vda. De Caram

The respondent’s deceased husband, Caram owned subscribed and fully paid for one share in the
capital stock of Valley Golf in 1961, and was correspondingly issued a Certificate of Stock for the said purchase.
Since 1980 Mr. Caram however stopped paying his monthly membership dues to the Valley Golf, and had not
paid the same despite continued demands for payment. As a consequence, he was declared a delinquent, and
his share was sold at public auction to satisfy his membership dues in 1987, in line with Valley Golf’s by-laws.
Unknown to Valley Golf, Mr. Caram had died in October 1986, and his heirs only came to know about the sale
of his share in Valley Golf during the settlement of his estate, forcing them to file a case for reconveyance with
SEC. SEC, SEC en-banc, and CA ruled in favor of Mrs. Caram holding that the By-Laws of the corporation does
not justify the sale of the shares of its member for non-payment of dues by virtue of Sec. 67 of the
Corporation Code.

ISSUE: WON a non-stock corporation seize and dispose of the membership share of a fully-paid member on
account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws
but not by the Articles of Incorporation?

RULING: No.

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock Corporations of the
Corporation Code dealing with the termination of membership in a non-stock corporation such as Valley Golf.    

Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for the
causes provided in the articles of incorporation or the by-laws. Termination of membership shall have
the effect of extinguishing all rights of a member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-laws. (Emphasis supplied)

A share can only be deemed delinquent and sold at public auction only upon the failure of the stockholder to
pay the unpaid subscription. Delinquency in monthly club dues was merely an ordinary debt enforceable by
judicial action in a civil case. A provision creating a lien upon shares of stock for unpaid debts, liabilities, or
assessments of stockholders to the corporation, should be embodied in the Articles of Incorporation, and not
merely in the by-laws. Moreover, the by-laws of petitioner should have provided formal notice and hearing
procedure before a member’s share may be seized and sold.

The procedure for stock corporation’s recourse on unpaid subscription is not applicable in member’s shares
in a non-stock corporation.

SC proceeded to declare the sale as invalid.  SC found that Valley Golf acted in bad faith when it sent the final
notice to Caram under the pretense they believed him to be still alive, when in fact they had very well known
that he had already died.  The Court stated:

Whatever the reason Caram was unable to respond to the earlier notices, the fact remains that at the
time of the final notice, Valley Golf knew that Caram, having died and gone, would not be able to settle
the obligation himself, yet they persisted in sending him notice to provide a color of regularity to the
resulting sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf Share, is
sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice
to Caram on the deliberate pretense that he was still alive could bring into operation Articles 19, 20 and 21
under the Chapter on Human Relations of the Civil Code. These provisions enunciate a general obligation
under law for every person to act fairly and in good faith towards one another. Non-stock corporations and its
officers are not exempt from that obligation.

69. Home Insurance Co. v. Eastern Shipping Lines [123 SCRA 424, July 20, 1983]
FACTS: S. Kajita, Co. shipped on board the SS Eastern Jupiter (owned by respondent) 2,361 coils of black
hot rolled copper wire rods to Phelps Dodge Copper Products Corporation of the Philippines (consignee).
The shipment was insured with petitioner against all risks. 53 of the coils were in bad order, 73 coils
were loose and partly cut and were considered as scrap. Upon weighing at CONSIGNEE's warehouse, the
2,361 coils were found to weigh 263,940.85 kilos as against its invoiced weight of 264,534.00 kilos or a
net loss/shortage of 593.15 kilos. Petitioner paid the consignee in accordance with the insurance policy,
by virtue of which plaintiff became subrogated to the rights and actions of the consignee. Petitioner
demanded payment from the respondent and the transportation company for reimbursement, but both
refused to pay. Petitioner filed a suit against respondent. Respondent contested the petitioner’s capacity
to sue, it being a foreign insurance corporation. The trial court
ISSUE: WON petitioner, as foreign insurance corporation, has the capacity to sue the respondent.
HELD: Yes. Petitioner was engaged in business without a license at the time the insurance contracts
were made, however petitioner’s subsequent registration prior to the filing of the suit against
respondent had already cured such defect. Therefore, it could already file a suit. The petitioner
averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the
Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala
Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court. The
petitioner sufficiently alleged its capacity to sue. The Court found the respondent’s general denials
inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment
that it is authorized to do so. At the very least, the private respondents should have stated particulars in
their answers upon which a specific denial of the petitioner's capacity to sue could have been based or
which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of
capacity to sue was not properly raised as an issue by the answers, the petitioner introduced
documentary evidence that it had the authority to engage in the insurance business at the time it filed the
complaints.
70. THE MENTHOLATUM CO., INC., ET AL vs ANACLETO MANGALIMAN, ET AL G.R. No. L-47701 June
27, 1941
FACTS:
Mentholatum Co., Inc., a Kansas corporation which manufactures Mentholatum, and the
Philippine-American Drug Co., Inc., its exclusive distributing agent in the Philippines authorized by it to
look after and protect its interests, instituted an action in the CFI of Manila gainst Anacleto Mangaliman
for infringement of trade mark and unfair competition with a prayer for an order restraining Anacleto
and Florencio Mangaliman from selling their product "Mentholiman,", which is registered by
Menthotalatum with the Bureau of Commerce, and directing them to render an accounting of their sales
and profits and to pay damages. The CFI of Manila ruled in favor of the complainants. The CA reversed the
decision of the lower court 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. Hence, this petition for certiorari.

ISSUES: (1) whether or not the petitioners could prosecute the instant action without having secured the
license required in section 69 of the Corporation Law; and (2) whether or not the Philippine-American
Drug Co., Inc., could by itself maintain this proceeding

HELD:
BOTH NO. Section 69 of Act No. 1459 reads: 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. In the present case, no dispute exists as to facts: (1) that the plaintiff, the
Mentholatum Co., Inc., is a foreign corporation; (2) that it is not licensed to do business in the Philippines.
The controversy, in reality, hinges on the question of whether the said corporation is or is not transacting
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. Indeed, each case must be judged in the light of its peculiar
environmental circumstances. 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. 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.

Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippine Islands of
the Mentholatum Co., Inc., in the sale and distribution of its product known as the Mentholatum. 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. And, 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.
71. Marubeni Nederland B.V. v. Tensuan, 190 SCRA 105 (1990)
FACTS: In Tokyo, Japan, petitioner Marubeni Nederland B.V. and D.B. Teodoro Development Corporation
(DBT for short) entered into a contract whereby petitioner agreed to supply all the necessary equipment,
machinery, materials, technical know-how and the general design of the construction of DBT's lime plant
at the Guimaras Islands in Iloilo for a total contract price of US$5,400,000.00 on a deferred payment
basis. Simultaneously with the supply contract, the parties entered into two financing contracts, namely a
construction loan agreement in the amount of US$1,600,000.00 and a cash loan agreement for
US$1,500,000.00. The obligation of DBT to pay the loan amortizations on their due dates under the three
(3) contracts were absolutely and unconditionally guaranteed by the National Investment and
Development Corporation (NIDC).
However, DBT through counsel, informed petitioner that it was rejecting the lime plant on the
ground that it has not been constructed in accordance with their agreement. DBT made a formal
demand for indemnification in the total amount of P95,150,000. 3 Petitioner refused to accept DBT's
unilateral rejection of the plant and reasoned that the alleged operation and technical problems were
"totally unrelated to the guaranteed capacity and specifications of the plant and definitely are not
attributable to any fault or omission on the part of Marubeni." 4
Before the first installment under the "Settlement Agreement" could be paid, private respondent Artemio
Gatchalian, a stockholder of DBT sued petitioner Marubeni for contractual breach. 5 In his complaint filed,
Gatchalian impleaded DBT as an "unwilling plaintiff . . . for whose primary benefit th(e) action (wa)s
being prosecuted" together with NIDC which, as pledgee of the voting shares in DBT has controlling
interest in that corporation. 6 Gatchalian sought indemnification in the amount of P95,150,000.00 and
prayed for a writ of preliminary injunction to enjoin DBT and NIDC from making directly or indirectly any
payment to Marubeni in connection with the contracts they had entered into. On June 25, 1982,
respondent judge issued a TRO directed against DBT and NIDC and set the injunction for hearing. 7
On July 5, 1982, petitioner Marubeni entered a limited and special appearance and sought the dismissal
of the complaint on the ground that the court a quo had no jurisdiction over the person of petitioner since
it is a foreign corporation neither doing nor licensed to do business in the Philippines.
Petitioner claims that it is a foreign corporation not doing business in the country and as an entity with
its own capitalization, it is separate and distinct from Marubeni Corporation, Japan which is doing
business in the Philippines through its Manila branch; that the three (3) contracts entered into with DBT
were perfected and consummated in Tokyo, Japan; that the sale and purchase of the machineries and
equipment for the Guimaras lime plant were isolated contracts and in no way indicated a purpose
to engage in business; and that the services performed by petitioner in the Philippines were merely
auxillary to the isolated transactions entered into and perfected outside the Philippines.
Private respondent Gatchalian contends that petitioner can be sued in Philippine courts on liabilities
arising from even a single transaction because in reality, it is already engaging in business in the country
through Marubeni Corporation, Manila branch and that they, together with Nihon Cement Company, Ltd.
of Japan are but "alter egos, adjuncts, conduits instruments or branch affiliates of Marubeni Corporation
of Japan", the parent company. 9
ISSUE: WON petitioner can be considered as "doing business" in the Philippines and therefore subject to
the jurisdiction of our courts.
RULING: YES. Contrary to petitioner's allegations, we hold that petitioner can be sued in the regular
courts because it is doing business in the Philippines. The applicable law is Republic Act No. 5455 as
implemented by the following rules and regulations of the Board of Investments which took effect on
February 3, 1969. Thus:
It cannot be denied that petitioner had solicited the lime plant business from DBT through the
Marubeni Manila branch. Records show that the "turn-key proposal for the . . . 300 T/D Lime Plant" was
initiated by the Manila office through its Mr. T. Hojo. In a follow-up letter dated August 3, 1976, Hojo
committed the firm to a price reduction of $200,000.00 and submitted the proposed contract forms. As
reflected in the letterhead used, it was Marubeni Corporation, Tokyo, Japan which assumed an active role
in the initial stages of the negotiation. Petitioner Marubeni Nederland B.V. had no visible participation
until the actual signing of the October 28, 1976 agreement in Tokyo and even there, in the space reserved
for petitioner, it was the signature. of "S. Adachi as General Manager of Marubeni Corporation, Tokyo on
behalf of Marubeni Nederland B.V." which appeared. 12
Even assuming for the sake of argument that Marubeni Nederland B.V. is a different and separate
business entity from Marubeni Japan and its Manila branch, in this particular transaction, at least,
Marubeni Nederland B.V. through the foregoing acts, had effectively solicited "orders, purchases (sales)
or service contracts" as well as constituted Marubeni Corporation, Tokyo, Japan and its Manila Branch as
its representative in the Philippines to transact business for its account as principal. These circumstances,
taken singly or in combination, constitute "doing business in the Philippines" within the contemplation of
the law.
At this juncture it must be emphasized that a foreign corporation doing business in the Philippines
with or without license is subject to process and jurisdiction of the local courts. If such corporation
is properly licensed, well and good. But it shall not be allowed, under any circumstances, to invoke its lack
of license to impugn the jurisdiction of our courts. 13
WHEREFORE, the petition is DISMISSED for lack of merit. Respondent Court is hereby directed to
proceed with the hearing of Civil Case No. Q-35534 with dispatch. This decision is immediately executory.
Costs against the petitioner.

72. Aetna Casualty & Surety Co. v. Pacific Star Line

Facts: Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee,
instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star Line, The
Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US
$2,300.00 representing the value of the stolen and damaged cargo
The complaint stated that the defendant Pacific Star Line, as a common carrier, was operating the vessel
SS Ampal on a commercial run between United States and Philippine Ports including Manila; that the
defendant, The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific
Star Line; that the Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the
port of Manila and were authorized to delivery cargoes discharged into their custody
SS Ampal delivered from New York cargo for which Star Line issued Bill of Lading with Shalom Co as
shipper and Judy Phil Inc as consignee. Due to the negligence of defendants, the shipment sustained
damages. Shalom Co filed a claim against defendants but they refused to pay. Since the shipment was
insured, Aetna paid the value of the cargo to Shalom Inc. Thus this action by Aetna as subrogee to the
rights of Shalom Inc.
The trial court dismissed the complaint because there has been a ruling that foreign corporation may file
a suit in the Philippines in isolated cases. But the case of the plaintiff here is not that. The evidence shows
that the plaintiff has been filing actions in the Philippines not just in isolated instances, but in numerous
cases and therefore, has been doing business in this country, contrary to Philippine law
Issue: WON Aetna Casualty & Surety Company, has been doing business in the Philippines
Held: No
Section 68 of the Corporation Law provides that "No foreign corporation or corporation formed,
organized, or existing under any laws other than those of the Philippines shall be permitted to transact
business in the Philippines until after it shall have obtained a license for that purpose from the Securities
and Exchange Commissioners . . . ." And according to Section 69 of said Corporation Law "No foreign
corporation or corporation formed, organized, or existing under any laws other than those of the
Philippines shall be permitted to transact business in the Philippines 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 ..."
It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be denied
the right to file an action in Philippine courts for isolated transactions
The object of Sections 68 and 69 of the 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. 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. 12
It cannot be said that the Aetna Casualty & Surety Company is transacting business of insurance in the
Philippines for which it must have a license. The contract of insurance was entered into in New York,
U.S.A., and payment was made to the consignee in its New York branch. It appears from the list of cases
issued by the Clerk of Court of the Court of First Instance of Manila that all the actions, except two (2)
cases filed by Smith, Bell & Co., Inc. against the Aetna Casualty & Surety Company, are claims against the
shipper and the arrastre operators just like the case at bar
Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of
insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not
barred from filing the instant case although it has not secured a license to transact insurance business in
the Philippines.
Dispositive: WHEREFORE, the decision appealed from is hereby set aside and the case is remanded to the
trial court for further proceedings to determine the liability of the defendants-appellees, without
pronouncements as to costs.

73.Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427 SCRA 593
There is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting” business in the
Philippines. Jurisprudence has it, however, that 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 or in progressive prosecution of the purpose and subject of its
organization.” By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is
one that is for profit-making.
FACTS: Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to do business
in the Philippines. Respondent Integrated Silicon is a private domestic corporation, 100% foreign owned,
which is engaged in the business of manufacturing and assembling electronics components.The juridical
relation among the various parties in this case can be traced to a 5-year Value Added Assembly Services
Agreement (VAASA), between Integrated Silicon and HP-Singapore. Under the terms of the VAASA, Integrated
Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its
part, was to consign raw materials to Integrated Silicon. The VAASA had a five-year term with a provision for
annual renewal by mutual written consent. Later, with the consent of Integrated Silicon, HP-Singapore
assigned all its rights and obligations in the VAASA to Agilent.
Later, Integrated Silicon filed a complaint for “Specific Performance and Damages” against Agilent and its
officers. It alleged that Agilent breached the parties’ oral agreement to extend the VAASA. Agilent filed a
separate complaint against Integrated Silicon for “Specific Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory Injunction, and Damages”.
Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal capacity to sue; litis
pendentia; forum shopping; and failure to state a cause of action.
ISSUE: Whether Agilent lacks the legal capacity to file suit, being an unlicensed foreign corporation doing
business in the Philippines
RULING: NO. The principles regarding the right of a foreign corporation to bring suit in Philippine courts may
thus be condensed in four statements: (1) if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts; (2) if a foreign corporation is not doing business in the
Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of
action entirely independent of any business transaction ; (3) if a foreign corporation does business in the
Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be
estopped from challenging the foreign corporation’s corporate personality in a suit brought before Philippine
courts; and (4) if a foreign corporation does business in the Philippines with the required license, it can sue
before Philippine courts on any transaction.
The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on what constitutes “doing”, “engaging in”, or “transacting”
business in the Philippines. Jurisprudence has it, however, that 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 or in progressive prosecution of the purpose and
subject of its organization.”. In the case at bar, the acts enumerated in the VAASA do not constitute “doing
business” in the Philippines. By and large, to constitute “doing business”, the activity to be undertaken in the
Philippines is one that is for profit-making. By the clear terms of the VAASA, Agilent’s activities in the
Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to
be used in the processing of products for export. As such, we hold that, based on the evidence presented thus
far, Agilent cannot be deemed to be “doing business” in the Philippines. Respondents’ contention that Agilent
lacks the legal capacity to file suit is therefore devoid of merit. As a foreign corporation not doing business in
the Philippines, it needed no license before it can sue before our courts.

74. MERRILL LYNCH FUTURES, INC. vs. HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA
and ELISA G. LARA July 24, 1992
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.
Because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions, Spouses
became indebted to ML FUTURES for US$84,836.27. The Lara Spouses however refused to pay alleging
that the transactions were null and void because Merrill Lynch Philippines, Inc. had no license to operate
as a 'commodity and/or financial futures broker.
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. was not 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.
RTC and CA: Dismissed the case because the plaintiff has no legal capacity to sue and that the complaint
states no cause of action.
ISSUE: Whether Merrill Lynch Futures is prohibited from suing in Philippine Courts for doing business in
the country without a license.
HELD: No. 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. There would seem to be no question that the Spouses received
benefits generated by their business relations with ML. Those business relations, spanned a period of 7
years; and they evidently found those relations to be of such profitability as warranted their maintaining
them for that not insignificant period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML much, much earlier. Considerations of equity dictate that, at the very
least, the issue of whether the Spouses are in truth liable to ML and if so in what amount, and whether
they were so far aware of the absence of the requisite licenses on the part of ML and its Philippine
correspondent, as to be estopped from alleging that fact as defense to such liability, should be ventilated
and adjudicated on the merits by the proper trial court.
75. LINGER & FISHER GMBH v. IAC
Facts:
DMW and PHILCHEM executed a so-called Agency AGREEMENT the basic provision of which was that
PHILCHEM would be the exclusive importer of the PRODUCTS into the Philippines. The benefit to
PHILCHEM would be the profits realized from re sale in this country of imported PRODUCTS. Other
relevant provisions, generally stated, were that:
(a) After termination of the AGREEMENT, PHILCHEM will be entitled, for five years, to 10% royalty on
sales of PRODUCTS in the Philippines (hereinafter to be referred to as the ROYALTY CLAUSE).
(b) "All legal settlements within the compass of this AGREEMENT shall fall under the jurisdiction
of Philippine courts."
Subsequently, the DMW interests were acquired by LINGNER & FISHER GMBH LINGNER for brevity). On
other hand, LINGNER was a subsidiary of BEECHAM GROUP LTD. which, through BEECHAM PRODUCTS
INTERNATIONAL (BEECHAM, for brevity), had opened an office in Philippines.
PHILCHEM presented a claim to LINGNER for P1,055,000.00 under the ROYALTY CLAUSE. The claim was
discussed between PHILCHEM and TANNER of BEECHAM with the intervention of the Law Firm. No
settlement having been arrived at, PHILCHEM, on August 6, 1980, filed a complaint against BEECHAM
alone in Civil Case No. 38086 of the then Court of First Instance of Rizal. The summons issued could
not be served on BEECHAM, the Sheriff having reported that BEECHAM was neither a company
registered in the Philippines. PHILCHEM then filed an amended complaint, this time making LINGNER
and BEECHAM as the defendants, and pleading that summons could be served on the Law Firm as an
agent of the defendants. LINGNER, moved for dismissal on the grounds (a) that LINGNER was not a
foreign corporation doing business in the Philippines and hence could not be sued locally, and, (b) that
LINGNER could not be served with summons through the Law Firm.
ISSUES:
(1) whether or not the determination if LINGNER was doing business in the Philippines is necessary; and
(2) whether or not summons to the firm was valid.
HELD:
(1) NO. It is no longer necessary in view of the fact that PHILCHEM and LINGNER were contractees in the
AGREEMENT and the claim of PHILCHEM is based on the ROYALTY CLAUSE of that AGREEMENT.
Whether LINGNER is or is not doing business in the Philippines will not matter because the parties
had expressly stipulated in the AGREEMENT that all controversies based on the AGREEMENT "shall
fall under the jurisdiction of Philippine courts". In other words, there was a covenant on venue to the
effect that LINGNER can be sued by PHILCHEM before Philippine Courts in regards to a controversy
related to the AGREEMENT.

(2) YES. For the expeditious determination of this controversy, therefore, in view of the insufficiency of
evidence that LINGNER is doing business in the Philippines, which is a sine qua non requirement
under the provision of Section 14, Rule 14 1 of the Rules before service of process can be effected
upon a foreign corporation and jurisdiction over the same may be acquired, it is best that alias
summons on LINGNER be issued, in this case under the provisions of Section 17, Rule 14, 2 in
relation to Rule 4 of the Rules of Court, which recognizes the principle that venue can be
agreed upon by the parties. If a local plaintiff and a foreign corporation have agreed on
Philippine venue, summons by publication can be made on the foreign corporation under the
principle of liberal construction of the rules to promote just determination of actions.

76. Home Insurance Co. v. Eastern Shipping Lines

Facts:

Consolidated cases: L-34382 S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development
Corporation, shipped on board the “SS Eastern Jupiter” from Osaka, Japan, 2,361 coils of "Black Hot Rolled
Copper Wire Rods." The said vessel is owned and operated by Eastern Shipping Lines (Eastern). The shipment
was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge Copper Products Corporation of
the Philippines (Phelps Dodge) at Manila. The shipment was insured with Home Insurance Co. against all risks
in the amount of P1.5M in favor of the consignee, Phelps Dodge. Some of the coils discharged from the vessel
were in bad order.

Some were loose and partly cut, and some were entangled, partly cut, and which had to be considered
as scrap. So Home Insurance Co. paid Phelps Dodge under its insurance policy which plaintiff became
subrogated to the rights and actions of Phelps Dodge. Home Insurance Co. made demands for payment
against the Eastern and the transportation company for reimbursement of the aforesaid amount but each
refused to pay the same. L-34383 Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of
Service Parts of Farm Equipment and Implements on board the vessel, SS "NEDER RIJN" owned by the
defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant
Columbian Philippines, Inc. (Columbian). The shipment was covered by Bill of Lading No. 22 for transportation
to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. (Harvester). The
shipment was insured with Home Insurance Co. The packages discharged from the vessel were found to be in
bad order and the delivery was short of one package. Home Insurance then paid the consignee, Harvester
under its Insurance Cargo Policy Demands were made on N. V. Nedlloyd Lijnen and Columbian for
reimbursement thereof but they failed and refused to pay the same.

Issue: Whether Home Insurance, a foreign corporation licensed to do business at the time of the filing of the
case, has the capacity to sue for claims on contracts made when it had no license yet to do business in the
Philippines

Held:

Yes. There is no question that the contracts are enforceable. The requirement of registration affects only
the remedy. Section 133 of the present 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 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.

The prohibition against doing business without first securing a license is now given penal sanction which is also
applicable to other violations of the Corporation Code under the general provisions of Section 144 of the
Code. This implies that failure of a foreign corporation to do obtain license to do business, when one is
required, does not affect the validity of the transactions, but simply removes the legal standing of such foreign
corporation to sue. (from CLV) Therefore, it is not necessary to declare the contract null and void because the
penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient
from the viewpoint of legislative policy. The lack of capacity at the time of the execution of the contracts was
cured by the subsequent registration is also strengthened by the procedural aspects of these cases.
We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the
light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that “a party desiring to
raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a
representative capacity shall do so by specific denial, which shall include such supporting particulars as are
particularly within the pleader’s knowledge. At the very least, the private respondents should have stated
particulars in their answers upon which a specific denial of the petitioner’s capacity to sue could have been
based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff’s lack of
capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary
evidence that it had the authority to engage in the insurance business at the time it filed the complaints as
Home Insurance averred in its complaints that it is a foreign insurance company, that it is authorized to do
business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan
Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of
Court. Home Insurance sufficiently alleged its capacity to sue.
77. Ient vs. Tullett Prebon (Philippines), Inc.
FACTS: Tradition Group, where petitoners herein are employed, and Tullett are competitors in the inter-
dealer broking business. On the Tradition Group’s motive of expansion and diversification in Asia,
petitioners lent and Schulze were tasked with the establishment Tradition Financial Services Philippines,
Inc.
However, Tullett, filed a Complaint-Affidavit with the City Prosecution Office of Makati City against the
officers/employees of the Tradition Group for violation of Sections 31 and 34 of the Corporation Code
which made them criminally liable under Section 144. Impleaded as respondents in the Complaint-
Affidavit were petitioners lent and Schulze, Jaime Villalon ,who was formerly President and Managing
Director of Tullett, Mercedes Chuidian who was formerly a member of Tullett’s Board of Directors.
Villalon and Chuidian were charged with using their former positions in Tullett to sabotage said company
by orchestrating the mass resignation of its entire brokering staff in order for them to join Tradition
Philippines which was evident on their conduct of several meetings with the employees. According to
Tullett, petitioners lent and Schulze have conspired with Villalon and Chuidian in the latter’s acts of
disloyalty against the company.
Petitioners argued that there could be no violation of Sections 31 and 34 of the Corporation as these
sections refer to corporate acts or corporate opportunity, that Section 144 of the same Code cannot be
applied to Sections 31 and 34 which already contains the penalties or remedies for their violation; and
conspiracy under the Revised Penal Code cannot be applied to the Sections 31 and 34 of the Corporation
Code. The city prosecutor dismissed the criminal complaint however, on respondent’s appeal to the
Department of Justice, the dismissal was reversed finding the arguments of the respondent proper.
CA affirmed the decision of the DOJ secretary.
ISSUE: W/N Sections 31 and 34 of the Corporation Code are considered as offenses
RULING: No. The Corporation Code was intended as a regulatory measure, not primarily as a penal
statute. Sections 31 to 34 in particular were intended to impose exacting standards of fidelity on
corporate officers and directors but without unduly impeding them in the discharge of their work with
concerns of litigation. Considering the object and policy of the Corporation Code to encourage the use of
the corporate entity as a vehicle for economic growth, we cannot espouse a strict construction of Sections
31 and 34 as penal offenses in relation to Section 144 in the absence of unambiguous statutory language
and legislative intent to that effect. When Congress intends to criminalize certain acts it does so in plain,
categorical language, otherwise such a statute would be susceptible to constitutional attack. As earlier
discussed, this can be readily seen from the text of Section 45(j) of Republic Act No. 8189 and Section 74
of the Corporation Code. We stress that had the Legislature intended to attach penal sanctions to Sections
31 and 34 of the Corporation Code it could have expressly stated such intent in the same manner that it
did for Section 74 of the same Code.
The Supreme Court applied the rule of lenity as a principle related to liberal interpretation in favor of the
accused in criminal cases. The rule applies when the court is faced with two possible interpretations of a
penal statute, one that is prejudicial to the accused and another that is favorable to him. The rule calls for
the adoption of an interpretation which is more lenient to the accused.
78. Wise Holdings vs Garcia
Facts: Petitioners Eduardo Jose Alinio (Aliiio) and Vicente J. Campa (Campa) are members ofthe Board
ofDirectors ofWise Holdings and officers ofWise Foods. Petitioners averred that Wise Holdings, through
Campa, incorporated and organized Sunrich Manufacturing Corporation (Sunrich), which took over Wise
Foods, and transferred all of Wise Foods' assets - from fixed assets such as machinery, equipment, land,
manufacturing and production facilities, and buildings, to raw materials, inventories, accounts, contractual
rights, receivables, prepayments, business contracts, suppliers and customers, products, processes and
services, as well as licenses, privileges, and goodwill - to Sunrich in an asset-for-share swap. In tum, Sunrich
was obligated to issue all its shares of stock to Wise Holdings as the sole stockholder of Wise Foods.7 Wise
Holdings added that Sunrich is substantially a continuation ofWise Holdings' prior investment in Wise Foods.
Allegedly, Wise Holdings caused the registration of Sunrich's subscribed shares under its trusted
officers in Wise Foods, namely: respondents Francisco P. Garcia, Cynthia T. Alarcon, Salvacion M. Manalo,
Cesar C. Araneta, Rogelius Caesar Munsayac, Leila D. Tomes and Melissa T. Samia.9 Wise Holdings claimed
that respondents are mere trustees, nominees and/or representatives, who hold the stocks in their respective
names for and in behalf of Wise Holdings, which is the real beneficial owner ofthe shares.
Sometime after Sunrich's incorporation, however, respondent Francisco Garcia's group transferred the shares
entrusted to them by Wise Holdings to respondents Francisco Vicente V. Garcia and Michael Angelo P. Garcia,
which resulted in the change of composition ofthe shareholdings by May 7, 2010.
According to Wise Holdings, on March 9, 2011, it demanded from Francisco P. Garcia, in his own
capacity and in behalf of the other respondents, the conveyance of the ownership, interests and benefits
pertaining to the subject shares of stock, remittance and/or accounting of all the income and/or dividends due
to the shares,
recording of the foregoing stock subscriptions in the name of Wise Holdings, and the issuance to the latter of
the corresponding certificates of stock, but respondents refused to comply with Wise Holdings' valid demands.
Issue: Whether the cause of action in petitioners' complaints refers to an intra-corporate dispute under the
jurisdiction of commercial courts.
Ruling: No. When controversies involving intra-corporate disputes were still under the jurisdiction o f the
Securities and Exchange Commission (SEC) pursuant to Presidential Decree (P.D.) No. 902-A,32 the Court
applied the "relationship test" to determine whether an issue is intra- corporate and is within the SEC's
competence to resolve. This test
requires the existence o f any o f the intra-corporate relationship between the parties under Section 5(b) of
P.D. No. 902-A, which reads:
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation, partnership or
association o f which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity;
In 1984, however, DMRC Enterprises v. Este Del Sol Mountain Reserve, Inc. introduced the second test,
or what is presently called as the "nature ofthe controversy test." The fact that the case involves shares of
stock to be used as payment for lease rentals does not convert it into an intra-corporate
controversy.
In fact, the greater part of the petitioner's claim is in terms of cash or money. To pass upon a money
claim under a lease contract would be beyond the competence of the Securities and Exchange Commission
and to separate the claim for money from the claim for shares of stock would be splitting a single cause of
action resulting in a multiplicity of suits.
 Thereafter, the Court declared it a "better policy" to consider both the relationship of the parties and
the nature of the question that is the subject of the controversy in determining which body hasjurisdiction
over a dispute.
Even when the jurisdiction of the SEC over intra-corporate disputes, with the exception of those
already submitted for decision, was already transferred to the RTCs by virtue of Republic Act No. 8799, the
Court, nevertheless, continuously observes the two-tier tests.
Applying the two tests in the present case, we rule that the cause of action in petitioners' complaints is
an ordinary civil case and not an Intra-Corporate Controversy.
First, there is no corporate relationship between petitioners and Sunrich, whose shares of stock are the
subject of the controversy. While Wise Holdings is asserting real ownership of the shares of stock in Sunrich,
Wise Holdings acknowledges that such ownership is not registered in Sunrich's books.
Second, the nature of the controversy in the present case does not refer to an intra-corporate dispute.
The nature of the controversy test requires that the issue in the complaint must refer 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.
Here, the allegations of the complaint show on their face that the action is for reconveyance of
property in recognition of trust. Petitioners seek the return of all the shares of stock of Sunrich, of which they
are the real and beneficial owners.