CASE DIGEST

Case # 1
PETRONILO J. BARAYUGA, petitioner, vs. ADVENTIST UNIVERSITY OF THE PHILIPPINES,
THROUGH ITS BOARD OF TRUSTEES, REPRESENTED BY ITS CHAIRMAN, NESTOR D.
DAYSON, respondents.

FACTS:
Adventist University of the Philippines (AUP for brevity) is a non-stock and non-profit domestic
educational institution incorporated under Philippine laws directly under the North Philippine
Union Mission (NPUM).

NPUM Executive Committee elected members of the Board of Trustees of AUP, including the
Chairman and the Secretary. Respondent Nestor D. Dayson was elected Chairman while the
petitioner was chosen Secretary.

After almost two months, the Board of Trustees appointed the petitioner as the President of AUP.
During his tenure, a group from NPUM conducted an external performance audit. The audit
concluded that he had committed serious violations of fundamental rules and procedure in the
disbursement and use of funds.

The members of Board of Trustees held a special meeting wherein the members, by secret ballot,
voted to remove petitioner Barayuga as President.

Petitioner brought his suit for injunction and damages in the RTC alleging that the Board of
Trustees had relieved him as President without valid grounds despite his 5-year term; that the
Board of Trustees had acted in bad faith; and that his being deprived of his right to due process.

RTC granted the petitioner’s application for a writ of preliminary injunction.

The respondents filed a petition for certiorari in the CA contending that the complaint did not meet
the requirement that an injunctive writ should be anchored on a legal right; and that he had been
merely appointed, not elected, as President for a term of office of only two years, not 5 years,
based on AUP’s amended By-laws.

The CA rendered its decision nullifying the RTC’s writ of preliminary injunction. It rejected the
petitioner’s argument that AUP’s Constitution and By-laws provided a 5-year term for him,
because the provision is inexistent.

ISSUE:
Whether the petitioner had no legal right to the position of President of AUP that could be
protected by the injunctive writ issued by the RTC.

RULING:
Petition is already moot. The mootness of the petition warranted its denial.

The injunctive writ issued by the RTC was meant to protect the petitioner’s right to stay in office
as President. Given that the lifetime of the writ of preliminary injunction was co-extensive with the
duration of the act sought to be prohibited, this injunctive relief already became moot in the face
of the admission by the petitioner that his term of office premised on his alleged 5-year tenure as
President had lasted only until December 2005.
The petitioner’s assertion of a 5-year duration for his term of office lacked legal basis.

AUP’s amended By-laws provided the term of the members of the Board of Trustees, and the
period within which to elect the officers.

The members of the Board of Trustees were to serve a term of office of only two years; and the
officers, who included the President, were to be elected from among the members of the Board
of Trustees during the organizational meeting, which was held during the election of the Board of
Trustees every two years.

The petitioner, having assumed as President of AUP on January 23, 2001, could serve for only
two years, or until January 22, 2003, he was already occupying the office in a hold-over capacity,
and could be removed at any time, without cause, upon the election or appointment of his
successor.

The removal of the petitioner as President of AUP, being made in accordance with the AUP
Amended By-laws, was valid.

PETITION DENIED.

Case # 2
WESTERN INSTITUTE OF TECHNOLOGY, INC vs. SALAS

FACTS:
Private respondents, belonging to the same family, are the majority and controlling members of
the Board of Trustees of Western Institute of Technology (WIT for brevity), a stock corporation
engaged in the operation of an educational institution.

Petitioners filed a complaint against private respondents for the alleged estafa and falsification of
public document. The charge for falsification of public document was anchored on the private
respondents’ submission of WIT’s income statement with SEC reflecting therein the disbursement
of corporate funds for the compensation of private respondents, making it appear that the same
was passed by the board, when in truth, it was actually passed on a date not covered by the
corporation’s fiscal year 1985-1986.

After a full-blown hearing, Judge Parian handed down a verdict of acquittal on both count without
imposing any civil liability against the accused.

ISSUES:
Whether private respondents are obliged to return the salaries/compensation to the corporation
with interest.
Whether the case is a derivative suit brought by petitioners as minority shareholders of WIT for
and behalf of the corporation.

RULING:
There is no argument that directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that directors/trustees render service gratuitously,
and that the return upon their shares adequately furnishes the motives for service, without
compensation.
Under sec. 30 of the Corporation Code, there are only two (2) ways by which members of the
board can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the By-laws fixing their compensation; and
(2) when the stockholders representing a majority of the outstanding capital stock at a regular or
special stockholders’ meeting agree to give it to them.

Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their
capacity as members of the board, but rather as officers of the corporation, particularly as
Chairman, Vice-chairman, Treasurer and Secretary of WIT. Thus, the prohibition with respect to
granting compensation to corporate directors/trustees is not violated.

The Court is not persuaded by petitioners’ assertion that the case is a derivative suit.

A derivative suit is an action brought by minority shareholders in the name of the corporation to
redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed
by equity and has been the principal defense of the minority shareholders against abuses by the
majority.

Here, the case is not a derivative suit but is merely an appeal on the civil aspect of the criminal
cases filed with RTC for estafa and falsification of public document. Among the basis
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and
on behalf of the corporation must allege in his complaint before the proper forum that he is suing
on a derivative cause of action on behalf of the corporation and all other shareholders similarly
situated who which to join.

PETITION DENIED.

Case # 3
ANNA TENG vs. SECURITIES AND EXCHANGE COMMISSION AND TING PING LAY

FACTS:
Respondent Ting Ping purchased the following number shares of TCL Sales Corporation:
(1) 480 shares from Peter Chiu
(2) 1,400 shares from his brother Teng Ching Lay, who was also the President and operations
manager of TCL
(3) 1,440 shares from Ismaelita Maluto

Upon Teng Ching’s death, his son Henry Teng took over the management of TCL. To protect his
shareholdings with TCL, Ting Ping 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. Ting Ping filed a petition for mandamus with
the SEC against TCL and Teng.

ISSUES:
The core question before the Court is 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.
RULING:
A certificate of stock is a written instrument signed by the proper officer of a corporation stating
or acknowledging that the person named in the document is the owner or a designated number
of shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation.
A certificate, however, is merely tangible evidence of ownership of shares of stock. It is not a
stock in the corporation and merely expresses the contract between the corporation and the
stockholder. The shares of stock evidenced by said certificates, meanwhile, are regarded as
property and the owner of such shares may, as a general rule, dispose of them as he sees fit,
unless the corporation has been dissolved, or unless the right to do so is properly restricted, or
the owner’s privilege of disposing of his shares has been hampered by his own action.

Section 63 of the Corporation Code prescribes the manner by which a share of stock may be
transferred. Under the provision, certain minimum requisites must be complied with for there to
be a valid transfer of stocks, to wit:
(a) there must be delivery of the stock certificate;
(b) the certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and
(c) to be valid against third parties; the transfer must be recorded in the books of the
corporation.

It is the delivery of the certificate, coupled with the endorsement by the owner or his duty
authorized representative that is the operative act of transfer of shares from the original owner to
the transferee.

The delivery 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.

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 Court stressed that a corporation, either by its
board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers. In
transferring stock, the secretary of a corporation acts in purely ministerial capacity and does not
try to decide the question of ownership.

Upon registration of the transfer in the books of the corporation, the transferee may now then
exercise all the rights of a stockholder, which include the right to have stocks transferred to his
name.

The manner of issuance of certificates of stock is generally regulated by the corporation’s by-
laws. In Bitong v. CA, the Court outlined the procedure for the issuance of new certificates of
stock in the name of a transferee. The surrender of the original certificate of stock is necessary
before the issuance of a new one so that the old certificate may be cancelled. A corporation is not
bound and cannot be required to issue a new certificate unless the original certificate is produced
and surrendered. Surrender and cancellation of the old certificates serve to protect not only the
corporation but the legitimate shareholder and the public as well, as it ensures that there is only
one document covering a particular share of stock.
In the case at bench, Ting Ping manifested from the start his intention to surrender the subject
certificates of stock to facilitate the registration of the transfer and for the issuance of new
certificates in his name. it would be sacrificing substantial justice if the Court were to grant the
petition simply because Ting Ping is yet to surrender the subject certificates for cancellation
instead of ordering in this case such surrender and cancellation, and the issuance of new ones in
his name.

PETITION DENIED.

Ting Ping is ordered to surrender the certificates of stock. Anna Teng is ordered, under the pain
of contempt, to immediately cancel certificates and issue new ones in the name of Ting Ping Lay.

Case # 4
MAKATI SPORTS CLUB, INC (MSCI) vs. CECILE H. CHENG, MC FOODS, INC, RAMON
SABARRE

FACTS:
MSCI Board of Directors adopted a resolution authorizing the sale of 19 unissued shares at a
floor price of P400,000 and P450,000 per share for Class A and B, respectively.

Defendant Cheng was the Treasurer and Director of MSCI.

Hodreal expressed his interest to buy a share which he requested in a letter that his name be
included in the waiting list.

Mc Foods also expressed interest in acquiring a share of MSCI, and one was acquired with the
payment of P1,800,000. A Deed of Absolute Sale was executed by MSCI and Mc Foods Stock
Certificate was issued to Mc Foods on January 5, 1996.

On December 27, 1995, Mc Foods sent a letter to MSCI giving advise of its offer to resell the
share.

On February 27, 1996, MSCI was advised of the sale by Mc Foods to Hodreal of the share. A
new certificate was issued.

MSCI sought judgement that would order respondents to pay the sum of P1,000,000 representing
the amount allegedly defrauded by Cheng as she profited from the transaction because of her
knowledge.

ISSUES:
Whether Cheng confabulated with Mc Foods by providing it with information as to the status of
the shares of stock and facilitated the transfer of ownership of the subject share of stock from Mc
Foods to Hodreal, instead of an original, unissued share of stock.
Whether Mc Foods violated MSCI’s amended by-laws on its pre-emptive rights.

RULING:
It is noteworthy that Hodreal already expressed to MSCI his intent to purchase one Class A share
and even requested if he could be included in the waiting list of buyers. However, there is no
evidence on record that the MSCI Committee acted on this letter by replying to Hodreal if there
still were original, unissued shares then or of he would indeed be included in the waiting list of
buyers.

While Punzalan declared that she received a Deed of Absolute Sale between MSCI and Mc Foods
of a Class A share for 1,800,000 signed by Atty. Rico Domingo and Cheng, in their capacity as
President and Treasurer of MSCI, and by Ramon Sabarte, as President of Mc Foods, what she
merely did was to inquire from her immediate superior what share to issue; and the latter, in turn,
replied that it should be an original share. Thereafter, Punzalan prepared a letter for the issuance
of the corresponding certificate of stock. Then, Certificate was issued in favor if Mc Foods.

Charged with ascertaining the compliance of all the requirements for the purchase of MSCI’s
shares of stock, the Membership Committee failed to question the alleged regularities attending
Mc Foods purchase of one Class A share at P1,800,000.

The purchase price of P1,800,000 cannot be said to be detrimental to MSCI considering that it is
the same price paid for a Class A share in the last sale of an original share to LBP and in the sale
by Marina Properties Corporation to Xanland Properties. These circumstances have not been
denied by MSCI.

There is nothing wrong with the fact that the first installment paid by Hodreal preceded the
payment of Mc Foods became the owner of a Class A share covered by the Certificate A 2243.
Upon payment by Mc Foods of P1,800,000 to MSCI and the execution of the Deed of Absolute
Sale, it then had the right to demand the delivery of eh stock certificate in its name. the right of a
transferee to have stocks transferred to its name is an inherent right flowing from its ownership of
the stocks.

The Court disagree on MSCI stance that Mc Foods violated the amended by-laws on its pre-
emptive rights.

When Mc Foods offered for sale one Class A share of stock to MSCI for the price of P2,800,000
for the latter to exercise its pre-emptive right, it legally had the right to do so since it was already
an owner of a Class A share by virtue of its payment and the Deed of Absolute Sale,
notwithstanding the Stock Certificate.

A 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 status in the corporation, his ownership of the share represented thereby.

Therefore, Mc Foods properly complied with the requirement of the Amended By-laws on MSCI’s
pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods Class A share within the
30 day pre-emptive period as provided by the Amended By-laws.

Moreover, MSCI’s ardent position that Cheng was in cahoots with the Mc Foods in depriving it of
selling an original, unissued Class A share of stock for P2,800,000 is not supported by the
evidence on record. The mere fact that she performed acts upon authority of Mc Foods do not by
themselves, individually or taken together, show badges of fraud, since Mc Foods did acts well
within its rights and there is no proof that Cheng personally profited from the assailed transaction.

PETITION DENIED.
Case # 5
CALATAGAN GOLF CLUB, INC. vs SIXTO CLEMENTE JR.

FACTS:
Clemente applied to purchase one share of stock of Calatagan indicating in his application for
membership his mailing address at “Phimco Industries, Inc. – P.O. Box 240, MCC”, complete
residential address, office and residence telephone numbers, as well as the company (Phimco)
with which he was connected, Calatagan issued to him Certificate of Stock after paying P120,000
for the share.

Calatagan charges monthly dues on its members to meet expenses for general operations, as
well as costs for upkeep and improvement of the grounds and facilities. The provision on monthly
dues is incorporated in Calatagan’s Articles of Incorporation and By-laws.

Clemente became a member the monthly charge stood at P400. He paid his monthly dues on
March and December 1991. Then he ceased paying the dues.

10 months later, Calatagan made the initial step to collect Clemente’s back accounts by sending
a demand letter. Two demand letters were sent to Clemente’s mailing address as indicated in his
membership application but were sent back to sender with the postal note that the address had
been closed.

Calatagan declared Clemente delinquent and also included his name in the list of delinquent
members posted on the club’s bulletin board. Calatagan’s board of directors adopted a resolution
authorizing the foreclosure of shares of delinquent members, including Clemente’s; and the public
auction of these shares.

Calatagan sent a third and final letter to Clemente, this time signed by its Corporate Secretary,
Atty. Tanedo Jr. The letter contains a warning that unless Clemente settles his outstanding dues,
his share would be included among the delinquent shares to be sold at public auction. Again, this
letter was sent to Clemente’s mailing address that had already been closed.

A notice of auction was posted, and the auction sale took place as scheduled, and Clemente’s
share was sold.

Clemente learned of the sale of his share after 4 years. He filed a claim seeking the restoration
of his shareholding in Calatagan with damages.

ISSUES:
Whether the action of Clemente had prescribed pursuant to section 69 of the Corporation Code
and that the requisite notices under both the law and the by-laws had been rendered to Clemente.
Whether Calatagan exercised due diligence before the foreclosure sale.

RULING:
There are fundamental differences that defy equivalence or even analogy between the sale of
delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale
of delinquent stock is the non-payment of the subscription price for the share of stock itself. The
stockholder or subscriber has yet to fully pay for the value of the shares subscribe.

In this case, Clemente had already fully paid for the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title to his share.
Calatagan argues that Clemente’s suit is barred by Article 1146 of the Civil Code which
establishes 4 years as the prescriptive period for actions based upon injury to the rights of the
plaintiff on the hypothesis that the suit is purely for damages. It also posits that Clemente’s action
is governed by Article 1149 of the Civil Code which sets 5 years as the period of prescription for
all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law.
neither article is applicable but Article 1140 of the Civil Code which provides that an action to
recover movables shall prescribe in 8 years. Clemente’s action is for the recovery of a share of
stock, plus damages.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to
govern the payment of monthly dues, the declaration of a member as delinquent, and the
constitution of a lien on the shares and its eventual public sale to answer for the member’s debts.

The By-law provisions are elaborate in explaining that the member should be notified by the
Secretary of the looming execution sale that would terminate membership in the club.

The Court presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and
on the standards of good faith and fairness that the law requires. As custodian of corporate
records, he should have known that the first two letters sent to Clemente were returned because
the P.O. Box had been closed. Thus, the Court is surprised - given his knowledge of the law and
of corporate records- that he would send the third and final letter – Clemente’s last chance before
his share is sold and his membership lost – to the same P.O. Box that had been closed.

The Court does not agree with Calatagan that it exercised due diligence before the foreclosure
sale. Due diligence or good faith imposes upon the Corporate Secretary the obligation to check
Clemente’s other address which, under the By-laws, have to be kept on file and are in fact on file.

Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and
letter of its own by-laws. The by-law provisions was clearly conceived to afford due notice to the
delinquent member of the impending sale, and not just to provide an intricate façade that would
facilitate Calatagan’s sale of the share.

PETITION DENIED.