Golf the same class as the Golf Share to respondent. Damages totaling P90,000.

00 were also
awarded to respondent.
By-Laws

VALLEY GOLF & COUNTRY CLUB, INC., VS. ROSA O. VDA. DE CARAM, G.R. The SEC hearing officer noted that under Section 67, paragraph 2 of the Corporation Code, a
No. 158805. April 16, 2009, share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction only
upon the failure of the stockholder to pay the unpaid subscription or balance for the share. The
TINGA, J.: section could not have applied in Caram's case since he had fully paid for the Golf Share and
he had been assessed not for the share itself but for his delinquent club dues. Proceeding from
the foregoing premises, the SEC hearing officer concluded that the auction sale had no basis in law
FACTS: and was thus a nullity.
Valley Golf & Country Club is a duly constituted non-stock, non-profit corporation which operates a
golf course. The members and their guests are entitled to play golf on the said course and otherwise The SEC hearing officer did entertain Valley Golf's argument that the sale of the Golf Share was
avail of the facilities and privileges provided by Valley Golf. The shareholders are likewise assessed authorized under the by-laws. However, it was ruled that pursuant to Section 6 of the Corporation
monthly membership dues. Code, "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
In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram), the husband of the present respondent, merely in the by-laws, because Section 6 (par.1) prescribes that the shares of stock of a corporation
subscribed to purchased and paid for in full one share (Golf Share) in the capital stock of Valley may have such rights, privileges and restrictions as may be stated in the articles of incorporation." It
Golf. He was issued Stock Certificate No. 389 dated 26 January 1961 for the Golf Share. The Stock was observed that the Articles of Incorporation of Valley Golf did not impose any lien, liability or
Certificate likewise indicates a par value of P9,000.00. restriction on the Golf Share or, for that matter, even any conditionality that the Golf Share would be
subject to assessment of monthly dues or a lien on the share for non-payment of such dues. In the
Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped paying his same vein, it was opined that since Section 98 of the Corporation Code provides that restrictions on
monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims to have transfer of shares should appear in the articles of incorporation, by-laws and the certificate of stock to
sent five (5) letters to Caram concerning his delinquent account within the period from 27 January be valid and binding on any purchaser in good faith, there was more reason to apply the said rule to
1986 until 3 May 1987, all forwarded to P.O. Box No. 1566, Makati Commercial Center Post Office, club delinquencies to constitute a lien on golf shares.
the mailing address which Caram allegedly furnished Valley Golf.
The SEC hearing officer further held that the delinquency in monthly club dues was merely an
The Golf Share was sold at public auction on 11 June 1987 for P25,000.00 after the Board of ordinary debt enforceable by judicial action in a civil case. The decision generally affirmed
Directors had authorized the sale in a meeting on 11 April 1987, and the Notice of Auction Sale was respondent's assertion that Caram was not properly notified of the delinquencies, citing Caram's letter
published in the 6 June 1987 edition of the Philippine Daily Inquirer. dated 7 July 1978 to Valley Golf about the change in his mailing address. He also noted that Valley
Golf had sent most of the letters after Caram's death. In all, the decision concluded that the sale of the
As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate proceedings Golf Share was effectively a deprivation of property without due process of law.
before the Regional Trial Court (RTC) of Iloilo City, Branch 35, to settle her husband's
estate. Unaware of the pending controversy over the Golf Share, the Caram family and the On appeal to the SEC en banc, said body promulgated a decision on 9 May 2000, affirming the
RTC included the same as part of Caram's estate. The RTC approved a project of partition of hearing officer's decision in toto. Again, the SEC found that Section 67 of the Corporation Code
Caram's estate on 29 August 1989. The Golf Share was adjudicated to respondent, who paid the could not justify the sale of the Golf Share since it applies only to unpaid subscriptions and not to
corresponding estate tax due, including that on the Golf Share. delinquent membership dues. The SEC also cited a general rule, formulated in American
jurisprudence, that a corporation has no right to dispose of shares of stock for delinquent assessments,
It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale of the Golf dues, service fees and other unliquidated charges unless there is an express grant to do so, either by
Share following their inquiry with Valley Golf about the share. After a series of correspondence, the the statute itself or by the charter of a corporation. [20] Said rule, taken in conjunction with Section 6 of
Caram heirs were subsequently informed, in a letter dated 15 October 1990, that they were the Corporation Code, militated against the validity of the sale of the Golf Share, the SEC stressed. In
entitled to the refund of P11,066.52 out of the proceeds of the sale of the Golf Share, which view of these premises, which according to the SEC entailed the nullity of the sale, the body found it
amount had been in the custody of Valley Golf since 11 June 1987. unnecessary to rule on whether there was valid notice of the sale at public auction.
Respondent filed an action for reconveyance of the share with damages before the Securities and Valley Golf elevated the SEC's decision to the Court of Appeals by way of a petition for review. On 4
Exchange Commission (SEC) against Valley Golf. On 15 November 1996, SEC Hearing Officer April 2003, the appellate court rendered a decision affirming the decisions of the SEC and the
Elpidio S. Salgado rendered a decision in favor of respondent, ordering Valley Golf to convey hearing officer, with modification consisting of the deletion of the award of attorney's fees. This
ownership of the Golf Share or in the alternative to issue one fully paid share of stock of Valley time, Valley Golf's central argument was that its by-laws, rather than Section 67 of the Corporation
UE-0200673-2023
Code, authorized the auction sale of the Golf Share. Nonetheless, the Court of Appeals found that the
by-law provisions cited by Valley Golf are "of doubtful validity," as they purportedly conflict with
Section 6 of the Code, which mandates that "rights privileges or restrictions attached to a share of
stock should be stated in the articles of incorporation. It noted that what or who had become
delinquent was "was Mr. Caram himself and not his golf share," and such being the case, the unpaid
account "should have been filed as a money claim in the proceedings for the settlement of his estate,
instead of the petitioner selling his golf share to satisfy the account."
The Court of Appeals also adopted the findings of the hearing officer that the notices had not been
properly served on Caram or his heirs, thus effectively depriving respondent of property without due
process of law. While it upheld the award of damages, the appellate court struck down the award of
attorney's fees since there was no discussion on the basis of such award in the body of the decisions
of both the hearing officer and the SEC.
There is one other fact of note, mentioned in passing by the SEC hearing officer but ignored by the
SEC en banc and the Court of Appeals. Valley Golf's third and fourth demand letters dated 25
January 1987 and 7 March 1987, respectively, were both addressed to "Est. of Fermin Z.
Caram, Jr." The abbreviation "Est." can only be taken to refer to "Estate." Unlike the first two
demand letters, the third and fourth letters were sent after Caram had died on 6 October 1986.
However, the fifth and final demand letter, dated 3 May 1987 or twenty-eight (28) days before the
sale, was again addressed to Fermin Caram himself and not to his estate, as if he were still alive. The
foregoing particular facts are especially significant to our disposition of this case.
In its petition before this Court, Valley Golf concedes that Section 67 of the Corporation Code, which
authorizes the auction sale of shares with delinquent subscriptions, is not applicable in this case.
Nonetheless, it argues that the by-laws of Valley Golf authorizes the sale of delinquent shares and
that the by-laws constitute a valid law or contractual agreement between the corporation and
its stockholders or their respective successors. Caram, by becoming a member of Valley Golf,
bound himself to observe its by-laws which constitutes "the rules and regulations or private laws
enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and
its stockholders or members and directors and officers with relation thereto and among themselves in
their relation to it." It also points out that the by-laws itself had duly passed the SEC's scrutiny and
approval.
Valley Golf further argues that it was error on the part of the Court of Appeals to rely, as it did, upon
Section 6 of the Corporation Code "to nullify the subject provisions of the By-Laws." Section 6 refers
to "restrictions" on the shares of stock which should be stated in the articles of incorporation, as
differentiated from "liens" which under the by-laws would serve as basis for the auction sale of the
share. Since Section 6 refers to restrictions and not to liens, Valley Golf submits that "liens" are
excluded from the ambit of the provision. It further proffers that assuming that liens and restrictions
are synonymous, Section 6 itself utilizes the permissive word "may," thus evincing the non-
mandatory character of the requirement that restrictions or liens be stated in the articles of
incorporation.
ISSUE:
Whether or not the cause for termination of membership in a non-stock corporation may be
established through the by-laws alone and need not be set forth in the articles of incorporation,
UE-0200673-2023
RULING:
The relevant provisions, found in Article VIII entitled "Club Accounts," are reproduced below:
Section 1. Lien.--The Club has the first lien on the share of the stockholder who
has, in his/her/its name, or in the name of an assignee, outstanding accounts and
liabilities in favor of the Club to secure the payment thereof.
xxx
Section 3. The account of any member shall be presented to such member every
month. If any statement of accounts remains unpaid for a period forty-five (45)
days after cut-off date, said member maybe (sic) posted as deliqnuent (sic). No
delinquent member shall be entitled to enjoy the privileges of such membership
for the duration of the deliquency (sic). After the member shall have been
posted as delinquent, the Board may order his/her/its share sold to satisfy the
claims of the club; after which the member loses his/her/its rights and
privileges permanently. No member can be indebted to the Club at any time
any amount in excess of the credit limit set by the Board of Directors from time
to time. The unpaid account referred to here includes non-payment of dues,
charges and other assessments and non-payment for subscriptions.
To bolster its cause, Valley Golf proffers the proposition that by virtue of the by-law provisions a lien
is created on the shares of its members to ensure payment of dues, charges and other assessments on
the members. Both the SEC and the Court of Appeals debunked the tenability or applicability of the
proposition through two common thrusts.
Firstly, they correctly noted that the procedure under Section 67 of the Corporation Code for the
stock corporation's recourse on unpaid subscriptions is inapt to a non-stock corporation vis-à-vis a
member's outstanding dues. The basic factual backdrops in the two situations are disperate. In the
latter, the member has fully paid for his membership share, while in the former, the stockholder has
not yet fully paid for the share or shares of stock he subscribed to, thereby authorizing the stock
corporation to call on the unpaid subscription, declare the shares delinquent and subject the
delinquent shares to a sale at public auction.
Secondly, the two bodies below concluded that following Section 6 of the Corporation Code, which
provides:
The shares of stock of stock corporation may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of incorporation x x x
the lien on the Golf Share in favor of Valley Golf is not valid, as the power to
constitute such a lien should be provided in the articles of incorporation, and
not merely in the by-laws.
However, there is a specific provision under the Title XI, on Non-Stock
Corporations of the Corporation Code dealing with termination of membership.
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.
Clearly, the right of a non-stock corporation such as Valley Golf to expel a member through the
forfeiture of the Golf Share may be established in the by-laws alone, as is the situation in this
case. Thus, both the SEC and the appellate court are wrong in holding that the establishment of a lien
and the loss of the Golf Share consequent to the enforcement of the lien should have been provided
for in the articles of incorporation.
ISSUE:
Given that the cause for termination of membership in a non-stock corporation may be established
through the by-laws alone and need not be set forth in the articles of incorporation, is there any
cause to invalidate the lien and the subsequent sale of the Golf Share by Valley Golf?
RULING:
Examining closely the relevant by-law provisions of Valley Golf, it appears that termination of
membership may occur when the following successive conditions are met: (1) presentation of the
account of the member; (2) failure of the member to settle the account within forty-five days after the
cut-off date; (3) posting of the member as delinquent; and (4) issuance of an order by the board of
directors that the share of the delinquent member be sold to satisfy the claims of Valley Golf. These
conditions found in by-laws duly approved by the SEC warrant due respect and we are disinclined to
rule against the validity of the by-law provisions.
At the same time, two points warrant special attention.
A.
Valley Golf has sought to accomplish the termination of Caram's membership through the sale of the
Golf Share, justifying the sale through the constitution of a lien on the Golf Share under Section 1,
Article VIII of its by-laws. Generally in theory, a non-stock corporation has the power to effect the
termination of a member without having to constitute a lien on the membership share or to undertake
the elaborate process of selling the same at public auction. The articles of incorporation or the by-
laws can very well simply provide that the failure of a member to pay the dues on time is cause for
the board of directors to terminate membership. Yet Valley Golf was organized in such a way that
membership is adjunct to ownership of a share in the club; hence the necessity to dispose of the
share to terminate membership.
Share ownership introduces another dimension to the case--the reality that termination of
membership may also lead to the infringement of property rights. Even though Valley Golf is a non-
stock corporation, as evinced by the fact that it is not authorized to distribute to the holder of its
shares dividends or allotments of the surplus profits on the basis of shares held, the Golf Share has an
assigned value reflected on the certificate of membership itself. Termination of membership in
Valley Golf does not merely lead to the withdrawal of the rights and privileges of the member
UE-0200673-2023
to club properties and facilities but also to the loss of the Golf Share itself for which the
member had fully paid.
The claim of Valley Golf is limited to the amount of unpaid dues plus incremental costs. On the other
hand, Caram's loss may encompass not only the amount he had paid for the share but also the price it
would have fetched in the market at the time his membership was terminated.
There is an easy way to remedy what is obviously an unfair situation. Taking the same example,
Valley Golf seizes the share, sells it to itself or a third person for P100.000.00, then refunds
P99,000.00 back to the delinquent member. On its face, such a mechanism obviates the inequity of
the first example, and assures that the loss sustained by the delinquent member is commensurate to
the actual debt owed to Valley Golf. After all, applying civil law concepts, the pecuniary injury
sustained by Valley Golf attributable to the delinquent member is only to the extent of the unpaid
debt, and it would be difficult to foresee what right under law Valley Golf would have to the
remainder of the sale's proceeds.
A refund mechanism may disquiet concerns of undue loss of property rights corresponding to
termination of membership. Yet noticeably, the by-laws of Valley Golf does not require the Club to
refund to the discharged member the remainder of the proceeds of the sale after the outstanding
obligation is extinguished. After petitioner had filed her complaint though, Valley Golf did inform
her that the heirs of Caram are entitled to such refund.
B.
The by-laws does not provide for a mode of notice to the member before the board of directors
puts up the Golf Share for sale, yet the sale marks the termination of membership. The member
is entitled to receive a statement of account every month; however, the mode by which the member is
to receive such notice is not elaborated upon. If the member fails to pay within 45 days from the due
date, Valley Golf is immediately entitled to have the member "posted as delinquent." While the
assignation of "delinquent status" is evident enough, it is not as clear what the word "posted" entails.
Connotatively, the word could imply the physical posting of the notice of delinquency within the club
premises, such as a bulletin board, which we recognize is often the case. Still, the actual posting
modality is uncertain from the language of the by-laws.
The moment the member is "posted as delinquent," Valley Golf is immediately enabled to seize the
share and sell the same, thereby terminating membership in the club. The by-laws does not require
any notice to the member from the time delinquency is posted to the day the sale of the share is
actually held. The setup is to the extreme detriment to the member, who upon being notified
that the lien on his share is due for execution would be duly motivated to settle his accounts to
foreclose such possibility.
Does the Corporation Code permit the termination of membership without due notice to the member?
The Code itself is silent on that matter, and the argument can be made that if no notice is provided for
in the articles of incorporation or in the by-laws, then termination may be effected without any notice
at all. Support for such an argument can be drawn from our ruling in Long v. Basa, which pertains to
a religious corporation that is also a non-stock corporation. Therein, the Court upheld the expulsion
of church members despite the absence of any provision on prior notice in the by-laws, stating that
the members had "waived such notice by adhering to those by-laws[,] became members of the church
voluntarily[,] entered into its covenant and subscribed to its rules [and by] doing so, they are bound
by their consent."
However, a distinction should be made between membership in a religious corporation, which
ordinarily does not involve the purchase of ownership shares, and membership in a non-stock
corporation such as Valley Golf, where the purchase of an ownership share is a condition sine qua
non. Membership in Valley Golf entails the acquisition of a property right. In turn, the loss of
such property right could also involve the application of aspects of civil law, in addition to the
provisions of the Corporation Code. To put it simply, when the loss of membership in a non-
stock corporation also entails the loss of property rights, the manner of deprivation of such
property right should also be in accordance with the provisions of the Civil Code.
It has been held that a by-law providing that if a member fails to pay dues for a year, he shall be
deemed to have relinquished his membership and may be excluded from the rooms of the association
and his certificate of membership shall be sold at auction, and any surplus of the proceeds be paid
over him, does not ipso facto terminate the membership of one whose dues are a year in arrears; the
remedy given for non-payment of dues is not exclusive because the corporation, so long as he
remains a member, may sue on his agreement and collect them.
ISSUE:
Were the actions of Valley Golf concerning the Golf Share and membership of Caram warranted?
We believe not.
RULING:
It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the
provisions of its by-laws on termination of membership, vaguely defined as these are. Yet especially
since the termination of membership in Valley Golf is inextricably linked to the deprivation of
property rights over the Golf Share, the emergence of such adverse consequences make legal and
equitable standards come to fore.
It is unmistakably wise public policy to require that the termination of membership in a non-stock
corporation be done in accordance with substantial justice. No matter how one may precisely
define such term, it is evident in this case that the termination of Caram's membership betrayed
the dictates of substantial justice.
Valley Golf alleges in its present petition that it was notified of the death of Caram only in March of
1990, a claim which is reiterated in its Reply to respondent's Comment. Yet this claim is belied by
the very demand letters sent by Valley Golf to Caram's mailing address. The letters dated 25 January
1987 and 7 March 1987, both of which were sent within a few months after Caram's death are both
addressed to "Est. of Fermin Z. Caram, Jr.;" and the abbreviation "[e]st." can only be taken to refer to
"estate." This is to be distinguished from the two earlier letters, both sent prior to Caram's death on 6
October 1986, which were addressed to Caram himself. Inexplicably, the final letter dated 3 May
1987 was again addressed to Caram himself, although the fact that the two previous letters were
directed at the estate of Caram stands as incontrovertible proof that Valley Golf had known of
Caram's death even prior to the auction sale.
UE-0200673-2023
Interestingly, Valley Golf did not claim before the Court of Appeals that they had learned of Caram's
death only after the auction sale. It also appears that Valley Golf had conceded before the SEC that
some of the notices it had sent were addressed to the estate of Caram, and not the decedent himself.
What do these facts reveal? Valley Golf acted in clear 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. That it was in the final notice that Valley Golf had perpetrated the
duplicity is especially blameworthy, since it was that notice that carried the final threat that his Golf
Share would be sold at public auction should he fail to settle his account on or before 31 May 1987.
Valley Golf could have very well addressed that notice to the estate of Caram, as it had done with the
third and fourth notices. That it did not do so signifies that Valley Golf was bent on selling the Golf
Share, impervious to potential complications that would impede its intentions, such as the need to
pursue the claim before the estate proceedings of Caram. By pretending to assume that Caram was
then still alive, Valley Golf would have been able to capitalize on his previous unresponsiveness to
their notices and proceed in feigned good faith with the sale. 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 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.
Another point. The by-laws of Valley Golf is discomfiting enough in that it fails to provide any
formal notice and hearing procedure before a member's share may be seized and sold. The Court
would have been satisfied had the by-laws or the articles of incorporation established a procedure
which assures that the member would in reality be actually notified of the pending accounts and
provide the opportunity for such member to settle such accounts before the membership share could
be seized then sold to answer for the debt. As we have emphasized, membership in Valley Golf and
many other like-situated non-stock corporations actually involves the purchase of a membership
share, which is a substantially expensive property. As a result, termination of membership does not
only lead to loss of bragging rights, but the actual deprivation of property.
The Court has no intention to interfere with how non-stock corporations should run their daily affairs.
The Court also respects the fact that membership is non-stock corporations is a voluntary
arrangement, and that the member who signs up is bound to adhere to what the articles of
incorporation or the by-laws provide, even if provisions are detrimental to the interest of the member.
At the same time, in the absence of a satisfactory procedure under the articles of incorporation or the
by-laws that affords a member the opportunity to defend against the deprivation of significant
property rights in accordance with substantial justice, the terms of the by-laws or articles of
incorporation will not suffice. There will be need in such case to refer to substantive law. Such a flaw
attends the articles of incorporation and by-laws of Valley Golf.

UE-0200673-2023
 defenses for preliminary hearing.
Derivative Suit Petitioner FHGCCI filed a Motion for leave to amend its Complaint to implead KPC and Kingsville
FOREST HILLS GOLF AND COUNTRY CLUB, INC., VS. FIL-ESTATE PROPERTIES, as additional defendants and to include Madrid as additional plaintiff in his personal capacity.
INC., G.R. No. 206649. July 20, 2016. Respondents FEPI and FEGDI opposed the Motion.

DEL CASTILLO, J. On May 14, 2012, applying the relationship and nature of controversy tests in Reyes v. Hon. RTC of
Makati, Br. 142 and taking into account the fact that petitioner FHGCCI denominated the Complaint
as a derivative suit, the RTC issued an Order[22] dismissing the case for lack of jurisdiction, without
FACTS: prejudice to the re-filing of the same with the proper special commercial court sitting at Binangonan,
Kingsville Construction and Development Corporation (Kingsville) and Kings Properties Rizal. Consequently, the motion for leave to amend the Complaint was mooted.
Corporation (KPC) entered into a project agreement with respondent Fil-Estate Properties, Inc.
(FEPI), whereby the latter agreed to finance and cause the development of several parcels of land Feeling aggrieved, petitioner FHGCCI moved for reconsideration but the RTC denied the same in its
owned by Kingsville in Antipolo, Rizal, into Forest Hills Residential Estates and Golf and Country Order dated February 1, 2013.
Club, a first-class residential area/golf-course/commercial center. Under the agreement, respondent
FEPI was tasked to incorporate petitioner Forest Hills Golf and Country Club, Inc. (FHGCCI) with ISSUE:
an authorized stock of 3,600 shares; and to perform the development and construction work and other Whether or not on the face of the Complaint, petitioner FHGCCI failed to comply with the requisites
undertakings as full payment of its subscription to the authorized capital stock of the club. As to the for a valid derivative suit.
remaining shares of the club, they agreed that these should be retained by Kingsville in exchange for
the parcels of land used for the golf course development. RULING:
Rule 8, Section 1 of the Interim Rules of Procedure Governing Intra- Corporate Controversies
Respondent FEPI assigned its rights and obligations over the project to a related corporation, provides:
respondent Fil-Estate Golf Development, Inc. (FEGDI).
SECTION 1. Derivative action. — A stockholder or member may bring an action in the name of a
Rainier L. Madrid (Madrid) purchased two Class "A" shares at the secondary price of P3 80,000.00 corporation or association, as the case may be, provided, that:
each, and applied for a membership to the club for P25,000.00.
(1) He was a stockholder or member at the time the acts or transactions subject of the action
Due to the delayed construction of the second 18-Hole Golf Course, Madrid wrote two demand occurred and at the time the action was filed;
letters dated October 29, 2009 and March 15, 2010 to the Board of Directors of petitioner FHGCCI (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint,
asking them to initiate the appropriate legal action against respondents FEPI and FEGDI. The Board to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
of Directors, however, failed and/or refused to act on the demand letters. 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
Thus, Madrid, in a derivative capacity on behalf of petitioner FHGCCI, filed with the RTC of (4) The suit is not a nuisance or harassment suit.
Antipolo City a Complaint for Specific Performance with Damages against respondents FEPI and
FEGDI. In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
In their Answer with Compulsory Counterclaim, respondents FEPI and FEGDI argued that there is Corollarily, "[f]or a derivative suit to prosper, it is required that the minority stockholder suing for
no cause of action against them as petitioner FHGCCI failed to state the contractual and/or legal and on behalf of the corporation must allege in his complaint that he is suing on a derivative
bases of their alleged obligation; that no prior demand was made to them; that the action is not a cause of action on behalf of the corporation and all other stockholders similarly situated who
proper derivative suit as petitioner FHGCCI failed to exhaust all remedies available under the articles may wish to join him in the suit." It is also required that the stockholder "should have exerted all
of incorporation and by-laws; and that petitioner FHGCCI failed to implead its Board of Directors as reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws
indispensable parties. or rules governing the corporation or partnership to obtain the relief he desires [and that such fact is
Petitioner FHGCCI, in turn, filed a Reply arguing that the case does not involve an intra-corporate alleged] with particularity in the complaint." The purpose for this rule is "to make the derivative suit
controversy and that the exhaustion of intra-corporate remedies was futile and useless as the Board of the final recourse of the stockholder, after all other remedies to obtain the relief sought had
Directors of petitioner FHGCCI also own respondent FEGDI. failed." Finally, the stockholder is also required "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
Respondents FEPI and FEGDI filed a Rejoinder followed by a Motion to set their affirmative the suit is not a nuisance or a harassment suit."
UE-0200673-2023
In this case, Madrid, as a shareholder of petitioner FHGCCI, failed to allege with particularity
in the Complaint, and even in the Amended Complaint, that he exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation, by-laws, or rules governing
the corporation; that no appraisal rights are available for the acts or acts complained of; and
that the suit is not a nuisance or a harassment suit. Although the Complaint alleged that
demand letters were sent to the Board of Directors of petitioner FHGCCI and that these were
unheeded, these allegations will not suffice.

Thus, for failing to meet the requirements set forth in Section 1, Rule 8 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies, the Complaint, denominated as a derivative suit
for specific performance, must be dismissed.

UE-0200673-2023
 MARCELINO M. FLORETE, JR., ET. AL., VS. ROGELIO M. FLORETE, ET. AL. G.R. 13. Jose Mari Trenas 1.00
No. 174909. January 20, 2016. 14. Enrico Jacomille 1.00
15. Joseph Vincent Go 1.00
LEONEN, J. 16. Jerry Trenas 1.00
17. Efrain Trenas 10.00
FACTS:
Spouses Marcelino Florete, Sr. and Salome Florete (both deceased) had four (4) children: Marcelino On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before the
Florete, Jr. (Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio Florete, Sr. (Rogelio, Sr.), and Regional Trial Court a Complaint for Declaration of Nullity of Issuances, Transfers and Sale of
Teresita Menchavez (Teresita), now deceased. Shares in People's Broadcasting Service, Inc. and All Posterior Subscriptions and Increases thereto
with Damages against Diamel Corporation, Rogelio, Sr., Imelda Florete, Margaret Florete, and
People's Broadcasting Service, Inc. (People's Broadcasting) is a private corporation authorized to Rogelio Florete, Jr. (Rogelio, Sr. Group).
operate, own, maintain, install, and construct radio and television stations in the Philippines. In its
incorporation on March 8, 1966, it had an authorized capital stock of P250,000.00 divided into 2,500 On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory counterclaim.
shares at PI00.00 par value per share.
On August 2, 2005, the Regional Trial Court issued a Decision (which it called a "Placitum")
In October 1993, People's Broadcasting sought the services of the accounting and auditing firm Sycip dismissing the Marcelino, Jr. Group's Complaint. It ruled that the Marcelino, Jr. Group did not have a
Gorres Velayo and Co. in order to determine the ownership of equity in the corporation. On cause of action against the Rogelio, Sr. Group and that the former is estopped from questioning the
November 2, 1994, Sycip Gorres Velayo and Co. submitted a report detailing the movements of the assailed movement of shares of People's Broadcasting. It also ruled that indispensable parties were
corporation's shares from November 23, 1967 to December 8, 1989. not joined in their Complaint.
Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a According to the trial court, the indispensable parties would include:
categorical statement on equity ownership as People's Broadcasting's corporate records were
incomplete. The report contained a disclaimer on the findings regarding the corporation's capital [Marcelino, Sr.] and/or his estate and/or his heirs, [Salome] and/or her estate and/or her
structure. heirs, [Divinagracia] and/or his estate and/or his successors-in-interest, [Teresita] and/or
her estate and/or her own successors-in-interest, the other [People's Broadcasting Service,
On February 1, 1997, the Board of Directors of People's Broadcasting approved Sycip Gorres Velayo Inc.] stockholders who may be actually beneficial owners and not purely nominees, all the
and Co.'s report. so called nominal stockholders. . . [and] the various [People's Broadcasting Service, Inc.]
Corporate Secretaries[.]"
In the meantime, Rogelio, Sr. transferred a portion of his shareholdings to the members of his
immediate family, namely: Imelda Florete, Rogelio Florete, Jr., and Margaret Ruth Florete, as well as The Regional Trial Court granted Rogelio, Sr.'s compulsory counterclaim for moral and exemplary
to Diamel Corporation, a corporation owned by Rogelio, Sr.'s family. damages amounting to P25,000,000.00 and P5,000,000.00, respectively, reasoning that Rogelio, Sr.
suffered from the besmirching of his personal and commercial reputation.
As of April 27, 2002, the stockholders of record of People's Broadcasting were the following:
Stockholder No. of Shares On August 15, 2005, Rogelio, Sr. filed a Motion for the immediate execution of the award of moral
1. Diamel Corporation 30,000.00 and exemplary damages pursuant to Rule I, Section 4 of the Interim Rules of Procedure Governing
2. Rogelio Florete [Sr.] 153,881.53 Intra-Corporate Controversies.
3. Marcelino Florete, Jr. 18,240.99
4. Ma. Elena Muyco 18,227.23 On September 8, 2005, the Marcelino, Jr. Group filed before the Court of Appeals a Petition for
5. Santiago Divinagracia 30,289.25 Review with a prayer for the issuance of a temporary restraining order and/or writ of preliminary
6. Imelda Florete 1,000.00 injunction to deter the immediate execution of the trial court Decision awarding damages to Rogelio,
7. Rogelio Florete, Jr. 100.00 Sr. The Court of Appeals issued a temporary restraining order and, subsequently, a writ of
8. Margaret Ruth Florete 100.00 preliminary injunction.
9. Raul Muyco 10.00
10. Manuel Villa, Jr. 10.00 In its Decision dated March 29, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Petition
and affirmed the trial court Decision. It also lifted the temporary restraining order and writ of
11 .Gregorio Rubias 1.00
preliminary injunction.
12. Cyril Regaldao 1.00
UE-0200673-2023

The Court of Appeals ruled that the Marcelino, Jr. Group did not have a cause of action against those
whom they have impleaded as defendants. It also noted that the principal obligors in or perpetrators
of the assailed transactions were persons other than those in the Rogelio, Sr. Group who have not
been impleaded as parties. Thus, the Court of Appeals emphasized that the following parties were
indispensable to the case: People's Broadcasting; Marcelino, Sr.; Consolidated Broadcasting System,
Inc.; Salome; Divinagracia; Teresita; and "other stockholders of [People's Broadcasting] to whom the
shares were transferred or the nominees of the stockholders.”
The Court of Appeals further emphasized that the estates of Marcelino, Sr. and Salome had long been
settled, with those in the Marcelino, Jr. Group participating (in their capacity as heirs). As the
Marcelino, Jr. Group failed to act to protect their supposed interests in shares originally accruing to
Marcelino, Sr. and Salome, the group is estopped from questioning the distribution of Marcelino,
Sr.'s and Salome's assets.[40] Furthering the conclusion that the Marcelino, Jr. Group was bound by
estoppel, the Court of Appeals noted that the Marcelino, Jr. Group was well aware of the matters
stated in the report furnished by Sycip Gorres Velayo and Co. but failed to act on any supposed error
in the report. Instead, the Marcelino, Jr. Group waited ten (10) years before filing their Complaint. In
the interim, they even participated in the affairs of People's Broadcasting, voting their shares and
electing members of the Board of Directors. [41]
On April 26, 2006, the Marcelino, Jr. Group filed a Motion for Reconsideration dated April 24, 2006.
Pending resolution of the Marcelino, Jr. Group's Motion for Reconsideration, Rogelio, Sr. filed
before the Regional Trial Court a Motion to resolve his earlier motion for the immediate execution of
the awards of moral and exemplary damages, which was filed on August 15, 2005 ] The Regional
Trial Court granted the Motion in its Order dated May 18, 2006. [44] On May 23, 2006, a Writ of
Execution was issued to enforce the award of moral and exemplary damages. [45]
The Marcelino, Jr. Group filed a Petition for Certiorari [46] before the Court of Appeals questioning the
Regional Trial Court Order to immediately execute its Decision. [47] On June 13, 2006, the Court of
Appeals issued a temporary restraining order and, subsequently, a writ of preliminary injunction.
[48]
The Court of Appeals reversed the trial court Order of immediate execution in the Decision
promulgated on November 28, 2006.[49] It also annulled the writ of execution issued pursuant to the
Order of immediate execution. Rogelio, Sr. filed a Motion for Reconsideration, [50] but it was denied
on February 23, 2007.
On September 15, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Motion for
Reconsideration dated April 24, 2006.
ISSUE:
Whether it was proper for the Regional Trial Court to dismiss the Complaint filed by the Marcelino,
Jr. Group.
RULING:
In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising
from the Corporation Code, specifically: Section 23 (on corporate decision-making being vested in
the board of directors), Section 25 (quorum requirement for the transaction of corporate business),
UE-0200673-2023
Sections 39 and 102 (both on stockholders' preemptive rights), Section 62 (stipulating the
consideration for which stocks must be issued), Section 63 ] (stipulating that no transfer of shares
"shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation"), and Section 65 (on liabilities of directors and officers "to the corporation and its
creditors" for the issuance of watered stocks) in relation to provisions in People's Broadcasting's
Articles of Incorporation and By-Laws as regards conditions for issuances of and subscription to
shares. The Marcelino, Jr. Group ultimately prays that People's Broadcasting's entire capital structure
be reconfigured to reflect a status quo ante.
The Marcelino, Jr. Group asks for the complete reversal of a number of corporate acts
undertaken by People' Broadcasting's different boards of directors. These boards supposedly
engaged in outright fraud or, at the very least, acted in such a manner that amounts to wanton
mismanagement of People's Broadcasting's affairs. The ultimate effect of the remedy they seek is the
reconfiguration of People's Broadcasting's capital structure.
The remedies that the Marcelino, Jr. Group seeks are for People's Broadcasting itself to avail.
Ordinarily, these reliefs may be unavailing because objecting stockholders such as those in the
Marcelino, Jr. Group do not hold the controlling interest in People's Broadcasting. This is precisely
the situation that the rule permitting derivative suits contemplates: minority shareholders having no
other recourse "whenever the directors or officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are in control of the corporation."
The Marcelino, Jr. Group points to violations of specific provisions of the Corporation Code that
supposedly attest to how their rights as stockholders have been besmirched. However, this is not
enough to sustain a claim that the Marcelino, Jr. Group initiated a valid individual or class suit. To
reiterate, whether stockholders suffer from a wrong done to or involving a corporation does not
readily vest in them a sweeping license to sue in their own capacity.
The specific provisions adverted to by the Marcelino, Jr. Group signify alleged wrongdoing
committed against the corporation itself and not uniquely to those stockholders who now
comprise the Marcelino, Jr. Group. A violation of Sections 23 and 25 of the Corporation Code—
on how decision-making is vested in the board of directors and on the board's quorum requirement—
implies that a decision was wrongly made for the entire corporation, not just with respect to a handful
of stockholders. Section 65 specifically mentions that a director's or officer's liability for the issuance
of watered stocks in violation of Section 62 is solidary "to the corporation and its creditors," not to
any specific stockholder. Transfers of shares made in violation of the registration requirement in
Section 63 are invalid and, thus, enable the corporation to impugn the transfer. Notably, those in the
Marcelino, Jr. Group have not shown any specific interest in, or unique entitlement or right to, the
shares supposedly transferred in violation of Section 63.
Also, the damage inflicted upon People's Broadcasting's individual stockholders, if any, was
indiscriminate. It was not unique to those in the Marcelino, Jr. Group. It pertained to "the whole body
of [People's Broadcasting's] stock." Accordingly, it was upon People's Broadcasting itself that the
causes of action now claimed by the Marcelino Jr. Group accrued. While stockholders in the
Marcelino, Jr. Group were permitted to seek relief, they should have done so not in their unique
capacity as individuals or as a group of stockholders but in place of the corporation itself through a
derivative suit. As they, instead, sought relief in their individual capacity, they did so bereft of a
cause of action. Likewise, they did so without even the slightest averment that the requisites for the
filing of a derivative suit, as spelled out in Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-Corporate Controversies, have been satisfied. Since the Complaint lacked a cause of action and
failed to comply with the requirements of the Marcelino, Jr. Group's vehicle for relief, it was only
proper for the Complaint to have been dismissed.

Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. Group
lacked a cause of action; it also meant that they failed to implead an indispensable party.

In derivative suits, the corporation concerned must be impleaded as a party. There are two
consequences of a finding on appeal that indispensable parties have not been joined. First, all
subsequent actions of the lower courts are null and void for lack of jurisdiction. Second, the case
should be remanded to the trial court for the inclusion of indispensable parties. It is only upon the
plaintiff's refusal to comply with an order to join indispensable parties that the case may be
dismissed.

All subsequent actions of lower courts are void as to both the absent and present parties. To reiterate,
the inclusion of an indispensable party is a jurisdictional requirement:

of an action, considering that said party may still be added by order of the
court, on motion of the party or on its own initiative at any stage of the action
and/or such times as are just, it remains essential — as it is jurisdictional —
that any indispensable party be impleaded in the proceedings before the court
renders judgment. This is because the absence of such indispensable party
renders all subsequent actions of the court null and void for want of authority to
act, not only as to the absent parties but even as to those present.

The second consequence is unavailing in this case. While "[njeither misjoinder nor non-joinder of
parties is ground for dismissal of an action" and is, thus, not fatal to the Marcelino, Jr. Group's action,
we have shown that they lack a cause of action. This warrants the dismissal of their Complaint.

UE-0200673-2023
METROPOLITAN BANK & TRUST COMPANY (METROBANK), VS. SALAZAR REALTY
CORPORATION, G.R. No. 218738. March 09, 2022.
GAERLAN, J.
FACTS:
Petitioner Metrobank and respondent Salazar Realty Corporation (SARC) are both Philippine
corporations. Metrobank is engaged in the banking business, while SARC is engaged in the real
estate business. Also involved in the events preceding the present litigation is another Philippine
corporation, Tacloban RAS Construction Corporation (Tacloban RAS).
SARC filed an action for quieting of title and nullification of contracts against Metrobank before the
RTC of Tacloban City. SARC alleged that:
1) Based on its latest filings at the time of the filing of the petition, SARC had the following
officers, who also composed its board of directors: Raymund A. Salazar, President; Ramon
Ve. Salazar, Vice President; Ralph A. Salazar, Secretary; Rosemarie A. Salazar, Treasurer;
Consuelo A. Salazar, Member, Board of Directors.
2) On October 6, 1992, Tacloban RAS obtained a loan from Metrobank in the amount of ten
million pesos (P10,000,000.00). On January 9, 1996, the loan amount was increased to
twelve million pesos (P12,000,000.00); and on October 6, 1999 it was further increased to
eighteen million five hundred thousand pesos (P18,500,000.00). This final amount was
reflected in a promissory note executed on October 6, 1999 between Tacloban RAS
and Metrobank, which was signed by Consuelo and Ralph as president and corporate
secretary, respectively, of Tacloban RAS. To secure the loan, Metrobank and SARC
entered into a mortgage contract on January 9, 1996, with Consuelo and Ralph still
signing, this time on behalf of SARC. The mortgage covered five parcels of land
located in Tacloban City, which were all registered in the name of SARC.
3) Meanwhile, on March 30, 1995, Ramon Ve. Salazar, SARC's Vice President and director,
passed away. Consuelo likewise passed away on October 21, 2001. The vacancies left
by their passing were left unfilled.
4) The remaining directors of SARC, including Ralph, issued a board resolution
approving the mortgage of the five SARC-owned lots to secure the loan obligation of
Tacloban RAS.
5) Tacloban RAS defaulted on the loan, prompting Metrobank to initiate extrajudicial
foreclosure proceedings before the RTC of Tacloban City. Metrobank emerged as the
winning bidder in the auction sale. Upon issuance of the certificate of sale and filing of the
affidavit of consolidation of ownership, SARC's certificates of title were cancelled and new
ones were issued in Metrobank's favor.
UE-0200673-2023
6) Upon hearing about the auction sale, Ramon Ang Salazar, Jr., Robert Ang Salazar, Roger
Ang Salazar and Rosemarie Salazar Fernandez (hereinafter referred to as Ramon et al.) as
incorporators and stockholders acting in behalf of SARC, immediately checked the status
of the disputed lands with the Register of Deeds. They discovered that SARC's certificates
of title had been cancelled. In response, Ramon et al. registered an adverse claim on the
new certificates of title that were issued to Metrobank.
7) In view of the SARC board's inaction and tacit approval of the unauthorized
encumbrance and subsequent loss of the corporation's real properties, Ramon et al.
filed the present suit on SARC's behalf.
8) The loan agreement is void because Consuelo is not a stockholder or officer of Tacloban
RAS, based on its incorporation papers filed with the SEC.
9) The mortgage agreement and the foreclosure proceedings are void because Tacloban RAS
has no authority to use SARC's properties as collateral. Rather, the authorization for such
purpose was issued by the SARC board to a single proprietorship named RAS
Construction, which is an entity distinct and separate from Tacloban RAS.
10) SARC exceeded its corporate powers when it entered into a mortgage contract to secure the
obligation of a separate, distinct, and unrelated corporation. Tacloban RAS is not a
subsidiary of SARC. It likewise holds no shares or any other form of investment in the
latter corporation. Thus, the mortgage contract is void for being ultra vires insofar as
SARC is concerned.
11) SARC's principal corporate assets are limited to six (6) parcels of land. Consequently, the
mortgage of the five parcels in dispute, including the lot on which SARC's principal office
is located, constitutes an encumbrance of substantially all the assets of the corporation
which must be authorized by SARC's stockholders in a meeting for that purpose, pursuant
to Section 40 of the Corporation Code. Absent such authorization, the mortgage contract is
null and void.
12) SARC board and stockholder approvals for the mortgage contract and the amendments
thereto were not annotated on SARC's certificates of title, giving rise to the presumption
that neither the SARC board nor its stockholders approved said contract and the
amendments thereto.
13) Metrobank failed to exercise due diligence when it extended an eighteen-million-peso loan
to Tacloban RAS, whose authorized capital stock was only three million pesos.
Furthermore, the loan was secured by properties owned by SARC, whose authorized capital
stock was only five million pesos. More importantly, Metrobank was guilty of negligence
when it failed to thoroughly investigate Consuelo and Ralph's authority to enter contracts
and encumber properties on behalf of Tacloban RAS and SARC.
14) Assuming that the loan and mortgage contracts are valid and binding, the foreclosure
proceedings are nevertheless null and void, for the following reasons: a) Metrobank's
petition for foreclosure lacks several material details which render it fatally defective under
 A.M. No. 99-10-05-0; b) SARC was not given personal notice of the foreclosure sale; c)
the publication of the notice of sale was defective because copies thereof were attached to
the record only after the auction sale had taken place, and notices of publication were not
furnished for all instances of publication, in violation of A.M. No. 99-10-05-0; d) there was
only one bidder in the auction sale, in violation of item 5 of A.M. No. 99-10-05-0; and e)
Section 47 of Republic Act No. 8791 which sets different redemption periods for natural
and juridical persons is unconstitutional.
Accordingly, SARC prayed that the cloud on its title be removed by: 1) nullifying the loan and
mortgage agreements between Metrobank and Tacloban RAS/SARC; 2) nullifying the foreclosure
proceedings initiated by Metrobank; and 3) cancelling the certificates of title issued to Metrobank.
On February 13, 2002, Metrobank filed a Comment with Motion to Dismiss. It argued that Ralph had
authority to enter into the loan and mortgage agreements, and that the mortgaged properties were
personally owned by Ralph and Consuelo. Metrobank further alleged that Consuelo personally bound
herself as surety; and that the final amount of the loan was agreed upon pursuant to a restructuring
upon Ralph's request, with the approval of the boards of directors of both Tacloban RAS and SARC.
On June 16, 2009, the trial court issued the first assailed order denying Metrobank's latest motion to
dismiss. The trial court ruled that the requirement that cases formerly cognizable by the SEC be filed
with a special commercial court does not apply to the present case, which was filed before A.M. No.
03-03-03-SC took effect on July 1, 2003. Assuming that the requirement is applicable, the trial court
ruled that it retains the jurisdiction to transfer the case to the special commercial court in the
Tacloban City RTC, on the ground that jurisdiction, once acquired, continues until final resolution of
the case.]The trial court further ruled that the present case does not involve an intra-corporate
controversy, because it does not involve a dispute between a corporation and its stockholders; rather,
it involves a suit by a corporation through its shareholders against another corporation and certain
public officers. Furthermore, as SARC correctly points out, its causes of action are within the
jurisdiction of the regular courts.
On February 23, 2010, the trial court rendered the second assailed order denying Metrobank's motion
for reconsideration.
Still adamant that the case involves an intra-corporate controversy, Metrobank elevated the matter to
the CA, arguing that the trial court committed grave abuse of discretion in narrowly defining intra-
corporate controversies as limited to suits involving disputes between a corporation and its
stockholders.
In dismissing Metrobank's petition, the CA ruled that under Rule 1 of A.M. No. 01-2-04-SC, or the
Interim Rules of Procedure Governing Intra-Corporate Controversies (2001 IRPIC), derivative suits
are also intra-corporate controversies. Therefore, to determine if SARC's petition must be tried under
the 2001 IRPIC by a special commercial court, it must pass the two-tier intra-corporate controversy
test. The appellate court found that SARC's petition does not pass the two-tier test. It satisfies neither
the relationship test, since it does not involve any of the intra-corporate relationships enumerated in
Section 5(b) of Presidential Decree No. 902-A; [59] nor the controversy test, since it does not involve a
dispute which is intrinsically connected with the regulation of SARC or a dispute which arises out of
UE-0200673-2023
intra-corporate relations within SARC.[60] Rather, the case involves the removal of the cloud on
SARC's titles, which was created by the contracts executed by Ralph and Consuelo allegedly on
behalf of Tacloban RAS and SARC. [61] Furthermore, Ramon et al. are not stockholders of the
corporation they are suing; rather, they are suing on behalf of the corporation in which they hold
shares.[62] Citing jurisprudence, the CA held that "Where the complaint is for annulment of
mortgage with the mortgagee bank as one of the defendants, the jurisdiction over said
complaint is lodged with the regular courts because the mortgagee bank has no intra-corporate
relationship with the stockholders;"[63] and that "the question as to who is the true owner of the
disputed property is civil in nature and should be threshed out by a regular court," not by a special
commercial court.[64]
The CA denied Metrobank's motion for consideration [65] through the assailed resolution; hence, this
petition.
ISSUE:
Whether or not the petition is a derivative suit.
RULING:
While SARC's suit is indeed a derivative suit which is transferable to the relevant special commercial
court in accordance with the Gonzales guidelines, it nevertheless suffers from fatal defects which
merit its dismissal.
SARC's petition expressly alleges that it is being filed as a derivative suit:
6. This is a stockholder's derivative suit instituted by PETITIONERS RAMON A. SALAZAR, JR.,
ROGER A. SALAZR, ROBERT A. SALAZAR and ROSEMARIE S. FERNANDEZ for and in
behalf of SALAZAR ANG REALTY CORPORATION (Plaintiff-corporation), as its incorporators
and stockholders x x x. Said Petitioners were stockholders of the corporation at the time that: 1) a
loan in the amount of EIGHTEEN MILLION FIVE HUNDRED THOUSAND PESOS was obtained
from the Respondent Bank evidenced by a promissory note (Annex "B") allegedly signed by the late
Consuelo Ang Salazar and Ralph Ang Salazar as representatives of Tacloban RAS Construction
Corporation x x x; 2) the mortgage contract (Annex "C") in favor of the Respondent bank was
allegedly executed by the corporation through the late Consuelo A. Salazar who was described as the
corporation's President and its Secretary Ralph A. Salazar x x x;
x x x x
7. This suit is brought by the above[-]mentioned incorporators and stockholders for the following
reasons:
x x x x
7.2. Ramon Ve. Salazar, director and Vice President of the Corporation died on March 30, 1995,
before the mortgage contract which is sought to be declared null and void was executed. No
document was filed with the SEC which shows that an election was held by the board of directors in
order to fill the vacancy. Consuelo A. Salazar passed away last October 21, 2001. The remaining
directors of the corporation have not taken any steps to vindicate the corporation's rights. Demand
upon the board of directors to file suit in behalf of the corporation would be useless in that the
mortgage contract, the validity of which is being questioned in this suit appeared to have been
approved by said board through a supposed board resolution certified by the corporate secretary
Ralph A. Salazar and the Secretary's Certificate of said resolution was annotated on the titles issued
in the name of Salazar Ang Realty Corporation. This however, cannot be determined with certainty
by the Petitioners stockholders as Ralph A. Salazar acting as the corporate secretary of Plaintiff
Corporation has custody of the stock and transfer book as well as the resolutions and other documents
and papers of the corporation.
7.3. Time is of the essence considering that corporate assets have now been registered in the name of
the Respondent Bank and the exhaustion of remedies within the corporation which would delay the
filing of a suit would only cause irreparable damage to the corporation.
categorically declare under oath that the remedy is being sought for just and legitimate purposes and
not as a form of nuisance or harassment. This principle is now enshrined in Rule 8, Section 1 of the
2001 IRPIC, which explicitly states that nuisance or harassment suits shall be dismissed.
A derivative suit is an equitable exception to the rule that the corporate power of suit is exercisable
only through the board of directors. A proper resort to this equitable procedural device must satisfy
the requisites laid down by law and procedure for its institution; thus, courts must deny resort when
such requisites are not met.

Apart from the express statement in paragraph 6, the rest of the petition's allegations clearly reveal
that the crux of the dispute is the illegal and ultra vires approval of the mortgage by the SARC board
without the consent of the suing shareholders, and despite the vacancies in the board created by the
deaths of Ramon Sr. and Consuelo. These allegations unmistakably show the existence of a
"controversy arising out of intra-corporate relations," with the suing shareholders assailing the
decisions of Ralph and the SARC board. The non-joinder of Ralph and the other officers or
shareholders of SARC, or even of Tacloban RAS, is of no moment, because non-joinder of parties is
not a ground for dismissal, and the court can order their inclusion at any time. While the reliefs
sought are directed at Metrobank and the officers who conducted the auction sale, the suing
shareholders' cause of action is ultimately rooted in the illegal and improper ratification and
authorization of the mortgage contract by Ralph and the SARC board.

Having established that the petition is a derivative suit, we determine its compliance with the
requisites therefor under the 2001 IRPIC.

There is no question that the suit was brought in SARC's name by Ramon et al., who were
stockholders at the time the assailed mortgage contract was entered into. The petition also contains
allegations justifying the non-exhaustion of intra-corporate remedies. However, it does not comply
with Rule 1, Section 1(3) of the 2001 IRPIC, regarding the availment of appraisal rights.

Among the grounds raised by SARC for the nullification of the mortgage contract is that it constitutes
an encumbrance of substantially all the assets of the corporation which must be authorized by its
stockholders in a meeting for that purpose, pursuant to Section 40 of the Corporation Code. Under
that provision, a mortgage of all or substantially all of the corporation's assets is subject to the
exercise of the appraisal right. It was therefore incumbent upon herein respondents to make particular
allegations regarding their availment of their appraisal rights or the impossibility or futility
thereof. Under the 2001 IRPIC, a derivative suit must particularly allege that there are no appraisal
rights available against the assailed corporate action. Conversely, if appraisal rights are available,
such fact must be alleged and the non-availment thereof must be properly explained, moreso since a
derivative suit must particularly allege that the stockholder exerted all reasonable efforts to exhaust
all remedies available under the laws and regulations governing the corporation.

Furthermore, SARC's petition lacks a categorical statement that it is not a nuisance or harassment
suit. In order to provide legal justification for what is essentially an unauthorized suit filed on behalf
of the corporation, stockholders who resort to the equitable remedy of a derivative suit must
UE-0200673-2023

Quorum
PAUL LEE TAN, ET. AL., VS. PAUL SYCIP, ET. AL., G.R. NO. 153468. August 17, 2006.
PANGANIBAN, CJ.
FACTS:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation
with fifteen (15) regular members, who also constitute the board of trustees. During the annual
members' meeting held on April 6, 1998, there were only eleven (11) living member-trustees, as four
(4) had already died. Out of the eleven, seven (7) attended the meeting through their respective
proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of
Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased
member-trustees.
When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right to
vote) and interests in the corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for
lack of quorum. She held that the basis for determining the quorum in a meeting of members should
be their number as specified in the articles of incorporation, not simply the number
of living members. She explained that the qualifying phrase "entitled to vote" in Section 24 of the
Corporation Code, which provided the basis for determining a quorum for the election of directors or
trustees, should be read together with Section 89.
The hearing officer also opined that Article III (2) of the By-Laws of GCHS, insofar as it prescribed
the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section
29 of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the
Decision of the hearing officer in toto. It found to be untenable their contention that the word
"members," as used in Section 52 of the Corporation Code, referred only to the living members of a
nonstock corporation.
As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and
Certification of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special
Power of Attorney had been attached to show his authority to sign for the rest of the petitioners.
Hence, this Petition.
ISSUES:
Whether or not in NON-STOCK corporations, dead members should still be counted in determination
of quorum for purposes of conducting the Annual Members' Meeting.
UE-0200673-2023
RULING:
Section 52 of the Corporation Code states:
"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."
In stock corporations, the presence of a quorum is ascertained and counted on the basis of
the outstanding capital stock, as defined by the Code thus:
"SECTION 137. Outstanding capital stock defined. – The term "outstanding capital stock" as used in
this Code, means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares."
The Right to Vote in Stock Corporations
The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled that
unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholders' meeting, or whether a requisite proportion of the stock of the corporation is voted to
adopt a certain measure or act. Only stock actually issued and outstanding may be voted. Under
Section 6 of the Corporation Code, each share of stock is entitled to vote, unless otherwise
provided in the articles of incorporation or declared delinquent under Section 67 of the Code.
Neither the stockholders nor the corporation can vote or represent shares that have never passed to
the ownership of stockholders; or, having so passed, have again been purchased by the corporation.
These shares are not to be taken into consideration in determining majorities. When the law speaks of
a given proportion of the stock, it must be construed to mean the shares that have passed from the
corporation, and that may be voted.
Section 6 of the Corporation Code, in part, provides:
"Section 6. Classification of shares. – The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share
may be deprived of voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: Provided, further, that there shall always be a class or
series of shares which have complete voting rights.
xxxxxxxxx
"Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code,
the holders of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
 6. Merger or consolidation of the corporation with another corporation or other corporations; the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of
7. Investment of corporate funds in another corporation or business in accordance with this the decedent are held by the administrator or executor.
Code; and
8. Dissolution of the corporation. On the other hand, membership in and all rights arising from a nonstock corporation are
"Except as provided in the immediately preceding paragraph, the vote necessary to approve a personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation
particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting provide otherwise. In other words, the determination of whether or not "dead members" are
rights." entitled to exercise their voting rights (through their executor or administrator), depends on
those articles of incorporation or bylaws.
Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the
lawmakers was to base the quorum mentioned in Section 52 on the number of outstanding voting Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by
stocks. the death of the member. Section 91 of the Corporation Code further provides that termination
extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of
The Right to Vote in Nonstock Corporations incorporation or the bylaws.

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in Applying Section 91 to the present case, we hold that dead members who are dropped from the
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one membership roster in the manner and for the cause provided for in the By-Laws of GCHS are
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. We hold not to be counted in determining the requisite vote in corporate matters or the requisite
that when the principle for determining the quorum for stock corporations is applied by analogy to quorum for the annual members' meeting. With 11 remaining members, the quorum in the present
nonstock corporations, only those who are actual members with voting rights should be counted. case should be 6. Therefore, there being a quorum, the annual members' meeting, conducted with
six members present, was valid.
Under Section 52 of the Corporation Code, the majority of the members representing
the actual number of voting rights, not the number or numerical constant that may originally be Vacancy in the Board of Trustees
specified in the articles of incorporation, constitutes the quorum.
As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code
The March 3, 1986 SEC Opinion cited by the hearing officer uses the phrase "majority vote of the provides:
members"; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of
registered members of the association mentioned therein) plus one. The best evidence of who are "SECTION 29. Vacancies in the office of director or trustee. — Any vacancy occurring in the board
the present members of the corporation is the "membership book"; in the case of stock corporations, of directors or trustees other than by removal by the stockholders or members or by expiration of
it is the stock and transfer book. term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
the articles of incorporation, shall constitute a quorum for the transaction of corporate business elected only for the unexpired term of his predecessor in office."
(unless the articles of incorporation or the bylaws provide for a greater majority). If the
intention of the lawmakers was to base the quorum in the meetings of stockholders or members on Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a
their absolute number as fixed in the articles of incorporation, it would have expressly specified so. quorum. The phrase "may be filled" in Section 29 shows that the filling of vacancies in the board by
Otherwise, the only logical conclusion is that the legislature did not have that intention. the remaining directors or trustees constituting a quorum is merely permissive, not mandatory.
[48]
Corporations, therefore, may choose how vacancies in their respective boards may be filled up --
Effect of the Death either by the remaining directors constituting a quorum, or by the stockholders or members in a
of a Member or Shareholder regular or special meeting called for the purpose.

Having thus determined that the quorum in a members' meeting is to be reckoned as The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
the actual number of members of the corporation, the next question to resolve is what happens in directors; that is, by a majority vote of the remaining members of the board.
the event of the death of one of them.
While a majority of the remaining corporate members were present, however, the "election" of
In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a the four trustees cannot be legally upheld for the obvious reason that it was held in an annual
shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to meeting of the members, not of the board of trustees. We are not unmindful of the fact that the

UE-0200673-2023
members of GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw explaining that pursuant to the Corporation Code, the dissenting stockholders exercising their
provision, which specifically prescribes that vacancies in the board must be filled up by the appraisal rights could be paid only when the corporation had unrestricted retained earnings to cover
remaining trustees. In other words, these remaining member-trustees must sit as a board in order to the fair value of the shares, but that it had no retained earnings at the time of the petitioners' demand,
validly elect the new ones. as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00 as
of December 31, 1999.
Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by
the constituent members of the corporation. The board of trustees must act, not individually or Upon the respondent's refusal to pay, the petitioners sued the respondent for collection and damages
separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the in the RTC in Makati City on January 22, 2001.
members may be represented by their respective proxies, as in the contested annual members'
meeting of GCHS. On June 26, 2002, the petitioners filed their motion for partial summary judgment, claiming that:
Appraisal Right 7) xxx the defendant has an accumulated unrestricted retained earnings of ELEVEN MILLION NINE
PHILIP TURNER, ET. AL., VS. LORENZO SHIPPING CORPORATION, G.R. No. 157479. HUNDRED SEVENTY FIVE THOUSAND FOUR HUNDRED NINETY (P11,975,490.00) PESOS,
November 24, 2010. Philippine Currency, evidenced by its Financial Statement as of the Quarter Ending March 31, 2002;
xxx
BERSAMIN, J.
8) xxx the fair value of the shares of the petitioners as fixed by the Appraisal Committee is final, that
the same cannot be disputed xxx
FACTS:
The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged 9) xxx there is no genuine issue to material fact and therefore, the plaintiffs are entitled, as a matter of
primarily in cargo shipping activities. In June 1999, the respondent decided to amend its articles of right, to a summary judgment. xxx
incorporation to remove the stockholders' pre-emptive rights to newly issued shares of stock.
Feeling that the corporate move would be prejudicial to their interest as stockholders, the petitioners The respondent opposed the motion for partial summary judgment, stating that the determination of
voted against the amendment and demanded payment of their shares at the rate of P2.276/share based the unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and
on the book value of the shares, or a total of P2,298,760.00. that the petitioners did not have a cause of action against the respondent.
The respondent found the fair value of the shares demanded by the petitioners unacceptable. It During the pendency of the motion for partial summary judgment, however, the Presiding Judge of
insisted that the market value on the date before the action to remove the pre-emptive right was taken Branch 133 transmitted the records to the Clerk of Court for re-raffling to any of the RTC's special
should be the value, or P0.41/share (or a total of P414,100.00), considering that its shares were listed commercial courts in Makati City due to the case being an intra-corporate dispute. Nevertheless,
in the Philippine Stock Exchange, and that the payment could be made only if the respondent had because the principal office of the respondent was in Manila, Civil Case No. 01-086 was ultimately
unrestricted retained earnings in its books to cover the value of the shares, which was not the case. transferred to Branch 46 of the RTC in Manila, presided by Judge Artemio Tipon, pursuant to
the Interim Rules of Procedure on Intra-Corporate Controversies (Interim Rules) requiring intra-
The disagreement on the valuation of the shares led the parties to constitute an appraisal committee corporate cases to be brought in the RTC exercising jurisdiction over the place where the principal
pursuant to Section 82 of the Corporation Code, each of them nominating a representative, who office of the corporation was found.
together then nominated the third member who would be chairman of the appraisal committee. Thus,
the appraisal committee came to be made up of Reynaldo Yatco, the petitioners' nominee; Atty. After the conference in Civil Case No. 01-086 set on October 23, 2002, which the petitioners' counsel
Antonio Acyatan, the respondent's nominee; and Leo Anoche of the Asian Appraisal Company, Inc., did not attend, Judge Tipon issued an order, granting the petitioners' motion for partial summary
the third member/chairman. judgment, stating:
On October 27, 2000, the appraisal committee reported its valuation of P2.54/share, for an As to the motion for partial summary judgment, there is no question that the 3-man committee
aggregate value of P2,565,400.00 for the petitioners. mandated to appraise the shareholdings of plaintiff submitted its recommendation on October 27,
2000 fixing the fair value of the shares of stocks of the plaintiff at P2.54 per share. Under Section 82
Subsequently, the petitioners demanded payment based on the valuation of the appraisal committee, of the Corporation Code:
plus 2%/month penalty from the date of their original demand for payment, as well as the
reimbursement of the amounts advanced as professional fees to the appraisers. "The findings of the majority of the appraisers shall be final, and the award shall be paid by the
corporation within thirty (30) days after the award is made."
In its letter to the petitioners dated January 2, 2001, the respondent refused the petitioners' demand,
UE-0200673-2023
"The only restriction imposed by the Corporation Code is-" assets among the stockholders without first paying corporate creditors. Hence, any disposition of
corporate funds to the prejudice of creditors is null and void. Creditors of a corporation have the right
"That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted to assume that so long as there are outstanding debts and liabilities, the board of directors will not use
retained earning in its books to cover such payment." the assets of the corporation to purchase its own stock.

The evidence submitted by plaintiffs shows that in its quarterly financial statement it submitted to In the instant case, it was established that there were no unrestricted retained earnings when the
the Securities and Exchange Commission, the defendant has retained earnings of P11,975,490 as of Turners filed their Complaint. In a letter dated 20 August 2000, petitioner informed the Turners that
March 21, 2002. This is not disputed by the defendant. Its only argument against paying is that there payment of their shares could only be made if it had unrestricted earnings in its books to cover the
must be unrestricted retained earning at the time the demand for payment is made. same. Petitioner reiterated this in a letter dated 2 January 2001 which further informed the Turners
that its Financial Statement for fiscal year 1999 shows that its retained earnings ending December 31,
This certainly is a very narrow concept of the appraisal right of a stockholder. The law does not say 1999 was at a deficit in the amount of P72,973,114.00, a matter which has not been disputed by
that the unrestricted retained earnings must exist at the time of the demand. Even if there are no private respondents. Hence, in accordance with the second paragraph of sec. 82, BP 68 supra, the
retained earnings at the time the demand is made if there are retained earnings later, the fair value of Turners' right to payment had not yet accrued when they filed their Complaint on January 22, 2001,
such stocks must be paid. The only restriction is that there must be sufficient funds to cover the albeit their appraisal right already existed.
creditors after the dissenting stockholder is paid. No such allegations have been made by the
defendant. In Philippine American General Insurance Co. Inc. vs. Sweet Lines, Inc., the Supreme Court declared
that:
On November 12, 2002, the respondent filed a motion for reconsideration.
Now, before an action can properly be commenced all the essential elements of the cause of action
On the scheduled hearing of the motion for reconsideration on November 22, 2002, the petitioners must be in existence, that is, the cause of action must be complete. All valid conditions precedent to
filed a motion for immediate execution and a motion to strike out motion for reconsideration. In the the institution of the particular action, whether prescribed by statute, fixed by agreement of the
latter motion, they pointed out that the motion for reconsideration was prohibited by Section 8 of the parties or implied by law must be performed or complied with before commencing the action, unless
Interim Rules. Thus, also on November 22, 2002, Judge Tipon denied the motion for the conduct of the adverse party has been such as to prevent or waive performance or excuse non-
reconsideration and granted the petitioners' motion for immediate execution. performance of the condition.

Subsequently, on November 28, 2002, the RTC issued a writ of execution. It bears restating that a right of action is the right to presently enforce a cause of action, while a cause
of action consists of the operative facts which give rise to such right of action. The right of action
Aggrieved, the respondent commenced a special civil action for certiorari in the CA to challenge the does not arise until the performance of all conditions precedent to the action and may be taken away
two aforecited orders of Judge Tipon. by the running of the statute of limitations, through estoppel, or by other circumstances which do not
affect the cause of action. Performance or fulfillment of all conditions precedent upon which a right
Upon the respondent's application, the CA issued a temporary restraining order (TRO), enjoining the of action depends must be sufficiently alleged, considering that the burden of proof to show that a
petitioners, and their agents and representatives from enforcing the writ of execution. By then, party has a right of action is upon the person initiating the suit.
however, the writ of execution had been partially enforced.
The Turners' right of action arose only when petitioner had already retained earnings in the amount of
The TRO lapsed without the CA issuing a writ of preliminary injunction to prevent the execution. P11,975,490.00 on March 21, 2002; such right of action was inexistent on January 22, 2001 when
Thereupon, the sheriff resumed the enforcement of the writ of execution. they filed the Complaint.

The CA promulgated its assailed decision on March 4, 2003, pertinently holding:
However, it is clear from the foregoing that the Turners' appraisal right is subject to the legal
condition that no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment. Thus, the Supreme Court held that:
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
UE-0200673-2023
In the doctrinal case of Surigao Mine Exploration Co. Inc., vs. Harris, the Supreme Court ruled:
Subject to certain qualifications, and except as otherwise provided by law, an action commenced
before the cause of action has accrued is prematurely brought and should be dismissed. The fact that
the cause of action accrues after the action is commenced and while it is pending is of no moment. It
is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at
all there must be some cause of action at the commencement of the suit. There are reasons of public
policy why there should be no needless haste in bringing up litigation, and why people who are in no
default and against whom there is as yet no cause of action should not be summoned before the
public tribunals to answer complaints which are groundless. An action prematurely brought is a
groundless suit. Unless the plaintiff has a valid and subsisting cause of action at the time his action is
commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the
action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause
of action is not permissible.
The afore-quoted ruling was reiterated in Young vs Court of Appeals and Lao vs. Court of Appeals.
The Turners' apprehension that their claim for payment may prescribe if they wait for the petitioner
to have unrestricted retained earnings is misplaced. It is the legal possibility of bringing the action
that determines the starting point for the computation of the period of prescription. Stated otherwise,
the prescriptive period is to be reckoned from the accrual of their right of action.
Accordingly, We hold that public respondent exceeded its jurisdiction when it entertained the herein
Complaint and issued the assailed Orders. Excess of jurisdiction is the state of being beyond or
outside the limits of jurisdiction, and as distinguished from the entire absence of jurisdiction, means
that the act although within the general power of the judge, is not authorized and therefore void, with
respect to the particular case, because the conditions which authorize the exercise of his general
power in that particular case are wanting, and hence, the judicial power is not in fact lawfully
invoked.
We find no necessity to discuss the second ground raised in this petition.
The petitioners now come to the Court for a review on certiorari of the CA's decision.
A.
Stockholder's Right of Appraisal, In General
A stockholder who dissents from certain corporate actions has the right to demand payment of the
fair value of his or her shares. This right, known as the right of appraisal, is expressly recognized in
Section 81 of the Corporation Code, to wit:
Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the
right to dissent and demand payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of incorporation has the effect of changing
or restricting the rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class, or
of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of
all or substantially all of the corporate property and assets as provided in the
Code; and
3. In case of merger or consolidation. (n)
Clearly, the right of appraisal may be exercised when there is a fundamental change in the charter or
articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest
UE-0200673-2023
unless objectionable corporate action is taken. It serves the purpose of enabling the dissenting
stockholder to have his interests purchased and to retire from the corporation.
Now, however, a corporation can purchase its own shares, provided payment is made out of surplus
profits and the acquisition is for a legitimate corporate purpose. In the Philippines, this new rule is
embodied in Section 41 of the Corporation Code, to wit:
Section 41. Power to acquire own shares. - A stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or purposes, including
but not limited to the following cases: Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code. (n)
The Corporation Code defines how the right of appraisal is exercised, as well as the implications of
the right of appraisal, as follows:
1. The appraisal right is exercised by any stockholder who has voted against the proposed
corporate action by making a written demand on the corporation within 30 days after the
date on which the vote was taken for the payment of the fair value of his shares. The failure
to make the demand within the period is deemed a waiver of the appraisal right.
2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the
shares within a period of 60 days from the date the stockholders approved the corporate
action, the fair value shall be determined and appraised by three disinterested persons, one
of whom shall be named by the stockholder, another by the corporation, and the third by
the two thus chosen. The findings and award of the majority of the appraisers shall be final,
and the corporation shall pay their award within 30 days after the award is made. Upon
payment by the corporation of the agreed or awarded price, the stockholder shall forthwith
transfer his or her shares to the corporation.
3. All rights accruing to the withdrawing stockholder's shares, including voting and dividend
rights, shall be suspended from the time of demand for the payment of the fair value of the
shares until either the abandonment of the corporate action involved or the purchase of the
shares by the corporation, except the right of such stockholder to receive payment of the
fair value of the shares.
4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder
shall submit to the corporation the certificates of stock representing his shares for notation
thereon that such shares are dissenting shares. A failure to do so shall, at the option of the
corporation, terminate his rights under this Title X of the Corporation Code. If shares
represented by the certificates bearing such notation are transferred, and the certificates are
consequently canceled, the rights of the transferor as a dissenting stockholder under this
Title shall cease and the transferee shall have all the rights of a regular stockholder; and all
 dividend distributions that would have accrued on such shares shall be paid to the
transferee.
5. If the proposed corporate action is implemented or effected, the corporation shall pay to
such stockholder, upon the surrender of the certificates of stock representing his shares, the
fair value thereof as of the day prior to the date on which the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action.
Notwithstanding the foregoing, no payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its books to cover the payment. In case the
corporation has no available unrestricted retained earnings in its books, Section 83 of
the Corporation Code provides that if the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend rights shall immediately be restored.
The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the
payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital
stock, property, and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has outstanding debts and
liabilities. There can be no distribution of assets among the stockholders without first paying
corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors is
null and void.
ISSUE:
RULING:
The RTC concluded that the respondent's obligation to pay had accrued by its having the unrestricted
retained earnings after the making of the demand by the petitioners. It based its conclusion on the fact
that the Corporation Code did not provide that the unrestricted retained earnings must already exist at
the time of the demand.
The RTC's construal of the Corporation Code was unsustainable, because it did not take into account
the petitioners' lack of a cause of action against the respondent. In order to give rise to any obligation
to pay on the part of the respondent, the petitioners should first make a valid demand that the
respondent refused to pay despite having unrestricted retained earnings. Otherwise, the
respondent could not be said to be guilty of any actionable omission that could sustain their action to
collect.
Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint
cure the lack of cause of action. The petitioners' right of action could only spring from
an existing cause of action. Thus, a complaint whose cause of action has not yet accrued cannot be
cured by an amended or supplemental pleading alleging the existence or accrual of a cause of action
during the pendency of the action. For, only when there is an invasion of primary rights, not before,
does the adjective or remedial law become operative. Verily, a premature invocation of the court's
intervention renders the complaint without a cause of action and dismissible on such ground. [32] In
short, Civil Case No. 01-086, being a groundless suit, should be dismissed.
UE-0200673-2023
Even the fact that the respondent already had unrestricted retained earnings more than sufficient to
cover the petitioners' claims on June 26, 2002 (when they filed their motion for partial summary
judgment) did not rectify the absence of the cause of action at the time of the commencement of Civil
Case No. 01-086. The motion for partial summary judgment, being a mere application for relief other
than by a pleading, was not the same as the complaint in Civil Case No. 01-086. Thereby, the
petitioners did not meet the requirement of the Rules of Court that a cause of action must exist at the
commencement of an action, which is "commenced by the filing of the original complaint in court."
The petitioners claim that the respondent's petition for certiorari sought only the annulment of the
assailed orders of the RTC (i.e., granting the motion for partial summary judgment and the motion
for immediate execution); hence, the CA had no right to direct the dismissal of Civil Case No. 01-
086.
The claim of the petitioners cannot stand.
Although the respondent's petition for certiorari targeted only the RTC's orders granting the motion
for partial summary judgment and the motion for immediate execution, the CA's directive for the
dismissal of Civil Case No. 01-086 was not an abuse of discretion, least of all grave, because such
dismissal was the only proper thing to be done under the circumstances. According to Surigao Mine
Exploration Co., Inc. v. Harris:[35]
Subject to certain qualification, and except as otherwise provided by law, an action commenced
before the cause of action has accrued is prematurely brought and should be dismissed. The fact
that the cause of action accrues after the action is commenced and while the case is pending is of no
moment. It is a rule of law to which there is, perhaps no exception, either in law or in equity, that to
recover at all there must be some cause of action at the commencement of the suit. There are reasons
of public policy why there should be no needless haste in bringing up litigation, and why people who
are in no default and against whom there is as yet no cause of action should not be summoned before
the public tribunals to answer complaints which are groundless. An action prematurely brought is a
groundless suit. Unless the plaintiff has a valid and subsisting cause of action at the time his
action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of
one while the action is pending, and a supplemental complaint or an amendment setting up such
after-accrued cause of action is not permissible.

Corporate Books and Right to Inspect
CHUA, VS. PEOPLE OF THE PHILIPPINES, G.R. No. 216146. August 24, 2016.
REYES, J.:
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.
Joselyn likewise hired the services of Mr. Abednego Velayo (Mr. Velayo) from the accounting firm
of Guzman Bocaling and Company to assist her in examining the books of the corporation. Armed
with a letter request[,] together with the list of schedules of audit materials, Mr. Velayo and his group
visited the corporation's premises for the supposed examination of the accounts. However, the books
of accounts were not formally presented to them and there was no list of schedules[,] which would
allow them to pursue their inspection. Mr. Velayo testified that they failed to complete their objective
of inspecting the books of accounts and examine the recorded documents.
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. They argued that the custody of the
records sought to be inspected by Joselyn did not pertain to them. Besides, the physical records were
merely kept inside the cabinets in the corporate office. Further, they did not prevent Joselyn from
inspecting the records. What happened was that Mercedes was severely occupied with winding up the
affairs of CTCM after it ceased operations. Joselyn and her lawyers then failed to set up an
appointment with Mercedes. Joselyn, through counsel, then sent demand letters to inspect the
records. Not long after, Joselyn filed two cases, one of which was civil and the other, criminal,
against the petitioners.
On July 4, 2001, 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.
UE-0200673-2023
On January 30, 2002, 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.
Consequently, when the acts complained of by Joselyn were allegedly committed in August of 2000,
the petitioners cannot be considered anymore as responsible officers of CTCM. Thus, assuming for
argument's sake that the petitioners actually refused to let Joselyn inspect corporate records, no
criminal liability can attach to an omission to perform a duty, which no longer existed. The MeTC,
however, denied the petitioners' Motion to Quash.
On November 23, 2012, the MeTC rendered its Judgment convicting the petitioners as charged,
sentencing them to surfer the penalty of 30 days of imprisonment, and directing them to pay the costs
of suit. The MeTC cited Ang-Abaya, et al. v. Ang to stress that in the instant case, the prosecution had
amply established the presence of the elements of the offense under Section 74 of the Corporation
Code, to wit: (a) a stockholder's prior demand in writing for the inspection of corporate records; (b)
refusal by corporate officers to allow the inspection; and (c) proofs adduced by the corporate officers
of the stockholder's prior improper or malicious use of the records in the event that the same is raised
as a defense for the refusal to allow the inspection. Further invoking Gokongwei, Jr. v. Securities and
Exchange Commission, the MeTC explained that a stockholder's right to inspect corporate records is
based upon the necessity of self-protection. Thus, the exercise of the right at reasonable hours during
business days should be allowed.
In the Order dated March 26, 2013, the MeTC denied the petitioners' Motion for Reconsideration.
The petitioners filed an appeal, which the RTC denied in the Decision rendered on March 27, 2014.
The RTC agreed with the MeTC's ruling and stated that the petitioners should have presented their
evidence to contradict or rebut the evidence presented by the prosecution that has overcome their
constitutional right to be presumed innocent, before the lower court.
In its Order dated July 4, 2014, the RTC denied the petitioners' motion for reconsideration.
The petitioners filed before the CA a petition for review under Rule 42 of the Rules of Court. On
September 23, 2014, the CA outrightly dismissed the petition on technical grounds, i.e., failure to
submit (a) true copies or duplicate originals of the MeTC's Judgment dated November 23, 2012 and
Order dated March 26, 2013, and (b) a Special Power of Attorney (SPA) authorizing Alfredo to file
the petition and sign the verification and certification of non-forum shopping in behalf of Tomas and
Mercedes.
On October 15, 2014, the petitioners filed a Motion for Reconsideration, to which they appended
their belated compliance with the formal requirements pointed out by the CA. Pending resolution of
the motion, Rosario Sui Lian Chua (Rosario), mother of the now deceased Joselyn, filed an Affidavit
of Desistance dated December 11, 2014, which in part stated that:
3. After taking stock of the situation of the [petitioners] in the above-captioned case, and
considering moreover that [Alfredo and Tomas] are both uncles of [Joselyn], and are
brothers of my now also-deceased husband, I and the rest of my family, have decided to
condone any and all possible criminal wrongdoings attributable to [the petitioners], and to
absolve the latter of both civil and criminal liabilities in connection with the above-
captioned case;
 4. In any event, we have reason to believe that the filing of the instant criminal case was
merely the result of serious misunderstanding anent the management and operation of
[CTCM], which had long ceased to exist as a corporate entity even prior to the alleged
commission of the crime in question, rather than by reason of any criminal intent or
actuation on the part of the [petitioners].

On January 6, 2015, the CA issued the second assailed Resolution denying the petitioners' motion for
reconsideration.

Unfazed, the petitioners filed before this Court the instant petition for review on certiorari raising the
sole issue of the propriety of their conviction for alleged violation of Section 74, in relation to Section
144, of the Corporation Code.

ISSUE:
Whether or not the petitioners no longer have 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:
Despite the expiration of CTCM's corporate term in 1999, duties as corporate officers still pertained
to the petitioners when Joselyn's complaint was filed in 2000.

Yu, et al. v. Yukayguan, et al. instructs that:

[T]he 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. x x x 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 x x x nor those of its
owners and creditors. x x x.

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.

UE-0200673-2023
 MA. BELEN FLORDELIZA C. ANG-ABAYA, ET. AL. VS. EDUARDO G. ANG, G.R.
No. 178511. December 04, 2008.
YNARES-SANTIAGO, J.
FACTS:
Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) ("the
corporations") are family-owned corporations, where petitioners Ma. Belen Flordeliza C. Ang-Abaya
(Flordeliza), Francis Jason A. Ang (Jason), Vincent G. Genato (Vincent), Hanna Zorayda A. Ang
(Hanna) and private respondent Eduardo G. Ang (Eduardo) are shareholders, officers and members
of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriana Manufacturing Corporation (Oriana) filed
Civil Case No. 4257-MC, which is a case for damages with prayer for issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction against herein respondent Eduardo,
together with Michael Edward Chi Ang (Michael), and some other persons for allegedly conniving
to fraudulently wrest control/management of the corporations. Eduardo allegedly borrowed
substantial amounts of money from the said corporations without any intention to repay; that he
repeatedly demanded for increases in his monthly allowance and for more cash advances contrary to
existing corporate policies; that he harassed petitioner Flordeliza to transfer and/or sell certain
corporate and personal properties in order to pay off his personal obligations; that he attempted to
forcibly evict petitioner Jason from his office and claim it as his own; that he interfered with and
disrupted the daily business operations of the corporations; that Michael was placed on preventive
suspension due to prolonged absence without leave and commission of acts of disloyalty such as
carrying out orders of Eduardo which were detrimental to their business, using privileged information
and confidential documents/data obtained in his capacity as Vice President of the corporations, and
admitting to have sabotaged their distribution system and operations.
During the pendency of Civil Case No. 4257-MC, particularly in July, 2004, Eduardo sought
permission to inspect the corporate books of VMC and Genato on account of petitioners' alleged
failure and/or refusal to update him on the financial and business activities of these family
corporations. Petitioners denied the request claiming that Eduardo would use the information
obtained from said inspection for purposes inimical to the corporations' interests, considering that: "a)
he is harassing and/or bullying the Corporation[s] into writing off P165,071,586.55 worth of personal
advances which he had unlawfully obtained in the past; b) he is unjustly demanding that he be given
the office currently occupied by Mr. Francis Jason Ang, the Vice-President for Finance and
Corporate Secretary; c) he is usurping the rights belonging exclusively to the Corporation; and d) he
is coercing and/or trying to inveigle the Directors and/or Officers of the Corporation to give in to his
baseless demands involving specific corporate assets."
Because of petitioners' refusal to grant his request to inspect the corporate books of VMC and
Genato, Eduardo filed an Affidavit-Complaint against petitioners Flordeliza and Jason, charging
them with violation (two counts) of Section 74, in relation to Section 144, of the Corporation Code of
the Philippines. Ma. Belinda G. Sandejas (Belinda), Vincent, and Hanna were subsequently
impleaded for likewise denying respondent's request to inspect the corporate books.
UE-0200673-2023
Petitioners filed a Joint Counter-Affidavit praying for the dismissal of the complaint for lack of
factual and legal basis, or for the suspension of the same while Civil Case No. 4257-MC is still
pending resolution. They denied violating Section 74 of the Corporation Code and reiterated the
allegations contained in their complaint in Civil Case No. 4257-MC. Petitioners blamed Eduardo's
lavish lifestyle, which is funded by personal loans and cash advances from the family corporations.
They alleged that Eduardo consistently pressured petitioner Flordeliza, his daughter, to improperly
transfer ownership of the corporations' V.A.G. Building to him; to disregard the company policy
prohibiting advances by shareholders; to unduly increase his corporate monthly allowance; and to sell
her Wack-Wack Golf proprietary share and use the proceeds thereof to pay his personal financial
obligations. When the proposed transfer of the V.A.G. Building did not materialize, petitioners claim
that Eduardo instituted an action to compel the donation of said property to him. Furthermore, they
claim that Eduardo attempted to forcibly evict petitioner Jason from his office at VMC so he can
occupy the same; that Eduardo and his cohorts constantly created trouble by intervening in the daily
operations of the corporations without the knowledge or consent of the board of directors.
Meanwhile, in Civil Case No. 4257-MC, the trial court rendered a Decision granting the permanent
injunction applied for by the corporations. However, the Court of Appeals subsequently rendered a
Decision declaring that Eduardo, his son Michael, and the other persons impleaded in Civil Case No.
4257-MC, were imprudently declared in default by the trial court. The appellate court thus annulled
the permanent injunction issued by the trial court and remanded the case for further proceedings.
VMC, Genato, and Oriana corporations filed a Petition for Review on Certiorari before this Court,
but the same was denied for failure to sufficiently show any reversible error in the Decision of the
Court of Appeals. The three corporations filed a Motion for Reconsideration, but the same was
denied with finality on June 25, 2008.
Meanwhile, on February 3, 2005, the City Prosecutor's Office of Malabon City issued a
Resolution recommending that petitioners be charged with two counts of violation of Section 74 of
the Corporation Code, but dismissed the complaint against Belinda for lack of evidence. Petitioners
filed a Petition for Review before the Department of Justice (DOJ), which reversed the
recommendation of the City Prosecutor of Malabon City.
The DOJ denied Eduardo's Motion for Reconsideration in a Resolution dated March 29, 2006. On
appeal, the Court of Appeals rendered the assailed Decision, the dispositive portion of which states:
The assailed Resolutions of public respondent dated July 26, 2005 and March 29, 2006 are hereby
NULLIFIED and SET ASIDE. However, due to the present existence of a prejudicial question, the
criminal case docketed I.S. No. MAL-2004-1167 is hereby SUSPENDED until Civil Case No. 4257-
MC is decided on the merits with finality.
The appellate court ruled that the Secretary of Justice committed grave abuse of discretion
amounting to lack or excess of jurisdiction in reversing the Resolutions of the Malabon City
Prosecutor and in finding that Eduardo did not act in good faith when he demanded for the
examination of VMC and Genato's corporate books. It further held that Eduardo can demand said
examination as a stockholder of both corporations; that Eduardo raised legitimate questions that
necessitated inspection of the corporate books and records; and that petitioners' refusal to allow
inspection created probable cause to believe that they have committed a violation of Section 74 of the
Corporation Code.

On June 19, 2007, the Court of Appeals denied the Motions for Reconsideration filed by petitioners
and the Secretary of Justice. Hence, this petition.
ISSUE:
RULING:
In Gokongwei, Jr. v. Securities and Exchange Commission, this Court explained the rationale behind
a stockholder's right to inspect corporate books, to wit:
The stockholder's right of inspection of the corporation's books and records is based upon
their ownership of the assets and property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated
upon the necessity of self-protection. It is generally held by majority of the courts that
where the right is granted by statute to the stockholder, it is given to him as such and must
be exercised by him with respect to his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation. In other words, the inspection has to
be germane to the petitioner's interest as a stockholder, and has to be proper and
lawful in character and not inimical to the interest of the corporation.
In Republic v. Sandiganbayan, the Court declared that the right to inspect and/or examine the records
of a corporation under Section 74 of the Corporation Code is circumscribed by the express limitation
contained in the succeeding proviso, which states that:
[I]t shall be a defense to any action under this section that the person demanding to
examine and copy excerpts from the corporation's records and minutes has improperly
used any information secured through any prior examination of the records or minutes of
such corporation or of any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
Thus, contrary to Eduardo's insistence, the stockholder's right to inspect corporate books is not
without limitations. While the right of inspection was enlarged under the Corporation Code as
opposed to the old Corporation Law (Act No. 1459, as amended), It is now expressly required as a
condition for such examination that the one requesting it must not have been guilty of using
improperly any information secured through a prior examination, or that the person asking for such
examination must be acting in good faith and for a legitimate purpose in making his demand.
In order therefore for the penal provision under Section 144 of the Corporation Code to apply in a
case of violation of a stockholder or member's right to inspect the corporate books/records as
provided for under Section 74 of the Corporation Code, the following elements must be present:
First. A director, trustee, stockholder or member has made a prior demand in
writing for a copy of excerpts from the corporation's records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to allow
the said director, trustee, stockholder or member of the corporation to examine
UE-0200673-2023
and copy said excerpts;
Third. If such refusal is made pursuant to a resolution or order of the board of
directors or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the corporation sets up the defense that
the person demanding to examine and copy excerpts from the corporation's
records and minutes has improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in
making his demand, the contrary must be shown or proved.
Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of
improper use or motive is in the nature of a justifying circumstance that would exonerate those who
raise and are able to prove the same. Accordingly, where the corporation denies inspection on the
ground of improper motive or purpose, the burden of proof is taken from the shareholder and placed
on the corporation.
In the instant case, the Court finds that the Court of Appeals erred in declaring that the Secretary of
Justice exceeded his authority when he conducted an inquiry on the petitioners' defense of improper
use and motive on Eduardo's part. As a necessary element in the offense of refusal to honor a
stockholder/member's right to inspect the corporate books/records, it was incumbent upon the
Secretary of Justice to determine that all the elements which constitute said offense are present, in
line with our ruling in Duterte v. Sandiganbayan.
Petitioners argue that Eduardo's demand for an inspection of the corporations' books is based on the
latter's attempt in bad faith at having his more than P165 million advances from the corporations
written off; that Eduardo is unjustly demanding that he be given the office of Jason, or the Vice
Presidency for Finance and Corporate Secretary; that Eduardo is usurping rights belonging
exclusively to the corporations; and Eduardo's attempts at coercing the corporations, their directors
and officers into giving in to his baseless demands involving specific corporate assets. Specifically,
petitioners accuse Eduardo of the following:
1. He is a spendthrift, using the family corporations' resources to sustain his extravagant
lifestyle. During his incumbency as officer of VMC and Genato (from 1984 to 2000), he
was able to obtain massive amounts by way of cash advances from these corporations,
amounting to more than P165 million;
2. He is exercising undue pressure upon petitioners in order to acquire ownership, through the
forced execution of a deed of donation, over the VAG Building in San Juan, which building
belongs to Genato;
3. He is putting pressure on the corporations, through their directors and officers, for the latter
to disregard their respective policies which prohibit the grant of cash advances to
stockholders.
4. At one time, he coerced Flordeliza for the latter to sell her Wack-Wack Golf Proprietary
Share;
5. In May 2003, without the requisite authority, he called a "stockholders' meeting" to demand
an increase in his P140,000.00 monthly allowance from the corporation to P250,000.00;
 demand a cash advance of US$10,000; and to demand that the corporations shoulder the
medical and educational expenses of his family as well as those of the other stockholders;
6. In November 2003, he demanded that he be given an office within the corporations'
premises. In December 2003, he stormed the corporations' common office, ordered the
employees to vacate the premises, summoned the directors to a meeting, and there he
berated them for not acting on his requests. In January 2004, he returned to the office,
demanding the transfer of the Accounting Department and for Jason to vacate his office by
the end of the month. He likewise left a letter which contained his demands. At the end of
January 2004, he returned, ordered the employees to leave the premises and demanded that
Jason surrender his office and vacate his desk. He did this no less than four (4) times. As a
result, the respective boards of directors of the corporations resolved to ban him from the
corporate premises;
7. He has been interfering in the everyday operations of VMC and Genato, usurping the
duties, rights and authority of the directors and officers thereof. He attempted to lease out a
warehouse within the VMC premises without the knowledge and consent of its directors
and officers; during the wake of the former President of VMC and Genato, he issued
instructions for the employees to close down operations for the whole duration of the wake,
against the corporate officers' instructions to attend the wake by batch, so as not to hamper
business operations; he has caused chaos and confusion in VMC and Genato as a result;
8. He is out to sabotage the family corporations.

These serious allegations are supported by official and other documents, such as board resolutions,
treasurer's affidavits and written communication from the respondent Eduardo himself, who appears
to have withheld his objections to these charges. His silence virtually amounts to an acquiescence.
Taken together, all these serve to justify petitioners' allegation that Eduardo was not acting in good
faith and for a legitimate purpose in making his demand for inspection of the corporate books.
Otherwise stated, there is lack of probable cause to support the allegation that petitioners violated
Section 74 of the Corporation Code in refusing respondent's request for examination of the
corporation books.

UE-0200673-2023
 ADERITO Z. YUJUICO, ET. AL., VS. CEZAR T. QUIAMBAO, ET. AL., G.R. No. 180416. certain entries in the stock and transfer books. After making such entries, Blando
June 02, 2014. again demanded that he be given possession of the stock and transfer book. Quiambao
refused.
PEREZ, J. 7. On 1 July 2004, Blando received an order dated 30 June 2004 issued by the RTC, Branch
71, of Pasig City in Civil Case No. 70027, which directed him to cancel the entries he made
FACTS: in the stock and transfer book. Hence, on even date, Blando wrote letters to Quiambao and
Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a Pilapil once again demanding for the turnover of the stock and transfer book. Pilapil replied
business development and investment company. thru a letter dated 2 July 2004 where he appeared to agree to Blando's demand.
8. However, upon meeting with Pilapil and Quiambao, the latter still refused to turnover the
On 1 March 2004, during the annual stockholder's meeting of STRADEC, petitioner Aderito Z. stock and transfer book to Blando. Instead, Blando was once again constrained to agree to a
Yujuico (Yujuico) was elected as president and chairman of the company. Yujuico replaced proposal by Pilapil to have the stock and transfer book deposited with the RTC, Branch
respondent Cezar T. Quiambao (Quiambao), who had been the president and chairman of STRADEC 155, of Pasig City. The said court, however, refused to accept such deposit on the ground
since 1994. that it had no place for safekeeping.
9. Since Quiambao and Pilapil still refused to turnover the stock and transfer book, Blando
With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C. Sumbilla (Sumbilla) as again acceded to have the book deposited in a safety deposit box, this time, with the Export
treasurer and one Joselito John G. Blando (Blando) as corporate secretary. Blando replaced and Industry Bank in San Miguel Avenue, Pasig City.
respondent Eric C. Pilapil (Pilapil), the previous corporate secretary of STRADEC.
Petitioners theorize that the refusal by the respondents and Casanova to turnover STRADEC's
On 12 August 2005, petitioners filed a criminal complaint against respondents and one Giovanni T. corporate records and stock and transfer book violates their right, as stockholders, directors and
Casanova (Casanova) before the Office of the City Prosecutor (OCP) of Pasig City. officers of the corporation, to inspect such records and book under Section 74 of the Corporation
Code. For such violation, petitioners conclude, respondents may be held criminally liable pursuant to
The complaint accuses respondents and Casanova of violating Section 74 in relation to Section 144 Section 144 of the Corporation Code.
of Batas Pambansa Blg. 68 or the Corporation Code. The petitioners premise such accusation on the
following factual allegations: After receiving the counter-affidavits of the respondents and Casanova, as well as the other
1. During the stockholders' meeting on 1 March 2004, Yujuico--as newly elected president documentary submissions by the parties, the OCP issued a Resolution dated 6 January 2006. In the
and chairman of STRADEC--demanded Quiambao for the turnover of the corporate said resolution, the OCP absolved Casanova but found probable cause to hail respondents to court on
records of the company, particularly the accounting files, ledgers, journals and other two (2) offenses: (1) for removing the stock and transfer book of STRADEC from its principal office,
records of the corporation's business. Quiambao refused. and (2) for refusing access to, and examination of, the corporate records and the stock and transfer
2. As it turns out, the corporate records of STRADEC were in the possession of book of STRADEC at its principal office.
Casanova-the accountant of STRADEC. Casanova was keeping custody of the said
records on behalf of Quiambao, who allegedly needed the same as part of his defense in a Pursuant to the resolution, two (2) informations were filed against the respondents before the
pending case in court. Metropolitan Trial Court (MeTC) of Pasig City.
3. After the 1 March 2004 stockholders' meeting, Quiambao and Casanova caused the
removal of the corporate records of STRADEC from the company's offices in Pasig Criminal Case No. 89723 is for the offense of removing the stock and transfer book of STRADEC
City. from its principal office. Criminal Case No. 89724, on the other hand, covers the offense of refusing
4. Upon his appointment as corporate secretary on 21 June 2004, Blando likewise demanded access to, and examination of, the corporate records and the stock and transfer book of STRADEC at
Pilapil for the turnover of the stock and transfer book of STRADEC. Pilapil refused. its principal office.
5. Instead, on 25 June 2004, Pilapil proposed to Blando to have the stock and transfer book
deposited in a safety deposit box with Equitable Pel Bank, Kamias Road, Quezon City. On 18 January 2006, respondents filed before the MeTC an Urgent Omnibus Motion for Judicial
Blando acceded to the proposal and the stock and transfer book was deposited in a safety Determination of Probable Cause and To Defer Issuance of Warrants of Arrest (Urgent Omnibus
deposit box with the bank identified. It was agreed that the safety deposit box may only be Motion).
opened in the presence of both Quiambao and Blando.
6. On 30 June 2004, however, Quiambao and Pilapil withdrew the stock and transfer book On 8 May 2006, the MeTC issued an order partially granting the Urgent Omnibus Motion. The
from the safety deposit box and brought it to the offices of the Stradcom Corporation MeTC dismissed Criminal Case No. 89723 but ordered the issuance of a warrant of arrest against
(STRADCOM) in Quezon City. Quiambao thereafter asked Blando to proceed to the respondents in Criminal Case No. 89724.
STRADCOM offices. Upon arriving thereat, Quiambao pressured Blando to make

UE-0200673-2023
In dismissing Criminal Case No. 89723, the MeTC held that Section 74, in relation to Section 144, of records of STRADEC or that they have allowed inspection of the same cannot be taken
the Corporation Code only penalizes the act of "refus[ing] to allow any director, trustee, stockholder against them much less support a finding of probable cause against them.
or member of the corporation to examine and copy excerpts from the records or minutes of the
corporation" and that act is already the subject matter of Criminal Case No. 89724. Hence, the MeTC The RTC further pointed out that, at most, the evidence on record only supports probable cause that
opined, Criminal Case No. 89723-which seeks to try respondents for merely removing the stock and the respondents were withholding the stock and transfer book of STRADEC. The RTC, however,
transfer book of STRADEC from its principal office-actually charges no offense and, therefore, opined that refusing to allow inspection of the stock and transfer book, as opposed to refusing
cannot be sustained. examination of other corporate records, is not punishable as an offense under the Corporation Code.
Hence, the directive of the RTC dismissing Criminal Case No. 89724.
Anent directing the issuance of a warrant of arrest in Criminal Case No. 89724, the MeTC found
probable cause to do so; given the failure of the respondents to present any evidence during the The petitioners moved for reconsideration, but the RTC remained steadfast.
preliminary investigation showing that they do not have possession of the corporate records of
STRADEC or that they allowed petitioners to inspect the corporate records and the stock and transfer Hence, this petition by petitioners.
book of STRADEC.
ISSUE:
Unsatisfied, the respondents filed a motion for partial reconsideration of the 8 May 2006 order of the Whether or not the act of refusing to allow inspection of the stock and transfer book of a
MeTC insofar as the disposition in Criminal Case No. 89724 is concerned. The MeTC, however, corporation is not a punishable offense under the Corporation Code.
denied such motion on 16 August 2006.
RULING:
After their motion for partial reconsideration was denied, respondents filed a certiorari petition with The act of refusing to allow inspection of the stock and transfer book of a corporation, when done in
prayer for the issuance of a temporary restraining order (TRO), before the RTC of Pasig City on 27 violation of Section 74(4) of the Corporation Code, is punishable as an offense under Section 144 of
September 2006. The petition was docketed as S.C.A. No. 3047. the same code.

On 16 November 2006, the RTC issued a TRO enjoining the MeTC from conducting further Section 74 is the provision of the Corporation Code that deals with the books a corporation is
proceedings in Criminal Case No. 89724 for twenty (20) days. required to keep. It reads:

On 4 June 2007, the RTC issued an Order granting respondents' certiorari petition and directing the
dismissal of Criminal Case No. 89724. According to the RTC, the MeTC committed grave abuse of
discretion in issuing a warrant of arrest against respondents in Criminal Case No. 89724.
The RTC found that the finding of probable cause against the respondents in Criminal Case No.
89724 was not supported by the evidence presented during the preliminary investigation but was, in
fact, contradicted by them:
1. The RTC noted that, aside from the complaint itself, no evidence was ever submitted by
petitioners to prove that they demanded and was refused access to the corporate records of
STRADEC between 1 March to 25 June 2004. What petitioners merely submitted is their
letter dated 6 September 2004 demanding from respondents access to the corporate records
of STRADEC.
2. The allegations of petitioners in their complaint, as well as 6 September 2004 letter above-
mentioned, however, are contradicted by the sworn statement dated 1 July 2004 of
Blando wherein he attested that as early as 25 June 2004, Pilapil already turned over to him
"two binders containing the minutes, board resolutions, articles of incorporation, copies of
contracts, correspondences and other papers of the corporation, except the stock
certificate book and the stock and transfer book."
3. The RTC also took exception to the reason provided by the MeTC in supporting its finding
of probable cause against the respondents. The RTC held that it was not incumbent upon
the respondents to provide evidence proving their innocence. Hence, the failure of the
respondents to submit evidence showing that they do not have possession of the corporate
UE-0200673-2023
Section 74. Books to be kept; stock transfer agent. - Every corporation shall
keep and carefully preserve at its principal office a record of all business
transactions and minutes of all meetings of stockholders or members, or of the
board of directors or trustees, in which shall be set forth in detail the time and
place of holding the meeting, how authorized, the notice given, whether the
meeting was regular or special, if special its object, those present and absent,
and every act done or ordered done at the meeting. Upon the demand of any
director, trustee, stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted in the
minutes; and on a similar demand, the yeas and nays must be taken on any
motion or proposition, and a record thereof carefully made. The protest of any
director, trustee, stockholder or member on any action or proposed action must
be recorded in full on his demand.
The records of all business transactions of the corporation and the minutes
of any meetings shall be open to inspection by any director, trustee,
stockholder or member of the corporation at reasonable hours on business
days and he may demand, in writing, for a copy of excerpts from said
records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any
director, trustees, stockholder or member of the corporation to examine
 and copy excerpts from its records or minutes, in accordance with the
provisions of this Code, shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of an
offense which shall be punishable under Section 144 of this
Code: Provided, That if such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the liability under this section
for such action shall be imposed upon the directors or trustees who voted
for such refusal: and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly used
any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting
in good faith or for a legitimate purpose in making his demand.
Stock corporations must also keep a book to be known as the "stock and
transfer book", in which must be kept a record of all stocks in the names of the
stockholders alphabetically arranged; the installments paid and unpaid on all
stock for which subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of stock made, the
date thereof, and by and to whom made; and such other entries as the by-laws
may prescribe. The stock and transfer book shall be kept in the principal
office of the corporation or in the office of its stock transfer agent and shall
be open for inspection by any director or stockholder of the corporation at
reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of registering
transfers of stocks in behalf of a stock corporation shall be allowed to operate
in the Philippines unless he secures a license from the Securities and Exchange
Commission and pays a fee as may be fixed by the Commission, which shall be
renewable annually: Provided, That a stock corporation is not precluded from
performing or making transfer of its own stocks, in which case all the rules and
regulations imposed on stock transfer agents, except the payment of a license
fee herein provided, shall be applicable. (51 a and 32a; P.B. No. 268.)
Section 144 of the Corporation Code, on the other hand, is the general penal provision of the
Corporation Code. It reads:
Section 144. Violations of the Code. - Violations of any of the provisions of
this Code or its amendments not otherwise specifically penalized
therein shall be punished by a fine of not less than one thousand (P1,000.00)
pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment
for not less than thirty (30) days but not more than five (5) years, or both, in the
discretion of the court. If the violation is committed by a corporation, the same
may, after notice and hearing, be dissolved in appropriate proceedings before
the Securities and Exchange Commission: Provided, That such dissolution shall
not preclude the institution of appropriate action against the director, trustee or
UE-0200673-2023
officer of the corporation responsible for said violation: Provided, further, That
nothing in this section shall be construed to repeal the other causes for
dissolution of a corporation provided in this Code. (190 112 a)
While Section 74 of the Corporation Code expressly mentions the application of Section 144 only in
relation to the act of "refus[ing] to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from [the corporation's] records or minutes," the same
does not mean that the latter section no longer applies to any other possible violations of the former
section.
It must be emphasized that Section 144 already purports to penalize "[v]iolations" of "any provision"
of the Corporation Code "not otherwise specifically penalized therein." Hence, we find
inconsequential the fact that that Section 74 expressly mentions the application of Section 144 only to
a specific act, but not with respect to the other possible violations of the former section.
Indeed, we find no cogent reason why Section 144 of the Corporation Code cannot be made to apply
to violations of the right of a stockholder to inspect the stock and transfer book of a corporation under
Section 74(4) given the already unequivocal intent of the legislature to penalize violations of a
parallel right, i.e., the right of a stockholder or member to examine the other records and minutes of a
corporation under Section 74(2). Certainly, all the rights guaranteed to corporators under Section 74
of the Corporation Code are mandatory for the corporation to respect. All such rights are just the
same underpinned by the same policy consideration of keeping public confidence in the corporate
vehicle thru an assurance of transparency in the corporation's operations.
Verily, we find inaccurate the pronouncement of the RTC that the act of refusing to allow inspection
of the stock and transfer book is not a punishable offense under the Corporation Code. Such refusal,
when done in violation of Section 74(4) of the Corporation Code, properly falls within the
purview of Section 144 of the same code and thus may be penalized as an offense.
A criminal action based on the violation of a stockholder's right to examine or inspect the
corporate records and the stock and transfer hook of a corporation under the second and
fourth paragraphs of Section 74 of the Corporation Code can only be maintained against
corporate officers or any other persons acting on behalf of such corporation.
The foregoing notwithstanding, and independently of the reasons provided therefor by the RTC, we
sustain the dismissal of Criminal Case No. 89724.
Criminal Case No. 89724 accuses respondents of denying petitioners' right to examine or inspect
the corporate records and the stock and transfer book of STRADEC. It is thus a criminal action that
is based on the violation of the second and fourth paragraphs of Section 74 of the Corporation Code.
A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the
same section, reveal that they are provisions that obligates a corporation: they prescribe what books
or records a corporation is required to keep; where the corporation shall keep them; and what are
the other obligations of the corporation to its stockholders or members in relation to such books and
records. Hence, by parity of reasoning, the second and fourth paragraphs of Section 74, including the
first paragraph of the same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth paragraphs of
Section 74 can only be maintained against corporate officers or such other persons that are acting on
behalf of the corporation. Violations of the second and fourth paragraphs of Section 74 contemplates
a situation wherein a corporation, acting thru one of its officers or agents, denies the right of any
of its stockholders to inspect the records, minutes and the stock and transfer book of such
corporation.

The problem with the petitioners' complaint and the evidence that they submitted during
preliminary investigation is that they do not establish that respondents were acting on behalf of
STRADEC. Quite the contrary, the scenario painted by the complaint is that the respondents are
merely outgoing officers of STRADEC who, for some reason, withheld and refused to tum-over the
company records of STRADEC; that it is the petitioners who are actually acting on behalf of
STRADEC; and that STRADEC is actually merely trying to recover custody of the withheld records.

In other words, petitioners are not actually invoking their right to inspect the records and the stock
and transfer book of STRADEC under the second and fourth paragraphs of Section 74. What they
seek to enforce is the proprietary right of STRADEC to be in possession of such records and
book. Such right, though certainly legally enforceable by other means, cannot be enforced by a
criminal prosecution based on a violation of the second and fourth paragraphs of Section 74. That is
simply not the situation contemplated by the second and fourth paragraphs of Section 74 of the
Corporation Code.

For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of probable cause.

UE-0200673-2023
 TERELAY INVESTMENT AND DEVELOPMENT CORPORATION, VS. CECILIA
TERESITA J. YULO, G.R. No. 160924. August 05, 2015.
BERSAMIN, J.
FACTS:
Asserting her right as a stockholder, Cecilia Teresita Yulo wrote a letter, addressed to Terelay
Investment and Development Corporation (TERELAY) requesting that she be allowed to examine its
books and records on September 17, 1999 at 1:30 o'clock in the afternoon at the latter's office on the
25th floor, Citibank Tower, Makati City. In its reply-letter, dated September 15, 1999, TERELAY
denied the request for inspection and instead demanded that she show proof that she was a bona fide
stockholder.
On September 16, 1999, Cecilia Yulo again sent another letter clarifying that her request for
examination of the corporate records was for the purpose of inquiring into the financial condition of
TERELAY and the conduct of its affairs by the principal officers. The following day, Cecilia Yulo
received a faxed letter from TERELAY's counsel advising her not to continue with the inspection in
order to avoid trouble.
Cecilia Yulo filed with the Securities and Exchange Commission (SEC), a Petition for Issuance of a
Writ of Mandamus with prayer for Damages against TERELAY. In her petition, she prayed that
judgment be rendered ordering TERELAY to allow her to inspect its corporate records, books of
account and other financial records; to pay her actual damages representing attorney's fees and
litigation expenses of not less than One Hundred Thousand Pesos (P100,000.00); to pay her
exemplary damages; and to pay the costs of the suit On May 16, 2000, in the preliminary conference
held before the SEC Hearing Officer, the parties agreed on the following:
1. Petitioner Cecilia Teresita Yulo is registered as a stockholder in the corporation's stock and
transfer book subject to the qualification in the Answer, and
2. Petitioner had informed the respondent, through demand letter, of her desire to inspect the
records of the corporation, but the same was denied by the respondent.
Thereafter, the parties stipulated that the ISSUES to be resolved are the following:
1. Whether or not petitioner has the right to inspect and examine TERELAY's corporate
records, books of account and other financial records pursuant to Section 74 of the
Corporation Code of the Philippines;
2. Whether or not petitioner as stockholder and director of TERELAY has been unduly
deprived of her right to inspect and examine TERELAY's corporate records, books of
accounts and other financial records in clear contravention of law, which warrants her
claim for damages;
3. Whether or not Atty. Reynaldo G. Geronimo and/or the principal officers, Ma. Antonia
Yulo Loyzaga and Teresa J. Yulo of respondent corporation are indispensable parties and
hence, should be impleaded as respondents;
UE-0200673-2023
4. As a prejudicial question, whether or not petitioner is a stockholder of respondent
corporation and such being the issue, whether this issue should be threshed out in the
probate of the will of the late Luis A. Yulo and settlement of estate now pending with the
Regional Trial Court of Manila;
5. Assuming petitioner is a stockholder, whether or not petitioner's mere desire to inquire
into the financial condition of respondent corporation and conduct of the affairs of the
corporation is a just and sufficient ground for inspection of the corporate records.[4]
Following the enactment of Republic Act No. 8799 (The Securities Regulation Code), the case was
transferred from the Securities and Exchange Commission to the RTC.
On March 22, 2002, the RTC rendered its judgment, ruling thusly:
Accordingly, petitioner's application for inspection of corporate records is granted pursuant to Rule 7
of the Interim Rules in relation to Section 74 and 75 of the Corporation Code. Defendant, through its
officers, is ordered to allow inspection of corporate books and records at reasonable hours on
business days and/or furnish petitioner copies thereof all at her expense. In this connection, plaintiff
is ordered to deposit to the Court the amount of P1,000.00 to cover the estimated cost of the
manpower necessary to produce the books and records and the cost of copying.
On September 12, 2003, the CA affirmed the RTC.[7]
The petitioner sought reconsideration, and moved for the holding of oral arguments thereon, but the
CA denied the motion on November 28, 2003.
ISSUES:
Whether or not the respondent was a stockholder entitled to inspect its books and records, and
allowing her to inspect its corporate records despite her shareholding being a measly .001% interest.
RULING:
A careful review of the records would show that in the Preliminary Conference Order, dated May 16,
2000, of the SEC Hearing Officer, both parties represented by their respective counsels, agreed on
the fact that petitioner-appellee was "registered as a stockholder in respondent-appellant's
stock and transfer book subject to the qualifications in the Answer." The records failed to
disclose any objection by TERELAY. Neither did TERELAY raise this matter in the SEC hearing
held on August 7, 2000 as one of the issues to be determined and resolved.
TERELAY further points out that her name as incorporator, stockholder and director in the Articles
of Incorporation and Amendments were unsigned; that she did not pay for the five (5) shares
appearing in the Amended Articles of Incorporation and General Information Sheet of TERELAY;
that she did not subscribe to the shares; that she has neither been in possession of nor seen the
certificate of stock covering the five (5) shares of stock; that the donation of the five (5) shares
claimed by her was null and void for failure to comply with the requisites of a donation under Art.
748 of the Civil Code; and that there was no acceptance of the donation by her as donee. TERELAY
further contends that Cecilia Yulo's purpose in inspecting the books was to inquire into its financial
condition and the conduct of its affairs by the principal officers which are not sufficient and valid
reasons. Therefore, the presumption of good faith cannot be accorded her.
TERELAY's position has no merit. The records disclose that the corporate documents submitted,
which include the Articles of Incorporation and the Amended Articles of Incorporation, as well as the
General Information Sheets and the Quarterly Reports all bear the signatures of the proper parties
and their authorized custodians. The signature of appellee under the name Cecilia J. Yulo appears
in the Articles of Incorporation of TERELAY. Likewise, her signatures under the name Cecilia Y.
Blancaflor appear in the Amended Articles of Incorporation where she signed as Director and
Corporate Secretary of TERELAY. The General Information Sheets from December 31, 1977 up to
February 20, 2002 all exhibited that she was recognized as director and corporate secretary, and that
she had subscribed to five (5) shares of stock. The quarterly reports do not show otherwise.
Verily, petitioner-appellee has presented enough evidence that she is a stockholder of TERELAY.
The corporate documents presented support her claim that she is a registered stockholder in
TERELAY's stock and transfer book thus giving her the right, under Section 74 par. 2 and Section 75
of the Philippine Corporation Law, to inspect TERELAY's books, records, and financial statements.
Section 74, par. 2 and Section 75 of our Corporation Code reads as follows: x x x
Accordingly, Cecilia Yulo as the right to be fully informed of TERELAY's corporate condition and
the manner its affairs are being managed. It is well-settled that the ownership of shares of stock gives
stockholders the right under the law to be protected from possible mismanagement by its officers.
This right is predicated upon self-preservation. In any case, TERELAY did not adduce sufficient
proof that Cecilia Yulo was in bad faith or had an ulterior motive in demanding her right under the
law.
Secondly, the petitioner's submission that the respondent's "insignificant holding" of only .001% of
the petitioner's stockholding did not justify the granting of her application for inspection of the
corporate books and records is unwarranted.
The Corporation Code has granted to all stockholders the right to inspect the corporate books
and records, and in so doing has not required any specific amount of interest for the exercise of
the right to inspect. Ubi lex non distinguit nee nos distinguere debemos. When the law has made no
distinction, we ought not to recognize any distinction.
Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate books and
records on the basis that her inspection would be used for a doubtful or dubious reason. Under
Section 74, third paragraph, of the Corporation Code, the only time when the demand to examine and
copy the corporation's records and minutes could be refused is when the corporation puts up as a
defense to any action that "the person demanding" had "improperly used any information
secured through any prior examination of the records or minutes of such corporation or of any
other corporation, or was not acting in good faith or for a legitimate purpose in making his
demand."
The right of the shareholder to inspect the books and records of the petitioner should not be made
subject to the condition of a showing of any particular dispute or of proving any mismanagement or
UE-0200673-2023
other occasion rendering an examination proper, but if the right is to be denied, the burden of proof is
upon the corporation to show that the purpose of the shareholder is improper, by way of defense.
According to a recognized commentator:
By early English decisions it was formerly held that there must be something
more than bare suspicion of mismanagement or fraud. There must be some
particular controversy or question in which the party applying was interested,
and inspection would be granted only so far as necessary for that particular
occasion. By the general rule in the United States, however, shareholders have
a right to inspect the books and papers of the corporation without first showing
any particular dispute or proving any mismanagement or other occasion
rendering an examination proper. The privilege, however, is not absolute and
the corporation may show in defense that the applicant is acting from wrongful
motives.
In Guthrie v. Harkness, there was involved the right of a shareholder in a
national bank to inspect its books for the purpose of ascertaining whether the
business affairs of the bank had been conducted according to law, and whether,
as suspected, the bank was guilty of irregularities. The court said: "The decisive
weight of American authority recognizes the right of the shareholder, for proper
purposes and under reasonable regulations as to place and time, to inspect the
books of the corporation of which he is a member . . . In issuing the writ of
mandamus the court will exercise a sound discretion and grant the right under
proper safeguards to protect the interest of all concerned. The writ should not
be granted for speculative purposes or to gratify idle curiosity or to aid a
blackmailer, but it may not be denied to the stockholder who seeks the
information for legitimate purposes."
Among the purposes held to justify a demand for inspection are the following:
(1) To ascertain the financial condition of the company or the propriety of
dividends; (2) the value of the shares of stock for sale or investment; (3)
whether there has been mismanagement; (4) in anticipation of shareholders'
meetings to obtain a mailing list of shareholders to solicit proxies or influence
voting; (5) to obtain information in aid of litigation with the corporation or its
officers as to corporate transactions. Among the improper purposes which may
justify denial of the right of inspection are: (1) Obtaining of information as to
business secrets or to aid a competitor; (2) to secure business "prospects" or
investment or advertising lists; (3) to find technical defects in corporate
transactions in order to bring "strike suits" for purposes of blackmail or
extortion.
In general, however, officers and directors have no legal authority to close the
office doors against shareholders for whom they are only agents, and withhold
from them the right to inspect the books which furnishes the most effective
method of gaining information which the law has provided, on mere doubt or
suspicion as to the motives of the shareholder. While there is some conflict of
authority, when an inspection by a shareholder is contested, the burden is
 usually held to be upon the corporation to establish a probability that the
applicant is attempting to gain inspection for a purpose not connected with his
interests as a shareholder, or that his purpose is otherwise improper. The burden
is not upon the petitioner to show the propriety of his examination or that the
refusal by the officers or directors was wrongful, except under statutory
provisions.

UE-0200673-2023
PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION, VS. PABLITO
O. LIM, G.R. No. 172948. October 05, 2016. Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of Appeals a Petition for
Certiorari questioning the propriety of the writ of preliminary injunction. The Court of Appeals held
LEONEN, J. that there was no basis to issue an injunctive writ. The act of PASAR in filing a petition for
injunction with prayer for writ of preliminary injunction is uncalled for. The petition is a pre-emptive
FACTS: action unjustly intended to impede and restrain the stockholders' rights. If a stockholder demands the
Philippine Associated Smelting and Refining Corporation is a corporation duly organized and inspection of corporate books, the corporation could refuse to heed to such demand. When the
existing under the laws of the Philippines and is engaged in copper smelting and refining. corporation, through its officers, denies the stockholders of such right, the latter could then go to
court and enforce their rights. It is then that the corporation could set up its defenses and the reasons
On the other hand, Pablito Lim, Manuel Agcaoili and Consuelo Padilla were former senior officers for the denial of such right. Thus, the proper remedy available for the enforcement of the right of
and presently shareholders of PASAR holding 500 shares each. inspection is undoubtedly the writ of mandamus to be filed by the stockholders and not a petition for
injunction filed by the corporation.
An Amended Petition for Injunction and Damages with prayer for Preliminary Injunction and/or
Temporary Restraining Order was filed by PASAR seeking to restrain petitioners from demanding The Order of the RTC shows that indeed there is no basis for the issuance not only of the temporary
inspection of its confidential and inexistent records. but also of the permanent injunctive writ.

Lim, Agcaoili and Padilla moved for the dismissal of the petition on the following grounds: 1) the
petition states no cause of action; 2) the petition should be dismissed on account of litis pendentia; 3)
the petition is a nuisance or harassment suit; and 4) the petition should be dismissed on account of
improper venue.
The RTC issued an Order granting PASAR's prayer for a writ of preliminary injunction. The RTC
held that the right to inspect book should not be denied to the stockholders, however, the same may
be restricted. The right to inspect should be limited to the ordinary records as identified and classified
by PASAR.
Lim, Agcaoili and Padilla filed a Motion for Dissolution of the Writ of Preliminary Injunction on the
ground that the petition is insufficient. Lim, Agcaoili and Padilla claim that the enforcement of the
right to inspect book should be on the stockholders and not on PASAR. Lim, Agcaoili and Padilla
further claim that no irreparable injury is caused to PASAR which justifies the issuance of the writ of
preliminary injunction.
The RTC issued the assailed Order, denying the Motion to Dismiss filed by Lim, Agcaoili and Padilla
on the ground that it is a prohibited pleading under Section 8, Rule 1 of the Interim Rules on Intra-
Corporate Controversies under the Securities Regulation Code (RA 8799). The Motion for
Dissolution of the Writ of Preliminary Injunction was likewise denied on the ground that the writ
does not completely result in unjust denial of respondents’ right to inspect the books of the
corporation. The RTC further stated that if no preliminary injunction is issued, respondents may,
before final judgment, do the act which PASAR is seeking the Court to restrain which will make
ineffectual the final judgment that it may afterward render.
UE-0200673-2023
Hence, Philippine Associated Smelting and Refining Corporation filed this Petition. In the
Resolution, this Court denied petitioner's prayer for the issuance of a temporary restraining order and
required respondents Lim, Agcaoili, and Padilla to comment on the Petition.
ISSUE:
Whether or not an injunction properly lies to prevent respondents from invoking their right to inspect.
RULING:
Section 74 of the Corporation Code provides that a stockholder has the right to inspect the records of
all business transactions of the corporation and the minutes of any meeting at reasonable hours on
business days. The stockholder may demand in writing for a copy of excerpts from these records or
minutes, at his or her expense.
The right to inspect under Section 74 of the Corporation Code is subject to certain limitations.
However, these limitations are expressly provided as defenses in actions filed under Section 74. Thus,
this Court has held that a corporation's objections to the right to inspect must be raised as a defense.
Among the purposes held to justify a demand for inspection are the following: (1) To ascertain the
financial condition of the company or the propriety of dividends; (2) the value of the shares of stock
for sale or investment; (3) whether there has been mismanagement; (4) in anticipation of
shareholders' meetings to obtain a mailing list of shareholders to solicit proxies or influence voting;
(5) to obtain information in aid of litigation with the corporation or its officers as to corporate
transactions. Among the improper purposes which may justify denial of the right of inspection are:
(1) Obtaining of information as to business secrets or to aid a competitor; (2) to secure business
"prospects" or investment or advertising lists; (3) to find technical defects in corporate transactions in
order to bring "strike suits" for purposes of blackmail or extortion.
In general, however, officers and directors have no legal authority to close the office doors against
shareholders for whom they are only agents, and withhold from them the right to inspect the books
which furnishes the most effective method of gaining information which the law has provided, on
mere doubt or suspicion as to the motives of the shareholder. While there is some conflict of
authority, when an inspection by a shareholder is contested, the burden is usually held to be upon the
corporation to establish a probability that the applicant is attempting to gain inspection for a purpose
not connected with his interests as a shareholder, or that his purpose is otherwise improper. The
burden is not upon the petitioner to show the propriety of his examination or that the refusal by the
officers or directors was wrongful, except under statutory provisions.
Among the actions that may be filed is an action for specific performance, damages, petition for
mandamus, or for violation of Section 74, in relation to Section 144 of the Corporation Code, which
provides:
SECTION 144. Violations of the Code. — Violations of any of the provisions
of this Code or its amendments not otherwise specifically penalized therein
shall be punished by a fine of not less than one thousand (P1,000.00) pesos but
not more than ten thousand (P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years, or both, in the discretion
of the court. If the violation is committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission: Provided, That such dissolution shall
not preclude the institution of appropriate action against the director, trustee or
officer of the corporation responsible for said violation: Provided, further, That
nothing in this section shall be construed to repeal the other causes for
dissolution of a corporation provided in this Code.
In this case, petitioner invokes its right to raise the limitations provided under Section 74 of the
Corporation Code. However, petitioner provides scant legal basis to claim this right because it does
not raise the limitations as a matter of defense. As properly appreciated by the Court of Appeals:
We agree. The act of PASAR in filing a petition for injunction with prayer for
writ of preliminary injunction is uncalled for. The petition is a pre-emptive
action unjustly intended to impede and restrain the stockholders' rights. If a
stockholder demands the inspection of corporate books, the corporation could
refuse to heed to such demand. When the corporation, through its officers,
denies the stockholders of such right, the latter could then go to court and
enforce their rights. It is then that the corporation could set up its defenses and
the reasons for the denial of such right. Thus, the proper remedy available for
UE-0200673-2023
the enforcement of the right of inspection is undoubtedly the writ of mandamus
to be filed by the stockholders and not a petition for injunction filed by the
corporation.
Petitioner insists that the Court of Appeals erred in relying on Section 74 of the Corporation Code. It
claims that jurisprudence allows the corporation to prevent a stockholder from inspecting records
containing confidential information. Petitioner cites W.G Philpotts v. Philippine Manufacturing
Company:
In order that the rule above stated may not be taken in too sweeping a sense, we
deem it advisable to say that there are some things which a corporation may
undoubtedly keep secret, notwithstanding the right of inspection given by law to
the stockholder; as, for instance, where a corporation engaged in the business of
manufacture, has acquired a formula or process, not generally known, which has
proved of utility to it in the manufacture of its products. It is not our intention to
declare that the authorities of the corporation, and more particularly the Board of
Directors, might not adopt measures for the protection of such process from
publicity.
However, W.G Philpotts cannot support petitioner's contention since it involved a petition for
mandamus where the stockholder prayed to be allowed to exercise its right to inspect, and the
respondent's objections were raised as a defense. Nothing in W.G. Philpotts grants a corporation a
cause of action to enjoin the exercise of the right of inspection by a stockholder.
The clear provision in Section 74 of the Corporation Code is sufficient authority to conclude
that an action for injunction and, consequently, a writ of preliminary injunction filed by a
corporation is generally unavailable to prevent stockholders from exercising their right to
inspection. Specifically, stockholders cannot be prevented from gaining access to the (a) records
of all business transactions of the corporation; and (b) minutes of any meeting of stockholders
or the board of directors, including their various committees and subcommittees.
The grant of legal personality to a corporation is conditioned on its compliance with certain
obligations. Among these are its fiduciary responsibilities to its stockholders. Providing stockholders
with access to information is a fundamental basis for their intelligent participation in the governance
of the corporation as a business organization that they partially own. The law is agnostic with respect
to the amount of shares required. Generally, each individual stockholder should be given reasonable
access so that he or she can assess or share his or her assessment of the management of the
corporation with other stockholders. The separate legal personality of a corporation is not so
absolutely separate that it divorces itself from its responsibility to its constituent owners.
The law takes into consideration the potential disparity in the financial legal resources between the
corporation and an ordinary stockholder. The phraseology of the text of the law provides that access
to the information mentioned in Section 74 of the Corporation Code is mandatory. The presumption
is that the corporation should provide access. If it has basis for denial, then the corporation shoulders
the risks of being sued and of successfully raising the proper defenses. The corporation cannot
immediately deploy its resources—part of which is owned by the requesting stockholder—to put the
owner on the defensive.

Specifically, corporations may raise their objections to the right of inspection through affirmative
defense in an ordinary civil action for specific performance or damages, or through a comment (if
one is required) in a petition for mandamus. [64] The corporation or defendant or respondent still
carries the burden of proving (a) that the stockholder has improperly used information before; (b)
lack of good faith; or (c) lack of legitimate purpose. [65]

Good faith and a legitimate purpose are presumed. It is the duty of the corporation to allege and
prove with sufficient evidence the facts that give rise to a claim of bad faith as to the existence of an
illegitimate purpose.

The confidentiality of business transactions is not a magical incantation that will defeat the request of
a stockholder to inspect the records. Although it is true that the business is entitled to the protection
of its trade secrets and other intellectual property rights, facts must be pleaded to convince the court
that a specific stockholder's request for inspection, under certain conditions, would violate the
corporation's own legal right.

Furthermore, the discomfort caused to the management of a corporation when a request for
inspection is claimed is part of the regular matters that a business wanting to ensure good governance
must endure. The range between discomfort and vexation is a broad one, which may tend to be
located in the personalities of those involved.

Certainly, by themselves, these are not sufficient factual basis to conclude bad faith on the part of the
requesting stockholder. Courts must be convinced that the scope or manner of the request and the
conditions under which it was made are so frivolous that the huge cost to the business will, in equity,
be unfair to the other stockholders. There is no iota of evidence that this happened here/

UE-0200673-2023