Sale of delinquent stock

CALATAGAN GOLF CLUB, INC. VS. SIXTO CLEMENTE, JR.,

G.R. NO. 16544, APRIL 16, 2009

Facts:

Respondent Clemente purchase one share of stock at Petitioner

Calatagan. After paying the value of the share, Calatagan issued him a
Stock Certificate.

In the articles of incorporation and by-laws of Calatagan, there

is a provision pertaining to the payment of monthly dues. As such,
Calatagan charges monthly dues on its member to meet expenses for
general operations and costs for maintenance and improvement of its
facilities. It is also indicated at the back of each certificate of stock.

At the start, Clemente is paying his monthly dues until

December of 1991. At that point, he incurred a balance for not paying
his monthly dues.

10 months later, Calatagan made the initial step to collect

clemente’s back accounts by sending demand letters to his address
indicated in his membership application, however the letters were
sent back to sender with the postal note that the address dad ben
closed.

Consequently, Calatagan declared clemente delinquent for

failure to pay his monthly dues. Clemente’s name was also included in
the list of delinquent members posted on the club’s bulletin board.

Subsequently, Calatagan's board of directors adopted a

resolution authorizing the foreclosure of shares of delinquent
members, including Clemente and the public auction of these shares.

A final demand letter was sent to clemente using the same

address containing warning that if he failed to settle his dues, his
share will be sold at public auction.

Still, no settlement occurred, hence, calatagan sold clemente’s

share in auction sale.

Four years later, Clemente learned of the sale of his share and
filed a claim with the Securities and Exchange Commission (SEC)
seeking the restoration of his shareholding in Calatagan with
damages.

SEC dismissed the complaint of clemente had already

prescribed stating that the sale of shares at an auction sale can only
be questioned within 6 mos from date of sale as provided under the
Code.

CA reverse the SEC decision and restored clementes share.

According to the CA, the prescription being referred to by the SEC
applies only to unpaid subscriptions to capital stock, and not to any
other debt of stockholders and that the proper rule of prescription is
provided under Article 1140 of the Civil Code which sets the
prescription period of actions to recover movables at eight (8) years.

CA also pointed out that, Calatagan failed to observe to notice

requirement provided under its own by-laws where it requires that
within 10 days after the Board has ordered the sale at auction of a
member’s share of stock indebtedness, the corporate secretary shall
notify the owner thereof and advice the membership committee od
such fact. According to the CA, "a person who is in danger of the
imminent loss of his property has the right to be notified and be given
the chance to prevent the loss."

Hence, this appeal.

Issue:

Whether Calatagan was correct in declaring Clemente’s shares

delinquent and selling it in an auction sale.

Ruling:

No, Calatagan was not correct.

 The SC was not convinced on the reliance of Calatagan and CA
on Section 69 of the Corporation Code. According to the SC, there are
fundamental differences that defy equivalence between the sale of
delinquent stock (failed to fully paid the amount of stock)
under Section 68 and the sale that occurred in this case
(delinquent due to nonpayment of dues). 

Sale pf delinquent stock referred by section 68 is the sale caused by

non-payment of the subscription price for the share of stock itself.
The stockholder or subscriber has yet to fully pay for the value of the
share or shares subscribed.

While in this case, Clemente had already fully paid for the share in
Calatagan and no longer had any outstanding obligation to deprive
him of full title to his share, hence, section 69 cannot be applied in
this case.

The SC likewise ruled that Calatagan had endeavored to establish

clear and comprehensive procedure to govern issues pertaining to
payment of f monthly dues, the declaration of a member as
delinquent, and the constitution of a lien on the shares and its
eventual public sale to answer for the member's debts as outlined in
its by-laws and articles of incorporation. However, the SC found that
Calatagan had failed to duly observe both the spirit and letter of its
own by-laws. 

According to the SC, the by-law provisions of Calatagam was clearly

created to afford due notice to the delinquent member. Calatagan
very well knew that Clemente's postal box to  which it sent its
previous letters had already been closed, yet it persisted in sending
that final letter to the same postal box. Nothing in Calatagan's By-
Laws requires that the final notice prior to the sale be made solely
through the member's mailing address. A simple telephone call and
an ounce of good faith could have prevented this present controversy.

The SC denied the petition.

QUORUM

PAUL LEE TAN, ET. AL. VS. PAUL SYCIP, ET. AL., AUGUST 17,
2006

FACTS:

Petitioner Grace Christian High School or 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 in 1998, there were only eleven
(11) living member-trustees as four of (4) had already died.

Out of the 11, only 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, contending that there was no
quorum. 

In the said 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. (Petitioners – hindi na
dapat bilangin ung patay na)

SEC declared the 1998 annual member’s meeting null and void for
lack of quorum stating 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. 

SEC 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. (bilangin pa dapat ang patay sa basehan ng quorum)

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," of the Corporation Code, referred
only to the living members of a nonstock corporation.

CA also dismissed the appeal. Hence, this petition.

ISSUES

Whether or not in NON-STOCK corporations, dead members should

still be counted in determination of quorum for purposed of conducting the
Annual Members' Meeting.

HELD

Stock holders/members – periodically elect the board of

directors or trustees who are charged
with the management of the corporation

While SH and members are entitled to

receive
Profits (acts of ownership)

The board of Directors - periodically elects officers to carry

out
Management functions on a day-to-day
basis.

The management and direction of the

Corporation are lodged with their
representatives and agents (acts of
management)
 For stock corporations, the "quorum" referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting stocks. For
nonstock corporations, only those who are actual, living members with
voting rights shall be counted in determining the existence of a quorum
during members’ meetings. Dead members shall not be counted.

One of the most important rights of a qualified shareholder or

member is the right to vote -- either personally or by proxy -- for the
directors or trustees who are to manage the corporate affairs. The right to
vote is inherent in and incidental to the ownership of
corporate stocks. In nonstock corporations, the voting rights attach to
membership. The principle for determining the quorum for stock
corporations is applied by analogy to nonstock corporations, only those
who are actual members with voting rights should be counted. Under
Section 52, the majority of the members representing the actual number of
voting rights, not the number or numerical constant that may originally be
specified in the articles of incorporation, constitutes the quorum. Having
thus determined that the quorum in a members’ meeting is to be reckoned
as the actual number of members of the corporation, the next question to
resolve is what happens in the event of the death of one of them. In stock
corporations, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it.

Until a settlement and division of the estate is effected, the stocks of

the decedent are held by the administrator or executor. On the other hand,
membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the
bylaws of the corporation provide otherwise.

In other words, the determination of whether or not "dead members"

are entitled to exercise their voting rights (through their executor or
administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation

shall, among others, be terminated by the death of the member.
Applying Section 91, dead members who are dropped from the membership
roster in the manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite vote in corporate
matters or the requisite quorum for the annual members’ meeting. With 11
remaining members, the quorum in the present case should be 6.

Therefore, there being a quorum, the annual members’ meeting was

valid.

PHILIP TURNER, ET. AL. VS. LORENZO SHIPPING CORP., G.R.

NO. 157479, NOV.24, 2010

Facts:

This case concerns the right of dissenting stockholders to demand payment

of the value of their shareholdings.

The petitioners held 1,010,000 shares of stock of the respondent, a

domestic corporation engaged primarily in cargo shipping activities.

In June 1999, the respondent decided to amend its articles of incorporation

to remove the stockholders’ pre-emptive rights to newly issued shares of
stock.

Feeling that the corporate move would be prejudicial to their interest as

stockholders, the petitioners voted against the amendment and demanded
payment of their shares at the rate of ₱2.276/share based on the book value
of the shares, or a total of ₱2,298,760.00.

The respondent found the fair value of the shares demanded by the
petitioners unacceptable. It insisted that the market value on the date
before the action to remove the pre-emptive right was taken should be the
value, or ₱0.41/share (or a total of ₱414,100.00), considering that its shares
were listed in the Philippine Stock Exchange, and that the payment could
be made only if the respondent had unrestricted retained earnings in its
books to cover the value of the shares, which was not the case.

The disagreement on the valuation of the shares led the parties to

constitute an appraisal committee pursuant to Section 82 of the
Corporation Code.
On October 27, 2000, the appraisal committee reported its valuation of
₱2.54/share, for an aggregate value of ₱2,565,400.00 for the petitioners.
Subsequently, the petitioners demanded payment based on the valuation of
the appraisal committee, 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.

In its letter to the petitioners dated January 2, 2001, the respondent

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

In the stockholders’ suit to recover the value of their shareholdings from

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

ISSUES

Whether the dissenting stockholders (petitioners) can recover the value of

their shareholdings despite inexistence of URE at the time of demand. (NO)

Dapat mayroon URE at the time of demand bago magakapag claim and
dissenting stockholder.

RULING

Stockholder’s Right of Appraisal, In General A stockholder who dissents

from certain corporate actions has the right to demand payment of the fair
value of his or her shares.

This right, known as the right of appraisal, is expressly recognized in

Section 81 of the Corporation Code.

The right of appraisal may be exercised when there is a fundamental

change in the charter or articles of incorporation substantially prejudicing
the rights of the stockholders.

It does not vest unless objectionable corporate action is taken. It serves

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

The trust fund doctrine backstops the requirement of unrestricted

retained earnings to fund the payment of the shares of stocks of the
withdrawing stockholders. Under the doctrine, the capital stock,
property, and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors, who are
preferred in the distribution of corporate assets.

The creditors of a corporation have the right to assume that the board of
directors will not use the assets of the corporation to purchase its own stock
for as long as the corporation has outstanding debts and liabilities. There
can be no distribution of assets among the stockholders without first paying
corporate debts.

Thus, any disposition of corporate funds and assets to the

prejudice of creditors is null and void.

B. Petitioners’ cause of action was premature That the respondent had

indisputably no unrestricted retained earnings in its books at the time the
petitioners commenced the action for collection and damages (Civil Case
No. 01-086) proved that the respondent’s legal obligation to pay the value
of the petitioners’ shares did not yet arise.

The RTC concluded that the respondent’s obligation to pay had accrued by
it 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 of the respondent which is more than sufficient to cure
the petitioner’s claim cure the lack of cause of action. The petitioners’ right
of action could only spring from an existing cause of action.

Verily, a premature invocation of the court’s intervention renders the

complaint without a cause of action and dismissible on such ground. In
short, Civil Case No. 01-086, being a groundless suit, should be dismissed.

MA. BELEN FLORDELIZA ANG-ABAYA, ET. AL. VS. EDUARDO

G. ANG, G.R. NO. 178511, DEC. 4, 2008

Facts:

Petitioner Belen Flordeliza Abaya and Respondent Eduardo Ang

are shareholders, officers and board of directors of the family-
owned corporation VMV and Genato Corporation.

Prior to the instant controversy, the corporation filed a civil case

against respondent Eduardo for allegedly conniving to fraudulently
wrest control/management of the corporations.
During the pendency of the case, 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.

Because of petitioners’ refusal to grant his request to inspect the corporate

books of VMC and Genato, Eduardo filed an Affidavit-Complaint 8 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.

Petitioner denied violating Section 74 of the Corporation Code and

reiterated the allegations contained in their complaint in Civil Case against
Eduardo.

Meanwhile, in Civil Case against Eduardo, the trial court rendered a

Decision granting the permanent injunction applied for by the
corporations.

The appellate court however annulled the permanent injunction issued by

the trial court and remanded the case for further proceedings.

Hence, this instant appeal.

Issue:

WON the petitioner violated SECTION 74 OF THE CORPORATION CODE

OF THE PHILIPPINES or the right to inspect and/or examine the records
of a corporation.

HELD:

No. The SC explained that 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.

Contrary to Eduardo’s insistence, the stockholder’s right to inspect

corporate books is not without limitations. The SC said that the
Corporation Code 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 this case, the serious allegations against respondent supported by official

and other documents 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.

Therefore, the SC granted the petition.

Aderito Z. Yujuico , et. al. vs. Cezar T. Quiambao et. al., G.R. No.
180416, June 2, 2014

Facts:

In 2004, during the annual stockholder's meeting of STRADEC, petitioner

Aderito Z. Yujuico (Yujuico) was elected as president and chairman of the
company. 
Yujuico replaced respondent Cezar T. Quiambao (Quiambao), who had
been the president and chairman of STRADEC since 1994.

As newly elected president and chairman of STRADEC--demanded

Quiambao for the turnover of the corporate records of the company,
particularly the accounting files, ledgers, journals and other records of the
corporation's business. Quiambao and other respondents refused.

Several attempts was initiated by the petitioners but respondents still

refused to turn over the book to them, hence the petitioners filed a criminal
complaint against respondents for violation of Sec 74 of the corporation
code.

However, RTC dismissed the case stating that refusing to allow inspection
of the stock and transfer book, as opposed to refusing examination
of other corporate records, is not punishable as an offense under the
Corporation Code.

Petitioners filed a petition before the SC.

Issue:

WON the respondents violated Section 74(4) of the Corporation Code for its
refusal to allpw petitioners inspect the corporate books.

Held:

No. The SC said that A criminal action based on the violation of a

stockholder's right to examine or inspect the corporate records and
the stock and transfer book of a corporation can only be maintained
against corporate officers or any other persons acting on behalf of such
corporation.

The submissions of the petitioners during the preliminary investigation,

however, clearly suggest that respondents are neither in relation to
STRADEC. Petitioners failed to 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.cra1awlaw1ibrary

WHEREFORE, premises considered, the petition is hereby DENIED.

The Orders dated 4 June 2007 and 5 November 2007 of the Regional Trial
Court, Branch 154, of Pasig City in S.C.A. No. 3047, insofar as said orders
effectively dismissed Criminal Case No. 89724 pending before Metropolitan
Trial Court, Branch 69, of Pasig City, are hereby AFFIRMED.

Mindanao Savings and Loan Asso., vs. Edward Willkom, et. al,
G.R. No. 178618 Oct. 11, 2010

Facts:

Mindanao Savings and Loan Association, Inc. (MSLAI) merged

with another banking company, the First Iligan Savings and Loan
Association, Inc. (FISLAI) sometime in 1985, which however was never
recorded with SEC for lack of documentation.

MSLAI subsequently suffered insolvency and was later on liquidated

by the Philippine Deposit Insurance Company (PDIC).
However, unknown to MSLAI and PDIC, a money judgment was
rendered against FLSAI, which resulted to several parcels of land owned
by the latter to be sold at public auction, which was bought by Willkom,
and subsequently transferred to his name upon the expiration of the
redemption period.

PDIC and MSLAI sought for the annulment of the sale on execution
of the subject properties, alleging that the sale was conducted without
notice to the latter, and that the properties sold are in custodia legis, since
MSLAI was under receivership and liquidation.

Willkom argued that MSLAI has no cause of action since it is a

separate and distinct entity from FISLAI, because of the unsuccessful
merger for failure to follow the procedure laid down by the
Corporation Code, to which both RTC and CA agreed to. Hence, this
petition.

Issue:

Whether or not the merger between FISLAI and MSLAI was valid and
effective.

Ruling:

Ordinarily, in the merger of two or more existing corporations, one of the

corporations survives and continues the combined business, while the rest
are dissolved and all their rights, properties, and liabilities are acquired by
the surviving corporation.

The merger, however, does not become effective upon the mere agreement
of the constituent corporations, but only upon the issuance of a certificate
of merger by the SEC, subject to its prior determination that the merger is
not inconsistent with the Corporation Code or existing laws.

Where a party to the merger is a special corporation governed by its own

charter, the Code particularly mandates that a favorable recommendation
of the appropriate government agency should first be obtained.

In this case, it is undisputed that the articles of merger between

FISLAI and DSLAI were not registered with the SEC due to incomplete
documentation. Consequently, the SEC did not issue the required
certificate of merger.
Even if it is true that the Monetary Board of the Central Bank is of the
Philippines recognized such merger, the fact remains that no certificate was
issued by the SEC. Such merger is still incomplete without the certification.

The issuance of the certificate of merger is crucial because not only does it
bear out SEC’s approval but it also marks the moment when the
consequences of a merger take place. By operation of law, upon the
effectivity of the when the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights and properties, as well as
liabilities, shall be taken and deemed transferred to and vested in the
surviving corporation.

Sumifru (Philippines) Corporation, et. al. vs. Bernabe Baya, G.R.

No. 188269. * April 17, 2017

Facts:

As a supervisor, Baya joined the union of supervisors, and eventually, formed AMS
Kapalong Agrarian Reform Beneficiaries Multipurpose Cooperative (AMSKARBEMCO)
Baya was reassigned to a series of supervisory positions in AMSFC's sister company, DFC,
where he also became a member of the latter's supervisory union while at the same time,
remaining active at AMSKARBEMCO.
A few days later, Baya received a letter stating that his secondment with DFC has ended,
thus, ordering his return to AMSFC. However, upon Baya's return to AMSFC on August 30,
2002, he was informed that there were no supervisory positions available; thus, he was
assigned to different rank-and-file positions instead.
On September 20, 2002, Baya's written request to be restored to a supervisory position was
denied, prompting him to file the instant complaint.
Meanwhile and during the pendency of the CA proceedings, petitioner Sumifru (Philippines)
Corporation (Sumifru) acquired DFC via merger[28] sometime in 2008. According to
Sumifru, it only learned of the pendency of the CA proceedings on June 15, 2009, or after
the issuance of the CA's Resolution dated May 20, 2009.[29] Thus, Sumifru was the one
who filed the instant petition on behalf of DFC.
Issues:
(c) whether or not Sumifru should be held solidarily liable with AMSFC's for Baya's
monetary awards.
Ruling:
Sumifru's contention that it should only be held liable for the period when Baya stayed with
DFC as it only merged with the latter and not with AMSFC[37] is untenable. Section 80 of
the Corporation Code of the Philippines clearly states that one of the effects of a merger is
that the surviving company shall inherit not only the assets, but also the liabilities of the
corporation it merged with
In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of
constructive dismissal performed against Baya. As such, they should be deemed as
solidarily liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the
surviving entity in its merger with DFC, must be held answerable for the latter's liabilities,
including its solidary liability with AMSFC arising herein. Verily, jurisprudence states that "in
the merger of two existing corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and liabilities are acquired
by the surviving corporation,"[38] as in this case.

Vitaliano N. Aguirre II, et. al. vs. FQB+, Inc., et. al., G.R. No. 170770, Jan. 9, 2013

Facts:

In 2004 Petitioner Aguirre, in his individual capacity and in behalf of FQB+7 filed a complaint
for intra-corporate dispute against respondents.

In his complaint, he alleges that, he notice substantial changes in the GIS of the corporation
which prompted him to question the annual stockholders meeting held in 2002. He asked the
"real" Board to rectify what he perceived as erroneous entries in the GIS, and to allow
him to inspect the corporate books and records. The "real" Board allegedly ignored
Vitaliano's request.

The Complaint also asked for an injunction against repondents and for the nullification
of all their previous actions as purported directors, including the GIS they had filed with
the SEC. The Complaint also sought damages for the plaintiffs and a declaration of
Vitaliano's right to inspect the corporate records. cralawlibrarycralawlib

The respondents sought, in their certiorari petition, the annulment of all the

proceedings and issuances

The respondents further informed the CA that the SEC had already revoked FQB+7's
Certificate of Registration on September 29, 2003 for its failure to comply with the SEC
reportorial requirements.

Issue:

Is the Complaint a continuation of business?

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

Section 122 of the Corporation Code prohibits a dissolved corporation from continuing
its business, but allows it to continue with a limited personality in order to settle and
close its affairs, including its complete liquidation, thus: chanroblesvirtualawlibrary

Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or whose corporate existence for
other purposes is terminated in any other manner, shall nevertheless be continued as a
body corporate for three (3) years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was
established.

Upon learning of the corporation's dissolution by revocation of its corporate franchise,

the CA held that the intra-corporate Complaint, which aims to continue the
corporation's business, must now be dismissed under Section 122. cralawlibrary

Petitioners concede that a dissolved corporation can no longer continue its business.
They argue, however, that Section 122 allows a dissolved corporation to wind up its
affairs within 3 years from its dissolution. Petitioners then maintain that the Complaint,
which seeks only a declaration that respondents are strangers to the corporation and
have no right to sit in the board or act as officers thereof, and a return of Vitaliano's
stockholdings, intends only to resolve remaining corporate issues. The resolution of
these issues is allegedly part of corporate winding up.cralawlibrary

The Court fails to find in the prayers above any intention to continue the corporate
business of FQB+7. The Complaint does not seek to enter into contracts, issue new
stocks, acquire properties, execute business transactions, etc. Its aim is not to continue
the corporate business, but to determine and vindicate an alleged stockholder's right to
the return of his stockholdings and to participate in the election of directors, and a
corporation's right to remove usurpers and strangers from its affairs. The Court fails to
see how the resolution of these issues can be said to continue the business of FQB+7. cralawlibrary

Neither are these issues mooted by the dissolution of the corporation. A corporation's
board of directors is not rendered functus officio by its dissolution. Since Section 122
allows a corporation to continue its existence for a limited purpose, necessarily there
must be a board that will continue acting for and on behalf of the dissolved corporation
for that purpose. In fact, Section 122 authorizes the dissolved corporation's board of
directors to conduct its liquidation within three years from its dissolution. Jurisprudence
has even recognized the board's authority to act as trustee for persons in interest
beyond the said three-year period.43  Thus, the determination of which group is
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the bona fide or rightful board of the dissolved corporation will still provide practical
relief to the parties involved.
cralawlibrary

The same is true with regard to Vitaliano's shareholdings in the dissolved corporation. A
party's stockholdings in a corporation, whether existing or dissolved, is a property
right44  which he may vindicate against another party who has deprived him thereof.
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The corporation's dissolution does not extinguish such property right. Section 145 of
the Corporation Code ensures the protection of this right, thus: chanroblesvirtualawlibrary

Sec. 145. Amendment or repeal.  – No right or remedy in favor of or against any

corporation, its stockholders, members, directors, trustees, or officers, nor any liability
incurred by any such corporation, stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the subsequent dissolution of said
corporation or by any subsequent amendment or repeal of this Code or of any part
thereof. (Emphases supplied.)

ALABANG DEV. CORP. V. ALABANG HILLS VILLAGE ASSO. ET. AL., G.R. NO. 187456,
JUNE 2, 2014

Facts:

Petitioner ADC is the developer of respondent AHVAI. Petitioner still owns certain parcels of land
that are yet to be sold including open spaces that have not yet donated to the LGU or the
homeowner’s association. In 2006, Petitioner learned that AHVAI started constructing a multi-
purpose hall and a swimming pool on one of the parcels of land owned by ADC without the latter’s
consent and approval. Despite demand, respondent AHVAI failed to desist from constructing
improvement therein. ADC, filed a complaint for injunction and damages against respondent and
its president Rafael Tinio.

Respondent answered that the petitioner has no legal capacity to sue since its existence as a
registered corporate entity was revoked by the SEC in 2003, thus no legal action because by law it
is no longer the absolute owner but is merely holding the property in question in trust for the benefit
of AHVAI as beneficial owner thereof; and that the subject lot is part of the open space required by
law to be provided in the subdivision.

RTC dismissed petitioner’s complaint on the grounds of no legal

capacity.

CA affirmed RTC stating that the complaint filed by petitioner was already defunct
and, as such, it no longer had capacity to file the said complaint. 

Issue:

WON Petitioner has no legal capacity to sue respondent by reason of

the dissolution of its corporate registration by the SEC.

Held:
Yes, the petitioner lacks capacity to sue because it no longer possesses juridical personality by
reason of its dissolution and lapse of the three-year grace period provided under Section 122 of the
Corporation Code.

Sec. 122 of the Corportation Code provides that At any time during said three (3) years, said
corporation is authorized and empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors
or other persons in interest.

In the instant case, there is no dispute that petitioner's corporate registration was revoked on May
26, 2003.  Based on the above-quoted provision of law, it had three years, or until May 26, 2006, to
1âwphi1

prosecute or defend any suit by or against it. The subject complaint, however, was filed only on
October 19, 2006, more than three years after such revocation. It is likewise not disputed that the
subject complaint was filed by petitioner corporation and not by its directors or trustees. In fact, it is
even averred, albeit wrongly, in the first paragraph of the Complaint  that "[p]laintiff is a duly
9

organized and existing corporation under the laws of the Philippines, with capacity to sue and be
sued. 

n the present case, petitioner filed its complaint not only after its corporate existence was terminated
but also beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is
clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a
corporation. To allow petitioner to initiate the subject complaint and pursue it until final judgment, on
the ground that such complaint was filed for the sole purpose of liquidating its assets, would be to
circumvent the provisions of Section 122 of the Corporation Code.

As to the last issue raised, the basic and pivotal issue in the instant case is petitioner's capacity to
sue as a corporation and it has already been settled that petitioner indeed lacks such capacity. Thus,
this Court finds no cogent reason to depart from the ruling of the CA finding it unnecessary to delve
on the other issues raised by petitioner.

Steelcase, Inc. vs. Design International Selections, Inc.,G.R. No. 171995 April 18, 2012

Facts:
Petitioner steelcase is a foreign corporation engaged in the
manufacturing of office furniture with dealers worldwide.

Respondent DISI is a dimestic corporation engaged in the

business including the distribution of furniture.

Petitioner and respondent entered into a dealership agreement

whereby petitioner granted DISI the right to to market, sell, distribute,
install, and service its products to end-user customers within the Philippines. The business
relationship continued smoothly until it was terminated after the agreement was breached with
neither party admitting any fault.

Steelcase filed a complaint for sum of money against DISI alleging that the latter had an upaid
accounts.

In respondent’s answer, it claims that complaint failed to state a cause of action and to contain the
required allegations on Steelcase’s capacity to sue in the Philippines despite the fact that it
(Steelcase) was doing business in the Philippines without the required license to do so.

RTC ruled that steelcase was "doing business" in the Philippines, as contemplated by Republic
Act (R.A.) No. 7042 (The Foreign Investments Act of 1991). And since it did not have the license to
do business in the country, it was barred from seeking redress from our courts until it obtained the
requisite license to do so.

CA rendered its Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation
doing or transacting business in the Philippines without a license.

Issues:

(1) Whether or not Steelcase is doing business in the Philippines without a license; and

(2) Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.

Ruling:

Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines

DISI is estopped from challenging Steelcase’s legal capacity to sue.

The rule that an unlicensed foreign corporations doing business in the Philippine do not have the
capacity to sue before the local courts is well-established. Section 133 of the Corporation Code of
the Philippines explicitly states:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

The phrase "doing business" shall include soliciting orders, service contracts, opening offices,
whether called "liaison" offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totalling one
hundred eighty (180) days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply
a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase "doing business" shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or distributor domiciled in
the Philippines which transacts business in its own name and for its own account; (Emphases
supplied)
From the preceding citations, the appointment of a distributor in the Philippines is not sufficient to
constitute "doing business" unless it is under the full control of the foreign corporation. On the other
hand, if the distributor is an independent entity which buys and distributes products, other than those
of the foreign corporation, for its own name and its own account, the latter cannot be considered to
be doing business in the Philippines. It should be kept in mind that the determination of whether a
14 

foreign corporation is doing business in the Philippines must be judged in light of the attendant
circumstances

GLOBAL BUSINESS HOLDINGS, INC. V. SURECOMP SOFTWARE, B.V., G.R. NO.

173463, OCT. 13, 2010

 respondent Surecomp Software, B.V. (Surecomp), a foreign corporatio entered into a software
license agreement with Asian Bank Corporation (ABC), a domestic corporation, for the use of its
IMEX Software System (System) in the bank’s computer system for a period of twenty (20) yearsn

Subsequently,ABC merged with petitioner Global Business Holdings, Inc. (Global), 4 with Global as
the surviving corporation. 

When Global took over the operations of ABC, it found the System unworkable for its operations,
and informed Surecomp of its decision to discontinue with the agreement and to stop further
payments thereon.

Consequently, for failure of Global to pay its obligations under the agreement despite demands,
Surecomp filed a complaint for breach of contract with damages before the Regional Trial Court
(RTC) of Makati.

Instead of filing an answer, Global filed a motion to dismiss based on two grounds: (1) that
Surecomp had no capacity to sue because it was doing business in the Philippines without a license;
and (2) that the claim on which the action was founded was unenforceable under the Intellectual
Property Code of the Philippines.

Issue:

whether Global is estopped from questioning Surecomp’s capacity to sue.

Ruling

Yes, Global is estopped.

s a rule, unlicensed foreign non-resident corporations doing business in the Philippines cannot file
suits in the Philippines.

A corporation has a legal status only within the state or territory in which it was organized. For this
reason, a corporation organized in another country has no personality to file suits in the Philippines.
In order to subject a foreign corporation doing business in the country to the jurisdiction of our
courts, it must acquire a license from the Securities and Exchange Commission and appoint an
agent for service of process. Without such license, it cannot institute a suit in the Philippines
The exception to this rule is the doctrine of estoppel. Global is estopped from challenging
Surecomp’s capacity to sue.

A foreign corporation doing business in the Philippines without license may sue in Philippine courts a
Filipino citizen or a Philippine entity that had contracted with and benefited from it. 25 A party is
estopped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it.26 The principle is applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the contract.

Due to Global’s merger with ABC and because it is the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the merger of two existing corporations, one of the
corporations survives and continues the business, while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the surviving corporation. 28 This is particularly true in this
case. Based on the findings of fact of the RTC, as affirmed by the CA, under the terms of the merger
or consolidation, Global assumed all the liabilities and obligations of ABC as if it had incurred such
liabilities or obligations itself. In the same way, Global also has the right to exercise all defenses,
rights, privileges, and counter-claims of every kind and nature which ABC may have or invoke under
the law. These findings of fact were never contested by Global in any of its pleadings filed before this
Court.

Cargill, Inc. vs. Intra Strata Assurance Corp., G.R. No. 168266 March 15, 2010

Facts:

Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws of the State
of Delaware, United States of America.

Cargill, executed a contract with Northern Mindanao Corporation (NMC) a domestic corporation,
whereby NMC, agreed to sell to petitioner molasses.

The contract provides that petitioner would open a Letter of Credit with the Bank of Philippine
Islands. 

Several amendments of the contract was introduced but on the last amendment, the it required NMC
to put up a bond to guarantee performance and delivery of mollases on the prescribed period.

NMC failed to deliver the full amount of the mollases, thus petitioner sent demand letters to
respondent claiming payment under the performance and surety bonds. Respondent still failed to
pay, hence a complaint for sum of money was instituted against NMC and respondent Inta Strata.

Petitioner and respondent entered into a compromise agreement which was approved by the trial
court, However, respondent still failed to comply with its obligations.

RTC ordered NCX and Strata to solidarily pay Cargill.

CA held that petitioner does not have the legal capacity to file suit since it is a foreign corporation
doing business in the Philippines without the requisite license.

Issue:
1. Whether petitioner is doing or transacting business in the Philippines in contemplation of the law
and established jurisprudence;

2. Whether respondent is estopped from invoking the defense that petitioner has no legal capacity to
sue in the Philippines;

Ruling:

No, the petitioner is not doing or transacting business in the Philippines in

contemplation of the law.
Under Article 12313 of the Corporation Code, a foreign corporation must first obtain a license and a
certificate from the appropriate government agency before it can transact business in the
Philippines. Where a foreign corporation does business in the Philippines without the proper license,
it cannot maintain any action or proceeding before Philippine courts as provided under Section 133
of the Corporation Code:

Sec. 133. Doing business without a license. – No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

he phrase "doing business" shall include soliciting orders, purchases, service contracts, opening
offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or
periods totalling one hundred eighty days or more; participating in the management, supervision or
control of any domestic business firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to, and
in progressive prosecution of, commercial gain or of the purpose and object of the business
organization. 

The determination of whether a foreign corporation is doing business in the Philippines must be
based on the facts of each case.15 In the case of Antam Consolidated, Inc. v. CA,16 in which a foreign
corporation filed an action for collection of sum of money against petitioners therein for damages and
loss sustained for the latter’s failure to deliver coconut crude oil, the Court emphasized the
importance of the element of continuity of commercial activities to constitute doing business in the
Philippines. The Court held:

In the case at bar, the transactions entered into by the respondent with the petitioners are not a
series of commercial dealings which signify an intent on the part of the respondent to do business in
the Philippines but constitute an isolated one which does not fall under the category of "doing
business." The records show that the only reason why the respondent entered into the second and
third transactions with the petitioners was because it wanted to recover the loss it sustained from the
failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to
give the latter a chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by the parties only in an effort to
fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in
a continuity of transactions with petitioners which will categorize it as a foreign corporation doing
business in the Philippines.17

Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to
NMC to deliver to petitioner the molasses, considering that NMC already received the minimum price
of the contract. There is no showing that the transactions between petitioner and NMC signify the
intent of petitioner to establish a continuous business or extend its operations in the Philippines.