Corpo Digests (Uy)

CORPORATION AND BASIC SECURITIES LAWS - CASE DIGESTS
MODULE 1 (Sections 1-9, RCC) recorded in the books of the corporation

showing the names of the parties to the
transaction, the date of the transfer, the
1. Magsaysay-Labrador vs. CA, 180 SCRA number of the certificate or certificates
266; and the number of shares transferred.”
TOPIC: Succession While a share of stock represents a

proportionate or aliquot interest in the
DOCTRINE: A share of stock represents a property of the corporation, it does not vest
proportionate interest in the property of the owner thereof with any legal right or
the corporation; however, it does not vest title to any of the property, his interest in
the owner with any legal right or title to any the corporate property being equitable or
property. Shareholders are in no legal sense beneficial in nature. - At the very least, their
owners of corporate property since it is interest is purely inchoate, or in sheer
owned by the corporation as a distinct expectancy of a right in the management of
person the corporation and to share in the profits
thereof and in the properties and assets
FACTS: Petitioners, siblings of deceased, thereof on dissolution, after payment of the
claim that their brother conveyed to them corporate debts and obligations. -
shares of stocks of SUBIC Land Corp to Shareholders are in no legal sense the
them. owners of corporate property, which is
owned by the corporation as a distinct legal
Lower Court denied, ruling that being person.
assignees of such shares does not entitle
them to intervene because SUBIC has a
personality separate and distinct from its
stockholders. 2. Sulo ng Bayan vs. Araneta, 72 SCRA 247;
ISSUE: W/N petitioners have substantial TOPIC: Distinct personality of a corporation.

and legal interest in the property (Doctrine of Corporate Entity)
RULING: NO. The petitioners cannot claim DOCTRINE: It is a doctrine well-established

the right to intervene on the strength of the and obtains both at law and in equity that a
transfer of shares allegedly executed by the corporation is a distinct legal entity to be
late Senator. The corporation did not keep considered as separate and apart from the
books and records. Perforce, no transfer individual stockholders or members who
was ever recorded, much less effected as to compose it, and is not affected by the
prejudice third parties. The transfer must personal rights, obligations and transactions
be registered in the books of the of its stockholders or members.
corporation to affect third persons. The law
on corporations is explicit of the FACTS: Petitioners alleged that alleged that
Corporation Code provides, thus: “No they are members of the petitioner
transfer, however, shall be valid except as corporation and their predecessors-in-
between the parties, until the transfer is interest and that Gregorio Araneta, ejected
UY, CASEY ANDREA - SBU (2B)
ATTY. ZARAH VILLANUEVA - CASTRO
the members from their possession action for and in behalf of its stockholders
through force and intimidation. or members for recovering property which
belong to the stockholders/members in
They allege that the land in question was their personal capacities.
fraudulently or erroneously included
therefore subsequent titles derived The corporation do not have any interest in
therefrom are void. the subject matter of the case which is
material and direct so as to entitle it to file
ISSUE: W/N plaintiff corporation (non-stock) the suit as a real party in interest.
may institute an action in behalf of its
individual members for the recovery of
certain parcels of land allegedly owned by 3. Bataan Shipyard vs. PCGG, 150 SCRA
said members? 181;
RULING: NO. A corporation is a distinct legal FACTS: BASECO was alleged to acquire
entity to be considered as separate and properties from NASSCO thru deeds of sale
apart from the individual stockholders or but with the intervention of Marcos. Cory
members who compose it, and is not created PCGG which tasked to recover ill-
affected by the personal rights, obligations gotten wealth of Marcos. PCGG aborted
and transactions of its stockholders or contracts of BASECO and PCGG. BASECO
members. was also required to produce documents, a
sequestration order.
Conversely, a corporation ordinarily has no
interest in the individual property of its Petitioner argues that the order to produce
stockholders unless transferred to the corporate records from 1973 to 1986 was
corporation, even in the case of a one-man issued without court authority and infringed
corporation. its constitutional right against self-
incrimination, and unreasonable search and
The only exception where the personality of seizure. (PCGG orders).
the corporation may be disregarded, in
cases where it is used as a cloak or cover for ISSUE: W/N the order to produce corporate
fraud or illegality, or to work an injustice, or records violates the right of BASECO against
where necessary to achieve equity. self-incrimination and unreasonable search
(Aforementioned cases has no application and seizure.
in the case at bar, therefore cannot be
applied) RULING: It is elementary that the right
against self-incrimination has no application
It has not been claimed that the members to juridical persons; and the constitutional
have assigned or transferred whatever right against unreasonable search and
rights they may have on the land in seizure finds no application to the case at
question to the petitioner corporation. bar.
Therefore, absent showing of interest, the While an individual may lawfully refuse to
corporation has no personality to bring an answer incriminating questions unless
protected by an immunity statute, it does RULING: NO, This allegation does not find
not follow that a corporation, vested with support in the evidence on record.
special privileges and franchises, may refuse The Articles of Incorporation Of petitioner
to show its hand when charged with an Luxuria Homes, Inc., clearly show that
abuse of such privileges. petitioner Posadas owns approximately 33%
only of the capital stock. Hence petitioner
4. Luxuria Homes vs. CA, 302 SCRA 315; Posadas cannot be considered as an alter
ego of petitioner Luxuria Homes, Inc.
DOCTRINE: To disregard the separate
juridical personality of a corporation, the To disregard the separate juridical
wrong doing must be clearly and personality of a corporation, the wrong
convincingly established. It cannot be doing must be clearly and convincingly
presumed. Separate personality of the established. It cannot be presumed. This is
corporation may be disregarded only when elementary. The Court said that the
the corporation is used as a cloak or cover separate personality of the corporation may
for fraud or illegality, or to work injustice, or be disregarded only when the corporation is
where necessary for the protection of the used as a cloak or cover for fraud or
creditors illegality, or to work injustice, or where
necessary for the protection of the
FACTS: Petitioner Aida M. Posadas and her creditors.
two minor children co-owned a 1.6-hectare
property in Sucat, Muntinlupa, occupied by private respondents failed to show proof
squatters. She authorized private that petitioner Posadas acted in bad faith.
respondent Jaime T. Bravo to negotiate with Consequently since private respondents
the squatters to develop the property into a failed to show that petitioner Luxuria
residential subdivision. Later, Posadas and Homes, Inc., was a party to any of the
her children assigned the property to supposed transactions, not even to the
petitioner Luxuria Homes, Inc. Respondent agreement to negotiate with and relocate
Bravo, who had been harmoniously working the squatters, it cannot be held liable, nay
with Posadas, demanded payment for his jointly and in solidum, to pay private
services when their relationship soured due respondents.
to conflicting management contracts. He
claimed Posadas transferred the land to
Luxuria Homes, Inc. to evade payment and
defraud creditors. The dispute arose over
the demanded amount of P1,708,489.00. 5. Concept Builders vs. NLRC, 257 SCRA
149;
ISSUE: Can petitioner Luxuria Homes, Inc.,
be held liable to private respondents for the Topic: History, Concept and Attributes of a
transactions supposedly entered into Corporation
between petitioner Posadas and private
respondents? Doctrine: The doctrine of piercing the
corporate veil applies if the separate

juridical entity is used as a device against Issue: WON the NLRC erred in issuing the
public laws and policy, as well as labor laws. alias writ and the break-open order.
Facts: Petitioner is a domestic corporation Ruling: The Supreme Court rules in the
engaged in construction. Private negative. The documentary evidence
respondents were laborers and carpenters around the ceasing of petitioner’s business
under petitioner. Private respondents operations and the sudden creation of HPPI
charged the petitioner with a complaint for the same day the third-party claim was
illegal dismissal and unfair labor practices, submitted shows that HPPI was merely a
when the latter presented the former with business conduit for petitioner and a way
notices of termination in the middle of a for them to avoid paying their liabilities. The
project that petitioner alleged in the notice Supreme Court also ruled that the case at
had been finished. The case was brought to bar meets the test of applicability for the
the Labor Arbiter, who ruled in favor of the application of the doctrine of piercing the
respondents and ordered the petitioner to corporate veil, which are:
reinstate them along with the owed back 1. Control, not mere majority or complete
wages. Petitioner brought the case to stock control, but complete domination, not
respondent National Labor Relations only of finances but of policy and business
Commission but was dismissed stating that practice in respect to the transaction
the Labor Arbiter’s order had become attacked so that the corporate entity as to
executory. The petitioner, due to a writ of this transaction had at the time no separate
execution, garnished the private mind, will or existence of its own;
respondents with the damages owed, albeit
partially. An alias writ of execution was 2. Such control must have been used by the
issued for the collection of the balance, but defendant to commit fraud or wrong, to
was not able to be enforced because the perpetuate the violation of a statutory or
employees in the petitioner’s address in other positive legal duty or dishonest and
Valenzuela argue that they are employees unjust act in contravention of plaintiff's
of Hydro Pipes Philippines, Inc. and not of legal rights; and
petitioner’s. A joint break-open order 3. The aforesaid control and breach of duty
against both HPPI and the petitioner was must proximately cause the injury or unjust
issued, allowing the levy of the personal loss complained of.
properties found within.
It is a fundamental principle of
Petitioner filed a petition for certiorari with corporation law that a corporation is an
the Supreme Court alleging that the NLRC entity separate and distinct from its
committed grave abuse of discretion in stockholders and from other corporations
issuing the alias writ, despite a third-party to which it may be connected. But, this
claim for the levied property. Furthermore, separate and distinct personality of a
the doctrine of piercing in corporate veil corporation is merely a fiction created by
should not have applied as there was no law for convenience and to promote justice.
proof HPPI was created to evade So, when the notion of separate juridical
petitioner’s liabilities. personality is used to defeat public
convenience, justify wrong, protect fraud or
defend crime, or is used as a device to incorporators, officers, and directors of the

defeat the labor laws, this separate petitioner.
personality of the corporation may be
disregarded or the veil of corporate fiction Respondent's arguments:
pierced. This is true likewise when the Equity and justice demand plaintiff-
corporation is merely an adjunct, a business appellant’s veil of corporate identity should
conduit or an alter ego of another be pierced and the defendant be
corporation. The petitioner is dismissed and compensated for legal services rendered to
the NLRC ruling is affirmed. the heirs, who are directors of the plaintiff-
appellant corporation. They assert that the
members of petitioner corporation took
advantage of their positions by not
compensating respondent Gregorio Manuel
after the termination of the estate
proceedings despite his repeated demands
for payment of his services.
6. Francisco Motors Corporation vs. Court
of Appeals Petitioner's arguments:
Petitioner submits that respondent court
TOPIC: Piercing the Veil of Corporate Entity should not have resorted to piercing the veil
of corporate fiction because the transaction
DOCTRINE: Under the doctrine of piercing concerned only respondent Gregorio
the veil of corporate entity, the Manuel and the heirs of the late Benita
corporation’s separate juridical personality Trinidad. According to petitioner, there was
may be disregarded, for example, when the no cause of action by said respondent
corporate identity is used to defeat public against petitioner; personal concerns of the
convenience, justify wrong, protect fraud, heirs should be distinguished from those
or defend crime. involving corporate affairs. Petitioner
further contends that the present case does
FACTS: Francisco Motors Corporation is not fall among the instances wherein the
composed of the heirs of the late Benita courts may look beyond the distinct
Trinidad as directors and incorporators for personality of a corporation. According to
whom defendant Gregorio Manuel petitioner, the services for which
rendered respondent Gregorio Manuel seeks to
legal services in the intestate estate case of collect fees from petitioner are personal in
their deceased mother. nature. Hence, it avers the heirs should
have been sued in their personal capacity,
A complaint was filed against respondents and not involve the corporation.
to recover the balance of the jeepney
purchased and cost of repair. Respondent ISSUE: W/N the Court erred in applying the
filed a counterclaim for unpaid legal Doctrine of Piercing the Veil of Corporate
services by Gregorio Manuel in the amount Entity
of P50,000 which was not paid by the

RULING: Erred. The doctrine of piercing the always be mindful of its function and
corporate veil has no relevant application purpose. A court should be careful in
here. assessing the milieu where the doctrine of
piercing the corporate veil may be applied.
Under the doctrine of piercing the veil of Otherwise an injustice, although
corporate entity, the corporation’s separate unintended, may result from its erroneous
juridical personality may be disregarded application.
when:
1. Corporate identity is used to defeat 15. Dutch Movers Inc. v. Lequin
public convenience, justify wrong,
protect fraud, or defend crime. DOCTRINE: Piercing the veil of corporate
2. Where the corporation is a mere fiction is allowed, and responsible persons
alter ego or business conduit of a may be impleaded, and be held solidarily
person, or where the corporation is liable even after final judgment and on
so organized and controlled and its execution, provided that such persons
affairs are so conducted as to make deliberately used the corporate vehicle to
it merely an instrumentality, agency, unjustly evade the judgment obligation, or
conduit or adjunct of another resorted to fraud, bad faith, or malice in
corporation, then its distinct evading their obligation.
personality may be ignored. In this case, petitioners were impleaded
from the inception of this case. They had
In these circumstances, the courts will treat ample opportunity to debunk the claim that
the corporation as a mere aggrupation of they illegally dismissed respondents, and
persons and the liability will directly attach that they should be held personally liable
to them. The legal fiction of a separate for having controlled DMI and actively
corporate personality in those cited participated in its management, and for
instances, for reasons of public policy and in having used it to evade legal obligations to
the interest of justice, will be justifiably set respondents. While it is true that one's
aside. The rationale behind piercing a control does not by itself result in the
corporation’s identity is to remove the disregard of corporate fiction; however,
barrier between the corporation from the considering the irregularity in the
persons comprising it to thwart the incorporation of DMI, then there is
fraudulent and illegal schemes of those who sufficient basis to hold that such
use the corporate personality as a shield for corporation was used for an illegal purpose,
undertaking certain proscribed activities. including evasion of legal duties to its
When directors and officers of a employees, and as such, the piercing of the
corporation are unable to compensate a corporate veil is warranted.
party for a personal obligation, it is far-
fetched to allege that the corporation is FACTS: This case is an offshoot of the illegal
perpetuating fraud or promoting injustice, dismissal Complaint8 filed by Edilberto
and be thereby held liable therefor by Lequin (Lequin), Christopher Salvador,
piercing its corporate veil. While there are Reynaldo Singsing, and Raffy Mascardo
no hard- and-fast rules on disregarding (respondents) against Dutch Movers, Inc.
separate corporate identity, we must (DMI), and/or spouses Cesar Lee and
Yolanda Lee (petitioners), its alleged for petitioners to evade their legal
President/Owner, and Manager obligations to them. Given these
respectively. In their Amended Complaint developments, respondents prayed that
and Position Paper, respondents stated that petitioners, and the officers named in DMI's
DMI, a domestic corporation engaged in AOI, which included Edgar N. Smith and
hauling liquefied petroleum gas, employed Millicent C. Smith (spouses Smith), be
Lequin as truck driver and the rest of impleaded, and be held solidarity liable with
respondents as helpers; on December 28, DMI in paying the judgment awards. ISSUE:
2004, Cesar Lee, through the Supervisor Whether piercing the veil of corporate
Nazario Furio, informed them that DMI fiction is warranted (YES) RULING: The Court
would cease its hauling operation for no is not unmindful of the basic tenet that a
reason; as such, they requested DMI to corporation has a separate and distinct
issue a formal notice regarding the matter personality from its stockholders, and from
but to no avail. Later, upon respondents' other corporations it may be connected
request, the DOLE NCR10 issued a with. However, such personality may be
certification revealing that DMI did not file disregarded, or the veil of corporate fiction
any notice of business closure. Thus, may be pierced attaching personal liability
respondents argued that they were illegally against responsible person if the
dismissed as their termination was without corporation's personality "is used to defeat
cause and only on the pretext of closure. LA public convenience, justify wrong, protect
dismissed the case. NLRC reversed. The fraud or defend crime, or is used as a device
NLRC Decision became final and executory. to defeat the labor laws x x x." By
Consequently, respondents filed a Motion responsible person, we refer to an
for Writ of Execution. Pending resolution of individual or entity responsible for, and who
these motions, respondents filed a acted in bad faith in committing illegal
Manifestation and Motion to Implead dismissal or in violation of the Labor Code;
stating that upon investigation, they or one who actively participated in the
discovered that DMI no longer operates. management of the corporation. Also,
They, nonetheless, insisted that petitioners piercing the veil of corporate fiction is
- who managed and operated DMI, and allowed where a corporation is a mere alter
consistently represented to respondents ego or a conduit of a person, or another
that they were the owners of DMI - corporation.36 Here, the veil of corporate
continue to work at Toyota Alabang, which fiction must be pierced and accordingly,
they also own and operate. They further petitioners should be held personally liable
averred that the Articles of Incorporation for judgment awards because the
(AOI) of DMI ironically did not include peculiarity of the situation shows that they
petitioners as its directors or officers; and controlled DMI; they actively participated in
those named directors and officers were its operation such that DMI existed not as a
persons unknown to them. They likewise separate entity but only as business conduit
claimed that per inquiry with the SEC 20 of petitioners. As will be shown be shown
and the DOLE, they learned that DMI did below, petitioners controlled DMI by
not tile any notice of business closure; and making it appear to have no mind of its
the creation and operation of DMI was own, and used DMI as shield in evading
attended with fraud making it convenient legal liabilities, including payment of the
judgment awards in favor of respondents. as counsel of the spouses at [that] time,

First, petitioners and DMI jointly filed their [lent] their names as incorporators to
Position Paper, Reply, and Rejoinder in facilitate the [incorporation of DMI.]
contesting respondents' illegal dismissal. Respondent Edgard Smith was then counsel
Perplexingly, petitioners argued that they of Toyota Alabang and acts as its corporate
were not part of DMI and were not privy to secretary and as favor to his former client
its dealings; yet, petitioners, along with and employer, Respondent Cesar Lee,
DMI, collectively raised arguments on the agreed to help incorporate [DMI] and even
illegal dismissal case against them. Stated asked his wife Respondent, Millicent Smith,
differently, petitioners denied having any to act as incorporator also [to] complete the
participation in the management and required 5 man incorporators. After the
operation of DMI; however, they were incorporation they assigned and transferred
aware of and disclosed the circumstances all their purported participation in the
surrounding respondents' employment, and company to the Respondents Spouses Cesar
propounded arguments refuting that and Yolanda Lee, who acted as managers
respondents were illegally dismissed. To and are the real owners of the corporation.
note, petitioners revealed the annual Even at the time complainant[s were] fired
compensation of respondents and their from [their] employment respondents
length of service; they also set up the Spouses Smith had already given up their
defense that respondents were merely shares. The failure to an1end the Articles of
project employees, and were not Incorporation of [DMI], and to apply for
terminated but that DMI's contract with its closure is the fault of the new board, if any
client was discontinued resulting in the was constituted subsequently, and not of
absence of hauling projects for Respondents Smiths. Whatever fraud
respondents. If only to prove that they were committed was not committed by the
not part of DMI, petitioners could have Respondents Smiths, hence they could not
revealed who operated it, and from whom be made solidarily liable with Respondent
they derived the information embodied in Corporation or with the spouses Lee. If bad
their pleadings. Such failure to reveal thus faith or fraud did attend the termination of
gives the Court reasons to give credence to complainant[s], respondents Smiths would
respondents' firm stand that petitioners are know nothing of it because they had ceased
no strangers to DMI, and that they were the any connection with [DMI] even prior to
ones who managed and operated it. such time. And they had at the inception of
Second, the declarations made by spouses the corporation never exercised
Smith further bolster that petitioners and management prerogatives in the selection,
no other controlled DMI, to wit: hiring, and firing of employees of [DMI].
Complainants [herein respondents] in their Spouses Smith categorically identified
own motion admit that they never saw petitioners as the owners and managers of
[spouses Smith] at the office of [DMI], and DMI. In their Motion to Quash, however,
do not know them at all. This is because petitioners neither denied the allegation of
[spouses Smith's] services as lawyers had spouses Smith nor adduced evidence to
long been dispensed by the Spouses Lee establish that they were not the owners and
and had no hand whatsoever in the managers of DMI. They simply insisted that
management of the company. The Smiths, they could not be held personally liable
because of the immutability of the final and corporation was used for an illegal purpose,
executory NLRC Decision, and of the including evasion of legal duties to its
separate and distinct personality of DMI. employees, and as such, the piercing of the
Furthermore, the assailed CA Decision corporate veil is warranted. The act of
heavily relied on the declarations of spouses hiding behind the cloak of corporate fiction
Smith but still petitioners did not address will not be allowed in such situation where
the matters raised by spouses Smith in the it is used to evade one's obligations, which
instant Petition with the Court. Indeed, "equitable piercing doctrine was formulated
despite sufficient opportunity to clarify to address and prevent."45 Clearly,
matters and/or to refute them, petitioners petitioners should be held liable for the
simply brushed aside the allegations of judgment awards as they resorted to such
spouses Smith that petitioners owned and scheme to countermand labor laws by
managed DMI. Petitioners just maintain causing the incorporation of DMI but
that they did not act in bad faith; that the without any indication that they were part
NLRC Decision is final and executory; and thereof. While such device to defeat labor
that DMI has a distinct and separate laws may be deemed ingenious and
personality. Hence, for failure to address, imaginative, the Court will not hesitate to
clarify, or deny the declarations of spouses draw the line, and protect the right of
Smith, the Court finds respondents' position workers to security of tenure, including
that petitioners owned, and operated DMI ensuring that they will receive the benefits
with merit. Third, piercing the veil of they deserve when they fall victims of illegal
corporate fiction is allowed, and responsible dismissal.
persons may be impleaded, and be held
solidarily liable even after final judgment
and on execution, provided that such 18. The Missionary Sisters of Our Lady of
persons deliberately used the corporate Fatmia vs. Amando V. Alzona
vehicle to unjustly evade the judgment
obligation, or resorted to fraud, bad faith, TOPIC: De Facto Corporation; Doctrine of
or malice in evading their obligation Corporation by Estoppel (Sec 19-20)
In this case, petitioners were impleaded DOCTRINE: The doctrine of corporation by

from the inception of this case. They had estoppel rests on the idea that if the Court
ample opportunity to debunk the claim that were to disregard the existence of an entity
they illegally dismissed respondents, and which entered into a transaction with a
that they should be held personally liable third party, unjust enrichment would result
for having controlled DMI and actively as some form of benefit have already
participated in its management, and for accrued on the part of one of the parties.
having used it to evade legal obligations to
respondents. While it is true that one's FACTS: Petitioner is a religious and
control does not by itself result in the charitable group established under the
disregard of corporate fiction; however, patronage of the Roman Catholic Bishop.
considering the irregularity in the The petitioner came into being as a
incorporation of DMI, then there is corporation by virtue of a Certificate issued
sufficient basis to hold that such by SEC. Mother Concepcion is the
petitioner's Superior General. Respondents, corporation and as such has the personality
are the legal heirs of the late Alzona. to be a beneficiary and has the power to
acquire and possess property. Further then,
Alzona became a benefactor of the the petitioner's incapacity cannot be
petitioner by giving support to the questioned or assailed in the instant case as
community and its works. Alzona requested it constitutes a collateral attack which is
Mother Concepcion to take care of her in prohibited by the Corporation Code of the
her house after being diagnosed with lung Philippines. RTC recognized petitioner's
cancer. Alzona stated that she is donating authority is sufficient to vest the latter of
her house and advised petitioner to register the capacity to accept the donation.
to SEC.
CA reversed RTC ruling and held that
Respondent's contention: petitioner cannot be considered as a de
Seeks to annul the deed executed between facto corporation considering that at the
Alzona and petitioner on the ground that at time of the donation, there was no bona
the time the donation was made, the latter fide attempt on its part to incorporate. As
was not registered with the SEC and an
therefore has no juridical personality and unregistered corporation, the CA concluded
cannot legally accept the donation. Further, that the petitioner cannot exercise the
the respondents posit that the petitioner powers, rights, and privileges expressly
cannot even be considered as a de facto granted by the Corporation Code.
corporation considering that for more than Ultimately, bereft of juridical personality,
20 years, there was never any attempt on the CA ruled that the petitioner cannot
its part to incorporate, which decision came enter into a contract of Donation with
only after Atty. Arcillas' suggestion. Alzona.
Petitioner's contention: ISSUE: W/N petitioner is a de facto

Petitioner contends that it is a de facto corporation?
corporation and therefore possessed of the
requisite personality to enter into a RULING: YES. In spite of the fact that the
contract of donation. Assuming further that Missionary was not yet registered with the
it cannot be considered as a de facto SEC when the properties were donated, the
corporation, the petitioner submits that the donation would still be valid because
acceptance by Mother Concepcion while Alzona, applying the doctrine of corporation
the religious organization is still in the by estoppel, was aware that the Missionary
process of incorporation is valid as it then was not yet incorporated and registered
takes the form of a pre-incorporation with the SEC. Alzona dealt with the
contract governed by the rules on agency. petitioner as if it were a corporation. This is
The petitioner argues that their subsequent evident from the fact that Alzona executed
incorporation and acceptance perfected the two (2) documents conveying her
subject contract of donation. properties in favor of the petitioner – first,
on October 11, 1999 via handwritten letter,
RTC held that at the time of the execution and second, on August 29, 2001 through a
of the Deed, the petitioner was a de facto Deed; the latter having been executed the
day after the petitioner filed its application past services, which services do not amount
for registration with the SEC. She is to a demandable debt.”
estopped to deny the Missionary’s legal
existence in any action involving the NOTE: it is settled that "[t]he filing of
transfer of her property by way of donation. articles of incorporation and the issuance
She has assumed an obligation in favor of a of the certificate of incorporation are
non-existent corporation, having transacted essential for the existence of a de facto
with the latter as if it was duly incorporated. corporation." In fine, it is the act of
The doctrine of corporation by estoppel is registration with SEC through the issuance
founded on principles of equity and is of a certificate of incorporation that marks
designed to prevent injustice and the beginning of an entity's corporate
unfairness. It applies when a non-existent existence and at the time the donation was
corporation enters into contracts or made
dealings with third persons. The doctrine of
corporation by estoppel applies for as long Jurisprudence dictates that the doctrine of
as there is no fraud corporation by estoppel applies for as long
as there is no fraud and when the
The doctrine of corporation by estoppel existence of the association is attacked for
rests on the idea that if the Court were to causes attendant at the time the contract
disregard the existence of an entity which or dealing sought to be enforced was
entered into a transaction with a third entered into, and not thereafter. The
party, unjust enrichment would result as doctrine of corporation by estoppel is
some form of benefit have already accrued founded on principles of equity and is
on the part of one of the parties. Thus, in designed to prevent injustice and
that instance, the Court affords upon the unfairness. It applies when a non-existent
unorganized entity corporate fiction and corporation enters into contracts or
juridical personality for the sole purpose of dealings with third persons. In which case,
upholding the contract or transaction. the person who has contracted or
otherwise dealt with the non-existent
In this case, while the underlying contract corporation is estopped to deny the latter's
which is sought to be enforced is that of a legal existe11ce in any action leading out of
donation, and thus rooted on liberality, it or involving such contract or dealing. While
cannot be said that Purificacion, as the the doctrine is generally applied to protect
donor failed to acquire any benefit the sanctity of dealings with the public,42
therefrom so as to prevent the application nothing prevents its application in the
of the doctrine of corporation by estoppel. reverse, in fact the very wording of the law
To recall, the subject properties were given which sets forth the doctrine of corporation
by Purificacion, as a token of appreciation by estoppel permits such interpretation.
for the services rendered to her during her Such that a person who has assumed an
illness. In fine, the subject deed partakes of obligation in favor of a non-existent
the nature of a remuneratory or corporation, having transacted with the
compensatory donation, having been made latter as if it was duly incorporated, is
“for the purpose of rewarding the donee for prevented from denying the existence of

the latter to avoid the enforcement of the FACTS: Petitioner Lyceum of the Philippines
contract. is an educational institution duly registered
with the SEC. When it first registered with
Therefore, under the premises, past the SEC in 1950, it used the corporate
services constitutes consideration, which in name Lyceum of the Philippines, Inc. and
tum can be regarded as "benefit" on the has used that name ever since.
part of the donor, consequently, there
exists no obstacle to the application of the In 1984, petitioner instituted proceedings
doctrine of corporation by estoppel; before the SEC to compel the private
although strictly speaking, the petitioner did respondents which are also educational
not perform these services on the institutions to delete the word “Lyceum”
expectation of something in return. from their corporate names and
Precisely, the existence of the petitioner as permanently enjoin them from using it as
a corporate entity is upheld in this case for part of their respective names.
the purpose of validating the Deed to
ensure that the primary objective for which The SEC hearing officer sustained
the donation was intended is achieved, that petitioner’s claim to an exclusive right to
is, to convey the property for the purpose use the word “Lyceum”. On appeal,
of aiding the petitioner in the pursuit of its however, the SEC En Banc reversed the
charitable objectives decision. The Court of Appeals affirmed the
questioned Orders of the SEC En Banc.
MODULE 1 (b) (Sections 10-21) ISSUE: Did the Court of Appeals err in
holding that the Lyceum as a generic word
1. Lyceum of the Philippines v. CA cannot be appropriated by petitioner to the
exclusion of others?
TOPIC: Sec 18 - Registration of a corporate
name RULING: NO. The Articles of Incorporation
of a corporation must, among other things,
DOCTRINE: The policy underlying the set out the name of the corporation.
prohibition in Section 18 against the Section 18 of the Corporation Code
registration of a corporate name which is establishes a restrictive rule insofar as
"identical or deceptively or confusingly corporate names are concerned:
similar" to that of any existing corporation
or which is "patently deceptive" or "SECTION 18. Corporate name. —
"patently confusing" or "contrary to existing No corporate name may be allowed
laws," is the avoidance of fraud upon the by the Securities an Exchange
public which would have occasion to deal Commission if the proposed name is
with the entity concerned, the evasion of identical or deceptively or
legal obligations and duties, and the confusingly similar to that of any
reduction of difficulties of administration existing corporation or to any other
and supervision over corporations. name already protected by law or is
patently deceptive, confusing or
contrary to existing laws. When a
change in the corporate name is DOCTRINE: Parties organizing a corporation

approved, the Commission shall must choose a name at their peril; and the
issue an amended certificate of use of a name similar to one adopted by
incorporation under the amended another corporation, whether a business or
name." (Emphasis supplied) a nonprofit organization, if misleading or
likely to injure in the exercise of its
The policy underlying the prohibition in corporate functions, regardless of intent,
Section 18 against the registration of a may be prevented by the corporation
corporate name which is "identical or having a prior right, by a suit for injunction
deceptively or confusingly similar" to that of against the
any existing corporation or which is new corporation to prevent the use of the
"patently deceptive" or "patently name.
confusing" or "contrary to existing laws," is
the avoidance of fraud upon the public FACTS: The Iglesia ng Dios Kay Cristo Jesus,
which would have occasion to deal with the Haligi at Suhay ng Katotohanan (IDCJ-HSK) is
entity concerned, the evasion of legal a non-stock religious society or corporation.
obligations and duties, and the reduction of Soriano and several other members of said
difficulties of administration and corporation disassociated themselves from
supervision over corporations. the latter and succeeded in registering a
new non-stock religious society or
We do not consider that the corporate corporation, named Iglesia ng Dios Kay
names of private respondent institutions Kristo Hesus, Haligi at Saligan ng
are "identical with, or deceptively or Katotohanan (IDKJ-HSK).
confusingly similar" to that of the petitioner IDCJ-HSK filed a petition to compel IDKJ-
institution. True enough, the corporate HSK to change its corporate name. The SEC
names of private respondent entities all rendered judgment in favor of IDCJ-HSK,
carry the word "Lyceum" but confusion and ordering IDKJ-HSK to change its corporate
deception are effectively precluded by the name to another name that is not similar
appending of geographic names to the word or identical to any name already used by a
"Lyceum." Thus, we do not believe that the corporation, partnership or association
"Lyceum of Aparri" can be mistaken by the registered with the Commission. The
general public for the Lyceum of the acronym "H.S.K." stands for Haligi at Saligan
Philippines, or that the "Lyceum of ng Katotohanan.
Camalaniugan" would be confused with the
Lyceum of the Philippines. IDCJ-HSK filed before the SEC a petition
praying that AK[IDKH-HSK]BP be
compelled to change its corporate name
and be barred from using the same or
similar name on the ground that the same
2. Ang Mga Kaanib sa Iglesia ng Dios v. causes confusion among their members as
Iglesia ng Dios Kay Kristo Jesus well as the public. SEC rendered a decision
ordering AK[IDKH- HSK]BP to change its
TOPIC: Generic Word Rule corporate name.

ISSUE: WON generic word rule would apply

to support AK[IDKH- HSK]BP’s cause. Parenthetically, it is well to mention that
the acronym H.S.K. used by petitioner
RULING: The additional words Ang Mga stands for Haligi at Saligan ng Katotohanan.
Kaanib and Sa Bansang Pilipinas, Inc. in
petitioners name are, as correctly observed The wholesale appropriation by AK[IDKH-
by the SEC, merely descriptive of and also HSK]BP of IDCH-HSK's corporate name
referring to the members, or kaanib, of cannot find justification under the generic
respondent who are likewise residing in the word rule. A contrary ruling would
Philippines. These words can hardly serve as encourage other corporations to adopt
an effective differentiating medium verbatim and register an existing and
necessary to avoid confusion or difficulty in protected corporate name, to the detriment
distinguishing petitioner from respondent. of the public. The fact that there are other
This is especially so, since both petitioner non-stock religious societies or corporations
and respondent corporations are using the using the names Church of the Living God,
same acronym not to mention the fact that Inc., Church of God Jesus Christ the Son of
both are espousing religious beliefs and God the Head, Church of God in Christ & By
operating in the same place. the Holy Spirit, and other similar names, is
of no consequence. It does not authorize
Parties organizing a corporation must the use by AK[IDKH-HSK]BP of the essential
choose a name at their peril; and the use of and distinguishing feature of IDCH-HSK's
a name similar to one adopted by another registered and protected corporate name.
corporation, whether a business or a
nonprofit organization, if misleading or 3. YOUNG AUTO SUPPLY v. COURT OF
likely to injure in the exercise of its APPEALS
corporate functions, regardless of intent,
may be prevented by the corporation TOPIC: Sec 13 (c) - Place where the principal
having a prior right, by a suit for injunction office of the corporation is to be located,
against the new corporation to prevent the which must be within the Philippines.
use of the name.
DOCTRINE: A corporation cannot be
Significantly, the only difference between allowed to file personal actions in a place
the corporate names of petitioner and other than its principal place of business
respondent are the words SALIGAN and unless such a place is also the residence of a
SUHAY. These words are synonymous both co-plaintiff or a defendant.
mean ground, foundation or support.
Hence, this case is on all fours with FACTS: Young Auto Supply, represented by
Universal Mills Corporation v. Universal Nemesio Garcia, its president, Nelson
Textile Mills, Inc., where the Court ruled Garcia, and Vicente Sy, sold all of their
that the corporate names Universal Mills shares of stock in Consolidated Marketing
Corporation and Universal Textile Mills, Inc., & Development Corporation to Roxas. The
are undisputably so similar that even under purchase price was Php8,000,000.00.
the test of reasonable care and observation Immediately after the execution of the
confusion may arise. agreement, Roxas took full control of the
four markets of CMDC. However, the “place where the principal office of the
vendors held on to the stock certificates of corporation is to be located which must be
CMDC as security pending full payment. within the Philippines.” The purpose of this
requirement is to fix the residence of a
The first check of Php4,000,000.00 was corporation in a definite place, instead of
honored by the drawee bank, but the four allowing it to be ambulatory. To allow an
other checks, representing the balance of action to be instituted in any place where
Php4,000,000.00, were dishonored. In the the corporation has branch offices would
meantime, Roxas sold one of the markets create confusion and work untold
to a third party. Out of the proceeds of the inconvenience to
sale, YASCO received Php600,000.00, said entity. By the same token, a
leaving a balance of P3,400,000.00. corporation cannot be allowed to file
Subsequently, Garcia and Sy assigned all personal actions in a place other than its
their rights and title to the proceeds of the principal place of business unless such a
sale of the CMDC shares to Garcia. place is also the residence of a co-plaintiff
or a defendant.
Petitioners filed a complaint against Roxas
in RTC Cebu, where the principal place of
business is located, praying that Roxas be
ordered to pay petitioners Php3,400,00.00
or that full control of the three markets be
turned over to YASCO and Garcia. The
complaint also prayed for the forfeiture of
the partial payment of Php4,600,000.00. 4. De La Salle Montessori International of
Malolos, Inc. vs. De La Salle Brothers, Inc.
ISSUE: W/N venue was improperly laid?
TOPIC: Name; Section 18 of the Corporation
RULING: NO. The Court of Appeals relied on Code.
the address of YASCO, as appearing in the
Deed of Sale dated October 28, 1987, which DOCTRINE: In determining the existence of
is “No. 1708, Dominga Street, Pasay City.” confusing similarity in corporate names, the
This was the same address written on test is whether the similarity is such as to
YASCO’s letters and several commercial mislead a person using ordinary care and
documents in the possession of Roxas. discrimination.
A corporation has no residence in the same FACTS: Petitioner reserved with the SEC its
sense in which this term is applied to a corporate name De La Salle Montessori
natural person. For practical purposes, a International Malolos, Inc. from June 4 to
corporation is in a metaphysical sense a August 3, 2007. Thereafter, the SEC issued a
resident of the place where its principal certificate of incorporation to petitioner.
office is located as stated in the articles of
incorporation. The Corporation Code On January 29, 2010, respondents De La
precisely requires each corporation to Salle Brothers, Inc., De La Salle University,
specify in its articles of incorporation the Inc., La Salle Academy, Inc., De La Salle-
Santiago Zobel School, Inc., and De La Salle look to the record as well as the names
Canlubang, Inc. filed a petition with the SEC themselves.
seeking to compel petitioner to change its
corporate name, claiming that it is The Court's ruling in Lyceum of the
misleading and confusingly similar to that Philippines does not apply. The Court there
which respondents have acquired a prior held that the word "Lyceum" today
right to use, and that its use of the generally refers to a school or institution of
dominant phrases “La Salle” and “De La learning. It is as generic in character as the
Salle” gives an erroneous impression that word "university." Since "Lyceum" denotes
petitioner is part of the “La Salle” group, a school or institution of learning, it is not
constituting a violation Section 18 of the unnatural to use this word to designate an
Corporation Code. entity which is organized and operating as
an educational institution. Moreover, the
Respondents claim that petitioner's Lyceum of the Philippines, Inc.'s use of the
corporate name is misleading or confusingly word "Lyceum" for a long period of time did
similar to that which respondents have not amount to mean that the word had
acquired a prior right to use, which violates acquired secondary meaning in its favor
Section 18 of the Corporation Code of the because it failed to prove that it had been
Philippines. Moreover, being the prior using the word all by itself to the exclusion
registrant, respondents have acquired the of others. More so, there was no evidence
use of said phrases as part of their presented to prove that the word has been
corporate names and have freedom from so identified with the Lyceum of the
infringement of the same. Philippines, Inc. as an educational
The Court of Appeals affirmed the decision institution that confusion will surely arise if
of the SEC En Banc directing petitioner to the same word were to be used by other
change or modify its corporate name. It also educational institutions.
held that the Lyceum of the Philippines case
does not apply since the word "lyceum" is a Here, the phrase "De La Salle" is not
generic word that pertains to a category of generic in relation to respondents. It is not
educational institutions and is widely used descriptive of respondent's business as
around the world. Further, the Lyceum of institutes of learning, unlike the meaning
the Philippines failed to prove that ascribed to "Lyceum." Moreover,
"lyceum" acquired secondary meaning respondent De La Salle Brothers, Inc. was
capable of exclusive appropriation. registered in 1961 and the De La Salle
group had been using the name decades
ISSUE: Did the Court of Appeals err in not before petitioner's corporate registration.
applying the ruling in the Lyceum of the In contrast, there was no evidence of the
Philippines case? Lyceum of the Philippines, Inc.'s exclusive
use of the word "Lyceum," as in fact
RULING: In determining the existence of another educational institution had used
confusing similarity in corporate names, the the word 17 years before the former
test is whether the similarity is such as to registered its corporate name with the SEC.
mislead a person using ordinary care and Also, at least nine other educational
discrimination. In so doing, the Court must institutions included the word in their
corporate names. There is thus no similarity Article XII of the Constitution. These
between the Lyceum of the Philippines case corporations are in danger of losing their
and this case that would call for a similar franchise and property if they are found
ruling. not compliant with the restrictive
interpretation of the constitutional
There is thus no similarity between the provision under review which is being
Lyceum of the Philippines case and this case espoused by petitioners. They should be
that would call for a similar ruling. afforded due notice and opportunity to be
heard, lest they be deprived of their
property without due process.
Not only are public utility corporations

other than PLDT directly and materially
affected by the outcome of the petitions,
their shareholders also stand to suffer in
case they will be forced to divest their
shareholdings to ensure compliance with
the said restrictive interpretation of the
term "capital". As explained by SHAREPHIL,
in five corporations alone, more than
Php158 Billion worth of shares must be
divested by foreign shareholders and
absorbed by Filipino investors if petitioners'
position is upheld.
5. Roy III vs. Herbosa Petitioners' disregard of the rights of these
other corporations and numerous
DOCTRINE: shareholders constitutes another fatal
procedural flaw, justifying the dismissal of
FACTS: A Motion for Reconsideration was their petitions. Without giving all of them
filed by petitioner Jose M. Roy III seeking their day in court, they will definitely be
the reversal and setting aside of the deprived of their property without due
Decision which denied the movant's process of law.
petition, and declared that SEC did not
commit grave abuse of discretion in issuing ISSUE: WON SEC committed grave abuse of
Memorandum Circular No. 8, Series of 2013 discretion amounting to lack or excess of
(SEC-MC No. 8) as the same was in jurisdiction when it issued SEC-MC No. 8.
compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance RULING: NO. The Court finds SEC-MC No. 8
Secretary Teves and the resolution denying to have been issued in fealty to the Gamboa
the Motion for Reconsideration therein. Decision and Resolution. The Decision has
painstakingly explained why it considered
Petitions failed to join or implead other as obiter dictum that pronouncement in
public utility corporations subject to the the Gamboa Resolution that the
same restriction imposed by Section 11, constitutional requirement on Filipino
ownership should "apply uniformly and adduced to warrant the reconsideration

across the board to all classes of shares, sought, the Court resolves to deny the
regardless of nomenclature and category, Motion with finality.
comprising the capital of a corporation.”
To the Court's mind and, as exhaustively

demonstrated in the Decision, the
dispositive portion of the Gamboa Decision
was in no way modified by the Gamboa
Resolution.
The heart of the controversy is the

interpretation of Section 11, Article XII of
the Constitution, which provides: "No
franchise, certificate, or any other form of
authorization for the operation of a public
utility shall be granted except to citizens of
the Philippines or to corporations or
associations organized under the laws of
the Philippines at least sixty per centum of
whose capital is owned by such citizens.”
The Gamboa Decision already held, in no

uncertain terms, that what the Constitution
requires is full and legal beneficial 6. Narra Nickel Mining v. Redmont
ownership of 60 percent of the Consolidated Mines Corp.
outstanding capital stock, coupled with 60
percent of the voting rights must rest in TOPIC: Control Test/Grand Father rule
the hands of Filipino nationals. And,
precisely that is what SEC-MC No. 8 DOCTRINE: Control Test is the basis for
provides; For purposes of determining determining whether a corporation is
compliance with the constitutional or Foreign or Filipino in relation to the Foreign
statutory ownership, the required Investments Act. Grandfather Rule
percentage of Filipino ownership shall be
applied to both the total number of FACTS: Redmont Consolidated Mines Corp.
outstanding shares of stock entitled to vote (RCMC) took interest in mining and
in the election of directors; and (b) the total exploration in certain provinces in Palawan.
number of outstanding shares of stock, After inquiring with DENR, it learned that
whether or not entitled to vote. the areas where already covered by the
Mineral Production Sharing Agreement
In conclusion, the basic issues raised in the applications of petitioners Narra Nickel
Motion having been duly considered and Mining (NNM), Tesoro and McArthur.
passed upon by the Court in the Decision
and no substantial argument having been
RCMC alleged that 60% of the capital stock

of McArthur, Tesoro and Narra are owned Petitioner claimed that the use of the
and controlled by MBMI Resources, Inc. Grandfather rule is erroneous.
(MBMI), a 100% Canadian corporation.
RCMC reasoned that since MBMI is a ISSUE: WON NNM is a Filipino Corporation?
considerable stockholder of petitioners, it
was the driving force behind petitioners’ RULING: NO, they are not. The application
filing of the MPSAs over the areas covered of the Grandfather Rule in the present case
by applications since it knows that it can does not eschew the Control Test.
only participate in mining activities through
corporations which are deemed Filipino The Court used the Grandfather Rule as a
citizens. Redmont argued that given that “supplement” to the Control Test so that
petitioners’ capital stocks were mostly the intent underlying the averted Sec. 2,
owned by MBMI, they were likewise Art. XII of the Constitution be given effect.
disqualified from engaging in mining The control test is still the prevailing mode
activities through MPSAs, which are of determining whether a corporation is a
reserved only for Filipino citizens. Further, it Filipino corporation. However, when there
is a blatant violation of Art. 12 of 1987. is doubt in the 60-40 Filipino equity
ownership, the grandfather test is applied.
Petitioners contends that they are qualified
person and they claimed that the issue on Sec. 2, Art. XII of the Constitution
nationality should not be raised since reserves the exploration,
McArthur, Tesoro and Narra are in fact development, and utilization of
Philippine Nationals as 60% of their capital natural resources to Filipino citizens
is owned by citizens of the Philippines and and “corporations or associations at
MBBI only owned 40% of the shares. They least sixty per centum of whose
added that the best tool used in capital is owned by such citizens.”
determining the nationality of a corporation
is the "control test," embodied in Sec. 3 of The criterion behind this is the beneficial
RA 7042 or the Foreign Investments Act of ownership of the right to dispose, exploit,
1991. utilize, and develop natural resources shall
pertain to Filipino citizens, and that the
The POA ruled that NNM is disqualified nationality requirement is not satisfied
from mining since they are foreign. The RTC unless Filipinos are the principal
and the CA affirmed the POA’s judgment. beneficiaries in the exploitation of the
CA found that there was doubt as to the country’s natural resources.
nationality of petitioners when it realized
that petitioners had a common major In the Grandfather rule, both the direct and
investor, MBMI, a corporation composed of indirect shareholdings in the corporation
100% Canadians. CA used the Grandfather are determined. We must delve into the
rule and found that there was a web of citizenship of the individual stockholders
corporate layering and it is clear that the of each corporation. It was originally
common controlling investor in all mining conceived to look into the citizenship of the
corporations involved is MBMI. individuals who ultimately own and control
the shares of stock of a corporation for mentioned. In effect, whether looking at the
purposes of determining compliance with capital structure or the underlying
the constitutional requirement of Filipino relationships between and among the
ownership. It cannot be denied that the corporations, petitioners are NOT Filipino
framers of the Constitution have not nationals and must be considered foreign
foreclosed the Grandfather Rule as a tool in since 60% or more of their capital stocks or
verifying the nationality of corporations for equity interests are owned by MBMI.
purposes of ascertaining their right to
participate in nationalized or partly The Supreme Court references the Foreign
nationalized activities. The intention of the Investments Act Section 3, “That were a
framers of the Constitution to apply the corporation and its non-Filipino
grandfather rule in cases where corporate stockholders own stocks in a Securities and
layering is present. The “Grandfather Rule” Exchange Commission (SEC) registered
is applied specifically in cases where the enterprise, at least sixty percent (60%) of
corporation has corporate stockholders the capital stock outstanding and entitled to
with alien stockholdings, otherwise, if the vote of each of both corporations must be
rule is not applied, the presence of such owned and held by citizens of the
corporate Philippines and at least sixty percent (60%)
stockholders could diminish the effective of the members of the Board of Directors, in
control of Filipinos. order that the corporation shall be
considered a Philippine national.”. In this
Situs of Control, case, there is evidence that the owners of
NNM are foreign corporations and they
control the corporation hence they are
considered as foreign. Additionally, The
Petitioners McArthur, Tesoro and Narra Supreme Court states “it is quite safe to say
are not Filipino since MBMI, a 100% that petitioners McArthur, Tesoro and
Canadian corporation, owns 60% or more Narra are not Filipino since MBMI, a 100%
of their equity interests. Such conclusion is Canadian corporation, owns 60% or more of
derived from grandfathering petitioners’ their equity interests. Such conclusion is
corporate owners, namely: MMI, SMMI and derived from grandfathering petitioners'
PLMDC. Going further and adding to the corporate owners, namely: MMI, SMMI and
picture, MBMI’s Summary of Significant PLMDC”.
Accounting Policies statement– –regarding
the "joint venture" agreements that it There are two test in determining the
entered into with the "Olympic" and nationality of a corporation: the control test
"Alpha" groups––involves SMMI, Tesoro, and the grandfather rule. DOJ implemented
PLMDC and Narra. Noticeably, the a requirement pertaining to the controlling
ownership of the "layered" corporations interest in enterprise engaged in the
boils down to MBMI, Olympic or exploitation of natural resources owned by
corporations under the "Alpha" group Filipino citizens which provides:
wherein MBMI has joint venture
agreements with, practically exercising Shares belonging to corporations or
majority control over the corporations partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be

considered as of Philippine nationality, but
if the percentage of Filipino ownership in 8. HEIRS OF WILSON P. GAMBOA v TEVES
the corporation or partnership is less than
60%, only the number of shares TOPIC:
corresponding to such percentage shall be  Shares/Common shares/Preferred
counted as of Philippine nationality. Thus, if shares
100,000 shares are registered in the name  “Beneficial ownership” and the
of a corporation or partnership at least “situs of control” in determining
60% of the capital stock or capital, what constitutes “capital”
respectively, of which belong to Filipino  Article XII, Section 11 of the
citizens, all of the shares shall be recorded Constitution
as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of DOCTRINE: The term “capital” the term
the corporation or partnership, “capital” in Section 11, Article XII of the
respectively, belongs to Filipino citizens, 1987 Constitution refers to shares with
only 50,000 shares shall be counted as voting rights, as well as with full beneficial
owned by Filipinos and the other 50,000 ownership. This is precisely because the
shall be recorded as belonging to aliens. right to vote in the election of directors,
coupled with full beneficial ownership of
The first part of paragraph 7, DOJ Opinion stocks, translates to effective control of a
No. 020, stating "shares belonging to corporation.
corporations or partnerships at least 60% of
the capital of which is owned by Filipino FACTS:
citizens shall be considered as of Philippine  PTIC bought the 26% outstanding
nationality," pertains to the control test or common shares of PLDT from GTE.
the liberal rule. On the other hand, the  PHI became the owner of the 46%
second part of the DOJ Opinion which shares of stocks of PTIC.
provides, "if the percentage of the Filipino  PCGG sequestered the 46% shares of
ownership in the corporation or partnership PTIC. The PH government later
is less than 60%, only the number of shares become the owner of these shares.
corresponding to such percentage shall be  First Pacific, a Bermuda-registered,
counted as Philippine nationality," pertains Hong Kong-based investment firm,
to the stricter, more stringent grandfather acquired the remaining 54 percent
rule. of the outstanding capital stock of
PTIC.
Control Test - 60/40  PH Govt. sold the 46% shares of PTIC
Grandfather Rule - If less than 60%, the through public bidding. First Pacific
corresponding shares shall be counted to exercised its right of first refusal and
the Filipino ownership. It applies only when bought the remaining 46%.
the 60-40 Filipino-foreign equity ownership  The sale resulted to an indirect
is in doubt acquisition of 6% outstanding
common shares of PLDT. The PLDT
shares owned by FP increased from
30% to 37%. Thus, the total foreign capital stock (combined total of common
common shareholdings of foreigners and non-voting preferred shares)?
in PLDT is about 81% which violated
the 40-60 rule. RULING: NO. The term “capital” in Section
 The respondent denied such 11, Article XII of the Constitution refers only
allegation stating that based on the to shares of stock entitled to vote in the
public hearing, it was concluded that election of directors, and thus in the
FP did not violate the 40-60% rule present case only to common shares, and
because PTIC holds only 13% of the not to the total outstanding capital stock
total outstanding common shares comprising both common and non-voting
of PLDT. preferred shares.
Petitioner's Argument: Considering that common shares have

 Petitioner submits that the 40 voting rights which translate to control, as
percent foreign equity limitation in opposed to preferred shares which usually
domestic public utilities refers only have no voting rights, the term “capital” in
to common shares because such Section 11, Article XII of the Constitution
shares are entitled to vote and it is refers only to common shares. However, if
through voting that control over a the preferred shares also have the right to
corporation is exercised. Petitioner vote in the election of directors, then the
posits that the term “capital” in term “capital” shall include such preferred
Section 11, Article XII of the shares because the right to participate in
Constitution refers to “the the control or management of the
ownership of common capital stock corporation is exercised through the right to
subscribed and outstanding, which vote in the election of directors. In short,
class of shares alone, under the the term “capital” in Section 11, Article XII
corporate set-up of PLDT, can vote of the Constitution refers only to shares of
and elect members of the board of stock that can vote in the election of
directors.” It is undisputed that directors.
PLDT’s non-voting preferred shares
are held mostly by Filipino citizens. Indisputably, one of the rights of a
stockholder is the right to participate in the
Respondent's argument: control or management of the corporation.
 Section 11, [Article XII of the This is exercised through his vote in the
Constitution] imposes no nationality election of directors because it is the board
requirement on the shareholders of of directors that controls or manages the
the utility company as a condition corporation. In the absence of provisions in
for keeping their shares in the utility the articles of incorporation denying voting
company. rights to preferred shares, preferred shares
have the same voting rights as common
ISSUE: Does the term “capital” in Section shares. However, preferred shareholders
11, Article XII of the Constitution refer to are often excluded from any control, that is,
common shares or to the total outstanding deprived of the right to vote in the election
of directors and on other matters, on the
theory that the preferred shareholders are

merely investors in the corporation for To construe broadly the term “capital” as
income in the same manner as the total outstanding capital stock,
bondholders. including both common and non-voting
preferred shares, grossly contravenes the
In fact, under the Corporation Code only intent and letter of the Constitution that the
preferred or redeemable shares can be “State shall develop a self-reliant and
deprived of the right to vote. Common independent national economy effectively
shares cannot be deprived of the right to controlled by Filipinos.”
vote in any corporate meeting, and any
provision in the articles of incorporation So the preferred shares not only cannot
restricting the right of common vote in the election of directors, they also
shareholders to vote is invalid. have very little and obviously negligible
dividend earning capacity compared to
60 percent of the “capital” assumes, or common shares.
should result in, “controlling interest” in the
corporation. Reinforcing this interpretation In this case, under the AOI of PLDT, only
of the term “capital,” as referring to holders of common shares can vote in the
controlling interest or shares entitled to election of directors, meaning only common
vote, is the definition of a “Philippine shareholders exercise control over PLDT.
national” in the Foreign Investments Act of Conversely, holders of preferred shares,
1991. who have no voting rights in the election of
directors, do not have any control over
Compliance with the required Filipino PLDT.
ownership of a corporation shall be
determined on the basis of outstanding It must be stressed that foreigners hold a
capital stock whether fully paid or not, but majority of the common shares of PLDT.
only such stocks which are generally Foreigners hold 64.27% of the total number
entitled to vote are considered. of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority
For stocks to be deemed owned and held by of the common shares equates to control, it
Philippine citizens or Philippine nationals, is clear that foreigners exercise control over
mere legal title is not enough to meet the PLDT. Such amount of control unmistakably
required Filipino equity. Full beneficial exceeds the allowable 40 percent limit on
ownership of the stocks, coupled with foreign ownership of public utilities
appropriate voting rights is essential. Thus, expressly mandated in Section 11, Article XII
stocks, the voting rights of which have been of the Constitution.
assigned or transferred to aliens cannot be
considered held by Philippine citizens or The legal and beneficial ownership of 60
Philippine nationals. percent of the outstanding capital stock
must rest in the hands of Filipinos in
Individuals or juridical entities not meeting accordance with the constitutional
the aforementioned qualifications are mandate. Full beneficial ownership of 60
considered as non-Philippine nationals.” percent of the outstanding capital stock,
coupled with 60 percent of the voting Incidentally, the fact that PLDT common
rights, is constitutionally required for the shares with a par value of P5.00 have a
State’s grant of authority to operate a current stock market value of P2,328.00 per
public utility. The undisputed fact that the share,64 while PLDT preferred shares with a
PLDT preferred shares, 99.44% owned by par value of P10.00 per share have a
Filipinos, are non-voting and earn only 1/70 current stock market value ranging from
of the dividends that PLDT common shares only P10.92 to P11.06 per share,65 is a
earn, grossly violates the constitutional glaring confirmation by the market that
requirement of 60 percent Filipino control control and beneficial ownership of PLDT
and Filipino beneficial ownership of a public rest with the common shares, not with the
utility. preferred shares.
In short, Filipinos hold less than 60 percent NOTE:

of the voting stock, and earn less than 60 “Philippine national” shall mean a citizen of
percent of the dividends, of PLDT. This the Philippines or a domestic partnership or
directly contravenes the express command association wholly owned by the citizens of
in Section 11, Article XII of the Constitution the Philippines; or a corporation organized
that “[n]o franchise, certificate, or any other under the laws of the Philippines of which
form of authorization for the operation of a at least sixty percent [60%] of the capital
public utility shall be granted except to x x x stock outstanding and entitled to vote is
corporations x x x organized under the laws owned and held by citizens of the
of the Philippines, at least sixty per centum Philippines;
of whose capital is owned by such citizens x
x x.” Thus, the SEC is the government agency
tasked with the statutory duty to enforce
To repeat, (1) foreigners own 64.27% of the the nationality requirement prescribed in
common shares of PLDT, which class of Section 11, Article XII of the Constitution on
shares exercises the sole right to vote in the the ownership of public utilities. This Court,
election of directors, and thus exercise in a petition for declaratory relief that is
control over PLDT; (2) Filipinos own only treated as a petition for mandamus as in
35.73% of PLDT’s common shares, the present case, can direct the SEC to
constituting a minority of the voting stock, perform its statutory duty under the law, a
and thus do not exercise control over PLDT; duty that the SEC has apparently unlawfully
(3) preferred shares, 99.44% owned by neglected to do based on the 2010 GIS that
Filipinos, have no voting rights; (4) respondent PLDT submitted to the SEC.
preferred shares earn only 1/70 of the
dividends that common shares earn; (5)
preferred shares have twice the par value of ------
common shares; and (6) preferred shares FACTS:
constitute 77.85% of the authorized capital
stock of PLDT and common shares only Movants Philippine Stock Exchange’s (PSE)
22.15%. This kind of ownership and control President, Manuel V. Pangilinan, Napoleon
of a public utility is a mockery of the L. Nazareno, and the Securities and
Constitution. Exchange Commission (SEC) contend that
the term “capital” in Section 11, Article XII meet the required Filipino equity. Full
of the Constitution has long been settled beneficial ownership of the stocks, coupled
and defined to refer to the total with appropriate voting rights is essential.”
outstanding shares of stock, whether voting
or non-voting. In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term
In fact, movants claim that the SEC, which is “capital” in Section 11, Article XII of the
the administrative agency tasked to enforce 1987 Constitution refers to shares with
the 60-40 ownership requirement in favor voting rights, as well as with full beneficial
of Filipino citizens in the Constitution and ownership. This is precisely because the
various statutes, has consistently adopted right to vote in the election of directors,
this particular definition in its numerous coupled with full beneficial ownership of
opinions. Movants point out that with the stocks, translates to effective control of a
28 June 2011 Decision, the Court in effect corporation.
introduced a “new” definition or
“midstream redefinition” of the term This is consistent with Section 3 of the FIA
“capital” in Section 11, Article XII of the which provides that where 100% of the
Constitution. capital stock is held by “a trustee of funds
for pension or other employee retirement
ISSUE: Does the term “capital” in Section or separation benefits,” the trustee is a
11, Article XII of the Constitution refer to Philippine national if “at least sixty percent
common shares or to the total outstanding (60%) of the fund will accrue to the benefit
capital stock (combined total of common of Philippine nationals.” Likewise, Section
and non-voting preferred shares)? 1(b) of the Implementing Rules of the FIA
provides that “for stocks to be deemed
RULING: NO. owned and held by Philippine citizens or
Philippine nationals, mere legal title is not
The Constitution expressly declares as State enough to meet the required Filipino
policy the development of an economy equity. Full beneficial ownership of the
“effectively controlled” by Filipinos. stocks, coupled with appropriate voting
Consistent with such State policy, the rights, is
Constitution explicitly reserves the essential.”
ownership and operation of public utilities
to Philippine nationals, who are defined in The term “capital” in Section 11, Article XII
the Foreign Investments Act of 1991 as of the Constitution refers only to shares of
Filipino citizens, or corporations or stock entitled to vote in the election of
associations at least 60 percent of whose directors, and thus in the present case only
capital with voting rights belongs to to common shares, and not to the total
Filipinos. outstanding capital stock comprising both
common and non-voting preferred shares.
The FIA’s implementing rules explain that
“for stocks to be deemed owned and held Indisputably, one of the rights of a
by Philippine citizens or Philippine stockholder is the right to participate in the
nationals, mere legal title is not enough to control or management of the corporation.
This is exercised through his vote in the these examples the unelected members sit
election of directors because it is the board as ex officio members.
of directors that controls or manages the
corporation. In the absence of provisions in FACTS: Petitioner is an educational
the articles of incorporation denying voting institution offering preparatory,
rights to preferred shares, preferred shares kindergarten and secondary courses at the
have the same voting rights as common Grace Village in Quezon City.
shares. However, preferred shareholders
are often excluded from any control, that is, Private respondent Grace Village
deprived of the right to vote in the election Association, Inc., on the other hand, is an
of directors and on other matters, on the organization of lot and/or building owners,
theory that the preferred shareholders are lessees and residents at Grace Village, while
merely investors in the corporation for private respondents Alejandro G. Beltran
income in the same manner as and Ernesto L. Go were its president and
bondholders. In fact, under the Corporation chairman of the committee on election,
Code only preferred or redeemable shares respectively, in 1990, when this suit was
can be deprived of the right to vote. brought.
Common shares cannot be deprived of the
right to vote in any corporate meeting, and As adopted in 1968, the bylaws of the
any provision in the articles of incorporation association provided in Article IV, as
restricting the right of common follows:. . . where they shall elect by
shareholders to vote is invalid. plurality vote and by secret balloting, the
Board of Directors, composed of 11
members to serve for 1 year until their
successors are duly elected and have
qualified.
It appears, that on December 20, 1975, a

committee of the board of directors
prepared a draft of an amendment to the
bylaws; that there will be 14 directors and
petitioner’s representative is a permanent
Director of the association. However, this
MODULE 2 (Sections 23-34, RCC) draft was never presented to the general
membership for approval.
1. Grace Chritian Highschool v CA
Nevertheless, from 1975, after it was
TOPIC: Board of Directors presumably submitted to the board, up to
1990, petitioner was given a permanent
DOCTRINE: The board of directors of seat in the board of directors of the
corporations must be elected from among association.
the stockholders or members. There may be
corporations in which there are unelected
members in the board, but it is clear that in
ISSUE: Whether petitioner’s representative DOCTRINE:

has the right of to sit in the board of 1. While reasonableness of a by-law is a
directors as a permanent member legal question, where reasonableness of a
by-law provision is one in which reasonable
RULING: The board of directors of minds may differ a court will not be justified
corporations must be elected from among in subsisting its judgment for those
the stockholders or members. There may be authorized to make the by-laws.
corporations in which there are unelected
members in the board but it is clear that in 2. Any person “who buys stock in a
the examples cited by petitioner the corporation does so with the knowledge
unelected members sit as ex officio that its affairs are dominated by a majority
members, i.e., by virtue of and for as long of the stockholders and that he implied
as they hold a particular office. contracts that the will of the majority shall
govern in all matters within the limits of the
But in the case of petitioner, there is no act of incorporation and lawfully enacted
reason at all for its representative to be by-laws and not forbidden by law.”
given a seat in the board. Nor does
petitioner claim a right to such seat by FACTS: The petitioner, a stockholder of
virtue of an office held. In fact it was not SMC, filed a petition with the SEC to nullify
given such seat in the beginning. It was only the amended by-laws, alleging that the
in 1975 that a proposed amendment to the amendments were made without proper
bylaws sought to give it one. authority. The petitioner claimed that the
power to amend by-laws should have been
Since the provision in question is contrary delegated by stockholders representing ⅔
to law, the fact that for fifteen years it has of the subscribed and paid-up capital at the
not been questioned or challenged but, on time of the amendment, not based on a
the contrary, appears to have been 1961 authorization. Other causes of action
implemented by the members of the included claims that the amendments
association cannot forestall a later purposefully disqualified the petitioner
challenge to its validity. Neither can it from being a director and that corporations
attain validity through acquiescence cannot disqualify stockholders from
because, if it is contrary to law, it is beyond directorship.
the power of the members of the
association to waive its invalidity. For that RESPONDENT'S ARGUMENTS:
matter the members of the association Respondents argued that the amendments
may have formally adopted the provision were valid and legal, as the power was
in question, but their action would be of delegated to the Board since 1961. The
no avail because no provision of the petitioner's previous failure to object to
bylaws can be adopted if it is contrary to other amendments based on the 1961
law. authorization was also raised as an
affirmative defense. They also asserted that
adopting protective measures was within
2. Gokongwei vs. SEC the Board's purview and that the
petitioner's rejection as a director was due
to concerns about competitive business incorporation and lawfully enacted by-laws

interests. The amendments were ratified in and not forbidden by law. To this extent,
1977. They claim that the vote requirement therefore, the stockholder may be
for a valid delegation of the power to considered to have parted with his personal
amend, repeal or adopt new by-laws is right or privilege to regulate the disposition
determined in relation to the total of his property which he has invested in the
subscribed capital stock at the time the capital stock of the corporation and
delegation of said power is made, not when surrendered it to the will of the majority or
the Board opts to exercise said delegated his fellow incorporators. It cannot therefore
power be justly said that the contract, express or
implied, between the corporation and the
ISSUE: Whether or not the amended by- stockholders is infringed by any act of the
laws of SMC disqualifying a competitor from former which is authorized by a majority,
nomination or election to the Board of ***.
Directors of SMC valid and reasonable.
Under Section 21 of the Corporation Law, a
RULING: Yes. The validity and corporation may prescribed in its by-laws
reasonableness of a corporate by-law are the qualifications, duties and compensation
questions of law, but if the reasonableness of directors, officers and employees ***.
is a matter of judgment where reasonable This must necessarily refer to a qualification
minds differ, courts won't substitute their in addition to that specified by section 30 of
judgment for that of the authorized law- the Corporation Law, which provides that
makers. Corporations have inherent power every director must own in his right at least
to make by-laws to govern their internal one share of the capital stock of the stock
affairs, including qualifications for corporation of which he is a director * * *.
directors.
Hence, In the case at bar, there are facts
Stockholders don't have a vested right to be which cannot be denied, viz.: that the
elected directors as charters and by-laws amended by-laws were adopted by the
can be amended. A by-law disqualifying a Board of Directors of the San Miguel
stockholder from being a director due to Corporation in the exercise of the power
competition with the corporation is valid to delegated by the stockholders ostensibly
prevent conflicts of interest. Courts may pursuant to section 22 of the Corporation
grant wide latitude to corporations to Law; that in a special meeting on February
protect their interests, as long as there's no 10, 1977 held specially for that purpose, the
legal prohibition or overriding public amended by-laws were ratified by more
policy. than 80% of the stockholders of record; that
the foreign investment in the Hongkong
Any person who buys stock in a corporation Brewery and Distillery, a beer
does so with the knowledge that its affairs manufacturing company in Hongkong, was
are dominated by a majority of the made investments and operations of San
stockholders and that he implied contracts Miguel Corporation were ratified by the
that the will of the majority shall govern in stockholders.
all matters within the limits of the act of
Further, petitioner Gokongwei, while being president, solicited a proposal from private
the director of San Miguel Corporation, is respondent for the preparation of a
also the president and substantial feasibility study.
stockholder of Universal Robina
Corporation and CFC corporation, both Yong, the majority stockholder of
owned by him or his family. petitioner, objected to private respondent’s
offer, as another company priced a similar
The petitioner and the interests he proposal at only P15,000. However,
represents are engaged in businesses Punsalan preferred private respondent’s
competitive and antagonistic to that of services because of the latter’s membership
respondent San Miguel Corporation, it in the task force, which was supervising the
appearing that he owns and controls a transition of the Bureau of Customs from
greater portion of his SMC stock thru the the Marcos government to the Aquino
Universal Robina Corporation and the administration. Petitioner, through
Consolidated Foods Corporation, which Punsalan, sent private respondent a letter,
corporations are engaged in businesses confirming their agreement. Also, upon
directly and substantially competing with Punsalan's requests, respondent sent
the allied businesses of respondent SMC another letter-proposal (2nd letter contract)
and of corporations in which SMC has worth P400,000.
substantial investments.
Petitioner’s vice president, received the
operations manual prepared by the private
3. People's Aircargo v. CA respondent which was submitted to the
Bureau of Customs, the result of which the
TOPIC: Authority of individuals to bind a Bureau issued to it a license to operate. a
corporation three-day seminar for the letter’s
employees was also conducted by private
DOCTRINE: In the absence of authority from respondent.
the board of directors, no person, not even
its officers, can validly bind a corporation. Petitioner's contention:
The authority of certain individuals to bind The letter agreement signed by Punsalan
the corporation is generally derived from was without authority, in collusion with
law, corporate bylaws or authorization from respondent in order to unlawfully get some
the board, either expressly or impliedly by money from petitioner, and despite his
habit, custom or acquiescence in the knowledge that a group of employees of the
general course of business. company had been commissioned by the
board of directors to prepare an operations
FACTS: Petitioner is a domestic corporation, manual.
which was organized in the middle of 1986
to operate a customs bon6ded warehouse A collection case filed was by private
at the old Manila International Airport in respondent against petitioner. Trial court
Pasay City. To obtain a license for the declared Second Contract unenforceable;
corporation from the Bureau of Customs, CA ruled for its validity, ruling that when the
Antonio Punsalan, Jr., the corporation president and corporation entered into the
First Contract, similar to the Second powers. It requires presentation of

Contract, the petitioner clothed him with evidence of similar act(s) executed either in
apparent authority to enter into the its favor or in favor of other parties. It is not
disputed agreement. the quantity of similar acts which
establishes apparent authority, but the
ISSUE: W/N the president of petitioner- vesting of a corporate officer with the
corporation had apparent authority to bind power to bind the corporation.
petitioner to the Second Contract
Inasmuch as a corporate president is often
RULING: NO. The general rule is that, in the given general supervision and control over
absence of authority from the board of corporate operations, the strict rule that
directors, no person, not even its officers, said officer has no inherent power to act for
can validly bind a corporation. the corporation is slowly giving way to the
realization that such officer has certain
Under Sec. 23, Corporation Code, the power limited powers in the transaction of the
and the responsibility to decide whether usual and ordinary business of the
the corporation should enter into a contract corporation. In the absence of a charter or
that will bind the corporation is lodged in bylaw provision to the contrary, the
the board, subject to the articles of president is presumed to have the authority
incorporation, bylaws, or relevant to act within the domain of the general
provisions of law. However, just as a natural objectives of its business and within the
person may authorize another to do certain scope of his or her usual duties.
acts for and on his behalf, the board of
directors may validly delegate some of its In the case at bar, Punsalan entered into
functions and powers to officers, the First Contract without first securing
committees or agents. The authority of such board approval but the corporation did not
individuals to bind the corporation is object to or repudiate said contract, thus
generally derived from law, corporate clothing the president with the power to
bylaws or authorization from the board, bind the corporation. Therefore, the private
either expressly or impliedly by habit, respondent cannot be faulted for believing
custom or acquiescence in the general the binding effect of Punsalan’s conformity
course of business. with the contract to the corporation. It is a
familiar doctrine that if a corporation
Apparent authority is derived not merely knowingly permits one of its officers, or any
from practice. Its existence may be other agent, to act within the scope of an
ascertained through (1) the general manner apparent authority, it holds him out to the
in which the corporation holds out an public as possessing the power to do those
officer or agent as having the power to act acts; and thus, the corporation will, as
or, in other words, the apparent authority against anyone who has in good faith dealt
to act in general, with which it clothes him; with it through such agent be estopped
or (2) the acquiescence in his acts of a from denying the agent’s authority.
particular nature, with actual or
constructive knowledge thereof, whether Lastly, in the absence of a charter or bylaw
within or beyond the scope of his ordinary provision to the contrary, the president is
presumed to have the authority to act incorporator, director and stockholder of

within the domain of the general objectives petitioner corporation.
of its business and within the scope of his or
her usual duties. The corporation also Before petitioner corporation was officially
benefited from the contract to hold them in incorporated, respondent has already been
estoppel. engaged by petitioner Lucila, in her capacity
as President of Marc Marketing, Inc., to
work as the General Manager of petitioner
4. Marc II Marketing, Inc. and Lucila V. corporation. For occupying the said
Joson v. Alfredo M. Joson position, respondent was among its
corporate officers by the express provision
TOPIC: Intra-corporate Controversies of Section 1, Article IV of its by-laws. She
was given a claim for 30% of the net profit
DOCTRINE: The dismissal of a corporate of the corporation.
officer is always regarded as a corporate
and/or an intra-corporate controversy; On 15 August 1994, petitioner corporation
Intra-corporate controversies also includes was officially incorporated and registered
controversies in the election or with the SEC. Accordingly, Marc Marketing,
appointments of directors, trustees, Inc. was made non-operational. Respondent
officers or managers of such corporations, continued to discharge his duties as General
partnerships or associations. The board of Manager but this time under petitioner
directors has no power to create other corporation. Nevertheless, on 30 June 1997,
corporate offices without first amending petitioner corporation decided to stop and
the corporate by-laws so as to include cease its operations. It formally informed
therein the newly created corporate office. respondent of the cessation of its business
operation. Concomitantly, respondent was
FACTS: Petitioner Marc II Marketing, Inc. apprised of the termination of his services
(petitioner corporation) is a corporation as General Manager since his services as
duly organized and existing under and by such would no longer be necessary for the
virtue of the laws of the Philippines. It is winding up of its affairs.
primarily engaged in buying, marketing,
selling and distributing in retail or wholesale Respondent filed a Complaint for
for export or import household appliances Reinstatement and Money Claim against
and products and other items. It took over petitioners before the NLRC and LA.
the business operations of Marc Marketing,
Inc. Petitioner's Arguments:
They insist that there is no need to amend
Petitioner Lucila V. Joson (Lucila) is the the corporate by-laws to specify who its
President and majority stockholder of corporate officers are. The resolution issued
petitioner corporation. She was also the by petitioner corporation's Board of
former President and majority stockholder Directors appointing respondent as General
of the defunct Marc Marketing, Inc. Manager, coupled with his assumption of
Respondent Alfredo M. Joson (Alfredo), on the said position, positively made him its
the other hand, was the General Manager, corporate officer. Thus, respondent's
removal as petitioner corporation's General

Manager involved a purely intra-corporate RULING: Mere employee. Corporate
controversy over which the RTC has officers are those officers of a corporation
jurisdiction. who are given that character either by the
Corporation Code or by the corporations by-
LA: Illegal dismissal. Respondent was not a laws. Section 25 of the Corporation Code
corporate officer under petitioner specifically enumerated who are these
corporation's by-laws. As such, corporate officers, to wit:
respondent's complaint clearly arose from 1. president;
an employer-employee relationship, thus, 2. secretary;
subject to their jurisdiction. Respondent 3. treasurer; and
may only be dismissed for a valid cause and 4. such other officers as may be
upon proper compliance with the provided for in the by-laws.
requirements of due process.
The position of General Manager was not
NLRC: Reversed the ruling of LA. The validity among those enumerated. Hence, they are
of respondent's appointment and considered as mere employees or
termination from the position of General subordinate officials. A position must be
Manager was made subject to the approval expressly mentioned in the [b]y-[l]aws in
of petitioner corporation's Board of order to be considered as a corporate
Directors. Had respondent been an ordinary office. Thus, the creation of an office
employee, such board action would not pursuant to or under a [b]y-[l]aw enabling
have been required. As such, it is clear that provision is not enough to make a position
respondent was a corporate officer whose a corporate office.
dismissal involved a purely intracorporate
controversy. The NLRC went further by ----------------------------
stating that respondent's claim for 30% of The dismissal of a corporate officer is
the net profit of the corporation can only always regarded as a corporate act and/or
emanate from his right of ownership an intra-corporate controversy. Under
therein as stockholder, director and/or Section 5 of Presidential Decree No. 902-A,
corporate officer. Dividends or profits are intra-corporate controversies are those
paid only to stockholders or directors of a controversies arising out of intra-corporate
corporation and not to any ordinary or partnership relations, between and
employee in the absence of any profit among stockholders, members or
sharing scheme. Such matter comes within associates; between any or all of them and
the ambit of corporate affairs and the corporation, partnership or association
management and is an intracorporate of which they are stockholders, members or
controversy in contemplation of the associates, respectively; and between such
Corporation Code. corporation, partnership or association and
the State insofar as it concerns their
ISSUE: W/N respondent as General individual franchise or right to exist as such
Manager of petitioner corporation is a entity. It also includes controversies in the
corporate officer or a mere employee of the election or appointments of directors,
latter.
trustees, officers or managers of such the penalty shall be imposed upon the
corporations, partnerships or associations. guilty officer or officers of the corporation.
Not all conflicts between the stockholders

and the corporation are classified as intra-
corporate. Other factors such as the status
or relationship of the parties and the nature
of the question that is the subject of the
controversy must be considered in 5. Sps. David, et al vs. Construction
determining whether the dispute involves Industry and Arbitration Commission
corporate matters so as to regard them as
intra-corporate controversies. As previously TOPIC: Doctrine of Separate Judicial
discussed, respondent was not a corporate Personality
officer of petitioner corporation but a mere
employee thereof so there was no intra DOCTRINE: As a general rule, the officers of
corporate relationship between them. With a corporation are not personally liable for
regard to the subject of the controversy or their official acts unless it is shown that they
issue involved herein, i.e., respondents have exceeded their authority. However,
dismissal as petitioner corporations General the personal liability of a corporate director,
Manager, the same did not present or trustee or officer, along with corporation,
relate to an intra-corporate dispute. Hence, may so validly attach when he assents to a
respondent, though occupying the General patently unlawful act of the corporation or
Manager position, was not a corporate for bad faith or gross negligence in directing
officer of petitioner corporation rather he its affairs.
was merely its employee occupying a high-
ranking position. Accordingly, respondent's FACTS: Petitioner Coordinated Group, Inc.
dismissal as petitioner corporation's (CGI) is a corporation engaged in the
General Manager did not amount to an construction business with petitioner-
intra-corporate controversy. Jurisdiction spouses David as its President and
therefor properly belongs with the LA and Treasurer.
not with the RTC.
Respondent-spouses Quiambao engaged
NOTE: Corporate officers are not personally the services of petitioner CGI to design and
liable for their official acts unless it is shown construct a five-storey concrete
that they have exceeded their authority. office/residential building on their land.
However, this corporate veil can be pierced
when the notion of the legal entity is used The Design/Build Contract of the parties
as a means to perpetrate fraud, an illegal provided that petitioner CGI shall prepare
act, as a vehicle for the evasion of an the working drawings for the construction
existing obligation, and to confuse project, respondents shall pay petitioner
legitimate issues. Under the Labor Code, for CGI the sum P7,309,821.51; and the
instance, when a corporation violates a construction of the building shall be
provision declared to be penal in nature, completed within (9) months after securing
the building permit.
for bad faith or gross negligence in directing

The completion of the construction was its affairs.
extended upon agreement of the parties
but petitioners failed to follow the Petitioners must be held severally and
specifications and plans as previously jointly liable with the corporation because
agreed upon. Respondents demanded the when asked whether the Building was
correction of the errors but petitioners under design considering the poor quality of
failed to act on their complaint. the soil, Engr. Villasenor defended his
Consequently, respondents rescinded the structural design as adequate. He admitted
contract after paying 74.84% of the cost of that the revision of the plans which resulted
construction. Respondents then engaged in the construction of additional columns
the services of another contractor, RRA and was in pursuance of the request of Engr.
Associates, It was found that petitioners David to revise the structural plans to
revised and deviated from the structural provide for a significant reduction of the
plan of the building without notice to or cost of construction. When Engr. David was
approval by the respondents. asked for the justification for the revision of
the plans, he confirmed that he wanted to
Respondents filed a case for breach of reduce the cost of construction.
contract against petitioners before the
(RTC) of Manila. At the pre-trial conference,
the parties agreed to submit the case for
arbitration to CIAC. The RTC of Manila then 6. INTER-ASIA INVESTMENTS INDUSTRIES
dismissed the case and transmitted its v. COURT OF APPEALS
records to the CIAC. The arbitrator rendered
TOPIC: SEC 23 of the RCC
judgment against petitioners. Petitioners
appealed to the Court of Appeals which
Doctrine: An officer of a corporation who is
affirmed the arbitrator’s Decision but
authorized to purchase the stock of another
deleted the award for lost rentals.
corporation has the implied power to
perform all other obligations arising
ISSUE: WON CA ERRED IN FINDING
therefrom, such as payment of the shares of
PETITIONERS JOINTLY AND SEVERALLY
stock.
LIABLE WITH CO-PETITIONER
COORDINATED (GROUP, INC.), IN CLEAR
Facts: Petitioner, Inter-Asia Industries, by a
VIOLATION OF THE DOCTRINE OF SEPARATE
Stock Purchase Agreement, sold to Asia
JURIDICAL PERSONALITY.
Industries, private respondent, for and in
consideration of the sum of P19,500,000.00
RULING: As a general rule, the officers of a
all its right, title and, interest in and to all
corporation are not personally liable for
the outstanding shares of stock of
their official acts unless it is shown that they
FARMACOR. The Agreement was signed by
have exceeded their authority. However,
Leonides Gonzales and Jesus Vergara,
the personal liability of a corporate director,
presidents of petitioner and private
trustee or officer, along with corporation,
respondent, respectively.
may so validly attach when he assents to a
patently unlawful act of the corporation or
The Agreement, as amended, provided that Ruling: YES. An officer of a corporation

pending submission of FARMACOR’s who is authorized to purchase the stock of
audited financial statements as of October another corporation has the implied power
31, 1978, private respondent may retain the to perform all other obligations arising
sum of Php7,500,000.00 out of the therefrom, such as payment of the shares
stipulated purchase price of of stock as stated under Sec 23 of the RCC.
Php19,500,000.00; that from this retained
amount of Php7,500,000.00, private By allowing its president to sign the
respondent may deduct any shortfall on the Agreement on its behalf, petitioner clothed
Minimum Guaranteed Net Worth of him with apparent capacity to perform all
Php12,000,000.00; and that if the amount acts which are expressly, impliedly, and
retained is not sufficient to make up for the inherently stated therein.
deficiency in the Minimum Guaranteed Net
Worth, petitioner shall pay the difference
within 5 days from date of receipt of the 7. Megan Sugar Corp v. RTC of Iloilo; New
audited financial statements. Frontier Sugar Corp
The adjusted contract price, therefore, TOPIC: Corporation by Estoppel

amounted to Php6,225,775.00 which is the
difference between the contract price of DOCTRINE: A corporation may be held in
Php19,500,000.00 and the shortfall in the estoppel from denying as against third
guaranteed net worth of Php13,224,225.00. persons the authority of its officers or
Private respondent, having already paid agents who have clothed by it with
petitioner Php12,000,000.00, was entitled ostensible or apparent authority; Apparent
to a refund of Php5,744,225.00. authority, or what is sometimes referred to
as the holding out theory, or doctrine of
Petitioner thereafter proposed, by letter of ostensible agency, imposes liability, not as
January 24, 1980, signed by its president, the result of the reality of a contractual
that private respondent’s claim for refund relationship, but rather because of the
be reduced to Php4,093,993.00, it actions of a principal or an employer in
promising to pay the cost of the Northern somehow misleading the public into
Cotabato Industries superstructures in the believing that the relationship or the
amount of Php759,570.00. To the proposal, authority exists
the private respondent agreed. Petitioner,
however, welched on its promise. It argued FACTS: New Frontier Sugar Corporation
that the letter which was signed by its (NFSC) obtained a loan from Equitable PCI
president has no legal force and effect Bank (EPCIB), secured by a real estate
against it as it was not authoed by its mortgage over NFSC’s land and a chattel
board of directors. mortgage over NFSC’s sugar mill. Due to
liquidity problems and continued
Issue: WON the January 24, 1980 letter indebtedness to EPCIB, NFSC entered into a
signed by petitioner’s president is valid and MOA with Central Iloilo Milling Corporation
binding. (CIMICO), whereby the latter agreed to
take-over the operation and management
of the NFSC. However, CIMICO failed to pay authorizing Atty. Sabig to represent the
its obligations under the MOA, prompting corporation before the RTC. It contends
NFSC to file a complaint. CIMICO countered that Atty. Sabig was an unauthorized agent
by filing a case for sum of money and/or and as such his actions should not bind the
breach of contract. corporation. In addition, MEGAN argues
that the counsels of the different parties
Meanwhile, EPCIB instituted extra-judicial were aware of Atty. SabigÊs lack of
foreclosure proceedings due to NFSC's authority because he declared in court that
failure to pay. During public auction, EPCIB he was still in the process of taking over the
was the sole bidder and was thus able to case and that his voluntary appearance was
buy the entire property and consolidate just for the hearing of the motion for
the titles in its name. The EPCIB sold the intervention of Passi Sugar.
property to Passi Iloilo Sugar Central.
Nevertheless, upon the motion of CIMICO, Respondent's Argument:
the RTC issued a restraining order allowing Both EPCIB and NFSC, however, claim that
CIMICO to continue its possession over the MEGAN is already estopped from assailing
property. Afterwards, CIMICO and the authority of Atty. Sabig. They contend
petitioner Megan Sugar Corporation that Atty. Sabig had actively participated in
(MEGAN) entered into a MOA whereby the proceedings before the RTC and had
MEGAN assumed CIMICO's rights, interests even filed a number of motions asking for
and obligations over the property. Passi affirmative relief.
Sugar filed a Motion for Intervention.
They also point out that Jose Concha
During the hearing on the said motion, Atty. (Concha), who was a member of the Board
Sabig entered his appearance as counsel of Directors of MEGAN, accompanied Atty.
for MEGAN. Several counsels objected to Sabig during the hearing. Lastly, EPCIB and
Atty. Sabig's appearance since MEGAN was NFSC contend that all the motions,
not a party to the proceedings; however, pleadings and court orders were sent to the
Atty. Sabig explained to the court that office of MEGAN; yet, despite the same,
MEGAN had purchased the interest of MEGAN never repudiated the authority of
CIMICO and manifested that his Atty. Sabig.
statements would bind MEGAN.
ISSUE: WON acts of Atty. Sabig should bind
MEGAN points out that its board of MEGAN even though there was no board
directors did not issue a resolution resolution authorizing him to represent the
authorizing Atty. Sabig to represent the corporation
corporation before the RTC. It contends
that Atty. Sabig was an unauthorized agent RULING: YES. MEGAN is already estopped.
and as such his actions should not bind the While it is true, as claimed by MEGAN, that
corporation. Atty. Sabig said in court that he was only
appearing for the hearing of Passi Sugar's
Petitioner's Arguments: motion for intervention and not for the case
MEGAN points out that its board of itself, his subsequent acts, coupled with
directors did not issue a resolution MEGAN's inaction and negligence to
repudiate his authority, effectively bars actions and, thus, clothed Atty. Sabig with
MEGAN from assailing the validity of the apparent authority such that the parties
RTC proceedings under the principle of were made to believe that the proper
estoppel. person and entity to address was Atty.
Sabig. Apparent authority, or what is
The doctrine of estoppel is based upon the sometimes referred to as the holding out
grounds of public policy, fair dealing, good theory, or doctrine of ostensible agency,
faith and justice, and its purpose is to forbid imposes liability, not as the result of the
one to speak against his own act, reality of a contractual relationship, but
representations, or commitments to the rather because of the actions of a principal
injury of one to whom they were directed or an employer in somehow misleading the
and who reasonably relied thereon. The public into believing that the relationship or
doctrine of estoppel springs from equitable the authority exists.
principles and the equities in the case. It is
designed to aid the law in the Moreso, MEGAN never repudiated the
administration of justice where without its authority of Atty. Sabig when all the
aid injustice might result. It has been motions, pleadings and court orders were
applied by this Court wherever and sent not to the office of Atty. Sabig but to
whenever special circumstances of a case so the office of MEGAN, who in turn, would
demand. forward all of the same to Atty. Sabig.
In the first place, Atty. Sabig is not a

complete stranger to MEGAN. As a matter 8. Marc II Marketing, Inc. vs. Joson
of fact, as manifested by EPCIB, Atty. Sabig
and his law firm has represented MEGAN TOPIC: Control and Management of a
in other cases where the opposing parties Corporation
involved were also CIMICO and EPCIB.
DOCTRINE: Corporate officers are those
MEGAN can no longer deny the authority officers of a corporation who are given that
of Atty. Sabig as they have already clothed character either by the Corporation Code or
him with apparent authority to act on their by the corporation’s by-laws.
behalf. When Atty. Sabig entered his
appearance, he was accompanied by FACTS: Petitioner Marc II Marketing, Inc.
Concha, MEGAN's director and general (Petitioner Corporation) is a corporation
manager. A corporation may be held in duly organized and existing under and by
estoppel from denying as against innocent virtue of the laws of the Philippines. It is
third persons the authority of its officers or primarily engaged in buying, marketing,
agents who have been clothed by it with selling and distributing in retail or wholesale
ostensible or apparent authority. for export or import household appliances
and products and other items.
Atty. Sabig may not have been armed with a
board resolution, but the appearance of It took over the business operations of Marc
Concha made the parties assume that Marketing, Inc. which was made non-
MEGAN had knowledge of Atty. Sabig's operational following its incorporation and
registration with the Securities and

Exchange Commission (SEC). ISSUE: WON respondent as General
Manager of Petitioner Corporation is a
Petitioner Lucila V. Joson (Lucila) is the corporate officer or a mere employee of the
President and majority stockholder of latter.
Petitioner Corporation. She was also the
former President and majority stockholder RULING: In this case respondent as General
of the defunct Marc Marketing, Inc. Manager is not a corporate officer.
Respondent Alfredo M. Joson (Alfredo), on In the context of PD No. 902-A, corporate
the other hand, was the General Manager, officers are those officers of a corporation
incorporator, director and stockholder of who are given that character either by the
Petitioner Corporation. Prior to the Corporation Code or by the corporation’s
incorporation of the petitioner corporation, by-laws.
respondent was already working with Lucila
as General Manager of Marc Marketing, as Section 25 of the Corporation Code
it was formalize by a Management Contract specifically enumerated who are these
which he entered under the letterhead of corporate officers, to wit:
Marc Marketing. 1. president;
Respondent was a corporate officer by the 2. secretary;
express provision of Section 1, Article IV10 3. treasurer; and
of its by-laws. As the petitioner corporation 4. such other officers as may be
officially incorporated, Marc Marketing provided for in the by-laws.
stopped its operation and respondent
continued to function as General Manager The aforesaid Section 25 of the Corporation
in the petitioner corporation as he was Code, particularly the phrase "such other
appointed on 29 August 1994 as one of the officers as may be provided for in the by-
corporate officers as evidence by the laws," has been clarified a position must be
undated Secretary’s Certificate. expressly mentioned in the by-laws in order
to be considered as a corporate office.
On 30 June 1997, Petitioner Corporation Thus, the creation of an office pursuant to
decided to stop and cease its operations, as or under a by-laws enabling provision is not
evidenced by an Affidavit of Non-Operation enough to make a position a corporate
due to poor sales collection aggravated by office.
the inefficient management of its affairs. It was held that the only officers of a
corporation were those given that character
It formally informed respondent of the either by the Corporation Code or by the
cessation of its business operation and was by-laws; the rest of the corporate officers
apprised of the termination of his services could be considered only as employees or
since his services as such would no longer subordinate officials.
be necessary for the winding up of its
affairs. Aggrieved respondent filed a Thus, it was held in Easycall
Complaint for Reinstatement and Money Communications Phils., Inc. v. King: An
Claim against petitioners before the Labor "office" is created by the charter of the
Arbiter. corporation and the officer is elected by the
directors or stockholders. On the other injunction before the Securities and

hand, an employee occupies no office and Exchange Commission (SEC), the meeting
generally is employed not by the action of proceeded wherein they were removed
the directors or stockholders but by the from their seats and replaced. Aggrieved,
managing officer of the corporation who Bernas filed a case in the SEC to annul the
also determines the compensation to be meeting.
paid to such employee. This interpretation
is the correct application of Section 25 of Petitioner's Argument:
the Corporation Code, which plainly states They argued that the authority to call a
that the corporate officers are the meeting lies with the Corporate Secretary
President, Secretary, Treasurer and such and not with the MSCOC which functions
other officers as may be provided for in the merely as an oversight body and is not
by -laws. vested with the power to call corporate
meetings. Bernas argues that the meetings
for their expulsion is not valid since it was
not called for properly and the subsequent
9. Bernas v. Cinco meetings of stockholders.
Topic: Control and Management of a
Respondent's Argument:
Corporation
They claim that the meeting is sanctioned
by the Corporation Code and the MSC
Doctrine: The board of directors is the
bylaws. Under Section 258 of the MSC
directing and controlling body of the
bylaws merely authorized the Corporate
corporation. It is a creation of the
Secretary to issue notices of meetings and
stockholders and derives its power to
nowhere does it state that such authority
control and direct the affairs of the
solely belongs to him. It was further
corporation from them. The board of
asseverated by the Cinco Group that it
directors, in drawing to itself the power of
would be useless to course the request to
the corporation, occupies a position of
call a meeting thru the Corporate Secretary
trusteeship in relation to the stockholders,
because he repeatedly refused to call a
in the sense that the board should exercise
special stockholders meeting despite
not only care and diligence, but utmost
demands and even filed a suit to restrain
good faith in the management of the
the holding of a special meeting. Further,
corporate affairs.
the newly elected directors initiated an
investigation on the alleged anomalies and
Facts: Makati Sports Club is a corporation
found that Bernas was guilty. The Board
with Bernas and Cinco as part of its board of
sold his shares at public auction. After the
directors. There was a stockholders meeting
notice requirement was complied with,
called for by a committee composed of past
Bernas shares was accordingly sold to the
presidents of the club (MSCOC), wanted
highest bidder.
Bernas and his group to be ousted from the
board of directors due to alleged anomalies
The SEC ruled in favor of Cinco and declared
in the handling of the corporate funds. For
the meeting to be valid. The CA affirmed the
failure of the Bernas Group to secure an
decision of the SEC.
the corporation, occupies a position of

Issue: WON the meeting is valid to oust trusteeship in relation to the stockholders,
Bernas? in the sense that the board should exercise
not only care and diligence, but utmost
Ruling: NO, it is not valid. The SC ruled that good faith in the management of the
under Sec 28 of the Corporation Code states corporate affairs.
“A special meeting of the stockholders or
members of a corporation for the purpose The underlying policy of the Corporation
of removal of directors or trustees, or any Code is that the business and affairs of a
of them, must be called by the secretary on corporation must be governed by a board of
order of the president or on the written directors whose members have stood for
demand of the stockholders representing election, and who have actually been
or holding at least a majority of the elected by the stockholders, on an annual
outstanding capital stock.”. basis. Only in that way can the continued
accountability to shareholders, and the
Under the bylaws of MSC, only the legitimacy of their decisions that bind the
President and the Board of Directors are corporation's stockholders, be assured. The
authorized by the bylaws to call a special shareholder vote is critical to the theory
meeting. In cases where the person that legitimizes the exercise of power by the
authorized to call a meeting refuses, fails or directors or officers over the properties that
neglects to call a meeting, then the they do not own.
stockholders representing at least 100
shares, upon written request, may file a Hence, subsequent meetings of
petition to call a special stockholders stockholders which ratified the decision to
meeting. oust Bernas is deemed void and since the
Cinco Group has no legal right to sit in the
In this case, since a special committee was board, their subsequent acts of expelling
the one who called for a meeting to oust Bernas from the club and the selling of his
Bernas, it was not a valid action/ decision. shares at the public auction, are likewise
While the MSCOC, as its name suggests, is invalid.
created for the purpose of overseeing the
affairs of the corporation, nowhere in the The case would have been different if the
bylaws does it state that it is authorized to petitioning stockholders went directly to the
exercise corporate powers, such as the SEC and sought its assistance to call a
power to call a special meeting, solely special stockholders meeting citing the
vested by law and the MSC bylaws on the previous refusal of the Corporate Secretary
President or the Board of Directors. to call a meeting. Where there is an officer
authorized to call a meeting and that officer
The board of directors is the directing and refuses, fails, or neglects to call a meeting,
controlling body of the corporation. It is a the SEC can assume jurisdiction and issue an
creation of the stockholders and derives its order to the petitioning stockholder to call a
power to control and direct the affairs of meeting pursuant to its regulatory and
the corporation from them. The board of administrative powers to implement the
directors, in drawing to itself the power of Corporation Code.
Considering that a new set of officers were

already duly elected in 1998 and 1999
Annual Stockholders Meetings, the Bernas 10. Federated LPG Dealers Association
Group cannot be permitted to use the
holdover principle as a shield to perpetuate TOPIC: Board of directors
in office. Members of the group had no right
to continue as directors of the corporation DOCTRINE: A member of the Board of
unless reelected by the stockholders in a Directors of a corporation, cannot, by mere
meeting called for that purpose every reason of such membership, be held liable
year.48 They had no right to holdover for corporation's probable violation of BP
brought about by the failure to perform the 33. If one is not the President, General
duty incumbent upon them Manager or Managing Partner, it is
imperative that it first be shown that he/she
NOTE: falls under the catch-all "such other officer
A corporations board of directors is charged with the management of the
understood to be that body which (1) business affairs," before he/she can be
exercises all powers provided for under the prosecuted.
Corporation Code; (2) conducts all business
of the corporation; and (3) controls and FACTS: Petitioner, Federated LPG Dealers
holds all the property of the corporation. sought assistance from the CIDG regarding
Its members have been characterized as ACCS Ideal Gas, allegedly refilling branded
trustees or directors clothed with fiduciary LPG cylinders without authority, in
character. It is ineluctably clear that the violation of B.P. 33, pertaining to the illegal
fiduciary relation is between the distribution of petroleum products.
stockholders and the board of directors and Thereafter, complaints were filed against
who are vested with the power to manage ACCS’ officers.
the affairs of the corporation. The ordinary
trust relationship of directors of a Petitioners insist that the Board of
corporation and stockholders is not a Directors, by law, is responsible for the
matter of statutory or technical law. It general management of the business
springs from the fact that directors have the affairs of a corporation. Hence,
control and guidance of corporate affairs respondents as members of the Board of
and property and hence of the property Directors of ACCS fall under the
interests of the stockholders. Equity classification of officers charged with the
recognizes that stockholders are the management of business affairs.
proprietors of the corporate interests and
are ultimately the only beneficiaries On the other hand, the respondents
thereof. Should the board fail to perform its contend that they were merely
fiduciary duty to safeguard the interest of incorporators and that they did not have
the stockholders or commit acts prejudicial active participation in the management of
to their interest, the law and the bylaws ACCS, thus, they cannot be held liable for
provide mechanisms to remove and replace violation of B.P. 33.
the erring director.
ISSUE: Can respondents, as members of the on the AOI of ACCS. There is no allegation
Board of Directors of ACCS, be criminally whatsoever that they were in-charge of
prosecuted for the latter’s alleged the management of the corporation's
violation/s of B.P. 33, as amended? business affairs.
RULING: NO. Sec. 4 of BP 33. as amended. Clearly, therefore, it is only Antonio, who
provides for x x x persons who are undisputedly was the General Manager – a
criminally liable, thus: position among those expressly mentioned
When the offender is a corporation, as criminally liable under paragraph 4,
partnership, or other juridical Section 3 of BP 33, as amended – can be
person, the president, the general prosecuted for ACCS' perceived violations of
manager, managing partner, or such the said law. Respondents who were mere
other officer charged with the members of the Board of Directors and not
management of the business affairs shown to be charged with the management
thereof or employee responsible for of the business affairs were thus correctly
the violation shall be criminally dropped as respondents in the complaints.
liable; x x x
A member of the Board of Directors of a 11. Wesleyan v. Maglaya

corporation, cannot, by mere reason of
such membership, be held liable for the TOPIC: Corporate Officer may be appointed.
corporation's probable violation of BP 33. If
one is not the President, General Manager DOCTRINE: A corporate officer’s dismissal is
or Managing Partner, it is imperative that it always a corporate act and an intra-
first be shown that he/she falls under the corporate controversy. Alleged termination
catch-all "such other officer charged with of a corporate officer is not a simple labor
the management of the business affairs," problem but a matter of corporate
before he/she can be prosecuted. However, controversy in contemplation of the
it must be stressed, that the matter of being Corporation Code.
an officer charged with the management of
the business affairs is a factual issue which FACTS: WUP is a non-stock, non-profit, non-
must be alleged and supported by sectarian educational corporation duly
evidence. organized and existing under the Philippine
laws. Respondent Atty. Guillermo T.
Here, there is no dispute that neither of the Maglaya, Sr. was appointed as a corporate
respondents was the President, General member and was elected as a member of
Manager, or Managing Partner of ACCS. the Board of Trustees, both for a period of
Hence, it becomes incumbent upon five (5) years. He was elected as President
petitioner to show that respondents were of the University for a five-year term. He
officers charged with the management of was re-elected as a trustee.
the business affairs. However, the
Complaint-Affidavit attached to the records In 2008, the Bishops of the Methodist
merely states that respondents were Church apprised all members that renewal
members of the Board of Directors based shall only be approved by them. Election of
new members were held in April 2009. The not convert the present to a mere
new chairman, with the approval of the employee nor amend its nature as a
Bishops, informed Maglaya that his services corporate officer because the by-laws
as President will termination on April 27, specifically mentioned the president as an
2009. Maglaya and other Board members officer.
filed for Complaint for Injunction and
Damages before RTC of Cabanatuan. "Corporate officers" in the context of
Presidential Decree No. 902-A are those
Respondent's Argument: officers of the corporation who are given
Maglaya presented the following pieces of that character by the Corporation Code or
evidence: copies of his appointment as by the corporation's by-laws. There are
President, his Identification Card, the WUP three specific officers whom a corporation
Administration and Personnel Policy Manual must have under Section 25 of the
which specified the retirement of the Corporation Code. These are the president,
university president, and the check secretary and the treasurer. The number of
disbursement in his favor evidencing his officers is not limited to these three. A
salary, to substantiate his claim that he corporation may have such other officers as
was a mere employee. may be provided for by its by-laws like, but
not limited to, the vice-president, cashier,
Petitioner's Argument: auditor or general manager. The number of
The dismissal or removal of Maglaya, being corporate officers is thus limited by law and
a corporate officer and not a regular by the corporation's by-laws. The president,
employee, is a corporate act or intra- vice-president, secretary and treasurer are
corporate controversy under the commonly regarded as the principal or
jurisdiction of the RTC. WUP also executive officers of a corporation, and they
maintained that since Maglaya's are usually designated as the officers of the
appointment was not renewed, he ceased corporation. However, other officers are
to be a member of the corporation and of sometimes created by the charter or by-
the Board; thus, his term for presidency has laws of a corporation, or the board of
also been terminated. directors may be empowered under the by-
laws of a corporation to create additional
Issues: Is Maglaya a corporate officer or offices as may be necessary.
employee?
This Court expounded that an "office" is
RULING: YES. Corporate officer. The bylaws created by the charter of the corporation
say so, It is apparent from the By-laws of and the officer is elected by the directors
WUP that the president was one of the or stockholders, while an "employee"
officers of the corporation, and was an usually occupies no office and generally is
honorary member of the Board. He was employed not by action of the directors or
appointed by the Board and not by a stockholders but by the managing officer of
managing officer. the corporation who also determines the
compensation to be paid to such employee.
An officer may be appointed also. Maglaya’s
“appointment” instead of “election” does
A corporate officer’s dismissal is always a property. The loan was later increased to
corporate act and an intra-corporate P5,000,000. Marilyn took out an additional
controversy. Alleged termination of a loan of P2,000,000. To prove her authority
corporate officer is not a simple labor to execute the 3 mortgage contracts,
problem but a matter of corporate Marilyn presented Calubad with a Board
controversy in contemplation of the Resolution and 2 Secretary’s Certificates.
Corporation Code.
Sometime in 2003, Calubad initiated
extrajudicial foreclosure proceedings after
Ricarcen failed to pay its loan. Calubad was
the highest bidder in the auction sale and
was issued a Certificate of Sale. Ricarcen
only learned of Marilyn’s transactions with
Calubad in July 2003. The board of directors
removed her as president and appointed
Josefelix as its new president.
12. Calubad vs. Ricarcen Development
Corporation Ricarcen filed its Complaint for Annulment
of Real Estate Mortgage and Extrajudicial
TOPIC: Control and Management of a Foreclosure of Mortgage and Sale with
Corporation; Sec 23 of RCC Damages against Marilyn, Calubad, and
employees of the Registry of Deeds and of
DOCTRINE: The board of directors may the RTC of QC.
validly delegate its functions and powers to
its officers or agents. Respondent's Argument:
FACTS: Ricarcen Development Corp. It claimed that it never authorized its

(Ricarcen) was a domestic corporation former president Marilyn to obtain loans
engaged in renting out real estate. from Calubad or use the QC property as
collateral.
It is a family corporation. Marilyn R. Soliman
(Marilyn) was the president from 2001 to Ricarcen asserts that while the documents it
August 2003. The other members of the purportedly issued enjoy the presumption
board of directors during that time were of validity, this presumption is not absolute
Marilyn's mother, Erlinda Villanueva and it has shown convincing evidence as to
(Erlinda), her brother, Josefelix R. Villanueva the invalidity of the Board Resolution and of
(Josefelix), her aunt, Maura Rico, and her the Secretary’s Certificates. It pointed out
sisters, Ma. Elizabeth V. Chamorro that Marilyn clearly acted without
(Elizabeth), Ma. Theresa R. Villanueva, and authority.
Annabelle R. Villanueva.
Petitioner's Argument:
On October 15, 2001, Marilyn, acting on
Ricarcen’s behalf, took out a P4,000,000 Calubad filed this Petition. Calubad claims
loan from Calubad which was secured by a that Ricarcen is barred by estoppel from
real estate mortgage over Ricarcen’s QC denying Marilyn’s authority to enter into a
contract of loan and mortgage. He argues Nonetheless, law and jurisprudence

that Ricarcen clothed Marilyn in apparent recognize actual authority and apparent
authority to act in its behalf, that it authority as the two (2) types of authorities
benefited from the proceeds, and that it conferred upon a corporate officer or agent
impliedly agreed to the loans by paying the in dealing with third persons:
monthly interest payments. Moreso, they
claim that Ricaren is barred by by estoppel Actual authority can either be
from denying MarilynÊs authority to enter express or implied. Express actual authority
into a contract of loan and mortgage with refers to the power delegated to the agent
Calubad for several reasons. He argues that by the corporation, while an agent's implied
Ricarcen clothed Marilyn in apparent authority can be measured by his or her
authority to act in its behalf, that it prior acts which have been ratified by the
benefited from the loans proceeds, and that corporation or whose benefits have been
it impliedly agreed to the mortgage loans by accepted by the corporation.
paying the monthly interest payments.
Additionally, the loan proceeds were issued Apparent authority is based on the
through checks payable to Ricarcen, which principle of estoppel. The doctrine of
were deposited in its bank account and apparent authority provides that even if no
were cleared. The evidence is indubitable actual authority has been conferred on an
proof that the loan proceeds have been agent, his or her acts, as long as they are
used by Ricarcen. Thus, even if Marilyn within his or her apparent scope of
Soliman had acted without or in excess of authority, bind the principal. It is
her actual authority, if she acted within the determined by the acts of the principal and
scope of an apparent authority with which not by the acts of the agent.
[Ricarcen] has clothed her by holding her
However, the principal's liability is limited to
out or permitting her to appear as having
third persons who are reasonably led to
such authority, [Ricarcen] is bound thereby
believe that the agent was authorized to act
in favor of petitioner who in good faith
for the principal due to the principal's
relied on such apparent authority
conduct.
In this case, as the former president of

ISSUE: WON Ricarcen estopped from Ricarcen, it was within Marilyn's scope of
denying or disowning the authority of its authority to act for and enter into contracts
former president, Marilyn, from entering in Ricarcen's behalf. Her broad authority
into a contract of loan and mortgage with from Ricarcen can be seen with how the
Calubad. corporate secretary entrusted her with
blank yet signed sheets of paper to be used
RULING: YES. As a corporation, Ricarcen at her discretion. She also had possession of
exercises its powers and conducts its the owner's duplicate copy of the land title
business through its board of directors. covering the property mortgaged to
However, the board of directors may validly Calubad, further proving her authority from
delegate its functions and powers to its Ricarcen.
officers or agents.

Calubad could not be faulted for continuing solidarily liable for the obligation owed to
to transact with Marilyn, even agreeing to him.
give out additional loans, because Ricarcen RTC and CA sided with the respondent.
clearly clothed her with apparent authority.
Issue: WON Tompar, President of the
Likewise, it reasonably appeared that petitioner, should be held solidarily liable
Ricarcen's officers knew of the mortgage with the petitioner.
contracts entered into by Marilyn in
Ricarcen's behalf as proven by the issued Ruling: No. The courts erred in finding
Banco De Oro checks as payments for the Tompar solidarily liable with Mactan Rock
monthly interest and the principal loan. for its obligations to Germo.
Hence, Ricarcen cannot deny the apparent
authority of its former president in A corporation is a juridical entity vested
contracting the said loan and mortgage. with a separate legal personality from
those acting for and in behalf of, and from
people compromising it.
The general rule is its officers cannot be

held liable for obligations incurred by the
corporation unless it can be shown that
they acted in bad faith or with negligence.
13. Mactan Rock Industries v Germo
The following are the requisites that have to
Topic: Liability of Corporate Officers be met in finding an officer of the
corporation personally liable:
Doctrine: The general rule is its officers
cannot be held liable for obligations 1. The complainant must allege in the
incurred by the corporation unless it can be complaint that the officer assented
shown that they acted in bad faith or with to patently unlawful acts of the
negligence. corporation, or that the officer was
guilty of gross negligence or bad
Facts: There was a complaint of sum of faith
money filed by respondent against the 2. Complainant must clearly and
petitioner and its President/CEO, Tompar convincingly prove such unlawful
after entering a Technical Consultancy acts, negligence or bad faith.
Agreement.
In the case at bar, these were not present.
The petitioner allegedly did not pay the Tompar's assent to patently unlawful acts
respondent amounting to around 2.223M of the MRII or that his acts were tainted by
as of December 2009. So the respondent gross negligence or bad faith was not
asked the court that he be awarded what alleged in Germo's complaint, much less
he was owed and 1M for moral damages proven in the course of trial Hence, the
and another 1M for exemplary damages. decision is reversed.
The respondent argued that they were
Corporation Code and shall be made

criminally liable under Sec 144 in relation
with Conspiracy. Petitioner, claimed that
these actions are the right of the employees
to exercise their chosen profession and that
the legislative has no intent to criminally
penalize Sec 31 and 34. Further, she
claimed that Corporation Code is not a
special law hence it should be construed
with Art. 10 which states that RPC can be
supplemental to special laws.
ISSUE: W/N the applicability of Section 144

of the Corporation Code to Sections 31 and
34 of the same statute such that criminal
liability attaches to violations of Sections 31
and 34.
RULING: NO. When Congress intends to

criminalize certain acts it does so in plain,
categorical language, otherwise such a
statute would be susceptible to
Ient v. Tullett Prebon, G.R. No. 189158, 11 constitutional attack. We stress that had the
January 2017 Legislature intended to attach penal
sanctions to Sections 31 and 34 of the
Doctrine: Rule of Lenity; The rule of lenity Corporation Code it could have expressly
applies when the court is faced with (2) stated such intent.
possible interpretations of a penal statute,
one that is prejudicial to the accused and There is no compelling reason for the (SC)
another that is favorable to him. The rule to construe Section 144 as similarly
calls for the adoption of an interpretation employing the term “penalized” or
which is more lenient to the accused. “penalty” solely in terms of criminal liability,
it merely states an administrative penalty.
FACTS: A subsidiary, Tradition Philippines There is no provision in the Corporation
was registered with SEC, where petitioner is Code using similarly emphatic language that
named as incorporator and director. evinces a categorical legislative intent to
Respondent, Tullett is part of the the treat as a criminal offense each and every
second largest inter-dealer broker. Both are violation of that law. The Corporation Code
competitors. was intended as a regulatory measure, not
primarily as a penal statute.
Tullet filed a case against petitioner
claiming that they convince the members of The Corporation Code was intended as a
Tullet to resign and apply to them. They regulatory measure, not primarily as a penal
claim that they violated Sec 31 and 34 of statute. Sections 31 to 34 in particular were
intended to impose exacting standards of Financial Assistance (EHWPRFA) to qualified

fidelity on corporate officers and directors officials and employees of the NPC. It is a
but without unduly impeding them in the monthly benefit equivalent to P5,000 to be
discharge of their work with concerns of released on a quarter basis.
litigation. Considering the object and policy
of the Corporation Code to encourage the On 2011, petitioners received a copy which
use of the corporate entity as a vehicle for disallowed the payment of EHWPRFA for
economic growth, we cannot espouse a the first quarter of 2010 by the COA
strict construction of Sections 31 and 34 as because it was a new benefit and did not
penal offenses in relation to Section 144 in have prior approval from the Office of the
the absence of unambiguous statutory President as required. Aggrieved,
language and legislative intent to that petitioners filed an appeal before the COA
effect. When Congress intends to Corporate Government Sector-Cluster 3.
criminalize certain acts it does so in plain,
categorical language, otherwise such a COA further claimed that the doctrine of
statute would be susceptible to qualified political agency was inapplicable in
constitutional attack. As earlier discussed, the present case. The COA expounded that
this can be readily seen from the text of while some members of the board of NPC
Section 45(j) of Republic Act No. 8189 and are department secretaries, they were not
Section 74 of the Corporation Code. We acting as such, but as mere members of the
stress that had the Legislature intended to board when they approved the grant of
attach penal sanctions to Sections 31 and 34 EHWPRFA.
of the Corporation Code it could have
expressly stated such intent in the same COA partially granted the petitioners
manner that it did for Section 74 of the motion for reconsideration. It appreciated
same Code. good faith in favor of the passive recipients
who merely received the benefit, but had
not participated in the approval and release
14. NAPOCOR Board v CA - GR 242342 thereof. As such, the COA absolved them
from refunding the disallowed amount.
TOPIC: Board members Nevertheless, it ruled that the officials, who
authorized, approved or certified the grant
DOCTRINE: The doctrine of political agency or payments cannot be deemed in good
provides that department secretaries are faith because the laws and rules requiring
alter egos of the President and that their prior approval from the Office of the
acts are presumed to be those of the latter President and the Department of Budget
unless disapproved or reprobated by him. In and Management (DBM) were already
short, acts of department secretaries are effective prior to the grant of the subject
deemed acts of the President. allowances and benefits.
FACTS: On 2009, NPC Board of Directors, Petitioner’s argument:

petitioners, through a Board Resolution, They argue that the EHWPRFA is not a new
authorized the payment of Employee benefit as similar benefits had been granted
Health and Wellness Program and Related in the past as it merely expanded the
wellness benefits already enjoyed by the There is no absurd situation arises in still
NPC personnel. Further, even if it were to requiring presidential approval in the grant
concede that the EHWPRFA required of the EHWPRFA. In assenting to the grant
presidential approval, the said requirement of EHWPRFA as part of the National Power
was complied with. It notes that the DBM Board, the Budget Secretary was not acting
Secretary was one of the members of the as the alter ego of the President as it was in
National Power Board. Thus, petitioners connection with his ex officio position as
conclude that since the DBM Secretary was member of the board. Thus, the approval or
one of the board members who approved disapproval of the DBM Secretary as
the grant of EHWPRFA, presidential required under the law would not have the
approval was already secured by virtue of effect of one member of the board
the doctrine of qualified political agency. overturning the votes of the majority of
The petitioners posit that the acquiescence the board since it is, by legal fiat, actually
of the DBM Secretary as member of the the act of the President exercised through
National Power Board to the grant of his alter ego.
EHWPRFA has the effect of obtaining the
President's approval thereto. The doctrine of political agency provides
that department secretaries are alter egos
COA’s argument: of the President and that their acts are
It pointed out that the EHWPRFA was presumed to be those of the latter unless
granted without the required approval of disapproved or reprobated by him. In short,
the President. Further, the COA disagreed acts of department secretaries are deemed
that there was no need for the EHWPRFA to acts of the President.
be submitted for the approval of the
President on the ground that the National 15. TOPROS vs. Chang, G.R. No. 200070-71.
Power Board was composed of cabinet December 7, 2021
secretaries. It explained that the alter ego
doctrine cannot extend to acts done by the TOPIC: Sec 30 of RCC - Liabilities of
cabinet members in an ex officio capacity. directors, trustees, or officers | Sec 34 -
Disloyalty of a director | Doctrine of
ISSUE: W/N the doctrine of qualified corporate opportunity
political agency could not be extended to
the acts of the Board of Directors of NPC? DOCTRINE: Directors and other fiduciaries
are tasked with complying with the doctrine
RULING: NO. The DBM Secretary’s authority of corporate opportunity, befitting of their
to sit in the NPC Board emanated from the position in the corporation.
law, and not from the appointment of the
President. Thus, the doctrine of qualified The "doctrine of corporate opportunity" was
political agency does not attach to the acts recognized and laws were put in place to
performed by cabinet secretaries in deter corporate officers from using their
connection with their position as ex officio position of trust and confidence to further
members of the National Power Board. private interests.

FACTS: Spouses Ty wanted to establish a goodwill, equipment, and resources of

corporation during the latter part of 1982 TOPROS. According to TOPROS, Chang used
that would be the sole distributor of its properties in organizing the respondent-
Minolta plain paper copiers in the corporations and obtained opportunities
Philippines. Chang, a former employee of properly belonging to it and its
Pantrade, Inc., (Pantrade), a company also stockholders to their damage and
owned by the Ty Family, was given the duty prejudice. Chang was, thereafter, ousted as
to manage the new corporation. The Ty Corporate Director and officer of TOPROS;
Family gave Chang 10% shares in the and the instant case was filed against him.
corporation with the assurance from Chang
that he will render competent, exclusive, RTC held that the case filed by TOPROS is an
and loyal service thereto. On January 31, intra-corporate controversy between
1983, TOPROS was incorporated with an TOPROS and Chang.
authorized capital stock of P4,000,000.00.
Among the incorporators, Chang was the The RTC also ruled that Chang violated his
only one who is not a member of the Ty fiduciary duties and was guilty of disloyalty
Family. to TOPROS for which he must be held
accountable under Sections 31 and 34 of
The Ty Family elected Chang as President The Corporation Code of the Philippines
and General Manager and entrusted to him (Corporation Code). Chang established
the management as well as the funds of Identic, Golden Exim, and TOPGOLD which
TOPROS. All employees of Pantrade, were are in the same line of business of TOPROS
transferred to TOPROS. TOPROS grew into a while stili an officer and director thereof. He
multi-million enterprise; thus, Spouses Ty acquired business opportunities which
increased its authorized capital stock to should have belonged to TOPROS.
Pl0,000,000.00 and Chang's share to 20%.
TOPROS included in its line of business the CA overturned the ruling of the RTC. It held
distribution of various office equipment that the records do not show that TOPROS
and supplies utilizing the brand names even attempted to adduce evidence that
Ultimax, Maruzen, Taros, and Intimus. Chang and individual respondents have
complete control over TOPGOLD, Golden
In 1998, the Ty Family sensed irregularities Exim, and Identic as all TOPROS did was to
in Chang's dealings when their friends and show that Chang and the other individual
relatives began questioning the manner in respondents were incorporators and/or
which products and services from TOPROS officers of the respondent- corporations
were issued receipts and vouchers from and that Chang substantially owned them.
TOPGOLD, Golden Exim, and Identic. The Ty
Family requested Chang to return ail PETITIONER’S arguments:
corporate records of TOPROS. Chang, Chang's acts amounted to violation of the
however, offered to buy them out of their "doctrine of corporate opportunity" which
interest at TOPROS. They found out that rests on the unfairness, in particular
Chang, together with the individual circumstances, of an officer or director
respondents, incorporated the respondent- taking advantage of an opportunity for his
corporations to siphon the assets, funds, own personal profit when the interest of
the corporation calls for protection. If, in together with his son, owned 99.76% of the
such circumstances the interests of the shares in TOPGOLD. The General
corporation are betrayed, the corporation Information Sheet of Identic also showed
may elect to claim all the benefits of the that Chang owned 65% of Identic.
transaction for itself and the law will
impress a trust in favor of the corporation The fact that Chang risked his own funds in
upon the property interest and profits running TOPROS and paying off its
acquired. obligations will not absolve him of his
duties as director and officer of TOPROS.
DEFENDANT’S ARGUMENTS: Even if admitted, the circumstances cited by
Chang denied the charges and asserted that Chang, which suggest of knowledge,
from TOPROS' inception until his ouster as tolerance, or even acquiescence of
President and General Manager therein, he TOPROS to his establishment of the
alone ran TOPROS and shouldered its respondent-corporations which are in the
liabilities. He claimed that when the same business as TOPROS, do not amount
patriarch, Ramon, was no longer interested to the compliance required of Section 34 to
in rehabilitating TOPROS and Chang wanted absolve a director of disloyalty.
to protect his credibility and the welfare of
200 employees who were about to lose The law explicitly requires that where a
jobs, he took it upon himself to serve the director, by virtue of his office, acquires for
clients of TOPROS through TOPGOLD which himself a business opportunity which
individual respondents incorporated in should belong to the corporation, he must
1997; and (5) he alone was able to pay account to the latter for all profits by
TOPROS' loans including the payment of refunding them, unless his act has been
separation pay of its employees. Petitioner ratified by a vote of the stockholders
corporation knew of his businesses. owning or representing at least two-thirds
ISSUE: W/N Chang is guilty of violating the of the outstanding capital stock. Chang
Corporation Code particularly Section 31, as failed to show that his actions have been
he disregarded the director's duty of loyalty ratified by a vote of the stockholders
where he established the respondent- representing at least two- thirds of the
corporations to acquire and utilize the outstanding capital stock of TOPROS.
assets, funds, properties, and resources of
TOPROS In closing, it is well to recall that the
doctrine of corporate opportunity is not
Ruling: YES. Chang committed several acts based on theoretical abstractions, but on
showing personal or pecuniary interest human experience that a person cannot
that were in conflict with his duties as serve two hostile masters without
director and officer of TOPROS. There is no detriment to one of them. Where a
dispute that Chang owned businesses which director is so employed in the service of a
were in the same line of business and while rival company, he cannot serve both, but
still an officer and director of TOPROS. The must betray one or the other. An officer of
Articles of Incorporation of Golden Exim a corporation cannot engage in a business
and TOPGOLD show that Chang owned 80% in direct competition with that of the
of the shares of Golden Exim; and Chang, corporation where he is a director by
utilizing information he has received as such  Whether the corporation was

officer, under the established law that a capable of taking advantage of the
director or officer of a corporation may not opportunity
enter into a competing enterprise which  Whether the opportunity was in the
cripples or injures the business of the corporation's line of business or a
corporation of which he is an officer or related business;
director. It is also established that corporate  How the opportunity arose or came
officers are not permitted to use their to the attention of the director or
position of trust and confidence to further officer;
their private interests. Where two  Whether the other directors of the
corporations are competitive in a corporation had knowledge of the
substantial sense, it would seem director's pursuit of the opportunity;
improbable, if not impossible, for the and
director, if he were to discharge effectively  Whether the other directors gave
his duty, to satisfy his loyalty to both their fully informed consent to the
corporations and place the performance of director's pursuit of the opportunity.
his corporation duties above his personal
concerns. Thus, a claim of damages under
Section 34 of the Corporation Code arises
The doctrine of corporate opportunity when a corporate officer or director takes
governs the legal responsibility of a business opportunity for his own,
directors, officers and controlling provided that it is sufficiently shown by the
shareholders in a corporation, under the claimant that:
duty of loyalty, not to take such
opportunities for themselves, without first  The corporation is financially able
disclosing the opportunity to the board of to exploit the opportunity;
directors of the corporation and giving the  The opportunity is within the
board the option to decline the corporation's line of business;
opportunity on behalf of the corporation. If  The corporation has an interest or
the procedure is violated and a corporate expectancy in the opportunity; and
fiduciary takes the corporate opportunity  By taking the opportunity for his
anyway, the fiduciary violates its duty of own, the corporate fiduciary will
loyalty and the corporation will be entitled thereby be placed in a position
to a constructive trust of all profits obtained inimicable to his duties to the
from the wrongful transaction. corporation.
Reiterating the ruling in Matic v. The documentary evidence

Wagner, the concurrence of the following provided shows that there is no dispute
factors must be met to determine the that respondent Chang is guilty of violating
existence of corporate opportunity. the doctrine of corporate opportunity.
Things like similarities in the printed
 Whether it was actively pursued by advertisements between the two
the corporation; companies, and the respondent corporation
sharing the same address as that of the

petitioners, it is clear that respondent FACTS: Nielson, subject at all times to the
Chang was derelict in his duty as the former general control of the Board of Directors of
director of the petitioner corporation. The Lepanto, entered into a contract of five
Supreme Court grants the petition and sets years, with the right to renew for a like
aside the CA ruling. The case is remanded to period, to explore, develop and operate the
the RTC for the determination of damages. mining claims of Lepanto, and to mine, or
mine and mill, such pay ore as may be
found therein and to market the metallic
products recovered therefrom which may
prove to be marketable, as well as to render
for Lepanto other services specified in the
contract.
Nielson was to submit reports, maps, plans

and recommendations with respect to the
operation and development of the mining
properties, make recommendations and
plans on the erection or enlargement. He
was also to act as a purchasing agent of
supplies equipment and other necessary
purchases by Lepanto, provided that no
purchase shall be made without the prior
approval of Lepanto; and provided further,
that no commission shall be claimed or
retained by Nielson on such purchase.
It thus appears that the principal and

paramount undertaking of Nielson under
the management contract was the
MODULE 3: Corporate Powers, By-Laws operation and development of the mine
and Meetings (Sections 35-58, Revised and the operation of the mill. All the other
Corporation Code) undertakings mentioned in the contract are
necessary or incidental to the principal
1. Nielson & Co. vs. Lepanto Consolidated undertaking these other undertakings being
Mining Co., 26 SCRA 540; dependent upon the work on the
TOPIC: "Stock dividend"; "Dividend"; development of the mine and the operation
Concept and nature.· of the mill. In the performance of this
principal undertaking Nielson was not in any
DOCTRINE: A share of stock coming from way executing juridical acts for Lepanto,
stock dividends declared cannot be issued destined to create, modify or extinguish
to one who is not a stockholder of a business relations between Lepanto and
corporation. third persons. In other words, in performing
its principal undertaking Nielson was not
acting as an agent of Lepanto, in the sense
that the term agent is interpreted under the juridical acts which would bind Lepanto
law of agency, but as one who was without first securing the approval of
performing material acts for an employer, Lepanto. Nielson, then, was to act only as
for a compensation. an intermediary, not as an agent.
In January, 1942 operation of the mining Lepanto contends that the management
properties was disrupted on account of the contract in question being one of agency it
war. The Japanese forces thereafter had the right to terminate the contract at
occupied the mining properties, operated will pursuant to the provision of Article
the mines during the continuance of the 1733 of the old Civil Code. We find,
war, and who were ousted from the mining however, a proviso in the management
properties only in August of 1945. contract which militates against this stand
of Lepanto.
It is thus seen, from the above-quoted

After the mining properties were provision of paragraph XI of the
liberated from the Japanese forces, Lepanto management contract, that Lepanto could
took possession thereof and embarked in not terminate the agreement at will.
rebuilding and reconstructing the mines and Lepanto could terminate or cancel the
mill. The restoration lasted for nearly three agreement by giving notice of termination
years and the mines have resumed its ninety days in advance only in the event
operation under the exclusive management that Nielson should prosecute in bad faith
of Lepanto. and not in accordance with approved
mining practice the operation
The contention of Lepanto that it had

Shortly after the mines were terminated the management contract in
liberated from the Japanese invaders in 1945, following the liberation of the mines
1945, a disagreement arose between from Japanese control, because the relation
NIELSON and LEPANTO over the status of between it and Nielson was one of agency
the operating contract in question which as and as such it could terminate the agency at
renewed expired in 1947. will, is, therefore, untenable. On the other
hand, it can be said that, in asserting that it
had terminated or cancelled the
management contract in 1945, Lepanto had
It is true that the management contract thereby violated the express terms of the
provides that Nielson would also act as management contract. The management
purchasing agent of supplies and enter into contract was renewed to last until January
contracts regarding the sale of mineral, but 31, 1947, so that the contract had yet
the contract also provides that Nielson almost two years to go·upon the liberation
could not make any purchase, or sell the of the mines in 1945. There is no showing
minerals, without the prior approval of that Nielson had ceased to prosecute the
Lepanto. It is clear, therefore, that even in operation and development of the mines in
these cases Nielson could not execute good faith and in accordance with approved
mining practice which would warrant the profits. Shares of stock are given the special
termination of the contract upon ninety name "stock dividends" only if they are
days written notice. In fact there was no issued in lieu of undistributed profits. If
such written notice of termination. It is an shares of stocks are issued in exchange of
admitted fact that Nielson ceased to cash or property then those shares do not
operate and develop the mines the control fall under the category of "stock dividends".
of Nielson. A corporation may legally issue shares of
stock in consideration of services rendered
Indeed, if the management contract in to it by a person not a stockholder, or in
question was intended to create a payment of its indebtedness. It is the shares
relationship of principal and agent between of stock ,that are originally issued by the
Lepanto and Nielson, paragraph XI of the corporation and forming part of the capital
contract should not have been inserted that can be exchanged for cash or services
because, as provided in Article 1733 of the rendered, or property; that is, if the
old Civil Code, agency is essentially corporation has original shares of stock
revocable at the will of the principal·that unsold or unsubscribed, either coming from
means, with or without cause. But precisely the original capitalization or from the
said paragraph XI was inserted in the increased capitalization. Those shares of
management contract to provide for the stock may be issued to a person who is not
cause for its revocation. The provision of a stockholder, or to a person already a
paragraph XI must be given effect. stockholder in exchange for services
rendered or for cash or property. But a
It is the contention of Lepanto that the share of stock coming from stock dividends
happening of those events, and the effects declared cannot be issued to one who is not
of those events, simply suspended the a stockholder of a corporation.
performance of the obligations by either
party in the contract, but did not suspend In the case at bar Nielson can not be paid in
the period of the contract, much less shares of stock which form part of the stock
extended the period of the contract. dividends of Lepanto for services it
rendered under the management contract.
We sustain the contention of Lepanto that
the understanding between Lepanto and
ISSUE: Whether or not Nielson is entitled to Nielson was simply to make the cash value
his share in the stock dividends. of the stock dividends declared as the basis
for determining the amount of
RULING: Under Section 16 of the compensation that should be paid to
Corporation Law stock dividends can not be Nielson, in the proportion of 10% of the
issued to a person who is not a stockholder cash value of the stock dividends declared.
in payment of services rendered. In other words, Nielson must still be paid his
10% fee using as the basis for computation
From the provision of Section 16 of the the cash value of the stock dividends
Corporation Law, the consideration for declared.
which shares of stock may be issued are: (1)
cash; (2) property; and (3) undistributed
Moreover, a “stock dividend” is any TOPIC: Sec 40 of RCC - Disposition of Assets

dividend payable in shares of stock of the | SEC's authority to decide cases
corporation declaring or authorizing such
dividend. DOCTRINE: The SEC has the unquestionable
authority to pass upon the issue as to who
So, a stock dividend is actually two things: among the different contending groups is
(1) a dividend, and (2) the enforced use of the legitimate governing board of a
the dividend money to purchase additional corporate body.
shares of stock at par.16 When a
corporation issues stock dividends, it shows FACTS: Petitioner IDP-Tamano Group
that the corporation’s accumulated profits alleges that sometime in 1971, Islamic
have been capitalized instead of distributed leaders of all Muslim major tribal groups in
to the stockholders or retained as surplus the Philippines organized and incorporated
available for distribution, in money or kind, the ISLAMIC DIRECTORATE OF THE
should opportunity offer. Far from being a PHILIPPINES (IDP), the primary purpose of
realization of profits for the stockholder, it which is to establish an Islamic Center in
tends rather to postpone said realization, in Quezon City for the construction of a
that the fund represented by the new stock Mosque and schoo, and other religious
has been transferred from surplus to assets infrastructures so as to facilitate the
and no longer available for actual effective practice of Islamic faith in the area.
distribution.17 Thus, it is apparent that
stock dividends are issued only to In 1972, Martial law was declared. Most of
stockholders. This is so because only the members of the 1971 Board of Trustees
stockholders are entitled to dividends. They like flew to the Middle East to escape
are the only ones who have a right to a political persecution.
proportional share in that part of the
surplus which is declared as dividends. A Thereafter, two Muslim groups sprung, the
stock dividend really adds nothing to the Carpizo Group and the Abbas Group. Both
interest of the stockholder; the proportional groups claimed to be the legitimate IDP.
interest of each stockholder remains the Significantly, on October 3, 1986, the SEC, in
same.18If a stockholder is deprived of his a suit between these two contending
stock dividends – and this happens if the groups, came out with a Decision declaring
shares of stock forming part of the stock the election of both the Carpizo Group and
dividends are issued to a non-stockholder the Abbas Group as IDP board members to
— then the proportion of the stockholder’s be null and void.
interest changes radically. Stock dividends
are civil fruits of the original investment, Neither group, however, took the necessary
and to the owners of the shares belong the steps prescribed by the SEC in its October 3,
civil fruits. 1986 Decision, and, thus, no valid election
of the members of the Board of Trustees of
IDP was ever called. Although the Carpizo
Group attempted to submit a set of by-laws,
2. Islamic Directorate vs. CA, 272 SCRA 454; the SEC found that those who prepared and
adopted the by-laws were not bona fide
members of the IDP, thus rendering the reasoning, it can also declare who is not the
adoption of the by-laws likewise null and legitimate IDP Board. SEC in effect made the
void. unequivocal finding that the IDP-Carpizo
Group is a bogus Board of Trustees.
In 1989, the Carpizo Group, although there Consequently, the Carpizo Group is bereft
was no new members of the Board of of any authority whatsoever to bind IDP in
Trustees, authorized the sale of the Quezon any kind of transaction including the sale or
City land to private respondent, INC. disposition of IDP property.
On May 30, 1991, the petitioner filed a For the sale to be valid, the majority vote of
petition before the SEC, docketed as SEC the legitimate Board of Trustees, concurred
Case No. 4012, seeking to declare null and in by the vote of at least 2/3 of the bona
void the Deed of Absolute Sale signed by fide members of the corporation should
the Carpizo Group and the INC since the have been obtained. These twin
group of Engineer Carpizo was not the requirements were not met as the Carpizo
legitimate Board of Trustees of the IDP. Group which voted to sell the Tandang
Sora property was a fake Board of
Meanwhile, SEC came out with a decision Trustees, and those whose names and
declaring: signatures were affixed by the Carpizo
1. the by-laws submitted by the Group together with the sham Board
Carpizo group to be null and void as Resolution authorizing the negotiation for
it was unauthorized. the sale w ere, from all indications, not
2. sale of land between INC and bona fide members of the IDP as they were
Carpizo group to be null and void. made to appear to be. Apparently, there are
3. the election of board of directors of only fifteen (15) official members of the
the corporation from 1986-1991 to petitioner corporation including the eight
be void. (8) members Islamic Directorate of the
4. capirzo group as members of IDP are Phils. vs. Court of Appeals of the Board of
null and void. Trustees.
INC executed an action for specific There can be no question as to the

performance with damages against vendor, authority of the SEC to pass upon the issue
Carpizo Group. CA declared that the sale of as to who among the different contending
lot was valid. IDP-Tamano Group argued groups is the legitimate Board of Trustees of
that CA erred. the IDP since this is a matter properly falling
within the original and exclusive jurisdiction
ISSUE: Did the Court of Appeals commit of the SEC by virtue of Sections 3 and 5(c) of
error in declaring the sale of two (2) parcels Presidential Decree No. 902-A: Section 3.
of land in Quezon City between the IDP- The Commission shall have absolute
Carpizo Group and private respondent INC jurisdiction, supervision and control over all
valid? corporations, partnerships or associations ,
who are the grantees of primary franchises
RULING: YES. It is the SEC can declare who and/or a license or permit issued by the
is the legitimate IDP Board, then by parity of government to operate in the Philippines
board of directors or trustees, sell, lease,

Section 5. In addition to the regulatory and exchange, mortgage, pledge or otherwise
adjudicative functions of the Securities and dispose of all or substantially all of its
Exchange Commission over corporations , property and assets, including its goodwill,
partnerships and other forms of upon terms and conditions and for s uch
associations registered with it as expressly cons ideration, which may be money,
granted under existing laws and decrees, it stocks, bonds or other instruments for the
shall have original and exclusive jurisdiction payment of money or other property or
to hear and decide cases involving: consideration, as its board of directors or
x x x x x x x x x c) Controversies in the trustees may deem expedient, when
selection or appointment of directors, authorized by the vote of the stockholders
trustees, officers, or managers of such representing at least two-thirds (2/3) of the
corporations, partnerships or associations. x outstanding capital stock; or in case of non-
x x. stock corporation, by the vote of at least
two-thirds (2/3) of the members, in a
All acts carried out by the Carpizo Board, stockholders or members meeting duly
particularly the sale of the Tandang Sora called for the purpose. Written notice of the
property, allegedly in the name of the IDP, proposed action and of the time and place
have to be struck down for having been of the meeting shall be addressed to each
done without the consent of the IDP thru a stockholder or member of his place of
legitimate Board of Trustees. Article 1318 of residence as shown on the books of the
the New Civil Code lays down the essential corporation and deposited to the addressee
requisites of contracts: in the post office with postage prepaid, or
served personally: Provided, That any
There is no contract unless the following dissenting stockholder may exercise his
requisites concur: appraisal right under the conditions
provided in this Code.
1. Consent of the contracting parties;
2. Object certain which is the subject 3. Dee vs. SEC, 199 SCRA 238;
matter of the contract; TOPIC: Shares Stockholders, Rights of;
3. Cause of the obligation which is
established. DOCTRINE: The pre-emptive right of
stockholders is recognized only with respect
The Carpizo Group-INC sale is further to new issue of shares, and not with respect
deemed null and void ab initio because of to additional issues of originally authorized
the Carpizo Group's failure to comply with shares.
Section 40 of the Corporation Code
pertaining to the disposition of all or FACTS: Naga Telephone Company (Natelco)
substantially all assets of the corporation: was organized in 1954, the authorized
capital was P100,000.00. In 1974 Natelco
Sec. 40. Sale or other disposition of assets.- decided to increase its authorized capital to
Subject to the provisions of existing laws on P3,000,000.00. As required by the Public
illegal combinations and monopolies, a Service Act, Natelco filed an application for
corporation may, by a majority vote of its the approval of the increased authorized
capital with the then Board of their Board of Directors, for the year 1979-
Communications. The approval of the 1980. In this election Pedro Lopez Dee (Dee
application was subject to a certain for short) was unseated as Chairman of the
condition that the issuance of the shares of Board and President of the Corporation, but
stocks will be for a period of one year from was elected as one of the directors,
the date hereof, after which no further together with his wife, Amelia Lopez Dee.
issues will be made without previous
authority from this Board. In the election CSI was able to gain control
of Natelco when the latters legal counsel,
Pursuant to the approval given by the then Atty. Luciano Maggay (Maggay) won a seat
Board of Communications, Natelco filed its in the Board with the help of CSI. In the
Amended Articles of Incorporation with the reorganization Atty. Maggay became
Securities and Exchange Commission (SEC president.
for short). When the amended articles were
filed with the SEC, the original authorized Petitioner Dee having been unseated in the
capital of P100,000.00 was already paid. Of election, filed a petition in the SEC. He
the increased capital of P2,900,000.00 the questions the validity of the elections on
subscribers subscribed to P580,000.00 of the main ground that there was no valid list
which P145,000 was fully paid. of stockholders through which the right to
vote could be determined. A restraining
The capital stock of Natelco was divided order was issued by the SEC placing
into 213,000 common shares and 87,000 petitioner and the other officers of the
preferred shares, both at a par value of 1978-1979 Natelco Board in hold-over
P10.00 per shares. capacity.
On April 12, 1977, Natelco entered into a During the tenure of the Maggay Board,
contract with Communication Services, Inc. from June 22, 1979 to March 10, 1980, it
(CSI for short) for the manufacture, supply, did not reform the contract of April 12,
delivery and installation of telephone 1977, and entered into another contract
equipment. In accordance with this with CSI for the supply and installation of
contract, Natelco issued 24,000 shares of additional equipment but also issued to CSI
common stocks to CSI on the same date as 113,800 shares of common stock.
part of the downpayment. On May 5, 1979,
another 12,000 shares of common stocks Supreme Court dismissed the petition in
were issued to CSI. In both instances, no G.R. No. 50885 upon the ground that the
prior authorization from the Board of same was premature and the Commission
Communications, now the National should be allowed to conduct its hearing on
Telecommunications Commission, was the controversy. The dismissal of the
secured pursuant to the conditions imposed petition resulted in the unseating of the
by the decision 1974 decision. Maggay group from the board of directors
of Natelco in a hold-over capacity.
On May 19, 1979, the stockholders of the
Natelco held their annual stockholders
meeting to elect their seven directors to
In the course of the proceedings in SEC desistance from the scheduled election until
Case, respondent hearing officer issued an further orders (Rollo, p. 32).
order on June 23, 1981, declaring:
1. that CSI is a stockholder of Natelco Nevertheless, on May 22, 1982, as
and, therefore, entitled to vote; scheduled, the controlling majority of the
2. that unexplained 16,858 shares of stockholders of the Natelco defied the
Natelco appear to have been issued restraining order, and proceeded with the
in excess to CSI which should not be elections, under the supervision of the SEC
allowed to vote; representatives (Rollo, Vol. III, p. 985); p.
3. that 82 shareholders with their 10; G.R. No. 60502).
corresponding number of shares
shall be allowed to vote; and On May 25, 1982, the SEC recognized the
4. consequently, ordering the holding fact that elections were duly held, and
of special stock-holder meeting to proclaimed that the following are the „duly
elect the new members of the Board elected directors of the Natelco for the
of Directors for Natelco based on term 1982-1983:
the findings made in the order as to
who are entitled to vote. Despite service of the order of May 25,
1982, the Lopez Dee group headed by
Meanwhile on May 20, 1982 (G.R. No. Messrs. Justino De Jesus and Julio Lopez
63922), petitioner Villasenor (as plaintiff) Dee kept insisting no elections were held
filed Civil Case, against private respondents and refused to vacate their positions.
and co-petitioners, de Jesus, Tordilla and
the DeesE, all defendants therein. Villasenor On May 28, 1982, the SEC issued another
claimed that he was an assignee of an order directing the hold-over directors and
option to repurchase 36,000 shares of officers to turn over their respective posts
common stocks of Natelco under a Deed of to the newly elected directors and officers
Assignment executed in his favor. The and directing the Sheriff of Naga City, with
defendants therein (now private the assistance of PC and INP of Naga City,
respondents), principally the Maggay group, and other law enforcement agencies of the
allegedly refused to allow the repurchase of City or of the Province of Camarines Sur, to
said stocks when petitioner Villasenor enforce the aforesaid order (Rollo, Vol. II,
offered to defendant CSI the repurchase of pp. 577-578).
said stocks by tendering payment of its
price (Rollo, p. 26 and p. 78). The complaint On May 29, 1982, the Sheriff of Naga City,
therefore, prayed for the allowance to assisted by law enforcement agencies,
repurchase the aforesaid stocks and that installed the newly elected directors and
the holding of the May 22, 1982 election of officers of the Natelco, and the hold-over
directors and officers of Natelco be officers peacefully vacated their respective
enjoined (Rollo, pp. 28-29). offices and turned-over their functions to
the new officers (Rollo, Vol. III, p. 985; pp.
A restraining order dated May 21, 1982 was 12-13).
issued by the lower court commanding

On June 2, 1982, a charge for contempt was of Natelco. Thus, the SEC was correct when
filed by petitioner Villasenor alleging that it refused to rule on whether the issuance
private respondents have been claiming in of the shares of Natelco stocks to CSI
press conferences and over the radio violated Sec. 20 (h) of the Public Service
airlanes that they actually held and Act.
conducted elections on May 22, 1982 in the
City of Naga and that they have a new set of The SEC ruling as to the issue involving the
officers, and that such acts of herein private Public Service Act, Section 20 (h), asserts
respondents constitute contempt of court. that the Commission En Banc is not
empowered to grant much less cancel
Petitioner's contention: franchise for telephone and
3) Petitioner insists that no meeting and communications, and therefore has no
election were held in Naga City on May 22, authority to rule that the issuance and sale
1982 as directed by respondent Hearing of shares would in effect constitute a
Officer. violation of Natelco's secondary franchise. It
would be in excess of jurisdiction on our
ISSUE: part to decide that a violation of our public
1) W/N trial judge has jurisdiction to service laws has been committed. The
restrain the holding of an election of matter is better brought to the attention of
officers and directors of a corporation. the appropriate body for determination.
Neither can the SEC provisionally decide the
2) W/N SEC had power and jurisdiction to issue because it is a) only vested with the
declare null and void shares of stock issued power to grant or revoke the primary
by NATELCO to CSI corporate franchise. The SEC is empowered
by P.D. 902-A to decide intra-corporate
3) W/N the Natelco stockholders have a controversies and that is precisely the only
right of preemption to the 113,800 shares issue in this case.
in question;
In order that the SEC can take cognizance of
4) W/N the May 22, 1982 election was a case, the controversy controversy must
valid? pertain to any of the following
relationships:
RULING:
1-2) NO. The jurisdiction of the SEC is a) between corporation, partnership
limited to matters intrinsically connected or association and the public;
with the regulation of corporations, b) between the corporation,
partnerships and associations and those partnership, or association and its
dealing with internal affairs of such entities; stockholders, partners, members or
P.D. 902-A does not confer jurisdiction to officers;
SEC over all matters affecting corporations. c) between the corporation,
partnership or association and the
The jurisdiction of the SEC in SEC Case No. state insofar as its franchise, permit
1748 is limited to deciding the controversy or license to operate is concerned;
in the election of the directors and officers and
d) among the stockholders, partners, issuance, he was not able to exercise his
or associates themselves (Union right of preemption over the unissued
Glass & Container Corp. vs. SEC, 126 shares. However, the general rule is that
SCRA 31 [1983]). The jurisdiction of pre-emptive right is recognized only with
the SEC is limited to matters respect to new issues of shares, and not
intrinsically connected with the with respect to additional issues of
regulation of corporations, originally authorized shares. This is on the
partnerships and associations and theory that when a corporation at its
those dealing with internal affairs of inception offers its first shares, it is
such entities; presumed to have offered all of those which
it is authorized to issue. An original
3) NO. There is distinction between an subscriber is deemed to have taken his
order to issue shares on or before May 19, shares knowing that they form a definite
1979 and actual issuance of the shares after proportionate part of the whole number of
May 19, 1979. The actual issuance, it is true, authorized shares. When the shares left
came during the period when CSI was in unsubscribed are later reoffered, he cannot
control of voting shares and the Board (if therefore (sic) claim a dilution of interest.
they were in fact in control)·but only
pursuant to the original Board and The questioned issuance of the 113,800
stockholders orders, not on the initiative to stocks is not invalid even assuming that it
the new Board, elected May 19, 1979, was made without notice to the
which petitioners are questioning. The stockholders as claimed by the petitioner.
Commission en banc finds it difficult to see The power to issue shares of stocks in a
how the one who gave the orders can turn corporation is lodged in the board of
around and impugn the implementation of directors and no stockholders meeting is
the orders he had previously given. The required to consider it because additional
reformation of the contract is issuance of shares of stocks does not need
understandable for Natelco lacked the approval of the stockholders. Consequently,
corporate funds to purchase the CSI no preemptive right of Natelco stockholders
equipment. was violated by the issuance of the 113,800
shares to CSI.
While the group of Luciano Maggay was in
control of Natelco by virtue of the 4) YES. There is evidence of the fact that the
restraining order issued in G.R. No. 50885, Natelco special stockholdersÊ meeting and
the Maggay Board issued 113,800 shares of election of members of the Board of
stock to CSI. Petitioner said that the Maggay Directors of the corporation were held at its
Board, in issuing said shares without office in Naga City on May 22, 1982 as
notifying Natelco stockholders, violated shown when the Hearing Officer issued an
their right of pre-emption to the unissued order on May 25, 1982, declaring the
shares. This Court in Benito vs. SEC, et al., stockholders named therein as corporate
has ruled that: officers duly elected for the term 1982-
1983.
Petitioner bewails the fact that in view of
the lack of notice to him of such subsequent
The contempt charge against herein private 5. Loyola Grandvillas Homeowners

respondents was predicated on their failure Association vs. CA, 276 SCRA 681;
to comply with the restraining order issued DOCTRINE:
by the lower court on May 21, 1982,
enjoining them from holding the election of FACTS:
officers and directors of Natelco scheduled
on May 22, 1982. The SEC en banc, in its ISSUE:
decision of April 5, 1982, directed the
holding of a new election which, through a RULING:
conference attended by the hold-over
directors of Natelco accompanied by their
lawyers and presided by a SEC hearing 6. China Banking Corporation vs. CA, 270
officer, was scheduled on May 22, 1982 SCRA 503;
(Rollo, p. 59). Contrary to the claim of DOCTRINE:
petitioners that the case is within the
jurisdiction of the lower court as it does not FACTS:
involve an intra-corporate matter but
merely a claim of a private party of the right ISSUE:
to repurchase common shares of stock of
Natelco and that the restraining order was RULING:
not meant to stop the election duly called
for by the SEC, it is undisputed that the
main objective of the lower courtÊs order of 7. Associated Bank vs. CA, 291 SCRA 511;
May 21, 1982 was precisely to restrain or DOCTRINE:
stop the holding of said election of officers
and directors of Natelco, a matter purely FACTS:
within the exclusive jurisdiction of the SEC
ISSUE:
RULING:
4. Ma. Corina C. Jiao, et. al.v. National
Labor Relations Commission, Global
Business Bank, Inc., et. al. , G.R. No. 8. Babst vs. CA, January 26, 2001;
182331, April 18, 2012; DOCTRINE:
DOCTRINE:
FACTS:
FACTS:
ISSUE:
ISSUE:
RULING:
RULING:
9. Mindanao Savings vs. Willkom, 11

October 2010;
TOPIC: Merger they did not comply with the formalities

and procedure for merger. Finally, they
DOCTRINE: claimed that FISLAI is still a SEC registered
corporation and could not have been
FACTS: FISLAI and DSLAI, entities engaged in absorbed by petitioner.
granting loans, entered into a merger. DSLAI
is the surviving corporation. DISLAI changed CA: Concluded that the two corporations
its name to MSLAI under an amendment in retained their separate personalities;
AOI but it was only approved on April 3, consequently, the claim against FISLAI is
1987. However, articles of merger were not warranted, and the subsequent sale of the
registered with SEC due to incomplete levied properties at public auction is valid.
documentation. Further, assuming de facto corporation,
innocent purchaser for value, whose right is
The business of MSLAI failed. Hence, superior to that of MSLAI.
Monetary Board of the Central Bank of the
Philippines ordered its closure and placed it ISSUE: W/N the merger between FISLAI and
under receivership and ordered the DSLAI (now MSLAI) valid and effective
liquidation of MSLAI, with PDIC as its
liquidator. RULING: NO. There was no merger
between FSLAI and DSLAI, the two
Prior closure, Uy filed for collection of sum corporations shall not be considered as one
of money against FISLAI. CA ordered party but two separate corporations. The third
defendant to reimburse the payments that parties are concerned, the assets of FISLAI
would to reimburse the payments that remain as its assets and cannot be
would be made by FISLAI. considered as belonging to DSLAI and
MSLAI.
Meanwhile, sheriff Bantuas levied on six (6)
parcels of land owned by FISLAI located in A merger of two or more existing
Cagayan de Oro City, and was sold. Hence, corporations, one of the corporations
MSLAI/PDIC filed for an annulment of the survives and continues the combined
sale. PDIC claim that they only knew the business, while the rest are dissolved and all
sale when it was discharged in liquidating their rights, properties, and liabilities are
MSLAI's assets. They claim that assets of an acquired by the surviving corporation.
institution placed under receivership or Although there is a dissolution of the
liquidation should be exempt from any absorbed or merged corporations, there is
order of garnishment, levy, attachment, or no winding up of their affairs or liquidation
execution. of their assets because the surviving
corporation automatically acquires all their
Respondent's Argument: rights, privileges, and powers, as well as
They claim that MSLAI had no cause of their liabilities.
action against them because MSLAI is a
separate and distinct entity from FISLAI. Further, a merger does not become
They contend that there is no official effective upon the mere agreement of the
merger between FISLAI and DSLAI because constituent corporations, there must be an
express provision of law authorizing them.

Hence, a merger shall only be effective ISSUE:
upon the issuance of a certificate of merger
by the SEC after determination that merger RULING:
is not inconsistent with code or laws. With
this, by operation of law, upon the 12. Sumifru vs. Baya, 822 SCRA 564;
effectivity of the merger, the absorbed TOPIC: Merger
corporation ceases to exist but its rights and DOCTRINE: In the merger of two existing
properties, as well as liabilities, shall be corporations, one of the corporations
taken and deemed transferred to and survives and continues the business, while
vested in the surviving corporation. the other is dissolved and all its rights,
properties and liabilities are acquired by the
In this case, it is undisputed that the articles surviving corporation.
of merger between FISLAI and DSLAI were
not registered with the SEC due to FACTS: Baya filed an illegal/constructive
incomplete documentation. Consequently, dismissal against sister corporations AMSFC
the SEC did not issue the required and DFC. He alleged that after he formed a
certificate of merger. Even if it is true that cooperative and was awarded by the DAR of
the Monetary Board of the Central Bank of agricultural land under Comprehensive
the Philippines recognized such merger, the Agrarian Reform Law, AMSFC and DFC
fact remains that no certificate was issued threatened and intimidated Baya to enter
by the SEC. Such merger is still incomplete into an agreement contract with them.
without the certification. When Baya refused, he was ordered to
return to AMSFC, where he was demoted
from a supervisors to a rank and file.
The land was then awarded back to AMSFC

10. Y-I Leisure Philippines, Inc. vs. Yu, 770 and DFC and they terminated all employees
SCRA 56; from the cooperative.
DOCTRINE:
Lower Courts granted Baya with separation
FACTS: pay.
ISSUE: Sumifru then merged with DFC.
RULING: ISSUE: W/N Sumifru should be held

solidarily liable with AMSFC's for Baya's
monetary awards.
11. Philippine Geothermal, Inc. Employees
Union vs. Unocal Philippines, Inc., 804 RULING: YES. Under Section 80 of the CCP,
SCRA 286; one of the effects of a merger is that the
DOCTRINE: surviving company shall inherit not only the
assets, but also the liabilities of the
FACTS: corporation it merged with.
promised to release the P2M conditioned

In this case, both AMSFC and DFC are guilty upon payment of the P3M initially released.
of acts constitutive of constructive
dismissal. As such, they should be deemed Petitioner paid the P3M but BSA still
as solidarily liable for the monetary awards refused to release the P2M. Hence,
in favor of Baya. Meanwhile, Sumifru, as petitioners refused to pay the amortizations
the surviving entity in its merger with DFC, due on their term loan.
must be held answerable for the latter's
liabilities, including its solidary liability with BPI and BSA later merged. BPI foreclosed
AMSFC arising herein. Verily, jurisprudence the mortgage of petitioner. Petitioner filed
states that "in the merger of two existing for a TRO.
corporations, one of the corporations
survives and continues the business, while Petitioner's Arguments:
the other is dissolved and all its rights, Petitioners contend that there is delay in
properties and liabilities are acquired by the releasing the pre agreed P5M
surviving corporation,"
Defendant Arguments:
13. Bank of Commerce vs. Heirs of Rodolfo BSA claim that release of amount of P2M
Dela Cruz, 837 SCRA 112; was due to unavailability of funds thus only
DOCTRINE: a part can only be released. Further, BPI
contend that they are in good faith in
FACTS: seeking foreclosure and shall not be liable
for the previous acts of BSA.
ISSUE:
ISSUE: W/N BPI shall assume liability of
RULING: BSA?
RULING: YES. BSA/BPI violated the terms of

14. Ong vs. BPI Family Savings Bank, Inc., its agreements when it deliberately failed to
852 SCRA 614; release the amount of P2M after petitioners
TOPIC: Merger complied with their terms and paid the first
stopped paying their amortizations on the
DOCTRINE: term loan.
FACTS: Petitioners, Spouses Ong, applied BPI did not only acquire all the rights,
for credit facilities/loan offered by BSA with privileges and assets of BSA but likewise
real estate mortgage as security. The loan acquired the liabilities and obligations of
as for a term of P15M and P5M of credit the latter as if BPI itself incurred it.
line. Moreover, Section 1 (e) of the Articles of
Merger dated November 21, 2001 provides
P10M was released. With regard to the P5M that all liabilities and obligations of BSA
credit line, only P3M was released. BSA shall be transferred to and become the
liabilities and obligations of BPI in the same
manner as if it had itself incurred such Commission (SEC) to pay the benefits as
liabilities or obligations. provided in the preneed plans
Pursuant to such merger and consolidation, FACTS: Petitioner, College Assurance Plan
BPI's right to foreclose the mortgage on Philippines (CAP), a corporation with
petitioner's property depends on the status primary purpose of selling preneed
of the contract and the corresponding educational plans. To guarantee the
obligations of the parties originally involved, payment of benefits under its educational
that is, the agreement between its plans, CAP set up a Trust Fund contributing
predecessor BSA and petitioner. therein a certain percentage of the amount
actually collected from each planholder.
Since BSA incurred delay in the The Trust Fund, with the aid of trustee
performance of its obligations and banks, is invested in assets and securities
subsequently cancelled the omnibus line with yields higher than the projected
without petitioners' consent, its successor increase in tuition fee.
BPI cannot be permitted to foreclose the In 2000, SRC was passed. With the adoption
loan for the reason that its successor BSA of pre-need uniform chart of accounts and
violated the terms of the contract even new rules on valuation of trust funds
prior to petitioners' justified refusal to invested in real property. CAP incurred trust
continue paying the amortizations. fund deficiency of P3.179 billion.
BPI was remiss in its duty of looking into the In compliance with the directive of SEC to
transaction involving the mortgage it sought submit a funding scheme to correct the
to foreclose. As BSA's successor-in-interest, deficiency, CAP proposed and eventually
it cannot feign ignorance of transactions purchased the MRT III Bonds from Smart
entered into by the former especially when and FEMI, and assigned the same to the
it seeks to benefit from the same by Trust Fund. After having paid partial of the
foreclosing the mortgage thereon. total purchase price, CAP was ordered by
the SEC Oversight Board to stop paying
Hence, petitioners suffered damages such SMART/FEMI due to its perceived
as it crippled the business of the petitioners inadequacy of CAP’s funds.
because the money was released late. BSA
should have informed them in advance of CAP filed a Petition for Rehabilitation which
the unavailability of funds. was granted. Under the Rehabilitation Plan,
CAP intended to sell the MRT Bonds. The
sale of the MRT III Bonds was approved and
15. SEC vs. CAP, 857 SCRA 500 were in fact sold to DBP and Land Bank. The
TOPIC: Trust Fund Doctrine MRT III Bonds were delivered to the buyers,
and the buyers paid the price to CAP which
DOCTRINE: The trust fund is to be treated was credited to its trust accounts. However,
as separate and distinct from the paid-up CAP’s payment to Smart and FEMI remained
capital of the company, and is established to be executed. The Interim Rehabilitation
with a trustee under a trust agreement Receiver moved for the payment of CAP’s
approved by the Securities and Exchange obligations to Smart and FEMI.
The trust fund is to be treated as separate

Petitioners maintain (1) that the Trust Fund, and distinct from the paid-up capital of the
being essentially and primarily constituted company and is established with a trustee
for the sole and exclusive benefit of the under a trust agreement approved by the
planholders, should be treated separately SEC to pay the benefits as provided in the
and distinctly from the paid-up capital and pre-need plans.
assets of CAP; (2) that Section 30 of RA 9829
(Pre-Need Code) provided that the Trust Moreover, Section 30 of RA 9829 (Pre-Need
Fund should in no case be used to satisfy Code) expressly stipulates that the trust
the claims of the creditors of the pre-need fund is to be used at all times for the sole
company; (3) that because the proceeds of benefit of the planholders and cannot ever
the sale of the MRT III Bonds formed part of be applied to satisfy the claims of the
the assets of the Trust Fund, they were not creditors of the company. The allowed
owned by CAP, but by the trustee insofar as withdrawals refer to payments that the pre-
the legal title was concerned and by the need company had undertaken to be made
planholders as beneficial owners. based on the contracts.
CAP counters that the settlement of its The term “benefits” used in Section 16.4 is
obligation to Smart and FEMI was a defined as “the money or services which the
necessary condition of the sale of the MRT Pre-Need Company undertakes to deliver in
III Bonds. the future to the planholder or his
beneficiary.” Accordingly, benefits refer to
ISSUE: WON the payment of CAP’s the payments made to the planholders as
outstanding obligation to Smart and FEMI, stipulated in their pre-need plans. The trust
representing the balance of the purchase fund is established to ensure the delivery of
price of the MRT III Bonds, can be validly the guaranteed benefits and services
withdrawn from its Trust Fund. provided under a pre-need plan contract.
Hence, benefits can only mean payments or
RULING: NO. In respect of preneed services rendered to the planholders by
companies, the trust fund is set up from the virtue of the pre-need contracts.
planholders payments to pay for the cost of
benefits and services, termination values To ensure the delivery of the guaranteed
payable to the planholders and other costs benefits and services provided under a
necessary to ensure the delivery of benefits preneed plan contract, a trust fund per
or services to the planholders as provided preneed plan category shall be established.
for in the contracts. The trust fund is to be A portion of the installment payment
treated as separate and distinct from the collected shall be deposited by the preneed
paid-up capital of the company, and is company in the trust fund, the amount of
established with a trustee under a trust which will be as determined by the actuary
agreement approved by the Securities and based on the viability study of the preneed
Exchange Commission to pay the benefits as plan approved by the Commission. Assets in
provided in the preneed plans. the trust fund shall at all times remain for
the sole benefit of the planholders. At no
time shall any part of the trust fund be used
for or diverted to any purpose other than

for the exclusive benefit of the planholders.
In no case shall the trust fund assets be
used to satisfy claims of other creditors of
the preneed company. The provision of any
law to the contrary notwithstanding, in case
of insolvency of the preneed company, the
general creditors shall not be entitled to the
trust fund. Except for the payment of the
cost of benefits or services, the termination
values payable to the planholders, the
insurance premium payments for insurance-
funded benefits of memorial life plans and
other costs necessary to ensure the delivery
of benefits or services to planholders, no MODULE 4(a): SUBSCRIPTION (Sections 59-
withdrawal shall be made from the trust 72)
fund unless approved by the Commission.
The benefits received by the planholders 1. Lim Tay vs. CA, August 5, 1998;
shall be exempt from all taxes and the trust TOPIC: Jurisdiction of SEC
fund shall not be held liable for attachment,
garnishment, levy or seizure by or under DOCTRINE: The registration of shares in a
any legal or equitable processes except to stockholder’s name, the issuance of stock
pay for the debt of the planholder to the certificates, and the right to receive
benefit plan or that arising from criminal dividends which pertain to the said shares
liability imposed in a criminal action. The are all rights that flow from ownership. The
trust fund shall at all times be sufficient to determination of whether or not a
cover the required preneed reserve. Section shareholder is entitled to exercise the
30 prohibits the utilization of the trust fund above-mentioned rights falls within the
for purposes other than for the benefit of jurisdiction of the SEC. However, if
the planholders. The allowed withdrawals ownership of the shares is not clearly
(specifically, the cost of benefits or services, established and is still unresolved at the
the termination values payable to the time the action for mandamus is filed, then
planholders, the insurance premium jurisdiction lies with the regular courts.
payments for insurance-funded benefits of
memorial life plans and other costs) refer to FACTS: Sy Giok entered in a contract of
payments that the preneed company had loan with herein petitioner Lim Tay worth
undertaken to be made based on the Php 40,000 payable in 6 months with a
contracts. 10% annual interest. As security, Sy
Giok pledged 300 shares of stocks of
private respondent corporation Go Fay
Company Inc.
The same deal was entered into by Sy

Lim. He loaned Php 40,000 payable in 6

months with a 10% annual interest, and SEC does not hold jurisdiction on
pledged 300 of his shares of stock in Go the matter
Fay.
Sy Giok, as one of the private
As stated in the stipulation of their respondents, died and the case was
contracts, failure of pledgor to pay now manned by his heirs.
within 6 months shall render
authority in the part of the pledgee to Among others, they stated as a defense,
foreclose the shares of stock with or that it is clear that upon failure to pay the
without the knowledge of the pledgor. amount within the stipulated period, the
Pledgee also has the authority to pledgee is authorized to foreclose the
transfer the shares of stock to his pledge and thereafter, to sell the same
name and hold the certificate to it, to satisfy the loan.
and to sell the said shares to issue to
him and to apply the proceeds of the SEC
sale to the payment of the said sum and Dismissed the petition
interest.
CA
Because of such a pledge, the Upheld the ruling of the SEC
petitioner had possession of the
stock certificates as it came with the ISSUE:
contracts of pledge. 1) WON the SEC has jurisdiction to decide
on the matter
Subsequently, Sy Giok and Sy Lim were 2) WON possession as a pledge can ripen to
not able to pay each of their loans, ownership by prescription
leading to the foreclosure of their shares
of stock. RULING:
Lim Tay filed a petition for mandamus
1) NO. The registration of shares in a
with the SEC directing the corporate
stockholder’s name, the issuance of
secretary of respondent Go Fay & Co.,
stock certificates, and the right to
Inc. to register the stock transfers and
receive dividends which pertain to the
issue new certificates in favor of Lim
said shares are all rights that flow from
Tay.
ownership. The determination of
whether or not a shareholder is entitled
Respondent corporation defended to exercise the above-mentioned rights
stating that: falls within the jurisdiction of the SEC.
However, if ownership of the shares is
1. Respondent repleads and
not clearly established and is still
incorporates herein by reference
unresolved at the time the action for
the foregoing allegations.
mandamus is filed, then jurisdiction lies
2. Lim Tay did not have a cause of
with the regular court.
action
3. Complainant is not a stockholder
In this case, the stipulations of the
of respondent. This means that
contract was unclear, hence it was not
the controversy is not intra-
the SEC that held jurisdiction on the
corporate, which means that the
matter. In the case at bar, petitioner’s

claim that he was the owner of the 2) NO. In the present case, petitioner’s
shares of stock in question has no prima possession of the stock certificates came
facie basis about because they were delivered to him
pursuant to the contracts of pledge. His
It was stipulated that: possession as a pledgee cannot ripen into
> By the express terms of the ownership by prescription.
agreements, upon failure of the
borrowers to pay the stated
Under the contracts of pledge, private
amounts within the contract
respondents would have a right to ask for
period, the pledge is foreclosed
and the shares of stock are the redelivery of their certificates of stock
purchased by plaintiff upon payment of their debts to petitioner,
consonant with Article 2105 of the Civil
But in the contract of pledge, it stated: Code.
> In the event of the failure of the
PLEDGOR to pay the amount The duty of a corporate secretary to record
within a period of six (6) months transfers of stocks is ministerial. However,
from the date hereof, the he cannot be compelled to do so when the
PLEDGEE is hereby authorized transfereeÊs title to said shares has no
to foreclose the pledge upon the prima facie validity or is uncertain. More
said shares of stock hereby specifically, a pledgor, prior to foreclosure
created by selling the same at and sale, does not acquire ownership rights
public or private sale with or over the pledged shares and thus cannot
without notice to the PLEDGOR, compel the corporate secretary to record
at which sale the PLEDGEE may
his alleged ownership of such shares on the
be the purchaser at his option;
basis merely of the contract of pledge.
and the PLEDGEE is hereby
authorized and empowered at his Similarly, the SEC does not acquire
option, to transfer the said shares jurisdiction over a dispute when a partyÊs
of stock on the books of the claim to being a shareholder is, on the face
corporation to his own name and of the complaint, invalid or inadequate or is
to hold the certificate issued in otherwise negated by the very allegations
lieu thereof under the terms of of such complaint. Mandamus will not issue
this pledge, and to sell the said to establish a right, but only to enforce one
shares to issue to him and to that is already established.
apply the proceeds of the sale to
the payment of the said sum and The registration of shares in a stockholder’s
interest, in the manner name, the issuance of stock certificates, and
hereinabove provided the right to receive dividends which pertain
to the said shares are all rights that flow
If ownership of the shares is not clearly from ownership. The determination of
established and is still unresolved at the whether or not a shareholder is entitled to
time the action for mandamus is filed,
exercise the above-mentioned rights falls
then jurisdiction lies with the regular
within the jurisdiction of the SEC. However,
court.
if ownership of the shares is not clearly
established and is still unresolved at the the unpaid balance shall be secured by
time the action for mandamus is filed, then other collateral sufficient therefor.
jurisdiction lies with the regular courts.
Villanueva failed to settle the obligation.
A controversy „among stockholders, The Bank then converted the shares into
partners or associates themselves‰ is treasury stocks. An election of new
intra-corporate in nature and falls within directors and officers happened in which
the jurisdiction of the SEC. As a general rule, Villanueva were not notified. Villanueva
the jurisdiction of a court or tribunal over questioned the legality of the conversion
the subject matter is determined by the of the shares and legality of the meeting.
allegations in the complaint. In the present
case, however, petitioners claim that he In reply, the new set of officers of the Bank
was the owner of the shares of stock in informed Atty. Ignacio that the Villanuevas
question has no prima facie basis. were no longer entitled to notice of the
said meeting since they had relinquished
their rights as stockholders in favor of the
2. Rural Bank of Lipa vs. CA, Sept. 28, 2001; Bank.
TOPIC: Transfer of Shares/Stocks
Villanueva filed with the SEC a petition for
DOCTRINE: The rule is that the delivery of annulment of stockholder's meeting and
the stock certificate duly endorsed by the election of directors and officers.
owner is the operative act of transfer of
shares from the lawful owner to the Petitioner's contention:
transferee. Election was invalid because they were
conducted in violation of bylaws, not given
FACTS: Petitioner, Villanueva Sr., a notice of meeting, deprived of right to vote,
stockholder of Rural Bank (Bank), executed names were excluded from list of
a deed of assignment assigning his shares stockholders.
(10,467 shares), in favor of stockholders of
Bank represented by its directors. Defendant's contention:
Sometime thereafter, Villanueva executed ISSUE: W/N the transfer of title to such
an agreement where they acknowledged shares is ineffective until and unless the
their indebtedness to the Bank in the duly indorsed certificate of stock is
amount of 4M and stipulated that debt will delivered to them
be paid out of proceeds of sale of their real
property in the agreement. They assured RULING: The spouses are still the
the Board that the debt would be paid owners of the shares of stock, thus
otherwise the Bank would be entitled to rendering the meeting invalid because
liquidate their shareholdings, including they must be given notice and included
those under their control. In such an event, in general.
should the proceeds of the sale of said
shares fail to satisfy in full the obligation, Upon the finding that the spouses have
not dispose of their shares of stock, they
are deemed to be still in possession of is that the delivery of the stock certificate
their title as stockholder of Rural Bank of duly endorsed by the owner is the operative
Lipa. act of transfer of shares from the lawful
owner to the transferee. Thus, title may be
For a valid transfer to be completed, the vested in the transferee only by delivery of
requisites are: the duly indorsed certificate of stock.
1. Delivery of the stock certificates
2. Certificates are endorsed by the While the assignment may be valid and
owner, his attorney-in-fact, or any binding on the petitioners and private
other persons legally authorized respondents, it does not necessarily make
to make the transfer the transfer effective. Consequently, the
3. To take effect to third parties, it petitioners, as mere assignees, cannot enjoy
must be recorded in the books of the status of a stockholder, cannot vote nor
the corporation be voted for, and will not be entitled to
dividends, insofar as the assigned shares are
concerned. Parenthetically, the private
respondents cannot, as yet, be deprived of
We have uniformly held that for a valid their rights as stockholders, until and unless
transfer of stocks, there must be strict the issue of ownership and transfer of the
compliance with the mode of transfer shares in question is resolved with finality.
prescribed by law. The requirements are:
(a) There must be delivery of the stock 3. Ponce vs. Alsons Cement, Dec. 10, 2002;
certificate; (b) The certificate must be TOPIC: Transfer of Shares
endorsed by the owner or his attorney-in-
fact or other persons legally authorized to DOCTRINE: A transfer of shares of stock not
make the transfer; and (c) To be valid recorded in the stock and transfer book of
against third parties, the transfer must be the corporation is non-existent as far as the
recorded in the books of the corporation. corporation is concerned.
Petitioners argue that by virtue of the Deed FACTS: Petitioner, Ponce filed a complaint
of Assignment, private respondents had with the SEC against Alons (formerly FCC,
relinquished to them any and all rights they and VCC) and its secretary Francisco M.
may have had as stockholders of the Bank. Giron, Jr.
While it may be true that there was an
assignment of private respondents shares The late Fausto G. Gaid is an incorporator
to the petitioners, said assignment was not of Victory Cement Corporation (VCC).
sufficient to effect the transfer of shares
since there was no endorsement of the Gaid and Ponce entered into a Deed of
certificates of stock by the owners, their Undertaking and Indorsement whereby
attorneys-in-fact or any other person legally Gaid acknowledges that the former is the
authorized to make the transfer. Moreover, owner of said shares and he was therefore
petitioners admit that the assignment of assigning/endorsing the same to Ponce.
shares was not coupled with delivery, the
absence of which is a fatal defect. The rule
From the time of incorporation of VCC up to other, the corporation looks only to its
the present, no certificates of stock books for the purpose of determining who
corresponding to the 239,500 subscribed its shareholders are. It is only when the
and fully paid shares of Gaid were issued in transfer has been recorded in the stock
the name of Fausto G. Gaid and/or the and transfer book that a corporation may
plaintiff. Despite repeated demands, the rightfully regard the transferee as one of
defendants refused and continue to refuse its stockholders. From this time, the
without any justifiable reason to issue to consequent obligation on the part of the
plaintiff the certificates of stock corporation to recognize such rights as it is
corresponding 239,500 shares of Gaid, in mandated by law to recognize arises”
violation of Ponce’s right to secure the
corresponding certificate of stock in his 2) NO.
name.
4. Ong Yong, et al. vs. Tiu, et al., G.R. Nos.
They argued, inter alia, that there being no 144476 & 144629, April 8, 2003;
allegation that the alleged indorsement was TOPIC: Pre-Subscription agreement; Trust
recorded in the books of the corporation, Fund Doctrine
said indorsement by Gaid to the plaintiff of
the shares of stock in question—assuming DOCTRINE: Rescission of the Pre-
that the indorsement was in fact a transfer Subscription Agreement will effectively
of stocks—was not valid against third result in the unauthorized distribution of
persons such as ALSONS under Section 63 of the capital assets and property of the
the Corporation Code. There was, corporation, thereby violating the Trust
therefore, no specific legal duty on the part Fund Doctrine and the Corporation Code.
of the respondents to issue the
corresponding certificates of stock, and FACTS: In 1994, the construction of the
mandamus will not lie. Masagana Citimall in Pasay City was
threatened with stoppage and
ISSUE: incompletion when its owner, the First
1) WON certificates of stock was validly Landlink Asia Development Corporation
transferred (FLADC), which was owned by David S.
Tiu, Cely Y. Tiu, Moly Yu Gow, Belen
2) WON Ponce was a valid party in the case See Yu, D. Terence Y. Tiu, John Yu and
Lourdes C. Tiu (the Tius), encountered
dire financial difficulties.
RULING:
1) NO. There was never any transfer as It has a debt worth Php190,000,000 to
recorded in the books of the Corporation. PNB.
“A transfer of shares of stock not recorded To stave off foreclosure of the mortgage
in the stock and transfer book of the on the two lots where the mall was being
corporation is non-existent as far as the built, the Tius invited Ong Yong, Juanita
corporation is concerned. As between the Tan Ong, Wilson T. Ong, Anna L. Ong,
corporation on the one hand, and its William T. Ong and Julia Ong Alonzo
shareholders and third persons on the (the Ongs), to invest in FLADC.
each other. It is best that the two part

Under the Pre-Subscription Agreement ways by rescinding the Pre-Subscription
they entered into, the Ongs and the Tius Agreement
agreed to maintain equal shareholdings
in FLADC: the Ongs were to subscribe This will lead to the returning the original
to 1,000,000 shares at a par value of investment of the Ongs and awarding
P100.00 each. On the other hand, the practically everything else to the Tius.
Tius were to subscribe to an additional
549,800 shares at P100.00 each in The Ongs, on the other hand, claim that
addition to their already existing Specific Performance was the correct
subscription of 450,200 shares. In remedy on the matter, and not a
addition, the Tius may nominate the recission
Vice-President and the Treasurer plus 5
directors. ISSUE: WON The Ongs were correct in
finding that the remedy is Specific
The Ongs nominated the President, the Performance
Secretary and 6 directors to the board of
directors of FLADC and right to manage RULING: YES. They cannot rescind.
and operate the mall Considering the nature of their
agreement, they engaged in a Pre-
Upon agreement, the Tius are to assist subscription agreement
FLADC in the construction of a Php
20,000,000 worth building for 200,000 Besides the fact that it was held that the
shares and contribute to 2 parcels of Ongs cannot initiate an action to rescind
land P30M for 300K shares)and P49.8M because it is FLADC that had the right
for 49,800 shares. to, rescission will violate the Trust Fund
Doctrine and the procedures for the
The Ongs then paid Php190,000,000 to valid distribution of assets and property
PNB. under the Corporation Code.
On February 23, 1996, however, the The Trust Fund Doctrine provides that
Tius rescinded their pre-subscription. subscriptions to the capital stock of a
Upon their action with the SEC, the corporation constitute a fund to which
Commission validated the rescission, to the creditors have a right to look for
which the Ongs filed for a motion for the satisfaction of their claims.
reconsideration that their P70M was not
a premium on capital stock but an This doctrine is the underlying principle
advanced loan in the procedure for the distribution of
capital assets, embodied in the
SEC Corporation Code, which allows the
Ruled in favor of the Tius. It held to be a distribution of corporate capital only
premium on capital stock. in three instances:
CA 1. An amendment of the Articles of

The Ongs and the Tius were in pari Incorporation to reduce the
delicto, due to their inability to work with authorized capital stock

2. Purchase of redeemable shares among its incorporators. When the

by the corporation, regardless of parents of Angela who were also
the existence of unrestricted incorporators of FSCVI died, Angela
retained earnings, and inherited 70.82% of FSCVI’s total shares
3. Dissolution and eventual of stock. The distribution of FSVCI's
liquidation of the corporation. 24,000 total shares of stock is as
follows: (a) Angela with 16,998 shares;
The distribution of corporate assets and (b) Madrid with 1,000 shares; (c)
property cannot be made to depend on petitioner Rosina B. Velasco-Scribner
the whims and caprices of the (Scribner) with 6,000 shares; and (d)
stockholders, officers or directors of petitioners Irwin J. Seva (Seva) and
the corporation, or even, for that matter, Mercedez Sunico (Sunico) with one (1)
on the earnest desire of the court a quo share each.
"to prevent further squabbles and future
litigations" unless the indispensable In 2009, Angela died intestate and
conditions and procedures for the without issues. Subsequently,
protection of corporate creditors are Respondent Madrid executed an
followed Affidavit of Self-Adjudication covering
the latter's estate which includes her
In the instant case, the rescission of the 70.82% ownership of FSVCI's shares of
Pre-Subscription Agreement will stock. Believing that he is already the
effectively result in the unauthorized controlling stockholder of FSVCI by
distribution of the capital assets and virtue of such self-adjudication, Madrid
property of the corporation, thereby called for a Special Stockholders' and
violating the Trust Fund Doctrine and Re-Organizational Meeting to be held on
the Corporation Code. November 18, 2009.
Thereafter, petitioner Irwin J. Seva, in

his then-capacity as FSVCI corporate
5. F & S Velasco Company, Inc. vs. Madrid, secretary, called an Emergency Meeting
774 SCRA 388; to FSVCI’s remaining stockholders for
TOPIC: the purpose of electing a new president
and vice-president, as well as the
DOCTRINE: Shares of stock cannot be opening of a bank account. Such
accorded the rights pertaining to a meeting was held and attended by
stockholder - such as the right to call for Saturnino, Seva, and Sunico, during
a meeting and the right to vote, or be which, Saturnino was recognized as a
voted for - if his ownership of such member of the FSVCI Board of Directors
shares is not recorded in the Stock and and thereafter FSVCI President while
Transfer Book. Scribner was elected FSVCI-Vice
President (Saturnino Group).
FACTS: F & S Velasco Company, Inc.
(FSVCI) was duly organized and Despite the election conducted by the
registered as a corporation. Angela V. Saturnino Group, the Madrid Group
Madrid and her spouse, herein proceeded with the Special
respondent Dr. Rommel L. Madrid, were Stockholders' and Re-Organizational

Meeting on November 18, 2009, stockholder was transferring the shares to,
wherein the current members of FSVCI whether by sale or some other valid form of
Board of Directors (save for Madrid) absolute conveyance of ownership. The
were ousted and replaced by the only limitation imposed by Section 63 is
members of the Madrid Group. when the corporation holds any unpaid
Consequently, the Saturnino Group filed claim against the shares intended to be
a petition to declare the nullity of the transferred.
corporate election held by the Madrid
Group.
FACTS: Respondent Ting Ping purchased
The RTC ruled that respondent 480 shares of TCL Sales Corporation (TCL)
Madrid only has an equitable right from Peter Chiu (Chiu) from his brother
over Angela's 70.82% ownership of Teng Ching, petitioner, who was also the
FSVCI's shares of stock. As such, he president and operations manager of TCL
cannot exercise the rights accorded and 1440 shares from Maluto.
to such ownership, hence, making his
call for a meeting, as well as the actual Upon Teng's death, his son, Henry took
conduct of the November 18, 2009 over the management of TCL. To protect his
Meeting, invalid. On appeal, the Court shareholdings with TCL, Ting Ping requested
of Appeals reversed the decision and the corporate secretary, Teng, petitioner,
held that the meeting was legal and to enter the transfer in the Stock and
valid. Transfer Book of corporation for proper
recording of acquisition. He also demanded
ISSUE: Did respondent Madrid have the issuance of new certificates of stocks in his
right to exercise the rights accorded to favor. Corporation and Teng refused.
his ownership of 70.82% shares of stock Hence, Ting filed a case in the SEC in which
he inherited from his spouse Angela?
SEC granted the request of Ting and
ordered TCL to record the shares in the
RULING: NO. It must be clarified that
books of the Corporation.
Madrid's inheritance of Angela's shares
of stock does not ipso facto afford him
the rights accorded to such majority Petitioner then sought to compel Henry and
ownership of FSVCI's shares of stock. Ting Ping to interplead and settle the issue
of ownership over the 1,400 shares, which
were previously owned by Teng Ching. RTC
then reversed the decision of SEC finding
6. Anna Teng vs. SEC, 784 SCRA 216; that Henry have a better right of the shares
TOPIC: Transfer of shares | record in books of stock formerly owned by Teng Ching.
DOCTRINE: The delivery contemplated in Petitioner pointed out in their motion that
Section 63, however, pertains to the the annexes in Ting Ping's opposition did
delivery of the certificate of shares by the not include the subject certificates of stock,
transferor to the transferee, that is, from surmising that they could have been lost or
the original stockholder named in the destroyed. Ting Ping belied this, claiming
certificate to the person or entity the that his counsel already communicated with
TCL's counsel regarding the surrender of the
said certificates of stock. Teng then filed a

counter manifestation where she pointed ISSUE: W/N the surrender of the certificates
out a discrepancy between the total shares of stock is a requisite before registration of
of Maluto based on the annexes, which is the transfer may be made in the corporate
only 1305 shares, as against the 1440 books and for the issuance of new
shares acquired by Ting Ping based on the certificates in its stead.
SEC Order dated August 9, 2006.
RULING: NO. There is no legal basis for Ting
Petitioner's Argument: Ping to first surrender Chiu's and Maluto's
CA erred when it held that the surrender of respective certificates of stock before the
Maluto's stock certificates is not necessary transfer to Ting Ping may be registered in
before their registration in the corporate the books of the corporation. The delivery
books and before the issuance of new stock or surrender adverted to by Teng, i.e., from
certificates. She contends that prior to Ting Ping to TCL, is not a requisite before
registration of stocks in the corporate the conveyance may be recorded in its
books, it is mandatory that the stock books. To compel Ting Ping to deliver to
certificates are first surrendered because a the corporation the certificates as a
corporation will be liable to a bona fide condition for the registration of the
holder of the old certificate if, without transfer would amount to a restriction on
demanding the said certificate, it issues a the right of Ting Ping to have the stocks
new one. transferred to his name, which is not
sanctioned by law.
They contend that Section 63 of the Under Sec 63 of RCC, certain minimum
Corporation Code does not require the requisites must be complied with for there
surrender of the stock certificate to the to be a valid transfer of stocks, to wit:
corporation, nor make such surrender an a) there must be delivery of the stock
indispensable condition before any transfer certificate;
of shares can be registered in the books of b) the certificate must be endorsed by
the corporation. Ting Ping considers Section the owner or his attorney-in-fact or
63 as a permissive mode of transferring other persons legally authorized to
shares in the corporation. Citing Rural Bank make the transfer; and
of Salinas, Inc. v. CA, he claims that the only c) to be valid against third parties, the
limitation imposed by Section 63 is when transfer must be recorded in the
the corporation holds any unpaid claim books of the corporation.
against the shares intended to be
transferred. Thus, for as long as the shares The delivery contemplated in Section 63,
of stock are validly transferred, the however, pertains to the delivery of the
corporate secretary has the ministerial certificate of shares by the transferor to
duty to register the transfer of such shares the transferee, that is, from the original
in the books of the corporation, especially stockholder named in the certificate to the
in this case because no less than this Court person or entity the stockholder was
has affirmed the validity of the transfer of transferring the shares to, whether by sale
the shares in favor of Ting Ping. or some other valid form of absolute
conveyance of ownership. The only

limitation imposed by Section 63 is when NOTE: A certificate of stock is a written
the corporation holds any unpaid claim instrument signed by the proper officer of
against the shares intended to be a corporation stating or acknowledging
transferred. that the person named in the document is
the owner of a designated number of
In transferring stock, the secretary of a shares of its stock. It is prima facie
corporation acts in purely ministerial evidence that the holder is a shareholder
capacity, and does not try to decide the of a corporation. It is merely a tangible
question of ownership. If a corporation evidence of ownership of shares of stock.
refuses to make such transfer without good
cause, it may, in fact, even be compelled to There is no restriction to whom shares may
do so by mandamus. be transferred. As owner of personal
property, a shareholder is at liberty to
Further, a surrender of original certificate of dispose of them in favor of whomsoever he
stock is necessary before issuance of a new pleases, without any other limitation in this
one in order to protect the corporation and respect, than the general provisions of law.
the legitimate shareholder and public as
well, as it ensures that there is only one To be valid against third and the
document covering a particular share of corporation, the transfer must be recorded
stock. or registered in the books of corporation.
There are several reasons why registration
Hence, in this case, Teng cannot refuse of the transfer is necessary:
registration of the transfer on the pretext a) to enable the transferee to exercise
that the photocopies of Maluto's all the rights of a stockholder;
certificates of stock submitted by Ting Ping b) to inform the corporation of any
covered only 1,305 shares and not 1,440. As change in share ownership so that it
earlier stated, the respective duties of the can ascertain the persons entitled to
corporation and its secretary to transfer the rights and subject to the
stock are purely ministerial. Ting Ping was liabilities of a stockholder;
able to establish prima facie ownership c) to avoid fictitious or fraudulent
over the shares of stocks in question, transfers.
through deeds of transfer of shares of
stock of TCL Corporation. Moreso, Ting The manner of issuance of certificates of
manifested from the start his intention to stock is generally regulated by the
surrender the subject certificates of stock corporation's by-laws. Section 47 of the
to facilitate the registration of transfer for Corporation Code states: "a private
issuance of new one. Petitioners could not corporation may provide in its by-laws for x
repudiate these documents. Hence, the x x the manner of issuing stock certificates."
transfer of shares to him must be recorded Section 63, meanwhile, provides that "[t]he
on the corporation's stock and transfer. capital stock of stock corporations shall be
divided into shares for which certificates
The Court will not allow Teng and TCL to signed by the president or vice president,
frustrate Ting Ping's rights any longer. countersigned by the secretary or assistant
secretary, and sealed with the seal of the reply to Chute concerning a similar request
corporation shall be issued in accordance from her. Andaya responded by reiterating
with the by-laws. his earlier request for the registration of the
transfer and the issuance of new certificates
7. Andaya v. Rural Bank of Cabadbaran, of stock in his favor. Citing Section 98 of the
Inc., 799 SCRA 325; Corporation Code, he claimed that the
TOPIC: Transfer of shares | record in books purported restriction on the transfer of
shares of stock agreed upon during the
DOCTRINE: 2001 stockholders' meeting could not
deprive him of his right as a transferee. He
FACTS: Andaya bought from Chute 2,200 pointed out that the restriction did not
shares of stock in the Rural Bank of appear in the bank's articles of
Cabadbaran for P220,000. The transaction incorporation, bylaws, or certificates of
was evidenced by a notarized document stock.
denominated as sale of shares of stocks.
Chute duly endorsed and delivered the The Bank denied the request of Andaya
certificates of stock to Andaya and, citing conflict of interest, as he was
subsequently, requested the bank to president and CEO of Green Bank of
register the transfer and issue new stock Caraga, a competitor bank. Respondent
certificates in favor of the latter. Andaya bank concluded that the purchase of shares
also separately communicated with the was not in good faith, and that the
bank's corporate secretary, respondent purchase "could be the beginning of a
Oraiz, reiterating Chute's request for the hostile bid to take-over control". It also
issuance of new stock certificates in maintained that Chute should have first
petitioner's favor. offered her shares to the other
stockholders, as agreed upon during the
The corporate secretary wrote Chute to 2001 stockholders' meeting.
inform her that he could not register the
transfer. He explained that under a RTC ruled that petitioner Andaya was not
previous stockholders' Resolution, existing entitled to the remedy of mandamus, since
stockholders were given priority to buy the the transfer of the subject shares of stock
shares of others in the event that the latter had not yet been recorded in the
offered those shares for sale (i.e., a right of corporation's stock and transfer book, and
first refusal). He then asked Chute if she, the registered owner, Concepcion. Chute,
instead, wished have her shares offered to had not given him a special power of
existing stockholders. He told her that if no attorney to make the transfer.
other stockholder would buy them, she
could then proceed to sell her shares to ISSUE: Whether Andaya, as a transferee of
outsiders. shares of stock compel the Rural Bank of
Cabadbaran to record the transfer of
Andaya was informed that the latter's shares in its stock and transfer book, as
request had been referred to the bank's well as issue new stock certificates in his
board of directors for evaluation. He was name
also furnished a copy of the bank's previous
RULING: YES. Aggrieved parties may then stock standing in her name in favor of
resort to the remedy of mandamus to Andaya. This letter clearly indicated that
compel corporations that wrongfully or the registered owner herself had
unjustifiably refuse to record the transfer requested the registration of the transfer
or to issue new certificates of stock. This of shares of stock.
remedy is available even upon the instance
of a bona fide transferee who is able to
establish a clear legal right to the 8. Tee Ling Kiat vs. Ayala Corporation, 857
registration of the transfer. This legal right SCRA 533
inherently flows from the transferee's TOPIC: Record of transfer of shares in books
established ownership of the stocks. The
registration of a transfer of shares of stock DOCTRINE: Transfer, not having been
is a ministerial duty on the part of the recorded in the corporate books in
corporation. accordance with law, is not valid or
binding as to the corporation or as to
The only limitation imposed by Section 63 third persons.
of the Corporation Code is when the
FACTS: Respondent Ayala Corporation
corporation holds any unpaid claim against
instituted a Complaint for Sum of
the shares intended to be transferred.
Money with an application for a writ of
attachment against the Spouses Dewey
Consequently, transferees of shares of stock and Lily Dee where they obtained a
are real parties in interest having a cause of favorable decision. A Notice of Levy on
action for mandamus to compel the Execution was then issued and
registration of the transfer and the addressed to the Register of Deeds of
corresponding issuance of stock certificates. Antipolo City in order to levy upon "the
rights, claims, shares, interest, title and
In this case, Andaya has established that he participation" that the Spouses Dee may
is a bona fide transferee of the shares of have in parcels of land. Said parcels of
stock of Chute. He showed the following: land were registered in the name of
1. a notarized Sale of Shares of Stocks Vonnel Industrial Park, Inc. (VIP) over
showing Chute's sale of 2,200 shares which Dewey Dee was an incorporator.
of stock to petitioner.
Herein petitioner Tee Ling Kiat then filed
2. documentary stamp tax
a Third-Party Claim, alleging that while
declaration/return Mr. Dewey Dee was indeed one of the
3. capital gains tax returns incorporators of VIP, he is no longer a
4. stock certificates covering subject stockholder thereof, having sold to
shares duly endorsed by Chute. petitioner all of his stocks in VIP, as
evidenced by a cancelled check which
In the instant case, however, the submitted Dewey Dee issued in petitioner’s favor.
documents did not merely consist of an Hence, Dewey Dee no longer has any
endorsement. Rather, petitioner presented rights, claims, shares, interest, title
several undisputed documents, among and participation in VIP or any of its
which was respondent Oraiz's letter to properties.
Chute denying her request to transfer the
ISSUE: Was it sufficiently proven by Tee

Ling Kiat that Dewey Dee had in fact
sold his shares of stock to Tee Ling Kiat
in 1980, such that, as a result, Tee Ling
Kiat can be considered a real party-in-
interest in the Third-Party Claim, and
consequently, in the petition for certiorari
before the CA?
RULING: NO. Section 63 of the

Corporation Code of the Philippines
provides that: "No transfer, x x x shall
be valid, except as between the
parties, until the transfer is recorded
in the books of the corporation
showing the names of the parties to
the transaction, the date of the
transfer, the number of the certificate
or certificates and the number of
shares transferred." Here, the records
show that the purported transaction
between Tee Ling Kiat and Dewey
Dee has never been recorded in VIP's
corporate books.
Thus, the transfer, not having been MODULE 4(b): RIGHTS OF STOCKHOLDERS
recorded in the corporate books in (Sections 73-85)
accordance with law, is not valid or
binding as to the corporation or as to 1. Lee vs. CA 205 SCRA 725;
third persons. TOPIC: Sec 59; Voting Trust
In as much as the validity of the third- DOCTRINE: By its very nature, a voting
party claim would only be relevant if the trust agreement results in the separation
person instituting the same has of the voting rights of a stockholder from
established that he has a real interest in his other rights such as the right to
the levied property, the Court will not receive dividends, the right to inspect
belabor the merits of the third-party the books of the corporation, the right to
claim in view of the conclusive sell certain interests in the assets of the
determination that Tee Ling Kiat has not corporation and other rights to which a
adduced evidence to prove that the stockholder may be entitled until the
shares of stock of Dewey Dee were liquidation of the corporation. However,
indeed sold to him. in order to distinguish a voting trust
agreement from proxies and other
voting pools and agreements, it must
pass three criteria or tests, namely: (1)
that the voting rights of the stock are
separated from the other attributes of
ownership; (2) that the voting rights petitioners as its corporate officers was
granted are intended to be irrevocable proper.
for a definite period of time; and (3) that
the principal purpose of the grant of ISSUE: Was there a proper service of
voting rights is to acquire voting control summons on ALFA through the
of the corporation. petitioners as president and vice-
president, allegedly, of the subject
FACTS: In 1981, petitioners Ramon Lee corporation after the execution of a
and Antonio Lacdao, president and vice voting trust agreement between ALFA
president of Alfa Integrated Textile Mills and DBP?
(ALFA), disposed of all their shares
through an assignment and delivery in RULING: (Kindly refer to Section 58,
favor of the Development Bank of the RCC on Voting Trusts)
Philippines (DBP) as trustee.
NO. The facts of this case show that the
In 1985, a complaint for sum of money petitioners, by virtue of the voting trust
was filed by International Corporate agreement executed in 1981 disposed
Bank, Inc. against the private of all their shares through assignment
respondents Sacoba Manufacturing and delivery in favor of the DBP, as
Corp., Pablo Gonzales, Jr., and Thomas trustee. Consequently, the petitioners
Gonzales. In turn, private respondents ceased to own at least one share
filed a third-party complaint against standing in their names on the books
ALFA and petitioners. The RTC denied of ALFA as required under Section 23
the motion dismiss the third-party of the new Corporation Code. They also
complaint filed by petitioners and ceased to have anything to do with
ordered the service of summons to the management of the enterprise.
ALFA through petitioners. The petitioners ceased to be directors.
Hence, the transfer of the petitioners'
Petitioners argue that the summons for shares to the DBP created vacancies
ALFA was erroneously served upon in their respective positions as
them and claim that the execution of the directors of ALFA. The transfer of
voting trust agreement between them shares from the stockholder of ALFA
ALFA and DBP had the effect of to the DBP is the essence of the
assigning and transferring all their subject voting trust agreement.
shares in ALFA to DBP as trustee.
Hence, by virtue of said voting trust Considering that the voting trust
agreement, petitioners can no longer be agreement between ALFA and the DBP
considered as directors of ALFA. transferred legal ownership of the
stock covered by the agreement to the
On the other hand, private DBP as trustee, the latter became the
respondents argued that the voting stockholder of record with respect to the
trust agreement did not divest the said shares of stocks. In the absence
petitioners of their positions as of a showing that the DBP had
president and executive vice-president caused to be transferred in their
of ALFA, so that the service of names one share of stock for the
summons upon ALFA through the purpose of qualifying as directors of
ALFA, the petitioners can no longer
be deemed to have retained their capital stock and to vote therein the
status as officers of ALFA which was sequestered Class 'A' shares of stock. . . ."
the case before the execution of the
subject voting trust agreement. There ISSUE: W/N the PCGG can vote the
appears to be no dispute from the sequestered ETPI Class "A" shares in the
records that DBP has taken over full stockholders meeting for the election of the
control and management of the firm. board of directors.
RULING: NO. The PCGG cannot thus vote

2. Republic vs. Sandiganbayan, April 30,
sequestered shares, except when there are
2003;
demonstrably weighty and defensible
TOPIC: two tiered test in determining
grounds or when essential to prevent
whether the PCGG may vote sequestered
disappearance or wastage of corporate
shares.
property.
DOCTRINE:
The issue of whether PCGG may vote the
sequestered shares in SMC necessitates a
FACTS: PCGG conducted an Eastern
determination of at least two factual
Telecommunications, Philippines, Inc. (ETPI)
matters:
stockholders meeting during which a PCGG-
1. whether there is prima facie
controlled board of directors was elected. A
evidence showing that the said
special stockholders meeting was then later
shares are ill-gotten and thus
convened by the registered ETPI
belong to the state; and
stockholders wherein another set of board
2. whether there is an immediate
of directors was elected, as a result of
danger of dissipation thus
which two sets of such board and officers
necessitating their continued
were elected.
sequestration and voting by the
PCGG while the main issue pends
Petitioner Africa, a stockholder of ETPI,
with the Sandiganbayan.
alleging that the PCGG had since January
29, 1988 been "illegally 'exercising' the
The two-tiered test, however, does not
rights of stockholders of ETPI," especially in
apply in cases involving funds of public
the election of the members of the board of
character. In such cases, the government is
directors, filed a before the Sandiganbayan
granted the authority to vote said shares,
for the calling and holding of the ETPI
namely:
annual stockholders meeting for 1992
1. Where government shares are taken
under the Court's control and supervision
over by private persons or entities
and prescribed guidelines.
who/which registered them in their
own names, and
The PCGG assailed the foregoing resolution.
2. Where the capitalization or shares
The Sandiganbayan granted the PCGG
that were acquired with public funds
"authority to cause the holding of a special
somehow landed in private hands.
stockholders' meeting of ETPI for the sole
purpose of increasing ETPI's authorized

3. Republic vs. Cocofed, December 12, allowed to be voted by their registered

2001; owners.
TOPIC: two-tiered test no sequestered The Court issued a Resolution declaring that
shares the right of respondents to vote stock in
their names at the meetings of the UCPB
DOCTRINE: The two-tiered test is applied cannot be conceded at the time because
only when the sequestered asset in the such right still has to be established by
hands of a private person is alleged to have them before the Sandiganbayan. Until such
been acquired with ill-gotten wealth. is done, they cannot be deemed legitimate
Otherwise, the right to vote them is not owners of the UCPB stock and cannot be
subject to the two-tiered test, but to the accorded the right to vote them.
public character of their acquisition which
must first be determined. Later, the Court rendered its final Decision
nullifying and setting aside the Resolution of
FACTS: Pursuant to EO Nos. 1, 2, and 14 the the Sandiganbayan which lifted the
PCGG implemented sequestrations, freeze sequestration of the UCPB shares.
orders, and provisional takeovers of
allegedly ill-gotten companies, assets, and 6 years later, the Board of Directors of the
properties. Among the properties UCPB received a letter on behalf of the
sequestered were shares of stock in the alleged “one million coconut farmers” and
United Coconut Planters Bank (UCPB) COCOFED, demanding the holding of a
registered in the names of the alleged “one Stockholders’ Meeting for the purpose of
million coconut farmers,” the so-called electing the board of directors to which the
Coconut Industry Investment Fund (CIIF) Board of the UCPB approved.
companies and Eduardo Cojuangco Jr.
In view hereof, respondents, who were
Upon Motion of COCOFED, the acknowledged to be registered stockholders
Sandiganbayan issued a Resolution lifting of the UCPB, were authorized to exercise
the sequestration of the UCPB shares on their rights to vote their shares of stock
the ground that the CIIF companies and and themselves to be voted upon in the
COCOFED had not been impleaded by the UCPB at the scheduled Stockholders’
PCGG as parties-defendants in its Meeting; and to perform such acts as will
Complaint. normally follow in the exercise of these
rights as registered stockholders.
Meanwhile, upon Motion of Cojuangco, the
anti-graft court ordered the holding of ISSUE: Who may vote the sequestered
elections for the Board of Directors of the UCPB shares while the main case for their
UCPB. However, the PCGG applied for and reversion to the State is pending in the
was granted a Restraining Order enjoining Sandiganbayan?
the holding of the election. Subsequently,
the Restraining Order was lifted and the RULING: Government. The government
UCPB was ordered to proceed with the should be allowed to continue voting those
election of its board of directors. shares inasmuch as they were purchased
Furthermore, the sequestered shares were with coconut levy funds which are prima
facie public in character or, at the very beneficial owner should be given the
least, are “clearly affected with public privilege of enjoying the rights flowing from
interest.” the prima facie fact of ownership.
GENERAL RULE: The registered owner of
the shares of a corporation exercises the Here, the money used to purchase the
right and the privilege of voting. This sequestered UCPB shares came from the
principle applies even to shares that are Coconut Consumer Stabilization Fund
sequestered by the government, over (CCSF), otherwise known as the coconut
which the PCGG as a mere conservator levy funds. Having shown that the
cannot, as a general rule, exercise acts of sequestered UCPB shares were purchased
dominion. with coconut levy funds, it was held that
such are, at the very least, affected with
On the other hand, it is authorized to vote public interest. Thus, respondents, even if
these sequestered shares registered in the they are the registered shareholders,
names of private persons and acquired with cannot be accorded the right to vote them.
allegedly ill-gotten wealth if it is able to
satisfy the two-tiered test: To stress, the two-tiered test is applied
(1) Is there prima facie evidence showing only when the sequestered asset in the
that the said shares are ill-gotten, thus hands of a private person is alleged to have
belonging to the State?; and been acquired with ill-gotten wealth.
(2) Is there an imminent danger of
dissipation, thus necessitating their Here, the sequestered UCPB shares are
continued sequestration and voting by the confirmed to have been acquired with coco
PCGG, while the main issue is pending with levy funds, not with alleged ill-gotten
the Sandiganbayan? wealth. Thus, the right to vote them is not
subject to the two-tiered test, but to the
EXCEPTION: Sequestered Shares Acquired public character of their acquisition which
with Public Funds must first be determined.
The government is granted the authority to

vote the shares: (Public Character)
(1) Where government shares are taken
over by private persons or entities 4. Evangelista vs. Santos, 86 SCRA 387;
who/which registered them in their own TOPIC: Derivative Suit
names, and
(2) Where the capitalization or shares that DOCTRINE: The stockholders may not
were acquired with public funds somehow directly claim those damages, arising
landed in private hands. from the injury suffered by the
corporation, for themselves.
The exceptions are based on the common
sense principle that legal fiction must yield FACTS: Plaintiffs are minority stockholders
to truth; that public property registered in of the Vitali Lumber Company, Inc., a
the names of non-owners is affected with corporation organized for the exploitation
trust relations; and that the prima facie of a lumber concession. Defendant Rafael
Santos holds more than 50% of the stocks However, if the officers of the
of said corporation and is also the corporation, who are the ones called
president, manager, and treasurer thereof. upon to protect their rights, refuse to
Santos, in such triple capacity, through sue, or where a demand upon them to
fault, neglect, and abandonment, allowed file the necessary suit would be futile
its lumber concession to lapse and its because they are the very ones to be
properties and assets to disappear, thus sued or because they hold the
controlling interest in the corporation,
causing the complete ruin of the
the stockholders is allowed to bring suit.
corporation and total depreciation of its
Nevertheless, it is the corporation itself
stocks. and not the plaintiff-stockholder that is
the real party in interest so that such
Complainant prays to render an account of damages as may be recovered shall
his administration of the corporate affairs pertain to the corporation.
and assets and to pay plaintiffs the value of
their respective participation in said assets Here, plaintiffs-stockholders have
on the basis of the value of the stocks held brought the action not for the benefit
by each of them of the corporation, but for their own
benefit since they ask that defendant
ISSUE: WON plaintiffs-stockholders have Santos make good the losses
the right to bring this action for their own occasioned by his mismanagement and
benefit. pay to them the value of their respective
participation in the corporate assets on
RULING: NO. The complaint shows that the basis of their respective holdings.
the action is for damages resulting from This cannot be done until all corporate
mismanagement of the affairs and debts, if there be any, are paid; and the
assets of the corporation by its principal existence of the corporation terminated
officer, it being alleged that defendant by the limitation of its charter or by
Santos’ maladministration has brought lawful dissolution.
about the ruin of the corporation and the
consequent loss of value of its stocks. NOTE: Requisites Derivative Suit:
The injury complained of is thus 1. Stockholder at the time suit is being filed
primarily to the corporation so that 2. Exhausted all remedies intra-corporate
the suit for the damages claimed 3. Not a nuisance or harassment suit
should be by the corporation, rather
than by the stockholders. The
stockholders may not directly claim 5. Chua vs. CA, GR No. 150793, November
those damages for themselves for that 19, 2004;
would result in the appropriation and the TOPIC: Derivative suit
distribution among them of part of the
corporate assets before the dissolution DOCTRINE: An individual stockholder is
of the corporation and the liquidation of
permitted to institute a derivative suit on
its debts and liabilities which is
behalf of the corporation wherein he
something that cannot be legally done.
holds stocks in order to protect or
vindicate corporate rights, whenever the
officials of the corporation refuse to sue,
or are the ones to be sued, or hold the action against Chua as it was Hao who
control of the corporation. If a instituted the action.
corporation has a defense to an action
against it and is not asserting it, a For a derivative suit to prosper, it is
stockholder may intervene and defend required that the minority
on behalf of the corporation. For a stockholder suing for and on behalf
derivative suit to prosper, it is required of the corporation must allege in his
that the minority stockholder suing complaint that he is suing on a
for and on behalf of the corporation derivative cause of action on behalf
must allege in his complaint that he of the corporation and all other
is suing on a derivative cause of stockholders similarly situated who may
action on behalf of the corporation. wish to join him in the suit. It is a
condition sine qua non that the
FACTS: Private respondent Lydia Hao, corporation be impleaded as a party
treasurer of Siena Realty Corporation, because not only is the corporation an
filed a complaint charging petitioner, indispensable party, but it is also the
Chua of falsification of public present rule that it must be served with
documents. Hao claimed that they process. The judgment must be made
falsified the minutes of the annual binding upon the corporation in order
stockholders meetings where it was that the corporation may get the benefit
shown in the minutes that Lydia Hao of the suit and may not bring
was present when she was infact not. subsequent suit against the same
defendants for the same cause of
Chua argued before the CA that Hao action. Thus, the corporation must be
had no authority to bring a suit on behalf joined as party because it is its cause of
of Siena Realty Corporation since there action that is being litigated and
was no Board Resolution authorizing her because judgment must be a res
to file the suit. judicata against it.
ISSUE: W/N the criminal complaint is in the Here, nowhere in the criminal
nature of a derivative suit? complaint filed by Hao is it stated that
she is filing the same on behalf and for
RULING: NO. The criminal complaint was the benefit of the corporation. Thus, the
instituted by Hao against Chua for criminal complaint including the civil
falsifying corporate documents whose aspect thereof could not be deemed in
subject concerns corporate projects of the nature of a derivative suit.
Siena Realty Corporation. Clearly, Siena
Realty Corporation is an offended party.
Thus, Siena Realty Corporation has a 6. Expert Travel & Tours, Inc. vs. Court of
cause of action; and the civil case for Appeals and Korean Airlines GR No.
the corporate cause of action is deemed 152392, May 26, 2005;
instituted in the criminal action. TOPIC:
DOCTRINE: The certificate of non-forum

However, the board of directors of Siena shopping must be accomplished by the
Realty Corporation did not institute the party himself because he has actual
knowledge of whether or not he has Kyoo Kim alleged that KAL had no
initiated similar actions or proceedings in written copy of said resolution.
different courts or tribunals; and the
certificate executed by plaintiff’s counsel ISSUE: W/N Aguinaldo is authorized to sign
will not suffice. the certificate of non-forum shopping.
FACTS: Respondent Korean Airlines RULING: NO. A certification of forum

(KAL) is a corporation established and shopping must be accomplished by the
registered in South Korea and licensed party himself because he has actual
to do business in the Philippines. knowledge of whether or not he has
initiated similar actions or proceedings in
KAL, through Atty. Aguinaldo, filed a
different courts or tribunals; and the
Complaint against petitioner Expert
certification executed by plaintiff’s counsel
Travel & Tours, Inc. (ETI) for the
collection of the principal amount of will not suffice.
Php260,150.00. The verification and
certification of non-forum shopping was In a case where plaintiff is a private
signed by Atty. Aguinaldo who indicated corporation, the certification may be
therein that he was the resident agent signed, for and on behalf of the said
and legal counsel of KAL, and had corporation, by a specifically
caused the preparation of the authorized person, including its
Complaint. retained counsel, who has personal
knowledge of the facts required to be
ETI filed a Motion to Dismiss the established by the documents.
Complaint on the ground that Atty.
Aguinaldo was not authorized to execute Here, while Atty. Aguinaldo is the
the verification and certificate of non- resident agent of KAL, this does not
forum shopping. KAL opposed the mean that he is authorized to execute
Motion, contending that Atty. Aguinaldo the certification of non-forum shopping.
was its resident agent and was Under Section 127, in relation to Section
registered as such with the SEC; and 128 of the Corporation Code, the
was also its corporate secretary. authority of the resident agent of a
Appended therein was the identification foreign corporation with license to do
card of Atty. Aguinaldo, showing that he business in the Philippines is to receive,
was the lawyer of KAL. for and on behalf of the foreign
corporation, services and other legal
Finally, KAL submitted an Affidavit processes in all actions and other legal
executed by its general manager Suk proceedings against such corporation.
Kyoo Kim, alleging that the Board of
Directors conducted a special A resident agent may be aware of
teleconference which he and Atty. actions filed against his principal (a
Aguinaldo attended wherein the Board foreign corporation doing business in
of Directors approved a resolution the Philippines), however, such
authorizing Atty. Aguinaldo to execute resident agent may not be aware of
the certificate of non-forum shopping actions initiated by its principal,
and to file the Complaint. However, Suk whether in the Philippines against a
domestic corporation or private
individual, or in the country where requesting it must not have been guilty
such corporation was organized and of using improperly any information
registered, against a Philippine through a prior examination; and that the
registered corporation or a Filipino person asking for such examination
citizen. must be acting in good faith and for a
legitimate purpose in making his
KAL knew that its counsel, Atty. demand.
Aguinaldo, as its resident agent, was
not specifically authorized to execute FACTS: Petitioner, Gonzales requested to
the said certification. It attempted to look into the books and records of
show its compliance by submitting a respondent bank in order to satisfy himself
resolution purporting to have been as to the truth questioning different
approved by its Board of Directors transactions entered into by PNB with
during a special teleconference, other parties. In view thereof, he
allegedly with Suk Kyoo Kim and Atty. expressed and made known his
Aguinaldo in attendance. However, such intention to acquire one share of
attempt of KAL casts veritable doubt not stock from Congressman Justiniano
only on its claim that such a special Montano which was transferred in his
teleconference was held, but also on the name in the books of PNB.
approval by the Board of Directors of the Subsequently, Gonzales, in his dual
resolution authorizing Atty. Aguinaldo to capacity as a taxpayer and stockholder,
execute the certificate of non-forum filed three civil cases involving the bank
shopping. or the members of its Board of Directors.
Gonzales addressed a letter to the

President of PNB, requesting
submission to look into the records
of PNB’s transactions. Later, the Asst.
Vice-President and Legal Counsel of
PNB denied Gonzales’ request for being
not germane to his interest as a one-
share stockholder and for the cloud of
doubt as to his real intention and
purpose in acquiring said share.
The court a quo denied the prayer of

Gonzales that he be allowed to examine
and inspect the books and records of
PNB regarding certain transactions on
the ground that the right of a stockholder
to inspect the record of the business
7. Gonzales vs. PNB, 122 SCRA 489; transactions of a corporation is not
TOPIC: Right of inspection absolute, but is limited to purposes
reasonably related to the interest of the
DOCTRINE: As a condition for such stockholder, must be asked for in good
examination, it is required that the one faith for a specific and honest purpose,
and not gratify curiosity or for good faith and proper motivation.
speculative or vicious purposes. Admittedly, he sought to be a
stockholder in order to pry into
Issue: WON the request for inspection transactions entered into by PNB even
of the corporation records by a before he became a stockholder. His
stockholder may be denied on the obvious purpose was to arm himself
ground that it is intended for an improper with materials which he can use
motive or purpose. against PNB for acts done by the
latter when petitioner was a total
Ruling: YES. The right of inspection stranger to the same. It could not be
granted to a stockholder are the said that his purpose is germane to his
following: (1) the records must be kept interest as a stockholder.
at the principal office of the corporation;
(2) the inspection must be made on
business days; (3) the stockholder may Nestor Ching and Andrew Wellington v.
demand a copy of the excerpts of the Subic Bay Golf and Country Club, Inc., G.R.
records or minutes; and (4) the refusal No. 174353, September 10, 2014;
to allow such inspection shall subject the TOPIC: Right to file a derivative suit
erring officer or agent of the corporation
to civil and criminal liabilities.
DOCTRINE: A stockholder's right to institute
a derivative suit is not based on any express
It is now expressly required as a
condition for such examination that the provision of the Corporation Code, or even
one requesting it must not have been SRC, but is impliedly recognized when the
guilty of using improperly any said laws make corporate directors or
information through a prior examination; officers liable for damage suffered by the
and that the person asking for such corporation and its stockholders for
examination must be acting in good faith violation of their fiduciary duties.
and for a legitimate purpose in making
his demand. FACTS: Petitioners, Ching and Wellington
filed a complaint on behalf of the members
Although petitioner has claimed that of Subic Bay Golf and Country Club against
he has justifiable motives in seeking the country club and its board of directors
the inspection of the books of PNB, and officers.
he has not set forth the reasons and
the purposes for which he desires such The complaint alleged that the defendant
inspection, except to satisfy himself
corporation sold shares to plaintiffs at
as to the truth of published reports
US$22,000.00 per share. They further claim
regarding certain transactions
entered into by PNB and to inquire that the amended AOI which states that
into their validity. shares are non-proprietary as it takes away
the right of the shareholders to participate
The circumstances under which in the pro-rata distribution of the assets of
petitioner acquired one share of stock in the corporation after its dissolution.
the PNB purposely to exercise the right According to petitioners, this is in fraud of
of inspection do not argue in favor of his the stockholders who only discovered the

amendment when they filed a case for d) Corporation did not paid rentals to
injunction to restrain the corporation from SBMA and electric bills.
suspending their rights to use all the e) SC terminated contract with SBMA
facilities of the club. Furthermore, and they are operating without any
petitioners alleged that the Board of valid contract with SBMA. Further,
Directors and officers of the corporation did they defied the order of the SC to
not call any stockholders’ meeting from the yield operations to SBMA
time of the incorporation, in violation of f) There is loss of investment and
Section 50 of the Corporation Code and the stocks value have decreased due to
By-Laws of the corporation. Neither did the fraudulently mismanagement of club
defendant directors and officers furnish such as poor maintenance.
the stockholders with the financial
statements of the corporation nor the Respondent's contention:
financial report of the operation of the They deny the allegations of the complaint
corporation in violation of Section 75 of the claiming that (a) they never presented the
Corporation Code. Petitioners also claim original Articles of Incorporation of SBGCCI
that on August 15, 1997, SBGCCI presented since their shares were purchased after the
to the SEC an amendment to the By-Laws of amendment of the Articles of Incorporation
the corporation suspending the voting and such amendment was publicly known
rights of the shareholders except for the to all members prior and subsequent to the
five founders’ shares. Said amendment was said amendment. Further, (b) there are
allegedly passed without any stockholders’ shareholders meetings and the financial
meeting or notices to the stockholders in statements had always been presented to
violation of Section 48 of the Corporation shareholders justifiably requesting copies
Code. and (c) they have a valid contract with
SBMA. Lastly, (d) they were never
The Complaint furthermore enumerated authorized by SBGSI to file a case in behalf
several instances of fraud in the of them.
management of the corporation allegedly
committed by the Board of Directors and RTC: Petitioners failed to exhaust remedies
officers of the corporation, particularly: within the respondent corporation itself.
a) Did not indicate financial report for The RTC further observed that petitioners
the year of 1999. Ching and Wellington were not authorized
b) Corporation has been collecting by their co-petitioner Subic Bay Golfers
green fees without including it in and Shareholders Inc. to file the Complaint,
their yearly report. and therefore had no personality to file the
c) The yearly report for the year 1999 same on behalf of the said shareholders’
contains the report of the corporation. While the caption of the
Independent Public Accountant who Complaint also names the “Subic Bay
stated that the company was Golfers and Shareholders Inc. for and in
incorporated on April 1, 1996 but behalf of all its members,” petitioners did
has not yet started its regular not attach any authorization from said
business operation. alleged corporation or its members to file
the Complaint. Thus, the Complaint is
deemed filed only by petitioners and not by PD No. 902-A does not grant minority
SBGSI. stockholders a cause of action against
waste and diversion by the Board of
Petitioners claim that SRC allows any Directors, but merely identifies the
stockholder to file a complaint against the jurisdiction of the SEC over actions already
Board of Directors for employing devices authorized by law or jurisprudence. It is
or schemes amounting to fraud and settled that a stockholder’s right to
misrepresentation which is detrimental to institute a derivative suit is not based on
the interest of the public and/or the any express provision of the Corporation
stockholders. Code, or even the Securities Regulation
Code, but is impliedly recognized when the
ISSUE: W/N complaint is indeed a derivative said laws make corporate directors or
suit? officers liable for damages suffered by the
corporation and its stockholders for
RULING: NO. In cases of mismanagement violation of their fiduciary duties.
where the wrongful acts are committed by
the directors or trustees themselves, a While there were allegations in the
stockholder or member may find that he complaint of fraud in their subscription
has no redress because the former are agreements, such as misrepresentation of
vested by law with the right to decide AOI, petitioners do not pray of their
whether or not the corporation should sue, subscription or seek to avail of their
and they will never be willing to sue appraisal rights. Instead, they ask that
themselves. The corporation would thus be defendants be enjoined from managing the
helpless to seek remedy. Because of the corporation and to pay damages for their
frequent occurrence of such a situation, the mismanagement. Petitioners’ only possible
common law gradually recognized the right cause of action as minority stockholders
of a stockholder to sue on behalf of a against the actions of the Board of Directors
corporation in what eventually became is the common law right to file a derivative
known as a “derivative suit.” It has been suit. The legal standing of minority
proven to be an effective remedy of the stockholders to bring derivative suits is not
minority against the abuses of a statutory right, there being no provision in
management. Thus, an individual the Corporation Code or related statutes
stockholder is permitted to institute a authorizing the same, but is instead a
derivative suit on behalf of the corporation product of jurisprudence based on equity.
wherein he holds stock in order to protect However, a derivative suit cannot prosper
or vindicate corporate rights, whenever without first complying with the legal
officials of the corporation refuse to sue or requisites for its institution.
are the ones to be sued or hold the control
of the corporation. In such actions, the Section 1, Rule 8 of the Interim Rules of
suing stockholder is regarded as the Procedure Governing Intra-Corporate
nominal party, with the corporation as the Controversies imposes the following
party in interest. requirements for derivative suits:

1. He was a stockholder or member at 9. Lim vs. Moldex Land, Inc., 815 SCRA 619;
the time the acts or transactions TOPIC: Voting Rights in Non-stock
subject of the action occurred and at corporation
the time the action was filed;
2. He exerted all reasonable efforts, DOCTRINE: The basis in determining the
and alleges the same with presence of quorum in non- stock
particularity in the complaint, to corporations is the numerical equivalent of
exhaust all remedies available under all members who are entitled to vote,
the articles of incorporation, by- unless some other basis is provided by the
laws, laws or rules governing the By-Laws of the corporation. The
corporation or partnership to obtain qualification "with voting rights" simply
the relief he desires; recognizes the power of a non-stock
3. No appraisal rights are available for corporation to limit or deny the right to
the act or acts complained of; and vote of any of its members. To include these
4. The suit is not a nuisance or members without voting rights in the total
harassment suit. number of members for purposes of
quorum would be superfluous for although
With regard, to the second requisite, we they may attend a particular meeting, they
find that petitioners failed to state with cannot cast their vote on any matter
particularity in the Complaint that they had discussed therein.
exerted all reasonable efforts to exhaust
all remedies available under the articles of FACTS: Lim, petitioner, is a registered unit
incorporation, by-laws, and laws or rules owner of Golden Empire Tower, a
governing the corporation to obtain the condominium project of Moldex, developer
relief they desire. The Complaint contained respondent. Condocor, a non-stock, non-
no allegation whatsoever of any effort to profit corporation, is the registered
avail of intra-corporate remedies. Indeed, condominium corporation for the Golden
even if petitioners thought it was futile to Empire Tower. Lim, as a unit owner of
exhaust intra-corporate remedies, they Golden Empire Tower, is a member of
should have stated the same in the Condocor. Moldex became a member of
Complaint and specified the reasons for Condocor on the basis of its ownership of
such opinion. the 220 unsold units in the Golden Empire
Tower. The individual respondents acted: as
its representatives.
Lim claimed that individual respondents

are non-unit buyers, but all are members
of the Board of Directors of Condocor,
having been elected during its
organizational meeting in 2008. They were
again elected during the July 21, 2012
general membership meeting.

On July 21, 2012, Condocor held its annual purchaser. She advanced the view that the
general membership meeting. Its corporate ownership of Moldex was only in the nature
secretary certified, and Jaminola, as of an owner-developer and only for the sole
Chairman, declared the existence of a purpose of selling the units
quorum even though only 29 of the 1088
unit buyers were The declaration of RTC ruled in favor of respondents.
quorum was based on the presence of the
majority of the voting rights, including ISSUE:
those pertaining to the 220 unsold units 1) W/N the 2012 Annual General
held by Moldex through its representatives. Membership Meeting and Organizational
Lim, through her attorney-in-fact, objected Meeting of Condocor's Board of Directors is
to the validity of the meeting. The objection valid?
was denied. Thus, Lim and all the other unit
owners present, except for one, walked out 2) W/N petitioner is still a member of
and left the meeting. CONDOCOR?
Despite the walkout, the individual 3) W/N Moldex is a member of Condocor

respondents and the other unit owner
proceeded with the annual general 4) W/N Moldex may appoint a duly
membership meeting and elected the new authorized representative?
members of the Board of Directors for
2012-2013. 5) W/N the individual respondents be
elected as directors of Condocor?
They argued that Lim had no cause of RULING:
action to file the subject action because
she was no longer the owner of a 1) NO. There was no quorum, any
condominium unit by virtue of a Deed of resolution passed during the July 21, 2012
Assignment she executed in favor of annual membership meeting was null and
Reynaldo Valera Lim and Dianna Mendoza void and, therefore, not binding upon the
Lim, her nephew and niece. corporation or its members. The meeting
being null and void, the resolution and
Petitioner's Argument: disposition of other legal issues emanating
They argued that Moldex cannot be a from the null and void July 21, 2012
member of Condocor. She insisted that a membership meeting has been rendered
condominium corporation is an association unnecessary.
of homeowners for the purpose of
managing the condominium project, among A stockholders' or members' meeting must
others. Thus, it must be composed of actual comply with the following requisites to be
unit buyers or residents of the valid:
condominium project. Lim further averred 1. The meeting must be held on the
that the ownership contemplated by law date fixed in the By- Laws or in
must result from a sale transaction accordance with law;
between the owner- developer and the
2. Prior written notice of such meeting counted for purposes of quorum. As can be
must be sent to all gleaned from Condocor's By-Laws, there are
stockholders/members of record; two (2) kinds of members: 1) members in
3. It must be called by the proper good standing; and 2) delinquent members.
party; Section 6 merely stresses that delinquent
4. It must be held at the proper place; members are not to be taken into
and consideration in determining quorum. In
5. Quorum and voting requirements relation thereto, Section 7 of the By-Laws,
must be met. referring to voting rights, also qualified that
only those members in good standing are
The existence of a quorum is crucial. Any entitled to vote. Delinquent members are
act or transaction made during a meeting stripped off their right to vote. Clearly,
without quorum is rendered of no force and contrary to the ruling of the RTC, Sections 6
effect, thus, not binding on the corporation and 7 of Condocor's By-Laws do not provide
or parties concerned. For stock that majority of the total voting rights,
corporations, the quorum is based on the without qualification, will constitute a
number of outstanding voting stocks while quorum.
for non-stock corporations, only those who
are actual, living members with voting Further, quorum is different from voting
rights shall be counted in determining the rights. Applying the law and Condocor's By-
existence of a quorum. Laws, if there are 100 members in a non-
stock corporation, 60 of which are members
The basis in determining the presence of in good standing, then the presence of 50%
quorum in non- stock corporations is the plus 1 of those members in good standing
numerical equivalent of all members who will constitute a quorum. Thus, 31 members
are entitled to vote, unless some other in good standing will suffice in order to
basis is provided by the By-Laws of the consider a meeting valid as regards the
corporation. The qualification "with voting presence of quorum. The 31 members will
rights" simply recognizes the power of a naturally have to exercise their voting
non-stock corporation to limit or deny the rights. It is in this instance when the
right to vote of any of its members. To number of voting rights each member is
include these members without voting entitled to becomes significant. If 29 out of
rights in the total number of members for the 31 members are entitled to 1 vote each,
purposes of quorum would be superfluous another member (known as A) is entitled to
for although they may attend a particular 20 votes and the remaining member
meeting, they cannot cast their vote on any (known as B) is entitled to 15 votes, then
matter discussed therein. the total number of voting rights of all 31
members is 64. Thus, majority of the 64
Section 6 of Condocor's By-Laws reads: "The total voting rights, which is 33 (50% plus 1),
attendance of a simple majority of the is necessary to pass a valid act. Assuming
members who are in good standing shall that only A and B concurred in approving a
constitute a quorum...xx x." The phrase, specific undertaking, then their 35
"members in good standing," is a mere combined votes are more than sufficient to
qualification as to which members will be authorize such act. The By-Laws of
Condocor has no rule different from that exercise its membership rights and
provided in the Corporation Code with privileges, it necessarily has to appoint its
respect the determination of the existence representatives. The owner's representative
of a quorum. The quorum during the July is entitled to enjoy and avail himself of all
21, 2012 meeting should have been the rights and privileges, and perform all
majority of Condocor's members in good the duties and responsibilities of a member
standing. Accordingly, there was no quorum of the corporation. The law and Condocor's
during the July 21, 2012 meeting By-Laws evidently allow proxies in
considering that only 29 of the 108 unit members' meeting.
buyers were present.
5) NO. The Corporation Code clearly
2) YES. Although the bylaws of the provides that a director or trustee must be
corporation states that a transfer of units a member of record of the corporation.
shall automatically cease to be a member of Further, the power of the proxy is merely to
corporation, it is shown that there is vote. If said proxy is not a member in his
nothing in the records that that shows the own right, he cannot be elected as a
alleged transfer to be registered with the director or proxy.
register of deeds. Until registration is
effected, Lim would still be the registered
owner. Further, Lim merely assigned his
rights not transfer the unit to his nephew. 10. Roque vs. People of the Philippines,
826 SCRA 618;
3) NO. There is no law that states that an TOPIC: Section 74 of RCC (Right to Financial
owner-developer of a condominium project Statement)
cannot be a member of a condominium
corporation. A condominium corporation is DOCTRINE:
not just a management body of the
condominium project. It also holds title to FACTS: Barangay Mulawin Tricycle
the common areas, including the land, or Operators and Drivers Association, Inc.
the appurtenant interests in such areas. (BMTODA) became a corporation duly
registered with the Securities and Exchange
It is erroneous to argue that the ownership Commission (SEC). In 2003, Ongjoco, a
must result from a sale transaction between member of BMTODA, learned that funds of
the owner-developer and the purchaser. association were missing. He requested
Such interpretation would mean that copies of the association documents
persons who inherited a unit, or have been pursuant to his right to examine records
donated one, and properly transferred title under Section 74 of the RCC (Right to
in their names cannot become members of Financial Statement). However, Singson,
a condominium corporation. the Secretary of BMTODA, denied his
request.
4) YES. A corporation can act only through
natural persons duly authorized for the Further, Ongjoco also learned that the
purpose or by a specific act of its board of incumbent officers were holding office for
directors. Thus, in order for Moldex to three years already, in violation of the one-
year period provided for in BMTODA's by- to examine and copy excerpts from its
laws. He then requested from Roque, the records or minutes. Section 144 of the same
President of BMTODA, a copy of the list of Code further provides for other applicable
its members with the corresponding penalties in case of violation of any
franchise numbers of their respective provision of the Corporation Code.
tricycle fees and the franchise fees paid by
each member, but Roque denied Ongjoco's Hence, to prove any violation under the
request. aforementioned provisions, it is necessary
that:
Ongjoco then filed a complaint against 1. a director, trustee, stockholder or
Roque and Singson for violation of Section member has made a prior demand
74 of RCC in relation to Section 144 because in writing for a copy of excerpts
of refusal to furnish him copies of records from the corporations records or
pertaining BMTODA. He cited that the minutes;
President and Secretary refused to allow 2. any officer or agent of the
stockholders, members, directors or concerned corporation shall refuse
trustees to examine and copy excerpt from to allow the said director, trustee,
records or minutes of the association after stockholder or member of the
demand in writing. corporation to examine and copy
said excerpts;
Petitioner's argument: 3. if such refusal is made pursuant to a
Petitioner contends that there is want of resolution or order of the board of
evidence to prove that BMTODA is a directors or trustees, the liability
corporation duly established and organized under this section for such action
under the Corporation Code; thus, he spall be imposed upon the directors
cannot be prosecuted under the penal or trustees who voted for such
provisions of the said code. Moreover, refusal; and
Roque also tries to exculpate himself from 4. where the officer or agent of the
liability by claiming Singson's denial of the corporation sets up the defense that
request of Ongjoco as Singson's personal the person demanding to examine
act. Lastly, Roque argues that when the and copy excerpts from the
letters were received by him and Singson, corporation's records and minutes
BMTODA's registration was already has improperly used any information
revoked. Hence, BMTODA ceased to exist secured through any prior
as a corporation. examination of the records or
minutes of such corporation or of
ISSUE: W/N a corporation may be held any other corporation, or was not
liable for violation of Section 74 of the RCC? acting in good faith or for a
legitimate purpose in making his
RULING: YES. Section 74 of the Corporation demand, the contrary must be
Code provides for the liability for damages shown or proved.
of any officer or agent of the corporation
for refusing to allow any director, trustee, Clearly, Ongjoco, as a member of BMTODA,
stockholder or member of the corporation had a right to examine documents and
records pertaining to said association. To BMTODA's list of its members with the
recall, Ongjoco made a prior demand in corresponding franchise body numbers of
writing for copy of pertinent records of their respective tricycles and franchise fees
BMTODA from Roque and Singson. paid by each member. Also, what was
However, both of them refused to furnish requested from Singson pertains to an
Ongjoco copies of such pertinent records. entirely different document. Thus, Singson's
is immateriail, and does not detract from
Further, while it appears that the Roque's denial of Ongjoco's request to
registration of BMTODA as a corporation access the above-mentioned document. For
with the SEC was revoked on September his individual and separate act, Roque
30, 2003, the letter-request of Ongjoco to should be held accountable. Hence, Roque's
Singson, which was dated while BMTODA's denial is unquestionably considered as a
registration was revoked, was actually violation under the Corporation Code.
received by Singson after the revocation
was lifted. In a Letter dated October 11,
2004, the General Counsel of the SEC made
it clear that the SEC lifted the revocation of 11. Belo Medical Group, Inc. vs. Santos,
BMTODA's registration on August 30, 2004. 838 SCRA 142;
As the CA correctly observed, the letter- TOPIC: Intra-Corporate Dispute |
request was received by Singson on Relationship Test | Nature of Controversy
September 23, 2004 when BMTODA had Test
regained its active status. In any case, the
revocation of a corporation's Certificate of DOCTRINE: A conflict between two (2)
Registration does automatically warrant the stockholders of a corporation does not
extinction of the corporation itself such that automatically render their dispute as intra-
its rights and liabilities are likewise corporate. The relationship and nature of
altogether extinguished. the controversy must also be examined.
Thus, the revocation of BMTODA's FACTS: Belo Medical Group denied the
registration does not automatically strip request from Santos for the inspection of
off Ongjoco of his right to examine corporate records. Santos claimed that he
pertinent documents and records relating was a registered shareholder and a co-
to such association. Also, since Roque owner of Belos shares. Santos sought advice
admitted the revocation of BMTODA's on his probable removal as director of the
registration, he cannot come forward and corporation considering that he was not
disclaim BMTODA's registration with the notified of meetings where he could have
SEC as a corporation. It is logical to presume been removed. He also inquired on the
that a registration precedes the revocation election of Alfredo Henares (Henares) as
thereof; as any registration cannot be Corporate Secretary in 2007 when Santos
revoked without its valid existence. had not been notified of a meeting for
Henares possible election. Finally, he sought
A reading of this present Petition reveals explanation on the corporations failure to
that Roque admitted his denial of Ongjoco's inform him of the 2007 annual meeting and
request, i.e., to furnish him a copy of the holding of an annual meeting in 2008.
Santos concern over the corporate shareholders in Belo Medical Groups

operations arose from the alleged death of Articles of Incorporation and General
a patient in one (1) of its clinics. Information Sheet for 2007. The conflict is
clearly intra-corporate as it involves two (2)
Petitioner's Argument: shareholders, although the ownership of
Belo claimed that Santos held the 25 shares stocks of one stockholder is questioned.
in his name merely in trust for her, as she, Unless Santos is adjudged as a stranger to
and not Santos, paid for these shares. She the corporation because he holds his shares
informed Belo Medical Group that Santos only in trust for Belo, then both he and
already had a pending petition with the Belo, based on official records, are
Regional Trial Court to be declared as co- stockholders of the corporation. They
owner of her properties thus to include continue to be stockholders until a decision
inspection of corporate books to the is rendered on the true ownership of the 25
controversy is premature considering that shares of stock in Santos name. If Santos
there is still no determination as to who, subscription is declared fictitious and he still
between Belo and Santos, is the rightful insists on inspecting corporate books and
owner of the 25 shares of stock. She exercising rights incidental to being a
asserted that unless a decision was stockholder, then, and only then, shall the
rendered in Santos favor, he could not case cease to be intra-corporate.
exercise ownership rights over her
properties. Applying the nature of the controversy
test, this is still an intra- corporate dispute.
Further, it is alleged that Santos had a The Complaint for interpleader seeks a
business in direct competition with it. She determination of the true owner of the
suspected that Santos request to inspect shares of stock registered in Santos name.
the records of Belo Medical Group was a Ultimately, however, the goal is to stop
means to obtain a competitors business Santos from inspecting corporate books.
information, and was, therefore, in bad This goal is so apparent that, even if Santos
faith. is declared the true owner of the shares of
stock upon completion of the interpleader
Belo prayed that Santos be perpetually case, Belo Medical Group still seeks his
barred from inspecting its books due to his disqualification from inspecting the
business interest in a competitor. corporate books based on bad faith.
Therefore, the controversy shifts from a
ISSUE: W/N the present controversy is mere question of ownership over movable
intra- corporate property to the exercise of a registered
stockholders proprietary right to inspect
RULING: YES. To determine whether an corporate books.
intra-corporate dispute exists the
relationship and nature of the controversy A conflict between two (2) stockholders of a
test must apply. corporation does not automatically render
their dispute as intra- corporate. The nature
Applying the relationship test, this Court of the controversy must also be examined.
notes that both Belo and Santos are named
stockholders is settled. Despite the

12. Villongco vs. Yabut, 854 SCRA 132 postponement, however, Cecilia proceeded
TOPIC: Section 63 with the scheduled annual stockholder's
meeting participated only by a few
DOCTRINE: The right to vote is inherent in stockholders. In the said meeting, they
and incidental to the ownership of elected the new members of the Board of
corporate stocks. It is settled that unissued Directors and officers of Phil-Ville namely:
stocks may not be voted or considered in Cecilia, Ma. Corazon and Eumir,
determining whether a quorum is present in Chairman/Vice President/Treasurer,
a stockholders' meeting. Only stocks President/General Manager, and Secretary,
actually issued and outstanding may be respectively. Meanwhile, two days prior to
voted. Thus, for stock corporations, the the stockholders meeting together with
quorum is based on the number of several others, had already filed a
outstanding voting stocks. The distinction of Complaint for Annulment of
undisputed or disputed shares of stocks is Sale/Distribution or Settlement of Shares of
not provided for in the law or the Stock/Injunction against Cecilia, Eumir Carlo
jurisprudence. Ubi lex non distinguit nec and Ma. Corazon. They subsequently filed
nos distinguere debemus — when the law and Amended and Supplemental Complaint
does not distinguish we should not for Annulment of Sale/Distribution or
distinguish. Settlement of Shares of Stock/Annulment of
Meeting/Injunction.
FACTS: Phil-Ville is a family corporation
founded by Geronimo that is engaged in Respondent's Argument:
real estate business. The authorized capital Carolina claimed that the basis for
stock of Phil-Ville is P20,000 divided into determining quorum should have been the
200,000 shares with a par value of P100.00 total number of undisputed shares of
per share. During her lifetime, Geronimo stocks of Phil-Ville due to the exceptional
owned 3,140 shares of stock while the nature of the case since the 3,140 shares of
remaining 196,860 shares were equally the late Geronima and the fractional, and
distributed among Geronima's six children. shares of Eumir Que Camara, Paolo Que
Camara and Abimar Que Camara are the
Upon death, Cecilia, as executor and subject of another dispute filed before the
attorney-in-fact of Geronima. She allegedly RTC. Thus, excluding the 3,142 shares from
effected an inequitable distribution of 3140 the 200,000 outstanding capital stock, the
shares that belonged to Geronima. proper basis of determining the presence
of quorum should be 196,858 shares of
Carolina, Ana Maria, and Angelica stocks.
comprising the majority of Board of
Directors of Phil-Ville held an emergency ISSUE: W/N the total undisputed shares of
meeting and made a decision, by stocks in Phil-Ville should be the basis in
concensus, to postpone the annual determining the presence of a quorum?
stockholders' meeting of Phil-Ville until the
issue of the distribution of the 3,140 shares RULING: YES. The right to vote is inherent
of stocks in the name of certain in and incidental to the ownership of
corporate stocks. It is settled that unissued refused by an officer of the corporation to

stocks may not be voted or considered in inspect or examine the books of the
determining whether a quorum is present corporation, the stockholder is not without
in a stockholders' meeting. Only stocks any remedy. The Corporation Code grants
actually issued and outstanding may be the stockholder a remedy — to file a case in
voted. Thus, for stock corporations, the accordance with Section 144.
quorum is based on the number of
outstanding voting stocks. The distinction of Hence, in this case, there is no evidence
undisputed or disputed shares of stocks is that the 3,140 shares of the late Geronima
not provided for in the law or the were recorded in the stocks and transfer
jurisprudence. Ubi lex non distinguit nec book of Phil-Ville. Thus, insofar as Phil-Ville
nos distinguere debemus — when the law is concerned, the 3,140 shares of the late
does not distinguish we should not Geronima allegedly transferred to several
distinguish. Thus, the 200,000 outstanding persons is non-existent. Therefore, the
capital stocks of Phil-Ville should be the transferees of the said shares cannot
basis for determining the presence of a exercise the rights granted unto
quorum, without any distinction. stockholders of a corporation, including
the right to vote and to be voted upon.
Therefore, to constitute a quorum, the Module 5: Non-Stock Corporations
presence of 100,001 shares of stocks in Phil- (Sections 86-94, Revised Corporation Code)
Ville is necessary. There is no evidence that
the 3,140 shares which allegedly had been 1. Long vs. Basa, et al., Sept. 27, 2001;
transferred to 1) Carolina's children, TOPIC: Termination of Term Religious
namely: Francis Villongco, Carlo Villongco,
Michael Villongco and Marcelia Villongco; 2) DOCTRINE: Section 91 of the Corporation
Ana Maria's daughter, namely: Elaine Code has been made explicitly applicable to
Victoria Que Tan; 3) Angelica Que; 4) religious corporations pursuant to the
Cecilia's children, namely: Geminiano, second paragraph of Section 109 of the
Carlos, Geronimo and John Elston; 5) Ma. same Code. Accordingly, membership shall
Corazon's son, Anthony; and, 6) Maria be terminated in the manner and for the
Luisa's children, namely: Eumir Carlo causes provided in the articles of
Camara, Paolo Camara, and Abimar Camara; incorporation or the by-laws. Likewise,
where transferred and recorded in the termination of membership shall have the
stocks and transfer book of Phil-Ville. effect of extinguishing all rights of a
member in the corporation or in its
The contention of Cecilia that they should property, unless otherwise provided in the
not be faulted for their failure to present articles of incorporation or the by-laws.
the stock and transfer book because the
same is in the possession of the corporate FACTS: The Church in Quezon City, Inc.
secretary, Ana Maria Que Tan, who has an (CHURCH) was organized as an entity of the
interest adverse from them, is devoid of brotherhood in Christ. The CHURCH
merit. It is basic that a stockholder has the embraced the “Principles of Faith” that
right to inspect the books of the “every member or officer” thereof shall
corporation, and if the stockholder is adhere strictly to the doctrine, teaching and
faith being observed by the (CHURCH) in ISSUE: W/N expulsion of petitioners were
proclaiming the Gospel of Christ in made in accordance to the law?
accordance with the Holy Bible.
RULING: YES. It is in accord with Section 91
The members of the CHURCH vested upon of the Corporation Code which mandates
the Board of Directors the absolute power that membership in a non-stock corporation
absolute power “(to preserve and protect and, for that matter, in a religious
the(ir) faith and expel a member of the corporation ‘shall be terminated in the
CHURCH. Admission is so exacting, that only manner and for the causes enumerated in
“persons zealous of the Gospel, faithful in the articles of incorporation or by-laws.’
Church work and of sound knowledge of the
Truth, as the Board of Directors shall admit The by-laws of the CHURCH does not
to membership, shall be members of the require the Board of Directors to give prior
Church. Procedure for termination is stated notice to the erring or dissident members in
in bylaws which provides that BOD may cases of expulsion. the only requirements
expel any member that has failed to before a member can be expelled or
observe any regulations and By-laws of the removed from the membership of the
Institution (CHURCH) or the conduct of any CHURCH are: (a) the Board of Directors has
member has been dishonorable or been notified that a member has failed to
improper or otherwise injurious to the observe any regulations and By-laws of the
character and interest of the Institution. CHURCH, or the conduct of any member has
been dishonorable or improper or
Petitioners exhibited “conduct which was otherwise injurious to the character and
dishonorable, improper and injurious to the interest of the CHURCH, and (b) a
character and interest of the (CHURCH)” by resolution is passed by the Board expelling
“introducing (to the members) doctrines the member concerned, without assigning
and teachings which were not based on the any reason therefor.
Holy Bible”. The Church advised these
members to “correct their ways” and Section 91 of the Corporation Code has
warned them that if they persist in this been made explicitly applicable to religious
highly improper conduct, they would be corporations pursuant to the second
dropped from the church. These warnings paragraph of Section 109 of the same Code.
were made since 1988, but the petitioners Accordingly, membership shall be
ignored these admonitions. Their name terminated in the manner and for the
were removed from the list of members causes provided in the articles of
and an updated membership list was incorporation or the by-laws. Likewise,
submitted to the SEC. Petitioner then filed termination of membership shall have the
before the SICD seeking the annulment of effect of extinguishing all rights of a
the latest membership list, and seeking member in the corporation or in its
reinstatement on grounds that the property, unless otherwise provided in the
expulsion was done without prior notice articles of incorporation or the by-laws.
and hearing, hence praying for a TRO to
enjoin the BOD from usurping the positions. Moreover, the petitioners really have no
reason to bewail the lack of prior notice in
the By-laws. As correctly observed by the security guards manning the subdivision’s
Court of Appeals, they have waived such entrances and exits.
notice by adhering to those By-laws. They
became members of the CHURCH In 1998, Sta. Clara Homeowners Association
voluntarily. They entered into its covenant (SCHA) disseminated a board resolution
and subscribed to its rules. By doing so, which decreed that only its members in
they are bound by their consent. good standing were to be issued stickers for
use in their vehicles. On separate incidents,
son of private respondents were required to
show his driver’s license by the guards on
duty despite knowing him personally, and
also the private respondents were
prevented from entering the subdivision
and proceeding to his residential abode
when its security guards demanded him his
driver’s license for identification. They
alleged that it had caused private
respondents to suffer moral damage.
2. Sta. Clara Homeowners' Association vs. Petitioners claim that its by-laws contains a
Sps. Gaston, Jan. 23, 2002; provision that ‘all real estate owners in Sta.
TOPIC: Membership in HOA Clara Subdivision automatically become
members of the association.
DOCTRINE: A party cannot be compelled to
become members of an association by the ISSUE: W/N respondents are members of
simple expedient of including them in its SCHA
Articles of Incorporation and By-laws
without their express or implied consent. It RULING: NO. Private respondents cannot be
may be to the mutual advantage of lot compelled to become members of the SCHA
owners in a subdivision to band themselves by the simple expedient of including them
together to promote their common welfare, in its Articles of Incorporation and By-laws
but that is possible only if the owners without their express or implied consent.
voluntarily agree, directly or indirectly, to The consent of the owners are needed. The
become members of the association. constitutionally guaranteed freedom of
association includes the freedom not to
FACTS: Private respondents were residents associate. The right to choose with whom
of Sta. Clara Subdivision. Upon purchased of one will associate oneself is the very
their lots there was no mention or foundation is and essence of that
requirement of membership in any partnership. It should be noted that the
homeowners’ association. They have provision guarantees the right to form, an
remained as non-members of SCHA, and association. It does not include the right to
non-members of the association were compel others to form or join one.
issued ‘non-member’ gatepass stickers for
their vehicles for identification by the
In this case, there is no showing that later known as the Ortigas Center. It has a
respondents have agreed to be SCHA membership fee.
members.
Later, Padcom owed the Association
P639,961.47. Association filed a complaint
for collection of sum of money. PADCOM
contended that it is a non-stock, nonprofit
association, and for it to become a special
member of the Association, it should first
apply for and be accepted for membership
by the latter’s Board of Directors. No
automatic membership was apparently
contemplated in the Association’s Bylaws. It
further contended that it could not be
compelled to become a member without
violating the its right to freedom of
association; and since it was not a member,
then they are not liable for membership
dues, interest and penalties.
3. Padcom vs. Ortigas Center, May 9, 2002;

TOPIC: Membership | automatic ISSUE: W/N petitioner is a member of the
membership clause Association, and hence liable for
membership dues
DOCTRINE: No application for membership
of an association is necessary requiring the RULING: YES. There is an automatic
acceptance of its board if there exists an membership clause upon sale of land. Such
“automatic membership clause” annotated lien is inseparable from the property as it is
in the title of the property bought. This a right in rem, a burden on the property
“automatic membership clause” is not whoever its owner may be.
violative to freedom of association because
the parties are given wide latitude of No application for membership is necessary.
discretion in buying the land. If at all, acceptance by the Board of
Directors is a ministerial function
FACTS: Padcom owns and manages the considering that PADCOM is deemed to be
Padilla Office Condominium Building and a regular member upon the acquisition of
acquired the land on which the building the lot pursuant to the automatic
stands under a Deed of Sale with Tierra membership clause annotated in the
Development Corporation (TDC). Among Certificate of Title of the property and the
the terms in the Deed of Sale was the Deed of Transfer. PADCOM was never
requirement that the transferee and its forced to join the association. It could have
successor-in-interest must become avoided such membership by not buying
members of an association for realty the land from TDC. Nobody forced it to buy
owners and long-term lessees in the area the land when it bought the building with
the annotation of the condition or lien on At the time of the annual meeting, there
the Certificate of Title thereof and accepted were only only 11 living member-trustees, 4
the Deed. PADCOM voluntarily agreed to be had already died. Out of the 11, 7 attended
bound by and respect the condition, and the meeting through their respective
thus to join the Association. proxies. In the meeting, petitioners were
voted to replace the four deceased
member-trustees.
The meeting was convened over the

objection of Atty. Antonio Pacis, who
argued that there was no quorum.
Petitioners were voted to replace the four
deceased member-trustees.
Petitioners maintained that deceased

member-trustees should not be counted in
the computation of the quorum, because,
upon their death, members automatically
lost all their rights and interests in the
corporation.
4. Tan vs. Sycip 17 August 2006, 499 SCRA ISSUE: Whether dead members should still
216 be counted in the determination of the
TOPIC: Quorum on non-stock corporations quorum, for purposes of conducting the
annual members’ meeting
DOCTRINE: When the principle for
determining the quorum for stock RULING: NO. In this case, dead members
corporations is applied by analogy to who are dropped from the membership
nonstock corporations, only those who are roster in the manner and for the causes
actual members with voting rights should provided for in the By-Laws of GHCS are
be counted. Membership in and all rights not to be counted in determining the
arising from a nonstock corporation are quorum. Only those who are actual
personal and non- transferable, unless the members with voting rights should be
articles of incorporation or the bylaws of counted and not necessarily the numerical
the corporation provide otherwise. The constant that may originally be specified in
determination of whether or not “dead the articles of incorporation. Hence, it is the
members” are entitled to exercise their basis to determine whether it constitutes
voting rights (through their executor or the quorum.
administrator), depends on those articles of
incorporation or bylaws. In non-stock corporations, the
determination of whether or not “dead
FACTS: Grace Christian High School (GCHS) members” are entitled to exercise their
is a nonstock, nonprofit educational voting rights (through their executor or
corporation with (15) regular members, administrator), depends on those articles of
who also constitute the board of trustees. incorporation or bylaws. Further, Section 91
of the Corporation Code further provides consisting of sixteen apartment units on a

that termination extinguishes all the rights 689 square meter lot in Pasay City. Manuel
of a member of the corporation, unless obtained loans for construction of its hotel
otherwise provided in the articles of project and borrowed money from Virgilio.
incorporation or the bylaws.
Manuel, through a Board Resolution sold
In this case, Applying Section 91 to the the Dulay Apartment to Maria Theresa and
present case, the Court held that dead Castrense Veloso for P300,000. A new title
members who are dropped from the was issued to Maria Veloso. A
membership roster in the manner and for memorandum to the Deed of Absolute Sale
the cause provided for in the By-Laws of was executed, giving Manuel Dulay two
GCHS are not to be counted in determining years to repurchase the property for
the requisite vote in corporate matters or P200,000, but this was not annotated on
the requisite quorum for the annual the property title. Respondent Maria
members’ meeting. With 11 remaining Veloso, without the knowledge of Manuel
members, the quorum in the present case Dulay, mortgaged the subject property to
should be 6. Therefore, there being a private respondent Manuel A. Torres for a
quorum, the annual members’ meeting, loan of P250,000.00.
conducted with six members present, was Both failed to redeem the property within
valid. the 1 year prescriptive period which led to
Module 6: the issuance of a new title.
I. Close Corporations (Sections 95-104,
Revised Corporation Code) Dulay corporation intervened claiming that
Manuel Dulay was never authorized by the
1. Dulay Enterprises vs. CA, 225 SCRA 678; petitioner corporation to sell or mortgage
TOPIC: Close corporation | Sec 101 the subject property.
DOCTRINE: A corporate action taken at a Petitioners contend that court had acted
board meeting without proper call or with grave abuse of discretion when it
notice in a close corporation is deemed applied the doctrine of piercing the veil of
ratified by the absent director unless the corporate entity considering that the sale of
latter promptly files his written objection the subject property between private
with the secretary of the corporation after respondents spouses Veloso and Manuel
having knowledge of the meeting. Dulay has no binding effect on petitioner
corporation as Board Resolution No. 18
FACTS: Manuel R. Dulay Enterprises, Inc. which authorized the sale of the subject
was a domestic corporation with several property was resolved without the
members on its Board of Directors, approval of all the members of the board
including Manuel R. Dulay as President, of directors and said Board Resolution was
Treasurer, and General Manager, Atty. prepared by a person not designated by
Virgilio E. Dulay (Vice-President), Linda E. the corporation to be its secretary.
Dulay, Celia Dulay-Mendoza, and Atty.
Plaridel C. Jose. The corporation owned a ISSUE: W/N the sale was valid?
property known as Dulay Apartment,
RULING: YES. In the instant case, petitioner them makes prompt objection thereto in
writing.
corporation is classified as a close
corporation and consequently a board "If a directors meeting is held without proper call or
resolution authorizing the sale or mortgage notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to
of the subject property is not necessary to attend, unless he promptly files his written objection with
bind the corporation for the action of its the secretary of the corporation after having knowledge
president. At any rate, a corporate action thereof"
taken at a board meeting without proper
call or notice in a close corporation is
deemed ratified by the absent director
unless the latter promptly files his written
objection with the secretary of the
corporation after having knowledge of the
meeting which, in this case, petitioner
Virgilio Dulay failed to do.
Virgilio Dulay on June 24, 1975 executed an

affidavit that he was a signatory witness to
the execution of the post-dated Deed of
Absolute Sale of the subject property in
favor of private respondent Torres indicates
that he was aware of the transaction
executed between his father and private
respondents and had, therefore, adequate 2. San Juan Structural Steel Fabricators v
knowledge about the sale of the subject CA
property to private respondents. TOPIC: Sec 94 Spouses | Close Corp
Consequently, petitioner corporation is DOCTRINE: A corporation does not become

liable for the act of Manuel Dulay and the a close corporation just because a man and
sale of the subject property to private his wife owns 99.866% of its subscribed
respondents by Manuel Dulay is valid and capital stock; So, too, a narrow distribution
binding. of ownership does not, by itself, make a
close corporation
"Sec. 101. When board meeting is unnecessary or
improperly held. Unless the by-laws provide otherwise, FACTS: Plaintiff San Juan Structural and
any action by the directors of a close corporation without
a meeting shall nevertheless be deemed valid if: Steel Fabricators, Inc.’s entered into an
"1. Before or after such action is taken, written agreement with defendant Motorich Sales
consent thereto is signed by all the directors; or Corporation for the transfer to it of a parcel
"2. All the stockholders have actual or implied
knowledge of the action and make no prompt of land. It is stipulated in the Agreement
objection thereto in writing; or that plaintiff paid the downpayment of
"3. The directors are accustomed to take (P100,000.00), the balance to be paid on or
informal action with the express or implied
acquiesce of all the stockholders; or before March 2, 1989; that on March 1,
"4. All the directors have express or implied 1989, president of plaintiff corporation,
knowledge of the action in question and none of wrote a letter to defendant Motorich Sales
Corporation requesting for a computation ISSUE: W/N Motorich is a close corp?

of the balance to be paid.
RULING: NO. From its articles, it is clear that
Plaintiff were supposed to meet Respondent Motorich is not a close
defendant's treasurer but they did not corporation. Motorich does not become
appear despite repeated demands the one either, just because Spouses Reynaldo
transfer of rights were not executed. They and Nenita Gruenberg owned 99.866% of
filed a case. A new title was issued in the its subscribed capital stock. The “[m]ere
name of Motorich Sales Corporation ownership by a single stockholder or by
represented by Nenita Lee Gruenberg and another corporation of all or nearly all of
Reynaldo L. Gruenberg, under Transfer the capital stock of a corporation is not of
Certificate of Title No. 3571. itself sufficient ground for disregarding the
separate corporate personalities.” So, too, a
Plaintiff itself drafted the Agreement and narrow distribution of ownership does not,
insisted that Mrs. Gruenberg accept the by itself, make a close corporation.
P100,000.00 as earnest money.
The AOI of Motorich Sales Corporation does
As a result of Nenita Lee Gruenberg and not contain any provision stating that
Motorich's bad faith in refusing to execute a 1. the number of stockholders shall not
formal Transfer of Rights/Deed of exceed 20, or
Assignment, San Juan suffered damages. 2. a preemption of shares is restricted
They claim that they lost the opportunity to in favor of any stockholder or of the
construct a residential building. corporation, or
3. listing its stocks in any stock
Defendant Motorich claimed that the exchange or making a public offering
president and chairman did not sign the of such stocks is prohibited.
agreement.
Motorich is not a close corporation, as
Petitioner's arguments: San Juan argues previously discussed, and the agreement
that the veil of corporate fiction of was entered into by the corporate treasurer
Motorich should be pierced because it is a without the knowledge of the board of
close corporation. Since "Spouses Reynaldo directors. Gruenberg, treasurer of Motorich,
L. Gruenberg and Nenita R. Gruenberg and Andres Co signed the contract but that
owned all or almost all or 99.866% to be cannot bind Motorich, because it never
accurate, of the subscribed capital stock" of authorized or ratified such sale or even the
Motorich, San Juan argues that Gruenberg receipt of the earnest money.
needed no authorization from the board to
enter into the subject contract. As being The Court is not unaware that there are
solely owned by the Spouses Gruenberg, exceptional cases where “an action by a
the company can treated as a close director, who singly is the controlling
corporation which can be bound by the stockholder, may be considered as a binding
acts of its principal stockholder who needs corporate act and a board action as nothing
no specific authority. more than a mere formality.” The present
case, however, is not one of them. As stated
by petitioner, Spouses Reynaldo and Nenita and obligations. RTC denied claiming that
Gruenberg own “almost 99.866%” of period of redemption lapsed at the time of
Respondent Motorich. Since Nenita is not issuance.
the sole controlling stockholder of
Motorich, the aforementioned exception ISSUE: W/N the properties of the spouses
does not apply. are considered as properties of Spouses
Cruz answerable for the obligations of MSI
RULING: NO. There is no basis for finding

that MSI is a close corporation. Lower
Courts erred in deeming that MSI a close
corporation based on the allegation of
Spouses Cruz that it was so. Section 97 of
the Corporation Code only specifies that
"the stockholders of the corporation shall
be subject to all liabilities of directors."
Nowhere in that provision do we find any
inference that stockholders of a close
corporation are AUTOMATICALLY liable for
corporate debts and obligations.
3. Bustos vs. Millians Shoe, Inc., Module 6:

TOPIC: Sec 97 II. Special Corporations (Sections Revised
Code)
DOCTRINE: Section 97 of the Corporation
Code only specifies that “the stockholders 1. Iglesia Evangelica vs. Bishop Lazaro, 6
of the corporation shall be subject to all July 2010
liabilities of directors.” Nowhere in that TOPIC: Sec 109
provision do we find any inference that
stockholders of a close corporation are DOCTRINE: Section 109 of the Corporation
automatically liable for corporate debts and Code allows the application to religious
obligations corporations of the general provisions
governing non-stock corporations.
FACTS: City Govt. of Makati levied the
property of Spouses Fernando and Amelia FACTS: Bishop Nicolas Zamora established
for non-payment of real estate taxes. The the petitioner Iglesia Evangelica Metodista
property was auctioned and petitioner won En Las Islas Filipinas, Inc. (IEMELIF) as a
the bid. corporation sole with Bishop Zamora acting
as its “General Superintendent.”
Petitioner contends that the Spouses Cruz
are mere stockholders and officers of MSI IEMELIF enacted and registered a by-laws
hence they are personally liable for its debts that established Consistory, made up of
church ministers, who were to serve for

four years. The by-laws empowered the RULING: YES. There is no point to dissolving
Consistory to elect a General the corporation sole of one member to
Superintendent, a General Secretary, a enable the corporation aggregate to
General Evangelist, and a Treasurer General emerge from it. Whether it is a non-stock
who would manage the affairs of the corporation or a corporation sole, the
organization. For all intents and purposes, corporate being remains distinct from its
the Consistory served as the IEMELIF’s members, whatever be their number. The
board of directors. increase in the number of its corporate
membership does not change the
Apparently, although the IEMELIF remained complexion of its corporate responsibility to
a corporation sole on paper (with all third parties. The one member, with the
corporate powers theoretically lodged in concurrence of two-thirds of the
the hands of one member, the General membership of the organization for whom
Superintendent), it had always acted like a he acts as trustee, can self-will the
corporation aggregate. The Consistory amendment. He can, with membership
exercised IEMELIF’s decision-making powers concurrence, increase the technical number
without ever being challenged. of the members of the corporation from
Subsequently, during its 1973 General “sole” or one to the greater number
Conference, the general membership voted authorized by its amended articles.
to put things right by changing IEMELIF’s
organizational structure from a corporation Here, the evidence shows that the IEMELIF’s
sole to a corporation aggregate. However, General Superintendent, respondent Bishop
the corporate papers of the IEMELIF Lazaro, who embodied the corporation sole,
remained unaltered as a corporation sole. had obtained, not only the approval of the
Consistory that drew up corporate policies,
In 2001, SEC claimed that the conversion but also that of the required two-thirds vote
was not properly carried out and of its membership.
documented and needed to amend its
articles of incorporation for that purpose. The amendment of the articles of
incorporation, as correctly put by the CA,
Petitioners Reverend Pineda opposed the requires merely that a) the amendment is
conversion and claim that a complete shift not contrary to any provision or
from IEMELIF’s status as a corporation sole requirement under the Corporation Code,
to a corporation aggregate required, not and that b) it is for a legitimate purpose.
just an amendment of the IEMELIF’s articles
of incorporation, but a complete dissolution Although a non-stock corporation has a
of the existing corporation sole followed by personality that is distinct from those of its
a re-incorporation. members who established it, its articles of
incorporation cannot be amended solely
ISSUE: W/N a corporation sole may be through the action of its board of trustees.
converted into a corporation aggregate by The amendment needs the concurrence of
mere amendment of its articles of at least two-thirds of its membership. If
incorporation. such approval mechanism is made to
operate in a corporation sole, its one ISSUE:

member in whom all the powers of the
corporation technically belongs, needs to RULING:
get the concurrence of two-thirds of its
membership. The one member, here the
General Superintendent, is but a trustee, 4. Dela Torre vs. Primetown Property
according to Section 110 of the Corporation Group, Inc., 855 SCRA 494;
Code, of its membership. TOPIC:
FACTS:
Module 7:
I. Corporate Dissolution /Liquidation ISSUE:
(Sections 133- 139, Revised Corporation
Code) RULING:
1. Gelano vs. CA, 103 SCRA 90;
TOPIC:
5. Rich v. Paloma III, 858 SCRA 27;
DOCTRINE: TOPIC:
FACTS: FACTS:
ISSUE: ISSUE:
RULING: RULING:
2. Clarion Printing House, Inc. vs. NLRC, GR 6. Icon Development Corporation vs.
No. 148372, June 27, 2005; National Life Insurance, G.R. No. 220686,
TOPIC: March 9, 2020
TOPIC:
DOCTRINE:
FACTS:
FACTS:
ISSUE:
ISSUE:
RULING:
RULING:
II. Foreign Corporations

3. Aguirre II vs. FQB+7, Inc., 688 SCRA 242;
TOPIC: 1. Facilities Management vs. De la Osa, 89
SCRA 131;
FACTS:

2. Home Insurance vs. Eastern Shipping

Lines, 123 SCRA 424;
3. Mentholatum, Inc. vs. Mangaliman, 73

Phil 524;
4. Eriks vs. CA, 267 SCRA 567;
5. Merrill Lynch Futures, Inc. vs. CA, 211

SCRA 824;
6. Agilent Technologies Singapore vs.
Integrated Silicon Technology Philippines
Corporation, G.R. No. 154618, April 14,
2004;
7. Expertravel & Tours, Inc. vs. Court of

Appeals and Korean Airlines GR No.
152392, May 26, 2005;
8. Cargill, Inc. vs. Intra Strata Assurance

Corporation, 615 SCRA 304;
9. Global Business Holdings, Inc. vs.

Surecomp Software, B.V., 633 SCRA 94;
10. Steelcase, Inc. v. Design International

Selections, Inc., 18 April 2012;
11. Air Canada vs. Commissioner of

Internal Revenue, 778 SCRA 131, G.R. No.
169507 January 11, 2016


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CORPORATION AND BASIC SECURITIES LAWS - CASE DIGESTS

MODULE 1 (Sections 1-9, RCC) recorded in the books of the corporation

TOPIC: Succession While a share of stock represents a

ISSUE: W/N petitioners have substantial TOPIC: Distinct personality of a corporation.

RULING: NO. The petitioners cannot claim DOCTRINE: It is a doctrine well-established

UY, CASEY ANDREA - SBU (2B)

defend crime, or is used as a device to incorporators, officers, and directors of the

UY, CASEY ANDREA - SBU (2B)

judgment awards in favor of respondents. as counsel of the spouses at [that] time,

In this case, petitioners were impleaded DOCTRINE: The doctrine of corporation by

Petitioner's contention: ISSUE: W/N petitioner is a de facto

UY, CASEY ANDREA - SBU (2B)

change in the corporate name is DOCTRINE: Parties organizing a corporation

UY, CASEY ANDREA - SBU (2B)

ISSUE: WON generic word rule would apply

Not only are public utility corporations

ownership should "apply uniformly and adduced to warrant the reconsideration

To the Court's mind and, as exhaustively

The heart of the controversy is the

The Gamboa Decision already held, in no

RCMC alleged that 60% of the capital stock

which is owned by Filipino citizens shall be

Petitioner's Argument: Considering that common shares have

theory that the preferred shareholders are

In short, Filipinos hold less than 60 percent NOTE:

It appears, that on December 20, 1975, a

ISSUE: Whether petitioner’s representative DOCTRINE:

to concerns about competitive business incorporation and lawfully enacted by-laws

First Contract, similar to the Second powers. It requires presentation of

presumed to have the authority to act incorporator, director and stockholder of

removal as petitioner corporation's General

Not all conflicts between the stockholders

for bad faith or gross negligence in directing

The Agreement, as amended, provided that Ruling: YES. An officer of a corporation

The adjusted contract price, therefore, TOPIC: Corporation by Estoppel

In the first place, Atty. Sabig is not a

registration with the Securities and

directors or stockholders. On the other injunction before the Securities and

the corporation, occupies a position of

Considering that a new set of officers were

A member of the Board of Directors of a 11. Wesleyan v. Maglaya

FACTS: Ricarcen Development Corp. It claimed that it never authorized its

contract of loan and mortgage. He argues Nonetheless, law and jurisprudence

In this case, as the former president of

UY, CASEY ANDREA - SBU (2B)

The general rule is its officers cannot be

Corporation Code and shall be made

ISSUE: W/N the applicability of Section 144

RULING: NO. When Congress intends to

intended to impose exacting standards of Financial Assistance (EHWPRFA) to qualified

FACTS: On 2009, NPC Board of Directors, Petitioner’s argument:

UY, CASEY ANDREA - SBU (2B)

FACTS: Spouses Ty wanted to establish a goodwill, equipment, and resources of

utilizing information he has received as such  Whether the corporation was

Reiterating the ruling in Matic v. The documentary evidence

UY, CASEY ANDREA - SBU (2B)

Nielson was to submit reports, maps, plans

It thus appears that the principal and

It is thus seen, from the above-quoted

The contention of Lepanto that it had