1 CORPORATION LAW DIGESTS CommRev G02 1
1 CORPORATION LAW DIGESTS CommRev G02 1
1 CORPORATION LAW DIGESTS CommRev G02 1
01 NARRA NICKEL MINING AND DEVELOPMENT CORP., owned by citizens of the Philippines. They
TESORO MINING AND DEVELOPMENT, INC., and asserted that though MBMI owns 40% of the
MCARTHUR MINING, INC. v. REDMONT CONSOLIDATED shares of PLMC (which owns 5,997 shares of
MINES CORP. Narra), 40% of the shares of MMC (which owns
G.R. No. 195580 |April 21, 2014 | VELASCO JR.| 5,997 shares of McArthur), and 40% of the shares
ACIDO of SLMC (which, in turn, owns 5,997 shares of
TOPIC: Grandfather Rule Tesoro)1, the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each
DOCTRINE: Under the liberal Control Test, there is no of petitioners. Finally, petitioners argue that the
need to further trace the ownership of the 60% (or best tool used in determining the nationality of a
more) Filipino stockholdings of the Investing corporation is the "control test" embodied in the
Corporation since a corporation which is at least 60% Foreign Investments Act of 1991.
Filipino-owned is considered as Filipino. Under the 6. POA disqualified petitioners and nullified their
Strict Rule or Grandfather Rule Proper, the combined MPSAs. Mines Adjudication Board reversed POA.
totals in the Investing Corporation and the Investee RTC TRO-d MAB. CA set aside MAB decision and
Corporation must be traced (i.e., "grandfathered") to upheld petitioners’ disqualification. Pursuant to
determine the total percentage of Filipino ownership. the first sentence of paragraph 7 of DOJ Opinion
No. 020, Series of 2005, adopting the 1967 SEC
FACTS: Rules which implemented the requirement of the
1. Respondent Redmont is a domestic corporation Constitution and other laws pertaining to the
organized and existing under Philippine laws; it exploitation of natural resources, the CA used the
took interest in mining and exploring certain "grandfather rule" to determine the nationality of
areas of the province of Palawan. It learned that petitioners. Also, in a separate petition by
the areas where it wanted to undertake Redmont, the Office of the President cancelled
exploration and mining activities were already petitioners’ FTAAs.
covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners ISSUE: Are Narra, Tesoro, and McArthur foreign
Narra, Tesoro, and McArthur. corporations based on the “Grandfather Rule”?
2. On January 2, 2007, Redmont filed before the
Panel of Arbitrators (POA) of the DENR 3 separate HELD: YES, petition denied
petitions for the denial of petitioners’ applications
for MPSA, alleging that at least 60% of the capital RULING:
stock of McArthur, Tesoro, and Narra are owned 1. “Corporate layering" is admittedly allowed by the
and controlled by MBMI Resources, Inc., a 100% FIA; but if it is used to circumvent the Constitution
Canadian corporation. and pertinent laws, then it becomes illegal.
3. Redmont reasoned that since MBMI is a 2. There are two acknowledged tests in determining
considerable stockholder of petitioners, it was the the nationality of a corporation: the control test
driving force behind petitioners’ filing of the and the grandfather rule. The first part of
MPSAs over the areas covered by applications paragraph 7, DOJ Opinion No. 020, Series of 2005,
since it knows that it can only participate in stating "shares belonging to corporations or
mining activities through corporations which are partnerships at least 60% of the capital of which is
deemed Filipino citizens. Redmont argued that owned by Filipino citizens shall be considered as
given that petitioners’ capital stocks were mostly of Philippine nationality," pertains to the control
owned by MBMI, they were likewise disqualified test or the liberal rule. On the other hand, the
from engaging in mining activities through second part of the DOJ Opinion which provides,
MPSAs, which are reserved only for Filipino "if the percentage of the Filipino ownership in the
citizens. corporation or partnership is less than 60%, only
4. Petitioners averred that they were qualified the number of shares corresponding to such
persons under Section 3(aq) of Republic Act No. percentage shall be counted as Philippine
(RA) 7942 or the Philippine Mining Act of 1995 (at nationality," pertains to the stricter, more stringent
least 60% capital owned by Fil citizens needed). grandfather rule.
Further, their nationality as applicants is 3. Based on the said SEC Rule and DOJ Opinion, the
immaterial because they also applied for Grandfather Rule or the second part of the SEC
Financial or Technical Assistance Agreements Rule applies only when the 60-40 Filipino-foreign
(FTAA), which are granted to foreign-owned equity ownership is in doubt (i.e., in cases where
corporations. the joint venture corporation with Filipino and
5. Petitioners further claim that the issue of
nationality should not be raised as they are in
1 Respective predecessors-in-interest/corporate
fact Philippine Nationals as 60% of their capital is
owners of the petitioners.
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foreign stockholders with less than 60% Filipino 02 SHRIMP SPECIALISTS, INC. v FUJI TRIUMPH AGRI-
stockholdings [or 59%] invests in other joint INDUSTRIAL CORPORATION
venture corporation which is either 60-40% GR 168756 | 7 December 2009 | Carpio | ANGSIY
Filipino-alien or the 59% less Filipino). Stated TOPIC: Separate Personality / Piercing the Veil
differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule DOCTRINE: A corporation is vested by law with a
will not apply. personality separate and distinct from the people
4. After a scrutiny of the evidence extant on record, comprising it. Ownership by a single or small group of
the Court finds that this case calls for the stockholders of nearly all of the capital stock of the
application of the grandfather rule since, as ruled corporation is not by itself a sufficient ground to
by the POA and affirmed by the OP, doubt disregard the separate corporate personality.
prevails and persists in the corporate ownership
of petitioners. Also, as found by the CA, doubt is FACTS:
present in the 60-40 Filipino equity ownership of 1. SSI and Fuji entered into a Distributorship
petitioners Narra, McArthur, and Tesoro, since Agreement, under which Fuji agreed to supply
their common investor, the 100% Canadian prawn feeds to SSI.
corporation––MBMI, funded them. 2. As payment, SSI issued postdated checks to SSI
but thereafter issued a stop payment order
because it discovered that earlier deliveries were
contaminated with aflatoxin.
3. Fuji’s Vice President and SSI’s Finance Officer met
and agreed that SSI would issue another set of
checks to cover the ones earlier issued and that
Fuji would replace the feeds.
4. Upon presentment of the replacement checks,
however, they were again dishonored due to
another stop payment order issued by SSI.
5. SSI contends that it was constrained to issue such
order for failure of Fuji to replace the defective
feeds.
6. Criminal charges (BP 22) were filed against the SSI
*Even if MBMI owns only 33-34% of the 2nd layer officers who signed the checks.
(MMC, SMMI, PLMDC), they effectively control 7. RTC found the officers solidarily liable; CA
them since the majority stockholder (Olympic) in modified, absolving SSI’s President from liability
the 2nd layer paid nothing (Php 0) for its shares.
ISSUE: WON the President of SSI may be held solidarily
5. Concluding from the above-stated facts, it is liable in this case- NO
quite safe to say that petitioners McArthur,
Tesoro, and Narra are not Filipino since MBMI, a HELD:
100% Canadian corporation, owns 60% or more • A corporation is vested by law with a personality
of their equity interests. Such conclusion is separate and distinct from the people comprising
derived from grandfathering petitioners’ it. Ownership by a single or small group of
corporate owners, namely: MMI, SMMI, and stockholders of nearly all of the capital stock of
PLMDC. Going further and adding to the picture, the corporation is not by itself a sufficient ground
MBMI’s Summary of Significant Accounting to disregard the separate corporate personality.
Policies statement– –regarding the "joint venture" • The general rule is that obligations incurred by
agreements that it entered into with the the corporation, acting through its directors,
"Olympic" and "Alpha" groups––involves SMMI, officers, and employees, are its sole liabilities.
Tesoro, PLMDC, and Narra. Noticeably, the However, solidary liability may be incurred under
ownership of the "layered" corporations boils the following exceptional circumstances:
down to MBMI, Olympic, or corporations under o When directors and trustees or, in
the "Alpha" group wherein MBMI has joint venture appropriate cases, the officers of a
agreements with, practically exercising majority corporation: a) vote for or assent to
control over the corporations mentioned. patently unlawful acts of the
6. In effect, whether looking at the capital structure corporation, b) act in bad faith or with
or the underlying relationships between and gross negligence in directing the
among the corporations, petitioners are NOT corporate affairs, or c) are guilty of
Filipino nationals and must be considered foreign conflict of interest to the prejudice of the
since 60% or more of their capital stocks or equity corporation, its stockholders or members,
interests are owned by MBMI.
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FACTS:
1. 2 consolidated cases. Focus on the 2nd petition.
Both petitions stemmed from an Agreement for
the Execution of Builder’s Work contract for the
Edsa Shang Hotel Proj. that ESHRI and BF
executed in building the Hotel starting 1 May
1991. Contract states that payment of the
contract price would be based on the work
accomplished described in the monthly progress
billings. BF would submit a monthly progress billing
to ESHRI which would then re-measure the work
accomplished and prepare a Progress Payment
Certificate for that month's progress billing.
2. ESHRI, in its memorandum-letter laid down a
procedure for BF to follow:
a. submission of the progress billing to
ESHRI's Engineering Department; (2)
following-up of the preparation of the
Progress Payment Certificate with the
Head of the Quantity Surveying
Department; and (3) following-up of the
release of the payment with one Evelyn
San Pascual.
3. BF adhered to such procedure and submitted 19
progress billings. From Progress Billing Nos. 1-13,
ESHRI paid BF PhP86,501,834.05.
4. However, Progress Billing Nos. 14-19 was left
unpaid despite several attempts. BF filed a suit for
sum of money and damages before the RTC.
5. ESHRI claimed that BF should be ordered to
refund their excess payment due to incurring
delay and inferior work accomplishment. RTC
ruled in favor of BF. MFR-denied. ESHRI filed an
appeal to the CA.
6. During the pendency of the appeal, RTC granted
BF’s motion for execution pending appeal. Sheriff
garnished EHSRI’s bank account. CA issued a writ
of preliminary injunction upon ESHRI’s posting of
bond. CA set aside the RTC order. MFR of BF-
denied. BF filed a petition for review of the CA
decision before the SC. SC affirmed the CA order
with modification that recovery of ESHRI's
garnished deposits shall be against BF's bond.
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MFR-denied. ESHRI filed an application for affirmed the RTC decision on the execution
restitution of damages. BF filed separate MFR’s. pending appeal. CA nullified the decision
7. CA (appeal case) ruled in favor of BF. MFR- pursuant to Sec. 5, Rule 39: Sec. 5. Effect of
denied. ESHRI filed a petition (1st petition) while reversal of executed judgment. — Where the
Cynthia del-Castillo (2nd petition) filed a separate executed judgment is reversed totally or
petition assailing the CA decision as it adjudged partially, or annulled, on appeal or otherwise,
her jointly and severally liable with ESHRI et al. to the trial court may, on motion, issue such
pay the monetary award decreed in the RTC orders of restitution or reparation of damages
decision (P24,780,490.00-unpaid work, retention as equity and justice may warrant under the
sum of P5,810,000.00, legal interest of the unpaid circumstances.
work, 1M-moral damages, 1M-exemplary ♥ It is true that the Ca decision recognized the
damages, 1M-attorney’s fees and costs of suit). validity of the issuance of the desired
restitution order but the CA had decided on
ISSUE: the appeal case on the merits when it
1. WON CA committed grave abuse of affirmed the RTC decision (that ruled in favor
discretion in admitting the photocopies of of BF). This CA decision rendered the decision
Progress Billings No. 14-19? (Issue in the 1st on the incidental procedural matter on
petition) restitution moot and academic. Allowing
2. WON the restitution of garnished funds in restitution would only prolong an already
favor of ESHRI should be proper? (issue in the protracted litigation.
1st petition) 3. YES.
3. WON CA erred in holding Cynthia Del-Castillo ♥ Roxas-del Castillo argues that the RTC
personally liable to respondent? (Issue in the decision violated the requirements of due
2nd petition. FOCUS on this issue-related to process and of Sec. 14, Article VII of the
our topic) Constitution- No decision shall be rendered
by any court without expressing therein
HELD: 1st petition is dismissed. 2nd petition is granted. clearly and distinctly the facts and the law
CA decision is affirmed with modification that Del on which it is based.
Castillo is absolved from any liability. ♥ She is correct. The RTC decision does not
provide the factual or legal basis for holding
1. NO. her personally liable under the premises. In
♥ Sec. 6 of Rule 130 states- If the document is in fact, only in the dispositive portion of the
the custody or under control of the adverse decision did her solidary liability crop up.
party, he must have reasonable notice to Aside from her inclusion as party defendant
produce it. If after such notice and after in the underlying complaint, no reference is
satisfactory proof of its existence, he fails to made in other pleadings thus filed as to her
produce the document, secondary liability.
evidence may be presented as in the case ♥ The CA, by affirming the RTC ruling,
of loss. recognized the applicability of the doctrine
♥ Here, counsel for BF and ESHRI reveal that the on piercing the veil of the separate
original copies are indeed under the custody corporate identity. This cannot be followed.
of ESHRI but the counsel of ESHRI have not A corporation, upon coming to existence, is
heard from his client. invested by law with a personality separate
♥ When such party has the original of the and distinct from those of the persons
writing and does not voluntarily offer to composing it. Ownership by a single or a
produce it or refuses to produce it, small group of stockholders of nearly all of
secondary evidence may be admitted. the capital stock of the corporation is not,
without more, sufficient to disregard the
2. NO. fiction of separate corporate personality.
♥ Petitioners ESHRI maintain that the CA Thus, obligations incurred by corporate
erroneously prevented restitution of ESHRI’s officers, acting as corporate agents, are not
improperly garnished funds when it nullified theirs, but direct accountabilities of the
its own CA decision (case regarding the corporation they represent. Solidary liability
garnished funds). ESHRI contends that they on the part of corporate officers may at times
should be restored of their own funds without attach, but only under exceptional
awaiting the outcome of the main case circumstances, such as when they act with
(appeal case with the CA). The restitution is malice or in bad faith. Also, in appropriate
without merit because this was nullified cases, the veil of corporate fiction shall be
simultaneously when the CA decision disregarded when the separate juridical
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opposed as the registered owner of the because it acquired PNEI through NIDC at the time
Pantranco properties, Mega Prime as the when PNEI was suffering financial reverses. PNB-
successor-in-interest and PNB because it was not Madecor is being made to answer for petitioners
a party to the labor case and as creditor of PNB- labor claims as the owner of the subject Pantranco
Madecor. properties and as a subsidiary of PNB. Mega Prime is
8. LA: Pantranco properties were owned by PNB- also included for having acquired PNBs shares over
Madecor, which is a corporation with a distinct PNB-Madecor.
and separate personality, thus, its assets could
- The general rule is that a corporation has a
not answer for the liabilities of PNEI. However,
personality separate and distinct from those of its
PNB-Madecor executed a promissory note in
stockholders and other corporations to which it may
favor of PNEI for P7.8M, thus, the writ of execution
be connected, which is created by law for
to that extent is valid.
convenience and to prevent injustice.
4. PNBs third-party claim was denied because it
only had an inchoate interest in the - PNB, PNB-Madecor, Mega Prime, and PNEI are
properties. corporations with their own personalities. Their
9. NLRC: LA affirmed. MR denied. separate personalities had been recognized by the
10. In view of the P7.8M debt of PNB-Madecor to Court in PNB v. Mega Prime Realty and Holdings
PNEI, an auction sale was conducted over the Corporation/Mega Prime Realty and Holdings
Pantranco properties to satisfy the claim of the Corporation v. PNB, wherein PNB was declared as a
PNEI employees, wherein CPAR Realty was stockholder only of PNB-Madecor which later sold its
adjudged as the highest bidder. shares to Mega Prime; and that PNB-Madecor was
11. CA: NLRC affirmed. PNB, PNB-Madecor and the owner of the Pantranco properties. Moreover,
Mega Prime are corporations with personalities these corporations are registered as separate entities
separate and distinct from PNEI, thus, no cogent and, absent any valid reason, their separate identities
reason to pierce the veil of corporate fiction. must be upheld.
Pantranco properties were never owned by PNEI
but were registered under the name of PNB- - Neither the personality of PNEI be merged with PNB
Madecor. If PNB and PNB-Madecor could not simply because the latter acquired the
answer for the liabilities of PNEI, with more reason former. Settled is the rule that where one corporation
should Mega Prime not be held liable being a sells or otherwise transfers all its assets to another
mere successor-in-interest of PNB-Madecor. corporation for value, the latter is not, by that fact
12. MR denied. Hence, this consolidated petition. For alone, liable for the debts and liabilities of the
the 1st, petitioners pray that PNB, PNB-Madecor transferor.
and Mega Prime be held solidary liable with PNEI, - Although there are grounds which warrant the
while in the 2nd, PNB prays for the nullity of the piercing of the corporate veil, none applies in this
auction sale of Pantranco properties. case. Under the doctrine of piercing the veil of
corporate fiction, the court looks at the corporation
ISSUE/S: 1. WON the former PNEI employees can as a mere collection of individuals or an aggregation
attach the Pantranco properties of PNB, PNB- of persons undertaking business as a group,
Madecor and Mega Prime to satisfy their unpaid disregarding the separate juridical personality of the
labor claims against PNEI. NO. corporation unifying the group.
2. WON PNB, PNB-Madecor and Mega Prime are
solidarily liable with PNEI for the unpaid labor claims. - Another formulation of this doctrine is that when two
NO. business enterprises are owned, conducted and
controlled by the same parties, both law and equity
RULING: PETITION DENIED. will, when necessary to protect the rights of third
parties, disregard the legal fiction that two
- The Pantranco properties is not owned by PNEI, the corporations are distinct entities and treat them as
judgment debtor, which was never alleged in any of identical or as one and the same.
the pleadings of the petitioners. In PNB MADECOR v. - Piercing the veil depends on the facts appropriately
Uy and PNB v. Mega Prime Realty and Holdings pleaded or proved. However, any piercing of the
Corporation/Mega Prime Realty and Holdings corporate veil has to be done with caution, but the
Corporation v. PNB, it was established that the Court will not hesitate to disregard the corporate veil
properties were owned by Macris, the predecessor of when it is misused or when necessary in the interest of
PNB-Madecor. Hence, they cannot be pursued justice for it was not meant to promote unfair
against by the creditors of PNEI. objectives.
- PNB, PNB-Madecor and Mega Prime are - The doctrine of piercing the corporate veil applies
corporations with personalities separate and distinct only in three (3) basic areas, namely: 1) defeat of
from that of PNEI. PNB is sought to be held liable public convenience as when the corporate fiction is
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used as a vehicle for the evasion of an existing responsibility is referred to as the parent
obligation; 2) fraud cases or when the corporate corporations own;
entity is used to justify a wrong, protect fraud, or 9. The parent corporation uses the property of the
defend a crime; or 3) alter ego cases, where a subsidiary as its own;
corporation is merely a farce since it is a mere alter 10. The directors or executives of the subsidiary do
ego or business conduit of a person, or where the not act independently in the interest of the
corporation is so organized and controlled and its subsidiary, but take their orders from the parent
affairs are so conducted as to make it merely an corporation;
instrumentality, agency, conduit or adjunct of 11. The formal legal requirements of the subsidiary
another corporation. In the absence of malice, bad are not observed.
faith, or a specific provision of law making a
corporate officer liable, such corporate officer - However, none of the circumstances is present in
cannot be made personally liable for corporate this case, thus, piercing of PNB-Madecor’s corporate
liabilities. veil is not proper, being a mere successor-in-interest
of PNB-Madecor, but with more reason should no
- In this case, PNEI employees allege that PNB was the
liability attach to Mega Prime.
owner of PNEI. Apart from proving ownership, it is
necessary to show facts that will justify to pierce the - For the nullity of the sale, the Court held that the
veil of corporate fiction and hold PNB liable for the Pantranco properties were owned by Macris and
debts of PNEI. Petitioners must show that PNB was later, the PNB-Madecor, never by PNEI or PNB.
using PNEI as a mere adjunct or instrumentality or has Therefore, applying their separate personalities, the
exploited or misused the corporate privilege of PNEI, only party which has the right and interest to question
which they failed to do so. the execution sale and the eventual right to annul is
PNB-Madecor or its successor-in-interest.
- Assuming, PNB may be held liable for the debts of
PNEI, petitioners still cannot proceed against the - PNB alleges that Mega Prime, the buyer of its entire
Pantranco properties, because it is owned by PNB- stockholdings in PNB-Madecor was indebted to
Madecor, a subsidiary of PNB. However, general rule it. Considering that said indebtedness remains
remains that PNB-Madecor has a personality unpaid, PNB insists that it has an interest over PNB-
separate and distinct from PNB. The mere fact that a Madecor and Mega Primes assets. Although PNB has
corporation owns all of the stocks of another an apparent interest in Mega Primes assets being the
corporation, taken alone, is not sufficient to justify creditor of the latter for a substantial amount, its
their being treated as one entity. If used to perform interest remains inchoate and has not yet ripened
legitimate functions, a subsidiary’s separate existence into a present substantial interest, which would give it
shall be respected, and the liability of the parent the standing to maintain an action involving the
corporation as well as the subsidiary will be confined subject properties.
to those arising in their respective businesses.
- In PNB v. Ritratto Group, Inc., it provided for
circumstances to determine whether a subsidiary is a
mere instrumentality of the parent-corporation:
1. The parent corporation owns all or most of the
capital stock of the subsidiary;
2. The parent and subsidiary corporations have
common directors or officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the
capital stock of the subsidiary or otherwise
causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and
other expenses or losses of the subsidiary;
7. The subsidiary has substantially no business
except with the parent corporation or no assets
except those conveyed to or by the parent
corporation;
8. In the papers of the parent corporation or in the
statements of its officers, the subsidiary is
described as a department or division of the
parent corporation, or its business or financial
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05 MANUEL C. ESPIRITU, JR., ET AL. v. PETRON CORP., ET then admitted that the Gasul and Shellane tanks
AL. on their truck belonged to a customer who had
G.R. No. 170891|November 24, 2009| ABAD | DE them filled up by Bicol Gas.
GUZMAN 10. Because of the incident, KPE filed a complaint for
SEPARATE PERSONALITY/ PIERCING THE VEIL violations of RA 623 (illegally filling up registered
cylinder tanks), and Secs 155 (infringement of
DOCTRINE: trademarks) and 169.1 (unfair competition) of the
1. A corporation is an entity separate and distinct Intellectual Property Code.
from the persons of its officers, directors, and 11. The complaint charged Bicol Gas driver, sales
stockholders. representative, manager, and the directors,
2. Before a stockholder may be held criminally officers, and stockholders of Bicol Gas.
liable for acts committed by the corporation, it 12. Prosecutor ruled that only the four Bicol Gas
must be shown that he had knowledge of the employees could be charged. The charge
criminal act committed in the name of the against the stockholders and directors of the
corporation and that he took part in the same or company was dismissed.
gave his consent to its commission, whether by 13. Petron and KPE filed certiorari with the CA. Since
action or inaction. the Bicol Gas employees presumably acted
under the direct order and control of its owners,
FACTS: CA also ordered the inclusion of the stockholders
1. Petron sold and distributed LPG under its of Bicol Gas.
trademark "Gasul."
2. KPE is the exclusive distributor of Gasul in ISSUE: WON the stockholders of Bicol Gas shall be
Sorsogon. charged? NO.
3. Bicol Gas was also in the business of LPGs in
Sorsogon but theirs carried the trademark "Bicol HELD:
Savers Gas." Llona managed Bicol Gas. • Bicol Gas employees by filling up with Bicol Gas
4. In the course of trade, any given distributor of the tank registered to Petron and bearing its
LPGs at times acquired possession of LPG tanks mark without the latter’s written authority can
belonging to other distributors operating in the only be prosecuted for violation of R.A. 623.
same area. They called these "captured • BUT AS FOR THE STOCKHOLDERS: Bicol Gas is a
cylinders." corporation. It is an entity separate and distinct
5. According KPE’s manager Bicol Gas agreed with from the persons of its officers, directors, and
KPE for the swapping of "captured cylinders" stockholders.
since one distributor could not refill captured • However, corporate officers or employees,
cylinders with its own brand of LPG. through whose act, default or omission the
6. KPE’s manager visited the Bicol Gas refilling plant. corporation commits a crime, may themselves
He noticed several Gasul tanks in their possession. be individually held answerable for the crime.
He requested a swap but Llona replied that he • When Bicol Gas declined the offer to swap
first needed to ask the permission of the Bicol Gas because the owners wanted to send them to
owners. That permission was given and they had Batangas, CA believes that the employees of
a swap involving 30 Gasul tanks held by Bicol Bicol Gas acted under the direct orders of its
Gas. owners and that "the owners of have full control
7. KPE’s manager noticed that Bicol Gas still had a of the operations of the business."
number of Gasul tanks in its yard. He offered to • The "owners" of a corporate organization are its
make a swap for these but Llona declined, stockholders and they are to be distinguished
saying the Bicol Gas owners wanted to send from its directors and officers.
those tanks to Batangas. • The petitioners here are being charged in their
8. Later, Bicol Gas told KPE’s manager that it had capacities as stockholders of Bicol Gas.
no more Gasul tanks left in its possession. But • In a corporation, the management of its business
KPE’s manager observed that Bicol Gas trucks is generally vested in its board of directors, not its
often carried Gasul tanks. Also, KPE’s sales stockholders. Stockholders are basically investors.
dropped significantly. They do not have a hand in running the day-to-
9. KPE’s manager saw a particular Bicol Gas truck day business operations of the corporation unless
which had on it one unsealed 50-kg Gasul tank they are at the same time directors or officers of
and one 50-kg Shellane tank. He followed the the corporation.
truck and when it stopped at a store, he asked • Before a stockholder may be held criminally
the driver and its sales representative about the liable for acts committed by the corporation, it
Gasul tank in their truck. They said it was empty must be shown that he had knowledge of the
but, when turned open its valve, it was not. They criminal act committed in the name of the
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corporation and that he took part in the same or 06 QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO
gave his consent to its commission, whether by Y. LAU, and CHARLIE COLLADO V. THOMAS GEORGE
action or inaction. G.R. No. 172727 | September 8, 2010 | Nachura |
• No evidence was presented establishing the Delfin
names of the stockholders who were charged TOPIC: Separate Personality/Piercing the Veil
with running the operations of Bicol Gas. The
complaint even failed to allege who among the DOCTRINE: Corporation is invested by law with
stockholders are directors or officers. personality separate and distinct from those of the
• CA specifically mentioned Espiritu, Jr. as the persons composing it, such that, corporate officers
registered owner of the truck that the KPE who entered into contracts in behalf of the
manager brought to the police. But the act that corporation cannot be held personally liable for the
R.A. 623 punishes is the unlawful filling up of liabilities of the latter.
registered tanks of another. It does not punish the However, personal liability of a corporate director,
act of transporting such tanks. trustee, or officer, along with the corporation, may
validly attach, as a rule, when:
(1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when
there is a conflict of interest resulting in
damages to the corporation, its stockholders,
or other persons;
(2) he consents to the issuance of watered down
stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary
his written objection thereto;
(3) he agrees to hold himself personally and
solidarily liable with the corporation; or
(4) he is made by a specific provision of law
personally answerable for his corporate action.
FACTS:
1. Queensland Tokyo Commodities, Inc (QTCI) is a
duly licensed broker engaged in the trading of
commodity futures. Thomas George is an investor
who was encouraged by Mendoza and Lontoc
of QTCI.
2. Collado in behalf of QTCI and George entered
into a Customers Agreement with a Special
Power of Attorney, appointing Mendoza as his
attorney-in-fact with full authority to trade and
manage his account.
3. In 1996, the SEC issued a Cease and Desist Order
(CDO) against QTCI which prompted George to
demand the return of his investment but was
refused. He sought legal assistance and
discovered that Lontoc and Mendoza were not
licensed commodity futures salesman.
4. George filed for Recovery for Investment with
damages against QTCI, Lau (President), Collado,
Mendoza and Lontoc with the SEC.
5. QTCI through Collado and Lau denies privity to
any arrangement between Mendoza and
George and claims they only assign duly
qualified persons to handle their accounts.
6. QTCI further claim that George is now estopped
from raising it as a ground for the return of his
investment for transacted business with QTCI for
almost a year without questioning the license or
the authority of the traders handling his account.
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If remedy is available, it should be made against 07 ERIC GODFREY STANLEY LIVESEY vs. BINSWANGER
Mendoza and Lontoc and not QTCI. (Mendoza PHILS., INC., ET. AL.,
and Lontoc did not answer as they cannot be G.R. No. 177493 |Mar. 19, 2014 | BRION | DE LEON
located) TOPIC: Separate Personality/ Piercing the Veil
7. SEC ruled for George. On appeal to the CA
affirmed the decision of the SEC finding liability DOCTRINE: Piercing the veil of corporate fiction is an
on QTCI in allowing an unlicensed salesman to equitable doctrine developed to address situations
handle their accounts, violating the Commodity where the separate corporate personality of a
Futures Trading Rules and Regulations. It held corporation is abused or used for wrongful purposes.
Collado and Lau solidarily liable for payment of Under the doctrine, the corporate existence may be
George’s claim. disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and
ISSUE/S: WON the CA erred in ordering Lau and due obligation, or to justify a wrong, to shield or
Collado solidarily liable? – NO perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in
HELD/RULING: which case, the fiction will be disregarded and the
• Based on the audit report revealing seven other individuals composing it and the two corporations will
unlicensed investment consultants in QTCI and be treated as identical.
the company’s practice of changing deeds of
SPA to bear those that are licensed, the court FACTS:
found QTCI management failed to implement • Eric Godfrey Stanley Livesey filed a complaint
the Commodity Futures Trading Rules against for illegal dismissal with money claims against
hiring unlicensed consultants amounting to gross CBB Philippines Strategic Property Services,
negligence. Inc. (CBB) and Paul Dwyer. CBB was a
domestic corporation engaged in real estate
• If further held that Collado had knowledge and brokerage and Dwyer was its President.
actually participated in allowing unlicensed • Allegedly, despite the several deals for CBB
salesman like Mendoza in handling client’s he drew up, CBB failed to pay him a
accounts and Lau being the CEO failed to significant portion of his salary. For this reason,
exercise due care and diligence in supervising he was compelled to resign on December
the operations of QTCI to prevent said unlawful 18, 2001. He claimed CBB owed him
acts. US$23,000.00 in unpaid salaries. CBB denied
liability. LA Jaime M. Reyno found that
• Although Lau may not have participated nor Livesey had been illegally dismissed.
been aware of the unlawful acts, he is however • Thereafter, the parties entered into a
grossly negligent in directing the affairs of QTCI compromise agreement which LA Reyno
pursuant to Section 31 of the Corporation Code. approved. Under the agreement, Livesey
was to receive US$31,000.00 in full satisfaction
• Therefore, the court correctly ordered Lau and of LA Reyno’s decision, broken down into
Collado to be jointly and severally liable with US$13,000.00 to be paid by CBB to Livesey or
QTCI for all damages. (see #1 in doctrine) his authorized representative upon the
signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or
before September 30, 2003. Further, the
agreement provided that unless and until the
agreement is fully satisfied, CBB shall not: (1)
sell, alienate, or otherwise dispose of all or
substantially all of its assets or business; (2)
suspend, discontinue, or cease its entire, or a
substantial portion of its business operations;
(3) substantially change the nature of its
business; and (4) declare bankruptcy or
insolvency.
• CBB paid Livesey the initial amount of
US$13,000.00, but not the next two
installments as the company ceased
operations. First writ of execution not
enforced.
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• Livesey filed a motion for the issuance of an authorities, although Elliot claimed that he bought
alias writ of execution, alleging that in the the item with his own money; and (5) Binswanger’s
process of serving respondents the writ, he takeover of CBB’s project with the PNB.
learned "that respondents, in a clear and While the ostensible reason for Binswanger’s
willful attempt to avoid their liabilities to establishment is to continue CBB’s business operations
complainant have organized another in the Philippines, which by itself is not illegal, the
corporation, Binswanger Philippines, Inc." He close proximity between CBB’s disestablishment and
claimed that there was evidence showing Binswanger’s coming into existence points to an
that CBB and Binswanger Philippines, Inc. unstated but urgent consideration which, was to
(Binswanger) are one and the same evade CBB’s unfulfilled financial obligation to Livesey
corporation, pointing out that CBB stands for under the compromise agreement.
Chesterton Blumenauer Binswanger. Invoking This underhanded objective, it must be stressed, can
the doctrine of piercing the veil of corporate only be attributed to Elliot. Elliot’s "guiding hand," is
fiction, Livesey prayed that an alias writ of very much evident in CBB’s demise and Binswanger’s
execution be issued against respondents creation. Therefore, Elliot is as liable as Binswanger for
Binswanger and Keith Elliot, CBB’s former CBB 's unfulfilled obligation to Livesey.
President, and now Binswanger’s President
and Chief Executive Officer (CEO).
HELD: YES
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08 LANUZA JR AND OLBES v. BF CORP., SHANGRI-LA 4. The RTC then issued an order directing service of
ET.AL. demands for arbitration upon all defendants
G.R. No. 174938 | Oct. 1, 2014 |LEONEN | ENRIQUEZ (including Petitioners) in BF Corporation’s
TOPIC: SEPARATE PERSONALITY/PIERCING THE VEIL complaint.
5. Petitioners then filed a petition for certiorari
DOCTRINE: Piercing the corporate veil is warranted before the CA alleging grave abuse of discretion
when "[the separate personality of a corporation] is in the issuance of orders compelling them to
used as a means to perpetrate fraud or an illegal act, submit to arbitration proceedings despite being
or as a vehicle for the evasion of an existing third parties to the contract between Shangri-La
obligation, the circumvention of statutes, or to and BF Corporation. The CA dismissed it. Hence,
confuse legitimate issues." It is also warranted in alter this petition.
ego cases "where a corporation is merely a farce 6. Petitioners argue that they cannot be held
since it is a mere alter ego or business conduit of a personally liable for corporate acts or
person, or where the corporation is so organized and obligations. The corporation is a separate being,
controlled and its affairs are so conducted as to and nothing justifies BF Corporation’s allegation
make it merely an instrumentality, agency, conduit or that they are solidarily liable with Shangri-La.
adjunct of another corporation." Neither did they bind themselves personally nor
When corporate veil is pierced, the corporation and did they undertake to shoulder Shangri-La’s
persons who are normally treated as distinct from the obligations should it fail in its obligations. BF
corporation are treated as one person, such that Corporation also failed to establish fraud or bad
when the corporation is adjudged liable, these faith on their part.
persons, too, become liable as if they were the 7. On the other hand, BF Corporation also argued
corporation that while petitioners were not parties to the
agreement, they were still impleaded under
FACTS: Section 31 of the Corporation Code. Section 31
1. BF Corporation filed a collection complaint with makes directors solidarily liable for fraud, gross
the RTC against Shangri-La and the members of negligence, and bad faith. Petitioners are not
its board of directors wherein Petitioners are a really third parties to the agreement because
part of. they are being sued as Shangri-La’s
2. BF Corporation alleged that: representatives, under Section 31 of the
• it entered into agreements with Shangri-La Corporation Code.
wherein it undertook to construct for Shangri-
La a mall and a multilevel parking structure ISSUE/HELD: Whether petitioners should be made
along EDSA parties to the arbitration proceedings, pursuant to the
• Shangri-La had been consistent in paying BF arbitration clause provided in the contract between
Corporation. However, eventually, Shangri-La BF Corporation and Shangri-La? YES. Petition is
started defaulting in payment DENIED.
• Shangri-La induced BF Corporation to
continue with the construction of the RATIO:
buildings using its own funds and credit • The Arbitral Tribunal’s decision, absolving
despite Shangri-La’s default petitioners from liability, and its binding effect on
• Shangri-La misrepresented that it had funds BF Corporation, have rendered this case moot
to pay for its obligations with BF Corporation and academic. The mootness of the case,
• Shangri-La took possession of the buildings however, had not precluded us from resolving
while still owing BF Corporation an issues so that principles may be established for
outstanding balance the guidance of the bench, bar, and the public.
• that the Shangri-La’s directors were in bad
• Thus, we rule that petitioners may be compelled
faith in directing Shangri-La’s affairs.
to submit to the arbitration proceedings in
Therefore, they should be held jointly and
accordance with Shangri-La and BF
severally liable with Shangri-La for its
Corporation’s agreement, in order to determine if
obligations as well as for the damages that
the distinction between Shangri-La’s personality
BF Corporation incurred
and their personalities should be disregarded.
3. Shangri-La and its Directors filed a motion to
suspend the proceedings in view of BF • A corporation is an artificial entity created by
Corporation’s failure to submit its dispute to fiction of law. This means that while it is not a
arbitration, in accordance with the arbitration person, naturally, the law gives it a distinct
clause provided in its contract. It went up to the personality and treats it as such. A corporation, in
SC which ruled that it must be submitted for the legal sense, is an individual with a personality
arbitration. that is distinct and separate from other persons
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including its stockholders, officers, directors, such that when the corporation is adjudged
representatives, and other juridical entities. The liable, these persons, too, become liable as if
law vests in corporations rights, powers, and they were the corporation.
attributes as if they were natural persons with
• Among the persons who may be treated as the
physical existence and capabilities to act on
corporation itself under certain circumstances
their own. For instance, they have the power to
are its directors and officers.
sue and enter into transactions or contracts.
• Based on Sec. 31 of the Corporation Code, a
• Because a corporation’s existence is only by
director, trustee, or officer of a corporation may
fiction of law, it can only exercise its rights and
be made solidarily liable with it for all damages
powers through its directors, officers, or agents,
suffered by the corporation, its stockholders or
who are all natural persons. A corporation
members, and other persons in any of the
cannot sue or enter into contracts without them.
following cases:
• A consequence of a corporation’s separate
a) willfully and knowingly voted for or
personality is that consent by a corporation
assented to a patently unlawful corporate
through its representatives is not consent of the
act;
representative, personally. Its obligations,
incurred through official acts of its b) of gross negligence or bad faith in
representatives, are its own. A stockholder, directing corporate affairs; and
director, or representative does not become a
party to a contract just because a corporation c) acquired personal or pecuniary interest in
executed a contract through that stockholder, conflict with his or her duties as director or
director or representative. trustee.
• Hence, a corporation’s representatives are • Solidary liability with the corporation will also
generally not bound by the terms of the contract attach in the following instances:
executed by the corporation. They are not a) consented to the issuance of watered
personally liable for obligations and liabilities stocks,
incurred on or in behalf of the corporation.
b) contractually agreed or stipulated to hold
• As a general rule, therefore, a corporation’s himself personally and solidarily liable with
representative who did not personally bind the corporation; and
himself or herself to an arbitration agreement
cannot be forced to participate in arbitration c) made, by specific provision of law,
proceedings made pursuant to an agreement personally liable for his corporate action.
entered into by the corporation. He or she is • Hence, when the directors, as in this case, are
generally not considered a party to that impleaded in a case against a corporation,
agreement. alleging malice or bad faith on their part in
• However, there are instances when the directing the affairs of the corporation,
distinction between personalities of directors, complainants are effectively alleging that the
officers, and representatives, and of the directors and the corporation are not acting as
corporation, are disregarded. We call this separate entities. Complainants effectively pray
piercing the veil of corporate fiction. that the corporate veil be pierced because the
cause of action between the corporation and
• Piercing the corporate veil is warranted when the directors is the same. The corporation’s
"[the separate personality of a corporation] is obligations are treated as the representative’s
used as a means to perpetrate fraud or an illegal obligations when the corporate veil is pierced.
act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to • However, when the courts disregard the
confuse legitimate issues." It is also warranted in corporation’s distinct and separate personality
alter ego cases "where a corporation is merely a from its directors or officers, the courts do not say
farce since it is a mere alter ego or business that the corporation, in all instances and for all
conduit of a person, or where the corporation is purposes, is the same as its directors,
so organized and controlled and its affairs are so stockholders, officers, and agents. Courts merely
conducted as to make it merely an discount the distinction and treat them as one, in
instrumentality, agency, conduit or adjunct of relation to a specific act, in order to extend the
another corporation." terms of the contract and the liabilities for all
damages to erring corporate officials who
• When corporate veil is pierced, the corporation participated in the corporation’s illegal acts.
and persons who are normally treated as distinct
from the corporation are treated as one person,
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• In this case, the Arbitral Tribunal rendered a 09 IRENE MARTEL FRANSISCO V. NUMERIANO MALLEN,
decision, finding that BF Corporation failed to JR.
prove the existence of circumstances that render G.R. No. 173169| September 22, 2010| CARPIO |
petitioners and the other directors solidarily liable. Estioko
It ruled that petitioners and Shangri-La’s other
directors were not liable for the contractual TOPIC: Separate Personality/Piercing the Veil
obligations of Shangri-La to BF Corporation. The
Arbitral Tribunal’s decision was made with the DOCTRINE: To hold a director or officer personally
participation of petitioners, albeit with their liable for corporate obligations, two requisites must
continuing objection. In view of our discussion concur: (1) complainant must allege in the complaint
above, we rule that petitioners are bound by that the officer assented to patently unlawful acts of
such decision. the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) complainant must
clearly and convincingly prove such unlawful
acts, negligence or bad faith.
FACTS:
1. Mallen was hired as a waiter for VIPS Coffee
Shop and Restaurant.
2. On Jan. 30, 1998, Mallen took an approved
sick leave. On Feb. 15, 1998, he took a
vacation leave. Thereafter, he availed of his
paternity leave.
3. On April 18, 1998, he suffered tonsillitis, forcing
him to take a 3-day sick leave. However,
instead of the 3-day sick leave, he was given
3 mos. leave without pay.
4. Due to several illnesses within the 1st quarter
of the year, VIPS Coffee concluded that
Mallen was not physically fit to work. Thus, he
was given a 3 mos. leave to regain his
physical health.
5. After his leave, Mallen reported back to work
with a medical certificate stating that he was
fit to work but he was refused to work,
6. Because of this, Mallen filed a complaint for
(illegal dismissal) constructive dismissal.
7. The Labor Arbiter, whose decision was
reinstated by the Court of Appeals, stated
that FRANSISCO acted with malice and bad
faith in constructively dismissing respondent.
Thus, the Labor Arbiter held petitioner
personally liable for the monetary awards to
respondent.
HELD:
1. A corporation is a juridical entity with legal
personality separate and distinct from those
acting for and in its behalf and, in general,
from the people comprising it. The rule is that
obligations incurred by the corporation,
acting through its directors, officers and
employees, are its sole liabilities.
2. To hold a director or officer personally liable
for corporate obligations, two requisites must
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concur: (1) complainant must allege in the 10 PACIFIC REHOUSE CORP. V. CA, EXPORT AND
complaint that the director or officer INDUSTRY BANK
assented to patently unlawful acts of the G.R. No. 199687 | March 24, 2014 | J. Reyes |
corporation, or that the officer was guilty of Huecas
gross negligence or bad faith; and TOPIC: Separate Personality/ Piercing the Veil
(2) complainant must clearly and
convincingly prove such unlawful FACTS:
acts, negligence or bad faith. 1. A case was filed before the RTC against EIB
3. LA’s finding lacks basis. Based on the records, Securities Inc. (E-Securities) for the
Mallen failed to allege either in his complaint unauthorized sale of 32,180,000 DMCI shares
or position paper that Fransisco, as Vice- owned by Pacific Rehouse Corporation,
President of VIPS Coffee Shop and Pacific Concorde Corporation, Mizpah
Restaurant, acted in bad faith. Neither did Holdings, Inc., Forum Holdings Corporation,
Mallen clearly and convincingly prove that and East Asia Oil Company, Inc. (Petitioners)
Fransisco, as Vice-President of VIPS Coffee 2. Judgment was rendered against E-Securities,
Shop and Restaurant, acted in bad faith. ordering the return of the DMCI shares to
Petitioners, but the Writ of Execution was
4. There was no evidence whatsoever to show
returned unsatisfied so Petitioners moved for
petitioners participation in respondents
an alias writ of execution to hold Export and
alleged illegal dismissal.
Industry Bank, Inc. (Respondent) liable for the
5. Clearly, the twin requisites of allegation and judgment obligation of E-Securities alleging
proof of bad faith, necessary to hold that the latter is “a wholly-owned controlled
petitioner personally liable for the monetary and dominated subsidiary of Export and
awards to respondent, are lacking. Industry Bank, Inc., and is thus a mere alter
ego and business conduit of the latter.”
(Respondent owns 499,995/500,000
outstanding shares of stocks of E-Securities)
3. Respondent contends that it is a separate
and distinct entity from its subsidiary and that
it was not properly impleaded as a
defendant in the initial case (irrelevant
topic).
HELD/RULING: NO
The three-pronged control test to establish when the
alter ego doctrine should be operative:
1. Control, not mere majority or
complete stock control, but
complete domination, not only of
finances but of policy and business
practice in respect to the
transaction attacked so that the
corporate entity as to this transaction
had at the time no separate mind,
will or existence of its own;
2. Such control must have been used
by the defendant to commit fraud or
wrong, to perpetuate the violation of
a statutory or other positive legal
duty, or dishonest and unjust act in
contravention of plaintiff’s legal right;
and
3. The aforesaid control and breach of
duty must [have] proximately
caused the injury or unjust loss
complained of.
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The absence of any of the elements mentioned will 11. HEIRS OF FE TAN UY v. INTERNATIONAL EXCHANGE
bar the applicability of the alter ego doctrine. BANK
Control, by itself, does not mean that the controlled GR NO. 166282 |FEBRUARY 13, 2013|Mendoza, J.|
corporation is a mere instrumentality or a business INGUILLO
conduit of the mother company. Even control over TOPIC: Separate Corporate Personality; Piercing the
the financial and operational concerns of a corporate veil
subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a DOCTRINE: Basic is the rule in corporation law that a
perpetuation of fraud behind the control or at least a corporation is a juridical entity which is vested with a
fraudulent or illegal purpose behind the control in legal personality separate and distinct from those
order to justify piercing the veil of corporate fiction. acting for an in its behalf. Following this principle,
Such fraudulent intent is lacking in this case and obligations incurred by the corporation, acitng
there was no record demonstrative of Respondent’s through its directors, officers and employees, are its
fraudulent intent in setting up E-Securities. To justify sole liabilities. Nevertheless, this legal fiction may be
treating the sole stockholder or holding company as disregarded if it is used as a mean to perpetuate
responsible, it is not enough that the subsidiary is so fraud or an illegal act, or as a vehicle for the evasion
organized and controlled as to make it “merely an of an existing obligation, the circumvention of
instrumentality, conduit or adjunct” of its statutes, or to confuse legitimate issues.
stockholders. It must further appear that to recognize
their separate entities would aid in the consummation FACTS:
of a wrong. 1. In 1996, Hammer, through its President and
Ownership by Respondent of a great majority or all of General Manager, Manuel Chua obtained loans
stocks of E-Securities and the existence of interlocking from International Exchange Bank (iBank). The
directorates may serve as badges of control, but loans were covered by various promissory notes
ownership of another corporation, per se, without with an aggregate amount of P24 Million.
proof of actuality of the other conditions are • The loans were secured by a P9 Million-Peso
insufficient to establish an alter ego relationship or Real Estate Mortgage executed by Goldkey
connection between the two corporations, which will Development Corporation over several of its
justify the setting aside of the cover of corporate properties and a P25 Million- Surety
fiction. The wrongdoing must be clearly and Agreement executed by Manuel Chua and
convincingly established; it cannot be presumed. his wife, Fe Tan Uy.
Basically, even if E-Securities could not fulfill the 2. Subsequently, Hammer defaulted in the payment
judgment award in favor of Petitioners, the of its loans. As a result thereof, iBank moved to
Respondents cannot be liable since the elements for foreclose Goldkey’s Real Estate Mortgage.
the applicability of the alter ego doctrine were not • Despite the sale of the Real Estate
complied with. Mortgages, an unpaid balance of
P13,420,177.62 remained.
3. Due to Hammer’s failure to settle the unpaid
balance, iBank filed a complaint for sum of
money against Hammer, Manuel Chua, Fe Tan
Uy, and GoldKey before the RTC.
4. Chua and Hammer both failed to file their
answers,hence, were declared in default.
• For her part, Fe Tan Uy argued that she
should not be held laible to iBank because
she never executed a Surety Agreement in
favor of iBank.
• Goldkey likewise denied liability mainly on
the ground that it was a corporation
separate and distinct from Hammer.
5. Meanwhile, iBank applied for a writ of preliminary
attachment which was favorably ruled by the
trial court. By virtue of which, a Notice of Levy on
Attachment of Real Properties over Goldkey’s
properties was sent to the Registry of Deeds of
Quezon City.
6. The RTC ruled in favor of iBank. In its decision, the
court a quo held that Goldkey and Hammer
were one and the same thus warranting the
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piercing of the veil of corporate fiction. The b. The complainant must clearly and
decision was based on the following factors: convincingly prove such unlawful acts,
a. Both were family corporations of Manuel negligence or bad faith.
Chua and Fe Tan Uy; • In the case at bar, iBank failed to prove that
b. Both shared the same office and transacted Uy committed an unlawful act as an officer
business from the same place; of Hammer that would permit the piercing of
c. The assets of the 2 corporations are co- the corporate veil. In fact, upon review of the
mingled; complaint, it was shown that iBank never
d. When Manuel Chua absconded, both averred that Uy committed any bad faith or
corporation ceased to operate. gross negligence in the performance of her
7. Upon appeal, the Court of Appeals affirmed the duties.
ruling of the RTC. It found that iBank was induced • The Court emphasized that the application
to grant the loan by virtue of the falsified of the doctrine of piercing the corporate veil
Financial Records submitted by the petitioners; should be done with caution and only in
such act showed that the petitioners used the cases what it has been clearly established
corporate fiction to defraud iBank and warrant that the separate and distinct personality of
the conclusion that Hammer and Goldkey should the corporation is used to justify a wrong.
be treated as one and the same.
8. Hence, the instant petitioners separately filed by 2. Yes. Goldkey is a mere alter ego of Hammer.
the heirs of Uy and Goldkey. • Under the doctrine of piercing the veil of
corporate fiction, when two business
ISSUE: enterprises are owned, conducted and
1. WON Uy, as an officer and stockholder of controlled by the same parties, both lawlaw
Hammer, can be held laible to iBank for and equity will, when necessary to protect
Hammer’s loan obligation.-NO the rights of third parties, disregard the legal
2. WON Goldkey can be held laible for the fiction that two corporations are distinct and
obligation of Hammer for being a mere alter ego treat them as identical or one and the same.
of the latter.- YES. • Furthermore, the Court cited its ruling in the
case of Concept Builders vs NLRC to lay
RULING: down some probative factors that will justify
1. No. Uy cannot be held laible for the obligation the application of the doctrine of piercing
of Hammer to iBank. the corporate veil:
• Basic Rule in Corporation Law: A a. Stock ownership by one or common
corporation is a juridical entity which is ownership of both corporation;
vested with a legal personality separate b. Identity of directors and officers;
and distinct from those acting for and in its c. The manner of keeping corporate books
behalf and, in general, from the people and records, and
comprising it. d. Methods of conducting the business.
• Following this, as a general rule, a director, • In the case at bar, the factors cited above
officer or employee of a corporation is not are present as observed by the RTC:
personally liable for obligations incurred by a. Both corporations are family corporations
the coporation. Nevertheless, as an of defendants Manuel Chua, his wife
exception, Section 31 of the Corporation and their respective relatives.
Code provides that the legal fiction may be b. Both Hammer and Goldkey share the
disregarded if the same is used as a means same office and practically transact their
to perpetuate fraud or an illegal act, or as a business from the same place.
vehicle for the evasion of an existing c. Chua, the President and Chief Operating
obligation, circumvention of statutes, or as a Officer of both corporations. Likewise, all
means to confuse legitimate issues. business transactions of Goldkey and
• Thus, before a director or officer of a Hammer are done at the instance of
corporation can be held personally liable Manuel Chua who is duly authorized by
for corporate obligations the following must the corporations. In fact, it was Chua
first be present: who signed the PN for Hammer in his
a. It must be shown that the director or capacity as the President and Gen.
officer assented to the patently unlawful Manager of Hammer. He was also the
acts of the corporation or that he was one who signed the 3rd party real estate
guilty og gross negligence or bad faith; mortgage for Goldkey to secure
and Hammer’s obligation.
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d. The assets of Hammer and Goldkey are 12 PNB v. HYDRO RESOURCES CONTRACTORS CORP.
co-mingled. The proceeds of the loan G.R. No. 167530| Mar. 13, 2013 | Leonardo-De Castro
was used to finance the purchase of a | Lacap
manager’s check payable to Goldkey. TOPIC: Separate Personality/ Piercing the Veil
e. When Manuel Chua disappeared,
Goldkey ceased to operate despite the DOCTRINES:
claim that the other officers and • Mere ownership by a single stockholder or by
stockholders are still around and may be another corporation of all or nearly all of the
able to continue the business of capital stock of a corporation is not of itself
Goldkey, if it were different and distinct sufficient ground for disregarding the separate
from Hammer which suffered financial corporate personality.
set back. • Existence of interlocking directors, corporate
officers and shareholders is not enough
justification to pierce the veil of corporate fiction
in the absence of fraud or other public policy
considerations.
FACTS:
1. Development Bank of the Philippines (DBP) and
Philippine National Bank (PNB) acquired the
properties of Marinduque Mining and Industrial
Corporation (MMIC) through foreclosure of the
latter’s mortgages.
a. As a result, DBP and PNB acquires
substantially all of the assets of MMIC
and resumed operations by organizing
NMIC (Nonoc Mining and Industrial
Corporation.
b. DBP and PNB owned 57% and 43% of the
shares of NMIC, respectively. The board
of directors also came from either DBP or
PNB.
2. NMIC acquired the services of Hercon Inc. for the
former’s Mine Stripping and Road Construction
Program for a total of P35m.
3. After computing the payments made by NMIC,
Hercon found that there was still an unpaid
balance of P8m.
4. When Hercon’s demands were not heeded, it
filed a case for collection of sum of money with
the RTC against NMIC, DBP and PNB.
5. In the interim, Hercon, Inc was acquired by HRCC
(respondent, Hyrdro Resources Contractors
Corp). Meanwhile, Asset Privatization Trust (ATP)
was created through Proc. No. 50 and was
impleaded as a defendant in this case after the
assets and liabilities of DPB and PNB in NMIC were
transferred to ATP.
6. NMIC’s argument: HRCC has no cause of action
because the contract with HRCC was entered by
its then President who had no authority.
7. DBP and PNB’s arguments: claimed that HRCC
had no cause of action because they were not
privy to HRCC’s contract with NMIC
8. RTC: ruled in favor of PNB and it pierced the
corporate veil of NMIC by holding DBP and PNB
solidarily liable with NMIC.
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a. NMIC is owned by defendants DBP and that injustice, fraud, or crime was
PNB, with the former owning 57% thereof, committed against another, in disregard
and the latter 43% of its rights.
b. The business of NMIC was then also o The wrongdoing must be clearly and
being conducted and controlled by convincingly established; it cannot be
both DBP and PNB. presumed.
c. In fact, it was Rolando M. Zosa, then • Sarona v. NLRC has defined the scope of
Governor of DBP, who was signing and application of the doctrine of piercing the
entering into contracts with third persons, corporate veil. The doctrine of piercing the
on behalf of NMIC. corporate veil applies only in three (3) basic
9. CA: affirmed the decision of RTC. areas, namely:
10. PETITIONERS: All three petitioners assert that NMIC 1) defeat of public convenience as when
is a corporate entity with a juridical personality the corporate fiction is used as a vehicle
separate and distinct from both PNB and DBP. for the evasion of an existing obligation;
• According to them, the application of the 2) fraud cases or when the corporate entity
doctrine of piercing the corporate veil is is used to justify a wrong, protect fraud,
unwarranted as nothing in the records would or defend a crime; or
show that the ownership and control of the 3) alter ego cases, where a corporation is
shareholdings of NMIC by DBP and PNB were merely a farce since it is a mere alter ego
used to commit fraud, illegality or injustice. or business conduit of a person, or where
• In the absence of evidence that the stock the corporation is so organized and
control by DBP and PNB over NMIC was used controlled and its affairs are so
to commit some fraud or a wrong and that conducted as to make it merely an
said control was the proximate cause of the instrumentality, agency, conduit or
injury sustained by HRCC, resort to the adjunct of another corporation.
doctrine of "piercing the veil of corporate • Here, HRCC has alleged from the inception of this
entity" is misplaced case that DBP and PNB (and the APT as assignee
11. RESPONDENT: claims that NMIC was the alter ego of DBP and PNB) should be held solidarily liable
of DBP and PNB which owned, conducted and for using NMIC as alter ego.
controlled the business of NMIC as shown by the • In this connection, case law lays down a three-
following circumstances: NMIC was owned by pronged test to determine the application of the
DBP and PNB, the officers of DBP and PNB were alter ego theory, which is also known as the
also the officers of NMIC, and DBP and PNB instrumentality theory, namely:
financed the operations of NMIC. (1) Control, not mere majority or complete stock
control, but complete domination, not only
ISSUE: Whether the doctrine of piercing the corporate of finances but of policy and business
veil would apply to NMIC, thereby holding it solidarily practice in respect to the transaction
liable with DBP and PNB. NO attacked so that the corporate entity as to
this transaction had at the time no separate
HELD: mind, will or existence of its own;
• PRINCIPLE OF LIMITED LIABILITY: By virtue of the (2) Such control must have been used by the
separate juridical personality of a corporation, defendant to commit fraud or wrong, to
the corporate debt or credit is not the debt or perpetuate the violation of a statutory or
credit of the stockholder. other positive legal duty, or dishonest and
• PERICING THE CORPORATE VEIL: Equally well- unjust act in contravention of plaintiff’s legal
settled is the principle that the corporate mask right; and
may be removed or the corporate veil pierced (3) The aforesaid control and breach of duty
when the corporation is just an alter ego of a must have proximately caused the injury or
person or of another corporation. For reasons of unjust loss complained of.
public policy and in the interest of justice, the • To summarize, piercing the corporate veil based
corporate veil will justifiably be impaled only on the alter ego theory requires the concurrence
when it becomes a shield for fraud, illegality or of three elements: control of the corporation by
inequity committed against third persons. the stockholder or parent corporation, fraud or
• Any application of the doctrine of piercing the fundamental unfairness imposed on the plaintiff,
corporate veil should be done with caution. A and harm or damage caused to the plaintiff by
court should be mindful of the milieu where it is to the fraudulent or unfair act of the corporation.
be applied. The absence of any of these elements prevents
o It must be certain that the corporate piercing the corporate veil.
fiction was misused to such an extent
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undisputed that the petitioner tendered his 15 RAMIREZ, ET AL. v. MAR FISHING ET AL.
resignation and that he applied at Royale at the G.R. No. 168208, June 13, 2012 SERENO | LIN
instance of Karen and Cesar and on the TOPIC: Separate Personality/ Piercing the Veil
impression they created that these were
necessary for his continued employment. FACTS:
4. They orchestrated the petitioner’s resignation 1. On 28 June 2001, Mar Fishing sold its principal
from Sceptre and subsequent employment at assets to co-respondent Miramar Fishing Co., Inc.
Royale, taking advantage of their ascendancy through public bidding. In view of that transfer,
over the petitioner and the latter’s lack of Mar Fishing issued a Memorandum on October
knowledge of his rights and the consequences of 23, 2001, informing all its workers that the
his actions. Furthermore, that the petitioner was company would cease to operate by the end of
made to resign from Sceptre and apply with the month, thereafter, it also notified the DOLE of
Royale only to be unceremoniously terminated the closure of its business operations.
shortly thereafter leads to the ineluctable 2. Mar Fishing labor union, Mar Fishing Workers
conclusion that there was intent to violate the Union NFL and Miramar entered into a
petitioner’s rights as an employee, particularly his Memorandum of Agreement, which provides
right to security of tenure. that Miramar, shall absorb Mar Fishing regular
5. The respondents’ scheme reeks of bad faith and rank and file employees whose performance was
fraud and compassionate justice dictates that satisfactory, without loss of seniority rights and
Royale and Sceptre be merged as a single entity, privileges previously enjoyed.
compelling Royale to credit and recognize the 3. Unfortunately, petitioners, who worked as rank
petitioner’s length of service with Sceptre. The and file employees, were not hired or given
respondents cannot use the legal fiction of a separation pay by Miramar. Thus, petitioners filed
separate corporate personality for ends Complaints for illegal dismissal with money claims
subversive of the policy and purpose behind its before the Arbitration Branch of the NLRC.
creation or which could not have been intended 4. LA: Mar Fishing had necessarily closed its
by law to which it owed its being. operations, considering that Miramar had
6. Also, Sceptre and Royale have the same already bought the tuna canning plant. By
principal place of business. Aida and Wilfredo reason of the closure, petitioners were legally
became the owners of the property used by dismissed for authorized cause. In addition, even
Sceptre as its principal place of business by virtue if Mar Fishing reneged on notifying the DOLE
of a Deed of Absolute Sale they executed with within 30 days prior to its closure, that failure did
Roso. Royale, shortly after its incorporation, not make the dismissals void. Consequently, the
started to hold office in the same property. LA ordered Mar Fishing to give separation pay to
7. The respondents do not likewise deny that Royale its workers.
and Sceptre share the same officers and 5. NLRC: modified the LA Decision. Noting that Mar
employees. Karen assumed the dual role of Fishing notified the DOLE only two days before
Sceptre’s Operation Manager and incorporator the business closed, the labor court considered
of Royale. With respect to the petitioner, even if petitioners dismissal as ineffectual. Hence, it
he has already resigned from Sceptre and has awarded, apart from separation pay, full back
been employed by Royale, he was still using the wages to petitioners from the time they were
patches and agency cloths of Sceptre during his terminated on 31 October 2001 until the date
assignment at Highlight Metal. when the LA upheld the validity of their dismissal
8. Royale also claimed a right to the cash bond on 30 July 2002. Additionally, the NLRC pierced
which the petitioner posted when he was still with the veil of corporate fiction and ruled that Mar
Sceptre. If Sceptre and Royale are indeed Fishing and Miramar were one and the same
separate entities, Sceptre should have released entity, since their officers were the same. Hence,
the petitioner’s cash bond when he resigned and both companies were ordered to solidarily pay
Royale would have required the petitioner to the monetary claims. MR: the NLRC modified its
post a new cash bond in its favor. ruling by imposing liability only on Mar Fishing.
9. Effectively, the petitioner cannot be deemed to 6. CA: finding that only 3 of the 228 petitioners
have changed employers as Royale and Sceptre signed the Verification and Certification against
are one and the same. His separation pay forum shopping, the CA instantly dismissed the
should, thus, be computed from the date he was action for certiorari against the 225 other
hired by Sceptre in April 1976 until the finality of petitioners without ruling on the substantive
this decision. aspects of the case.
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ISSUE: Whether Respondent is an alter ego of 17 HYATT ELEVATORS & ESCALATORS CORP. v.
Dynetics and the veil of corporate fiction should be GOLDSTAR ELEVATORS PHILS. INC
pierced. G.R. No. 161026 | October 24, 2005 | J. Panganiban |
MONTEALTO
HELD/RULING: NO. TOPIC: Residence of a corporation
1. To disregard the separate juridical personality of a DOCTRINE: The residence of a corporation is the
corporation, the wrongdoing must be proven clearly place where its principal office is located, as stated in
and convincingly. its Articles of Incorporation.
In this case, Petitioner failed to prove that
Respondent was organized and controlled, and its FACTS:
affairs conducted, in a manner that made it merely • Hyatt and Goldstar are both domestic
an instrumentality, agency, conduit or adjunct of corporations engaged in the business of
Dynetics, or that it was established to defraud marketing, distributing and selling elevators
Dynetics’ creditors, including petitioner. and escalators. Both corporations’ addresses
in their AOIs is in Makati City.
2. The similarity of business of the two corporations • Hyatt filed a complaint for unfair trade
did not warrant a conclusion that respondent was but practices against LGISC and LGIC in the RTC
a conduit veil. of Mandaluyong City alleging:
o that it appointed Hyatt as the
In Umali v. CA, “the mere fact that the businesses of exclusive distributor of LG elevators
two or more corporations are interrelated is not a and escalators in the Phils under an
justification for disregarding their separate exclusive distributorship agreement
personalities, absent sufficient showing that the o that LG subsequently terminated the
corporate entity was purposely used as a shield to agreement in bad faith, causing
defraud creditors and third persons of their rights.” damage to Hyatt
• Hyatt amended the complaint to implead
3. Respondent’s acquisition of some of the Goldstar, alleging that Goldstar was being
machineries and equipment of Dynetics was not utilized by LG in perpetuating their unlawful
proof that it was formed to defraud Petitioner. and unjustified acts against Hyatt.
• Goldstar filed an MTD, raising the ground of
What took place was a sale of the assets of the improper venue as neither Hyatt nor Goldstar
former to the latter. Merger is legally distinct from a reside in Mandaluyong city.
sale of assets. Thus, where one corporation sells or • Hyatt alleged that it had closed its Makati
otherwise transfers all its assets to another corporation office and relocated to Mandaluyong City,
for value, the latter is not liable for the debts and and that Goldstar was aware of this.
liabilities of the transferor. • RTC: venue properly laid. Only Goldstar
MRed. Denied. Goldstar filed PetCert. CA
The sales were therefore valid and the transfers of the granted. Hence, this case.
properties to respondent legal and not in any way in
contravention of petitioner’s rights as Dynetics’ ISSUE: W/N the venue was improperly laid.
creditor.
RULING: YES, as neither Goldstar nor Hyatt resides in
4. Lastly, it may be true that respondent later hired Mandaluyong.
Dynetics’ former VP and Assistant Corporate Counsel.
However, SC ruled that it cannot conclude that The Rules of Court provides that actions may be
respondent was an alter ego of Dynetics. commenced and tried where the plaintiff or
defendant resides.
In fact, even the overlapping of incorporators and
stockholders of two or more corporations will not Residence is the permanent home -- the place to
necessarily lead to such inference and justify the which, whenever absent for business or pleasure, one
piercing of the veil of corporate fiction. intends to return.
A corporation is a resident of the place where its
principal office is located as stated in the articles of
incorporation.
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While the rules on the venue of personal actions are DOCTRINE: The award of moral damages cannot be
fixed for the convenience of the plaintiffs and their granted in favor of a corporation because, being
witnesses, to insist that the proper venue is the actual an artificial person and having existence only in legal
principal office and not that stated in its AOI would contemplation, it has no feelings, no emotions, no
create confusion and work untold inconvenience. senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be
Enterprising litigants may, out of some ulterior motives, experienced only by one having a nervous system.
easily circumvent the rules on venue by the simple
expedient of closing old offices and opening new FACTS:
ones in another place that they may find well to suit 1. 1990: ABS-CBN and VIVA executed a Film Exhibition
their needs. Agreement whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. It was
stipulated that ABS-CBN shall have the right of first
refusal to the next 24 Viva films for TV telecast
2. Dec. 1991: Viva, Del Rosario, offered ABS-CBN, a list
of 3 film packages (36 title) from which ABS-CBN may
exercise its right of first refusal.
3. ABS-CBN, however, can tick off only 10 titles it can
purchase and therefore did not accept the list. The
titles ticked off are not the subject of the case at bar
except the film Maging Sino Ka Man.
4. Feb. 1992: Del Rosario approached ABS-CBN, with
a list consisting of 52 original movie titles including the
14 titles subject of the present case, as well as 104 re-
runs from which ABS-CBN may choose another 52
titles, proposing to sell to ABS-CBN airing rights over
this package for P60M
5. Apr. 2, 1992: Del Rosario and ABS-CBN’s general
manager, Eugenio Lopez III, met to discuss the
package proposal of VIVA.
-Mr. Lopez testified that he and Del Rosario allegedly
agreed that ABS-CBN was granted exclusive film
rights to 14 films for a total consideration of P36
million; that he allegedly put this agreement as to the
price and number of films in a napkin and signed it
and gave it to Mr. Del Rosario
-Del Rosario denied having made any agreement
with Lopez regarding the 14 Viva film.
6. Apr. 6, 1992: Del Rosario and Gozon of RBS
discussed the terms and conditions of Viva’s offer to
sell the 104 films, after the rejection of the same
package by ABS-CBN
7. Apr. 29, 1992, VIVA signed a letter of agreement
granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films including the 14 films
subject of the present case.
8. May 1992, ABS-CBN filed before the RTC a
complaint for specific performance with a prayer for
a writ of preliminary injunction and/or TRO against
hereafter RBS, VIVA, and Del Rosario.
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9. RTC: ordered ABS-CBN to pay P5M as and by way 19 ADVANCE PAPER CORP. V. ARMA TRADERS
of moral damages. There was no meeting of minds GR 176897 | December 11, 2013 | BRION | PACA
on the price and terms of the offer. The alleged TOPIC: Doctrine of Apparent Authority
agreement between Lopez III and Del Rosario was
subject to the approval of the VIVA Board of DOCTRINE: When the sole management of the
Directors, and said agreement was disapproved corporation was entrusted to 2 of its
during the meeting of the Board on 7 April 1992. officers/incorporators, and the other officers never
10. CA: affirmed RTC. It also noted that the napkin had dealings with the corporation for 14 years and
was not produced. RBS’s reputation was debased by the board and the stockholders never had a
the filing of the complaint and by the non-showing of meeting, the corporation is estopped from denying
the film Maging Sino Ka Man. It reduced the moral the officers’ authority to obtain loans on behalf of the
damages to P2M. corporation under the doctrine of apparent
authority.
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believed, then all transactions of Arma Traders • Because of its own laxity in its business dealings,
during the said period may be questioned. Arma Traders is now estopped from denying Tan
11. Advance Paper cites Lipat v. Pacific Banking: if a and Uy’s authority to obtain loan from Advance
corporation knowingly permits one of its officers Paper.
or any other agent to act within the scope of an
apparent authority, it holds him out to the public
as possessing the power to do those acts; thus,
the corporation will, as against anyone who has
in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.
HELD/RULING:
• The doctrine of apparent authority provides that
a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its
officers/agents to act within the scope of an
apparent authority, and it holds him out to the
public as possessing the power to do those acts.
• Apparent authority is derived not merely from
practice. Its existence may be ascertained
through: (1) the general manner in which the
corporation holds out an officer or agent as
having the power to act or, in other words the
apparent authority to act in general, with which it
clothes him; or (2) the acquiescence in his acts of
a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope
of his ordinary powers.
• the board of directors may validly delegate
some of its functions and powers to officers,
committees or agents, and their authority to bind
the corporation is generally derived from law,
corporate bylaws or authorization from the
board, either expressly or impliedly by habit,
custom or acquiescence.
• In this case, it was proven that the sole
management of Arma Traders was left to Tan
and Uy and that he and the other officers never
dealt with the business and management of
Arma Traders for 14 years.
• Arma Traders own Corporate Secretary Ng
testified that since 1984 up to the filing of the
complaint in 1994 that Arma Traders, its
stockholders and board of directors never had a
meeting.
• Thus, Arma Traders bestowed upon Tan and Uy
broad powers by allowing them to transact with
3rd persons without the necessary written
authority from its non-performing board of
directors.
• Arma Traders failed to take precautions to
prevent its own corporate officers from abusing
their powers.
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21 WILSON GAMBOA v. FINANCE SECRETARY Parallax’s bid. Later in Feb. 28, 2007, First Pacific
MARGARITO TEVES, bought such shares.
G.R. No. 176579| June 28, 2011|Carpio | Panday 9. Case arose when petitioner Gamboa filed for
prohibition, injunction, declaratory relief, and
DOCTRINE: The term capital in Section 11, Article XII of declaration of nullity of sale of the 111,415 PTIC
the Constitution refers only to shares of stock that can shares alleging that the sale of the 111,415 PTIC
vote in the election of directors. This interpretation is shares would result in an increase in First Pacific’s
consistent with the intent of the framers of the common shareholdings in PLDT from 30.7% to
Constitution to place in the hands of Filipino citizens 37%, and combined with Japanese
the control and management of public utilities. As NTT DoCoMos’ common shareholdings in PLDT, it
revealed in the deliberations of the Constitutional would result to total foreign common
Commission, capital refers to the voting stock or shareholdings in PLDT of 51.56% (Collectively
controlling interest of a corporation. 81.47% of PLDT’s common equity). In this
connection, it violates Article 12 Section 11 of the
FACTS: 1987 Philippine Constitution which limits foreign
1. On Nov. 28, 1928, Act. No. 3436 granted PLDT a ownership of the capital of a public utility to not
franchise and right to engage in more than 40%.
telecommunications business. 10. The Sanidads intervened joining petitioner
2. In 1969, General Telephone and Electronics Gamboa claiming that, as PLDT subscribers, they
Corporation (GTE), an American company and a have a stake in the outcome of this case where
major PLDT stockholder, sold 26% of the the Government is completing the sale of
outstanding common shares of PLDT to Philippine government owned assets in PLDT, a public utility,
Telecommunications Investment Corporation in violation of the nationality restrictions of the
(PTIC). Constitution.
3. On Nov. 1967, PTIC was incorporated and had
since engaged in the business of investment ISSUE: WHETHER the term “capital” in Sec. 11 of Art. XII
holdings. PTIC held 26,034,263 PLDT common of the 1987 Constitution refers to the total common
shares (13.847% of the total PLDT outstanding shares only or to the total outstanding capital stock
common shares). (combined total of common and non- voting
4. In 1977, Prime Holdings, Inc. (PHI) was preferred shares) of PLDT, a public utility. ONLY TO
incorporated by several persons, including COMMON SHARES.
Roland Gapud and Jose Campos, Jr. It became
the owner of 111,415 shares of stock of PTIC by HELD:
virtue of 3 Deeds of Assignment executed by PTIC 1. Article 12, Section 11 (National Economy and
stockholders Ramon Cojuangco and Patrimony) of the 1987 Constitution provides
Luis Tirso Rivilla. that “No franchise, certificate, or any other
5. In 1986, the 111,415 shares of stock of PTIC held form of authorization for the operation of a
by PHI were sequestered by the PCGG (As these public utility shall be granted except to
were part of the ill-gotten wealth from President citizens of the Philippines or to corporations or
Marcos). The 111,415 PTIC shares, which represent associations organized under the laws of the
about 46.125% of the outstanding capital stock of Philippines, at least sixty per centum of whose
PTIC, were later declared by the Court, on capital is owned by such citizens”
August 8, 2006, to be owned by the Republic of 2. Supreme Court ruled that the term capital
the Philippines. only includes shares of stock that can vote in
6. In 1999, First Pacific, a Hong Kong-based the election of directors. BECAUSE:
investment firm, acquired the 54% of PTIC’s • Common shares have voting rights which
outstanding capital stock. translate to control;
7. On Nov. 20, 2006, the Government decided to • Preferred shares are often excluded from any
sell the 111,415 shares (46.125% of PTIC’s control because preferred shareholders are
outstanding capital stock or 6.4% of PLDT’s merely investors in the corporation for
outstanding capital stock) and designated the income like bondholders.
Inter-Agency Privatization Council (IPC) to sell • “Capital” refers to the voting stock or
such shares through a public bidding. 2 bidders controlling interest of a corporation. Holders
emerged, Parallax Venture Fund and Pan-Asia of PLDT preferred shares are explicitly denied
Presidio Capital. Parallax won with a bid of P25.6 of the right to vote in the election of
billion/ $510 million. directors. PLDT’s Articles of Incorporation
8. First Pacific then announced that it would expressly state that the holders of Serial
exercise its right of first refusal as a PTIC Preferred Stock shall not be entitled to vote
stockholder and buy such shares by matching at any meeting of the stockholders for the
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22 VALLE VERDE COUNTRY CLUB (VVCC), Inc. v. incumbent actually holds office. The tenure may be
VICTOR AFRICA shorter (or, in case of holdover, longer) than the term
G.R. No. 151969 | Sept. 4, 2009 | J. Brion | PARAS for reasons within or beyond the power of the
TOPIC: Powers of the BOD incumbent.
When Sec. 23[9] of the Corp. Code declares that the
DOCTRINES: BOD shall hold office for 1 year until their successors
1. The holdover period is not part of the term of are elected and qualified, the term of the members
office of a member of the BOD. shall be only for one year. The holdover period from
2. A vacancy in the BOD due to expiration of the lapse of one year from a member’s election to
term of office must be filled by the the Board and until his successors election and
stockholders of VVCC in a regular or special qualification is not part of the director’s original term
meeting called for the purpose. of office, nor is it a new term; the holdover period,
however, constitutes part of his tenure.
FACTS:
1. In 1996, during the Annual Stockholders Meeting After the lapse of one year from his election as
of VVCC, members of the VVCC Board of member of the VVCC Board in 1996, Makalintal’s
Directors (BOD) were elected. In the years 1997- term have already expired. With the expiration of
2001, however, the requisite quorum for the Makalintal’s term of office, a vacancy resulted which,
holding of the stockholders meeting could not be by the terms of Sec. 29[11] of the Corp. Code, must
obtained so the directors continued to serve in be filled by the stockholders of VVCC in a regular or
the VVCC Board in a hold-over capacity. special meeting called for the purpose. His
resignation as a holdover director did not change the
2. In 1998, Dinglasan resigned as member of the nature of the vacancy; the vacancy due to the
VVCC Board. The remaining directors, still expiration of Makalintal’s term had been created
constituting a quorum of VVCCs nine-member long before his resignation.
board, elected Roxas to fill in the vacancy. A
year later, Makalintal also resigned as member. THE POWERS OF THE CORP.’S BOD EMANATE FROM ITS
He was replaced by Jose Ramirez, who was STOCKHOLDERS.
elected by the remaining members of the VVCC VVCCs construction of Sec. 29 of the Corp. Code on
Board. the authority to fill up vacancies in the BOD, in
relation to Sec. 23 thereof, effectively weakens the
3. Africa, a member of VVCC, questioned the stockholders power to participate in the corporate
election of Roxas and Ramirez with SEC and RTC governance by electing their representatives to the
respectively, questioning the validity of Roxas BOD. The BOD is only a creation of the stockholders
and Ramirez. and it derives its power to control and direct the
affairs of the Corp. from them. The BOD, in drawing to
ISSUE: Can the members of a Corp.’s BOD elect themselves the powers of the Corp., occupies a
another director to fill in a vacancy caused by the position of trusteeship in relation to the stockholders,
resignation of a hold-over director? NO in the sense that the board should exercise not only
care and diligence, but utmost good faith in the
RATIO: management of corporate affairs.
The resolution of this legal issue is significantly hinged
on the determination of what constitutes a director’s The underlying policy of the Corp. Code is that the
term of office. business and affairs of a Corp. must be governed by
a BOD whose members have stood for election, and
The holdover period is not part of the term of office of who have actually been elected by the stockholders,
a member of the BOD. We have defined term as the on an annual basis. Only in that way can the
time during which the officer may claim to hold the directors' continued accountability to shareholders,
office as of right, and fixes the interval after which the and the legitimacy of their decisions that bind the
several incumbents shall succeed one another. The Corp.'s stockholders, be assured. The shareholder
term of office is not affected by the holdover. The vote is critical to the theory that legitimizes the
term is fixed by statute and it does not change simply exercise of power by the directors or officers over
because the office may have become vacant, nor properties that they do not own.
because the incumbent holds over in office beyond
the end of the term due to the fact that a successor The law has authorized the remaining members of the
has not been elected and has failed to qualify. board to fill in a vacancy only in specified instances,
so as not to retard or impair the Corp.’s operations;
Term is distinguished from tenure in that an officer’s yet, in recognition of the stockholders’ right to elect
tenure represents the term during which the the members of the board, it limited the period
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during which the successor shall serve only to the 23 FILIPINAS PORT SERVICES, REPRESENTED BY E. CRUZ
unexpired term of his predecessor in office. V. VICTORIANO GO, ET.AL.
G.R. No. 161886 | 16 March 2007 | Garcia | Pineda
While the Court in El Hogar approved of the practice TOPIC: Board of Directors
of the directors to fill vacancies in the directorate, this
ruling was made before the present Corp. Code was DOCTRINE:
enacted. It also bears noting that the vacancy • The governing body of a corporation is its board
referred to in Sec. 29 contemplates a vacancy of directors. Under Section 34, the Board shall
occurring within the director’s term of office. When a exercise all corporate powers. All business is
vacancy is created by the expiration of a term, conducted and all corporate property is
logically, there is no more unexpired term to speak of. controlled by the Board.
Hence, it shall be the Corp.’s stockholders who shall • As long as the Board acts within the scope of its
possess the authority to fill in a vacancy caused by authority and in good faith for corporate
the expiration of a member’s term. interests, the Court cannot review its actions.
• In the absence of bad faith in mismanagement,
the Directors cannot be held liable.
FACTS:
1. On September 1992, E. Cruz (Filports’ president
from 1968-1991) sent a letter questioning the
Board’s creation of certain positions with monthly
salary of P13050 each. These positions include
Assistant Vice Presidents for Corporate Planning,
Operations, Finance and Administration, and
those of the Special Assistants to the President
and the Board Chairman.
2. The Board did not act favorably upon Cruz’
letter. This prompted Cruz, in representation of
Filport and its shareholders, to file a derivative suit
against Respondents (incumbent members of the
Board) for alleged acts of mismanagement
detrimental to the corporation: creation of
positions, increase in emoluments, creation of
executive committee. Cruz prayed that the
members of the Board pay Filport, jointly and
severally, the sums of money variedly
representing the damages incurred as a result of
the creation of the offices/positions complained
of and the aggregate amount of the questioned
increased salaries.
3. Respondents argued that the assailed acts were
done within the scope of the Board’s powers.
Also, Cruz’ filing of the suit was done in bad faith,
as he was simply bitter for losing the election.
RULING:
The Board exercises all corporate powers necessary
for the management of regular business affairs of the
corporation.
• The governing body of a corporation is its board
of directors. Under Section 34, the Board shall
exercise all corporate powers. All business is
conducted and all corporate property is
controlled by the Board.
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• The Board has the sole authority to determine 24 MATLING IND’L AND COMMERCIAL CORP., ET. AL.
policies, enter into contracts, and conduct the RICARDO R. COROS,
ordinary business of the corporation within the G.R. NO. 157802 | OCT. 13, 2010 | BERSAMIN |
scope of its charter, i.e., its articles of REAGO
incorporation, by-laws and relevant provisions of TOPIC: Corporate Officer
law.
• Rationale behind the conferment of corporate DOCTRINES:
powers on the Board: necessity for efficiency in a 1. Under Section 25 of the Corporation Code, a
large organization. As there is a large number of position must be expressly mentioned in the
stockholders, they cannot directly conduct the By-Laws in order to be considered as a
business. Thus, stockholders choose directors who corporate office. Thus, the creation of an
control and supervise corporate business. office pursuant to or under a By-Law
enabling provision is not enough to make a
The assailed acts of the Board were within the Board’s position a corporate office.
powers. Thus, Respondents cannot be held liable. 2. Only officers of a corporation were those
• The Board’s creation of the positions was in given that character either by the
accordance with Filport’s regular business and Corporation Code or by the By-Laws; the rest
was authorized by the by-laws. Filport’s by-laws of the corporate officers could be
provide for the offices that may be created, and considered only as employees or subordinate
provide that the Board shall fix the compensation officials.
of officers. However, the bylaws are silent as to 3. In determining which body has jurisdiction
the creation of an executive committee. over a case, it would be a better policy to
Nevertheless, in the absence of bad faith, consider not only the status or relationship of
Respondents cannot be held liable. the parties but also the nature of the
• The determination of necessity for additional question that is the subject of their
offices is a management prerogative beyond the controversy.
province of the Court’s inquiry. Such are business
decisions that only the Board can determine. As
long as the Board acts in good faith towards the FACTS:
corporation’s interests, its orders are not • Coros was dismissed as VP for Finance and
reviewable by the courts. Administration of Matling.
• He filed a complaint for illegal suspension and
The derivative suit was properly filed. illegal dismissal against Matling and some of its
• The derivative suit was properly filed. An corporate officers in NLRC.
individual stockholder may institute a derivative • Matling moved to dismiss the complaint on the
suit on behalf of the corporation to protect ground that the SEC has the jurisdiction due to
corporate rights. In this case, the action is the controversy being intra-corporate since
principally for damages resulting from the Coros was a member of Matling’s Board of
alleged mismanagement of Filport. Since the Directors aside from being its VP for Finance and
ones to be sued are the directors/officers of the Administration prior to his termination.
corporation itself, a stockholder, like petitioner • LA: granted the MTD ruling that Coros was a
Cruz, may validly institute a derivative suit to corporate officer because he was occupying the
vindicate the alleged corporate injury, in which position of VP for Finance and Administration and
case Cruz is only a nominal party while Filport is at the same time was a member of the BoD of
the real party-in-interest. For sure, in the Matling.
prayer portion of petitioners petition before the • NLRC: ruled that the illegal dismissal complainy
SEC, the reliefs prayed were asked to be made in was properly cognizable by the LA, not by the
favor of Filport. SEC, because he was not a corporate officer by
• Requisites of a derivative suit virtue of his position in Matling.
o Party should be a shareholder at the time • CA: held that the alleged illegal dismissal of
of the act complained of; Coros is within the jurisdiction of the LA
o Party attempted to exhaust intra-
corporate remedies; and ISSUE:
o The cause of action actually devolves on Whether Coros was a coporate officer of Matling or
the corporation, and not on the Party. not. Specifically, was the position of VP for
Administration and Finance a corporate office? NO
RULING:
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The position of VP for Administration and Finance is 25 MARC II Marketing, Inc. and Lucila Joson vs.
not a corporate office. Alfredo M. Joson
1. Under Section 25 of the Corporation Code, a G.R. No. 171993 |Dec. 12, 2011 |J. Perez |
position must be expressly mentioned in the By- Resurreccion
Laws in order to be considered as a corporate TOPIC: Corporate Officer
office. Thus, the creation of an office pursuant to
or under a By-Law enabling provision is not Doctrine: The only corporate officers are those
enough to make a position a corporate office. provided for by the Corporation Code or by the by-
Guerrea v. Lezama, the first ruling on the matter, laws; the rest of the corporate officers could be
held that the only officers of a corporation were considered only as employees or subordinate
those given that character either by the officials. With that, a position must be expressly
Corporation Code or by the By-Laws; the rest of mentioned in the by-laws in order to be considered
the corporate officers could be considered only as a corporate officer.
as employees or subordinate officials.
2. An "office" is created by the charter of the Facts:
corporation and the officer is elected by the
directors or stockholders. On the other hand, an 1. Alfredo was the General Manager of Marc
employee occupies no office and generally is Marketing Inc. Eventually, Marc Marketing
employed not by the action of the directors or stopped its operation. Then MARC II Marketing
stockholders but by the managing officer of the took over Marc Marketing. MARC II absorbed
corporation who also determines the Alfredo as its GM.
compensation to be paid to such employee. 2. MARC II’s by-laws provide that its corporate
3. In this case, Coros was appointed vice president officers are as follows: Chairman, President, one
for nationwide expansion by Malonzo, Matling’s or more Vice-President(s), Treasurer and
general manager, not by the board of directors Secretary. Its Board of Directors, however, may,
of petitioner. It was also Malonzo who from time to time, appoint such other officers as it
determined the compensation package of may determine to be necessary or proper.
respondent. Thus, Coros was an employee, not a 3. Later on, MARC II decided to stop its operations
"corporate officer." The CA was therefore correct due to poor sales collection aggravated by the
in ruling that jurisdiction over the case was inefficient management of its affairs. On the
properly with the NLRC, not the SEC (now the same date, it formally informed Alfredo of the
RTC). cessation of its business operation. Then, Alfredo
4. This interpretation is the correct application of was told of the termination of his employment as
Section 25 of the Corporation Code, which GM.
plainly states that the corporate officers are the 4. Felt aggrieve, Alfredo filed a complaint for
President, Secretary, Treasurer and such other Reinstatement against MARC II before LA. As
officers as may be provided for in the By-Laws. expected, MARC II filed a motion to dismiss for
Accordingly, the corporate officers in the context lack of jurisdiction as the case involved an intra-
of PD No. 902-A are exclusively those who are corporate controversy, since Alfredo is a
given that character either by the Corporation corporate officer.
Code or by the corporation’s By-Laws. 5. LA ruled that Alfredo was an employee of MARC
5. To emphasize, the power to create new offices II. However, NLRC reversed the LA. On appeal,
and the power to appoint the officers to occupy the CA reversed the NLR. The CA declared that
them vested by By-Law No. V merely allowed LA has jurisdiction. Alfredo, as GM, was a mere
Matling’s President to create non-corporate employee.
offices to be occupied by ordinary employees of 6. Hence, this case.
Matling. Such powers were incidental to the
President’s duties as the executive head of Issue: WON Alfredo, as the GM of MARC II, was a
Matling to assist him in the daily operations of the corporate officer of the latter. NO.
business.
Ruling:
1. The By-laws of MACR II show that its corporate
officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4)
Treasurer; and (5) Secretary. The position of
General Manager was not among those
enumerated.
2. Section 25 of the Corporation Code specifically
enumerated who are these corporate officers, to
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
wit: (1) president; (2) secretary; (3) treasurer; and 26 OKOL v SLIMMERS WORLD INTERNATIONAL
(4) such other officers as may be provided for in GR 160146 | 11 December 2009 | J. Carpio | Reyes
the by-laws. TOPIC: Corporate Officer
3. The phrase "such other officers as may be
provided for in the by-laws,' has been clarified DOCTRINE: Section 25 of the Corporation Code
and elaborated in this Court's recent enumerates corporate officers as the president,
pronouncement in Matling Industrial and secretary, treasurer and such other officers as may be
Commercial Corporation v. Coros, where it held, provided for in the by-laws. The determination of the
thus: rights of a director and corporate officer dismissed
4. Conformably with Section 25, a position must be from his employment as well as the corresponding
expressly mentioned in the by-laws in order to be liability of a corporation, if any, is an intra-corporate
considered as a corporate office. Thus, the dispute subject to the jurisdiction of the regular
creation of an office pursuant to or under a [b]y- courts.
[l]aw enabling provision is not enough to make a
position a corporate office. In Guerrea v. Lezama, FACTS:
the first ruling on the matter, held that the only • Okol was a Director and Vice President of
officers of a corporation were those given that Slimmers World from 1996 until her dismissal in
character either by the Corporation Code or by 1999.
the by-laws; the rest of the corporate officers • Prior to her dismissal, Okol was preventively
could be considered only as employees or suspended for undervaluing imported
subordinate officials. equipment (treadmills and elliptical
5. Since the position of General Manager was not machines), resulting to the seizure thereof by
among those enumerated, the latter is not a the Bureau of Customs.
corporate officer but a mere employee of the • Okol filed a complaint against Slimmers
corporation. World for illegal dismissal, illegal suspension,
6. This Court considers that the interpretation of and damages. Slimmers World filed a MTD on
Section 25 of the Corporation Code laid down in the ground of lack of jurisdiction of the NLRC,
Matling safeguards the constitutionally enshrined which the labor arbiter granted. NLRC
right of every employee to security of tenure. reversed. CA set aside the NLRC resolution.
7. To allow the creation of a corporate officer
position by a simple inclusion in the corporate by- ISSUE: WON NLRC has jurisdiction over the illegal
laws of an enabling clause empowering the dismissal case- NO
board of directors to do so can result in the
circumvention of that constitutionally well- HELD:
protected right. § Section 25 of the Corporation Code
enumerates corporate officers as the
president, secretary, treasurer and such other
officers as may be provided for in the by-
laws.
§ An "office" is created by the charter of the
corporation and the officer is elected by the
directors or stockholders, while an
"employee" usually occupies no office and
generally is employed not by action of the
directors or stockholders but by the
managing officer of the corporation who
also determines the compensation to be
paid to such employee.
§ The General Information Sheet, Minutes of
the meeting of the Board of Directors,
Secretary’s Certificate, and the Amended
By-Laws showed that Okol was a director
and officer of Slimmers World.
o The charges of illegal suspension,
illegal dismissal, unpaid commissions,
reinstatement and back wages
imputed by Okol therefore fall
squarely within the ambit of intra-
corporate disputes since a
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
corporate officer’s dismissal is always 27 GLORIA V. GOMEZ v. PNOC DEV. AND MNGT.
a corporate act, or an intra- CORP. (PDMC)
corporate controversy which arises G.R. No. 174044 |Nov. 27, 2009 | J. ABAD | S A Y O
between a stockholder and a TOPIC: Corporate Officers
corporation.
o The question of remuneration DOCTRINE: Ordinary company employees are
involving a stockholder and officer, generally employed not by action of the directors
not a mere employee, is not a simple and stockholders but by that of the managing officer
labor problem but a matter that of the corporation who also determines the
comes within the area of corporate compensation to be paid such employees.
affairs and management and is a Corporate officers, on the other hand, are elected or
corporate controversy in appointed by the directors or stockholders, and are
contemplation of the Corporation those who are given that character either by the
Code. Corporation Code or by the corporation’s by-laws.
FACTS:
1. Petitioner Gloria V. Gomez used to work as
Manager of the Legal Department of Petron
(then a GOCC).
2. With Petron’s privatization, she availed of the
companys early retirement program and left that
organization. However, Filoil Refinery Corporation
(also then a GOCC) appointed her its corporate
secretary and legal counse (same managerial
rank, compensation, benefits, etc.)
3. But Filoil was later on also identified for
privatization. To facilitate its conversion, the Filoil
board of directors created a five-member task
force headed by petitioner Gomez who had
been designated administrator
4. While documenting Filoils assets, she found
several properties which were not in the books of
the corporation. Consequently, she advised the
board to suspend the privatization until all assets
have been accounted for.
5. With the privatization temporarily shelved, Filoil
underwent reorganization and was renamed Filoil
Development Management Corporation
(FDMC), which later became the respondent
PNOC Development Management Corporation
(PDMC).
6. When this happened, Gomezs task force was
abolished and its members, including Gomez,
were given termination notices.
7. Meantime, petitioner Gomez continued to serve
as corporate secretary of respondent
PDMC. PDMC’s president re-hired her as
administrator and legal counsel of the company.
8. The next president of PDMC extended her term
as administrator beyond her retirement age.
9. A new board of directors for PDMC, however,
took over the company which removed
petitioner Gomez as corporate secretary.
10. The board also questioned her continued
employment as administrator.
11. In answer, she presented the former presidents
letter that extended her term. Dissatisfied with
this, the board sought the advice of its legal
department, which expressed the view that
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Gomezs term extension was an ultra vires act of 3. Respondent PDMC never told Gomez that
the former president. she was a corporate officer until the tail-end
12. It reasoned that, since her position was of her service after the board found legal
functionally that of a vice-president or general justification for getting rid of her by consulting
manager, her term could be extended under the its legal department and the OGCC which
company’s by-laws only with the approval of the supplied an answer that the board obviously
board. (her de facto tenure could be legally put wanted. Indeed, the PDMC president first
to an end) hired her as administrator in May 1994 and
13. Office of the Government Corporate Counsel then as administrator/legal counsel in
(OGCC): creation of admin position and September 1996 without a board approval.
Gomez’s appointment deemed ratified since the
board had been aware of it since 1994. But the 4. The president even extended her term in
OGCC ventured that the extension of her term May 1998 also without such approval. The
beyond retirement age should have been made company’s mindset from the beginning,
therefore, was that she was not a corporate
with the board’s approval.
officer.
14. Petitioner Gomez for her part conceded that as
corporate secretary, she served only as a
5. The relationship of a person to a corporation,
corporate officer. But, when they named her
whether as officer or agent or employee, is
administrator, she became a regular managerial
not determined by the nature of the services
employee. Consequently, the respondent PDMCs
he performs but by the incidents of his
board did not have to approve either her
relationship with the corporation as they
appointment as such or the extension of her term
actually exist.
in 1998.
15. Gomez, as a regular employee, filed a complaint
6. Here, respondent PDMC hired petitioner
with the NLRC for illegal dismissal and payment of
Gomez as an ordinary employee without
benefits.
board approval as was proper for a
corporate officer. When the company got
ISSUE: WON petitioner Gomez was, in her capacity as
her the first time, it agreed to have her retain
administrator of respondent PDMC, an ordinary
the managerial rank that she held with
employee whose complaint for illegal dismissal and
Petron. Her appointment paper said that she
non-payment of wages and benefits is within the
would be entitled to all the rights, privileges,
jurisdiction of the NLRC.
and benefits that regular PDMC employees
enjoyed. This is in sharp contrast to what the
HELD: YES, Ordinary EE.
former PDMC presidents appointment paper
stated: he was elected to the position and
1. Here, it was the PDMC president who
his compensation depended on the will of
appointed petitioner Gomez administrator,
the board of directors.
not its board of directors or the
stockholders. The president alone also
determined her compensation
package. Moreover, the administrator was
not among the corporate officers mentioned
in the PDMC by-laws. The corporate officers
proper were the chairman, president,
executive vice-president, vice-president,
general manager, treasurer, and secretary.
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40
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its stockholders or members, and other 30 HARPOON MARINE SERVICES, INC. v. FERNAN
persons. FRANCISCO
o When a director or officer has consented to G.R. No. 167751 | 02 MARCH 2011| J. DEL CASTILLO |
the issuance of watered stocks or who, TIGLAO
having knowledge thereof, did not forthwith TOPIC: Liability of Corporate Officer
file with the corporate secretary his written
objection thereto. DOCTRINE: As held in MAM Realty Development
o When a director, trustee or officer has Corporation v. NLRC, obligations incurred by
contractually agreed or stipulated to hold corporate officers, acting as corporate agents, are
himself personally and solidarily liable with not theirs, but the direct accountabilities of the
the Corporation corporation they represent. As such, they should not
o When a director, trustee or officer is made, be generally held jointly and solidarily liable with the
by specific provision of law, personally liable corporation. The Court, however, cited certain
for his corporate action. exceptions, to wit:
• In this case, there is nothing substantial on record 1. When directors and trustees or, in appropriate
that can justify petitioner Centeno's solidary cases, the officers of a corporation:
liability with the corporation. a. Vote for or assent to [patently] unlawful
acts of the corporation;
b. Act in bad faith or with gross negligence
in directing the corporate affairs;
c. Are guilty of conflict of interest to the
prejudice of the corporation, its
stockholders or members, and other
persons;
2. When the director or officer has consented to the
issuance of watered stock or who, having
knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has
contractually agreed or stipulated to hold himself
personally and solidarily liable with the
corporation;
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for his
corporate action.
FACTS:
1. Petitioner Harpoon Marine Services, Inc.
(Harpoon), a company engaged in ship building
and ship repair, with petitioner Jose Lido Rosit
(Rosit) as its President and CEO, originally hired
respondent Fernan Francisco (Francisco) in 1992
as its Yard Supervisor.
2. In 1998, Francisco left for employment elsewhere
but Harpoon rehired him. He assumed his
previous position. However, he averred that Rosit
unceremoniously dismissed him because the
company could no longer afford his salary. The
company offered to pay him his separation pay
and accrued commissions.
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3. Francisco nonetheless continued to report for unlawful acts of the corporation. Thus, it was error
work, but he was eventually barred from entering for the CA to hold Rosit solidarily liable with
the company premises. Eventually, he Harpoon for illegally dismissing Francisco.
proceeded to accept the company’s offer.
However, Rosit only offered separation pay,
which he refused to accept. He then demanded
an amount representing his commissions.
Harpoon and Rosit denied that they owed
Francisco anything as they never entered into
any contract or agreement for the payment of
commissions.
4. In October 2001, Francisco filed an illegal
dismissal complaint, which both the Labor Arbiter
and the NLRC granted. Harpoon and Rosit then
filed a petition for certiorari before the CA which
was denied. Hence, this petition.
5. Among other things, Harpoon and Rosit argue
that no liability, solidary or otherwise, should be
imposed on Rosit because, being an officer of
the company, he has a personality distinct from
that of Harpoon, and that no proof was
adduced to show that he acted with malice or
bad faith.
HELD/RULING;
1. Rosit cannot be held solidarily liable because
there is no substantial evidence of bad faith and
malice on his part in terminating Francisco.
2. In this case, the CA’s basis for Rosit’s liability was
that he acted in bad faith when he approached
respondent and told him that the company
could no longer afford his salary and that he will
be paid instead his separation pay and accrued
commissions. This finding, however, could not
substantially justify the holding of any personal
liability against Rosit.
3. The records are bereft of any other satisfactory
evidence that Rosit acted in bad faith with gross
or inexcusable negligence, or that he acted
outside the scope of his authority as company
president.
4. In fact, Rosit informed Francisco that the
company wishes to terminate his services since it
could no longer afford his salary. Moreover, the
promise of separation pay, according to
Harpoon and Rosit, was out of goodwill and
magnanimity.
5. At most, Rosit’s actuations only show the illegality
of the manner of effecting Francisco’s
termination from service due to absence of just
or valid cause and non-observance of
procedural due process but do not point to any
malice or bad faith on his part. Besides, good
faith is still presumed. In addition, liability only
attaches if the officer has assented to patently
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HELD:
1. There was illegal dismissal, as found by the SC.
Generally, directors, officers or trustees could not
be held personally liable for such.
2. However, personal liability of corporate directors,
trustees or officers attaches only when:
a. (a) they assent to a patently unlawful act
of the corporation, or when they are
guilty of bad faith or gross negligence in
directing its affairs, or when there is a
conflict of interest resulting in damages
to the corporation, its stockholders or
other persons;
b. (b) they consent to the issuance of
watered down stocks or when, having
knowledge of such issuance, do not
forthwith file with the corporate secretary
their written objection;
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32 MIRANT [PHILS.] CORP and BAUTISTA vs. JOSELITO ISSUES: w/n Bautista, the President of Mirant, should
CARO be jointly and severally liable with Mirant NO
G.R. No. 181490 | April 23, 2014 | Villarama | Vargas
TOPIC: Liability of Corporate Officer HELD:
1. The LA and the CA did not discuss the basis of
DOCTRINE: A corporation has a personality separate the personal liability of Bautista, and yet the
and distinct from its officers and board of directors dispositive portion of the decision of the Labor
who may only be held personally liable for damages Arbiter - which was affirmed by the CA - held him
if it is proven that they acted with malice or bad faith jointly and severally liable with Mirant.
in the dismissal of an employee. Absent any evidence 2. A corporation has a personality separate and
on record that petitioner Bautista acted maliciously distinct from its officers and board of directors
or in bad faith in effecting the termination of who may only be held personally liable for
respondent, plus the apparent lack of allegation in damages if it is proven that they acted with
the pleadings of respondent that petitioner Bautista malice or bad faith in the dismissal of an
acted in such manner, the doctrine of corporate employee.
fiction dictates that only petitioner corporation should 3. Absent any evidence on record that Bautista
be held liable for the illegal dismissal of respondent. acted maliciously or in bad faith in effecting the
termination of Caro, plus the apparent lack of
FACTS: allegation in the pleadings of Caro that Bautista
1. RESPONDENT Caro (Caro) filed a complaint for acted in such manner, the doctrine of corporate
illegal dismissal and money claim, as well as fiction dictates that only Mirant should be held
damages and attorney’s fees against petitioners liable for the illegal dismissal of Caro.
corporation (Mirant) and Bautista
2. Bautista was the President of Mirant when Caro
was terminated from employment (u may
proceed to #9 if u want to be very brief)
3. Caro was a Supervisor at the Logistics and
Purchasing Department of Mirant
4. One day, Mirant conducted a random drug test
where Caro was randomly chosen among its
employees who would be tested for illegal drug
use. Caro was duly notified that he was
scheduled to be tested after lunch on that day.
5. Caro avers that at around 11:30 a.m. of the same
day, he received a phone call from his wife’s
colleague who informed him that a bombing
incident occurred near his wife’s work station in
Tel Aviv, Israel where his wife was then working as
a caregiver
6. Caro claims that he then proceeded to the Israeli
Embassy to confirm the news on the alleged
bombing incident.
7. At around 6:15 p.m., Caro returned to Mirant’s
office and explained to the test conductors the
reasons for his failure to submit himself to the
random drug test. He also proposed that he
would submit to a drug test the following day at
his own expense.
8. Eventually, Mirant charged Caro with “unjustified
refusal to submit to random drug testing,” then
dismissed him.
9. Labor Arbiter found petitioners guilty of illegal
dismissal and held both Mirant and Bautista to be
jointly and severally liable to pay Caro for his
claims.
10. NLRC reversed LA. CA reversed NLRC. Hence, this
petition.
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33 Joselito Musni Puno vs. Puno Enterprises 5. In any case Sections 74, and 75 enumerate the
G.R. No. 177066, Sept. 11, 2009| Nachura | Valera persons who are entitled to the inspection of the
Topic: Stockholders corporate books which are the directors, trustees,
stockholders.
Doctrine: only stockholders of record are entitled to 6. The stockholders right of inspection of the
receive dividends declared by the corporation, a corporate books is based upon his ownership of
right inherent in the ownership of the shares.Upon the shares of the Corp. Only stockholders of record
death of a shareholder, the heirs do not are entitled to receive dividends declared by the
automatically become stockholders of the corporation, a right inherent in the ownership of
corporation and acquire the rights and privileges of the shares
the deceased as shareholder of the corporation. The 7. Upon the death of a shareholder, the heirs do not
stocks must be distributed first to the heirs in estate automatically become stockholders of the
proceedings, and the transfer of the stocks must be corporation and acquire the rights and privileges
recorded in the books of the corporation. Section 63 of the deceased as shareholder of the
of the Corporation Code provides that no transfer corporation. The stocks must be distributed first to
shall be valid, except as between the parties, until the heirs in estate proceedings, and the transfer
the transfer is recorded in the books of the of the stocks must be recorded in the books of
corporation. the corporation. Section 63 of the Corporation
Code provides that no transfer shall be valid,
Facts: except as between the parties, until the transfer is
1. Carlos Puno was an incorporator of Puno recorded in the books of the corporation. During
Enterprises(Respondent). He died. such interim period, the heirs stand as the
2. Joselito Puno(Petitioner) claiming to be a son of equitable owners of the stocks, the executor or
the deceased Carlos Puno. As a surviving heir he administrator duly appointed by the court being
claimed entitlement ot the rights and privileges of vested with the legal title to the stock. Until a
his father as stock holder of Respondent. He filed settlement and division of the estate is effected,
a complaint for Specific performance praying the stocks of the decedent are held by the
that he be allowed to inspect the corporate administrator or executor. Consequently, during
books, render and accounting and to be given such time, it is the administrator or executor who
all the profits, earnings, dividends or income is entitled to exercise the rights of the deceased
pertaining to the shares of Carlos Puno. as stockholder
3. The RTC ruled in favor of Petitioner after he 8. Thus, even if petitioner presents sufficient
showed a birth certificate, the RTC ordered the evidence in this case to establish that he is the
Respondent to allow Petitioner to inspect the son of Carlos L. Puno, he would still not be
corporate books and records. allowed to inspect respondent’s books and be
4. On Appeal, The CA ordered the dismissal of the entitled to receive dividends from respondent,
Complaint. According to the CA, Petitioner was absent any showing in its transfer book that some
not able to establish his filation to Carlos Puno. of the shares owned by Carlos L. Puno were
The CA said that petitioner had no right to transferred to him. This would only be possible if
demand to be allowed to examine the petitioner has been recognized as an heir and
corporate books as he was not a stockholder but has participated in the settlement of the estate
was merely claiming rights as an heir of Carlos of the deceased
Puno. The CA further stated that his action for
specific performance appeared to be
premature; the proper action to be taken was to
prove his filiation to Carlos Puno in a petition for
the settlement of Carlos Puno’s estate.
Held: No.
4. Petitioner anchors his claim on his being an heir
of the deceased stockholder. However, The SC
agrese with the appellate court that petitioner
was not able to prove satisfactorily his filiation to
the deceased stockholder; thus, the former
cannot claim to be an heir of the latter
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
34 DAVID LAO and JOSE LAO v DIONISIO LAO the alleged seller.
GR 170585 | 6 October 2008 | J. Reyes | Yumul o Therefore, the burden of proof is on
TOPIC: Stockholders them to show that they are
shareholders of PFSC.
DOCTRINE: A certificate of stock is prima facie § The mere inclusion as
evidence that the holder is a shareholder of a shareholders in the GIS of
corporation. The mere inclusion as shareholder in the PFSC is insufficient proof that
GIS is insufficient proof that they are shareholders of they are shareholders of the
the company. As between the GIS and the company. As between the
corporate books, it is the latter that is controlling. General Information Sheet
and the corporate books, it
FACTS: is the latter that is controlling.
1. David and Jose Lao claim that they are ♥ In contrast, Dionisio was able to prove that
stockholders of Pacific Foundry Shop Corporation he is the owner of the disputed shares. He
based on the General Information Sheet filed had in his possession the certificates of stocks
with the SEC, in which they are named as of Hipolito Lao, properly endorsed to him,
stockholders and directors of the corporation. and such transfer having been duly
2. They filed a petition with the SEC against Dionisio registered in the stock and transfer book of
Lao, president of PFSC. They prayed for a the corporation.
declaration as stockholders and directors of
PFSC, issuance of certificates of shares in their
name and to be allowed to examine the
corporate books of PFSC.
a. David alleged that he acquired 446
shares in PFSC from his father, Lao Pong
Bao, which shares were previously
purchased from a certain Hipolito Lao.
b. Jose, on the other hand, alleged that he
acquired 333 shares from Dionisio himself.
3. Dionisio alleged that the inclusion of their names
in the corporation's GIS was inadvertently made.
He also claimed that David and Jose did not
acquire any shares in PFSC by any of the modes
recognized by law, namely subscription,
purchase, or transfer. Hence, they had no right to
be issued certificates or stocks or to inspect its
corporate books.
4. The Securities Regulation Code was enacted,
transferring jurisdiction over all intra-corporate
disputes from the SEC to the RTC.
5. RTC ruled against David and Jose; CA affirmed
HELD: NO
♥ A certificate of stock is the evidence of a
holder's interest and status in a corporation. It
is a written instrument signed by the proper
officer of a corporation stating or
acknowledging that the person named in
the document is the owner of a designated
number of shares of its stock. It is prima facie
evidence that the holder is a shareholder of
a corporation.
♥ David and Jose have no certificates of
shares in their name. There is neither any
written document that there was a sale or
assignment of shares nor proof of possession
of the certificates of shares in the name of
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
35 LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) the earlier issuance of a certificate of registration
ASSOCIATION, INC. v. HON. COURT OF APPEALS, in favor of LGVHAI.
HOME INSURANCE AND GUARANTY CORPORATION, 5. HIGC Hearing Officer: Ruled in favor of LGVHAI.
EMDEN ENCARNACION and HORATIO AYCARDO Ordered cancellation of Certificates of
G.R. No. 117188, August 7, 1997. ROMERO | ACIDO Registration of North and South Assocs. HIGC
TOPIC: By-laws Appeals Board dismissed South Assoc.’s appeal.
CA affirmed Appeals Board.
DOCTRINE: As the "rules and regulations or private
laws enacted by the corporation to regulate, govern ISSUE: Whether the LGVHAI's failure to file its by-laws
and control its own actions, affairs and concerns and within the period prescribed by Section 46 of the
its stockholders or members and directors and officers Corporation Code had the effect of automatically
with relation thereto and among themselves in their dissolving the said corporation.
relation to it," by-laws are indispensable to
corporations in this jurisdiction. These may not be HELD: NO, petition denied.
essential to corporate birth but certainly, these are
required by law for an orderly governance and RULING:
management of corporations. Nonetheless, failure to • (See Sec. 46, Corp. Code) reveals the legislative
file them within the period required by law by no intent to attach a directory, and not mandatory,
means tolls the automatic dissolution of a meaning for the word "must" in the first sentence
corporation. thereof. Note should be taken of the second
paragraph of the law which allows the filing of
FACTS: the by-laws even prior to incorporation.
1. LGVHAI was organized on February 8, 1983 as the • Failure to file the by-laws within the 1-month
association of homeowners and residents of the period does not imply the "demise" of the
Loyola Grand Villas. It was registered with the corporation. By-laws may be necessary for the
Home Financing Corporation, the predecessor of "government" of the corporation but these are
herein respondent HIGC, as the sole subordinate to the articles of incorporation as
homeowners' organization in the said subdivision. well as to the Corporation Code and related
It was organized by the developer of the statutes. There are in fact cases where by-laws
subdivision and its first president was Victorio V. are unnecessary to corporate existence or to the
Soliven, himself the owner of the developer. For valid exercise of corporate powers.
unknown reasons, however, LGVHAI did not file its • It has been said that the by-laws of a corporation
corporate by-laws. are the rule of its life, and that until by-laws have
2. Sometime in 1988, the officers of the LGVHAI tried been adopted the corporation may not be able
to register its by-laws. They failed to do so. To the to act for the purposes of its creation, and that
officers' consternation, they discovered that the first and most important duty of the members
there were two other organizations within the is to adopt them. This would seem to follow as a
subdivision — the North Association (HIGC reg. matter of principle from the office and functions
Feb.13, 1989; by-laws passed Dec. 20, 1988) and of by-laws. Viewed in this light, the adoption of
the South Association (HIGC reg. July 27, 1989; by-laws is a matter of practical, if not one of
by-laws passed July 26, 1989). legal, necessity. Moreover, the peculiar
3. In July 1989, when Soliven inquired about the circumstances attending the formation of a
status of LGVHAI, Atty. Joaquin A. Bautista, the corporation may impose the obligation to adopt
head of the legal department of the HIGC, certain by-laws, as in the case of a close
informed him that LGVHAI had been corporation organized for specific purposes. And
automatically dissolved because: 1) it did not the statute or general laws from which the
submit its by-laws within the period required by corporation derives its corporate existence may
the Corporation Code and 2) there was non-user expressly require it to make and adopt by-laws
of corporate charter because HIGC had not and specify to some extent what they shall
received any report on the association's contain and the manner of their adoption. The
activities. mere fact, however, of the existence of power in
4. These developments prompted the officers of the the corporation to adopt by-laws does not
LGVHAI to lodge a complaint with the HIGC, ordinarily and of necessity make the exercise of
questioning the revocation of LGVHAI's such power essential to its corporate life, or to the
certificate of registration without due notice and validity of any of its acts.
hearing and concomitantly prayed for the • Although the Corporation Code requires the filing
cancellation of the certificates of registration of of by-laws, it does not expressly provide for the
the North and South Associations by reason of consequences of the non-filing of the same
within the period provided for in Section 46.
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
However, such omission has been rectified by 36 PETRONILO J. BARAYUGA V. ADVENTIST UNIV. OF
Presidential Decree No. 902-A (power of SEC to THE PHILS.
revoke, suspend for failure to file by-laws within G.R. No. 168008 | August 17, 2011 | Bersamin |
the required period) Angsiy
• Even under the foregoing express grant of power TOPIC: By-laws
and authority, there can be no automatic
corporate dissolution simply because the DOCTRINE: Section 108 of the Corporation Code
incorporators failed to abide by the required determines the membership and number of trustees
filing of by-laws embodied in Section 46 of the in an educational corporation. The second
Corporation Code. There is no outright "demise" paragraph of the provision, although setting the term
of corporate existence. Proper notice and of the members of the Board of Trustees at five years,
hearing are cardinal components of due process contains a proviso expressly subjecting the duration
in any democratic institution, agency or society. to what is otherwise provided in the articles of
In other words, the incorporators must be given incorporation or by-laws of the educational
the chance to explain their neglect or omission corporation. That contrary provision controls on the
and remedy the same. term of office.
FACTS:
1. AUP, a non-stock and non-profit educational inst.
Was directly under the North Philippine Union
Mission (NPUM) of the Seventh Day Adventist
2. NPUM executive comm. elected the member of
the BoT of AUP, including the chairman and
secretary. Dayson was elected as chairman while
Barayuga was chosen secretary
3. After 2 mos., BoT appointed Barayuga President
of AUP
4. NPUM conducted external performance audit.
Audit concluded that he had committed serious
violations of fundamental rules and procedure in
the disbursements and use of funds
5. He was asked to explain. He replied that he had
already prepared his explanation
6. BoT set a meeting (special meeting). Being the
secretary, Barayuga prepared the agenda and
included an item on his case. BoT decided to
adjourn after Barayuga’s explanation and set
another meeting considering that the meeting
was not called for the purpose of deciding his
case.
7. After some time, Dayson notified Barayuga that
BoT would hold in abeyance its deliberations and
would meet again on Jan 27; that some sectors
in the campus had not been propery
represented during the special meeting.
8. On Jan 27, Barayuga sent a letter to the BoT.
Also, the members by secret ballot voted to
remove him as President because of his serious
violations. They would appoint an interim
committee consisting of 3 members to assume
the powers and functions of the Pres.
9. On Jan 28, Barayuga was handed a letter
together with a copy of the minutes of the Jan 27
meeting
10. Barayuga handed to Dayson a letter requesting
recon plus extension to gather the docs since he
was attending to his dying mother
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11. Recon was denied. He was given a letter the right to an office in him. An unfilled model form
next day but he refused to receive the notice, creates or establishes no rights in favor of
simply saying Alam ko na yan anyone.
12. Barayuga filed suit for injunction in the RTC. Plus • The petitioners assertion of a five-year duration
TRO. Impleading AUP and BoT, represented by for his term of office lacked legal basis.
Dayson, and the interim committee. • Section 108 of the Corporation Code determines
a. Denied due process. That he was not the membership and number of trustees in an
validly removed. educational corporation
b. That he was entitled a five year term o The second paragraph of the provision,
13. RTC: PI was granted although setting the term of the
a. There was neither a written request members of the Board of Trustees at five
made by any two members of the BoT years, contains a proviso expressly
nor proper notices sent to the members subjecting the duration to what is
as required by the By-Laws – patent otherwise provided in the articles of
defect which tainted the meetings with incorporation or by-laws of the
nullity educational corporation. That contrary
14. CA nullified RTC’s writ of PI provision controls on the term of office
a. The fiver year term provision was • In AUPs case, its amended By-Laws provided the
inexistent in the constitution and by laws term of the members of the Board of Trustees,
and working policy of AUP. His term of and the period within which to elect the officers
office expired two years from his • The officers, including the President, were to
appointment based on AUPS amended exercise the powers vested by Section 2 of the
by laws. That he had been a mere de amended By-Laws for a term of only two years,
facto officer appointed by the BoT and not five years.
that he had no legal right warranting the • By the time of his removal for cause as President
issuance of PI on January 27, 2003, he was already occupying
the office in a hold-over capacity, and could be
ISSUE: Whether CA correctly ruled that Barayuga had removed at any time, without cause, upon the
no legal right to the position that could be protected election or appointment of his successor
by the injunctive writ.
HELD: YES
• Moot and academic: The injunctive writ issued by
the RTC was meant to protect the petitioners
right to stay in office as President. Given that the
lifetime of the writ of preliminary injunction was
co-extensive with the duration of the act sought
to be prohibited, this injunctive relief already
became moot in the face of the admission by
the petitioner that his term of office premised on
his alleged five-year tenure as President had
lasted only until December 2005.
• Petitioner rested his claim for injunction mainly
upon his representation that he was entitled to
serve for five years as President of AUP under the
Constitution, By-Laws and Working Policy aka
Bluebook. All that he presented in that regard,
however, were mere photocopies of the
Bluebook
• The document had no evidentiary value. It had
not been officially adopted for submission to and
approval of the SEC. It was nothing but an
unfilled model form. As such, it was, at best, only
a private document that could not be admitted
as evidence in judicial proceedings until it was
first properly authenticated in court
• Even assuming that the petitioner had properly
authenticated the photocopies of the Bluebook,
the provisions contained therein did not vest the
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
37 VALLEY GOLF & COUNTRY CLUB, INC. vs. ROSA O. 5. 11 June 1987- Golf share was sold at public
VDA. DE CARAM auction for P25,000.
Topic: By-laws 6. As it turned out, Caram had died on 6 Oct. 1986.
Tinga | BIGALBAL Intestate proceeding before RTC Iloilo is ongoing
already which includes the golf share.
DOCTRINE: Sec. 91 of the Corp. Code provides: Respondent was unaware of the controversy
when it was adjudicated to her, paying the
SEC. 91. Termination of membership. — Membership estate tax after approval of the partition of
shall be terminated in the manner and for the causes Caram’s estate, including the golf share.
provided in the articles of incorporation or the by- 7. It was only through a letter dated 15 May 1990
laws. Termination of membership shall have the effect that the heirs of Caram learned the sale of the
of extinguishing all rights of a member in the golf share following their inquiry about it. After a
corporation or in its property, unless otherwise series of correspondence, Caram heirs were
provided in the articles of incorporation or the by- informed that they were entitled to a refund of
laws. P11,066.52 out of the proceeds of the sale of the
golf share, the amount under custody of Valley
However, SC concluded that when the loss of Golf since 11 June 1987.
membership in a non-stock corporation also entails 8. Respondent (Caram’s wife) filed an action for
the loss of property rights, the manner of deprivation reconveyance of the share with damages before
of such property right should also be in accordance SEC against Valley Golf. SEC hearing officer ruled
with the provisions of the Civil Code in favor of Carams wife, ordering Valley Golf to
convey ownership of the Golf Share or in the
alternative to issue one fully paid share of stock
FACTS: of Valley Golf the same class as the Golf Share to
1. Valley Golf & Country Club (Valley Golf) is a non- Caram’s wife. Damages totaling P90,000.00 were
stock, non-profit corp. which operates a golf also awarded to her.
course. Members and guests are entitled to 9. SEC hearing officer took note of Sec. 67 par. 2 of
facilities and privileges provided by Valley Golf. the Corp. Code- a share stock could only be
Shareholders are assessed monthly membership deemed delinquent and sold in an extrajudicial
dues. sale at public auction only upon the failure of the
2. 1961- Late Congressman Fermin Caram, husband stockholder to pay the unpaid subscription or
of respondent, subscribed, purchased, and paid balance for the share. That such is not applicable
in full one Golf share in the capital stock of Valley to Caram because he fully paid the share and
Golf. He was issued a stock cert. for the golf has been assessed not by this reason but for his
share. Stock cert indicates a par value of P9,000. delinquent club dues. SEC hearing officer
3. Valley Golf alleged that since 25 Jan. 1980, concluded that the auction sale had no basis in
Caram stopped paying his monthly dues which law and is a nullity.
were assessed until 31 June 1987. It alleged that it 10. SEC hearing officer took note of Valley Golf’s
sent 5 letters to Caram regarding the delinquent argument that the sale of the golf share was
account, sent to P.O. Box No. 1566, Makati authorized under the by-laws. However, it was
Commercial Center Post Office, the mailing ruled that pursuant to Section 6 of the Corp.
address which Caram allegedly gave to Valley Code, a provision creating a lien upon shares of
Golf. stock for unpaid debts, liabilities, or assessments
4. 1st letter states Caram’s delinquent account and of stockholders to the corporation, should be
his privileges are suspended pursuant to Sec. 3, embodied in the Articles of Incorporation, and
Art. VII of its by-laws. 2nd letter stated that should not merely in the by-laws, because Section 6
Caram’s account remain unpaid for 45 days, his (par. 1) prescribes that the shares of stock of a
name will be included in the delinquent list to be corporation may have such rights, privileges and
posted on its bulletin board. 3rd letter informed restrictions as may be stated in the articles of
Caram again of his delinquent account and incorporation (AOI). Here, Valley Golf’s AOI did
suspension of privileges. 4th letter states that if not impose any lien, liability or restriction on the
Caram fails to pay within 10 days from receipt, it Golf Share or any conditionality that the Golf
would exercise its right to sell the Golf Share to Share would be subject to assessment of monthly
satisfy the outstanding amount, pursuant to the dues or a lien on the share for non-payment of
provisions of the by-laws. The final letter (3 May such dues. Also, since Section 98 of the Corp.
1987), issued a final deadline until 31 May 1987 for Code provides that restrictions on transfer of
Caram to sale of the Golf share to satisfy the shares should appear in the articles of
claims of Valley Golf. incorporation, by-laws and the certificate of
stock to be valid and binding on any purchaser
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
in good faith, there was more reason to apply Section 3. The account of any member shall be
the said rule to club delinquencies to constitute a presented to such member every month. If any
lien on golf shares. SEC hearing officer observed statement of accounts remains unpaid for a
that the letters were sent after Caram’s death. period(45) days after cut-off date, said member
He concluded that the sale of the golf share was maybe posted as delinquent. No delinquent member
a deprivation of property without due process of shall be entitled to enjoy the privileges of such
law. membership for the duration of the delinquency.
11. On appeal to SEC en banc, it arffirmed the After the member shall have been posted as
hearing officer’s decision in toto. delinquent, the Board may order his/her/its share sold
12. Valley Golf filed a petition for review before the to satisfy the claims of the club; after which the
CA. CA affirmed the ruling of SEC en banc with member loses his/her/its rights and privileges
modification of deleting the attorney’s fees. permanently. No member can be indebted to the
13. In its petition before the SC, Valley Golf concedes Club at any time any amount in excess of the credit
that Sec. 67 of the Corp. code is not applicable limit set by the Board of Directors from time to time.
but argues that its by-laws authorizes the sale of The unpaid account referred to here includes non-
delinquent shares. That the by-laws constitute a payment of dues, charges and other assessments
valid law or contractual agreement between the and non-payment for subscriptions
corporation and its stockholders or their
♥ Valley Golf argues that by virtue of the by-
respective successors. That the by-laws was also
law provisions a lien is created on the shares
approved by SEC.
of its members to ensure payment of dues
14. It also argued that CA erred on relying upon Sec.
and other assessments on members. Both
6 of the Corp. Code to nullify the provisions of the
SEC and CA did not agree on this. They
by-laws. Sec. 6 refers to restrictions on the shares
noted that the procedure under Sec. 67 of
of stock which should be stated in the AOI, as
the Corp. Code for unpaid subscriptions is
differentiated from liens which under the by-laws
inapt to a non-stock corp. vis-à-vis a
would serve as basis for the auction sale of the
member's outstanding dues. In non-stock,
share. Sec. 6 also contains the word may, thus,
member has fully paid for his membership
evincing the non-mandatory character of the
share while in stock corp., stockholder has
requirement that restrictions or liens be stated in
not yet fully paid for the share or shares of
the articles of incorporation.
stock he subscribed to, thereby authorizing
the stock corporation to call on the unpaid
ISSUE:
subscription, declare the shares delinquent
1. WON non-stock corporation may seize and
and subject the delinquent shares to a sale
dispose of the membership share of a fully-paid
at public auction.
member on account of its unpaid debts to the
corporation when it is authorized to do so under ♥ Also, following Sec. 6 of the Corp. Code, the
the corporate by-laws but not by the Articles of lien on the golf share in favor of Valley Golf is
Incorporation? not valid as the power to constitute such a
2. WON the actions of Valley Golf concerning the lien should be provided in the AOI, and not
membership of Caram proper? merely in the by-laws.
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
enforcement of the lien should have been sells it to itself or a third person for
provided for in the AOI. P100,000.00, then refunds P99,000.00 back to
the delinquent member. Such a mechanism
• If in the affirmative, is there any cause to
obviates the inequity of the first example,
invalidate the lien and the subsequent sale
and assures that the loss sustained by the
of the Golf Share by Valley Golf? Former SEC
delinquent member is commensurate to the
Chairperson Rosario Lopez explains Sec. 91 in
actual debt owed to Valley Golf. Yet
her commentaries in the Corp. Code:
noticeably, the by-laws of Valley Golf does
The prevailing rule is that the provisions of the articles not require the Club to refund to the
of incorporation or by-laws of termination of discharged member the remainder of the
membership must be strictly complied with and proceeds of the sale after the outstanding
applied to the letter. Thus, an association whose obligation is extinguished. After Caram’s wife
member fails to pay his membership due and annual had filed her complaint though, Valley Golf
due as required in the by-laws, and which provides did inform her that the heirs of Caram are
for the termination or suspension of erring members entitled to such refund.
as well as prohibits the latter from intervening in any
• On the other hand, the by-laws does not
manner in the operational activities of the
provide for a mode of notice to the member
association, must be observed because by-laws are
before the Golf Share is put up for sale, yet
self-imposed private laws binding on all members,
the sale marks the termination of
directors and officers of the corporation.
membership. If member fails to pay within 45
• By-law provision of Valley Golf discusses that days, Valley Golf is entitled to have the
termination of membership may occur after member posted as delinquent. The by-laws
the following conditions: 1) presentation of does not require any notice to the member
the account of the member; (2) failure of the from the time delinquency is posted to the
member to settle the account within forty- day the sale of the share is actually held. The
five days after the cut-off date; (3) posting of setup is to the extreme detriment to the
the member as delinquent; and (4) issuance member, who upon being notified that the
of an order by the board of directors that the lien on his share is due for execution would
share of the delinquent member be sold to be duly motivated to settle his accounts to
satisfy the claims of Valley Golf. foreclose such possibility. Corp. Code is silent
on this as to whether it permits the
• The conditions are approved by SEC and SC termination of membership without due
is disinclined to rule against its validity. notice to the member. This was done in the
• SC notes that Valley Golf was organized in case of Long v. Basa involving a religious
such a way that membership is adjunct to corp.
ownership of a share in the club; hence the • However, the religious corp. does not
necessity to dispose of the share to terminate normally involve a purchase of shares,
membership. Share ownership and contrary to the situation here. SC concluded
termination of membership may also lead to that when the loss of membership in a non-
infringement of rights. stock corporation also entails the loss of
• Here, Valley Golf is a non-stock corp. but the property rights, the manner of deprivation of
golf share has an assigned value reflected such property right should also be in
on the certificate of membership itself. accordance with the provisions of the Civil
Termination of membership in Valley Golf Code.
does not merely lead to the withdrawal of
the rights and privileges of the member to
club properties and facilities but also to the 2. NO.
loss of the Golf Share itself for which the
• Commentaries of Lopez on an SEC opinion
member had fully paid. Claim of Valley Golf
states:
is limited to the unpaid dues but Caram’s loss
would be on the amount he had paid for the In order that the action of a corporation in expelling
share and also the price it would have a member for cause may be valid, it is essential, in
fetched in the market at the time his the absence of a waiver, that there shall be a
membership was terminated. hearing or trial of the charge against him, with
reasonable notice to him and a fair opportunity to be
• A refund mechanism may disquiet concerns
heard in his defense. If the method of trial is not
of undue loss of property rights
regulated by the by-laws of the association, it should
corresponding to termination of
at least permit substantial justice. The hearing must
membership.- Valley Golf seizes the share,
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COMMERCIAL LAW REVIEW | G02 CORPORATION LAW
be conducted fairly and openly and the body of 38 JUANITO ANG, FOR AND IN BEHALF OF SUNRISE
persons before whom it is heard or who are to decide MARKETING (BACOLOD), INC. v. SPOUSES ANG
the case must be unprejudiced. G.R. No. 201675; June 19, 2013; Carpio; Castillo
TOPIC: Derivative Suit
• Valley Golf alleges that it was notified of
Caram’s death only in 1990. However, this
DOCTRINE: A derivative suit is an action brought by a
was belied by the demand letters they sent
stockholder on behalf of the corporation to enforce
to Caram’s mailing address. The 2 letters are
corporate rights against the corporation’s directors,
both addressed to “EST. of Fermin Caram”
officers or other insiders.
which could only be taken to refer to estate.
This proves that it had known of Caram’s
FACTS:
death prior to the auction. Hence, Valley
1. Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
Golf acted in bad faith when it sent the
registered corporation owned by the Ang
demand letters under the pretense that they
family. Its current stockholders are Juanito,
believed Caram to be alive when in truth,
Anecita, Jeannevie, Roberto, and Rachel, all
they knew that he already died. That reason
surnamed Ang.
alone is sufficient to nullify the sale and
2. Roberto, SBMI’s President and Juanito, the VP,
sustain the rulings of the SEC and the CA. Art.
are siblings. Anecita, the Treasurer, is Juanito’s
19-21 of the CC may also be applied on the
wife and Jeannevie is their daughter. Rachel is
act done by Valley Golf. These provisions
the Corporate Secretary.
enunciate a general obligation under law for
3. On July 1995, Nancy Ang, sister of Juanito and
every person to act fairly and in good faith
Roberto, a former SBMI stockholder, and her
towards one another. Non-stock corporations
husband, Theodore Ang, agreed to extend a
and its officers are not exempt from that
loan to settle SBMI’s and other corporations
obligation.
owned by Ang family with Bayshore Aqua
• By-laws of Valley Golf is discomfiting enough Culture Corporation, Oceanside Marine
in failing to provide any formal notice and Resources and JR Aqua Venture. Nancy and
hearing before a member’s share can be Theodore issued a check in the amount of $1M
seized and sold. SC will not interfere with how payable to "Juanito Ang and/or Anecita Ang
non-stock corp. runs their daily affiars. and/or Roberto Ang and/or Rachel Ang."
However, when a member is not given an 4. Nancy and Theodore are now currently residing
opportunity to defend himself on the in the US. There was no written loan agreement,
deprivation of property rights, by-laws is not in view of the close relationship between the
enough. SC deems it to refer to the Civil parties. Part of the loan was also used to
Code for defense from loss of property rights. purchase real properties for SMBI, for Juanito,
and for Roberto.
• Membership shares are considered as 5. On December 2005, SMBI increased its authorized
movable or personal property and they can capital stock to ₱10M. The Certificate of Increase
be constituted as security to secure a of Capital Stock was signed by Juanito, Anecita,
principal obligation, such as the dues and Roberto, and Rachel as directors of SMBI. Juanito
fees. There are at least two contractual claimed, however, that the increase of SMBI’s
modes under the Civil Code by which capital stock was done in contravention of the
personal property can be used to secure a Corporation Code.
principal obligation. The first is through a 6. Juanito alleged that when he and Anecita left
contract of pledge while the second is for Canada, spouses Roberto and Rachel Ang
through a chattel mortgage. took over the active management of SBMI and
• However, in this case, Caram had not signed were able to successfully manipulate the stocks
any document that shows his agreement to sharings between themselves at 50-50.
constitute his Golf Share as security in favor of 7. Juanito claimed that payments to Nancy and
Valley Golf to answer for his obligations to the Theodore ceased sometime after 2006. On
club. The by-laws is not designed as a November 2008, Nancy and Theodore, their
bilateral contract between Caram and counsel here sent a demand letter to "Spouses
Valley Golf, or a vehicle by which Caram Juanito L. Ang/Anecita L. Ang and Spouses
expressed his consent to constitute his Golf Roberto L. Ang/Rachel L. Ang" for payment of
Share as security for his account with Valley the principal amounting to $1M plus interest at
Golf. 10% p.a., but Roberto and Rachel answered with
a letter that they are not complying because
they have not personally contracted a loan from
Nancy and Theodore.
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8. On January 2009, Juanito and Anecita executed 2. WON Juanito failed to exhaust intra-corporate
a Deed of Acknowledgment and Settlement remedies provided by the Interim Rules. YES.
Agreement (Settlement Agreement) and an
Extra-Judicial Real Estate Mortgage (Mortgage), RULING: PETITION DENIED. CA AFFIMED.
where they admitted that they obtained a loan
- A derivative suit is an action brought by a
from Nancy and Theodore for $1M on 31 July
stockholder on behalf of the corporation to enforce
1995, secured by parcels of land or shares on
corporate rights against the corporation’s directors,
parcels of land owned by SBMI, Juanito, Roberto,
officers or other insiders.
Anecita and Roberto’s son.
9. A certain Kenneth C. Locsin signed on behalf of - The Corporation Code provides that the directors or
Nancy and Theodore, under a SPA, which was officers, as provided under the by-laws, have the
not attached as part of the Settlement right to decide whether or not a corporation should
Agreement or the Mortgage, nor included in the sue. Since these directors or officers will never be
records of this case. Thereafter, Juanito filed a willing to sue themselves, or impugn their wrongful or
"Stockholder Derivative Suit with prayer for an ex- fraudulent decisions, stockholders are permitted by
parte Writ of Attachment/Receivership" before law to bring an action in the name of the corporation
the RTC Bacolod. to hold these directors and officers accountable. In
10. Juanito alleged that "the intentional and derivative suits, the real party-in-interest is the
malicious refusal of defendant Sps. Roberto and corporation, while the stockholder is a mere nominal
Rachel Ang to settle their 50% share of the total party.
obligation will definitely affect the financial
viability of plaintiff SMBI." He also claimed that he - In Yu v. Yukayguan, the Court has recognized that a
has been "illegally excluded from the stockholder’s right to institute a derivative suit is not
management and participation in the business of based on any express provision of the Corporation
SBMI through force, violence and intimidation" Code, or even the Securities Regulation Code, but is
and that Rachel and Roberto have seized and impliedly recognized when the said laws make
carted away SMBI’s records from its office. corporate directors or officers liable for damages
11. RTC: ex-parte writ of attachment and break open suffered by the corporation and its stockholders for
order granted. Atty. Jerry Basiao, was appointed violation of their fiduciary duties. Hence, a
as Receiver of SMBI, who was directed to furnish stockholder may sue for mismanagement, waste or
the required Receivership Bond. dissipation of corporate assets because of a special
12. Rachel alleged that it is not a derivative suit as injury to him for which he is otherwise without redress.
defined under the Interim Rules of Procedure for In effect, the suit is an action for specific performance
Intra-Corporate Controversies because, although of an obligation owed by the corporation to the
labelled as a derivative suit, it is actually a stockholders to assist its rights of action when the
collection suit since the real party in interest is not corporation has been put in default by the wrongful
SMBI, but Nancy and Theodore. Furthermore, it is refusal of the directors or management to make
for the benefit of a non-stockholder and not the suitable measures for its protection. The basis of a
corporation because the primary relief prayed stockholder’s suit is always one in equity. However, it
for the payment of amount which is 50% of the cannot prosper without first complying with the legal
loan obligations of SBMI to its creditor, the Sps. requisites for its institution. - Section 1, Rule 8 of the
Theodore and Nancy Ang. Lastly, Juanito failed Interim Rules imposes the following requirements for
to allege that he "exerted all reasonable efforts derivative suits:
to exhaust all intra-corporate remedies available (1) The person filing the suit must be a
under the articles of incorporation, by-laws, laws stockholder or member at the time the acts
or rules governing the corporation to obtain the or transactions subject of the action
relief he desires," as required by the Interim Rules. occurred and the time the action was filed;
13. RTC: It is a derivative suit. Motion to Dismiss is
denied. (2) He must have exerted all reasonable
14. CA: RTC reversed and set aside. It is a harassment efforts, and alleges the same with
suit, and not a valid derivative suit as defined particularity in the complaint, to exhaust all
under the Interim Rules. Furthermore, Juanito remedies available under the articles of
failed to exhaust intra-corporate remedies and incorporation, by-laws, laws or rules
the loan was not SMBI’s corporate obligation. MR governing the corporation or partnership to
denied. Hence, this petition. obtain the relief he desires;
(3) No appraisal rights are available for the
ISSUE/S: act or acts complained of; and
1. WON the suit is a derivative suit. NO.
(4) The suit is not a nuisance or harassment
suit.
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55
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39 LEGASPI TOWERS 300, INC., ET. AL. v. AMELIA P. c. Votes were cast and the newly-elected
MUER, ET. AL., members of the Board of Directors for the
G.R. NO. 170783 | JUNE 18, 2012 | PERALTA | DE years 2004-2005 were named.
GUZMAN 10. Respondents contended that it was clear that
DERIVATIVE SUIT the election was legitimate and lawful; thus, they
prayed for the dismissal of the complaint.
DOCTRINE: Since it is the corporation that is the real 11. TC then issued an Order clarifying that the TRO
party-in-interest in a derivative suit, then the reliefs issued was not applicable as the respondents
prayed for must be for the benefit or interest of the had actually assumed management.
corporation. When the reliefs prayed for do not 12. The petitioners' filed a motion to amend
pertain to the corporation, then it is an improper complaint to implead Legaspi Towers 300, Inc. as
derivative suit. plaintiff.
13. Respondents filed a Comment praying that the
FACTS: name of Legaspi Towers Inc., as party-plaintiff in
1. Petitioners, the incumbent Board of Directors, set the Amended Complaint, be deleted as the said
the annual meeting of the members of the inclusion by petitioners was made without the
condominium corporation and the election of authority of the current Board of Directors
the new Board of Directors for the years 2004- (respondents)
2005. 14. Petitioners filed a petition for certiorari with CA.
2. Out of a total number of 5,723 members who CA dismissed.
were entitled to vote, 1,358 were supposed to 15. CA held that as the right to vote is a personal
vote through their respective proxies and their right of a stockholder, such right can only be
votes were critical in determining the existence of enforced through a direct action; hence,
a quorum, which was at least 2,863 (50% plus 1). Legaspi Towers Inc. cannot be impleaded as
3. The Committee on Elections of Legaspi Towers plaintiff.
300, Inc., found most of the proxy votes irregular, 16. Petitioners clarified that the inclusion of Legaspi
and for lack of time to authenticate them, Towers Inc. as a plaintiff was intended as a direct
petitioners adjourned the meeting for lack of action by the corporation acting through them
quorum. (petitioners) as the reconstituted Board of
4. Respondents challenged the adjournment. Directors. The election conducted was invalid;
5. Despite that no quorum was obtained during the hence, petitioners could reconstitute themselves
annual meeting, respondents pushed through as the Board of Legaspi Towers in a hold-over
with the election and were elected as the new capacity. By so doing, petitioners had the right to
Board of Directors and officers of Legaspi Towers bring the action in representation of Legaspi
Inc. Towers.
6. They submitted General Information Sheet with 17. Although petitioners admit that the action
new set of officers. involves their right to vote, they argue that it also
7. Petitioners filed a Complaint for the Declaration involves the right of the corporation to be
of Nullity of Elections with TRO against managed and run by the duly-elected Board of
respondents. Directors.
8. RTC issued TRO, enjoining defendants from taking
over management, or to maintain a status quo. ISSUE: WON derivative suit is proper in this case? NO.
9. Respondents allege that the election on April 2,
2004 was lawfully conducted. Respondents cited HELD:
the Report of SEC Counsel Patricio, who was • The Amended Complaint is meant to be a
ordered by the SEC to attend the annual derivative suit filed by petitioners in behalf of the
meeting corporation. CA stated that petitioners justified
a. Atty. Patricio stated that the scheduled the inclusion of Legaspi Towers Inc. as plaintiff by
elections could not proceed because invoking the doctrine of derivative suit.
the Election Committee was not able to • A derivative suit must be differentiated from
validate the authenticity of the proxies. individual and representative or class suits. Suits
b. When the Board adjourned the meeting, by stockholders or members of a corporation
the unit owners who objected gathered based on wrongful or fraudulent acts of directors
and proceeded with the meeting. The or other persons may be classified into individual
attendance was checked from among suits, class suits, and derivative suits.
the members who stayed. Proxies were o Where a stockholder or member is
counted, and there was a declaration of denied the right of inspection, his suit
a quorum. would be individual because the wrong
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is done to him personally and not to the board of directors for the
other stockholders or the corporation. appropriate relief but the latter has failed
o Where the wrong is done to a group of or refused to heed his plea; and
stockholders, a class or representative o the cause of action actually devolves on
suit will be proper for the protection of all the corporation, the wrongdoing or harm
stockholders belonging to the same having been, or being caused to the
group. corporation and not to the particular
o But where the acts complained of stockholder bringing the suit.
constitute a wrong to the corporation • Petitioners’ complaint seeks to nullify the said
itself, the cause of action belongs to the election, and to protect and enforce their
corporation and not to the individual individual right to vote.
stockholder. Although in most cases of • Petitioners are the injured party, whose rights to
wrong to the corporation, each vote and to be voted upon were directly
stockholder is necessarily affected affected by the election of the new set of board
because the value of his interest therein of directors. The party-in-interest are the
would be impaired, this fact of itself is not petitioners as stockholders.
sufficient to give him an individual cause • Under the circumstances, the derivative suit filed
of action since the corporation is a by petitioners in behalf of the condominium
person distinct and separate from him, corporation in the complaint is improper.
and can and should itself sue the • The stockholder’s right to file a derivative suit is
wrongdoer. not based on any express provision of the
o In cases of mismanagement where the Corporation Code, but is impliedly recognized
wrongful acts are committed by the when the law makes corporate directors or
directors themselves, a stockholder may officers liable for damages suffered by the
find that he has no redress because the corporation and its stockholders for violation of
former are vested by law with the right to their fiduciary duties, which is not the issue in this
decide whether or not the corporation case.
should sue, and they will never be willing
to sue themselves. The corporation
would thus be helpless to seek remedy.
o The right of a stockholder to sue on
behalf of a corporation is a derivative
suit. It has been proven to be an
effective remedy of the minority against
the abuses of management.
o A stockholder is permitted to institute a
derivative suit on behalf of the
corporation in order to protect or
vindicate corporate rights, whenever
officials of the corporation refuse to sue
or are the ones to be sued or hold the
control of the corporation. In such
actions, the suing stockholder is
regarded as the nominal party, with the
corporation as the party-in- interest.
o Since it is the corporation that is the real
party-in-interest in a derivative suit, then
the reliefs prayed for must be for the
benefit or interest of the corporation.
When the reliefs prayed for do not
pertain to the corporation, then it is an
improper derivative suit.
• The requisites for a derivative suit are as follows:
o the party bringing suit should be a
shareholder as of the time of the act or
transaction complained of, the number
of his shares not being material;
o he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on
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41 SIMNY G. GUY, ET. AL. v. THE HON. OFELIA C. CALO, years, he again refiled the complaint. Which is
G.R. No. 189486, Sept. 5, 2012, PEREZ, DE LEON the present controversy
TOPIC: Transfer of Stock Ownership
ISSUE: Whether there is a valid transfer of stocks
DOCTRINE: When a stock certificate is endorsed in HELD: YES
blank by the owner thereof, it constitutes what is
termed as "street certificate," so that upon its face, RULING:
the holder is entitled to demand its transfer his name The charges of fraud which Gilbert accuses his
from the issuing corporation. siblings are not supported by the required factual
allegations. No corporate power or office was
FACTS: alleged to have facilitated the transfer of Gilbert’s
1. As reflected in Stock Certificate Nos. 004-014, shares. How the petitioners perpetrated the fraud, if
Gilbert G. Guy (Respondent) practically owned ever they did, is an indispensable allegation which
almost 80 percent of the 650,000 subscribed Gilbert must have had alleged with particularity in his
capital stock of GoodGold Realty & complaint, but which he failed to.
Development Corporation. With Gilbert’s failure to allege specific acts of fraud in
2. Simny (his mother) claimed that upon the advice his complaint and his failure to rebut the NBI report,
of their lawyers, upon the incorporation of therefore, the signatures appearing on the stock
GoodGold, they issued stock certificates certificates, including his blank endorsement thereon
reflecting the shares held by each stockholder were authentic. With the stock certificates having
duly signed by Francisco (his father) as President been endorsed in blank by Gilbert, which he himself
and Atty. Emmanuel Paras as Corporate delivered to his parents, the same can be cancelled
Secretary, with corresponding blank and transferred in the names of petitioners.
endorsements at the back of each certificate – While there is a contrary ruling, as an exception to the
including Stock Certificate Nos. 004-014 under general rule enunciated above, what the Court held
Gilbert’s name. These certificates were all with in Neugene Marketing Inc., et al., v CA, where stock
Gilbert’s irrevocable endorsement and power of certificates endorsed in blank were stolen from the
attorney to have these stocks transferred in the possession of the beneficial owners constraining the
books of corporation. All of these certificates Supreme Court to declare the transfer void for lack of
were always in the undisturbed possession of the delivery and want of value, the same cannot apply
spouses Francisco and Simny. to Gilbert because the stock certificates which
3. Francisco instructed Benjamin Lim, a nominal Gilbert endorsed in blank were in the undisturbed
shareholder of GoodGold and his trusted possession of his parents who were the beneficial
employee, to collaborate with Atty. Emmanuel owners and who themselves as such owners caused
Paras, to redistribute GoodGold’s shareholdings the transfer in their names. Indeed, even if Gilbert’s
evenly among his children, while maintaining a parents were not the beneficial owners, an
proportionate share for himself and his wife, endorsement in blank of the stock certificates
Simny. coupled with its delivery, entitles the holder to
4. Accordingly, some of GoodGold’s certificates demand the transfer of said stock certificates in his
were cancelled and new ones were issued to name from the issuing corporation.
represent the redistribution of GoodGold’s shares
of stock.
5. Five years after the redistribution of GoodGold’s
shares of stock, Gilbert filed with the Regional Trial
Court (RTC) of Manila, a Complaint for the
"Declaration of Nullity of Transfers of Shares in
GoodGold and of General Information Sheets
and Minutes of Meeting, and for Damages with
Application for a Preliminary Injunctive Relief,"
against his mother, Simny, and his sisters. Gilbert
alleged, among others, that no stock certificate
ever existed; that his signature at the back of the
spurious Stock Certificate Nos. 004-014 which
purportedly endorsed the same and that of the
corporate secretary, Emmanuel Paras, at the
obverse side of the certificates were forged, and,
should be nullified.
6. Gilbert withdrew the complaint when the NBI
found the signatures to be genuine. But after 3
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42 FIL-ESTATE GOLF AND DEVELOPMENT, INC. (FEGDI) of the stock certificate a substantial breach that
AND FILESTATE LAND INC. (FELI) V VERTEX SALES AND served as basis for Vertex to rescind the sale.
TRADING, INC. (G.R. No. 202079 June 10, 2013) 7. Hence, this petition to the SC.
AUTHOR: Enriquez 8. FEGDI argued that the delay cannot be
PONENTE: Brion considered a substantial breach because Vertex
TOPIC: Transfer of Stock Ownership was unequivocally recognized as a shareholder
of Forest Hills. In fact, Vertex’s nominees became
DOCTRINE: Physical delivery is necessary to transfer members of Forest Hills and fully enjoyed and
ownership of stocks. utilized all its facilities. It added that RSACC also
used its shareholder rights and eventually sold its
FACTS: share to Vertex despite the absence of a stock
1. FEGDI is a stock corporation whose primary certificate.
business is the development of golf courses. FELI is 9. On the other hand, Vertex alleged that its use
also a stock corporation, but is engaged in real and enjoyment of Forest Hills’ facilities cannot be
estate development. FEGDI was the developer of considered delivery and transfer of ownership
the Forest Hills Golf and Country Club (Forest Hills)
and, in consideration for its financing support and ISSUE/HELD: Whether the delay in the issuance of a
construction efforts, was issued several shares of stock certificate can be considered a substantial
stock of Forest Hills. breach as to warrant rescission of the contract of
2. FEGDI sold to RS Asuncion Construction sale. YES. PETITION DENIED.
Corporation (RSACC) one Class "C" Common
Share of Forest Hills Prior to the full payment of the RATIO:
purchase price, RSACC sold the share to Vertex. • Physical delivery is necessary to transfer
RSACC advised FEGDI of the sale to Vertex and ownership of stocks.
FEGDI, in turn, instructed Forest Hills to recognize • Citing Raquel-Santos v. Court of Appeals, the SC
Vertex as a shareholder. said that in "a sale of shares of stock, physical
3. Despite Vertex’s full payment, the share delivery of a stock certificate is one of the
remained in the name of FEGDI. 17 months after essential requisites for the transfer of ownership of
the sale Vertex wrote FEDGI a letter demanding the stocks purchased."
the issuance of a stock certificate in its name. FELI • Section 63 of the Corporation Code provides:
replied, initially requested Vertex to first pay the SEC. 63. Certificate of stock and
necessary fees for the transfer. Although Vertex transfer of shares. – The capital stock of
complied with the request, no certificate was stock corporations shall be divided into
issued. shares for which certificates signed by
4. This prompted Vertex to make a final demand. As the president or vice-president,
the demand went unheeded, Vertex filed a countersigned by the secretary or
Complaint for Rescission with Damages and assistant secretary, and sealed with the
Attachment against FEGDI, FELI and Forest Hills. seal of the corporation shall be issued
During the pendency of the rescission action, a in accordance with the by-laws.
certificate of stock was issued in Vertex’s name, Shares of stock so issued are personal
but Vertex refused to accept it. property and may be transferred by
5. The RTC dismissed the complaint for insufficiency delivery of the certificate or certificates
of evidence. It ruled: indorsed by the owner or his attorney-
a. that the delay in the issuance of stock in-fact or other person legally
certificates does not warrant rescission of authorized to make the
the contract as this constituted a mere transfer.1âwphi1 No transfer, however,
casual or slight breach. shall be valid, except as between the
b. that notwithstanding the delay in the parties, until the transfer is recorded in
issuance of the stock certificate, the sale the books of the corporation showing
had already been consummated; the the names of the parties to the
issuance of the stock certificate is just a transaction, the date of the transfer,
collateral matter to the sale and the the number of the certificate or
stock certificate is not essential to "the certificates and the number of shares
creation of the relation of shareholder." transferred.
6. CA reversed the RTC and rescinded the sale of No shares of stock against which the
the share. Citing Section 63 of the Corporation corporation holds any unpaid claim
Code, it held that there can be no valid transfer shall be transferable in the books of the
of shares where there is no delivery of the stock corporation.
certificate. It considered the prolonged issuance
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• In this case, Vertex fully paid the purchase price 43 CALATAGAN GOLF CLUB, INC v. SIXTO CLEMENTE
but the stock certificate was only delivered 3 G.R. No. 165443| April 16, 2009| TINGA | Estioko
years after when Vertex filed an action for TOPIC: Sale of delinquent Stocks
rescission against FEGDI.
• Under these facts, considered in relation to the DOCTRINE: Section 69 of the Corp. Code refers
governing law, FEGDI clearly failed to deliver the specifically to unpaid subscriptions to capital stocks. It
stock certificates, representing the shares of stock does not apply to unpaid membership dues in non-
purchased by Vertex, within a reasonable time stock corporations.
from the point the shares should have been
delivered. This was a substantial breach of their FACTS:
contract that entitles Vertex the right to rescind 1. Clemente purchased one share of stock of
the sale under Article 1191 of the Civil Code. It is Calatagan.
not entirely correct to say that a sale had already 2. Calatagan charges monthly dues on its
been consummated as Vertex already enjoyed members. The provision on monthly dues is
the rights a shareholder can exercise. The incorporated in the Articles of Incorporation and
enjoyment of these rights cannot suffice where By-Laws. It was also reproduced in the dorsal side
the law, by its express terms, requires a specific of the Certificate of Stock.
form to transfer ownership. 3. When Clemente stopped paying his monthly
dues, Calatagan sent 3 demand letter to
Clemente’s mailing address as indicated in the
membership application. All were sent back to
sender with the postal note that the address had
been closed.
4. Since Clemente still failed to settle his obligations,
his share was sold at a public auction (Jan. 15,
1993).
5. Clemente learned of the sale of his share only in
Nov. 1997. He filed a claim with the SEC seeking
the restoration of his shareholdings in Calatagan
with damages.
6. The SEC ruled in favor of Calatagan, citing Sec.
69 of the Corp Code., which provides that the
sale of shares at an auction sale can only be
questioned within 6 mos. from the date of sale.
The SEC concluded that Clemente’s claim, filed 4
years after the sale, had already prescribed.
7. The CA reversed the decision citing the SEC’s
own ruling in Caram v. Valley Golf, that Sec. 69
specifically refers to unpaid subscriptions to
capital stock, and not to any other debt of
stockholders. With the insinuation that Sec. 69
does not apply to unpaid membership dues in
non-stock corporations, the appellate court
employed Article 1140 of the Civil Code as the
proper rule of prescription.
HELD:
• Section 69 of the Code provides that an action
to recover delinquent stock sold must be
commenced by the filing of a complaint within
six (6) months from the date of sale. As correctly
pointed out by the Court of Appeals, Section 69 is
part of Title VIII of the Code entitled "Stocks and
Stockholders" and refers specifically to unpaid
subscriptions to capital stock, the sale of which is
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governed by the immediately preceding Section 44 PAUL LEE TAN V. PAUL SYCIP
68. G.R. No. 153468 | August 17, 2006 |C J. Panganiban
• There are fundamental differences that defy | Huecas
equivalence or even analogy between the sale TOPIC: Quorum
of delinquent stock under Section 68 and the sale
that occurred in this case. At the root of the sale FACTS:
of delinquent stock is the non-payment of the a. Grace Christian High School (GCHS) is a
subscription price for the share of stock itself. The nonstock, non-profit educational corporation
stockholder or subscriber has yet to fully pay for with fifteen (15) regular members, who also
the value of the share or shares subscribed. I constitute the board of trustees.
• In this case, Clemente had already fully paid for b. During the annual members meeting, GCHS
the share in Calatagan and no longer had any only had 11 living members (4 died), and
outstanding obligation to deprive him of full title only 7 out of the 11 attended.
to his share. Perhaps the analogy could have c. The meeting was held despite objections
been made if Clemente had not yet fully paid for that there was no quorum since the basis
his share and the non-stock corporation, pursuant should not be the number of living member-
to an article or by-law provision designed to trustees but the original 15.
address that situation, decided to sell such share d. Petitioners (who are members) contend that
as a consequence. But that is not the case here, quorum should be based on the living
and there is no purpose to apply Section 69 to members (11), excluding the deceased.
the case at bar. e. SEC ruled that there was no quorum as the
• Since the action is for recovery of a share of same shall be the number of members
stock, plus damages. The applicable provision is specified in the articles of incorporation and
Article 1140 of the Civil Code which provides that not simply the number of the living members.
an action to recover movables shall prescribe in
eight (8) years. ISSUE: W/N there was a quorum. YES
• Ultimately, the petition must fail because
Calatagan had failed to duly observe both the HELD/RULING:
spirit and letter of its own by-laws. The by-law
provisions was clearly conceived to afford due Section 52. Quorum in Meetings. Unless otherwise
notice to the delinquent member of the provided for in this Code or in the by-laws, a quorum
impending sale, and not just to provide an shall consist of the stockholders representing a
intricate façade that would facilitate majority of the outstanding capital stock or a majority
Calatagan’s sale of the share. But then, the bad of the members in the case of non-stock
faith on Calatagan’s part is palpable. As found corporations.
by the Court of Appeals, Calatagan very well
knew that Clemente’s postal box to which it sent For stock corporations, the quorum referred to in
its previous letters had already been closed, yet it Section 52 of the Corporation Code is based on the
persisted in sending that final letter to the same number of outstanding voting stocks. For nonstock
postal box corporations, only those who are actual,
living members with voting rights shall be counted in
determining the existence of a quorum during
members meetings.
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dead members are entitled to exercise their voting 45 PHILIP TURNER AND ELEONOR TURNER VS LORENZO
rights (through their executor or administrator), SHIPPING CORPORATION
depends on those articles of incorporation or bylaws. GR NO. 157479|NOVEMBER 24, 2010|BERSAMIN,
J.|INGUILLO
2. Under the By-Laws of GCHS, membership in TOPIC: APPRAISAL RIGHT
the corporation shall, among others, be
terminated by the death of the DOCTRINE:
member. Section 91 of the Corporation
Code further provides that termination
extinguishes all the rights of a member of the
corporation, unless otherwise provided in the FACTS:
articles of incorporation or the bylaws. • Sometime in 1999, Lorenzo Shipping decided
3. Since the dead members cease to part of to amend its articles of incorporation to
the membership roster of GCHS, they are not remove the stockholders pre-emptive rights
to be counted in determining the requisite to newly issued shares of stock.
vote in corporate matters or the requisite • Anticipating that the amendment would be
quorum for the annual members meeting. prejudicial to the stockholders, the Turners,
Therefore, with 11 remaining members, the who held 1,010,000 shares of stock in the
number required to constitute a quorum is 6 company, voted against the amendment
which is attendant in this case. and demanded payment of their shares at
the rate of P2.28/share based on the book
value of the shares. The corporation
countered this and argued that it is the
market value of the shares on the date
before the action to remove the pre-emptive
right must be followed or P.41/share,
considering that its shares were listed in the
Philippine Stock Exchange.
• To settle the disagreement on the valuation
of the subject shares, an appraisal
committee was constituted pursuant to
Section 82 of the Corporation Code. After
due deliberation, the appraisal committee
reported that the valuation of the shares
should be placed at P2.54/shares or an
aggregate value of P2,565,400.
• Accordingly, the Turners demanded
payment on the basis of the appraisal
committee’s report, plus 2%/month penalty
reckoned from the date of their original
demand for payment.
• Lorenzo Shipping refused the demand and
argued that pursuant to the Corporation
Code, the dissenting stockholders exercising
their appraisal right could be paid only if the
corporation has unrestricted retained
earnings to cover the fair value of the shares.
However, it opined that at the time of the
petitioners demand, it had no unrestricted
retained earnings as borne out by its
Financial Statement which showed a deficit
of P72 Million as of December 31, 1999.
• This prompted Philip and Eleonor Turner to file
an action for collection and damages
against Lorenzo Shipping. Pending the
resolution of the case, Turner filed a Motion
for Partial Summary Judgment claiming that
contrary to Lorenzo’s claim, it has an
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accumulated unrestricted retained earnings RULING: NO because at the time the complaint was
of P11Million as of the 1st quarter of 2002. filed, the corporation had no unrestricted retained
• Opposing the Motion, Lorenzo argued that earnings.
the determination of the unrestricted • Stockholders Appraisal Right; In General -A
retained earnings should be made at the stockholder who dissents from certain corporate
end of the fiscal year of the corporation. actions has the right to demand payment of the
• The trial court granted the Motion for Partial fair value of his shares.
Summary Judgment. It ruled that the only
restriction imposed by the Corporation Code • Section 81 of the Corporation Code provides that
is that payment to any dissenting stockholder the stockholders appraisal right may be
can only be made if the corporation has exercised in the following instances:
unrestricted retained earnings in its books to • In case of any amendment to the articles of
cover such payment; since it was shown that incorporation which has the effect of changing
Lorenzo Shipping has retained earnings of or restricting the rights of any stockholder or class
P11Million as of March 2002 it must of share
accordingly pay the Turners.
• In case of sale, lease, exchange, transfer,
a. In addition to this, the trial court emphasized
mortgage or other disposition of all or
that the law does not say that the unrestricted
substantially all of the corporate property, and
retained earnings must exist at the time of the
demand. Even if there are no retained earnings • In case of a merger or consolidation.
at the time the demand is made if there are 1. Clearly, before the right may be exercised there
retained earnings later, the fair value of such must first be a fundamental change in the
stocks must be paid, charter substantially prejudicing the rights of the
b. Upon Motion duly filed by Turner, the trial court stockholders. Thus, the right does not lie unless
ordered the immediate execution of the order. objectionable corporate action is taken.
• Aggrieved, Lorenzo Shipping elevated the
2. Under common law, there are conflicting views
case to the CA via a Rule 65 Petition.
as to whether or not a corporation has the
• Pending resolution, Lorenzo Shipping filed an
power to acquire or purchase its own stocks.
application for the issuance of a TRO enjoining
Now, however, as provided in Section 41 of the
the Turners, and their agents from enforcing
Corporation Code, a corporation is already
the writ of execution. By then, however, the
allowed to purchase its own shares, provided
writ has already been partially executed.
payment is made out of surplus profits and the
• After due deliberation, the appellate court
acquisition is for a legitimate corporate purpose.
ruled that Petitioner’s cause of action had
not yet accrued due to the lack of 3. The Court likewise laid down the following steps
unrestricted retained earnings in the books of on how the right of appraisal should be
the corporation of Lorenzo Shipping. exercised:
• The CA noted that at the time the complaint • First, any stockholder who has voted against the
was filed, the corporation had no proposed corporate action must elect to
unrestricted retained earnings. This is exercise his appraisal right by making a written
evidenced by a letter dated January 02 2001 demand on the corporation within 30 days after
where the corporation informed the Turners the date on which the vote was taken for the
that its Financial Record for the year ending payment of the fair value of his shares.
1999 showed a deficit of P72 Million. Hence,
while the petitioner’s appraisal right already • Effect of failure to make a demand:
existed, their right to payment had not yet Waiver of the appraisal right.
accrued when the complaint was filed on • If the withdrawing stockholder and corporation
January 22, 2001. fails to reach an agreement as to the fair value
• The Turner’s right of action arose only when of the shares within 60 days from the date the
the corporation already had unrestricted stockholders approved the corporate action, it
retained earnings on March 2002. Thus, the shall be determined and appraised by 3
action was filed prematurely. disinterested persons.
• Hence, the instant petition. • One elected by the withdrawing
shareholder
ISSUE: WON the Turner, at the time the complaint has
been filed, had vested rights to demand the • One elected by the corporation
payment of their shares. • Last one elected by the 2 thus chosen.
• Upon the election to exercise his appraisal right,
all rights accruing to the withdrawing
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stockholders shares, including voting and 46 MA. BELEN FLORDELIZA ANG-ABAYA, ET. AL. v.
dividend rights, shall be suspended from the time EDUARDO G. ANG (2008)
of demand until either the abandonment of the G.R. No. 178511 | Dec. 4, 2008 | Ynares-Santiago |
corporate action or the purchase of the shares Lacap
by the corporation except the such stockholders TOPIC: Corporate Books and Right to Inspect
right to receive payment for the value of his
shares DOCTRINES:
• Within 10 days after demanding payment for his • The stockholder’s right of inspection of the
shares, a withdrawing stockholder shall submit to corporation’s books and records is based upon
the corporation the certificates of stock their ownership of the assets and property of the
representing his shares. corporation. It is, therefore, an incident of
ownership of the corporate property, whether this
• If the proposed corporate action is implemented, ownership or interest be termed an equitable
the corporation shall obligate itself to pay the ownership, a beneficial ownership, or a quasi-
stockholder, upon the surrender of the ownership.
certificates of stock. • In other words, the inspection has to be germane
1. Note, however, that before the corporation may to the petitioner’s interest as a stockholder, and
be compelled to pay the withdrawing has to be proper and lawful in character and not
stockholder, it must first be established that the inimical to the interest of the corporation.
corporation has unrestricted retained earnings. If • It is now expressly required as a condition for
the corporation has no available unrestricted such examination that the one requesting it must
earnings, Section 83 of the Corporation Code not have been guilty of using improperly any
provides that if no payment is made to the information secured through a prior examination,
dissenting stockholder within 30 days after the or that the person asking for such examination
award, his voting and dividend rights shall be must be acting in good faith and for a legitimate
immediately restored. purpose in making his demand
2. Furthermore, the trust fund doctrine backstops
FACTS:
the requirement of unrestricted retained earnings
1. Vibelle Manufacturing Corporation (VMC) and
to fund the payment of the shares of stocks of
Genato Investments, Inc. (Genato) (collectively
the withdrawing stockholders. Under the
referred to as corporations) where petitioners
doctrine, the capital stock, property, and other
Flordeliza, Jason, Vincent, and private
assets of a corporation are regarded as equity in
respondent Eduardo are shareholders, officers
trust for the payment of corporate creditors, who
and members of the board of directors.
are preferred in the distribution of corporate
2. Prior to the controversy, VMC, Genato, and
assets.
Oriana Manufacturing Corporation (Oriana) filed
i. The creditors of a corporation have the a separate Civil Case for damages with TRO and
right to assume that the board of application for Preliminary Injunction against
directors will not use the assets of the respondent Eduardo for fraudulently wresting
corporation to purchase its own stock control/management of the corporations
for as long as the corporation has 3. During the pendency of the Civil Case, Eduardo
outstanding debts and liabilities. There sought permission to inspect the corporate books
can be no distribution of assets among of VMC and Genato on account of petitioners
the stockholders without first paying alleged failure and/or refusal to update him on
corporate debts. Thus, any disposition of the financial and business activities of these
corporate funds and assets to the family corporations
prejudice of creditors is null and void. 4. Petitioners denied the request claiming that
3. In the case at bar, while it is undisputed that the Eduardo would use the information obtained
Turner may demand the payment of the fair from said inspection for purposes inimical to the
value of their shares, such right however is limited corporations interests
by the fact that at the time the complaint was 5. Because of petitioners refusal to grant his request
filed, the company had no unrestricted retained to inspect the corporate books of VMC and
earnings in its books. Genato, Eduardo filed an Affidavit-Complaint
(Criminal Case) against petitioners Flordeliza and
4. The subsequent existence of unrestricted
Jason, charging them with violation of Section 74,
retained earnings after the filing of the
in relation to Section 144, of the Corporation
complaint, did not cure the fact that the
Code.
complaint was filed prematurely.
6. Petitioners prayed for the dismissal of the
complaint for lack of factual and legal basis, or
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for the suspension of the same while Civil Case 3. In other words, the inspection has to be germane
was still pending resolution. to the petitioner’s interest as a stockholder, and
7. CRIMINAL CASE: City Prosecutor recommended has to be proper and lawful in character and not
that petitioners be charged with two counts of inimical to the interest of the corporation.
violation of Section 74. However, this reversed by 4. In Republic v. Sandiganbayan, 199 SCRA 39
the DOJ and ordered withdrawal of the (1991), the Court declared that the right to
informations inspect and/or examine the records of a
8. CA: reversed the DOJ but suspended the corporation under Section 74 of the Corporation
proceedings on the ground that CIVIL CASE Code is circumscribed by the express limitation
poses a prejudicial question. contained in the succeeding proviso, which
a. It held that Eduardo can demand said states that:
examination as a stockholder of both a. [I]t shall be a defense to any action under
corporations; this section that the person demanding to
b. that Eduardo raised legitimate questions examine and copy excerpts from the
that necessitated inspection of the corporation’s records and minutes has
corporate books and records; and improperly used any information
c. that petitioners refusal to allow secured through any prior examination of
inspection created probable cause to the records or minutes of such corporation
believe that they have committed a or of any other corporation, or was not
violation of Section 74 of the Corporation acting in good faith or for a legitimate
Code. purpose in making his demand.
9. PETITIONERS: argue that Eduardo’s demand for 5. Thus, contrary to Eduardos insistence, the
an inspection of the corporations books is based stockholders right to inspect corporate books is
on the latters attempt in bad faith at having his not without limitations. While the right of
more than P165 million advances from the inspection was enlarged under the Corporation
corporations written off; Code as opposed to the old Corporation Law
a. that Eduardo is unjustly demanding that
he be given the office of Jason, or the RE: APPLICABILITY OF SEC. 144 OF THE CORP CODE
Vice Presidency for Finance and • In order therefore for the penal provision
Corporate Secretary; under Section 144 of the Corporation Code to
b. that Eduardo is usurping rights belonging apply in a case of violation of a stockholder
exclusively to the corporations; and or members right to inspect the corporate
c. Eduardos attempts at coercing the books/records as provided for under Section
corporations, their directors and officers 74 of the Corporation Code, the following
into giving in to his baseless demands elements must be present:
involving specific corporate assets. o First. A director, trustee, stockholder or
member has made a prior demand in
ISSUE: Whether right to inspect the books of the writing for a copy of excerpts from the
corporation is an absolute right. NO corporations records or minutes;
o Second. Any officer or agent of the
HELD: Resolutions of the Secretary of Justice directing concerned corporation shall refuse to allow
the withdrawal of the information filed against the said director, trustee, stockholder or
petitioners for violation of Section 74 of the member of the corporation to examine and
Corporation Code are reinstated. copy said excerpts;
o Third. If such refusal is made pursuant to a
RE: STOCKHOLDER’S RIGHT TO INSPECT THE BOOKS resolution or order of the board of directors
1. The stockholder’s right of inspection of the or trustees, the liability under this section for
corporation’s books and records is based upon such action shall be imposed upon the
their ownership of the assets and property of the directors or trustees who voted for such
corporation. refusal; and,
2. This right is predicated upon the necessity of self- o Fourth. Where the officer or agent of the
protection. It is generally held by majority of the corporation sets up the defense that the
courts that where the right is granted by statute person demanding to examine and copy
to the stockholder, it is given to him as such and excerpts from the corporations records and
must be exercised by him with respect to his minutes has improperly used any
interest as a stockholder and for some purpose information secured through any prior
germane thereto or in the interest of the examination of the records or minutes of
corporation. such corporation or of any other
corporation, or was not acting in good faith
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or for a legitimate purpose in making his 47 ADERITO Z. YUJUICO ET. AL. v. CEZAR T. QUIAMBAO
demand, the contrary must be shown or ET. AL.,
proved. G.R. No. 180416, June 2, 2014 I Perez I Laureta
• Thus, in a criminal complaint for violation of TOPIC: Corporate Books and Right to Inspect
Section 74 of the Corporation Code, the
defense of improper use or motive is in the DOCTRINE: A criminal action based on the violation
nature of a justifying circumstance that of a stockholder's right to examine or inspect the
would exonerate those who raise and are corporate records and the stock and transfer book of
able to prove the same. a can only be maintained against corporate officers
• Accordingly, where the corporation denies or any other persons acting on behalf of such
inspection on the ground of improper motive corporation, not mere outgoing officers.
or purpose, the burden of proof is taken from
the shareholder and placed on the FACTS:
corporation 1. Strategic Alliance Development Corporation
• The serious allegations of the petitioners (Fact (STRADEC) is a domestic corporation operating
No. 9) are supported by official and other as a business development and investment
documents, such as board resolutions, company. During 2004 annual stockholder's
treasurers affidavits and written meeting petitioner Aderito Yujuico was elected
communication from the respondent as president and chairman of the company,
Eduardo himself, who appears to have replacing Cezar Quiambao who held the
withheld his objections to these charges. position since 1994. Yujuico appointed petitioner
o
His silence virtually amounts to an Bonifacio C. Sumbilla as treasurer and one
acquiescence. Joselito John G. Blando as corporate secretary
o Taken together, all these serve to justify replacing respondent Eric C. Pilapil.
petitioners allegation that Eduardo was not 2. Petitioners filed a criminal complaint against
acting in good faith and for a legitimate respondents and one Giovanni T. Casanova of
purpose in making his demand for violating Sec 74 in relation to Sec 144 of the
inspection of the corporate books. Corporation Code (pls. read!). The petitioners
o Otherwise stated, there is lack of probable premise such accusation on the following factual
cause to support the allegation that allegations:
petitioners violated Section 74 of the 3. According to petitioners, the refusal of
Corporation Code in refusing respondents respondents to turn over STRADEC's corporate
request for examination of the corporation records and stock and transfer book violates their
books. right, as stockholders, directors and officers of the
corporation, to inspect such records and book
under Sec 74 of the Code. For such violation,
petitioners conclude, respondents may be held
criminally liable pursuant to Section 144 of the
Code.
ISSUES:
1. W/N refusal amounts to a violation of Section 74 of
the Code, for which Section 144 (penal provision)
apply? YES.
2. Does the obligation in Article 74 only apply to the
corporations? YES
HELD:
1. The act of ref using to allow inspection of the stock
and transfer book of a corporation, when done in
violation of Section 74(4) of the Corporation Code, is
punishable as an offense under Section 144 of the
same code.
Section 74 is the provision of the Corporation Code
that deals with the books a corporation is required to
keep.
It must be emphasized that Section 144 already
purports to penalize "violations" of "any provision" of
the Corporation Code "not otherwise specifically
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penalized therein." Hence, we find inconsequential 48 BANK OF COMMERCE v. RADIO PHILS. NETWORK,
the fact that that Section 74 expressly mentions the INC., ET AL.
application of Section 144 only to a specific act, but G.R. No. 195615|Apr. 21, 2014|Abad, J. | Lazatin
not with respect to the other possible violations of the Corporate Books and Right to Inspect
former section. NOTE: The case is really about mergers.
2. A criminal action based on the violation of a DOCTRINE: A merger does not become effective
stockholder's right to examine or inspect the upon the mere agreement of the constituent
corporate records and the stock and transfer book of corporations. The Code also provides that the merger
a corporation under the 2nd and 4th paragraphs of shall be effective only upon the issuance by the SEC
Sec 74 such as in this case--can only be maintained of a certificate of merger.
against corporate officers or any other persons acting
on behalf of such corporation. The submissions of the FACTS:
petitioners during the preliminary investigation, • Traders Royal Bank proposed to sell to Bank
however, clearly suggest that respondents are of Commerce (Bancommerce) its banking
neither in relation to STRADEC. business consisting of specified assets and
liabilities.
A perusal of the second and fourth paragraphs of • BSP approved the Purchase and Assumption
Section 74, as well as the first paragraph of the same Agreement subject to Bancommerce and
section, reveal that they are provisions that obligates TRB setting up an escrow fund to cover TRB
a corporation: they prescribe what books or records liabilities for contingent claims, which are
a corporation is required to keep; where the excluded from the purchase.
corporation shall keep them; • TRB placed P50M in escrow with MetroBank
and what are the other obligations of the corporation to answer for claims and liabilities excluded
to its stockholders or members in relation to such from the Agreement.
books and records. Hence, by parity of reasoning, • Pursuant to another case, TRB was ordered to
the second and fourth paragraphs of Section 74, pay the respondents (RPN et al) actual
including the first paragraph of the same section, can damages.
only be violated by a corporation. • RPN moved for execution. However, rather
than pursue a levy in execution on the
It is clear then that a criminal action based on the
escrow, RPN filed a Supplemental Motion for
violation of the second or fourth paragraphs of
Execution where they described TRB as “now
Section 74 can only be maintained against corporate
Bank of Commerce” based on the
officers or such other persons that are acting on
assumption that TRB had merged into
behalf of the corporation. Violations of the second
Bancommerce.
and fourth paragraphs of Section 74 contemplates a
• Bancommerce filed its Special Appearance
situation wherein a corporation, acting thru one of its
with Opposition denying that there was a
officers or agents, denies the right of any of its
merger between TRB and Bancommerce.
stockholders to inspect the records, minutes and the
• RTC: Granted execution to cover any and all
stock and transfer book of such corporation.
assets of TRB “including those subject of the
In this case respondents are merely outgoing officers merger/consolidation in the guise of a
of STRADEC who, for some reason, withheld and Purchase and Sale Agreement and/or
refused to turn-over the company records of against the Escrow Fund.”
STRADEC; that it is the petitioners who are actually • CA: Affirmed RTC but deleted the phrase
acting on behalf of STRADEC; and that STRADEC is that the P&A agreement was a mere tool to
actually merely trying to recover custody of the effectuate a merger.
withheld records. • RPN sought for an alias writ of execution
Dismissed. before the RTC. Granted.
o CA Decision allowed it to execute on
the assets that Bancommerce
acquired from TRB under the
Agreement.
HELD:
1. Merger is a reorganization of two or more
corporations that results in their consolidating into
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a single corporation, which is one of the 49 MINDANAO SAVINGS AND LOAN ASSOC., v.
constituent corporations, one disappearing or EDWARD WILLKOM, ET. AL,
dissolving and the other surviving. G.R. No. 178618 | Oct. 11, 2010 | NACHURA | LIN
2. It is clear that no merger took place between TOPIC: Merger and consolidation
Bancommerce and TRB as the requirements and
procedures for a merger were absent. FACTS:
Ø A merger does not become effective 1. First Iligan Savings and Loan Association, Inc.
upon the mere agreement of the (FISLAI) and Davao Savings and Loan
constituent corporations. Association, Inc. (DSLAI) are entities duly
3. All the requirements specified in the law must be registered with the SEC primarily engaged in the
complied with in order for merger to take effect. business of granting loans and receiving deposits
Section 79 of the Corporation Code further from the general public, and treated as banks.
provides that the merger shall be effective only 2. In 1985, FISLAI and DSLAI entered into a merger,
upon the issuance by the Securities and with DSLAI as the surviving corporation but their
Exchange Commission (SEC) of a certificate of articles of merger were not registered with the
merger. SEC due to incomplete documentation. DSLAI
4. Bancommerce and TRB remained separate changed its corporate name to MSLAI by way of
corporations with distinct corporate personalities. an amendment to its Articles of Incorporation
Ø What happened is that TRB sold and which was approved by the SEC.
Bancommerce purchased identified 3. In 1986, the Board of Directors of FISLAI passed
recorded assets of TRB in consideration and approved Board Resolution assigning its
of Bancommerce’s assumption of assets in favor of DSLAI which in turn assumed the
identified recorded liabilities of TRB former’s liabilities. The business of MSLAI, however,
including booked contingent accounts. failed. Hence, the Monetary Board of the Central
Ø There is no law that prohibits this kind of Bank of the Philippines ordered its liquidation with
transaction especially when it is done PDIC as its liquidator.
openly and with appropriate 4. Prior to the closure of MSLAI, Uy filed with the RTC
government approval. of Iligan City, an action for collection of sum of
5. In strict sense, no merger or consolidation took money against FISLAI. The RTC issued a summary
place as the records do not show any plan or decision in favor of Uy, directing FISLAI to pay. 6
articles of merger or consolidation. More parcels of land owned by FISLAI were levied and
importantly, the SEC did not issue any certificate sold to Willkom.
of merger or consolidation. 5. In 1995, MSLAI, represented by PDIC, filed before
the RTC a complaint for the annulment of the
NOTE: The decision cited the dissenting opinion of Sheriff’s Sale alleging that the sale on execution
Justice Mendoza, where he found that a “de facto” of the subject properties was conducted without
merger existed between TRB and Bancommerce. notice to it and PDIC. Respondents, in its answer,
6. The SC, citing Dean Villanueva, a de facto averred that MSLAI had no cause of action
merger can be pursued by one corporation because MSLAI is a separate and distinct entity
acquiring all or substantially all of the properties from FISLAI on the ground that the “unofficial
of another corporation in exchange of shares of merger” between FISLAI and DSLAI (now MSLAI)
stock of the acquiring corporation. did not take effect considering that the merging
Ø No de facto merger took place in the companies did not comply with the formalities
present case simply because the TRB and procedure for merger or consolidation as
owners did not get in exchange for the prescribed by the Corporation Code of the
bank’s assets and liabilities an equivalent Philippines.
value in Bancommerce shares of stock.
Ø Bancommerce and TRB agreed with BSP ISSUE: Whether the merger between FISLAI and DSLAI
approval to exclude from the sale the (now MSLAI) valid and effective?
TRB’s contingent judicial liabilities,
including those owing to RPN, et al. HELD: NO. Ordinarily, in the merger of two or more
existing corporations, one of the corporations survives
and continues the combined business, while the rest
are dissolved and all their rights, properties, and
liabilities are acquired by the surviving corporation.
Although there is a dissolution of the absorbed or
merged corporations, there is no winding up of their
affairs or liquidation of their assets because the
surviving corporation automatically acquires all their
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rights, privileges, and powers, as well as their liabilities. effectivity of the merger, the absorbed corporation
The merger, however, does not become effective ceases to exist but its rights and properties, as well as
upon the mere agreement of the constituent liabilities, shall be taken and deemed transferred to
corporations. and vested in the surviving corporation. The same
rule applies to consolidation which becomes
The steps necessary to accomplish a merger or effective not upon mere agreement of the members
consolidation, as provided for in Sections 76,24 77,25 but only upon issuance of the certificate of
78,26 and 7927 of the Corporation Code, are: consolidation by the SEC. There being no merger
(1) The board of each corporation draws up a plan between FISLAI and DSLAI (now MSLAI), for third
of merger or consolidation. Such plan must include parties such as respondents, the two corporations
any amendment, if necessary, to the articles of shall not be considered as one but two separate
incorporation of the surviving corporation, or in case corporations.
of consolidation, all the statements required in the
articles of incorporation of a corporation. As far as third parties are concerned, the assets of
(2) Submission of plan to stockholders or members of FISLAI remain as its assets and cannot be considered
each corporation for approval. A meeting must be as belonging to DSLAI and MSLAI, notwithstanding
called and at least two (2) weeks’ notice must be the Deed of Assignment. The certificates of title of the
sent to all stockholders or members, personally or by subject properties were clean and contained no
registered mail. A summary of the plan must be annotation of the fact of assignment. Respondents
attached to the notice. Vote of two-thirds of the cannot, therefore, be faulted for enforcing their claim
members or of stockholders representing two-thirds of against FISLAI on the properties registered under its
the outstanding capital stock will be needed. name. MSLAI, as the successor-in-interest of DSLAI,
Appraisal rights, when proper, must be respected. has no legal standing to annul the execution sale
(3) Execution of the formal agreement, referred to as over the properties of FISLAI. With more reason can it
the articles of merger o[r] consolidation, by the not cause the cancellation of the title to the subject
corporate officers of each constituent corporation. properties of Willkom and Go. PETITION DENIED.
These take the place of the articles of incorporation
of the consolidated corporation, or amend the
articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or
consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying
all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.
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50. METROBANK v. THE BOARD OF TRUSTEES OF the proceeds of the Fund to the outstanding
RIVERSIDE MILLS CORPORATION| G.R. No.176959| obligation of RMC to petitioner bank.
September 8,2010| J. VIllarama, Jr. | MENDOZA 10. CA: Affirmed RTC. It held that the Fund is distinct
TOPIC: Mergers and Consolidation from RMC’s account in petitioner bank and may not
(NOTE: The case did not directly mention any issue be used except for the benefit of the members of
about Mergers and Consolidation par.4 sec.122 was RMCPRF.
the closest)
ISSUE: Whether the proceeds of the RMCPRF may be
DOCTRINE: applied to satisfy RMC’s debt to Philbank
Under Par. 4 Section 122 of the Corporation Code, (Metrobank).
“Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation shall HELD/RULING: NO
distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts 1. Under Section 122 of the Corporation Code, a
and liabilities.” dissolved corporation shall nevertheless continue as a
body corporate for 3 years for the purpose of
FACTS: prosecuting and defending suits by or against it and
1. RMC (Riverside Mills Corporation) established a enabling it to settle and close its affairs, to dispose
Provident and Retirement Plan (Plan) for its regular and convey its property and to distribute its assets,
employees. but not for the purpose of continuing the business for
2. Under the Plan, RMC and its employees shall each which it was established.
contribute 2% of the employee’s current basic 2. Within those 3 years, the corporation may appoint
monthly salary. The contributions shall form part of the a trustee or receiver who shall carry out the said
provident fund (the Fund) which shall be held, purposes beyond the three 3-year winding-up period.
invested and distributed by the Commercial Bank Thus, a trustee of a dissolved corporation may
and Trust Company. commence a suit which can proceed to final
3. The Board of Trustees of RMCPRF (the Board) judgment even beyond the 3-year period of
entered into an Investment Management liquidation.
Agreement(Agreement) with Philbank (now,
petitioner Metropolitan Bank and Trust Company). 3. In the same manner, during and beyond the 3 year
Pursuant to the Agreement, Petitioner shall act as an winding-up period of RMC, the Board of Trustees of
agent of the Board and shall hold, manage, invest RMCPRF may do no more than settle and close the
and reinvest the Fund in Trust Account in its behalf. affairs of the Fund.
4. In 1984, RMC ceased business operations. The Board retains its authority to act on behalf of its
Nonetheless, petitioner continued to render members, albeit, in a limited capacity. It may
investment services to Respondent Board. commence suits on behalf of its members but not
5. In 1995, Petitioner informed Respondent-Board that continue managing the Fund for purposes of
Philbank’s Board of Directors had decided to apply maximizing profits.
the remaining trust assets held by it in the name of 4.Here, the Board’s act of issuing the Resolution
RMCPRF against part of the outstanding obligations authorizing petitioner to release the Fund to its
of RMC. beneficiaries is still part of the liquidation process, that
6. RMC Unpaid Employees Association, Inc. is, satisfaction of the liabilities of the Plan, and does
(Association), representing the terminated employees not amount to doing business. Hence, it was properly
of RMC, demanded payment of their share. When within the Board’s power to promulgate.
such demand went unheeded, the Association,
along with the individual members of RMCPRF, filed a
complaint for accounting against the Board and its
officers.
7. In 1998, during the trial, the Board passed a
Resolution in court declaring that the Fund belongs
exclusively to the employees of RMC. It authorized
petitioner to release the proceeds of Trust Account
through the Board, as the court may direct.
8. According to Petitioner, the cessation of RMC’s
operations ended not only the Board members’
employment in RMC, but also their tenure as
members of the RMCPRF Board of Trustees.
9. RTC: Rendered a decision in favor of respondents.
It declared invalid the reversion and application of
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51 BANK OF COMMERCE v. RADIO PHILIPPINES ISSUE: WON the CA gravely erred in failing to rule that
GR No. 195615 | April 21, 2014 | Abad | Montealto the RTC’s Order of execution against Bancommerce
TOPIC: Merger/Consolidation was a nullity because the CA Decision of December
8, 2009 in CA-G.R. SP 91258 held that TRB had not
DOCTRINE: The Corporation Code requires the been merged into Bancommerce as to make the
following steps for merger or consolidation: (1) The latter liable for TRB’s judgment debts?
board of each corporation draws up a plan of
merger or consolidation; (2) Submission of plan to HELD: YES
stockholders or members of each corporation for • Merger is a re-organization of two or more
approval. A meeting must be called and at least two corporations that results in their consolidating into
(2) weeks’ notice must be sent to all stockholders or a single corporation, which is one of the
members, personally or by registered mail. A constituent corporations, one disappearing or
summary of the plan must be attached to the notice. dissolving and the other surviving.
Vote of two-thirds of the members or of stockholders • The Corporation Code requires the following
representing two thirds of the outstanding capital steps for merger or consolidation: (1) The board
stock will be needed. Appraisal rights, when proper, of each corporation draws up a plan of merger
must be respected; (3) Execution of the formal or consolidation; (2) Submission of plan to
agreement, referred to as the articles of merger o[r] stockholders or members of each corporation for
consolidation, by the corporate officers of each approval. A meeting must be called and at least
constituent corporation. These take the place of the two (2) weeks’ notice must be sent to all
articles of incorporation of the consolidated stockholders or members, personally or by
corporation, or amend the articles of incorporation of registered mail. A summary of the plan must be
the surviving corporation; (4) Submission of said attached to the notice. Vote of two-thirds of the
articles of merger or consolidation to the SEC for members or of stockholders representing two
approval; (5) If necessary, the SEC shall set a hearing, thirds of the outstanding capital stock will be
notifying all corporations concerned at least two needed. Appraisal rights, when proper, must be
weeks before; and (6) Issuance of certificate of respected; (3) Execution of the formal
merger or consolidation agreement, referred to as the articles of merger
o[r] consolidation, by the corporate officers of
FACTS: each constituent corporation. These take the
1. Traders Royal Bank (TRB) and to petitioner Bank of place of the articles of incorporation of the
Commerce entered into a purchase and consolidated corporation, or amend the articles
assumption agreement wherein the former sold of incorporation of the surviving corporation; (4)
P10.4B of its banking business consisting of Submission of said articles of merger or
specified assets and liabilities to the latter which consolidation to the SEC for approval; (5) If
was approved by the BSP provided that they necessary, the SEC shall set a hearing, notifying
would set up an escrow fund to cover TRB all corporations concerned at least two weeks
liabilities for contingent claims. before; and (6) Issuance of certificate of merger
2. Shortly after, TRB, in a case against Radio or consolidation
Philippines (RPN), was ordered to pay the latter • In this case, it is clear that no merger took place
actual damages. RPN file a motion for execution between Bancommerce and TRB as the
where they described that TRB is now Bank of requirements and procedures for a merger were
Commerce on the assumption that they had absent. A merger does not become effective
been merged. Bank of commerce filed a special upon the mere agreement of the constituent
appearance opposing the same. corporations. All the requirements specified in the
3. However, the RTC in the case of TRB and RPN still law must be complied with in order for merger to
granted the writ of execution against Bank of take effect.
Commerce. A petition for certiorari was filed with • Here, Bancommerce and TRB remained separate
the CA wherein it still granted the execution, corporations with distinct corporate personalities.
however, it did not believe that the purchase What happened is that TRB sold and
and agreement between TRB and Bank of Bancommerce purchased identified recorded
Commerce was a mere tool to effectuate a assets of TRB in consideration of Bancommerce’s
merger/consolidation. assumption of identified recorded liabilities of TRB
4. Bank of Commerce assails the issuance of the including booked contingent accounts. There is
RTC of an alias execution contending that the no law that prohibits this kind of transaction
CA found that there was no especially when it is done openly and with
merger/consolidation. appropriate government approval.
• Also, no de facto merger took place in the
present case simply because the TRB owners did
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not get in exchange for the bank’s assets and 52 VITALIANO N. AGUIRRE II AND FIDEL N. AGUIRRE
liabilities an equivalent value in Bancommerce vs. FQB+7, INC., NATHANIEL D. BOCOBO, PRISCILA
shares of stock. Bancommerce and TRB agreed BOCOBO AND ANTONIO DE VILLA
with BSP approval to exclude from the sale the G.R. No. 170770 | January 09, 2013 | Del Castillo
TRB’s contingent judicial liabilities, including those |Pabrua
owing to RPN, et al Topic: Corporate Dissolution
• Since there had been no merger, Bancommerce
cannot be considered as TRB’s successor-in- DOCTRINE: Pursuant to Section 145 of the Corporation
interest and against which the Court’s Decision of Code, an existing intra-corporate dispute, which
October 10, 2002 in G.R. 138510 may been does not constitute a continuation of corporate
forced. Bancommerce did not hold the former business, is not affected by the subsequent dissolution
TRBs assets in trust for it as to subject them to of the corporation.
garnishment for the satisfaction of the latter’s
liabilities to RPN. FACTS:
1. Oct. 5, 2004: Vitaliano filed, in his individual
capacity and on behalf of FQB+7, a Complaint for
intra-corporate dispute, injunction, inspection of
corporate books and records, and damages, against
Nathaniel, Priscila, and Antonio.
2. The Complaint alleged that FQB+7 was established
in 1985 with the following directors and subscribers, as
reflected in its Articles of Incorporation:
Directors Subscribers
1. Francisco Q. Bocobo 1. Francisco Q. Bocobo
2. Fidel N. Aguirre 2. Fidel N. Aguirre
3. Alfredo Torres 3. Alfredo Torres
4. Victoriano Santos 4. Victoriano Santos
5. Victorino Santos 5. Victorino Santos
6. Vitaliano N. Aguirre II
7. Alberto Galang
8. Rolando B. Bechayda
Directors Subscribers
1. Nathaniel D. Bocobo 1. Nathaniel D. Bocobo
2. Priscila D. Bocobo 2. Priscila D. Bocobo
3. Fidel N. Aguirre 3. Fidel N. Aguirre
4. Victoriano Santos 4. Victorino Santos
5. Victorino Santos 5. Victorino Santos
6. Consolacion Santos= 6. Consolacion Santos
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6. CA ruled that Section 122 of the Corporation Code the subsequent dissolution of the
allows a dissolved corporation to continue as a body corporation.
corporate for the limited purpose of liquidating the
corporate assets and distributing them to its creditors, Note: to be considered as an intra-corporate dispute,
stockholders, and others in interest. It does not allow the case: (a) must arise out of intra-corporate or
the dissolved corporation to continue its business. CA partnership relations, and (b) the nature of the
determined that Vitaliano's Complaint, being geared question subject of the controversy must be such that
towards the continuation of FQB+7, Inc.'s business, it is intrinsically connected with the regulation of the
should be dismissed because the corporation has lost corporation or the enforcement of the parties' rights
its juridical personality. Moreover, the CA held that and obligations under the Corporation Code and the
the trial court does not have jurisdiction to entertain internal regulatory rules of the corporation.
an intra-corporate dispute when the corporation is
already dissolved.
7. Petitioners maintained that the CA erred in
characterizing the reliefs they sought as a
continuance of the dissolved corporation's business,
which is prohibited under Section 122 of the
Corporation Code. Instead, they argued, the relief
they seek is only to determine the real Board of
Directors that can represent the dissolved
corporation.
HELD:
• Section 145 of the Corporation Code
protects, among others, the rights and
remedies of corporate actors against other
corporate actors. The statutory provision
assures an aggrieved party that the
corporation's dissolution will not impair, much
less remove, his/her rights or remedies against
the corporation, its stockholders, directors or
officers. It also states that corporate
dissolution will not extinguish any liability
already incurred by the corporation, its
stockholders, directors, or officers. In short,
Section 145 preserves a corporate actor's
cause of action and remedy against another
corporate actor. In so doing, Section 145 also
preserves the nature of the controversy
between the parties as an intra-corporate
dispute.
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HELD/RULING:
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55 STEELCASE, INC. v. DESIGN INTERNATIONAL that Modernform acted as the alter ego of
SELECTIONS, INC. Steelcase to enable it to improperly conduct
G.R. No. 171995 | April 18, 2012 | Panday business in the Philippines.
TOPIC: Foreign Corporation a. Steelcase cannot be deemed to have
been doing business in the Philippines
DOCTRINE: Genereally, a foreign corporation doing through Modernform.
business in the Philippines, without a license cannot 3. MOREOVER, even if Steelcase was deemed as
sue in Philippine courts. Except, when the party to be doing business in the Philippines, DISI was
sued is estopped from challenge the personality of a nonetheless estopped from challenging
corporation after having acknowledged the same by Steelcase’s capacity to sue in the Philippines. DISI
entering into a contract with it. was aware that it was doing business in the
Philippines without a license and had benefited
FACTS: from such business.
1. Steelcase, a foreign corporation, and DISI orally a. Entering into a dealership agreement
entered into a dealership agreement – where with Steelcase charged DISI with the
DISI will have the right to market, sell, distribute, knowledge that Steelcase was not
install, and service its products to end-user licensed to engage in business activities
customers within the Philippines. in the Philippines.
2. Subsequently, business was terminated. b. From the inception of the dealership
3. Steelcase filed a complaint for sum of money agreement in 1986 until September 1998,
against DISI for its unpaid account of $600k, plus DISI did not bring to Steelcase’s attention
damages. that it was improperly doing business in
a. DISI answered and stated that the the Philippines without a license.
complaint should be dismissed because c. DISI only raised the issue with Steelcase
of Steelcase’s lack of legal capacity to after it was informed that it owed the
sue in Phil courts. Steelcase has no latter $600k for the sale and delivery of its
license to do business in the Philippines. products under their special credit
Thus, cannot sue. arrangement.
4. A foreign corporation doing business in the
ISSUE: Whether Steelcase is doing business in the Philippines, without a license, may sue in
Philippines. Philippine Courts against a Philippine citizen or
entity who had contracted with and benefited by
HELD: NO, so Steelcase may sue even though it has said corporation. A party is estopped to
no license. Moreover, DISI is estopped from challenge the personality of a corporation after
questioning Steelcase’s capacity to sue. having acknowledged the same by entering into
a contract with it.
1. The appointment by Steelcase of a distributor
(DISI) in the Philippines is not sufficient to
constitute “doing business” unless it is under the
full control of the foreign corporation.
a. If the distributor is an independent entity
which buys and distributes products,
other than those of the foreign
corporation, for its own name and its
own account, the foreign corporation
cannot be considered to be doing
business in the Philippines.
b. In addition to Steelcase products, DISI
also distributed products of other
companies
c. DISI was an independent contractor,
distributing various products of Steelcase
and of other companies, acting in its
own name and for its own account.
2. Despite the admission by Steelcase that it owns
25% of Modernform, with the remaining 75%
being owned and controlled by Thai
stockholders, it is grossly insufficient to justify
piercing the veil of corporate fiction and declare
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56 Global Business Holdings, Inc. v. Surecomp assigns, shall be permitted to maintain or intervene in
Software, B.V. any action, suit or proceeding in any court or
G.R. No. 173463, Oct. 13, 2010 | J. Nachura | PARAS administrative agency of the Philippines, but such
TOPIC: Foreign Corporation corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on
DOCTRINE OF ESTOPPEL: A foreign corporation doing any valid cause of action recognized under
business in the Philippines without license may sue in Philippine laws.
Philippine courts, a Filipino citizen or a Philippine entity
that had contracted with and benefited from it. A A corporation has a legal status only within the state
party is estopped from challenging the personality of or territory in which it was organized. For this reason, a
a corporation after having acknowledged the same corporation organized in another country has no
by entering into a contract with it. personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the
FACTS: country to the jurisdiction of our courts, it must
1. In 1999, Surecomp, a foreign corporation duly acquire a license from the SEC and appoint an agent
organized and existing under the laws of the for service of process. Without such license, it cannot
Netherlands, entered into a software license institute a suit in the Philippines.
agreement with Asian Bank Corporation (ABC), a
domestic corporation, for the use of its IMEX The exception to this rule is the doctrine of estoppel.
Software System (System) in the banks computer Global is estopped from challenging Surecomp’s
system for 20 years. capacity to sue.
2. In 2000, ABC merged with Global and the latter A foreign corporation doing business in the Philippines
as the surviving corporation. When Global took without license may sue in Philippine courts a Filipino
over the operations of ABC, it informed citizen or a Philippine entity that had contracted with
Surecomp of its decision to discontinue with the and benefited from it. A party is estopped from
agreement and to stop further payments challenging the personality of a corporation after
thereon. Consequently, for failure of Global to having acknowledged the same by entering into a
pay its obligations under the agreement despite contract with it. The principle is applied to prevent a
demands, Surecomp filed a complaint for person contracting with a foreign corporation from
breach of contract with damages before the later taking advantage of its noncompliance with the
RTC alleging that it is a foreign corporation not statutes, chiefly in cases where such person has
doing business in the Philippines and is suing on received the benefits of the contract.
an isolated transaction.
Due to Global’s merger with ABC and because it is
3. Instead of filing an answer, Global filed a motion the surviving corporation, it is as if it was the one
to dismiss based on two grounds: (1) that which entered into contract with Surecomp. In the
Surecomp had no capacity to sue because it merger of two existing corporations, one of the
was doing business in the Philippines without a corporations survives and continues the business,
license; and (2) that the claim on which the while the other is dissolved, and all its rights,
action was founded was unenforceable under properties, and liabilities are acquired by the surviving
the Intellectual Property Code of the Philippines. corporation. Under the terms of the merger or
The said motion to dismiss was denied. consolidation, Global assumed all the liabilities and
obligations of ABC as if it had incurred such liabilities
ISSUE: Does Surecomp, a foreign corporation, have or obligations itself. In the same way, Global also has
capacity to sue here? YES the right to exercise all defenses, rights, privileges,
and counter-claims of every kind and nature which
RATIO: ABC may have or invoke under the law. These
The determination of a corporation’s capacity is a findings of fact were never contested by Global in
factual question that requires the elicitation of a any of its pleadings filed before this Court.
preponderant set of facts. As a rule, unlicensed
foreign non-resident corporations doing business in
the Philippines cannot file suits in the Philippines. This is
mandated under Section 133 of the Corporation
Code, which reads:
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57 CARGILL, INC. V. INTRA STRATA ASSURANCE foreign company that merely imports goods from a
CORPORATION Philippine exporter, without opening an office or
G.R. No. 168266 | 15 March 2010 | Carpio | Pineda appointing an agent in the Philippines, is not doing
TOPIC: Foreign Corporation business in the Philippines. Thus, Cargill does not need
to obtain a license before filing an action in court.
DOCTRINE:
• Actual transaction of business within the RULING:
Philippine territory is an essential requisite for Under Section 123 of the Corporation Code foreign
the Philippines to acquire jurisdiction over a corporation must first obtain a license before doing
foreign corporation and thus require the business in the Philippines. Otherwise, it cannot
foreign corporation to secure a Philippine maintain any action before Philippine courts, as
business license. provided in Section 133.
• Doing business: business activities are not just • Actual transaction of business within the
casual, but so systematic and regular as to Philippine territory is an essential requisite for
manifest continuity and permanence of the Philippines to acquire jurisdiction over a
activity foreign corporation and thus require the foreign
• Activities within Philippine jurisdiction that do corporation to secure a Philippine business
not create earnings or profits to the foreign license. If a foreign corporation does not transact
corporation do not constitute doing business. such kind of business in the Philippines, even if it
exports its products to the Philippines,
FACTS: the Philippines has no jurisdiction to require such
1. Cargill is a corporation incorporated under foreign corporation to secure a Philippine
Delaware, USA laws. business license.
2. Cargill and Northern Mindanao Corporation • While the Corporation Code is silent on the
(NMC) executed a contract, whereby NMC definition of doing business, others laws shed
agreed to sell to Cargill a certain quantity of some light.
molasses at a determined price. o RA 5455 and Omnibus Investments Code:
“any other act or acts that imply a
3. The contract was amended three times. The third
continuity of commercial dealings or
amendment included a requirement for NMC to
arrangements, and contemplate to that
put up a performance bond to guarantee that extent the performance of acts or works,
NMC would deliver according to the amended or the exercise of some of the functions
terms. Intra Strata issued a performance bond of normally incident to, and in progressive
P11M to guarantee NMC’s delivery of the 10,500 prosecution of, commercial gain or of
tons of molasses, and P9.9M to guarantee the purpose and object of the business
repayment of the downpayment as provided in organization”
the contract. o Foreign Investments Act: “any other act
4. NMC was only able to deliver 219.5 metric tons of or acts that imply a continuity of
molasses out of the agreed 10500 metric tons. commercial dealings or arrangements,
Thus, Cargill wanted to claim upon the and contemplate to that extent the
performance of acts or works, or the
performance and surety bonds. Intra Strata
exercise of some of the functions
refused to pay. This prompted Cargill to file a
normally incident to, and in progressive
complaint for sum of money against NMC and
prosecution of, commercial gain or of
Intra Strata. the purpose and object of the business
5. RTC ruled in favor of Cargill. CA reversed the organization”
ruling on the ground that Cargill has no capacity • Intra Strata has the burden of proving that
to sue as it is a foreign corporation doing business Cargill’s business activities were not just casual,
in the Philippines without the requisite license. The but so systematic and regular as to manifest
purchases of molasses were in pursuance of its continuity and permanence of activity to
basic business (not specified in the case), and constitute doing business in the Philippines.
not merely isolated transactions. o Intra Strata failed to prove that Cargill
was doing business. The three
ISSUE/S: W/N Cargill has standing to sue in the amendments to the contract do not
Philippines signify the intent of Cargill to establish a
continuous business.
HELD: YES. Cargill has standing to sue in the o Other factors indicate that Cargill was
Philippines. Cargill is a foreign company merely not doing business in the Philippines:
importing molasses from a Philipine exporter. A Cargill has no office in the Philippines;
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Cargill imports products from the 58 STRATEGIC ALLIANCE DEV. CORP. (STRADEC) VS.
Philippines through a non-exclusive local STAR INFRA DEV. CORP (SIDC). ET. AL.,
broker that acts as an independent G.R. No. 187872 | Nov. 17, 2010 | PEREZ | REAGO
contractor and not as an agent. TOPIC: Foreign Corporation
• Further, activities within Philippine jurisdiction that
do not create earnings or profits to the foreign DOCTRINES:
corporation do not constitute doing business in • The combined application of the relationship test
the Philippines. In this case, under the contract, and the nature of the controversy test has,
Cargill did not derive any income. It was NMC consequently, become the norm in determining
that was to derive income. whether a case is an intra-corporate controversy
or is purely civil in character.
o Relationship Test: The types of action
must be (a) between the corporation,
partnership or association and the
public; (b) between the corporation,
partnership or association and its
stockholders, partners, members, or
officers; (c) between the corporation,
partnership or association and the State
insofar as its franchise, permit or license
to operate is concerned; and, (d)
among the stockholders, partners or
associates themselves
o Nature of the Controversy Test: the
dispute must not only be rooted in the
existence of an intra-corporate
relationship, but must also refer to the
enforcement of the parties' correlative
rights and obligations under the
Corporation Code as well as the internal
and intra-corporate regulatory rules of
the corporation.
• SCCs are still considered courts of general
jurisdiction.
FACTS:
1. STRADEC is a domestic corporation primarily
engaged in the business of a development
company in all the element sand details thereof,
with principal place of business at Poblacion Sur,
Bayambang, Pangasinan.
2. STRADEC, along with other individuals and
corporations, incorporated SIDC.
3. It paid and owned 2,449,998 shares or 49% of the
5M shares of stock into which SIDC’s authorized
capital stock of P5M were divided.
4. SIDC transferred its principal place of business
from Pasig City to Poblacion Sur, Bayambang,
Pangasinan, and later, to Lipa, Batangas.
5. On October 2004, Yujuico and Sumbilla, in their
respective capacities as President and Treasurer
of STRADEC, executed a promissory note for and
in consideration of a loan in the sum of P10M
extended in favor of said corporation by Wong,
one of the incorporators of SIDC.
6. As security, a pledge constituted over STRADEC’s
entire shareholdings in SIDC was executed by
Yujuico.
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7. Due to STRADEC’s repeated default on its b. As to 3rd and 4th COA – RTC was correct
obligations, the shares pledged were sold by way in holding it in abeyance in view of the
of a notarial sale on April 26, 2005. pendency of cases in other courts
8. Having tendered the sole bid of P11.8M, Wong involving, among other issues, the
was issued the corresponding certificates of stock ownership of STRADEC’s shares, its
of SIDC. legitimate Directors and Corporate
9. On July 17, 2006, Quiambao, the President and Officers and the authority of Cezar T.
Chairman of BoD of STRADEC filed a petition in Quiambao to act for and its behalf
the RTC Batangas City and alleged the following, ISSUES:
among others: 1. Whether the declaration of nullity of the loan
a. Yujuico and Sumbilla were not extended by Wong and the pledge covering
authorized to enter into any loan STRADEC’s entire shareholding in SIDC (1st COA)
agreement with Wong and pledge its and the declaration of nullity of the notarial sale
SIDC shareholdings as security therefor; of the said shares (2nd COA) are intra-corporate
b. STRADEC did not receive the proceeds controversies. YES
of the supposed loan and immediately 2. Whether the 3rd and 4th COA be held in
apprised SIDC of the irregularity of the abeyance in view of the pendency of other
transaction upon discovery; cases. NO
c. Wong subsequently sold the shares to
CTCII, a corporation he formed with RULING:
members of his own family • The first and second COAs are intra-corporate
10. RTC issued an order as to the 4 main causes of controversies.
action (COA) filed by STRADEC: 1. An intra-corporate dispute is understood
a. 1st COA: declaration of nullity of the as a suit arising from intra-corporate
supposed loan extended by Wong to relations or between or among
STRADEC and the Deed of Pledge stockholders or between any or all of
covering STRADEC’s entire shareholding them and the corporation. Applying
in SIDC –> RTC Batangas is the wrong what has come to be known as the
venue relationship test, it has been held that the
b. 2nd COA: declaration of nullity of the types of actions embraced by the
action sale of STRADEC’s entire foregoing definition include the following
shareholdings in SIDC in Makati City -> suits: (a) between the corporation,
RTC Batangas is the wrong venue partnership or association and the
c. 3rd COA: cancellation of registration of public; (b) between the corporation,
fraudulent transfers involving STRADEC’s partnership or association and its
shareholding in SIDC -> any action must stockholders, partners, members, or
be held in abeyance until after the SC officers; (c) between the corporation,
shall have rendered a ruling as to who partnership or association and the State
between the conflicting 2 sets of BoD of insofar as its franchise, permit or license
STRADEC should be recognized as to operate is concerned; and, (d)
legitimate. among the stockholders, partners or
d. 4th COA: Declaration of invalidity of the associates themselves
30 July 2005 annual stockholders meeting 2. It was held that the better policy in
and 20 July 2006 special stockholder’s determining which body has jurisdiction
meeting of SIDC -> same with above over a case would be to consider not
11. STRADEC interposed an oral MR on the ground of only the status or relationship of the
the solidary liability of the officers and SIDC parties but also the nature of the
incurred for the tortious transfer of the subject question that is the subject of their
shares. controversy.
12. The MR filed above was denied for lack of merit. 3. Under the nature of the controversy test,
13. STRADEC filed a petition for certiorari before the the dispute must not only be rooted in
CA. the existence of an intra-corporate
14. CA: discounted the grave abuse of discretion relationship, but must also refer to the
STRADEC imputed against the RTC upon the enforcement of the parties' correlative
following findings and conclusions: rights and obligations under the
a. As to 1st and 2nd COA – purely civil in Corporation Code as well as the internal
nature and are erroneously joined with and intra-corporate regulatory rules of
the 3rd and 4th COA the corporation The combined
application of the relationship test and
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the nature of the controversy test has, 2000. Unlike the SEC which is a tribunal of
consequently, become the norm in limited jurisdiction, SCCs like the RTC are
determining whether a case is an intra- still competent to tackle civil law issues
corporate controversy or is purely civil in incidental to intra-corporate disputes
character. filed before them
4. Applying the relationship test, we find 7. SCCs are still considered courts of
that STRADEC’s first and second causes general jurisdiction. Section 5.2 of R.A.
of action qualify as intra-corporate No. 8799 directs merely the Supreme
disputes since said corporation and Court's designation of RTC branches that
respondent Wong are incorporators shall exercise jurisdiction over intra-
and/or stockholders of SIDC. Having corporate disputes. Nothing in the
acquired STRADEC’s shares thru the language of the law suggests the
impugned notarial sale conducted by diminution of jurisdiction of those RTCs to
respondent Caraos, respondent Wong be designated as SCCs. The assignment
appears to have further transferred said of intra-corporate disputes to SCCs is
shares in favor of CTCII, a corporation he only for the purpose of streamlining the
allegedly formed with members of his workload of the RTCs so that certain
own family. By reason of said transfer, branches thereof like the SCCs can focus
CTCII became a stockholder of SIDC and only on a particular subject matter.
was, in fact, alleged to have been
recognized as such by the latter and its • The CA also erred in upholding the RTC’s
corporate officers. suspension of proceedings for STRADEC’s third
5. Considering that they fundamentally and fourth causes of action assailing the
relate to STRADEC’s status as a registration of the transfers of its shares as well as
stockholder and the alleged fraudulent the 30 July 2005 annual meeting and 20 July 2006
divestment of its stockholding in SIDC, the special meeting of SIDC’s stockholders, in view of
same causes of action also qualify as the pendency of actions in other courts involving
intra-corporate disputes under the ownership of the shares into which STRADEC’s
nature of the controversy test. As part of own capital stock has been divided and its
the fraud which attended the transfer of legitimate directors and officers.
its shares, STRADEC distinctly averred, 1. On the principle that a corporation is a
among other matters, that respondents legal entity with a personality separate
Yujuico and Sumbilla had no authority to and distinct from its individual
contract a loan with respondent Wong; stockholders or members and from that
that the pledge executed by respondent of its officers who manage and run its
Yujuico was simulated since it did not affairs, the SC has held that said other
receive the proceeds of the loan for actions have little or no bearing to the
which its shares in SIDC were set up as issues set forth in STRADEC’s amended
security; that irregularities attended the petition which, at bottom, involve the
notarial sale conducted by respondent transfer of its own shareholding in SIDC
Caraos who sold said shares to and its status and rights as such
respondent Wong; that the latter stockholder.
unlawfully transferred the same shares in 2. As the owner, STRADEC is undoubtedly
favor of CTCII; and, that SIDC and its possessed of clear and unmistakable
officers recognized and validated said rights over the subject SIDC shares which
transfers despite being alerted about respondent Yujuico pledged in favor of
their defects. Ultimately, the foregoing respondent Wong. Unless collectively
circumstances were alleged to have restrained, the aforesaid acts will
combined to rid STRADEC of its shares in completely divest STRADEC of its shares
SIDC and its right as a stockholder to and unfairly deprive it of participation in
participate in the latter’s corporate SIDC's corporate affairs pending the
affairs. determination of the validity of the
6. Pursuant to Section 5.2 of the SRC, the impugned transfers
jurisdiction of the SEC over all cases
enumerated under Section 5 of
Presidential Decree No. 902-A has been
transferred to RTCs designated by this
Court as SCCs pursuant to A.M. No. 00-
11-03-SC promulgated on 21 November
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59 IGLESIA EVANGELICA METODISTA EN LAS ISLAS power to remove him as such or transfer him to
FILIPINAS, INC. (IEMELIF) v. JUANE another congregation.
G.R. Nos. 172447, Sept 18, 2009, J. Chico-Nazario, 9. Hence, this case.
Resurreccion
Topic: Corporation Sole
Issue: WON IEMELIF has a legal personality to file the
Doctrine: A corporation sole is one formed by the said case against Juane. YES.
chief archbishop, bishop, priest, minister, rabbi or
other presiding elder of a religious denomination, Ruling:
sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and The CA is correct. Even if the transformation of IEMELIF
temporalities of such religious denomination, sect or from a corporation sole to a corporation
church. aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts
As opposed to a corporation aggregate, a were approved by the Highest Consistory of
corporation sole consists of a single member, while a Elders, still did not change.
corporation aggregate consists of two or more
persons. A corporation sole is one formed by the chief
archbishop, bishop, priest, minister, rabbi or other
Facts: presiding elder of a religious denomination, sect,
or church, for the purpose of administering or
1. IEMELIF (the church) transformed from managing, as trustee, the affairs, properties and
corporation sole to corporation aggregate. temporalities of such religious denomination, sect
2. Natanael Juane (Juane) was appointed as a or church. As opposed to a corporation
resident Pastor of the church in Tondo, Manila. As aggregate, a corporation sole consists of a single
the resident pastor, the church allowed him to member, while a corporation aggregate consists
of two or more persons. If the transformation did
stay and occupy a pastor residence in the
not materialize, the corporation sole would still be
church’ property.
Bishop Lazaro, who himself performed the
3. Eventually, Juane was removed as the resident
questioned acts of removing Juane as Resident
pastor by the church due to his rebellion and Pastor of the Tondo Congregation.
defiant acts against the orders of the high elders
of the latter. If the transformation did materialize, the corporation
4. As a result, the church wanted him to get out of aggregate would be composed of the Highest
the pastor residence. However, Juane refused to Consistory of Elders, which nevertheless
vacate the same. approved the very same acts. As either Bishop
5. This prompted the church to file a case of Lazaro or the Highest Consistory of Elders had the
unlawful detainer against Juane before the MTC. authority to appoint Juane as Resident Pastor of
As expected, Juane filed a motion to dismiss. the IEMELIF Tondo Congregation, it also had the
6. After the trial, the MTC ruled in favor of the power to remove him as such or transfer him to
another congregation.
church and ordered Juane to vacate the
property. However, Juane appealed the case to
the CA.
7. In the CA, Juane argued that the transformation
of IEMELIF from a corporation sole to a
corporation aggregate was legally defective
and, therefore, IEMELIF had no personality to
eject Juane from the subject property.
8. But the CA ruled that even the transformation of
IEMELIF from a corporation sole to a corporation
aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts
were approved by the Highest Consistory of
Elders, still did not change. As Bishop Lazaro and
the Highest Consistory of Elders had the authority
to appoint Juane as Resident Pastor of the
IEMELIF Tondo Congregation, they also had the
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60 RENATO REAL V. SANGU PHILIPPINES, INC., ET AL. 2. The first element requires that the controversy
G.R. No. 168757 | January 19, 2011 | Del Castillo | must arise out of intra-corporate or partnership
Reyes relations between any or all of the parties and
TOPIC: Intra-corporate dispute the corporation, partnership, or association of
which they are not stockholders, members or
DOCTRINE: To determine whether a case involves an associates, between any or all of them and the
intra-corporate controversy, and is to be heard and corporation, partnership or association of which
decided by the branches of the RTC specifically they are stockholders, members or associates,
designated by the Court to try and decide such respectively; and between such corporation,
cases, two elements must concur: (a) the status or partnership, or association and the State insofar
relationship of the parties, and (2) the nature of the as it concerns the individual franchises
question that is the subject of their controversy. 3. The second element requires that the dispute
among the parties be intrinsically connected with
FACTS: the regulation of the corporation. If the nature of
1. Real was the manager of Sangu, a corp. the controversy involves matters that are purely
engaged in the business of providing manpower civil in character, necessarily, the case does not
2. In 2001, Real together with 29 others, all involve an intra-corporate controversy
employed by Sangu, filed complaints for illegal 4. While respondents repeatedly claim that
dismissal against Sangu and Abe, VP and GM of petitioner was appointed as Manager pursuant
Sangu. to the corporations By-Laws, the above-quoted
3. LA ruled in favor of petitioners. Sangu was inconsistencies in their allegations as to how
ordered to reinstate petitioners to their former petitioner was placed in said position, coupled
positions by the fact that they failed to produce any
4. Sangu appeled to the NLRC with the argument documentary evidence to prove that petitioner
that Real is both a stockholder and a corporate was appointed thereto by action or with
officer of Sangu, hence, the action is an intra- approval of the board, only leads this Court to
corporate dispute over which LA has no believe otherwise. It has been consistently held
jurisdiction that [a]n office is created by the charter of the
5. NLRC ruled in favor of Sangu; LA has no corporation and the officer is elected (or
jurisdiction with respect to the complaint of Real. appointed) by the directors or stockholders
6. CA affirmed NLRC 5. Clearly here, respondents failed to prove that
7. Petitioner argues: petitioner was appointed by the board of
a. That he is not a corporate officer; neither directors. Thus, we cannot subscribe to their claim
elected nor appointed that petitioner is a corporate officer.
b. The issue was with respect to employer- 6. There is no intra-corporate relationship between
employee relationship; evidenced by the the parties insofar as petitioner’s complaint for
termination letter sent to him illegal dismissal is concerned and that same does
8. Respondent argues: not satisfy the relationship test
a. Real is a stockholder as well as a 7. Respondents terminated the services of petitioner
corporate officer of Sangu for the following reasons: (1) his continuous
i. He was one of the incorporators absences at his post at Ogino Philippines, Inc; (2)
b. The fact that Real is being given benefits respondent’s loss of trust and confidence on
under the LC as stated in his termination petitioner; and, (3) to cut down operational
letter does not mean that they are expenses to reduce further losses being
recognizing the employer-employee experienced by the corporation.
relationship between them 8. From these, it is not difficult to see that the
reasons given by respondents for dismissing
ISSUE: Whether Real’s complaint for illegal dismissal petitioner have something to do with his being a
constitutes an intra-corporate dispute. NO. Manager of respondent corporation and nothing
with his being a director or stockholder
RATIO: (1) For one, petitioner’s continuous
1. To determine whether a case involves an intra- absences in his post in Ogino relates to
corporate controversy, and is to be heard and his performance as Manager
decided by the branches of the RTC specifically (2) Second, respondent’s loss of trust and
designated by the Court to try and decide such confidence in petitioner stemmed from
cases, two elements must concur: (a) the status his alleged acts of establishing a
or relationship of the parties, and (2) the nature company engaged in the same line of
of the question that is the subject of their business as respondent corporations and
controversy.
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submitting proposals to the latter’s clients 61 CHATEAU DE BAIE CONDOMINIUM CORP. v. SPS.
while he was still serving as its Manager. MORENO
i. While we note that respondents G.R. No. 186271 |Feb. 23, 2011|J. BRION| S AYO
also claim these acts as TOPIC: Intra- Corporate disputes
constituting acts of disloyalty of
petitioner as director and DOCTRINE: The case before the RTC involved an intra-
stockholder, we, however, think corporate dispute the Moreno spouses were asking
that same is a mere for an accounting of the association dues and were
afterthought. It was only after questioning the manner the petitioner calculated the
respondents invoked the Labor dues assessed against them. These issues are alien to
Arbiters lack of jurisdiction over the first case that was initiated by Salvacion a third
petitioner’s complaint filed party to the petitioner-Moreno relationship to stop the
before the NLRC that extrajudicial sale on the basis of the lack of the
respondents started considering requirements for a valid foreclosure sale. Although
said acts as such. the extrajudicial sale of the Moreno properties to the
(3) Third, in saying that they were dismissing petitioner has been fully effected and the Salvacion
petitioner to cut operational expenses, petition has been dismissed with finality, the
respondents actually want to save on completion of the sale does not bar
the salaries and other remunerations the Moreno spouses from questioning the amount of
being given to petitioner as its Manager. the unpaid dues that gave rise to the foreclosure and
i. Thus, when petitioner sought for to the subsequent sale of their properties. The
reinstatement, he wanted to propriety and legality of the sale of the condominium
recover his position as Manager, unit and the parking spaces questioned by Salvacion
a position which we have, are different from the propriety and legality of the
however, earlier declared to be unpaid assessment dues that the Moreno spouses are
not a corporate position. He is questioning in the present case.
not trying to recover a seat in
the board of directors or to any FACTS:
appointive or elective corporate 1. Mrs. Moreno is the registered owner of a
position which has been penthouse unit and two parking slots (Moreno
declared vacant by the board. properties) in Chateau de Baie Condominium
9. Certainly, what we have here is a case of (Chateau Condominium) As a registered owner
termination of employment which is a labor in Chateau Condominium, Mrs. Moreno is a
controversy and not an intra-corporate dispute. member/stockholder of the condominium
In sum, we hold that petitioner’s complaint corporation.
likewise does not satisfy the nature of controversy
test. 2. Mrs. Moreno obtained a loan from Oscar
Salvacion, and she mortgaged
the Moreno properties as security.
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63 COSARE v BROADCOM ASIA INC. i. in this case, the by-laws only say
G.R. No. 201298 | February 5, 2014 | Reyes, J. | that the officers are the
Sullano President, VP, Treasurer and
TOPIC: Intra-corporate Dispute Secretary
b. An office is usually created by charter of
DOCTRINE: Corporate officers are those officers of the the corporation and is elected by the
corporation who are given that character by the BOD and stockholders
Corporation Code (President, Secretary and c. Since Cosare was merely an Assistant VP
Treasurer) or by the corporation’s by-laws. If the for Sales, he is not considered as an
dispute is between a corporate officer and the officer, and the case at hand for
corporation, it is an intra-corporate dispute and the dismissal is not an intra-corporate
regular courts have jurisdiction. Otherwise, if the dispute. Thus, the LA has jurisdiction, and
dispute was for termination of a regular employee, it not the regular courts.
is the Labor Arbiter who has jurisdiction of the case. d. The fact that Cosare owned stocks is
insufficient to make the case an intra-
FACTS: corporate dispute
1. Cosare was an incorporator and Assistant Vice e. CA was incorrect in relying on the
President for Sales of Broadcom General Information Sheets which
2. Cosare informed Arevalo (the one who set up named Cosare as an “officer”
Broadcom) of certain anomalies committed by 3. Under the nature of the controversy test, the
Cosare’s immediate supervisor – such as under incidents of that relationship must also be
the table dealings etc. considered for the purpose of ascertaining
a. Cosare was then made by Arevalo to whether the controversy itself is intra-corporate.
resign, but Cosare refused. The controversy must not only be rooted in the
b. Cosare then received a memo where he existence of an intra-corporate relationship, but
was charged with serious misconduct. He must as well pertain to the enforcement of the
was subsequently prevented from parties’ correlative rights and obligations under
entering company premises the Corporation Code and the internal and intra-
c. He filed a complaint for illegal dismissal corporate regulatory rules of the corporation. If
with the Labor Arbiter. the relationship and its incidents are merely
d. CA dismissed the complaint because incidental to the controversy or if there will still be
such is an intra-corporate dispute, thus conflict even if the relationship does not exist,
the LA has no jurisdiction then no intra-corporate controversy exists.
RULING:
1. An intra-corporate controversy, which falls within
the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes
that involve any of the following relationships: (1)
between the corporation, partnership or
association and the public; (2) between the
corporation, partnership or association and the
state in so far as its franchise, permit or license to
operate is concerned; (3) between the
corporation, partnership or association and its
stockholders, partners, members or officers; and
(4) among the stockholders, partners or
associates, themselves
2. Cosare was a regular employee and not a
corporate officer, thus, it is not an intra-corporate
dispute
a. Corporate officers are those officers of
the corporation who are given that
character by the Corporation Code
(President, Secretary and Treasurer) or by
the corporation’s by-laws
87