Part Iii. Corporation Law - A

I.
RUNNING THE CORPORATION Westmont Bank (formerly ASSOCIATED CITIZENS BANK and
now UNITED OVERSEAS BANK, PHILS.) v. Inland Construction
A. The Board of Directors/Trustees and Officers: Qualifications, and Dev. Corp., 582 SCRA 230 (2009)
Powers, Duties, Liabilities
FACTS:
Sec. 22-34, RCC
Inland obtained various loans and other credit accommodations from
Sec. 44, 47, 64, 66, 67, 171, 184 petitioner in 1977. To secure the payment of its obligations, Inland
executed real estate mortgages over three real properties in Pasig
Sec. 72-74, 91, 92, 177, RCC City. The bank likewise issued three promissory notes (155K, 880K
and 60K) in favor of the bank. However, Inland defaulted in its
Sec. 160-172, RCC payments.
CASES: In 1978, Felix Aranda, President of Inland, assigned all his rights and
interests at Hanil-Gonzales Corporation in favor of Horacio Abrantes,
Hornilla v. Salunat, 405 SCRA 220 (2003) Executive Vice-President and General Manager of Hanil-Gonzales
Corporation. Under the same Deed of Assignment, it appears that
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006) Abrantes assumed, among other obligations of Inland and Aranda to
the the petitioner evidence by a Promissory Note in the amount of
Filipinas Port Services v. Go, 518 SCRA 453 (2007) ₱800,000.
Board of Liquidators v. Heirs of Maximo M. Kalaw, 20 SCRA 987 On December 14, 1979, Inland was served a Notice of Sheriff’s Sale
(1967) foreclosing the real estate mortgages over its real properties,
prompting it to file a complaint for injunction before the RTC.
Safic Alcan & Cie v. Imperial Vegetable Oil Co., 355 SCRA 559
(2001) The bank argued that it "had no knowledge, much less did it give its
conformity to the alleged assignment of the obligation covered by the
Colegio Medico-Farmaceutico de Filipinas, Inc. v. Lim, G.R. No. PN. Petitioner alleged that Calo had no authority to bind it in the Deed
212034 (2 July 2018) of Assignment and that a single, isolated unauthorized act of its agent
is not sufficient to establish that it clothed him with apparent authority.
Philippine Stock Exchange v. Court of Appeals, 281 SCRA 232 Petitioner adds that the records fail to disclose evidence of similar
(1997) acts of Calo executed either in its favor or in favor of other parties.
Moreover, petitioner reasserts that the unauthorized act of Calo never
Filipinas Port Services, Inc. v. Go, 518 SCRA 453 (2007)
came to its knowledge, hence, it is not estopped from repudiating the
Deed of Assignment.
Lopez Realty v. Spouses Tanjangco, 739 SCRA 644 (2014)
Francisco v. GSIS, 7 SCRA 577 (1963)
LPU – MAKATI | CORPORATION LAW | ATTY. LEAH JOSE-SEBASTIAN
MENDOZA. BORDADO, JR. AMAKIN. BALGOS. BRUCELO. CIZCAR. LANUZA. MELO

RTC ruled in favor of Inland finding that the bank ratified the his assumption of Inland’s obligation through a letter stating the
assignment through the act of its account officer Calowhen its outstanding amount of obligations where he said: “This includes the
Executive Committee failed to repudiate the assignment within a account of Inland Construction & Development Corporation which had
reasonable time and even approved the request for a restructuring of been assumed by HGCDC.” The petitioner’s sending of a reply-letter
Liberty Const. & Dev. Corp./Hanil-Gonzales Construction & indicates that it had full and complete knowledge of the assumption by
Development Corp.’s obligations, which included the ₱880K loan. Abrantes of Inland’s obligation.
CA ruled that bank ratified the assignment. Both the assignors Petitioner relies heavily, however, on the Court’s pronouncement in
(Aranda and Inland) and assignees (Abrantes and Hanil-Gonzales) in Yao Ka Sin Trading that it was incumbent uponInland to prove that
the subject deed of assignment have been major clients of Associated petitioner had clothed its account officer with apparent power to
Bank for several years with accounts amounting to millions of pesos. conform to the Deed of Assignment. This is without merit. In Yao Ka
For several years, Associated Bank had, either intentionally or Sin Trading, the respondent had shown by clear and convincing
negligently, been habitually clothing Calo with the apparent powers to evidence that its president was not authorized to undertake a
perform acts in behalf of the bank. The bank never made any attempt particular transaction. It presented its by-laws stating that only its
to repudiate the act of Calo until almost seven (7) years later, when board of directors has the power to enter into an agreement or
the Manager of the Cash Department of the bank, issued an INTER- contract of any kind. The company’s board of directors even forthwith
OFFICE MEMORANDUM dated May 20, 1985 which pertinently issued a resolution to repudiate the contract. Thus, it was only after
reads: “Conforme of Associated Bank signed by Lionel Calo Jr. has the company successfully discharged its burden that the other party
no bearing since he has no authority to sign for the bank as he was had to prove that indeed the cement company had clothed its
only an account officer with no signing authority” president with the apparent power to execute the contract by evidence
of similar acts executed in its favor or in favor of other parties.
ISSUE: Did the bank ratified the deed of assignment through its
account officer? The Court’s directive in Yao Ka Sin Trading is that a corporation
should first prove by clear evidence that its corporate officer is not in
HELD: YES. PETITION DENIED fact authorized to act on its behalf before the burden of evidence
shifts to the other party to prove, by previous specific acts, that an
The general rule remains that, in the absence of authority from the officer was clothed by the corporation with apparent authority.
board of directors, no person, not even its officers, can validly bind a
corporation. If a corporation, however, consciously lets one of its Petitioner - bank failed to discharge its primary burden of proving that
officers, or any other agent, to act within the scope of an apparent Calo was not authorized to bind it, as it did not present proof that Calo
authority, it will be estopped from denying such officer’s authority. was unauthorized. It did not present, much less cite, any Resolution
from its Board of Directors or its Charter or By-laws from which the
The records show that Calo was the one assigned to transact on Court could reasonably infer that he indeed had no authority to sign in
petitioner’s behalf respecting the loan transactions and arrangements its behalf or bind it in the Deed of Assignment. The inter-office
of Inland as well as those of Hanil-Gonzales and Abrantes. Since it memorandum stating that Calo had "no signing authority" remains
conducted business through Calo, who is an Account Officer, it is self-serving as it does not even form part of petitioner’s body of
presumed that he had authority to sign for the bank in the Deed of evidence.
Assignment.Further, assignee Abrantes even notified petitioner about

The assertion that the petitioner cannot be faulted for its delay in Advance Paper. Tan and Uy were Arma Traders’ authorized bank
repudiating the apparent authority of Calo is similarly flawed, there signatories who signed and issued these checks. Advance Paper
being no evidence on record that it had actually repudiated such presented the checks to the drawee bank but these were
apparent authority. It should be noted that it was the bank which dishonored either for “insufficiency of funds” or “account
pleaded that defense in the first place. What is extant in the records is closed.”
a reasonable certainty that the bank had ratified the Deed of
Assignment. On Dec 1994, the petitioners filed a complaint for collection of sum
of money with application for preliminary attachment against
Advance Paper Corp. and George Haw (President of Advance) v. Arma Traders, Tan, Uy, Ting, Gui, and Ng.
Arma Traders Corp., 712 SCRA 313 (2013)
The RTC ruled that the purchases on credit and loans were
Facts: Petitioner George Haw (Haw) is the President while his wife, sufficiently proven by the petitioners. Hence, the RTC ordered Arma
Connie Haw, is the General Manager of Petitioner Advance Paper, a Traders to pay Advance Paper the sum of P15,321,798.25 with
domestic corporation engaged in the business of producing, printing, interest, and P1,500,000.00 for attorney’s fees, plus the cost of the
manufacturing and selling various paper products. suit.
Respondent Antonio Tan (Tan) was formerly the President while On appeal, the CA held that the petitioners failed to prove by
respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma Traders, preponderance of evidence the existence of the purchases on credit
a domestic corporation engaged in the wholesale and distribution of and loans.
school, office supplies and novelty products. They represented Arma
Traders when dealing with its supplierang, Advance Paper, for about Issue: Whether Arma Traders is liable to pay the loans applying the
14 years. doctrine of apparent authority.
On the other hand, respondents Manuel Ting, Cheng Gui and Ruling: YES
Benjamin Ng worked for Arma Traders as Vice President, General
Manager and Corporate Secretary, respectively. The doctrine of apparent authority provides that a corporation will be
estopped from denying the agent’s authority if it knowingly permits
On various dates from Sep to Dec 1994, Arma Traders purchased on one of its officers or any other agent to act within the scope of an
credit notebooks and other paper products amounting to apparent authority, and it holds him out to the public as possessing
P7,533,001.49 from Advance Paper. the power to do those acts. The doctrine of apparent authority does
not apply if the principal did not commit any acts or conduct which a
Upon the representation of Tan and Uy, Arma Traders also obtained third party knew and relied upon in good faith as a result of the
3 loans from Advance Paper in Nov 1994 in the total amount of exercise of reasonable prudence. Moreover, the agent’s acts or
P7,788,796.76. Because of its good business relations with Arma conduct must have produced a change of position to the third party’s
Traders, Advance Paper extended the loans. detriment.
As payment for the purchases on credit and the loan transactions, Inasmuch as a corporate president is often given general
Arma Traders issued 82 postdated checks payable to cash or to supervision and control over corporate operations, the strict rule that

said officer has no inherent power to act for the corporation is slowly management of Arma Traders for 14 years. He also confirmed
giving way to the realization that such officer has certain limited that since 1984 up to the filing of the complaint against Arma
powers in the transaction of the usual and ordinary business of the Traders, its stockholders and board of directors never had its
corporation.” “In the absence of a charter or bylaw provision to meeting.
the contrary, the president is presumed to have the authority to
act within the domain of the general objectives of its business Thus, Arma Traders bestowed upon Tan and Uy broad powers by
and within the scope of his or her usual duties.” allowing them to transact with third persons without the
necessary written authority from its nonperforming board of
(Inter-Asia Investment Industries v. Court of Appeals) provides: directors. Arma Traders failed to take precautions to prevent its own
corporate officers from abusing their powers. Because of its own laxity
[A]pparent authority is derived not merely from practice. Its in its business dealings, Arma Traders is now estopped from denying
existence may be ascertained through (1) the general manner in Tan and Uy’s authority to obtain loan from Advance Paper.
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 We also reject the respondents’ claim that Advance Paper, through
general, with which it clothes him; or Haw, connived with Tan and Uy. The records do not contain any
evidence to prove that the loan transactions were personal to Tan and
(2) the acquiescence in his acts of a particular nature, with actual Uy.
or constructive knowledge thereof, within or beyond the scope of
his ordinary powers. It requires presentation of evidence of As against the case and the evidence Advance Paper presented, the
similar act(s) executed either in its favor or in favor of other respondents relied on the core theory of an alleged conspiracy
parties. It is not the quantity of similar acts which establishes between Tan, Uy and Haw to defraud Arma Traders. However, the
apparent authority, but the vesting of a corporate officer with the records are bereft of supporting evidence to prove the alleged
power to bind the corporation. conspiracy.
In the present petition, we do not agree with the CA’s findings that WHEREFORE, premises considered, we GRANT the petition.
Arma Traders is not liable to pay the loans due to the lack of board
resolution authorizing Tan and Uy to obtain the loans. To begin with,
Arma Traders’ Articles of Incorporation provides that the corporation
may borrow or raise money to meet the financial requirements of Montelibano v. Bacolod-Murcia Miling Co., 5 SCRA 36 (1962)
its business by the issuance of bonds, promissory notes and other
evidence of indebtedness. Likewise, it states that Tan and Uy are Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro
not just ordinary corporate officers and authorized bank signatories Montelibano, and the Limited co-partnership Gonzaga and Company,
because they are also Arma Traders’ incorporators along with had been and are sugar planters adhered to the defendant-appellee’s
respondents Ng and Ting, and Pedro Chao. Furthermore, the sugar central mill under identical milling contracts. Originally executed
respondents, through Ng who is Arma Traders’ corporate secretary, in 1919, said contracts were stipulated to be in force for 30 years
incorporator, stockholder and director, testified that the sole starting with the 1920-21 crop, and provided that the resulting product
management of Arma Traders was left to Tan and Uy and that he should be divided in the ratio of 45% for the mill and 55% for the
and the other officers never dealt with the business and planters. Sometime in 1936, it was proposed to execute amended

milling contracts, increasing the planters’ share to 60% of the FACTS:On and during the four quarters of the year 1924, in
manufactured sugar and resulting molasses, besides other Municipality of Iloilo, Province of Iloilo, the defendant, as manager of
concessions, but extending the operation of the milling contract from the Visayan General Supply Co., Inc., a corporation organized under
the original 30 years to 45 years. The Board of Directors of the the laws of the Philippine Islands and engaged in the purchase and
appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution sale of sugar, `bayon,’ coprax, and other native products and as such
granting further concessions to the planters over and above those subject to the payment of internal-revenue taxes upon its sales,
contained in the printed Amended Milling Contract. The appellants declared in 1924 for purpose of taxation only the sum of
initiated the present action, contending that three Negros sugar P2,352,761.94, when in truth and in fact, and the accused knew that
centrals with a total annual production exceeding one-third of the the total gross sales of said corporation during that year amounted to
production of all the sugar central mills in the province, had already P2,543,303.44, thereby failing to declare P190,541.50, and voluntarily
granted increased participation (of 62.5%) to their planters, and that not paying the percentage taxes the sum of P2,960.12, corresponding
under the resolution the appellee had become obligated to grant to 1½ per cent of said undeclared sales.
similar concessions to the plaintiffs. The appellee Bacolod-Murcia
Milling Co., inc., resisted the claim, and defended by urging that the ISSUE: WON the defendant, as manager of the corporation, is
stipulations contained in the resolution were made without criminally liable for violation of the tax law for the benefit of said
consideration; that the resolution in question was, therefore, null and corporation.
void ab initio, being in effect a donation that was ultra vires and
beyond the powers of the corporate directors to adopt. RULING:
Issue: WON the board resolution is an ultra vires act and in effect a A corporation can act only through its officers and agents, and where
donation from the board of directors? the business itself involves a violation of the law, all who participate in
it are liable
Held: No. There can be no doubt that the directors of the appellee In case of State vs. Burnam (71 Wash., 199), the court hold that the
company had authority to modify the proposed terms of the Amended manager of a dairy corporation was criminally liable for the violation of
Milling Contract for the purpose of making its terms more acceptable a statute by the corporation though he was not present when the
to the other contracting parties. As the resolution in question was offense was committed.
passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the In the present case the information alleges that the defendant was the
central, the court has no authority to review them. Whether the manager of a corporation which was engaged in business as a
business of a corporation should be operated at a loss during merchant, and as such manager, he made a false return, for purposes
depression, or close down at a smaller loss, is a purely business and of taxation, of the total amount of sales made by said corporation
economic problem to be determined by the directors of the during the year 1924. As the filing of such false return constitutes a
corporation and not by the court. The appellee Bacolod-Murcia Milling violation of law, the defendant, as the author of the illegal act, must
Company is, under the terms of its Resolution of August 20, 1936, necessarily answer for its consequences, provided that the allegations
duty bound to grant similar increases to plaintiffs-appellants herein. are proven.
People v. Tan Boon Kong, 54 Phil. 607 (1930)

The ruling of the court below sustaining the demurrer to the complaint "The persons criminally liable for the above offenses are the
is therefore reversed, and the case will be returned to said court for principals, accomplices and accessories. In case of juridical
further proceedings not inconsistent with our view as hereinbefore persons, the officers having control, management or direction of
stated. their business shall be liable.
People v. Chowdury, 325 SCRA 572 (2000) Citing the second sentence of the last paragraph of Section 6 of RA
8042, accused-appellant contends that he may not be held liable for
FACTS: the offense as he was merely an employee of Craftrade and he only
performed the tasks assigned to him by his superiors. He argues that
In November 1995, Bulu Chowdury and Josephine Ong were charged the ones who should be held liable for the offense are the officers
before the Regional Trial Court of Manila with the crime of illegal having control, management and direction of the agency.
recruitment in large scale. Complainants are Aser Sasis, Estrella
Calleja, and Melvin Miranda. Complainants testified that despite As stated in the first sentence of Section 6 of RA 8042, the persons
compliance with the requirement of Craftrade (recruitment who may be held liable for illegal recruitment are the principals,
agency) they were not deployed and their payments were not accomplices and accessories. An employee of a company or
reimbursed. corporation engaged in illegal recruitment may be held liable as
principal, together with his employer,24 if it is shown that he actively
Chowdury testified that he worked as an interviewer at Craftrade. and consciously participated in illegal recruitment.25 It has been
He was just a mere employee who followed the instructions held that the existence of the corporate entity does not shield from
given by his superiors. prosecution the corporate agent who knowingly and intentionally
causes the corporation to commit a crime.
ISSUE: W/N Chowdury is liable for illegal recruitment in large scale.
Evidence shows that accused-appellant interviewed private
RULING: complainants in the months of June, August and September in 1994
at Craftrade's office. At that time, he was employed as interviewer of
NO. The elements of illegal recruitment in large scale are: Craftrade which was then operating under a temporary authority given
by the POEA pending renewal of its license. 29 The temporary license
(1) The accused undertook any recruitment activity defined under included the authority to recruit workers. He was convicted based on
Article 13 (b) or any prohibited practice enumerated under Article 34 the fact that he was not registered with the POEA as employee of
of the Labor Code; Craftrade. Neither was he, in his personal capacity, licensed to recruit
overseas workers. Section 10 Rule II Book II of the Rules and
(2) He did not have the license or authority to lawfully engage in the Regulation Governing Overseas Employment (1991) requires that
recruitment and placement of workers; and every change, termination or appointment of officers, representatives
and personnel of licensed agencies be registered with the POEA.
(3) He committed the same against three or more persons, Agents or representatives appointed by a licensed recruitment agency
individually or as a group.18c whose appointments are not previously approved by the POEA are
considered "non-licensee " or "non-holder of authority" and therefore
The last paragraph of Section 6 of Republic Act (RA) 8042 states who not authorized to engage in recruitment activity.
shall be held liable for the offense, thus:

Upon examination of the records, however, we find that the there is a need to examine the evidence with care to prevent material
prosecution failed to prove that accused-appellant was aware of damage to a potential accused's constitutional right to liberty and the
Craftrade's failure to register his name with the POEA and that he guarantees of freedom and fair play and to protect the State from the
actively engaged in recruitment despite this knowledge. The obligation burden of unnecessary expenses in prosecuting alleged offenses and
to register its personnel with the POEA belongs to the officers of the holding trials arising from false, fraudulent or groundless charges. In
agency. A mere employee of the agency cannot be expected to know this case, petitioner failed to establish that the Secretary of Justice
the legal requirements for its operation. The evidence at hand shows committed grave abuse of discretion in issuing the assailed
that accused-appellant carried out his duties as interviewer of resolutions. Indeed, he acted in accord with law and the evidence.
Craftrade believing that the agency was duly licensed by the POEA
and he, in turn, was duly authorized by his agency to deal with the 4. MERCANTILE LAW; TRUST RECEIPTS LAW (P.D. NO. 115);
applicants in its behalf. TRANSACTION BETWEEN PETITIONER AND RESPONDENT
BANK FALLS UNDER THE TRUST RECEIPT TRANSACTIONS
Ching v. Secretary of Justice, 481 SCRA 602 (2006) ENVISAGED IN P.D. NO. 115; RESPONDENT BANK IMPORTED
THE GOODS AND ENTRUSTED THE SAME TO PETITIONER'S
ALFREDO CHING, petitioner, vs. THE SECRETARY OF JUSTICE, COMPANY UNDER THE TRUST RECEIPTS SIGNED BY
ASST. CITY PROSECUTOR CECILYN BURGOS-VILLAVERT, PETITIONER, AS ENTRUSTEE, WITH THE BANK AS ENTRUSTER.
JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, — An entrustee is one having or taking possession of goods,
Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE documents or instruments under a trust receipt transaction, and any
PEOPLE OF THE PHILIPPINES, respondents. successor in interest of such person for the purpose of payment
specified in the trust receipt agreement. The entrustee is obliged to:
SYLLABUS (1) hold the goods, documents or instruments in trust for the entruster
and shall dispose of them strictly in accordance with the terms and
3. ID.; ID.; ID.; THE SECRETARY OF JUSTICE ACTED IN ACCORD conditions of the trust receipt; (2) receive the proceeds in trust for the
WITH LAW AND EVIDENCE IN HIS RESOLUTIONS UPHOLDING entruster and turn over the same to the entruster to the extent of the
THE FINDING OF PROBABLE CAUSE; CASE AT BAR. — A amount owing to the entruster or as appears on the trust receipt; (3)
preliminary investigation, designed to secure the respondent against insure the goods for their total value against loss from fire, theft,
hasty, malicious and oppressive prosecution, is an inquiry to pilferage or other casualties; (4) keep said goods or proceeds thereof
determine whether (a) a crime has been committed; and (b) whether whether in money or whatever form, separate and capable of
there is probable cause to believe that the accused is guilty thereof. It identification as property of the entruster; (5) return the goods,
is a means of discovering the person or persons who may be documents or instruments in the event of non-sale or upon demand of
reasonably charged with a crime. Probable cause need not be based the entruster; and (6) observe all other terms and conditions of the
on clear and convincing evidence of guilt, as the investigating officer trust receipt not contrary to the provisions of the decree. The entruster
acts upon probable cause of reasonable belief. Probable cause shall be entitled to the proceeds from the sale of the goods,
implies probability of guilt and requires more than bare suspicion but documents or instruments released under a trust receipt to the
less than evidence which would justify a conviction. A finding of entrustee to the extent of the amount owing to the entruster or as
probable cause needs only to rest on evidence showing that more appears in the trust receipt, or to the return of the goods, documents
likely than not, a crime has been committed by the suspect. However, or instruments in case of non-sale, and to the enforcement of all other
while probable cause should be determined in a summary manner, rights conferred on him in the trust receipt; provided, such are not

contrary to the provisions of the document. In the case at bar, the accordance with the terms of the trust receipt is a crime under P.D.
transaction between petitioner and respondent bank falls under the No. 115, without need of proving intent to defraud. The law punishes
trust receipt transactions envisaged in P.D. No. 115. Respondent dishonesty and abuse of confidence in the handling of money or
bank imported the goods and entrusted the same to PBMI under the goods to the prejudice of the entruster, regardless of whether the
trust receipts signed by petitioner, as entrustee, with the bank as latter is the owner or not. A mere failure to deliver the proceeds of the
entruster. sale of the goods, if not sold, constitutes a criminal offense that
causes prejudice, not only to another, but more to the public interest.
5. ID.; ID.; THE TRUST RECEIPTS LAW APPLIES TO GOODS The Court rules that although petitioner signed the trust receipts
USED BY THE ENTRUSTEE IN THE OPERATION OF ITS merely as Senior Vice-President of PBMI and had no physical
MACHINERIES AND EQUIPMENT. — It must be stressed that P.D. possession of the goods, he cannot avoid prosecution for violation of
No. 115 is a declaration by legislative authority that, as a matter of P.D. No. 115.
public policy, the failure of person to turn over the proceeds of the
sale of the goods covered by a trust receipt or to return said goods, if 7. ID.; ID.; PERSONS HELD RESPONSIBLE FOR VIOLATION OF
not sold, is a public nuisance to be abated by the imposition of penal THE TRUST RECEIPTS LAW WHEN ENTRUSTEE IS A
sanctions. The Court likewise rules that the issue of whether P.D. No. CORPORATION; RATIONALE. — The crime defined in P.D. No. 115
115 encompasses transactions involving goods procured as a is malum prohibitum but is classified as estafa under paragraph 1 (b),
component of a product ultimately sold has been resolved in the Article 315 of the Revised Penal Code, or estafa with abuse of
affirmative in Allied Banking Corporation v. Ordoñez. The law applies confidence. It may be committed by a corporation or other juridical
to goods used by the entrustee in the operation of its machineries and entity or by natural persons. However, the penalty for the crime is
equipment. The non-payment of the amount covered by the trust imprisonment for the periods provided in said Article 315. Article 315.
receipts or the non-return of the goods covered by the receipts, if not Swindling (estafa). — Any person who shall defraud another by any of
sold or otherwise not disposed of, violate the entrustee's obligation to the means mentioned hereinbelow shall be punished by: 1st. The
pay the amount or to return the goods to the entruster. penalty of prision correccional in its maximum period to prision mayor
in its minimum period, if the amount of the fraud is over 12,000 pesos
6. ID.; ID.; PENALTY CLAUSE OF P.D. NO. 115; ALTHOUGH but does not exceed 22,000 pesos; and if such amount exceeds the
PETITIONER SIGNED THE TRUST RECEIPTS MERELY AS latter sum, the penalty provided in this paragraph shall be imposed in
SENIOR VICE-PRESIDENT OF THE COMPANY AND HAS NO its maximum period, adding one year for each additional 10,000
PHYSICAL POSSESSION OF THE GOODS, HE CANNOT AVOID pesos; but the total penalty which may be imposed shall not exceed
PROSECUTION FOR VIOLATION OF THE LAW. — In Colinares v. twenty years. In such cases, and in connection with the accessory
Court of Appeals, the Court declared that there are two possible penalties which may be imposed and for the purpose of the other
situations in a trust receipt transaction. The first is covered by the provisions of this Code, the penalty shall be termed prision mayor or
provision which refers to money received under the obligation reclusion temporal, as the case may be. Though the entrustee is a
involving the duty to deliver it (entregarla) to the owner of the corporation, nevertheless, the law specifically makes the officers,
merchandise sold. The second is covered by the provision which employees or other officers or persons responsible for the offense,
refers to merchandise received under the obligation to return it without prejudice to the civil liabilities of such corporation and/or board
(devolvera) to the owner. Thus, failure of the entrustee to turn over the of directors, officers, or other officials or employees responsible for
proceeds of the sale of the goods covered by the trust receipts to the the offense. The rationale is that such officers or employees are
entruster or to return said goods if they were not disposed of in vested with the authority and responsibility to devise means

necessary to ensure compliance with the law and, if they fail to do so, parties active in promoting a crime, whether agents or not, are
are held criminally accountable; thus, they have a responsible share principals. Whether such officers or employees are benefited by their
in the violations of the law. If the crime is committed by a corporation delictual acts is not a touchstone of their criminal liability. Benefit is
or other juridical entity, the directors, officers, employees or other not an operative fact. In this case, petitioner signed the trust receipts
officers thereof responsible for the offense shall be charged and in question. He cannot, thus, hide behind the cloak of the separate
penalized for the crime, precisely because of the nature of the crime corporate personality of PBMI. In the words of Chief Justice Earl
and the penalty therefor. A corporation cannot be arrested and Warren, a corporate officer cannot protect himself behind a
imprisoned; hence, cannot be penalized for a crime punishable by corporation where he is the actual, present and efficient actor.
imprisonment. However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the ----------xxxxx----------
statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined. DIGEST #1
8. ID.; ID.; WHETHER THE OFFICERS AND EMPLOYEES ARE The failure of person to turn over the proceeds of the sale of the
BENEFITED BY THEIR DELICTUAL ACTS IS NOT A TOUCHSTONE goods covered by the trust receipt to the entruster or to return
OF THEIR CRIMINAL LIABILITY; BENEFIT IS NOT AN OPERATIVE said goods, if not sold, is a public nuisance to be abated by the
FACT OF THE OFFENSE. — A crime is the doing of that which the imposition of penal sanctions
penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the Facts: Ching was the Senior Vice-President of Philippine Blooming
author of the crime upon whom the penalty is to be inflicted. When a Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI,
criminal statute designates an act of a corporation or a crime and through petitioner, applied with the Rizal Commercial Banking
prescribes punishment therefor, it creates a criminal offense which, Corporation (respondent bank) for the issuance of commercial letters
otherwise, would not exist and such can be committed only by the of credit to finance its importation of assorted goods. Under the
corporation. But when a penal statute does not expressly apply to receipts, petitioner agreed to hold the goods in trust for the said bank,
corporations, it does not create an offense for which a corporation with authority to sell but not by way of conditional sale, pledge or
may be punished. On the other hand, if the State, by statute, defines a otherwise; and in case such goods were sold, to turn over the
crime that may be committed by a corporation but prescribes the proceeds thereof as soon as received, to apply against the relative
penalty therefor to be suffered by the officers, directors, or employees acceptances and payment of other indebtedness to respondent bank.
of such corporation or other persons responsible for the offense, only In case the goods remained unsold within the specified period, the
such individuals will suffer such penalty. Corporate officers or goods were to be returned to respondent bank without any need of
employees, through whose act, default or omission the corporation demand. Thus, said “goods, manufactured products or proceeds
commits a crime, are themselves individually guilty of the crime. The thereof, whether in the form of money or bills, receivables, or
principle applies whether or not the crime requires the consciousness accounts separate and capable of identification” were respondent
of wrongdoing. It applies to those corporate agents who themselves bank’s property. When the trust receipts matured, petitioner failed to
commit the crime and to those, who, by virtue of their managerial return the goods to respondent bank, or to return their value
positions or other similar relation to the corporation, could be deemed amounting to P6,940,280.66 despite demands. Thus, the bank filed a
responsible for its commission, if by virtue of their relationship to the criminal complaint for estafa6 against petitioner in the Office of the
corporation, they had the power to prevent the act. Moreover, all City Prosecutor of Manila.

Issue: Whether or not Ching is liable for Estafa P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with
Held: In the case at bar, the transaction between petitioner and abuse of confidence.—The crime defined in P.D. No. 115 is malum
respondent bank falls under the trust receipt transactions envisaged in prohibitum but is classified as estafa under paragraph 1(b), Article 315
P.D. No. 115. Respondent bank imported the goods and entrusted the of the Revised Penal Code, or estafa with abuse of confidence. It may
same to PBMI under the trust receipts signed by petitioner, as be committed by a corporation or other juridical entity or by natural
entrustee, with the bank as entruster. The failure of person to turn persons. However, the penalty for the crime is imprisonment for the
over the proceeds of the sale of the goods covered by the trust receipt periods provided in said Article 315.
to the entruster or to return said goods, if not sold, is a public
nuisance to be abated by the imposition of penal sanctions.—It must ----------xxxxx----------
be stressed that P.D. No. 115 is a declaration by legislative authority
that, as a matter of public policy, the failure of person to turn over the DIGEST #2
proceeds of the sale of the goods covered by a trust receipt or to
return said goods, if not sold, is a public nuisance to be abated by the (Corporate Law)
imposition of penal sanctions.
FACTS:
Failure of the entrustee to turn over the proceeds of the sale of the
goods covered by the trust receipts to the entruster or to return said § Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine
goods if they were not disposed of in accordance with the terms of the Blooming Mills, Inc. (PBMI), applied with the Rizal Commercial
trust receipt is a crime under P.D. No. 115, without need of proving Banking Corporation (RCBC) for the issuance of commercial
intent to defraud.—In Colinares v. Court of Appeals, the Court letters of credit to finance its importation of assorted goods
declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to § RCBC approved the application, and irrevocable letters of credit
money received under the obligation involving the duty to deliver it were issued in favor of Ching.
(entregarla) to the owner of the merchandise sold. The second is
covered by the provision which refers to merchandise received under § The goods were purchased and delivered in trust to PBMI.
the obligation to return it (devolvera) to the owner. Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered § Ching signed 13 trust receipts as surety, acknowledging
by the trust receipts to the entruster or to return said goods if they delivery of the goods
were not disposed of in accordance with the terms of the trust receipt
is a crime under P.D. No. 115, without need of proving intent to § Under the receipts, Ching agreed to hold the goods in trust for
defraud. The law punishes dishonesty and abuse of confidence in the RCBC, with authority to sell but not by way of conditional sale,
handling of money or goods to the prejudice of the entruster, pledge or otherwise
regardless of whether the latter is the owner or not. A mere failure to
deliver the proceeds of the sale of the goods, if not sold, constitutes a § In case such goods were sold, to turn over the proceeds thereof
criminal offense that causes prejudice, not only to another, but more as soon as received, to apply against the relative acceptances
to the public interest. and payment of other indebtedness to respondent bank.

§ In case the goods remained unsold within the specified period, § There is no dispute that it was the Ching executed the 13 trust
the goods were to be returned to RCBC without any need of receipts.
demand.
§ law points to him as the official responsible for the offense
§ goods, manufactured products or proceeds thereof, whether in
the form of money or bills, receivables, or accounts separate and § Since a corporation CANNOT be proceeded against criminally
capable of identification - RCBC’s property because it CANNOT commit crime in which personal violence or
malicious intent is required, criminal action is limited to the
§ When the trust receipts matured, Ching failed to return the corporate agents guilty of an act amounting to a crime and never
goods to RCBC, or to return their value amounting against the corporation itself
toP6,940,280.66 despite demands.
§ execution by Ching of receipts is enough to indict him as the
§ RCBC filed a criminal complaint for estafa against petitioner in official responsible for violation of PD 115
the Office of the City Prosecutor of Manila.
§ RCBC is estopped to still contend that PD 115 covers only
§ December 8, 1995: no probable cause to charge petitioner with goods which are ultimately destined for sale and not goods, like
violating P.D. No. 115, as petitioner’s liability was only civil, not those imported by PBM, for use in manufacture.
criminal, having signed the trust receipts as surety
§ Moreover, PD 115 explicitly allows the prosecution of corporate
§ RCBC appealed the resolution to the Department of Justice officers ‘without prejudice to the civil liabilities arising from the
(DOJ) via petition for review criminal offense’ thus, the civil liability imposed on respondent in
RCBC vs. Court of Appeals case is clearly separate and distinct
§ On July 13, 1999: reversed the assailed resolution of the City from his criminal liability under PD 115
Prosecutor
§ Ching’s being a Senior Vice-President of the Philippine
§ execution of said receipts is enough to indict the Ching as the Blooming Mills does not exculpate him from any liability
official responsible for violation of P.D. No. 115
§ The crime defined in P.D. No. 115 is malum prohibitum but is
§ April 22, 2004: CA dismissed the petition for lack of merit and classified as estafa under paragraph 1(b), Article 315 of the
on procedural grounds Revised Penal Code, or estafa with abuse of confidence. It may
be committed by a corporation or other juridical entity or by natural
§ Ching filed a petition for certiorari, prohibition and mandamus persons. However, the penalty for the crime is imprisonment for
with the CA the periods provided in said Article 315.
ISSUE: W/N Ching should be held criminally liable. § law specifically makes the officers, employees or other officers
or persons responsible for the offense, without prejudice to the
HELD: YES. DENIED for lack of merit civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense

§ rationale: officers or employees are vested with the authority Republic Gas Corp. v. Petron Corp., 698 SCRA 666 (2013)
and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held FACTS: Petitioners Petron Corporation (“Petron” for brevity) and
criminally accountable; thus, they have a responsible share in the Pilipinas Shell Petroleum Corporation (“Shell” for brevity) are two of
violations of the law the largest bulk suppliers and producers of LPG in the Philippines.
Petron is the registered owner in the Philippines of the trademarks
§ If the crime is committed by a corporation or other juridical GASUL and GASUL cylinders used for its LPG products. It is the sole
entity, the directors, officers, employees or other officers thereof entity in the Philippines authorized to allow refillers and distributors to
responsible for the offense shall be charged and penalized for the refill, use, sell, and distribute GASUL LPG containers, products and its
crime, precisely because of the nature of the crime and the trademarks. Pilipinas Shell, on the other hand, is the authorized user
penalty therefor. A corporation cannot be arrested and in the Philippines of the tradename, trademarks, symbols or designs
imprisoned; hence, cannot be penalized for a crime punishable by of its principal, Shell International Petroleum Company Limited,
imprisonment. However, a corporation may be charged and including the marks SHELLANE and SHELL device in connection with
prosecuted for a crime if the imposable penalty is fine. Even if the the production, sale and distribution of SHELLANE LPGs. It is the only
statute prescribes both fine and imprisonment as penalty, a corporation in the Philippines authorized to allow refillers and
corporation may be prosecuted and, if found guilty, may be fined distributors to refill, use, sell and distribute SHELLANE LPG
containers and products. Private respondents, on the other hand, are
§ When a criminal statute designates an act of a corporation or a the directors and officers of Republic Gas Corporation (“REGASCO”
crime and prescribes punishment therefor, it creates a criminal for brevity), an entity duly licensed to engage in, conduct and carry on,
offense which, otherwise, would not exist and such can be the business of refilling, buying, selling, distributing and marketing at
committed only by the corporation. But when a penal statute does wholesale and retail of Liquefied Petroleum Gas (“LPG”).
not expressly apply to corporations, it does not create an offense
for which a corporation may be punished. On the other hand, if LPG Dealers Associations, such as the Shellane Dealers Association,
the State, by statute, defines a crime that may be committed by a Inc., Petron Gasul Dealers Association, Inc. and Totalgaz Dealers
corporation but prescribes the penalty therefor to be suffered by Association, received reports that certain entities were engaged in the
the officers, directors, or employees of such corporation or other unauthorized refilling, sale and distribution of LPG cylinders bearing
persons responsible for the offense, only such individuals will the registered tradenames and trademarks of the petitioners. As a
suffer such penalty. Corporate officers or employees, through consequence, on February 5, 2004, Genesis Adarlo (hereinafter
whose act, default or omission the corporation commits a crime, referred to as Adarlo), on behalf of the aforementioned dealers
are themselves individually guilty of the crime. The principle associations, filed a letter-complaint in the National Bureau of
applies whether or not the crime requires the consciousness of Investigation (“NBI”) regarding the alleged illegal trading of petroleum
wrongdoing. It applies to those corporate agents who themselves products and/or underdelivery or underfilling in the sale of LPG
commit the crime and to those, who, by virtue of their managerial products.
positions or other similar relation to the corporation, could be
deemed responsible for its commission, if by virtue of their Acting on the said letter-complaint, NBI Senior Agent Marvin E. De
relationship to the corporation, they had the power to prevent the Jemil (hereinafter referred to as “De Jemil”) was assigned to verify
act. Benefit is not an operative fact. and confirm the allegations contained in the letter-complaint. An
investigation was thereafter conducted, particularly within the areas of

Caloocan, Malabon, Novaliches and Valenzuela, which showed that CA: REVERSED AND SET ASIDE.
several persons and/or establishments, including REGASCO, were
suspected of having violated provisions of Batas Pambansa Blg. 33 ISSUE: whether probable cause exists to hold petitioners liable for the
(B.P. 33). The surveillance revealed that REGASCO LPG Refilling crimes of trademark infringement and unfair competition as defined
Plant in Malabon was engaged in the refilling and sale of LPG and penalized under Sections 155 and 168, in relation to Section 170
cylinders bearing the registered marks of the petitioners without of Republic Act (R.A.) No. 8293.
authority from the latter. Based on its General Information Sheet filed
in the Securities and Exchange Commission, REGASCO’s members HELD: YES. From the foregoing provision, the Court in a very similar
of its Board of Directors are: (1) Arnel U. Ty — President, (2) Marie case, made it categorically clear that the mere unauthorized use of a
Antoinette Ty — Treasurer, (3) Orlando Reyes — Corporate container bearing a registered trademark in connection with the sale,
Secretary, (4) Ferrer Suazo and (5) Alvin Ty (hereinafter referred to distribution or advertising of goods or services which is likely to cause
collectively as private respondents). confusion, mistake or deception among the buyers or consumers can
be considered as trademark infringement.
De Jemil, with other NBI operatives, then conducted a test-buy
operation on February 19, 2004 with the former and a confidential Here, petitioners have actually committed trademark infringement
asset going undercover. They brought with them four (4) empty LPG when they refilled, without the respondents’ consent, the LPG
cylinders bearing the trademarks of SHELLANE and GASUL and containers bearing the registered marks of the respondents. As noted
included the same with the purchase of J&S, a REGASCO’s regular by respondents, petitioners’ acts will inevitably confuse the consuming
customer. Inside REGASCO’s refilling plant, they witnessed that public, since they have no way of knowing that the gas contained in
REGASCO’s employees carried the empty LPG cylinders to a refilling the LPG tanks bearing respondents’ marks is in reality not the latter’s
station and refilled the LPG empty cylinders. Money was then given LPG product after the same had been illegally refilled. The public will
as payment for the refilling of the J&S’s empty cylinders which then be led to believe that petitioners are authorized refillers and
included the four LPG cylinders brought in by De Jemil and his distributors of respondents’ LPG products, considering that they are
companion. Cash Invoice No. 191391 dated February 19, 2004 was accepting empty containers of respondents and refilling them for
issued as evidence for the consideration paid. resale.
After leaving the premises of REGASCO LPG Refilling Plant in As to the charge of unfair competition, Section 168.3, in relation to
Malabon, De Jemil and the other NBI operatives proceeded to the NBI Section 170, of R.A. No. 8293, unfair competition has been defined as
headquarters for the proper marking of the LPG cylinders. The LPG the passing off (or palming off) or attempting to pass off upon the
cylinders refilled by REGASCO were likewise found later to be public of the goods or business of one person as the goods or
underrefilled. business of another with the end and probable effect of deceiving the
public.
Thus, on March 5, 2004, De Jemil applied for the issuance of search
warrants in the Regional Trial Court, Branch 24, in the City of Manila Passing off (or palming off) takes place where the defendant, by
against the private respondents. imitative devices on the general appearance of the goods, misleads
prospective purchasers into buying his merchandise under the
DOJ RULING: DISMISSED THE COMPLAINT. MERE REFILLING IS impression that they are buying that of his competitors. Thus, the
NOT PER SE A VIOLATION OF IP CODE. defendant gives his goods the general appearance of the goods of his

competitor with the intention of deceiving the public that the goods are Federated Dealers Assn. v. Del Rosario, 808 SCRA 272 (2016)
those of his competitor.
In the present case, respondents pertinently observed that by refilling Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965)
and selling LPG cylinders bearing their registered marks, petitioners
are selling goods by giving them the general appearance of goods of FACTS:
another manufacturer.
In a complaint for unfair labor practice filed before the Court of
What’s more, the CA correctly pointed out that there is a showing that Industrial Relations on June 6, 1956, Emilio, Ariston and Rodolfo, all
the consumers may be misled into believing that the LPGs contained surnamed Cano, were made respondents in their capacity as
in the cylinders bearing the marks “GASUL” and “SHELLANE” are president and proprietor, field supervisor and manager, respectively,
those goods or products of the petitioners when, in fact, they are not. of Emilio Cano Enterprises, Inc.
Obviously, the mere use of those LPG cylinders bearing the
trademarks “GASUL” and “SHELLANE” will give the LPGs sold by After trial, Emilio Cano and Rodolfo Cano were found guilty of the
REGASCO the general appearance of the products of the petitioners. unfair labor practice and were ordered, jointly and severally, to
reinstate Honorata Cruz, to her former position with payment of
In sum, this Court finds that there is sufficient evidence to warrant the backwages from the time of her dismissal up to her reinstatement,
prosecution of petitioners for trademark infringement and unfair together with all other rights and privileges thereunto appertaining.
competition, considering that petitioner Republic Gas Corporation, Emilio Cano died on November 14, 1958
being a corporation, possesses a personality separate and distinct
from the person of its officers, directors and stockholders. Petitioners, In the attempt to have the case dismissed against Emiliano, the case
being corporate officers and/or directors, through whose act, default was appealed to the court enbanc, which in affirmed the questioned
or omission the corporation commits a crime, may themselves be decision.
individually held answerable for the crime. Veritably, the CA
appropriately pointed out that petitioners, being in direct control and An order of execution was issued directed against the properties of
supervision in the management and conduct of the affairs of the Emilio Cano Enterprises, Inc. instead of those of the respondents
corporation, must have known or are aware that the corporation is named in the decision, hence petitioner filed an ex parte motion to
engaged in the act of refilling LPG cylinders bearing the marks of the quash the writ on the ground that the judgment sought to be
respondents without authority or consent from the latter which, under enforced was not rendered against it which is a juridical entity
the circumstances, could probably constitute the crimes of trademark separate and distinct from its officials. This motion was denied.
infringement and unfair competition. The existence of the corporate
entity does not shield from prosecution the corporate agent who ISSUE: Can the judgment rendered against Emilio and Rodolfo Cano
knowingly and intentionally caused the corporation to commit a crime. in their capacity as officials of the corporation Emilio Cano
Thus, petitioners cannot hide behind the cloak of the separate Enterprises, Inc. be made effective against the property of the
corporate personality of the corporation to escape criminal liability. A corporation which was not a party to the case? YES. PETITION
corporate officer cannot protect himself behind a corporation where he DENIED.
is the actual, present and efficient actor.
HELD:

While it is an undisputed rule that a corporation has a personality Facts: Aside from the fact that petitioner Jacinto is the President and
separate and distinct from its members or stockholders because of a General Manager of the corporation, he is in fact the corporation itself
fiction of the law, here we should not lose sight of the fact that the known to Inland Industries, Inc. Jacinto dealt entirely with Inland
Emilio Cano Enterprises, Inc. is a closed family corporation where the Industries transactions supported by Trust Receipts that he signed
incorporators and directors belong to one single family. Thus, the supposedly in behalf of Inland Industries, Inc. Jacinto did not even
following are its incorporators: Emilio Cano, his wife Juliana, his sons mention that he did so in his official capacity.
Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an
instance where the corporation and its members can be considered This is then an appeal by certiorari to partially set aside the Decision
as one. And to hold such entity liable for the acts of its members is not of the CA which affirmed in toto the decision of the RTC. The
to ignore the legal fiction but merely to give meaning to the principle dispositive portion reads:
that such fiction cannot be invoked if its purpose is to use it as a
shield to further an end subversive of justice. And so it has been held “WHEREFORE, judgment is hereby rendered ordering defendants
that while a corporation is a legal entity existing separate and apart [Jacinto] to pay, jointly and severally, the plaintiff [Metropolitan
from the persons composing it, that concept cannot be extended to a Bank], the principal obligation of P382,015.80, with interest/ charges
point beyond its reason and policy, and when invoked in support of an thereon xxx Said defendants are further ordered to pay in solidum the
end subversive of this policy it should be disregarded by the courts. costs of this suit. xxx”
A factor that should not be overlooked is that Emilio and Rodolfo Petitioner’s co-defendant in the courts below, Inland Industries Inc.,
Cano are here indicted, not in their private capacity, but as president just as in the case of petitioner’s motion to reconsider the questioned
and manager, respectively, of Emilio Cano Enterprises, Inc. Having decision, chose not to join him in this appeal.
been sued officially their connection with the case must be deemed to
be impressed with the representation of the corporation. In fact, the Issue: (submitted by the Petitioner Jacinto)
court's order is for them to reinstate Honorata Cruz to her former
position in the corporation and incidentally pay her the wages she had Whether the CA can validly pierce the fiction of corporate identity of
been deprived of during her separation. Verily, the order against them the defendant Inland Industries, Inc.
is in effect against the corporation. No benefit can be attained if this
case were to be remanded to the court a quo merely in response to a Ruling: YES. Petition is bereft of merit.
technical substitution of parties for such would only cause an
unwarranted delay that would work to Honorata's prejudice. This is The Veil of corporate fiction may be pierced when made as a shield to
contrary to the spirit of the law which enjoins a speedy adjudication of perpetuate fraud and/or confuse legitimate issues.
labor cases disregarding as much as possible the technicalities of
procedure. We, therefore, find unmeritorious the relief herein prayed In this case, the conflicting statements by defendant Jacinto place in
for. extreme doubt his credibility anent his alleged participation in said
transactions and We are thus persuaded to agree with the findings of
Roberto Jacinto v. Court of Appeals and Metropolitan Bank, 198 the lower court that the latter (Roberto Jacinto) was practically the
SCRA 211 (1991) corporation itself. We cannot accept as true the assertion of defendant
Jacinto that he only acted in his official capacity as President and

General Manager of Inland Industries, Inc. when he signed the agencies for two different marks of films, namely, the “Eclair Films”
aforesaid trust receipts. and the “Milano Films;” and negotiations were begun with said officials
of the Orientalist Company by Jose Ramirez, as agent of the plaintiff.
Both courts below reveals that their findings and conclusions on The defendant Ramon J. Fernandez, one of the directors of the
the matter of piercing the veil of corporate fiction and on the Orientalist Company and also its treasure, was chiefly active in this
liability of herein petitioner are overwhelmingly supported by the matter. Ramon J. Fernandez had an informal conference with all the
evidence. members of the company’s board of directors except one, and with
approval of those with whom he had communicated, addressed a
Records show that there is no clear-cut delimitation between the letter to Jose Ramirez, in Manila, accepting the offer contained in the
personality of Roberto Jacinto as an individual and the personality of memorandum the exclusive agency of the Eclair films and Milano
Inland Industries, Inc. as a corporation. The circumstances films. In due time the films began to arrive in Manila, it appears that
aforestated lead Us to conclude that the corporate veil that enshrouds the Orientalist Company was without funds to meet these obligations.
defendant Inland Industries, Inc. could be validly pierced, and a host Action was instituted by the plaintiff to Orientalist Company, and
of cases decided by our High Court is supportive of this view. Ramon J. Fernandez for sum of money.
Thus it held that ‘when the veil of corporate fiction is made as a shield Issue: WON the Orientalist Co. is liable for the acts of its treasurer,
to perpetuate fraud and/or confuse legitimate issues, the same should Fernandez?
be pierced.’ (Republic vs. Razon, etc). Almost in the same vein is the
dictum enunciated by the same court in the case of Commissioner of
Held: Yes. It will be observed that Ramon J. Fernandez was the
Internal Revenue vs. Norton & Harrison Co., that ‘Where a corporation
particular officer and member of the board of directors who was most
is merely an adjunct, business conduit or alter ego, the fiction of
active in the effort to secure the films for the corporation. The
separate and distinct corporate entity should be disregarded.’
negotiations were conducted by him with the knowledge and consent
WHEREFORE, for lack of merit, the Petition is DISMISSED with costs of other members of the board; and the contract was made with their
against petitioner. prior approval. In the light of all the circumstances of the case, we are
of the opinion that the contracts in question were thus inferentially
SO ORDERED. approved by the company’s board of directors and that the company
is bound unless the subsequent failure of the stockholders to approve
Ramirez v. Orientalist Co., 38 Phil. 634 (1918) said contracts had the effect of abrogating the liability thus created.
Facts: Orientalist Company was engaged in the business of Richard K. Toms v. Samuel N. Rodriguez, 761 SCRA
maintaining and conducting a theatre in the city of Manila for the 679 (2015); 797 SCRA 60 (2016)
exhibition of cinematographic films. engaged in the business of FACTS:
marketing films for a manufacturer or manufacturers, there engaged in
the production or distribution of cinematographic material. In this Golden Dragon International Terminals, Inc. (GDITI) is the exclusive
enterprise the plaintiff was represented in the city of Manila by his Shore Reception Facility (SRF) Service Provider of the Philippine
son, Jose Ramirez. The directors of the Orientalist Company became Ports Authority (PPA) tasked to collect, treat, and dispose of all ship
apprised of the fact that the plaintiff in Paris had control of the

generated oil wastes in all bases and private ports under the PPA’s... In a Resolution[34] dated May 16, 2014, the CA, without touching
jurisdiction. upon the merits of the case, denied Tom’s prayer for the issuance of a
TRO and/or writ of preliminary injunction, finding no extreme urgency
Records show that sometime in December 2008, Fidel Cu (Cu) sold on the matter raised by Tom, and that no clear and... irreparable injury
via Deed of Conditional Sale his 17,237 shares of stock in GDITI to would be suffered if the injunctive writ was not granted
Virgilio S. Ramos (Ramos) and Cirilo C. Basalo, Jr. (Basalo). When
the latter failed to pay the purchase price, Cu... sold 15,233 of the The petition is meritorious.
same shares through a Deed of Sale in favor of Edgar D. Lim (Lim),
Eddie C. Ong (Ong), and Arnold Gunnacao (Gunnacao), who also did SEC. 23. The board of directors or trustees. – Unless otherwise
not pay the consideration therefor. provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all
On September 11, 2009, the following were elected as officers of property of such corporations controlled and held by... the board of
GDITI: Lim as President and Chairman of the Board, Basalo as Vice directors or trustees to be elected from among the holders of stocks,
President for Visayas and Mindanao, Ong as Treasurer and Vice or where there is no stock, from among the members of the
President for Luzon, and Gunnacao as Director, among others. corporation, who shall hold office for one (1) year until their
successors are elected and qualified.
However, a group led by Ramos composed of individuals who were
not elected as officers of GDITI – which included Tom – forcibly took Every director must own at least one (1) share of the capital stock of
over the GDITI offices and performed the functions of its officers the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be
This prompted GDITI, through its duly-elected Chairman and the owner of at least one (1) share of the capital stock of the...
President, Lim, to file an action for injunction and damages against corporation of which he is a director shall thereby cease to be a
Ramos, et al., before the Regional Trial Court of Manila, director. Trustees of non-stock corporations must be members
thereof. A majority of the directors or trustees of all corporations
Issue: organized under this Code must be residents of the Philippines.
(Emphasis and... underscoring supplied)
Whether or not the CA committed grave abuse of discretion in
denying Tom’s prayer for the issuance of a TRO and/or writ of Accordingly, it cannot be doubted that the management and control of
preliminary injunction. GDITI, being a stock corporation, are vested in its duly elected Board
of Directors, the body that: (1) exercises all powers provided for under
Held: the Corporation Code; (2) conducts all business of the... corporation;
and (3) controls and holds all property of the corporation. Its members
In an Order dated November 13, 2013, the RTC-Nabunturan granted have been characterized as trustees or directors clothed with a
Rodriguez’s application for the issuance of a writ of preliminary fiduciary character.
mandatory injunction, conditioned on the filing of a bond in the amount
of P1,000,000.00. It found credence in the MOA... executed between Tom has legal standing to seek the issuance of an injunctive writ,
him and Basalo which remained uncontroverted considering that he is the original party-defendant in the specific

performance case pending before the RTC-Nabunturan from which Parenthetically, on October 29, 2015, Tom filed a Manifestation
this petition arose, and in which Rodriguez merely intervened. informing the Court that he is no longer the President of GDITI.
Nonetheless, on March 20, 2015, he was elected as Treasurer during
2016 RESOLUTION the Annual/Regular Stockholders Meeting conducted for the purpose
of electing the members of GDITI's Board of Directors.18 As Tom's
Rodriguez asseverates that with the execution of the MOA, the position in GDITI's Board of Directors neither affects nor alters the
elements necessitating the issuance of an injunctive writ no longer Court's stance in this pending incident, the Court merely resolves to
exist. Moreover, he discloses that GDITI had already filed a Motion for note the same.
Intervention in Civil Case No. 1043, as such, its interests are already
protected.
Angeles v. Santos, 64 Phil. 697 (1937)
The submissions have no merit.
FACTS:
To reiterate, the Court granted the writ of preliminary injunction on the
The plaintiff and the defendant are all stockholders and member of the
ground that a corporation can only exercise its powers and transact its
board of directors of the "Parañaque Rice Mill, Inc. The plaintiffs are
business through its board of directors and through its officers and
stockholders and constitute the minority. The defendants are also
agents when authorized by a board resolution or its by-laws. As held
stockholders and constitute the majority of the board of directors. At
in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.:
an extraordinary meeting held on February 21, 1932, the stockholders
appointed an investigation committee of which the plaintiff Jose de
Section 23 of the Corporation Code expressly provides that the
Lara was chairman and the stockholders Dionisio Tomas and Aguedo
corporate powers of all corporations shall be exercised by the board
Bernabe were members, to investigate and determine the properties,
of directors. Just as a natural person may authorize another to do
operations, and losses of the corporation as shown in the auditor's
certain acts in his behalf, so may the board of directors of a
report corresponding to the year 1931. However, defendants,
corporation validly delegate some of its functions to individual officers
particularly Teodorico B. Santos, who was the president of the
or agents appointed by it. Thus, contracts or acts of a corporation
corporation, denied access to the properties, books and record of the
must be made either by the board of directors or by a corporate agent
corporation which were in their possession. Moreover, Santos, had
duly authorized by the board. Absent such valid
appropriated to his own benefit properties, funds, and income of the
delegation/authorization, the rule is that the declarations of an
corporation in the sum of P10,000. He, for the purpose of illegally
individual director relating to the affairs of the corporation, but not in
controlling the affairs of the corporation, refused to sign and issue the
the course of, or connected with, the performance of authorized duties
corresponding certificate of stock for the 600 fully paid-up share of the
of such director, are held not binding on the corporation.
plaintiff, Higinio Angeles, of the total value of P15,000. Santos refused
As the provisions of the MOA are in direct contravention of the to call a meeting of the BOD and of stockholders which is
foregoing precepts, which the Court had earlier espoused in the July noncompliant to the by-laws. Moreover, the defendants refused to call
6, 2015 Decision, its execution cannot in any way affect, change, or an ordinary monthly meeting since March 1932.
render the Court's previous disquisitions moot and academic. In fact,
After hearing both parties, the trial court by order of October 31, 1934,
the MOA is, clearly and in all respects, contrary to law. Therefore, the
appointed Emilio Figueroa, as receiver of the corporation, after giving
writ of preliminary injunction must stand.
a bond in the amount of P2,000. An urgent for the reconsideration of

this order filed by counsel for the defendant-appellant on November 3, brought derivatively in behalf of the corporation to protect the rights of
1934, was denied by the court on November 7, 1934. On December the minority stockholders thereof.
6, 1934, the Parañaque Rice Mill, Inc., thru counsel for the
defendants, entered a special appearance for the sole purpose of It is well settled in this jurisdiction that where corporate directors are
objecting to the order of the court of October 31, 1934, appointing a guilty of a breach of trust — not of mere error of judgment or abuse of
receiver, on the ground that the Parañaque Rice Mill, Inc., was not a discretion — and intra-corporate remedy is futile or useless, a
party to the proceedings. The lower court also ordered the detailed stockholder may institute a suit in behalf of himself and other
accounting of the assets of the corporation by Santos and the stockholders and for the benefit of the corporation, to bring about a
destitution of the BOD. redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholders.
ISSUE: W/N court appointment receiver is valid.
The action having been properly brought and by the lower court
W/N the accounting of Santos should be done immediately. entertained it was within its power, upon proper showing, to appoint a
receiver of the corporation pendente lite (The appointment of a
W/N the removal of the BOD is necessary. receiver upon application of the minority stockholders is power to be
exercised with great caution. But this does not mean that right of the
RULING: minority stockholders may be entirely disregarded, and where the
necessity has arisen, the appointment of a receiver for a corporation
[RECEIVERSHIP] YES. There is ample evidence in the present case is a matter resting largely in the sound discretion of the trial court.
to show that the defendants have been guilty of breach of trust as Counsel for appellants argue that the appointment of a receiver
directors of the corporation and the lower court so found. The board of pendente lite in the present case has deprived the corporation,
directors of a corporation is a creation of the stockholders and Parañaque Rice Mill, Inc., of property without due process of law. But
controls and directs the affairs of the corporation by allegation of the it is too plain to require argument that the receiver was precisely
stockholders. But the board of directors, or the majority thereof, in appointed to preserve the properties of the corporation. The
drawing to themselves the power of the corporation, occupies a receivership in this case shall continue until a new board of directors
position of trusteeship in relation to the minority of the stock in the shall have been elected and the corporation.
sense that the board should exercise good faith, care and diligence in
the administration of the affairs of the corporation and should protect [ACCOUNTING BY SANTOS]. NO. We note that the lower court in its
not only the interest of the majority but also those of the minority of decision not only orders the defendant Santos to account for the
the stock. Where a majority of the board of directors wastes or properties and funds of the corporation, but it also and at the same
dissipates the funds of the corporation or fraudulently disposes of its time adjudges him to pay an undermine amount which is made to
properties, or performs ultra vires acts, the court, in the exercise of its depend upon the result of such accounting. The accounting order was
equity jurisdiction, and upon showing that intra-corporate remedy is probably intended by the lower court to be file with it in this
unavailing, will entertain a suit filed by the minority members of the proceeding. This requirement will delay the final disposition of the
board of directors, for and in behalf of the corporation, to prevent case and we are of the opinion that this accounting should better be
waste and dissipation and the commission of illegal acts and filed with the new board of directors whose election has been ordered
otherwise redress the injuries of the minority stockholders against the by the lower court. The decision of the lower court in this respect is
wrongdoing of the majority. The action in such a case is said to be therefore modified so that the defendant Santos shall render a

complete accounting of all the corporate properties and funds that In 1983, CDCP’s name was changed to Philippine National
may have come to his possession during the period mentioned in the Construction Corporation (PNCC) in order to reflect that the
judgment of the lower court to the new board of director to be elected Government already owned 90.3% of PNCC and only 9.70% is under
by the stockholders. private ownership. Meanwhile, the Marubeni loans to CDCP Mining
remained unpaid.
[DESTITUTION OF THE BOD] NO. The Corporation Law, as
amended, in section 29 to 34, provide for the election and removal of On 20 October 2000 and 22 November 2000, the PNCC Board of
the directors of a corporation. Our Corporation Law (Act No. 1459, as Directors (PNCC Board) passed Board Resolutions admitting PNCC’s
amended), does not confer expressly upon the court the power to liability to Marubeni. Previously, for two decades the PNCC Board
remove a director of a corporation. In some jurisdictions, statutes consistently refused to admit any liability for the Marubeni loans.
expressly provide a more or less summary method for the
confirmation of the election and for the motion of the directors of a In January 2001, Marubeni assigned its entire credit to Radstock
corporation. This is true in New York, New Jersey, Virginia and other Securities Limited (Radstock), a foreign corporation. Radstock
states of the American Union. There are abundant authorities, immediately sent a notice and demand letter to PNCC.
however, which hold that if the court has acquire jurisdiction to appoint
a receiver because of the mismanagement of directors these may PNCC and Radstock entered into a Compromise Agreement. Under
thereafter be remove and others appointed in their place by the court this agreement, PNCC shall pay Radstock the reduced amount of
in the exercise of its equity jurisdiction. In the present case, however, P6,185,000,000.00 in full settlement of PNCC’s guarantee of CDCP
the properties and assets of the corporation being amply protected by Mining’s debt allegedly totaling P17,040,843,968.00 (judgment debt
the appointment of a receiver and view of the statutory provisions as of 31 July 2006). To satisfy its reduced obligation, PNCC
above referred to, we are of the opinion that the removal of the undertakes to (1) "assign to a third party assignee to be designated by
directors is, under the circumstances, unnecessary and unwarranted. Radstock all its rights and interests" to the listed real properties of
PNCC; (2) issue to Radstock or its assignee common shares of the
Strategic Alliance Dev. Corp. v. Radstock Securities Ltd., 607 capital stock of PNCC issued at par value which shall comprise 20%
SCRA 413 (2009) of the outstanding capital stock of PNCC; and (3) assign to Radstock
or its assignee 50% of PNCC’s 6% share, for the next 27 years, in the
Facts: Construction Development Corporation of the Philippines gross toll revenues of the Manila North Tollways Corporation.
(CDCP) was incorporated in 1966. It was granted a franchise to
construct, operate and maintain toll facilities in the North and South Strategic Alliance Development Corporation (STRADEC) moved for
Luzon Tollways and Metro Manila Expressway. reconsideration. STRADEC alleged that it has a claim against PNCC
as a bidder of the National Government’s shares, receivables,
CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, securities and interests in PNCC.
obtained loans from Marubeni Corporation of Japan (Marubeni). A
CDCP official issued letters of guarantee for the loans although there Issue: Whether or not the Compromise Agreement between PNCC
was no CDCP Board Resolution authorizing the issuance of such and Radstock is valid in relation to the Constitution, existing laws, and
letters of guarantee. CDCP Mining secured the Marubeni loans when public policy
CDCP and CDCP Mining were still privately owned and managed.

Held: The Compromise Agreement is contrary to the Constitution, ----------xxxxx----------
existing laws and public policy.
DIGEST #2
PNCC’s toll fees are public funds. PNCC cannot use public funds like
toll fees that indisputably form part of the General Fund, to pay a FACTS: The case is about a bidder of Government PNCC shares and
private debt of CDCP Mining to Radstock. Such payment cannot securities, Strategic Alliance Development Corporation (STRADEC)
qualify as expenditure for a public purpose. The toll fees are merely who has alleged its claim against PNCC (formerly Construction
held in trust by PNCC for the National Government, which is the Development Corporation of the Philippines (CDCP)), a GOCC that
owner of the toll fees. Considering that there is no appropriation law has issued guarantee letters for a loan obtained from Radstock
passed by Congress for the compromise amount, the Compromise Securities Limited. The said loan was originally made against
Agreement is void for being contrary to law, specifically Section 29(1), Marubeni Corporation which was later assigned to Radstock.
Article VI of the Constitution. And since the payment pertains to
CDCP Mining’s private debt to Radstock, the Compromise Agreement ISSUE: Whether or not GOCCs are included in the audit jurisdiction of
is also void for being contrary to the fundamental public policy that COA.
government funds or property shall be spent or used solely for public
purposes. HELD: GOCCs are included in the audit jurisdiction of COA as its
jurisdiction extends not only to government "agencies or
Radstock is not qualified to own land in the Philippines. Consequently, instrumentalities," but also to "government-owned and controlled
Radstock is also disqualified to own the rights to ownership of lands in corporations with original charters" as well as "other government-
the Philippines. Radstock cannot own the rights to ownership of any owned or controlled corporations" without original charters.
land in the Philippines because Radstock cannot lawfully own the land
itself. Otherwise, there will be a blatant circumvention of the Woodchild Holdings, Inc. v. Roxas Electric Constructions Co.,
Constitution, which prohibits a foreign private corporation from owning 436 SCRA 235 (2004)
land in the Philippines. In addition, Radstock cannot transfer the rights
to ownership of land in the Philippines if it cannot own the land itself. It FACTS:
is basic that an assignor or seller cannot assign or sell something he
does not own at the time the ownership, or the rights to the The respondent Roxas Electric and Construction Company, Inc.
ownership, are to be transferred to the assignee or buyer. The third (RECCI), formerly the Roxas Electric and Construction Company, was
party assignee under the Compromise Agreement who will be the owner of two parcels of land. A portion of one Lot which abutted
designated by Radstock can only acquire rights duplicating those the other Lot was a dirt road accessing to the Sumulong Highway,
which its assignor is entitled by law to exercise. Thus, the assignee Antipolo, Rizal.
can acquire ownership of the land only if its assignor owns the land.
Clearly, the assignment by PNCC of the real properties to a nominee At a special meeting on May 17, 1991, the respondent's Board of
to be designated by Radstock is a circumvention of the Constitutional Directors approved a resolution authorizing the corporation, through
prohibition against a private foreign corporation owning lands in the its president, Roberto B. Roxas, to sell the Lots, at a price and under
Philippines. The said circumvention renders the Compromise such terms and conditions which he deemed most reasonable and
Agreement void. advantageous to the corporation; and to execute, sign and deliver the

pertinent sales documents and receive the proceeds of the sale for granting the option to the petitioner to buy a portion thereof, and, if so,
and on behalf of the company. whether such agreement is enforceable against the respondent?
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on HELD: No.
which it planned to construct its warehouse building, and a portion of
the adjoining lot, so that its 45-foot container van would be able to Generally, the acts of the corporate officers within the scope of their
readily enter or leave the property. authority are binding on the corporation. However, under Article 1910
of the New Civil Code, acts done by such officers beyond the scope of
On September 5, 1991, a Deed of Absolute Sale in favor of WHI was their authority cannot bind the corporation unless it has ratified such
issued, under which the Lot was sold for P5,000,000, receipt of which acts expressly or tacitly, or is estopped from denying them.
was acknowledged by Roxas under the following terms and
conditions: Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by
The Vendor agree (sic), as it hereby agrees and binds itself to give the corporation.
Vendee the beneficial use of and a right of way from Sumulong
Highway to the property herein conveyed consists of 25 square Evidently, Roxas was not specifically authorized under the said
meters wide to be used as the latter's egress from and ingress to and resolution to grant a right of way in favor of the petitioner on a portion
an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion
as turning and/or maneuvering area for Vendee's vehicles. thereof. The authority of Roxas, under the resolution, to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086 did not include the authority
The Vendor agrees that in the event that the right of way is insufficient to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create
for the Vendee's use (ex entry of a 45-foot container) the Vendor or convey real rights thereon. Neither may such authority be implied
agrees to sell additional square meters from its current adjacent from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the
property to allow the Vendee full access and full use of the property. petitioner "on such terms and conditions which he deems most
reasonable and advantageous."
the respondent posits that Roxas was not so authorized under the
May 17, 1991 Resolution of its Board of Directors to impose a burden The general rule is that the power of attorney must be pursued within
or to grant a right of way in favor of the petitioner on Lot No. 491-A-3- legal strictures, and the agent can neither go beyond it; nor beside it.
B-1, much less convey a portion thereof to the petitioner. Hence, the The act done must be legally identical with that authorized to be
respondent was not bound by such provisions contained in the deed done.30 In sum, then, the consent of the respondent to the assailed
of absolute sale. provisions in the deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.
ISSUE:
There can be no apparent authority of an agent without acts or
Whether or not the respondent is bound by the provisions in the deed conduct on the part of the principal and such acts or conduct of the
of absolute sale granting to the petitioner beneficial use and a right of principal must have been known and relied upon in good faith and as
way over a portion of Lot accessing to the Sumulong Highway and a result of the exercise of reasonable prudence by a third person as

claimant and such must have produced a change of position to its
detriment • 14 Dec 2000 – Galera was verbally notified verbally that her
services had been terminated. A termination letter followed the
The apparent power of an agent is to be determined by the acts of the next day.
principal and not by the acts of the agent.
WQPP Marketing Communications, v. Galera, 616 SCRA 422 • 3 Jan 2001 – Galera filed a complaint for illegal dismissal,
(2010) holiday pay, SIL, 13th month pay, incentive plan, actual & moral
damages, & attorney’s fees against WPP.
FACTS:
• Galera is an American citizen offered by WPP-Worldwide to
work in the Philippines for WPP Marketing Communications, Inc. • LA Granted & held WPP liable for illegal dismissal &
(WPP), which the former accepted. damages. Also, that Galera was denied due process –i.e. WPP
failed to observe the 2-Notice Rule.
• Galera signed an Employment Contract entitled Confirmation

of Appointment & Statement of Terms & Conditions, which • NLRC Reversed the LA ruling; holding that Galera was the
provided for the following: company’s VP, & therefore, a corporate officer at the time she
was removed by the Board of Directors. Thus, LA had no
o Managing Director jurisdiction over the case as it involved an intra-corporate dispute.
o Start/Commencement: 1 Sep. 1999
o Housing Allowance • CA Reversed & set aside NLRC; & held that a person could
o Benefits: car w/ driver, medical, health, life & personal accident be considered a corporate officer only if appointed as such by a
insurance plans, air fare, shipping & relocation, pension plan corporation’s Board of Directors, or through either the Articles of
o 20 days paid holiday, plus public holidays Incorporation or By-Laws.
o 15 days leave ISSUES:
o Invention/Know-how – to be owned by the company (1)Whether or not Galera is an employee. YES
o Notice: 3-months trial period; termination of contract upon (2)Whether or not the LA & NLRC have jurisdiction over the case.
breach, & retirement age of 60 years old. YES.
HELD:
• Her employment became effective 1 Sep 1999 solely on the (1)
instruction of the CEO & upon signing of the contract, without any • An examination of WPP By-Laws show that Galera’s
further action from the Board of Directors. appointment as a corporate officer (VP with the operational title of
Managing Director of Mindshare) during a special meeting of the
• 4 months passed when WPP filed before the Bureau of Board of Directors is an appointment to a non-existent corporate
Immigration an application for Galera to receive a working visa, office. The By-Laws provide for only 1 VP and 5 directorship
wherein she was designated as VP. Galera alleged that she was positions which are already occupied.
constrained to sign the application so that she could remain in the
Philippines & retain her employment.

• Further, WPP cannot rely on its Amended By-Laws which (1)Notice apprising the employee of the particular acts or
provided for more than 1 VP & for 2 additional directors, since the omissions for which his dismissal is sought;
SEC only approved of such amendments on 16 Feb 2001 (i.e. 2 (2)Subsequent notice informing the employee of the decision to
months after Galera was dismissed). dismiss him.
Failure to comply with the requirements taints the dismissal with
• Applying the 4-fold Test, the Court found that the Employment illegality.
Contract provided for:
Whether Galera is entitled to monetary awards. – NO! The law
o Where & how often she is to perform her work; provides that an Alien Employment Permit must be acquired prior
o Wages she receives; to employment. In the case, 4 months passed before WPP filed
o Subject to regular disciplinary procedures an application for Galera’s working visa.
o Her status as a regular employee & not a corporate officer;
Civil Service Commission v Nita P. Javier, G.R. No. 173264
(2008)
• Even if Galera signed the Alien Employment Permit from
DOLE & the visa application with the Bureau of Immigration
FACTS:
where both stated that she was WPP’s VP, such documents
should not be considered against her. Assuming that her Javier was first employed as Private Secretary in the GSIS on
appointment as VP was valid, it must be noted that such occurred February 23, 1960, on a "confidential" status. On July 1, 1962,
after she was hired as a regular employee; & after such respondent was promoted to Tabulating Equipment Operator with
appointment, there was no appreciable change in her duties. "permanent" status. On December 16, 1986, she was appointed
Corporate Secretary of the Board of Trustees of the corporation. On
(2) July 16, 2001, a month short of her 64 th birthday, respondent opted for
• Galera being an employee, the LA & NLRC have jurisdiction early retirement and received the corresponding monetary benefits.
over the present case. Art. 217 of the Labor Code provides for
the jurisdiction of the LA & the Commission. On April 3, 2002, GSIS President with the approval of the Board of
Trustees, reappointed respondent as Corporate Secretary. In its
Whether Galera was illegally dismissed – YES! Resolution, the Board of Trustees classified her appointment as
"confidential in nature and the tenure of office is at the pleasure of the
• Galera’s dismissal lacked both substantive & procedural due Board."
process. Apart from informing her that there is lack of confidence
in her abilities, WPP failed to prove any just or authorized cause CSC issued a resolution invalidating the reappointment of respondent
for Galera’s dismissal. While Galera presented documentary as Corporate Secretary, on the ground that the position is a
evidence in the form of congratulatory letters. permanent, career position and not primarily confidential.
• Also, the law provides that the employer must furnish the
worker sought to be dismissed with 2 written notices before Petitioner alleges that respondent's reappointment on confidential
termination of employment can be legally effected: status was meant to illegally extend her service and circumvent the

laws on compulsory retirement since under R.A. No. 8291, the It is from De los Santos case that the so-called "proximity rule" was
compulsory retirement age for government employees is 65 years and derived. A position is considered to be primarily confidential when
those who are in primarily confidential positions may serve even there is a primarily close intimacy between the appointing authority
beyond that age. It is for these obvious reasons that respondent's and the appointee, which ensures the highest degree of trust and
appointment was characterized as "confidential" by the GSIS. unfettered communication and discussion on the most confidential of
matters.This means that where the position occupied is already
Respondent and GSIS sought to reconsider the ruling of petitioner. remote from that of the appointing authority, the element of trust
CSC replied that the position of Corporate Secretary is a permanent between them is no longer predominant. On further interpretation in
(career) position, and not primarily confidential (non-career); thus, it Griño, this was clarified to mean that a confidential nature would be
was wrong to appoint respondent to this position since she no longer limited to those positions not separated from the position of the
complies with eligibility requirements for a permanent career status. appointing authority by an intervening public officer, or series of public
More importantly, as respondent by then has reached compulsory officers, in the bureaucratic hierarchy.
retirement at age 65, respondent was no longer qualified for a
permanent career position. In fine, a primarily confidential position is characterized by the close
proximity of the positions of the appointer and appointee as well as
On review, CA rendered a Decision setting aside the resolution of the high degree of trust and confidence inherent in their relationship.
petitioner invalidating respondent's appointment. The CA ruled that in
determining whether a position is primarily confidential or otherwise, Ineluctably therefore, the position of Corporate Secretary of GSIS, or
the nature of its functions, duties and responsibilities must be looked any GOCC, for that matter, is a primarily confidential position. The
into, and not just its formal classification. MR by petitioner was denied. position is clearly in close proximity and intimacy with the appointing
power. It also calls for the highest degree of confidence between the
ISSUE: Whether or not the position as Corporate Secretary is appointer and appointee.
primarily confidential in nature YES
In classifying the position of Corporate Secretary of GSIS as primarily
HELD: confidential, the Court took into consideration the proximity rule
together with the duties of the corporate secretary, enumerated as
Jurisprudence establishes that the Court is not bound by the follows:
classification of positions in the civil service made by the legislative or
executive branches, or even by a constitutional body like the 1. Performs all duties, and exercises the power, as defined and
petitioner. The Court is expected to make its own determination as to enumerated in Section 4, Title IX, P.D. No. 1146;
the nature of a particular position, such as whether it is a primarily
confidential position or not, without being bound by prior 2. Undertakes research into past Board resolutions, policies,
classifications made by other bodies. decisions, directives and other Board action, and relate these to
present matters under Board consideration;
The position of corporate secretary in a government owned
and controlled corporation, currently classified as a permanent 3. Analyzes and evaluates the impact, effects and relevance of
career position, is primarily confidential in nature. matters under Board consideration on existing Board policies and

provide the individual Board members with these information so as to The responsibilities of the corporate secretary are not merely clerical
guide or enlighten them in their Board decision; or routinary in nature. The work involves constant exposure to
sensitive policy matters and confidential deliberations that are not
4. Records, documents and reproduces in sufficient number all always open to the public, as unscrupulous persons may use them to
proceedings of Board meetings and disseminate relevant Board harm the corporation. Board members must have the highest
decisions/information to those units concerned; confidence in the secretary to ensure that their honest sentiments are
always and fully expressed, in the interest of the corporation. In this
5. Coordinates with all functional areas and units concerned and respect, the nature of the corporate secretary's work is akin to that of
monitors the manner of implementation of approved Board a personal secretary of a public official, a position long recognized to
resolutions, policies and directives; be primarily confidential in nature. The only distinction is that the
corporate secretary is secretary to the entire board, composed of a
6. Maintains a permanent, complete, systematic and secure number of persons, but who essentially act as one body, while the
compilation of all previous minutes of Board meetings, together with private secretary works for only one person. However, the degree of
all their supporting documents; confidence involved is essentially the same.
7. Attends, testifies and produces in Court or in administrative bodies Not only do the tasks listed point to sensitive and confidential acts that
duly certified copies of Board resolutions, whenever required; the corporate secretary must perform, they also include "such other
functions as the Board may direct and/or require," a clear indication of
8. Undertakes the necessary physical preparations for scheduled a closely intimate relationship that exists between the secretary and
Board meetings; the board. In such a highly acquainted relation, great trust and
confidence between appointer and appointee is required.
9. Pays honoraria of the members of the Board who attend Board
meetings; Manuel A. Torres, Jr., (Deceased), Graciano J. Tobias, Rodolfo L.
Jocson, Jr., et al v. CA, SEC, Tormil Realty & Development
10. Takes custody of the corporate seal and safeguards against Corporation, et al. (1997)
unauthorized use; and
Facts: The late Manuel A. Torres, Jr. (Judge Torres) was the majority
11. Performs such other functions as the Board may direct and/or stockholder of Tormil Realty & Development Corporation while private
require. respondents who are the children of Judge Torres’ deceased brother
Antonio A. Torres, constituted the minority stockholders.
The nature of the duties and functions attached to the position points
to its highly confidential character. The secretary reports directly to the In 1984, Judge Torres, in order to make substantial savings in taxes,
board of directors, without an intervening officer in between them. In adopted an “estate planning” scheme under which he assigned to
such an arrangement, the board expects from the secretary nothing Tormil Realty & Development Corporation (Tormil) various real
less than the highest degree of honesty, integrity and loyalty, which is properties he owned and his shares of stock in other corporations in
crucial to maintaining between them "freedom of intercourse without exchange for 225,972 Tormil Realty shares.
embarrassment or freedom from misgivings or betrayals of personal
trust or confidential matters of state.

Hence, 10 deeds of assignment were executed by the late Judge originals of the Deeds of Assignment; (b) all corporate books of
Torres. Likewise, all the assigned parcels of land were duly registered account, records and papers as may be necessary for the conduct of
with the respective Register of Deeds in the name of Tormil Realty, a comprehensive audit examination.
except for the ones located in Makati and Pasay City. Judge Torres
revoked the 2 deeds of assignment covering the properties in Makati Thereafter, during the pendency of said appeal, petitioner Manuel A.
and Pasay City. Torres, Jr. died.
Noting the disappearance of the Makati and Pasay City properties SEC en banc: denied petitioners’ claims
from the corporation’s inventory of assets and financial records
private respondents were constrained to file a complaint with the The CA dismissed and the appealed decision
SEC to compel Judge Torres to deliver to Tormil corporation the
2 deeds of assignment covering the aforementioned Makati and Issue: Whether a corporate secretary should not register assignments
Pasay City properties which he had unilaterally revoked and to in the stock and transfer book when the latter belongs to the opposite
cause the registration of the corresponding titles in the name of faction in the corporation.
Tormil.
Ruling: NO.
The second controversy—involving the same parties— concerned the
election of the 1987 corporate board of directors. Heated arguments It is the corporate secretary’s duty and obligation to register valid
then ensued which also touched on family matters. transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance.
When the Chairman called for the election of directors, the Secretary In other words, there are remedies within the law that petitioners could
refused to write down the names of nominees prompting Atty. Azura have availed of, instead of taking the law in their own hands, as the
to initiate the appointment of Atty. Jocson, Jr. as Acting Secretary. cliché goes.
x x x. In this case, it is precisely the brewing family discord between Judge

Torres and private respondents-his nephew and nieces that should
Consequently, private respondents instituted a complaint with the have placed Judge Torres on his guard. He should have been more
SEC praying in the main, that the election of petitioners to the Board careful in ensuring that his actions (particularly the assignment of
of Directors be annulled. Private respondents alleged that the qualifying shares to his nominees) comply with the requirements of
petitioners- nominees were not legitimate stockholders of Tormil the law.
because the assignment of shares to them violated the minority
stockholders’ right of pre-emption as provided in the corporation’s Petitioners cannot use the flimsy excuse that it would have been a
articles and by-laws. vain attempt to force the incumbent corporate secretary to register the
aforestated assignments in the stock and transfer book because the
Panel of Hearing Officers of the SEC decided in favor of private latter belonged to the opposite faction.
respondents - Ordering and directing the respondents, particularly
respondent Manuel A. Torres, Jr., to turn over and deliver to TORMIL Thus, we agree with the ruling of the SEC en banc as affirmed by the
through its Corporate Secretary, Ma. Cristina T. Carlos: (a) the Court of Appeals: We likewise sustain respondent SEC when it ruled,

interpreting Section 74 of the Corporation Code, as follows. In the HELD
absence of (any) provision to the contrary, the corporate secretary is
the custodian of corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein. No. The registration of shares in a stockholder’s name, the issuance
of stock certificates, and the right to receive dividends which pertain to
All corporations, big or small, must abide by the provisions of the the said shares are all rights that flow from ownership. The
Corporation Code. Being a simple family corporation is not an determination of whether or not a shareholder is entitled to exercise
exemption. Such corporations cannot have rules and practices other the above mentioned rights falls within the jurisdiction of the SEC.
than those established by law. However, if ownership of the shares is not clearly established and is
still unresolved at the time the action for mandamus is filed, then
WHEREFORE, the petition for review on certiorari is hereby DENIED. jurisdiction lies with the regular courts.
Lim Tay v. Court of Appeals, 293 SCRA 634 (1998)

In the case at bar, reading into the contract of pledge, the stipulation
FACTS shows that Lim Tay was merely authorized to foreclose the pledge
upon maturity of the loans, not to own them. Such foreclosure was
not automatic, for it must be done in a public or private sale. Nowhere
Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of
was it mentioned that he exercised his right of foreclosure. Hence, his
P40,000. This was secured by a contract of pledge whereby the
status was still a mere pledgee, and under civil law, this does not
former pledged their 300 shares of stock each in Go Fay & Company
entitle him to ownership of the shares of stock in question.
to the latter. However, they failed to pay their respective loans.
Hence, Lim Tay filed a petition for mandamus against Go Fay &
Company with the SEC praying that an order be issued directing the
corporate secretary of the said corporation to register the stock
Malcaba v. ProHealth Pharma Phils., Inc., G.R. No. 209085, 06
transfers and issue new certificates in favor of Lim Tay.
June 2018
Go Fay & Company filed its answer contending that SEC had no DOCTRINE: before any labor tribunal takes cognizance of termination
jurisdiction to entertain the complaint on the ground that since Lim Tay disputes, it must first have jurisdiction over the action. The Labor
was not a stockholder of the company, no intra corporate controversy Arbiter and the National Labor Relations Commission only exercise
took place; and furthermore, that the default of payment of Sy Guiok jurisdiction over termination disputes between an employer and an
and Sy Lim did not automatically vest in Lim Tay the ownership of the employee. They do not exercise jurisdiction over termination disputes
pledged shares. between a corporation and a corporate officer.
NICANOR F. MALCABA, CHRISTIAN C. NEPOMUCENO, AND

SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s LAURA MAE FATIMA F. PALIT-ANG, Petitioners, v. PROHEALTH
decision. Hence, this petition for certiorari with the SC. PHARMA PHILIPPINES, INC., GENEROSO R. DEL CASTILLO, JR.,
AND DANTE M. BUSTO, Respondents.
ISSUE: Whether or not SEC had jurisdiction.

FACTS: ProHealth Pharma Philippines, Inc. (ProHealth) is a ProHealth moved for reconsideration but was denied by the National
corporation engaged in the sale of pharmaceutical products and Labor Relations Commission in its January 31, 2011 Resolution.
health food on a wholesale and retail basis. Generoso Del Castillo Thus, ProHealth, Del Castillo, and Busto filed a Petition for Certiorari
(Del Castillo) is the Chair of the Board of Directors and Chief before the Court of Appeals.
Executive Officer while Dante Busto (Busto) is the Executive Vice
President. Malcaba, Tomas Adona, Jr. (Adona), Nepomuceno, and On February 19, 2013, the Court of Appeals rendered its Decision
Palit-Ang were employed as its President, Marketing Manager, reversing and setting aside the National Labor Relations Commission
Business Manager, and Finance Officer, respectively. September 29, 2010 Decision.
Malcaba, Nepomuceno, Palit-Ang, and Adona separately filed Malcaba, Nepomuceno, and Palit-Ang moved for reconsideration but
Complaints before the Labor Arbiter for illegal dismissal, nonpayment were denied in a Resolution38 dated September 10, 2013. Hence,
of salaries and 13th month pay, damages, and attorney's fees. this Petition39 was filed before this Court.
The Labor Arbiter found that Malcaba was constructively dismissed. Petitioners argue that the Court of Appeals should have dismissed
He found that ProHealth never controverted the allegation that Del outright the Petition for Certiorari since respondents failed to post a
Castillo made it difficult for Malcaba to effectively fulfill his duties. He genuine appeal bond before the National Labor Relations
likewise ruled that ProHealth's insistence that Malcaba's leave of Commission. They allege that when Sheriff Ramon Nonato P. Dayao
absence in October 2007 was an act of resignation was false since attempted to enforce the judgment award against the appeal bond, he
Malcaba continued to perform his duties as President through was informed that the appeal bond procured by respondents did not
December 2007. appear in the records of Alpha Insurance and Surety Company, Inc.
(Alpha Insurance). They also claim that respondents were notified by
The Labor Arbiter declared that Nepomuceno's failure to state the the National Labor Relations Commission four (4) times that their
actual date of his flight was an excusable mistake on his part, appeal bond was not genuine, showing that respondents did not
considering that this was his first infraction in his nine (9) years of comply with the requirement in good faith.
service. He noted that no administrative proceedings were conducted
before Nepomuceno's dismissal, thereby violating his right to due ISSUES:
process.
(1) whether or not the Labor Arbiter and National Labor Relations
Palit-Ang's dismissal was also found to have been illegal as delay in Commission had jurisdiction over petitioner Nicanor F.
complying with a lawful order was not tantamount to disobedience. Malcaba's termination dispute considering the allegation that he
The Labor Arbiter further noted that delay in giving a cash advance for was a corporate officer, and not a mere employee; (PERTINENT
car maintenance would not have affected the company's operations. ISSUE)
He declared that Palit-Ang's dismissal was too harsh of a penalty.
(2) whether or not petitioner Christian C. Nepomuceno was validly
WHEREFORE, premises considered, judgment is hereby rendered dismissed for willful breach of trust when he failed to inform
declaring that complainants were illegally dismissed by respondents. respondents ProHealth Pharma Philippines, Inc., Generoso R. Del
Castillo, Jr., and Dante M. Busto of the actual dates of his vacation
leave; and

(3) whether or not petitioner Laura Mae Fatima F. Palit-Ang was intentionally, knowingly and purposely, without justifiable excuse, as
validly dismissed for willful disobedience when she failed to distinguished from an act done carelessly, thoughtlessly, heedlessly
immediately comply with an order of her superior. or inadvertently."
RULING: Nepomuceno turned over all of his pending work to a reliever before
he left for Malaysia. He was able to reach his sales quota and surpass
(1) Finding that petitioner Malcaba is the President of respondent his sales target even before taking his vacation leave. Respondents
corporation and a corporate officer, any issue on his alleged dismissal did not suffer any financial damage as a result of his absence. This
is beyond the jurisdiction of the Labor Arbiter or the National Labor was also petitioner Nepomuceno's first infraction in his nine (9) years
Relations Commission. Their adjudication on his money claims is void of service with respondents.101 None of these circumstances
for lack of jurisdiction. As a matter of equity, petitioner Malcaba must, constitutes a willful breach of trust on his part. The penalty of
therefore, return all amounts received as judgment award pending dismissal, thus, was too severe for this kind of infraction.
final adjudication of his claims. This Court's dismissal of petitioner
Malcaba's claims, however, is without prejudice to his filing of the (3) Article 297 [282] of the Labor Code, an employer may terminate
appropriate case in the proper forum. the services of an employee who commits willful disobedience of the
lawful orders of the employer:
Effective on August 8, 2000, upon the passage of Republic Act No.
8799, otherwise known as The Securities Regulation Code, the SEC's Article 297. [282] Termination by Employer. — An employer may
jurisdiction over all intra-corporate disputes was transferred to the terminate an employment for any of the following causes:
RTC, pursuant to Section 5.2 of RA No. 8799.
(a) Serious misconduct or willful disobedience by the employee of the
(2) Nepomuceno was not validly dismissed. lawful orders of his employer or representative in connection with his
work.
Article 294 [279] of the Labor Code provides that an employer may
terminate the services of an employee only upon just or authorized There was no ill will between Gamboa and petitioner Palit-Ang.
causes.94 Article 297 [282] enumerates the just causes for Petitioner Palit-Ang's failure to immediately give the money to
termination, among which is "[f]raud or willful breach by the employee Gamboa was not the result of a perverse mental attitude but was
of the trust reposed in him by his employer or duly authorized merely because she was busy at the time. Neither did she profit from
representative[.]" her failure to immediately give the cash advance for the car tune-up
nor did respondents suffer financial damage by her failure to comply.
Loss of trust and confidence is a just cause to terminate either The severe penalty of dismissal was not commensurate to her
managerial employees or rank-and-file employees who regularly infraction.
handle large amounts of money or property in the regular exercise of
their functions. WHEREFORE, the Petition is PARTIALLY GRANTED. Petitioner
Christian C. Nepomuceno and petitioner Laura Mae Fatima F. Palit-
For an act to be considered a loss of trust and confidence, it must be Ang are DECLARED to have been illegally dismissed. They are,
first, work-related, and second, founded on clearly established facts. therefore, entitled to reinstatement without loss of seniority rights, or in
The breach of trust must likewise be willful, that is, "it is done

lieu thereof, separation pay; and the payment of backwages from the Corporation, represented by defendant-appellee Nenita Lee
filing of their Complaints until finality of this Decision. Gruenbeg and Reynaldo L. Gruenbeg, under TCT no. 3751; that as a
result of defendants-appellees Nenita and Motorich’s bad faith in
San Juan Structural v. CA, 296 SCRA 631 (1998) refusing to execute a formal transfer of rights/deed of assignment,
plaintiff-appellant suffered moral and nominal damages which may be
Facts: Plaintiff-appellant San Juan structural and steel fabricators assessed against defendant-appellees in the sum of P500,000; that
Inc.’s amended complaint alleged that on February 14, 1989, plaintiff- as a result of an unjustified and unwarranted failure to execute the
appellant entered into an agreement with defendant-appellee Motorich required transfer or formal deed of sale in favor of plaintiff-appellant,
Sales Corporation for the transfer to it of a parcel of land identified as defendant-appellees should be assessed exemplary damages in the
lot 30, Block 1 of the Acropolis Greens Subdivision located in the sum of P100,000; that by reason of the said bad faith in refusing to
district of Murphy, Quezon City, Metro Manila containing an area of execute a transfer in favor of plaintiff-appellant the latter lost
414 sqm, covered by TCT no. 362909; that as stipulated in the opportunity to construct a residential building in the sum of P100,000
agreement of February 14, 1i989, plaintiff-appellant paid the down and that as a consequence of such bad faith, it has been constrained
payment in the sum of P100,000, the balance to be paid on or before to obtain the services of counsel at an agreed fee of P100,000 plus
March 2, 19889; that on March 1, 1989,Mr. Andres T. Co, president of appearance fee of for every appearance in court hearings.
Plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting a computation for the balance
to be paid; that said letter was coursed through the defendant- Issues: Whether or not the corporation’s treasurer act can bind the
appellee’s broker. Linda Aduca who wrote the computation of the corporation.
balance; that on March 2, 1989, plaintiff-appellant was ready with the
amount corresponding to the balance, covered by Metrobank
cashier’s check no. 004223 payable to defendant-appellee Motorich
Whether or not the doctrine of piercing the veil of corporate entity is
Sales Corporation; that plaintiff-appellant and defendant-appellee
applicable.
were supposed to meet in the plaintiff-appellant’s office but defendant-
appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that
defendant-appelle despite repeated demands and in utter disregard of
its commitments had refused to execute the transfer of rights/deed of Held: No. Such contract cannot bind Motorich, because it never
assignment which is necessary to transfer the certificate of title; that authorized or ratified such sale.
defendant ACL development corporation is impleaded as a necessary
party since TCT no. 362909 is still in the name of said defendant;
while defendant VNM Realty and Development Corporation is likewise A corporation is a juridical person separate and distinct from its
impleaded as a necessary party in view of the fact that it is the stockholders or members. Accordingly, the property of the corporation
transferor of the right in favor of defendant-appellee Motorich Sales is not the property of the corporation is not the property of its
Corporation; that on April 6, 1989 defendant ACL Development stockholders or members and may not be sold by the stockholders or
Corporation and Motorich Sales Corporation entered into a deed of members without express authorization from the corporation’s board
absolute sale whereby the former transferred to the latter the subject of directors.
property; that by reason of said transfer; the registry of deeds of
Quezon City issued a new title in the name of Motorich Sales

Section 23 of BP 68 provides the Board of Directors or Trustees – corporation was formed, or that it is operated for the purpose of
Unless otherwise provided in this code, the corporate powers of all shielding any alleged fraudulent or illegal activities of its officers or
corporations formed under this code shall be exercised, all business stockholders; or that the said veil was used to conceal fraud, illegality
conducted, and all property of such corporations controlled and held or inequity at the expense of third persons like petitioner.
by the board of directors or trustees to be elected from among the
stockholders of stocks, or where there is no stock, from among the
members of the corporations, who shall hold office for 1 year and until Matling Industrial and Commercial Corp. v. Coros, 633 SCRA 12
their successors are elected and qualified. (2010)
Facts: After his dismissal by Matling as its Vice President for Finance
As a general rule, the acts of corporate officers within the scope of and Administration, the respondent filed on August 10, 2000 a
their authority are binding on the corporation. But when these officers complaint for illegal suspension and illegal dismissal against Matling
exceed their authority, their actions, cannot bind the corporation, and some of its corporate officers (petitioners) in the NLRC, Sub-
unless it has ratified such acts as is estopped from disclaiming them.
Regional Arbitration Branch XII, Iligan City. The petitioners moved to
dismiss the complaint, raising the ground, among others, that the
Because Motorich had never given a written authorization to complaint pertained to the jurisdiction of the Securities and Exchange
respondent Gruenbeg to sell its parcel of land, we hold that the Commission (SEC) due to the controversy being intracorporate
February 14, 1989 agreement entered into by the latter with petitioner inasmuch as the respondent was a member of Matlings Board of
is void under Article 1874 of the Civil Code. Being inexistent and void Directors aside from being its Vice-President for Finance and
from the beginning, said contract cannot be ratified. Administration prior to his termination. The respondent opposed the
petitioners motion to dismiss, insisting that his status as a member of
Matlings Board of Directors was doubtful, considering that he had not
The statutorily granted privilege of a corporate veil may be used only been formally elected as such; that he did not own a single share of
for legitimate purposes. On equitable consideration,the veil can be
stock in Matling, considering that he had been made to sign in blank
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or an undated indorsement of the certificate of stock he had been given
serve as a mere alter ego or business conduit of a person or an in 1992; that Matling had taken back and retained the certificate of
instrumentality, agency or adjunct of another corporation. stock in its custody; and that even assuming that he had been a
Director of Matling, he had been removed as the Vice President for
Finance and Administration, not as a Director, a fact that the notice of
We stress that the corporate fiction should be set aside when it his termination dated April 10, 2000 showed. On October 16, 2000,
becomes a shield against liability for fraud, or an illegal act on inequity the LA granted the petitioners motion to dismiss, ruling that the
committed on third person. The question of piercing the veil of
respondent was a corporate officer because he was occupying the
corporate fiction is essentially, then a matter of proof. In the present
case, however, the court finds no reason to pierce the corporate veil position of Vice President for Finance and Administration and at the
of respondent Motorich. Petitioner utterly failed to establish the said same time was a Member of the Board of Directors of Matling; and

that, consequently, his removal was a corporate act of Matling and the pesos (P 5,000.00) regardless of whether accompanied with a claim
controversy resulting from such removal was under the jurisdiction of for reinstatement.
the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree
No. 902. (b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters. (c) Cases arising from the
Issue: Whether or not the respondent is a corporate officer within the interpretation or implementation of collective bargaining agreements
jurisdiction of the regular courts. and those arising from the interpretation or enforcement of company
personnel policies shall be disposed of by the Labor Arbiter by
Held: No. As a rule, the illegal dismissal of an officer or other referring the same to the grievance machinery and voluntary
employee of a private employer is properly cognizable by the LA. This arbitration as may be provided in said agreements.
is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which Where the complaint for illegal dismissal concerns a corporate officer,
provides as follows: however, the controversy falls under the jurisdiction of the Securities
Article 217. Jurisdiction of the Labor Arbiters and the and Exchange Commission (SEC), because the controversy arises
Commission. – (a) Except as otherwise provided under this Code, out of intra-corporate or partnership relations between and among
the Labor Arbiters shall have original and exclusive jurisdiction to hear stockholders, members, or associates, or between any or all of them
and decide, within thirty (30) calendar days after the submission of the and the corporation, partnership, or association of which they are
case by the parties for decision without extension, even in the stockholders, members, or associates, respectively; and between
absence of stenographic notes, the following cases involving all such corporation, partnership, or association and the State insofar as
workers, whether agricultural or non-agricultural: the controversy concerns their individual franchise or right to exist as
1. Unfair labor practice cases; such entity; or because the controversy involves the election or
2. Termination disputes; appointment of a director, trustee, officer, or manager of such
3. If accompanied with a claim for reinstatement, those cases that corporation, partnership, or association. Such controversy, among
workers may file involving wages, rates of pay, hours of work and others, is known as an intra-corporate dispute.
other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages Effective on August 8, 2000, upon the passage of Republic Act No.
arising from the employer-employee relations; 8799, otherwise known as The Securities Regulation Code, the SECs
5. Cases arising from any violation of Article 264 of this Code, jurisdiction over all intra-corporate disputes was transferred to the
including questions involving the legality of strikes and lockouts; and RTC, pursuant to Section 5.2 of RA No. 8799.
6. Except claims for Employees Compensation, Social Security,
Medicare and maternity benefits, all other claims arising from Thus, pursuant to the above provision (Section 25 of the Corporation
employer-employee relations, including those of persons in domestic Code), whoever are the corporate officers enumerated in the by-laws
or household service, involving an amount exceeding five thousand are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate By-

laws. However, the Board may create appointive positions other than FACTS:
the positions of corporate Officers, but the persons occupying such
positions are not considered as corporate officers within the meaning ISSUE:
of Section 25 of the Corporation Code and are not empowered to
RULING:
exercise the functions of the corporate Officers, except those Steinberg v. Velasco, 52 Phil. 953 (1929)
functions lawfully delegated to them. Their functions and duties are to
be determined by the Board of Directors/Trustees. Facts:
Moreover, the Board of Directors of Matling could not validly delegate On June 30, 1922, the board of directors of the corporation authorized
the purchase of, purchased and paid for, 330 shares of the capital
the power to create a corporate office to the President, in light of
stock of the corporation at the agreed price of P3,300, and that at the
Section 25 of the Corporation Code requiring the Board of Directors time the purchase was made, the corporation was indebted in the sum
itself to elect the corporate officers. Verily, the power to elect the of P13,807.50, and it had accounts receivable in the sum of
corporate officers was a discretionary power that the law exclusively P19,126.02. The officers and directors of the corporation also
vested in the Board of Directors, and could not be delegated to approved a resolution for the payment of P3,000 as dividends to its
subordinate officers or agents. The office of Vice President for stockholders. The board of directors acted on assumption that,
Finance and Administration created by Matlings President pursuant to because it appeared from the books of the corporation that it had
accounts receivable of the face value of P19,126.02, therefore it had a
By Law No. V was an ordinary, not a corporate, office.
surplus over and above its debts and liabilities.
The criteria for distinguishing between corporate officers who may be On September 11, 1923, when the petition was filed for the
ousted from office at will, on one hand, and ordinary corporate corporation’s dissolution on the ground of insolvency, its accounts
employees who may only be terminated for just cause, on the other payable was P9,241.19, and its accounts receivable P12,512.47, or
hand, do not depend on the nature of the services performed, but on an apparent asset of P3,271.28 over and above its liabilities.
However, there is no stipulation or finding of facts as to what was the
the manner of creation of the office. In the respondents case, he was
actual cash value of its accounts receivable. Neither is there any
supposedly at once an employee, a stockholder, and a Director of stipulation that those accounts or any part of them ever have been or
Matling. The circumstances surrounding his appointment to office will be collected, and it does appear that after the appointment of the
must be fully considered to determine whether the dismissal Receiver on February 28, 1924, he made diligent effort to collect
constituted an intra-corporate controversy or a labor termination them, but he was unable to do so.
dispute. We must also consider whether his status as Director and
stockholder had any relation at all to his appointment and subsequent On February 28, 1924, P12,512.47 of those accounts had but little, if
any, value, and in the purchase of its own stock to the amount of
dismissal as Vice President for Finance and Administration.
P3,300 and in declaring the dividends to the amount of P3,000, the
real assets of the corporation were diminished to P6,300. In other
Wesleyan University-Philippines v. Maglaya, Sr., 815 SCRA 171 words, that the corporation did not then have an actual bona fide
(2017) surplus from which the dividends could be paid, and that the payment

of them in full at the time would "affect the financial condition of the General Duty to Exercise Reasonable Care. — The directors of a
corporation." corporation are bound to care for its property and manage its affairs in
good faith, and for a violation of these duties resulting in waste of its
The board acted peculiarly when it purchased the stock from the assets or injury to the property they are liable to account the same as
stockholders and declared the dividends on the stock on the same other trustees. Are there can be no doubt that if they do acts clearly
day at the same meeting of the board of directors. It appears that the beyond their power, whereby loss ensues to the corporation, or
directors (Ganzon and Mendaros) were permitted to resign so that dispose of its property or pay away its money without authority, they
they could sell their stocks to the corporation. It is very apparent that will be required to make good the loss out of their private estates. This
the directors did not act in good faith or that they were grossly is the rule where the disposition made of money or property of the
ignorant of their duties. The plaintiff alleges that these actions diverted corporation is one either not within the lawful power of the corporation,
the corporation’s funds to the injury, damage and in fraud of the or, if within the authority of the particular officer or officers.
creditors of the corporation.
And section 458 which says:
Want of Knowledge, Skill, or Competency. — It has been said that

Defendant Velasco in his answer stated that the shares were directors are not liable for losses resulting to the corporation from
purchased by virtue of a resolution of the board of directors of the want of knowledge on their part; or for mistake of judgment, provided
corporation "when the business of the company was going on very they were honest, and provided they are fairly within the scope of the
well." As for the dividends, those were distributed with authorization powers and discretion confided to the managing body. But the
by the board of directors, "and that the amount represented by said acceptance of the office of a director of a corporation implies a
dividends really constitutes a surplus profit of the corporation. competent knowledge of the duties assumed, and directors cannot
excuse imprudence on the ground of their ignorance or inexperience;
The lower court dismissed plaintiff's complaint, and rendered and if they commit an error of judgment through mere recklessness or
judgment for the defendants. want of ordinary prudence or skill, they may be held liable for the
consequences. Like a mandatory, to whom he has been likened, a
Issues: 1) WON Sibuguey Trading Company, Incorporated, could director is bound not only to exercise proper care and diligence, but
legally purchase its own stock.* ordinary skill and judgment. As he is bound to exercise ordinary skill
and judgment, he cannot set up that he did not possess them.
2) WON the CA erred in holding that the Board of Directors of
the said Corporation could legally declared a dividend of P3,000, Creditors of a corporation have the right to assume that so long as
July 24, 1922.* there are outstanding debts and liabilities, the board of directors will
not use the assets of the corporation to purchase its own stock, and
*actual issues of the case but for purpose of our class the issue that it will not declare dividends to stockholders when the corporation
should be: WON the Board of Directors acted with due is insolvent.
diligence in handling the corporation’s finances.
The judgment of the lower court is reversed, and defendants were
Held: NO to both issues. The rule is well stated in Ruling Case Law, ordered to pay sums of money to cover the dividends distributed and
vol. 7, p. 473, section 454 where it is said: stocks purchased with interest.

RAMON C. LEE and ANTONIO DM. LACDAO vs. THE HON. corporation can only be bound by such acts which are within the
COURT OF APPEALS, SACOBA MANUFACTURING CORP., scope of its officers' or agents' authority
PABLO GONZALES, JR. and THOMAS GONZALES (1992)
The private respondents argued that the voting trust agreement did
FACTS: not divest the petitioners of their positions as president and executive
vice-president of ALFA so that service of summons upon ALFA
The petitioners, by virtue of a voting trust agreement executed in 1981 through the petitioners as corporate officers was proper.
disposed of all their shares through assignment and delivery in favor
of the DBP, as trustee. In 1985, a complaint for a sum of money was Lower Court declared that service upon the petitioners who were no
filed by the International Corporate Bank, Inc. against the private longer corporate officers of ALFA cannot be considered as proper
respondents who, in turn, filed a third-party complaint against ALFA service of summons on ALFA. Court of Appeals reversed.
and the petitioners.
ISSUE: Was the service of summons to the petitioner valid? NOT
Petitioner wrote a letter to the court informing that the summons for VALID
ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP. Petitioner is HELD:
contending that Rule 14, section 13 of the Revised Rules of Court is
not applicable since they were no longer officers of ALFA and that the Sec. 59. Voting Trusts — One or more stockholders of a stock
private respondents should have availed of another mode of service corporation may create a voting trust for the purpose of conferring
under Rule 14, Section 16 of the said Rules, i.e., through publication upon a trustee or trustees the right to vote and other rights pertaining
to effect proper service upon ALFA. to the share for a period rights pertaining to the shares for a period not
exceeding five (5) years at any one time: Provided, that in the case of
Petitioner’s other arguments: a voting trust specifically required as a condition in a loan agreement,
said voting trust may be for a period exceeding (5) years but shall
(1) that the execution of the voting trust agreement by a stockholders automatically expire upon full payment of the loan. A voting trust
whereby all his shares to the corporation have been transferred to the agreement must be in writing and notarized, and shall specify the
trustee deprives the stockholders of his position as director of the terms and conditions thereof. A certified copy of such agreement shall
corporation; to rule otherwise would be violative of section 23 of the be filed with the corporation and with the Securities and Exchange
Corporation Code Commission; otherwise, said agreement is ineffective and
unenforceable. The certificate or certificates of stock covered by the
(2) that the petitioners were no longer acting or holding any of the voting trust agreement shall be cancelled and new ones shall be
positions provided under Rule 14, Section 13 of the Rules of Court issued in the name of the trustee or trustees stating that they are
authorized to receive service of summons for and in behalf of the issued pursuant to said agreement. In the books of the corporation, it
private domestic corporation so that the service of summons on ALFA shall be noted that the transfer in the name of the trustee or trustees
effected through the petitioners is not valid and ineffective; to maintain is made pursuant to said voting trust agreement.
the position that ALFA was properly served its summons through the
petitioners would be contrary to the general principle that a By its very nature, a voting trust agreement results in the separation of
the voting rights of a stockholder from his other rights such as the

right to receive dividends, the right to inspect the books of the With the omission of the phrase "in his own right" the election of
corporation, the right to sell certain interests in the assets of the trustees and other persons who in fact are not beneficial owners of
corporation and other rights to which a stockholder may be entitled the shares registered in their names on the books of the corporation
until the liquidation of the corporation. However, in order to distinguish becomes formally legalized. Hence, this is a clear indication that in
a voting trust agreement from proxies and other voting pools and order to be eligible as a director, what is material is the legal title to,
agreements, it must pass three criteria or tests, namely: (1) that the not beneficial ownership of, the stock as appearing on the books of
voting rights of the stock are separated from the other attributes of the corporation.
ownership; (2) that the voting rights granted are intended to be
irrevocable for a definite period of time; and (3) that the principal The facts of this case show that the petitioners, by virtue of the voting
purpose of the grant of voting rights is to acquire voting control of the trust agreement executed in 1981 disposed of all their shares through
corporation. assignment and delivery in favor of the DBP, as trustee.
Consequently, the petitioners ceased to own at least one share
In the instant case, the point of controversy arises from the effects of standing in their names on the books of ALFA as required under
the creation of the voting trust agreement. The petitioners maintain Section 23 of the new Corporation Code. They also ceased to have
that with the execution of the voting trust agreement between them anything to do with the management of the enterprise. The petitioners
and the other stockholders of ALFA, as one party, and the DBP, as ceased to be directors. Hence, the transfer of the petitioners' shares
the other party, the former assigned and transferred all their shares in to the DBP created vacancies in their respective positions as directors
ALFA to DBP, as trustee. They argue that by virtue to of the voting of ALFA. The transfer of shares from the stockholder of ALFA to the
trust agreement the petitioners can no longer be considered directors DBP is the essence of the subject voting trust agreement as evident
of ALFA. In support of their contention, the petitioners invoke section from the following stipulations:
23 of the Corporation Code which provides, in part, that:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE the
Every director must own at least one (1) share of the capital stock of certificate of the shares of the stocks owned by them respectively and
the corporation of which he is a director which share shall stand in his shall do all things necessary for the transfer of their respective shares
name on the books of the corporation. Any director who ceases to be to the TRUSTEE on the books of ALFA.
the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be director 2. The TRUSTEE shall issue to each of the TRUSTORS a trust
certificate for the number of shares transferred, which shall be
Under the old Corporation Code, the eligibility of a director, strictly transferrable in the same manner and with the same effect as
speaking, cannot be adversely affected by the simple act of such certificates of stock subject to the provisions of this agreement;
director being a party to a voting trust agreement inasmuch as he
remains owner (although beneficial or equitable only) of the shares 3. The TRUSTEE shall vote upon the shares of stock at all meetings
subject of the voting trust agreement pursuant to which a transfer of of ALFA, annual or special, upon any resolution, matter or business
the stockholder's shares in favor of the trustee is required (section 36 that may be submitted to any such meeting, and shall possess in that
of the old Corporation Code). No disqualification arises by virtue of the respect the same powers as owners of the equitable as well as the
phrase "in his own right" provided under the old Corporation Code. legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one Facts:
share of stock for the purpose of qualifying such person as director of
ALFA, and cause a certificate of stock evidencing the share so Lim is a registered unit owner of 1322 Golden Empire Tower (Golden
transferred to be issued in the name of such person; Empire Tower), a condominium project of Moldex Land, Inc. (Moldex),
a real estate company engaged in the construction and development
9. Any stockholder not entering into this agreement may transfer his of high-end condominium projects and in the marketing and sale of
shares to the same trustees without the need of revising this the units thereof to the general public.
agreement, and this agreement shall have the same force and effect
upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis Condocor, a nonstock, nonprofit corporation, is the registered
supplied) condominium corporation for the Golden Empire Tower. Lim, as a unit
owner of Golden Empire Tower, is a member of Condocor.
Considering that the voting trust agreement between ALFA and the
DBP transferred legal ownership of the stock covered by the Lim claimed that the individual respondents are non- unit buyers, but
agreement to the DBP as trustee, the latter became the stockholder of all are members of the Board of Directors of Condocor, having been
record with respect to the said shares of stocks. In the absence of a elected during its organizational meeting in 2008 and in 2012.
showing that the DBP had caused to be transferred in their names
one share of stock for the purpose of qualifying as directors of ALFA, Moldex became a member of Condocor on the basis of its ownership
the petitioners can no longer be deemed to have retained their status of the 220 unsold units in the Golden Empire Tower. The individual
as officers of ALFA which was the case before the execution of the respondents acted as its representatives.
subject voting trust agreement. There appears to be no dispute from
the records that DBP has taken over full control and management of On July 21, 2012, Condocor held its annual general membership
the firm. meeting. Its Corporate secretary certified, and Jaminola, as Chairman,
declared the existence of a quorum even though only 29 of the 108
There can be no reliance on the inference that the five-year period of unit buyers were present. The declaration of quorum was based on
the voting trust agreement in question had lapsed in 1986 so that the the presence of the majority of the voting rights, including those
legal title to the stocks covered by the said voting trust agreement pertaining to the 220 unsold units held by Moldex through its
ipso facto reverted to the petitioners as beneficial owners pursuant to representatives. Lim, through her attorney-in-fact, objected to the
the 6th paragraph of section 59 of the new Corporation Code which validity of the meeting. The objection was denied. Thus, Lim and all
reads: the unit owners present, except for one, walked out and left the
meeting.
Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed period, Despite the walkout, the individual respondents and the other unit
and the voting trust certificate as well as the certificates of stock in the owner proceeded with the annual general membership meeting and
name of the trustee or trustees shall thereby be deemed cancelled elected the new members of the Board of Directors for 2012-2013.
and new certificates of stock shall be reissued in the name of the The individual respondents were elected as follows:
transferors.
4. Mr. Edgardo Macalintal – Corporate Secretary
Lim v. Moldex Land, Inc., 815 SCRA 619 (2017)

5. Atty. Ma. Rosario Bernardo – Asst. Corporate Secretary CORPORATION, the membership being automatically
assumed by the buyer or transferee upon registration of
6. Atty. Mary Rose Pascual – Asst. Corporate Secretary the sale or transfer and ownership of the latter over the
unit with the Register of Deeds for the City of Manila.
7. Atty. Jasmin Cuizon – Asst. Corporate Secretary
Likewise, the Master Deed of Condocor provides:
Lim’s election protest filed before the RTC was dismissed.
Section 11. MORTGAGES, LIENS, LEASES, TRANSFERS OF
Issues: RIGHTS AND SALE OF UNITS.—All transactions involving the
transfer of the ownership or occupancy of any UNIT, such as sale,
1) Whether Lim is still a member of Condocor. YES. transfer of rights or leases, as well as encumbrances involving said
UNIT, such as mortgages, liens and the like, shall be reported to the
2) How is quorum determined in nonstock corporations? By the CORPORATION within five (5) days after the effectivity of said
majority of its actual members. transactions.
3) Whether Moldex is a member of Condocor. YES Nothing in the records showed that the alleged transfer made by Lim
was registered with the Register of Deeds of the City of Manila or was
4) May Moldex appoint duly authorized representatives who will reported to the corporation. Logically, until and unless the registration
exercise its membership rights, specifically the right to be voted as is effected, Lim remains to be the registered owner of the
corporate directors/officers? YES condominium unit and thus, continues to be a member of Condocor.
5) Can the individual respondents, who are nonmembers, be elected
as directors of Condocor? NO.
2. In nonstock corporations, quorum is determined by the
Ruling: majority of its actual members
1. YES. Section 90 of the Corporation Code states that In corporate parlance, the term “meeting” applies to every duly
membership in a nonstock corporation and all rights arising convened assembly either of stockholders, members, directors,
therefrom are personal and nontransferable, unless the trustees, or managers for any legal purpose, or the transaction of
articles of incorporation or the bylaws otherwise provide. A business of a common interest. Under Philippine corporate laws,
perusal of Condocor’s By-Laws as regards membership and meetings may either be regular or special.
transfer of rights or ownership over the unit reveal that:
A stockholders’ or members’ meeting must comply with the following
Membership in the CORPORATION is a mere appurtenance requisites to be valid:
of the ownership of any unit in the CONDOMINIUM and may
not therefore be sold, transferred or otherwise encumbered 1. The meeting must be held on the date fixed in the By- Laws or in
separately from the said unit. Any member who sells or accordance with law;
transfer his/her/its unit/s in the CONDOMINIUM shall
automatically cease to be a member of the

2. Prior written notice of such meeting must be sent to all for purposes of quorum would be superfluous for although they may
stockholders/members of record; attend a particular meeting, they cannot cast their vote on any matter
discussed therein.
3. It must be called by the proper party;
Similarly, Section 6 of Condocor’s By-Laws reads: “The attendance of
4. It must be held at the proper place; and a simple majority of the members who are in good standing shall
constitute a quorum. . . x x x.”
5. Quorum and voting requirements must be met.
The phrase, “members in good standing,” is a mere qualification as to
Of these 5 requirements, the existence of a quorum is crucial. Any act which members will be counted for purposes of quorum. As can be
or transaction made during a meeting without quorum is rendered of gleaned from Condocor’s By-Laws, there are 2 kinds of members:
no force and effect, thus, not binding on the corporation or parties
concerned. 1) members in good standing; and
In relation thereto, Section 52 of the Corporation Code of the 2) delinquent members.

Philippines (Corporation Code) provides:
Section 6 merely stresses that delinquent members are not to be
Section 52. Quorum in meetings.—Unless otherwise taken into consideration in determining quorum. In relation thereto,
provided for in this Code or in the bylaws, a quorum shall Section 7 of the By-Laws, referring to voting rights, also qualified that
consist of the stockholders representing a majority of the only those members in good standing are entitled to vote. Delinquent
outstanding capital stock or a majority of the members in the members are stripped off their right to vote. Clearly, contrary to the
case of nonstock corporations. ruling of the RTC, Sections 6 and 7 of Condocor’s By-Laws do not
provide that majority of the total voting rights, without qualification, will
Thus, for stock corporations, the quorum is based on the constitute a quorum.
number of outstanding voting stocks while for nonstock
corporations, only those who are actual, living members with
voting rights shall be counted in determining the existence of a
quorum. 3. Moldex is a member of Condocor
Matters involving a condominium are governed by Republic Act No.

4726 (Condominium Act). Said law sanctions the creation of a
To be clear, the basis in determining the presence of quorum in condominium corporation which is especially formed for the purpose
nonstock corporations is the numerical equivalent of all of holding title to the common areas, including the land, or the
members who are entitled to vote, unless some other basis is appurtenant interests in such areas, in which the holders of separate
provided by the By-Laws of the corporation. The qualification “with interest shall automatically be members or shareholders, to the
voting rights” simply recognizes the power of a nonstock corporation exclusion of others, in proportion to the appurtenant interest of their
to limit or deny the right to vote of any of its members. To include respective units in the common areas. In relation thereto, Section 10
these members without voting rights in the total number of members

of the same law clearly provides that the condominium corporation 4. Yes. Moldex may appoint a duly authorized representative
shall constitute the management body of the project.
A corporation can act only through natural persons duly authorized for
Membership in a condominium corporation is limited only to the unit the purpose or by a specific act of its board of directors. Thus, in order
owners of the condominium project. This is provided in Section 10 of for Moldex to exercise its membership rights and privileges, it
the Condominium Act which reads: necessarily has to appoint its representatives.
Membership in a condominium corporation, regardless of whether it is Section 58 of the Corporation Code mandates:
a stock or nonstock corporation, shall not be transferable separately
from the condominium unit of which it is an appurtenance. When a Section 58. Proxies.—Stockholders and members may vote in
member or stockholder ceases to own a unit in the project in which person or by proxy in all meetings of stockholders or members.
the condominium corporation owns or holds the common areas, he Proxies shall in writing, signed by the stockholder or member and filed
shall automatically cease to be a member or stockholder of the before the scheduled meeting with the corporate secretary. Unless
condominium corporation. otherwise provided in the proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be valid and effective for a
Although the Condominium Act provides for the minimum requirement period longer than 5 years at any one time.
for membership in a condominium corporation, a corporation’s articles
of incorporation or bylaws may provide for other terms of membership, Relative to the above provision is Section 1, Article II of Condocor’s
so long as they are not inconsistent with the provisions of the law, the By-Laws, which grants registered owners the right to designate any
enabling or master deed, or the declaration of restrictions of the person or entity to represent them in Condocor, subject to the
condominium project. submission of a written notification to the Secretary of such
designation. Further, the owner’s representative is entitled to enjoy
Thus, law and jurisprudence dictate that ownership of a unit entitles and avail himself of all the rights and privileges, and perform all the
one to become a member of a condominium corporation. The duties and responsibilities of a member of the corporation. The law
Condominium Act does not provide a specific mode of acquiring and Condocor’s By-Laws evidently allow proxies in members’
ownership. Thus, whether one becomes an owner of a condominium meeting.
unit by virtue of sale or donation is of no moment.
Prescinding therefrom, Moldex had the right to send duly authorized
It is erroneous to argue that the ownership must result from a sale representatives to represent it during the questioned general
transaction between the owner-developer and the purchaser. Such membership meeting. Records showed that, pursuant to a Board
interpretation would mean that persons who inherited a unit, or have Resolution, as certified by Sandy T. Uy, corporate secretary of
been donated one, and properly transferred title in their names cannot Moldex, the individual respondents were instituted as Moldex’s
become members of a condominium corporation. representatives.

5. No. Individual respondents who are nonmembers cannot be This rule was reiterated in Section 92 of the Corporation Code, which
elected as directors and officers of the condominium states:
corporation.
Section 92. Election and term of trustees.—x x x No person shall
The governance and management of corporate affairs in a corporation be elected as trustee unless he is a member of the corporation. x x x x
lies with its board of directors in case of stock corporations, or board
of trustees in case of nonstock corporations. As the board exercises While Moldex may rightfully designate proxies or representatives, the
all corporate powers and authority expressly vested upon it by law latter, however, cannot be elected as directors or trustees of
and by the corporations’ bylaws, there are minimum requirements set Condocor. First, the Corporation Code clearly provides that a director
in order to be a director or trustee, one of which is ownership of a or trustee must be a member of record of the corporation. Further, the
share in one’s name or membership in a nonstock corporation. power of the proxy is merely to vote. If said proxy is not a member in
Section 23 of the Corporation Code provides: his own right, he cannot be elected as a director or proxy.
Respondents cannot rely on the Securities and Exchange

Commission (SEC) Opinions they cited to justify the individual
Section 23. The Board of Directors or Trustees.—Unless otherwise respondents’ election as directors. In Heirs of Gamboa v. Teves, the
provided in this Code, the corporate powers of all corporations formed Court En Banc held that opinions issued by SEC legal officers do not
under this Code shall be exercised, all business conducted and all have the force and effect of SEC rules and regulations because only
property of such corporations controlled and held by the board of the SEC En Banc can adopt rules and regulations.
directors or trustees to be elected from among the holders of stocks,
or where there is no stock, from among the members of the Following Section 25 of the Corporation Code, the election of
corporation, who shall hold office for 1 year until their successors are individual respondents, as corporate officers, was likewise invalid.
elected and qualified.
The general membership meeting of Condocor, however, was null

Every director must own at least 1 share of the capital stock of the and void. As a consequence, Roman’s election had no legal force and
corporation of which he is a director, which share shall stand in his effect. In fine, the July 21, 2012 annual general membership meeting
name on the books of the corporation. Any director who ceases to be of Condocor being null and void, all acts and resolutions emanating
the owner of at least 1 share of the capital stock of the corporation of therefrom are likewise null and void.
which he is a director shall thereby cease to be a director. Trustees
of nonstock corporations must be members thereof. A majority of 1. Associated Bank v. Pronstroller, 558 SCRA 113 (2008)
the directors or trustees of all corporations organized under this Code
must be residents of the Philippines. FACTS:
■ April 21, 1988: Spouses Eduardo and Ma. Pilar Vaca

(spouses Vaca) executed a Real Estate Mortgage (REM)

in favor of the Associated Bank (Associated) over their ■ Atty. Dayday discovered that the Pronstrollers
parcel of residential land and house failed to deposit the balance and the request
■ Due to failure to pay its obligation, Associated won its ■ March 4, 1994: It was resubmitted and
bidding in the public auction and was issued the title disapproved at its ARRMC meeting
thereto ■ ARRMC referred the matter to the
■ spouses Vaca commenced an action for the nullification of Legal Department for rescission or
the REM and the foreclosure sale. cancellation due to breach of
■ CA: favored Associated contract
■ During the pendency of the cases, Associated advertised ■ May 5, 1994: Atty. Dayday informed the disapproval,
the subject property for sale to interested buyers for rescinding and deposit forfeiture. They were also asked to
P9,700,000.00 submit their new proposal if they were still interested
■ Rafael and Monaliza Pronstroller (Pronstrollers) bought it ■ The Pronstrollers went to talked to Atty. Dayday
for P7.5M with 10% as downpayment and showed him the Letter-Agreement showing
■ March 18, 1993: Associated, through Atty. Soluta, and the that they were granted extension but Atty. Dayday
Pronstrollers, executed a Letter-Agreement told them it was a mistake and Atty. Soluta was not
■ Prior to the expiration of the 90-day period within authorized to give such extension
which to make the escrow deposit, in view of the ■ June 6, 1994: The Pronstrollers proposed to pay the
pendency of the cases the Pronstrollers requested balance with P3M upon the approval of their proposal and
that the balance be payable upon service on them the balance after 6 months but it was disapproved by
of a final decision affirming Associated's right to Associated's President
possess the property ■ June 9, 1994: They were advised that their proposal will be
■ Atty. Soluta referred respondents' proposal accepted if they will pay 24.5% per annum interest and if
to Associated's Asset Recovery and they do not agree, they are allowed to refund the 750 K
Remedial Management Committee ■ July 14, 1994: Vaca Case: court upheld Associated's right
(ARRMC) who deferred action to possess the subject property
■ July 14, 1993 (a month after they made the request and ■ July 28, 1994: The Pronstrollers commenced the instant
after the payment deadline had lapsed): Atty. Soluta suit by filing a Complaint for Specific Performance before
executed another Letter-Agreement allowing the request the RTC
■ Early 1994: Associated reorganized its management ■ During the pendency of the case, Associated sold the
■ Atty. Braulio Dayday (Atty. Dayday) became Assist. subject property to the spouses Vaca who started
VP and Head of the Documentation Section, while demolishing the house which, however, was not completed
Atty. Soluta was relieved of his responsibilities by virtue of the writ of preliminary injunction issued by the
court

■ November 14, 1997:trial court favored the Pronstrollers
(rescission of the Agreement to Sell to be null and void for 1. to keep the subject matter of the litigation within the
being contrary to law and public policy) power of the court until the entry of the final judgment to
■ CA affirmed RTC prevent the defeat of the final judgment by successive
ISSUE: W/N Associated can rescind the contract alienations; and
2. to bind a purchaser, bona fide or not, of the land subject
HELD: NO. CA Affirmed of the litigation to the judgment or decree that the court
■ GR: in the absence of authority from the board of directors, will promulgate subsequently.
no person, not even its officers, can validly bind a This registration gives the court clear authority to cancel the title of the
corporation spouses Vaca, since the sale of the subject property was made after
■ EX: board may validly delegate some of its functions and the notice of lis pendens
powers to officers, committees and agents
■ doctrine of apparent authority - with special reference to
banks
2. Benjie B. Georg, represented by Benjamin C. Belarmino, Jr.
■ existence may be ascertained through
v. Holy Trinity College, Inc., 797 SCRA 550 (2016)
1. the general manner in which the corporation
holds out an officer or agent as having the Facts
power to act, or in other words, the apparent
authority to act in general, with which it The Holy Trinity College Grand Chorale and Dance Company was
clothes him; or organized in 1987 by Sister Teresita Medalle (Sr. Medalle), the
President of respondent Holy Trinity College in Puerto Princesa City.
2. the acquiescence in his acts of a particular
In 2001, the Group was slated to perform in Greece, Italy, Spain and
nature, with actual or constructive Germany.
knowledge thereof, within or beyond the
scope of his ordinary powers Edward Enriquez (Enriquez), who allegedly represented Sr. Medalle,
■ petitioner had previously allowed Atty. Soluta to contacted petitioner Benjie B. Georg to seek assistance for payment
enter into the first agreement without a board of the Group's international airplane tickets.
resolution expressly authorizing him; thus, it had
Petitioner is the Filipino wife of a German national Heinz Georg. She
clothed him with apparent authority to modify the owns a German travel agency named DTravellers Reiseburo Georg.
same via the second letter-agreement Petitioner, in turn, requested her brother, Atty. Benjamin Belarmino,
■ Admittedly, during the pendency of the case, respondents Jr. (Atty. Belarmino), to represent her in the negotiation with Enriquez.
timely registered a notice of lis pendens to warn the whole
world that the property was the subject of a pending On 24 April 2001, MOA was executed between petitioner, represented
litigation: by Atty. Belarmino, as first party-assignee; the Group, represented by
Sr. Medalle, O.P. and Attorney-in-Fact Enriquez as second-party

assignor, and S.C. Roque Group of Companies Holding Limited w/o respondent is liable under the MOA. YES
Corporation and S.C. Roque Foundation Incorporated, represented by
Violeta P. Buenaventura, as foundation-grantor. Ruling
Under the said Agreement, petitioner, through her travel agency, will Consent
advance the payment of international airplane tickets in favor of the
Group on the assurance of the Group represented by Sr. Medalle Under Article 1330 of the Civil Code, consent may be vitiated by any
through Enriquez that there is a confirmed financial allocation from the of the following: (1) mistake, (2) violence, (3) intimidation, (4) undue
foundation-grantor. The second-party assignor assigned said amount influence, and (5) fraud. Under the same provision, the contract
in favor of petitioner. Petitioner paid for the Group's domestic and becomes voidable.Petitioner claims that Sr. Medalle knew fully well
international airplane tickets. the import of the MOA when she affixed her thumbmark therein while
respondent alleges that fraud was employed to induce Sr. Medalle to
Petitioner claimed that the second-party assignor/respondent and the affix her thumbmark. There is fraud when one party is induced by the
foundation-grantor have not paid and refused to pay their obligation other to enter into a contract, through and solely because of the
under the MOA. Petitioner prayed that they be ordered to solidarily latter's insidious words or machinations. But not all forms of fraud can
pay the amount representing the principal amount mentioned in the vitiate consent. Under Article 1330, fraud refers to dolo causante or
Agreement, moral, exemplary, and actual damages, legal fees, and causal fraud, in which, prior to or simultaneous with execution of a
cost of suit. contract, one party secures the consent of the other by using
deception, without which such consent would not have been given.
Respondent argued that the MOA on which petitioner based its cause
of action does not state that respondent is a party. Neither was Sr. Medalle claimed that she affixed her thumbmark on the MOA on
respondent obligated to pay the amount for the European Tour of the the basis of Enriquez's representation that her signature/thumbmark is
Group nor did it consent to complying with the terms of the MOA. necessary to facilitate the release of the loan. As intended, the affixing
Respondent asserted that the thumbmark of Sr. Medalle was secured of her thumbmark in fact caused the immediate release of the loan.
without her consent. Respondent maintained that since it was not a Petitioner's claim that the provisions of the MOA were read to Sr.
party to the MOA, it is not bound by the provisions stated therein. Medalle was found credible by the Court of Appeals. The Court of
Appeals discussed at length how proper care and caution was taken
RTC reconsidered its Order and issued a Writ of Attachment against by Atty. Belarmino to verify what the Groups's trip was all about and
respondent. In their Answer with Counterclaim, the extent of the authority of Sr. Medalle regarding the project. It
simply defies logic that Atty. Belarmino would employ fraud just so Sr.
Court of Appeals relieved respondent of any liability for petitioner's Medalle could affix her thumbmark to facilitate the release of the loan
monetary claims. coming from Atty. Belarmino himself.
Issue Authorization & Liability
w/o Sister Medalle freely gave her full consent to the MOA by Respondent's denial of privity to the loan contract was based on the
affixing her thumbmark YES w/o she is authorized by respondent following reasons: 1) that respondent's name does not appear on the
to enter into the MOA. YES MOA; 2) that Sr. Medalle was no longer the President of Holy Trinity

College when she affixed her thumbmark on the MOA; and 3) that Sr. to serve in the VVCC Board in a hold-over capacity. Later, Makalintal
Medalle was not authorized by respondent through a board resolution resigned as member of the VVCC Board. He was replaced by Jose
to enter into such agreement. Ramirez (Ramirez), who was elected by the remaining members of
the VVCC Board on March 6, 2001. Respondent Africa (Africa), a
School administration of the Holy Trinity College has control and
supervision of the Grand Chorale and Dance Company particularly in member of VVCC, questioned the election of Ramirez as members of
the selection and hiring of its trainers but as to their termination as the VVCC Board with the Regional Trial Court (RTC), respectively.
well. A fortiori, Jearold Loyola and Errol Gallespen were formally Africa claimed that a year after Makalintal’s election as member of the
severed per April 30, 2001 Letter of Sr. Estrella Tangan. This clearly VVCC Board in 1996, his [Makalintal’s] term – as well as those of the
shows that indeed, the Holy Trinity College Grand Chorale and Dance other members of the VVCC Board – should be considered to have
Company were both under the power of the school administration. already expired. Thus, according to Africa, the resulting vacancy
Moreover, it is also clear that the costumes were likewise financed by
should have been filled by the stockholders in a regular or special
the school administration.
meeting called for that purpose, and not by the remaining members of
With the foregoing, the court is convinced that the indeed the Holy the VVCC Board, as was done in this case. The RTC sustained
Trinity College Grand Chorale and Dance Company do not have a life Africa’s complaint.
of its own and merely derive its creation, existence and continued
operation or performance at the hands of the school administration. ISSUE:
Without the decision of the school administration, the said Chorale
Whether the remaining directors of the corporation’s Board, still
and Dance Company is completely inoperative.
constituting a quorum, can elect another director to fill in a vacancy
Sr. Medalle, as President of Holy Trinity, is clothed with sufficient caused by the resignation of a hold-over director.
authority to enter into a loan agreement. As held by the trial court, the
Holy Trinity College's Board of Trustees never contested the standing RULING:
of the Dance and Chorale Group and had in fact lent its support in the
form of sponsoring uniforms or freely allowed the school premises to NO. When Section 23 of the Corporation Code declares that “the
be used by the group for their practice sessions.
board of directors…shall hold office for one (1) year until their
3. Valle Verde Country Club, Inc. v. Africa, 598 SCRA 202 (2009) successors are elected and qualified,” we construe the provision to
mean that the term of the members of the board of directors shall be
FACTS: only for one year; their term expires one year after election to the
On February 27, 1996, during the Annual Stockholders’ Meeting of office. The holdover period – that time from the lapse of one year
petitioner Valle Verde Country Club, Inc. (VVCC), the VVCC Board of from a member’s election to the Board and until his successor’s
Directors were elected including Eduardo Makalintal (Makalintal) election and qualification – is not part of the director’s original term of
among others. In the years 1997, 1998, 1999, 2000, and 2001, office, nor is it a new term; the holdover period, however, constitutes
however, the requisite quorum for the holding of the stockholders’ part of his tenure. Corollary, when an incumbent member of the
meeting could not be obtained. Consequently, the directors continued board of directors continues to serve in a holdover capacity, it implies

that the office has a fixed term, which has expired, and the incumbent Ruling: NO.
is holding the succeeding term.
[Here], when remaining members of the VVCC Board elected Ramirez While the Minutes of the Meeting of the Board on April 1, 1982 states
to replace Makalintal, there was no more unexpired term to speak of, that the newly elected officers for the year 1982 were Oscar Gan,
as Makalintal’s one-year term had already expired. Pursuant to law, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to
the authority to fill in the vacancy caused by Makalintal’s leaving lies show proof that this election was reported to the SEC. In fact, the last
with the VVCC’s stockholders, not the remaining members of its board entry in their General Information Sheet with the SEC, as of 1986
appears to be the set of officers elected in March 1981 who were
of directors. To assume – as VVCC does – that the vacancy is caused
Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes.
by Makalintal’s resignation in 1998, not by the expiration of his term in These officers presented a Resolution dated July 30, 1986, to show
1997, is both illogical and unreasonable. His resignation as a that Premium did not authorize the filing in its behalf of any suit
holdover director did not change the nature of the vacancy; the against the private respondent International Corporate Bank.
vacancy due to the expiration of Makalintal’s term had been created
long before his resignation. We agree with the finding of public respondent Court of Appeals, that
“in the absence of /any board resolution from its board of directors the
4. Premium Marble Resources v. CA, 264 SCRA 11 (1996) [sic] authority to act for and in behalf of the corporation, the present
action must necessarily fail. The power of the corporation to sue and
Facts: Premium Marble Resources, assisted by Atty. Dumadag as be sued in any court is lodged with the board of directors that
counsel, filed an action for damages against respondent bank on the exercises its corporate powers. The claim, therefore, of petitioners as
ground that the latter allowed the checks issued to petitioner to be represented by Atty. Dumadag, that Zaballa, et al., are the incumbent
deposited to the account of the former officer of Premium and that officers of Premium has not been fully substantiated. In the absence
respondent bank refused to restitute the value of the checks to the of an authority from the board of directors, no person, not even the
prejudice of Premium. Meantime, the same corporation Premium but officers of the corporation, can validly bind the corporation.
this time represented by Siguion Reyna, Montecillo and Ongsiako Law
Office as counsel, moved to dismiss on the ground that the filing of
the case was without authority from its duly constituted board of By the express mandate of the Corporation Code (Section 26), all
directors. Premium thru Atty. Dumadag opposed contending that corporations duly organized pursuant thereto are required to submit
based on the Articles of Incorporation the persons who signed the within the period therein stated (30 days) to the Securities and
board resolution are not majority stockholders. On the other hand, Exchange Commission the names, nationalities and residences of the
Siguion Reyna law firm asserted that it is the general information directors, trustees and officers elected.
sheet filed with the SEC that is the best evidence to show who the
stockholders of a corporation are. The lower court and CA both ruled
to dismiss the case.
5. Raniel v. Jochico, 517 SCRA 221 (2007)
Issue: Whether or not the filing of the case for damages against 6. Western Institute of Technology, Inc. v. Salas, 278 SCRA 216
private respondent was authorized by a duly constituted Board of (1997)
Directors of the petitioner corporation.

Facts: Commission (SEC) reflecting therein the disbursement of
corporate funds for the compensation of Salas, et. al. based on
Salas family, are the majority and controlling members of the Resolution 4, series of 1986, making it appear that the same was
Board of Trustees of Western Institute of Technology, Inc. (WIT), passed by the board on 30 March 1986, when in truth, the same
a stock corporation engaged in the operation, among others, of was actually passed on 1 June 1986, a date not covered by the
an educational institution. According to the Villasis the minority corporation's fiscal year 1985-1986 (beginning May 1, 1995 and
stockholders of WIT, sometime on 1 June 1986 in the principal ending April 30, 1986). Thereafter, trial for the two criminal cases
office of WIT at La Paz, Iloilo City, a Special Board Meeting was (Criminal Cases 37097 and 37098), was consolidated. After a
held. In attendance were other members of the Board including full-blown hearing, Judge Porfirio Parian handed down a verdict
Reginald Villasis. Prior to said Special Board Meeting, copies of of acquittal on both counts dated 6 September 1993 without
notice thereof, dated 24 May 1986, were distributed to all Board imposing any civil liability against the accused therein. Villasis, et.
Members. The notice allegedly indicated that the meeting to be al. filed a Motion for Reconsideration of the civil aspect of the
held on 1 June 1986 included Item 6 which states that "Possible RTC Decision which was, however, denied in an Order dated 23
implementation of Art. III, Sec. 6 of the Amended By-Laws of November 1993. Villasis, et. al. filed the petition for review on
Western Institute of Technology, Inc. on compensation of all certiorari. Significantly on 8 December 1994, a Motion for
officers of the corporation." In said meeting, the Board of Intervention, dated 2 December 1994, was filed before this Court
Trustees passed Resolution 48, series 1986, granting monthly by Western Institute of Technology, Inc., disowning its inclusion
compensation to Salas, et. al. as corporate officers retroactive 1 in the petition and submitting that Atty. Tranquilino R. Gale,
June 1985, in the following amounts: “Chairman 9,000.00/month, counsel for Villasis, et. al., had no authority whatsoever to
Vice Chairman P3,500.00/month, Corporate Treasurer represent the corporation in filing the petition. Intervenor likewise
P3,500.00/month and Corporate Secretary P3,500.00/month, prayed for the dismissal of the petition for being utterly without
retroactive June 1, 1985 and the ten percentum of the net profits merit. The Motion for Intervention was granted on 16 January
shall be distributed equally among the ten members of the Board 1995.
of Trustees. This shall amend and supercede any previous
resolution.”
Issue:
A few years later, or on 13 March 1991 the Villasis and Dimas Whether the grant of compensation to Salas, et. al. is proscribed
Enriquez filed an affidavit-complaint against Salas, et. al. before under Section 30 of the Corporation Code.
the Office of the City Prosecutor of Iloilo, as a result of which 2
separate criminal informations, one for falsification of a public Held:
document under Article 171 of the Revised Penal Code and the
other for estafa under Article 315, par. 1(b) of the RPC, were filed Directors or trustees, as the case may be, are not entitled to
before Branch 33 of the Regional Trial Court of Iloilo City. The salary or other compensation when they perform nothing more
charge for falsification of public document was anchored on than the usual and ordinary duties of their office. This rule is
Salas, et. al.'s submission of WIT's income statement for the founded upon a presumption that directors/trustees render
fiscal year 1985-1986 with the Securities and Exchange service gratuitously, and that the return upon their shares

adequately furnishes the motives for service, without FACTS:
compensation. Under Section 30 of the Corporation Code, there
are only two (2) ways by which members of the board can be Petitioners are Agdao Landless Residents Association, Inc. (ALRAI),
granted compensation apart from reasonable per diems: (1) a non-stock, non-profit corporation duly organized and existing under
when there is a provision in the by-laws fixing their and by virtue of the laws of the Republic of the Philippines, and its
compensation; and (2) when the stockholders representing a board of directors while Respondents are the allegedly ousted
majority of the outstanding capital stock at a regular or special members of ALRAI.
stockholders' meeting agree to give it to them. Also, the
proscription, however, against granting compensation to Respondents filed a Complaint against petitioners alleging that the
director/trustees of a corporation is not a sweeping rule. Worthy later expelled them as members of ALRAI, and are abusing their
of note is the clear phraseology of Section 30 which state: "[T]he powers as officers. Respondents further alleged that petitioners were
directors shall not receive any compensation, as such directors." engaged in the following anomalous and illegal acts: (1) requiring
The phrase as such directors is not without significance for it ALRAI's members to pay exorbitant arrear fees when ALRAI's By-
delimits the scope of the prohibition to compensation given to Laws only set membership dues at P1.00 per month;(2) partially
them for services performed purely in their capacity as directors distributing the lands donated by Dakudao to some officers of ALRAI
or trustees. The unambiguous implication is that members of the and to some non-members in violation of the Deeds of Donation; (3)
board may receive compensation, in addition to reasonable per illegally expelling them as members of ALRAI without due process;
diems, when they render services to the corporation in a capacity and (4) being unable to show the books of accounts of ALRAI. They
other than as directors/trustees. Herein, resolution 48, s. 1986 also alleged that Loy (who bought one of the donated lots from
granted monthly compensation to Salas, et. al. not in their Alcantara) was a buyer in bad faith, having been aware of the status
capacity as members of the board, but rather as officers of the of the land when she bought it.
corporation, more particularly as Chairman, Vice-Chairman,
Treasurer and Secretary of Western Institute of Technology. Petitioners contended that ALRAI transferred lots to Alcantara as
Clearly, therefore, the prohibition with respect to granting attorney's fees ALRAI owed to her late husband, who was the legal
compensation to corporate directors/trustees as such under counsel of ALRAI. On the other hand, Javonillo and Armentano, as
Section 30 is not violated in this particular case. Consequently, president and secretary of ALRAI, respectively, made a lot of
the last sentence of Section 30 which provides that "In no case sacrifices for ALRAI, while Dela Cruz provided financial assistance to
shall the total yearly compensation of directors, as such directors, ALRAI. Petitioners also alleged that respondents who are non-
exceed ten (10%) percent of the net income before income tax of members of ALRAI have no personality to sue. They also claimed that
the corporation during the preceding year" does not likewise find the members who were removed were legally ousted due to their
application in this case since the compensation is being given to absences in meetings.
Salas, et. al. in their capacity as officers of WIT and not as board
members. RTC -in favor of complainants. The court a quo found that
respondents were expelled without due process.
CA – Affirmed
7. Agdao Landless Residents Assn. v. Maramion, 806 SCRA 74
(2016)

ISSUE: Whether respondents should be reinstated as members of Even assuming that petitioners were able to prove these allegations,
ALRAI the automatic termination of respondents' membership in ALRAI is still
not warranted. As shown above, Section 5 of the ALRAI Constitution
HELD: does not state that the grounds relied upon by petitioners will cause
the automatic termination of respondents' membership. Neither can
Petitioners' argument that respondents were validly dismissed for petitioners argue that respondents' memberships in ALRAI were
violation of the ALRAI Constitution particularly for non-payment of terminated under letter (c) of Section 5, to wit:
membership dues and absences in the meetings is without merit.
x x x c) expulsion may be exacted by majority vote of the entire
Section 91 of the Corporation Code of the Philippines provides that members, on causes which herein enumerated: 1) Act and utterances
membership in a non-stock, non-profit corporation shall be terminated which are derogatory and harmful to the best interest of the
in the manner and for the cases provided in its articles of association; 2) Failure to attend any annual or special meeting of the
incorporation or the by-laws. association for six (6) consecutive months, which shall be construed
as lack of interest to continue his membership, and 3) any act to
Section 5, Article II of the ALRAI Constitution states: conduct which are contrary to the objectives, purpose and aims of the
association as embodied in the charter;
Sec. 5. - Termination of Membership - Membership may be lost in any
of the following: a) Delinquent in the payment of monthly dues; b) Although termination of membership from ALRAI may be made by a
failure to [attend] any annual or special meeting of the majority of the members, the court a quo found that the "guideline
association for three consecutive times without justifiable cause, (referring to Section 2, Article III of the ALRAI Constitution) was not
and c) expulsion may be exacted by majority vote of the entire followed, hence, complainants' ouster from the association was
members, on causes which herein enumerated: 1) Act and utterances illegally done." The court a quo cited Section 2, Article III of the ALRAI
which are derogatory and harmful to the best interest of the Constitution which provides, thus:
association; 2) Failure to attend any annual or special meeting of the
association for six (6) consecutive months, which shall be construed Sec. 2. -Notice- The Secretary shall give or cause to be given written
as lack of interest to continue his membership, and 3) any act to notice of all meetings, regular or special to all members of the
conduct which are contrary to the objectives, purpose and aims of the association at least three (3) days before the date of each meetings
association as embodied in the charter. either by mail or personally. Notice for special meetings shall specify
the time and the purposes or purpose for which it was called; x x x
Petitioners allege that the membership of respondents in ALRAI was
terminated due to (a) non-payment of membership dues and (b) The General Meeting for the termination of membership was to be
failure to consecutively attend meetings. However, petitioners failed to held on July 29, 2001, at 2 o'clock in the afternoon; but the Notice to
substantiate these allegations. In fact, the court a quo found that all officers and members of ALRAI informing them about the General
respondents submitted several receipts showing their compliance with Meeting appeared to have been signed by ALRAI's President only on
the payment of monthly dues. Petitioners likewise failed to prove that July 27, 2001.Thus, the CA held that the "notice for the July 29, [2001]
respondents' absences from meetings were without any justifiable meeting where the general membership of ALRAI approved the
grounds to result in the loss of their membership in ALRAI. expulsion of some of the respondents was short of the three (3)-day
notice requirement. More importantly, the petitioners have failed to

adduce evidence showing that the expelled members were indeed Constitution, and they can demand the accounting of its funds in
notified of any meeting or investigation proceeding where they are accordance with Section 6, Article V of the ALRAI Constitution. In
given the opportunity to be heard prior to the termination of their addition, Sections 7476 and 7577 of the Corporation Code also
membership." sanction the right of respondents to inspect the records and books of
accounts of ALRAI and demand the accounting of its funds.
The requirement of due notice becomes more essential especially so
since the ALRAI Constitution provides for the penalties to be imposed 8. Gokongwei v. SEC, 89 SCRA 336 (1979)
in cases where any member is found to be in arrears in payment of
contributions, or is found to be absent from any meeting without any John Gokongwei, Jr., v. SEC, Andres M. Soriano, Jose M. Soriano,
justifiable cause. Section 3, Article II and Section 3, Article III of the Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde,
ALRAI Constitution provide, to wit: Miguel Ortigas, Antonio Prieto, San Miguel Corporation, Emigdio
Tanjuatco, Sr., And Eduardo R. Visaya. (G.R. No. L-45911. April 11,
Article II Sec. 3. - Suspension of members Any member who shall be
six (6) months in arrears in the payment of monthly dues or additional 1979)
contributions or assessments shall be automatically suspended and
may be reinstated only upon payment of the corresponding dues in Facts: John Gokongwei, Jr., as stockholder of San Miguel
arrears or additional contributions and after approval of the board of Corporation (SMC, filed with the SEC a petition for “declaration of
Directors. nullity of amended by-laws, cancellation of certificate of filing of
amended by-laws, injunction and damages with prayer for a
Article III Sec. 3. - Any member who shall be absent from any meeting
preliminary injunction” against the majority of the members of the
without justifiable causes shall be liable to a fine of Two Pesos (P
2.00); Board of Directors and SMC as unwilling petitioner.
Gokongwei alleged that the Board amended the by-laws of the
Clearly, members proved to be in arrears in the payment of monthly corporation, prescribing additional qualifications for its directors, “that
dues, contributions, or assessments shall only be automatically no person shall qualify or be eligible for nomination if he is engaged in
suspended; while members who shall be absent from any meeting any business which competes with that of the Corporation.”
without any justifiable cause shall only be liable for a fine. Nowhere in The board based their authority to do so on a resolution of the
the ALRAI Constitution does it say that the foregoing actions shall stockholders. It was contended that according to sec. 22 of the
cause the automatic termination of membership. Thus, the CA Corporation Law and Article VIII of the by-laws of the corporation, the
correctly ruled that "respondents' expulsion constitutes an
power to amend, modify, repeal or adopt new by-laws may be
infringement of their constitutional right to due process of law and is
delegated to the Board of Directors only by the affirmative vote of
not in accord with the principles established in Article 19 of the Civil
Code, x x x." stockholders representing not less than 2/3 of the subscribed and paid
up capital stock of the corporation.
There being no valid termination of respondents' membership m Gokongwei claims that prior to the questioned amendment, he
ALRAI, respondents remain as its existing members. It follows that as had all the qualifications to be a director of the corporation, being a
members, respondents are entitled to inspect the records and books substantial stockholder thereof; that as a stockholder, Gokongwei had
of accounts of ALRAI subject to Section 1, Article VII74 of ALRAI's

acquired rights inherent in stock ownership, such as the rights to vote “parted with his personal right or privilege to regulate the disposition of
and to be voted upon in the election of directors. his property which he has invested in the capital stock of the
corporation, and surrendered it to the will of the majority of his fellow
As additional causes of action, it was alleged that corporations have incorporators. * * * It can not therefore be justly said that the contract,
no inherent power to disqualify a stockholder from being elected as a express or implied, between the corporation and the stockholders is
director and, therefore, the questioned act is ultra vires and void. infringed * * * by any act of the former which is authorized by a
majority * * *.”
Issue: Whether the corporation has the power to provide for the Pursuant to section 18 of the Corporation Law, any
(additional) qualifications of its directors. corporation may amend its articles of incorporation by a vote or
written assent of the stockholders representing at least two-thirds of
Ruling: YES. the subscribed capital stock of the corporation. If the amendment
It is recognized by all authorities that “every corporation has the changes, diminishes or restricts the rights of the existing
inherent power to adopt by-laws ‘for its internal government, and to shareholders, then the dissenting minority has only one right, viz.: “to
regulate the conduct and prescribe the rights and duties of its object thereto in writing and demand payment for his share.” Under
members towards itself and among themselves in reference to the section 22 of the same law, the owners of the majority of the
management of its affairs.’” subscribed capital stock may amend or repeal any by-law or adopt
In this jurisdiction under sec. 21 of the corporation Law, a new by-laws. It cannot be said, therefore, that petitioner has a vested
corporation may prescribe in its by-laws “the qualifications, duties and right to be elected director, in the face of the fact that the law at the
compensation of directors, officers and employees.” time such right as stockholder was acquired contained the
This must necessarily refer to a qualification I addition to that specified prescription that the corporate charter and the by-law shall be subject
by section 30 of the Corporation law, which provides that “every to amendment, alteration and modification.
director must own in his right at least one share of the capital stock of It being settled that the corporation has the power to provide
the stock corporation of which he is a director.” for the qualifications of its directors, the next question that must be
considered is whether the disqualification of a competitor from being
elected to the Board of Directors is a reasonable exercise of corporate
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED authority.
DIRECTOR
Any person “who buys stock in a corporation does so with the A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE
knowledge that its affairs are dominated by a majority of the CORPORATION AND ITS SHAREHOLDERS
stockholders and that he impliedly contracts that the will of the Although in the strict and technical sense, directors of a private
majority shall govern in all matters within the limits of the act of corporation are not regarded as trustees, there cannot be any doubt
incorporation and lawfully enacted by-laws and not forbidden by law.” that their character is that of a fiduciary insofar as the corporation and
To this extent, therefore, the stockholder may be considered to have the stockholders as a body are concerned. As agents entrusted with

the management of the corporation for the collective benefit of the an opportunity for his own personal profit when the interest of the
stockholders, “they occupy a fiduciary relation, and in this sense the corporation justly calls for protection.
relation is one of trust.” “The ordinary trust relationship of directors of It is not denied that a member of the Board of Directors of the
a corporation and stockholders”, according to Ashaman v. Miller, “is San Miguel Corporation has access to sensitive and highly
not a matter of statutory or technical law. It springs from the fact that confidential information, such as:
directors have the control and guidance of corporate affairs and (a) marketing strategies and pricing structure;
property and hence of the property in- (b) budget for expansion and diversification;
terests of the stockholders. Equity recognizes that stockholders are (c) research and development; and
the proprietors of the corporate interests and are ultimately the only (d) sources of funding, availability of personnel, proposals of
beneficiaries thereof * * *.” mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or
AN AMENDMENT TO THE CORPORATE BY-LAW WHICH director of San Miguel Corporation, who is also the officer or owner of
RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF a competing corporation, from taking advantage of the information
HE BE ALSO DIRECTOR IN A CORPORATION WHOSE which he acquires as director to promote his individual or corporate
BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER interests to the prejudice of San Miguel Corporation and its
CORPORATION, HAS BEEN SUSTAINED AS VALID stockholders, that the questioned amendment of the by- laws was
It is a settled state law in the United States, according to made. Certainly, where two corporations are competitive in a
Fletcher, that corporations have the power to make by- laws declaring substantial sense, it would seem improbable, if not impossible, for the
a person employed in the service of a rival company to be ineligible director, if he were to discharge effectively his duty, to satisfy his
for the corporation’s Board of Directors. “* * * (A)n amendment which loyalty to both corporations and place the performance of his
renders ineligible, or if elected, subjects to removal, a director if he be corporation duties above his personal concerns.
also a director in a corporation whose business is in competition with
or is antagonistic to the other corporation is valid.” This is based upon
the principle that where the director is so employed in the service of a
rival company, he cannot serve both, but must betray one or the
9. Prime White Cement Corp. v. IAC, 220 SCRA 103 (1993)
other. Such an amendment “advances the benefit of the corporation
and is good.” FACTS:
The doctrine of “corporate opportunity” is precisely a

recognition by the courts that the fiduciary standards could not be
upheld where the fiduciary was acting for two entities with competing Falcon, president of Prime White Cement Corporation (PWCC)
and Trazo, Board member of PWCC entered into an agreement
interests. This doctrine rests fundamentally on the unfairness, in with Te, also a Board member of PWCC. They agreed that the
particular circumstances, of an officer or director taking advantage of latter shall be the sole dealer of Prime White cement in

Mindanao. Te already made known to the public that he is the
sole dealer of cements in Mindanao before the cement is to be
delivered, thus various hardware then approached him to be his 1. That the presence of such director or trustee in the board
sub-dealers and consequently he entered into various contracts meeting in which the contract was approved was not necessary
with them. to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary

for the approval of the contract;
Falcon and Trazo were not authorized by the Board of PWCC to
enter into such contract. Nevertheless, the Board wished to 3. That the contract is fair and reasonable under the
retain the contract but they wanted some amendment which circumstances; and
includes the increase of the selling price per bag, decrease of the
total amount of cement bags plus the contract shall only be 4. That in the case of an officer, the contract with the officer has
effective for a period of three months and not 6 years. Te refused been previously authorized by the Board of Directors.
the counter-offer. PWCC then awarded the contract to someone
else.
In this particular case, the Supreme Court focused on the fact

that the contract between PWCC and Te through Falcon and
ISSUE: Trazo was not reasonable because of the very low selling price.
The Price at that time was at least P13.00 per bag and the original
contract only stipulates P9.70. Also, the original contract was for
6 years and there’s no clause in the contract which protects
Whether PWCC is correct in terminating the contract of Te, PWCC from inflation. As a director, Te in this transaction should
Falcon and Trazo. protect the corporation’s interest more than his personal
interest. His failure to do so is disloyalty to the corporation.
Hence, PWCC has all the rights to void the contract and look for
someone else, which it did.
HELD:
10. Manuel Sanchez v. Republic, 603 SCRA 229 (2009)

YES. Te is what can be called as a self-dealing director as he
deals business with the same corporation in which he is a FACTS:
director. There is nothing wrong per se with that. However, Sec.
32 provides that a contract of the corporation with one or more The complaint alleged that Kahn and petitioner Sanchez, as key ULFI
of its directors or trustees or officers is voidable, at the option of (University of Life Foundation, Inc. (ULFI), a private non-stock, non-
such corporation, unless all the following conditions are present: profit corporation devoted to non-formal education) officers, were

remiss in safekeeping ULFIs corporate incomes and in accounting for Section 31 of the Corporation Code makes directors-officers of
them. They neither placed the incomes derived from the Complex in corporations jointly and severally liable even to third parties for their
ULFIs deposit account nor submitted the required financial statements gross negligence or bad faith in directing the affairs of their
detailing their transactions. The underlying theory of the case is that corporations. Thus:
Kahn and Sanchez operated ULFI as if it were their own property,
handled the collections and spent the money as if it were their Sec. 31. Liability of directors, trustees or
personal belonging.The DECS asked the RTC to order Kahn and officers. - Directors or trustees who willfully and
Sanchez personally to pay it the P22,559,215.14 in rents due from knowingly vote for or assent to patently unlawful acts of
ULFI with legal interest, exemplary damages of P1,000,000.00, the corporation or who are guilty of gross negligence or
attorneys fees of P500,000.00, and costs bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict
In his answer, petitioner Sanchez alleged that, being a mere officer of with their duty as such directors or trustees shall be
ULFI, he cannot be made personally liable for its adjudged corporate liable jointly and severally for all damages resulting
liability. He took exception to the complaint, characterizing it as an therefrom suffered by the corporation, its stockholders
attempt to pierce the corporate veil that cloaked ULFI. or members and other persons
Both Kahn and petitioner Sanchez appealed to the Court of Appeals. The DECS does not have to invoke the doctrine of piercing the veil of
The latter court gave due course to Sanchezs appeal but denied that corporate fiction. Section 31 above expressly lays down petitioner
of Kahn since it was filed out of time. On February 21, 2006 the Court Sanchez and Kahns liability for damages arising from their gross
of Appeals rendered judgment, wholly affirming the trial court’s negligence or bad faith in directing corporate affairs. The doctrine
decision,hence, this petition. mentioned, on the other hand, is an equitable remedy resorted to only
when the corporate fiction is used, among others, to defeat public
ISSUE: convenience, justify wrong, protect fraud or defend a crime.
Whether or not petitioner Sanchez, a director and chief executive Moreover, in a piercing case, the test is complete control or
officer of ULFI, can be held liable in damages under Section 31 of the domination, not only of finances, but of policy and business practice in
Corporation Code for gross neglect or bad faith in directing the respect of the transaction attacked. This is not the case here. Section
corporations affairs 31, under which this case was brought, makes a corporate director
who may or may not even be a stockholder or member accountable
Held: for his management of the affairs of the corporation.
Petitioner Sanchez claims that there is no ground for the courts below WHEREFORE, the Court DENIES the petition and AFFIRMS the
to pierce the veil of corporate identity and hold him and Kahn, who February 21, 2006 Decision of the Court of Appeals in CA-G.R. CV
were mere corporate officers, personally liable for ULFIs obligations to 83648 and its Resolution ofMay 29, 2006.
the DECS. But this is not a case of piercing the veil of corporate
fiction. The DECS brought its action against Sanchez and Kahn under 11. Tramat Mercantile, Inc. v. CA, 238 SCRA 14 (1994)
Section 31 of the Corporation Code, which should not be confused FACTS:
with actions intended to pierce the corporate fiction.

On 09 April 1984, Melchor de la Cuesta, doing business under the 1. He assents (a) to a patently unlawful act of the corporation, or
name and style of "Farmers Machineries," sold to Tramat Mercantile, (b) for bad faith, or gross negligence in directing its affairs, or (c) for
Inc. ("Tramat"), one unit HINOMOTO TRACTOR. In payment, David conflict of interest, resulting in damages to the corporation, its
Ong, Tramat's president and manager, issued a check for P33,500.00 stockholders or other persons;
(apparently replacing an earlier postdated check for P33,080.00).
Tramat, in turn, sold the tractor, together with an attached lawn mower 2. He consents to the issuance of watered stocks or who, having
fabricated by it, to NAWASA for P67,000.00. Ong caused a "stop knowledge thereof, does not forthwith file with the corporate secretary
payment" of the check when NAWASA refused to pay the tractor and his written objection thereto;
lawn mower after discovering that, aside from some stated defects of
the attached lawn mower, the engine (sold by de la Cuesta) was a 3. He agrees to hold himself personally and solidarily liable with the
reconditioned unit. corporation; or
On 28 May 1985, de la Cuesta filed an action for the recovery of 4. He is made, by a specific provision of law, to personally answer for
P33,500.00. Ong, in his answer, averred, among other things, that de his corporate action.
la Cuesta had no cause of action; that the questioned transaction was
between plaintiff and Tramat Mercantile, Inc., and not with Ong in his
In the case at bench, there is no indication that petitioner David Ong
personal capacity; and that the payment of the check was stopped
could be held personally accountable under any of the
because the subject tractor had been priced as a brand new, not as a
abovementioned cases.
reconditioned unit.
12. McLeod v. NLRC, 512 SCRA 222 (2007)
Trial court held Tramat and Ong jointly and severally liable to de la
Cuesta.
FACTS:
ISSUE: W/N Ong is jointly and severally liable with Tramat to de la On February 2, 1995, John F. McLeod filed a complaint for
Cuesta. retirement benefits, vacation and sick leave benefits and other
benefits against Filipinas Synthetic Corporation (Filsyn), Far
Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Complainant
RULING:
was the former VP and Plant Manager of Peggy Mills, Inc.; that he
NO. Ong had there so acted, not in his personal capacity, but as an was hired in June 1980 and Peggy Mills closed operations due to
officer of a corporation, TRAMAT, with a distinct and separate irreversible losses but its assets were acquired by Sta. Rosa
personality. As such, it should only be the corporation, not the person Textile Corporation complainant was hired by Sta. Rosa Textile
acting for and on its behalf, that properly could be made liable but he resigned and that while complainant was Vice President
thereon. and Plant Manager of Peggy Mills, the union staged a strike up to
July 1992 resulting in closure of operations due to irreversible
Personal liability of a corporate director, trustee or officer along losses as per Notice .The complainant was relied upon to settle
(although not necessarily) with the corporation may so validly attach, the labor problem but due to his lack of attention and absence the
as a rule, only when — strike continued resulting in closure of the company. Mcleod
contends that the corporations are solidarily liable. On 3 April

1998, the Labor Arbiter rendered his decision in favor of Mcleod Moreover, SRTI did not expressly or impliedly agree to assume
The NLRC – Reversed decision CA- Modified the NLRC’s any of PMI’s debts. 2. In the present case, there is nothing
decision. Lim was solidarily liable substantial on record to show that Patricio acted in bad faith in
terminating McLeod’s services to warrant Patricio’s personal
Issue: liability. PMI had no other choice but to stop plant operations.
whether there is merger/ consolidation The work stoppage therefore was by necessity. The company
w/n Patricio Lim must be solidarily liable with PMI could no longer continue with its plant operations because of the
serious business losses that it had suffered. The mere fact that
Patricio was president and director of PMI is not a ground to
Held:
conclude that he should be held solidarily liable with PMI for
There was also no merger or consolidation of PMI and SRTI.
McLeod’s money claims.
Consolidation is the union of two or more existing corporations
to form a new corporation called the consolidated corporation. It
is a combination by agreement between two or more The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59
corporations by which their rights, franchises, and property are which the Court of Appeals cited, does not apply to this case.
united and become those of a single, new corporation, We quote pertinent portions of the ruling, thus:
composed generally, although not necessarily, of the (a) Article 265 of the Labor Code, in part, expressly provides:
stockholders of the original corporations. Merger, on the other "Any worker whose employment has been terminated as a
hand, is a union whereby one corporation absorbs one or more consequence of an unlawful lockout shall be entitled to
existing corporations, and the absorbing corporation survives reinstatement with full backwages."
and continues the combined business. Article 273 of the Code provides that: "Any person violating any
of the provisions of Article 265 of this Code shall be punished by
The parties to a merger or consolidation are called constituent a fine of not exceeding five hundred pesos and/or imprisonment
corporations. In consolidation, all the constituents are dissolved for not less than one (1) day nor more than six (6) months."
and absorbed by the new consolidated enterprise. In merger, all
constituents, except the surviving corporation, are dissolved. In (b) How can the foregoing provisions be implemented when the
both cases, however, there is no liquidation of the assets of the employer is a corporation? The answer is found in Article 212 (c)
dissolved corporations, and the surviving or consolidated of the Labor Code which provides: "(c) ‘Employer’ includes any
corporation acquires all their properties, rights and franchises person acting in the interest of an employer, directly or indirectly.
and their stockholders usually become its stockholders. The The term shall not include any labor organization or any of its
surviving or consolidated corporation assumes automatically the officers or agents except when acting as employer.". The
liabilities of the dissolved corporations, regardless of whether the foregoing was culled from Section 2 of RA 602, the Minimum
creditors have consented or not to such merger or Wage Law. Since RANSOM is an artificial person, it must have
consolidation.27 In the present case, there is no showing that an officer who can be presumed to be the employer, being the
the subject dation in payment involved any corporate merger or "person acting in the interest of (the) employer" RANSOM. The
consolidation. Neither is there any showing of those indicative corporation, only in the technical sense, is the employer. The
factors that SRTI is a mere instrumentality of PMI. responsible officer of an employer corporation can be held

personally, not to say even criminally, liable for non-payment of
back wages. That is the policy of the law. Despite the objections of Astra, Omico’s Board of
Inspectors declared that the proxies issued in favor of Tia were valid.
13. Pantranco Employees Assn. (PEA-PTGWO) v. NLRC, 581
SCRA 598 (2009)
ISSUE:
C. Election Contests
1) Whether or not SEC has jurisdiction over controversies arising
from the validation of proxies for the election of the directors of
1. SEC v. Court of Appeals, 739 SCRA 99 (2014)
a corporation. (NONE)
TOPIC: SRC, proxy, jurisdiction of SEC 2) Whether or not SEC may appeal a reversal of its ruling. (NO)
FACTS: HELD:
Omico Corporation (Omico) is a company whose shares of FIRST ISSUE: None.
stock are listed and traded in the Philippine Stock Exchange, Inc.
Astra Securities Corporation (Astra) is one of the stockholders of The Court held that when proxies are solicited in relation to
Omico owning about 18% of the latter’s outstanding capital stock. the election of corporate directors, the resulting controversy, even if it
ostensibly raised the violation of the SEC rules on proxy solicitation,
Omico scheduled its annual stockholders’ meeting on 3 should be properly seen as an election controversy within the original
November 2008. It set the deadline for submission of proxies on 23 and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of
October 2008 and the validation of proxies on 25 October 2008. the SRC. Hence, the jurisdiction is still with the Special Commercial
Courts.
Astra objected to the validation of the proxies issued in favor
of Tia, representing about 38% of the outstanding capital stock of An election contest covers any controversy or dispute
Omico. Astra also objected to the inclusion of the proxies issued in involving the validation of proxies, in general. Thus, it can only refer to
favor of Tia and/or Martin Buncio, representing about 2% of the all the beneficial purposes that validation of proxies can bring about
outstanding capital stock of Omico. when made in connection with a forthcoming election of directors.
Thus, there is no point in making distinctions between who has
jurisdiction before and who has jurisdiction after the election of
Astra maintained that the proxy issuers, who were brokers, directors, as all controversies related thereto – whether before, during
did not obtain the required express written authorization of their clients or after – shall be passed upon by regular courts as provided by law.
when they issued the proxies in favor of Tia. In so doing, the issuers
were allegedly in violation of SRC Rules. Furthermore, the proxies
issued in favor of Tia exceeded, thereby giving rise to the presumption SECOND ISSUE: No.
of solicitation thereof under said rules. Tia did not also comply with the
rules on proxy solicitation, in violation of the SRC.

The Court held that quasi-judicial agencies do not have the pursuant thereto."112 In justifying its Order dated December 21, 2011
right to seek the review of an appellate court decision reversing any of declaring that the complaint had not prescribed since it did not involve
their rulings. This is because they are not real parties-in-interest. an election contest, the RTC adverted to the fact that none of the
Thus, the Court expunged the petition filed by the SEC for the latter’s petitioners was claiming an elective office in NADECOR, or
lack of capacity to file the suit. questioning the manner and validity of the election of the New Board,
2. Ricafort v. Dicdican, 787 SCRA 163 (2016) or the qualifications of the candidates for directors.
FACTS: But the real motive of the petitioners could not have escaped the trial
court's notice, being readily discernible from a perusal of the Second
Nationwide Development Corporation is a domestic corporation which Cause of Action of their complaint, which reads:
is a holder of Mining Production Sharing Agreement (MPSA) with
DENR. Its regular annual stockholders’ meeting was held in August 15. One of the cardinal rights of a stockholder is the right to participate
15, 2011 to elect its Board of Directors. But on October 20, 2011, in the control and management of the corporation. This right is
petitioners filed a complaint before the RTC to declare the meeting exercised through his vote. The right to vote is a right inherent in and
and all acts carried on pursuant thereto null and void contending that incidental to the ownership of corporate stock, and as such is a
they received the notice for the meeting only on August 16, 2011 property right. The stockholder cannot be deprived of the right to vote
which is a violation of the 3-day notice rule as provided in the by-laws. his stock nor may the right be essentially impaired, either by the
legislature or by the corporation, without his consent, though
Respondents contended that their complaint is an election contest amending the charter, or the by-laws.
hence already barred under the 15-day rule in the Interim Rules
16. The right to choose the persons who will direct, manage and
RTC - null and void. Complaint was not an election contest operate the corporation is significant because it is the primary way in
which a stockholder can have a voice in the management of corporate
CA – Reversed affair x x x. The right to choose these persons is exercised through
the voting process. This right is enshrined in Article I, Section 6 of
Issue: Whether the petitioners’ complaint is an election contest NADECO[R]'s amended by-laws, which provides that "(a)t all
subject to the 15-day rule meetings of the Stockholders, each Stockholder shall be entitled to
one vote for each share of stock owned by him.
HELD:
The fallo of the trial court's Order 114 dated December 21, 2011
The case is time-barred because it involves an election contest appears to be carefully worded as to avoid seeming to direct the
and therefore is subject to the 15-day prescription period. holding of a new election of the members of the Board of Directors of
NADECOR for FY2011-2012, and thus be consistent with its ruling
Claiming to be stockholders of record who were denied due notice of that SEC Case No. 11-164 is not an election contest. The trial court
NADECOR's August 15, 2011 ASM, the petitioners filed the reasoned:
Complaint111 in SEC Case No. 11-164 purportedly to void and nullify
"the August 15, 2011 [ASM] of NADECO[R], including all proceedings Contrary to defendants' claims, none of the plaintiffs is claiming any
taken thereat, all the consequences thereof, and all acts carried out elective office in NADECOR. Neither are they questioning the manner

and validity of the elections, and qualifications of the candidates for a new election should be held for Board of Directors of NADECOR for
directorship. Plaintiffs['] prayer is clear that they seek to have the FY2011-2012, notwithstanding its express ruling that SEC Case No.
August 15, 2011 [ASM] declared null and void due to fatal defects 11-164 did not involve an election contest and therefore the 15-day
committed prior to said meeting. The nullification of proceedings, prescriptive period to file the petitioners' complaint did not apply.
including the elections is not only incidental or the logical
consequence of a declaration of nullity of the [ASM]. But more importantly, the defendants did not fail to point out to the
trial court, as the appellate court has made copiously clear in its
The complaint, not being an election contest, need not comply with decision, that contrary to the petitioners' feigned lament that they were
the requirements stated in Rule 6, Section 3 of the Interim Rules.115 unlawfully deprived of their right as stockholders to participate in the
ASM due to late notice, they were in fact represented by JG Ricafort
Yet, there can be no denying that by (a) asserting their "right to under an irrevocable proxy which they executed on April 26, 2010.
choose the persons who will direct, manage and operate the The defendants further noted that the petitioners even shared the
corporation is significant because it is the primary way in which a same address as JG Ricafort, who is the husband of petitioner
stockholder can have a voice in the management of corporate Corazon, and the father of petitioners Jose Manuel and Marie Grace.
affairs,"116 because they said they had been unlawfully deprived Thus, the defendants insisted that the petitioners deliberately misled
thereof due to late notification of the aforesaid meeting, and (b) by the trial court by pretending to be ignorant of the August 15, 2011
praying for the voiding of the August 15, 2011 ASM, and for "other just ASM.
and equitable reliefs,"117 the petitioners were really seeking the
holding of a new election for members of the Board of Directors of Equally significantly, it has never been plausibly debunked that the
NADECOR for FY2011-2012. As the CA noted, by seeking to nullify real and beneficial owner of the shares in their names is JG Ricafort
the August 15, 2011 ASM of NADECOR, "including all proceedings himself, as shown in the Nominee Agreements122 which they executed
taken thereat, all the consequences thereof, and all acts carried out back in 2007; hence, the petitioners' non-participation at the hearings
pursuant thereto"118 the petitioners were clearly challenging the in the RTC. The claimed violation of the petitioners' right as owners to
validity of the election of the new Board of Directors. As the vote their shares in the assailed assembly is thus exposed as a
NADECOR's Amended By-Laws itself expressly provides, the complete fabrication. As the private respondents pointed out in their
purpose of the ASM is "for the election of Directors and for the Comment to the petitioners' Supplemental Petition, JG Ricafort
transaction of general business of its office."119 appeared at the RTC hearing on December 2, 2011 and spoke for the
petitioners, notwithstanding that he was in fact one of the defendants
Indeed, to nullify the August 15, 2011 ASM would have had no named in the complaint, being a member of the New Board whom the
practical effect except to void the election of the Board of Directors. 120 petitioners wanted ousted.123
And no doubt, this was the trial court's understanding of the
petitioners' intent when it voided the August 15, 2011 ASM and all As subsequent events since the filing of SEC Case No. 11-164 now
matters taken up thereat. Thus, by declaring as void all "acts, amply show, the complaint is traced to a tenacious struggle between
decisions, deeds, incidents, matters taken up arising from and two contending groups of stockholders of NADECOR, the petitioners'
subsequent to the 2011 [ASM],"121 things which could only be group and the Calalang group, for control of the fabled riches of the
performed by the newly-elected Board, and then by directing the King-king Project. The petitioners' group wanted to rescind
issuance of a three-day notice for the holding of a new ASM NADECOR's MOUs with the St. Augustine group and to bring in a
corresponding to FY2011-2012, the trial court clearly understood that new investor, the Villar group, which the Calalang group strongly

opposed. It is not for this Court to say which of the contending to compel the BOR and the President to appoint her, on the ground
stockholders' blocs is justified in the direction they want NADECOR to that the 4 abstentions should be deemed YES votes. CFI sided with
take, but the Calalang group now blames the petitioners for exposing her. On appeal by the UP officials, SC reversed, finding that the
the NADECOR's all too precious MPSA to the threat of cancellation circumstances of the voting do not support Blanco’s assertion. In fact
by the DENR by filing SEC Case No. 11-164. Undoubtedly, the the abstaining Regents wanted to reject her appointment but merely
complaint was a clear attempt by, or on behalf of, the petitioners' wanted to do it with delicadeza.
group to oust the New Board for FY2011-2012. In fact, the petitioners
are even represented by the very same law firm which the petitioners' DOCTRINE: [A]n abstention is counted as an affirmative vote insofar
group has employed. as it may be construed as an acquiescence in the action of those who
vote affirmatively. This manner of counting is based on what is
Under Sections 1 to 3 of Rule 6 of the Interim Rules, SEC Case No. deemed to be a presumption as to the intent of the one abstaining, to
11-164 should have been dismissed for having been filed beyond the acquiesce in the action of those who vote affirmatively. However, this
15-day prescriptive period allowed for an election protestthe March 1, is only a prima facie presumption, which can be overturned by clear
2004 ASM.130 Sections 1 and 2, Rule 6 of the Interim Rules provide: evidence to the contrary. It is pertinent, therefore, to inquire into the
facts and circumstances which attended the voting in order to
determine whether or not such a construction would govern. [From
Karichi notes: Abstentions should now be counted separately. They
are votes in themselves. DLC: Court has no business construing the
D. Board Meetings intent or effect of abstentions, i.e., the case is wrong.]
Sec. 48, 49, 52, 53, 56, RCC FACTS

Sec. 72-74, 92, RCC ● The case arose from a dispute over the appointment of the
SEC. Memo Circular No. 15 s. 2011 Dean of the UP College of Education (UP Educ).
- ● CHARACTERS:
○ UP President Salvador Lopez (PRES. LOPEZ), also a
Lopez v. Ericta, 45 SCRA 539 (1972) member of the Board of Regents
○ The Board of Regents (BOR) – 12 members
SUMMARY: UP President appointed Blanco as dean ad interim of the
○ Dr. Consuelo BLANCO – faculty member of UP Educ
College of Education. The BOR did not want to approve her
appointment, so a committee studied the proposal. The committee ○ Oseas DEL ROSARIO – another faculty member of UP
wanted to reject her appointment in a face-saving manner; so it Educ
recommended that the BOR ask the UP President to convince Blanco ○ JUDGE Vicente ERICTA of the Rizal CFI (QC) [future
to withdraw. However, when the matter was submitted for approval via SC Justice].
voting, the committee withdrew such recommendation. The final result ● Apr. 27, 1970 – Pres. Lopez appointed Blanco as dean ad
was that the matter of appointment was left undecided, but the votes interim of UP Educ, effective May 1, 1970 until April 30, 1971,
showed 5 in favor, 3, against, and 4 abstentions [not enough for a
unless sooner terminated and subject to the approval of the
majority of the 12-member BOR]. Blanco filed a petition for certiorari

Board of Regents (BOR) and to pertinent University ○ declared Blanco the duly elected dean of UP Educ,
regulations. entitled to occupy the position from May 1, 1970 to Apr.
● May 26, 1970 – The BOR met and Pres. Lopez submitted for 30, 1973
its reconsideration the ad interim appointment of Blanco. ○ declared the appointment of Del Rosario as OIC null
● July 9, 1970 – On the next BOR meeting, the matter of Dr. and void
Blanco’s appointment was discussed again. ○ permanently enjoined Del Rosario from acting as UP
○ The Committee wanted to reject the appointment but Educ Dean and the BOR from appointing another
did not want the record to reflect that Blanco was person to the Deanship of UP Educ
rejected [more on this later] so nobody is embarrassed. ● Jan. 5, 1971 – Lopez, the BOR, and del Rosario filed a petition
○ Sec. Corpuz took a roll call vote on the appointment of for review on certiorari to the SC.
Blanco. ● Jan. 11, 1971 – SC issued a writ of preliminary injunction to
■ RESULTS: Regents Fonacier, Escobar, stop the execution of the CFI decision.
Barican, and Agbayani, plus Pres. Lopez (5) in
favor; Regents Kalaw and Silva, plus Sec. Issue: Whether the 4 abstentions should be taken as affirmative votes
Corpuz against (3); and Regents Tangco, so as to constitute a majority for the approval of Blanco’s appointment
Leocadio [in substitution of Regent Soriano], as Dean of UP Education
Pedrosa, and Virata, abstaining (4). 5 YES; 3
Ruling: NO
NO; 4 ABSTAIN.
○ Based on this voting, and on motion of Regent
A good case can be made for either proposition and American courts
Agbayani duly seconded, Sec. Corpuz suspended have been divided on the matter. However, the case can be resolved
action on the matter in order to give the BOR more without choosing from the competing legal theories.
time to consider the appointment.
○ No action having been taken on Blanco’s appointment, “It should be noted that an abstention, according to the citations of
the same was deemed terminated. Lopez et.al., is counted as an affirmative vote insofar as it may be
● Aug. 18, 1970 – Blanco wrote Pres. Lopez to protest Del construed as an acquiescence in the action of those who vote
affirmatively. This manner of counting is obviously based on what is
Rosario’s appointment as OIC of UP Educ.
deemed to be a presumption as to the intent of the one abstaining,
● Receiving no reply, Blanco filed a petition for certiorari and namely, to acquiesce in the action of those who vote affirmatively, but
prohibition w/ preliminary injunction with the Rizal CFI (QC which presumption, being merely prima facie, would not hold in the
Branch). face of clear evidence to the contrary. It is pertinent, therefore, to
inquire into the facts and circumstances which attended the voting by
CFI DECISION the members of the BOR on the ad interim appointment of Blanco in
order to determine whether or not such a construction would govern.”
● Applicable provisions

○ UP Charter, Sec. 7. A quorum of the Board of Regents As summarized by the Court: “The Personnel Committee, to which
shall consist of a majority of all the members holding the matter of Dr. Blanco's appointment had been referred for study,
office at the time the meeting of the Board is called. All was for recommending that it be rejected; that, however, the rejection
should be done in a diplomatic way "to avoid any embarrassment on
processes against the Board of Regents shall be
the part of both the appointee and the President;" and that the "final
served on the president or secretary thereof. decision" of the committee was to ask the President of the
○ UP Charter, Sec. 10. The body of instructors of each University to talk to Dr. Blanco "for the appointment to be
college shall constitute its faculty, and as presiding withdrawn." That decision, as announced by Regent Tangco,
officer of each faculty, there shall be a dean elected Chairman of the Personnel Committee, was restated and clarified by
from the members of such faculty by the Board of Regent Kalaw, and then reiterated first by Regent Tangco and then
Regents on nomination by the President of the by the Chairman. On that note Regent Pedrosa suggested that the
members of the Personnel Committee, as well as the President,
University.
should inhibit themselves from voting. When the matter was actually
○ Article 78 of the Revised Code of UP: For each college submitted to a vote, however, the definition of the issue became
or school there shall be a Dean or Director who shall somewhat equivocal. Regent Tangco announced that the committee
be elected by the Board of Regents from the members was withdrawing its recommendation, whereupon the Chairman
of the faculty of the University unit concerned, on stated that the issue was "to confirm or not to confirm the ad
nomination by the President of the University. interim appointment issued to Dr. Blanco." This was then followed
by a remark from Regent Silva that the withdrawal by the committee
referred to the recommendation "per se, as it is written," but that the
MINUTES OF THE MEETING SHOW THAT BOR INTENDED TO
committee, he thought, was "actually putting a recommendation for
REJECT BLANCO’S APPOINTMENT
nonconfirmation." Regent Kalaw thereupon expressed her
● The Chairman of the Personnel Committee, Regent Tangco,
concurrence with Regent Silva's opinion”.
manifested during the July 9 meeting that “the nomination of
Professor Blanco cannot be accepted by the [BOR], but it was It is clear from the foregoing that the abstentions cannot be
felt that it should be presented in a more diplomatic way to construed as votes for confirmation of Blanco’s appointment. The
avoid any embarrassment on the part of both the appointee Personnel Committee undoubtedly recommended rejection of
and the President. And so means were studied as to how it Blanco’s appointment. It cannot be said that the members of the
could be done and it was felt that it could be done in such a Committee abstained because they intended to acquiesce with the
way that the appointee could request relief from the Yes votes. Neither did Regent Virata, who said that he was not ready
to make a decision.
appointment, that it would be the best to save embarrassment
all around. And so the final decision was to ask the President
“[I]t cannot be seriously argued that the Board had no authority to
to review this matter” do what it did: the meeting had not yet been adjourned; the subject of
● They intended to do this by asking Pres. Lopez to persuade the deliberations had not yet been closed, and as in the case of any
Blanco to withdraw her appointment or resign. deliberative body the Board had the right to reconsider its action.” No
title to the office of Dean of UP Educ had yet vested in Blanco at the
time of reconsideration.

“Aside from the fact that the point has become moot, since the and therefore all public officers, conspiring and confederating together
tenure has expired, it is seriously to be doubted whether such an and mutually helping one another, while in the performance of their
appointment is authorized under the law and regulations. It should be official functions, did then and there willfully, unlawfully and criminally
noted that both under the Charter (Sec. 10) and under the Revised enter into contract of lease-purchase with Emilio G. La’o, a private
Code of the University (Art. 78) the Dean of a college is elected by the person whereby the GSIS agreed to sell to said Emilio G. La’o, a
[BOR] on nomination by the [UP President]. In other words the GSIS acquired property consisting of three parcels of land with an
President's function is only to nominate, not to extend an area of 821 square meters together with a 5-storey building situated at
appointment, even if only ad interim; and the power of the Board of 1203 A. Mabini St., Ermita, Manila, known as the Government
Regents is not merely to confirm, but to elect or appoint. At any rate Counsel Centre for the sum of ₱2,000,000.00 with a down payment of
the ad interim appointment extended to Blanco on May 26, 1970, ₱200,000.00 with the balance payable in fifteen years at 12% interest
although made effective until April 30, 1971, was subject to the per annum compounded yearly, with a yearly amortization of
following condition: "unless sooner terminated and subject to the ₱264,278.37 including principal and interest granting Emilio G. La’o
approval of the Board of Regents." The Board, as has been shown, the right to sub-lease the ground floor for his own account during the
not only did not elect Blanco in its meeting of July 9, 1970, but period of lease, from which he collected yearly rentals in excess of the
declared the appointment terminated as of that day.” yearly amortization which contract is manifestly and grossly
disadvantageous to the government.
Wherefore, Decision reversed, case dismissed.
ISSUE: Whether the contract is valid?
RULING: Yes.
People v. Dumlao, 580 SCRA 409 (2009) We agree with petitioner that the Sandiganbayan erred in equating the
minutes of the meeting with the supposed resolution of the GSIS
FACTS:
Board of Trustees. A resolution is distinct and different from the
On 19 July 1991, an Amended Information was filed before the minutes of the meeting. A board resolution is a formal action by a
Sandiganbayan charging respondents Dumlao and La’o, Aber P. corporate board of directors or other corporate body authorizing a
Canlas, Jacobo C. Clave, Roman A. Cruz, Jr. and Fabian C. Ver with particular act, transaction, or appointment. It is ordinarily special and
violation of Section 3(g) of Republic Act No. 3019, as amended, limited in its operation, applying usually to some single specific act or
otherwise known as the Anti-Graft and Corrupt Practices Act. The
affair of the corporation; or to some specific person, situation or
case was docketed as Criminal Case No. 16699. The accusatory
portion of the information reads: occasion. On the other hand, minutes are a brief statement not only of
what transpired at a meeting, usually of stockholders/members or
That on or about May 10, 1982, or for sometime prior or subsequent directors/trustees, but also at a meeting of an executive committee.
thereto, in Manila, Philippines, and within the jurisdiction of this The minutes are usually kept in a book specially designed for that
Honorable Court, the accused Hermenegildo C. Dumlao, Aber purpose, but they may also be kept in the form of memoranda or in
Canlas, Jacobo C. Clave, Roman A. Cruz, Jr., and Fabian C. Ver,
any other manner in which they can be identified as minutes of a
being then the members of the Board of Trustees of the Government
Service Insurance System (GSIS) which is a government corporation meeting.

The Sandiganbayan concluded that since only three members out of respondent Dumlao was indeed premature. It should have given the
seven signed the minutes of the meeting of 23 April 1982, the prosecution the opportunity to fully present its case and to establish
resolution approving the Lease-Purchase Agreement was not passed reasonable doubt on the alleged approval by the GSIS Board of
by the GSIS Board of Trustees. Such conclusion is erroneous. The Trustees of the lease-purchase of the GSIS properties.
non-signing by the majority of the members of the GSIS Board of
Lopez Realty, Inc. v. Spouses Tanjangco, 739 SCRA 644 (2014).
Trustees of the said minutes does not necessarily mean that the
supposed resolution was not approved by the board. The signing of REYES, J.:
the minutes by all the members of the board is not required. There is
no provision in the Corporation Code of the Philippines that requires FACTS: Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were
that the minutes of the meeting should be signed by all the members the registered co-owners of three parcels of land and the building
erected thereon known as the "Trade Center Building". Jose’s one-
of the board.
half share in the subject properties were later transferred and
The proper custodian of the books, minutes and official records of a registered in the name of his son Reynaldo Tanjangco and daughter-
corporation is usually the corporate secretary. Being the custodian of in-law, Maria Luisa Arguelles (spouses Tanjangco). At the time
corporate records, the corporate secretary has the duty to record and material to this case, the stockholders of record of LRI were the
prepare the minutes of the meeting. The signature of the corporate following:
secretary gives the minutes of the meeting probative value and
a. Asuncion Lopez-Gonzalez (Asuncion) – 7,831 shares;
credibility. In this case, Antonio Eduardo B. Nachura, Deputy
Corporate Secretary, recorded, prepared and certified the correctness b. Arturo F. Lopez (Arturo) – 7,830 shares;
of the minutes of the meeting of 23 April 1982; and the same was
confirmed by Leonilo M. Ocampo, Chairman of the GSIS Board of c. Teresita Lopez-Marquez (Teresita) – 7,830 shares;
Trustees. Said minutes contained the statement that the board
approved the sale of the properties, subject matter of this case, to d. Rosendo de Leon (Rosendo) – 5 shares
respondent La’o.
e. Benjamin Bernardino (Benjamin) – 1 share;
The minutes of the meeting of 23 April 1982 were prepared by the
Deputy Corporate Secretary of the GSIS Board of Trustees. Having f. Augusto de Leon (Augusto) – 1 share; and
been made by a public officer, the minutes carry the presumption of
regularity in the performance of his functions and duties. Moreover, g. Leo Rivera (Leo) – 1 share
the entries contained in the minutes are prima facie evidence of what
Except for Arturo and Teresita, the rest of the stockholders were
actually took place during the meeting, pursuant to Section 44, Rule
members of the Board of Directors. Asuncion was LRI’s Corporate
130 of the Revised Rule on Evidence. This being the case, the Secretary. In a special meeting of the stockholders held on July 27,
Sandiganbayan erred in dismissing the case, because there was 1981, the sale of the one-half share of LRI in the Trade Center
evidence, at that time, when it dismissed the case against respondent Building was discussed:
Dumlao. The dismissal by the lower court of the case against

MINUTES OF SPECIAL MEETING OF STOCKHOLDERS OF LOPEZ price at 5 Million Pesos but the latter did not move from their original
REALTY[,] INCORPORATED ON JULY 27, 1981 AT 3:00 P.M. offer as above-stated. It was finally agreed by the body that
STOCKHOLDERS PRESENT: ASUNCION F. LOPEZ be given the priority to accept the
TANJANGCO offer and the same to be exercised within ten days.
TERESITA L. MARQUEZ - 7,830 shares Failure on her part to act on the offer, the said offer will be deemed
accepted.On July 28, 1981, Teresita died. Asuncion failed to exercise
ASUNCION F. LOPEZ - 7,831 shares her option to purchase the subject properties within the stated period.
Thus, on August 17, 1981, while Asuncion was abroad, the remaining
ARTURO F. LOPEZ - 7,830 shares directors: Rosendo, Benjamin and Leo convened in a special meeting,
where the resolution was passed and approved. After learning of the
ROSENDO DE LEON - 5 shares sale, Asuncion filed this complaint challenging the validity of the 17
August 1982 Resolution on the ground that she was not notified of the
BENJAMIN B. BERNARDINO - 1 share meeting.
LEO R. RIVERA - 1 share ISSUE: W/N the sale was valid.
TOTAL 23,498 Shares HELD:
Sale of One-Half (1/2) Share of Lopez Realty, Inc. in Trade Center The sale was valid. The 17 August 1981 Board Resolution did not
Building The matter of the sale of ½ share of Lopez Realty, Inc., in the give Arturo the authority to act as LRI’s representative in the sale “as
Trade Center Building was taken up. Atty. Benjamin B. Bernardino the meeting of the board of directors where such was passed was
informed the body that the selling price is pegged at 4 Million Pesos, conducted without giving any notice to Asuncion.” This is in violation
and the Tanjangcos are offering 3.6 Million Pesos plus 50% of the of Section 53 of the Corporation Code which requires sending of
receivablesor a total of 3.8 Million Pesos payable under the following notices for regular or special meetings to every director.
terms:
As a result, “a meeting of the board of directors is legally infirm if there
1) 50% - upon registration 50% - 30 days thereafter is failure to comply with the requirements or formalities of the law or
the corporation’s by laws and any action taken on such meeting may
2) All expenses and documentary stamp tax to be born[e] by the be challenged as a consequence.”
Tanjangcos.
Notwithstanding, “the actions taken in such a meeting by the directors
3) Transfer Tax and Reserve Fund to be borne by Lopez Realty, Inc. or trustees may be ratified expressly or impliedly.” In the case of
ratification, it means that “the principal voluntarily adopts, confirms
ASUNCION F. LOPEZ countered for a selling price of 5 Million Pesos, and gives sanction to some unauthorized act of its agent on its
LOPEZ REALTY, INC., clean and of everything. At this point, behalf.”
TERESITA L. MARQUEZ and BENJAMIN B. BERNARDINO offered
to ASUNCION F. LOPEZ that they accept the TANJANGCO’s offer as Here, “the ratification was expressed through the July 30, 1982 Board
stated above. At this juncture, ASUNCION F. LOPEZ called and Resolution.” Regarding Asuncion’s claims that the 30 July 1982 Board
talked with TANJANGCO over the phone 3x and offered the selling

Resolution did not ratify the 17 August 1981 Resolution due to all his actions in connection to the sale were expressly ratified by the
Juanito’s disqualification and Leo’s negative vote. “Asuncion assails stockholders holding 67% of the outstanding capital stock.”
the authority of Juanito to vote because he was not a director and he
did not own any share of stock which would qualify him to be one. On Citing jurisprudence, “the Court held that by virtue of ratification, the
the contrary, Juanito defends his right to vote as the representative of acts of the board of directors become the acts of the stockholders
Teresita’s estate. Upon examination of the July 30, 1982 minutes of themselves, even if those acts were, at the outset, unauthorized.”
the meeting, it can be deduced that the meeting is a joint stockholders
and directors’ meeting. The Court takes into account that majority of
the board of directors except for Asuncion, had already approved of
the sale to the spouses Tanjangco prior to this meeting. As a
consequence, the power to ratify the previous resolutions and actions E. Stockholders/Members: Rights, Limitations, Liabilities and
of the board of directors in this case lies in the stockholders, not in the Remedies
board of directors. It would be absurd to require the board of directors
to ratify their own acts—acts which the same director is already Sec. 6, Sec. 23, 27-29, RCC
approved of beforehand. Hence, Juanito, as the administrator of Sec. 38, RCC
Teresita’s estate even though not a director, is entitled to vote on Sec. 42, 45, 47, RCC
behalf of Teresita’s estate as the administrator thereof.” Sec. 62, 65-69, 70-71, RCC
Sec. 73-74, 80-84, in relation to Sec. 15, 41 RCC
Citing jurisprudence, in stock corporations, “shareholders may Sec. 88-90, Sec. 139, RCC
generally transfer their shares. Thus, on the death of a shareholder,
the executor or administrator duly appointed by the Court is vested SEC Memo Circular No. 15, Series of 2019 (Beneficial Ownership
with the legal title to the stock and entitled to vote it. Until a settlement
Information in 2019 Revised GIS)
and division of the estate is effected, the stocks of the decedent are
held by the administrator or executor.”
Interim Rules of Procedure Governing Intra-Corporate Controversies”
As there exists no corporate secretary’s certification of the minutes of (A.M. No. 01-2-04-SC, 01 April 2001)
the meeting, “only Juanito, Benjamin and Roseno, whose signature
appeared on the minutes, could be considered as to have ratified the
sale to the spouses Tanjangco.” As Leo owns only 1 share, the results Tan v. SEC, 206 SCRA 740 (1992)
are the same against the overwhelming shares who voted in favor of
ratification. FACTS:
“In sum, whatever defect there was on the sale to the spouses Alfonso Tan was the president of Visayan Educational Supply Corp.
Tanjangco pursuant to the August 17, 1981 Board Resolution, the when it was incorporated. Initially, 400 shares of stock was in his
same was cured through its ratification in the July 30, 1982 Board name, represented by Stock Cert. No. 2. But when two incorporators
Resolution. It is of no moment whether Arturo was authorized to withdrew and assigned their shares to the corp., Alfonso sold 50
merely negotiate or to enter into a contract of sale on behalf of LRI as shares to his brother, Angelo. Alfredo Uy sold 50 shares to Teodora

Tan. The sale was necessary in order to complete the membership returned to him for his purpose was attested to by Mr. Buzon in his
requirement of the BOD. Affidavit, the pertinent portion of which has been earlier quoted.
Because of the transactions, Stock Cert. No. 2 was cancelled and the It is safe to infer from the facts deduced in the instant case that, there
corresponding stock certificates were issued. Mr. Buzon was was already delivery of the unendorsed Stock Certificate No. 2, which
requested by Tan Su Ching to ask Alfonso Tan to endorse the is essential to the issuance of Stock Certificate Nos. 6 and 8 to Angel
cancelled stock cert. However, Alfonso did not sign Stock Cert. No. 2 and Alfonso. What led to the problem was the return of the cancelled
and only returned the new stock certificate. certificate (No. 2) to Alfonso S. Tan for his endorsement and his
deliberate non-endorsement.
Later on, Alfonso withdrew from the corp because he was dislodged
by Tan Su Ching as president. Part of the condition of his withdrawal For all intents and purposes, however, since this was already
was that he be paid with stock-in-trade equivalent to 33% in lieu of cancelled which cancellation was also reported to the respondent
stock value of his shares in the amount of P 35, 000. Due to the Commission, there was no necessity for the same certificate to be
withdrawal, the cancellation of Cert. 2 and 8 was effected and endorsed by the petitioner. All the acts required for the transferee to
recorder in the stock and transfer book. exercise its rights over the acquired stocks were attendant and even
the corporation was protected from other parties, considering that said
Alfonso the filed a case questioning the cancellation of the stock certs. transfer was earlier recorded or registered in the corporate stock and
He argues that he was deprived of his shares despite the non- transfer book.
endorsement or surrender of the stock cert. No. 2 & 8 which is
contrary to SEC. 63, Corp. Code (Sec. 63, RCC). Following the doctrine enunciated in the case of Tuazon v. La
Provisora Filipina, where this Court held, that:
ISSUE: W/N the cancellation was void due to non-endorsement.
But delivery is not essential where it appears that the persons sought
RULING: NO. to be held as stockholders are officers of the corporation, and have
the custody of the stock book . . . (67 Phi. 36).
The meaning of shares of stock are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the Furthermore, there is a necessity to delineate the function of the stock
owner or his attorney-in-fact or other person legally authorized to itself from the actual delivery or endorsement of the certificate of stock
make the transfer. itself as is the question in the instant case. A certificate of stock is not
necessary to render one a stockholder in corporation.
There is no doubt that there was delivery of Stock Certificate No. 2
made by the petitioner to the Corporation before its replacement with Nevertheless, a certificate of stock is the paper representative or
the Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan and tangible evidence of the stock itself and of the various interests
Stock Certificate No. 8 for 350 shares to the petitioner, on March 16, therein. The certificate is not stock in the corporation but is merely
1981. The problem arose when petitioner was given back Stock evidence of the holder's interest and status in the corporation, his
Certificate No. 2 for him to endorse and he deliberately withheld it for ownership of the share represented thereby, but is not in law the
reasons of his own. That the Stock Certificate in question was equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but is not essential to the existence

of a share in stock or the nation of the relation of shareholder to the Panel dismissed the suit. On appeal, the SEC En Banc found for
corporation. petitioner. CA reversed the SEC En Banc decision.
Under the instant case, the fact of the matter is, the new holder, Angel
Issue: Whether or not petitioner is the true holder of stock certificates
S. Tan has already exercised his rights and prerogatives as
stockholder and was even elected as member of the board of to be able to institute a derivative suit.
directors in the respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of fifty (50) shares, Ruling: NO.
Angel S. Tan was clothed with rights and responsibilities in the board Sec 63 of the Corporation Code envisions a formal certificate of stock
of the respondent corporation when he was elected as officer thereof. which can be issued only upon compliance with certain requisites.
Besides, in Philippine jurisprudence, a certificate of stock is not a First, the certificates must be signed by the president or vice-
negotiable instrument. "Although it is sometimes regarded as quasi- president, countersigned by the secretary or assistant secretary, and
negotiable, in the sense that it may be transferred by endorsement, sealed with the seal of the corporation. A mere typewritten statement
coupled with delivery, it is well-settled that it is non-negotiable, advising a stockholder of the extent of his ownership in a corporation
because the holder thereof takes it without prejudice to such rights or without qualification and/or authentication cannot be considered as a
defenses as the registered owner/s or transferror's creditor may have formal certificate of stock. Second, delivery of the certificate is an
under the law, except insofar as such rights or defenses are subject to
essential element of its issuance. Hence, there is no issuance of a
the limitations imposed by the principles governing estoppel."
stock certificate where it is never detached from the stock books
Bitong v. Court of Appeals, 292 SCRA 503 (1998) although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the
Facts: company. Third, the par value, as to par value shares, or the full
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed subscription as to no par value shares, must first be fully paid. Fourth,
a derivative suit before the SEC against respondent spouses Apostol, the original certificate must be surrendered where the person
who were officers in said corporation, to hold them liable for fraud and requesting the issuance of a certificate is a transferee from a
mismanagement in directing its affairs. Respondent spouses moved stockholder.
to dismiss on the ground that petitioner had no legal standing to bring
the suit as she was merely a holder-in-trust of shares of JAKA The certificate of stock itself once issued is a continuing affirmation or
Investments which continued to be the true stockholder of Mr. & Ms. representation that the stock described therein is valid and genuine
Co. Petitioner contends that she was a holder of proper stock and is at least prima facie evidence that it was legally issued in the
certificates and that the transfer was recorded. She further contends absence of evidence to the contrary. However, this presumption may
that even in the absence of the actual certificate, mere recording will be rebutted. Aside from petitioner’s own admissions, several
suffice for her to exercise all stockholder rights, including the right to corporate documents disclose that the true party-in-interest is not
file a derivative suit in the name of the corporation. The SEC Hearing petitioner but JAKA. It should be emphasized that JAKA executed, a
deed of sale over 1,000 Mr. & Ms. shares in favor of respondent

Eugenio D. Apostol. On the same day, respondent Apostol signed a • The Lingayen Gulf Electric Power Co., Inc. (Lingayen) has an
declaration of trust stating that she was the registered owner of 1,000 authorized capital stock of P300,000 divided into 3,000 shares of
Mr. & Ms. shares covered by a Certificate of Stock. And, there is voting stock at P100 par value per share.
nothing in the records which shows that JAKA had revoked the trust it
• There are two groups competing in this case:
reposed on respondent Eugenia D. Apostol. Neither was there any
evidence that the principal had requested her to assign and transfer 1. Baltazar and Rose – both incorporators (Baltazar group)
the shares of stock to petitioner. In fine, the records are unclear on
how petitioner allegedly acquired the shares of stock of JAKA. o Baltazar subscribed to 600 shares of stock, 535 of which are
already fully paid, duly covered by certificates of stock issued to him.
Thus, for a valid transfer of stocks, the requirements are as follows:
o Rose subscribed to 400 shares of stock, 375 of which are fully
(a) There must be delivery of the stock certificate; (b) The certificate paid, duly covered by certificates of stock issued to him.
must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and, (c) to be valid 2. Ungson, Estrada, Fernandez, Yuson and Acena (Ungson
against third parties, the transfer must be recorded in the books of the Group)
corporation. At most, in the instant case, petitioner has satisfied only
o Ungson, Estrada, Fernandez and Yuson were small
the third requirement. Compliance with the first two requisites has not
stockholders of Lingayen, all holding a total number of fully paid-up
been clearly and sufficiently shown. shares of stock, of not more than 100 shares. These 4 constituted the
majority of the 7-member Board of Directors of Lingayen.
*The basis of a stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal requisites for its o Acena, was likewise an incorporator and stockholder, holding
institution. The most important of these is the bona fide ownership by 600 shares of stock, duly covered by certificates of stock issued to
a stockholder of a stock in his own right at the time of the transaction him. He was the largest individual stockholder.
complained of which invests him with standing to institute a derivative • From the by-laws, the date of the annual stockholder’s
action for the benefit of the corporation. meeting had been fixed on the 1st Tuesday of February of every year,
but for one reason or another, the meeting was to be held on May 1,
1955, principally for the purpose of electing new officers and Board of
Directors for the year 1955.
1. Makati Sports Club, Inc. v. Cheng, 621 SCRA 103 (2010)
2. Baltazar v. Lingayen Gulf Elect. Power Co., 14 SCRA 522 • The Ungson group had been in complete control of the
(1965) management and property of the Corporation since January 1, 1955.
So in order to continue retaining such control, they passed 3
FACTS: Resolutions during the regular Board meeting held on Jan. 30, 1955.
The plan was to expel and oust the Baltazar group and their
companion stockholders, for the ultimate purpose of depriving them of

their right to vote in the said annual stockholders' meeting scheduled o (Par 3 of agreement) With respect to the interest on unpaid
for May 1, 1955. balance of subscription, the subscribers would be given the
opportunity to pay in 2 installments:
1. declaring watered stocks issued to Acena, Baltazar, Rose and
Jubenville of no value and cancelled; 1st installment to cover ½ of the unpaid balance to be paid in 3mos,
and
2.a. all unpaid subscriptions to bear interest, and all payments to be
credited to interest 1st, capital debt 2nd, 2nd installment will be for the remaining unpaid half payable in
another 3mos,
2.b declared as of no value and cancelled all capital stock shares
certificates issued as fully paid up, upon payments made by From the time of the approval of this agreements, those who comply
stockholders, when interests on unpaid subscription from date of with this arrangement will not pay interest on the balance of their
subscription were not previously and/or then and there paid subscription, from the date of incorporation up to the grant of
franchise on February 24, 1948, which shall be deemed as condoned,
3. all stock declared delinquent on the accrued interest are and from 1948 they will pay only as interest 3% compounded
incapacitated to avail of voting power. annually, failure of any subscriber to pay any of the installment
provided will subject the stockholders concerned to the provision of
• The Baltazar group filed a complaint and prayed that a writ of the corporation law of the payment of 6% interest compounded
preliminary injunction be issued against the the Ungson group. They quarterly.
sought to allow them to vote their fully paid-up shares and to declare
the resolutions invalid. The trial court issued a Preliminary Injunction, • Enforcement of Decision 1 was enjoined by the Ungson
as prayed for. Group, who asked for amendment. The Trial Court amended the
decision (Decision 2), which now provides that:
• Defense of Ungson group: The Resolutions were merely
functional instruments to bolster the faith in the assets of Lingayen, o The compromise agreements only modified the Resolutions,
given that during the years that the Baltazar group and their allies and did not repeal them. Considering that the primary intention of
were in control of Lingayen, no serious effort was attempted to each of said resolutions was to effect an early collection of unpaid
retrieve it from its financial collapse. Furthermore, there were even balance of stock subscriptions and interest thereon, and the moving
attempts to release the Baltazar group from liability of their unpaid consideration for a compromise settlement of the instant cases is
subscriptions. likewise the early collection of the obligations of stockholders of the
defendant corporation, the extension of time to pay, as granted in par.
• A tentative amicable settlement, formulated and entered into 3 of said agreement, was clearly intended to cover not only the
by some of the parties was submitted. Lower Court approved the accrued interest but also the unpaid stock subscription of the
agreement (Decision 1), and thus dissolved the writ of preliminary stockholders, for to hold otherwise would be to defeat the primary
injunction. purpose of early collection of said obligations.
o The declaration of delinquency from the Resolutions is not

repealed by the extension of time granted under par. 3 of the

compromise agreement. Complete restoration of voting rights will only WON there was a waiver of right to enforce the voting power, by virtue
take effect upon full payment of the balance of said stock of the compromise agreement – NO.
subscriptions and interest within the period provided therein.
• The Baltazar group opposed Decision 2, thus, the Trial Court

reversed it and issued Decision 3. RATIO:
o All shares of the capital stock of the defendant corporation WON a shareholder with a balance of unpaid shares subscribed is
covered by fully paid capital stock shares certificates are entitled to entitled to vote the paid shares – YES.
vote in all meetings of the stockholders of this corporation, and the 3
Resolutions of the Board are hereby nullified insofar as they are • The present case does not come under the principle in Fua
inconsistent this ruling. Cun because it was the practice of the company there since its
inception, to issue certificates of stock even for unpaid shares and
• On appeal: gave voting power to stocks fully paid. And even though no
agreement existed, the ruling in said case does not now reflect the
o Baltazar group claims that once a shareholder has subscribed correct view on the matter, for better than an agreement or practice,
to a certain number of shares, although he has made partial there is the law, which renders Fua Cun, obsolescent.
payments, but is issued a certificate for the paid-up shares, he is
entitled to vote the whole number of shares subscribed, WON paid, • Sec. 37 of the Corporation Law, as amended by Act No. 3518,
until said unpaid shares shall have been called for payment or approved 6 yrs after Fua Cun (1923), provides:
declared delinquent.
SEC. 37. No certificate of stock shall be issued to a subscriber as fully
o Lingayen/Ungson group counters that under the doctrine in paid up until the full par value thereof, or the full subscription in the
Fua Cun, in the absence of special agreement to the contrary, a case of no par stock, has been paid by him to the corporation.
partial payment of a subscription does not entitle the shareholder to a Subscribed shares not fully paid up may be voted provided no
certificate for the total number of shares subscribed by him, and his subscription is unpaid and delinquent.
right consists only in equity to a certificate of the total number of
shares subscribed for, upon payment of the remaining portion of the • The present law requires as a condition before a shareholder
subscription price. can vote his shares, that his full subscription be paid in the case of no
par value stock; and in case of stock corporation with par value, the
stockholder can vote the shares fully paid by him only, irrespective of
the unpaid delinquent shares.
ISSUES/HELD:
o Since it was the practice of Lingayen to issue stock certificates
WON a shareholder with a balance of unpaid shares subscribed is to not fully paid subscribers, it may not take away the right to vote
entitled to vote the paid shares – YES. granted by the certificate.
WON previous payments should be applied to the interest first – NO.

o Stock certificates may be issued for less than the number of o The Corporation Law and the by-laws of Lingayen do not
shares subscribed for provided that: contain any provision, prohibiting the application of stockholders'
payments to the full par value of a corporation's capital stock, ahead
The par value of each represented by the certificate has been of the payment of accrued interest for unpaid subscriptions.
paid, and
o Although NCC 1253 states that if a debt produces interest,
It is not prohibited by the by-laws. payment of the principal is not deemed made until the interest has
been covered, this applies only when there is no agreement to the
contrary, which is obviously the situation in the case at bar.
WON previous payments should be applied to the interest first – NO.
• As observed by the trial court, a corporation may now, in the WON there was a waiver of right to enforce the voting power, by virtue
absence of contrary provisions in their by-laws, apply payment made of the compromise agreement – NO.
by, subscribers-stockholders, either as:
• Certain clauses of the agreement are contrary to law and
a) full payment for the corresponding number of shares of stock, public policy and would cause injury to the Baltazar group and other
the par value of each of which is covered by such payment; or stockholders similarly situated. Estoppel cannot be predicated on acts
which are prohibited by law or are against public policy.
b) payment pro-rata to each and all the entire number of shares
subscribed for.
• In this case, Lingayen chose to apply payments by the 5. De Los Santos V. Republic (1955)
shareholders to definite shares of stock and had full paid-up shares
certificates for the payments. Its call for payments of unpaid FACTS:
subscription and its declaration of delinquency only affected the
remaining number of shares. 600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc.,
(Lepanto), a corporation duly organized and existing under the laws of
• Lingayen applied the payments made to the full par value of the Philippines
shares subscribed, instead of the accrued interest. This being the
case, the application of payments must be deemed to have been Originally, 1/2 shares of stock were claimed by Apolinario de los
agreed upon by the Lingayen and the shareholders and cannot now Santos, and the other half by Isabelo Astraquillo. During the pendency
be changed without the consent of the shareholders concerned. It of this case, the Astraquillo has allegedly conveyed and assigned his
would therefore result that a corporation may, upon the request of an interest in and to de los Santos.
interested shareholder, apply payments by them to the full par value
of subscribed capital stock. Vicente Madrigal is registered in the books of the Lepanto as owner of
said stocks and whose indorsement in blank appears on the back of
said certificates

contend that De los Santos bought: Hess, during that period, operate as broker, for being American, he
was under Japanese surveillance, and that Hess had made, during
55,000 shares from Juan Campos the occupation, no transaction involving mining shares, except when
he sold 12,000 shares of the Benguet Consolidated, inherited from his
300,000 shares from Carl Hess mother, sometime in 1943.
800,000 shares from Carl Hess for the benefit of Astraquillo ISSUE: W/N the plaintiffs are entitled to the shares
delivered to stock broker Leonardo Recio stock certificate No. 2279 HELD: NO. REVERSED
55,000 shares to see Mr. DeWitt, who, probably, would be interested
in purchasing the shares burden of proof is upon the plaintiffs
DeWitt retained the shares reasoning that it was blocked by the US Section 35 of the Corporation Law reads:
and receipt was burned at Recio's dwelling
The capital stock corporations shall be divided into shares for which
By virtue of vesting P-12, dated February 18, 1945, title to the certificates signed by the president or the vice-president,
1,600,000 shares of stock in dispute was, however, vested in the countersigned by the secretary or clerk and sealed with the seal of the
Alien Property Custodian of the U. S. corporation, shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by
Plaintiffs filed their respective claims with the Property Custodian delivery of the certificate endorsed by the owner or his attorney in fact
or other person legally authorized to make the transfer. No transfer,
Defendant Attorney General of the U. S., successor to the however, shall be valid, except as between the parties, until the
Administrator contends, substantially, that, prior to the outbreak of the transfer is entered and noted upon the books of the corporation so as
war in the Pacific, shares of stock were bought by Vicente Madrigal, in to show the names of the parties to the transaction, the date of the
trust for, and for the benefit of, the Mitsui Bussan Kaisha a corporation transfer, the number of the certificate, and the number of shares
organized in accordance with the laws of Japan, the true owner transferred.
thereof, with branch office in the Philippines
No shares of stock against which the corporation holds any unpaid
March, 1942: Madrigal delivered stock certificates, with his blank claim shall be transferable on the books of the corporation. (Emphasis
indorsement thereon, to the Mitsuis, which kept said certificates, in the supplied.)
files of its office in Manila, until the liberation of the latter by the
American forces early in 1945; that the Mitsuis had never sold, or Certificates of stock are not negotiable instruments (post, Par. 102),
otherwise disposed of, said shares of stock; and that the stock consequently, a transferee under a forged assignment acquires no
certificates aforementioned must have been stolen or looted, title which can be asserted against the true owner, unless his own
therefore, during the emergency resulting from said liberation. negligence has been such as to create an estoppel against him
(Clarke on Corporations, Sec. Ed. p. 415). If the owner of the
CFI: favored plaintiffs certificate has endorsed it in blank, and it is stolen from him, no title is
acquired by an innocent purchaser for value
Defendants Appealed

Neither the absence of blame on the part of the officers of the against a bona fide purchaser from the finder or thief, or from holding
company in allowing an unauthorized transfer of stock, nor the good the corporation liable for allowing a transfer on its books, where the
faith of the purchaser of stolen property, will avail as an answer to the loss or theft of the certificate was not due to any negligence on the
demand of the true owner part of the owner
The doctrine that a bona fide purchaser of shares under a forged or stock pledged to a bank is endorsed in blank by the owner does not
unauthorized transfer acquires no title as against the true owner does estop him from asserting title thereto as against a bona fide purchaser
not apply where the circumstances are such as to estop the latter for value who derives his title from one who stole the certificate from
from asserting his title. . . . the pledgee. And this has also been held to be true though the thief
was an officer of the pledgee, since his act in wrongfully appropriating
one of two innocent parties must suffer by reason of a wrongful or the certificate cannot be regarded as a misappropriation by the bank
unauthorized act, the loss must fall on the one who first trusted the to whose custody the certificate was intrusted by the owner, even
wrongdoer and put in his hands the means of inflicting such loss though the bank may be liable to the pledgor
negligence which will work an estoppel of this kind must be a Hence, as the undisputed principal or beneficiary of the registered
proximate cause of the purchase or advancement of money by the owner (Madrigal), the Mitsuis may claim his rights, which cannot be
holder of the property, and must enter into the transaction itself exercised by the plaintiffs, not only because their alleged title is not
derived either from madrigal or from the Mitsuis, but, also, because it
the negligence must be in or immediately connected with the transfer is in derogation, of said rights. madrigal and the Mitsuis are notprivies
itself to the alleged sales by Campos and Hess to the plaintiffs, contrary to
the latter's pretense.
to establish this estoppel it must appear that the true owner had
conferred upon the person who has diverted the security the indicia of 3. Guy v. Guy, 680 SCRA 214 (2012)
ownership, or an apparent title or authority to transfer the title 4. Forest Hills Golf & Country Club v. Vertex Sales and Trading,
Inc., 692 SCRA 706
So the owner is not guilty of negligence in merely entrusting another
with the possession of his certificate of stock, if he does not, by Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic
assignment or otherwise, clothe him with the apparent title. non-profit stock corporation that operates and maintains a golf and
country club facility in Antipolo City. Forest Hills was created as a
Nor is he deprived of his title or his remedy against the corporation result of a joint venture agreement between Kings Properties
because he intrusts a third person with the key of a box in which the Corporation (Kings) and Fil-Estate Golf and Development, Inc.
certificate are kept, where the latter takes them from the box and by (FEGDI). Accordingly, Kings and FEGDI owned the shares of stock of
forging the owner's name to a power of attorney procures their Forest Hills, holding 40% and 60% of the shares, respectively.
transfer on the corporate books.
In August 1997, FEGDI sold to RS Asuncion Construction Corporation
Nor is the mere indorsement of an assignment and power of attorney (RSACC) one (1) Class "C" common share of Forest Hills for ₱1.1
in blank on a certificate of stock, which is afterwards lost or stolen, million. Prior to the full payment of the purchase price, RSACC
such negligence as will estop the owner from asserting his title as transferred its interests over FEGDI's Class "C" common share to

respondent Vertex Sales and Trading, Inc. (Vertex). 4 RSACC advised Ruling on rescission of sale is a
FEGDI of the transfer and FEGDI, in turn, requested Forest Hills to
recognize Vertex as a shareholder. Forest Hills acceded to the settled matter
request, and Vertex was able to enjoy membership privileges in the
golf and country club. At the outset, we declare that the question of rescission of the sale of
the share is a settled matter that the Court can no longer review in this
Despite the sale of FEGDI's Class "C" common share to Vertex, the petition. While Forest Hills questioned and presented its arguments
share remained in the name of FEGDI, prompting Vertex to demand against the CA ruling rescinding the sale of the share in its petition, it
for the issuance of a stock certificate in its name.5 As its demand went is not the proper party to appeal this ruling.
unheeded, Vertex filed a complaint 6 for rescission with damages
against defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. As correctly pointed out by Forest Hills, it was not a party to the sale
(FELI) – the developer of the Forest Hills golf course. Vertex averred even though the subject of the sale was its share of stock. The
that the defendants defaulted in their obligation as sellers when they corporation whose shares of stock are the subject of a transfer
failed and refused to issue the stock certificate covering the Class "C" transaction (through sale, assignment, donation, or any other mode of
common share. It prayed for the rescission of the sale and the return conveyance) need not be a party to the transaction, as may be
of the sums it paid; it also claimed payment of actual damages for the inferred from the terms of Section 63 of the Corporation Code.
defendants’ unjustified refusal to issue the stock certificate. However, to bind the corporation as well as third parties, it is
necessary that the transfer is recorded in the books of the corporation.
Forest Hills denied transacting business with Vertex and claimed that In the present case, the parties to the sale of the share were FEGDI
it was not a party to the sale of the share; FELI claimed the same as the seller and Vertex as the buyer (after it succeeded RSACC). As
defense. While admitting that no stock certificate was issued, FEGDI party to the sale, FEGDI is the one who may appeal the ruling
alleged that Vertex nonetheless was recognized as a stockholder of rescinding the sale. The remedy of appeal is available to a party who
Forest Hills and, as such, it exercised rights and privileges of one. has "a present interest in the subject matter of the litigation and is
FEGDI added that during the pendency of Vertex's action for aggrieved or prejudiced by the judgment. A party, in turn, is
rescission, a stock certificate was issued in Vertex's name,7 but Vertex deemed aggrieved or prejudiced when his interest, recognized by
refused to accept it. law in the subject matter of the lawsuit, is injuriously affected by
the judgment, order or decree."17 The rescission of the sale does
The Court’s Ruling not in any way prejudice Forest Hills in such a manner that its interest
in the subject matter – the share of stock – is injuriously affected.
The assailed CA rulings (a) declared the rescission of the sale of one Thus, Forest Hills is in no position to appeal the ruling rescinding the
(1) Class "C" common share of Forest Hills to Vertex and (b) ordered sale of the share. Since FEGDI, as party to the sale, filed no appeal
the return by Forest Hills, FEGDI, and FELI to Vertex of the amount against its rescission, we consider as final the CA’s ruling on this
the latter paid by reason of the sale. While Forest Hills argues that the matter.
ruling rescinding the sale of the share is erroneous, its ultimate prayer
was for the reversal and setting aside of the ruling holding it liable to Ruling on return of amounts paid by
return the amount paid by Vertex for the sale.16
reason of the sale modified
The Court finds Forest Hills’ prayer justified.

The CA’s ruling ordering the "return to [Vertex] the amount it paid by A necessary consequence of rescission is restitution: the parties to a
reason of the sale"18 did not specify in detail what the amount to be rescinded contract must be brought back to their original situation
returned consists of and it did not also state the extent of Forest Hills, prior to the inception of the contract; hence, they must return what
FEGDI, and FELI’s liability with regard to the amount to be returned. they received pursuant to the contract.24 Not being a party to the
The records, however, show that the following amounts were paid by rescinded contract, however, Forest Hills is under no obligation to
Vertex to Forest Hills, FEGDI, and FELI by reason of the sale: return the amount paid by Vertex by reason of the sale. Indeed,
Vertex failed to present sufficient evidence showing that Forest Hills
received the purchase price for the share or any other fee paid on
Payee Date of Purpose Amount Paid account of the sale (other than the membership fee which we will deal
Payment with after) to make Forest Hills jointly or solidarily liable with FEGDI
for restitution.
Although Forest Hills received ₱150,000.00 from Vertex as

FEGDI February 9, Purchase price ₱780,000.0019 membership fee, it should be allowed to retain this amount. For three
1999 for one (1) years prior to the rescission of the sale, the nominees of Vertex
Class "C" enjoyed membership privileges and used the golf course and the
common share amenities of Forest Hills. 25 We consider the amount paid as sufficient
consideration for the privileges enjoyed by Vertex's nominees as
members of Forest Hills.
FEGDI February 9, Transfer fee P 60,000.0020 WHEREFORE, in view of the foregoing, the Court PARTIALLY
1999 GRANTS the petition for review on certiorari. The decision dated
February 22, 2012 and the resolution dated May 31, 2012 of the Court
of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED.
Forest Hills February 23, Membership P 150,000.0021 Petitioner Forest Hills Golf & Country Club is ABSOLVED from liability
1999 fee for any amount paid by Vertex Sales and Trading, Inc. by reason of
the rescinded sale of one (1) Class "C" common share of Forest Hills
Golf & Country Club
FELI September 25, Documentary P 6,300.0022

2000
Stamps
5. (2013)
6. Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 362
FEGDI September 25, Notarial fees P 200.0023
SCRA 635 (2001)
2000

FACTS: On October 28, 1997, Dolores Potenciano, Max Joseph stockholders' meeting on May 19, 1998, to be held at the principal
Potenciano, Mercedelin Potenciano, Delfin Yorro, and Maya office of BLTB in San Pablo, Laguna. Before the scheduled meeting,
Industries, Inc., entered into a Sale and Purchase Agreement, Michael Potenciano wrote Benjamin Bitanga, requesting for a
whereby they sold to BMB Property Holdings, Inc., represented by its postponement of the stockholders' meeting due to the absence of a
President, Benjamin Bitanga, their 21,071,114 shares of stock in thirty-day advance notice. However, no response from Bitanga on
BLTB. The said shares represented 47.98% of the total outstanding whether or not the request for postponement was favorably acted
capital stock of BLTB. The purchase price for the shares of stock was upon. On the scheduled date of the meeting, inasmuch as there was
P72,076,425.00. A downpayment was made while the balance was no notice of postponement prior to that, a total of 286 stockholders,
payable on November 26, 1997. The contracting parties stipulated representing 87% of the shares of stock of BLTB, arrived and
that the downpayment was conditioned upon receipt by the buyer of attended the meeting. The majority of the stockholders present
certain documents upon signing of the Agreement, namely, the rejected the postponement and voted to proceed with the meeting.
Secretary's Certificate stating that the Board of Directors of Maya The Potenciano group was re-elected to the Board of Directors, and a
Industries, Inc. authorized the sale of its shares in BLTB and the new set of officers was thereafter elected. On May 21, 1998, the
execution of the Agreement, and designating Dolores A. Potenciano Bitanga group filed with the SEC a Complaint for Damages and
as its Attorney-in-Fact; the Special Power of Attorney executed by Injunction. Their prayer for the issuance of a temporary restraining
each of the sellers in favor of Dolores A. Potenciano for purposes of order was, however, denied at the ex-parte summary hearing
the Agreement; the undated written resignation letters of the Directors conducted by SEC Chairman Perfecto Yasay, Jr. Likewise, the
of BLTB, except Henry John A. Potenciano, Michael A. Potericiano Potenciano group filed on May 25, 1998, a
and Candido A. Potenciano; a revocable proxy to vote the subject
shares made by the sellers in favor of the buyer; a Declaration of Complaint for Injunction and Damages with Preliminary Injunction and
Trust made by the sellers in favor of the buyer acknowledging that the Temporary Restraining Order with the SEC. The SEC Chairman
subject shares shall be held in trust by the sellers for the buyer Perfecto Yasay, Jr. issued a temporary restraining order enjoining the
pending their transfer to the latter's name; and the duly executed Bitanga group from acting as officers and directors of BLTB. On June
capital gains tax return forms covering the sale, indicating no taxable 8, 1998, the Bitanga group filed another complaint with application for
gain on the same. Furthermore, the buyer guaranteed that it shall take a writ of preliminary injunction and prayer for temporary restraining
over the management and operations of BLTB but shall immediately order, seeking to annul the May 19, 1998 stockholders' meeting. A
surrender the same to the sellers in case it fails to pay the balance of joint hearing was conducted. On June 17, 1998, the SEC Hearing
the purchase price on November 26, 1997. On November 21, 1997, at Panel granted the Bitanga group's application for a writ of preliminary
a meeting of the stockholders of BLTB, Benjamin Bitanga and Monina injunction upon the posting of a bond in the amount of
Grace Lim were elected as directors of the corporation Subsequently, P20,000,000.00. It declared that the May 19, 1998 stockholders'
on November 28, 1997, another stockholders' meeting was held, meeting was void on the grounds that, first, Michael Potenciano had
wherein himself asked for its postponement due to improper notice; and,
second, there was no quorum, since BMB Holdings, Inc., represented
Laureano A. Siy and Renato L. Leveriza were elected as directors. At by the Bitanga group, which then owned 50.26% of BLTB's shares
the same meeting, the Board of Directors of BLTB elected James having purchased the same from the Potenciano group, was not
Olayvar, Eduardo Azucena, Evelio Custodia, and Gemma Santos as present at the said meeting. The Hearing Panel further held that the
officers. During a meeting of the Board of Directors on April 14, 1998, Bitanga Board remains the legitimate Board in a holdover capacity.
the newly elected directors of BLTB scheduled the annual The Potenciano group filed a petition for certiorari with the SEC En

Banc on June 29, 1998, seeking a writ of preliminary injunction to WHEREFORE, in view of all the foregoing, the instant petitions for
restrain the implementation of the Hearing Panel's assailed Order. On review are GRANTED. The Decision of the Court of Appeals dated
July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of November 23, 1998 in CA-G.R. SP No. 48374 and its resolution dated
the Hearing Panel and issued the writ of preliminary injunction prayed March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc
for. The Bitanga group immediately filed a petition for certiorari with dated July 21, 1998 and July 27, 1998 in SEC Case No. EB 611 are
the Court of Appeals on July 22, 1998, followed by a Supplemental ordered REINSTATED.
Petition on August 10, 1998. Meanwhile, on July 29, 1998, the SEC
En Banc issued a writ of preliminary injunction against the Bitanga 7. Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002)
group, after the Potencianos posted the required bond of
P20,000,000.00. On November 23, 1998, the CA rendered the now FACTS:
assailed Decision, reversing the assailed Orders of the SEC En Banc
and reinstating the Order of the Hearing Panel ordered dated June 17, On 25 January 1996, Vicente C. Ponce, filed a complaint with the
1998. The CA denied the Motions for Reconsideration in a Resolution SEC for mandamus and damages against Alsons Cement
dated March 25, 1999. Hence, this petition for review. Corporation and its corporate secretary Francisco M. Giron, Jr. In his
complaint, Ponce alleged, among others, that "the late Fausto G. Gaid
ISSUE: Whether or not the stockholders' meeting on May 19, 1998 was an incorporator of Victory Cement Corporation (VCC), having
was void since BMB Holdings, Inc., represented by the Bitanga group subscribed to and fully paid 239,500 shares of said corporation; that
was not present at the said meeting. on 8 February 1968, Ponce and Fausto Gaid executed a "Deed of
Undertaking" and "Indorsement" whereby the latter acknowledges that
RULING: Until registration is accomplished, the transfer, though valid the former is the owner of said shares and he was therefore
between the parties, cannot be effective as against the corporation. assigning/endorsing the same to Ponce; that on 10 April 1968, VCC
Thus, the unrecorded transferee, the Bitanga group in this case, was renamed Floro Cement Corporation (FCC); that on 22 October
cannot vote nor be voted for. The purpose of registration, therefore, is 1990, FCC was renamed Alsons Cement Corporation (ACC); that
twofold: to enable the transferee to exercise all the rights of a from the time of incorporation of VCC up to the present, no certificates
stockholder, including the right to vote and to be voted for, and to of stock corresponding to the 239,500 subscribed and fully paid
inform the corporation of any change in share ownership so that it can shares of Gaid were issued in the name of Fausto G. Gaid and/or
ascertain the persons entitled to the rights and subject to the liabilities Ponce; and that despite repeated demands, ACC and Giron refused
of a stockholder. Until challenged in a proper proceeding, a and continue to refuse without any justifiable reason to issue to Ponce
stockholder of record has a right to participate in any meeting; his vote the certificates of stocks corresponding to the 239,500 shares of Gaid,
can be properly counted to determine whether a stockholders' in violation of Ponce's right to secure the corresponding certificate of
resolution was approved, despite the claim of the alleged transferee. stock in his name. ACC and Giron moved to dismiss. SEC Hearing
On the other hand, a person who has purchased stock, and who Officer Enrique L. Flores, Jr. granted the motion to dismiss in an
desires to be recognized as a stockholder for the purpose of voting, Order dated 29 February 1996. Ponce appealed the Order of
must secure such a standing by having the transfer recorded on the dismissal.
corporate books. Until the transfer is registered, the transferee is not a
stockholder but an outsider. On 6 January 1997, the Commission En Banc reversed the appealed
Order and directed the Hearing Officer to proceed with the case. In
ruling that a transfer or assignment of stocks need not be registered

first before it can take cognizance of the case to enforce Ponce's the name of the transferee even when there has been compliance
rights as a stockholder, the Commission En Banc cited the Supreme with the requirements of Section 64, Corp Code (Sec. 64, RCC).
Court's ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987). Their
motion for reconsideration having been denied, ACC and Giron The stock and transfer book is the basis for ascertaining the persons
appealed the decision of the SEC En Banc and the resolution denying entitled to the rights and subject to the liabilities of a stockholder.
their motion for reconsideration to the Court of Appeals. In its Where a transferee is not yet recognized as a stockholder, the
decision, the Court of Appeals held that in the absence of any corporation is under no specific legal duty to issue stock certificates in
allegation that the transfer of the shares between Gaid and Ponce the transferee's name. A petition for mandamus fails to state a cause
was registered in the stock and transfer book of ACC, Ponce failed to of action where it appears that the petitioner is not the registered
state a cause of action. Thus, said the appellate court, "the complaint stockholder and there is no allegation that he holds any power of
for mandamus should be dismissed for failure to state a cause of attorney from the registered stockholder, from whom he obtained the
action." Ponce's motion for reconsideration was denied in a resolution stocks, to make the transfer. The deed of undertaking with
dated 10 August 1999. Ponce filed the petition for review on certiorari. indorsement presented by Ponce does not establish, on its face, his
right to demand for the registration of the transfer and the issuance of
ISSUE: W/N Gaid’s cert. of stocks be transferred to Ponce. certificates of stocks. Under the provisions of our statute touching the
transfer of stock, the mere indorsement of stock certificates does not
RULING: in itself give to the indorsee such a right to have a transfer of the
shares of stock on the books of the company as will entitle him to the
NO. Fausto Gaid was an original subscriber of ACC's 239,500 shares. writ of mandamus to compel the company and its officers to make
From the Amended Articles of Incorporation approved on 9 April 1995, such transfer at his demand, because, under such circumstances the
each share had a par value of P1.00 per share. Ponce had not made duty, the legal obligation, is not so clear and indisputable as to justify
a previous request upon the corporate secretary of ACC, Francisco M. the issuance of the writ.
Giron Jr., to record the alleged transfer of stocks.
As a general rule, as between the corporation on the one hand, and
Pursuant to Section 63 Corp. Code (Sec. 63, RCC), a transfer of its shareholders and third persons on the other, the corporation looks
shares of stock not recorded in the stock and transfer book of the only to its books for the purpose of determining who its shareholders
corporation is non-existent as far as the corporation is concerned. As are, so that a mere indorsee of a stock certificate, claiming to be the
between the corporation on the one hand, and its shareholders and owner, will not necessarily be recognized as such by the corporation
third persons on the other, the corporation looks only to its books for and its officers, in the absence of express instructions of the
the purpose of determining who its shareholders are. It is only when registered owner to make such transfer to the indorsee, or a power of
the transfer has been recorded in the stock and transfer book that a attorney authorizing such transfer. Thus, absent an allegation that the
corporation may rightfully regard the transferee as one of its transfer of shares is recorded in the stock and transfer book of ACC,
stockholders. From this time, the consequent obligation on the part of there appears no basis for a clear and indisputable duty or clear legal
the corporation to recognize such rights as it is mandated by law to obligation that can be imposed upon the corporate secretary, so as to
recognize arises. Hence, without such recording, the transferee may justify the issuance of the writ of mandamus to compel him to perform
not be regarded by the corporation as one among its stockholders and the transfer of the shares to Ponce.
the corporation may legally refuse the issuance of stock certificates in
8. Cojuangco v. Sandiganbayan, 586 SCRA 790 (2009)

IMELDA O. COJUANGCO et al. v. SANDIGANBAYAN et al. 586 remitted. The SC, in directing the re-conveyance to the Republic of
SCRA 790 (2009) the 111,415 shares of PLDT stock owned by PTIC in the name of
Prime Holdings, declared the Republic as the owner of said shares
While the general rule is that the portion of a decision that becomes and, necessarily, the dividends and interests accruing thereto.
the subject of execution is that ordained or decreed in the dis-positive Ownership is a relation in law by virtue of which a thing pertaining to
part thereof, there are recognized exceptions to this rule, one of which one person is completely subjected to his will in everything not
is where extensive and explicit discussion and settlement of the issue prohibited by law or the concurrence with the rights of another. Its
is found in the body of the decision. The Republic of the Philippines traditional elements or attributes include jus utendi or the right to
(Republic) filed before the Sandiganbayan a “Complaint for receive from the thing that it produces. Contrary to the Cojuangcos‘
Reconveyance, Reversion, Accounting, Restitution and Damages,” of contention, while the general rule is that the portion of a decision that
the alleged ill-gotten wealth of the Marcoses which have been becomes the subject of execution is that ordained or decreed in the
invested in the Philippine Long Distance Telecommunication dis-positive part thereof, there are recognized exceptions to this rule,
Corporation (PLDT). Ramon and Imelda Cojuangco (Spouses viz: (a) where there is ambiguity or uncertainty, the body of the
Cojuangco) were subsequently impleaded. The Sandiganbayan opinion may be referred to for purposes of construing the judgment,
dismissed the complaint with respect to the recovery of the PLDT because the dis-positive part of a decision must find support from the
shares. The Republic appealed to the Supreme Court, and the same decision‘s ratio decidendi; and (b) where extensive and explicit
issued a favorable ruling. The Republic thereafter filed with the discussion and settlement of the issue is found in the body of the
Sandiganbayan a Motion for the Issuance of a Writ of Execution, decision. In the Decision, although the inclusion of the dividends,
praying for the cancellation of the shares of stock registered in the interests, and earnings of the 111,415 PTIC shares as belonging to
name of Prime Holdings and the annotation of the change of the Republic was not mentioned in the dis-positive portion of the
ownership on PTIC‘s Stock and Transfer Book. The Republic further Court‘s Decision, it is clear from its body that what was being
prayed for the issuance of an order for PTIC to account for all cash adjudicated in favor of the Republic was the whole block of shares
and stock dividends declared by PLDT in favor of PTIC from 1986 up and the fruits thereof, said shares having been found to be part of the
to the present including compounded interests. The Sandiganbayan Marcoses‘ ill- gotten wealth, and therefore, public money.
granted the same, except its prayer for accounting of dividends. The
Republic moved for reconsideration with respect to the denial of 9. Chua Guan v. Samahang Magsasaka, Inc., 62 Phil. 472 (1935)
accounting of dividends, which the Sandiganbayan granted. The 10. Bachrach Motor Co. v. Lacson Ledesma, 64 Phil. 681 (1937)
Cojuangcos protested, alleging that the SC‘s decision did not include
in its dispositive portion the grant of dividends and interests accruing Lessons Applicable: Quasi-negotiable Character of Certificate of
to the shares adjudicated in favor of the Republic. Stock (Corporate Law)
ISSUE: Whether or not the Republic is entitled to the dividends and

interests accruing to the shares despite its non-inclusion in the dis-
positive portion of the decision FACTS:
HELD: The Cojuangcos insist on a literal reading of the dis-positive June 30, 1927: CFI favored Bachrach Motor Co., Inc
portion of the SC‘s Decision, excluding the dividends, interests, and (Bachrach) against Mariano Lacson Ledesma
earnings accruing to the shares of stock from being accounted for and

Ledesma mortgaged to the Philippine National Bank (PNB) pledge of the 6,300 stock dividends is valid against the
Talisay-Silay Milling Co., Inc shares Bachrach because the certificate was delivered to the creditor bank,
notwithstanding the fact that the contract does not appear in a public
September 29, 1928: PNB brought an action against Ledesma instrument
and his wife Concepcion Diaz for the recovery of a mortgage credit
Certificates of stock or of stock dividends, under the
January 2, 1929: PNB amended its complaint by including the Corporation Law, are quasi negotiable instruments in the sense that
Bachrach Motor Co., Inc., as party defendant because they claim to they may be given in pledge or mortgage to secure an obligation
have rights to some of the subject matters of this complaint
certificates of stock, while not negotiable in the sense of the
January 30, 1929: Bachrach field a gen. denial law merchant, like bills and notes, are so framed and dealt with as to
be transferable, when property endorsed, by mere delivery, and as
CFI: favored PNB they frequently convey, by estoppel against the corporation or against
prior holders, as good a title to the transferee as if they were
December 20, 1929: Bachrach brought an action in the CFI negotiable, and inasmuch as a large commercial use is made of such
against the Talisay-Silay Milling Co., Inc., to recover P13,850 against certificates as collateral security, and it is to the public interest that
the bonus or dividend w/c, by virtue of the resolution of December 22, such use should be simplify and facilitated by placing them as nearly
1923, Central Talisay-Silay Milling Co., Inc., had declared in favor of as possible on the plane of commercial paper, they are often spoken
Ledesma as one of the owners of the hacienda which had been of and treated as quasi negotiable, that is as having some of the
mortgaged to the PNB to secure the obligation of the Talisay-Silay attributes and partaking of the character of negotiable instruments, in
Milling Co., Inc. in favor of said bank passing from hand to hand, especially where they are accompanied
by an assignment and power of attorney, executed in blank, to
CFI: favored Bachrach transfer them to anyone who may obtain possession as holders, even
though such assignment and power are under seal.
ISSUE: W/N shares of stock are personal property and therefore can
be subject to pledge or chattel mortgage
HELD: YES. AFIRMED Bachrach Motor v. Mariano Ledesma; Talisay Milling
section 4 of the Chattel Mortgage Law, in so far as it provides (Aug 1937)

that a chattel mortgage shall not be valid against any person except
the mortgagor, his executors or administrators, unless the possession Facts:
of the property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register of deeds
of the province in which the mortgagor resides.

! Bachrach brought this action to recover the amount of judgments. It O Writ of execution caused attachment of Ledesma’s right of
appealed form the judgment declaring the right of PNB to the redemption over parcels of land.
6,300stock dividends as a preferred one absolving PNB and Ledesma
form the complaint. O On the day of issuance of the execution, real properties were
mortgaged to PNB to secure payment to said bank byLedesma of the
! It prayed that: sum of P624K
O The transfer certificate of stock dividends of Talisay Milling ofthe ! In the same instrument of mortgage, Ledesmamortgaged in favor of
PNB be declared null and void PNB shares owned by him inTalisay Milling.
O That Talisay Milling be ordered to cancel the entry of the transfer of ! Certificate covering 6,300 stock dividends were delivered as security
6,300 stock dividends made by it on its books in favor of PNB to Atty. Roman as representative of bank PNB.
O That Talisay Milling be order to pay Php 22K in case the6300 stock O Talisay Milling granted a bonus or compensation to the owners of
dividends could not be sold or if the proceeds of the sale are the real properties mortgaged to answer the debts contracted by it
insufficient. with PNB.
O That the defendants pay the cost of suit. ! Pursuant to this, Ledesma was allotted P19K.
Antecedent Facts: ! PNB brought an action against Ledesma and his wife for the
recovery of mortgage credit.
! Bachrach obtained judgment against Ledesma in the sum of 3K.
O PNB amended its complaint to include Bachrach Motor as a party
! The special sheriff, in compliance with the writ of execution attached because it claims to have some right to certain properties which PNB
all right, title to and interest w/c Ledesma may have in any was also claiming.
bonus,dividend, share of stock, money or property w/c Ledesma is
entitled to receive from Talisay Milling. ! CFI Bacolod rendered judgment in favor of PNB.
O This is by virtue of the fact that Ledesma mortgaged his land in O Bachrach brought an action against Talisay to recover the bonus or
favor of PNB to guarantee the indebtedness of TalisayMilling or w/c dividends declared by the corporation againstMariano Ledesma as
defendant is entitled to receive from Talisay on account of being a one of the owners of the hacienda w/chad been mortgaged to PNB to
stockholder. secure obligation of Talisay.
O The notice of attachment was served to both Ledesma andTalisay. Issues :
! Talisay even received a copy of the notice of attachment. ! WON pledge of stocks was ineffective against Bachrach because
evidence of its date was not made to appear in a public instrument.
! On Oct 3, 1927, Bachrach obtained judgment against Ledesma

! WON pledge could not legally exist because the certificate was not FACTS: Teofilo Po as an incorporator subscribed to 80 shares of
the shares themselves. Peers Marketing Corporation at P100 PV and paid 25%. No
certificate of stock was issued to him or to any incorporator,
O Certificate of stock cannot be the subject matter of the contracts of subscriber or stockholder.
pledge or chattel mortgage.
April 2, 1966: Po sold to Ricardo A. Nava for P2,000 20 of 80 shares
Held:
Nava requested to register the sale in the books of the corporation.
! The pledge of stock dividends is valid against Bachrach Motor
because the certificate was delivered to creditor bank denied - Po has not paid fully the amount of his subscription
PNB,notwithstanding the fact that the contract DOESN'T appear in a
public instrument. Po was delinquent of the balance due so the corporation claimed on
his entire subscription of which included 20 shares sold to Nava.
O Civ. Code provides that: no pledge shall be effective against a 3rd
person unless evidence of its date appears in a public instrument. December 21, 1966: Nava filed this mandamus to register 20 shares
in Nava's name in the corporation's transfer book.
! But this provision has been modified by ChattelMortgage Law (Sec
4) CFI: court dismissed the petition
! A chattel mortgage shall not be valid against any person except the Nava appealed on the basis that
mortgagor, his executor/administrator UNLESS the possession of the
property is delivered to and retained by the mortgagee OR unless the Section 37: "no certificate of stock shall be issued to a subscriber as
mortgage is recorded in the office of the Register of Deeds of the fully paid up until the full par value thereof, or the full subscription in
province inw/c the mortgagor resides. case of no par stock, has been paid by him to the corporation"
! Certificate of stock or of stock dividends under the corporation ISSUE: W/N officers of Peers Marketing Corporation can be
laware QUASI NEGOTIABLE instruments in the sense that they may compelled by mandamus to enter in its stock and transfer book the
begiven in pledge or mortgage to secure an obligation. sale made
o Petitioner Bachrach contends that pledge couldn't legally exist HELD: NO. dismissal affirmed.
because the certificate was not the shares themselves and that the
stock certificate cannot be the subject matter of a contract of pledge no provision of the by-laws of the corporation covers that situation
or chattel mortgage
SEC. 35. The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or the vice-
president, countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be
11. Nava v. Peers Marketing Corp., 74 SCRA 65 (1976) transferred by delivery of the certificate indorsed by the owner or his

attorney in fact or other person legally authorized to make the 12. MR Holdings, Ltd. V. Bajar, 683 SCRA 336 (2012)
transfer. No transfer, however, shall be valid, except as between the,
parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate, and the number
of shares transferred.
No share of stock against which the corporation holds any unpaid

claim shall be transferable on the books of the corporation. MR Holdings, Ltd., vs. Sheriff Carlos P. Bajar, Sheriff Iv, RTC of
Manila, Citadel Holdings, Inc., Vercingetorix Corporation, Manila
SEC. 36. (re voting trust agreement) ... Golf & Country Club, Inc. And Marcopper Mining Corporation,
G.R. No. 153478. October 10, 2012
The certificates of stock so transferred shall be surrendered and
cancelled, and new certificates therefor issued to such person or
persons, or corporation, as such trustee or trustees, in which new
certificates it shall appear that they are issued pursuant to said Facts: Petitioner MR Holdings, Ltd. is a non-resident foreign
agreement. corporation, organized and existing under the laws of Cayman Island.
It is a subsidiary corporation of Placer Dome, Inc. (Placer Dome), a
A stock subscription is a subsisting liability from the time the foreign corporation which owns 40% of respondent Marcopper Mining
subscription is made. The subscriber is as much bound to pay his
Corporation (Marcopper)
subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable. Marcopper and Asian Development Bank (ADB) executed a
"Principal Loan Agreement with an amount of US$40,000,000.00 to
no clear legal duty on the part of the officers of the corporation to finance Marcopper's open-pit copper ore mining project (San Antonio
register the 20 shares in Nava's name - no cause of action for Mine) at Sta. Cruz, Marinduque.
mandamus. As security for the loan, Marcopper executed in favor of ADB a
"Deed of Real Estate and Chattel Mortgage"... covering substantially
Baltazar case: partial payment = entitled to vote the said shares
although he has not paid the balance of his subscription and a call or all of its real and personal properties... including Manila Golf &
demand had been made for the payment of the par value of the Country Club (Manila Golf Club) Membership Certificate Nos. 1412
delinquent shares and 1444. The Deed of Real Estate and Chattel Mortgage and
Addendum to Mortgage were registered with the Register of Deeds.
Without stock certificate, which is the evidence of ownership of Sometime in March, 1996, Marcopper had to stop mining
corporate stock, the assignment of corporate shares is effective only operations when tons of mine waste or tailings leaked from the
between the parties to the transaction delivery of the stock certificate,
drainage tunnel, massive damage to the environment.
which represents the shares to be alienated , is essential for the
protection of both the corporation and its stockholders

Department of Environment and Natural Resources
immediately issued a Closure Order. Marcopper defaulted on its loan Ruling: YES.
obligations to ADB. Lis pendens, which literally means pending suit, refers to the
Petitioner assumed Marcopper's obligation to ADB. ADB then jurisdiction, power or control which a court acquires over property
assigned to petitioner all its rights, interests and obligations under the involved in a suit, pending the continuance of the action, and until final
principal and complementary loan agreements, Deed of Real Estate judgment. It is evident that a notice of lis pendens is availed of mainly
and Chattel Mortgage, and Support and Standby Credit Agreement. in real actions.
Marcopper subsequently executed a “Deed of Assignment” Petitioner, citing the 1958 case of Diaz v. Hon. Perez, et al.[29]
whereby Marcopper assigns, cedes and conveys to petitioner, its argues that lis pendens may also be allowed in "other circumstances
assigns and/or successors-in-interest all of its properties, mining wherein equity and general convenience would make [it] appropriate."
equipment and facilities. Inability to meet production targets after the We do not agree that the afore-cited case serves as authority
mine tailings disaster in its Marinduque project, Marcopper was sued for allowing the annotation of lis pendens in an action involving only
by one of its creditors, Solidbank Corporation (Solidbank) personal property.
A writ of preliminary attachment was issued by said court, Clearly then no abuse was made of the court's discretion.
levied upon the properties of Marcopper such as personal properties
consisting of club membership shares, including the subject Manila It has been declared in a case decided by the US Supreme
Golf Club shares. Court that the doctrine of lis pendens has no application to
Petitioner's motion for reconsideration was likewise denied commercial securities. In some other cases the doctrine has been
under the Order dated May 10, 2000 stating that the notice of lis applied to personal properties such as corporate stock,. non-
pendens provided in Section 76 of Presidential Decree (P.D.) No. negotiable bond, and non-negotiable notes. Statutes may also
1529 pertains to real properties and not shares of stock which are expressly provide for the filing of a formal notice of lis pendens even
considered chattels, and that granting the motion would constitute an in actions involving only personal property. However, there seems to
undue restraint on the ownership of Citadel and Vercingetorix of the be no uniformity of rulings with respect to the application of the
Manila Golf membership certificates. doctrine of lis pendens to corporate stock.
On July 3, 2000, petitioner filed a petition for certiorari in the In this case, the notice of lis pendens was sought to be
CA assailing the aforesaid orders of the Makati City RTC, Branch 62 annotated on membership certificates representing a proprietary
denying its motion to annotate a notice of lis pendens on Manila Golf interest in the assets of a private non-stock corporation. Petitioner, as
Membership Certificate Nos. 1412 and 1444. early as July 21, 1997 had formally notified Manila Golf Club's
Corporate Secretary of the assignment of chattel mortgage duly
Issue: Whether petitioner’s lien/ title and the pending litigation or registered covering the subject shares of Marcopper, and further
transferees pendent lite may be charged with constructive notice of requested that the same be recorded to put third parties on notice of
petitioner’s lien/ title over the subject shares and the pending litigation petitioner's lien.
involving the same.

After the chattel mortgage was extrajudicially foreclosed on liquidating dividends, corporate assets, including real
September 15, 1997, petitioner promptly notified the said officer and properties
furnished him with a copy of the Certificates of Sale issued by Sheriff ■
Bajar in favor of petitioner as the highest bidder during the public Register of Deeds of Manila denied the registration of the
auction sale of the subject club shares. certificate of liquidation:
Subsequently, however, Manila Golf Club informed petitioner 1. The number of parcels not certified to in the
of its inability to comply with its request in view of the Order of the acknowledgment;
Manila RTC ordering Manila Golf Club to transfer Membership 2.
Certificate Nos. 1412 and 1444 in the name of respondents Citadel P430.50 Reg. fees need be paid;
and Vercingetorix who purchased the same in the execution pending 3.
sale authorized by said court. Manila Golf Club thus declared that it P940.45 documentary stamps need be attached to the
has to comply with the said directive until the same is revised by the document;
trial court or higher courts. 4.
WHEREFORE, the petition for review on certiorari is DENIED. The judgment of the Court approving the dissolution and
The Decision dated May 8, 2002 of the Court of Appeals in CA-G.R. directing the disposition of the assets of the corporation
SP No. 59476 is AFFIRMED. need be presented
■ Commissioner of Land Registration overruled ground No.
7 and sustained requirements Nos. 3, 5 and 6.
■
Stockholders appealed
■
■ contend that the certificate of liquidation is not a

conveyance or transfer but merely a distribution of
the assets of the corporation which has ceased to
13. Stockholders of F. Guanson and Sons, Inc. v. Register of Deeds exist for having been dissolved
of Manila, 6 SCRA 373 (1962) ISSUE: W/N certificate merely involves a distribution of the
corporation's assets (or should be considered a transfer or
FACTS: conveyance)
■ Sept 19, 1960: 5 stockholders of the F. Guanzon and
Sons, Inc. executed a certificate of liquidation of the assets HELD: NO. affirm the resolution appealed from
of the corporation, dissolution and distribution among 14. Corporation - juridical person distinct from the members
themselves in proportion to their shareholdings, as composing it.

15. Petitioner Grace Christian High School (GCHS) is a nonstock, non-
profit educational corporation with fifteen (15) regular members, who
a. Properties registered in the name of the also constitute the board of trustees.
corporation are owned by it as an entity
During the annual members meeting held on April 6, 1998, there were
separate and distinct from its members. only eleven (11) living member-trustees, as four (4) had already died.
b. Out of the eleven, seven (7) attended the meeting through their
While shares of stock constitute personal respective proxies.
property they do not represent property of the
corporation. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo,
c. and Judith Tan were voted to replace the four deceased member-
trustees.
i. A share of stock only typifies an aliquot When the controversy reached the Securities and Exchange
part of the corporation's property, or the Commission (SEC), petitioners maintained that the deceased
right to share in its proceeds to that member-trustees should not be counted in the computation of the
extent when distributed according to law quorum because, upon their death, members automatically lost all
and equity but its holder is NOT the their rights (including the right to vote) and interests in the corporation.
owner of any part of the capital of the
The SEC hearing officer declared the meeting null and void for lack of
corporation nor entitled to possession quorum. He also opined that Article III (2) of the By-Laws of GCHS,
ii. insofar as it prescribed the mode of filling vacancies in the board of
The stockholder is not a co-owner or trustees, must be interpreted in conjunction with Section 29 of the
tenant in common of the corporate Corporation Code.
property
The Court of Appeals dismissed the appeal based on defective
verification and certification.
16. Tan v. Sycip, 499 SCRA 216 (2006) Issue: W/N the filling up of vacancies was proper.
PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG,STEPHEN Held: No.

CO, JAMES TAN, JUDITH TAN, ERNESTOTANCHI JR., EDWIN
The phrase may be filled in Section 29 shows that the filling of
NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P.
vacancies in the board by the remaining directors or trustees
LIZARES and GRACE CHRISTIAN HIGH SCHOOL, Petitioners,
constituting a quorum is merely permissive, not mandatory.
- versus - Corporations, therefore, may choose how vacancies in their
respective boards may be filled up -- either by the remaining directors
PAUL SYCIP and MERRITTO LIM, Respondents

constituting a quorum, or by the stockholders or members in a regular hearing of the petition, except insofar as necessary in its ordinary
or special meeting called for the purpose. operations, and making payments outside of the necessary or
legitimate expenses of its business.
The By-Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a majority vote On August 10, 1984, the SEC Hearing Panel created the
of the remaining members of the board. management committee (MANCOM) for RUBY, composed of
representatives from Allied Leasing and Finance Corporation (ALFC),
While a majority of the remaining corporate members were present, Philippine Bank of Communications (PBCOM), China Banking
however, the election of the four trustees cannot be legally upheld for Corporation (China Bank), Pilipinas Shell Petroleum Corporation
the obvious reason that it was held in an annual meeting of the (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang.The
members, not of the board of trustees. Although the members of MANCOM was tasked to perform the following functions: (1)
GCHS themselves also constitute the trustees, it cannot be ignored undertake the management of RUBY; (2) take custody and control
that the GCHS bylaw provision specifically prescribes that vacancies over all existing assets and liabilities of RUBY; (3) evaluate RUBYs
in the board must be filled up by the remaining trustees. In other existing assets and liabilities, earnings and operations; (4) determine
words, these remaining member-trustees must sit as a board in order the best way to salvage and protect the interest of its investors and
to validly elect the new ones. creditors; and (5) study, review and evaluate the proposed
rehabilitation plan for RUBY.
WHEREFORE, the Petition is partly GRANTED. The assailed
Resolutions of the Court of Appeals are hereby REVERSED AND Subsequently, two (2) rehabilitation plans were submitted to the SEC:
SET ASIDE.The remaining members of the board of trustees of Grace the BENHAR/RUBY Rehabilitation Plan of the majority stockholders
Christian High School (GCHS) may convene and fill up the vacancies led by Yu Kim Giang, and the Alternative Plan of the minority
in the board, in accordance with this Decision. No pronouncement as stockholders represented by Miguel Lim (Lim).
to costs in this instance.
Both plans were endorsed by the SEC to the MANCOM for
evaluation.
17. Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 OnApril 26, 1991, over ninety percent (90%) of RUBYs creditors
SCRA 461 (2011) objected to the Revised BENHAR/RUBY Plan and the creation of a
new management committee.Instead, they endorsed the minority
FACTS: stockholders Alternative Plan.At the hearing of the petition for the
creation of a new management committee, three (3) members of the
Ruby Industrial Corporation (RUBY) is a domestic corporation original management committee (Lim, ALFC and Pilipinas Shell)
engaged in glass manufacturing. Reeling from severe liquidity opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it
problems beginning in 1980, RUBY filed onDecember 13, 1983a would legitimize the entry of BENHAR, a total stranger, to RUBY as
petition for suspension of payments with the Securities and Exchange BENHAR would become the biggest creditor of RUBY;(2) it would put
Commission (SEC) docketed as SEC Case No. 2556.On December RUBYs assets beyond the reach of the unsecured creditors and the
20, 1983, the SEC issued an order declaring RUBY under suspension minority stockholders; and (3) it was not approved by RUBY’’s
of payments and enjoining the disposition of its properties pending stockholders in a meeting called for the purpose.

Notwithstanding the objections of 90% of RUBY’s creditors and three BENHAR/RUBY Plan, as found by the CA and as affirmed by this
members of the MANCOM, the SEC Hearing Panel approved on Court:
September 18, 1991the Revised BENHAR/RUBY Plan and dissolved
the existing management committee. It also created a new “There can be no gainsaying the well-established rule in corporate
management committee and appointed BENHAR as one of its practice and procedure that the will of the majority shall govern in all
members. In addition to the powers originally conferred to the matters within the limits of the act of incorporation and lawfully
management committee under Presidential Decree (P.D.) No. 902-A, enacted by-laws not proscribed by law. It is, however, equally true that
the new management committee was tasked to oversee the other stockholders are afforded the right to intervene especially during
implementation by the Board of Directors of the revised rehabilitation critical periods in the life of a corporation like reorganization, or in this
plan for RUBY. case, suspension of payments, more so,when the majority seek to
impose their will and through fraudulent means, attempt to siphon off
ISSUE: W/N the minority’s pre-emptive rights were violated Rubys valuable assets to the great prejudice of Ruby itself, as well as
the minority stockholders and the unsecured creditors.”
RULING:
Certainly, the minority stockholders and the unsecured creditors are
YES. Pre-emptive right under Sec. 39, Corp. Code (Sec. 38, RCC) given some measure of protection by the law from the abuses and
refers to the right of a stockholder of a stock corporation to subscribe impositions of the majority, more so in this case, considering thegive-
to all issues or disposition of shares of any class, in proportion to their away signs of private respondents perfidy strewn all over the factual
respective shareholdings.The right may be restricted or denied under landscape.Indeed, equity cannot deprive the minority of a remedy
the articles of incorporation, and subject to certain exceptions and against the abuses of the majority, and the present action has been
limitations.The stockholder must be given a reasonable time within instituted precisely for the purpose of protecting the true and
which to exercise their preemptive rights.Upon the expiration of said legitimate interests of Ruby against the Majority Stockholders. On this
period, any stockholder who has not exercised such right will be score, the Supreme Court, has ruled that:
deemed to have waived it.
"Generally speaking, the voice of the majority of the stockholders is
The validity of issuance of additional shares may be questioned if the law of the corporation, but there are exceptions to this rule.There
done in breach of trust by the controlling stockholders.Thus, even if must necessarily be a limit upon the power of the majority.Without
the pre-emptive right does not exist, either because the issue comes such a limit the will of the majority will be absolute and irresistible and
within the exceptions in Sec. 39 (Sec. 38) or because it is denied or might easily degenerate into absolute tyranny.x x x"
limited in the articles of incorporation, an issue of shares may still be
objectionable if the directors acted in breach of trust and their primary Lamentably, the SEC refused to heed the plea of the minority
purpose is to perpetuate or shift control of the corporation, or to stockholders and MANCOM for the SEC to order RUBY to commence
"freeze out" the minority interest. In this case, the following relevant liquidation proceedings, which is allowed under Sec. 4-9 of the Rules
observations should have signaled greater circumspection on the part on Corporate Recovery. Under the circumstances, liquidation was the
of the SEC -- upon the third and last remand to it pursuant to our only hope of the minority stockholders for effecting an orderly and
January 20, 1998 decision -- to demand transparency and equitable settlement of RUBY’s obligations, and compelling the
accountability from the majority stockholders, in view of the illegal majority stockholders to account for all funds, properties and
assignments and objectionable features of the Revised documents in their possession, and make full disclosure on the

nullified credit assignments.Oblivious to these pending incidents so veil of corporate fiction”—as in fact the court will often look at the
crucial to the protection of the interest of the majority of creditors and corporation as a mere collection of individuals or an aggregation
minority shareholders, the SEC simply stated that in the interim, of persons undertaking business as a group, disregarding the
RUBY’s corporate term was validly extended, as if such extension separate juridical personality of the corporation unifying the group.
would provide the solution to RUBY’s myriad problems. Another formulation of this doctrine is that when two (2) business
enterprises are owned, conducted and controlled by the same
Extension of corporate term requires the vote of 2/3 of the outstanding parties, both law and equity will, when necessary to protect the
capital stock in a stockholders meeting called for the purpose.The rights of third parties, disregard the legal fiction that two
actual percentage of shareholdings in RUBY as of September 3, 1996 corporations are distinct entities and treat them as identical or one
-- when the majority stockholders allegedly ratified the board and the same.
resolution approving the extension of RUBY's corporate life to another
25 years was seriously disputed by the minority stockholders,and we
find the evidence of compliance with the notice and quorum
requirements submitted by the majority stockholders insufficient and Same; Same; Whether the separate personality of the corporation
doubtful.Consequently, the SEC had no basis for its ruling denying the should be pierced hinges on obtaining facts, appropriately
motion of the minority stockholders to declare as without force and pleaded or proved.—Whether the separate personality of the
effect the extension of RUBY's corporate existence.” corporation should be pierced hinges on obtaining facts,
appropriately pleaded or proved. However, any piercing of the
18. General Credit Corp. v. Alsons Dev. and Investment Corp., corporate veil has to be done with caution, albeit the Court will not
513 SCRA 225 (2007) hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of
General Credit Corporation vs. Alsons Development and corporate entity was not meant to promote unfair objectives.
Investment Corporation, 513 SCRA 225 , January 29, 2007 Authorities are agreed on at least three (3) basic areas where
piercing the veil, with which the law covers and isolates the
Corporation Law; Doctrine of Piercing the Veil of Corporate corporation from any other legal entity to which it may be related,
Fiction; The first consequence of the doctrine of legal entity of the is allowed. These are: 1) defeat of public convenience, as when
separate personality of the corporation is that a corporation may the corporate fiction is used as vehicle for the evasion of an
not be made to answer for acts and liabilities of its stockholders or existing obligation; 2) fraud cases or when the corporate entity is
those of legal entities to which it may be connected or vice versa. used to justify a wrong, protect fraud, or defend a crime; or 3) alter
—A corporation is an artificial being vested by law with a ego cases, where a corporation is merely a farce since it is a mere
personality distinct and separate from those of the persons alter ego or business conduit of a person, or where the
composing it as well as from that of any other entity to which it corporation is so organized and controlled and its affairs are so
may be related. The first consequence of the doctrine of legal conducted as to make it merely an instrumentality, agency,
entity of the separate personality of the corporation is that a conduit or adjunct of another corporation.
corporation may not be made to answer for acts and liabilities of
its stockholders or those of legal entities to which it may be
connected or vice versa. The notion of separate personality,
however, may be disregarded under the doctrine—“piercing the

Same; Same; The Court agrees with the disposition of the Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha
appellate court on the application of the piercing doctrine to the and Ladislawa, all surnamed Alcantara, and Alfredo de Borja
transaction subject of the instant case where, per the Court’s (hereinafter the Alcantara family, for convenience), each owned,
count, the trial court enumerated no less than 20 documented just like GCC, shares in the aforesaid GCC franchise companies,
circumstances and transactions which, taken as a package, e.g., CCC Davao and CCC Cebu.
indeed strongly supported the conclusion that a corporation was
but an adjunct, an instrumentality or business conduit of another ALSONS and the Alcantara family, for a consideration of 2Million
corporation.—The Court agrees with the disposition of the Pesos, sold their shareholdings - a total of 101,953 shares, more
appellate court on the application of the piercing doctrine to the or less - in the CCC franchise companies to EQUITY. EQUITY
transaction subject of this case. Per the Court’s count, the trial issued ALSONS et al., a "bearer" promissory note for P2Million
court enumerated no less than 20 documented circumstances and with a one-year maturity date, at 18% interest per annum, with
transactions, which, taken as a package, indeed strongly provisions for damages and litigation costs in case of default.
supported the conclusion that respondent EQUITY was but an
adjunct, an instrumentality or business conduit of petitioner GCC. Some four years later, the Alcantara family assigned its rights and
This relation, in turn, provides a justifying ground to pierce interests over the bearer note to ALSONS which thenceforth
petitioner’s corporate existence as to ALSONS’ claim in question. became the holder thereof.7 But even before the execution of the
Foremost of what the trial court referred to as “certain assignment deal aforestated, letters of demand for interest
circumstances” are the commonality of directors, officers and payment were already sent to EQUITY, through its President,
stockholders and even sharing of office between petitioner GCC Wilfredo Labayen, who pleaded inability to pay the stipulated
and respondent EQUITY; certain financing and management interest, EQUITY no longer then having assets or property to
arrangements between the two, allowing the petitioner to handle settle its obligation nor being extended financial support by GCC.
the funds of the latter; the virtual domination if not control wielded
by the petitioner over the finances, business policies and practices ALSONS, having failed to collect on the bearer note
of respondent EQUITY; and the establishment of respondent aforementioned, filed a complaint for a sum of money8 against
EQUITY by the petitioner to circumvent CB rules. EQUITY and GCC. As stated in par. 4 of the complaint, GCC is
being impleaded as party-defendant for any judgment ALSONS
Petitioner General Credit Corporation (GCC, for short), then might secure against EQUITY and, under the doctrine of piercing
known as Commercial Credit Corporation (CCC), established the veil of corporate fiction, against GCC, EQUITY having been
CCC franchise companies in different urban centers of the organized as a tool and mere conduit of GCC.
country.3 In furtherance of its business, GCC had, as early as
1974, applied for and was able to secure license from the then Answering with a cross-claim against GCC, EQUITY stated that it
Central Bank (CB) of the Philippines and the Securities and (EQUITY) was purposely organized by GCC for the latter to avoid
Exchange Commission (SEC) to engage also in quasi-banking CB Rules and Regulations on DOSRI (Directors, Officers,
activities.4 On the other hand, respondent CCC Equity Stockholders and Related Interest) limitations, and that it acted
Corporation (EQUITY, for brevity) was organized by GCC for the merely as intermediary or bridge for loan transactions and other
purpose of, among other things, taking over the operations and dealings of GCC to its franchises and the investing public; is
management of the various franchise companies. At a time solely dependent upon GCC for its funding requirements, to settle,
material hereto, respondent Alsons Development and Investment among others, equity purchases made by investors on the

franchises; hence, GCC is solely and directly liable to ALSONS, and controlled by the same parties, both law and equity will, when
the former having failed to provide 'EQUITY the necessary funds necessary to protect the rights of third parties, disregard the legal
to meet its obligations to ALSONS. fiction that two corporations are distinct entities and treat them as
identical or one and the same.
GCC filed its ANSWER to Cross-claim, stressing that it is a
distinct and separate entity from EQUITY and alleging, in essence Authorities are agreed on at least three (3) basic areas where
that the business relationships with each other were always at piercing the veil, with which the law covers and isolates the
arm's length. And following the denial of its motion to dismiss corporation from any other legal entity to which it may be related,
ALSONS' complaint, on the ground of lack of jurisdiction and want is allowed. These are: 1) defeat of public convenience, as when
of cause of action, GCC filed its Answer thereto and set up the corporate fiction is used as vehicle for the evasion of an
affirmative defenses with counterclaim for exemplary damages existing obligation; 2) fraud cases or when the corporate entity is
and attorney's fees. used to justify a wrong, protect fraud, or defend a crime; or 3) alter
ego cases, where a corporation is merely a farce since it is a mere
Eventually, the trial court, on its finding that EQUITY was but an alter ego or business conduit of a person, or where the
instrumentality or adjunct of GCC and considering the legal corporation is so organized and controlled and its affairs are so
consequences and implications of such relationship, came out conducted as to make it merely an instrumentality, agency,
with its decision rendering judgment for ALSONS. CA affirmed. conduit or adjunct of another corporation.
ISSUE: whether there is absolutely no basis for piercing GCC's The CA found valid grounds to pierce the corporate veil of
veil of corporate identity. petitioner GCC, there being justifiable basis for such action. When
the appellate court spoke of a justifying factor, the reference was
HELD: to what the trial court said in its decision, namely: the existence of
"certain circumstances [which], taken together, gave rise to the
A corporation is an artificial being vested by law with a personality ineluctable conclusion that - [respondent] EQUITY is but an
distinct and separate from those of the persons composing it as instrumentality or adjunct of [petitioner] GCC."
well as from that of any other entity to which it may be related. The
first consequence of the doctrine of legal entity of the separate The Court agrees with the disposition of the appellate court on the
personality of the corporation is that a corporation may not be application of the piercing doctrine to the transaction subject of
made to answer for acts and liabilities of its stockholders or those this case. Per the Court's count, the trial court enumerated no less
of legal entities to which it may be connected or vice versa. than 20 documented circumstances and transactions, which,
taken as a package, indeed strongly supported the conclusion that
The notion of separate personality, however, may be disregarded respondent EQUITY was but an adjunct, an instrumentality or
under the doctrine - "piercing the veil of corporate fiction" - as in business conduit of petitioner GCC. This relation, in turn, provides
fact the court will often look at the corporation as a mere collection a justifying ground to pierce petitioner's corporate existence as to
of individuals or an aggregation of persons undertaking business ALSONS' claim in question. Foremost of what the trial court
as a group, disregarding the separate juridical personality of the referred to as "certain circumstances" are the commonality of
corporation unifying the group. Another formulation of this doctrine directors, officers and stockholders and even sharing of office
is that when two (2) business enterprises are owned, conducted between petitioner GCC and respondent EQUITY; certain

financing and management arrangements between the two, directors and executives of - EQUITY never acted independently -
allowing the petitioner to handle the funds of the latter; the virtual but took their orders from - GCC'.
domination if not control wielded by the petitioner over the
finances, business policies and practices of respondent EQUITY; It bears to stress at this point that the facts and the inferences
and the establishment of respondent EQUITY by the petitioner to drawn therefrom, upon which the two (2) courts below applied the
circumvent CB rules. For a perspective, the following are some piercing doctrine, stand, for the most part, undisputed. Among
relevant excerpts from the trial court's decision setting forth in these is, to reiterate, the matter of EQUITY having been
some detail the tipping circumstances adverted to therein: incorporated to serve, as it did serve, as an instrumentality or
adjunct of GCC. With the view we take of this case, GCC did not
It must be noted that as characterized by their business adduce any evidence, let alone rebut the testimonies and
relationship, [respondent] EQUITY and [petitioner] GCC had documents presented by ALSONS, to establish the prevailing
common directors and/or officers as well as stockholders. This is circumstances adverted to that provided the justifying occasion to
revealed by the proceedings recorded in SEC Case No. 25-81 pierce the veil of corporate fiction between GCC and EQUITY. We
where it was established, thru the testimony of EQUITY's own quote the trial court:
President - that more than 90% of the stockholders of - EQUITY
were also stockholders of - GCC '.. Disclosed likewise is the fact Verily, indeed, as the relationships binding herein [respondent
that when [EQUITY's President] Labayen sold the shareholdings EQUITY and petitioner GCC] have been that of "parent-subsidiary
of EQUITY in said franchise companies, practically the entire corporations" the foregoing principles and doctrines find suitable
proceeds thereof were surrendered to GCC, and not received by applicability in the case at bar; and, it having been satisfactorily
EQUITY. and indubitably shown that the said relationships had been used
to perform certain functions not characterized with legitimacy, this
It was likewise shown by a preponderance of evidence that not Court - feels amply justified to "pierce the veil of corporate entity"
only had 'GCC financed - EQUITY and that the latter was heavily and disregard the separate existence of the percent (sic) and
indebted to the former but EQUITY was, in fact, a wholly owned subsidiary the latter having been so controlled by the parent that
subsidiary of 'GCC. Thus, as affirmed by EQUITY's President, - its separate identity is hardly discernible thus becoming a mere
the funds invested by EQUITY in the CCC franchise companies instrumentality or alter ego of the former. Consequently, as the
actually came from CCC Phils. or GCC (Exhibit "Y-5")'. that, as parent corporation, [petitioner] GCC maybe (sic) held responsible
disclosed by the Auditor's report for 1982, past due receivables for the acts and contracts of its subsidiary - [respondent] EQUITY
alone of GCC exceeded P101,000,000.00 mostly to GCC affiliates - most especially if the latter (who had anyhow acknowledged its
especially CCC EQUITY. '; that [CB's] Report of Examination liability to ALSONS) maybe (sic) without sufficient property with
dated July 14, 1977 shows that - EQUITY which has a paid-up which to settle its obligations. For, after all, GCC was the entity
capital of only P500,000.00 was the biggest borrower of GCC with which initiated and benefited immensely from the fraudulent
a total loan of P6.70 Million '. scheme perpetrated in violation of the law. (Words in parenthesis
in the original; emphasis and bracketed words added).
ALSONS has likewise shown 'that the bonuses of the officers and
directors of - EQUITY was based on its total financial performance Given the foregoing considerations, it behooves the petitioner, as
together with all its affiliates' both firms were sharing one and the a matter of law and equity, to assume the legitimate financial
same office when both were still operational - and that the obligation of a cash-strapped subsidiary corporation which it

virtually controlled to such a degree that the latter became its thereof in person or by his representative duly authorized in writing.
instrument or agent. The facts, as found by the courts a quo, and Alfredo O. Banaria (who signed the deed of assignment) did not have
the applicable law call for this kind of disposition. Or else, the the necessary written authorization from the Board of Directors of
Court would be allowing the wrong use of the fiction of corporate flirters. For lack of such authority, the assignment did not bind flirters
veil. and violated the Central Bank Circular (No. 769) which has the force
and effect of a law. For such violations, Phil finance acquired no title
19. Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996) or rights under CBCI No. D891 which it could assign or transfer to
20. Traders Royal Bank v. Court of Appeals, 269 SCRA 15 (1997) TRB, and which TRB can register with the Central Bank. On petition,
TRB argued that Phil finance owns 90% of Flirter’s equity and the two
FACTS OF THE CASE corporations have identical corporate officers, thus demanding the
application of piercing the veil of corporate fiction to give validity to the
Nature of the Case: Petition for Review on Certiorari. CA affirmed the transfer of the CBCI from filters to TRB.
nullity of the transfer of Central Bank Certificate of Indebtedness
(CBCI) No. D891,2 with a face value of Php 500,000.00 from the
Philippine Underwriters Finance Corporation (Phil Finance) to
Petitioner Trader's Royal Bank (TRB) under a Repurchase Agreement ISSUE
and a Detached Assignment. Filriters Guaranty Assurance
Corporation (filters) is the owner of the Central Bank Certificate of Was the transfer of the CBCI from Filriters to PhilFinance and
Indebtednes (CBCI) No. D891 worth Php500, 000.00 which was subsequently from PhilFinance to TRB, in accordance with existing
transferred to Philippine Underwriters Finance Corporation law, so as to entitle TRB to have the CBCI registered in its name with
(PhilFinance) through a Deed of Assignment. Subsequently Phil the Central Bank?
finance transferred the said instrument (still registered under the
name of flirters) to Traders Royal Bank (TRB). It was made through a RULING
Repurchase Agreement. Phil finance defaulted in its obligation to
TRB. It then executed a Deed of Assignment to TRB. TRB then Corporation Law; Piercing the Veil of Corporate Fiction; Piercing the
notified the Central Bank (Security Servicing Department) to cause veil of corporate entity requires the court to see through the protective
the transfer and registration of the CBCI No. D891 under its name. It shroud which exempts its stockholders from liabilities that ordinarily,
was however refused to do so in lieu of an adverse claim filed by they could be subject to, or distinguishes one corporation from a
Filters. The Court of Appeals held that the CBCI is not a negotiable seemingly separate one, were it not for the existing corporate fiction.
instrument. It is clearly stated that it was payable to flirters. The —Petitioner cannot put up the excuse of piercing the veil of corporate
certificate lacked the words of negotiability which serve as an entity, as this is merely an equitable remedy, and may be awarded
expression of consent that the instrument may be transferred by only in cases when the corporate fiction is used to defeat public
negotiation. The assignment of Filters to Phil finance was also null convenience, justify wrong, protect fraud or defend crime or where a
and void because it was made without consideration. It also did not corporation is a mere alter ego or business conduit of a person.
conform to the Central Bank Circular No. 769, series of 1980 - Rules Piercing the veil of corporate entity requires the court to see through
and Regulations Governing Central Bank Certificates of the protective shroud which exempts its stockholders from liabilities
Indebtedness. It provides that any assignment of registered that ordinarily, they could be subject to, or distinguishes one
certificates shall not be valid unless made by the registered owner corporation from a seemingly separate one, were it not for the existing

corporate fiction. But to do this, the court must be sure that the required by law. Insurance companies are required to put up a legal
corporate fiction was misused, to such an extent that injustice, fraud, reserve equivalent to 40 percent of the premiums receipt. The
or crime was committed upon another, disregarding, thus, his, her, or Insurance Commission requires this reserve to be invested preferably
its rights. It is the protection of the interests of innocent third persons in government securities or government bonds. Therefore, the said
dealing with the corporate entity which the law aims to protect by this CBCI cannot be taken out of the said fund, without violating the
doctrine. Filriters and PhilFinance remains separate. Same; Same; requirements of the law. The unauthorized use or distribution of the
Mere ownership by a single stockholder or by another corporation of same by a corporate officer of Filriters, cannot bind the corporation,
all or nearly all of the capital stock of a corporation is not of itself a not without the approval of its Board of Directors, and the
sufficient reason for disregarding the fiction of separate corporate maintenance of the required reserve fund. Consequently, the title of
personalities.—Though it is true that when valid reasons exist, the Filriters over the subject certificate of indebtedness must be upheld
legal fiction that a corporation is an entity with a juridical personality over the claimed interest of TRB.
separate from its stockholders and from other corporations may be
disregarded, in the absence of such grounds, the general rule must be 21. Gochan v. Young, 354 SCRA 207 (2001)
upheld. The fact that Philfinance owns majority shares in Filriters is
not by itself a ground to disregard the independent corporate status of
Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the
mere ownership by a single stockholder or by another corporation of 22. Boyer-Roxas v. CA, 211 SCRA 470 (1992)
all or nearly all of the capital stock of a corporation is not of itself a
sufficient reason for disregarding the fiction of separate corporate Rebecca Boyer-Roxas and Guillermo Roxas v. CA And Heirs Of
personalities. TRB was not defrauded at all when it acquired the CBCI Eugenia V. Roxas, Inc
from PhilFinance. Same; Same; An entity which deals with corporate (G.R. No. 100866 July 14, 1992)
agents within circumstances showing that the agents are acting in
excess of corporate authority may not hold the corporation liable.— Summary: In two complaints, Respondent corporation, Heirs of
Petitioner, being a commercial bank, cannot feign ignorance of
Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners
Central Bank Circular 769, and its requirements. An entity which deals
with corporate agents within circumstances showing that the agents from buildings inside the Hidden Valley Springs Resort allegedly
are acting in excess of corporate authority, may not hold the owned by the respondent corporation. The questioned properties in
corporation liable. This is only fair, as everyone must, in the exercise this case (buildings inside the Hidden Valley Springs Resort located at
of his rights and in the performance of his duties, act with justice, give Limao, Calauan, Laguna) belonged to Eugenia V. Roxas. After her
everyone his due, and observe honesty and good faith. TRB knew death, the heirs of Eugenia V. Roxas, among them the petitioners
that PhilFinance is not the registered owner of CBCI No. D891. The herein, decided to form a corporation — Heirs of Eugenia V. Roxas,
fact that a non-owner is disposing of the registered CBCI owned by
Incorporated (private respondent herein) with the inherited properties
another entity was a good reason for the petitioner to verify or inquire
as to the title of Philfinance to dispose of the CBCI. Moreover the said as capital of the corporation. In their separate answers, the petitioners
instrument is governed by the rules and regulations of the Central traversed the allegations in the complaint by stating that they are heirs
Bank. Alfredo O. Banaria did not have the necessary authorization of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley
from the Board of Directors of Filriters to bind it. Lastly, Filriters Springs Resort; and as co-owners of the property, they have the right
acquired the CBCI to form part of its legal and capital reserves to stay within its premises.

The Court ruled that Respondent corporation has a distinct personality buildings inside the Hidden Valley Springs Resort allegedly owned by
separate from its members. The corporation transacts its business the respondent corporation. Respondent corporation alleged that:
only through its officers or agents. Whatever authority these officers or (1) Rebecca is in possession of two houses, one of which is still under
agents may have is derived from the board of directors or other construction, built at the expense of the respondent corporation; and
governing body unless conferred by the charter of the corporation. An that her occupancy on the two houses was only upon the tolerance of
officer's power as an agent of the corporation must be sought from the the respondent corporation; and
statute, charter, the by-laws or in a delegation of authority to such (2) Guillermo occupies a house which was built at the expense of the
officer, from the acts of the board of directors, formally expressed or former during the time when Guillermo's father, Eriberto Roxas, was
implied from a habit or custom of doing business. The petitioners' still living and was the general manager of the respondent
suggestion that the veil of the corporate fiction should be pierced is corporation; that the house was originally intended as a recreation hall
untenable. The separate personality of the corporation may be but was converted for the residential use of Guillermo; and that
disregarded only when the corporation is used "as a cloak or cover for Guillermo's possession over the house and lot was only upon the
fraud or illegality, or to work injustice, or where necessary to achieve tolerance of the respondent corporation. In both cases, the
equity or when necessary for the protection of the creditors." The respondent corporation alleged that the petitioners never paid rentals
circumstances in the present cases do not fall under any of the for the use of the buildings and the lots and that they ignored the
enumerated categories. demand letters for them to vacate the buildings.
RTC ruled in favor of the Respondent. CA affirmed.
Facts:
The questioned properties in this case (buildings inside the Issue: Whether the CA erred when it refused to pierce the veil of
Hidden Valley Springs Resort located at Limao, Calauan, Laguna) corporate fiction over private respondent and maintain the petitioners
belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia in their possession and/or occupancy of the subject premises
V. Roxas, among them the petitioners herein, decided to form a considering that petitioners are owners of aliquot part of the properties
corporation — Heirs of Eugenia V. Roxas, Incorporated (private of private respondent.
respondent herein) with the inherited properties as capital of the
corporation. The corporation was incorporated on December 4, 1962
with the primary purpose of engaging in agriculture to develop the Ruling: NO
inherited properties. The Articles of Incorporation of the respondent Respondent corporation has a distinct personality separate
corporation were amended in 1971 to allow it to engage in the resort from its members. The corporation transacts its business only through
business. Accordingly, the corporation put up a resort known as its officers or agents. Whatever authority these officers or agents may
Hidden Valley Springs Resort where the questioned properties are have is derived from the board of directors or other governing body
located. unless conferred by the charter of the corporation. An officer's power
In two complaints, Respondent corporation, Heirs of Eugenia as an agent of the corporation must be sought from the statute,
V. Roxas, Inc., prayed for the ejectment of the petitioners from charter, the by-laws or in a delegation of authority to such officer, from

the acts of the board of directors, formally expressed or implied from a
habit or custom of doing business. Wherefore, the petition is partly granted.
Eufrocino V. Roxas who then controlled the management of 23. Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665
the corporation, being the majority stockholder, consented to the (2014)
petitioners' stay within the questioned properties. Specifically,
acific Rehouse Corporation v. Court of Appeals, G.R. No. 199687,
Eufrocino Roxas gave his consent to the conversion of the recreation
March 24, 2014.
hall to a residential house, now occupied by petitioner Guillermo
Roxas. The Board of Directors did not object to the actions of
Eufrocino Roxas. The petitioners were allowed to stay within the 17
FEB
questioned properties until August 27, 1983, when the Board of [REYES, J.]
Directors approved a Resolution ejecting the petitioners. We find
nothing irregular in the adoption of the Resolution by the Board of
Directors. The petitioners' stay within the questioned properties was FACTS
merely by tolerance of the respondent corporation in deference to the
wishes of Eufrocino Roxas, who during his lifetime, controlled and A complaint was instituted with the Makati City Regional Trial
managed the corporation. Eufrocino Roxas' actions could not have Court (RTC), Branch 66, against EIB Securities Inc. (E–Securities)
bound the corporation forever. The petitioners have not cited any
provision of the corporation by-laws or any resolution or act of the for unauthorized sale of 32,180,000 DMCI shares of Pacific
Board of Directors which authorized Eufrocino Roxas to allow them to Rehouse Corporation, Pacific Concorde Corporation, Mizpah
stay within the company premises forever. We rule that in the Holdings, Inc., Forum Holdings Corporation, and East Asia Oil
absence of any existing contract between the petitioners and the
Company, Inc. In its October 18, 2005 Resolution, the RTC
respondent corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest of the rendered judgment on the pleadings, directing the E–Securities
respondent corporation. to return to the petitioners 32,180,000 DMCI shares, as of judicial
demand. On the other hand, petitioners are directed to reimburse
The petitioners' suggestion that the veil of the corporate fiction
should be pierced is untenable. The separate personality of the the defendant the amount of [P]10,942,200.00, representing the
corporation may be disregarded only when the corporation is used "as buy back price of the 60,790,000 KPP shares of stocks at [P]0.18
a cloak or cover for fraud or illegality, or to work injustice, or where
per share. The Resolution was ultimately affirmed by the
necessary to achieve equity or when necessary for the protection of
the creditors." The circumstances in the present cases do not fall Supreme Court and attained finality.
under any of the enumerated categories.

When the Writ of Execution was returned unsatisfied, petitioners corporate fiction. There must be proof, apart from mere
moved for the issuance of an alias writ of execution to hold ownership, that Export Bank exploited or misused the corporate
Export and Industry Bank, Inc. liable for the judgment obligation fiction of E–Securities. The existence of interlocking
as E–Securities is “a wholly–owned controlled and dominated incorporators, directors and officers between the two
subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a corporations is not a conclusive indication that they are one and
mere alter ego and business conduit of the latter. E–Securities the same. The records also do not show that Export Bank has
opposed the motion[,] arguing that it has a corporate personality complete control over the business policies, affairs and/or
that is separate and distinct from the respondent. transactions of E–Securities. It was solely E–Securities that
contracted the obligation in furtherance of its legitimate
The RTC eventually concluded that E–Securities is a mere corporate purpose; thus, any fall out must be confined within its
business conduit or alter ego of petitioner, the dominant parent limited liability.
corporation, which justifies piercing of the veil of corporate
fiction, and issued an alias writ of summons directing defendant ISSUE
EIB Securities, Inc., and/or Export and Industry Bank, Inc., to
fully comply therewith. It ratiocinated that being one and the Whether or not E-Securities is merely an alter ego of Export Bank
same entity in the eyes of the law, the service of summons upon so that “piercing the veil of corporate fiction” is proper.
EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over

RULING
both the parent and wholly–owned subsidiary.
NO. An alter ego exists where one corporation is so organized

Export and Industry Bank, Inc. (Export Bank) filed before the
and controlled and its affairs are conducted so that it is, in fact, a
Court of Appeals a petition for certiorari with prayer for the
mere instrumentality or adjunct of the other. The control
issuance of a temporary restraining order (TRO) seeking the
necessary to invoke the alter ego doctrine is not majority or even
nullification of the RTC Order. The Court of Appeals reversed the
complete stock control but such domination of finances, policies
RTC Order and explained that the alter ego theory cannot be
and practices that the controlled corporation has, so to speak,
sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of

no separate mind, will or existence of its own, and is but a controlled corporation is a mere instrumentality or a business
conduit for its principal. conduit of the mother company. Even control over the financial
and operational concerns of a subsidiary company does not by
The Court has laid down a three–pronged control test to itself call for disregarding its corporate fiction. There must be a
establish when the alter ego doctrine should be operative: perpetuation of fraud behind the control or at least a fraudulent
or illegal purpose behind the control in order to justify piercing
● Control, not mere majority or complete stock control,
the veil of corporate fiction. Such fraudulent intent is lacking in
but complete domination, not only of finances but of
policy and business practice in respect to the this case.
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will While the courts have been granted the colossal authority to
or existence of its own;
wield the sword which pierces through the veil of corporate
● Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a fiction, concomitant to the exercise of this power, is the
statutory or other positive legal duty, or dishonest and responsibility to uphold the doctrine of separate entity, when
unjust act in contravention of plaintiff’s legal right; and
rightly so; as it has for so long encouraged businessmen to
● The aforesaid control and breach of duty must [have]
proximately caused the injury or unjust loss enter into economic endeavors fraught with risks and where only
complained of. a few dared to venture.
The decision of the Court of Appeals in favor of Export Bank

The absence of any one of these elements prevents ‘piercing the
(reversing the RTC Order) is affirmed.
corporate veil’ in applying the ‘instrumentality’ or ‘alter ego’
doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant’s
relationship to that operation. Hence, all three elements should
concur for the alter ego doctrine to be applicable.
24. Sps. Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003)
In this case, the alleged control exercised by Export Bank upon
its subsidiary E–Securities, by itself, does not mean that the FACTS:

Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single Bank is precisely what the classical doctrine of piercing the veil of
proprietorship engaged in the manufacture of garments for domestic corporate entity seeks to prevent and remedy.
and foreign consumption. The spouses by virtue of an SPA appointed
and authorized their daughter to obtain loan from respondent Pacific In our view, BEC is a mere continuation and successor of BET and
Bank. A loan was secured and as security therefore a REM was petitioners cannot evade their obligations in the mortgage contract
executed over the property of the spouses. Sometime after, BET was secured under the name of BEC on the pretext that it was signed for
incorporated into a family corporation named Bela’s Export the benefit and under the name of BET. We are thus constrained to
Corporation (BEC) and the loan was restructured in its name. rule that the Court of Appeals did not err when it applied the
Subsequent loans were obtained in behalf of BEC all secured by the instrumentality doctrine in piercing the corporate veil of BEC
previous REM. BEC defaulted in its payments which led to the
foreclosure and sale of the mortgaged property. The spouses moved 25. Lambert v. Fox, 26 Phil. 588 (1914)
to annul the sale alleging that BEC is a distinct and separate
personality from them and that the REM was executed only to secure FACTS:
BET’s loan. Both trial court and CA ruled to pierce the corporate veil
to hold petitioner spouses liable for BEC’s obligations. Early in 1911 the firm known as John R. Edgar & Co., engaged in the
retail book and stationery business, found itself in such condition
Issue: Whether or not the doctrine of piercing the veil of corporate financially that its creditors, including the plaintiff and the defendant,
fiction is applicable in this case. together with many others, agreed to take over the business,
incorporate it and accept stock therein in payment of their respective
Ruling: YES. credits. This was done, the plaintiff and the defendant becoming the
two largest stockholders in the new corporation called John R. Edgar
We find that the evidence on record demolishes, rather than & Co., Incorporated.
buttresses, petitioners’ contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and her A few days after the incorporation was completed plaintiff and
husband, Alfredo, were the owners of BET and were two of the defendant entered into the following agreement:
incorporators and majority stockholders of BEC. It is also undisputed
that Estelita Lipat executed a special power of attorney in favor of her Whereas the undersigned are, respectively, owners of large amounts
daughter, Teresita, to obtain loans and credit lines from Pacific Bank of stock in John R. Edgar and Co, Inc; and,
on her behalf. Incidentally, Teresita was designated as executive-vice
president and general manager of both BET and BEC, respectively. Whereas it is recognized that the success of said corporation
depends, now and for at least one year next following, in the larger
It could not have been coincidental that BET and BEC are so stockholders retaining their respective interests in the business of said
intertwined with each other in terms of ownership, business purpose, corporation:
and management. Apparently, BET and BEC are one and the same
Therefore, the undersigned mutually and reciprocally agree not to sell,
and the latter is a conduit of and merely succeeded the former.
transfer, or otherwise dispose of any part of their present holdings of
Petitioners’ attempt to isolate themselves from and hide behind the
stock in said John R. Edgar & Co. Inc., till after one year from the date
corporate personality of BEC so as to evade their liabilities to Pacific
hereof.

Either party violating this agreement shall pay to the other the sum of an illegal stipulation, is in restraint of trade and, therefore, offends
one thousand (P1,000) pesos as liquidated damages, unless previous public policy. We do not so regard it. The suspension of the power to
consent in writing to such sale, transfer, or other disposition be sell has a beneficial purpose, results in the protection of the
obtained. corporation as well as of the individual parties to the contract, and is
reasonable as to the length of time of the suspension. We do not here
Notwithstanding this contract the defendant Fox on October 19, 1911, undertake to discuss the limitations to the power to suspend the right
sold his stock in the said corporation to E. C. McCullough of the firm of alienation of stock, limiting ourselves to the statement that the
of E. C. McCullough & Co. of Manila, a strong competitor of the said suspension in this particular case is legal and valid.
John R. Edgar & Co., Inc.
26. Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925)
This sale was made by the defendant against the protest of the
plaintiff and with the warning that he would be held liable under the FACTS: This action was commenced in the CFI against the board of
contract hereinabove set forth and in accordance with its terms. In directors of the Botica Nolasco, Inc., a corporation duly organized and
fact, the defendant Foz offered to sell his shares of stock to the
existing under the laws of the Philippine Islands. The plaintiff prayed
plaintiff for the same sum that McCullough was paying them less
P1,000, the penalty specified in the contract. that said board of directors be ordered to register in the books of the
corporation five shares of its stock in the name of Henry Fleischer, the
ISSUE: W/N the occurrence of the purpose of the contract discharges plaintiff, and to pay him the sum of P500 for damages sustained by
obligations. him resulting from the refusal of said body to register the shares of
stock in question.
RULING: NO. In the case at bar the parties expressly stipulated that
the contract should last one year. No reason is shown for saying that
it shall last only nine months. Whatever the object was in specifying defendant answered the amended complaint denying generally and
the year, it was their agreement that the contract should last a year specifically each and every one of the material allegations thereof,
and it was their judgment and conviction that their purposes would not and, as a special defense, alleged that the defendant, pursuant to
be subversed in any less time. What reason can give for refusing to article 12 of its by-laws, had preferential right to buy from the plaintiff
follow the plain words of the men who made the contract? We see said shares at the par value of P100 a share, plus P90 as dividends
none. corresponding to the year 1922, and that said offer was refused by the
plaintiff.
Fox urges that the Lambert cannot recover for the reason that he did
not prove damages. In this jurisdiction penalties provided in contracts
of this character are enforced. It is the rule that parties who are Trial Court held that, in his opinion, article 12 of the by-laws of the
competent to contract may make such agreements within the corporation which gives it preferential right to buy its shares from
limitations of the law and public policy as they desire, and that the retiring stockholders, is in conflict with Act No. 1459 (Corporation
courts will enforce them according to their terms. Law), especially with section 35 thereof; and rendered a judgment in
favor of plaintiff.
It is also urged by the appelle in this case that the stipulation in the
contract suspending the power to sell the stock referred to therein is Hence, this appeal.

ISSUE: whether or not article 12 of the by-laws of the corporation is in The holder of shares, as owner of personal property, is at liberty,
conflict with the provisions of the Corporation Law (Act No. 1459). under said section (Sec. 35), to dispose of them in favor of
Questioned article 12 creates in favor of the Botica Nolasco, Inc., a whomsoever he pleases, without any other limitation in this respect,
preferential right to buy, under the same conditions, the share or than the general provisions of law. Therefore, a stock corporation in
shares of stock of a retiring shareholder. Has said corporation any adopting a by-law governing transfer of shares of stock should take
power, under the Corporation Law (Act. No. 1459), to adopt such by- into consideration the specific provisions of section 35 of Act No.
law? 1459, and said by-law should be made to harmonize with said
provisions. It should not be inconsistent therewith.
HELD: The particular provisions of the Corporation Law referring to
transfer of shares of stock are as follows: The by-law now in question was adopted under the power conferred
SEC. 13. Every corporation has the power: upon the corporation by section 13, paragraph 7, above quoted; but in
xxx xxx xxx adopting said by-law the corporation has transcended the limits fixed
(7) To make by-laws, not inconsistent with any existing law, for the by law in the same section, and has not taken into consideration the
fixing or changing of the number of its officers and directors within the provisions of section 35 of Act No. 1459.
limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc. As a general rule, the by-laws of a corporation are valid if they are
xxx xxx xxx reasonable and calculated to carry into effect the objects of the
SEC. 35. The capital stock of stock corporations shall de divided into corporation, and are not contradictory to the general policy of the laws
shares for which certificates signed by the president or the vice- of the land.
president, countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with the by- On the other hand, it is equally well settled that by-laws of a
laws. Shares of stock so issued are personal property and may be corporation must be reasonable and for a corporate purpose, and
transferred by delivery of the certificate indorsed by the owner or his always within the charter limits. They must always be strictly
attorney in fact or other person legally authorized to make the subordinate to the constitution and the general laws of the land. They
transfer. No transfer, however, shall be valid, except as between the must not infringe the policy of the state, nor be hostile to public
parties, until the transfer is entered and noted upon the books of the welfare. They must not disturb vested rights or impair the obligation of
corporation so as to show the names of the parties to the transaction, a contract, take away or abridge the substantial rights of stockholder
that date of the transfer, the number of the certificate, and the number or member, affect rights of property or create obligations unknown to
of shares transferred. the law.
No share of stock against which the corporation holds any unpaid The validity of the by-law of a corporation is purely a question of law.
claim shall be transferable on the books of the corporation. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.)

The power to enact by-laws restraining the sale and transfer of stock And moreover, the by-laws now in question cannot have any effect on
must be found in the governing statute or the charter. Restrictions the appellee. He had no knowledge of such by-law when the shares
upon the traffic in stock must have their source in legislative were assigned to him. He obtained them in good faith and for a
enactment, as the corporation itself cannot create such impediments. valuable consideration. He was not a privy to the contract created by
By-law are intended merely for the protection of the corporation, and said by-law between the shareholder Manuel Gonzalez and the Botica
prescribe regulation and not restriction; they are always subject to the Nolasco, Inc. Said by-law cannot operate to defeat his rights as a
charter of the corporation. The corporation, in the absence of such a purchaser.
power, cannot ordinarily inquire into or pass upon the legality of the A by-law of a corporation which provides that transfers of stock shall
transaction by which its stock passes from one person to another, nor not be valid unless approved by the board of directors, while it may be
can it question the consideration upon which a sale is based. A by-law enforced as a reasonable regulation for the protection of the
cannot take away or abridge the substantial rights of stockholder. corporation against worthless stockholders, cannot be made available
Under a statute authorizing by- laws for the transfer of stock, a to defeat the rights of third persons. (Farmers’ and Merchants’ Bank of
corporation can do no more than prescribe a general mode of transfer Lineville vs. Wasson, 48 Iowa, 336.)
on the corporate books and cannot justify an unreasonable restriction
upon the right of sale. Whenever a corporation refuses to transfer and register stock in
xxx cases like the present, mandamus will lie to compel the officers of the
that a corporation has no power to prevent or to restrain transfers of corporation to transfer said stock upon the books of the corporation.
its shares, unless such power is expressly conferred in its charter or Petition denied. Decision of trial court affirmed.
governing statute. This conclusion follows from the further
consideration that by-laws or other regulations restraining such
transfers, unless derived from authority expressly granted by the
27. Padgett v. Babcock & Templeton, Inc., 59 Phil. 232 (1933)
legislature, would be regarded as impositions in restraint of trade.
28. Teng v. SEC, 784 SCRA 216 (2016)
The only restraint imposed by the Corporation Law upon transfer of
shares is found in section 35 of Act No. 1459, quoted above, as Anna Teng v. SEC (G.R. No. 184332, 17 Feb 2016)
follows: “No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the Facts: Ting Ping Lay purchased 480 shares of TCL Sales
corporation xxx This restriction is necessary in order that the officers Corporation (TCL) from Peter Chiu, 1,400 shares from Teng Ching
Lay and 1,440 shares from Ismaelita Maluto. Teng died, hence his
of the corporation may know who are the stockholders, which is
son Henry took over the management of TCL.
essential in conducting elections of officers, in calling meeting of
stockholders, and for other purposes. But any restriction of the nature To protect his shareholdings in TCL, Ting Ping requested from
of that imposed in the by-law now in question, is ultra vires, violative Anna Teng to enter the transfer of stock (The one he bought from
of the property rights of shareholders, and in restraint of trade. Teng Ching) in the Stock and Transfer Book of TCL to record the
sale.

This was refused by Teng and TCL causing Ting Ping to file a expresses the contract between the corporation and the
petition for mandamus before the SEC to compel such recording. stockholder.
SEC ruled in favor of Ting Ping, a decision which was affirmed
upon appeal to the En Banc.
Petitioners filed a petition for certiorari before the SC which Section 63 of the Corporation Code prescribes the manner by
resulted in its denial. which a share of stock may be transferred. Fleisher v. Botica
Nolasco states that the provision on the transfer of shares of
An interpleader was filed by Teng to settle the ownership of the stocks contemplates no restriction as to home they may be
shares between Henry and Ting. transferred or sold. As owner of personal property, a shareholder
is at liberty to dispose of them in favor of whomsoever he pleases,
RTC ruled in favor of Henry while Ting Ping sought to have partial without any other limitation in this respect, than the general
satisfaction fo the SEC En banc decision with respect to the provisions of law.
shares from Chiu and Maluto, thereafter issuing an alias writ of
execution.
This was granted, prompting Teng and TCL to file a motion to Under the provision, certain minimum requirements must be
quash the alias writ of execution on the basis that the certificates complied with for there to be a valid transfer of stocks, namely:
of stock must first be surrendered. This was denied.
1. There must be delivery of the stock certificate;
2. The certificate must be endorsed by the owner of his atty-in-

Issue: Whether the surrender of a certificate of stock is necessary fact or other persons legally authorized to make the transfer; and
in order to validly facilitate a transfer of shares and recorded in the
books. 3. To be valid against third parties, the transfer must be recorded
in the books of the corporation.
Ruling: NO
It is the delivery of the certificate, coupled with the endorsement
A certificate of stock is a written instrument signed by the proper by the owner or his duly authorized representative that is the
officer of a corporation stating or acknowledging that the person operative act of transfer of shares from the original owner to the
named in the document is the owner of a designated number of transferee. A sale of shares of stock, physical delivery of a stock
shares of its stock. It is a prima facie evidence that the holder is a certificate is one of the essential requisites for the transfer of
shareholder of a corporation. ownership of the stocks purchased.
A certificate, however, is merely a tangible evidence of ownership In this case, Teng’s position – that Ting Ping must first surrender
of shares of stock. It is not a stock in the corporation and merely Chiu’s and Maluto’s respective certificates of stock before the

transfer to Ting ping may be registered in the books of the The surrender of the original certificate of stock is necessary
corporation – does not have legal basis. before the issuance of a new one so that he old certificate may be
cancelled.
A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers. In
transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of BALGOS DIGEST
ownership.
RECIT-READY:
This case originated from the case of TCL Sales Corp v. CA.
Respondent Ting Ping Lay was able to establish prima facie Respondent Ting Ping purchased shares of TCL Sales Corporation
ownership over the shares of stocks in question, through deeds of (TCL) from Chiu, his brother Teng Ching Lay (President and
transfer of shares of stock of TCL Corporation. operations manager of TCL), and Maluto. Teng Ching died. Ting Ping,
to protect his shareholdings with TCL, requested petitioner Teng
Hence, the transfer of shares to him must be recorded on the (TCL's Corporate Secretary), to enter the transfer in the Stock and
corporation’s stock and transfer book. Transfer Book of TCL for the proper recording of his acquisition. He
also demanded the issuance of new certificates of stock in his favor.
The Court Outlined the Procedure for the issuance of new TCL and Teng refused despite repeated demands. Ting Ping filed
certificates of Stock in the name of a transferee: mandamus with the SEC which was granted. SEC issued a writ of
execution. Teng argued that prior to registration of stocks in the
1. The certificates must be signed by the president or VP, corporate books, it is mandatory that the stock certificates are first
countersigned by the sec. or assistant sec., and sealed with the surrendered because a corporation will be liable to a bona fide holder
seal of the corporation; of the old certificate if, without demanding the said certificate, it issues
a new one. On the other hand, Ting Ping argued that Section 63 of
2. Delivery of the certificate is an essential element of its the Corporation Code does not require the surrender of the stock
issuance; certificate to the corporation, nor make such surrender an
indispensable condition before any transfer of shares can be
3. The par value, as to par value shares, or the full subscription registered in the books of the corporation. The only limitation imposed
as to no par value shares, must first be fully paid; by Section 63 is when the corporation holds any unpaid claim against
the shares intended to be transferred.
4. The original certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from a
stockholder.
Whether or not the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate books
and for the issuance of new certificates in its stead--NO.

● This case originated from the case of TCL Sales
Corporation and Anna Teng v. Hon. Court of Appeals and Ting
To compel Ting Ping to deliver to the corporation the certificates as a Ping Lay.
condition for the registration of the transfer would amount to a
restriction on the right of Ting Ping to have the stocks transferred to ● Respondent Ting Ping purchased 480 shares of TCL
his name, which is not sanctioned by law. Sales Corporation (TCL) from Chiu; 1,400 shares from his
brother Teng Ching Lay (Teng Ching), who was also the
president and operations manager of TCL; and 1,440 shares
from Maluto.
In a sale of shares of stock, physical delivery of a stock certificate is
one of the essential requisites for the transfer of ownership of the ● Upon Teng Ching's death, his son Henry Teng (Henry)
stocks purchased." The delivery contemplated in Section 63, took over the management of TCL.
however, pertains to the delivery of the certificate of shares by the
transferor to the transferee, that is, from the original stockholder ● Respondent Ting Ping, to protect his shareholdings with
named in the certificate to the person or entity the stockholder was TCL, requested petitioner Teng, TCL's Corporate Secretary, to
transferring the shares to, whether by sale or some other valid form of enter the transfer in the Stock and Transfer Book of TCL for
absolute conveyance of ownership. "[S]hares of stock may be the proper recording of his acquisition. He also demanded the
transferred by delivery to the transferee of the certificate properly issuance of new certificates of stock in his favor.
indorsed. Title may be vested in the transferee by the delivery of the
duly indorsed certificate of stock." ● TCL and Teng refused despite repeated demands.
● Ting Ping filed a petition for mandamus with the SEC which
was granted → SEC en banc affirmed → Petition for review with the
Nevertheless, to be valid against third parties and the corporation, the CA but was denied → petition for review on certiorari with the SC
transfer must be recorded or registered in the books of corporation. under Rule 45 but was denied.
Upon registration of the transfer in the books of the corporation, the
transferee may now then exercise all the rights of a stockholder, ● SEC issued a writ of execution.
which include the right to have stocks transferred to his name.
● Teng filed a complaint for interpleader with the RTC of
Manila to compel Henry and Ting Ping to interplead and settle
the issue of ownership over the 1,400 shares, which were
COMPREHENSIVE: previously owned by Teng Ching.
○ RTC found Henry to have a better right to the

shares of stock formerly owned by Teng Ching, except
FACTS: as to those covered by Stock Certificate No. 011
covering 262.5 shares, among others. (***Note that as
a consequence, the subject of the orders of execution

issued by the SEC pertained only to Chiu's and registered in the books of the corporation. The only
Maluto's respective shares.) limitation imposed by Section 63 is when the
corporation holds any unpaid claim against the shares
● Ting Ping filed an Ex Parte Motion for the Issuance of intended to be transferred.
Alias Writ of Execution for the partial satisfaction of SEC en
banc Order directing TCL and Teng to record the shares he ○ (in response to Teng’s 2nd argument) Claimed
acquired from Chiu and Maluto, and for payment of the that his counsel Atty. Simon V. Lao already
damages. communicated with TCL's counsel regarding the
surrender of the said certificates of stock.
● Teng and TCL filed their respective motions to quash,
which was opposed by Ting Ping, who also expressed his ● SEC denied the motions to quash.
willingness to surrender the original stock certificates of Chiu
and Maluto to facilitate and expedite the transfer of the shares ● Teng filed a petition for certiorari and prohibition under
in his favor. Rule 65 with the CA which was denied.
● Teng’s arguments: ● Hence, the present petition.
○ Prior to registration of stocks in the corporate

books, it is mandatory that the stock certificates are
first surrendered because a corporation will be liable to ISSUE:
a bona fide holder of the old certificate if, without
demanding the said certificate, it issues a new one. Whether or not the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate books
○ The annexes in Ting Ping's opposition did not and for the issuance of new certificates in its stead
include the subject certificates of stock, surmising that
they could have been lost or destroyed.
○ There is a discrepancy between the total shares of HELD: NO. To compel Ting Ping to deliver to the corporation the
Maluto based on the annexes, which is only 1305 certificates as a condition for the registration of the transfer would
shares, as against the 1440 shares acquired by Ting amount to a restriction on the right of Ting Ping to have the stocks
Ping based on the SEC Order transferred to his name, which is not sanctioned by law. The right of a
transferee/assignee to have stocks transferred to his name is an
● Ting Ping’s arguments: inherent right flowing from his ownership of the stocks. The only
limitation imposed by Section 63 is when the corporation holds any
○ Section 63 of the Corporation Code does not unpaid claim against the shares intended to be transferred.
require the surrender of the stock certificate to the
corporation, nor make such surrender an indispensable
condition before any transfer of shares can be

● A certificate of stock is a written instrument signed by the ○ It is the delivery of the certificate, coupled with
proper officer of a corporation stating or acknowledging that the endorsement by the owner or his duly
the person named in the document is the owner of a authorized representative that is the operative act
designated number of shares of its stock. of transfer of shares from the original owner to the
transferee.
○ It is prima facie evidence that the holder is a
shareholder of a corporation. ○ The delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares by
○ A certificate, however, is merely a tangible the transferor to the transferee, that is, from the original
evidence of ownership of shares of stock. It is not a stockholder named in the certificate to the person or
stock in the corporation and merely expresses the entity the stockholder was transferring the shares to,
contract between the corporation and the stockholder. whether by sale or some other valid form of absolute
conveyance of ownership.
○ The shares of stock evidenced by said certificates,
meanwhile, are regarded as property and the owner of ● The delivery or surrender adverted to by Teng, i.e., from
such shares may, as a general rule, dispose of them as Ting Ping to TCL, is not a requisite before the conveyance
he sees fit, unless the corporation has been dissolved, may be recorded in its books.
or unless the right to do so is properly restricted, or the
owner's privilege of disposing of his shares has been ● To compel Ting Ping to deliver to the corporation the
hampered by his own action. certificates as a condition for the registration of the transfer
would amount to a restriction on the right of Ting Ping to have
the stocks transferred to his name, which is not sanctioned by
law. The only limitation imposed by Section 63 is when the
On the Registration of Transfer corporation holds any unpaid claim against the shares
intended to be transferred.
● Section 63 of the Corporation Code prescribes the
manner by which a share of stock may be transferred. ● The right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing from his
○ Certain minimum requisites must be complied with ownership of the stocks.
for there to be a valid transfer of stocks, to wit: (a) there
must be delivery of the stock certificate; (b) the ○ A corporation, either by its board, its by-laws, or
certificate must be endorsed by the owner or his the act of its officers, cannot create restrictions in stock
attorney-in-fact or other persons legally authorized to transfers. In transferring stock, the secretary of a
make the transfer; and (c) to be valid against third corporation acts in purely ministerial capacity, and
parties, the transfer must be recorded in the books of does not try to decide the question of ownership.
the corporation.

○ If a corporation refuses to make such transfer
without good cause, it may, in fact, even be compelled
to do so by mandamus. On the Issuance of a New Certificate
● Ting Ping's definite and uncontested titles to the subject ● The surrender of the original certificate of stock is
shares were already determined in the case of TCL Sales necessary before the issuance of a new one so that the old
Corp v. CA certificate may be cancelled.
○ Ting Ping Lay was able to establish prima facie ○ A corporation is not bound and cannot be required
ownership over the shares of stocks in question, to issue a new certificate unless the original certificate
through deeds of transfer of shares of stock of TCL is produced and surrendered.
Corporation. Hence, the transfer of shares to him must
be recorded on the corporation's stock and transfer ○ Surrender and cancellation of the old certificates
book. serve to protect not only the corporation but the
legitimate shareholder and the public as well, as it
● Moreover, Teng cannot refuse registration of the transfer ensures that there is only one document covering a
on the pretext that the photocopies of Maluto's certificates of particular share of stock.
stock submitted by Ting Ping covered only 1,305 shares and
not 1,440. ● In the present case, Ting Ping manifested from the start
his intention to surrender the subject certificates of stock to
○ As earlier stated, the respective duties of the facilitate the registration of the transfer and for the issuance of
corporation and its secretary to transfer stock are new certificates in his name.
purely ministerial
○ It would be sacrificing substantial justice if the
○ The discrepancy was also not attended with fraud Court were to grant the petition simply because Ting
but a mere product of the failure of the corporation to Ping is yet to surrender the subject certificates for
register with the [SEC] the increase in the subscribed cancellation instead of ordering in this case such
capital stock by 4000 shares. surrender and cancellation, and the issuance of new
ones in his name.
● Nevertheless, to be valid against third parties and the
corporation, the transfer must be recorded or registered in the
books of corporation.
29. Interport Resources Corp. v. SSI, 792 SCRA 155 (2016)
● Upon registration of the transfer in the books of the 30. Teng Ling Kiat v. Ayala Corp., G.R. No. 192530, 07 March 2018
corporation, the transferee may now then exercise all the 31. Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)
rights of a stockholder, which include the right to have stocks
transferred to his name. Facts:

The RTC dismissed the complaint on the ground that Andaya
had no standing for failing to show that he was authorized by
Andaya bought from Concepcion Chute 2,200 shares of stock Chute to make the transfer. Andaya filed a petition for review
in the Rural Bank of Cabadbaran for Php220,000, evidenced to the SC on pure questions of law.
by a notarized document denominated as Sale of Shares of
Stocks. Chute endorsed and delivered the certificates of
stock to Andaya and requested the bank to register the
transfer in the bank's stock and transfer book and to issue Issue:
new stock certificates in favor of the latter.
Whether or not Andaya, the transferee of shares of stock,

However, the bank's corporate secretary Demosthenese Oraiz may compel the bank to record the transfer of shares and
denied the request, stating that under a stockholders' issue new stock certificates in his name
Resolution, existing stockholders have a right of first refusal
in the event shares of other stockholders are offered for sale.
Andaya opposed the denial and claimed that the restriction
did not appear in the bank's Articles of Incorporation, by- Ruling:
laws, or certificates of stock.
Yes. A bona fide transferee, who is able to establish a clear

The bank eventually denied to register the transfer to Andaya legal right to the registration of the transfer, may resort to the
due to conflict of interest. It claimed that Andaya was then remedy of mandamus to compel corporations that wrongfully
president and CEO of the Green bank of Caraga, a competitor or unjustifiably refuse to record the transfer or to issue new
bank, and that the purchase “could be the beginning of a certificates of stock.
hostile bid to take-over control” of the bank. It also
maintained that stockholders have a right of first refusal.
Andaya has been able to establish that he is a bona fide

transferee of Chute's shares of stock. He presented to the
Andaya instituted an action for mandamus and damages RTC tha notarized Sale of Shares of Stocks, a Documentary
against the bank, its corporate secretary, Oraiz and its legal Stamp Tax Declaration/Return, a Capital Gains Tax Return
counsel, Ricardo Gonzales to compel them to record the and stock certificates covering the subject shares duly
transfer and to issue new certificates in his name. endorsed by Chute. There is no doubt that Andaya had the
standing to initiate an action for manadamus to compel the
bank to record the transfer of shares in its stock and transfer
book and to issue new stock certificates in his name.

This is a petition for “declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended by-laws and damages”
Moreover, the Section 98 of the Corporation Code, upon filed by petitioner John Gokongwei against the majority of the
which the bank relies, applied only to close corporations. members of the Board of Directors. He has the ff causes of action:
1. that the Board in amending the by-laws, had no authority to do

so because it was based on the a 1961 authorization and the
SECTION 98. Validity restrictions on transfer of shares. - amendment being contested was in 1976, and the authorization
Restrictions on the right to transfer shares must appear in should have been based on votes made according to the 1976
the articles of incorporation and in the by-laws as well as in shares, not the 1961 shares,
the certificate of stock;
2. the authority granted in 1961 had already been exercised in
otherwise, the same shall not be binding on any purchaser 1962 and 1963, after which the
thereof in good faith. Said restrictions shall not be more than
onerous than granting the existing stockholders or the 3. authority of the Board ceased to exist,
corporation the option to purchase the shares of the
transferring stockholder with such reasonable terms, 4. membership of the Board changed since 1961, there are 6
conditions or period stated therein. If upon the expiration of new directors,
said period, the existing stockholders or the corporation fails
to exercise the option to purchase, the transferring 5. that prior to the amendment of the by-laws , he had all the
stockholder may sell his shares to any third person. qualifications to be a director (he was a substantial stockholder) and
(Emphases supplied) the amended by-laws disqualified him and deprived him of a vested
right to be voted,
6. that the corporation has no inherent power to disqualify a

There must first be a factual determination that the bank is stockholder from being elected and
indeed a close corporation before the abovementioned
section can be applied in the instant case. 7. therefore it is an ultra vires and void act.
Petitioner also wanted to inspect records and documents of San

Miguel Corporation but the request was denied because the request
was said to have been made in bad faith.
32. Gokongwei, Jr. v. SEC, 89 SCRA 336 (1979) Respondents filed their answer to the petition, denying the substantial
allegations therein and stating, by way of affirmative defenses that
"the action taken by the Board of Directors on September 18, 1976
resulting in the . . . amendments is valid and legal because the power
FACTS: to 'amend, modify, repeal or adopt new By-laws' delegated to said

Board on March 13, 1961 and long prior thereto has never been ISSUE: W/N the amended by-laws of SMC disqualifying a competitor
revoked, withdrawn or otherwise nullified by the stockholders of from nomination or election to the Board of Directors of SMC are valid
SMC". Also said that the power of the Board to amend the by-laws are and reasonable.
broad, subject only to existing laws.
HELD/RATIONALE: Amendments are valid.
August 1972, the Universal Robina Corporation (URC), a corporation
engaged in business competitive to that of respondent corporation, The validity or reasonableness of a by-law of a corporation is purely a
began acquiring shares amounting to 622,987 shares. In October question of law. Petitioner claims that the
1972, the Consolidated Foods Corporation (CFC) likewise began
acquiring shares in respondent corporation that amounted to amended by-laws are invalid and unreasonable because they were
P543,959.00. On January 12, 1976, petitioner, who is president and tailored to suppress the minority and prevent them from having
controlling shareholder of URC and CFC (both closed corporations) representation in the Board", at the same time depriving petitioner of
purchased 5,000 shares of stock of respondent corporation, and his "vested right" to be voted for and to vote for a person of his choice
thereafter, in behalf of himself, CFC and URC, "conducted malevolent as director.
and malicious publicity campaign against SMC" to generate support
from the stockholder "in his effort to secure for himself and in Any person "who buys stock in a corporation does so with the
representation of URC and CFC interests, a seat in the Board of knowledge that its affairs are dominated by a majority of the
Directors of SMC". Petitioner was rejected by the stockholders in his stockholders and that he impliedly contracts that the will of the
bid to secure a seat in the Board of Directors on the basic issue that majority shall govern in all matters within the limits of the act of
petitioner was engaged in a competitive business and his securing a incorporation and lawfully enacted by-laws and not forbidden by law."
seat would have subjected respondent corporation to grave
disadvantages. Pursuant to section 18 of the Corporation Law, any corporation may
amend its articles of incorporation by a vote or written assent of the
On May 6, 1977, this Court issued a temporary restraining order stockholders representing at least two-thirds of the subscribed capital
restraining private respondents from disqualifying or preventing stock of the corporation. If the amendment changes, diminishes or
petitioner from running or from being voted as director of respondent restricts the rights of the existing shareholders, then the dissenting
corporation and from submitting for ratification or confirmation or from minority has only one right, viz.: "to object thereto in writing and
causing the ratification or confirmation of the amendment. SEC held demand payment for his share." Under section 22 of the same law,
that petitioner should be allowed to run as a director but that he the owners of the majority of the subscribed capital stock may amend
should not sit as such until SEC has decided on the validity of the by- or repeal any by-law or adopt new by-laws. It cannot be said,
laws in dispute. therefore, that petitioner has a vested right to be elected director, in
the face of the fact that the law at the time such right as stockholder
Respondents reason out that petitioner is engaged in businesses was acquired contained the prescription that the corporate charter and
competitive and antagonistic to that of respondent SMC and that the the by-law shall be subject to amendment, alteration and modification.
Board realized the clear and present danger in competitors being
directors because they would have easy and direct access to SMC’s Although in the strict and technical sense, directors of a private
business and trade secrets. corporation are not regarded as trustees, there cannot be any doubt
that their character is that of a fiduciary insofar as the corporation and

the stockholders as a body are concerned. As agents entrusted with and highly unsubstantial duplication of an isolated or non-
the management of the corporation, they should act for the collective characteristic activity.
benefit of the stockholders.
33. Chua v. People, 801 SCRA 436 (2016)
It is a settled state law in the United States that corporations have the
power to make by-laws declaring a person employed in the service of FACTS:
a rival company to be ineligible for the corporation's Board of
Directors. ". . . (A)n amendment which renders ineligible, or if elected, Joselyn was a stockholder of Chua Tee Corporation of Manila. Alfredo
subjects to removal, a director if he be also a director in a corporation was the president and chairman of the board, while Tomas was the
whose business is in competition with or is antagonistic to the other corporate secretary and also a member of the board of the same
corporation is valid." This is based upon the principle that where the corporation. Mercedes was the accountant/bookkeeper tasked with the
director is so employed in the service of a rival company, he cannot physical custody of the corporate records.
serve both, but must betray one or the other. Such an amendment
"advances the benefit of the corporation and is good." On or about August 24, 2000, Joselyn invoked her right as a
stockholder pursuant to Sec. 74 Corp. Code (Sec. 73, RCC) to inspect
The doctrine of "corporate opportunity" is precisely a recognition that the records of the books of the business transactions of the
fiduciary standards could not be upheld where the fiduciary was acting corporation, the minutes of the meetings of the board of directors and
for two entities with competing interests. It is not denied that a stockholders, as well as the financial statements] of the corporation.
member of the Board of Directors of the San Miguel Corporation has She hired a lawyer to send demand letters to each of the petitioners for
access to sensitive and highly confidential information. her right to inspect to be heeded. However, she was denied of such
right to inspect.
It is obviously to prevent the creation of an opportunity for an officer or
director of San Miguel Corporation, who is also the officer or owner of Joselyn likewise hired the services of Mr. Abednego Velayo (Mr.
a competing corporation, from taking advantage of the information Velayo) from the accounting firm of Guzman Bocaling and Company to
which he acquires as director to promote his individual or corporate assist her in examining the books of the corporation. Armed with a
interests to the prejudice of San Miguel Corporation and its letter request[,] together with the list of schedules of audit materials,
stockholders, that the questioned amendment of the by-laws was Mr. Velayo and his group visited the corporation's premises for the
made. Certainly, where two corporations are competitive in a supposed examination of the accounts. However, the books of
substantial sense, it would seem improbable, if not impossible, for the accounts were not formally presented to them and there was no list of
director, if he were to discharge effectively his duty, to satisfy his schedules, which would allow them to pursue their inspection. Mr.
loyalty to both corporations and place the performance of his Velayo testified that they failed to complete their objective of inspecting
corporation duties above his personal concerns. the books of accounts and examine the recorded documents.
In the absence of any legal prohibition or overriding public policy, wide In the Complaint-Affidavit filed before the Quezon City Prosecutors'
latitude may be accorded to the corporation in adopting measures to Office, Joselyn alleged that despite written demands, the petitioners
protect legitimate corporate interests. The test must be whether the conspired in refusing without valid cause the exercise of her right to
business does in fact compete, not whether it is capable of an indirect inspect Chua Tee Corporation of Manila's (CTCM) business

transactions records, financial statements and minutes of the be removed or impaired by reason of the dissolution of the
meetings of both the board of directors and stockholders corporation. Corollarily then, a stockholder's right to inspect corporate
records subsists during the period of liquidation. Hence, Joselyn, as a
In their Counter Affidavits, the petitioners denied liability. They argued stockholder, had the right to demand for the inspection of records.
that the custody of the records sought to be inspected by Joselyn did Lodged upon the corporation is the corresponding duty to allow the
not pertain to them. Besides, the physical records were merely kept said inspection.
inside the cabinets in the corporate office. Further, they did not
prevent Joselyn from inspecting the records. What happened was that 34. Gonzales v. PNB, 122 SCRA 489 (1983)
Mercedes was severely occupied with winding up the affairs of CTCM
after it ceased operations. Joselyn and her lawyers then failed to set FACTS: The petitioner requested from the respondent that he be
up an appointment with Mercedes. Joselyn, through counsel, then allowed to examine the records of the latter. Petitioner claimed that he
sent demand letters to inspect the records. Not long after, Joselyn wanted to determine the veracity of reports that the respondent has
filed two cases, one of which was civil and the other, criminal, against guaranteed the obligation of another corporation in the purchase of a
the petitioners. sugar mill and that the respondent financed the construction of a
bridge and a sugar mill. When the respondent denied his request, the
ISSUE: W/N petitioners are guilty. petitioner sought mandamus from the CFI of Manila, adding that he
acquired one share of stock in PNB and was thus entitled to examine
RULING: the respondent’s records. The CFI dismissed the petition on the
ground that the petitioner had improper motives and his purpose was
YES. Despite the expiration of CTCM's corporate term in 1999, not germane to his interest as a stockholder. The petitioner argued
duties as corporate officers still pertained to the petitioners that his right was unconditional.
when Joselyn's complaint was filed in 2000.
ISSUE: Whether the Petitioner could examine the records of the
Yu, et al. v. Yukayguan, et al.48 instructs that: respondent. - NO
[T]he corporation continues to be a body corporate for three (3) years HELD: Petitioner may no longer insist on his interpretation of Section
after its dissolution for purposes of prosecuting and defending suits by 51 of Act No. 1459, as amended, regarding the right of a stockholder
and against it and for enabling it to settle and close its affairs, to inspect and examine the books and records of a corporation. The
culminating in the disposition and distribution of its remaining assets. former Corporation Law (Act No. 1459, as amended) has been
x x x The termination of the life of a juridical entity does not by itself replaced by Batas Pambansa Blg. 68, otherwise known as the
cause the extinction or diminution of the rights and liabilities of such "Corporation Code of the Philippines."
entity x x x nor those of its owners and creditors. x x
x.49chanroblesvirtuallawlibrary The right of inspection granted to a stockholder under Section 51 of
Act No. 1459 has been retained, but with some modifications. The
Further, as correctly pointed out by the OSG, Secs. 122 and 145 second and third paragraphs of Section 74 of Batas Pambansa Blg.
Corp. Code (Secs. 139 and 184, RCC) explicitly provide for the 68 provide the following:
continuation of the body corporate for three years after dissolution.
The rights and remedies against, or liabilities of, the officers shall not

The records of all business transactions of the corporation and person asking for such examination must be "acting in good faith and
the minutes of any meeting shag be open to inspection by any for a legitimate purpose in making his demand."
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in The unqualified provision on the right of inspection previously
writing, for a copy of excerpts from said records or minutes, at contained in Section 51, Act No. 1459, as amended, no longer holds
his expense. true under the provisions of the present law. The argument of the
petitioner that the right granted to him under Section 51 of the former
Any officer or agent of the corporation who shall refuse to Corporation Law should not be dependent on the propriety of his
allow any director, trustee, stockholder or member of the motive or purpose in asking for the inspection of the books of the
corporation to examine and copy excerpts from its records or respondent bank loses whatever validity it might have had before the
minutes, in accordance with the provisions of this Code, shall amendment of the law. If there is any doubt in the correctness of the
be liable to such director, trustee, stockholder or member for ruling of the trial court that the right of inspection granted under
damages, and in addition, shall be guilty of an offense which Section 51 of the old Corporation Law must be dependent on a
shall be punishable under Section 144 of this Code: Provided, showing of proper motive on the part of the stockholder demanding
That if such refusal is made pursuant to a resolution or order the same, it is now dissipated by the clear language of the pertinent
of the board of directors or trustees, the liability under this provision contained in Section 74 of Batas Pambansa Blg. 68.
section for such action shall be imposed upon the directors or
trustees who voted for such refusal; and Provided, further, Although the petitioner has claimed that he has justifiable motives in
That it shall be a defense to any action under this section that seeking the inspection of the books of the respondent bank, he has
the person demanding to examine and copy excerpts from the not set forth the reasons and the purposes for which he desires such
corporation's records and minutes has improperly used any inspection, except to satisfy himself as to the truth of published
information secured through any prior examination of the reports regarding certain transactions entered into by the respondent
records or minutes of such corporation or of any other bank and to inquire into their validity. The circumstances under which
corporation, or was not acting in good faith or for a legitimate he acquired one share of stock in the respondent bank purposely to
purpose in making his demand. exercise the right of inspection do not argue in favor of his good faith
and proper motivation. Admittedly he sought to be a stockholder in
As may be noted from the above-quoted provisions, among the order to pry into transactions entered into by the respondent bank
changes introduced in the new Code with respect to the right of even before he became a stockholder. His obvious purpose was to
inspection granted to a stockholder are the following the records must arm himself with materials which he can use against the respondent
be kept at the principal office of the corporation; the inspection must bank for acts done by the latter when the petitioner was a total
be made on business days; the stockholder may demand a copy of stranger to the same. He could have been impelled by a laudable
the excerpts of the records or minutes; and the refusal to allow such sense of civic consciousness, but it could not be said that his purpose
inspection shall subject the erring officer or agent of the corporation to is germane to his interest as a stockholder.
civil and criminal liabilities. However, while seemingly enlarging the
right of inspection, the new Code has prescribed limitations to the We also find merit in the contention of the respondent bank that the
same. It is now expressly required as a condition for such examination inspection sought to be exercised by the petitioner would be violative
that the one requesting it must not have been guilty of using of the provisions of its charter.
improperly any information through a prior examination, and that the

The PNB is not an ordinary corporation. Having a charter of its own, it would use the information obtained from said inspection for purposes
is not governed, as a rule, by the Corporation Code of the Philippines. inimical to the corporations’ interests, considering that: a) he is
harassing the corporation into writing off his advances; b) he is
The provision of Section 74 of Batas Pambansa Blg. 68 of the new unjustly demanding that he be given an office/position already
Corporation Code with respect to the right of a stockholder to demand occupied and usurping corporate powers as well as making demands
an inspection or examination of the books of the corporation may not with regard to corporate properties.
be reconciled with the abovequoted provisions of the charter of the
respondent bank. It is not correct to claim, therefore, that the right of Because of petitioners’ refusal to grant his request to inspect the
inspection under Section 74 of the new Corporation Code may apply corporate books of VMC and Genato, Eduardo filed an Affidavit-
in a supplementary capacity to the charter of the respondent bank. Complaint against petitioners Flordeliza and Jason, charging them
with violation (two counts) of Section 74, in relation to Section 144, of
35. PASAR Corp. v. Lim, 804 SCRA 600 (2016) the Corporation Code of the Philippines.
36. Ang-Abaya v. Ang, 573 SCRA 129 (2008)
The City Prosecutor issued a Resolution recommending that
FACTS petitioners be charged with two counts of violation of Section 74 of the
Corporation Code, but dismissed the complaint against Belinda for
Vibelle Manufacturing Corporation and Genato Investments, Inc. are lack of evidence. Petitioners filed a Petition for Review before the
family-owned corporations, where petitioners Ma. Belen Flordeliza C. DOJ, which reversed the recommendation of the City Prosecutor. The
Ang-Abaya , Jason A. Ang, Vincent G. Genato, Hanna Ang and DOJ denied Eduardo’s Motion for Reconsideration. The Court of
private respondent Eduardo G. Ang (Eduardo) are shareholders, Appeals reversed the DOJ.
officers and members of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriana

Manufacturing Corporation (Oriana) filed a case for damages with ISSUE
prayer for issuance of a TRO and/or writ of preliminary injunction
against Eduardo for allegedly conniving to fraudulently wrest Whether or not the DOJ committed GADALEJ in reversing the
control/management of the corporations. Eduardo allegedly borrowed resolution of the prosecutor finding probable cause against petitioners
substantial amounts of money from the said corporations without any after preliminary investigation for violation of section 74 of the
intention to repay; that he repeatedly demanded for increases in his corporation code of the Philippines
monthly allowance and for more cash advances contrary to existing
corporate policies; that he harassed petitioner Flordeliza to transfer HELD: NO
and/or sell certain corporate and personal properties in order to pay
off his personal obligations etc. RATIO
Eduardo sought permission to inspect the corporate books of VMC In order for the penal provision under Section 144 of the Corporation
and Genato on account of petitioners’ alleged failure and/or refusal to Code to apply in a case of violation of a stockholder or member’s right
update him on the financial and business activities of these family to inspect the corporate books/records as provided for under Section
corporations. Petitioners denied the request claiming that Eduardo 74 of the Corporation Code, the following elements must be present:

First. A director, trustee, stockholder or member has made a through a prior examination, or that the person asking for such
prior demand in writing for a copy of excerpts from the examination must be acting in good faith and for a legitimate purpose
corporation’s records or minutes; in making his demand.
Second. Any officer or agent of the concerned corporation shall The serious allegations against Eduardo are supported by official and
refuse to allow the said director, trustee, stockholder or member other documents, such as board resolutions, treasurer’s affidavits and
of the corporation to examine and copy said excerpts; written communication from the respondent Eduardo himself, who
appears to have withheld his objections to these charges. His silence
Third. If such refusal is made pursuant to a resolution or order of virtually amounts to an acquiescence. Taken together, all these serve
the board of directors or trustees, the liability under this section to justify petitioners’ allegation that Eduardo was not acting in good
for such action shall be imposed upon the directors or trustees faith and for a legitimate purpose in making his demand for inspection
who voted for such refusal; and, of the corporate books. Otherwise stated, there is lack of probable
cause to support the allegation that petitioners violated Section 74 of
Fourth. Where the officer or agent of the corporation sets up the the Corporation Code in refusing respondent’s request for
defense that the person demanding to examine and copy examination of the corporation books.
excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand, the contrary must be
shown or proved. 37. Chua v. Court of Appeals, 443 SCRA 259 (2004)
Thus, in a criminal complaint for violation of Section 74 of the Facts: PR Lydia Hao, treasurer of Siena Realty Corporation, filed a
Corporation Code, the defense of improper use or motive is in the complaint-affidavit against petitioner for committing acts of falsification
nature of a justifying circumstance that would exonerate those who by falsifying the Minutes of the Annual Stockholders meeting of the
raise and are able to prove the same. Accordingly, where the Board of Directors by causing it to appear in said Minutes that LYDIA
corporation denies inspection on the ground of improper motive or HAO CHUA was present and has participated in said proceedings,
purpose, the burden of proof is taken from the shareholder and placed when in truth and in fact, as the said accused fully well knew that said
on the corporation. This being the case, it would be improper for the Lydia Hao was never present during the meeting.
prosecutor, during preliminary investigation, to refuse or fail to
address the defense of improper use or motive, given its express Petitioner alleges that respondent Lydia Hao has no the authority to
statutory recognition. bring a suit in behalf of the Corporation since there was no Board
Resolution authorizing her to file the suit. For her part, respondent
Thus, contrary to Eduardo’s insistence, the stockholder’s right to Hao claimed that the suit was brought under the concept of a
inspect corporate books is not without limitations. It is now expressly derivative suit.
required as a condition for such examination that the one requesting it
must not have been guilty of using improperly any information secured

Issue: (1) Is the criminal complaint in the nature of a derivative suit? non that the corporation be impleaded as a party because not only is
(2) Is Siena Realty Corporation a proper petitioner in SCA No. 99- the corporation an indispensable party, but it is also the present rule
94846? that it must be served with process. The judgment must be made
binding upon the corporation in order that the corporation may get the
Held: Under Section 36 of the Corporation Code, read in relation to benefit of the suit and may not bring subsequent suit against the same
Section 23, where a corporation is an injured party, its power to sue is defendants for the same cause of action. In other words, the
lodged with its board of directors or trustees. An individual stockholder corporation must be joined as party because it is its cause of action
is permitted to institute a derivative suit on behalf of the corporation that is being litigated and because judgment must be a res adjudicata
wherein he holds stocks in order to protect or vindicate corporate against it.
rights, whenever the officials of the corporation refuse to sue, or are
the ones to be sued, or hold the control of the corporation. In such In the criminal complaint filed by herein respondent, nowhere is it
actions, the suing stockholder is regarded as a nominal party, with the stated that she is filing the same in behalf and for the benefit of the
corporation as the real party in interest. corporation. Thus, the criminal complaint including the civil aspect
thereof could not be deemed in the nature of a derivative suit.
A derivative action is a suit by a shareholder to enforce a corporate
cause of action. The corporation is a necessary party to the suit. And
the relief which is granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a defense to an Ching v. Subic Bay Golf and Country Club, Inc., 734 SCRA 569
action against it and is not asserting it, a stockholder may intervene (2014)
and defend on behalf of the corporation.
In the Criminal Case, the complaint was instituted by respondent

against petitioner for falsifying corporate documents whose subject Ching v. Subic Bay Golf and Country Club, Inc (G.R. No. 174353, 10
concerns corporate projects of Siena Realty Corporation. Clearly, Sep 2014)
SRC is an offended party. Hence, SRC has a cause of action. And the
civil case for the corporate cause of action is deemed instituted in the
criminal action.
Facts:
However, the board of directors of the corporation in this case did not
institute the action against petitioner. Private respondent was the one Nestor Ching and Andrew Wellington, on behalf of the Members of
who instituted the action. Private respondent asserts that she filed a Subic Bay Golf and Country Club, Inc. (SBGCCI), filed a complaint
derivative suit in behalf of the corporation. This assertion is with the RTC of Olongapo City against the SBGCCI and its Board of
inaccurate. Not every suit filed in behalf of the corporation is a Directors and Officers under the provisions of PD no. 902-A in relation
derivative suit. For a derivative suit to prosper, it is required that the to Section 5.2 of the Securities Regulation Code.
minority stockholder suing for and on behalf of the corporation must
allege in his complaint that he is suing on a derivative cause of action Subic Bay Golfers and Shareholders Incorporated (SBGSI), a
on behalf of the corporation and all other stockholders similarly corporation composed of shareholders of the SBGCI, was also named
situated who may wish to join him in the suit. It is a condition sine qua as plaintiff.

An amendment to the AOI was approved by the SEC. 1. NO. Complaint in question appears to have been filed only by
Petitioners claimed in the Complaint that defendant corporation did the 2 petitioners, Nestor Ching and Andrew Wellington, who each own
not disclose to them the amendment which allegedly makes the one stock in the respondent corporation SBGCCI
shares non-proprietary, as it takes away the right of the shareholders
to participate in the pro-rata distribution of the assets of the While the caption of the complaint also names the “SBGSI for and in
corporation after its dissolution. behalf of all its members,” petitioners did not attach any authorization
from said alleged corporation or its members to file the complaint.
SBGCI denied the allegations and contends that: Plaintiffs
failed to show that it was authorized by SBGSI to file the complaint on Thus, the complaint is deemed filed only by petitioners and not by
the said corporation’s behalf. SBGSI.
2. YES, it is a derivative suit.
RTC: Dismissed the complaint and helda that the action is a derivative In Cua, Jr. v. Tan, the court held that, Suits by stockholders or
suit. Being a derivative suit, the stockholders and members may bring members of a corporation based on wrongful or fraudulent acts of
an action in the name of the corporation provided that the minority directors may be classified into:
stockholder exerted all reasonable efforts and alleged the same with
particularly in the complaint that they exhausted all remedies
available.
• Individual Suits – wrong is done to him personally and not to
the other stockholders or the corporation
CA affirmed. • Class Suits – wrong is done to a group of stockholders, as

where preferred stockholders’ rights are violated.
Issues:
• Derivative Suits – a wrong to the corporation itself, the cause
1. Whether petitioner can file a complaint on behalf of SBGSI. of action belongs to the corporation and not to the individual
NO stockholder or member.
2. Whether the complaint is a derivative suit. YES - Although in most every case of wrong to the corp, each
stockholder is necessarily affected because the value of his interest
3. Whether the minority stockholder can override the business therein would be impaired, this fact of itself is not sufficient to give him
judgments of SBGCCI. NO an individual cause of action since the corp is a person distinct and
separate from him, and can and should itself sue the wrongdoer.
3. NO.
Ruling:
As minority stockholders, petitioners do not have any statutory right to
override the business judgments of SBGCCI’s officers and Board of

Directors on the ground of the latter’s alleged lack of qualification to the other stockholders thereof. The Banco EspañolFilipino is a
manage a golf course. banking corporation, constituted as such by royal decree of the Crown
of Spain in the year 1854, the original grant having been subsequently
Contrary to the arguments of petitioners, PD No. 902-A, does extended and modified by royal decree of July 14, 1897, and by Act
not grant minority stockholders a cause of action against waste and No. 1790 of the Philippine Commission.
diversion by the Board of Directors, but merely identifies the
jurisdiction of the SEC over actions already authorized by law or It is alleged in the amended complaint that the only compensation
jurisprudence. contemplated or provided for the managing officers of the bank was a
certain per cent of the net profits resulting from the bank's operations,
A stockholder’s right to institute a derivative suit is not based as set forth in article 30 of its reformed charter or statutes.
on any express provision of the Corp Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws The gist of the first and second causes of action is as follows: The
make corporate directors or officers liable for damages. defendants constitute a majority of the present board of directors of
the bank, who alone can authorize an action against them in the name
Requirements of derivative suits: of the corporation. It appears that during the years 1903, 1904, 1905,
and 1907 the defendants and appellees, without the knowledge,
1. He was a stockholder or member at the time the acts or consent, or acquiescence of the stockholders, deducted their
transactions subject of the action occurred and at the time the action respective compensation from the gross income instead of from the
was filed; net profits of the bank, thereby defrauding the bank and its
stockholders of approximately P20,000 per annum.
2. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under The second cause of action sets forth that defendants' and appellees'
the AOI, By-laws, laws or rules governing the corporation or immediate predecessors in office in the bank during the years 1899,
partnership to obtain the relief he desires; 1900, 1901, and 1902, committed the same illegality as to their
compensation as is charged against the defendants themselves. In
3. No appraisal rights are available for the acts or acts the four years immediately following the year 1902, the defendants
complained of; and and appellees were the only officials or representatives of the bank
who could and should investigate and take action in regard to the
4. The suit is not a nuisance or harassment suit. sums of money thus fraudulently appropriated by their predecessors.
They were the only persons interested in the bank who knew of the
fraudulent appropriation by their predecessors.
Yu v. Yukayguan, 589 SCRA 588 (2009) The court below sustained the demurrer as to the first and second
causes of action on the ground that in actions of this character the
plaintiff must aver in his complaint that he was the owner of stock in
Candido Pascual v. Eugenio Del Saz Orozco, 19 Phil. 83 (1911) the corporation at the time of the occurrences complained of, or else
that the stock has since devolved upon him by operation of law.
FACTS: This action was brought by the plaintiff Pascual, in his own
right as a stockholder of the bank, for the benefit of the bank, and all

ISSUE: Whether or not the petitioner has a cause of action to file a firm.On November 22, 2004, PPC, represented by Villamor,
derivative suit. entered into a memorandum of agreement (MOA) with MC Home
Depot. Under the MOA, MC Home Depot would continue to occupy
RULING: Yes. the area as PPC’s sublessee for 4 years, renewable for another 4
years, at a monthly rental of P4,500,000.00 plus goodwill of
As to the first cause of action: In suits of this character the corporation P18,000,000.00.
itself and not the plaintiff stockholder is the real party in interest. The
rights of the individual stockholder are merged into that of the In compliance with the MOA, MC Home Depot issued 20 post-dated
corporation. It is a universally recognized doctrine that a stockholder checks representing rental payments for one year and the goodwill
in a corporation has no title legal or equitable to the corporate money. The checks were given to Villamor who did not turn these or
property; that both of these are in the corporation itself for the benefit the equivalent amount over to PPC, upon encashment.Hernando
of all the stockholders. So it is clear that the plaintiff, by reason of the Balmores, a stockholder and director of PPC, wrote a letter addressed
fact that he is a stockholder in the bank (corporation) has a right to to PPC’sdirectors on April 4, 2005. He informed them that Villamor
maintain a suit for and on behalf of the bank, but the extent of such a should be made to deliver to PPCand account for MC Home Depot’s
right must depend upon when, how, and for what purpose he acquired checks or their equivalent value.Due to the alleged inaction of the
the shares which he now owns. directors, respondent Balmores filed with the RTC an intra-corporate
controversy complaint under Rule 1, Section 1(a)(1) of the Interim
As to the Second cause of action: It affirmatively appears from the Rules for Intra-Corporate Controversies (Interim Rules) against
complaint that the plaintiff was not a stockholder during any of the petitioners for their alleged devices or schemes amounting to fraud or
time in question in this second cause of action. Upon the question misrepresentation "detrimental to the interest of the corporation and
whether or not a stockholder can maintain a suit of this character its stockholders."Respondent Balmores alleged in his complaint that
upon a cause of action pertaining to the corporation when it appears because of petitioners’ actions, PPC’s assets were ". . . not only in
that he was not a stockholder at the time of the occurrence of the acts imminent danger, but have actually been dissipated, lost, wasted
complained of and upon which the action is based, the authorities do anddestroyed." Respondent Balmores prayed that a receiver be
not agree. appointed from his list of nominees.He also prayed for petitioners’
prohibition from "selling, encumbering, transferring or disposing in any
Villamor, Jr. v. Umale, 736 SCRA 325 (2014) manner any of [PPC’s] properties, including the MC Home Depot
checks and/or their proceeds." He prayed for the accounting and
FACTS: remittance to PPC of the MC Home Depot checks or their proceeds
MC Home Depot occupied a prime property (Rockland area) in Pasig. and for the annulment of the board’s resolution waiving PPC’s rights
The property was part of the area owned by Mid-Pasig Development in favor of Villamor’s law firm.
Corporation (Mid-Pasig). On March 1, 2004, PasigPrinting
Corporation (PPC) obtained an option to lease portions of The RTC denied respondent Balmores’ prayer for the appointment of
MidPasig’s property,including the Rockland area. On November
a receiver or the creation of a management committee. RTC held
11, 2004, PPC’s board of directors issued a resolution waiving
all its rights, interests, and participation in the option to lease contract PPC’s entitlement to the checks was doubtful. The resolution issued
in favor of the law firm of Atty. Alfredo Villamor, Jr. (Villamor). PPC by PPC’s board of directors, waiving its rights to the option to lease
received no consideration for this waiver in favor of Villamor’s law contract in favor of Villamor’s law firm, must be accorded prima facie

validity. Also, there was a pending case filed by one Leonardo Umale real party in interest is the corporation, and the suing stockholder is a
against Villamor, involving the same checks. Umale was also claiming mere nominal party.
ownership of the checks. This, according to the trial court, weakened
Balmores’ claim that the checks were properties of PPC. Balmores Balmores’ action in the trial court failed to satisfy all the requisites of a
filed with the CA a petition for certiorari under Rule 65 of the Rules of derivative suit. Respondent failed to exhaust all available remedies to
Court and the same was granted. It reversed the trial court’s decision, obtain the reliefs he prayed for. He also failed to allege that appraisal
and issued a new order placing PPC under receivership and creating rights were not available for the acts complained of. This is another
an interim management committee. As a justification of said decision, requisited as provided under Rule 8, Section 1(3) of the Interim Rules.
the CA stated that the board’s waiver of PPC’s rights in favor of Neither did respondent Balmores implead PPC as party in the case
Villamor’s law firm without any consideration and its inaction on nor did he allege that he was filing on behalf of the corporation.
Villamor’s failure to turn over the proceeds of rental payments to PPC
warrant the creation of a management committee. The circumstances The non-derivative character of Balmores’ action may also be gleaned
resulted in the imminent danger of loss, waste, or dissipation of PPC’s from his allegations in the trial court complaint. In the complaint, he
assets. described the nature of his action as an action under Rule 1, Section
1(a)(1) of the Interim Rules, and not an action under Rule 1, Section
According to the CA, the trial court abandoned its duty to the 1(a)(4) of the Interim Rules, which refers to derivative suits.
stockholders in a derivative suit when it refused to appoint a receiver
or create a management committee, all during the pendency of the Ang v. Ang, 699 SCRA 272 (2013)
proceedings.
FACTS: Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered
corporation owned by the Ang family. Its current stockholders and
ISSUE: W/N the action was a derivative suit and refusal to appoint is their respective stockholdings are as follows:
a denial of the right to a derivative suit.
Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita
RULING: Limoco-Ang (Anecita) is Juanito’s wife and Jeannevie is their
daughter. Roberto was elected President of SMBI, while Juanito was
NO. A derivative suit is an action filed by stockholders to enforce a elected as its Vice President. Rachel Lu-Ang (Rachel) and Anecita are
corporate action. It is an exception to the general rule that the SMBI’s Corporate Secretary and Treasurer, respectively.
corporation’s power to sue is exercised only by the board of directors
or trustees. Individual stockholders may be allowed to sue on behalf Nancy Ang (Nancy), the sister of Juanito and Roberto, and her
husband, Theodore Ang (Theodore), agreed to extend a loan to settle
of the corporation whenever the directors or officers of the corporation
the obligations of SMBI and other corporations owned by the Ang
refuse to sue to vindicate the rights of the corporation or are the ones family, specifically Bayshore Aqua Culture Corporation, Oceanside
to be sued and are in control of the corporation. In derivative suits, the Marine Resources and JR Aqua Venture. Nancy and Theodore issued
a check in the amount of $1,000,000.00 payable to "Juanito Ang

and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang." Nancy Juanito and Anecita admitted that they, together with Roberto and
was a former stockholder of SMBI, but she no longer appears in Rachel, obtained a loan from Nancy and Theodore for $1,000,000.00.
SMBI’s General Information Sheets as early as 1996.Nancy and
Theodore are now currently residing in the United States. There was A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and
no written loan agreement, in view of the close relationship between Theodore, under a Special Power of Attorney which was not attached
the parties. Part of the loan was also used to purchase real properties as part of the Settlement Agreement or the Mortgage, nor included in
for SMBI, for Juanito, and for Roberto. the records of this case.
SMBI increased its authorized capital stock to ₱10,000,000.00. The Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for
Certificate of Increase of Capital Stock was signed by Juanito, an ex-parte Writ of Attachment/Receivership" (Complaint) before the
Anecita, Roberto, and Rachel as directors of SMBI. Juanito claimed, RTC Bacolod.. He alleged that "the intentional and malicious refusal
however, that the increase of SMBI’s capital stock was done in of defendant Sps. Roberto and Rachel Ang to settle their 50% share x
contravention of the Corporation Code. According to Juanito, when he x x of the total obligation x x x will definitely affect the financial viability
and Anecita left for Canada: of plaintiff SMBI." Juanito also claimed that he has been "illegally
excluded from the management and participation in the business of
x x x Sps. Roberto and Rachel Ang took over the active management [SMBI through] force, violence and intimidation" and that Rachel and
of [SMBI]. Through the employment of sugar coated words, they were Roberto have seized and carted away SMBI’s records from its office.
able to successfully manipulate the stocks sharings between
themselves at 50-50 under the condition that the procedures the RTC Bacolod issued an Order granting the application for an ex-
mandated by the Corporation Code on increase of capital stock be parte writ of attachment and break open order. Atty. Jerry Basiao, who
strictly observed (valid Board Meeting). No such meeting of the Board filed an application for appointment as Receiver of SMBI, was directed
to increase capital stock materialized. It was more of an by the RTC Bacolod to furnish the required Receivership Bond.17 On
accommodation to buy peace x x x. the same date, Roberto and Rachel moved to quash the writ of
attachment and set aside the break open order and appointment of
Juanito claimed that payments to Nancy and Theodore ceased receiver.
sometime after 2006. Nancy and Theodore, through their counsel
here in the Philippines, sent a demand letter to "Spouses Juanito L. That the instant suit is for the benefit of a non-stockholder and not the
Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L. Ang" for corporation is obvious when the primary relief prayed for in the
payment of the principal amounting to $1,000,000.00 plus interest at Complaint which is for the defendants "to pay the amount of Php
ten percent (10%) per annum, for a total of $2,585,577.37 within ten 60,114,673.62 plus interest which is 50% of the loan obligations of
days from receipt of the letter. Roberto and Rachel then sent a letter plaintiff [SMBI] to its creditor Sps. Theodore and Nancy Ang."
to Nancy and Theodore’s counsel on 5 January 2009, saying that they Otherwise stated, the instant suit is nothing but a complaint for sum of
are not complying with the demand letter because they have not money shamelessly masked as a derivative suit.
personally contracted a loan from Nancy and Theodore.
Rachel also argued that the Complaint failed to allege that Juanito
Juanito and Anecita executed a Deed of Acknowledgment and "exerted all reasonable efforts to exhaust all intra-corporate remedies
Settlement Agreement (Settlement Agreement) and an Extra-Judicial available under the articles of incorporation, by-laws, laws or rules
Real Estate Mortgage (Mortgage). Under the foregoing instruments,

governing the corporation to obtain the relief he desires," as required The Ruling of the RTC Bacolod: Defendants is DENIED for lack of
by the Interim Rules. merit.
During cross-examination, Juanito admitted that there was no prior The RTC Bacolod found that the issuance of the checks to settle the
demand for accounting or liquidation nor any written objection to purported obligations to Rachel’s relatives, as well as the removal of
SMBI’s increase of capital stock. He also conceded that the loan was Nancy as a stockholder in SMBI’s records as filed with the SEC,
extended by persons who are not stockholders of SMBI. Thus, Rachel shows that Rachel and Roberto committed fraud. The Order likewise
filed a Motion for Preliminary Hearing on Affirmative Defenses on 27 stated that the requirement of exhaustion of intra-corporate remedies
November 2009, arguing that in view of Juanito’s admissions, the is no longer necessary since Rachel and Roberto exercised complete
Complaint should be dismissed pursuant to Section 1 of the Interim control over SMBI.
Rules. Juanito filed his Opposition thereto on 8 January 2010,22
arguing that applying this Court’s ruling in Hi-Yield Realty, Inc. v. The Ruling of the CA-Cebu - the CA-Cebu promulgated its Decision
Court of Appeals,23 the requirement for exhaustion of intra-corporate which reversed and set aside the Order of the RTC Bacolod dated 27
remedies is no longer needed when the corporation itself is "under the September 2010. According to the CA-Cebu, the Complaint filed by
complete control of the persons against whom the suit is filed." Juanito should be dismissed because it is a harassment suit, and not
Juanito also alleged that he and Anecita were deceived into signing a valid derivative suit as defined under the Interim Rules. The CA-
checks to pay off bogus loans purportedly extended by Rachel’s Cebu also found that Juanito failed to exhaust intra-corporate
relatives in favor of SMBI. Some of the checks were payable to cash, remedies and that the loan extended by Nancy and Theodore was not
and were allegedly deposited in Rachel’s personal account. He also SMBI's corporate obligation. There is nothing on record to show that
claimed that Rachel’s Motion is disallowed under the Interim Rules. non-payment of the loan will result in any damage or prejudice to
SMBI.
Juanito moved that Rachel and her daughter, Em Ang (Em), as well
as their counsel, Atty. Filomeno Tan, Jr. (Atty. Tan) be held in Hence, this petition.
contempt. Juanito claimed that on the date the writ of attachment and
break open order were issued, Atty. Tan, accompanied by Rachel and Issues: (1) Whether based on the allegations of the complaint, the
Em, "arrogantly demanded from the Clerk in charge of Civil Cases nature of the case is one of a derivative suit or not.
that he be furnished a copy of the [said orders] x x x otherwise he will
tear the records of the subject commercial case." Juanito also (2) to the above, whether the Honorable Court of Appeals erred x x x
accused Atty. Tan of surreptitiously photocopying the said orders prior in ordering the dismissal of the Complaint on the ground that the case
to service of the summons, Complaint, Writ of Attachment and is not a derivative suit.
Attachment Bond. According to Juanito, the purpose of obtaning a
copy of the orders was to thwart its implementation. Thus, when the HELD: The petition has no merit.
authorities proceeded to the SMBI premises to enforce the orders,
they found that the place was padlocked, and that all corporate We uphold the CA-Cebu’s finding that the Complaint is not a
documents and records were missing. On 14 December 2010, the derivative suit. A derivative suit is an action brought by a stockholder
Sheriff and other RTC Bacolod employees then filed a Verified on behalf of the corporation to enforce corporate rights against the
Complaint against Atty. Tan before this Court, which also contained corporation’s directors, officers or other insiders. Under Sections 23
the foregoing allegations. and 36 of the Corporation Code, the directors or officers, as provided

under the by-laws, have the right to decide whether or not a (3) No appraisal rights are available for the act or acts complained of;
corporation should sue. Since these directors or officers will never be and
willing to sue themselves, or impugn their wrongful or fraudulent
decisions, stockholders are permitted by law to bring an action in the (4) The suit is not a nuisance or harassment suit.
name of the corporation to hold these directors and officers
accountable. In derivative suits, the real party in interest is the Applying the foregoing, we find that the Complaint is not a derivative
corporation, while the stockholder is a mere nominal party. suit. The Complaint failed to show how the acts of Rachel and
Roberto resulted in any detriment to SMBI. The CA-Cebu correctly
This Court, in Yu v. Yukayguan, explained: concluded that the loan was not a corporate obligation, but a personal
debt of the Ang brothers and their spouses. The check was issued to
The Court has recognized that a stockholder’s right to institute a "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel
derivative suit is not based on any express provision of the Ang" and not SMBI. The proceeds of the loan were used for payment
Corporation Code, or even the Securities Regulation Code, but is of the obligations of the other corporations owned by the Angs as well
impliedly recognized when the said laws make corporate directors or as the purchase of real properties for the Ang brothers. SMBI was
officers liable for damages suffered by the corporation and its never a party to the Settlement Agreement or the Mortgage. It was
stockholders for violation of their fiduciary duties. Hence, a never named as a co-debtor or guarantor of the loan. Both
stockholder may sue for mismanagement, waste or dissipation of instruments were executed by Juanito and Anecita in their personal
corporate assets because of a special injury to him for which he is capacity, and not in their capacity as directors or officers of SMBI.
otherwise without redress. In effect, the suit is an action for specific Thus, SMBI is under no legal obligation to satisfy the obligation.
performance of an obligation owed by the corporation to the
stockholders to assist its rights of action when the corporation has The fact that Juanito and Anecita attempted to constitute a mortgage
been put in default by the wrongful refusal of the directors or over "their" share in a corporate asset cannot affect SMBI. The Civil
management to make suitable measures for its protection. The basis Code provides that in order for a mortgage to be valid, the mortgagor
of a stockholder’s suit is always one in equity. However, it cannot must be the "absolute owner of the thing x x x mortgaged." Corporate
prosper without first complying with the legal requisites for its assets may be mortgaged by authorized directors or officers on behalf
institution. (Emphasis in the original) of the corporation as owner, "as the transaction of the lawful business
of the corporation may reasonably and necessarily require." However,
Section 1, Rule 8 of the Interim Rules imposes the following the wording of the Mortgage reveals that it was signed by Juanito and
requirements for derivative suits: Anecita in their personal capacity as the "owners" of a pro-indiviso
share in SMBI’s land and not on behalf of SMBI.
(1) The person filing the suit must be a stockholder or member at the
time the acts or transactions subject of the action occurred and the We also find that there is insufficient evidence to suggest that Roberto
time the action was filed; and Rachel fraudulently and wrongfully removed Nancy as a
stockholder in SMBI’s reportorial requirements. As early as 2005,
(2) He must have exerted all reasonable efforts, and alleges the same when SMBI increased its capital stock, Juanito and Anecita already
with particularity in the complaint, to exhaust all remedies available knew that Nancy was not listed as a stockholder of SMBI. However,
under the articles of incorporation, by-laws, laws or rules governing they attempted to rectify the error only in 2009, when the Complaint
the corporation or partnership to obtain the relief he desires; was filed. That it took four years for them to make any attempt to

question Nancy’s exclusion as stockholder negates their allegation of collect a debt allegedly extended by the spouses Theodore and
fraud. Nancy Ang to [SMBI]. Thus, the aggrieved party is not SMBI x x x but
the spouses Theodore and Nancy Ang, who are not even x x x
Since damage to the corporation was not sufficiently proven by stockholders."
Juanito, the Complaint cannot be considered a bona fide derivative
suit. A derivative suit is one that seeks redress for injury to the
corporation, and not the stockholder. No such injury was proven in
this case.
The Complaint also failed to allege that all available corporate Republic Planters Bank v. Agana, 269 SCRA 1 (1997)
remedies under the articles of incorporation, by-laws, laws or rules
governing the corporation were exhausted, as required under the
Interim Rules.
The fact that [SMBI] is a family corporation does not exempt private F. Stockholders’/Members’ Meetings and Voting at Meetings
respondent Juanito Ang from complying with the Interim Rules. In the
x x x Yu case, the Supreme Court held that a family corporation is not GSIS v. Court of Appeals, 585 SCRA 679 (2009)
exempt from complying with the clear requirements and formalities of
the rules for filing a derivative suit. There is nothing in the pertinent FACTS: During the annual stockholders meeting of the Manila Electric
laws or rules which state that there is a distinction between x x x Company (MERALCO,) due to the resignation of the corporate
family corporations x x x and other types of corporations in the secretary Quiason, the Board of Directors (BoD) of MERALCO
institution by a stockholder of a derivative suit. designated Vitug to act as corporate secretary. However, the proxy
validation was presided over by respondent Rosete, assistant
Furthermore, there was no allegation that there was an attempt to corporate secretary and in-house chief legal counsel of MERALCO.
remove Rachel or Roberto as director or officer of SMBI, as permitted GSIS thereafter filed a complaint with the RTC of Pasay City seeking
under the Corporation Code and the by-laws of the corporation. Thus, the nullification of the proxies which were validated during the
the Complaint failed to satisfy the requirements for a derivative suit aforementioned proceeding presided over by respondent Rosete. On
under the Interim Rules. the very same day, a Cease and Desist Order (CDO) was then issued
and signed by SEC Commissioner Jesus Martinez to restrain the use
In case of nuisance or harassment suits, the court may, motu proprio of said proxies during the annual meeting. Nevertheless, Rosete
or upon motion, forthwith dismiss the case. continued the meeting despite the foregoing. The SEC then issued a
Show Cause Order (SCO) against Rosete ordering them to give an
Records show that Juanito, apart from being Vice President, owns the explanation why they should not be cited in contempt. On appeal, the
highest number of shares, equal to those owned by Roberto. Also, as CA Eighth Division held that the complaint filed by GSIS is dismissed
explained earlier, there appears to be no damage to SMBI if the loan for lack of jurisdiction, forum shopping by splitting of causes of action.
extended by Nancy and Theodore remains unpaid. The CA-Cebu Thereafter, three different action arose therefrom, one of which
correctly concluded that "a plain reading of the allegations in the involves the jurisdiction of the SEC over the contested petition as well
Complaint would readily show that the case x x x was mainly filed to as the validity of the CDO and SCO. V.

ISSUE: 1. Whether or not the SEC has jurisdiction over the petition quorum to conduct business, the presence of at least three (3)
filed by GSIS against private respondents. Commissioners is required. Commissioner Martinez is not the SEC.
He alone does not speak for and in behalf of the SEC. The SEC acts
2. Whether or not the CDO and SCO issued by the SEC are valid. through a five-person body, and the five members of the commission
each has one vote to cast in every deliberation concerning a case or
RULING: 1. No. Under Section 5(c) of Presidential Decree No. 902-A, any incident therein that is subject to the jurisdiction of the SEC. It is
in relation to the SRC, the jurisdiction of the regular trial courts with clear that Martinez was designated as OIC because of the official
respect to election-related controversies is specifically confined to travel of only one member, Chairperson Fe Barin. Martinez was not
“controversies in the election or appointment of directors, trustees, commissioned to act as the SEC itself. VII. DISPOSITIVE PORTION:
officers or managers of corporations, partnerships, or associations.” WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for
Evidently, Russel Anne Bundoc | JD-2B | College of Law, Bulacan lack of capacity of the petitioner to bring forth the suit. The petition in
State University | Corpo | Case Digests the jurisdiction of the regular G.R. No. 183905 is DISMISSED for lack of merit except that the
courts over so-called election contests or controversies under Section second and third paragraphs of the fallo of the assailed decision dated
5(c) does not extend to every potential subject that may be voted on 23 July 2008 of the Court of Appeals, including subparagraphs (1),
by shareholders, but only to the election of directors or trustees, in (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby
which stockholders are authorized to participate under Section 24 of DELETED.
the Corporation Code. This qualification allows for a useful distinction
that gives due effect to the statutory right of the SEC to regulate proxy Lee v. Court of Appeals, 205 SCRA 752 (1992)
solicitation, and the statutory jurisdiction of regular courts over
election contests or controversies. The power of the SEC to Ricafort v. Dicdican, 787 SCRA 163 (2016)
investigate violations of its rules on proxy solicitation is unquestioned
when proxies are obtained to vote on matters unrelated to the cases Facts: Nationwide Development Corporation (NADECOR) is a
enumerated under Section 5 of Presidential Decree No. 902-A. domestic corporation which is a holder of a Mining Production Sharing
However, when proxies are solicited in relation to the election of Agreement with the DENR. Its regular annual stockholders' meeting
corporate directors, the resulting controversy, even if it ostensibly (ASM) was held on August 15, 2011 to elect its Board of Directors.
raised the violation of the SEC rules on proxy solicitation, should be
However, on October 20, 2011, (2 months after the ASM), Corazon
properly seen as an election controversy within the original and
exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the Ricafort (Corazon) (wife of JG Ricafort) along with her children
SRC in relation to Section 5(c) of Presidential Decree No. 902-A. (Petitioners), filed a complaint before the RTC to declare the August
15, 2011 ASM and all acts carried out pursuant thereto, null and void
2. No. The lack of jurisdiction of the SEC over the subject matter of alleging that they received notice about the ASM only on August 16,
GSIS’s petition necessarily invalidates the CDO and SCO issued by 2011, a violation, according to them, of the 3-day notice rule
that body. The error of the SEC in granting the CDO without stating
enshrined in the by-laws. Respondents however alleged that their
which kind of CDO it was issuing is more unpardonable, as it is an act
that contravenes due process of law. The CDO bore the signature of complaint was an election contest and thus barred under the 15-day
Commissioner Jesus Martinez, identified therein as “Officer-in- rule under the Interim Rules; that they were sufficiently notified as the
Charge,” and nobody else’s. The SEC is a collegial body composed of notice was mailed on August 11, 2011; and that they were properly
a Chairperson and four (4) Commissioners. In order to constitute a

represented by JG Ricafort by virtue of an Irrevocable Proxy executed bylaws, or if not so fixed, on any date in April of every year as
by the Petitioners in favor of JG Ricafort. determined by the board of directors or trustees: Provided, That
The RTC ruled in favor of Corazon and held null and void the written notice of regular meetings shall be sent to all stockholders or
August 15, 2011 ASM. The RTC noted that neither of the Petitioners members of record at least two (2) weeks prior to the meeting, unless
were seeking any elective position. Neither are they questioning the a different period is required by the bylaws. Special meetings of
manner and validity of the elections, and qualifications of the stockholders or members shall be held at any time deemed necessary
candidates for directorship. Respondents assailed the decision before or as provided in the bylaws: Provided, however, That at least one (1)
the CA and asked for a WPI of the trial court’s order. week written notice shall be sent to all stockholders or members,
The CA granted the same, hence this Petition. unless otherwise provided in the bylaws. Notice of any meeting
may be waived, expressly or impliedly, by any stockholder or
Issue: What action is proper where one of the reliefs sought in the member.
complaint is to nullify the election of the Board of Directors at the
Annual Stockholders’ Meeting? WHEREFORE, premises considered, the application for a [WPI] is
GRANTED.
Ruling: Election Protest.
Under Sections 1 to 3 of Rule 6 of the Interim Rules, SEC Case
No. 11-164 should have been dismissed for having been filed beyond Guy v. Guy, 790 SCRA 288 (2016)
the 15-day prescriptive period allowed for an election protest. In
Facts: Respondent Gilbert G. Guy (Gilbert) practically owned almost
substance, the main issues therein are on all fours with Yujuico v.
80% of the 650k subscribed capital stock of GoodGold Realty &
Quimbao, wherein the Court expressly ruled that where one of the Development Corporation (GoodGold), which Gilbert claimed to have
reliefs sought in the complaint is to nullify the election of the Board of established in the 30’s. GoodGold’s remaining shares were divided
Directors at the ASM, the complaint involves an election contest. Both among Francisco Guy (Francisco) with 130k shares, Simny Guy
cases put in issue the validity of the ASM and, expressly in Yujuico (Simny), Bejamin Lim and Paulino Delfin Pe, with one share each,
and indirectly below, the election of the members of the Board of respectively.
Directors. The ostensible difference is that in SEC Case No. 11-164
Gilbert is the son of spouses Francisco and Simny. Simny, one of the
the petitioners invoked lack of notice of the August 15, 2011 ASM, petitioners, however, alleged that it was she and her husband who
while in Yujuico the ground invoked was improper venue. established GoodGold, putting the bulk of its shares under Gilbert’s
name because their eldest son Gaspar Guy (Gaspar) became
The shorter notice of three days instead of two weeks for missionary.
stockholders’ regular or special meeting is clearly allowed under
Section 50 of the Corporation Code, to wit: SECTION 50. Regular and In 1999, Francisco instructed Benjamin Lim, a nominal shareholder of
GoodGold and his trusted employee, to collaborate with Atty.
Special Meetings of Stockholders or Members. Regular meetings of
Emmanuel Paras, to redistribute GoodGold’s shareholdings evenly
stockholders or members shall be held annually on a date fixed in the

among his children: Gilbert, Grace, Geraldine, and Gladys, while Individual suits against another stockholder or against a corporation
maintaining a proportionate share for himself and his wife. are remedies which an aggrieved stockholder may avail of and which
are recognized in our jurisdiction as embedded in the Interim Rules on
In 2004, Gilbert filed with the RTC a complaint for the “Declaration of Intra-Corporate Controversy. Together with this right is the parallel
Nullity of transfers of Shares in GoodGold and of General Information obligation of a party to comply with the compulsory joinder of
Sheets and Minutes of meeting, and for Damages with Application for indispensable parties whether they may be stockholders or the
a Preliminary Injunctive Relief,” against his mother and his sisters. corporation itself.
In 2008, Gilbert again filed a complaint captioned as “Intra-Corporate In this case, it is baffling that Gilbert omitted Francisco as defendant in
Controversy: For the Declaration of Nullity of Fraudulent Transfers of his complaint. While Gilbert could have opted to waive his shares in
Shares of Stock Certificates, Fabricated Stock Certificates, Falsified the name of Francisco to justify the latter’s non-inlclusion in the
General Information Sheets, Minutes of Meetings, and Damages with complaint, Gilbert did not do so, but instead, wanted everything back
Application for the Issuance of a Writ of Preliminary and Mandatory and even wanted the whole transfer of shares declared fraudulent.
Injunction” against his mother and his sisters. This cannot be done without including Francisco as defendant.
RTC dismissed the case, declaring it a nuisance and harassment suit. Francisco, in both the 2004 and 2008 complaints, is an indispensable
party without whom no final determination can be had for the following
The CA, however, found merit on Gilbert’s contention that the reasons
complaint should be heard on the merits.
a. The complaint prays that the shares now under the name of
Issues: the defendants and Francisco be declared fraudulent;
1. Whether Francisco is an indispensable party. YES b. Francisco owners 195k shares some of which, Gilbert prays
be returned to him;
2. Whether this is a nuisance and harassment suit. Yes
c. Francisco signed the certificates of stocks evidencing the
Ruling: alleged fraudulent shares previously in the name of Gilbert.
1. Yes. Suits by stockholders or members of a corporation based 2. Yes. In ordinary cases, the failure to specifically allege the
on wrongful or fraudulent acts of directors or other persons may be fraudulent acts does not constitute a ground for dismissal since such
classified into individual suits, class suits, and derivative suits. a defect can be cured by a bill of particulars. However, this does not
apply to intra-corporate controversies, where failure to specifically
An individual suit may be instituted by a stockholder against another allege the fraudulent acts in intra-corporate controversies is indicative
stockholder for wrongs committed against him personally, and to of a harassment or nuisance suit and may be dismissed motu proprio.
determine their individual rights – this is an individual suit between The court has held before tha tin cases of intra-corporate
stockholders. But an individual suit may also be instituted against a controversies, a bill of particulars is a prohibited pleading.
corporation, the same having a separate juridical personality.

Gilbert, instead of particularly describing the fraudulent acts that he Consequently, on February 10, 2014, petitioners filed a case against
complaints of, just made a sweeping denial of the existence of stock respondents before the RTC of Malabon City, praying, among others,
certificates by claiming that such were not necessary, GoodGold that the election of respondents as directors be declared void
being a mere family corporation. considering the invalidity of the holding of the meeting for lack of
quorum therein. They claimed that the basis for determining quorum
should have been the total number of undisputed shares of stocks of
Phil-Ville due to the exceptional nature of the case since the 3,140
WHEREFORE, premises considered, the petitions in G.R. Nos. shares of the late Geronima and the fractional .67, .67, and .66 shares
189486 and 189699 are hereby GRANTED. of Eumir Que Camara, Paolo Que Camara and Abimar Que Camara
are the subject of another dispute filed before the RTC. Thus,
excluding the 3,142 shares from the 200,000 outstanding capital
stock, the proper basis of determining the presence of quorum should
Carolina Que Villongco, et. al. v. Cecilia Que Yabu, et. al., G.R. be 196,858 shares of stocks.
Nos. 225022 & 225024, 05 Feb. 2018
The RTC rendered a Decision declaring the election of Cecilia Que, et
The total outstanding capital stocks, without distinction as to disputed al. as void and of no effect considering the lack of quorum during the
or undisputed shares of stock, is the basis in determining the annual stockholders' meeting. On appeal, the CA declared the RTC
presence of quorum. decision void for violating Section 14, Article VIII of the Constitution.
However, the CA declared the annual stockholders meeting
FACTS: conducted by Cecilia Que void for lack of quorum.
Phil-Ville Development and Housing Corporation (Phil-Ville) is a family Hence, both parties filed separate petitions for review on certiorari.
corporation founded by Geronima Gallego Que, who died on August
31, 2007. By virtue of the Sale of Shares of Stocks dated June 11, ISSUE: Whether the total undisputed shares of stocks in Phil-Ville
2005 purportedly executed by Cecilia as the attorney-infact of should be the basis in determining the presence of a quorum.
Geronima, Cecilia allegedly effected an inequitable distribution of the
3,140 shares that belonged to Geronima, to wit: RULING:
On January 15, 2014, Eumir Carlo sent a Notice of Annual NO. In affirming the Court of Appeals and denying the parties’
Stockholders' Meeting to all the stockholders of Phil-Ville, notifying respective petitions for review, the Supreme Court held that the total
them of the setting of the annual stockholders' meeting on January outstanding capital stocks, without distinction as to disputed or
25, 2014 at 5:00 P.M. During the meeting, respondents Cecilia, Ma. undisputed shares of stock, is the basis in determining the presence
Corazon and Eumir Carlo were elected as directors and later elected of quorum.
themselves to the following positions: Cecilia as Chairperson/Vice
President/Treasurer; Ma. Corazon as Section 52 of the Corporation Code states that:
Vice-Chairperson/President/General Manager; and Eumir Carlo as
Corporate Secretary/Secretary. Section 52. Quorum in meetings. — Unless otherwise
provided for in this Code or in the bylaws, a quorum shall

consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the FACTS:
case of non-stock corporations.
On March 28, 1979, the spouses Manuel and Alicia Gala, their
While Section 137 of the same Code defines "outstanding capital
stock," thus: children Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and
their encargados Virgilio Galeon and Julian Jader formed and
Section 137. Outstanding capital stock defined. — The term organized the Ellice Agro-Industrial Corporation. Subsequently, on
"outstanding capital stock," as used in this Code, means the September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio
total shares of stock issued under binding subscription Galeon and Julian Jader incorporated the Margo Management and
agreements to subscribers or stockholders, whether or not Development Corporation (Margo). Gala Sps. transferred their shares
fully or partially paid, except treasury shares.
from Ellise to Margo. Before Mariano’s death, he transferred all of his
The right to vote is inherent in and incidental to the ownership of shares to Raul Gala.
corporate stocks. It is settled that unissued stocks may not be voted
or considered in determining whether a quorum is present in a On June 23, 1990, a special stockholders meeting of Margo was held,
stockholders' meeting. Only stocks actually issued and outstanding where a new board of directors was elected. That same day, the
may be voted. 23 Thus, for stock corporations, the quorum is based newly-elected board elected a new set of officers. Raul Gala was
on the number of outstanding voting stocks. 24 The distinction of
elected as chairman, president and general manager. During the
undisputed or disputed shares of stocks is not provided for in the law
or the jurisprudence. Ubi lex non distinguit nec nos distinguere meeting, the board approved several actions, including the
debemus — when the law does not distinguish we should not commencement of proceedings to annul certain dispositions of
distinguish. Thus, the 200,000 outstanding capital stocks of Phil-Ville Margos property made by Alicia Gala. The board also resolved to
should be the basis for determining the presence of a quorum, without change the name of the corporation to MRG Management and
any distinction. Therefore, to constitute a quorum, the presence of Development Corporation.
100,001 shares of stocks in Phil-Ville is necessary.
On August 24, 1990, a special stockholders meeting of Ellice was
WHEREFORE, premises considered, the Petitions for Review on
Certiorari are DENIED. The Decision of the Court of Appeals are held to elect a new board of directors. In the ensuing organizational
AFFIRMED in toto. meeting later that day, a new set of corporate officers was elected.
Likewise, Raul Gala was elected as chairman, president and general
manager.
G. Close Corporations
On March 27, 1990, respondents filed against petitioners with the
Sec. 95 – 104, RCC Securities and Exchange Commission (SEC) a petition for the
appointment of a management committee or receiver, accounting and
Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431 (2003) restitution by the directors and officers, and the dissolution of Ellice

Agro-Industrial Corporation for alleged mismanagement, diversion of purpose, as stated in the Articles of Incorporation, is lawful, then the
funds, financial losses and the dissipation of assets, docketed as SEC SEC has no authority to inquire whether the corporation has purposes
Case No. 3747. other than those stated, and mandamus will lie to compel it to issue
the certificate of incorporation.
In turn, on June 26, 1991, petitioners initiated a complaint against the
respondents, docketed as SEC Case No. 4027, on the ground that the Assuming there was even a grain of truth to the petitioners claims
purpose of the corporations were illegal and contrary to public policy. regarding the legality of what are alleged to be the corporations’ true
They claim that the respondents never pursued exemption from land purposes, we are still precluded from granting them relief. We cannot
reform coverage in good faith and instead merely used the address here their concerns regarding circumvention of land reform
corporations as tools to circumvent land reform laws and to avoid laws, for the doctrine of primary jurisdiction precludes a court from
estate taxes. They pointed out that the respondents have not shown arrogating unto itself the authority to resolve a controversy the
that the transfers of land in favor of Ellice were executed in jurisdiction over which is initially lodged with an administrative body of
compliance with the requirements of Sec. 13 of RA 3844. special competence. Since primary jurisdiction over any violation of
Furthermore, they allege that the corporation was run by without the Section 13 of Republic Act No. 3844 that may have been committed is
conventional corporate formalities. vested in the Department of Agrarian Reform Adjudication Board
(DARAB), then it is with said administrative agency that the petitioners
ISSUE: W/N the purposes for which the family corporations, Ellice and must first plead their case. With regard to their claim that Ellice and
Margo, were organized should be declared as illegal and contrary to Margo were meant to be used as mere tools for the avoidance of
public policy. estate taxes, suffice it say that the legal right of a taxpayer to reduce
the amount of what otherwise could be his taxes or altogether avoid
RULING: them, by means which the law permits, cannot be doubted.
The Court holds that petitioners’ contentions impugning the legality of
the purposes for which Ellice and Margo were organized, amount to It is always sad to see families torn apart by money matters and
collateral attacks which are prohibited in this jurisdiction. The best property disputes. The concept of a close corporation organized for
proof of the purpose of a corporation is its articles of incorporation and the purpose of running a family business or managing family property
by-laws. The articles of incorporation must state the primary and has formed the backbone of Philippine commerce and industry.
secondary purposes of the corporation, while the by-laws outline the Through this device, Filipino families have been able to turn their
administrative organization of the corporation, which, in turn, is humble, hard-earned life savings into going concerns capable of
supposed to insure or facilitate the accomplishment of said purpose. providing them and their families with a modicum of material comfort
and financial security as a reward for years of hard work. A family
In the case at bar, a perusal of the Articles of Incorporation of Ellice corporation should serve as a rallying point for family unity and
and Margo shows no sign of the allegedly illegal purposes that prosperity, not as a flashpoint for familial strife. It is hoped that people
petitioners are complaining of. It is well to note that, if a corporation’s reacquaint themselves with the concepts of mutual aid and security

that are the original driving forces behind the formation of family was resolved without the approval of all the members of the board of
corporations and use these tenets in order to facilitate more civil, if not directors and said Board Resolution was prepared by a person not
more amicable, settlements of family corporate disputes. designated by the corporation to be its secretary.
Issue: Whether or not the doctrine of piercing the veil of corporate

entity shall be applied in the case considering that the sale of the
subject property between private respondents spouses Veloso and
Manuel R. Dulay Enterprises v. CA, 225 SCRA 678 (1993) Manuel Dulay has no binding effect on petitioner corporation as Board
Resolution No. 18 which authorized the sale of the subject property
Facts: Manuel R. Dulay Enterprises, Inc, a domestic corporation with was resolved without the approval of all the members of the board of
the following as members of its Board of Directors: Manuel R. Dulay directors and said Board Resolution was prepared by a person not
with 19,960 shares and designated as president, treasurer and designated by the corporation to be its secretary.
general manager, Atty. Virgilio E. Dulay with 10 shares and
designated as vice-president; Linda E. Dulay with 10 shares; Celia WON the sale to Veloso is valid notwithstanding that it was resolved
Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 without the approval of all the members of the board of directors.
shares and designated as secretary, owned a property known as (YES)
Dulay Apartment consisting of sixteen (16) apartment units. Petitioner
corporation through its president, Manuel Dulay, obtained various Ruling: Yes.
loans for the construction of its hotel project, Dulay Continental Hotel
(now Frederick Hotel). Section 101 of the Corporation Code of the Philippines provides:
Manuel Dulay by virtue of Board Resolution No 18 sold the subject Sec. 101. When board meeting is unnecessary or
property to spouses Maria Theresa and Castrense Veloso. Maria improperly held. Unless the by-laws provide otherwise, any action by
Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the directors of a close corporation without a meeting shall
the subject property to private respondent Manuel A. Torres. Upon the nevertheless be deemed valid if:
failure of Maria Veloso to pay Torres, the property was sold to Torres
in an extrajudicial foreclosure sale.Torres filed an action against the 1. Before or after such action is taken, written consent thereto is
corporation, Virgilio Dulay and against the tenants of the apartment. signed by all the directors, orchanrobles virtual law library
RTC rendered a decision in favor of private respondents and ordered
the corporation and the tenants to vacate the building. CA afiirmed the 2. All the stockholders have actual or implied knowledge of the
trial court’s decision. Hence, this petition. action and make no prompt objection thereto in writing; orchanrobles
virtual law library
Petitioners contend that the respondent court had acted with grave
abuse of discretion when it applied the doctrine of piercing the veil of 3. The directors are accustomed to take informal action with the
corporate entity in the instant case considering that the sale of the express or implied acquiese of all the stockholders, orchanrobles
subject property between private respondents spouses Veloso and virtual law library
Manuel Dulay has no binding effect on petitioner corporation as Board
Resolution No. 18 which authorized the sale of the subject property

4. All the directors have express or implied knowledge of Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997)
the action in question and none of them makes prompt objection
thereto in writing. Facts:
If a directors' meeting is held without call or notice, an action taken Petitioner CFTI (Clark Field Taxi, Inc.) held a concessionaire's
therein within the corporate powers is deemed ratified by a director contract with the Army Air Force Exchange Services ("AAFES") for
who failed to attend, unless he promptly files his written objection with the operation of taxi services within Clark Air Base. Sergio F. Naguiat
the secretary of the corporation after having knowledge thereof. was CFTI's president, while Antolin T. Naguiat was its vice-president.
Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat
In the instant case, petitioner corporation is classified as a close Enterprises"), a trading firm, it was a family-owned corporation.
corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the Private respondents were taxi drivers employed by CFTI. They are
corporation for the action of its president. At any rate, corporate action required to pay a daily boundary fee. The drivers worked at least three
taken at a board meeting without proper call or notice in a close to four times a week, depending on the availability of taxicabs. They
corporation is deemed ratified by the absent director unless the latter earned not less than US$15.00 daily.
promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, Due to the phase-out of the US military bases in the Philippines, from
petitioner Virgilio Dulay failed to do. which Clark Air Base was not spared, the AAFES was dissolved, and
the services of individual respondents were officially terminated on
It is relevant to note that although a corporation is an entity which has November 26, 1991.
a personality distinct and separate from its individual stockholders or
members, the veil of corporate fiction may be pierced when it is used AAFEX Taxi Drivers Association negotiated with CFTI as regards to
to defeat public convenience justify wrong, protect fraud or defend the drivers’ separation pay. They agreed that CFTI will pay P500 for
crime. The privilege of being treated as an entity distinct and separate every year of service as a separation pay. However, private
from its stockholder or members is therefore confined to its legitimate respondent did not accept it.
uses and is subject to certain limitations to prevent the commission of
fraud or other illegal or unfair act. When the corporation is used Private respondent filed a complaint against Sergio F. Naguiat doing
merely as an alter ego or business conduit of a person, the law will business under the name and style Sergio F. Naguiat Enterprises,
regard the corporation as the act of that person. The Supreme Court Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper
had repeatedly disregarded the separate personality of the as Area Service Manager, Pacific Region, and AAFES Taxi Drivers
corporation where the corporate entity was used to annul a valid Association with Eduardo Castillo as President," for payment of
contract executed by one of its members. separation pay due to termination/phase-out. Said complaint was later
amended6 to include additional taxi drivers who were similarly situated
WHEREFORE, the petition is DENIED and the decision appealed as complainants, and CFTI with Antolin T. Naguiat as vice president
from is hereby AFFIRMED. and general manager, as party respondent.
LA – ruled in favor of private respondent and ordered the petitioner to

pay P1200 as their separation pay.

NLRC - Sergio F. Naguiat Enterprises, which is headed by Sergio F. behalf of the latter. A closer scrutiny and analysis of the records,
Naguiat and Antolin Naguiat, father and son at the same time the however, evince the truth of the matter: that Sergio F. Naguiat, in
President and Vice-President and General Manager, respectively, supervising the taxi drivers and determining their employment terms,
should be joined as indispensable party whose liability is joint and was rather carrying out his responsibilities as president of CFTI.
several Hence, Naguiat Enterprises as a separate corporation does not
appear to be involved at all in the taxi business.
Issue: who are liable for the payment of the separation pay of private
respondent? From the foregoing, the ineludible conclusion is that CFTI was the
actual and direct employer of individual respondents, and that Naguiat
Held: Naguiat Enterprise and Antolin Naguiat Not Liable Enterprises was neither their indirect employer nor labor-only
contractor. It was not involved at all in the taxi business.
CFTI President (Sergio Naguiat) is liable jointly and several liable with
CFTI Antolin T. Naguiat was the vice president of the CFTI. Although he
carried the title of "general manager" as well, it had not been shown
Naguiat Enterprise and Antolin Naguiat Not Liable that he had acted in such capacity. Furthermore, no evidence on the
extent of his participation in the management or operation of the
From the evidence proffered by both parties, there is no substantial business was preferred. In this light, he cannot be held solidarily liable
basis to hold that Naguiat Enterprises is an indirect employer of for the obligations of CFTI and Sergio Naguiat to the private
individual respondents much less a labor only contractor. On the respondents.
contrary, petitioners submitted documents such as the drivers'
applications for employment with CFTI, 23 and social security Liability of Sergio Naguiat as the president of CFTI
remittances 24 and payroll 25 of Naguiat Enterprises showing that none
of the individual respondents were its employees. Moreover, in the In the broader interest of justice, we, however, hold that Sergio F.
contract 26 between CFTI and AAFES, the former, as concessionaire, Naguiat, in his capacity as president of CFTI, cannot be exonerated
agreed to purchase from AAFES for a certain amount within a from joint and several liability in the payment of separation pay to
specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI, individual respondents.
pursuant to their concessionaire's contract. This indicates that CFTI
became the owner of the taxicabs which became the principal Sergio F. Naguiat, admittedly, was the president of CFTI who actively
investment and asset of the company. managed the business. Thus, applying the ruling in A.C. Ransom, he
falls within the meaning of an "employer" as contemplated by the
Private respondents failed to substantiate their claim that Naguiat Labor Code, who may be held jointly and severally liable for the
Enterprises managed, supervised and controlled their employment. It obligations of the corporation to its dismissed employees.
appears that they were confused on the personalities of Sergio F.
Naguiat as an individual who was the president of CFTI, and Sergio F. Moreover, petitioners also conceded that both CFTI and Naguiat
Naguiat Enterprises, Inc., as a separate corporate entity with a Enterprises were "close family corporations" 34 owned by the Naguiat
separate business. They presumed that Sergio F. Naguiat, who was family. Section 100, paragraph 5, (under Title XII on Close
at the same time a stockholder and director 27 of Sergio F. Naguiat Corporations) of the Corporation Code, states:
Enterprises, Inc., was managing and controlling the taxi business on

(5) To the extent that the stockholders are actively engage(d) in the Joseph Omar Andaya, (Petitioner) v. Rural Bank of Cabadbaran,
management or operation of the business and affairs of a close Inc., Demosthenes Oraiz and Ricardo Gonzalez, (Respondents)
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be Facts:
personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance. (emphasis supplied) Andaya bought from Concepcion Chute 2,200 shares of stock in the
Rural Bank of Cabadbaran for Php220,000, evidenced by a notarized
Nothing in the records show whether CFTI obtained "reasonably document denominated as Sale of Shares of Stocks. Chute endorsed
adequate liability insurance;" thus, what remains is to determine and delivered the certificates of stock to Andaya and requested the
whether there was corporate tort. bank to register the transfer in the bank's stock and transfer book and
to issue new stock certificates in favor of the latter.
Our jurisprudence is wanting as to the definite scope of "corporate
tort." Essentially, "tort" consists in the violation of a right given or the However, the bank's corporate secretary Demosthenese Oraiz denied
omission of a duty imposed by law. 35 Simply stated, tort is a breach of the request, stating that under a stockholders' Resolution, existing
a legal duty. 36 Article 283 of the Labor Code mandates the employer stockholders have a right of first refusal in the event shares of other
to grant separation pay to employees in case of closure or cessation stockholders are offered for sale. Andaya opposed the denial and
of operations of establishment or undertaking not due to serious claimed that the restriction did not appear in the bank's Articles of
business losses or financial reverses, which is the condition obtaining Incorporation, by-laws, or certificates of stock.
at bar. CFTI failed to comply with this law-imposed duty or obligation.
Consequently, its stockholder who was actively engaged in the The bank eventually denied to register the transfer to Andaya due to
management or operation of the business should be held personally conflict of interest. It claimed that Andaya was then president and
liable. CEO of the Green bank of Caraga, a competitor bank, and that the
purchase “could be the beginning of a hostile bid to take-over control”
The Court here finds no application to the rule that a corporate officer of the bank. It also maintained that stockholders have a right of first
cannot be held solidarily liable with a corporation in the absence of refusal.
evidence that he had acted in bad faith or with malice. In the present
case, Sergio Naguiat is held solidarily liable for corporate tort because Andaya instituted an action for mandamus and damages against the
he had actively engaged in the management and operation of CFTI, a bank, its corporate secretary, Oraiz and its legal counsel, Ricardo
close corporation. Gonzales to compel them to record the transfer and to issue new
certificates in his name.
The RTC dismissed the complaint on the ground that Andaya had no
Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 standing for failing to show that he was authorized by Chute to make
the transfer. Andaya filed a petition for review to the SC on pure
(2016)
questions of law.
Issue:
G.R. No. 188769 – August 3, 2016

Whether or not Andaya, the transferee of shares of stock, may compel (Emphases supplied)
the bank to record the transfer of shares and issue new stock
certificates in his name There must first be a factual determination that the bank is indeed a
close corporation before the abovementioned section can be applied
Ruling: in the instant case.
Yes. A bona fide transferee, who is able to establish a clear legal right The petition is granted.
to the registration of the transfer, may resort to the remedy of
mandamus to compel corporations that wrongfully or unjustifiably
refuse to record the transfer or to issue new certificates of stock.
Ong Yong v. Tiu, 401 SCRA 1 (2003)
Andaya has been able to establish that he is a bona fide transferee of
MR Resolution
Chute's shares of stock. He presented to the RTC tha notarized Sale
of Shares of Stocks, a Documentary Stamp Tax FACTS:
Declaration/Return, a Capital Gains Tax Return and stock certificates In 1994, the construction of the Masagana Citimall in Pasay City was
covering the subject shares duly endorsed by Chute. There is no threatened with stoppage and incompletion when its owner, the First
doubt that Andaya had the standing to initiate an action for Landlink Asia Development Corporation (FLADC), which was owned
manadamus to compel the bank to record the transfer of shares in its by the Tius, encountered financial difficulties. It was heavily indebted
stock and transfer book and to issue new stock certificates in his to the PNB for P190 million. Hence, the Tius entered into a Pre-
name. Subscription Agreement with the Ongs.
Moreover, the Section 98 of the Corporation Code, upon which the Under the Pre-Subscription Agreement, the Ongs and the Tius agreed
bank relies, applied only to close corporations. to maintain equal shareholdings in FLADC: the Ongs were to
subscribe to 1,000,000 shares at a par value of P100.00 each while
SECTION 98. Validity restrictions on transfer of shares. - the Tius were to subscribe to an additional 549,800 shares at P100.00
Restrictions on the right to transfer shares must appear in the each in addition to their already existing subscription of 450,200
articles of incorporation and in the by-laws as well as in the shares. Furthermore, they agreed that the Tius were entitled to
certificate of stock; otherwise, the same shall not be binding on nominate the Vice-President and the Treasurer plus five directors
while the Ongs were entitled to nominate the President, the Secretary
any purchaser thereof in good faith. Said restrictions shall not be
and six directors (including the chairman) to the board of directors of
more than onerous than granting the existing stockholders or the FLADC. Moreover, the Ongs were given the right to manage and
corporation the option to purchase the shares of the transferring operate the mall.
stockholder with such reasonable terms, conditions or period stated
therein. If upon the expiration of said period, the existing stockholders Accordingly, the Ongs paid P100 million in cash for their subscription
or the corporation fails to exercise the option to purchase, the to 1,000,000 shares of stock while the Tius committed to contribute to
transferring stockholder may sell his shares to any third person. FLADC a four-storey building and two parcels of land respectively
valued at P20 million (for 200,000 shares), P30 million (for 300,000

shares) and P49.8 million (for 49,800 shares) to cover their additional Ongs’ argument: that specific performance and not rescission was the
549,800 stock subscription therein. The Ongs paid in another P70 proper remedy under the premises; and
million to FLADC and P20 million to the Tius over and above their
P100 million investment, the total sum of which (P190 million) was ISSUE: Are the Tius entitled for rescission?
used to settle the P190 million mortgage indebtedness of FLADC to
PNB. HELD: MR GRANTED. The Tius cannot legally rescind the Pre-
Subscription Agreement
In 1996, the following conflicts between the parties arose that led to
the Tius rescinding the Pre-Subscription Agreement and later on 1. The subject matter of the contract was the 1,000,000 unissued
seeking confirmation of rescission before the SEC. shares of FLADC stock allocated to the Ongs. Since these were
unissued shares, the parties' Pre-Subscription Agreement was in fact
- That the Ongs refused to credit to the other party the a subscription contract as defined under Section 60, Title VII of the
FLADC shares covering their real property contributions; Corporation Code:
- That David and Cely Tiu were prevented from assuming
Any contract for the acquisition of unissued stock in an existing
the positions of and performing their duties as Vice-President
corporation or a corporation still to be formed shall be deemed a
and Treasurer subscription within the meaning of this Title, notwithstanding the fact
- That the Tius were refused office space that the parties refer to it as a purchase or some other contract.
SEC – confirmed rescission by the Tius. A subscription contract necessarily involves the corporation as one of
the contracting parties since the subject matter of the transaction is
CA – AFFIRMED property owned by the corporation its shares of stock. Thus, the
subscription contract (denominated by the parties as a Pre-
SC - Affirmed. Both the Ongs and the Tius violated their respective Subscription Agreement) whereby the Ongs invested P100 million for
obligations under the Pre-Subscription Agreement. The Ongs 1,000,000 shares of stock was, from the viewpoint of the law, one
prevented the Tius from assuming the positions of Vice-President and between the Ongs and FLADC, not between the Ongs and the Tius.
Treasurer of the corporation. On the other hand, the Decision Otherwise stated, the Tius did not contract in their personal capacities
established that the Tius failed to turn over FLADC funds to the Ongs with the Ongs since they were not selling any of their own shares to
and that the Tius diverted rentals due to FLADC to their MATTERCO them. It was FLADC that did.
account. Rescission was not possible since both parties were in pari
delicto but the other remedy of specific performance was not practical Considering therefore that the real contracting parties to the
and sound and would only lead to further "squabbles and numerous subscription agreement were FLADC and the Ongs alone, a civil case
litigations" between the parties. for rescission on the ground of breach of contract filed by the Tius in
their personal capacities will not prosper. Assuming it had valid
Tius filed before the SC Motion for Issuance of a Writ of reasons to do so, only FLADC (and certainly not the Tius) had the
Execution and the Ongs filed their "Motion for Reconsideration; legal personality to file suit rescinding the subscription agreement with
the Ongs inasmuch as it was the real party in interest therein.

2. Assuming arguendo, that the Tius possess the legal standing to corporate structural changes not voluntarily agreed upon by its
sue for rescission based on breach of contract, said action will stockholders and directors.Truth to tell, a judicial order to decrease
nevertheless still not prosper since rescission will violate the Trust capital stock without the assent of FLADC's directors and
Fund Doctrine and the procedures for the valid distribution of assets stockholders is a violation of the "business judgment rule" which
and property under the Corporation Code: states that:
The Trust Fund Doctrine provides that subscriptions to the capital Contracts intra vires entered into by the board of directors are binding
stock of a corporation constitute a fund to which the creditors have a upon the corporation and courts will not interfere unless such
right to look for the satisfaction of their claims. This doctrine is the contracts are so unconscionable and oppressive as to amount to
underlying principle in the procedure for the distribution of capital wanton destruction to the rights of the minority, as when plaintiffs aver
assets, embodied in the Corporation Code, which allows the that the defendants (members of the board), have concluded a
distribution of corporate capital only in three instances: (1) transaction among themselves as will result in serious injury to the
amendment of the Articles of Incorporation to reduce the authorized plaintiff’s stockholders.
capital stock, (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3) Courts and other tribunals are wont to override the business judgment
dissolution and eventual liquidation of the corporation. Furthermore, of the board mainly because, courts are not in the business of
the doctrine is articulated in Section 41 on the power of a corporation business, and the laissez faire rule or the free enterprise system
to acquire its own shares and in Section 122 on the prohibition against prevailing in our social and economic set-up dictates that it is better
the distribution of corporate assets and property unless the stringent for the State and its organs to leave business to the businessmen;
requirements therefor are complied with. especially so, when courts are ill-equipped to make business
decisions. More importantly, the social contract in the corporate family
The distribution of corporate assets and property cannot be made to to decide the course of the corporate business has been vested in the
depend on the whims and caprices of the stockholders, officers or board and not with courts. (Villanueva)
directors of the corporation, or even, for that matter, on the earnest
desire of the court a quo "to prevent further squabbles and future Florete, Sr. v. Florete, Jr., G.R. Nos. 223321, 02 April 2018
litigations" unless the indispensable conditions and procedures for the
protection of corporate creditors are followed. Otherwise, the Facts: Marsal & Co., Inc. (Marsal) was organized as a close
"corporate peace" laudably hoped for by the court will remain nothing corporation by Marcelino, Sr., Salome, Rogelio, Marcelino, Jr., Ma.
but a dream because this time, it will be the creditors' turn to engage
Elena, and Teresita (all surnamed Florete). Since its incorporation, the
in "squabbles and litigations" should the court order an unlawful
distribution in blatant disregard of the Trust Fund Doctrine. Articles of Incorporation (AOI) had been amended several times to
increase its authorized capital stocks of P500,000.00 to
3. Furthermore, it is an improper judicial intrusion into the internal P5,000,000.00. Notwithstanding the amendments, paragraph 7 of
affairs of the corporation to compel FLADC to file at the SEC a petition their AOI which provides for the procedure in the sale of the shares of
for the issuance of a certificate of decrease of stock. The Tius are stocks of a stockholder remained the same, to wit:
actually not just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a corporate
decision for FLADC. The Court decline to intervene and order

SEVENTH. x x x Any stockholder who desires to sell his share of made sans written notice to the Board of Directors who was not able
stock in the company must notify in writing the Board of Directors of to notify respondents in writing of the petitioner estate and heirs’
the company of his intention to sell. The Board of Directors upon intention to sell and convey the Marsal shares and depriving
receipt of such notice must immediately notify all stockholders of respondents of their preemptive rights.
record within five days upon receipt of the letter of said stockholder. The RTC, as a Special Commercial Court, dismissed the complaint.
Any stockholder of record has the preemptive right to buy any share On appeal, the CA reversed and set aside the RTC ruling.
offered for sale by any stockholder of the company on book value
base[d] on the balance sheet approved by the Board of Directors. The Issue: Whether the violation of the restrictions enumerated under
aforementioned preemptive right must be exercised by any Section 99 of the Corp. Code makes such transfer invalid. NO
stockholder of the company within ten (10) days upon his receipt of
the written notice sent to him by the Board of Directors of the offer to Factual issue/ in other words: Whether the sale of Teresita’s 3,464
sell. Any sale or transfer in violation of the above terms and conditions Marsal shares of stocks made by petitioner estate of Teresita to
shall be null and void. The above terms and conditions must be petitioner Rogelio was in violation of par. 7 of Marsal’s AOI and hence
printed at the back of the stock certificate. null and void and must be annulled or rescinded. NO
Upon Teresita Florete Menchavez death, her husband’s (Ephraim) Ruling: Preliminarily, petitioners’ claim that Marsal is not a close
Petition for Issuance of Letters of Administration over her estate was corporation deserves scant consideration as they had already
granted. Subsequently, Ephraim, the special administrator, entered admitted that it is.
into a Compromise Agreement and Deed of Assignment with As Marsal is a close corporation, it is allowed under the Corporation
petitioner Rogelio ceding all the shareholdings of Teresita in various Code to provide for restrictions on the transfer of its stocks, as
corporations owned and controlled by the Florete family, which stipulated in Sec. 97 (Articles of incorporation) and Sec. 98 (Sec. 98.
included the 3,464 shares in Marsal corporation to petitioner Rogelio. Validity of restrictions on transfer of shares)
Respondents Marcelino Jr. and Ma. Elena filed with the RTC a case
for annulment/rescission of sale of shares of stocks and the exercise In this case, the lack of notification in writing to the BOD of the
of their preemptive rights in Marsal corporation and damages against intention to sell, does not make the sale null and void.
petitioners Rogelio Florete, Sr. and the estate of the late Teresita F. While it would appear that petitioner estate of Teresita, through its
Menchavez, herein represented by her heirs, namely, Mary Ann administrator Ephraim and petitioner Rogelio, did not comply with the
Therese Menchavez, Christine Joy F. Menchavez, Ma. Rosario F. procedure on the sale of Teresita’s Marsal shares as stated under
Menchavez, Diane Grace Menchavez, Rosie Jill F. Menchavez, and paragraph 7 of the AOI, however, it appeared in the records that
Ephraim Menchavez. respondents had nonetheless been informed of such sale to which
Respondents claimed that the sale of Teresita’s 3,464 Marsal shares they had already given their consent thereto.
of stocks made by petitioner estate to petitioner Rogelio was void ab First. Teresita died on September 19, 1989. Her husband Ephraim
initio as it violated paragraph 7 of Marsal’s AOI, since the sale was filed a petition for letters of administration of her estate in 1992.

Petitioner Rogelio filed an Opposition thereto which was later 4. Whenever any person to whom stock of a close corporation has
amended to include MARSAL & CO., INC. as represented by its been issued or transferred has, or is conclusively presumed under this
President, herein petitioner. section to have, notice either
Second. The sale of all of Teresita’s shares which she inherited from (a) that he is a person not eligible to be a holder of stock of the
her deceased parents which were sold to petitioner Rogelio, and corporation, or
which included the 3,464 Marshal shares, had also been made known (b) that transfer of stock to him would cause the stock of the
to respondents in the intestate proceedings to settle the estate of corporation to be held by more than the number of persons permitted
Marcelino Florete, Sr., who died on October 3, 1990. Petitioner by its articles of incorporation to hold stock of the corporation, or (c)
Rogelio was later appointed as the administrator of the estate. that the transfer of stock is in violation of a restriction on transfer of
There was already substantial compliance with paragraph 7 of the stock, the corporation may, at its option, refuse to register the transfer
AOI when respondents obtained actual knowledge of the sale of of stock in the name of the transferee.
Teresita’s 3,464 Marsal shares to petitioner Rogelio as early as 1995.
In fact, respondents had already given their consent and conformity to xxx
such sale by their inaction for 17 years despite knowledge of the sale.
Moreover, they had already waived the procedure of the stockholder’s Clearly, under the above quoted provision, even if the transfer of
sale of stocks as provided under paragraph 7 of the AOI. In People v. stocks is made in violation of the restrictions enumerated under
Judge Donato, We explained the doctrine of waiver as follows: Section 99, such transfer is still valid if it has been consented to by all
Waiver is defined as “a voluntary and intentional relinquishment or the stockholders of the close corporation and the corporation cannot
abandonment of a known existing legal right, advantage, benefit, refuse to register the transfer of stock in the name of the transferee. In
claim or privilege, which except for such waiver the party would have this case, We find that the sale of Teresita’s 3,464 Marsal shares had
enjoyed; x x x already been consented to by respondents as We have discussed,
and may be registered in the name of petitioner Rogelio.
Moreover, Section 99 of the Corporation Code provides for the effects We find that there is indeed no violation of paragraph 7 of Marsal’s
of transfer of stock in breach of qualifying conditions, to wit: Articles of Incorporation. We need not discuss the other issues raised
Sec. 99. Effects of issuance or transfer of stock in breach of qualifying in the petition. WHEREFORE, premises considered, the petition for
conditions.— review is GRANTED.
xxxx3. If a stock certificate of any close corporation conspicuously
shows a restriction on transfer of stock of the corporation, the
transferee of the stock is conclusively presumed to have notice of the San Juan Structural v. CA, 296 SCRA 631 (1998)
fact that he has acquired stock in violation of the restriction, if such
acquisition violates the restriction. Facts: Plaintiff-appellant San Juan structural and steel fabricators
Inc.’s amended complaint alleged that on February 14, 1989, plaintiff-
appellant entered into an agreement with defendant-appellee Motorich
Sales Corporation for the transfer to it of a parcel of land identified as

lot 30, Block 1 of the Acropolis Greens Subdivision located in the sum of P100,000; that by reason of the said bad faith in refusing to
district of Murphy, Quezon City, Metro Manila containing an area of execute a transfer in favor of plaintiff-appellant the latter lost
414 sqm, covered by TCT no. 362909; that as stipulated in the opportunity to construct a residential building in the sum of P100,000
agreement of February 14, 1i989, plaintiff-appellant paid the down and that as a consequence of such bad faith, it has been constrained
payment in the sum of P100,000, the balance to be paid on or before to obtain the services of counsel at an agreed fee of P100,000 plus
March 2, 19889; that on March 1, 1989,Mr. Andres T. Co, president of appearance fee of for every appearance in court hearings.
Plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting a computation for the balance Issues: Whether or not the corporation’s treasurer act can bind the
to be paid; that said letter was coursed through the defendant- corporation.
appellee’s broker. Linda Aduca who wrote the computation of the
balance; that on March 2, 1989, plaintiff-appellant was ready with the
amount corresponding to the balance, covered by Metrobank
cashier’s check no. 004223 payable to defendant-appellee Motorich Whether or not the doctrine of piercing the veil of corporate entity is
Sales Corporation; that plaintiff-appellant and defendant-appellee applicable.
were supposed to meet in the plaintiff-appellant’s office but defendant-
appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that Held: No. Such contract cannot bind Motorich, because it never
defendant-appelle despite repeated demands and in utter disregard of authorized or ratified such sale.
its commitments had refused to execute the transfer of rights/deed of
assignment which is necessary to transfer the certificate of title; that A corporation is a juridical person separate and distinct from its
defendant ACL development corporation is impleaded as a necessary stockholders or members. Accordingly, the property of the corporation
party since TCT no. 362909 is still in the name of said defendant; is not the property of the corporation is not the property of its
while defendant VNM Realty and Development Corporation is likewise stockholders or members and may not be sold by the stockholders or
impleaded as a necessary party in view of the fact that it is the members without express authorization from the corporation’s board
transferor of the right in favor of defendant-appellee Motorich Sales of directors.
Corporation; that on April 6, 1989 defendant ACL Development
Corporation and Motorich Sales Corporation entered into a deed of Section 23 of BP 68 provides the Board of Directors or Trustees –
absolute sale whereby the former transferred to the latter the subject Unless otherwise provided in this code, the corporate powers of all
property; that by reason of said transfer; the registry of deeds of corporations formed under this code shall be exercised, all business
Quezon City issued a new title in the name of Motorich Sales conducted, and all property of such corporations controlled and held
Corporation, represented by defendant-appellee Nenita Lee by the board of directors or trustees to be elected from among the
Gruenbeg and Reynaldo L. Gruenbeg, under TCT no. 3751; that as a stockholders of stocks, or where there is no stock, from among the
result of defendants-appellees Nenita and Motorich’s bad faith in members of the corporations, who shall hold office for 1 year and until
refusing to execute a formal transfer of rights/deed of assignment, their successors are elected and qualified.
plaintiff-appellant suffered moral and nominal damages which may be
assessed against defendant-appellees in the sum of P500,000; that As a general rule, the acts of corporate officers within the scope of
as a result of an unjustified and unwarranted failure to execute the their authority are binding on the corporation. But when these officers
required transfer or formal deed of sale in favor of plaintiff-appellant, exceed their authority, their actions, cannot bind the corporation,
defendant-appellees should be assessed exemplary damages in the unless it has ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to
respondent Gruenbeg to sell its parcel of land, we hold that the
February 14, 1989 agreement entered into by the latter with petitioner
is void under Article 1874 of the Civil Code. Being inexistent and void
from the beginning, said contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only

for legitimate purposes. On equitable consideration,the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation.
We stress that the corporate fiction should be set aside when it

becomes a shield against liability for fraud, or an illegal act on inequity
committed on third person. The question of piercing the veil of
corporate fiction is essentially, then a matter of proof. In the present
case, however, the court finds no reason to pierce the corporate veil
of respondent Motorich. Petitioner utterly failed to establish the said
corporation was formed, or that it is operated for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality
or inequity at the expense of third persons like petitioner.

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I.

Francisco v. GSIS, 7 SCRA 577 (1963)

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People v. Tan Boon Kong, 54 Phil. 607 (1930)

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• Galera signed an Employment Contract entitled Confirmation

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x x x. In this case, it is precisely the brewing family discord between Judge

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